As filed with the Securities and Exchange Commission on May 21, 2004
Registration No. 333-107826
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
AMENDMENT NO. 4
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
--------------------
SUNCOAST NATURALS, INC.
-----------------------
(Exact Name of Small Business Issuer in Its Charter)
Delaware 2844 02-0656132
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification
Organization) Code Number) Number)
5422 Carrier Drive
Orlando, FL 32819
(407) 226-8889
----------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices)
William J. Reilly, Pres.
Suncoast Naturals, Inc.
5422 Carrier Dr.
Orlando, FL 32819
(407) 226-8889
----------------------------------------------------------
(Name, Address and Telephone Number of Agent for Service)
Copy to:
Marc Ross, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Floor
New York, New York 10018
Phone: (212) 930-9700
Facsimile: (212) 930-9725
(Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
--------------------
[ ] 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.
--------------------
[ ] 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.
================================================================================
CALCULATION OF REGISTRATION FEE
- ---------------------------------------- -------------------- ------------------- ----------------------- ------------------
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 (1) Price Registration Fee
- ---------------------------------------- -------------------- ------------------- ----------------------- ------------------
Common Stock, $.001 par value (2) 1,602,695 $1.00 $1,602,695 $129.66 (3)
- ---------------------------------------- -------------------- ------------------- ----------------------- ------------------
(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.
(2) 502,695 shares of Suncoast Naturals, Inc. common stock that are owned by the Quigley Corporation are being
registered for a spin-off distribution to the Quigley Corporation shareholders.
(3) $149.85 previously paid via file no. 333-1107826.
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED May 21, 2004
Prospectus
1,602,695 Shares of Common Stock, Including 502,695 Shares for a Spin Off
Distributions
SUNCOAST NATURALS, INC.
This prospectus covers 1,602,695 shares of our common stock, including
502,695 shares of common stock owned by the Quigley Corporation which will be
distributed to the shareholders of the Quigley Corporation. Shareholders of the
Quigley Corporation will receive 1 share of Suncoast Naturals' common stock for
every 23 shares of the Quigley Corporation that they hold as of the record date
for the distribution. Fractional shares will be rounded up to the nearest whole
number. The record date for the distribution will correspond to the effective
date of the registration statement. Distribution of the common stock to the
Quigley Corporation shareholders will be made within 30 days of the date of the
final prospectus.
The selling shareholders listed on page 16 of this prospectus are offering
up to 1,100,000 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.
The Quigley Corporation is an "underwriter" within the meaning of the
Securities Act of 1933 in connection with the distribution of its shares to its
shareholders. The shareholders of the Quigley Corporation receiving shares in
the distribution by the Quigley Corporation may be considered an "underwriter"
within the meaning of the Securities Act of 1933 in connection with the resale
of the distributed shares.
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, 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 May 12, 2004, there were outstanding notes, warrants and other
convertible securities to purchase an aggregate of 875,000 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 May 12, 2004, 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 4.
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 May 21, 2004
TABLE OF CONTENTS
TABLE OF CONTENTS ii
PROSPECTUS SUMMARY 1
RISK FACTORS 4
FORWARD-LOOKING STATEMENTS 10
USE OF PROCEEDS 13
DIVIDEND POLICY 13
DETERMINATION OF OFFERING PRICE 13
CERTAIN MARKET INFORMATION AND MARKET RISKS 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 15
BUSINESS 26
MANAGEMENT 34
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 37
PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDERS 38
DESCRIPTION OF CAPITAL STOCK 40
PLAN OF DISTRIBUTION 43
SHARES ELIGIBLE FOR FUTURE SALE 45
LEGAL MATTERS 45
EXPERTS 46
WHERE YOU CAN FIND MORE INFORMATION 47
INDEX TO FINANCIAL INFORMATION F-1
ii
Unless otherwise indicated, all references in the prospectus to "Suncoast"
"we," "us," and "our" refer to Suncoast 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 4,
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 Spin-Off
750,000 shares of our common stock are held by the Quigley Corporation.
Pursuant to this prospectus, the Quigley Corporation will distribute 502,695
shares of our common stock it owns to its shareholders. This equates to one (1)
share of our common stock distributed to each the Quigley Corporation
shareholder for every 23 shares of the Quigley Corporation common stock held.
Fractional shares will be rounded up to the nearest whole number. The spin-off
is being undertaken by the Quigley Corporation to allow our management and the
management of the Quigley Corporation to focus on their respective businesses.
As a result of the spin-off, our common stock may be publicly traded, and we
believe that this will improve our access to the capital markets for additional
growth capital. See "Spin-Off" at page 8. We can offer no assurances that an
active market for our securities will develop.
The Quigley Corporation has indicated that it intends to distribute our
common stock to its shareholders within 30 days after the registration statement
is declared effective.
We will not receive any proceeds from the spin-off of the shares of common
stock.
The Offering
- ----------------------------------------------------- -------------------------
Common stock offered by the Selling Stockholders 1,100,000
- ----------------------------------------------------- -------------------------
Common Stock outstanding 4,075,000(1)
- ----------------------------------------------------- -------------------------
Fixed Price The Selling Shareholders
shall offer the shares at
a fixed price of $1.00
until such time as our
shares are quoted on the
OTC Bulletin Board, if
ever.
- --------------------------------------------------------------------------------
Use of proceeds We will not receive any
proceeds from the sale of
the shares of common stock
by the selling
shareholders.
- ----------------------------------------------------- -------------------------
(1) Does not include (i)450,000 shares of common stock reserved for issuance
upon exercise of Convertible Notes (ii) 875,000 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.
2
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 as of December 31, 2002 and 2003. The statement of operations data
for the years ended December 31, 2001 and 2002, and the balance sheet data as of
December 31 2002 and 2003, are derived from financial statements that have been
audited by Schuhalter, Coughlin & Suozzo, PC, independent auditors, and
Rosenberg Rich Baker Berman & Company and are included in this prospectus. The
statement of operations data for the three month periods have been derived from
unaudited financial statements reviewed by Schuhalter, Coughlin & Suozzo, PC in
2003 and Rosenberg Rich Baker Berman & Company in 2004. The results for the
three months ended March 31, 2004 are not necessarily indicative of the
operating results to be expected for the year that will end December 31, 2004.
FOR THE YEARS ENDED FOR THE 3 MONTHS ENDED
DECEMBER 31, MARCH 31,
2002 2003 2003 2004
----------- ----------- ----------- -----------
(Unaudited)
In thousands, except share data
STATEMENT OF OPERATIONS DATA:
Total revenues $ 2,040 $ 1,066 $ 421 $ 53
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales 751 578 130 35
Selling and administrative 2,175 1,356 462 139
----------- ----------- ----------- -----------
Operating loss (886) (868) (171) (121)
Other-income (expense), net 74 (102) (26) (17)
Interest (expense) (64) (44) (8) (10)
----------- ----------- ----------- -----------
Net Loss $ (876) $ (1,014) $ (205) $ (148)
=========== =========== =========== ===========
Basic and diluted net loss
per share $ (0.21) $ (0.25) $ (0.05) $ (0.04)
=========== =========== =========== ===========
Shares used in basic and
diluted net loss per share(1) 4,075,000 4,075,000 4,075,000 4,075,000
=========== =========== =========== ===========
(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 March 31, 2004 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.
As of As of
December 31, March 31,
2003 2004
--------- ----------
(unaudited)
(in thousands, except share data)
BALANCE SHEET DATA:
Cash and cash equivalents 5 1
Working capital (deficit) (491) (478)
Total assets 514 472
Long-term obligations,
net of current portion 968 976
Total stockholders' equity (deficit) (1,379) (1,377)
3
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
- ----------------------------
INVESTORS MAY LOSE THEIR INVESTMENT IN OUR COMMON STOCK IF, BECAUSE WE HAVE A
LIMITED OPERATING HISTORY, PROSPECTIVE INVESTORS HAVE A LIMITED HISTORICAL BASIS
TO JUDGE WHETHER OUR BUSINESS CAN BE SUCCESSFUL.
We were incorporated in November 2002, and through Caribbean Pacific Natural
Products, Inc., our operating subsidiary, have only been engaged in the skin and
body care business since December 2002. We have a limited operating history upon
which an investor may evaluate our business and prospects. Our potential for
future profitability must be considered in light of the risks, uncertainties,
expenses and difficulties frequently encountered by companies in their early
stages of development, particularly companies in rapidly evolving markets, such
as skin, body and healthcare products in general and those catering to small to
medium businesses in particular. Since we do not have a lengthy history in the
skin and body care business; therefore, prospective investors do not have a
historical basis from which to evaluate our performance.
WE HAVE LOST MONEY IN EACH QUARTER SINCE INCEPTION. WE EXPECT FUTURE LOSSES AND
MAY NEVER BECOME PROFITABLE
We have incurred net losses from operations in each quarter since inception. Our
net loss for the fiscal year ended December 31, 2002 was $875,904. Our net loss
for the year ended December 31, 2003, was $1,013,587. Our net loss for the three
months ended March 31, 2004 was $148,130. As of March 31, 2004, we had a
cumulative net loss of $3,252,736 and a negative cash flow from operations. We
expect to continue to incur losses for the foreseeable future. We expect to
increase significantly our operating expenses in the near future as we attempt
to build our brand, expand our customer base and develop products. To become
profitable, we must increase revenue substantially and achieve and maintain
positive gross margins. We may not be able to increase revenue and gross margins
sufficiently to achieve profitability.
WE REQUIRE ADDITIONAL CAPITAL TO CONTINUE BUSINESS OPERATIONS AND ACHIEVE
PROFITABILITY. WE MAY HAVE TO CURTAIL OUR BUSINESS IF WE CANNOT FIND ADEQUATE
FUNDING
The expansion and development of our business will require significant
additional capital, which we may be unable to obtain on suitable terms, or at
all. We currently have no legally binding commitments with any third parties to
obtain any material amount of additional equity or debt financing. Unless our
4
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. If we are unable to obtain adequate funding on suitable terms, or at
all, we may have to delay, reduce or eliminate some or all of our advertising,
marketing, product development, general operations or any other initiatives.
At March 31, 2004, we had $742 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, CAUSE US TO INCUR DEBT AND ASSUME CONTINGENT
LIABILITIES AND IT MAY DECREASE THE VALUE OF OUR COMMON STOCK
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. To finance any such acquisitions, we may issue common stock, which
would dilute our current shareholders' ownership interest and possibly decrease
the value of our common stock, or we may borrow the money to make such
acquisitions, which would result in an increase in our indebtedness, or we may
issue common stock and borrow money. 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. We may
not be able to integrate successfully businesses which we may acquire in the
future without substantial expense, delays or other operational or financial
problems. We may not be able to identify, acquire or profitably manage
additional businesses.
OUR LACK OF MANUFACTURING FACILITIES MAY RESULT IN UNEXPECTED DELAYS AND A LOSS
OF REVENUE
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
5
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.
IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH TO ACHIEVE PROFITABILTY, IT
MAY DECREASE THE VALUE OF OUR COMMON STOCK
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, which could result in a decrease in investor confidence
in our business and a decline in the value of our common stock.
RISKS RELATED TO THE SUN-CARE AND SKIN INDUSTRIES
- -------------------------------------------------
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
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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.
6
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 results of operations by reducing
revenues and increasing marketing and sales costs which could result in
substained or increasing net losses.
CONSUMERS MAY REDUCE DISCRETIONARY PURCHASES OF OUR PRODUCTS AS A RESULT OF A
GENERAL ECONOMIC DOWNTURN WHICH WOULD RESULT IN A DECREASE IN OUR OPERATIONS
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 results of operations and financial condition.
A reduction in our operations could require us to limit or cease certain
business lines or spending on testing and marketing of new products.
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 results of operations.
RISKS RELATED TO OUR STOCK
- --------------------------
THERE IS NO PUBLIC MARKET FOR OUR COMMON STOCK. WITHOUT A TRADING MARKET,
PURCHASERS OF THE SECURITIES MAY HAVE DIFFICULTY SELLING THEIR SHARES
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. If for any
reason our common stock is not listed on the OTC Bulletin Board or a public
trading market does not develop, purchasers of the shares may have difficulty
selling their common stock.
7
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 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.
THERE ARE A SIGNIFICANT NUMBER OF SHARES UNDERLYING OUR WARRANTS, CONVERTIBLE
NOTES, AND OPTIONS AND THE EXERCISE AND SALE OF THESE SHARES MAY CAUSE THE PRICE
OF OUR STOCK TO DROP AND MAY SUBJECT OUR CURRENT SHAREHOLDERS 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 cause the market price of our common stock to drop.
As of May 12, 2004, there were outstanding notes, warrants and other convertible
securities to purchase an aggregate of 875,000 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 May 12, 2004 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.
8
OUR PRINCIPAL OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS OWN A CONTROLLING
INTEREST IN OUR VOTING STOCK AND INVESTORS WILL NOT HAVE ANY VOICE IN OUR
MANAGEMENT
Currently, our officers, directors and principal shareholders, in the aggregate,
beneficially own approximately 52% of our outstanding 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. As a result, these stockholders, acting
together, will have the ability to control substantially all matters submitted
to our stockholders for approval, including:
- election of our board of directors;
- removal of any of our directors;
- amendment of our certificate of incorporation or bylaws; and
- adoption of measures that could delay or prevent a change in
control or impede a merger, takeover or other business
combination involving us.
As a result of their ownership and positions, our directors, executive officers
and principal shareholders collectively are able to influence all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions. In addition, sales of significant amounts
of shares held by our directors, executive officers and principal shareholders,
or the prospect of these sales, could adversely affect the market price of our
common stock. Management's stock ownership may discourage a potential acquirer
from making a tender offer or otherwise attempting to obtain control of us,
which in turn could reduce our stock price or prevent our stockholders from
realizing a premium over our stock price.
RISKS RELATING TO THE SPIN-OFF DISTRIBUTION
- -------------------------------------------
THE QUIGLEY CORPORATION SHAREHOLDERS MAY WANT TO SELL THEIR SUNCOAST SHARES
AFTER THEY ARE RECEIVED IN THE SPIN-OFF DISTRIBUTION AND THIS COULD ADVERSELY
AFFECT THE MARKET FOR OUR SECURITIES
The Quigley Corporation will distribute 502,695 shares of our common stock to
its shareholders in the spin-off distribution. Management of the Quigley
Corporation made the decision to invest in us without shareholder approval and
the shareholders of the Quigley Corporation that will now be our shareholders
may not be interested in retaining their investment in us. Since the Quigley
Corporation shareholders will receive registered shares in the distribution,
they will generally be free to resell their shares immediately upon receipt. If
any number of the Quigley Corporation shareholders offer their shares for sale,
the market for our securities could be adversely affected.
9
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.
THE SPIN-OFF
RECORD DATE Shareholders of the Quigley
Corporation will receive one (1)
share of Suncoast Naturals common
stock for every 23 shares of the
Quigley Corporation common stock
owned of record on the date of
this prospectus.
10
RECORD HOLDERS The Quigley Corporation currently
has 4,581 shareholders of record
and Suncoast Natural currently has
51 shareholders of record.
Following the distribution,
Suncoast Naturals will have
approximately 4,632 shareholders
of record.
PROSPECTUS A copy of this prospectus will
accompany each certificate being
distributed to the Quigley
Corporation shareholders on the
distribution date.
DISTRIBUTION DATE 502,695 shares of Suncoast
Naturals common stock will be
delivered by the Quigley
Corporation to Liberty Transfer
Company, the distribution agent
within ten days of the date of
this Prospectus. and the
distribution agent will distribute
the share certificates to the
Quigley Corporation shareholders
(along with a copy of this
prospectus), within thirty days
thereafter.
LISTING AND TRADING There is currently no public
market for our shares. Upon
completion of this distribution,
our shares will not qualify for
trading on any national or
regional stock exchange or on the
NASDAQ Stock Market. 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.
Even if a market develops for our
common shares, we can offer no
assurances that the market will be
active, or that it will afford our
common shareholders an avenue for
selling their securities. Many
factors will influence the market
price of our common shares,
including the depth and liquidity
of the market which develops,
investor perception of our
business, general market
conditions, and our growth
prospects.
BACKGROUND AND REASONS FOR THE SPIN-OFF.
Suncoast Naturals, Inc. was formed in November 2002 by William Reilly. Mr.
Reilly developed a business plan for Suncoast. The Quigley Corporation, pursuant
to a share exchange agreement, received 750,000 shares of Suncoast Naturals in
exchange for a 60% controlling interest in Caribbean Pacific Natural Products,
Inc.
11
Suncoast incurred $875,094 and $1,013,587 in operating losses for the fiscal
years ended December 31, 2002 and 2003, respectively, and an operating loss of
$148,130 in the first three months of 2004. As Suncoast continues to grow and
accumulate inventory of contracts for resale, Suncoast will require additional
capital. Management believes that the Spin-off and the resulting status of
Suncoast as a publicly traded company will provide Suncoast with additional
opportunities to access the public equity markets for growth capital.
The Quigley Corporation is a publicly-traded company (Nasdaq: QGLY) engaged in
the business of developing and marketing diversified health products. As a
result of its investment in Suncoast, the Quigley Corporation has been focused
on two lines of business. By spinning off a majority of the Suncoast shares to
its shareholders, the Quigley Corporation will be in a better position to focus
its efforts on making a profit in its own operations.
The spin-off will leave the Quigley Corporation with 247,305 shares of Suncoast.
MECHANICS OF COMPLETING THE SPIN-OFF.
Within ten days of the date of this prospectus, Suncoast will deliver 502,695
shares of our common stock to the distribution agent, Liberty Transfer Company,
to be distributed to the shareholders of the Quigley Corporation on a one (1)
for 23 share basis.
If you hold your the Quigley Corporation shares in a brokerage account, your
Suncoast shares of common stock will be credited to that account. If you hold
your the Quigley Corporation shares in certificated form, a certificate
representing shares of your common stock will be mailed to you by the
distribution agent. The mailing process is expected to take about thirty days.
No cash distributions will be paid. Although the distribution ratio is one for
23, fractional shares will be rounded up to the nearest whole number, therefore,
no fractional shares will be issued. No shareholder of the Quigley Corporation
is required to make any payment or exchange any shares in order to receive our
common shares in the spinoff. The Quigley Corporation will bear all of the costs
of the distribution, and Suncoast is bearing the costs of this registration
statement.
TAX CONSEQUENCES OF THE SPIN-OFF.
We have not requested and do not intend to request a ruling from the Internal
Revenue Service or an opinion of tax counsel that the distribution will qualify
as a tax free spin-off under United States tax laws. Under the U.S. Tax Code,
the Quigley Corporation would need to control at least 80% of our outstanding
capital stock to qualify as a tax free spin-off. The Quigley Corporation does
not meet this requirement and consequently, we do not believe that the
distribution by the Quigley Corporation of our stock to its shareholders will
qualify for tax free spin-off status.
The distribution of the Suncoast stock to the Quigley Corporation shareholders
will constitute a dividend, taxable as ordinary income, in an amount equal to
the fair market value of the Suncoast stock on the date of the distribution, as
determined in good faith by the Quigley Corporation. If required by the tax
12
laws, the distribution will be reported to the Internal Revenue Service on Form
1099-DIV. The tax impact of the distribution on the Quigley Corporation is not
anticipated to be significant.
USE OF PROCEEDS
---------------
We will not receive any proceeds from the spin-off distribution of the
Suncoast common stock to shareholders of the Quigley Corporation or 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.
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.
DETERMINATION OF OFFERING PRICE
-------------------------------
The spin-off distribution described in this Prospectus is a spin-off
dividend distribution of Suncoast common stock owned by the Quigley Corporation.
The Quigley Corporation will distribute 502,695 shares that it owns to its own
shareholders within thirty days after the date of this Prospectus. We are also
registering 625,000 shares of our common stock underlying warrants for sale by
the Selling Shareholders. No new shares are being sold in this distribution and
selling shareholders registration statement. 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, 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. Upon completion of the distribution and
registration of shares for resale by the Selling Shareholders, Suncoast common
stock may be traded in the over the counter market if one or more market makers
elect to make a market in Suncoast securities. We can provide no assurances of
the price at which Suncoast common stock will trade if a market for its
securities develop, nor can we provide any assurances that a market will
develop.
For purposes of calculating the registration fee for the Suncoast common
stock included in this Prospectus, we have used the $1.00 per share price that
is the exercise price for the Class B Common Stock Purchase Warrants. While the
original sale of the Class B Common Stock Purchase Warrants was negotiated in an
13
arms length transaction, we can offer no assurances that the $1.00 price bears
any relation to value of the shares as of the date of this Prospectus.
CERTAIN MARKET INFORMATION AND MARKET RISKS
-------------------------------------------
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. If a market does develop, the price of our
securities may be highly volatile and may bear no relationship to our actual
financial condition or results of operations. Factors we discuss in this
Prospectus, including the many risks associated with an investment in our
securities, may have a significant impact on the market price of our common
stock.
As of May 12, 2004, there were 4,075,000 shares of common stock held of
record by approximately 60 shareholders of record and beneficial owners of our
Company.
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 May 12, 2004, there were outstanding notes, warrants and other
convertible securities to purchase an aggregate of 875,000 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 May 12, 2004 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.
14
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 2002 and 2003, and for the three-months ended
March 31, 2003 and 2004, include the business operations of this subsidiary.
Twelve Months Ended December 31, 2003 vs. December 31, 2002
The Company reported $1,066,027 of revenue for the twelve months ended
December 31, 2003 and $2.040,313 for the comparable period in 2002, a decrease
in sales of $974,286, or 48% when compared to 2002. This decrease is directly
attributable to a reduction in certain marketing programs and a re-alignment of
commission agreements the Company felt were counterproductive, and the
re-configuration of product mix, that the Company believes when its new
distribution alignment is fully implemented and its sales volume to the customer
base it expects to retain will ultimately result in sales volume and growth. The
Company does not immediately expect to restore its prior years volume levels,
yet the Company does expect that currently it could attain better gross margins
and contain its compensation expenses.
Cost of sales for the twelve months ended December 31, 2003 were $577,669
which consisted of product royalties of $23,837 and other product costs
including manufacturing and handling charges of $553,832 as compared to cost of
sales of $751,150 in 2002 which consisted of product royalties of $57,945 and
other product costs including manufacturing and handling charges of $693,205.
This represents total cost of sales of 54.1%, as a percentage of revenue in
2003, consisting of 2.2% for royalties and 51.9% for other product costs
compared with a total of 36.8% in the same period in 2002, including 2.8% for
royalties and 34% 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, and an increase in the royalty ratio for the twelve
months in 2003 and is the result of a non-recurring charge of approximately
$33,000 to re-align a royalty arrangement due to changing the mix of product
sales the Company renegotiated in the third quarter, which the Company believes,
when combined with developing its own new proprietary products not subject to
existing royalty agreements, should keep the blended royalty expense under 5% at
current volume levels going forward.
Selling and marketing expenses were $529,846 for the twelve months ended
December 31, 2003 as compared to $1,183,303 in 2002, a decrease of $653,457,
over the prior year expenses. This consisted of sales compensation and fringes
of $20,075 and other selling and marketing costs of $509,771, 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 compensation and fringes of $112,489 and other
selling and marketing costs of $1,070,814. This represents total selling and
marketing expenses of 49.7, as a percentage of revenue in the twelve months
ended December 31, 2003, consisting of 1.9% for sales compensation and fringes
and 47.9% for other selling and marketing costs compared with a total of 57.9%
in 2002, including 5.5% for sales compensation and fringes and 52.4% for other
selling and marketing costs in same period in 2002. The increase of the ratio
for non-salary expenses in the current nine month period is primarily due to
additional costs for new marketing materials, packaging design and product
concept fees incurred to implement changes in the Company's marketing plan,
including improving its product and packaging mix, which we anticipate will
15
ultimately facilitate flexibility in the Company's product mix and ultimately
reduce overall selling costs.
Administrative expenses were $826,122 for the twelve months ended December 31,
2003 as compared to $992,182 in 2002, a decrease of $166,060, or an 16.7%
decrease over the prior year as a percentage of the same expenses. This
consisted of administrative compensation and fringes of $332,737 and other
administrative expenses of $493,385, which include general corporate overhead,
in 2003 as compared to administrative expenses in the same period in 2002 which
consisted of administrative compensation and fringes of $251,552 and other
administrative expenses of $740,630. This represents total administrative
expenses of 77.5%, as a percentage of revenue in 2003, consisting of 31.2% for
administrative compensation and fringes and 46.3% for other administrative
expenses compared with a total of 48.6% in the same period in 2002, including
12.3% for administrative compensation and fringes and 36.3% 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 nine month period, resulting in a net dollar
decrease in the current period. Reduced sales in the current nine month period
vs. the prior year were the primary reason the ratio of these expenses rose, and
management plans on maintaining similar overhead and anticipates improvements in
gross sales and gross margin to improve this ratio.
Interest costs were $44,131 for the twelve month period ended December 31,
2003 compared to $63,582 in 2002, as liabilities to the former parent were
higher in 2002 than the present value of the redeemable preferred stock as of
December 31, 2003. Start up costs of $75,199 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 $1,013,587 for the twelve month period
ended December 31, 2003 as compared to a net loss of $875,904 during the twelve
months ended December 31, 2002. Historically this represents a loss per share of
$.25 for the twelve months ended December 31, 2003 as compared to a loss per
share of $.21 for the twelve months ended December 31, 2002.
16
Three Months Ended March 31, 2004 vs. March 31, 2003
The Company reported $53,259 of revenue for the three months ended March
31, 2004 and $420,930 for the comparable period in 2003, a decrease in sales of
$367,671, or 87.3% when compared to 2003. This decrease is primarily
attributable to a reduction in certain marketing programs and a re-alignment of
commission agreements the Company felt were counterproductive, and the
re-configuration of product mix, that should the Company retain its current
volume and grow to restore its prior years volume levels, the Company could
attain better gross margins and contain its compensation expenses.
Cost of sales for the three months ended March 31, 2004 were $34,667 which
consisted of product royalties of $0 and other product costs including
manufacturing and handling charges of $34,667 as compared to cost of sales of
$129,828 in 2003 which consisted of product royalties of $8,226 and other
product costs including manufacturing and handling charges of $121,602. This
represents total cost of sales of 65.0%, as a percentage of revenue in 2004,
consisting of 0% for royalties and 65.0% for other product costs compared with a
total of 30.8% in the same period in 2003, including 1.9% for royalties and
28.9% for other product costs for the same period in 2003. 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, and an increase in the royalty ratio for the three months in 2004
which is a result of a one time charge of approximately $33,000 to re-align a
royalty arrangement due to a positive effect of changing the mix of product
sales the Company renegotiated in the third quarter, which should keep the
blended royalty expense under 5% at current volume levels.
Selling and marketing expenses were $23,543 for the three months ended
March 31, 2004 as compared to $278,291 in 2003, a decrease of $254,748, over the
prior year expenses. This consisted of sales compensation and fringes of $2,138
and other selling and marketing costs of $21,405, most of which were concession
fees and commissions and the updating of marketing materials, incurred in this
period in 2004 as compared to selling and marketing expenses in 2003 which
consisted of sales compensation and fringes of $7,004 and other selling and
marketing costs of $271,287. This represents total selling and marketing
expenses of 44.2%, as a percentage of revenue in the three months ended March
31, 2004, consisting of 4.0% for sales compensation and fringes and 40.2% for
other selling and marketing costs compared with a total of 66.1% in 2003,
including 1.6% for sales compensation and fringes and 64.5% for other selling
and marketing costs in same period in 2003. The decrease of the ratio for
non-salary expenses in the current three month period is primarily due to new
marketing materials and packaging design and product concept fees incurred to
implement changes in the Company=s marketing plan, including improving its
product and packaging mix, which were implemented during 2003.
17
Administrative expenses were $115,715 for the three months ended March 31,
2004 as compared to $184,238 in 2003, a decrease of $68,523, or an 37.2%
decrease over the prior year as a percentage of the same expenses. This
consisted of administrative compensation and fringes of $55,736 and other
administrative expenses of $59,979, which include general corporate overhead, in
2004 as compared to administrative expenses in the same period in 2003 which
consisted of administrative compensation and fringes of $103,695 and other
administrative expenses of $80,543. This represents total administrative
expenses of 217.3%, as a percentage of revenue in 2004, consisting of 104.6% for
administrative compensation and fringes and 112.7% for other administrative
expenses compared with a total of 43.8% in the same period in 2003, including
24.6% for administrative compensation and fringes and 19.2% for other
administrative expenses in the same period in 2003. 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 nine month period, resulting in a net dollar
decrease in the current period. Reduced sales in the current nine month period
vs. the prior year were the primary reason the ratio of these expenses rose, and
management plans on maintaining similar overhead and anticipates improvements in
gross sales and gross margin to improve this ratio.
Interest costs were $10,466 for the current period in 2004 compared to
$7,817 in 2003, as a bridge note liability, which was converted into equity in
March 2004, did not exist during the same period in 2003. Start up costs of
$17,000 were incurred during the period ended March 31, 2004 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 $148,130 for the current three months
ended March 31, 2004 as compared to a net loss of $205,244 during the three
months ended March 31, 2003. Historically this represents a loss per share of
$.04 during the current three months ended March 31, 2004 as compared to a loss
per share of $.05 for the three months ended March 31, 2003.
18
CRITICAL ACCOUNTING POLICIES
RECAPITALIZATION OF CARIBBEAN PACIFIC NATURAL PRODUCTS, INC.
Material sales and expenses included in these consolidated
financialstatements result from the inclusion of financial information of the
Company's60% 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 afterJune
30, 2001, which requires the use of the purchase method of accounting forall
business combinations, carrying forward the guidance from APB 16 withrespect to;
(a) the principles of historical cost accounting, (b) determiningthe cost of the
acquired entity and (c) allocation of cost to assets andliabilities 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.
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
ofoperations, 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
19
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 Three Months Ended
December 31, March 31,
2002 2003 2003 2004
------ ------ ------ ------
(Unaudited)
Interest and
administrative costs $55,782 $15,000 $10,000 $0
======= ======= ======= ==
LOSS PER SHARE
The Company has adopted SFAS No.128, "Earnings per Share." Earnings
percommon share are computed by dividing income available to common stockholders
bythe weighted average number of common shares outstanding during the period.
Theearnings per common share computation, assuming dilution, gives effect to
alldilutive potential common shares during the period. The computation assumes
thatthe outstanding stock options and warrants were exercised and that the
proceedswere used to purchase common shares of the Company. Common equivalent
shareshave been excluded from the computation of diluted earnings per share
sincetheir effect is antidilutive. Loss per share are also calculated
givingretroactive 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.
REDEEMABLE PREFERRED STOCK
On December 31, 2002, the Company issued 100,000 Shares of Preferred Stock,
designated Class "A" Redeemable Preferred Stock, to The QuigleyCorporation as
partial consideration for the acquisition of 60% of the CommonStock of Caribbean
Pacific Natural Products, Inc.
The holders of the Series A Stock shall be entitled to receive,
inpreference to the holders of the Corporation's Common Stock, when, as and
ifdeclared by the Corporation's Board of Directors, annual dividends at the
rateof $.10 per share and no more. Dividends on the Series A Stock shall
becumulative, and declared but unpaid dividends shall not bear interest.
Theholders of Series A Stock shall have no voting rights. No other Series or
Classof Preferred Stock which may subsequently be designated or authorized by
theBoard of Directors shall be granted or otherwise be entitled to any
votingrights.
The Corporation shall have the right to redeem the shares of Series A
Stockat any time following the date of issuance. The Redemption Price for each
shareshall be $10.00 per share plus an interest factor which shall accrue from
thedate of issuance through the date of redemption. The interest rate shall be
afixed annual rate equal to the prime rate announced by Citibank, NA, New
YorkCity, on the date of issuance, and may be payable in cash or accrued
untilredemption. In the event that all shares are not put by the holder to
20
the Corporation or redeemed by the Corporation prior to December 31, 2007, all
suchshares 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 ofJanuary 22, 2007.
The holders of the Series A Stock have the right to put their shares each
calendar quarter (on or before the 45th day following the end of the quarter) to
the Corporation for a price of $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. The holders of the Series
A Stock have a put option equal to the number of Shares which represent 50% of
the free cash flow reported by the Corporation in the immediately preceding
quarter divided by the redemption price of $10.00 per share.
During the year ended December 31, 2003 and the three month period ended
March 31, 2004, the Company imputed $31,231 and $7,960 of interest expense on
this obligation.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASBStatements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
TechnicalCorrections." This statement rescinds SFAS No. 4, "Reporting Gains and
Lossesfrom 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."
Thisstatement amends SFAS No. 13, "Accounting for Leases," to
eliminateinconsistencies between the required accounting for sale-leaseback
transactionsand the required accounting for certain lease modifications that
have economiceffects that are similar to sale-leaseback transactions. Also, this
statementamends other existing authoritative pronouncements to make various
technicalcorrections, clarify meanings, or describe their applicability under
changedconditions. Provisions of SFAS No. 145 related to the rescission of SFAS
No. 4were effective for the Company on November 1, 2002 and provisions affecting
SFASNo. 13 were effective for transactions occurring after May 15, 2002.
Theadoption 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 CostsAssociated
with Exit or Disposal Activities." This statement coversrestructuring type
activities beginning with plans initiated after December 31,2002. Activities
covered by this standard that are entered into after that datewill be recorded
in accordance with the provisions of SFAS No. 146. Managementdoes not believe
there will be a significant impact on our consolidatedfinancial position or
results of operations.
21
In December 2002, the FASB issued SFAS 148, "Accounting for
Stock-BasedCompensation-Transition and Disclosure," which provides alternative
methods oftransition for a voluntary change to fair value based method of
accounting forstock-based employee compensation as prescribed in SFAS 123,
"Accounting forStock-Based Compensation." Additionally, SFAS 148 required more
prominent andmore frequent disclosures in financial statements about the effects
of stock-based compensation. The provisions of this Statement are effective for
fiscalyears ending after December 15, 2002, with early application permitted
incertain circumstances. The Company has adopted the disclosure provisions in
these consolidated financial statements as disclosed above under Stock
BasedCompensation.
In November 2002, the FASB Issued FASB interpretation (FIN) No.
45"Guarantor's Accounting and Disclosure Requirements for Guarantees,
IncludingIndirect Guarantees of Indebtedness of Other." FIN No. 45 requires
guarantor torecognize, at the inception of a qualified guarantee, a liability
for the fairvalue of the obligation undertaken in issuing or modified after
December 31,2002. Management does not expect adoption of this Interpretation to
have amaterial impact on the Company's financial condition or results of
operations.
"Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51." FIN 46 requires certain variable interest entities to be consolidated by
the primary beneficiary of the entity if the equity investors in the entity do
not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The adoption of FIN 46 did not
have a significant impact on our consolidated financial position or results of
operations.
In May 2003, the FASB issued SFAS Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity". This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). This
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of nonpublic entities, if applicable. It is to be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the
Statement and still existing at the beginning of the interim period of adoption.
The adoption of this statement is not expected to have a significant impact on
the Company's results of operations or financial position.
22
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.
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 and $1,013,587 during the years ended December 31, 2002
and 2003. Additionally, the company had a working capital and stockholders'
deficit of $490,850 and $1,379,485 at December 31, 2003 and its working capital
is not sufficient to support the Company's losses from operations at existing
levels for the next year. As of March 31, 2004 (Unaudited) the Company had a
working capital deficit of $478,256 and a stockholders' deficit of $1,377,615.
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 the first
three months of fiscal 2004 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.
23
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.
Through September, 2003, the Company received $132,000 proceeds from the
issuance of the Company's common stock and $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). This note is presently in arrears and the
Company intends to renegotiate, on similar terms. The Company will utilize the
proceeds of these loans, together with cash flow from existing operations and
planned subsequent financings, to manufacture additional inventory for sale at
our resort kiosks, and to start-up a new line of skin care products for
wholesale distribution, which will improve the Company's seasonalilty revenue
potential and to establish a filling and labeling facility at our Orlando
warehouse.
During the next twelve months, the Company plans to raise an additional $1
million to $2 million in capital through public or private financing, through
the issuance of its common stock or the issuance of debt instruments, including
debt convertible to equity. In addition, the Company will seek to obtain other
types of commercial financing, including inventory and receivable financing and
equipment leases. The Company anticipates that an additional $1 million in
capital would allow it to invest $300,000 in manufacturing and distribution
equipment and $500,000 in additional product inventory, with $200,000 reserved
for general working capital purposes. The Company cannot be certain that such
additional capital or financing will be available, or if available it cannot be
certain such capital or 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 expects that it will not experience revenue growth until after
the fourth quarter of 2004 from the roll-out of its new product line. The
Company anticipates its new products will result in an additional source of
revenues it may begin to realize in the first quarter of 2004, and will be an
important source of expansion for future revenue in addition to enhancing the
growth in its existing distribution channels. In addition, we believe that
actions presently being taken to maintain reduced administrative costs and
improve manufacturing and shipping procedures will generate sufficient revenues
to provide increased gross margins and improve cash flows from operations.
However, there can be no assurance that this will occur.
24
At March 31, 2004 the Company had a working capital deficit of $478,256.
Based upon the current business operations and financial commitments, management
believes that the Company's financial condition, when augmented by additional
capital the Company is presently pursuing through either financing from the
proceeds of convertible notes, the issuance of equity, or a combination of both,
will be adequate for the foreseeable future. In addition, we believe that
sufficient additional capital will be available to us, when required, to permit
us to implement our business plans. There can be no assurance that the Company's
future business operations will generate sufficient cash flow from operations or
that its plans to obtain working capital from borrowings and equity will be
available in sufficient amounts and required time frames to accomplish all of
the Company's potential future operating requirements.
25
BUSINESS
Overview
- --------
Suncoast Naturals, Inc. (the "Company") is a Delaware corporation which
has been organized for the purpose of establishing an FDA-approved contract
manufacturing and lab facility which formulates and manufactures an all-natural
line of sun-care and skin-care products for the spa, resort and specialty
boutique markets. The Company has acquired a 60% controlling interest in
Caribbean Pacific Natural Products, Inc. ("CARIBBEAN PACIFIC NATURAL PRODUCTS"),
an Orlando, FL-based manufacturer and distributor of all-natural sun and
skin-care products using natural, non-chemical ingredients derived from organic
and renewable resources. In addition to becoming the sole-source manufacturer
for the entire CARIBBEAN PACIFIC NATURAL PRODUCTS product line, the Company will
also develop and manufacture private-label skin and sun care products for the
resort and day spa markets.
We have an authorized capitalization of 25 million shares of Common Stock
($.001 par value) and 1,000,000 shares of unclassified Preferred Stock ($.01 par
value), of which 4,075,000 shares of Common Stock, and 100,000 Shares of Class
"A" Redeemable Preferred Stock are issued and outstanding.
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 corporate website is www.suncoastnaturals.com and it's on-line
sales 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.
26
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
27
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
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 intends to market itself as a major
supplier within a rapidly-growing industry, and in particular, as one of the
premier suppliers 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.
28
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 have also launched an additional website at www.suncoastnaturals.com
which provides 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.
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 Research & Development laboratory and testing facility, the Company
believes that it will be positioned to compete 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, including our current contract
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
29
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.
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.
30
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 15% commission of net invoice amounts 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 total cost to the Company under this Agreement will be $500,000,
with half paid in cash and half paid in equity (100,000 shares of common stock
and 200,000 $1.00 Warrants). We paid News USA $5,000 and 50,000 $1.00 Warrants
upon signing, and will pay $2500.00 in cash and $2500.00 in equity for each
newspaper or radio feature provided to us.
Research and Development
- ------------------------
We have not yet conducted any research or development activities. When we
acquired the controlling interest in Caribbean Pacific Natural Products, we
acquired their existing products and formulas. In the future, research
activities will primarily aimed at discovering and developing new and enhanced
sunscreens and skin care products. Company sponsored research and development
expenditures were $0 in 2003, 2002 and 2001.
The Company's research activities will be concentrated in the areas of
all-natural sun-, skin-, and body-care products. It cannot be predicted when or
if any of these products might be developed or become available for commercial
sale.
Government Regulation
- ---------------------
Pharmaceutical companies are subject to extensive regulation by a number of
national, state and local agencies. Of particular importance is the FDA. It has
jurisdiction over all our businesses and administers requirements covering the
testing, approval, safety, effectiveness, manufacturing and labeling of our
"SPF" (sun protection factor) labeled products. The extent of FDA requirements
and/or reviews is limited to our SPF suncare products, and would affect the
amount of resources necessary to develop new products and bring them to market
in the United States. The FDA does not have regulatory jurisdiction over our
non-SPF products.
We are not required to submit our products to the FDA or obtain any approval
from the FDA prior to manufacturing or selling our products. The regulations
imposed by the FDA are compliance related and are required standards we must
meet in the testing, safety, manufacturing and labeling of our products. For
31
example, our SPF products cannot contain certain elements under FDA regulations,
but we are not required to have the FDA review and test our products to ensure
they do not contain those banned elements. The FDA does has the ability to
institute an investigation based on complaints received, which could involve a
review of and testing of our products.
On an ongoing basis, the FDA regulates the facilities and procedures used to
manufacture pharmaceutical products in the United States or for sale in the
United States. All products made in such facilities are to be manufactured in
accordance with Good Manufacturing Practices (GMPs) established by the FDA. Our
products are presently manufactured by Absolute Packaging, Inc., a contract
manufacturer which is FDA-approved. The FDA periodically inspects their
facilities and procedures to evaluate compliance.
Failure to comply with governmental regulations can result in delays in the
release of products, delays in the approvals of new products, seizure or recall
of products, suspension or revocation of the authority necessary for the
production and sale of products, fines and other civil or criminal sanctions.
Environment
- -----------
To date, compliance with federal, state and local environmental protection laws
has not had a materially adverse effect on the Company. The Company will make
necessary expenditures for environmental protection. Capital expenditures during
2003 did not include any spending for environmental control purposes. It is
anticipated that continued compliance with such environmental regulations will
not significantly affect the Company's financial statements or its competitive
position.
Employees
- ---------
At May 12, 2004, 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
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.
32
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.
33
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., an
internet security software company, 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, and
has served with the Judge Advocate General's Corps since his commission in
December, 1980. 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 joined the Company in November, 2002, and brings to the Company a
strong background in marketing and general Management. 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, a manufacturer of point of
purchase advertising products 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.
34
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.
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
35
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.
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, 2002 and 2003,
or received compensation in excess of $100,000 during fiscal years 2001 through
2003. Of the Officers and Directors of the Company, only Dr. Saliba received
cash or other compensation for services rendered through calendar year 2002. In
calendar year 2003, William J. Reilly received compensation for services
rendered as President of the Company.
Summary Compensation Table
Long Term
Annual Compensation Compensation
Securities
Salary Other Annual Underlying Options
Name and Principal Position Year ($) Bonus ($) Compensation($) (Shares)
--------------------------- ---- ------ ----- ------------ --------
William Reilly 2003 30,000 -- -- 50,000
President
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.
36
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.
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 who were gifted shares from Mr.
Reilly.
In November, 2002, the Company issued 1,715,000 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. Worldwide Health
Resources, Inc. provided us with $10,000 worth of services and received 383,000
shares of Common Stock and 85,000 warrants. News USA, Inc. provided us with
$5,000 worth of services and received 191,500 shares of common stock and 42,500
warrants. Blackmor Group, Inc. provided us with $10,000 in product marketing
services and received 383,000 shares of Common Stock and 85,000 warrants. FINX
Group, Inc. provided us with $10,000 worth of secretarial services and received
383,000 shares of Common Stock and 85,000 warrants. Charles Kyrakos provided us
with $1,000 in real estate brokerage services and received 38,300 shares of
common stock and 8,500 warrants. William J. Reilly, President, provided us with
$14,000 in corporation formation and management services, and received 536,200
shares of common stock and 119,000 warrants. 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.
37
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 year ended December 31, 2003, the Company received $69,017 of
advances from William J. Reilly, the Company's president with no specific
repayment terms. No interest has been recorded on this debt. We used the $69,017
for product development, product manufacturing, and general working capital
purposes.
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 May 12, 2004, 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
all shares shown as beneficially owned. The applicable percentage of ownership
for each shareholder is based on 4,075,000 shares of common stock outstanding as
of May 12, 2004 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.
38
For the table set forth below, Seth Fireman is the control person for Goldstand
Investments, Inc. Quigley Corporation is a publicly traded corporation, whereby
Mr. Guy J. Quigley is the largest shareholder with approximately 32.5% of the
outstanding shares. Rina Rollhaus controls Clifton Management and Trading
Pension. Goldstand Investments, Quigley Corporation, and Clifton Management and
Trading Pension are solely shareholders of our company and there is no other
relationship or affiliation.
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) (7) 500,000 13% 500,000 10%
Thomas Hagan (1)(3) (7) 100,000 2.6% 100,000 2%
Dr. Sam Saliba (1)(3) (7) 100,000 2.6% 100,000 2%
Matthew Cohen (1)(3) (7) 100,000 2.6% 100,000 2%
Goldstrand Investments, Inc. (2)(5) 225,000 5.8% 225,000 4.5%
1040 First Avenue, Suite 190
New York, New York 10022
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)
633 Franklin Avenue
Nutley, New Jersey 07110
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.
(7) The address for officers and directors is 5422 Carrier Drive, Orlando,
Florida 32819.
For the table set forth below, Michael L. Plunkett is the control person of
Doylestown Partners, Inc. Robert K. Ashworth is the control person of Ashworth
Development LLC. Richard Smith is the control person of News USA, Inc. Erma
Limanni is the control person of Shamrock Equities, Inc.
39
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(7) After Offering(7)
- ----------------- -------- -------- ----------- -----------
Goldstrand Investments, Inc. (1) (2) 225,000 5.8% 0 0.00%
1040 First Avenue, Suite 190
New York, New York 10022
Doylestown Partners, Inc. (2)(3) 125,000 3.2% 0 0.00%
105 Heidi Drive
Portsmouth, RI 02871
Ashworth Development LLC (2)(3) 100,000 2.6% 0 0.00%
405 North Ocean Blvd., #1403
Pompano Beach, FL 33062
Diocese of Palm Beach (2) 115,000 3.0% 0 0.00%
9995 North Military Trail
Palm Beach Gardens, FL 33410
Clifton Management and Trading 225,000 5.8% 0 0.00%
Pension (1)(2)(4)
633 Franklin Avenue
Nutley, New Jersey 07110
Talmudic Research Center (2)(6) 100,000 2.6% 0 0.00%
News USA, Inc. (2)(5) 75,000 2.0% 0 0.00%
250 E. 54th Street
New York, NY 10022
Shamrock Equities, Inc. (2) 60,000 1.6% 0 0.00%
401 Broadway, Suite 912
New York, NY 10013
Richard Berman (2) 75,000 2.0% 0 0.00%
Total amount of shares being 1,100,000 28.6% 0 0.00%
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 100,000 shares issuable upon the exercise of Class "A" warrants.
(7) Assumes maximum conversion or exercise of outstanding warrants and
convertible notes.
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.
40
Common Stock
We are presently authorized to issue up to 25,000,000 shares of common
stock, $.001 par value per share. As of May 12, 2004, there were 4,075,000
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.
The holders of the Series A Stock have the right to put their shares each
calendar quarter (on or before the 45th day following the end of the quarter) to
the Corporation for a price of $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. The holders of the Series
A Stock have a put option equal to the number of Shares which represent 50% of
the free cash flow reported by the Corporation in the immediately preceding
quarter divided by the redemption price of $10.00 per share.
Options and Warrants
- --------------------
In addition to our outstanding common stock, there are, as of May 12,
2004, 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:
41
Description Number Exercise Price Expiration
- -------------------------------------------------------------------------------
Class "A" Warrants 660,000 $ 1.00 12/31/07
Class "B" Warrants 225,000 $ 0.66 12/31/04
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
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.
42
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 1,602,695 shares of our common stock, including
the spin off distribution of 502,695 shares of our common stock owned by The
Quigley Corporation. The distribution by the Quigley Corporation of 502,695
shares of our common stock to the Quigley Corporation shareholders will be
accomplished by direct mail upon effectiveness of the registration statement of
which this prospectus is a part. The mechanics of the the Quigley Corporation
dividend distribution will be performed by our transfer agent, Liberty Transfer
Company. See "The Spin-Off" at page 1.
All of the common stock offered hereby 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 1,100,000 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.
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). Until such time as a market price for our Common Stock
is quoted on the OTC Bulletin Board, 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 Quigley Corporation is an "underwriter" within the meaning of the
Securities Act of 1933 in connection with the distribution of its shares to its
shareholders. The shareholders of the Quigley Corporation receiving shares in
the distribution by the Quigley Corporation may be considered an "underwriter"
within the meaning of the Securities Act of 1933 in connection with the resale
of the distributed shares.
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.
43
A selling security holder may enter into hedging transactions with
broker-dealers. The broker-dealers may engage in short sales of the common stock
in the course of hedging the positions they assume with the selling security
holder, including positions assumed in connection with distributions of the
shares by such broker-dealers. A selling security holder also may enter into
option or other transactions with broker-dealers that involve the delivery of
the shares to the broker-dealers, who may then resell or otherwise transfer such
shares. In addition, a selling security holder may loan or pledge shares to a
broker-dealer, which may sell the loaned shares or, upon a default by the
selling security holder of the secured obligation, may sell or otherwise
transfer the pledged shares.
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. Currently, the Company's stock can only be sold in a
limited number of states, including Arizona, Kentucky, New York and Tennessee.
90 days after we are public, shareholders can also sell their shares in Iowa and
Maine. 180 days after we are public, shareholders can sell their shares in
Alabama and South Dakota. We will provide written notice to shareholders as
additional states become available for the sale of our common stock.
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.
44
SHARES ELIGIBLE FOR FUTURE SALE
-------------------------------
We cannot predict the effect, if any, that market sales of shares of our common
stock or the availability of shares of our common stock for sale will have on
the market price of our common stock prevailing from time to time. Sales of
substantial amounts of our common stock, including shares issued upon exercise
of outstanding warrants, in the public market after this offering could
adversely affect market prices prevailing from time to time and could impair our
ability to raise capital through the sale of our equity securities.
All of the shares sold in this offering will be freely tradable, except that any
shares acquired by our affiliates, as that term in is defined in Rule 144 under
the Securities Act, may only be sold in compliance with the limitations
described below. Any of our affiliates that are selling security holders may not
acquire shares sold in this offering until their distribution is completed.
Based on shares outstanding as of May 12, 2004, the 2,472,305 shares of our
common stock outstanding that are not registered in this prospectus will be
deemed restricted securities as defined under Rule 144. Restricted shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 or 144(k) promulgated under the Securities Act,
which rules are summarized below. Subject to the provisions of Rules 144 and
144(k), there are an additional 2,472,305 shares that are currently restricted
that will be available for sale in the public market over the next two years.
In addition, there are 260,000 shares of our common stock issuable upon exercise
of warrants, which have not been included in this registration. These shares
would be tradeable in the public market one year after the date of exercise in
the case of the warrants, assuming compliance with the other provisions of Rule
144.
Rule 144. In general, under Rule 144 as currently in effect, a person, or group
of persons whose shares are required to be aggregated, who has beneficially
owned shares that are restricted securities as defined in Rule 144 for at least
one year is entitled to sell, within any three-month period commencing 90 days
after the date of this prospectus, a number of shares that does not exceed:
o 1% of the then outstanding shares of our common stock, which will be
approximately 38,500 shares prior to this offering and 47,000 shares
assuming all of the outstanding warrants were exercised.
In addition, a person who is not deemed to have been an affiliate at any
time during the three months preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years would be entitled to sell
these shares under Rule 144(k) without regard to the requirements described
above. To the extent that shares were acquired from one of our affiliates, a
person's holding period for the purpose of effecting a sale under Rule 144 would
commence on the date of transfer from the affiliate.
LEGAL MATTERS
-------------
The legality of the shares of common stock offered hereby will be passed
upon for Suncoast Naturals by Sichenzia Ross Friedman Ference LLP, New York, New
York.
45
EXPERTS
-------
Our consolidated financial statements as of December 31, 2002 and for the
year 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. Our
consolidated financial statements as of December 31, 2003 and for the year then
ended included in this prospectus have been included in reliance upon the report
of Rosenberg Rich Baker Berman & Company, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
Effective as of April 13, 2004, Suncoast Naturals Inc. and Subsidiary ,
Inc. (the "Company") accepted the resignation of Schuhalter Coughlin & Suozzo
PC. as its independent accountant. The Schuhalter Coughlin & Suozzo PC.
resignation is not the result of its relationship with the Company. The
Schuhalter firm informed the Company that although they had expected in good
faith to have obtained acceptance by this time, they have yet to obtain approval
from the "PCAOB" as a Registered Firm" and do not expect such approval in time
to complete the 2003 audit in a timely fashion that would enable the Company to
meet its filing requirements for its periodic reports. Schuhalter Coughlin &
Suozzo PC. has recommended the Company engage a "Registered Firm" to complete
the 2003 audit and the Company has agreed. Effective as of April 13, 2004, the
Company engaged Rosenberg Rich Baker Berman & Company as its independent
accountant. The decision to change accountants was approved by the Board of
Directors of the Company.
The Schuhalter Coughlin & Suozzo PC. report on the Company's financial
statements for the year ended December 31, 2002 did not contain an adverse
opinion or a disclaimer of opinion, the report was neither qualified or modified
as to audit scope or accounting principles. The report on the financial
statements was qualified regarding the Company's ability to continue as a going
concern.
During the year ended December 31, 2002, and subsequent interim periods,
March 31, 2003, June 30, 2003, September 30, 2003 and until the resignation of
Schuhalter Coughlin & Suozzo PC., there were no disagreements with Schuhalter
Coughlin & Suozzo PC. on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope of procedure, which
disagreements, if not resolved to the satisfaction of Schuhalter Coughlin &
Suozzo PC., would have caused Schuhalter Coughlin & Suozzo PC. to make reference
to the subject matter of the disagreement in connection with its report.
None of the reportable events described under Item 304(a)(1)(v) of
Regulation S-K occurred within the two most recent fiscal years of the Company
year ended December 31, 2002 and the subsequent interim period to April 13,
2004.
During the two most recent fiscal years of the Company ended December 31,
2002 and the subsequent interim period to the date hereof, the Company did not
consult with Rosenberg Rich Baker Berman & Company regarding any of the matters
or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
The Company requested that Schuhalter Coughlin & Suozzo PC. furnish it with
a letter addressed to the Securities and Exchange Commission stating whether it
agrees with the foregoing statements.
46
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.
47
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Rosenberg Rich Baker & Company F-1
Report of Schuhalter Coughlin and Suozzo, PC F-2
Balance Sheets as of December 31, 2003 and
March 31, 2004 (Unaudited) F-3
Statements of Operations for the two years
ended December 31, 2003 and the three months ended
March 31, 2003 and 2004 (Unaudited) F-4
Statements of Stockholders' Equity for the two years
ended December 31, 2003 and three months
ended March 31, 2003 and 2004 (Unaudited) F-5
Statements of Cash Flows for the two years ended
December 31, 2003 and the three months ended
March 31, 2003 and 2004 (Unaudited) F-6
Notes to Financial Statements F-7 to F-24
To the Board of Directors and Stockholders
Suncoast Naturals, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Suncoast
Naturals, Inc. and Subsidiary as of December 31, 2003 and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for the year 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, 2003 and the results of
operations and its cash flows for the year 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 $1,013,587 during the
year ended December 31, 2003, 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.
/S/ Rosenberg Rich Baker Berman & Company
Bridgewater, New Jersey
May 13, 2004
F-1
To the Board of Directors and Stockholders
Suncoast Naturals, Inc. and Subsidiary
We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity (deficit) and cash flows of Suncoast Naturals,
Inc. and Subsidiary for the year ended December 31, 2002. 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 of Suncoast Naturals,
Inc. and Subsidiary above present fairly, in all material respects, the results
of operations and its cash flows for the year ended December 31, 2002 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 at December 31,
2002 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 10, as to which the date is June 26, 2003.
F-2
SUNCOAST NATURALS, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
December 31, March 31,
2003 2004
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 4,722 $ 742
Accounts receivable less doubtful accounts
of $89,199 and 99,199 252,547 241,679
Inventory 121,586 104,268
Prepaid expenses and other current assets 54,958 47,458
--------- ---------
TOTAL CURRENT ASSETS 433,813 394,147
PROPERTY, PLANT AND EQUIPMENT, net 64,139 61,374
--------- ---------
OTHER ASSETS:
Other assets 16,053 16,053
--------- ---------
TOTAL OTHER ASSETS 16,053 16,053
--------- ---------
TOTAL ASSETS 514,005 471,574
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 387,260 497,133
Accrued royalties and sales commissions 79,199 71,949
Notes Payable 160,000 10,000
Other current liabilities 298,204 293,320
--------- ---------
TOTAL CURRENT LIABILITIES 924,663 872,402
--------- ---------
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 967,827 975,787
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, authorized:
25,000,000, 3,850,000 and 4,075,000 shares
issued and outstanding at December 31, 2003
and March 31, 2004, respectively 3,850 4,075
Additional paid-in-capital 1,721,271 1,871,046
Retained deficit (3,104,606) (3,252,736)
----------- -----------
TOTAL STOCKHOLDERS' (DEFICIT) (1,379,485) (1,377,615)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 514,005 $ 471,574
============ ===========
See accompanying notes to financial statements.
F-3
SUNCOAST NATURALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the For the
Years Ended Three Months Ended
December 31, March 31,
2002 2003 2003 2004
(Unaudited)
NET SALES $2,040,313 $1,066,027 $ 420,930 $ 53,259
COST OF SALES 751,150 577,669 129,828 34,667
--------- --------- --------- --------
GROSS PROFIT 1,289,163 488,358 291,102 18,592
--------- --------- --------- --------
DIRECT OPERATING EXPENSES:
Sales and marketing 1,183,303 529,846 278,291 23,543
Administration 992,182 826,122 184,238 115,714
--------- --------- --------- --------
TOTAL OPERATING EXPENSES 2,175,485 1,355,967 462,529 139,257
--------- --------- --------- --------
(LOSS) FROM OPERATIONS BEFORE
OTHER INCOME AND EXPENSE (886,322) (867,609) (171,427) (120,665)
---------- ---------- --------- --------
Settlement Income (Expense) 105,000 (26,648) - -
Start Up and
Re-alignment Costs (31,000) (75,199) (26,000) (17,000)
Interest Costs (net) (63,582) (44,131) (7,817) (10,466)
---------- ---------- --------- --------
OPERATING LOSS BEFORE TAXES (875,904) (1,013,587) (205,244) (148,130)
PROVISION FOR INCOME TAX - - - -
--------- --------- --------- ---------
NET (LOSS) $ (875,904) $(1,013,587) $(205,244) $(148,130)
=========== ============ ========== ==========
Net Loss per share: $ (.21) $ (.25) $ (.05) $ (.04)
======= ======= ======= =======
Common shares outstanding: 4,075,000 4,075,000 4,075,000 4,075,000
========= ========= ========= =========
See accompanying notes to financial statements.
F-4
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, 2002 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 2,900,000 2,900 78,100 - 81,000
Net loss year
ended December 31, 2002 - - - (875,904) (875,904)
---------- ---------- ---------- ----------- -----------
Balance December 31, 2002 3,650,000 3,650 1,574,471 (2,091,018) (512,897)
Other adjustments (Note 3) - - 15,000 - 15,000
Issuance of Common Stock @ $.66
Per share together with warrants 200,000 200 131,800 - 132,000
Net loss for the twelve months
ended December 31, 2003 - - - (1,013,587) (1,013,587)
---------- ---------- ---------- ------------ ------------
Balance December 31, 2003 3,850,000 3,850 1,721,271 (3,104,606) (1,379,485)
Issuance of Common Stock @ $.66
Per share 225,000 225 149,775 - 150,000
Net loss for the three months
ended March 31, 2004(unaudited) - - - (148,130) (148,130)
---------- ---------- ---------- ----------- -----------
Balance March 31, 2004 (unaudited) 4,075,000 $ 4,075 $1,871,046 $(3,252,736) $(1,377,615)
========= ========== ========== ============ ============
See accompanying notes to financial statements.
F-5
SUNCOAST NATURALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the For the
Years Ended Three Months Ended
December 31, March 31,
2002 2003 2003 2004
(Unaudited)
OPERATING ACTIVITIES:
Net Income (Loss) $ (875,904) $(1,013,587) $ (205,244) $ (148,130)
Adjustments to reconcile net income
(loss) to net cash provided by
operations:
Common stock issued for services 50,000 - - -
Depreciation and amortization 19,108 20,816 5,243 2,765
Book value of assets disposed 10,952 - - -
Bad debt 9,140 110,138 4,843 10,000
(Increase) decrease in assets:
Accounts receivable (117,913) 68,623 33,124 869
Inventory 155,437 139,503 28,555 17,318
Other current assets 8,322 (1,027) 8,054 7,500
Other assets (4,464) 22,395 4,318 -
Increase (decrease) in liabilities:
Accounts payable 79,859 283,404 35,688 118,832
Accrued expenses - royalties 25,781 23,763 8,226 (7,250)
Accrued expenses - other 63,898 50,979 59,903 (5,884)
Redeemable preferred stock - 7,527 7,817 -
--------- --------- --------- ---------
Total adjustments 300,120 726,120 195,771 144,150
--------- --------- --------- ---------
NET CASH (USED IN)
OPERATING ACTIVITIES (575,784) (287,467) (9,473) (3,980)
---------- ---------- --------- ---------
INVESTING ACTIVITIES:
Purchase of fixed assets (9,081) (20,000) (12,000) -
---------- ---------- ---------- ---------
NET CASH FLOWS (USED IN) INVESTING
ACTIVITIES (9,081) (20,000) (12,000) -
---------- ---------- ---------- ---------
FINANCING ACTIVITIES:
Advance from former parent company 517,519 - - -
Issuance of Stock - 132,000 - -
Payment of purchase obligation - - - -
Proceeds from Bridge Note - 160,000 - -
Advance from officers 31,000 38,017 39,417 -
Repayment of Advance From Officers - (38,017) - -
--------- --------- --------- ---------
NET CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES 548,519 292,000 39,417 -
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH (36,346) (15,467) 17,944 (3,980)
---------- ---------- --------- ----------
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 56,535 20,189 20,189 4,722
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 20,189 $ 4,722 $ 38,133 $ 742
======== ======== ======== ========
See accompanying notes to financial statements.
F-6
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the periods March 31, 2003 and March 31, 2004)
NOTE 1 - GOING CONCERN
As shown in the above financial statements, the Company incurred a net loss
of $875,904 during the year ended December 31, 2002 and $1,013,587 during the
year ended December 31, 2003. Additionally, the company had a stockholders'
deficit of $1,379,485 at December 31, 2003 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 2004 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-7
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-8
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 Three Months Ended
December 31, March 31,
2002 2003 2003 2004
(Unaudited)
Interest and
administrative costs $55,782 $15,000 $10,000 $0
======= ======= ======= ==
F-9
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.
INTERIM FINANCIAL INFORMATION
The interim financial information at March 31, 2004 and for the three
months ended March 31, 2003 and 2004 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.
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.
F-10
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.
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.
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.
F-11
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.
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.
F-12
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, 2003 and 2002.
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.
START-UP AND RE-ALIGNMENT 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. Re-alignment costs are costs associated with changing the contractual
distribution agreements to an existing customer base. Start up and re-alignment
costs for the years ended December 31, 2002 and 2003 were $31,000 and $75,199
and for the three months ended March 31, 2003 and 2004 (unaudited) were $26,000
and $17,000, respectively.
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.
F-13
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 Three Months Ended
December 31, March 31,
2002 2003 2003 2004
(Unaudited)
Interest paid, net $ - $ - $ - $ -
======= ======= ======= =======
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 (2002) and
investor (2004) to common stock $ 31,000 $ - $ - $150,000
======= ======= ======= =======
F-14
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.
F-15
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.
"Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51." FIN 46 requires certain variable interest entities to be consolidated by
the primary beneficiary of the entity if the equity investors in the entity do
not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The adoption of FIN 46 did not
have a significant impact on our consolidated financial position or results of
operations.
In May 2003, the FASB issued SFAS Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity". This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). This
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of nonpublic entities, if applicable. It is to be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the
Statement and still existing at the beginning of the interim period of adoption.
The adoption of this statement is not expected to have a significant impact on
the Company's results of operations or financial position.
F-16
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, March 31,
2003 2004
(Unaudited)
Raw Materials $ 66,414 $ 62,399
Finished goods 75,172 61,869
------- ------
Total 141,586 124,268
Less: Reserve for obsolescence (20,000) (20,000)
------- -------
Inventory, Net $121,586 $104,268
======== ========
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of:
December 31, March 31,
2003 2004
(Unaudited)
Improvements and fitouts $17,650 $17,650
Machinery and equipment 9,857 9,857
Computer software and website 49,649 49,649
Furniture and fixtures 37,070 37,070
-------- --------
114,226 114,226
Less: Accumulated depreciation (50,087) (52,852)
-------- ---------
Property, Plant and Equipment, net $64,139 $61,374
======== ========
Depreciation expense for the years ended December 31, 2003 and 2002 was
$20,816 and $19,108 respectively and $2,765 and $5,243 for the three months
ended March 31, 2004 and 2003, respectively.
F-17
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, 2003 and 2002, the Company had one
customer who contributed greater than 19.2% and 11.5%, 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 Three Months Ended
December 31, March 31,
2002 2003 2003 2004
Net Sales
United States $ 1,601 $ 810 $ 382 $ 36
Mexico 439 256 39 17
----- ----- ---- ----
Total $ 2,040 $ 1,066 $ 421 $ 53
===== ===== ==== ====
All of the Company's long-lives assets are located in the United States.
NOTE 7 - INCOME TAXES
At December 31, 2002 and 2003, the Company had net operating loss
carryforwards of approximately $2,091,000 and $3,007,000, 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.
F-18
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, 2003 has been reduced
in its entirety by the valuation allowance. For the periods ending December 31,
2002 and 2003 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, 200 and 2003 respectively is as follows:
2002 2003
Loss Before Income Taxes $(875,904) $(1,013,587)
Computed expected tax credit 297,805 344,620
Operating loss for which no
benefits were provided (297,805) (344,620)
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-19
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 year ended December 31, 2003 and the three month period ended
March 31, 2004, the Company imputed $31,231 and $7,960 of interest expense on
this obligation.
F-20
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.)
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.
F-21
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 initial maturity date of September 30, 2003. This
convertible note
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 initially exercisable through December, 2003 and
extended through December 3, 2004.
Options and Warrants
In addition to our outstanding common stock, there are, as of March 31,
2004, 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 Average Expiration
Outstanding Exercise Price
Class "A" Warrants 650,000 $ 1.00 12/31/07
Class "B" Warrants 450,000 $ 0.66 12/31/04
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
provisions to issue up to 350,000 shares consisting of provisions for equity
compensation of 100,000 shares to be issued for services based upon attainment
of certain benchmarks and a warrant for up to 250,000 shares at an exercise
price of $1.00 per share may be issued under the agreement.
F-22
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Operating Leases
Certain operating leases for the years ended December 31, 2002 and 2003 for
office and warehouse space maintained by the Company resulted in rent expense of
$102,572 and $125,076, respectively, and $21,630 and $20,920 for March 31, 2003
and 2004, respectively.
The total future minimum rental payments for premises required are as
follows:
2004 $ 130,159
2005 123,672
-------
$ 253,831
Additionally, the Company leased fixtures and office equipment for the
years ended December 31, 2002 and 2003 under operating leases which resulted in
equipment rental expenses of $33,785 and $25,319, respectively, and $9,459 and
$5,499 for March 31, 2003 and 2004, respectively.
The total future minimum rental payments for equipment required are as
follows:
2004 $ 26,539
2005 22,533
2006 2,182
------
$ 51,254
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 $57,945 and $23,837, respectively, and during the
three months ended March 31, 2003 and 2004 the Company recorded royalty expense
to Caribbean Pacific International, Inc. of $8,226 and $0, 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.
F-23
Litigation
From time to time the Company may be involved in various legal proceedings
and other matters, including nominal disputes with creditors relating to the
dollar amount of outstanding obligations of the Company, 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 year
ended December 31, 2003, and the three months ended March 31, 2004 the Company
imputed $31,231 and $7,960, respectively, of interest expense on this
obligation.
During the year ended December 31, 2003, the Company received $38,017 of
advances from the Company's president which have been repaid in full through
that date. Interest expense of $3,017 was recorded on this debt for the year
ended December 31, 2003.
Caribbean Pacific International, Inc., the holder of the royalty agreement,
is also the 40% minority shareholder of CARIBBEAN PACIFIC NATURAL PRODUCTS.
NOTE 13 - SUBSEQUENT EVENTS
In March, 2004, the Company issued 225,000 shares of its common stock and
extended through December 31, 2004 a like amount of warrants to purchase one
share each of the Company's common stock at $.66 per share, pursuant to the
conversion of a $150,000 note payable discussed in Note 10.
F-24
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.
II-1
(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.
II-2
(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............................................................ $ 57,650
- --------------------------------------------------------------------------------
* 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 4,075,000 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 of 1933, as amended (the
"Securities Act").
II-3
In June, 2003, we issued 10,000 common stock purchase warrants,
exercisable at $1.00, to Mr. Robert Jaffe, our former counsel. The warrants were
issued in exchange for legal services valued at $1,000 performed for us.
In May, 2003, the Company, as additional consideration for the issuance of
a convertible note described below and issued contemporaneous therewith, issued
100,000 warrants (the "A" warrants) to purchase 100,000 shares of Common Stock
at $1.00 per Share through December, 2007 to Seth Fireman, 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 (an affiliate due to its holding of
5% or more of the Company's common stock), each of whom were accredited
investors pursuant to Rule 506 of Regulation D under the Securities Act. Each
investor receiving securities represented that they were accredited investors as
defined in Regulation D under the Securities Act of 1933 or had sufficient
knowledge and experience in financial matters to be capable of evaluating the
risk of such an investment, and based on those representations, the Company
determined the investors to be accredited investors. The exercise date of the B
warrants was extended to December 31, 2004.
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 (an affiliate due to its holding
of 5% or more of the Company's common stock), who is an accredited investor
pursuant to Rule 506 of Regulation D under the Securities Act. Goldstrand
represented that they were an accredited investor as defined in Regulation D
under the Securities Act of 1933 or had sufficient knowledge and experience in
financial matters to be capable of evaluating the risk of such an investment,
and based on those representations, the Company determined the investor to be an
accredited investor.On February 27, 2004, the Note Holder converted the Note,
including accrued interest, into 225,000 shares of common stock 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 listed below, each of whom were accredited investors pursuant to
Rule 506 of Regulation D under the Securities Act. Each investor receiving
securities represented that they were accredited investors as defined in
Regulation D under the Securities Act of 1933 or had sufficient knowledge and
experience in financial matters to be capable of evaluating the risk of such an
investment, and based on those representations, the Company determined the
investors to be accredited investors. These shares were issued to the following
persons in the corresponding amounts:
Doylestown Partners, Inc. 18,940 shares
Ashworth Development, LLC 22,727 shares
Shamrock Equities, Inc. 9,469 shares
Robert K. Ashworth 4,924 shares
Phil Schuman 30,303 shares
Norman Gottlieb 75,756 shares
Richard Berman 37,879 shares
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
II-4
partial consideration for the acquisition of 60% of the Common Stock of
Caribbean Pacific Natural Products, Inc., valued at $937,596. During the nine
month period ended September 30, 2003, the Company imputed $23,189 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 by William J. Reilly, the Chairman and President of the
Company, in the organization of the Company. These shares were issued to William
J. Reilly, Thomas Hagan, Dr. Sam Saliba, and Matthew Cohen, who are all
Directors of the Company and received their shares in lieu of cash compensation
for services rendered. In addition, Mr. Reilly gifted shares to twelve
shareholders listed below. These shares were issued to the following persons in
the corresponding amounts:
Diocese of Palm Beach 115,000 shares
Erin Furman 62,500 shares
John Furman 12,500 shares
Louis Gleckel 5,000 shares
Christopher Reilly 10,000 shares
Marielle Reilly 25,000 shares
Shannon Reilly 30,000 shares
Margaret Testa 7,500 shares
Charles Nicosia 10,000 shares
Cyrus Holman 1,000 shares
Robert K. Ashworth 162,500 shares
Scott Strady 155,000 shares
With the exception of Christopher and Shannon Reilly who are children of
William Reilly, our President, and Marielle Reilly, who is the wife of William
Reilly, all these shareholders are unaffiliated with the Company.
In November, 2002, the Company issued 1,715,000 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. Worldwide Health Resources, Inc.
provided us with $10,000 worth of services and received 10,000 shares of Common
Stock and 10,000 warrants. News USA, Inc. provided us with $5,000 worth of
services and received 62,500 shares of common stock and 37,500 warrants.
Blackmor Group, Inc. provided us with $10,000 in product marketing services and
received 115,000 shares of Common Stock and 85,000 warrants. FINX Group, Inc.
provided us with $10,000 worth of secretarial services and received 50,000
shares of Common Stock and 50,000 warrants. Charles Kyrakos provided us with
$1,000 in real estate brokerage services and received 10,000 shares of common
stock. William J. Reilly, President, provided us with $14,000 in corporation
formation and management services, and received 1,467,500 shares of common stock
and 242,500 warrants.
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) Certificate of Incorporation. (1)
(3b) By-laws. (1)
(4a) Specimen of Common Stock certificate. (1)
(4b) Certificate of Designation of Series "A" Redeemable
Preferred Stock issued to the Quigley Corporation. (4)
II-5
(5) Opinion of Sichenzia Ross Friedman Ference LLP
(10a) Form of $150,000 Principal Value Convertible Note. (1)
(10b) Share Exchange Agreement, dated as of December 31, 2002,
by and between Suncoast Naturals, Inc. and The Quigley
Corporation (1)
(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. (3)
(10e) Lease Agreement (4)
(10f) Product License Agreement With Caribbean Pacific
International, Inc. (4)
(10g) Sale and Exchange Agreement with Suncoast Naturals,
Inc. and Quigley Corp. (4)
(10h) Employment Agreement with William J. Reilly, Esq. (4)
(10i) Agreement with News USA, Inc. (4)
(10j) Form of Common Stock Purchase Warrant.
(10k) Lease Agreement(4)
(21) Subsidiaries (1)
(23a) Consent of Schuhalter, Coughlin & Suozzo, PC
(23b) Consent of Rosenberg Rich Baker Berman & Company
(23c) Consent of legal counsel (see Exhibit 5)
(1) Filed with the initial filing of the Registration Statement on Form SB-2 on
August 11, 2003.
(2) Filed with Amendment No. 1 to this Registration Statement on October 30,
2003.
(3) Filed with Amendment No. 2 to this Registration Statement on January 20,
2004.
(4) Filed with Amendment No. 3 to this Registration Statement on March 8, 2004.
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-6
(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.
II-7
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 21st day of May,
2004.
SUNCOAST NATURALS, INC.
By: /s/ William J. Reilly
----------------------
Name: William J. Reilly
Principal Executive Officer,
Acting Principal Financial
Officer and Acting Principal
Accounting Officer
Power of Attorney
Suncoast Naturals, Inc. and each of the undersigned do hereby appoint
William J. Reilly, President 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 Suncoast
Naturals, Inc. and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ William J. Reilly President and Director May 21, 2004
- ------------------------
William J. Reilly
/s/ Thomas Hagan Secretary and Director May 21, 2004
- ------------------------
Thomas Hagan
/s/ Sam Saliba Director May 21, 2004
- ------------------------
Dr. Sam Saliba
Director May 21, 2004
- ------------------------
Matthew Cohen
II-8