As Filed with the Securities and Exchange Commission on _________, 2002,
Registration No. 333-________
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
TORBAY HOLDINGS, INC.
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(Exact name of Registrant as Specified in Its Charter)
Delaware 5064 52-2143186
- --------------------------------- -------------------- --------------------
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Identification No.)
Classification Code)
4 Mulford Place, Suite 2G
Hempstead, NY 11550
516-292-2023
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
William Thomas Large, President
4 Mulford Place, Suite 2G
Hempstead, NY 11550
516-292-2023
(Name, address, including zip code, and telephone number
including area code, of agents for service)
____________________________________
Copies to:
Seth A. Farbman, P.C.
Seth A. Farbman, Esq.
301 Eastwood Road
Woodmere, New York 11598
Ph: 516-569-6089
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
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 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. |_|
CALCULATION OF REGISTRATION FEE
Proposed
Proposed Maximum Maximum
Title of Each Class of Securities Amount To Be Offering Price Per Aggregate Amount Of
To Be Registered Registered(1) Security (2) Offering Price Registration Fee(4)
- ---------------------------------- --------------- -------------------- --------------- -----------------
Common Stock, $.0001 par 25,000,000 shares $.10 $ 2,500,000 $230.00
value per share
Common stock, par 3,000,000 shares $.10 $ 300,000 $ 27.60
value $.0001,
underlying
warrants(3)
Total 28,000,000 shares $.10 $ 2,800,000 $257.60
- ----------------------
(1) Includes shares of our common stock, par value $0.0001 per share, which may
be offered pursuant to this registration statement, which shares are
issuable upon conversion of secured convertible debentures and upon
exercise of related warrants. For purposes of estimating the number of
shares of common stock to be included in this registration statement, we
calculated 200% of the number of shares of our common stock issuable upon
conversion of the debentures and upon exercise of the warrants. In addition
to the shares set forth in the table, the amount to be registered includes
an indeterminate number of shares issuable upon conversion of or in respect
of the debentures and the warrants, as such number may be adjusted as a
result of stock splits, stock dividends and similar transactions in
accordance with Rule 416.
(2) Estimated solely for purposes of calculating the registration fee. The
registration fee is calculated in accordance with Rule 457(c) based upon
$.10, which is the average of the bid and asked prices of our common
stock reported on the OTC Bulletin Board on May 29, 2002.
(3) These shares of common stock are not outstanding and are issuable upon the
exercise of warrants to purchase 3,000,000 shares of our common stock at an
exercise price equal to the lesser of (i) $.04 per share or (ii) the
average of the lowest three intraday trading prices on the OTC Bulletin
Board during the twenty trading days immediately prior to exercise, at any
time after May 15, 2002 and before May 15, 2005.
(4) The registration fee was previously paid via electronic transfer.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission becomes effective.
This prospectus is not an offer to sell these securities and it is not
soliciting offers to buy these securities in any state where the offer or sale
is not permitted.
PROSPECTUS SUBJECT TO COMPLETION; DATED ______, 2002
28,000,000 Shares Of Common Stock
Of
Torbay Holdings, Inc.
This prospectus relates to the offer and sale from time to time by the
selling stockholders of up to 28,000,000 shares of our common stock, all of
which are issuable upon the conversion of our 12% secured convertible debentures
and the exercise of outstanding warrants. The prices at which the stockholders
may sell the shares will be determined by the prevailing market price for the
shares or in negotiated transactions.
We will not receive any of the proceeds from the sales of shares by the
selling stockholders but we may receive funds from the exercise of their
warrants. We have agreed to pay the costs of registering the shares under this
prospectus, including legal and accounting fees.
Our common shares are traded on the over-the-counter Electronic Bulletin
Board under the symbol "TRBY". The last reported sale price of our common shares
on the OTC Bulletin Board on May 29, 2002 was $0.10 per share. There is no
public market for our warrants and we do not intend to list our warrants on any
exchange.
Our common stock being offered by this prospectus involves a high degree of
risk. You should read the "Risk Factors" section beginning on page 4 before you
decide to purchase any common stock.
Neither the Securities and Exchange Commission nor any state commission has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
The date of this Prospectus is _________ __, 2002
We have not authorized anyone to provide you with information different from
that contained in this prospectus. This prospectus is not an offer to sell nor
is it seeking an offer to buy these securities in any jurisdiction where this
offer or sale is not permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock. In this
prospectus, references to the "Company", "we", "us" and "our" refer to Torbay
Holdings, Inc., a Delaware corporation, and its subsidiary Designer Appliances,
Ltd., Incorporated in the United Kingdom.
TABLE OF CONTENTS
Prospectus Summary 1
The Offering 2
Selected Financial Data 4
Risk Factors 5
We Have Not Earned Revenues And We Have Had Losses Since Our Inception. 5
We Expect Losses To Continue In The Future And There Is A Risk We May
Never Become Profitable. 5
We Will Need To Raise Additional Funds In The Future For Our Operations And If
We Are Unable To Secure Such Financing, We May Not Be Able To Support Our
Operations. 5
The Events Of September 11th Have Resulted In Increased Uncertainty Regarding
The Economic Outlook. 5
The Loss Of Our Key Employees May Adversely Affect Our Growth Objectives. 5
Our Current And Potential Competitors, Some Of Whom Have Greater Resources And
Experience Than We Do, May Develop Products And Technologies That May Cause
Demand For, And The Prices Of, Our Products To Decline. 6
As A Developer In The Appliances Industry, We May Experience Substantial Cost
Overruns In Manufacturing And Marketing Our Products, And May Not Have
Sufficient Capital To Successfully Complete Any Of Our Projects. 6
If We Are Not Able To Contract With Retail Outlets To Sell Our Products, We May
Not Be Able To Continue To Operate.
We May Not Be Able To Protect Our Patents, Trademarks And
Proprietary And/Or Non-Proprietary Rights, And, We May Infringe Upon The
Patents, Copyrights, Trademarks And Proprietary Rights Of Others. 6
We May, In The Future, Issue Additional Shares Of Our Common Stock Which Would
Reduce Investors Percent Of Ownership And May Dilute Our Share Value. 6
Shares Of Our Total Outstanding Shares That Are Restricted From Immediate Resale
But May Be Sold Into The Market In The Future Could Cause The Market Price Of
Our Common Stock To Drop Significantly, Even If Our Business Is Doing Well. 6
Since We Have Not Paid Any Dividends On Our Common Stock And Do Not Intend To Do
So In The Foreseeable Future, A Purchaser Of Our Common Stock Will Only Realize
An Economic Gain On His Or Her Investment From An Appreciation, If Any, In The
Market Price Of Our Common Stock. 7
The Application Of The "Penny Stock Regulation" Could Adversely Affect The
Market Price Of Our Common Stock. 7
There is Uncertainty As To Our Continuation As A Going Concern. 7
In The Future, The Authorization Of Our Preferred Stock May Have An Adverse
Effect On The Rights Of Holders Of Our Common Stock. 7
Our 12% debentures are convertible by the debenture holders into shares of our
common stock at any time. As such, purchasers of our common stock could
experience substantial dilution of their investment upon conversion of such
securities. 8
A default by us under our 12% debentures would enable the holders of our 12%
debentures to take control of substantially all of our assets. 8
Our Officers And Directors Have Limited Liability And Have Indemnity Rights. 8
Enforceability Of Certain Civil Liabilities 9
Forward-Looking Statements 9
Use Of Proceeds 9
Market For Common Equity And Related Stockholders Matters 9
Management's Discussion And Analysis Of Financial Condition And Results Of Operations 10
Our Business 14
Directors, Executive Officers, Promoters And Control Persons 19
Executive Compensation 20
Security Ownership Of Certain Beneficial Owners And Management 20
Certain Relationships And Related Transactions 21
Selling Stockholders 22
Plan Of Distribution 24
Description Of Securities 26
Disclosure Of Commission Position On Indemnification For Securities Act Liabilities 28
Where You Can Find Additional Information 29
Legal Matters 29
Experts 29
Dealer Prospectus Delivery Obligation
Until _______ 2002 all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
prospectus. You should read the following summary together with the more
detailed information regarding our business and our financial statements and
the related notes appearing elsewhere in this prospectus.
Our Company
We are a development stage company created to act as a holding company for
late-stage developmental or early-stage commercial companies. We were
incorporated on March 24, 1999 as a Delaware corporation named Acropolis
Acquisition Corporation, which changed its name to Torbay Holdings, Inc. on July
14, 1999. We acquired Designer Appliances, Limited, a United Kingdom corporation
which has developed and anticipates marketing household appliances designed to
be attractive to a premium, upscale market, as a wholly-owned subsidiary on July
19, 1999. On October 26, 1999, Torbay Acquisition Corporation, a reporting
company under the Securities Exchange Act of 1934, as amended, merged into us.
We became a successor issuer to Torbay Acquisition Corporation pursuant to Rule
12g-3(a) of the General Rules and Regulations of the Securities and Exchange
Commission.
Our principal executive offices are located at 4 Mulford Place, Suite 2G,
Hempstead, New York, 11550 and our telephone number is 516-292-2023.We maintain
an Internet Web site at http://wwww.torbayholdingsinc.net. Information contained
on our Internet Web site is for informational purposes only and is not
incorporated by reference into the registration statement of which this
prospectus is a part.
-1-
THE OFFERING
Number of shares of
common stock outstanding prior
to this offering 18,464,729 shares (1)
Common stock offered by
selling stockholders 28,000,000 shares (2)
Use of Proceeds We will not receive any of the proceeds from the sale of the shares of
common stock offered by this prospectus; however, we will receive
estimated gross proceeds of up to $69,000 if the selling stockholders
exercise warrants to purchase an aggregate of 1,500,000 shares of our
common stock covered by this prospectus, assuming the selling
stockholders do not utilize the cashless exercise feature of such
warrants, based on $.046, the average of the lowest three closing bid
prices during the twenty trading days prior to May 21, 2002. Of the
1,500,000 warrants, which may be exercised, 750,000 warrants are to be
issued only after the effectiveness of this registration statement. We
currently intend to use such net proceeds, if any, for working
capital and general corporate purposes.
Plan of Distribution The offering of our shares of common stock is being made by certain of
our stockholders who wish to sell their shares. Sales of
our common stock may be made by the selling stockholders
in the open market or in privately negotiated transactions
and at fixed or negotiated prices.
Risk Factors There are substantial risk factors involved in investing in
our company. For a discussion of certain factors you should
consider before buying shares of our common stock, see
the section entitled "Risk Factors".
OTC Bulletin Board Symbol "TRBY"
______________
(1) Such figure does not include shares of our common stock to be issued upon
exercise of outstanding warrants and upon conversion of outstanding
convertible debentures.
(2) Such figure includes double registration coverage of shares issuable upon
the exercise of outstanding warrants to purchase 1,500,000 shares and up to
25,000,000 shares of our common stock issuable upon the conversion of our
outstanding convertible debentures. Such figure assumes exercise or
conversion in full into shares of common stock of the warrants and
convertible debentures held by the selling stockholders.
-2-
Our Securities Purchase Agreement
On May 15, 2002, we entered into a securities purchase agreement with an
investment group to raise up to $500,000 through the sale to the investors of
our 12% secured convertible debentures with warrants to purchase up to 1,500,000
shares of our common stock. Upon execution of the securities purchase agreement,
the investors purchased $250,000 in principal amount of our 12% secured
convertible debentures with related warrants to purchase 750,000 shares of our
common stock. Under the terms of the securities purchase agreement, the
investors are obligated to purchase the remaining $250,000 in principal amount
of our 12% secured convertible debentures with related warrants to purchase
750,000 shares of our common stock on the date the registration statement
relating to the common stock offered by this prospectus is declared effective by
the Commission. If the registration statement is not declared effective, the
investors have no obligation to purchase the remaining 12% secured convertible
debentures or the related warrants. The 12% secured convertible debentures are
secured by a security agreement under which we pledged substantially all of our
assets, including our goods, fixtures, equipment, inventory, contract rights,
and receivables.
The 12% debentures are convertible at any time at the option of the holder
into shares of our common stock, provided at no time may a holder of our 12%
debentures and its affiliates own more than 4.9% of our outstanding common
stock. The conversion price of our common stock used in calculating the number
of shares issuable upon conversion, or in payment of interest on the 12%
debentures, is the lesser of
. fifty percent of the average of the lowest three trading prices for the
common stock during the twenty trading day period ending one trading day
prior to the date the conversion notice is sent by the holder to the
borrower and
. a fixed conversion price of $.05.
Description of Warrants
The warrants purchased by the investors on May 15, 2002 entitle the
investors to purchase 750,000 shares of our common stock at an exercise price
equal to the lesser of
. the average of the lowest three (3) trading prices during the twenty
trading days immediately prior to exercise and
. $0.04 per share.
The warrants expire on May 15, 2005. The warrants are subject to exercise
price adjustments upon the occurrence of certain events including stock
dividends, stock splits, mergers, reclassifications of stock or our
recapitalization. The exercise price of the warrants is also subject to
reduction if we issue any rights, options or warrants to purchase shares of our
common stock at a price less than the market price of our shares as quoted on
the OTC Bulletin Board.
-3-
Our Covenants with the 12% Debenture Holders
We may not, without the prior written consent of our 12% debenture holders,
do any of the following:
. pay, declare or set apart for payment any dividend or other distribution
on shares of our capital stock other than shares issued in the form of a
stock dividend;
. redeem, repurchase or otherwise acquire any shares of our capital stock
or any warrants, rights or options to purchase or acquire our shares of
capital stock;
. incur any indebtedness, except to trade creditors or financial
institutions incurred in the ordinary course of our business or to pay
the 12% debentures;
. sell, lease or otherwise dispose of any significant portion of our
assets outside of the ordinary course of our business;
. lend money, give credit or make advances to any person or entity except
in the ordinary course of our business; and
- without the prior written consent of a majority-in-interest of the buyers
negotiate or contract with any party to obtain additional equity financing
that involves the issuance of common stock at a discount to the market
price of the common stock on the date of issuance or the issuance of
convertible securities that are convertible into an indeterminate number of
shares of common stock or the issuance of warrants during the period
beginning on the closing date and ending on the later of (i) two hundred
seventy (270) days from the closing date and (ii) one hundred eighty (180)
days from the date our registration statement is declared effective.
Registration Rights Agreement with the Investors
Simultaneously with the execution of the securities purchase agreement, we
entered into a registration rights agreement with the investors. Under the
registration rights agreement, if the registration statement relating to the
securities offered by this prospectus is not declared effective by the SEC on or
before 90 days from the date of May 15, 2002, we are obligated to pay a
registration default fee to the 12% debenture holders equal to the principal of
the debenture outstanding multiplied by .02 multiplied by the sum of the number
of months that the registration statement is not yet effective (or on a pro rata
basis). For example, if the registration statement becomes effective one (1)
month after the end of such ninety-day period, we would pay $5,000 for each
$250,000 debenture outstanding. If thereafter, sales could not be made pursuant
to the registration statement for an additional period of one (1) month, we
would pay an additional $5,000 for each $250,000 of outstanding debenture
principal amount.
SELECTED FINANCIAL DATA
The following information is taken from our audited financial statements as
of December 31, 2001 and our unaudited statements as of March 31, 2002. The
financial information set forth below should be read in conjunction with the
more detailed financial statements and related notes appearing elsewhere in this
prospectus and should be read along with the section entitled Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Three Months Year Ended
Ended March December 31,
31, 2002 2001
----------- ------------
SUMMARY OPERATING DATA
- -----------------------------
Total Revenues. . . . . . . . - -
Expenses. . . . . . . . . . . (51,427) (418,184)
Net Loss. . . . . . . . . . (51,427) (418,184)
Net Loss Per Common Share . . - $ (.03)
BALANCE DATA SHEET
- -----------------------------
Cash . . . . . . . . . . . . $ 365 $ 45
Total Assets. . . . . . . . . $422,362 $ 222,060
Total Liabilities . . . . . . $251,821 $ 372,597
Shareholders' equity. . . . . $170,541 $(150,537)
-4-
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before investing in our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could adversely affect our business, financial condition and
results of operations and could result in a complete loss of your investment.
The risks and uncertainties described below are not the only ones we may face.
We Have Not Earned Revenues And We Have Had Losses Since Our Inception.
We Expect Losses To Continue In The Future And There Is A Risk We May
Never Become Profitable.
We had a loss of $49,722 as of March 31, 2002. We incurred operating losses
of $418,184 for the fiscal year ended December 31, 2001. Because we increased
our product development and manufacturing activities, we anticipate that we will
incur operating expenses in connection with continued development, testing and
manufacturing of our proposed products, and expect these expenses will result in
continuing and, perhaps, significant operating losses until such time, if ever,
that we are able to achieve adequate product sales levels. There can be no
assurance that future operations will be profitable. Revenues and profits, if
any, will depend upon various factors, including whether we will be able to
manufacture and market our appliance and computer products. We may not achieve
our business objectives and the failure to achieve such goals would have an
adverse impact on us.
We Will Need To Raise Additional Funds In The Future For Our Operations And If
We Are Unable To Secure Such Financing, We May Not Be Able To Support Our
Operations.
Future events, including the problems, delays, expenses and difficulties
frequently encountered by companies, may lead to cost increases that could make
our funds, if any, insufficient to support our operations. We may seek
additional capital, including an offering of our equity securities, an offering
of debt securities or obtaining financing through a bank or other entity. We
have not established a limit as to the amount of debt we may incur nor have we
adopted a ratio of our equity to a debt allowance. If we need to obtain
additional financing, there is no assurance that financing will be available
from any source, that it will be available on terms acceptable to us, or that
any future offering of securities will be successful. If additional funds are
raised through the issuance of equity securities, there may be a significant
dilution in the value of our outstanding common stock. Our business, financial
condition and results of operations could suffer adverse consequences if we are
unable to obtain additional capital when needed.
The Events Of September 11th Have Resulted In Increased Uncertainty Regarding
The Economic Outlook.
The terrorist attacks on September 11, 2001 have resulted in increased
uncertainty regarding the economic outlook. It is not possible at this time to
project the economic impact of these events, although past experience suggests
there may be a loss in consumer and business confidence and a reduction in the
rate of economic growth or an economic recession. With the U.S. economy already
on the edge of recession before the attacks, any further deterioration in either
the U.S. or international economies would adversely affect our business,
financial condition and results of operations.
The Loss Of Our Key Employees May Adversely Affect Our Growth Objectives.
Our success in achieving our growth objectives depends upon the efforts of
our top management team including the efforts of Messrs. Large and Lane. The
loss of the services of either of these individuals may have a material adverse
effect on our business, financial condition and results of operations. We do not
have employment agreements with Messrs. Large or Lane. We can give no assurance
that we will be able to maintain and achieve our growth objectives should we
lose either of these individuals' services.
-5-
Our Current And Potential Competitors, Some Of Whom Have Greater Resources And
Experience Than We Do, May Develop Products And Technologies That May Cause
Demand For, And The Prices Of, Our Products To Decline.
The general appliances industry is competitive as well as the general
computer products industry which includes several companies which have achieved
substantially greater market share than we have, and have longer operating
histories, have larger customer bases, have substantially greater financial,
development and marketing resources than we do. We expect our competition to
intensify as the Internet continues to grow. Existing or future competitors may
develop or offer products that are comparable or superior to ours at a lower
price, which could adversely harm our business, results of operations and
financial condition.
As a developer in the appliances industry, we may experience substantial cost
overruns in manufacturing and marketing our products, and may not have
sufficient capital to successfully complete any of our projects.
In the household appliances and furnishings industry the commercial success
of any product is often dependent on factors beyond the control of the company,
including, but not limited to, market acceptance and retailers' prominently
shelving and selling the products. We may experience substantial cost
overruns in manufacturing and marketing our products, and may not have
sufficient capital to successfully complete any of our projects. We may not
be able to manufacture or market our products because of industry conditions,
general economic conditions, competition from existing or new manufacturers and
distributors, or lack of acceptance for our products by consumers or retail
outlets.
If we are not able to contract with retail outlets to sell our products, we may
not be able to continue to operate.
We intend to market our products through upscale department stores,
boutiques and designer outlets. We do not currently have any arrangements or
agreements with any such stores to carry our products once produced. There can
be no assurance that we will be able to locate retail outlets to stock our
products, what shelving space prominence those outlets will give our products,
or whether our products will be given a lower profile in the future.
We may not be able to protect our patents, trademarks and
proprietary and/or non-proprietary rights, and, we may infringe upon the
patents, copyrights, trademarks and proprietary rights of others.
Notwithstanding the pending registration of certain trade names with the
United States Patent and Trademark Office, and the grant of a patent and trade
marks by the British Patent Office, there is no assurance that we will be able
to enforce against use of any of our marks or patents. There is also no
assurance that we will be able to prevent competitors from using the same or
similar names, marks, concepts or appearances or that we will have the financial
resources necessary to protect our marks against infringing use.
We May, In The Future, Issue Additional Shares Of Our Common Stock Which Would
Reduce Investors Percent Of Ownership And May Dilute Our Share Value.
Our certificate of incorporation authorizes the issuance of 100,000,000
shares of common stock, par value $.0001 per share, and 20,000,000 shares of
preferred stock, par value $.0001 per share. The future issuance of all or part
of our remaining authorized common stock may result in substantial dilution in
the percentage of our common stock held by our then existing shareholders. We
may value any common or preferred stock issued in the future on an arbitrary
basis. The issuance of common stock for future services or acquisitions or other
corporate actions may have the effect of diluting the value of the shares held
by our investors, and might have an adverse effect on any trading market for our
common stock.
Shares Of Our Total Outstanding Shares That Are Restricted From Immediate Resale
But May Be Sold Into The Market In The Future Could Cause The Market Price Of
Our Common Stock To Drop Significantly, Even If Our Business Is Doing Well.
As of May 21, 2002, we had 18,464,729 shares of our common stock issued and
outstanding of which 4,934,729 shares are restricted shares. Rule 144 provides,
in essence, that a person holding "restricted securities" for a period of one
year may sell only an amount every three months equal to the greater of (a) one
percent of a company's issued and outstanding shares, or (b) the average weekly
volume of sales during the four calendar weeks preceding the sale. The amount of
"restricted securities" which a person who is not an affiliate of our company
may sell is not so limited, since non-affiliates may sell without volume
limitation their shares held for two years if there is adequate current public
information available concerning our company. In such an event, "restricted
securities" would be eligible for sale to the public at an earlier date. The
sale in the public market of such shares of Common Stock may adversely affect
prevailing market prices of our Common Stock.
-6-
Since We Have Not Paid Any Dividends On Our Common Stock And Do Not Intend To Do
So In The Foreseeable Future, A Purchaser Of Our Common Stock Will Only Realize
An Economic Gain On His Or Her Investment From An Appreciation, If Any, In The
Market Price Of Our Common Stock.
We have never paid, and have no intentions in the foreseeable future to
pay, any cash dividends on our common stock. Therefore an investor in our common
stock, in all likelihood, will only realize a profit on his investment if the
market price of our common stock increases in value.
The Application Of The "Penny Stock Regulation" Could Adversely Affect The
Market Price Of Our Common Stock
Our securities may be deemed a penny stock. Penny stocks generally are
equity securities with a price of less than $5.00 per share other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ Stock Market, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system. Our securities may be subject to "penny stock rules" that impose
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the "penny stock rules"
require the delivery, prior to the transaction, of a disclosure schedule
prescribed by the Commission relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. Consequently, the "penny
stock rules" may restrict the ability of broker-dealers to sell our securities
and may have the effect of reducing the level of trading activity of our common
stock in the secondary market. The foregoing required penny stock restrictions
will not apply to our securities if such securities maintain a market price of
$5.00 or greater. We can give no assurance that the price of our securities will
reach or maintain such a level.
There is Uncertainty As To Our Continuation As A Going Concern.
Our audited financial statements for the fiscal year ended December 31,
2001, reflect an accumulated net loss of $418,184. These conditions raise
substantial doubt about our ability to continue as a going concern if sufficient
additional funding is not acquired or alternative sources of capital developed
to meet our working capital needs.
In The Future, The Authorization Of Our Preferred Stock May Have An Adverse
Effect On The Rights Of Holders Of Our Common Stock.
We may, without further action or vote by our shareholders, designate
and issue additional shares of our preferred stock. The terms of any series of
preferred stock, which may include priority claims to assets and dividends and
special voting rights, could adversely affect the rights of holders of the
common stock and thereby reduce the value of the common stock. The designation
and issuance of preferred stock favorable to current management or shareholders
could make the possible takeover of us or the removal of our management more
difficult and discharge hostile bids for control of us which bids might have
provided shareholders with premiums for their shares.
-7-
Our 12% debentures are convertible by the debenture holders into shares of our
common stock at any time. As such, purchasers of our common stock could
experience substantial dilution of their investment upon conversion of such
securities.
Our 12% convertible debentures are convertible into such number of shares
of common stock as is determined by dividing the principal amount thereof by the
lesser of the (a) then current variable conversion price and (b) $.05 per share.
If converted on May 21, 2002, the $500,000 debentures would have been
convertible into approximately 10,869,565 shares of our common stock. If an
aggregate of $500,000 in the principal amount of our debentures and 1,500,000
warrants were exercised on May 21, 2002, they would have equaled 12,369,565
shares of our common stock. Pursuant to the terms of the transaction, however,
the number of convertible debentures could prove to be significantly greater in
the event of a decrease in the trading price of our common stock. The following
table presents the number of shares of our common stock that we would be
required to issue as of May 21, 2002 and the number of shares we would be
required to issue if our common stock declined by 50% or 75%:
May 21, 50% 75%
2002 Decline Decline
------------------- ---------------------- --------------------
Conversion price per share: $0.046 $0.023 $0.0115
Total warrant and convertible
shares issuable: 12,369,565 23,239,130 44,978,260
The 1,500,000 warrants issued in connection with our 12% convertible debentures
are exercisable any time before the third anniversary date of issuance at an
exercise price per share equal to the lesser of (i) $.04 and (ii) the average of
lowest three (3) trading prices during the twenty (20) trading days immediately
prior to exercise of the warrants. If the 1,500,000 warrants were exercised on
May 21, 2002, the warrant conversion price would be $0.04.
A default by us under our 12% debentures would enable the holders of our 12%
debentures to take control of substantially all of our assets.
Our 12% debentures are secured by a security agreement under which we
pledged substantially all of our assets, including our goods, fixtures,
equipment, inventory, contract rights and receivables. A default by us under the
12% debentures would enable the holders to take control of substantially all of
our assets. The holders of our 12% debentures have no operating experience in
the industry which could force us to substantially curtail or cease our
operations.
Our Officers And Directors Have Limited Liability And Have Indemnity Rights.
Our certificate of incorporation and by-laws provide that we indemnify our
officers and directors against losses sustained or liabilities incurred which
arise from any transaction in such officer's or director's respective managerial
capacity unless such officer or director violates a duty of loyalty, did not act
in good faith, engaged in intentional misconduct or knowingly violated the law,
approved an improper dividend, or derived an improper benefit from the
transaction. Our certificate of incorporation and by-laws also provide for the
indemnification by us of our officers and directors against any losses or
liabilities incurred as a result of the manner in which such officers and
directors operate our business or conduct our internal affairs, provided that in
connection with these activities they act in good faith and in a manner which
they reasonably believe to be in, or not opposed to, our best interests, and
their conduct does not constitute gross negligence, misconduct or breach of
fiduciary obligations.
-8-
Enforceability Of Certain Civil Liabilities
Our officers and directors reside outside the United States. We anticipate
that a substantial portion of the assets that may be developed or acquired by us
will be located outside the United States and, as a result, it may not be
possible for investors to effect service of process within the United States
upon the officers or directors, or to enforce against our assets or against such
person judgements obtained in United States courts predicated upon the liability
provisions, and most particularly the civil liability provisions, of the United
States securities laws or state corporation or other law.
FORWARD-LOOKING STATEMENTS
You should not rely on forward-looking statements in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates", "believes", "plans",
"expects", "future", "intends", "may", "will", "continue", "estimate" and
similar expressions to identify these forward-looking statements. Prospective
investors should not place undue reliance on these forward-looking statements,
which apply only as of the date of this prospectus. Our actual results could
differ materially from those anticipated in these forward-looking statements for
many reasons, including the risks faced by our company described in "Risk
factors" and elsewhere in this prospectus.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
common stock offered by the selling stockholders under this prospectus. We will
receive estimated gross proceeds of up to $69,000 if the selling stockholders
exercise warrants to purchase an aggregate of 1,500,000 shares of our common
stock covered by this prospectus, assuming the selling stockholders do not
utilize the cashless exercise feature of such warrants. Of the 1,500,000
warrants, which may be exercised, 750,000 warrants are to be issued only after
the effectiveness of this registration statement. The net proceeds, if any, that
we receive from the exercise of warrants will be used for working capital and
general corporate purposes.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
PRICE RANGE OF OUR COMMON STOCK
On December 23, 2000 our common stock was authorized to trade on the
over-the-counter market with quotations available on the OTC Electronic Bulletin
Board under the symbol "TRBY." No trades occurred until January 3, 2001.
The following table sets forth the range of high and low bid quotations of
our common stock for the periods indicated. The prices represent inter-dealer
quotations, which do not include retail markups, markdowns or commissions, and
may not represent actual transactions.
-9-
HIGH LOW
------- ------
YEAR ENDED DECEMBER 31, 2001
First Quarter $4.87 $4.00
Second Quarter $4.62 $3.00
Third Quarter $2.30 $0.25
Fourth Quarter $0.50 $0.25
2002
- ----
First Quarter $0.40 $0.06
SECURITY HOLDERS
At May 21, 2002, there were 18,464,729 shares of our common
stock outstanding, which were held of record by approximately 405 stockholders,
not including persons or entities who hold the stock in nominee or "street" name
through various brokerage firms.
Dividends
We have not paid a dividend since our incorporation. Our Board of Directors
may consider the payment of cash dividends, dependent upon the results of our
operations and financial condition, tax considerations, industry standards,
economic considerations, regulatory restrictions, general business factors and
other conditions.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are a development stage company created to act as a holding company for
late-stage developmental, or early-stage commercial, companies with
opportunities in niche markets. We currently owns one subsidiary, Designer
Appliances Ltd., and are actively seeking additional acquisitions. We have
acquired intellectual property rights including a world wide patent application
for a computer mouse that is thought to be beneficial to computer mice users
with regards to the area of treatment and prevention of repetitive strain
injury. This will be exploited through our subsidiary, Designer Appliances.
Through Designer Appliances, we have developed and intend to market (i)
household appliances and (ii) the Quill computer mouse and software. Our
products are designed to attract a premium, upscale market. Management believes
that they have identified products of an under exploited opportunity in the
household and domestic appliances market and we are now expanding our product
line to include computer related products. There is no assurance that we will be
able to successfully manufacture or market these items.
-10-
In July 2001, we entered into a definitive purchase agreement with two
individuals who held the intellectual property rights and a third individual who
was involved in the design drawings for the software and know-how for the
computer mouse product now referred to as the Quill (formally known as the
"KAT"). Under the terms of the agreement, we acquired all of the sellers'
rights, title and interests in the KAT in exchange for 220,000 convertible
preferred shares. These shares will be convertible into 2,200,000 shares of
common stock upon the satisfaction of certain financial performance requirements
under the agreement's terms. Under this agreement an additional 200,000
convertible preferred shares are also to be issued if and when a patent is
granted which patent has been applied for. Such patent rights were granted in
January 2002. These additional preferred shares are convertible under the
identical financial performance requirements. In the event that the financial
performance requirements are not achieved within five years from the signing of
the agreement, then these preferred shares will convert on a 1:1 basis of common
stock. As of the date of this Report, we have not yet issued the convertible
preferred shares.
In July 2001, we entered into an agreement with Multi-Media Group, Inc.
("MMGI") to provide us with corporate promotional services and to assist us with
our marketing efforts. In consideration for the provision of these future
promotional services, we issued 250,000 shares of common stock to MMGI in August
2001. We will also reimburse MMGI for itemized and invoiced costs associated
with the provision of the promotional services.
On September 26, 2001, we entered into a one-year Corporate Financing
Consultancy Agreement with Glenn Michael Financial Inc. to specifically assist
us with potential financial requirements, mergers and acquisitions, corporate
capitalization and strategic development. We agreed to issue to Glenn Michael
500,000 shares of common stock valued at $.10 per share for a total of $50,000.
In May 2002 we entered into a consulting agreement with the NIR Group for
business consulting services to be rendered to us. Pursuant to such agreement we
agreed to pay a monthly retainer of $11,250 for a period of three months.
-11-
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31,
2000
We incurred a net loss of $418,184, or $0.03 per share compared to a net
loss of $420,265, or $0.08 per share, for the year ended December 31, 2000. The
decrease in net loss reflects the decrease in operating expenses over the prior
period. We did not generate any revenues for the year ended December 31, 2001 or
for the period ended December 31, 2000.
Our total operating expenses decreased $2,081 to $418,184 for the year
ended December 31, 2001 from $420,265 for the year ended December 31, 2000. This
decrease in expenses is attributed primarily to a $58,680 decrease in
professional fees and a $41,907 decrease in other selling, general and
administrative expenses. The decreases in operating expenses were partially
offset by a $107,740 increase in director's fees.
LIQUIDITY AND CAPITAL RESOURCES
We, including our subsidiary Designer Appliances, has incurred start-up
costs, including administrative costs and research and development costs. To
date, we have received funds from sales of its securities and from loans. It has
primarily used the proceeds from the sale of the securities of Designer
Appliances (prior to becoming a subsidiary) for payment of operating costs to
date. Since inception, we have received an aggregate of $803,848 from the sale
of its securities and $174,985 from loans and note proceeds. Designer Appliances
issued promissory notes in an aggregate amount of $161,650 for the cost of
purchasing the intellectual property rights to its products, which was repaid in
full by us from subscription proceeds in 1999.
We have had no sales and revenue. Since inception, we and our subsidiary
Designer Appliances have focused on organizational activities and research and
development of our products and marketing strategies. Management estimates that
it will require between $0.5 million and $1.0 million for the calendar year 2002
to launch its Quill mouse product. The higher figure assumes payment on delivery
and 90 days debtors, the lower figure assuming zero debtor days which reflects,
though in the extreme, the expectation that most goods will be supplied on
letters of credit. Although we believe that Designer Appliances would require
between $6.5 million and $18.2 million on the same basis over the next two years
to support manufacturing and marketing operations at the planned levels,
management anticipates that revenue generation from the sales of the computer
mouse, if at the levels anticipated, could generate cash to commence the
introduction of our other products and allow for access to bank credit
instruments thereby reducing the extent of outside funds required. These figures
include an allocation of $1.11 million in capital expenditure, primarily for
tooling costs which in early discussions with one potential manufacturer suggest
may possibly be amortized into the cost of product supply. Intellectual property
rights and development costs are planned at $1.8 million and sales and marketing
$6.2 million for this period. The acquisition of additional subsidiaries would
also require additional capital.
Our ability to develop its operations is dependent upon its receiving
additional capital financing. We may raise capital by the sale of its equity
securities, through an offering of debt securities, or from borrowing from a
financial institution. Our audited financial statements raise substantial doubt
about our ability to continue as a going concern if sufficient additional
funding is not acquired or alternative sources of capital developed to meet our
working capital needs.
-12-
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND
MARCH 31, 2001
We incurred a net loss of $51,427 for the three months ended March 31, 2002
compared to $16,488 for the three months ended March 31, 2001. The increase in
net loss reflects the increase in operating expenses over the prior period. We
did not generate any revenues for the three months ended March 31, 2002.
Our selling, general and administrative expenses decreased $2,666 to $7,155
for the three months ended March 31, 2002 from $9,821 for the three months ended
March 31, 2001. These decreases reflect our decision to curtail its operations
until such time as we receives financing sufficient for is to implement our
business plan.
We are not aware of any material trend, event or capital commitment which would
potentially adversely affect liquidity. In the event a material trend develops,
we believe that we will have sufficient funds available to satisfy working
capital needs through lines of credit and the funds expected from equity sales.
OTHER:
Except for historical information contained in this prospectus, the matters set
forth above are forward-looking statements that involve certain risks and
uncertainties that could cause actual results to differ from those in the
forward-looking statements. Investors are directed to consider, among other
items, the risks and uncertainties discussed in documents filed by us with the
Securities and Exchange Commission.
-13-
THE COMPANY
GENERAL
We are a development stage company created to act as a holding company for
late-stage developmental or early-stage commercial companies. We were
incorporated on March 24, 1999 as a Delaware corporation named Acropolis
Acquisition Corporation, which changed its name to Torbay Holdings, Inc. on July
14, 1999. We acquired Designer Appliances, Limited, a United Kingdom corporation
which has developed and anticipates marketing household appliances designed to
be attractive to a premium, upscale market, as a wholly-owned subsidiary on July
19, 1999.
On October 26, 1999, Torbay Acquisition Corporation, a reporting company
under the Securities Exchange Act of 1934, as amended, merged into Torbay
Holdings. Torbay Holdings became a successor issuer to Torbay Acquisition
Corporation pursuant to Rule 12g-3(a) of the General Rules and Regulations of
the Securities and Exchange Commission.
All references to "dollars," "U.S. dollars," "$," or "US$" are to United
States dollars, and all references to "pounds" or "(pound)" are to British
pounds sterling. As of December 31, 2001, the Interbank exchange rate was
(pound) 1.45150 to $1.00.
BUSINESS AND ACQUISITION STRATEGY
We plan to acquire diversified, wholly-owned subsidiaries which are
late-stage development or early-stage commercial companies, with opportunities
in niche markets. Additionally, we intend to own and manage assets from a
variety of locations each having protection either by deed or intellectual
property rights. We intend to purchase subsidiaries on an equity participation
basis and issue convertible preferred stock, which will be convertible to common
stock upon the attainment of a profit objective of a specified subsidiary or
product line within a given time frame, in exchange for the outstanding voting
stock of the subsidiary. In this way, value is not delivered to the incoming
businesses until such businesses reach specified profitability targets.
We currently owns one subsidiary, Designer Appliances Ltd., and is actively
seeking additional acquisitions. Torbay Holdings has completed agreements to
acquire intellectual property rights. We have subsequently filed with the United
States Patent and Trademark Office for a registered trademarks upon the product
previously called "Project KAT" which will be launched commercially as the
Quill. The Quill computer pointer or computer mouse product in clinical trials
presented to the company, eliminates the risk of repetitive strain injury from
the use of the computer mouse.
-14-
DESIGNER APPLIANCES, LTD.
Designer Appliances, Ltd. is organized under the laws of the United
Kingdom as a company that is seeking to exploit innovations in design,
technology, and product concepts in the designer sector of the appliance market.
Designer Appliances owns the designs to attractive vacuum cleaners that convert
into glass-top tables when not in use as vacuums. In addition to the vacuum
cleaners, Designer Appliances has plans for a voice-activated desk top fan with
a heating element and a transparent toaster which also serves as a radio. Such
products are targeted at executive apartments in London, Paris, Milan, and New
York where design aesthetics and living space are at a premium.
OPERATIONS
Prior to the acquisition of the design by Designer Appliances, 300
units of the Telstar I vacuum cleaner were produced for testing and marketing.
See "Products." Designer Appliances initially intends to subcontract manufacture
of the product components to the companies who manufactured the components for
these models and who are equipped and experienced to do so. Responsibility for
the final product assembly will be managed by Designer Appliances to ensure
product quality.
PRODUCTS
Telstar I Designer Vacuum Cleaner. The Telstar I Designer Vacuum
Cleaner is a rocket shaped cylinder vacuum cleaner made of polished aluminum and
incorporating the latest in filtration technology. It is bagless and features
the High Efficiency Particle Arrester (HEPA) medical grade filter that removes
allergens in dirt associated with asthma. It has a large (50ft.) cleaning radius
that typically allows cleaning an entire floor without stopping. Early versions
of the Telstar have obtained British and European approvals for German TUV
standards, which relate to electrical safety and manufacturing practices. United
States approvals are anticipated. This product is expected to sell for between
(pound)150 and (pound)165 to stores and (pound)300 retail. Initial manufacturing
costs are expected to be between (pound)80 and (pound)100 per unit.
Telstar II Designer Vacuum Cleaner/Table. The Telstar I vacuum cleaner
has a glass tabletop accessory. When not in use, the vacuum cleaner serves as a
base for the glass tabletop and the entire unit appears as an attractive and
functional coffee table. This product is designed for an environment where
storage space is at a premium. We may choose to market this product
under the name "Sputnik" or as the "Telstar Space Station". The tabletop model
has been developed as a working prototype and additional expenditure, when
available, is planned on testing, tooling and packaging. This product is
expected to sell for (pound)100 to (pound)125 above the cost of the Telstar I
vacuum cleaner.
Mistral I Desktop Fan. This is a desktop fan, cased in polished
aluminum, which utilizes a design similar to the Telstar I Vacuum Cleaner. The
Mistral I fan is designed and ready for manufacturing development. Further
innovations being considered for the Mistral I include voice activations of
stop, start, speed, swivel movement, hot, and cold. This product is expected to
sell for (pound)70 to stores and to retail for (pound)130.
-15-
The Quill computer mouse.
- --------------------------
In July 2001, we entered into a definitive purchase agreement with two
individuals who held the intellectual property rights and a third individual who
was involved in the design drawings for the software and know-how for the
computer mouse product now referred to as the Quill (formally known as the
"KAT"). Under the terms of the agreement, we acquired all of the sellers'
rights, title and interests in the KAT in exchange for 220,000 convertible
preferred shares. These shares will be convertible into 2,200,000 shares of
common stock upon the satisfaction of certain financial performance requirements
under the agreement's terms. Under this agreement an additional 200,000
convertible preferred shares are also to be issued if and when a patent is
granted which patent has been applied for. Such patent rights were granted in
January 2002. These additional preferred shares are convertible under the
identical financial performance requirements. In the event that the financial
performance requirements are not achieved within five years from the signing of
the agreement, then these preferred shares will convert on a 1:1 basis of common
stock. As of the date of this Report, we have not yet issued the convertible
preferred shares.
The Quill design, without altering the way an individual works, maintains
the hand used to maneuver the computer mouse, in a "neutral" or low
biomechanical load position, similar to a hand shake position while using a
mouse. It is larger than an ergonomic mouse so it is more comfortable to use.
The Quill keeps the users hand, wrist and lower forearm within certain critical
angles so as not to overly extend the median nerve.
We are in the process of developing our E-Quill-Liberator Software that we
believe will help manage injuries typically associated with using a computer
mouse such as Cumulative Trauma Disease (CTD) or Repetitive Strain Injury (RSI)
and Carpal Tunnel Syndrome (CTS). The mouse driver software supplied will have a
user de-selectable default that prompts users to take a 15 minute break every
two hours, which is a recommendation of the OSHA and published in their
Ergonomic Report: Office and Clerical, extracts relating to TW921209, Computer
Layout & Design. The E-Quill-Liberator software suite will extend fatigue
management and make recommendations as to how users might seek to alleviate
observed sensations in specific limb zones by offering a series of exercises.
The information, securely contained on the users personal computer, would be
used to suggest breaks and exercises customized to suit their individual body
mechanics.
Wurlitzer Toaster. The Wurlitzer Toaster is in the design stage and is
anticipated to follow Designer Appliances' "retro" theme, while incorporating
modern technology. The product is expected to have two chrome ends in the shape
of fins with central glass panels to allow for the toasting process to be
observed. Designer Appliances is also considering incorporating an FM radio with
this product for practicality.
Thalia Kettle. The Thalia Kettle will incorporate a "retro" design in
order to be marketed with the Wurlitzer Toaster. The product is anticipated to
have instant heat delivery, rapid boil and other potentially patentable design
aspects.
-16-
Heated Hearth Screens. Designer Appliances intends to develop and
market designer, heated hearth screens using chrome and glass in conjunction
with a flat heating element to offer background convection heat when the fire is
not being used. The concept of heated hearth screen may also be expanded to
encompass a space heater product in the future.
MARKETING
Designer Appliances intends image promote and accelerate early sales
through public relations and advertising in life style magazines in different
media and geographic locations.
Designer Appliances intends to operate directly in the United Kingdom
with its own sales team and through selected mail order means. Established and
known distribution networks have been identified to expand this activity through
Europe. In North America, an appliance distribution company has been identified
that distributes appliances and designer goods, such as Fendi products.
Principles of an agreement with the North American distributor have been
reached, but no relationship has been formalized. Management believes that
contracts may be finalized when production and payment schedules can be
predicted with reasonable certainty. These distributors will likely purchase
products and bear all costs of sales and distribution in their territories.
Designer Appliances, in conjunction with Torbay Holdings, Inc., intends to
develop an Internet Web site for purposes of advertising our products.
Additionally, we maintain an Internet Web Site located at
www.Torbayholdingsinc.net to market our business activities and to solicit
responses to a survey that we are conducting as to the extent and impact of
computer related injuries. Following a review of the success of the Website in
directing traffic from commercially interested parties to the our products, we
transferred its web site to a new host, Cenicola-Helvin Enterprises, in
preparedness for carrying out direct e-commerce activities to include sales of
the Quill computer mouse and software.
MAJOR COMPETITORS
Designer Appliances believes, in the area of its domestic appliance
products (excluding the computer mouse) that there is no single major competitor
in the United Kingdom and Europe competing in the upscale small domestic
appliance sector. Designer Appliances is not aware of a competitor who
manufactures and sells a vacuum cleaner protected by a similar design. See
"Trademarks" herein. Designer Appliances is not aware of a competitor who sells
a vacuum cleaner that converts to a piece of furniture when it is not in use.
Competition in the computer mouse product sector is typically global by
most product providers. Major players in the computer mouse supply sector may
include, but not be limited to, Logitech, Kensington and Microsoft all of whom
offer global ergonomic mouse product supplies. In terms of market
differentiation, we are the only provider, to our knowledge, of a biomechanical
mouse product. We have also applied for a registration of our unregistered
trademark "Biomechanical Computer Mouse" in addition to registrations for
"Quill" and "E-Quill-Liberator" trademarks for our computer mouse and associated
software, respectively.
-17-
PATENTS AND TRADEMARKS
The British Patent Office has granted the following Design and
Trademark registrations made by Designer Appliances:
Telstar I vacuum cleaner design protection British design registration No. 2066378
The name "Telstar" British trademark registration No. 2209241
The name "Sputnik" British trademark registration No. 2209243
The tabletop design for the Telstar II,
Sputnik or Telestar Space Station British design registration No. 2082459
The combined vacuum and table product British design registration No. 2085669
The "Mistral" table top fan design British design registration No. 2066377
The name "Mistral" British trademark registration No. 2209473
The name " Wurlitzer" British trademark no. 2209244
UK Patent Grant; Hand Held Manipulation
Device eg Computer Mouse or Joy Stick British patent No. BG2328496
US Patent and Trademark Office
- --------------------------------
Trademark "Quill" US trademark application No. 78/103878
Trademark "E-Quill-Liberator" US trademark application No. 78/105096
Trademark "Biomechanical Computer Mouse" US trademark application No. 78/105097
EMPLOYEES
We have two full-time employees and two part-time employees,
including its executive officers, neither of which have formal employment
agreements with us.
DESCRIPTION OF PROPERTY
We operate out of an office space made available at no cost to us by Mr. A.
G. Lane. The address is 4 Mulford Place, Suite 2G, Hempstead, NY, 11550 and is
to be our registered address until such time as permanent office facilities in
the New York area can be acquired or leased.
Currently, Designer Appliances has no facilities as its employees work from
home. On April 16, 2002 we contracted with Dynapoint, Inc., located in
California, for Dynapoint to provide warehousing and logistics facilities for
our Quill product. We believe that our properties are adequate for our current
and immediately foreseeable operating needs. We do not have any policies
regarding investments in real estate, securities or other forms of property.
LEGAL PROCEEDINGS
We are not a party to any litigation, and our management has no knowledge
of any threatened or pending litigation against us.
-18-
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth certain information with respect to our
directors and executive officers as of May 21, 2002.
Name Age Position
- ------------------------- ----- -----------------------
Alexander Gordon Lane 46 Chairman, Director and acting Secretary
William Thomas Large 59 Chief Executive Officer, President and Director
All directors hold office until the next annual meeting of stockholders and
until their successors are elected. Officers are elected to serve, subject to
the discretion of the Board of Directors, until their successors are appointed.
Directors do not receive cash compensation for their services to us
as directors, but are reimbursed for expenses actually incurred in connection
with attending meetings of the Board of Directors.
Alexander Gordon Lane, 59, our Secretary and a Director,
has served in such capacities since October 1999. Mr. Lane has been a Financial
Consultant since 1998 and continues in such capacity. Mr. Lane has been in the
financial services business for over 30 years. From 1976 to 1983 he served as
Treasurer of Grindlays Bank PLCC, New York, and in 1983 he was a founding member
of International Money Brokers which was acquired by Traditional North America.
From 1993 to 1998, he was a principal of Intercontinental Exchange Partners, New
York, as a capital markets broker in the interest and foreign exchange areas.
Mr. Lane has an aeronautics degree from Wandsworth Technical College in London.
William Thomas Large, 46, has served as our President and Chief Executive
Officer since September 2000 and as our Director and as a Chief Executive
Officer of Designer Appliances since October 1998. From October 1996 until
October 1998, Mr. Large was Chairman, Chief Executive Officer, a Director and a
major stockholder of DeltaTheta Ltd., a heating and cooling technology company
in Cheshire, England. From February 1997 until September 1999, Mr. Large also
served as a director of DeltaMonitor Ltd, a medical devices company in Cheshire,
England. From December 1996 until June 1997, Mr. Large also served as a director
of SoundAlert Ltd, a company that manufactured emergency vehicle sirens. From
September 1994 until July 1996, Mr. Large was a Director of AromaScan plc, a
publicly listed instrumentation and technology company in Cheshire, England. Mr.
Large graduated from Manchester Metropolitan University, in Manchester, England,
and is the author or co-author of eight articles and two books relating to
biochemical analysis.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
We are not aware of any material legal proceedings that have occurred
within the past five years concerning any director, director nominee, or control
person which involved a criminal conviction, a pending criminal proceeding, a
pending or concluded administrative or civil proceeding limiting one's
participation in the securities or banking industries, or a finding of
securities or commodities law violations.
-19-
Executive Compensation
The following table sets forth a summary for the fiscal years ended, of the
cash and non-cash compensation awarded, paid or accrued by us to our President
and our most highly compensated officers other than the CEO, who served in such
capacities at the end of fiscal 2001 (collectively, the "Named Executive
Officers"). No other of our executive officers earned in excess of $100,000 in
total annual salary.
Summary Compensation Table Annual Compensation
-----------------------------------------------------------
Name and Principal All Other
Positions Year Salary($) Bonus($) Compensation($)
- ------------------------------ ------ ---------------------------------------
William Thomas Large 2001 (1) -- --
Chief Executive Officer 2000 96,990
1999 96,990
Alexander Gordon Lane
Chairman and Secretary 2001 0 -- --
- -----------------------------
(1) Mr. Large is eligible for a performance-related bonus of up to 100% of his
annual salary. In 2001 we issued 1,200,000 shares of common stock
valued at $.10 per share to Mr. Large. We also paid to Mr.
Large $30,815 in the form of Directors compensation.
EMPLOYMENT AGREEMENTS
We have not entered into any employment agreements with our
executive officers or other employees to date. We may enter into
employment agreements with them in the future.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the date of this
Report regarding the beneficial ownership of our common stock held by each of
our executive officers and directors, individually and as a group and by each
person who beneficially owns in excess of five percent of the common stock. In
general, beneficial ownership includes those shares that a person has the power
to vote, sell, or otherwise dispose. Beneficial ownership also includes that
number of shares, which an individual has the right to acquire within 60 days
(such as stock options) of the date this table was prepared. Two or more persons
may be considered the beneficial owner of the same shares. In this Annual Report
on Form 10-KSB, "voting power" is the power to vote or direct the voting of
shares, and "investment power" includes the power to dispose or direct the
disposition of shares. The inclusion in this section of any shares deemed
beneficially owned does not constitute an admission by that person of beneficial
ownership of those shares.
-20-
Amount and Nature Percent
Of of
Position with Beneficial Common
Stock Name and Address Torbay Holdings Ownership (1) Outstanding (1)
- -----------------------------------------------------------------------------------------
Alexander Gordon Lane Secretary, Director 430,000 2.2%
4 Milford Place
Hempstead, New York 11550
William Thomas Large President, Chief 7,815,000(2) 42.3%
c/o 91 Tulip Avenue Executive Officer
Lily Building., Apt. A4 and Director
Floral Park, NY 11001
All Directors and Executive Officers 8,245,000(2) 44.6%
as a Group (2 persons)
----------------------------------
(1) Based upon 18,464,729 shares outstanding as of May 21, 2002.
(2) Includes 120,000 shares of common stock owned by Mr. Large's minor children.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS RELATED TRANSACTIONS
To the best of management's knowledge, other than as set forth below, there
were no material transactions, or series of similar transactions, or any
currently proposed transactions, or series of similar transactions, to which
we were or are to be a party, in which the amount involved exceeds
$60,000, and in which any director or executive officer, or any security holder
who is known by us to own of record or beneficially more than 5% of any class of
our common stock, or any member of the immediate family of any of the foregoing
persons, has an interest.
Pursuant to a Deed of Assignment of Intellectual Property Rights by William
Thomas Large to Designer Appliances Ltd. dated June 10, 1999, Mr. Large assigned
all of his right, title and interest in and to the design rights to the vacuum
cleaner products, toaster, fan, kettle, space heater and heated hearth screen
products now being developed by us. Mr. Large's consideration for the assignment
consisted of 20,000 shares of Series 1 Convertible Preferred Stock of Torbay
Holdings, valued at (pound) 20,000, and (pound) 50,000 in cash to be paid within
six months of the date thereof. At December 31, 2000, Designer Appliances owed
no further consideration of the (pound) 50,000 to Mr. Large. The terms of the
assignment were not the result of arms-length negotiations.
Gordon Lane, our Chairman, having loaned to us an amount of $35,647 as of
the date of this registration statement, on March 26, 2002 converted such loan
in 297,063 shares of our restricted common stock. Additionally, our President,
Thomas Large, purchased from us 333,333 shares of our restricted common stock
for an aggregate purchase price of $40,000.
In 2001 we issued 1,200,000 shares of our common stock, valued at $.10 per
share, to Mr. Large. We also paid to Mr. Large $30,815 in the form of Director's
compensation.
-21-
SELLING STOCKHOLDERS
This prospectus relates to the offer and sale by the following selling
stockholders of the indicated number of shares, all of which are issuable
pursuant to warrants and/or convertible debentures held by these selling
stockholders. The number of shares set forth in the table for the selling
stockholders represents an estimate of the number of shares of common stock to
be offered by the selling stockholders. The actual number of shares of common
stock issuable upon conversion of the debentures and exercise of the related
warrants is indeterminate, is subject to adjustment and could be materially less
or more than such estimated number depending on factors which cannot be
predicted by us at this time including, among other factors, the future market
price of the common stock. The actual number of shares of common stock offered
in this prospectus, and included in the registration statement of which this
prospectus is a part, includes such additional number of shares of common stock
as may be issued or issuable upon conversion of the debentures and exercise of
the related warrants by reason of any stock split, stock dividend or similar
transaction involving the common stock, in accordance with Rule 416 under the
Securities Act of 1933.
None of the following selling stockholders has held any position or office
within our Company, nor has had any other material relationship with us in the
past three years, other than in connection with transactions pursuant to which
the selling stockholders acquired convertible debentures and warrants.
Under the securities purchase agreement, we will receive up to $500,000
from the selling stockholders, and they will receive in return a corresponding
amount of our 12% secured convertible debentures and warrants to purchase up to
an aggregate of 1,500,000 shares of common stock. The terms of the debentures
provide for full payment on or before May 15, 2003, with interest of 12% per
annum, which may be converted at any time at the lesser of (i) $0.05 or (ii) the
average of the lowest three inter-day trading prices during the twenty trading
days immediately prior to the date the conversion notice is sent, discounted by
fifty percent. The terms of the warrants entitle each selling stockholder to
purchase shares of our common stock at a price equal to the lesser of (i) $0.04
per share and (ii) the average of the lowest three intraday trading prices
during the twenty trading days immediately prior to exercise, at any time after
May 15, 2002 and before the third anniversary date of the issuance. Under the
related Registration Rights Agreement, we agreed to register all of the shares
underlying such convertible debentures and warrants to allow the selling
stockholders to sell them in a public offering or other distribution.
As of May 29, 2002, (i) $250,000 of the 12% convertible debentures have
been issued, none of which have been converted, and (ii) 750,000 of the warrants
have been issued, none of which have been exercised. Pursuant to the terms of
the securities purchase agreement, upon the registration statement registering
the shares subject to the debentures and warrants being declared effective by
the Commission, the remaining $250,000 of debentures and 750,000 warrants will
be issued to the selling stockholders. If all $500,000 debentures were converted
and all 1,500,000 warrants were exercised on May 21, 2002, a total of 12,369,565
shares of common stock would be required for issuance.
The information listed below was furnished to us by the indicated selling
stockholders. Shares of our common stock will be acquired by the selling
stockholders pursuant to the exercise by AJW Partners, LLC, New Millennium
Capital Partners II, LLC, Pegasus Capital Partners, LLC and AJW/New Millennium
Offshore, Ltd. of up to $500,000 in secured convertible debentures and warrants
to purchase up to 1,500,000 shares of common stock, in the aggregate, in
accordance with the terms of that certain securities purchase agreement dated
May 15, 2002.
-22-
AJW Partners, LLC is a private investment fund that is owned by its
investors and managed by SMS Group, LLC. SMS Group, LLC, of which Mr. Corey S.
Ribotsky is the fund manager, has voting and investment control over the shares
listed below owned by AJW Partners, LLC. New Millennium Capital Partners II, LLC
is a private investment fund that is owned by its investors and managed by First
Street Manager II, LLC. First Street manager II, LLC, of which Corey S. Ribotsky
is the fund manager, has voting and investment control over the shares listed
below owned by New Millennium Capital Partners II, LLC. AJW/New Millennium
Offshore, Ltd. is a private investment fund that is owned by its investors and
managed by First Street manager II, LLC. First Street Manager II, LLC, of which
Corey S. Ribotsky is the fund manager, has voting and investment control over
the shares listed below owned by AJW/New Millennium Offshore, Ltd. Pegasus
Capital Partners, LLC is a private investment fund that is owned by its
investors and managed by Pegasus manager, LLC, of which Corey S. Ribotsky and
Lloyd A. Groveman are the fund managers, have voting and investment control over
the shares listed below owned by Pegasus Capital Partners, LLC. None of the
selling stockholders are broker-dealers or affiliates of broker-dealers.
Number of
Shares Number of
Beneficially Number of shares owned Percent
owned prior shares being after the Beneficially
to the registered offering owned after
Name offering (1) under offering (2) offering (2)
- ----------------------------- ------------- -------------- ------------- -------------
AJW Partners, LLC 2,473,913 5,600,000 0 0%
- ----------------------------- -------------- ------------- ------------- -------------
New Millennium
Capital Partners
II, LLC 3,710,870 8,400,000 0 0%
- ----------------------------- -------------- ------------- ------------- ------------
AJW/New
Millennium
Offshore, Ltd. 2,473,913 5,600,000 0 0%
- ----------------------------- -------------- ------------- ------------- ------------
Pegasus Capital Partners, LLC 3,710,870 8,400,000 0 0%
- ----------------------------- -------------- ------------- ------------- ------------
(1) Such figures assume the conversion in full of our 12% secured convertible
debentures in the amount of $500,000 assuming full conversion as of May 21, 2002
at a conversion price of $0.046 and 1,500,000 warrants assuming full exercise of
warrants as of May 21, 2002 at an exercise price of $0.04. Under the terms of
the debentures and the related warrants, the debentures are convertible and the
warrants are exercisable by any holder only to the extent that the number of
shares of common stock issuable pursuant to such securities, together with the
number of shares of common stock owned by such holder and its affiliates (but
not including shares of common stock underlying unconverted shares of debentures
of unexercised portions of the warrants) would not exceed 4.9% of the then
outstanding common stock as determined in accordance with Section 13(d) of the
Exchange Act. This limitation on ownership may be waived with 61 days notice to
us.
(2) Such figure assumes the sale of all of the shares offered by the selling
stockholders.
-23-
PLAN OF DISTRIBUTION
The shares being offered by the selling stockholders or their respective
pledgees, donees, transferees or other successors in interest, will be sold from
time to time in one or more transactions, which may involve block transactions:
- - on the Over-the-Counter Bulletin Board or on such other market on which
the common stock may from time to time be trading;
- - in privately-negotiated transactions;
- - through the writing of options on the shares;
- - short sales; or
- - any combination thereof.
The sale price to the public may be:
- - the market price prevailing at the time of sale;
- - a price related to such prevailing market price;
- - at negotiated prices; or
- - such other price as the selling stockholders determine from time to time.
The shares may also be sold pursuant to Rule 144 or Regulation S. The selling
stockholders shall have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.
The selling stockholders or their respective pledgees, donees, transferees or
other successors in interest, may also sell the shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves or
their customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders and/or the
purchasers of shares for whom such broker/dealer might be in excess of customary
commissions. Market makers and block purchasers purchasing the shares will do so
for their own account and at their own risk. It is possible that a selling
stockholder will attempt to sell shares of common stock in block transactions to
market makers or other purchasers at a price per share which may be below the
then market price. The selling stockholders cannot assure that all or any of the
shares offered in this prospectus will be issued to, or sold by, the selling
stockholders. The selling stockholders and any brokers, dealers or agents, upon
effecting the sale of any of the shares offered in this prospectus may be deemed
"underwriters" as that term is defined under the Securities Act or the Exchange
Act, or the rules and regulations under such acts.
The selling stockholders, alternatively, may sell all or any part of the shares
offered in this prospectus through an underwriter. No selling stockholder has
entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into. If a selling stockholder
enters into such an agreement or agreements, the relevant details will be set
forth in a supplement or revisions to this prospectus.
The selling stockholders and any other persons participating in the sale or
distribution of the shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations under such act, including, without
limitation, Regulation M. These provisions may restrict certain activities of,
and limit the timing of purchases and sales of any of the shares by, the selling
stockholders or any other such person. Furthermore, under Regulation M, persons
engaged in a distribution of securities are prohibited from simultaneously
engaging in market making and certain other activities with respect to such
securities for a specified period of time prior to the commencement of such
distributions, subject to specified exceptions or exemptions. All of these
limitations may affect the marketability of the shares.
We have agreed to indemnify the selling stockholders, or their transferees or
assignees, against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the selling stockholders or their
respective pledgees, donees, transferees or other successors in interest, may be
required to make in respect of such liabilities.
-24-
Amendment and Supplementation Necessitated by Future Sales.
To the extent required, this prospectus may be amended and supplemented from
time to time to describe a specific plan of distribution. In connection with
distributions of such shares or otherwise, the selling stockholders may enter
into hedging transactions with broker-dealer or other financial institutions. In
connection with these transactions, broker-dealer or other financial
institutions may engage in short sales of our common stock in the course of
hedging the positions they assume with the selling stockholders. The selling
stockholders may also sell our common stock short and redeliver the shares to
close out such short positions. The selling stockholders may also enter into
option or other transactions with broker-dealers or other financial institutions
which require the delivery to the broker-dealer or other financial institution
of the shares offered in this prospectus, which shares the broker-dealer or
other financial institution may resell pursuant to this prospectus (as
supplemented or amended to reflect such transaction). The selling stockholders
may also pledge their shares to a broker-dealer or other financial institution,
and, upon a default, the broker-dealer or other financial institution may effect
sales of the pledged shares pursuant to this prospectus (as supplemented or
amended to reflect such transaction). In addition, any shares that qualify for
sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this prospectus.
In effecting sales, brokers, dealers or agents engaged by the selling
stockholders may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from the
selling stockholders in amounts to be negotiated prior to the sale. These
brokers or dealers, the selling stockholders, and any other participating
brokers or dealers may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales, and any such commissions,
discounts or concessions may be deemed to be underwriting discounts or
commissions under the Securities Act. The selling stockholders have advised us
that they have not entered into any agreements, understandings or arrangements
with any underwriters or broker-dealers regarding the sale of their securities,
nor is there an underwriter or coordinating broker acting in connection with the
proposed sale of shares by the selling stockholders.
If a selling stockholder enters into an underwriting agreement, the relevant
details will be set forth in a post-effective amendment to the registration
statement, rather than a prospectus supplement.
OTHER INFORMATION REGARDING FUTURE SALES
In order to comply with the securities laws of some states, if applicable, the
shares being offered in this prospectus must be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in some states
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or a seller complies with an available exemption from the
registration or qualification requirement.
We will make copies of this prospectus available to the selling stockholders and
will inform them of the need for delivery of copies of this prospectus to
purchasers at or prior to the time of any sale of the shares offered hereby. The
selling shareholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against some liabilities,
including liabilities arising under the Securities Act.
At the time a particular offer of shares is made, if required, a prospectus
supplement will be filed and distributed that will set forth the number of
shares being offered and the terms of the offering, including the name of any
underwriter, dealer or agent, the purchase price paid by any underwriter, any
discount, commission and other item constituting compensation, any discount
commission or concession allowed or re-allowed or paid to any dealer, and the
proposed selling price to the public. In addition, upon being notified by a
selling stockholder that a donee or pledgee intends to sell more than 500
shares, a prospectus supplement will be filed and distributed.
PAYMENT OF EXPENSES
We will pay all the expenses related to the registration of the shares offered
by this prospectus, except for any underwriting, brokerage or related fees,
discounts, commissions or the fees or expenses of counsel or advisors to the
selling stockholders.
-25-
DESCRIPTION OF SECURITIES
Authorized Capital
The total number of our authorized shares of stock is one hundred
million (100,000,000) shares of common stock with a par value of $.0001 per
share and twenty million (20,000,000) shares of non-designated preferred shares
with a par value of $.0001 per share.
Common Stock
Our certificate of incorporation authorizes the issuance of
100,000,000 shares of common stock, $.0001 value per share, of which 18,464,729
shares are issued and outstanding as of the date hereof.
Holders of shares of common stock are entitled to one vote for each
share on all matters to be voted on by the stockholders. Holders of common stock
do not have cumulative voting rights. Holders of common stock are entitled to
share ratably in dividends, if any, as may be declared from time to time by the
Board of Directors in its discretion from funds legally available therefor. In
the event of our liquidation, dissolution or winding up, the holders of
common stock are entitled to share pro rata all assets remaining after payment
in full of all liabilities. All of the outstanding shares of common stock are
fully paid and non-assessable.
Holders of common stock have no preemptive rights to purchase our
common stock. There are no conversion or redemption rights or sinking fund
provisions with respect to the common stock.
Noncumulative Voting
Each holder of common stock is entitled to one vote per share on all
matters on which such stockholders are entitled to vote. Shares of common stock
do not have cumulative voting rights. The holders of more than 50 percent of the
shares voting for the election of directors can elect all the directors if they
choose to do so and, in such event, the holders of the remaining shares will not
be able to elect any person to the Board of Directors.
Penny Stock Regulation
If the market price of the our common stock, if a market for its
common stock develops and is maintained, is or falls below $5.00 per share, then
our common stock may be considered "penny stock". Penny stocks
generally are equity securities with a price of less than $5.00 per share other
than securities registered on certain national securities exchange or quoted on
the Nasdaq Stock Market, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system. Our securities may be subject to "penny stock" rules that impose
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a disclosure scheduled prescribed by the
commission related to the penny stock market. The broker-dealer also must
disclose the commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly
statements must be sent disclosing recent price information on the limited
market in penny stocks. Consequently, the "penny stock" rules may restrict the
ability of broker-dealers to sell our securities.
-26-
Preferred Stock
Our certificate of incorporation authorizes the issuance of 20,000,000
shares of preferred stock, $.0001 par value per share. We have 420,000 shares of
convertible preferred shares outstanding which shares are convertible into
shares of our common stock at a ratio of 10:1.
Our board of directors is authorized to provide for the issuance of
additional shares of preferred stock in series and, by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof without any further
vote or action by the shareholders. Any shares of preferred stock so issued
would have priority over the common stock with respect to dividend or
liquidation rights. Any future issuance of preferred stock may have the effect
of delaying, deferring or preventing a change in our control of without
further action by the shareholders and may adversely affect the voting and other
rights of the holders of common stock. At present, we have no plans to issue
any further preferred stock nor adopt any further series, preferences or other
classification of preferred stock.
Reports to Stockholders
We will furnish to holders of our common stock annual reports containing
audited financial statements examined and reported upon, and with an opinion
expressed by, an independent certified public accountant. We may issue other
unaudited interim reports to our stockholders as we deem appropriate.
Transfer Agent and Registrar
StockTrans, Ardmore, Pennsylvania, serves as our transfer agent.
-27-
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our certificate of incorporation provides that we shall indemnify its
directors provided that the 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 of omission not in good faith
or which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the Delaware General Corporation Law ("DGCL"), or (d) for any
transaction from which the director derived an improper personal benefit.
Section 145 of the DGCL permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees or agents against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by third parties by reason of the fact that
they were or are directors, officers, employees or agents of the corporation, if
these directors, officers, employees or agents acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceedings, had no
reason to believe their conduct was unlawful. In a derivative action, i.e., one
29 by or in the right of the corporation, indemnification may be made only for
expenses actually and reasonably incurred by directors, officers, employees or
agent in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors, officers, employees or
agents are fairly and reasonably entitled to indemnify for such expenses despite
such adjudication of liability.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended ("Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the 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
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 Securities
Act, and will be governed by the final adjudication of such issue.
-28-
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 under the Securities Act
with respect to the securities being offered. This prospectus, filed as a part
of the registration statement, does not contain certain information contained in
or annexed as exhibits to the registration statement. Reference is made to
exhibits to the registration statement for the complete text. For further
information with respect to us and the securities hereby offered, reference is
made to the registration statement and to the exhibits filed as part of it,
which may be inspected and copied at the public reference facilities of the
Commission in Washington D.C. Copies of such material can be obtained from the
Public Reference Section of the Commission, 450 5th Street, NW, Washington, D.C.
20549, at prescribed rates and are available on the World Wide Web at:
http://www.sec.gov.
We are subject to the informational reporting requirements of the
Securities Exchange Act of 1934 and intend to file reports and other information
with the Commission. We will provide without charge to each person who receives
a copy of this prospectus, upon written or oral request, a copy of any of the
information incorporated herein by reference, not including exhibits. Such
requests should be made in writing to Torbay Holdings, Inc., Attention: William
Thomas Large, 4 Mulford Place, Suite 2G, Hempstead, NY 11550 or call us at
(516) 292-2023.
LEGAL MATTERS
The legality of the common stock included in this prospectus has been
passed upon for us by the law offices of Seth A. Farbman, P.C., New York.
EXPERTS
The audited financial statements as of December 31, 2001 and the unaudited
financial statements for the period ended March 31, 2002 included in this
prospectus have been so included in reliance on the report of Weinberg & Co.
P.A., independent accountants, given as experts in accounting and auditing.
-29-
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONTENTS
--------
PAGE F-1 INDEPENDENT AUDITORS' REPORT
PAGE F-2 CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2001
PAGE F-3 CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE
INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 AND FOR THE PERIOD
FROM MARCH 24, 1999 (INCEPTION) TO DECEMBER 31, 2001
PAGES F4-F5 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY) FOR THE PERIOD FROM MARCH 24, 1999 (INCEPTION) TO DECEMBER 31, 2001
PAGE F-6 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2001 AND 2000 AND FOR THE PERIOD FROM MARCH 24, 1999 (INCEPTION) TO
2001
PAGES F7-F17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER
31, 2001
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors of:
Torbay Holdings, Inc. and Subsidiary
(A Development Stage Company)
We have audited the accompanying consolidated balance sheet of Torbay Holdings,
Inc. and Subsidiary (a development stage company) as of December 31, 2001 and
the related consolidated statements of operations and other comprehensive income
(loss), changes in stockholders' equity (deficiency) and cash flows for the
years ended December 31, 2001 and 2000 and for the period from March 24, 1999
(inception) to December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the financial position of Torbay Holdings, Inc.
and Subsidiary (a development stage company) as of December 31, 2001, and the
results of their operations and their cash flows for the years ended December
31, 2001 and 2000 and for the period from March 24, 1999 (inception) to December
31, 2001, in conformity with accounting principles generally accepted in the
United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 10 to
the consolidated financial statements, the Company has accumulated losses of
$1,463,501 since inception, a working capital deficiency of $222,552 and a
stockholders' deficiency of $150,537. These factors raise substantial doubt
about its ability to continue as a going concern. Management's plans concerning
this matter are also described in Note 10. The accompanying consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
April 18, 2002
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2001
-----------------------
ASSETS
-------
CURRENT ASSETS
Cash
$ 45
------------
Total Current Assets 45
------------
PROPERTY AND EQUIPMENT - NET 1,015
------------
OTHER ASSETS
Intangible assets 220,000
Deposits 1,000
------------
Total Other Assets 221,000
------------
TOTAL ASSETS $ 222,060
- ------------- ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
-----------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 179,647
Loans payable - stockholders 24,985
Obligations under capital lease 14,351
Short-term loans 3,614
------------
Total Current Liabilities 222,597
------------
LONG-TERM LIABILITIES
Notes and loans payable 150,000
------------
Total Long-Term Liabilities 150,000
------------
TOTAL LIABILITIES 372,597
------------
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.0001 par value, 20,000,000 shares authorized, 220,000 shares to be issued 22
Common stock, $.0001 par value, 100,000,000 shares authorized, 16,400,000 issued and
outstanding 1,640
Common stock to be issued (500,000 shares) 50
Additional paid-in capital 1,348,304
Accumulated deficit during development stage (1,463,501)
Accumulated other comprehensive income 448
Deferred consulting expense (37,500)
------------
TOTAL STOCKHOLDERS' DEFICIENCY (150,537)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 222,060
- ---------------------------------------------- ============
See accompanying notes to consolidated financial statements.
F-2
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER
COMPREHENSIVE INCOME (LOSS)
---------------------------
For The Year For The Year March 24, 1999
Ended Ended (Inception) to
December 31, December 31, December 31,
2001 2000 2001
------------ ----------- ------------
INCOME $ - $ - $ -
------------ ----------- ------------
EXPENSES
Directors fees and compensation 250,815 143,075 396,990
Professional fees 62,812 121,492 280,581
Consulting fees 37,500 52,926 289,404
Depreciation and amortization 334 10,710 41,866
Loss from impairment of intangible assets - - 247,325
Other selling, general and administrative 50,155 92,062 190,767
Loss on disposal of fixed assets 16,568 - 16,568
------------ ----------- ------------
NET LOSS (418,184) (420,265) (1,463,501)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation gain (loss) 1,457 (2,135) 448
------------ ----------- ------------
COMPREHENSIVE LOSS $ (416,727) $ (422,400) $(1,463,053)
- ------------------ ============ =========== ============
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.03) $ (0.08) $ (0.23)
============ =========== ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD - BASIC AND
DILUTED 11,982,993 5,153,279 6,440,498
============ =========== ============
See accompanying notes to consolidated financial statements.
F-3
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD FROM MARCH 24, 1999 (INCEPTION) TO DECEMBER 31, 2001
-------------------------------------------------------------------
Deficit
Preferred Stock Common Stock Common Stock Additional Accumulated Accumulated
To Be Issued Paid-in During Other Deferred
Development Comprehensive Consulting
Shares Amount Shares Amount Shares Amount Capital Stage Income (Loss) Expense Total
-------- -------- ------- ------- ------- ------- -------- ------- -------------- --------- -------
Issuance of common
stock to founder - $ - 5,000,000 $ 500 - $ - $ - $ - $ - $ - $ 500
Cancellation of
original founder
shares - - (5,000,000) (500) - - - - - - (500)
Issuance of
Preferred stock
for acquisition
of subsidiary 700,000 70 - - - - 31,098 - - - 31,168
stock for cash and
subscriptions - - 4,850,000 485 - - 599,515 - - - 600,000
Issuance of common
stock in connection
with merger - - 250,000 25 - - 343 - - - 368
Foreign currency
translation gain - - - - - - - - 1,126 - 1,126
Net loss for the
period from March 24,
1999 (inception) to
December 31, 1999 - - - - - - - (625,052) - - (625,052)
-------- -------- ------- ------- ------- ------- -------- ---------- ----------- -------- ---------
Balance, December
31, 1999 700,000 $ 70 5,100,000 $ 510 - - 630,956 $(625,052) $ 1,126 - 7,610
Issuance of
common stock - - 50,000 5 - - - - - - 5
Issuance of common
stock for cash - - 1,200,000 120 - - 144,860 - - - 144,980
Uncollected
subscriptions
receivable - - - - - - (1,505) - - - (1,505)
Foreign currency
translation loss - - - - - - - - (2,135) - (2,135)
Net loss for the
year ended December
31, 2000 - - - - - - - (420,265) - - (420,265)
-------- -------- ------- ------- ------- ------- -------- ---------- ----------- -------- ---------
Balance, December
31, 2000 700,000 70 6,350,000 635 - - 774,311 (1,045,317) (1,009) - (271,310)
See accompanying notes to consolidated financial statements.
F-4
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD FROM MARCH 24, 1999 (INCEPTION) TO DECEMBER 31, 2001
-------------------------------------------------------------------
Deficit
Preferred Stock Common Stock Common Stock Additional Accumulated Accumulated
To Be Issued Paid-in During Other Deferred
Development Comprehensive Consulting
Shares Amount Shares Amount Shares Amount Capital Stage Income (Loss) Expense Total
-------- -------- ------- ------- ------- ------- -------- ------- -------------- --------- -------
Issuance of common
stock for
compensation and
services - - 2,450,000 245 - - 244,755 - - - 245,000
Issuance of common
Stock for cash - - 600,000 60 - - 59,940 - - - 60,000
Preferred stock
converted to
common stock (700,000) (70) 7,000,000 700 - - (630) - - - -
Preferred stock
to be issued for
acquisition of
intangible
assets 220,000 22 - - - - 219,978 - - - 220,000
Common stock
to be issued for
consulting services - - - - 500,000 50 49,950 - - (37,500) 12,500
Foreign currency
translation gain - - - - - - - - 1,457 - 1,457
Net loss for the
year ended December
31, 2001 - - - - - - - (418,184) - - (418,184)
-------- -------- ------- ------- ------- ------- -------- ---------- ----------- -------- ---------
BALANCE,
DECEMBER 31, 2001 220,000 $ 22 16,400,000 $1,640 500,000 $ 50 1,348,304 $(1,463,501) $ 448 (37,500) (150,537)
======== ======== ========= ======== ======= ======= ========= ============= ========== ========= =========
See accompanying notes to consolidated financial statements.
F-5
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
March 24, 1999
Year Ended Year Ended (Inception) to
December 31, December 31 December 31,
2001 2000 2001
---------- ---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(418,184) $(420,265) $(1,463,501)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 334 10,710 41,866
Stock issued for services and compensation 257,500 - 257,500
Option deposit charged to operations - 15,000 15,000
Loss on disposal of fixed assets 16,568 - 16,568
Loss on impaired assets - - 247,325
(Increase) decrease in:
Attorney's escrow - 1,631 -
Accounts receivable - 441 -
Increase (decrease) in:
Accounts payable and accrued expenses 56,618 58,065 179,646
---------- ---------- ------------
Net Cash Used In Operating Activities (87,164) (334,418) (705,596)
---------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits - (1,000) (16,000)
Purchase of property and equipment - - (5,931)
---------- ---------- ------------
Net Cash Used In Investing Activities - (1,000) (21,931)
---------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Obligations (payments) under capital leases (3,077) (9,960) (15,691)
Proceeds from issuance of common stock 60,000 144,980 753,848
Short-term loans 3,614 - 3,614
Subscriptions receivable - 50,000 50,000
Due to related party - (12,932) (81,987)
Due to creditors - - (161,650)
Proceeds from loans payable - stockholders 10,785 14,200 24,985
Proceeds from issuance of notes and loans payable - 150,000 150,000
---------- ---------- ------------
Net Cash Provided By Financing Activities 71,322 336,288 723,119
---------- ---------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 2,387 940 4,453
---------- ---------- ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (13,455) 1,810 45
CASH AND CASH EQUIVALENTS - BEGINNING OF
PERIOD $ 13,500 $ 11,690 $ -
---------- ---------- ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 45 $ 13,500 $ 45
- ------------------------------------------ ========== ========== =============
Cash paid during the period for:
Interest $ 1,082 $ 3,453 $ 5,499
========== ========== =============
See accompanying notes to consolidated financial statements.
F-6
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001
-----------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------- -----------------------------------------------
(A) ORGANIZATION AND BUSINESS OPERATIONS
- --------------------------------------------
Torbay Holdings, Inc. (a development stage company) ("THI") was incorporated in
Delaware under the name Acropolis Acquisition Corporation on March 24, 1999 to
serve as a vehicle to effect a merger, exchange of capital stock, asset
acquisition, or other business combination with a domestic or foreign private
business.
In July 1999, THI effected an Agreement and Plan of Reorganization whereby THI
acquired all of the issued and outstanding securities of Designer Appliances
Limited ("DAL"), a United Kingdom Corporation, in exchange for an aggregate of
700,000 shares of the Company's Series 1 Convertible Preferred Stock (See Note
9(A)). As a result of the agreement, DAL became a wholly owned subsidiary of
the Company. DAL has developed and intends to market household appliances
designed to be attractive to a premium, upscale market.
THI and DAL are herein referred to as (the "Company").
On October 26, 1999, the Company entered into and consummated a merger agreement
whereby the Company acquired all of the outstanding shares of common stock of
Torbay Acquisition Corp. ("TAC") in exchange for 250,000 shares of its common
stock. The acquisition was accounted for using the purchase method of
accounting. At the time of the merger TAC was an inactive Delaware shell
corporation and a reporting company under the Securities Exchange Act of 1934,
as amended. The Company remained as the surviving entity and became the
successor issuer pursuant to rule 12g-3(a) of the General Rules and Regulations
of the Securities and Exchange Commission.
(B) PRINCIPLES OF CONSOLIDATION
- ----------------------------------
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned active subsidiary DAL. All significant
intercompany transactions and balances have been eliminated in consolidation.
(C) BASIS OF PRESENTATION
- ----------------------------
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America. The basis of accounting
differs from that used in the United Kingdom statutory financial statements of
DAL. Adjustments are made to translate the statutory financial statements of
DAL to conform to accounting principles generally accepted in the United States
of America. The financial statements are expressed in United States dollars.
The functional currency of DAL is the British pound sterling (See Note 1 (J)).
F-7
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001
-----------------------
(D) USE OF ESTIMATES
- -----------------------
The preparation of the 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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(E) CASH AND CASH EQUIVALENTS
- ---------------------------------
For purposes of the statement of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
(F) PROPERTY AND EQUIPMENT
- -----------------------------
Property and equipment are stated at cost, less accumulated depreciation.
Expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation for office equipment is provided using a declining balance method
over the estimated useful lives of the assets of four years.
(G) LONG-LIVED ASSETS
- -----------------------
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived Assets to be Disposed Of" (SFAS 121") requires the
Company to review long-lived assets and certain identifiable assets related to
those assets for impairment whenever circumstances and situations change such
that there is an indication that the carrying amounts may not be recoverable. If
the undiscounted future cash flows of the enterprise are less than their
carrying amounts, their carrying amounts are reduced to fair value and an
impairment loss is recognized.
(H) INCOME TAXES
- ------------------
The Company accounts for income taxes under the Financial Accounting Standard
Board Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("Statement 109"). Under Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
F-8
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001
-----------------------
(I) RECENT ACCOUNTING PRONOUNCEMENTS
- ---------------------------------------
The Financial Accounting Standards Board has recently issued several new
Statements of Financial Accounting Standards. Statement No. 141, "Business
Combinations" supersedes APB Opinion 16 and various related pronouncements.
Pursuant to the new guidance in Statement No. 141, all business combinations
must be accounted for under the purchase method of accounting; the
pooling-of-interests method is no longer permitted. SFAS 141 also establishes
new rules concerning the recognition of goodwill and other intangible assets
arising in a purchase business combination and requires disclosure of more
information concerning a business combination in the period in which it is
completed. This statement is generally effective for business combinations
initiated on or after July 1, 2001.
Statement No. 142, "Goodwill and Other Intangible Assets" supercedes APB Opinion
17 and related interpretations. Statement No. 142 establishes new rules on
accounting for the acquisition of intangible assets not acquired in a business
combination and the manner in which goodwill and all other intangibles should be
accounted for subsequent to their initial recognition in a business combination
accounted for under SFAS No. 141. Under SFAS No. 142, intangible assets should
be recorded at fair value. Intangible assets with finite useful lives should be
amortized over such period and those with indefinite lives should not be
amortized. All intangible assets being amortized as well as those that are not,
are both subject to review for potential impairment under SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of". SFAS No. 142 also requires that goodwill arising in a business
combination should not be amortized but is subject to impairment testing at the
reporting unit level to which the goodwill was assigned to at the date of the
business combination.
SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 and
must be applied as of the beginning of such year to all goodwill and other
intangible assets that have already been recorded in the balance sheet as of the
first day in which SFAS No. 142 is initially applied, regardless of when such
assets were acquired. Goodwill acquired in a business combination whose
acquisition date is on or after July 1, 2001, should not be amortized, but
should be reviewed for impairment pursuant to SFAS No. 121, even though SFAS No.
142 has not yet been adopted. However, previously acquired goodwill should
continue to be amortized until SFAS No. 142 is first adopted.
Statement No. 143 "Accounting for Asset Retirement Obligations" establishes
standards for the initial measurement and subsequent accounting for obligations
associated with the sale, abandonment, or other type of disposal of long-lived
tangible assets arising from the acquisition, construction, or development
and/or normal operation of such assets. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002, with earlier application encouraged.
F-9
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001
-----------------------
The adoption of these pronouncements will not have a material effect on the
Company's financial position or results of operations.
(J) FOREIGN CURRENCY TRANSLATION
- -----------------------------------
The functional currency of DAL is the British pound sterling. Financial
statements for this entity are translated into United States dollars at year-end
exchange rates as to assets and liabilities and weighted average exchange rates
as to revenues and expenses. Capital accounts are translated at their
historical exchange rates when the capital transactions occurred (See Note
1(K)).
(K) COMPREHENSIVE INCOME (LOSS)
- ----------------------------------
The Company accounts for Comprehensive Income (Loss) under the Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("Statement No. 130"). Statement No. 130
establishes standards for reporting and the display of comprehensive income and
its components, and is effective for fiscal years beginning after December 15,
1997.
The foreign currency translation gain (loss) (See Note 1(J)) resulting from the
translation of the financial statements of DAL, expressed in British pound
sterling, to United States dollars are reported as Other Comprehensive Income
(Loss) in the Statement of Operations and as Accumulated Other Comprehensive
Income (Loss) in Stockholders' Equity (Deficiency) and in the Statement of
Changes in Stockholders' Equity (Deficiency).
(L) LOSS PER SHARE
- ---------------------
Basic and diluted loss per common share for all periods presented is computed
based on the weighted average common shares outstanding during the year as
defined by Statement of Financial Accounting Standards, No. 128, "Earnings Per
Share". The assumed exercise of common stock equivalents was not utilized since
the effect was anti-dilutive.
NOTE 2 STOCK SUBSCRIPTION RECEIVABLE
- ------- -------------------------------
On July 23, 1999, the Company issued 4,850,000 common shared to individuals.
The Company had received $598,500 ($495,700 through the attorney's escrow and
$102,800 directly) towards this issuance and the remaining $1,500 was deemed
uncollectable at December 31, 2000, and charged to additional paid-in capital
(See Note 9(B)).
F-10
NOTE 3 PROPERTY AND EQUIPMENT
- ------- ------------------------
Property and equipment at December 31, 2001 consists of the following:
Office equipment $ 2,060
Less Accumulated depreciation 1,045
------------
$ 1,015
==========
Depreciation expense for the year ended December 31, 2001 and 2000 was $334 and
$10,710, respectively.
NOTE 4 INTANGIBLE ASSETS AND IMPAIRMENT LOSS
- ------- -----------------------------------------
In June 1999, DAL, which was not a subsidiary of the Company at that time,
entered into an agreement for the purchase of all interests relating to the
registered and unregistered design rights of certain products. The total
purchase price paid was $161,650, represented by a promissory note issued to the
seller by DAL and acquired by the Company in the acquisition discussed in Note
1(A). The note was paid in its entirety prior to December 31, 1999, and the
rights have been assigned to the Company.
On June 10, 1999, DAL, which was not a subsidiary of the Company at that time,
entered into an agreement with a related party for the purchase of intellectual
property rights for certain products. The total purchase price for these rights
was $113,155, which represented the original cost basis to the seller party.
DAL issued 20,000 shares of its common stock valued at $31,168 based on the par
value, since no other basis for valuation existed, and a note payable in the
amount of $81,987 to the seller. Pursuant to the acquisition discussed in Note
1(A), the Company acquired the note payable (which was paid in its entirety at
December 31, 2000) and issued preferred stock in exchange for the $31,168 of
common stock (See Note 9(A)).
The cost of the above design rights and intellectual property rights were
capitalized as purchased research and development and were being amortized over
a five-year period. Amortization expense for the period ended December 31, 1999
was $27,481. On December 31, 1999, the Company evaluated the realization of
these assets in accordance with SFAS 121 and wrote down the assets to their net
realizable value of zero. The write-down is reflected as an impaired loss of
$247,325 in 1999.
NOTE 5 LOANS PAYABLE - STOCKHOLDERS
- ------- ---------------------------------
The Company has received advances aggregating $24,985 from stockholders that
provided funding for working capital requirements used to pay operating expenses
incurred by the Company. The advances are non-interest bearing and due on
demand.
F-11
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001
-----------------------
NOTE 6 NOTES AND LOANS PAYABLE
- ------- --------------------------
The following schedule reflects notes and loans payable at December 31, 2001:
Loan payable, non-interest bearing (See Note 9(E) for warrants issued in lieu of
interest), convertible to shares of common stock at $1.50 per share, unsecured,
due by March 30, 2003 (See Note 11) $ 100,000
Note payable, non-interest bearing (See Note 9(E) for warrants issued in lieu of
interest), convertible to shares of common stock at $1.50 per share, unsecured,
due by March 23, 2003 50,000
---------------
Total - All Long-Term $ 150,000
===============
NOTE 7 INCOME TAXES
- ------- --------------
The American parent company and its United Kingdom subsidiary file separate tax
returns. Income tax expense (benefit) for the years ended December 31, 2001 and
2000 is summarized as follows:
2001 2000
--------- ---------
Current:
Federal $ - -
State - -
Foreign - -
Deferred:
Federal and state - -
Foreign - -
--------- ---------
Income tax expense (benefit) $ - $ -
========= =========
The parent company's tax expense differs from the "expected" tax expense for the
years ended December 31, 2001 and 2000 (computed by applying U.S. Federal
Corporate tax rate of 34 percent to income before taxes), as follows:
2001 2000
---------- ----------
Computed "expected" tax expense (benefit) $ (46,283) $ (67,980)
Effect of unused net operating loss carryforwards 46,283 67,980
---------- ----------
$ - $ -
========== ==========
F-12
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001
-----------------------
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets at December 31, 2001 are as follows:
2001 2000
----------- ------------
Deferred tax assets:
Net operating loss carryforwards $ 173,067 $ 126,784
------------ ------------
Total gross deferred tax assets 173,067 126,784
Less valuation allowance (173,067) (126,784)
------------ ------------
Net deferred tax asset $ - $ -
============ ============
At December 31, 2001, the parent company had a net operating loss carryforward
of approximately $509,000 for income tax purposes, available to offset future
taxable income expiring on various dates through 2021. The valuation allowance
at December 31, 2000 was $126,784. The net change in the valuation allowance
during the year ended December 31, 2001 was an increase of $46,283.
The United Kingdom subsidiary has also incurred substantial net operating losses
which result in no income tax expense or (benefit) for the years ended December
31, 2001 and 2000. The subsidiary's available net operating loss carryforward
of approximately $488,100 results in a deferred tax asset of $146,430 (computed
by applying the United Kingdom tax rate of 30%) which has been fully offset by a
valuation allowance.
NOTE 8 COMMITMENTS AND CONTINGENCIES
- ------- -------------------------------
(A) CAPITAL LEASE AGREEMENT
- ------------------------------
The Company leased a vehicle under a capital lease. The agreement stipulated
monthly installment payments for a 36-month period commencing in September 1999
with the last payment including a balloon payment due in 2002. During 2001, the
lease was terminated and the Company returned the vehicle to the lessor. At
December 31, 2001, there was a remaining unpaid balance of $14,351 due on this
lease which was subsequently paid off by the Company and a director of the
Company in 2002.
(B) OPERATING LEASE AGREEMENTS
- ---------------------------------
The Company leases a vehicle under an operating lease. This lease has a
remaining term expiring in September 2002.
F-13
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001
-----------------------
Future minimum lease payments under operating leases are as follows at December
31:
2002 $ 6,610
--------
(C) ACQUISITION OF INTANGIBLE ASSETS AGREEMENT
- ---------------------------------------------------
In July 2001, the Company entered into a purchase agreement with two individuals
who hold the intellectual property rights, software and know-how to a computer
mouse known as the "QUILL". Under the terms of the agreement, the Company
acquired all of the sellers' rights, title and interest in the QUILL in exchange
for 220,000 Series 1 Convertible Preferred Shares having a fair value of
$220,000. These shares will be convertible into 2,200,000 shares of common
stock upon the satisfaction of certain financial performance requirements under
the agreement's terms. In the event that the financial performance requirements
are not achieved within five years from the signing of the agreement, then these
preferred shares will convert to 220,000 shares of common stock. As of December
31, 2001, the preferred shares have not been issued by the Company, but will be
issued in April 2002 (See Note 9(B)).
The agreement also calls for the issuance of an additional 200,000 shares of
Series 1 Convertible Preferred Stock upon the Company receiving an approval for
the patent rights to the QUILL. Such patent rights were granted in January 2002
and the 200,000 preferred shares will be issued in April 2002 (See Note 11).
The cost of the above intellectual property rights, software and know-how will
be amortized over a three-year period. No amortization has been provided as of
December 31, 2001, as the Company has not yet commenced production of the QUILL
(See Note 11).
(D) SERVICE AND CONSULTING AGREEMENTS
- -----------------------------------------
In July 2001, the Company entered into an agreement with Multi-Media Group, Inc.
("MMGI") to provide corporate promotional services to the Company. In
consideration for the provision of these promotional services, the Company
issued 250,000 shares of common stock to MMGI in August 2001 (See Note 9(C)).
The Company will also reimburse MMGI for itemized and invoiced costs associated
with the provision of the promotional services.
On September 26, 2001, the Company entered into a one-year corporate financing
consultancy agreement with Glenn Michael Financial, Inc. to specifically assist
with potential financial requirements, mergers and acquisitions, corporate
capitalization and strategic development. For these future services Glenn
Michael Financial, Inc. will receive 500,000 shares of common stock valued at
$0.10 per share for a total of $50,000. Certificates for these shares were not
physically issued by the Company until April 2002 (See Note 9(D)).
F-14
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001
-----------------------
NOTE 9 STOCKHOLDERS' DEFICIENCY
- ------- -------------------------
(A) PREFERRED STOCK
- ---------------------
The Company is authorized to issue 20,000,000 shares of preferred stock at
$.0001 par value, with such designations, voting and other rights and
preferences as may be determined from time to time by the Board of Directors.
The Company designated 700,000 shares of its preferred stock as "Series 1
Convertible Preferred Stock". The par value of the series was $.0001. Each
share was convertible into ten shares of common stock of the Company. Each
share of the Series 1 stock was entitled to one vote on all matters on which
such stockholders were lawfully entitled to vote and were not entitled to
receive dividends.
In July 1999, the Company issued 700,000 shares of Series 1 Convertible
Preferred Stock valued at $31,168 pursuant to an Agreement and Plan of
Reorganization with Designer Appliances Limited (See Notes 1(A) and 4).
In May 2001, the 700,000 shares of preferred stock were converted into 7,000,000
shares of common stock at par value.
(B) PREFERRED STOCK TO BE ISSUED
- -------------------------------------
Under an agreement dated July 2001, the Company purchased certain intellectual
property rights, software and know-how in exchange for 220,000 shares of Series
1 Convertible Preferred Stock having a fair value of $220,000 (See Note 8(C)).
Certificates for these shares were not physically issued by the Company until
April 2002 and are reflected in the financial statements as Series 1 Convertible
Preferred Stock to be issued.
(C) COMMON STOCK
- ------------------
The Company is authorized to issue 100,000,000 shares of common stock at $.0001
par value. The Company originally issued 5,000,000 shares to TPG Capital
Corporation in exchange for $500. They later cancelled those shares.
On July 23, 1999, the Company issued 4,850,000 shares of common stock to various
parties for gross proceeds of $600,000. At December 31, 2000, the Company had
received funds of $598,500 towards the stock issuance. The remaining
subscription receivable of $1,500 has been deemed uncollectable and charged to
additional paid-in capital.
On October 26, 1999, the Company issued 250,000 shares of its common stock to
TPG Capital Corporation in connection with the merger with Torbay Acquisition
Corp. (See Note 1(A)).
F-15
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001
-----------------------
During 2000, the Company issued 50,000 shares at par value to various
stockholders under a subscription agreement.
Effective December 31, 2000, the Company issued 1,200,000 shares of common stock
for cash in the aggregate of $144,980. Certificates for these shares were not
physically issued by the Company until January 2, 2001.
During 2001, the Company issued 2,200,000 common shares valued at $0.10 per
share for executive compensation and 250,000 common shares valued at $0.10 per
share for services (See Note 8(D)). The aggregate value of these shares was
$245,000.
In August 2001, the Company issued 600,000 shares of restricted common stock at
$0.10 per share for a total proceeds of $60,000.
(D) COMMON STOCK TO BE ISSUED
- ----------------------------------
In September 2001, the Company entered into a one-year financial consulting
agreement whereby it will issue 500,000 shares of common stock having a fair
value of $50,000 in exchange for these services (See Note 8(D)). These common
shares were issued in April 2002 and are reflected in the financial statements
as common stock to be issued. The cost of the agreement is being amortized over
its one-year life and the unamortized portion has been deferred and shown as a
contra to stockholders' deficiency.
(E) WARRANTS
- -------------
In Connection with the $100,000 loan (See Note 6), the Company issued 100,000
warrants, which are convertible at the rate of one warrant per one share of
common stock at an exercise price of $1.75 per share.
In Connection with the $50,000 note (See Note 6), the Company issued 50,000
warrants, which are convertible into 50,000 shares of common stock at an
exercise price of $1.75 per share.
NOTE 10 GOING CONCERN
- -------- --------------
As reflected in the accompanying financial statements, the Company has
accumulated losses of $1,463,501 since inception, a working capital deficiency
of $222,552 and a stockholders' deficiency of $150,537. The ability of the
Company to continue as a going concern is dependent on the Company's ability to
raise additional funds and implement its business plan. The financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
F-16
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001
-----------------------
Management's plans include obtaining an open line of credit for which they are
currently in active negotiations with several financing institutions and
commencing production and sales of the QUILL computer mouse (See Note 11).
NOTE 11 SUBSEQUENT EVENTS
- -------- ------------------
In March 2002, the $100,000 note payable was converted into 833,333 shares of
restricted common stock at $0.12 per share.
In March 2002, the President of the Company purchased 333,333 shares of
restricted common stock for a total price of $40,000.
In March 2002, loans payable to a stockholder amounting to $35,647 as of that
date were converted into 297,063 shares of restricted common stock.
In April 2002, the Company entered into a manufacturing agreement with an
independent contractor to manufacture the QUILL computer mouse under the terms
and conditions enumerated in such agreement.
INDEX TO FINANCIAL STATEMENTS
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
CONTENTS
--------
PAGE F-1 INDEPENDENT ACCOUNTANTS' REPORT
PAGE F-2 CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2002
(UNAUDITED) AND DECEMBER 31, 2001
PAGE F-3 CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER
COMPREHENSIVE INCOME (LOSS) FOR THE THREE MONTHS
ENDED MARCH 31, 2002 AND 2001 (UNAUDITED)
PAGE F-4 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
PAGES F5-F7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF
MARCH 31, 2002 (UNAUDITED)
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
To the Board of Directors of:
Torbay Holdings, Inc.
We have reviewed the accompanying consolidated balance sheet of Torbay Holdings,
Inc. and Subsidiary (a development stage company) as of March 31, 2002 and the
related consolidated statements of operations and other comprehensive loss, and
cash flows for the three months ended March 31, 2002 and 2001. These
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements in order for them
to be in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 4 to
the consolidated financial statements, the Company is a development stage
company that has accumulated losses since inception of $1,514,928, and a working
capital deficiency of $201,456. These factors raise substantial doubt about its
ability to continue as a going concern. Management's plans concerning this
matter are also described in Note 4. These consolidated financial statements do
not include any adjustments that might result from this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
May 10, 2002
F-1
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANACE SHEETS
AS OF MARCH 31, 2002
ASSETS
------
March 31, 2002 December 31,
(Unaudited) 2001
-------------- --------------
CURRENT ASSETS
Cash $ 365 $ 45
-------------- --------------
Total Current Assets 365 45
-------------- --------------
PROPERTY AND EQUIPMENT - NET 997 1,015
-------------- --------------
OTHER ASSETS
Intangible assets 420,000 220,000
Deposits 1,000 1,000
-------------- --------------
Total Other Assets 421,000 221,000
-------------- --------------
TOTAL ASSETS $ 422,362 $ 222,060
- ------------- ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
- -----------------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 178,960 $ 179,647
Loan payable - stockholder 9,663 24,985
Obligations under capital lease 9,647 14,351
Short-term loans 3,551 3,614
-------------- --------------
Total Current Liabilities 201,821 222,597
-------------- --------------
LONG-TERM LIABILITIES
Notes and loans payable 50,000 150,000
-------------- --------------
Total Long-Term Liabilities 50,000 150,000
-------------- --------------
TOTAL LIABILITIES 251,821 372,597
-------------- --------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $.0001 par value, 20,000,000 shares authorized, 420,000 and
220,000 shares issued and outstanding, respectively 42 22
Common stock, $.0001 par value, 100,000,000 shares authorized, 17,924,729
and 16,400,000 issued and outstanding, respectively 1,792 1,640
Common stock to be issued (500,000 shares) 50 50
Additional paid-in capital 1,746,879 1,348,304
Accumulated deficit during development stage (1,514,927) (1,463,501)
Accumulated other comprehensive income 1,705 448
Deferred consulting expense (25,000) (37,500)
Subscription receivable (40,000) -
-------------- -------------
Total Stockholders' Equity (Deficiency) 170,541 (150,537)
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 422,362 $ 222,060
- -------------------------------------------------------- ============== =============
See accompanying notes to consolidated financial statements.
F-2
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER
COMPREHENSIVE INCOME (LOSS)
---------------------------
(UNAUDITED)
For The Three For The Three March 24, 1999
Months Ended Months Ended (Inception) To
March 31, March 31, March 31,
2002 2001 2002
------------ ----------- ------------
INCOME $ - $ - $ -
------------ ----------- ------------
EXPENSES
Directors fees and executive compensation 5,500 3,102 402,490
Professional fees 23,172 3,565 303,753
Consulting fees 15,600 - 305,004
Depreciation and amortization - - 41,866
Loss from impairment of intangible assets - - 247,325
Other selling, general and administrative 7,155 9,821 197,922
Loss on disposal of fixed assets - - 16,568
------------ ----------- ------------
NET LOSS (51,427) (16,488) (1,514,928)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation gain (loss) 1,705 5,838 2,153
------------ ----------- ------------
COMPREHENSIVE LOSS $ (49,722) $ (10,650) $(1,512,775)
- ------------------ ============ =========== ============
NET LOSS PER SHARE - BASIC AND DILUTED $ - $ - $ (.01)
============ =========== ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD -
BASIC AND DILUTED 16,468,803 6,350,000 7,104,397
============ =========== ============
See accompanying notes to consolidated financial statements.
F-3
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER
COMPREHENSIVE INCOME (LOSS)
---------------------------
(UNAUDITED)
For The Three For The Three March 24, 1999
Months Ended Months Ended (Inception) To
March 31, 2002 March 31, 2001 March 31,2002
---------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (51,427) $ (16,488) $(1,514,928)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 18 1,480 41,884
Stock issued for services and compensation 23,100 - 280,600
Deferred consulting 12,500 - 12,500
Option deposit charged to operations - - 15,000
Loss on disposal of fixed assets - - 16,568
Loss on impaired assets - - 247,325
Increase (decrease) in:
Accounts payable and accrued expenses (687) (3,424) 178,959
---------------- ---------------- ------------
Net Cash Used In Operating Activities (16,496) (18,432) (722,092)
---------------- ---------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits - - (16,000)
Purchase of property and equipment - - (5,931)
---------------- ---------------- ------------
Net Cash Used In Investing Activities - - (21,931)
---------------- ---------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Obligations (payments) under capital leases (4,704) (1,406) (20,395)
Proceeds from issuance of common stock - - 753,848
Short-term loans (63) - 3,551
Subscriptions receivable - - 50,000
Due to related party - - (81,987)
Due to creditors - - (161,650)
Proceeds from loans payable stockholders 20,325 500 45,310
Proceeds from issuance of notes and loans payable - - 150,000
---------------- ---------------- ------------
Net Cash Provided By Financing Activities 15,558 (906) 738,677
---------------- ---------------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,258 5,838 5,711
---------------- ---------------- ------------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS 320 (13,500) 365
CASH AND CASH EQUIVALENTS - BEGINNING OF
PERIOD $ 45 $ 13,500 $ -
---------------- ---------------- ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 365 $ - $ 365
- ------------------------------------------ ================ ================ ===========
Cash paid during the period for:
Interest $ - $ - $ 5,499
================ ================= ===========
See accompanying notes to consolidated financial statements.
F-4
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
--------------------
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
- ------- -----------------------------------------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles and the rules and regulations of
the Securities and Exchange Commission for interim financial information.
Accordingly, they do not include all the information necessary for a
comprehensive presentation of financial position and results of operations.
It is management's opinion, however that all material adjustments (consisting of
normal recurring adjustments) have been made which are necessary for a fair
financial statements presentation. The results for the interim period are not
necessarily indicative of the results to be expected for the year.
For further information, refer to the financial statements and footnotes
included in the Company's Form 10-KSB for the year ended December 31, 2001.
NOTE 2 ACQUISITION OF INTANGIBLE ASSETS
- ------- -----------------------------------
In July 2001, the Company entered into a purchase agreement with two individuals
who held the intellectual property rights, software and know-how to a computer
mouse known as the "QUILL". Under the terms of the agreement, the Company
acquired all of the sellers' rights, title and interest in the QUILL in exchange
for 220,000 Series 1 Convertible Preferred Shares having a fair value of
$220,000. These shares will be convertible into 2,200,000 shares of common
stock upon the satisfaction of certain financial performance requirements under
the agreement's terms. In the event that the financial performance requirements
are not achieved within five years from the signing of the agreement, then these
preferred shares will convert to 220,000 shares of common stock. As of March
31, 2002, the preferred shares have been issued by the Company (See Note 3(A)).
The agreement also calls for the issuance of an additional 200,000 shares of
Series 1 Convertible Preferred Stock upon the Company receiving an approval for
the patent rights to the QUILL. Such patent rights were granted in January 2002
and the 200,000 preferred shares were issued in March 2002 (See Note 3(A)).
The cost of the above intellectual property rights, software and know-how will
be amortized over a three-year period. No amortization has been provided as of
March 31, 2002, as the Company has not yet commenced production of the QUILL
(See Note 5).
F-5
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
--------------------
(UNAUDITED)
NOTE 3 STOCKHOLDERS' DEFICIENCY
- ------- -------------------------
(A) PREFERRED STOCK
- ---------------------
Under an agreement dated July 2001, the Company purchased certain intellectual
property rights, software and know-how in exchange for 220,000 shares of Series
1 Convertible Preferred Stock having a fair value of $220,000 (See Note 2). In
January 2002, patent rights were granted for the Quill, which obligated the
Company to issue an additional 200,000 shares of preferred stock to the sellers
under the terms of the agreement. These shares were issued by the Company in
March 2002 and are reflected in the financial statements as Series 1 Convertible
Preferred Stock.
(B) COMMON STOCK
- ------------------
In January 2002, the Company issued 61,000 shares of common stock for services
having a fair value of $23,100.
In March 2002, a $100,000 long-term note payable was converted into 833,333
shares of restricted common stock at $0.12 per share.
In March 2002, the President of the Company purchased 333,333 shares of
restricted common stock for a total price of $40,000.
In March 2002, loans payable to a stockholder amounting to $35,647 as of that
date were converted into 297,063 shares of restricted common stock.
(C) COMMON STOCK TO BE ISSUED
- ----------------------------------
In September 2001, the Company entered into a one-year financial consulting
agreement whereby it will issue 500,000 shares of common stock having a fair
value of $50,000 in exchange for these services. These common shares were
issued in April 2002 and are reflected in the financial statements as common
stock to be issued. The cost of the agreement is being amortized over its
one-year life and the unamortized portion has been deferred and shown as a
contra to stockholders' deficiency.
NOTE 4 GOING CONCERN
- ------- --------------
As reflected in the accompanying financial statements, the Company has
accumulated losses of $1,514,928 since inception, and a working capital
deficiency of $201,456. The ability of the Company to continue as a going
concern is dependent on the Company's ability to raise additional funds and
implement its business plan. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
F-6
TORBAY HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
--------------------
(UNAUDITED)
Management's plans include obtaining funds through a securities purchase
agreement for up to $500,000 which will provide the Company with the working
capital it requires to implement its business plan (See Note 5(B)).
NOTE 5 SUBSEQUENT EVENTS
- ------- ------------------
(A) MANUFACTURING AGREEMENT
- -----------------------------
In April 2002, the Company entered into a manufacturing agreement with an
independent contractor to manufacture the QUILL computer mouse under the terms
and conditions enumerated in such agreement.
(B) CONVERTIBLE DEBENTURES
- ----------------------------
In order to provide working capital and financing for the Company's expansion,
as of May 9, 2002, the Company entered into a securities purchase agreement and
related agreements with four accredited investors (the "Purchasers") for the
purchase of $500,000 of the Company's 12% convertible debentures due May 9,
2003. The debentures bear interest at a rate of 12% per annum, payable either
quarterly or at the time of conversion in common stock or cash at the option of
the Purchasers.
The debentures are convertible into shares of common stock at the lesser of
$0.05 per share or the average of the lowest three intraday trading prices of a
share of common stock during the twenty trading days immediately preceding
conversion date discounted by 50%.
Upon the issuance of the debentures, the Purchasers will receive three-year term
warrants to purchase 3 shares of the Company's common stock for each $1.00
invested. The initial exercise price of the warrants is equal to the lesser of
the registration price pursuant to the transaction documents or the average of
the lowest three intraday trading prices of a share of common stock during the
twenty trading days immediately preceding exercise.
Pursuant to the rules and regulations of the SEC regarding beneficial conversion
features, the Company will expense as financing costs any excess of the fair
market value of the common stock at the debenture issuance date over the
conversion price.
The Company has reserved 28,000,000 shares of authorized but un-issued common
stock for issuance to the convertible debenture holders upon exercise in full of
the entire principal amount of $500,000 plus the accrued interest upon
conversion into shares of common stock. The Company will also, on a best
efforts basis, register 200% of the shares of common stock underlying the
warrants to be issued and the shares of common stock into which the convertible
debentures may be converted.
F-7
- ------------------------------------------------- ---------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT
MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE
SECURITIES. THE INFORMATION IN THIS DOCUMENT
MAY ONLY BE ACCURATE ON THE DATE OF THIS
DOCUMENT.
ADDITIONAL RISKS AND UNCERTAINTIES NOT
PRESENTLY KNOWN OR THAT ARE CURRENTLY DEEMED
IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS
OPERATIONS. THE RISKS AND UNCERTAINTIES
DESCRIBED IN THIS DOCUMENT AND OTHER RISKS AND
UNCERTAINTIES WHICH WE MAY FACE IN THE FUTURE TORBAY HOLDINGS, INC.
WILL HAVE A GREATER IMPACT ON THOSE WHO
PURCHASE OUR COMMON STOCK. THESE PURCHASERS
WILL PURCHASE OUR COMMON STOCK AT THE MARKET DISTRIBUTION OF 28,000,000 SHARES OF
PRICE OR AT A PRIVATELY NEGOTIATED PRICE AND COMMON STOCK
WILL RUN THE RISK OF LOSING THEIR ENTIRE
INVESTMENT.
_______________
PROSPECTUS
________________
_____________, 2002
- ------------------------------------------------- ---------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "GCL") empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of the performance of their duties as
directors and officers. The GCL provides further that the indemnification
permitted thereunder shall not be deemed exclusive of any other rights to which
the directors and officers may be entitled under the corporation's by-laws, any
agreement, vote of stockholders or otherwise.
Our Certificate of Incorporation eliminates the personal liability of
directors to the fullest extent permitted by Section 102 of the GCL and provides
for indemnification of all persons whom we shall have the power to indemnify
pursuant to Section 145 of the GCL.
The effect of the foregoing is to require us to the extent permitted by law
to indemnify our officers and directors of for any claim arising against such
persons in their official capacities if such person acted in good faith and in a
manner that he reasonably believed to be in or not opposed to our best
interests, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling our Company pursuant to the foregoing
provisions, we have been informed that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses payable by the
registrant in connection with the sale of the securities being registered. All
amounts are estimates except the SEC registration fee:
SEC registration fee $ 257.60
Printing and engraving expenses $ 3000.00
Accounting fees and expenses $15,000.00
Attorneys' fees and expenses $30,000.00
Transfer agent's fees and expenses $ 1,000.00
Miscellaneous $ 1,000.00
Total $50,257.60
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Some of the holders of the shares issued below may have subsequently
transferred or disposed of their shares and the list does not purport to be a
current listing of the Company's stockholders.
During the last three years, we have issued unregistered securities to
the persons, as described below. None of these transactions involved any
underwriters, underwriting discounts or commissions, except as specified below,
or any public offering, and we believe that each transaction was exempt from the
registration requirements of the Securities Act of 1933 by virtue of Section
4(2) thereof, Regulation D promulgated thereunder. All recipients had
adequate access, through their relationships with us, to information about us.
On July 23, 1999, pursuant to an Agreement and Plan of Reorganization
among Torbay, Designer Appliances, Ltd. ("DAL"), and the shareholders of DAL,
the outstanding shares of DAL were exchanged for an aggregate of 700,000 shares
of Series 1 Convertible Preferred Stock of Torbay pursuant to Rule 506 of
Regulation D of the General Rules and Regulations of the Securities and Exchange
Commission. Such preferred shares were subsequently converted into shares of
common stock.
On July 23, 1999, pursuant to Rule 506 of Regulation D of the General
Rules and Regulations of the Securities and Exchange Commission, Torbay issued
an aggregate of 4,850,000 shares of common stock to 19 investors for an
aggregate consideration of $485.
On August 26, 1999, pursuant to Rule 506 of Regulation D of the General
Rules and Regulations of the Securities and Exchange Commission, Torbay issued
an aggregate of 50,000 shares of common stock to 300 accredited investors for an
aggregate consideration of $5.
On October 26, 1999, pursuant to the Agreement and Plan of Merger of
Torbay Acquisition Corporation with and into Torbay Holdings, Inc., Torbay
Holdings issued 250,000 shares of common stock pursuant to Rule 506 of
Regulation of the General Rules and Regulations of the Securities and Exchange
Commission to TPG Capital Corporation in exchange for all the outstanding shares
of common stock of Torbay Acquisition Corporation.
In September 2000 the Company issued 2,200,000 shares of its common stock
to four individuals for services rendered to the Company. Such shares were
issued in lieu of payment and were valued at $.10 per share. The Company
believes such issuance was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933.
In January 2001 the Company issued 1,000,000 shares of its common stock to
two individuals for a cash purchase at $.10 per share. The Company also issued
200,000 shares of its common stock to an aggregate of three individuals for a
cash purchase valued at $.25 per share. The Company believes that such issuances
were exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.
In May 2001 the Company issued an aggregate of 7,000,000 shares of its
common Stock to an aggregate of nineteen individuals upon conversion of
outstanding convertible preferred shares. No additional consideration was paid
upon the exchange. The Company believes such issuance was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
In August 2001 the Company issued 600,000 shares of restricted common
stock to three individuals at a purchase price of $0.10 per share for cash
proceeds of $60,000. The Company also issued 250,000 shares of restricted common
stock to one entity for services rendered to the Company. The Company believes
such issuances were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
In January and February 2002, the Company issued 61,000 shares of its
common stock to three individuals for consulting and legal services rendered to
the Company having a fair value of $23,100. The Company believes such issuance
was exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.
In April 2002 the Company authorized the issuances of an aggregate of
420,000 shares of the Company's preferred shares to an aggregate of three people
in connection with the Company's purchase of intellectual property rights. The
Company believes such issuance was exempt from registration pursuant to Section
4(2) of the Securities Act of 1933.
In May 2002 the Company's board of directors authorized the issuance of the
following shares of common sock. The Company believes such issuances were exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933:
a. The Bonaccorde Trust - 833,333 shares in exchange for the cancellation of
a $100,000 long-term note, valued at $.12 per share;
b. Alexander Gordon Lane - 297,063 shares in exchange for the forgiveness of
loans payable in the amount of $35,647, valued at $.12 per share;
c. William Thomas Large - 333,333 shares for the cash purchase price of
$40,000, valued at $.12 per share;
d. Glen Michaels Financial, Inc. for consulting services rendered to
the Company.
Also in May 2002 we issued 40,000 shares to one individual for a cash
purchase price of $.125 per share. The Company believes such issuance was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933.
ITEM 27. EXHIBITS
2.1 Agreement and Plan of Merger between Torbay Acquisition Corporation and
Torbay Holdings, Inc. filed as an exhibit to the Company's Current Report
on Form 8-K, filed with the Securities and Exchange Commission on November
12, 1999 and incorporate herein by reference
3.1 Certificate of Incorporation of Torbay Holdings, Inc., as amended filed as
an exhibit to the Company's Current Report on Form 8-K, filed with the
Securities and Exchange Commission on November 12, 1999 and incorporate
herein by reference
3.2 By-Laws of Torbay Holdings, Inc. filed as an exhibit to the Company's
Current Report on Form 8-K, filed with the Securities and Exchange
Commission on November 12, 1999 and incorporate herein by reference
4.1 Certificate of Designation with respect to Series 1 Convertible Preferred
Stock of Torbay Holdings, Inc. filed as an exhibit to the Company's Current
Report on Form 8-K, filed with the Securities and Exchange Commission on
November 12, 1999 and incorporate herein by reference
4.2 Form of Common Stock Certificate filed as an exhibit to the Company's
Registration Statement on Form SB-2 (Registration No. 333-93847), filed
with the Securities and Exchange Commission on December 30, 1999 and
incorporate herein by reference
5.1 Opinion of Seth A. Farbman, P.C.
10.1 Deed of Assignment of Intellectual Property Rights by W. Thomas Large to
Designer Appliances Ltd. dated June 10, 1999 filed as an exhibit to the
Company's Current Report on Form 8-K/A, filed with the Securities and
Exchange Commission on January 10, 2000 and incorporated herein by
reference
10.2 Agreement among Michael Beard, 3T Designs Ltd. and Designer Appliances Ltd.
dated June 12, 1999 with respect to registered and unregistered design
rights filed as an exhibit to the Company's Registration Statement on Form
SB-2 (Registration No. 333-93847), filed with the Securities and Exchange
Commission on December 30, 1999 and incorporate herein by reference
10.3 Manufacturing Agreement between the Company and Dynapoint, Inc. dated April
16, 2002 filed as exhibit to the Company's Report on Form 10-KSB, filed
with the Securities and Exchange Commission on April 29, 2002 and
incorporated herein by reference
10.4 Intellectual Property Rights Purchase Agreement dated July 12, 2001 filed
as exhibit to the Company's Report on Form 10-KSB, filed with the
Securities and Exchange Commission on April 29, 2002 and incorporated
herein by reference
10.5 Patent Assignment Agreement relating to "Fatigue Relief" dated July 12,
2001 filed as exhibit to the Company's Report on Form 10-KSB, filed with
the Securities and Exchange Commission on April 29, 2002 and incorporated
herein by reference
10.6 Securities Purchase Agreement dated May 15, 2002 between AJW Partners, LLC,
New Millennium Capital Partners II, LLC, AJW/New Millennium Offshore, Ltd,
Pegasus Capital Partners, LLC and the Company filed as an exhibit to the
Company's Form 10-QSB filed with the Commission on May 15, 2002 and
incorporated herein by reference
10.7 Form of Stock Purchase Warrant dated May 15, 2002 filed as an exhibit to
the Company's Form 10-QSB filed with the Commission on May 15, 2002 and
incorporated herein by reference
10.8 Form of Secured Convertible Debenture dated May 15, 2002 filed as an
exhibit to the Company's Form 10-QSB filed with the Commission on May 15,
2002 and incorporated herein by reference
10.9 Security Agreement dated May 15, 2002 filed as an exhibit to the Company's
Form 10-QSB filed with the Commission on May 15, 2002 and incorporated
herein by reference
10.10 Form of Registration Rights Agreement dated May 15, 2002 between AJW
Partners, LLC, New Millennium Capital Partners II, LLC Millennium Capital
Partners II, LLC, Pegasus Capital Partners, LLC and the Company, filed as
an exhibit to the Company's Form 10-QSB filed with the Commission on May
15, 2002 and incorporated herein by reference
23.1 Consent of Weinberg & Co. P.A.
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of
Securities Act.
(b) 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.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the commission pursuant to Rule 424(B) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(c) 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
(2) That, for the purpose of determining any liability under the Securities
Act, 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.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Exchange Act that is incorporated by reference in the
registration statement 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.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Nassau, State of New
York, on May 31, 2002.
TORBAY HOLDINGS, INC.
By: /s/ William Thomas Large
--------------------------------
William Thomas Large,
President (Principal Executive Officer and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
NAME TITLE DATE
- ---- ----- ----
/s/ William Thomas Large Director and May 31, 2002
- ---------------------------- Chief Executive Officer
William Thomas Large
/s/ Alexander Gordon Lane Director and Secretary May 31, 2002
- -----------------------------
Alexander Gordon Lane