As filed with the Securities and Exchange Commission on October 24, 2003
Registration No. 333-107826
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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SUNCOAST NATURALS, INC.
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(Exact Name of Small Business Issuer in Its Charter)
Delaware 2844 02-0656132
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Identification
Organization) Code Number) Number)
5422 Carrier Drive
Orlando, FL 32819
(407) 226-8889
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(Address and Telephone Number of Principal Executive Offices)
William J. Reilly, Pres.
Suncoast Naturals, Inc.
5422 Carrier Dr.
Orlando, FL 32819
(407) 226-8889
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(Name, Address and Telephone Number of Agent for Service)
Copy to:
Robert Jaffe, Esq.
5 Mountain Avenue
Springfield, NJ
(973) 467-2246
(Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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[ ] If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering.
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[ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
--------------------
[ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
--------------------
[ ] If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
[ ] The Registrant amends this Registration Statement on the date or dates as
may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until the Registration
Statement shall become effective on a date the Commission, acting pursuant
to said Section 8(a), may determine.
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CALCULATION OF REGISTRATION FEE
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Number of Proposed Maximum Proposed Maximum
Title of Each Class of Securities Shares to be Offering Price Aggregate Offering Amount of
to Be Registered Registered Per Share Price Registration Fee
- ---------------------------------------- -------------------- ------------------- ----------------------- ------------------
Common Stock, $.001 par value 1,850,000 $1.00 $1,850,000 $149.85
- ---------------------------------------- -------------------- ------------------- ----------------------- ------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended, based on the
exercise price of the Registrant's Class "B" Common Stock Purchase Warrants
at $1.00 per share.
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED AUGUST 11, 2003
Prospectus
1,850,000 Shares of Common Stock
SUNCOAST NATURALS, INC.
This prospectus covers 1,850,000 shares of our common stock, including
750,000 shares issued to The Quigley Corporation and being registered with The
Quigley Corporation as a Selling Shareholder. The Quigley Corporation has
announced that it intends to distribute 500,000 of its shares to its
shareholders of record as of March 5, 2003 as a taxable dividend, but such
shareholders are not included as Selling Shareholders in this Registration
Statement.
The selling shareholders listed on page 16 of this prospectus are
offering up to 1,850,000 shares of our common stock under this prospectus. The
number of shares that the selling shareholders may sell are comprised solely of
shares of common stock, some of which they will receive if they exercise
warrants for the purchase of shares of common stock OR the conversion of
Convertible Notes. Through this prospectus, we are only registering the re-sale
of the shares of common stock, including those to be issued upon the exercise of
warrants.
There is currently no public market for the Company's securities. Until
such time as a market price for our Common Stock is quoted on the OTC Bulletin
Board or other public market, the selling shareholders will sell their shares at
a price of $1.00 per share. Thereafter, they may sell their shares in public or
private transactions, at prevailing market prices or at privately negotiated
prices. We will not receive any proceeds from the sale of the shares of common
stock by the selling shareholders. The shares of common stock registered in this
offering that are issuable upon the exercise of warrants are exercisable at
prices from $.66 to $1.00 per Share and do not contain cashless exercise
provisions. If these warrants are fully exercised, we will receive approximately
$573,500 from the exercise of the warrants.
Our common stock is not publicly traded. An application has been filed
with the National Association of Securities Dealers (NASD) for the public
trading of our Common Stock on the OTC Bulletin Board, but there is no assurance
that the Company's Common Stock will be quoted on the OTC Bulletin Board or any
Exchange. The exercise or conversion of outstanding warrants, Convertible Notes,
and options common stock will dilute the percentage ownership of our other
stockholders and could adversely affect the market price of our common stock.
As of September 15, 2003, there were outstanding notes, warrants and
other convertible securities to purchase an aggregate of 1,100,000 shares of our
common stock. In addition, up to 1,000,000 options may be granted in the future
under our 2002 Incentive Stock Option Plan, although as of September 15, 2003 no
options had been granted under that Plan. The exercise or conversion of
outstanding stock options, warrants or other convertible securities will dilute
the percentage ownership of our other stockholders. In addition, any sales in
the public market of shares of our common stock issuable upon the exercise or
conversion of such stock options, warrants or convertible securities, or the
perception that such sales could occur, may adversely affect the prevailing
market price of our common stock.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK See
"Risk Factors" beginning on page 2.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is August 11, 2003
TABLE OF CONTENTS
TABLE OF CONTENTS ii
PROSPECTUS SUMMARY 1
RISK FACTORS 2
FORWARD-LOOKING STATEMENTS 6
USE OF PROCEEDS 6
DIVIDEND POLICY 7
MARKET PRICE OF OUR COMMON STOCK 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 8
BUSINESS 16
MANAGEMENT 22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 25
PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDERS 25
DESCRIPTION OF CAPITAL STOCK 28
PLAN OF DISTRIBUTION 30
LEGAL MATTERS 31
EXPERTS 31
WHERE YOU CAN FIND MORE INFORMATION 32
INDEX TO FINANCIAL INFORMATION F-1
Unless otherwise indicated, all references in the prospectus to
"Suncoast" "we," "us," and "our" refer to Suncost Natural Products, Inc., a
Delaware corporation and our subsidiaries Caribbean Pacific Natural Products,
Inc. and CP Suncoast Manufacturing, Inc.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus and is not complete and may not contain all the information you
should consider before investing in our common stock. You should read the entire
prospectus carefully, including the information under "Risk Factors" beginning
on page 2, the information incorporated by reference herein and the consolidated
financial statements beginning on F-1, before making an investment in our common
stock.
The Company
We are a sun-care and skin-care Company specializing in the
development, manufacture and sale of all-natural sun-, skin-, and body-care
products to the resort, boutique, spa, and natural health markets. Our Company
was organized in November, 2002 and on December 31, 2002 acquired a 60%
controlling interest in Caribbean Pacific Natural Products, Inc. from The
Quigley Corporation through a share-exchange agreement. Our CP Suncoast
Manufacturing, Inc. subsidiary was organized in May, 2003 as a wholly-owned
subsidiary which will manufacture our products as well as provide contract
manufacturing for non-competing products formulated or distributed by other
non-affiliated companies. We are presently constructing our manufacturing
facility in a leased light-industrial facility adjacent to our corporate
headquarters.
We are incorporated under the laws of the State of Delaware. Our
principal executive offices are located at 5422 Carrier Drive, Suite 309,
Orlando, FL 32819, and our telephone number at that address is (407) 226-8889.
Our principal corporate website is www.cpskincare.com.
The Offering
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Common stock offered by the Selling Stockholders 1,850,000 (1)
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Common Stock outstanding 3,850,000(2)
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Use of proceeds We will not receive any
proceeds from the sale of
the shares of common stock
by the selling
shareholders.
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(1) Includes 750,000 shares of common stock issued to The Quigley Corporation
through a share-exchange agreement.
(2) Does not include (i)450,000 shares of common stock reserved for issuance
upon exercise of Convertible Notes (ii) 650,000 shares of common stock issuable
upon exercise of outstanding warrants, and (iii) 1,000,000 shares of common
stock reserved for issuance pursuant to the 2002 Incentive Stock Option Plan
(pursuant to which no options have been granted as of this date). Except as
otherwise indicated, all references in this prospectus to the number of shares
of common stock outstanding do not include the foregoing shares.
1
RISK FACTORS
AN INVESTMENT IN OUR COMPANY IS HIGHLY SPECULATIVE, INVOLVES A HIGH DEGREE OF
RISK, AND MAY LEAD TO A LOSS OF YOUR ENTIRE INVESTMENT
An investment in our common stock is highly speculative, involves a
high degree of risk and should be considered only by those persons who are able
to afford a loss of their entire investment. In evaluating our business,
prospective investors should carefully consider the following risk factors in
addition to the other information included in this Registration Statement.
RISKS RELATED TO OUR COMPANY
- ----------------------------
OUR COMPANY HAS A LIMITED OPERATING HISTORY AND A HISTORY OF LOSSES
We have a limited operating history. We have a history of losses and do not know
when, if ever, we will achieve profitability, and we are likely to continue to
incur losses for the foreseeable future. Through June 30, 2003, we have had
cumulative net losses of $2,493,585 and negative cash flow from operations and
have only experienced sales of our key products for a limited period of time.
Moreover, due to our recent entrance into the sun-care and skin-care industry,
we expect to incur significant marketing and product development costs as we try
to establish our brand in the industry. As a result, we will need to generate
significant revenues in the coming quarters in order to achieve and maintain
profitability.
OUR COMPANY WILL NEED TO OBTAIN ADDITIONAL CAPITAL TO CONTINUE BUSINESS
OPERATIONS AND ACHIEVE PROFITABILITY
Unless our revenues increase, we will need to obtain at least $500,000
in additional capital during the next twelve months to continue our business
operations. We cannot be sure that we will be able to obtain this needed capital
from third parties on reasonable terms or at all. We believe that the future
growth of our business operations over the next twelve to eighteen months to a
level necessary to achieve profitable operations will require additional capital
of at least $1,000,000.
At June 30, 2003, we had $57,411 in cash. Due to our recent entrance
into the sun-care and skin-care industry and the inherent fixed costs mandated
by this business, we presently require substantial working capital to fund our
business and will need more in the future. Since we have thus far experienced a
negative cash flow from operations and expect to continue to do so for the
foreseeable future, we may need to raise additional funds through the issuance
of equity, equity-related securities or debt. We cannot be certain that such
additional financing will be available to us on reasonable terms or at all, and
will be subject to a number of factors, including market conditions, our
operating performance, and investor sentiment. If we are unable to raise this
additional capital when we need to, or are otherwise unable to achieve
profitable business operations, we may be unable to maintain our Company as a
going concern and may be forced to discontinue operations.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT WE MAY NOT BE ABLE TO SUCCESSFULLY
INTEGRATE OR MANAGE. THESE ACQUISITIONS MAY DILUTE OUR SHAREHOLDERS' OWNERSHIP
INTEREST IN OUR COMPANY AND CAUSE US TO INCUR DEBT AND ASSUME CONTINGENT
LIABILITIES
Our business strategy contemplates the review of acquisition prospects that
would complement our current product offerings, increase our size and geographic
scope of operations, or otherwise increase our manufacturing and operating
efficiency. The financing for any such acquisitions could significantly dilute
our equity investors, result in an increase in our indebtedness, or both. While
there are no current agreements or negotiations underway with respect to any
such acquisition or acquisitions, we may acquire or make investments in
businesses or products in the future. Our failure to successfully complete the
integration of any acquired businesses could have a material adverse effect on
our business, prospects, results of operations and financial condition.
2
OUR LACK OF MANUFACTURING FACILITIES MAY HURT OUR DEVELOPMENT
We currently have no manufacturing capabilities and presently rely on a
single contract manufacturer, Absolute Packaging, Inc., an unaffiliated company,
to manufacture our entire product line. Although we intend to develop in-house
manufacturing and laboratory facilities to supplement our contract manufacturer,
we will require approximately $350,000 in additional capital to complete these
facilities and we cannot estimate when, or if, sufficient capital will be
available for this purpose. Our reliance on the production schedules and
capacities of one or more contract manufacturers may restrict our ability to
achieve significant revenue growth or to develop new product lines. If we were
to experience delays in the delivery of our finished products or the raw
materials or components used to make such products, of if these suppliers were
unable or unwilling to supply product, our customer relationships, revenues and
earnings could suffer.
WE WILL NEED TO EFFECTIVELY MANAGE OUR GROWTH TO ACHIEVE PROFITABILTY
As a Company which needs to grow rapidly in order to achieve profitability,
we will need to attract and retain talented management, marketing and sales
personnel, either as employees of the Company or as contracted consultants. If
we cannot effectively manage our growth, the ability to manufacture and
distribute an increasing volume of our products while maintaining customer
satisfaction will suffer.
Our reputation and ability to attract, retain and serve customers
depends upon the reliable performance of our products and manufacturing
processes. We anticipate that we will expand our operations significantly in the
near future, and further expansion will be required to address the anticipated
growth in our customer base and market opportunities. To manage the expected
growth of operations and personnel, we will need to improve existing systems and
implement new systems, procedures and controls. In particular, the Company has
in the past been unable to profitably serve its existing customer base because
of inadequate production planning and inventory control systems, which led to
product shortages and excessive delivery and distribution expenses.
In addition, we will need to expand, train and manage an increasing
employee base in order to expand our business operations to a level which need
to be profitable. We will also need to expand our financial, administrative and
operations staffing in order to establish systems to prevent manufacturing and
distribution problems. In this regard, we expect to hire two full-time executive
employees within the next three months to increase our operational and marketing
capabilities. We may not be able to effectively manage this growth. Our planned
changes in personnel, systems, procedures and controls may be inadequate to
support our future operations. If we are unable to alleviate the production and
distribution problems which we have suffered in the past, to manage our planned
growth effectively or if we experience manufacturing or supply disruptions
during expansion, our revenue growth might not be sufficient to achieve
profitable operations.
RISKS RELATED TO THE SUN-CARE AND SKIN INDUSTRIES
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THE SUN CARE AND SKIN CARE INDUSTRIES ARE HIGHLY COMPETITIVE, AND IF WE ARE
UNABLE TO COMPETE EFFECTIVELY IT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS, PROSPECTS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION
3
The industries in which we are seeking to compete are highly competitive
and are comprised of companies with much stronger brand recognition and economic
resources than our Company.
Our sun-care and skin-care business competes directly with entrenched,
well-funded and highly regarded multi-national competitors such as Johnson &
Johnson, Schering-Plough, and Lancome, as well as mass-market sun-care products
such as Hawaiian Tropic and Banana Boat. Their earlier entry, greater resources
and broader presence in the United States could make competing against these
entities impracticable. Our e-commerce unit also faces intense competition from
traditional retailers; websites maintained by online retailers of similar
merchandise; and Internet portals and online service providers that feature
shopping services, such as America Online and Yahoo! These competitors may be
able to secure products from vendors on more favorable terms, fulfill customer
orders more efficiently and adopt more aggressive pricing or inventory
availability policies than we can.
We believe that our ability to compete successfully depends on many
factors, including the quality of our products; the market acceptance of our
products, websites and online services and the success of our sales and
marketing efforts. However, we are faced with the challenge of gaining market
recognition for our products and services, and we cannot be certain that we will
have sufficient resources to establish our brands or achieve the level of
commercial acceptance necessary for our offerings to effectively compete in this
industry. The failure to create this recognized brand identity could have a
material adverse effect on us.
Our products compete for consumer recognition and retail shelf space with
products that have achieved significant international, national and regional
brand name recognition and consumer loyalty. Our products also compete with new
products that often accompanied by substantial promotional campaigns. These
factors, as well as economic conditions, demographic trends, and discount
pricing strategies by competitors could result in increased competition and
could have a material adverse effect on our business, prospects, results of
operations and financial condition.
CONSUMERS MAY REDUCE DISCRETIONARY PURCHASES OF OUR PRODUCTS AS A RESULT OF A
GENERAL ECONOMIC DOWNTURN
We believe that consumer spending on sun care and skin care products is
influenced by general economic conditions and the availability of discretionary
income. Accordingly, we may experience sustained periods of declines in sales
during economic downturns, or in the event of terrorism or diseases affecting
customers purchasing patterns. In addition, a general economic downturn may
result in our customers stores and hotels, which may, in turn, result in reduced
sales of our products. Any resulting material reduction in our sales could have
a material adverse effect on our business, prospects, results of operations and
financial condition.
OUR MAJOR DISTRIBUTION CHANNEL IS HIGHLY SUSCEPTIBLE TO SEASONAL FLUCTUATIONS
AND POTENTIAL DISRUPTION OF BUSINESS OPERATIONS
The present distribution channels for our products are heavily focused on
sales through major resort pool and beach kiosks in over twenty-five locations
in Hawaii, Mexico and Florida. As a result, our sales are largely dependent upon
the same seasonal fluctuations caused by weather, changes in travel patterns,
and holiday periods that are faced by the hotels and resorts where we are
located. Any major disruption of business operations due to weather, terrorism,
or weak economic conditions, which occurs during the peak resort season could
have a material adverse effect on our business, prospects, results of operations
and financial condition.
4
RISKS RELATED TO OUR STOCK
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THERE IS NO PUBLIC MARKET FOR OUR COMMON STOCK
There is a presently no publicly-quoted market price for our common stock and as
a result our stock price could be extremely volatile. We have applied for
listing of our Common Stock on the OTC Bulletin Board, and in the future a
limited trading market for our common stock may develop. There can be no
assurance that our Common Stock will be approved for trading on the OTC Bulletin
Board or any other market, or that if approved for trading that a regular
trading market for our common stock will ever develop be sustained.
Consequently, our stock price, if and when publicly-traded, is likely to be
volatile and is likely to continue to be volatile. In the past, following
periods of volatility in the market price of a company's securities, securities
class action litigation has often been instituted against such a company. The
institution of such litigation against us could result in substantial costs to
us and a diversion of our management's attention and resources.
EVEN IF PUBLICLY-TRADED IN THE FUTURE, OUR COMMON STOCK MAY BE SUBJECT TO "PENNY
STOCK" RESTRICTIONS
If our common stock becomes publicly-traded and our stock price remains at less
than $5, we will be subject to so-called penny stock rules which could decrease
our stock's market liquidity.
The Securities and Exchange Commission has adopted regulations which
define a "penny stock" to include any equity security that has a market price of
less than $5 per share or an exercise price of less than $5 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, the rules require the delivery to and execution by the retail customer
of a disclosure statement written suitability statement relating to the penny
stock, which must include disclosure of the commissions payable to both the
broker/dealer and the registered representative and current quotations for the
securities. Finally, the broker/dealer must send monthly statements disclosing
recent price information for the penny stocks held in the account and
information on the limited market in penny stocks. Those requirements could
adversely affect the market liquidity of such stock. There can be no assurance
that if our common stock becomes publicly-traded the price will rise above $5
per share so as to avoid these regulations.
CURRENT SHAREHOLDERS MAY BE SUBJECT TO SIGNIFICANT DILUTION
The exercise or conversion of outstanding warrants, Convertible Notes, and
options common stock will dilute the percentage ownership of our other
stockholders and could adversely affect the market price of our common stock.
As of September 15, 2003, there were outstanding notes, warrants and
other convertible securities to purchase an aggregate of 1,100,000 shares of our
common stock. In addition, up to 1,000,000 options may be granted in the future
under our 2002 Incentive Stock Option Plan, although as of September 15, 2003 no
options had been granted under that Plan. The exercise or conversion of
outstanding stock options, warrants or other convertible securities will dilute
the percentage ownership of our other stockholders. In addition, any sales in
the public market of shares of our common stock issuable upon the exercise or
conversion of such stock options, warrants or convertible securities, or the
perception that such sales could occur, may adversely affect the prevailing
market price of our common stock.
5
WE ARE CONTROLLED BY A SMALL GROUP OF OUR EXISTING SHAREHOLDERS, WHOSE INTERESTS
MAY DIFFER FROM OTHER STOCKHOLDERS
Our Directors, executive officers and affiliates currently beneficially own
approximately 52% of the 3,850,000 outstanding shares of our Common Stock. Upon
the issuance of shares registered in this Offering and issuable upon conversion
of Notes and exercise of Warrants, they will own approximately 40.5% of the
outstanding shares of Common Stock. Accordingly, they will have significant
influence in determining the outcome of any corporate transaction or any other
matter submitted to the stockholders for approval, including mergers,
acquisitions and the sale of all or substantially all of our assets, and the
power to prevent or cause a change in control. The interests of these
controlling stockholders may differ from the interests of the other
stockholders.
FORWARD-LOOKING STATEMENTS
--------------------------
The statements contained herein and elsewhere on this Form SB-2 that
are not statements of historical fact constitute "forward-looking statements."
These forward-looking statements involve risks and uncertainties which may cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performances or achievements, expressly
predicted or implied by such forward-looking statements. In some cases, you can
identify forward looking statements by words such as "may," "should," "could,"
"expect," "plan," "anticipate," "believe," "estimate," "intend," "project,"
"seek," "predict," "potential" or "continue" or the negative of these terms or
other comparable terminology. These statements are only predictions. Actual
events or results may differ materially. In evaluating these statements, you
should specifically consider various factors, including the risks outlined under
"Risk Factors." Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. We are under no duty to update
any of the forward-looking statements after the date of this prospectus to
conform these statements to actual results.
The important factors which may cause actual results to differ from the
forward-looking statements contained herein include, but are not limited to, the
following: general economic and business conditions; competition; success of
operating initiatives; operating costs; advertising and promotional efforts; the
existence or absence of adverse publicity; changes in business strategy or
development plans; the ability to retain key management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs;
availability and costs of raw materials and supplies; and changes in, or failure
to comply with, government regulations. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this filing will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and expectations of the Company will be achieved.
USE OF PROCEEDS
---------------
We will not receive any proceeds from the sale of the shares of the
common stock by the selling shareholders pursuant to this prospectus. If the
holders of the warrants exercise the warrants, the holders are required to pay
the exercise price to us in cash. If all of the warrants are exercised, we
estimate that the total proceeds we will receive from the exercise of these
warrants will be $573,500. We will use any proceeds from the exercise of the
warrants for working capital and general corporate purposes.
6
DIVIDEND POLICY
---------------
We do not intend to pay dividends on our common stock in the
foreseeable future. We currently intend to retain any future earnings to finance
the growth and development of our business. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will depend
upon our financial condition, results of operation, capital requirements,
contractual restrictions, general business conditions and other factors that our
board of directors may deem relevant.
MARKET PRICE OF OUR COMMON STOCK
--------------------------------
Our common stock has never been publicly-traded. Selling Security
Holders will sell their Shares at a fixed price of $1.00 per Share until our
Shares are quoted on the OTC Bulletin Board or other Exchange. An application
has been filed with the National Association of Securities Dealers (NASD) for a
public quotation of our common stock on the Over The Counter Bulletin Board
market but there is no assurance that the Company's Common Stock will be
approved for trading in that market or on any other Exchange. In the event that
a publicly-traded market for our Common Stock is established, the Selling
Shareholders may sell their Shares at either market-established prices or
privately-negotiated prices.
As of September 15, 2003, there were 3,850,000 shares of common stock held
of record by approximately 60 shareholders of record and beneficial owners of
our Company. The Quigley Corporation, which is the holder of 750,000 shares, has
announced that its 361 shareholders of record and 4,600 estimated beneficial
owners as of March 6, 2003 will receive a pro-rated dividend of 500,000 Shares
of common stock on a date subsequent to the effective date of this Registration.
The exercise or conversion of outstanding warrants, Convertible Notes, and
options common stock will dilute the percentage ownership of our other
stockholders and could adversely affect the market price of our common stock.
As of September 15, 2003, there were outstanding notes, warrants and
other convertible securities to purchase an aggregate of 1,100,000 shares of our
common stock. In addition, up to 1,000,000 options may be granted in the future
under our 2002 Incentive Stock Option Plan, although as of September 15, 2003 no
options had been granted under that Plan. The exercise or conversion of
outstanding stock options, warrants or other convertible securities will dilute
the percentage ownership of our other stockholders. In addition, any sales in
the public market of shares of our common stock issuable upon the exercise or
conversion of such stock options, warrants or convertible securities, or the
perception that such sales could occur, may adversely affect the prevailing
market price of our common stock.
7
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and notes included in this
prospectus of December 31, 2002. The statement of operations data for the years
ended December 31, 2001 and 2002, and the balance sheet data as of December 31
2001 and 2002, are derived from financial statements that have been audited by
Schuhalter, Coughlin & Suozzo, PC, independent auditors, and are included in
this prospectus. The statement of operations data for the six month periods have
been derived from unaudited financial statements reviewed by Schuhalter,
Coughlin & Suozzo, PC. The results for the six months ended June 30, 2003 are
not necessarily indicative of the operating results to be expected for the year
that will end December 31, 2003.
Years - Ended Six Mouths ended
December 31, June 30,
-------------------------- --------------------------
2000 2003 2001 2002
(unaudited))
----------- ----------- ----------- -----------
(in thousands, except share data)
STATEMENT OF OPERATIONS
DATA:
Total revenues $ 2,177 $ 2,040 $ 1,200 $ 682
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales 686 751 365 249
Selling and 2,391 2,175 1,027 791
administrative
Operating loss (900) (886) (192) (358)
Other income (expense), -- 74 -- (26)
net
Interest (expense) (45) (64) (29) (18)
Net Loss $ (945) $ (876) $ (221) $ 402)
Basic and diluted net $ (1.25) $ (0.23) $ (0.06) $ (0.10)
=========== =========== =========== -----------
loss per share
Shares used in basic and
diluted net loss per
share 3,850,000 3,850,000 3,850,000 3,850,000
=========== =========== =========== -----------
/1/ Does not include shares on a pro forma basis for all periods presented for
shares which may be issued pursuant to warrants issued in private placements
through June 30, 2003 and included as shares registered by this prospectus.
Common equivalent shares other than the warrants discussed above have also been
excluded from the computation of diluted earnings per share since their effect
is anti dilutive.
June 30,
2002 2003
---------------------------------
(in thousands, except share data)
BALANCE SHEET DATA:
Cash and cash equivalents $ 20,189 $ 57,411
Working capital deficit 344,270 68,162
Total assets 751,360 606,149
Long-term obligations,
net of current portion 937,596 1,066,012
Total stockholders' equity (deficit) (512,897) (905,464)
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and the related notes included
elsewhere in this prospectus. Historical results are not necessarily indicative
of the operating results for any future period.
Results Of Operations
The Company was established in November, 2002. On December 31, 2002,
the Company acquired a 60% controlling interest in Caribbean Pacific Natural
Products, Inc., which at present is its only operating subsidiary. The results
of operations for calendar years 2001 and 2002, and for the six-months ended
June 30, 2003, reflect the business operations of this subsidiary. Per-share
data is based upon the 3,850,000 shares of common stock of the Company
outstanding on September 15, 2003.
Twelve Months Ended December 31, 2002 Compared to Twelve Months Ended December
31, 2001
The Company reported $2,040,313 of revenue in 2002 and $2,176,740 in
2001, a decrease in sales for 2002 of $136,427 or 6.2%. This decrease is
primarily attributable to a reduction in certain marketing programs and a re-
alignment of commission agreements the Company felt were counterproductive.
Cost of sales for 2002 were $751,150 which consisted of product
royalties of $57,945 and other product costs including manufacturing and
handling charges of $693,205 as compared to cost of sales of $685,864 in 2001
which consisted of product royalties of $65,930 and other product costs
including manufacturing and handling charges of $619,934. This represents total
cost of sales of 36.8%, as a percentage of revenue in 2002, consisting of 2.8%
for royalties and 34.0% for other product costs compared with a total of 31.5%
in 2001, including 3.0% for royalties and 28.5% for other product costs in 2001.
This deterioration of margins is attributable to the discontinuance of certain
products and product arrangements the company believes in the long run will
increase profitability.
Selling and marketing expenses were $1,183,303 for 2002 as compared to
$1,466,379 in 2001, a decrease of $283,076, or a 19.3% improvement over the
prior years expense as a percentage of the same expenses. This consisted of
sales salaries and fringes of $112,489 and other selling and marketing costs of
$1,070,814, most of which were concession fees and commissions, incurred in 2002
as compared to selling and marketing expenses in 2001 which consisted of sales
salaries and fringes of $420,326 and other selling and marketing costs of
$1,046,053. This represents total selling and marketing expenses of 58.0%, as a
percentage of revenue in 2002, consisting of 5.5% for sales salaries and fringes
and 52.5% for other selling and marketing costs compared with a total of 67.4%
in 2001, including 19.3% for sales salaries and fringes and 48.1% for other
selling and marketing costs in 2001. The decrease in these expenses as a ratio
of total revenue in 2002 is directly attributable to the reduction in the
salaried sales force.
Administrative expenses were $992,182 for 2002 as compared to $923,698
in 2001, an increase of $68,484, or a 7.4% increase over the prior years as a
percentage of the same expenses. This consisted of administrative salaries and
fringes of $251,552 and other administrative expenses of $740,630 for 2002,
which include general corporate overhead, as compared to administrative expenses
in 2001 which consisted of administrative salaries and fringes of $252,568 and
other administrative expenses of $671,130. This represents total administrative
expenses of 48.6%, as a percentage of revenue in 2002, consisting of 12.3% for
administrative salaries and fringes and 36.3% for other administrative expenses
9
compared with a total of 42.4% in 2001, including 11.6% for administrative
salaries and fringes and 30.8% for other administrative expenses in 2001. The
increase in corporate overhead is attributable to the increased costs of the
administration of the company in the fourth quarter, including non-cash charges
for Director and professional services of $50,000 in 2002.
Interest costs were $63,582 in 2002 compared to $45,575 in 2001 as the
balance due on liabilities to the former parent were higher in 2002. Start up
costs of $31,000 were incurred in 2002 in connection with the formation of the
new parent company, "Suncoast Naturals, Inc.".
During the year ended 2002, the Company recorded settlement income of
$105,000, net of expenses, for payments received in connection with a settlement
with Virgin Atlantic Company. Virgin Atlantic had challenged a trademark granted
to the Company in the United States and the Company agreed to retire the
trademark in question as a condition of the settlement. This is a non recurring
income item applicable only to 2002.
The Company reported a net loss of $875,904 for the year ended December
31, 2002 as compared to a loss of $944,776 for the comparable period ended
December 31, 2001. This loss represents a loss per common share of $.23 for 2002
as compared to a loss of $.25 for 2001.
Six Months Ended June 30, 2003 vs. June 30, 2002
The Company reported $682,296 of revenue for the six months ended June
30, 2003 and $1,200,324 for the comparable period in 2002, a decrease in
sales of $518,028, or 56.8% when compared to 2002. This decrease is primarily
attributable to a reduction in certain marketing programs and a re-alignment of
commission agreements the Company felt were counterproductive.
Cost of sales for the six months ended June 30, 2003 were $249,479
which consisted of product royalties of $15,456 and other product costs
including manufacturing and handling charges of $234,023 as compared to cost of
sales of $364,592 in 2002 which consisted of product royalties of $71,774 and
other product costs including manufacturing and handling charges of $292,818.
This represents total cost of sales of 36.6%, as a percentage of revenue in
2003, consisting of 2.2% for royalties and 34.4% for other product costs
compared with a total of 30.3% in the same period in 2002, including 5.9% for
royalties and 24.4% for other product costs for the same period in 2002. This
deterioration of margins is also attributable to the discontinuance of certain
products and product arrangements the company believes in the long run will
increase profitability, offset by a reduction in the royalty ratio in 2003 which
is a positive effect of changing the mix of product sales.
Selling and marketing expenses were $453,304 for the six months ended
June 30,2003 as compared to $604,100 in 2002, a decrease of $150,796, or a 25%
decrease over the prior year as a percentage of the same expenses. This
consisted of sales salaries and fringes of $13,062 and other selling and
marketing costs of $440,242, most of which were concession fees and commissions
and the updating of marketing materials, incurred in this period in 2003 as
compared to selling and marketing expenses in 2002 which consisted of sales
salaries and fringes of $71,047 and other selling and marketing costs of
$533,053. This represents total selling and marketing expenses of 66.4%, as a
percentage of revenue in the quarter ended June 30, 2003, consisting of 1.9% for
sales salaries and fringes and 64.5% for other selling and marketing costs
compared with a total of 50.3% in 2002, including 5.9% for sales salaries and
fringes and 44.4% for other selling and marketing costs in same period in 2002.
The increase in these expenses for the current six month period on a ratio basis
is primarily due to changes in the Company's marketing plan.
10
Administrative expenses were $337,911 for the six months ended June 30,2003
as compared to $423,301 in 2002, a decrease of $85,390, or an 20.1% decrease
over the prior year as a percentage of the same expenses. This consisted of
administrative salaries and fringes of $183,220 and other administrative
expenses of $141,203, which include general corporate overhead, in 2003 as
compared to administrative expenses in the same period in 2002 which consisted
of administrative salaries and fringes of $173,027 and other administrative
expenses of $250,274. This represents total administrative expenses of 49.5%, as
a percentage of revenue in 2003, consisting of 26.8% for administrative salaries
and fringes and 22.7% for other administrative expenses compared with a total of
35.3% in the same period in 2002, including 14.4% for administrative salaries
and fringes and 20.9% for other administrative expenses in the same period in
2002. The decrease in general corporate overhead is attributable to reduced
outsourcing to professionals, offset by the increased administrative salary and
fringe costs in general corporate overhead for the current six month period,
resulting in a net dollar decrease in the current period. Reduced sales in the
current six month period vs. the prior year were the primary reason the ratio of
these expenses rose.
Interest costs were $18,169 for the current period in 2003 compared to
$28,798 in 2002, as liabilities to the former parent were higher in 2002 than
the present value of the redeemable preferred stock as of June 30, 2003. Start
up costs of $26,000 were incurred in 2003 in connection with the transaction to
acquire Caribbean Pacific Natural Products, Inc., the Company's 100%-owned
subsidiary.
The Company reported a net loss of $402,567 for the current six months
ended June 30, 2003 as compared to a net loss of $220,467 during the six months
ended June 30, 2002. Historically this represents a loss per share of $.10
during the current six months ended June 30, 2003 as compared to a loss per
share of $.06 for the six months ended June 30, 2002.
Critical Accounting Policies
RECAPITALIZATION OF CARIBBEAN PACIFIC NATURAL PRODUCTS, INC.
Material sales and expenses included in these consolidated financial
statements result from the inclusion of financial information of the Company's
60% owned subsidiary Caribbean Natural Products, Inc., which develops and
markets all-natural sun-care and skincare products for luxury resorts, theme
parks and spas. In December 2002, the Board of Directors of the Company approved
a plan to acquire CARIBBEAN PACIFIC NATURAL PRODUCTS, and on January 22, 2003,
the Company acquired a 60% equity interest in CARIBBEAN PACIFIC NATURAL
PRODUCTS. In exchange for its 60% equity interest in CARIBBEAN PACIFIC NATURAL
PRODUCTS, the Company issued to The Quigley Corporation : (i) 750,000 shares of
the Company's common stock, which Suncoast has agreed, at its cost, to register
for public resale through an appropriate registration statement; and (ii)
100,000 shares of Suncoast's Series A Redeemable Preferred Stock, which bears
certain redemption futures discussed in Note 9 Redeemable Preferred Stock.
Pursuant to SFAS No. 141, which applies to business combinations after
June 30, 2001, which requires the use of the purchase method of accounting for
all business combinations, carrying forward the guidance from APB 16 with
respect to; (a) the principles of historical cost accounting, (b) determining
the cost of the acquired entity and (c) allocation of cost to assets and
liabilities assumed; "CARIBBEAN PACIFIC NATURAL PRODUCTS" is considered the
acquiring entity. As such the historical balances of "CARIBBEAN PACIFIC NATURAL
PRODUCTS" assets and liabilities representing the carrying value and the
corresponding allocation of the purchase price, and therefore, the transaction
is equivalent to a reverse acquisition, which in this case, no partial step up
in asset values discussed in EITF 90-3 apply, and thereby no goodwill or
intangible assets have been recorded. The equity issued by the Company was
valued at the (a) present value of the redeemable preferred shares issued to
"Quigley" and (b) common stock and additional paid in capital was recorded at
the value of the remaining liability to "Quigley" canceled by the exchange
agreement.
11
ACCOUNTING FOR BUSINESS COMBINATION OF CARIBBEAN PACIFIC NATURAL PRODUCTS,
APPLICATION OF SAB 103
During the years ended December 31, 2000, 2001 and 2002, the results of
operations, cash flows and assets and liabilities of CARIBBEAN PACIFIC NATURAL
PRODUCTS were included in the consolidated financial statements of the Quigley
Corporation, the effect of which were reported as discontinued operations in
2002. The financial statements of "Quigley" were audited by another auditor, and
the results of this subsidiary were not reported separately. Recently the staff
of Corporate Finance Division of the Securities and Exchange Commission, "SEC",
provided guidance in the codification of its staff accounting bulletins ("SABS")
and in discussion of accounting for former subsidiaries, such as the case with
CARIBBEAN PACIFIC NATURAL PRODUCTS, indicated that reasonable estimates for
expenses of the use of a parent company's capital (ie. interest) and other
corporate charges connected with operating as a stand alone entity (including
legal fees, audit fees and administrative expenses) should be estimated when the
division or subsidiary is presented individually. The financial statements
include such estimates and additional expenses were recorded, and a like amount
was credited to additional paid in capital for the periods presented as follows:
Years Ended Six Months Ended
December 31, June 30,
Additional Expenses 2001 2002 2002 2003
- ------------------- ------ ------ ------ ------
(Unaudited)
Interest and
administrative costs $30,015 $55,782 $25,798 $10,000
LOSS PER SHARE
The Company has adopted SFAS No.128, "Earnings per Share." Earnings per
common share are computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding during the period. The
earnings per common share computation, assuming dilution, gives effect to all
dilutive potential common shares during the period. The computation assumes that
the outstanding stock options and warrants were exercised and that the proceeds
were used to purchase common shares of the Company. Common equivalent shares
have been excluded from the computation of diluted earnings per share since
their effect is antidilutive. Loss per share are also calculated giving
retroactive recognition for the number of equivalent shares issued to Quigley in
connection with the acquisition of "CARIBBEAN PACIFIC NATURAL PRODUCTS," and the
3,100,000 shares issued for information services and cancellation of advances in
2002 as being outstanding at the beginning of all periods presented.
12
REDEEMABLE PREFERRED STOCK
On December 31, 2002, the Company issued 100,000 Shares of Preferred
Stock, designated Class "A" Redeemable Preferred Stock, to The Quigley
Corporation as partial consideration for the acquisition of 60% of the Common
Stock of Caribbean Pacific Natural Products, Inc.
The holders of the Series A Stock shall be entitled to receive, in
preference to the holders of the Corporation's Common Stock, when, as and if
declared by the Corporation's Board of Directors, annual dividends at the rate
of $.10 per share and no more. Dividends on the Series A Stock shall be
cumulative, and declared but unpaid dividends shall not bear interest. The
holders of Series A Stock shall have no voting rights. No other Series or Class
of Preferred Stock which may subsequently be designated or authorized by the
Board of Directors shall be granted or otherwise be entitled to any voting
rights.
The Corporation shall have the right to redeem the shares of Series A Stock
at any time following the date of issuance. The Redemption Price for each share
shall be $10.00 per share plus an interest factor which shall accrue from the
date of issuance through the date of redemption. The interest rate shall be a
fixed annual rate equal to the prime rate announced by Citibank, NA, New York
City, on the date of issuance, and may be payable in cash or accrued until
redemption. In the event that all shares are not put by the holder to the
Corporation or redeemed by the Corporation prior to December 31, 2007, all such
shares shall be redeemed by the Corporation at face value, together with accrued
interest, if any, as of that date. These preferred shares were valued at
$937,596, which represented the net present value of the redemption obligation,
which absent early redemption by the Company, has a fixed redemption date of
January 22, 2007.
During the six month period ended June 30, 2003, the Company imputed
$15,569 of interest expense on this obligation.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement rescinds SFAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt," and an amendment of that statement, SFAS No. 44,
"Accounting for Intangible Assets of Motor Carriers," and SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." This
statement amends SFAS No. 13, "Accounting for Leases," to eliminate
inconsistencies between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. Also, this statement
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. Provisions of SFAS No. 145 related to the rescission of SFAS No. 4
were effective for the Company on November 1, 2002 and provisions affecting SFAS
No. 13 were effective for transactions occurring after May 15, 2002. The
adoption of SFAS No. 145 did not have a material impact on our financial
statements.
13
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement covers
restructuring type activities beginning with plans initiated after December 31,
2002. Activities covered by this standard that are entered into after that date
will be recorded in accordance with the provisions of SFAS No. 146. Management
does not believe there will be a significant impact on our consolidated
financial position or results of operations.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which provides alternative methods of
transition for a voluntary change to fair value based method of accounting for
stock-based employee compensation as prescribed in SFAS 123, "Accounting for
Stock-Based Compensation." Additionally, SFAS 148 required more prominent and
more frequent disclosures in financial statements about the effects of stock-
based compensation. The provisions of this Statement are effective for fiscal
years ending after December 15, 2002, with early application permitted in
certain circumstances. The Company has adopted the disclosure provisions in
these consolidated financial statements as disclosed above under Stock Based
Compensation.
In November 2002, the FASB Issued FASB interpretation (FIN) No. 45
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Other." FIN No. 45 requires guarantor to
recognize, at the inception of a qualified guarantee, a liability for the fair
value of the obligation undertaken in issuing or modified after December 31,
2002. Management does not expect adoption of this Interpretation to have a
material impact on the Company's financial condition or results of operations.
Current Plan Of Operations
Our business strategy for the next year is to expand our existing Caribbean
Pacific line with several new products, including an all-natural, non-chemical
shampoo, conditioner, and body wash; supplement our resort-based Caribbean
Pacific product sales with a new Internet marketing and sales campaign backed by
a national publicity campaign using newspaper and radio editorial features;
establish a new, all-natural product line for the fast- growing health food and
health products markets; and establish our own in- house manufacturing
capabilities to improve profit margins.
We anticipate that in the coming year it will be possible to continue to
reduce many of our present general and administrative expenses as we shift the
primary focus of our product distribution channels from highly labor- intensive
resort pool and beach kiosk locations to lower cost distribution channels
utilizing commission-based manufacturer's representatives and independent
distributors within the health food and health product markets. We will also be
increasing our marketing capabilities in specialty retail markets including golf
and tennis pro shops and day spas.
14
Seasonality
Our present distribution channel is heavily focused on sales through
major resort pool and beach kiosks in over twenty-five locations in Hawaii,
Mexico and Florida. As such, our sales are dependent upon the same seasonal
fluctuations caused by weather, changes in travel patterns, and holiday periods
that are faced by the hotels and resorts where we are located. Management is
currently developing additional product lines which will be distributed through
national wholesale distributors and which will therefore reduce the seasonality
of our operations.
Liquidity and Capital Resources
The accountants' report for the Company's financial statements included
herein is qualified with respect to the Company's ability to continue as a going
concern. As shown in the accompanying financial statements, the Company incurred
a net loss of $875,904 during the year ended December 31, 2002. Additionally,
the company had a stockholders' deficit of $ 512,897 at December 31, 2002 and
its working capital at that time is not sufficient to support the Company's
losses from operations at existing levels for the next year. The Company plans
to raise more capital through public or private financing, through the issuance
of its common stock, the issuance of debt instruments, including debt
convertible to equity, or otherwise attain financing, which if available, it
cannot be certain such financing will be on attractive terms. Should the Company
obtain more capital, in turn, it may cause dilution to its existing stockholders
and providing the company can obtain more capital, it cannot be assured to
ultimately attain profitability.
The Company intends to continue its efforts to complete the necessary
steps in order to meet its cash flow requirements throughout fiscal 2003 and to
continue its product development efforts and adjust its operating structure to
reduce losses and ultimately attain profitability. Management's plans in this
regard include, but are not limited to, the following:
1. Raise additional working capital by either borrowing or through the
issuance of equity, or both. The Company believes that it will need to raise an
additional $1,000,000 in financing to achieve its business plans for the next
twelve to eighteen months. Depending upon the amount, if any, which may be
raised through the exercise of outstanding Common Stock Purchase Warrants during
this period, the balance of this financing will be sought through the sale of
either Common Stock or debt instruments. We cannot be certain that such
additional financing will be available to us on reasonable terms or at all, and
will be subject to a number of factors, including market conditions, our
operating performance, and investor sentiment. If we are unable to raise this
additional capital when we need to, or are otherwise unable to achieve
profitable business operations, we may be unable to maintain our Company as a
going concern and may be forced to discontinue operations.
2. Negotiate terms with existing trade creditors and strategic vendors, in
particular by obtaining additional contract manufacturers for the Company's
product lines and establishing a competitive-bidding process for our
manufacturing requirements. In order to achieve revenue growth without the
expense of establishing an in-house sales force, the Company intends to
negotiate alliances with strategic co-venturers who may have stronger
distribution channels in the skin care, natural health and body care markets
(such as our new marketing agreement with World Wide Health Resources, Inc.).
The Company also intends, if it has sufficient financial resources available, to
commence limited manufacturing of its own products in order to increase profit
margins.
15
3. Re-align revenue producing activities and corresponding commission
arrangements on such a scale that will proportionately reduce selling expenses
and reduce other costs wherever possible to improve operating margins and
relieve the overhead burden until ultimately profitability may be attained. As
an example, the Company is presently evaluating new commission structures and
sales strategies at its resort-based pool and beach kiosks in order to achieve
better growth and profitability in those venues. Additional and potentially
stronger distribution channels, including health food chains and specialty
boutiques, are also being evaluated.
At June 30, 2003 the Company has working capital of $68,162. Based upon
the current business operations and financial commitments, management believes
that the Company's financial condition is adequate for the foreseeable future.
There can be no future assurance, that the Company's future business operations
will generate sufficient cash flow from operations or that future working
capital borrowings will be available in sufficient amounts and required time
frames to accomplish all of the Company's potential future operating
requirements.
In May, 2003, the Company received $150,000 in financing through the
issuance of short-term convertible notes, which are convertible into shares of
Common Stock of the Company on or before October 31, 2003 (extended from the
original date of September 30, 2003). The Company is utilizing the proceeds of
these loans, together with cash flow from existing operations, to manufacture
additional inventory for sale at our resort kiosks, to start-up a new line of
skin care products for wholesale distribution, and to establish a filling and
labeling facility at our Orlando warehouse.
The Company expects that it will experience revenue growth during the
latter part of 2003 from the roll-out of its new product line, as well as growth
in its existing distribution channels. In addition, we believe that actions
presently being taken to reduce administrative costs and improve manufacturing
and shipping procedures will generate sufficient revenues to provide increased
cash flows from operations. In addition, we believe that sufficient additional
capital will be available to us, when required, to permit us to implement our
business plans. However, there can be no assurance that this will occur.
16
BUSINESS
Overview
- --------
Suncoast Naturals, Inc. (the "Company") is a Delaware corporation which
has been organized for the purpose of establishing an FDA-approved contract
manufacturing and lab facility which formulates and manufactures an all-natural
line of sun-care and skin-care products for the spa, resort and specialty
boutique markets. The Company has acquired a 60% controlling interest in
Caribbean Pacific Natural Products, Inc. ("CARIBBEAN PACIFIC NATURAL PRODUCTS"),
an Orlando, FL-based manufacturer and distributor of all-natural sun and
skin-care products using natural, non-chemical ingredients derived from organic
and renewable resources. In addition to becoming the sole-source manufacturer
for the entire CARIBBEAN PACIFIC NATURAL PRODUCTS product line, the Company will
also develop and manufacture private-label skin and sun care products for the
resort and day spa markets.
The Company has an authorized capitalization of 25 million shares of Common
Stock ($.001 par value) and 1,000,000 shares of unclassified Preferred Stock
($.01 par value), of which 3,850,000 shares of Common Stock, and 100,000 Shares
of Class "A" Redeemable Preferred Stock are issued and outstanding. The Company
has issued $150,000 of Convertible Notes which may, at the option of their
holders, be converted into a maximum of 225,000 Shares of Common Stock of the
Company.
The Company's executive offices are located at 5422 Carrier Drive, Suite
309, Orlando, FL 32819. The Company's new laboratory facilities and
manufacturing and filling facility are presently being constructed in adjacent
warehouse/light industrial space. The telephone number is (407) 226-8889, and
the Company's website is www.cpskincare.com.
Business Operations Of Suncoast Naturals, Inc.
- ----------------------------------------------
The Company has been newly-organized in November, 2002 to build and
operate an Over-The-Counter (OTC), FDA-approved manufacturing facility
specializing in the development and manufacturing of a complete line of
private-label Spa Products for the resort and Day Spa markets, as well as a
complete product of all-natural Bath & Body and Suncare Products. In addition to
our plans to manufacture our own line of products under a variety of
brand-names, we have acquired a controlling 60% interest in Caribbean Pacific
Natural Products, Inc. (CARIBBEAN PACIFIC NATURAL PRODUCTS), and will be the
sole-source supplier of existing and future products which are branded under the
"Caribbean Pacific" trademark. At present, CARIBBEAN PACIFIC NATURAL PRODUCTS is
the sole operating subsidiary of the Company.
As part of our business plan, we have established a wholly-owned
manufacturing subsidiary, CP Suncoast Manufacturing, Inc., and we are presently
constructing a cosmetics laboratory and testing facility and a modular
mixing/filling facility which will specialize in small to medium size
manufacturing runs suited for small-volume, private label fulfillment. In
addition, the Company's planned in-house cosmetic chemistry and microbiological
department will allow us to provide our customers with their own line of
custom-designed sun-care and skin care products. Approximately $50,000 has been
spent by the Company toward the development of this facility, and the Company
will need to spend an additional $250,000 for its completion. If sufficient
financial resources are available to the Company, we expect that this facility
could be completed and fully-operational early in the first quarter of 2004.
17
Business Operations of Our Caribbean Pacific Natural Products, Inc. Subsidiary
- ------------------------------------------------------------------------------
Our 60%-owned Caribbean Pacific Natural Products, Inc. subsidiary
(CARIBBEAN PACIFIC NATURAL PRODUCTS) is an Orlando, FL-based company which holds
an exclusive license to produce, market and distribute a proprietary line of
all-natural sun and skin care products developed over an eight-year period by
Caribbean Pacific International, Inc. The CARIBBEAN PACIFIC NATURAL PRODUCTS
product line is differentiated from its competition by the elimination of the
petrochemical, synthetic and chemical additives which are prevalent in all
standard sun and skin care products.
The Caribbean Pacific products are manufactured and marketed under an
exclusive, world-wide Product License Agreement from Caribbean Pacific
International, Inc., the original developer of the products and owner of
the "Caribbean Pacific" trademarks. The twenty-five year license agreement
expires in 2025, and provides for a payment to Caribbean Pacific International
of a 5% royalty on net sales receipts from sales of Caribbean Pacific-branded
products. The royalty is not applicable to products developed or sold by us
which do not utilize the Caribbean Pacific brandname or trademarks.
Our Product Line
- ----------------
The CARIBBEAN PACIFIC NATURAL PRODUCTS product line consists of over
forty sun-care, skin-care and spa products, of which sixteen are presently in
production. Our entire product line has been designed to be non-toxic, and the
ingredients and formulations used it our products are designed to be suitable
for persons who are allergic or chemically-sensitive to the chemical ingredients
contained in many cosmetic or skin-care products. Our current products include
skin moisturizers, SPF (Sun Protection Factor) rated sunscreens, natural oils,
shampoos and conditioners, and an all-natural skin gel which relieves pain and
discomfort caused by burns, bites, scrapes and sun exposure.
Our products include skin lotions and oils which contain our proprietary
formulations, and are sold under a variety of our trademarked brand-names
including "Black Pearl Oil", "Diamond Rose Oil", "Solcreme" SPF suntan lotions,
"Kukui Rose" skin moisturizer, "Karibbean Kidz" SPF protection for children,
"Sport Sol" dry-grip products for the golf and tennis markets, and "Bye-Beast"
natural insect repellent.
Distribution Channels
- ---------------------
We sell our products through a variety of distribution channels, including
wholesale, retail, web sales, and 800# telephone marketing. We have placed a
particular emphasis on sales made through pool and beach kiosks located at major
resorts in Florida, Mexico and Hawaii. Because of our all-natural and
non-chemical ingredients, our products are utilized by several "eco-sensitive"
resorts, including Anheuser-Busch's Discovery Cove in Orlando, FL and Mexico's
most famous archeological water park resorts Xel-Ha and Xcaret.
The CARIBBEAN PACIFIC NATURAL PRODUCTS Custom Label program is presently
represented throughout major hotel and resort chains, providing a line of
private-label products for resorts including Hyatt, Marriott, Westin, Allegro,
and Wyndham, as well as specialty companies such as "Pusser's" rum.
The Company's product line has been designed for a market niche of
high-end and luxury consumers, and we promote directly to this market through
our sales representatives at premier resorts in Florida, California, Arizona,
Mexico, the Caribbean and Hawaii. CARIBBEAN PACIFIC NATURAL PRODUCTS utilizes a
number of sales and promotional venues within these resorts including pool and
beach concessions, in-room sales, gift and pro shops and group/convention
packages.
As an example of our effort to broaden our product distribution channels,
we are presently expanding the marketing program of our specialty golf and
tennis "dry-grip" products by utilizing independent manufacturer's
representatives to place these products in golf and tennis pro shops throughout
the United States. These "dry-grip products contain our proprietary formulations
18
which provide SPF (sun protection factor) protection while minimizing sweat
which would otherwise interfere with golf or tennis players playing in hot or
humid climates.
Marketing Strategy
- ------------------
Recognizing the growth of the luxury Spa and Day Spa market in the
United States, and the higher margins from their luxury product lines, the
Company intends to aggressively market its formulation and manufacturing
capabilities to those markets, with a particular emphasis on private-label
formulations for small to medium size Day Spas which are generally not served by
existing manufacturers. As part of this strategy, management will establish
direct contact with Spa Directors and will utilize top Estheticians and former
Spa management in the field to remain an integral part of the customer's growth
as well as to obtain new customers.
Business relationships in the Spa market are primarily based on credibility
and referrals, and despite its burgeoning growth it still remains a relatively
insulated industry. As a result of its individualized marketing approach, the
Company intends to establish itself as a leader in unique and specialized
product development. The wide variety of products offered by the Company, as
well as the vertical integration which will be afforded by its in-house
development, formulation and manufacturing capabilities, provides ample growth
opportunity by replacing other suppliers who are not able to provide
individualized private-label formulations.
During the early development of the luxury and day Spa market in the United
States, many different products from many different companies were prevalent in
the retail venues, and there was no consistency or uniqueness to differentiate
the particular Spa's indigenous characteristics or marketing niche. By
specializing in custom-designed private-label products, as well as its generic
line of Spa and Resort products, the Company believes that it has positioned
itself to be a sole-source supplier within a rapidly-growing industry, and in
particular to establish itself as the premier supplier of all-natural and
high-quality products.
The Company intends to establish a unique position in the packaging and
manufacturing industry with its revenue growth and stability based upon being
the developer, manufacturer and distributor of its own product line, as well as
being a sole-source contract manufacturer of private-label products. This
vertically-integrated strategy not only protects the client base from other
potential suppliers and provides direct on-going dialogue as a 'partner', but
also provides higher margins by removing the middle man (distributor) and
creates additional barriers-to-entry for future potential competitors.
Our Company Website
- -------------------
We maintain a fully-transactional sales and information website at
www.cpskincare.com which not only provides consumers with detailed information
about our products and formulations, but allows our customers to purchase our
products on-line. We also maintain an 800 toll-free number at 800-432-6723 to
assist customers with product information and for mail orders of our products.
We are also currently developing and will be launching in October, 2003 an
additional website at www.suncoastnaturals.com which will provide Company news
and information to our shareholders and the general public, as well as
information about new products under development and new distribution channels
as they become implemented.
19
As part of our business plan we will be exploring various opportunities for
web-based marketing of our products, including advertising on internet portals
and co-marketing arrangements with other websites. At the present time, we are
not in negotiations with any parties to broaden our web-based marketing.
Marketing Considerations
- ------------------------
The Company has identified several market considerations which it believes
will allow it to achieve growth in both the near- and long-term:
* Broad product line: The Company's wide range of products and formulations of
specialty ingredients can be readily custom blended. The array of premium
all-natural ingredients and essential oils which are available to be utilized by
the Company provides product differentiation within a highly-competitive
industry.
* Technological Expertise: The Company is establishing a staff of cosmetic
professionals under the direction of Dr. Sam Saliba, President of the Company's
manufacturing subsidiary and our Director of Research and Development. Upon
completion of our planned manufacturing and filling/bottling facility, as well
as a state of the art Research & Development laboratory and testing facility,
the Company believes that it will be positioned to be an industry leader
offering many competitive advantages in the custom private label sector of the
health and beauty care industry.
* Vertical Integration: From product concept to fulfillment to the market place,
the Company has been organized to provide a vertically-integrated operation,
with the ability to provide all associated tasks of R&D, formulation, blending,
filling and customized packaging, as well as the laboratory capability to test
raw materials and assure quality control of the finished product. If we are able
to obtain sufficient financial resources, we plan to construct within the next
three to six months a fully-licensed research and development laboratory,
blending and filling facility as well as a microbiology laboratory devoted to
ensuring the quality of the Company's ingredients and blends. The versatility of
having in-house compounding and filling capabilities will provide us with the
ability to not only improve our profit margins by eliminating or reducing our
contract manufacturing requirements, but also to have ample capacity to fulfill
many of the of small to medium-size private label customers.
Manufacturing
- -------------
The Company's present product line is presently manufactured by a
non-affiliated contract manufacturer operating under a confidentiality agreement
with respect to the Company's proprietary formulations. At present, there are no
supply or other contracts with any manufacturer, and terms are negotiated for
each product and order. We anticipate that our present manufacturing system will
be supplemented, and possibly replaced, by the Company's planned laboratory and
manufacturing facility, as well as additional contract manufacturers which may
be necessary for the Company's expanding product lines and to provide
competitive bidding for our requirements.
If we are able to obtain sufficient financial resources, our in-house
manufacturing facility could be fully-functional within three to six months. We
estimate that we will require approximately $350,000 to complete this facility.
The Company's planned microbiology laboratory will be subject to the approval of
and licensing by the U.S. Food & Drug Administration (FDA) and the State of
Florida. The Company believes that the completion of this laboratory facility
and the required licensing could be obtained within thirty days from the
completion of the facility.
Prior to the completion of its manufacturing facility, the Company will
initially operate its own filling and labeling operation for those products
which do not require FDA licensing (non-SPF-rated products). This facility,
located in the Company's existing warehouse space in Orlando, FL, became
operational during the third quarter of 2003 on a limited basis, and we expect
that this capability will immediately increase our manufacturing flexibility as
well as improve our net profit margins. This capability would become fully
operational upon the completion of the manufacturing facility.
20
Competition
- -----------
Our sun-care and skin-care business competes directly with entrenched,
well-funded and highly regarded multi-national competitors such as Johnson &
Johnson, Schering-Plough, and Lancome, as well as mass-market sun-care products
such as Hawaiian Tropic and Banana Boat. Their earlier entry, greater resources
and broader presence in the United States could make competing against these
entities impracticable. Our e-commerce unit also faces intense competition from
traditional retailers; websites maintained by online retailers of similar
merchandise; and Internet portals and online service providers that feature
shopping services, such as America Online and Yahoo! These competitors may be
able to secure products from vendors on more favorable terms, fulfill customer
orders more efficiently and adopt more aggressive pricing or inventory
availability policies than we can.
We believe that our ability to compete successfully depends on many
factors, including the quality of our products; the market acceptance of our
products, websites and online services and the success of our sales and
marketing efforts. More specifically, we have formulated our products using
all-natural ingredients without chemical additives or preservatives, and they
are derived from organic and renewable resources. Our products are designed to
be suitable for most people with chemical sensitivities or who are allergic to
the chemicals found in many sun-care and skin-care products.
Although we have developed and are marketing a full line of sun-care,
skin-care, and body-care products containing only natural and non-chemical
ingredients; however, we are faced with the challenge of gaining market
recognition for our products and services. However, we cannot be certain that we
will have sufficient resources to establish our brands or achieve the level
commercial acceptance necessary for our offerings to effectively compete in this
industry. The failure to create this recognized brand identity could have a
material adverse effect on our ability to continue business operations.
Recent Agreements
- -----------------
In May, 2003, we entered into a Sales Management and Service Agreement with
Worldwide Health Resources, Inc., an unaffiliated company, to create an
independent marketing and sales organization for a new line of all-natural sun,
skin, and body-care products to be launched in the United States and Canada
later this year. In particular, this consultant is helping us to design a new
line of products which will be targeted to health food chains and specialty
boutiques. The agreement is for a one-year period and provides for a monthly
retainer of $5000.00 and a commission based on product sales generated through
its marketing efforts.
In May, 2003, and effective on October 1, 2003, we entered into a
three-year national advertising and promotion agreement with News USA, Inc., a
non-affiliated company, which will provide the Company with a minimum of fifty
different newspaper feature articles and fifty radio features, with 25,000
guaranteed editorial placements reaching an estimated 375 million households in
the United States. The Company intends to use these editorial placements to
promote the Company's unique all-natural product lines and to promote the
Company's new Internet sales promotion campaign for the Caribbean Pacific
products. The cost to the Company under this Agreement will be $2500.00 in cash
and $2500.00 in equity for each newspaper or radio feature provided to us.
Employees
- ---------
At August 4, 2003, we had 6 full-time salaried employees and 2 part-time
hourly employees, of which 2 full-time employees were in executive or managerial
positions and 6 employees were in sales/manufacturing/clerical positions. The
Company expects to add additional hourly employees as our manufacturing facility
is completed and becomes operational, as well additional professional salaried
21
employees for laboratory and research/development positions. The Company intends
to increasingly utilize independent marketing organizations and manufacturer's
representatives who will promote the Company's product line on a commission
basis and thereby avoid the expense of creating an in-house marketing
capability. We do not expect a significant increase in either full-time or
part-time salaried employees during the next three to six months, but we expect
that an additional four to six hourly employees will be hired during that
period.
Properties
- ----------
Our principal office facility is located in a 5088 sqft office facility at
5422 Carrier Drive, Orlando, FL. This facility is presently occupied pursuant to
a lease which expires on 11/30/05 for $6340.00 per month. In addition, we also
lease on a month-to-month basis an adjacent 3984 sqft light-industrial facility
at a rent of approximately $2563.00 per month. This additional space is
presently utilized for warehouse purposes, but it is our intention to develop
this space for an in-house manufacturing capability.
We believe that these lease arrangements are adequate for our immediately
foreseeable business needs.
Legal Proceedings
- -----------------
The Company and its subsidiaries are at present not involved in any legal
proceedings which management believes will have a material effect upon the
financial condition of the Company, nor are any such material legal proceedings
anticipated.
22
MANAGEMENT
Our directors and executive officers are as follows:
Name Age Position
- ---- --- --------
William J. Reilly 50 Chairman & President
Thomas Hagan 64 Secretary, Director
Dr. Sam Saliba 66 Director
Matthew Cohen 42 Director
The principal occupation for the past five years and current public
directorships of each of our directors and executive officers is as follows:
WILLIAM J. REILLY, ESQ., President and Chairman
Mr. Reilly has served as an Officer and Director of the Company since its
inception, and also serves as Chairman of the Board. From March, 1986 to
January, 1991, Mr. Reilly served as President of American Leisure Entertainment
Corp., and was responsible for developing its entertainment restaurant concept.
Under his direction, American Leisure completed an initial public offering of
its stock in October, 1987. From 1996 to May, 1999, Mr. Reilly was an Officer
and a member of the Board of Directors of BusinessNet Holdings Corp., and since
January, 2001 as Secretary and a member of the Board of Directors of Invicta
Corporation, a publicly-traded consumer optical manufacturer headquartered in
Boca Raton, FL.
Mr. Reilly received his Bachelor of Arts degree from the State University of New
York in 1974, and a Juris Doctor degree from St. John's University School of Law
in 1978. From 1978 to 1981, Mr. Reilly served as a Law Clerk to a Justice of the
New York State Supreme Court. From 1982 to 1983, he was Assistant Counsel to the
Speaker of the New York State Assembly and, from 1983 to 1984, as Assistant
Counsel to the Chairman of the New York State Assembly Ways and Means Committee.
He presently serves with the rank of Commander in the United States Naval
Reserve, Judge Advocate General's Corps, specializing in International Law. Mr.
Reilly is a resident of Boca Raton, FL, and is engaged in the full-time practice
of corporate law as a member of the Bar of the State of New York and the Federal
Courts. He is a member of the American Bar Association, the Federal Bar
Association, and the New York State Bar Association.
THOMAS J. HAGAN, Secretary and Director; President of Caribbean Pacific Natural
Products, Inc. Subsidiary
Mr. Hagan brings to the Company a strong background in marketing and general
management, and he will be responsible for developing a comprehensive marketing
plan for the Company's contract manufacturing operations as well as the
Caribbean Pacific Natural Products operations.
Mr. Hagan served as President of The Dorette Company from January, 1987 until
October, 2002, and was responsible for a ten-fold increase in sales at that
company during his tenure. His prior business experience includes management
positions at General Electric Company in Cleveland, Philadelphia and Schenectady
from 1960 to 1970. As a management consultant at McKinsey & Company from 1970 to
1973, he developed and managed marketing programs for numerous sales
representative organizations, trade shows, key accounts and national accounts.
Mr. Hagan is a graduate of Boston College School of Management, and received his
Masters in Business Administration Degree from Case Western University. He has
also served as a Captain in the U.S. Army Corps of Engineers.
23
DR. SAM SALIBA, Director; Director of Research & Development; President of CP
Suncoast Manufacturing, Inc. Subsidiary
Dr. Sam Saliba, joined Caribbean Pacific International, Inc. as a consultant in
1997 . From 1999 to 2001, as a consultant for Absolute Packaging, Inc., Dr.
Saliba reformulated all of the skin-care products which are now sold under the
CARIBBEAN PACIFIC NATURAL PRODUCTS brand names. Since December 2001, Dr. Saliba
also served as President of Caribbean Pacific Natural Products, Inc.. Upon the
completion of the acquisition of a controlling interest of Caribbean Pacific
Natural Products, Inc. Dr. Saliba joined the Board of Directors of the Company
in addition to his executive duties. He will also serve as the President of the
Company's manufacturing subsidiary, CP SunCoast Manufacturing, Inc.
Dr. Saliba's business experience prior to 1981 includes management positions
with BASF AG in Germany. From 1981 to 1988, he was the Marketing/Technical
Director of Sasolchem Ltd., a petrochemical company headquartered in
Johannesburg, South Africa. At Sasolchem, Dr Saliba was responsible for all
technical matters including coordination and oversight of all chemical projects
as well as international marketing of chemical specialties. From 1988 through
1996, he was the Managing Director of ChemTrading CC., an import/export trading
firm in Johannesburg, South Africa with operations in the United States, France,
Hong Kong, Africa and South America. Until 1997, he was a Director of Searose
Limited, a trading and technical consulting firm based in Beckenham, Kent,
United Kingdom.
Dr. Saliba holds several post-graduate degrees, including a Doctor of Science
degree in Chemistry and Mineralogy from Heidelberg University, a Master of
Science in Physical, Inorganic and Organic Chemistry from Heidelberg University,
a B.Sc. in Chemistry from American University and Master of Business
Administration from INCAE/Harvard University. Dr. Saliba is fluent in several
Languages.
MATTHEW J. COHEN, Director
Mr. Cohen has served as a Director of the Company since its inception. As a
consultant to the Company, Mr. Cohen will be responsible for overseeing the
financial integration of the operations of Caribbean Pacific Natural Products,
Inc. into the Company, as well as serving as Chairman of the Company's Audit
Committee.
Mr. Cohen presently serves since 2002 as Chief Financial Officer of Life Imaging
Corporation of Boca Raton, FL, a multi-location medical imaging diagnostic
service company, and previously served from 1997 to 2001 as a Director and
member of the Audit and Compensation Committee of Legal Club of America Corp.,
and from 2001 to 2002 as Chief Financial Officer of Interactive
Technologies.com, Inc., an internet-based benefit and services company. From
1988 until 1997, Mr. Cohen was Vice President and Chief Financial Officer of
Standard Brands of America, a retailer of consumer electronics and appliances.
Mr. Cohen received his BBA Degree in Accounting from New Paltz State University.
Board Of Directors and Committees of the Board
- ----------------------------------------------
Our board of directors currently consists of four directors. Each
director holds office until that director's term expires or until a successor is
duly selected and qualified. All of the officers identified above serve at the
discretion of the board of directors. There is presently one vacancy on the
Board which will be filled by an outside independent Director.
Our Board of Directors maintains an Audit Committee consisting of Mr.
Cohen as Chairman and Mr. Reilly. The third member of this Committee will be an
outside independent Director to be appointed by the Board of Directors.
24
Director Compensation
During 2002, directors received no compensation. As compensation for
their services as members of the board of directors and agreeing to serve
through 2003, each member of our board of directors received, in November, 2002,
warrants to purchase 50,000 shares of our common stock at an exercise price of
$1.00 per share. The warrants are exercisable on or before December 31, 2007.
Executive Compensation
The following table sets forth all compensation granted to the
individuals who served as Directors or Officers during calendar years 2001 and
2002, or received compensation in excess of $100,000 during fiscal years 2001
through 2002. Of the Officers and Directors of the Company, only Dr. Saliba
received cash or other compensation for services rendered through calendar year
2002.
Summary Compensation Table
Long Term
Annual Compensation Compensation
Securities
Salary Other Annual Underlying Options
Name and Principal Position Year ($) Bonus ($) Compensation($) (Shares)
--------------------------- ---- ------ ----- ------------ --------
Dr. Sam Saliba Director; President of 2002 84,000 -- -- 50,000
CP Suncoast Manufacturing Inc. (1) 2001 7,000 -- -- --
- -----------
(1) Received 50,000 warrants in November 2002 exercisable until 12/31/07 at $1.00 per share for
compensation as a Director for calendar year 2003.
Stock Option and Other Compensation Plans
- -----------------------------------------
On December 31, 2002, we adopted a stock option plan for employees, directors,
consultants and advisors, which provides for the issuance of up to 1,000,000
shares of common stock and which was ratified by the shareholders of the Company
on the same date. No options have been granted under this plan.
Employment Agreements
- ---------------------
The Company has entered into a one-year employment agreement with William J.
Reilly to serve as the President and General Counsel of the Company at an annual
salary of $48,000, commencing on May 30, 2003. Other than this Agreement, the
Company has no other employment or compensation agreements.
Limitation of Liability and Indemnification of Officers and Directors
- ---------------------------------------------------------------------
As permitted by the General Corporation Law of the State of Delaware, our
certificate of incorporation provides that neither a director nor officer is
personally liable to us or our shareholders for damages for any breach of duty
in his capacity as a director or officer unless a judgment or other final
adjudication adverse to such director or officer establishes that such director
or officer is liable for negligence or misconduct in the performance of his
duties.
The provisions of our certificate of incorporation are intended to afford
our directors and officer's protection, and limit their potential liability, to
the fullest extent permitted by Delaware law. As a result of the inclusion of
such provisions, shareholders may be unable to recover monetary damages against
directors or officers for actions taken by them that constitute negligence or,
in some cases, gross negligence or that are in violation of certain of their
fiduciary duties. This provision does not affect a director's or officer's
responsibilities under any other laws, such as the federal securities laws.
25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
In November, 2002, the Company issued 1,185,000 Shares of Common Stock in
consideration for the cancellation of $31,000 indebtedness for cash advances and
expenses incurred in the organization of the Company. These shares were issued
to William J. Reilly, the Chairman and President of the Company, and to Thomas
Hagan, Dr. Sam Saliba, and Matthew Cohen, who are all Directors of the Company,
as well as to twelve unaffiliated shareholders.
In November, 2002, the Company issued 1,915,000 Shares of Common Stock and
425,000 warrants (the "A" warrants) to purchase 425,000 shares of Common Stock
at $1.00 per share through December 31, 2007, to officers, product marketing
consultants and directors of the Company in lieu of cash compensation for
formation services rendered to the Company valued at $50,000, and for services
to be rendered to the Company during calendar year 2003. This value was ascribed
to the services as the Company had yet to establish a market for the Company's
common stock and had no business operations.
Effective for December, 2002, the Company issued 750,000 Shares of Common
Stock to The Quigley Corporation as partial consideration for its purchase of a
60% controlling interest in Caribbean Pacific Natural Products, Inc., valued at
$582,989 and additionally the Company issued 100,000 Shares of Preferred Stock,
designated Class "A" Redeemable Preferred Stock, to The Quigley Corporation as
partial consideration for the acquisition of 60% of the Common Stock of
Caribbean Pacific Natural Products, Inc., valued at $937,596. During the six
month period ended June 30, 2003, the Company imputed $15,569 of interest
expense on this obligation. No controlling persons or shareholders of The
Quigley Corporation who have been identified as holding 5% or more of that
corporation's Common Stock are shareholders of our Company or have any business
relationships with our Company.
During the six months ended June 30, 2003, the Company received $110,247 of
advances from William J. Reilly, the Company's president with no specific
repayment terms. No interest has been recorded on this debt.
Caribbean Pacific International, Inc., the holder of the royalty agreement,
is also the 40% minority shareholder of CARIBBEAN PACIFIC NATURAL PRODUCTS.
PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDERS
-----------------------------------------------
The following table sets forth the beneficial ownership of our common stock
which is known to us of as of September 15, 2003, as adjusted to reflect the
sale of shares of common stock in this offering, by:
- each person or group affiliated person known to us to beneficially own
more than 5% of our outstanding common stock;
- each selling shareholder in this offering;
- each director;
- each of our named executive officers; and
- all of our directors and executive officers as a group.
Except as otherwise noted, the address of each person listed in the table
is c/o Suncoast Naturals, Inc., 5422 Carrier Drive, Orlando, FL 32819.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to shares. To our knowledge, except as otherwise indicated, the persons
named in the table have sole voting and sole investment control with respect to
26
all shares shown as beneficially owned. The applicable percentage of ownership
for each shareholder is based on 3,850,000 shares of common stock outstanding as
of September 15, 2003 and 4,950,000 shares outstanding after the completion of
this offering and maximum conversion of the warrants and convertible notes, in
each case together with applicable options and warrants for the selling
shareholders. Shares of common stock issuable upon exercise of options, warrants
and other rights beneficially owned that are exercisable within 60 days are
deemed outstanding for the purpose of computing the percentage ownership of the
person holding those options, warrants and other rights but are not deemed
outstanding for computing the percentage ownership of any other person.
27
PRINCIPAL SHAREHOLDERS
- ----------------------
Percentage of
Shares Shares Percentage of
Shares Beneficially Beneficially Owned Beneficially Owned Shares
Owned Prior to the Prior to the after the Beneficially Owned
Name and Address Offering Offering Offering(6) After Offering(6)
- ----------------- -------- -------- ----------- -----------
William J. Reilly(1)(3) 500,000 13% 500,000 10%
Thomas Hagan (1)(3) 100,000 2.6% 100,000 2%
Dr. Sam Saliba (1)(3) 100,000 2.6% 100,000 2%
Matthew Cohen (1)(3) 100,000 2.6% 100,000 2%
Goldstrand Investments, Inc. (2)(5) 225,000 5.8% 225,000 4.5%
The Quigley Corp. (2)
Shady Retreat Road
Doylestown, PA 18901 750,000 19.5% 750,000 15.1%
Clifton Management and Trading 225,000 5.8% 225,000 4.5%
Pension (2)(4)
ALL DIRECTORS AND OFFICERS AS A
GROUP 800,000 21% 800,000 16%
- ------------------
(1) Denotes Officer or Director.
(2) Denotes Selling Shareholder.
(3) Includes 50,000 shares issuable to each upon the exercise of warrants.
(4) Includes 225,000 shares issuable upon the exercise of warrants.
(5) Includes 225,000 shares issuable upon conversion of Note.
(6) Assumes maximum conversion or exercise of outstanding warrants and
convertible notes.
SELLING SHAREHOLDERS
- --------------------
Percentage of Number of
Number of Shares Shares Percentage of
Shares Beneficially Beneficially Owned Beneficially Owned Shares
Owned Prior to the Prior to the after the Beneficially Owned
Name and Address Offering Offering Offering(8) After Offering(8)
- ----------------- -------- -------- ----------- -----------
Goldstrand Investments, Inc. (2)(6) 225,000 5.8% 225,000 4.5%
The Quigley Corp. (1)(2)
Shady Retreat Road
Doylestown, PA 18901 750,000 19.5% 750,000 15.1%
Doylestown Partners, Inc. (2)(3) 125,000 3.2% 125,000 2.5%
105 Heidi Drive
Portsmouth, RI 02871
Ashworth Development LLC (2)(3) 100,000 2.6% 100,000 2.0%
Diocese of Palm Beach (2) 115,000 3.0% 115,000 2.3%
Clifton Management and Trading 225,000 5.8% 225,000 4.5%
Pension (1)(2)(4)
Talmudic Research Center (2)(7) 100,000 2.6% 100,000 2.0%
News USA, Inc. (2)(5) 75,000 2.0% 75,000 1.5%
Shamrock Equities, Inc. (2) 60,000 1.6% 60,000 1.2%
Richard Berman (2) 75,000 2.0% 75,000 1.5%
Total amount of shares being 1,850,000 48.0% 1,850,000 37.0%
registered
- ------------------
(1) Denotes Officer, Director or 5% Shareholder.
(2) Denotes Selling Shareholder.
(3) Includes 50,000 shares issuable to each upon the exercise of warrants.
(4) Includes 225,000 shares issuable upon the exercise of Class "B" warrants.
(5) Includes 25,000 shares issuable upon the exercise of Class "A" warrants.
(6) Includes 225,000 shares issuable upon conversion of Note.
(7) Includes 100,000 shares issuable upon the exercise of Class "A" warrants.
(8) Assumes maximum conversion or exercise of outstanding warrants and
convertible notes.
28
DESCRIPTION OF CAPITAL STOCK
- ----------------------------
The following summary of certain provisions of our capital stock does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of our Certificate of Incorporation, and the Bylaws that are
referenced as exhibits to this Registration Statement and by provisions of
applicable law.
Common Stock
We are presently authorized to issue up to 25,000,000 shares of common
stock, $.001 par value per share. As of September 15. 2003 there were 3,850,000
shares of common stock outstanding. If all of the shares of common stock
registered in this Registration Statement that are reserved and issuable upon
the exercise of outstanding warrants and convertible notes are issued there will
be 4,950,000 shares outstanding. The holders of common stock are entitled to one
vote for each share held of record on each matter submitted to a vote of
stockholders. There is no cumulative voting for election of directors. Subject
to the prior rights of any series of preferred stock which may from time to time
be outstanding, holders of common stock are entitled to receive ratably such
dividends as may be declared by our board of directors out of funds legally
available therefor, and, upon our liquidation, dissolution or winding up, they
are entitled to share ratably in all assets remaining after payment of
liabilities and payment of accrued dividends and liquidation preference on the
preferred stock, if any. Holders of common stock have no preemptive rights and
have no rights to convert their common stock into any other securities.
Preferred Stock
We are presently authorized to issue up to 1,000,000 shares of
preferred stock, $.01 par value per share. Such preferred stock may be issued in
one or more series, on such terms and with such rights, preferences and
designations as our board of directors may determine. Such preferred stock may
be issued without action by stockholders. On December 31, 2002, the Company
issued 100,000 Shares of Preferred Stock, designated Class "A" Redeemable
Preferred Stock, to The Quigley Corporation as partial consideration for the
acquisition of 60% of the Common Stock of Caribbean Pacific Natural Products,
Inc.
The holders of the Series A Stock shall be entitled to receive, in preference
to the holders of the Corporation's Common Stock, when, as and if declared by
the Corporation's Board of Directors, annual dividends at the rate of $.10 per
share and no more. Dividends on the Series A Stock shall be cumulative, and
declared but unpaid dividends shall not bear interest. The holders of Series A
Stock shall have no voting rights. No other Series or Class of Preferred Stock
which may subsequently be designated or authorized by the Board of Directors
shall be granted or otherwise be entitled to any voting rights.
The Corporation shall have the right to redeem the shares of Series A Stock
at any time following the date of issuance. The Redemption Price for each share
shall be $10.00 per share plus an interest factor which shall accrue from the
date of issuance through the date of redemption. The interest rate shall be a
fixed annual rate equal to the prime rate announced by Citibank, NA, New York
City, on the date of issuance, and may be payable in cash or accrued until
redemption. In the event that all shares are not put by the holder to the
Corporation or redeemed by the Corporation prior to December 31, 2007, all such
shares shall be redeemed by the Corporation at face value, together with accrued
interest, if any, as of that date.
29
Options and Warrants
In addition to our outstanding common stock, there are, as of September
15, 2003, issued and outstanding common stock purchase warrants which are
exercisable at the price-per-share indicated, and which expire on the date
indicated, as follows:
Description Number Exercise Price Expiration
- -------------------------------------------------------------------------------
Class "A" Warrants 625,000 $ 1.00 12/31/07
Class "B" Warrants 225,000 $ 0.66 12/31/03
We have also authorized and reserved for insurance up to 1,000,000 shares of
common stock in connection with the 2002 Incentive Stock Option Plan (to date,
no options have been granted).
Anti-Takeover Effects of Certain Provisions of Delaware Law
- -----------------------------------------------------------
We are subject to Section 203 of the General Corporate Law of the State
of Delaware, which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless:
o prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in
the stockholders becoming an interested stockholder; or
o upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining
the numbers of shares owned by persons who are directors and also
officers and by employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer; or
o on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting
of stockholders, and not by written consent, by the affirmative vote
of at least 66 2/3% of the outstanding voting stock that is not owned
by the interested stockholder.
Section 203 defines business combination to include:
o any merger or consolidation involving the corporation and the
interested stockholder;
o any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
o subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
o any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder;
or
30
o the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by
or through the corporation.
In general, Section 203 defines an interested stockholder as any entity
or person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
This provision could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, control
of us.
Transfer Agent And Registrar
- ----------------------------
Our transfer agent and registrar for our common stock is Liberty
Transfer Company, 274 B New York Avenue, Huntington, NY 11743, Telephone (631)
385-1616, Fax (631) 385-1619.
PLAN OF DISTRIBUTION
--------------------
This prospectus covers 1,850,000 shares of our common stock, including
750,000 shares issued to The Quigley Corporation and being registered with The
Quigley Corporation as a Selling Shareholder. The Quigley Corporation has
announced that it intends to distribute 500,000 of its shares to its
shareholders of record as of March 5, 2003 as a taxable dividend, but such
shareholders are not included as Selling Shareholders in this Registration
Statement.
All of the common stock offered hereby is being sold by the selling
Shareholders pursuant to a Resale Prospectus. We will not realize any proceeds
from the sale of the common stock by the selling shareholders. The selling
shareholders listed on page 33 of this prospectus are offering up to 1,850,000
shares of our common stock under this prospectus. The number of shares that the
selling shareholders may sell are comprised solely of shares of common stock,
some of which they will receive if they exercise warrants for the purchase of
shares of common stock OR the conversion of Convertible Notes. Through this
prospectus, we are only registering the re-sale of the shares of common stock,
including those to be issued upon the exercise of warrants, and a copy of the
prospectus will be provided to each purchaser of the Shares registered herein
(the "resale prospectus").
The selling shareholders will sell their shares in public or private
transactions at an initial price of $1.00 per Share (estimated by the Company
based upon the $1.00 exercise price of the majority of the outstanding Common
Stock Purchase Warrants). If and when a publicly-trading market develops for our
Common Stock, selling shareholders may sell at prevailing market prices or at
privately negotiated prices. We will not receive any proceeds from the sale of
the shares of common stock by the selling shareholders. The shares of common
stock registered in this offering that are issuable upon the exercise of
warrants are exercisable at prices from $.66 to $1.00 per Share and the warrants
do not contain cashless exercise provisions. If these warrants are fully
exercised, we will receive approximately $573,500 from the exercise of the
warrants.
The distribution of the common stock by the selling shareholders is not
subject to any underwriting agreement. The selling shareholders may sell the
common stock offered hereby from time to time in transactions on one or more
exchanges, in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices relating to prevailing
market prices or at negotiated prices. In addition, from time to time, the
selling shareholders may engage in short sales, short sales against the box,
puts and calls and other transactions in our securities or derivatives thereof,
and may sell and deliver the common stock in connection therewith.
31
From time to time, the selling shareholders may pledge their common
stock pursuant to the margin provisions of customer agreements with brokers.
Upon a default by a selling stockholder, the broker may offer and sell the
common stock.
Such transactions may be effected by selling the common stock to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the selling shareholders
and/or the purchasers of the common stock for whom such broker-dealers may act
as agents. The selling shareholders will pay any transaction costs
associated with effecting any sales that occur.
In order to comply with the securities laws of certain states, if
applicable, the common stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states, the
common stock may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with by us and the
selling shareholders.
Under applicable rules and regulations under the Securities Exchange
Act of 1934, as amended, any person engaged in the distribution of the common
stock may not simultaneously engage in market-making activities with respect to
our common stock for a period of two business days prior to the commencement of
such distribution. In addition and without limiting the foregoing, the selling
shareholders will be subject to applicable provisions of the Securities Exchange
Act of 1934 and the rules and regulations thereunder, including without
limitation, Rules 10b-6, 10b-6A and 10b-7, which provisions may limit the timing
of the purchases and sales of shares of common stock by the selling
shareholders.
The selling shareholders are not restricted as to the price or prices
at which they may sell their common stock. Sales of such shares may have an
adverse effect on the market price of the common stock.
We have agreed to pay all fees and expenses incident to the
registration of the common stock, except selling commissions and fees and
expenses of counsel or any other professionals or other advisors, if any, to the
selling shareholders.
This prospectus also may be used, with our consent, by donees or other
transferees of the selling shareholders, or by other persons acquiring the
common stock under circumstances requiring or making desirable the use of this
prospectus for the offer and sale of such shares.
LEGAL MATTERS
-------------
The legality of the shares of common stock offered hereby will be
passed upon by Robert Jaffe, Esq., Springfield, NJ. Mr. Jaffe owns warrants to
purchase common stock.
EXPERTS
-------
Our consolidated financial statements as of December 31, 2002 and 2001
and for the years then ended included in this prospectus have been included in
reliance upon the report of Schuhalter Coughlin & Suozzo, PC, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
32
WHERE YOU CAN FIND MORE INFORMATION
-----------------------------------
We have filed a registration statement on Form SB-2 with the Securities
and Exchange Commission for our common stock offered in this offering. This
prospectus does not contain all of the information set forth in the registration
statement. You should refer to the registration statement and its exhibits for
additional information. Whenever we make references in this prospectus to any of
our contracts, agreements or other documents, the references are not necessarily
complete and you should refer to the exhibits attached to the registration
statement for the copies of the actual contract, agreement or other document.
You may read our Securities and Exchange Commission filings, including
the registration statement, over the Internet at the Securities and Exchange
Commission's website at http://www.sec.gov. You may also read and copy any
document we file with the Securities and Exchange Commission at its public
reference facilities at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the Securities
and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the operation of the public reference
facilities.
33
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditor's Report.................................................F-1
Balance Sheets as of June 30, 2003 (Unaudited) and
December 31, 2002..........................................................F-2
Statements of Operations for the six months ended
June 30, 2003 (Unaudited)and the two years
ended December 31, 2002....................................................F-3
Statements of Stockholders' Equity for the six months
ended June 30, 2003 (Unaudited) and the two years ended
December 31, 2002 and 2001.................................................F-4
Statements of Cash Flows for the six months ended
June 30, 2003 (Unaudited) and the two
years ended December 31, 2002 and 2001.....................................F-5
Notes to Financial Statements........................................F-6 to F-21
To the Board of Directors and Stockholders
Suncoast Naturals, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of
Suncoast Naturals, Inc. and Subsidiary as of December 31, 2002 and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for each of the two years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Suncoast Naturals, Inc. and Subsidiary as of December 31, 2002 and the results
of operations and its cash flows for each of the two years then ended in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company incurred a net loss of $875,904 during the
year ended December 31, 2002, and the existing working capital may be
insufficient to fund the Company's cash flow needs for the next year. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters also are described in Note
1. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Schuhalter, Coughlin & Suozzo, PC
Certified Public Accountants
Raritan, New Jersey
March 29, 2003, except for Note 13, as to which the date is June 26, 2003.
F-1
SUNCOAST NATURALS, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
2002 2003
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 20,189 $ 57,411
Accounts receivable less doubtful accounts
of $30,000 and $36,000 328,670 220,740
Inventory 261,089 166,820
Prepaid expenses and other current assets 50,983 68,792
----------- -----------
TOTAL CURRENT ASSETS 660,931 513,763
PROPERTY, PLANT AND EQUIPMENT, net 62,771 64,248
----------- -----------
OTHER ASSETS:
Other assets 27,658 28,138
----------- -----------
TOTAL OTHER ASSETS 27,658 28,138
----------- -----------
TOTAL ASSETS 751,360 606,149
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 172,867 214,432
Accrued royalties and sales commissions 55,436 70,892
Other current liabilities 98,358 160,277
----------- -----------
TOTAL CURRENT LIABILITIES 326,661 445,601
----------- -----------
LONG TERM LIABILITIES - SHAREHOLDERS -- 112,847
----------- -----------
MINORITY INTERESTS -- --
----------- -----------
REDEEMABLE PREFERRED STOCK, $.01 par value, authorized 1,000,000:
Issued 100,000 shares, at par value 1,000 1,000
Present value of redemption amount in excess
of par value 936,596 952,165
----------- -----------
937,596 953,165
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, authorized:
25,000,000, 3,850,000 and 3,850,000 shares
issued and outstanding at December 31, 2002
and June 30, 2003, respectively 3,850 3,850
Additional paid-in-capital 1,574,271 1,584,271
Retained deficit (2,091,018) (2,493,585)
----------- -----------
TOTAL STOCKHOLDERS' (DEFICIT) (512,897) (905,464)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 751,360 $ 606,149
=========== ===========
See accompanying notes to financial statements.
F-2
SUNCOAST NATURALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the For the
Years Ended Six Months Ended
December 31, June 30,
2001 2002 2002 2003
--------- --------- -------- -------
(Unaudited)
NET SALES $2,176,740 $2,040,313 $ 1,200,324 $ 682,296
COST OF SALES 685,864 751,150 364,592 249,479
--------- --------- -------- -------
GROSS PROFIT 1,490,876 1,289,163 835,732 432,817
--------- --------- ------- --------
DIRECT OPERATING EXPENSES:
Sales and marketing 1,466,379 1,183,303 604,100 453,304
Administration 923,698 992,182 423,301 337,911
--------- --------- ------- -------
TOTAL OPERATING EXPENSES 2,390,077 2,175,485 1,027,401 791,215
--------- --------- --------- -------
(LOSS) FROM OPERATIONS BEFORE
OTHER INCOME AND EXPENSE (899,201) (886,322) (191,669) (358,398)
--------- --------- -------- -------
Settlement Income - 105,000 - -
Start Up Costs - (31,000) - (26,000)
Interest Costs (net) (45,575) (63,582) (28,798) (18,169)
----------- --------- --------- -------
LOSS BEFORE TAXES (944,776) (875,904) (220,467) (402,567)
PROVISION FOR INCOME TAX - - - -
--------- -------- ------- -------
NET (LOSS) $ (944,776) $ (875,904) $(220,467) $(402,567)
========= ========= ======== =======
Net Loss per share: $ ( .25) $ (.23) $ (.06) $ (.10)
========= ========= ======== =======
Common shares outstanding: 3,850,000 3,850,000 3,850,000 3,850,000
========= ========= ========= =========
See accompanying notes to financial statements.
F-3
SUNCOAST NATURALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock Additional
$.001 Paid-In Retained
Shares Par Value Capital Deficit Total
----------- ----------- ----------- ----------- -----------
Balance January 1, 2001 -- $ -- $ 828,335 $ (270,338) $ 557,997
Net assets acquired, at historical valued,
effective retroactively to the
beginning of period (Note 3) 750,000 750 582,239 -- 582,989
Other adjustments (Note 3) -- -- 30,015 -- 30,015
Net loss year ended December 31, 2001 -- -- -- (944,776) (944,776)
----------- ----------- ----------- ----------- -----------
Balance December 31, 2001 750,000 750 1,440,589 (1,215,114) 226,225
Other adjustments (Note 3) -- -- 55,782 -- 55,782
Shares issued for services and
cancellation of debt 3,100,000 3,100 77,900 -- 81,000
Net loss year ended December 31, 2002 -- -- -- (875,904) (875,904)
----------- ----------- ----------- ----------- -----------
Balance December 31, 2002 3,850,000 3,850 1,574,271 (2,091,018) (512,897)
Other adjustments (Note 3) -- -- 10,000 -- 10,000
Net loss for the six months
ended June 30, 2003 (unaudited) -- -- -- (402,567) (402,567)
----------- ----------- ----------- ----------- -----------
Balance, June 30, 2003 3,850,000 $ 3,850 $ 1,589,271 $(2,493,585) $ (905,464)
=========== =========== =========== =========== ===========
See accompanying notes to financial statements.
F-4
SUNCOAST NATURALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the For the
Years Ended Six Months Ended
December 31, June 30,
2001 2002 2002 2003
--------- --------- --------- ---------
(Unaudited)
OPERATING ACTIVITIES:
Net Income (Loss) $(944,776) $(875,904) $(220,467) $(402,567)
Adjustments to reconcile net income
(loss) to net cash provided by
operations:
Common stock issued for services -- 50,000 -- --
Depreciation and amortization 31,500 19,108 9,277 10,488
Book value of assets disposed -- 10,952 6,360 --
Bad debt 7,500 9,140 4,644 10,843
(Increase) decrease in assets:
Accounts receivable (56,889) (117,913) (123,380) 101,930
Inventory (71,980) 155,437 (53,870) 94,269
Other current assets (13,482) 8,322 (16,168) (17,809)
Other assets (16,888) (4,464) (1,607) (480)
Increase (decrease) in liabilities:
Accounts payable 12,530 79,859 89,322 41,566
Accrued expenses - royalties 41,296 25,781 65,062 15,456
Accrued expenses - other 258,255 63,898 (39,759) 69,710
Redeemable preferred stock -- -- -- 15,569
--------- --------- --------- ---------
Total adjustments 191,842 300,120 (60,119) 341,542
--------- --------- --------- ---------
NET CASH (USED IN)
OPERATING ACTIVITIES (752,934) (575,784) (280,586) (61,025)
--------- --------- --------- ---------
INVESTING ACTIVITIES:
Purchase of fixed assets (24,461) (9,081) -- (12,000)
--------- --------- --------- ---------
NET CASH FLOWS (USED IN) INVESTING
ACTIVITIES (24,461) (9,081) -- (12,000)
--------- --------- --------- ---------
FINANCING ACTIVITIES:
Advance from former parent company 689,484 517,519 343,500 --
Issuance of Stock 4,000 -- -- --
Payment of purchase obligation (123,536) -- -- --
Advance from officers -- 31,000 -- 110,247
--------- --------- --------- ---------
NET CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES 569,948 548,519 343,500 110,247
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH (27,447) (36,346) 62,914 37,222
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 83,982 56,535 56,535 20,189
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 56,535 $ 20,189 $ 119,449 $ 57,411
========= ========= ========= =========
See accompanying notes to financial statements.
F-5
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the periods June 30, 2002 and June 30, 2003)
NOTE 1 - GOING CONCERN
As shown in the accompanying financial statements, the Company incurred
a net loss of $875,904 during the year ended December 31, 2002. Additionally,
the company had a stockholders' deficit of $ 512,897 at December 31, 2002 and
its working capital at that time is not sufficient to support the Company's
losses from operations at existing levels for the next year. The Company plans
to raise more capital through public or private financing, through the issuance
of its common stock, the issuance of debt instruments, including debt
convertible to equity, or otherwise attain financing, which if available, it
cannot be certain such financing will be on attractive terms. Should the Company
obtain more capital, in turn, it may cause dilution to its existing stockholders
and providing the company can obtain more capital, it cannot be assured to
ultimately attain profitability. These factors create substantial doubt as to
the Company's ability to continue as a going concern.
The Company intends to continue its efforts to complete the necessary
steps in order to meet its cash flow requirements throughout fiscal 2003 and to
continue its product development efforts and adjust its operating structure to
reduce losses and ultimately attain profitability. Management's plans in this
regard include, but are not limited to, the following:
1. Raise additional working capital by either borrowing or through the
issuance of equity, or both;
2. Negotiate terms with existing trade creditors and strategic vendors;
negotiate an alliance with strategic co-venturers for stronger
distribution channels in the skin care, natural health and body care
markets and commence limited manufacturing of its own products to
reduce product costs.
3. Re-align revenue producing activities and corresponding commission
arrangements on such a scale that will proportionately reduce selling
expenses and reduce other costs wherever possible to improve operating
margins and relieve the overhead burden until ultimately profitability
may be attained.
Management believes that actions presently being taken will generate
sufficient revenues to provide cash flows from operations and that sufficient
capital will be available, when required, to permit the Company to realize its
plans. However, there can be no assurance that this will occur. The accompanying
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
F-6
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
Unaudited for the periods June 30, 2002 and June 30, 2003)
NOTE 2 - ORGANIZATION AND NATURE OF BUSINESS
Suncoast Naturals, Inc. (the "Company") organized under the laws of the
State of Delaware, in November, 2002. The Company is a sun-care and skin-care
Company specializing in the development, manufacture and sale of all-natural
sun-, skin-, and body-care products to the resort, boutique, spa, and natural
health markets. The Company's executive office and distribution facility are
located in Orlando, Florida.
Effective December 31, 2002, the Company acquired a 60% ownership
position in Caribbean Pacific Natural Products, Inc., ("CARIBBEAN PACIFIC
NATURAL PRODUCTS") which is a developer and marketer of all-natural sun-care and
skincare products for luxury resorts, theme parks and spas. In December 2002,
the Board of Directors of The Quigley Corporation ("Quigley") approved a plan to
sell CARIBBEAN PACIFIC NATURAL PRODUCTS and on January 22, 2003, completed the
sale of Quigley's 60% equity interest in CARIBBEAN PACIFIC NATURAL PRODUCTS to
the Company.
CP Suncoast Manufacturing, Inc., a wholly-owned subsidiary, was
organized in May, 2003 and is intended to manufacture the Company's products as
well as provide contract manufacturing for non-competing products formulated or
distributed by other non-affiliated companies.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Consolidated Financial Statements include the accounts of the
Company and its 60% owned subsidiary, Caribbean Pacific Natural Products, Inc.
All inter-company transactions and balances have been eliminated. In the opinion
of management, all adjustments necessary to present fairly the consolidated
financial position, consolidated results of operations and consolidated cash
flows, for the periods indicated, have been made. Certain prior period amounts
have been reclassified to conform with the 2002 presentation.
RECAPITALIZATION OF CARIBBEAN PACIFIC NATURAL PRODUCTS, INC.
Material sales and expenses included in these consolidated financial
statements result from the inclusion of financial information of the Company's
60% owned subsidiary Caribbean Natural Products, Inc. ("CARIBBEAN PACIFIC
NATURAL PRODUCTS"), which is a developer and marketer of all-natural sun-care
and skincare products for luxury resorts, theme parks and spas. In December
2002, the Board of Directors of the Company approved a plan to acquire CARIBBEAN
PACIFIC NATURAL PRODUCTS. On January 22, 2003, the Company acquired a 60% equity
interest in CARIBBEAN PACIFIC NATURAL PRODUCTS. In exchange for its 60% equity
interest in CARIBBEAN PACIFIC NATURAL PRODUCTS, the Company issued to the
Quigley Corporation : (i) 750,000 shares of the Company's common stock, which
Suncoast has agreed, at its cost, to register for public resale through an
appropriate registration statement; and (ii) 100,000 shares of Suncoast's Series
A Redeemable Preferred Stock, which bears certain redemption features discussed
in Note 9 - Redeemable Preferred Stock.
F-7
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the periods June 30, 2002 and June 30, 2003)
Pursuant to SFAS No. 141, which applies to business combinations after
June 30, 2001, which requires the use of the purchase method of accounting for
all business combinations, carrying forward the guidance from APB 16 with
respect to; (a) the principles of historical cost accounting, (b) determining
the cost of the acquired entity and (c) allocation of cost to assets and
liabilities assumed; "CARIBBEAN PACIFIC NATURAL PRODUCTS" is considered the
acquiring entity. As such the historical balances of "CARIBBEAN PACIFIC NATURAL
PRODUCTS" assets and liabilities representing the carrying value and
corresponding allocation of the purchase price, and therefore, the transaction
is equivalent to a reverse acquisition, which in this case, no partial step up
in asset values discussed in EITF 90-3 apply, and thereby no goodwill or
intangible assets have been recorded. The equity issued by the Company was
valued at the (a) present value of the redeemable preferred shares issued to
"Quigley" and (b) common stock and additional paid in capital was recorded at
the value of the remaining liability to "Quigley" canceled by the exchange
agreement.
ACCOUNTING FOR BUSINESS COMBINATION OF CARIBBEAN PACIFIC NATURAL PRODUCTS,
APPLICATION OF SAB 103
During the years ended December 31, 2000, 2001 and 2002, the results of
operations, cash flows and assets and liabilities of CARIBBEAN PACIFIC NATURAL
PRODUCTS were included in the consolidated financial statements of the Quigley
Corporation, the effect of which were reported as discontinued operations in
2002. The financial statements of "Quigley" were audited by another auditor, and
the results of this subsidiary were not reported separately. Recently the staff
of Corporate Finance Division of the Securities and Exchange Commission, "SEC",
provided guidance in the codification of its staff accounting bulletins ("SABS")
and in discussion of accounting for former subsidiaries, such as the case with
CARIBBEAN PACIFIC NATURAL PRODUCTS, indicated that reasonable estimates for
expenses of the use of a parent company's capital (ie. interest) and other
corporate charges connected with operating as a stand alone entity (including
legal fees, audit fees and administrative expenses) should be estimated when the
division or subsidiary is presented individually. The financial statements
include such estimates and additional expenses were recorded, and a like amount
was credited to additional paid in capital for the periods presented as follows:
Years Ended Six Months Ended
December 31, June 30,
2001 2002 2002 2003
- ------------------- ------ ------ ------ ------
(Unaudited)
Interest and
administrative costs $30,015 $55,782 $25,798 $10,000
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation is
provided on the straight-line method over estimated useful lives of three to
five years.
INVENTORIES
Inventories are stated at the lower of cost or market. The Company uses
the first-in, first-out ("FIFO") method of determining cost for all inventories.
Inventories are comprised of raw materials and finished goods.
F-8
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the periods June 30, 2002 and June 30, 2003)
INTERIM FINANCIAL INFORMATION
The interim financial information at June 30, 2003 and for the six
months ended June 30, 2002 and 2003 is unaudited. In the opinion of management
the interim financial statements have been prepared on the same basis as the
annual financial statements and includes all adjustments (consisting of normal
recurring adjustments) that the Company considers necessary for a fair
presentation of its financial position at such date and its operating results
and cash flows for those periods. Results for the interim period are not
necessarily indicative of the results to be expected for the entire year, or any
future period.
FOREIGN CURRENCY TRANSACTIONS
In the normal course of business the Company has accounts receivable
and accounts payable that are transacted in foreign currencies. The Company
accounts for transaction differences, in accordance with Statement of Financial
Standard No. 52, "Foreign Currency Translation", and accounts for the gains or
losses in operations. For all periods presented, these amounts were immaterial
to the Company's operations.
COMPREHENSIVE INCOME
For foreign operations outside the United States that prepare financial
statements in currencies other than the U.S. dollar, results of operations and
cash flows are translated at average exchange rates during the period and assets
and liabilities are translated at end-of-period exchange rates. Translation
adjustments are included as a separate component of accumulated other
comprehensive income (loss) in shareholders' equity.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the dates of the financial statements
and the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an initial
maturity of three months or less at the time of purchase to be cash equivalents.
Cash equivalents include cash on hand and monies invested in money market funds.
The carrying amount approximates the fair market value due to the short-term
maturity of these investments.
F-9
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the periods June 30, 2002 and June 30, 2003)
CONCENTRATION OF RISKS
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
investments and trade accounts receivable.
Trade accounts receivable potentially subjects the Company to credit
risk. The Company extends credit to its customers based upon an evaluation of
the customer's financial condition and credit history and generally does not
require collateral. The Company has historically incurred minimal credit losses.
The Company's range of customers includes hotels, resorts and theme park gift
shops, product stands and individual sales representatives.
LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment on an
exception basis whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable through future cash flows.
If it is determined that an impairment loss has occurred based on the expected
cash flows, a loss is recognized in the Statement of Operations.
INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted SFAS Nos. 141 and 142.
SFAS 142 eliminates amortization of goodwill and certain other intangible
assets, but requires annual testing for impairment (comparison of fair market
value to carrying value). Fair value is estimated using the present value of
expected future cash flows and other measures. The adoption of SFAS No. 141 and
142 did not have a material impact on our financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for
Suncoast's cash, accounts receivable, accounts payable and accrued expenses
approximate their fair values due to the short maturities of these financial
instruments. The carrying amounts reported in the consolidated balance sheets
for Suncoast's long-term debt due to related parties approximate their fair
values as they represent the amount the Company expects to liquidate these
obligations with cash or cash equivalents, and the amounts recorded as other
liabilities - redeemable preferred stock approximate their fair value as they
represent the amount in which the Company expects to satisfy these obligations
by payment in cash in 2007 or by the issuance of the Company's equity without
material gain or loss.
REVENUE RECOGNITION
Sales are recognized at the time ownership is transferred to the
customer, which is primarily the time the shipment is received by the customer.
In limited instances, selected trial periods, whereby the customer has the right
of return until the selected trial period ends, the Company recognizes revenue
when the trial period ends and no right of return exists.
Sales returns and allowances are provided for in the period that the
related sales are recorded. Provisions for these reserves are based on
historical experience.
F-10
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the periods June 30, 2002 and June 30, 2003)
As required, effective January 1, 2003, the Company has adopted the
Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements" which provides guidelines on
applying generally accepted accounting principals to revenue recognition based
upon the interpretations and practices of the SEC. The Company recognizes
revenue for its products at the time of shipment, at which time, no other
significant obligations of the Company exist, other than normal product
warranties.
SHIPPING AND HANDLING
The Company includes costs of shipping and handling billed to customers
in revenue and the expense of shipping and handling costs is included in cost of
sales.
STOCK BASED COMPENSATION
Financial Accounting Statement No. 123, Accounting for Stock Based
Compensation, encourages, but does not require companies to record compensation
cost for stock-based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation using the intrinsic
method prescribed in Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock. The Company has adopted the
"disclosure only" alternative described in SFAS 123 and SFAS 148, which require
pro forma disclosures of net income and earnings per share as if the fair value
method of accounting had been applied.
ROYALTIES
The Company includes royalties and founders commissions incurred as
cost of sales based on agreement terms.
ADVERTISING
Advertising costs are expensed within the period in which they are
utilized. Advertising expense is comprised of media advertising, presented as
part of sales and marketing expense; co-operative advertising, which will be
accounted for as a deduction from sales; and free product, which is accounted
for as part of cost of sales. No advertising costs incurred for the years ended
December 31, 2002 and 2001.
INCOME TAXES
The Company utilizes an asset and liability approach which requires the
recognition of deferred tax assets and liabilities for the future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, the Company
generally considers all expected future events other than enactments of changes
in the tax law or rates. See Notes to Financial Statements, Note 7 - Income
Taxes for further discussion.
F-11
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the periods June 30, 2002 and June 30, 2003)
START-UP COSTS
Pursuant to Statement of Position 98-5, the Company expenses start-up
costs associated with its ;parent company's activation activities and costs and
expensed incurred in connection with the acquisition of CARIBBEAN PACIFIC
NATURAL PRODUCTS, which pursuant to FASB 142 and APB 16, were expensed as
transaction costs. The Statement of Position broadly defines start-up activities
as activities related to organizing a new business, as well as one-time
activities associated with, opening a new facility, introducing new products or
services, conducting business with a new class of customers or in a new
territory, and starting a new process in an existing facility or starting a new
operation. Start up costs for the year ended December 31, 2002 were $31,000 and
for the six months ended June 30, 2003 (unaudited) were $26,000.
MINORITY INTERESTS
The Company's "CARIBBEAN PACIFIC NATURAL PRODUCTS" subsidiary is 40%
owned by a related party whom has made a nominal investment, of which losses
since inception have reduced the investment to a value of $0. The Company has
not recorded earnings in the "CARIBBEAN PACIFIC NATURAL PRODUCTS" subsidiary.
Should the Company attain and record net income in this subsidiary, 40% would be
allocated to the minority shareholders, and cumulatively, should this subsidiary
accumulate earnings in excess of its cumulative losses, the Company would record
amounts allocable to "minority interest", which would be a reduction of
stockholders' equity.
SETTLEMENT INCOME
During the year ended 2002, the Company recorded settlement income of
$105,000, net of expenses, for payments received in connection with a settlement
with Virgin Atlantic Company. Virgin Atlantic had challenged a trademark granted
to the Company in the United States and the Company agreed to retire the
trademark in question as a condition of the settlement.
STATEMENT OF CASH FLOW SUPPLEMENTAL INFORMATION
Years Ended Six Months Ended
December 31, June 30,
2001 2002 2002 2003
-------- -------- ------- -------
(Unaudited)
Interest paid, net $ 11,657 $ -- $ -- $ --
======== ======== ======= =======
Taxes paid $ -- $ -- $ -- $ --
======== ======== ======= =======
Schedule of non-cash Investing and
Financing Activities:
Conversion of liability to former
parent to common stock $ -- $582,989 $ -- $ --
======== ======== ======= =======
Conversion of liability to former
parent to redeemable preferred
stock $ -- $937,596 $ -- $ --
======== ======== ======= =======
Conversion of note payable to
related party to common stock $ -- $ 31,000 $ -- $ --
======== ======== ======= =======
F-12
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the periods June 30, 2002 and June 30, 2003)
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement rescinds SFAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt," and an amendment of that statement, SFAS No. 44,
"Accounting for Intangible Assets of Motor Carriers," and SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." This
statement amends SFAS No. 13, "Accounting for Leases," to eliminate
inconsistencies between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. Also, this statement
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. Provisions of SFAS No. 145 related to the rescission of SFAS No. 4
were effective for the Company on November 1, 2002 and provisions affecting SFAS
No. 13 were effective for transactions occurring after May 15, 2002. The
adoption of SFAS No. 145 did not have a material impact on our financial
statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement covers
restructuring type activities beginning with plans initiated after December 31,
2002. Activities covered by this standard that are entered into after that date
will be recorded in accordance with the provisions of SFAS No. 146. Management
does not believe there will be a significant impact on our consolidated
financial position or results of operations.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which provides alternative methods of
transition for a voluntary change to fair value based method of accounting for
stock-based employee compensation as prescribed in SFAS 123, "Accounting for
Stock-Based Compensation." Additionally, SFAS 148 required more prominent and
more frequent disclosures in financial statements about the effects of stock-
based compensation. The provisions of this Statement are effective for fiscal
years ending after December 15, 2002, with early application permitted in
certain circumstances. The Company has adopted the disclosure provisions in
these consolidated financial statements as disclosed above under Stock Based
Compensation.
In November 2002, the FASB Issued FASB interpretation (FIN) No. 45
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Other." FIN No. 45 requires guarantor to
recognize, at the inception of a qualified guarantee, a liability for the fair
value of the obligation undertaken in issuing or modified after December 31,
2002. Management does not expect adoption of this Interpretation to have a
material impact on the Company's financial condition or results of operations.
F-13
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the periods June 30, 2002 and June 30, 2003)
NOTE 4 -INVENTORY
Inventory consists mainly of the Company's skin care and health
products and corresponding branded packaging materials. Inventory is comprised
of the following:
December 31, June 30,
2002 2003
------ ------
(Unaudited)
Raw Materials $ 194,581 $ 147,707
Finished goods 110,242 62,487
------- -------
Total 304,823 210,194
Less: Reserve for obsolescence (43,374) (43,374)
------- -------
$ 261,089 $ 166,820
======= =======
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of:
December 31, June 30,
2002 2003
------ ------
(Unaudited)
Improvements and fitouts $ 17,650 $ 17,650
Machinery and equipment 17,857 17,857
Computer software and website 27,644 39,644
Furniture and fixtures 52,662 52,662
------- -------
117,662 129,662
Less: Accumulated depreciation (59,891) (65,414)
------- -------
Property, Plant and Equipment, net $ 62,771 $ 64,248
======= =======
Depreciation expense for the years ended December 31, 2002 and 2001 was
$19,108 and $31,500, respectively and $10,488 and $9,277 for the six months
ended June 30, 2003 and 2002, respectively.
F-14
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the periods June 30, 2002 and June 30, 2003)
NOTE 6 - SEGMENT INFORMATION
The Company has one reporting segment relating to the sales of all-
natural sun-care and skincare products for luxury resorts, theme parks and spas.
As defined in SFAS 31, "Disclosures about Segments of an Enterprise and Related
Information," allocate resources and assess the performance of the Company based
on revenue and overall profitability.
For the years ended December 31, 2002 and 2001, the Company had one
customer who contributed greater than 11.5% and 7.6%, respectively, of the
Company's total revenues.
The level of sales to any single customer may vary and the loss of this
customer, or a decrease in the level of sales to this customers, could have a
material impact on the Company's financial condition or results of operations.
The Company's operations area conducted in the United States and
Mexico. The Company only has sales stations in Mexico and all operations
including distribution, marketing and administrative services are performed in
the United States. The Company has not incurred any foreign currency trading
adjustments as all of its sales are settled in U.S. dollars. In addition, all of
its business units books are maintained in U.S. dollars.
Certain information related to the Company's operations by geographic
area is presented below (in thousands). The Company's revenues are attributed to
the geographic areas according to the location of their sales stations.
Years Ended Six Months Ended
December 31, June 30,
2001 2002 2002 2003
------ ------ ------ ------
Net Sales
United States $ 1,661 $ 1,601 $ 965 $ 584
Mexico 516 439 235 98
---- ----- ----- -----
Total $ 2,177 $ 2,040 $ 1,200 $ 682
===== ===== ===== =====
All of the Company's long-lives assets are located in the United
States.
F-15
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the periods June 30, 2002 and June 30, 2003)
NOTE 7 - INCOME TAXES
At December 31, 2001 and 2002, the Company had net operating loss
carryforwards of approximately $1,250,000 and $2,091,000, respectively, for book
and tax purposes, expiring from 2007 to 2022. As a result of the Tax Reform Act
of 1986, the Company may be obligated to pay an alternative minimum tax on its
alternative minimum taxable income, even though it has a loss carryfoward. These
carryforwards are subject to possible limitations on annual utilization if there
are "equity structural shifts" or "owner shifts" involving "5% shareholders" (as
these terms are defined in Section 382 of the Internal Revenue Code), which
result in more than a 50% point change in ownership.
At this time, the Company does not believe it can reliably predict
profitability beyond the current fiscal year. Accordingly, the deferred tax
asset applicable to operations subsequent to December 31, 2002 has been reduced
in its entirety by the valuation allowance. For the periods ending December 31,
2001 and 2002 the provision for taxes is comprised only of appropriate state
income taxes.
Reconciliation of income taxes shown in the financial statements and
amounts computed by applying the Federal income tax rate of 34% for the years
ended December 31, 2001 and 2002 respectively is as follows:
2001 2002
------- -------
Loss Before Income Taxes $ (944,776) $ (875,904)
Computed expected tax credit 321,225 297,805
Operating loss for which no
benefits were provided (321,225) (297,805)
State and local tax - -
------- -------
Provision for income taxes $ - $ -
======= =======
NOTE 8 - LOSS PER SHARE
The Company has adopted SFAS No.128, "Earnings per Share." Earnings per
common share are computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding during the period. The
earnings per common share computation, assuming dilution, gives effect to all
dilutive potential common shares during the period. The computation assumes that
the outstanding stock options and warrants were exercised and that the proceeds
were used to purchase common shares of the Company. Common equivalent shares
have been excluded from the computation of diluted earnings per share since
their effect is antidilutive. Loss per share is also calculated giving
retroactive recognition for the number of equivalent shares issued to Quigley in
connection with the acquisition of "CARIBBEAN PACIFIC NATURAL PRODUCTS," and the
3,100,000 shares issued for formation services and cancellation of advances in
2002 as being outstanding at the beginning of all periods presented.
F-16
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the periods June 30, 2002 and June 30, 2003)
NOTE 9 - REDEEMABLE PREFERRED STOCK
On December 31, 2002, the Company issued 100,000 Shares of Preferred
Stock, designated Class "A" Redeemable Preferred Stock, to The Quigley
Corporation as partial consideration for the acquisition of 60% of the Common
Stock of Caribbean Pacific Natural Products, Inc.
The holders of the Series A Stock shall be entitled to receive, in
preference to the holders of the Corporation's Common Stock, when, as and if
declared by the Corporation's Board of Directors, annual dividends at the rate
of $.10 per share and no more. Dividends on the Series A Stock shall be
cumulative, and declared but unpaid dividends shall not bear interest. The
holders of Series A Stock shall have no voting rights. No other Series or Class
of Preferred Stock which may subsequently be designated or authorized by the
Board of Directors shall be granted or otherwise be entitled to any voting
rights.
The Corporation shall have the right to redeem the shares of Series A Stock
at any time following the date of issuance. The Redemption Price for each share
shall be $10.00 per share plus an interest factor which shall accrue from the
date of issuance through the date of redemption. The interest rate shall be a
fixed annual rate equal to the prime rate announced by Citibank, NA, New York
City, on the date of issuance, and may be payable in cash or accrued until
redemption. In the event that all shares are not put by the holder to the
Corporation or redeemed by the Corporation prior to December 31, 2007, all such
shares shall be redeemed by the Corporation at face value, together with accrued
interest, if any, as of that date. These preferred shares were valued at
$937,596, which represented the net present value of the redemption obligation,
which absent early redemption by the Company, has a fixed redemption date of
January 22, 2007.
During the six month period ended June 30, 2003, the Company imputed
$15,569 of interest expense on this obligation.
NOTE 10 - CAPITAL STOCK
Significant provisions of the Company's capital stock are highlighted
below and are subject to the provisions of the Company's Certificate of
Incorporation and the Bylaws:
Preferred Stock
The Company presently authorized to issue up to 1,000,000 shares of
preferred stock, $.01 par value per share. Such preferred stock may be issued in
one or more series, on such terms and with such rights, preferences and
designations as our board of directors may determine. Such preferred stock may
be issued without action by stockholders. On December 31, 2002, the Company
issued 100,000 Shares of Preferred Stock, designated Class "A" Redeemable
Preferred Stock, to The Quigley Corporation as partial consideration for the
acquisition of 60% of the Common Stock of Caribbean Pacific Natural Products,
Inc. (See Note 9.)
F-17
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the periods June 30, 2002 and June 30, 2003)
Common Stock
The Company is presently authorized to issue up to 25,000,000 shares of
common stock, $.001 par value per share. The holders of common stock are
entitled to one vote for each share held of record on each matter submitted to a
vote of stockholders. Subject to the prior rights of any series of preferred
stock which may from time to time be outstanding, holders of common stock are
entitled to receive ratably such dividends as may be declared by our board of
directors out of funds legally available therefor, and, upon our liquidation,
dissolution or winding up, they are entitled to share ratably in all assets
remaining after payment of liabilities and payment of accrued dividends and
liquidation preference on the preferred stock, if any. Holders of common stock
have no preemptive rights and have no rights to convert their common stock into
any other securities.
In November, 2002, the Company issued 1,915,000 Shares of Common Stock
and 425,000 warrants (the "A" warrants) to purchase 425,000 shares of Common
Stock at $1.00 per share through December 31, 2007, to officers, consultants and
directors for formation services rendered to the Company valued at $50,000, the
value ascribed to the services as the Company had yet to establish a market for
the Company's common stock.
In November, 2002, the Company issued 1,185,000 Shares of Common Stock
in consideration for the cancellation of $31,000 indebtedness for cash advances.
Effective for December, 2002, the Company issued 750,000 Shares of
Common Stock to The Quigley Corporation as partial consideration for its
purchase of a 60% controlling interest in Caribbean Pacific Natural Products,
Inc., valued at $582,989.
In April and May, 2003, the Company issued 200,000 shares of Common Stock
at the price of $.66 per share, together with 125,000 warrants (the "A"
warrants) to purchase 125,000 shares of Common Stock at $1.00 per share through
December 31, 2007, for total proceeds to the Company of $132,000. (See Note 13 -
Subsequent Events)
In May, 2003, the Company issued $150,000 principal value of Convertible
Notes, convertible into 225,000 shares of Common Stock at the price of $.66 per
share on or prior to the maturity date of September 30, 2003. (See Note 13 -
Subsequent Events)
In May, 2003, the Company issued 100,000 warrants (the "A" warrants) to
purchase 100,000 shares of Common Stock at $1.00 per Share through December,
2007, and 225,000 warrants (the "B" warrants) to purchase 225,000 shares of
Common Stock at $.66 per Share through December, 2003. (See Note 13 - Subsequent
Events)
F-18
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the periods June 30, 2002 and June 30, 2003)
Options and Warrants
In addition to our outstanding common stock, there are, as of June 26,
2003, issued and outstanding common stock purchase warrants which are
exercisable at the price-per-share indicated, and which expire on the date
indicated, as follows:
Description Number Weighted Averag Expiration
Outstanding Exercise Price
Class "A" Warrants 650,000 $ 1.00 12/31/07
Class "B" Warrants 450,000 $ 0.66 12/31/03
--------- ------
Total 1,100,000 $ .86
========= ======
Reserved Shares
The Company has also reserved for insurance up to 1,000,000 shares of
common stock in connection with the 2002 Incentive Stock Option Plan. To date,
no options have been granted under this plan.
In July 2003, the Company agreed to a public relations agreement including
up to 350,000 shares, equity compensation of 100,000 shares to be issued for
services and a warrant for up to 250,000 shares at an exercise price of $1.00
per share may be issued under the agreement.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Operating Leases
Certain operating leases for the years ended December 31, 2001 and 2002
for office and warehouse space maintained by the Company resulted in rent
expense of $117,701 and $102,572, respectively, and $34,295 and $62,096 for June
30, 2002 and 2003, respectively.
The total future minimum rental payments for premises required are as
follows:
2003 $ 125,153
2004 130,159
2005 123,672
-------
$ 378,874
=======
Additionally, the Company leases fixtures and office equipment for the
years ended December 31, 2001 and 2002 under operating leases which resulted in
equipment rental expenses of $38,429 and $33,785, respectively, and $20,911 and
$13,497 for June 30, 2002 and 2003, respectively.
The total future minimum rental payments for equipment required are as
follows:
2003 $ 27,447
2004 26,539
2005 22,533
2006 2,182
--------
$ 78,701
========
F-19
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the periods June 30, 2002 and June 30, 2003)
Royalty Commitment
The Caribbean Pacific products are manufactured and marketed under an
exclusive, world-wide Product License Agreement from Caribbean Pacific
International, Inc. , the original developer of the products and owner of the
trademarks. The twenty five year licenses agreement expires in 2025, and
provides for a payment to Caribbean Pacific International, Inc. of a 5% royalty
on net sales receipts from sales of Caribbean Pacific-branded products. The
royalty is not applicable to products developed or sold by us which do not
utilize the Caribbean Pacific brand-name or trademarks. During the years ended
December 31, 2001 and 2002 the Company recorded royalty expense to Caribbean
Pacific International, Inc. of $65,930 and $57,945, respectively, and during the
six months ended June 30, 2002 and 2003 the Company recorded royalty expense to
Caribbean Pacific International, Inc. of $33,292 and $15,456, respectively.
Employment Agreements
The Company has entered into a one-year employment agreement with
William J. Reilly to serve as the President and General Counsel of the Company
at an annual salary of $48,000, commencing on May 30, 2003.
Litigation
From time to time the Company may be involved in various legal
proceedings and other matters arising in the normal course of business. The
Company believes no such actions would result in liabilities in excess of
amounts accrued in the financial statements.
NOTE 12 - RELATED PARTY TRANSACTIONS
In November, 2002, the Company issued 1,185,000 Shares of Common Stock
in consideration for the cancellation of $31,000 indebtedness for cash advances.
Effective for December, 2002, the Company issued 750,000 Shares of
Common Stock to The Quigley Corporation as partial consideration for its
purchase of a 60% controlling interest in Caribbean Pacific Natural Products,
Inc., valued at $582,989 and additionally the Company issued 100,000 Shares of
Preferred Stock, designated Class "A" Redeemable Preferred Stock, to The Quigley
Corporation as partial consideration for the acquisition of 60% of the Common
Stock of Caribbean Pacific Natural Products, Inc., valued at $937,596. During
the six month period ended June 30, 2003, the Company imputed $15,569 of
interest expense on this obligation.
During the six months ended June 30, 2003, the Company received
$110,247 of advances from the Company's president with no specific repayment
terms. Interest expense of $2,600 has been recorded on this debt for the six
months ended June 30, 2003.
Caribbean Pacific International, Inc., the holder of the royalty agreement,
is also the 40% minority shareholder of CARIBBEAN PACIFIC NATURAL PRODUCTS.
F-20
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the periods June 30, 2002 and June 30, 2003)
NOTE 13 - SUBSEQUENT EVENTS
CP Suncoast Manufacturing, Inc., a wholly-owned subsidiary, was organized
in May, 2003 and was organized for the purpose of manufacturing the Company's
products as well as provide contract manufacturing for non-competing products
formulated or distributed by other non-affiliated companies.
In April and May, 2003, the Company issued 200,000 shares of Common Stock
at the price of $.66 per share, together with 125,000 warrants (the "A"
warrants) to purchase 125,000 shares of Common Stock at $1.00 per share through
December 31, 2007, for total proceeds to the Company of $132,000.
In May, 2003, the Company issued $150,000 principal value of Convertible
Notes, convertible into 225,000 shares of Common Stock at the price of $.66 per
share on or prior to the maturity date of September 30, 2003.
In May, 2003, the Company issued 100,000 warrants (the "A" warrants) to
purchase 100,000 shares of Common Stock at $1.00 per Share through December,
2007, and 225,000 warrants (the "B" warrants) to purchase 225,000 shares of
Common Stock at $.66 per Share through December, 2003.
NOTE 14 - Subsequent Events (unaudited)
In July, 2003, the Company entered into a public relations agreement, which
the Company estimates will be for a term of up to three years. Principle terms
consist of cash payments totalling $250,000; 100,000 shares of the Company
Common Stock and 250,000 warrants, with an exercise price of $1.00 per shares to
be issued and vested over the contract period.
F-21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our certificate of incorporation provides that all directors, officers,
employees and agents of the registrant shall be entitled to be indemnified by us
except that such indemnification shall not eliminate or limit the liability of a
director (a) for any breach of the director's duty or loyalty to the corporation
or its stockholders, (b) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (c) under Section
174 of the Delaware Corporation Law, or (d) for any transaction from which the
director derived an improper personal benefit.
Section 145 of the Delaware General Corporation Law concerning
indemnification of officers, directors, employees and agents is set forth below.
"Section 145. Indemnification of officers, directors, employees and
agents; insurance.
(a) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
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(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made, with
respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by former directors and officers or other
employees and agents may be so paid upon such terms and conditions, if any, as
the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers, and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of The Company in a successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, The Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to the court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
- -------------------------------------------------------------------------------
Securities and Exchange Commission Filing Fee ....................$ 150
*Accountants' fees and expenses.................................. $ 25,000
*Legal fees and expenses......................................... $ 25,000
*Miscellaneous................................................... $ 7,500
Total............................................................ $ 57,150
- --------------------------------------------------------------------------------
* Estimated for purposes of this filing.
The foregoing costs and expenses will be paid by the Company. Other
than the Securities and Exchange Commission filing fee, all fees and expenses
are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During its organizational activities, commencement of its business
operations, and in connection with its acquisition of Caribbean Pacific Natural
Products, Inc., the Company has issued a total of 3,850,000 Shares of Common
Stock, 650,000 Common Stock Purchase Warrants, and 100,000 Shares of Preferred
Stock in the following transactions. All of these securities were issued in
privately-negotiated transactions with Officers and Directors of the Company as
well as affiliated and non-affiliated shareholders, not pursuant to an offering
or plan of distribution, and for investment purposes only. In issuing these
securities, the Company relied upon the available exemption from registration
afforded by Section 4(2) of the Securities Act.
In May, 2003, the Company issued 100,000 warrants (the "A" warrants) to
purchase 100,000 shares of Common Stock at $1.00 per Share through December,
2007 to an unaffiliated party, and 225,000 warrants (the "B" warrants) to
purchase 225,000 shares of Common Stock at $.66 per Share through December, 2003
to Clifton Management and Trading Pension, an affiliate of the Company.
In May, 2003, the Company issued $150,000 principal value of Convertible
Notes, convertible into 225,000 shares of Common Stock at the price of $.66 per
share on or prior to the maturity date of September 30, 2003 to Goldstrand
Investments, Inc., an affiliate of the Company.
In April and May, 2003, the Company issued 200,000 shares of Common Stock
at the price of $.66 per share, together with 125,000 warrants (the "A"
warrants) to purchase 125,000 shares of Common Stock at $1.00 per share through
December 31, 2007, for total proceeds to the Company of $132,000 to unaffiliated
shareholders.
Effective for December, 2002, the Company issued 750,000 Shares of Common
Stock to The Quigley Corporation as partial consideration for its purchase of a
60% controlling interest in Caribbean Pacific Natural Products, Inc., valued at
$582,989 and additionally the Company issued 100,000 Shares of Preferred Stock,
designated Class "A" Redeemable Preferred Stock, to The Quigley Corporation as
partial consideration for the acquisition of 60% of the Common Stock of
Caribbean Pacific Natural Products, Inc., valued at $937,596. During the six
month period ended June 30, 2003, the Company imputed $________ of interest
expense on this obligation.
In November, 2002, the Company issued 1,185,000 Shares of Common Stock
in consideration for the cancellation of $31,000 indebtedness for cash advances
and expenses incurred in the organization of the Company. These shares were
issued to William J. Reilly, the Chairman and President of the Company, and to
Thomas Hagan, Dr. Sam Saliba, and Matthew Cohen, who are all Directors of the
Company, as well as to twelve unaffiliated shareholders.
In November, 2002, the Company issued 1,915,000 Shares of Common Stock and
425,000 warrants (the "A" warrants) to purchase 425,000 shares of Common
Stock at $1.00 per share through December 31, 2007, to officers, product
marketing consultants and directors of the Company in lieu of cash compensation
for formation services rendered to the Company valued at $50,000, and for
services to be rendered to the Company during calendar year 2003. This value was
ascribed to the services as the Company had yet to establish a market for the
Company's common stock and had no business operations.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Following is a list of exhibits filed as part of this Registration on
Form SB-2. Where so indicated by footnote, exhibits which were previously filed
are incorporated by reference.
EXHIBIT NUMBER
REFERENCE DESCRIPTION
(3a) Articles of Incorporation.
(3b) By-laws.
(4) Specimen of Common Stock certificate.
(4a) Certificate of Designation of Series "A" Redeemable
Preferred Stock issued to The Quigley Corporation.
(5) Opinion of Robert Jaffe, Esq.
(10a) Form of $150,000 Principal Value Convertible Note.
(10b) Form of Common Stock Purchase Warrant.
(10c) Warrant Agreement to purchase up to 325,000 shares of
common stock issued to Goldstrand Investments, Inc.
(10d) Sales Management and Service Agreement dated May 28,
2003 with Worldwide Health Resources, Inc.
(10e) Lease Agreement Extracts
(10f) Product License Agreement With Caribbean Pacific
International, Inc.
(10g) Sale and Exchange Agreement with Suncoast Naturals,
Inc. and Quigley Corp.
(10h) Employment Agreement with William J. Reilly, Esq.
(10i) Agreement with News USA, Inc.
(21) Subsidiaries
(23) Consents of Experts and Counsel
* The above referenced exhibits were previously filed and are hereby
incorporated by reference.
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ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(i) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(ii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement.
Provided, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the information required
to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by
the Registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
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Signatures
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boca Raton, State of Florida, on the 24th day of
October, 2003.
SUNCOAST NATURALS, INC.
By: /s/ William J. Reilly
----------------------
Name: William J. Reilly
Principal Executive Officer
By: /s/ Thomas J. Hagan
----------------------
Name: Thomas J. Hagan
Principal Financial Officer
Principal Accounting Officer
Power of Attorney
Suncoast Naturals, Inc. and each of the undersigned do hereby appoint
William J. Reilly, President and Thomas Hagan, Secretary, its or his true and
lawful attorney to execute on behalf of Suncoast Naturals, Inc. and the
undersigned any and all amendments to the registration statement on Form SB-2
and to file the same with all exhibits thereto and other documents in connection
therewith, with the SEC.
Pursuant to the requirements of the Exchange Act, this Registration
Statement has been signed below by the following persons on behalf of Invicta
Corporation and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ William J. Reilly Principal Executive Officer October 24, 2003
- ------------------------ President and Director
William J. Reilly
/s/ Thomas Hagan Principal Financial and October 24, 2003
- ------------------------ Accounting Officer
Thomas Hagan Secretary and Director
/s/ Sam Saliba Director October 24, 2003
- ------------------------
Dr. Sam Saliba
/s/ Matthew Cohen Director October 24, 2003
- ------------------------
Matthew Cohen
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