As filed with the Securities and Exchange Commission on June __, 2006
Registration No. _____________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NEWTOWN LANE MARKETING, INCORPORATED
(Name of small business issuer in its charter)
Delaware [ ] 20-3547231
(State or Jurisdiction (Primary Standard (IRS Employer
of Incorporation Industrial Identification
or Organization) Classification Number)
Code Number)
33 Newtown Lane
East Hampton, New York 11937
(212) 561-3626
(Address and telephone number of principal executive offices)
33 Newtown Lane
East Hampton, New York 11937
(Address of principal place of business)
Richard M. Cohen, Chief Executive Officer
Newtown Lane Marketing, Incorporated
33 Newtown Lane
East Hampton, New York 11937
(212) 561-3626
(Name, address and telephone number of agent for service)
Copies of communications to:
Vincent J. McGill, Esq.
Eaton & Van Winkle LLP
3 Park Avenue, 16th Floor
New York, New York 10016
(212) 779-9910
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
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, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
Title of Each Class of Amount Proposed Maximum Proposed Maximum
Securities To Be To Be Offering Price Per Aggregate Offering Amount of
Registered Registered (1) Share (2) Price (2) Registration Fee
- -----------------------------------------------------------------------------------------------------------------------
$.001 par value per
share common stock 548,584 $0.40 $219,434 $23.48
- -----------------------------------------------------------------------------------------------------------------------
$0.001 par value per
share common stock 1,000,000 $0.40 $400,000 $42.80
- -----------------------------------------------------------------------------------------------------------------------
Total 1,548,584 $0.40 $619,434 $66.28
- -----------------------------------------------------------------------------------------------------------------------
(1) Of the 1,548,584 shares registered pursuant to this registration statement,
1,000,000 shares are being offered for sale by the Registrant and 548,584 shares
are being offered by selling stockholders.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457 of the Securities Act. As of the date hereof, there is
no established public market for the common stock being registered. The $960,000
principal amount convertible promissory notes issued by the registrant in its
latest private offering to investors are convertible into shares of common stock
at $0.35 per share. Accordingly, we selected $0.40 per share as the offering
price, reflecting a premium over the private offering conversion price.
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.
Subject to Completion, Dated ________ ___, 2006
1,548,584 Shares
NEWTOWN LANE MARKETING, INCORPORATED
Common Stock
Before this offering there has been no public market for our common stock.
We are offering a minimum ("Miminum") of 500,000 shares and a maximum
("Maximum") of 1,000,000 shares of our common stock, $.001 par value per share
("Common Stock"), in a direct public offering (sometimes referred to as the
"direct offering") with Public Securities Inc. as our placement agent. The
offering price is $0.40 per share. In the event the shares are not sold within
180 days, at our sole discretion, we may extend the offering for an additional
90 days.
In addition to our direct offering, we are registering 548,584 shares of
Common Stock held by 33 selling stockholders. The selling stockholders will sell
at a price of $0.40 per share until our shares are quoted on the Over the
Counter Bulletin Board and thereafter at prevailing market prices or privately
negotiated prices.
No public market currently exists for our shares. Our Common Stock is
presently not quoted on the OTC Bulletin Board or traded on any national
securities exchange or the NASDAQ Stock Market. We do not intend to apply for
listing on any national securities exchange or the NASDAQ stock market but will
apply to have the Common Stock quoted on the OTC Bulletin Board.
An investment in our Common Stock involves risks. See "Risk Factors"
starting at page 5 of this Prospectus.
DIRECT OFFERING:
Total if Minimum Sold Total of Maximum Sold
Per Share (500,000 shares) (1,000,000 shares)
--------- ---------------- ------------------
Public Offering Price $0.40 $200,000 $400,000
Placement Agent Commissions $0.04 $ 20,000 $ 40,000
Proceeds to Newtown Lane
Marketing (before additional
expenses)(1) $0.36 $180,000 $360,000
- ----------
(1) Additional expenses include a non-accountable expense allowance to the
placement agent equal to 2% of the gross proceeds from the direct offering and
an estimated $30,000 for legal, accounting, printing and miscellaneous expenses.
Neither the U.S. Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or passed
upon the adequacy or accuracy of this Prospectus. Any representation to the
contrary is a criminal offense.
No person is authorized in connection with this prospectus to give any
information or to make any representations about us, the selling security
holders, the securities or any matter discussed in this prospectus, other than
1
the information and representations contained in this prospectus. If any other
information or representation is given or made, such information or
representation may not be relied upon as having been authorized by us or any
selling security holder. This prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy the securities in any circumstances under
which the offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any distribution of securities in accordance with this prospectus
shall, under any circumstances, imply that there has been no change in our
affairs since the date of this prospectus.
The Date of this Prospectus is ________________.
Dealer Prospectus Delivery Obligation
Until 90 days after the effective date of this Prospectus, 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.
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY 3
RISK FACTORS 5
WHERE YOU CAN FIND MORE INFORMATION 9
USE OF PROCEEDS 11
DETERMINATION OF OFFERING PRICE 11
SELLING SECURITY HOLDERS 13
PLAN OF DISTRIBUTION 15
LEGAL PROCEEDINGS 19
DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
EXECUTIVE OFFICERS AND RELATED SHAREHOLDER MATTERS 21
DESCRIPTION OF SECURITIES 22
LEGAL MATTERS 23
EXPERTS 23
INDEMNIFICATION OF DIRECTORS AND OFFICERS 23
DESCRIPTION OF BUSINESS 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 27
CERTAIN RELATIONSHIPS AMD RELATED TRANSACTIONS 28
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 29
EXECUTIVE COMPENSATION 30
FINANCIAL STATEMENTS 31
2
PROSPECTUS SUMMARY
Our Business
Newtown Lane Marketing, Incorporated (the "Company" or "we") is a start-up
stage company. We have had no revenues as of the end of our most recent fiscal
year and we have only recently begun operations. We have a license to market
Dreesen's Famous Donuts "Start-up Kit," recipe mix, shortening and donut sugar,
along with the right to use the Dreesen's name and logos, on an exclusive basis
throughout the United States, except for the states of Florida and Pennsylvania,
where we have non-exclusive rights, and in Suffolk County, New York, which
Dreesen's retained for itself.
Our principal offices are located at 33 Newtown Lane, East Hampton, New
York 11937, and our telephone number is (212) 561-3626. We were incorporated in
the State of Delaware on September 26, 2005.
The Offering
Assuming 100% of our direct offering is sold, the 1,548,584 common shares
registered under this Prospectus will represent approximately 26% of our issued
Common Stock. Both before and after the offering, our current directors and
officers will control the Company. As of June 9, 2006 Richard M. Cohen (our
Chief Executive Officer and a Director), Sir John Baring (our Chairman of the
Board), Brad Burde (our Secretary and Treasurer) and Vincent J. McGill (a
director) together owned an aggregate of 2,375,000 shares of Common Stock,
representing approximately 49.0% of our issued Common Stock prior to this
offering. Even if 100% of our direct offering is sold, they will together own
approximately 40.6% of the outstanding Common Stock.
The following is a brief summary of our offering:
Securities o through a direct public offering, up to 1,000,000 shares
Offered o 548,584 common shares held by 33 selling stockholders
o the minimum offering is 500,000 shares
Offering Price We are offering the shares at a price of $0.40 per share.
per Share This price was determined by our Board of Directors based
primarily on the $0.35 conversion price per share of the
$960,000 principal amount of 10% convertible notes (the
"December Notes") which we sold in our private placement
commencing December 2005 (the "December Private Placement").
The selling stockholders can sell the shares at an initial
price of $0.40 and thereafter at any price.
Offering The shares are being offered for a period not to exceed 180
Period days, unless extended by our Board of Directors for an
additional 90 days.
Net Proceeds Approximately $146,000, assuming half of our direct offering
is sold.
Approximately $322,000, assuming we sell all 1,000,000 shares
through our direct offering.
We will not receive any proceeds from the sale of shares by
the selling stockholders.
3
Use of We will use the proceeds to accelerate marketing efforts and
Proceeds for general working capital.
Number of There are 4,848,584 shares of Common Stock outstanding as of
Shares June 26, 2006. However, if the outstanding options to
Outstanding purchase 1,250,000 shares of Common Stock are exercised, and
Before the the $960,000 principal amount of December Notes are converted
Offering at the conversion price of $0.35 per share (assuming no
interest is paid in shares), there would be 8,841,441 shares
outstanding as of June 26, 2006.
Number of We will have the following number of shares issued and
Shares outstanding after this offering:
Outstanding
After the o 5,348,584 if we sell 50% (the Minimum) of our direct
Offering offering
o 5,848,584 if we sell 100% (the Maximum) of our direct
offering
Financial Summary Information
The following table sets forth selected financial information, which
should be read in conjunction with the information set forth under "Management's
Discussion and Analysis" below and the accompanying Financial Statements of the
Company and related notes included elsewhere in this Prospectus.
Income Statement Data
---------------------------------------------------------
Accumulated from September
26, 2005 (inception) to
March 31, 2006
---------------------------------------------------------
Revenue -0-
---------------------------------------------------------
Expenses $ 363,474
---------------------------------------------------------
Net Loss $(363,474)
---------------------------------------------------------
Balance Sheet Data
---------------------------------------------------------
March 31, 2006
---------------------------------------------------------
Working Capital $697,308
---------------------------------------------------------
Total Assets $827,936
---------------------------------------------------------
Total Liabilities $947,657
---------------------------------------------------------
4
RISK FACTORS
The reader should carefully consider each of the risks described below. If
any of the following risks develop into actual events, our business, financial
condition or results of operations could be materially adversely affected and
the trading price of the Common Stock could decline significantly.
Lack of Operating History; No Assurance of Success; Need for Additional Funds
We were formed in September 2005 and have no operating or earnings history
upon which prospective investors may base an assessment of our prospects for
success. We intend, during the next few months, to accelerate efforts to market
and distribute the Start-up Kit and supplies, and to create greater awareness of
the opportunity to make and sell Dreesen's Famous Donuts. There can be no
assurance that we will successfully complete any of our goals on a timely basis
or that we will be able to develop or profitably exploit a market for Start-up
Kits.
We may not be able to operate to the point at which we will be generating
positive cash flow and we may require additional cash to achieve our objectives.
There is no assurance that such cash as we will need will be available on
acceptable terms, if at all. To the extent we raise additional capital by
issuing equity securities, ownership dilution to existing shareholders will
result. Even if we are successful in our efforts to raise additional cash, there
is no assurance that we will achieve our business objectives or operate
profitably.
Dependence On Key Personnel
Our business depends to a significant degree on the continuing
contributions of our key management none of whom is required to devote any
prescribed amount of time to the affairs of our Company. There can be no
assurance that the loss of members of management of the Company would not
materially adversely affect our business. We do not have "key-man" life
insurance policies on any of our executives.
Dependence Upon Third Parties
Our ability to grow our business is initially dependant upon our ability
to sell Start-up Kits. Our business is also dependent upon the ability of our
sublicenses (or operators) to successfully grow and develop their businesses.
Our operators may not have the skills, ability or dedication to operate
successfully.
We are also dependent upon third parties for the production of the "Donut
Robot" and other equipment and supplies used by our operators. To date,
Dreesen's Enterprises has acquired Donut Robots only from Belshaw Brothers and
we have not yet sourced an alternate supplier. Any delay or interruption in the
supply of Donut Robots or consumables used by our operators could adversely
affect their businesses and ours.
We May Be Harmed By Actions of Our Licensees
The operators to which we sell Start-up Kits and donut mix are independent
operators and not employees of ours. The quality of their operations will
largely be determined by their skill and dedication. Operators may conduct their
businesses in a manner which detracts from the image of "Dreesen's Famous
Donuts." Given that we are not a franchisor, we may have limited ability to
control an operator conducting itself in an inappropriate manner, and its
operations could negatively impact our reputation and sales.
5
Rudy De-Santi's Success is Not Necessarily Indicative of Our Prospects for
Success
A number of factors combined to make Dreesen's Famous Donuts a success in
the Scoop Du Jour in East Hampton, New York and the limited number of other
locations where they are being distributed. There is no guarantee that others
will be able to duplicate the success of those currently distributing Dreesen's
Famous Donuts.
The Failure or Inability to Enforce Dreesen's Trademark Could Adversely Affect
Our Business.
Dreesen's Enterprises owns certain common law and federally registered
trademarks. We believe that these trademarks and other proprietary rights, such
as Dreesen's secret recipe, are important to our success. Actions we may need to
take to limit imitation by others may not be successful, could be costly and may
distract our management from other issues.
The Food Service Industry is Affected by Many Factors Beyond Our Control.
Food service businesses are often affected by changes in consumer tastes,
local economic conditions and demographic changes. The performance of individual
operators may be adversely affected by traffic patterns and the type, number and
location of competing stores. Sales of our operators and our ability to sell
Start-up Kits could be adversely affected by consumer tastes, for instance if
health or dietary concerns cause consumers to avoid donuts in favor of other
foods. Moreover, our success is primary dependent upon a single product. If
consumer demand for donuts decreases, our business would be more adversely
affected than if we had diversified products.
Our Success Depends on Our Operators' Ability to Compete with Many Food Service
Businesses.
Dreesen's Famous Donuts will compete with many well established products
offered by food service companies such as donut retailers and bakeries, bagel
shops, fast food restaurants, delicatessens, convenience stores and specialty
coffee shops. Our success will be dependent upon our ability to convince
operators that Dreesen's Famous Donuts can successfully compete against
competitive products.
Dilution
The per share offering price of the shares being offered hereby exceeds
our net tangible book value per share and therefore purchasers of the shares
offered hereby will experience immediate and substantial dilution. See
"Dilution" below.
Shareholders May Be Diluted Significantly Through Our Efforts to Obtain
Financing and Satisfy Obligations through Issuance of Additional Shares of our
Common Stock.
We have no committed source of financing. Wherever possible, we will
attempt to use noncash consideration to satisfy obligations. In many instances,
we believe that the noncash consideration will consist of shares of our stock.
Our board of directors has authority, without action or vote of the
shareholders, to issue all or part of the authorized but un-issued shares of
Common Stock and the 1,000,000 authorized shares of "blank check" preferred
stock. In addition, if a trading market develops for our Common Stock, we may
attempt to raise capital by selling shares of our Common Stock, possibly at a
6
discount to market. These actions will result in dilution of the ownership
interests of existing shareholders and may further dilute the book value of the
Common Stock, and such dilution may be material. Such issuances may also serve
to enhance existing management's ability to maintain control of the Company. In
addition, our 2006 Stock Incentive Plan allows the issuance of up to 2,000,000
shares of Common Stock. As of June 26, 2006, we had issued options to purchase
1,250,000 shares of Common Stock under such plan.
Control By Existing Management
Upon completion of this offering, Messrs. Cohen, Burde, Baring and McGill
(who are our officers and directors) will continue to own approximately 40% of
the outstanding shares of the Company and will be able to control the direction
and affairs of the Company.
Potential Conflicts of Interest
None of our key personnel (See "Business - Employees") is required by
contract to commit full time to our affairs and, accordingly, these individuals
may have conflicts of interest in allocating time among their various business
activities. In the course of their other business activities, certain key
personnel may become aware of business opportunities which may be appropriate
for presentation to us, as well as the other entities with which they are
affiliated. As such, they may have conflicts of interest in determining to which
entity a particular business opportunity should be presented.
Each officer and director is, so long as he is an officer or director,
subject to the restriction that all opportunities contemplated by our plan of
operation that come to his attention, either in the performance of his duties or
in any other manner, will be considered opportunities of, and be made available
to us and the companies that he is affiliated with on an equal basis. A breach
of this requirement will be a breach of the fiduciary duties of the officer or
director. If we or the companies to which the officer or director is affiliated
each desire to take advantage of an opportunity, then the applicable officer or
director would abstain from negotiating and voting upon the opportunity.
However, the officer or director may still take advantage of opportunities if we
should decline to do so. Except as set forth above, we have not adopted any
other conflict of interest policy in connection with these types of
transactions.
Because there is no public trading market for our Common Stock, you may not be
able to resell your stock.
Prior to the date of this prospectus, there has not been any established
trading market for our Common Stock, and there is currently no market whatsoever
for our securities. We will seek to have a market maker file an application with
the NASD on our behalf to quote the shares of our Common Stock on the OTC
Bulletin Board. There can be no assurance as to whether such market maker's
application will be accepted or, if accepted, the prices at which our Common
Stock will trade if a trading market develops, of which there can be no
assurance. We are not permitted to file such application on our own behalf. If
the application is accepted, we cannot predict the extent to which investor
interest in the Company will lead to the development of an active, liquid
trading market. Active trading markets generally result in lower price
volatility and more efficient execution of buy and sell orders for investors.
In addition, our Common Stock is unlikely to be followed by any market
analysts, and there may be few institutions acting as market makers for the
Common Stock. Either of these factors could adversely affect the liquidity and
trading price of our Common Stock. Until our Common Stock is fully distributed
and an orderly market develops in our Common Stock, if ever, the price at which
7
it trades is likely to fluctuate significantly. Prices for our Common Stock will
be determined in the marketplace and may be influenced by many factors,
including the depth and liquidity of the market for shares of our Common Stock,
developments affecting our business, including the impact of the factors
referred to elsewhere in these Risk Factors, investor perception of the Company
and general economic and market conditions. No assurances can be given that an
orderly or liquid market will ever develop for the shares of our Common Stock.
Because the Commission imposes additional sales practice requirements on brokers
who deal in our shares which are penny stocks, some brokers may be unwilling to
trade them. This means that you may have difficulty reselling your shares and
this may cause the price of the shares to decline.
Our shares would be classified as penny stocks and are covered by Section
15(g) of the Securities Exchange Act of 1934 (the "Exchange Act") which impose
additional sales practice requirements on brokers-dealers who sell our
securities in this offering or in the aftermarket. For sales of our securities,
the broker-dealer must make a special suitability determination and receive from
you a written agreement prior to making a sale for you. Because of the
imposition of the foregoing additional sales practices, it is possible that
brokers will not want to make a market in our shares. This could prevent you
from reselling your shares and may cause the price of the shares to decline.
We do not intend to pay dividends and there will be fewer ways in which you can
make a gain on any investment in the Company.
We have never paid any cash dividends and currently do not intend to pay
any dividends for the foreseeable future. To the extent that we require
additional funding currently not provided for in our financing plan, our funding
sources may likely prohibit the payment of a dividend. Because we do not intend
to declare dividends, any gain on an investment in the Company will need to come
through appreciation of the stock's price.
We indemnify our directors against liability to the Company and our
stockholders, and the costs of this indemnification could negatively affect our
operating results.
Our bylaws allow for the indemnification of Company officers and directors
in regard to their carrying out the duties of their offices. The bylaws also
allow for reimbursement of certain legal defenses.
As to indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act"), for directors, officers or persons
controlling the Company, we have been informed that in the opinion of the
Commission such indemnification is against public policy and unenforceable.
Since our directors and officers are aware that they may be indemnified
for carrying out the duties of their offices, they may be less motivated to
ensure that meet the standards required by law to properly carry out their
duties, which could have a negative impact on our operating results. Also, if
any director or officer claims against the Company for indemnification, the
costs could have a negative effect on our operating results.
The market price of our Common Stock may be affected by low volume float.
If a market develops for our shares, substantial sales of our Common
Stock, including shares issued upon the exercise of outstanding options and
warrants, in the public market, or the perception that these sales could occur,
may have a depressive effect on the market price of our Common Stock. Such sales
or the perception of such sales could also impair our ability to raise capital
or make acquisitions through the issuance of our Common Stock.
8
If a Market Develops for Our Shares, Rule 144 Sales May Depress Prices in That
Market.
All of the outstanding shares of our Common Stock held by present
stockholders are "restricted securities" within the meaning of Rule 144 under
the Securities Act.
As restricted shares, these shares may be resold only pursuant to an
effective registration statement or under the requirements of Rule 144 or other
applicable exemptions from registration under the Securities Act and as required
under applicable state securities laws. Rule 144 provides in essence that a
person who has held restricted securities for a prescribed period may, under
certain conditions, sell every three months, in brokerage transactions, a number
of shares that does not exceed 1.0% of a company's outstanding Common Stock. The
alternative average weekly trading volume during the four calendar weeks prior
to the sale is not available to our shareholders because the OTC Bulletin Board
(if and when our shares are listed thereon) is not an "automated quotation
system" and market based volume limitations are not available for securities
quoted only over the OTCBB. There is no limit on the amount of restricted
securities that may be sold by a non-affiliate (i.e., a stockholder who is not
an officer, director or control person) after the restricted securities have
been held by the owner for a period of two years. A sale under Rule 144 or under
any other exemption from the Securities Act, if available, or pursuant to
registration of shares of Common Stock of present stockholders, may have a
depressive effect upon the price of the Common Stock in any market that may
develop.
For all of the foregoing reasons and others set forth herein, an
investment in our securities in any market which may develop in the future
involves a high degree of risk.
We may issue shares of preferred stock having greater rights than our Common
Stock.
Our certificate of incorporation authorizes our Board of Directors to
issue one or more series of preferred stock and set the terms of the preferred
stock without seeking any further approval from our shareholders. Any preferred
stock that is issued may rank ahead of our Common Stock, with respect to
dividends, liquidation rights and voting rights, among other things.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the U.S. Securities and Exchange Commission, 100 F
Street, N.E., Washington, D.C. 20549, a registration statement on Form SB-2,
under the Securities Act for the Common Stock offered by this prospectus. We
have not included in this prospectus all the information contained in the
registration statement and you should refer to the registration statement and
its exhibits for further information.
Any statement in this prospectus about any of our contracts or other
documents is not necessarily complete. If the contract or document is filed as
an exhibit to the registration statement, the contract or document is deemed to
modify the description contained in this prospectus. You must review the
exhibits themselves for a complete description of the contract or document.
The registration statement and other information which we may file may be
read and copied at the Commission's Public Reference Room at 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the Commission at
9
1-800-SEC-0330. The SEC maintains a web site (HTTP://WWW.SEC.GOV.) that contains
the registration statements, reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC as we
intend to be doing. We will be required to file reports with the Commission
pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended. We
will be filing reports such as annual reports on Form 10-KSB, quarterly reports
on Form 10-QSB and current reports on Form 8-K. We intend to furnish our
stockholders with annual reports containing audited financial statements and
other reports as we think appropriate or as may be required by law.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this prospectus contain some
forward-looking statements. Certain of the matters discussed concerning our
operations, cash flows, financial position, economic performance and financial
condition, including, in particular, future sales, product demand, competition
and the effect of economic conditions include forward-looking statements within
the meaning of section 27A of the Securities Act of 1933, referred to herein as
the Securities Act, and Section 21E of the Securities Exchange Act of 1934,
referred to herein as the Exchange Act.
Statements that are predictive in nature, that depend upon or refer to
future events or conditions or that include words such as "expects,"
"anticipates," "intends," "plans," "believes," "estimates" and similar
expressions are forward-looking statements. Although we believe that these
statements are based upon reasonable assumptions, including projections of
orders, sales, operating margins, earnings, cash flow, research and development
costs, working capital, capital expenditures, distribution channels,
profitability, new products, adequacy of funds from operations, these statements
and other projections and statements contained herein expressing general
optimism about future operating results and non-historical information, are
subject to several risks and uncertainties, and therefore, we can give no
assurance that these statements will be achieved.
Investors are cautioned that our forward-looking statements are not
guarantees of future performance and actual results or developments may differ
materially from the expectations expressed in the forward-looking statements.
As for the forward-looking statements that relate to future financial
results and other projections, actual results will be different due to the
inherent uncertainty of estimates, forecasts and projections and may be better
or worse than projected. Given these uncertainties, you should not place any
reliance on these forward-looking statements. These forward-looking statements
also represent our estimates and assumptions only as of the date that they were
made. We expressly disclaim a duty to provide updates to these forward-looking
statements, and the estimates and assumptions associated with them, after the
date of this filing to reflect events or changes in circumstances or changes in
expectations or the occurrence of anticipated events.
We undertake no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any additional disclosures we make in our
Form 10-KSB, Form 10-QSB and Form 8-K reports to the SEC. Also note that we
provide a cautionary discussion of risk and uncertainties under the caption
"Risk Factors" in this prospectus. These are factors that we think could cause
our actual results to differ materially from expected results. Other factors
besides those listed here could also adversely affect us. This discussion is
provided as permitted by the Private Securities Litigation Reform Act of 1995.
10
USE OF PROCEEDS
Our direct offering is being made through our placement agent, Public
Securities, Inc., with a minimum of $200,000 (or 500,000 shares) and a maximum
of $400,000 (or 1,000,000 shares). The table below sets forth the use of
proceeds if 50% (the Minimum) or 100% (the Maximum) of our direct offering is
sold.
----------------------------------------------------------------
50% 100%
----------------------------------------------------------------
Gross proceeds $200,000 $400,000
----------------------------------------------------------------
Offering expenses 54,000 78,000
----------------------------------------------------------------
Net proceeds 146,000 322,000
----------------------------------------------------------------
The net proceeds will be used approximately as follows:
----------------------------------------------------------------
50% 100%
----------------------------------------------------------------
Marketing expenses $ 73,000 $ 161,000
----------------------------------------------------------------
General working capital 73,000 161,000
----------------------------------------------------------------
Offering expenses for the direct offering consist of (i) a commission to
the placement agent equal to 10% of gross proceeds from the direct offering,
(ii) a non-accountable expense allowance to the placement agent equal to 2% of
the gross proceeds from the direct offering, and (iii) additional expenses
estimated to be $30,000, consisting of the following: : $15,000 for legal fees;
$14,000 for accounting fees, $300 for printing and marketing expenses and $700
for miscellaneous expenses relating to the offering including SEC filing fees.
In connection with our direct offering, we will also issue a warrant to
the placement agent to purchase the number of shares of our Common Stock equal
to 10% of the number of shares sold in our direct offering, exercisable at $0.56
per share.
The net proceeds from this offering will be used to pay for continuing
marketing activities and working capital. If necessary, we may seek to raise
additional financing. To the extent we raise cash by offering equity securities,
our existing shareholders will be diluted. If we are unsuccessful in our efforts
to generate positive cash flow we will not be able to maintain our operations.
We will not receive any of the proceeds from the selling stockholders'
sale of the shares offered under this prospectus.
DETERMINATION OF OFFERING PRICE
We are not selling any of the 548,584 shares of Common Stock that we are
registering on behalf of selling stockholders. Such shares of Common Stock will
be sold by the selling security holders listed in this prospectus. The selling
stockholders will sell at a price of $0.40 per share until our shares are quoted
11
on the OTC Bulletin Board and thereafter at prevailing market prices or
privately negotiated prices. In our direct offering, we are selling up to
1,000,000 shares of Common Stock at the price of $0.40 per share.
There is no established public market for the common stock being
registered. The $960,000 principal amount convertible promissory notes which we
issued in the December Private Placement are convertible into shares of Common
Stock at $0.35 per share. Accordingly, we selected $0.40 per share as the
offering price in this offering, reflecting a premium over the conversion price
of the December Notes.
The offering price bears no relationship whatsoever to our assets,
earnings, book value or other criteria of value. Among the other factors
considered were:
o our lack of operating history;
o the proceeds to be raised by the direct offering;
o the amount of capital to be contributed by purchasers in the direct
offering in proportion to the amount of stock to be retained by our
existing shareholders; and
o our cash requirements.
Dilution of the Price you Pay for Your Shares
Dilution represents the difference between the offering price and the net
tangible book value per share immediately after completion of this offering. Net
tangible book value is the amount that results from subtracting total
liabilities and intangible assets from total assets.
The initial subscribers for the Common Stock purchased an aggregate of
3,000,000 shares for an aggregate of $75,000 or $0.025 per share. The investors
in the Company's December Private Placement of 10% convertible promissory notes
invested an aggregate of $960,000, or approximately $0.29 per share, for notes
convertible into an aggregate of 2,742,858 shares of Common Stock. For
participating in the December Private Placement, the investors also received an
aggregate of 548,584 additional shares of Common Stock for no additional
consideration.
If 100% of the shares are sold:
Giving effect to 100% of this direct offering (and assuming offering
expenses described in "Use of Proceeds", above, and assuming our assets and
liabilities are as set forth in our balance sheet as of March 31, 2006), after
giving effect to the conversion of the December Notes into Common Stock, we
would have a net tangible book value of $1,019,308 for the 8,591,441 shares to
be outstanding or approximately 12(cent) per share. The amount of dilution you
will incur will be $0.28 per share. The net tangible book value of the shares
held by our existing shareholders will be increased by $0.03 per share without
any additional investment on their part. You will incur an immediate dilution
from $0.40 per share to $0.12 per share. After completion of this offering, if
1,000,000 shares are sold, you will own approximately 11.6% of the total number
of shares (assuming the conversion of the December Notes) then outstanding for
which you will have made a cash investment of $400,000, or $0.40 per share.
If 50% of the shares are sold:
Assuming the conversion the December Notes, upon completion of 50% of our
direct offering, the net tangible book value of the 8,091,441 shares to be
outstanding will be $843,308, or approximately $0.10 per share. The amount of
dilution you will incur will be $0.30 per share. The net tangible book value of
12
the shares held by our existing shareholders will be increased by $0.01 per
share without any additional investment on their part. You will incur an
immediate dilution from $0.40 per share to $0.10 per share. After completion of
the Minimum level of the direct offering, if 500,000 shares are sold, you will
own approximately 6.2% of the total number of shares (assuming the conversion of
the December Notes) then outstanding for which you will have made a cash
investment of $200,000, or $0.40 per share.
SELLING SECURITY HOLDERS
Based on information provided by the selling security holders, the table
below sets forth certain information, as of June 26, 2006 unless otherwise
noted, regarding the selling security holders. Each of the selling stockholders
was an investor in our private placement of the December Notes which we
completed in March 2006. All of the shares listed below as being offered by this
prospectus were shares which the selling stockholders received for no additional
consideration for participating in our offering of the December Notes. For a
description of the December Notes, see "Management's Discussion and Analysis or
Plan of Operation - Liquidity and Capital Resources".
Percentage ownership of Common Stock is based on 4,848,584 shares of our
Common Stock outstanding as of June 26, 2006. For purposes of calculating the
post-offering ownership of each selling security holder, the table also assumes
the sale of all of the securities being offered by such selling security holder.
The second column from the left in the table below lists the number of
shares of Common Stock beneficially owned by each selling stockholder, based on
his/her ownership of the shares of our Common Stock.
The third column from the left lists the shares of Common Stock being
offered pursuant to this prospectus by the selling stockholders.
The fourth column from the left assumes the sale of all of the shares
offered by the selling stockholders pursuant to this prospectus.
The selling stockholders may sell all, some or none of their shares in
this offering. See "Plan of Distribution."
13
Common stock beneficially owned
after the offering
Name of selling security holders Number of shares
of common stock
beneficially
owned prior to Number of shares Percentage of
the offering being offered Number of shares outstanding shares
John F. Baring (1) 502,858 2,858 500,000 9.4%
Wayne Brannan 107,143 7,143 100,000 2.0%
Michael Carlin 14,286 14,286 0 0
George Carmel 14,286 14,286 0 0
Chui Yen Chiou and Hui-Min Wu 14,286 14,286 0 0
Crapgame LLC (2) 28,572 28,572 0 0
Amiel David 7,143 7,143 0 0
Joel and Zoe Dictrow, JT 14,286 14,286 0 0
Debra Duneier 3,572 3,572 0 0
Charles Fewell (3) 1,429 1,429 0 0
Victoria Fillet 14,286 14,286 0 0
Barbara and Lawrence Finkelstein, Tenants by the
Entireties 7,143 7,143 0 0
The Melvin Finkelstein Trust U/D/T 6/11/98 7,143 7,143 0 0
Robert Friedland 3,572 3,572 0 0
Donald Gaugler 28,572 28,572 0 0
Green Stamp America, Inc. (4) 57,143 57,143 0 0
Allen Hauptman 14,286 14,286 0 0
David Kaminer 14,286 14,286 0 0
Josh Kurzban 14,286 14,286 0 0
Andrea Kraus 7,143 7,143 0 0
William Lawson 14,286 14,286 0 0
Karen Lorence 14,286 14,286 0 0
Richard Lynn 14,286 14,286 0 0
Steven Massarsky 28,572 28,572 0 0
Vincent McGill (3) 252,858 2,858 250,000 5.0%
Miles Prentice(3) 14,286 14,286 0 0
Richard Randall 7,143 7,143 0 0
Townhouse Partners LLC (5) 28,572 28,572 0 0
Michael H. Tai 14,286 14,286 0 0
Cheng Tai and Jen Chiou 85,715 85,715 0 0
Jung Tai 28,572 28,572 0 0
Eileen and Douglas Trojanowski 14,286 14,286 0 0
Tweedy Company LLC (6) 5,715 5,715 0 0
Totals: 1,398,584 548,584 850,000 16.3%
- ----------
(*) Less than one percent.
None of the Selling Security Holders is a broker/dealer or affiliate of a
broker/dealer.
Selling stockholders will sell at a fixed price of $.40 per share until
our common shares are quoted on the OTC Bulletin Board and thereafter at
prevailing market prices, or privately negotiated prices.
(1) The holder is our Chairman and received 250,000 shares, and options
to purchase an additional 250,000 shares, of Common Stock in
connection with his agreement to become our Chairman.
14
(2) The controlling person of this entity is Douglas T. Millet.
(3) The holder is a partner of Eaton & Van Winkle LLP, which is our
counsel. Such firm is the holder of 100,000 shares of Common Stock.
(4) The controlling person of this entity is Masahiko Kasuga.
(5) The controlling person of this entity is Robin Shapiro.
(6) The controlling person of this entity is Jeffrey Tweedy, a partner
of Eaton & Van Winkle LLP, which is our counsel. Such firm is the
holder of 100,000 shares of Common Stock.
PLAN OF DISTRIBUTION
Plan of Distribution; Terms of the Direct Offering
We are offering up to 1,000,000 shares of Common Stock in a direct public
offering, with Public Securities, Inc. as our placement agent (the "Placement
Agent"). The direct offering is made on a "best efforts-all or none" basis with
respect to 500,000 shares and on a "best efforts" basis with respect to the
remaining shares offered. Unless at least 500,000 shares are sold, we will not
sell any shares in our direct offering. The offering price is $0.40 per share.
The shares are being offered for a period not to exceed 180 days, unless
extended by our Board of Directors for an additional 90 days.
Public Securities, Inc. is acting as our placement agent in our direct
offering and will receive a sales commission equal to 10% of the aggregate
purchase price of the shares sold, a non-accountable expense allowance of 2% of
the aggregate purchase price of the shares sold, and a warrant to purchase the
number of shares of our Common Stock equal to 10% of the number of shares sold
in our direct offering, exercisable during a three-year period at $0.56 per
share. Such warrant will provide for cashless exercise and registration rights.
We have agreed to indemnify the placement agent against certain liabilities
incurred by it in connection with its acting on our behalf for the direct
offering.
Each prospective investor in our direct offering must deliver to the
Placement Agent a check in the amount of its investment payable to "Signature
Bank, as Escrow Agent for Newtown Lane". Alternatively, prospective investors
may make payment by wire transfer. The cash payment of each prospective investor
in our direct offering will be deposited in a segregated escrow account with
Signature Bank, as escrow agent (the "Escrow Agent"). Such cash will be held by
the Escrow Agent pursuant to the terms of an escrow agreement among the Company,
the Placement Agent and the Escrow Agent. If our direct offering terminates or
investors do not subscribe for the minimum 500,000 shares in the direct
offering, the Escrow Agent will return to such prospective investor his or her
subscription payment, without interest or deduction.
Section 15(g) of the Exchange Act
Our shares are covered by Section 15(g) of the Exchange Act, and Rules
15g-1 through 15g-6 promulgated thereunder. They impose additional sales
practice requirements on broker-dealers who sell our securities to persons other
than established customers and accredited investors (generally institutions with
15
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their
spouses).
Rule 15g-1 exempts a number of specific transactions from the scope of the penny
stock rules.
Rule 15g-2 declares unlawful broker-dealer transactions in penny stocks unless
the broker-dealer has first provided to the customer a standardized disclosure
document.
Rule 15g-3 provides that it is unlawful for a broker-dealer to engage in a penny
stock transaction unless the broker-dealer first discloses and subsequently
confirms to the customer current quotation prices or similar market information
concerning the penny stock in question.
Rule 15g-4 prohibits broker-dealers from completing penny stock transactions for
a customer unless the broker-dealer first discloses to the customer the amount
of compensation or other remuneration received as a result of the penny stock
transaction.
Rule 15g-5 requires that a broker-dealer executing a penny stock transaction,
other than one exempt under Rule 15g-1, disclose to its customer, at the time of
or prior to the transaction, information about the sales person compensation.
Rule 15g-6 requires broker-dealers selling penny stocks to provide their
customers with monthly account statements.
Rule 15g-9 requires broker-dealers to approve the transaction for the customer's
account; obtain a written agreement from the customer setting forth the identity
and quantity of the stock being purchased; obtain from the customer information
regarding his investment experience; make a determination that the investment is
suitable for the investor; deliver to the customer a written statement for the
basis for the suitability determination; notify the customer of his rights and
remedies in cases of fraud in penny stock transactions; and, the NASD's toll
free telephone number and the central number of the North American
Administrators Association, for information on the disciplinary history of
broker-dealers and their associated persons.
The application of the penny stock rules may affect your ability to resell your
shares.
Offering Period and Expiration Date
This offering will start on the date this prospectus is declared effective
and continue for a period of up to 180 days, and an additional 90 days, if so
elected by our Board of Directors.
Procedures for Subscribing
If you decide to subscribe for any shares in our direct offering, you must
1. execute and deliver a share subscription agreement; and
2. deliver a check or certified funds to us for acceptance or rejection.
All checks for subscriptions must be made payable to "Signature Bank, as Escrow
Agent for Newtown Lane".
16
Right to Reject Subscriptions
We have the right to accept or reject subscriptions in whole or in part,
for any reason or for no reason. All monies from rejected subscriptions will be
returned immediately by us to the subscriber, without interest or deductions.
Sales by Selling stockholders
The selling stockholders may sell some or all of their Common Stock in one
or more transactions, including block transactions:
o on such public markets as the Common Stock may be trading;
o in privately negotiated transactions;
o through the writing of options of the Common Stock;
o in short sales; or
o in any combination of these methods of distribution.
The sales price to the public may be:
o the market price prevailing at the time of sale;
o a price related to such prevailing market price; or
o such other price as the selling stockholders determine.
We are bearing all costs relating to the registration of the Common Stock.
The selling stockholders, however, will pay any commissions or other fees
payable to brokers or dealers in connection with any sale of their shares of
Common Stock.
The selling stockholders must comply with the requirements of the
Securities Act and the Exchange Act in the offer and sale of the Common Stock.
In particular, during such times as the selling stockholders may be deemed to be
engaged in a distribution of the Common Stock, and therefore be considered to be
an underwriter, they must comply with applicable laws and may, among other
things:
o not engage in any stabilization activities in connection with our
Common Stock;
o furnish each broker or dealer through which Common Stock may be
offered, such copies of this Prospectus, as amended from time to
time, as may be required by such broker or dealer; and
o not bid for or purchase any of our securities or attempt to induce
any person to purchase any of our securities other than as permitted
under the Exchange Act.
None of the selling stockholders will engage in any electronic offer, sale
or distribution of the shares. Further, neither the Company nor any of the
selling stockholders have any arrangements with a third party to host or access
our Prospectus on the Internet.
The selling stockholders and any underwriters, dealers or agents that
participate in the distribution of our Common Stock may be deemed to be
underwriters, and any commissions or concessions received by any such
underwriters, dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act. Shares may be sold from time to time by
17
the selling stockholders in one or more transactions at a fixed offering price,
which may be changed, or at any varying prices determined at the time of sale or
at negotiated prices. We may indemnify any underwriter against specific civil
liabilities, including liabilities under the Securities Act.
18
LEGAL PROCEEDINGS
The Company is not currently subject to any litigation.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth information with respect to the current
directors and executive officers of the Company.
Name Positions
- ---- ---------
Richard M. Cohen Chief Executive Officer and Director
John Baring Chairman of the Board
Brad C. Burde Secretary and Treasurer
Vincent J. McGill Director
Richard M. Cohen, age 55, our Chief Executive Officer and a director since
our inception, has been the President of Richard M. Cohen Consultants since
1996. Richard M. Cohen Consultants is a financial services consulting company
that accepts engagements from public and private companies to assist with their
corporate governance and corporate finance needs. In addition, since 2003 Mr.
Cohen has served as a director of Dune Energy, Inc. a publicly traded energy
company (AMEX:DNE) for which he served as Chief Financial Officer from November
2003 to April 2005. He is also currently serving as Secretary of Dune. In
addition, since February 2006, Mr. Cohen has served as a director of Helix
Biomedics (OTCBB: HXBM) and as the Chief Financial Officer of ABC Funding.
(OTCBB: AFDG). During 1999 Mr. Cohen served as the President of National Auto
Credit, a publicly traded sub-prime auto finance company. From 1992 to 1995 Mr.
Cohen was the President of General Media, then a $150 million international
diversified publishing and communications company. At General Media, Mr. Cohen
managed 300 employees; raised $200 million in public and private financings; and
secured international licensing rights for General Media. From 1984 through
1992, Mr. Cohen was an Investment Banker at Henry Ansbacher, Furman Selz, where
he specialized in Mergers & Acquisitions, Public Equity Offerings, and
Restructurings. From 1980 through 1983, Mr. Cohen was a Vice President of
Corporate Development at Macmillan.
Mr. Cohen is a Certified Public Accountant (New York State). He received a
BS from The University of Pennsylvania (Wharton) and an MBA from Stanford
University.
Sir John Baring, age 58, has been our Chairman of the Board since May
2006. Sir John has founded a number of businesses and has been actively involved
in developing and financing emerging communications companies since 1985. From
July 2004 to present, Sir John has been the President and Director of Nevro
Imaging, Inc., a medical imaging software company. From June 2000 to present, he
has been a Managing Member of Mercator Management LLC, a fund management company
based in the Washington, DC area. From September 1999 to June 2004, Sir John was
a Managing Member of Mercator Capital, LLC, which Sir John co-founded. Mercator
Capital, LLC is an investment banking and venture capital firm. From July 2001
to June 2004, Sir John was the Chief Compliance Officer for Mercator Securities,
LLC, a securities dealer. From 1991 to September 1997, Sir John was the founder
and Chairman of Hackman, Baring & Co., a communications merchant-banking
boutique. Sir John was chairman of the board of directors of HB Communications
Acquisition Corp. from its inception until it completed a business combination
19
with IT Network, Inc. on June 23, 1995. Sir John is the Chairman of the Board of
Directors of Turinco, Inc., a managed voice services provider, and also Chairman
of the Board of Directors of Quinduno Energy, LLC, an independent oil and gas
company. He is the Chair of the Trustees for the Rudolf Steiner School, New York
and a Director of the Camphill Foundation supporting Camphill communities in
North America for special needs children and adults.
Bradley C. Burde, age 41, Secretary and treasurer, has over a decade of
experience in investment management and corporate America. He has seven years of
experience in investment analysis and portfolio management, most recently at
Sandler Capital Management and previously at Sanford C. Bernstein & Company. In
the mid-nineties he co-founded Netcast Communications, a pioneering internet
media company which he also served as Chief Financial Officer. He holds an MBA
from The Tuck School of Business at Dartmouth (Tuck Scholar) and a BA, magna cum
laude, from The University of Pennsylvania.
Vincent J. McGill, age 51, is currently a Partner of Eaton & Van Winkle, a
law firm in New York City which he joined as a Partner in 2001. Eaton & Van
Winkle has served and is expected to continue to serve as our counsel for which
it will be paid fees. Prior to joining Eaton & Van Winkle, Mr. McGill was
affiliated with Phillips Nizer LLP, which he joined as an associate in 1986, and
where he became a partner in 1989. Throughout his career, Mr. McGill's practice
has been focused on corporate finance including public offerings and private
placements. As such, he has served and is currently serving as counsel to a
number of companies in the healthcare industry. Mr. McGill holds an AB from
Colgate University, a JD from Hofstra School of Law and an LL.M from New York
University.
Possible Potential Conflicts
No member of management is or will be required by us to work on a full
time basis. Accordingly, certain conflicts of interest may arise between us and
our officer(s) and director(s) in that they have other business interests to
which they devote their attention, and they may be expected to continue to do so
although management time must also be devoted to our business. As a result,
conflicts of interest may arise that can be resolved only through their exercise
of such judgment as is consistent with each officer's understanding of his
fiduciary duties to us.
Board of Directors
All directors hold office until the completion of their term of office,
which is not longer than one year, or until their successors have been elected.
All officers are appointed annually by the board of directors and subject to any
existing employment agreement serve at the discretion of the board. Currently,
directors receive no compensation.
Committees of the Board of Directors
Concurrent with having sufficient members and resources, our board of
directors will establish an audit committee and a compensation committee. The
audit committee will review the results and scope of the audit and other
services provided by the independent auditors and review and evaluate the system
of internal controls. The compensation committee will manage any stock option
plans which we may adopt and review and recommend compensation arrangements for
the officers. No final determination has yet been made as to the memberships of
these committees or when we will have sufficient members to establish
committees.
20
All directors will be reimbursed by the Company for any expenses incurred
in attending directors' meetings provided that we have the resources to pay
these fees. We will consider applying for officers and directors liability
insurance at such time when it has the resources to do so.
Audit Committee
The functions of the Audit Committee are currently carried out by our
Board of Directors. Our Chief Executive Officer, although not deemed to be
"independent" of the Company, is deemed to be an audit committee financial
expert as defined in Regulation S-B, Item 401.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of June 26, 2006, there are a total of 4,848,584 shares of the
Company's Common Stock issued and outstanding. The following table sets forth
information with respect to the beneficial ownership of common shares by (i) the
holders of more than 5% of the common shares outstanding, (ii) each officer or
director of the Company who holds shares, and (iii) all officers and directors
as a group.
Name and Address Number of Shares Percentage of
Of Beneficial Owner(1)(2) Beneficially Owned Outstanding Shares
- ------------------------- ------------------ ------------------
Richard M. Cohen 1,000,000 20.6%
Brad Burde 1,000,000 (3) 20.6%
The Barter Family Trust 1,000,000(4) 20.6%
Vincent J. McGill 250,000 (5) 5.0%
Sir John Baring 500,000 (6) 9.8%
Jay Barry Richman 450,000 (7) 9.1%
All officers and directors 2,750,000(4)(5)(6)(7) 52.6%
As a group (4 persons)
- ----------
(1) Unless otherwise indicated below, the persons in the above table have
sole voting power and investment power with respect to the shares owned by them.
(2) The address Richard Cohen, Brad Burde and Vincent J. McGill are c/o
Eaton & Van Winkle, 3 Park Avenue, New York, New York 10016. The address of Sir
John Baring is 440 West 24th St., 11E, New York, NY 10011 and the address of The
Barter Family Trust and Jay Barry Richman is 33 Newtown Lane, East Hampton, NY
11937.
(3) Of the 1,000,000 shares, 800,000 shares are held by Brad Burde and
200,000 shares are held by Burde Associates LLC, a New York limited liability
company controlled by Mr. Burde.
(4) The controlling person of The Barter Family Trust is Scott Barter.
(5) Includes 125,000 shares underlying fully-vested stock options held by
Mr. McGill. These options are exercisable at $0.25 per share and expire on March
31, 2011. Mr. McGill is a partner of Eaton & Van Winkle LLP which owns 100,000
shares of Common Stock.
(6) Includes 250,000 shares underlying fully-vested stock options held by
Mr. Baring. These options are exercisable at $0.25 per share and expire on March
31, 2011.
(7) Includes 100,000 shares underlying stock options held by Mr. Richman
which either have vested or will vest in the next 60 days. These options are
exercisable at $0.25 per share and expire on March 31, 2011.
21
DESCRIPTION OF SECURITIES
General
We are authorized to issue 29,000,000 shares of Common Stock, $.001 par
value per share, and 1,000,000 shares of preferred stock, $.001 par value per
share. As of June 26, 2006, there were issued and outstanding 4,848,584 shares
of Common Stock. As of such date, we also had stock options outstanding to
purchase 1,250,000 shares of Common Stock and $960,000 principal amount of
December Notes outstanding, convertible into 2,742,858 shares of Common Stock.
The following summary of the respective rights of holders of our capital
stock is qualified in its entirety by reference to our amended and restated
certificate of incorporation and by-laws, copies of which are available upon
request.
Common Stock
Subject to the rights of the holders of any preferred stock which may be
outstanding, each holder of Common Stock is entitled to receive such dividends
as may be declared by the Board of Directors out of funds legally available
therefore, and, in the event of liquidation, dissolution or winding up of the
Company, to share pro rata in any distribution of the Company's assets after
payment or providing for the payment of all liabilities and the liquidation
preference of any outstanding preferred stock. Each holder of Common Stock is
entitled to one vote for each share held of record on the applicable record date
on all matters presented to a vote of stockholders, including the election of
directors. Holders of Common Stock have no cumulative voting rights or
pre-emptive rights to purchase or subscribe for any shares of Common Stock or
other securities of the Company in the event of any subsequent offering. The
shares of Common Stock have no conversion rights, are not subject to redemption
and are not subject to further calls or assessments. All outstanding shares of
Common Stock are, and the shares of Common Stock offered hereby will be when
issued, fully paid and nonassessable.
Preferred Stock
The Board of Directors is authorized, without any action of the
stockholders, to provide for the issuance of one or more series of preferred
stock and to fix the designations, preferences, powers and relative,
participating, optional and other rights, qualifications, limitations and
restrictions thereof including, without limitation, the dividend rate, voting
rights, conversion rights, redemption price and liquidation preference per
series of preferred stock. Any series of preferred stock issued may rank senior
to the Common Stock with respect to the payment of dividends or amounts to be
distributed upon liquidation, dissolution or winding up of the Company. There
are no agreements for the issuance of preferred stock and the Board or Directors
has no present intent to issue any preferred stock. The existence of authorized
but unissued preferred stock may enable the Directors to render more difficult
or to discourage an attempt to obtain control of the Company by means of a
merger, tender offer, proxy contest or otherwise. The issuance of preferred
stock could decrease the amount of earnings and assets available for
distribution to holders of Common Stock and adversely affect the rights to
powers, including voting rights, of such holders and may have the effect of
delaying, deferring or preventing a change in control of the Company.
Transfer Agent
We expect that the transfer agent for our Common Stock will be American
Stock Transfer and Trust Company, 59 Maiden Lane, New York, New York 10038. Its
telephone number is 718-331-1852.
22
LEGAL MATTERS
Our counsel, Eaton & Van Winkle LLP, located in New York, New York, is
passing upon the validity of the issuance of the shares of Common Stock that are
being offered pursuant this prospectus.
EXPERTS
Malone & Bailey, PC, independent registered public accountants, located in
Houston, Texas, has audited our Financial Statements included in this
registration statement to the extent, and for the periods set forth in their
reports. We have relied upon such report, given upon the authority of such firm
as an expert in accounting and auditing.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Article Sixth of our Amended and Restated Certificate of
Incorporation, we have agreed to indemnify our officers, directors, employees
and agents to the fullest extent permitted by the laws of the State of Delaware,
as amended from time to time.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to Directors, Officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the opinion
of the SEC, such indemnification is against public policy as expressed in the
Securities Act and is, therefore unenforceable.
DESCRIPTION OF BUSINESS
Purpose
We were formed in September 2005 to exploit the reputation for quality and
taste associated with "Dreesen's Famous Donuts." As a first step towards the
creation of an internationally recognized branded donut and donut making system,
in November 2005, we entered into a License Agreement with Dreesen's
Enterprises, Inc., the owner of the rights to the trademark "Dreesen's Famous
Donuts" and the secret recipe for making Dreesen's donuts. This license
("License") grants to us the right to market Dreesen's "Start-up Kit," along
with the right to use the Dreesen's name and logos, on an exclusive basis
throughout the United States, except for the states of Florida and Pennsylvania,
where we have non-exclusive rights, and in Suffolk County, which Dreesen's
retained for itself. A Start-up Kit includes a "Donut Robot" Mark II Machine,
recipe mix, shortening, donut sugar and miscellaneous items.
Background
The DeSanti family came to Sag Harbor from the village of Ginestra Sabina
in the mountains of Rome in the early 1900's. In 1948 Rudy DeSanti's father and
a partner bought Dreesen's Excelsior Market, a simple old-fashioned
sawdust-on-the-floor butcher shop in East Hampton, then a small village on the
eastern end of Long Island. In the late 1950's Rudy DeSanti's father purchased
an automatic machine, a donut robot, made by the Belshaw Bros. Company. The
machine turned the donuts, drained them and dropped them onto a waiting tray.
23
In the 1960's, Rudy DeSanti ("Rudy") left his father's business and went
into the business of building houses. In 1970 his father's partner died. At that
time, Rudy's father decided to stop running the family's store and Rudy decided
to run it permanently. Rudy ran his market, a meat shop with donuts, on Newtown
Lane from 1970 until he made the strategic decision in the year 2002 to
concentrate on the wholesale donut business and rented space in his building to
"Scoops Ice Cream" and granted it the right to distribute Dreesen's Famous
Donuts.
While Rudy was operating the market, it became a full service delicatessen
and the donut business flourished. The donut machine was displayed near the
windows so that passers by could see the donuts being made. Among Rudy's
customers were Alec Baldwin, Martha Stewart, Bill Clinton, Billy Joel and other
celebrities. Dreesen's Famous Donuts were publicly acknowledged when Rudy
appeared on a segment of "Martha Stewart Living" and were regularly featured on
news and other lifestyle television programs. There is still a Donut Robot in
the window of the Scoop's Ice Cream shop at the site of Rudy's market, turning
out Dreesen's Famous Donuts for its customers.
Rather than disclose his donut recipe, Rudy has helped people make
Dreesen's Famous Donuts at other locations. They buy equipment from Rudy, a
modern Belshaw Bros. machine that they can put in a window, and sell product
made to his specifications using mix and other ingredients provided by Rudy,
keeping the profit for themselves. Dreesen's Famous Donuts can now be found at
more than 10 locations, originated by Mr. DeSanti, in Manhattan, New Jersey and
Connecticut, including those set forth below.
LOCATIONS
- --------------------------------------------------------------------------------
Scoop Du Jour Balthazar
35 Newtown Lane 80 Spring Street
East Hampton, NY 11937 New York City, NY 10012
631-329-4883 212-965-1785
- --------------------------------------------------------------------------------
Homer's Variety Heartland Brewery/Empire State Building
64 Brunell Ave 350 Fifth Ave
Lenox, MA 1240 New York City, NY 10118
413-637-0061 212-645-3400
- --------------------------------------------------------------------------------
Tom Bailey's Market Jacob Javits Center
1323rd Ave 655 West 34th Street
Spring Lake, NJ 7762 New York City, NY 10001
732-282-0920 212-216-2400
- --------------------------------------------------------------------------------
Route 22 Restaurant The Tavern on the Green
55 OldRoute 22 Central Park at West 67th Street
Armonk, NY 10504 New York City, NY 10023
914-765-0022 212-877-7139
- --------------------------------------------------------------------------------
Ronnie's Deli Carversville General Store
Box 160 Main Street 6208 Fleecydale Road
Montauk, NY 11954 Carversville, PA 18913
631-668-2757 215-297-5353
- --------------------------------------------------------------------------------
Gourmet Garage
1245 Park Avenue
New York, NY 10128
212-348-5850
- --------------------------------------------------------------------------------
24
The System
To assure himself that donuts sold by others bearing the Dreesen's name
meet his standards, Rudy DeSanti developed a system. The system includes the
line of "Donut Robots" and peripherals produced by Belshaw Bros., Inc., a member
of the AGA Foodservice Equipment group of Companies, a division of AGA
Foodservice Group plc. Dreesen's Famous Donut mix based upon the secret family
recipe, and Dreesen's branded shortening and doughnut sugar. The Dreesen's line
of donuts consists of only three types of donuts - plain, powdered sugar and
cinnamon. Rudy has purposely kept the choices simple. This limits the inventory
requirements of an operator and, more importantly, makes the choices easy for
the customer.
In addition to providing the equipment and ingredients, Rudy educates his
operators about the preparation and history of Dreesen's donuts. Training,
including a film prepared by Belshaw Bros. demonstrating proper use and
maintenance of its equipment, is available at Dreesen's in East Hampton or the
operator's site, and includes:
o Machine Use
o Ingredient Prep
o Cooking and Timing
o Customer Interaction
o Packaging and Presentation
o Maintenance and Planning
o Donut Tasting and Texture Analysis
Because Rudy's system is comprehensive, there is generally no need for
ongoing participation by Dreesen's. Once an operator buys the necessary
equipment and supplies, he's in business producing donuts, a business he can
operate on his own or as an adjunct to an existing operation.
Intellectual Property
The "Dreesen's Famous Donuts" trademark is owned by Dreesen's Enterprises,
Inc. and registered with the United States Patent and Trademark Office. A
trademark registration has also been filed in Canada. When appropriate, we will
seek to file or cause Dreesen's Enterprises to file applications to register the
mark in other countries.
Effective November 21, 2005, we entered into a License Agreement (the
"License Agreement") with Dreesen's Enterprises, Inc. The License grants to us
the non-exclusive right to use the Dreesen's name throughout the United States
to market and promote Dreesen's Famous Donuts; and the exclusive right
throughout the United States (except in the states of Florida and Pennsylvania,
where we were granted non-exclusive rights, and the county of Suffolk, which
Dreesen's retained for itself) to grant sublicenses to others to use the
Dreesen's name and to make and distribute Dreesen's Famous Donuts using
Dreesen's secret recipe mix, shortening and doughnut sugar. The License
Agreement has an initial term of two years but, at our option, may be extended
for two additional terms of two years each, provided that at the end of each
term we have at least 100 sublicensees and are otherwise in compliance with the
material terms of the License. The License requires that we purchase from
Dreeson's all Start-Up Kits at a price of $9,000 each, subject to increase.
25
In addition to the revenue generated from our sale of Start-up Kits, we
are to be paid $2.50 for each 30-lb box of mix sold to our licensees during the
terms of the License Agreement and $1,000 should Dreesen's directly grant any
sublicense within the territory over which we have rights. A 30-lb box of mix
makes approximately 400 donuts. The License also requires that we pay to
Dreesen's 50% of our net profit derived from sales of promotional materials such
as hats, t-shirts, napkins and mugs.
Marketing
We anticipate deriving our revenues principally through two sources, the
sale of Start-up Kits and follow-on sales of supplies. In addition to the
Start-up Kits and mix, we will distribute promotional materials and supplies
such as napkins, paper cups, hats, mugs and t-shirts, but we are not
anticipating that this will be a source of significant revenues.
The Start-up Kits will be marketed through a variety of channels. We will
advertise directly to individuals and single-store owners through telemarketing
advertisements in trade and food magazines, newspapers and participation at
trade shows. In addition, building on our existing relationships we will contact
owners of chains of stores, such as convenience stores, department, drug and
food chains, as well as hotels. We plan to use independent sales representatives
who would be compensated by commissions based on sales made by them.
As our revenues and activities develop, we may determine to form one or
more subsidiaries to undertake particular aspects of our business or new
projects. For example, we might form a new subsidiary to focus on the
distribution of promotional materials or, if we can expand the territory or
scope of our License Agreement with Dreesen's, we might form a new subsidiary to
deal with overseas opportunities.
Government Regulation
The sale of franchises and certain types of business opportunities is
highly regulated at the federal and state level. Our current plan is to
initially structure the relationship with our customers so as to not be a
franchise or a business opportunity. Each sublicense will be granted the right
to use the Dreesen's name and logo only in connection with the sale of donuts
produced using Dreesen's mix and approved system. Except for such requirement,
each licensee will be free to determine when and how to operate his business.
Although we and Dreesen's will be available to provide appropriate support, we
do not envision placing the kinds of restrictions and demands on our licensee
that would result in a franchise or/finance relationship.
Property
The Company is subject to two real estate leases: one at 33 Newtown Lane
and the other at 445 Park Avenue. The Company's offices at 33 Newtown Lane are
under lease through November 30, 2007 with a monthly rent of $1,400. The
Company's offices at 445 Park Avenue are under lease through October 31, 2006
with a monthly rent of $7,960.
Employees
Our only employees are R. Scott Barter, Richard M. Cohen, Bradley C. Burde
and Don Cunningham. Messr's Cohen and Burde, who each received $900 per month
and health insurance coverage, were the only employees who received compensation
from us during the fiscal year ended March 31, 2006.
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
We are a start-up stage corporation with limited operations and have had
no revenues from our business operations as of March 31, 2006. We completed the
first sale of a Start-Up Kit in June 2006.
Plan of Operation. From the time we were incorporated, in September 2005,
to the end of our first fiscal year, March 31, 2006, we did not have any
revenues from operations. Accordingly, the information provided in this section
is a plan of operation pursuant to Regulation S-B Item 303(a) promulgated by the
SEC.
Effective November 21, 2005, we entered into the License Agreement with
Dreesen's Enterprises, Inc. Our plan of operation is, pursuant to the License
Agreement, to grant sublicenses to others to use the Dreesen's name and to make
and distribute Dreesen's Famous Donuts using Dreesen's secret recipe mix,
shortening and doughnut sugar. The License Agreement has an initial term of two
years but, at our option, may be extended for two additional terms of two years
each, provided that at the end of each term we have at least 100 sublicensees
and are otherwise in compliance with the material terms of the License. On June
12, 2006, we granted our first sublicense pursuant to the License Agreement.
The License requires that we purchase from Dreeson's all Start-Up Kits at
a price of $9,000 each, subject to increases to reflect increases in the prices
paid by Dreesen's for the components of the Start-up Kit.
In addition to the revenue generated from our sale of Start-up Kits, we
are to be paid $2.50 for each 30-lb box of mix sold to our licensees during the
terms of the License Agreement and $1,000 should Dreesen's directly grant any
sublicense within the territory over which we have rights. A 30-lb box of mix
makes approximately 400 donuts. The License also requires that we pay to
Dreesen's 50% of our net profit derived from sales of promotional materials such
as hats, t-shirts, napkins and mugs.
We anticipate deriving our revenues principally through two sources, the
sale of Start-up Kits and follow-on sales of supplies. In addition to the
Start-up Kits and mix, we will distribute promotional materials and supplies
such as napkins, paper cups, hats, mugs and t-shirts, but we are not
anticipating that this will be a source of significant revenues.
The Start-up Kits will be marketed through a variety of channels. We will
advertise directly to individuals and single-store owners through telemarketing
advertisements in trade and food magazines, newspapers and participation at
trade shows. In addition, building on our existing relationships we will contact
owners of chains of stores, such as convenience stores, department, drug and
food chains, as well as hotels.
As our revenues and activities develop, we may determine to form one or
more subsidiaries to undertake particular aspects of our business or new
projects. For example, we might form a new subsidiary to focus on the
distribution of promotional materials or, if we can expand the territory or
scope of our License Agreement with Dreesen's, we might form a new subsidiary to
deal with overseas opportunities.
27
Liquidity and Capital Resources
As of March 31, 2006, we had $697,000 in working capital.
We were initially capitalized with $75,000 contributed by the Company's
founders.
We sold an aggregate of $960,000 principal amount of the December Notes in
closings which we held from time to time between December 2005 and March 2006.
After expenses, we had net proceeds of approximately $925,000 after such sale.
We did not pay any selling commissions in connection with such offering. The
December Notes have a face amount equal to the amount of the subscriber's
investment accepted by the Company, bear interest at a rate of ten percent (10%)
per annum, compounded annually, and are payable on December 31, 2007. The
principal of and interest accrued on each December Note will be convertible at
the option of the holder into shares of the Company's Common Stock at any time
prior to payment of the December Note at a price of thirty-five cents ($.35) per
share of Common Stock, subject to adjustment upon certain events. For
participating in the offering of the December Notes, for no additional
consideration, each investor received, as of the date of the closing applicable
to such investor, a number of shares of the Company's Common Stock equal to
twenty percent (20%) of the face amount of his December Note divided by
thirty-five cents ($0.35). By way of example, if an investor acquired a December
Note in the principal face amount of $50,000, he received 28,571 shares ($10,000
divided by $0.35) of the Company's Common Stock.
If we do not generate sufficient sales, or receive additional financing,
we will not be able to repay by December 2007 any of the December Notes which
have not been converted into Common Stock.
CERTAIN RELATIONSHIPS AND RELATED STOCKHOLDER MATTERS
During our fiscal year ended March 31, 2006, we paid an aggregate of
approximately $12,000 in fees to Catherine Simmons-Gill, who is the wife of our
Chief Executive Officer, for legal services rendered to us relating to our
trademark and other legal matters.
Upon our inception in September 2005, each of Richard M. Cohen (our Chief
Executive Officer), Brad C. Burde (our Secretary and Treasurer) and The Barter
Family Trust (one of our significant shareholders) subscribed for 1,000,000
shares of our Common Stock for $0.025 per share. We issued an aggregate of
3,000,000 shares of Common Stock to such parties in September 2006 and received
the aggregate subscription price of $75,000. Of Mr. Burde's 1,000,000 shares,
800,000 shares are held in his individual name and 200,000 shares are held by
Burde Associates LLC, of which Mr. Burde is the controlling person.
In September 2005, we issued 350,000 shares of our Common Stock to Mr. Jay
Barry Richman in consideration for services. Mr. Richman beneficially owns over
5% of our outstanding Common Stock and introduced us to Dreeson's.
In September 2005, we issued 100,000 shares of our Common Stock to our
outside counsel, Eaton & Van Winkle LLP, in consideration for legal services.
One of our directors is a partner of such firm.
As of April 4, 2006, we issued 250,000 shares of our Common Stock to Sir
John Baring in connection with his agreement to serve as our Chairman.
28
As of April 4, 2006, we issued 125,000 shares of our Common Stock to
Vincent J. McGill in connection with his agreement to continue to serve on our
Board of Directors.
As of April 4, 2006, we granted stock options to purchase shares of our
Common Stock to Sir John Baring (250,000 options), Vincent J. McGill (125,000
options) and Jay Barry Richman (750,000 options). All of such options are
exercisable at $0.25 per share and expire on March 31, 2011. Mr. Baring's and
McGill's options vested in full upon grant. Mr. Richman's options vested as to
50,000 shares upon grant and will vest as to 50,000 shares as of the end of each
quarter, starting June 30, 2006 and ending on December 31, 2007, and as to
350,000 additional shares at December 31, 2007.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our Common Stock is not traded on any exchange. We plan to eventually seek
listing on the OTC Bulletin Board, once our registration statement has been
declared effective by the Commission. We cannot guarantee that we will obtain a
listing. There is no trading activity in our securities and there can be no
assurance that a regular trading market for our Common Stock will ever be
developed.
A market maker sponsoring a company's securities is required to obtain a
listing of the securities on any of the public trading markets, including the
OTC Bulletin Board. If we are unable to obtain a market maker for our
securities, we will be unable to develop a trading market for our Common Stock.
We may be unable to locate a market maker that will agree to sponsor our
securities. Even if we do locate a market maker, there is no assurance that our
securities will be able to meet the requirements for a quotation or that the
securities will be accepted for listing on the OTC Bulletin Board.
As of June 26, 2006, there were approximately 40 holders of record of our
Common Stock.
We have issued and have outstanding stock options to purchase an aggregate
of 1,250,000 shares of Common Stock. We also have outstanding the December Notes
which are in the aggregate convertible into 2,742,858 shares of Common Stock,
not counting shares which may be issuable upon conversion of interest accruing
on such December Notes. Other than such stock options and the December Notes, we
do not have outstanding any options, warrants or other securities exercisable or
convertible into shares of our capital stock.
The number of shares of our Common Stock that could be sold pursuant to
Rule 144 (once we are eligible therefore) is up to 1% of the shares which we
will have outstanding (i.e. approximately 49,000 as of June 26, 2006, not giving
effect to the direct offering) during each three (3) month period by each of our
shareholders.
29
EXECUTIVE COMPENSATION
Compensation Agreements
During our fiscal year ended March 31, 2006, the only officers who
received compensation from us were Mr. Richard Cohen and Mr. Brad Burde who each
received approximately $900 per month per month and were each provided with
health insurance costing approximately $700 per month. We expect to continue to
compensate Messrs. Cohen and Burde at these levels for the foreseeable future.
During the fiscal year ended March 31, 2006, we paid our counsel, Eaton & Van
Winkle LLP, a total of $10,000. Our Chief Executive Officer, Mr. Cohen, received
aggregate compensation from us of approximately $3,000 during the fiscal year
ended March 31, 2006. Mr. Cohen is referred to below as the "named executive
officer".
Incentive Plans
During our fiscal year ended March 31, 2006, we did not grant any options
to purchase shares of our Common Stock to our named executive officer or to
anyone else. Subsequently, our Board of Directors adopted our 2006 Stock
Incentive Plan which allows for the issuance of up to 2,000,000 shares of Common
Stock.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
During, our fiscal year ended March 31, 2006, our named executive officer
did not exercise any options to purchase shares of Common Stock. We did not have
outstanding any stock options as of March 31, 2006.
Employment Agreements.
The Company does not have employment agreements with any of its officers.
Equity Compensation Arrangements.
The following table provides information as of March 31, 2006 about our
equity compensation arrangements.
30
(c)
Number of securities
remaining available for
(a) (b) future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
Plan Category warrants and rights warrants and rights column (a))
- ---------------------------- ----------------------- -------------------- -----------------------
Equity compensation plans
approved by security holders -0- -0- -0-
- ---------------------------- ----------------------- -------------------- -----------------------
Equity compensation plans not -0- -0- -0-
approved by security holders
- ---------------------------- ----------------------- -------------------- -----------------------
Total -0- -0- -0-
============================ ======================= ==================== =======================
Subsequent to March 31, 2006, pursuant to our 2006 Stock Incentive Plan,
we issued to seven individuals options to purchase an aggregate of
1,250,000 shares of Common Stock.
Director Compensation
Directors of the Company are not compensated in cash for their services
but are reimbursed for out-of-pocket expenses incurred in furtherance of our
business.
FINANCIAL STATEMENTS
31
INDEX TO FINANCIAL STATEMENTS
Pages
I. Newtown Lane Marketing, Incorporated Audited Financial Statements
and Notes
A. Report of Independent Registered Public Accounting Firm............F-2
B. Balance Sheet......................................................F-3
C. Statement of Expenses..............................................F-4
D. Statement of Cash Flows............................................F-5
E. Statement of Changes in Shareholders' Deficit......................F-6
F. Notes to Financial Statements......................................F-7-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
(a Development Stage Company)
Newtown Lane Marketing Incorporated
East Hampton, New York
We have audited the accompanying balance sheet of Newtown Lane Marketing,
Incorporated ("the Company") (a Development Stage Company) as of March 31, 2006
and the related statements of expenses, cash flows and changes in shareholders'
deficit for the period from September 26, 2005 (inception) through March 31,
2006. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Newtown Lane Marketing
Incorporated as of March 31, 2006, and the results of its operations and its
cash flows for the period described in conformity with accounting principles
generally accepted in the United States of America.
Malone & Bailey, PC
www.malone-bailey.com
Houston, Texas
May 22, 2006
F-2
NEWTOWN LANE MARKETING, INCORPORATED
(A Development Stage Company)
BALANCE SHEET
MARCH 31, 2006
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 827,936
---------
Total current assets 827,936
TOTAL ASSETS $ 827,936
=========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 130,628
---------
Total current liabilities 130,628
LONG-TERM LIABILITIES
Convertible notes payable, net of discount 817,029
---------
TOTAL LIABILITIES 947,657
---------
SHAREHOLDERS' DEFICIT
Preferred stock, $.001 par value; 1,000,000 shares authorized, none issued --
Common stock, $.001 par value; 29,000,000 shares authorized,
4,248,584 shares issued and outstanding 4,249
Additional paid in capital 239,504
Deficit accumulated during the development stage (363,474)
---------
Total shareholders' deficit (119,721)
---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 827,936
=========
See summary of accounting policies and notes to financial statements.
F-3
NEWTOWN LANE MARKETING, INCORPORATED
(A Development Stage Company)
STATEMENT OF EXPENSES
FOR THE PERIOD FROM SEPTEMBER 26,
2005 (INCEPTION) THROUGH MARCH 31, 2006
Selling, general and administrative $ 326,077
Interest expense, net 37,397
-----------
Net loss $ (363,474)
===========
Net loss per share - basic and diluted $ (0.10)
Weighted average shares outstanding - basic and diluted 3,743,637
See summary of accounting policies and notes to financial statements.
F-4
NEWTOWN LANE MARKETING, INCORPORATED
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 26,
2005 (INCEPTION) THROUGH MARCH 31, 2006
Cash flows from operating activities:
Net loss $ (363,474)
Adjustments to reconcile net loss to net
cash used in operating activities:
Share based compensation 8,750
Amortization of debt discount 17,032
Increase in accounts payable 130,628
-----------
Net cash used in operating activities (207,064)
Net cash provided by financing activities
Proceeds from issuance of common stock 235,003
Issuance of notes payable 799,997
-----------
Net cash provided by financing activities 1,035,000
Net increase in cash and cash equivalents 827,936
Cash and cash equivalents, beginning of year --
-----------
Cash and cash equivalents, end of year $ 827,936
===========
Supplemental Disclosures:
Interest paid $ --
Income taxes paid $ --
===========
See summary of accounting policies and notes to financial statements.
F-5
NEWTOWN LANE MARKETING, INCORPORATED
(A Development Stage Company)
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE PERIOD FROM SEPTEMBER 26,
2005 (INCEPTION) THROUGH MARCH 31, 2006
Deficit
Accumulated
Common Common During the
Stock Stock Additional Development
Shares Amount Paid in Capital Stage Total
-----------------------------------------------------------------------------------------------
Founders shares issued
at inception 3,350,000 $ 3,350 $ 71,650 $ -- $ 75,000
Stock issued for
services 350,000 350 8,400 -- 8,750
Stock issued in
connection with
convertible notes 548,584 549 159,454 -- 160,003
Net income (loss) -- -- -- (363,474) (363,474)
--------- --------- --------- --------- ---------
Balances at March 31, 2006 4,248,584 $ 4,249 $ 239,504 $(363,474) $(119,721)
========= ========= ========= ========= =========
See summary of accounting policies and notes to financial statements.
F-6
Newtown Lane Marketing, Incorporated
(A Development Stage Company)
Notes to the Financial Statements
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Operations
Newtown Lane Marketing Incorporated ("the Company") was incorporated in Delaware
on September 26, 2005. The Company is based in East Hampton, New York. The
Company is in the development stage and holds the exclusive license to exploit
the Dreesen's Donut Brand in the United States with the exception of the states
of Florida and Pennsylvania, where it has non-exclusive rights, and in Suffolk
County, New York, which the licensor, Dreesen's, retained for itself. Dreesen's
is a 50 year old brand with operations in East Hampton, New York. In addition to
the flagship location, approximately 10 other retail outlets in the United
States sell Dreesen's products. The Company also maintains an office at 445 Park
Avenue in New York City.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash deposits and highly liquid
investments with original maturities of three months or less.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets, including tax loss and credit carryforwards, 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. 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. Deferred income tax expense represents the change during the
period in the deferred tax assets and deferred tax liabilities. The components
of the deferred tax assets and liabilities are individually classified as
current and non-current based on their characteristics. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized.
Basic and Diluted Income (Loss) Per Share
Basic and diluted income (loss) per share equals net income (loss) divided by
weighted average shares outstanding during the period. Diluted income (loss) per
share includes the impact of common stock equivalents using the treasury stock
method when the effect is dilutive. There were no common stock equivalents
during the period ended March 31, 2006.
F-7
New Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant effect on the Company's results of
operations, financial position or the Company's cash flow
Note 2. CONVERTIBLE NOTES PAYABLE
On December 15, 2005 the Company circulated a Private Placement Memorandum
("PPM") offering convertible notes on the following terms: each note would have
a 2 year term, a 10% interest rate payable in either cash or shares and a
conversion rate of $ 0.35 per share, and each investor would be issued upon
subscription, as an inducement to participate in the offering, a number of
shares of Common Stock equal to 20% of his or her investment. The original PPM
offered up to $500,000 in notes. Actual subscriptions received and accepted were
for $960,000. If all $960,000 of notes are converted at maturity, then including
interest and the additional shares issued upon subscription, 3,840,025, shares
will be issued.
Such additional shares of common stock issued to the investors upon their
subscription for convertible notes amounted to 548,584 shares. The relative fair
value of these shares is $160,003 and was recorded as a debt discount and as
additional paid in capital. The debt discount is being amortized over the term
of the notes payable using the effective interest method. During the period from
September 26, 2005 (inception) to March 31, 2006 a total of $17,032 was
amortized and recorded as interest expense.
Note 3. LEASE AND OTHER COMMITMENTS
The Company is subject to two real estate leases: one at 33 Newtown Lane and the
other at 445 Park Avenue. The Company's offices at 33 Newtown Lane are under
lease through November 30, 2007 with a monthly rent of $1,400. The Company's
offices at 445 Park Avenue are under lease through October 31, 2006 with a
monthly rent of $7,960. The Company does not lease any equipment and is not
subject to any employment contracts.
Future minimum payments under operating leases as of March 31, 2006 are as
follows:
---------------------------------------
Fiscal Year Minimum Lease Payments
---------------------------------------
2007 $72,500
---------------------------------------
2008 $11,200
---------------------------------------
Note 4. INCOME TAXES
The Company uses the liability method, where deferred tax assets and liabilities
are determined based on the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities for financial
and income tax reporting purposes. During fiscal 2006, the Company incurred net
losses and, therefore, has no tax liability. The net deferred tax asset
generated by the loss carry-forward has been fully reserved. The cumulative net
operating loss carry-forward is approximately $363,000 at March 31, 2006, and
will expire in the year 2026.
At March 31, 2006, deferred tax assets consisted of the following:
F-8
Deferred tax assets $ 127,216
Less: valuation allowance (127,216)
---------
Net deferred tax asset $ --
=========
Note 5. SUBSEQUENT EVENTS
On April 4, 2006 the Company issued 600,000 shares and options to purchase a
total of 1,250,000 shares of common stock to two employees, two directors and
selected consultants.
The options on the shares vest according to set schedules. Of the 1,250,000
options issued, 375,000 options vested immediately upon grant. These options are
exercisable at a strike price of $0.25 per share and expire on March 31, 2011.
Of the 1,250,000 options issued, 400,000 options vest quarterly over 2 years
with the initial traunch vesting on April 4, 2006; and 350,000 options vest on
December 31, 2007. These options are exercisable at a strike price of $0.25 per
share and expire on March 31, 2011.
Of the 1,250,000 options issued, 50,000 options vest quarterly over 1 year with
the initial traunch vesting on April 4, 2006; and 75,000 options vest quarterly
over 1 year with the initial traunch vesting on June 30, 2006. These options are
exercisable at a strike price of $0.35 per share and expire on March 31, 2011.
F-9
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification Of Directors And Officers
Pursuant to Article Sixth of our Amended and Restated Certificate of
Incorporation, we have agreed to indemnify our officers, directors, employees
and agents to the fullest extent permitted by the laws of the State of Delaware,
as amended from time to time.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to Directors, Officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the opinion
of the SEC, such indemnification is against public policy as expressed in the
Securities Act and is, therefore unenforceable.
Item 25. Other Expenses Of Issuance And Distribution
Our expenses in connection with the issuance and distribution of the
securities being registered, other than the underwriting discount, are estimated
as follows:
SEC Registration Fee $ 100
Legal Fees and Expenses $15,000
Accountants' Fees and Expenses $14,000
Miscellaneous Expenses $ 900
Total $30,000
Item 26. Recent Sales Of Unregistered Securities
We were initially capitalized with $75,000 contributed by the Company's
founders.
We sold an aggregate of $960,000 principal amount of the December Notes in
closings which we held from time to time between December 2005 and March 2006.
The December Notes have a face amount equal to the amount of the subscriber's
investment accepted by the Company, bear interest at a rate of ten percent (10%)
per annum, compounded annually, and are payable on December 31, 2007. The
principal of and interest accrued on each December Note will be convertible at
the option of the holder into shares of the Company's Common Stock at any time
prior to payment of the December Note at a price of thirty-five cents ($.35) per
share of Common Stock, subject to adjustment upon certain events. For
participating in the offering of the December Notes, for no additional
consideration, each investor received at closing, a number of shares of the
Company's Common Stock equal to twenty percent (20%) of the face amount of his
December Note divided by thirty-five cents ($0.35). By way of example, if an
investor acquired a December Note in the principal face amount of $50,000, he
received 28,571 shares ($10,000 divided by $0.35) of the Company's Common Stock.
We did not pay any selling commissions in connection with this offering.
Upon our inception in September 2005, each of Richard M. Cohen (our Chief
Executive Officer), Brad C. Burde (our Secretary and Treasurer) and The Barter
Family Trust (whose controlling person is Scott Barter) subscribed for 1,000,000
shares of our Common Stock for $0.025 per share. We issued an aggregate of
3,000,000 shares of Common Stock to such parties in September 2006 and received
II-1
the aggregate subscription price of $75,000. Of Mr. Burde is 1,000,000 shares,
800,000 shares are held by him and 200,000 shares are held by Burde Associates
LLC, of which Mr. Burde is the controlling person.
In September 2005, we issued 350,000 shares of our Common Stock to Mr. Jay
Barry Richman in consideration for services.
In September 2005, we issued 250,000 shares of our Common Stock to Mr.
Alan Gaines in consideration for services.
In September 2005, we issued 100,000 shares of our Common Stock to Eaton &
Van Winkle LLP in consideration for legal services.
As of April 4, 2006, we granted an aggregate of 600,000 shares of our
Common Stock to six individuals in consideration for services (John
Baring-250,000 shares, Vincent J. McGill-125,000 shares, Don Cunningham-50,000
shares, Wayne Brannan-100,000 shares, John Vincenzo-50,000 shares and Sean
Driscoll-25,000 shares).
As of April 4, 2006, we issued stock options to purchase an aggregate of
1,250,000 shares of our Common Stock to seven individuals (Jay Barry
Richman-750,000 options, John Baring-250,000 options, Vincent J. McGill-125,000
options, Don Cunningham-50,000 options, Sean Driscoll-25,000 options, Lynn
Blumenfeld-25,000 options, and Jill Fleming-25,000 options). Each of the stock
options expires as of March 31, 2011. The stock options held by Messrs. Richman,
Baring and McGill are exercisable at $0.25 per share and the stock options held
by Cunningham, Driscoll, Blumenfeld and Fleming are exercisable at $0.35 per
share. Mr. Baring's and Mr. McGill's options vested in full upon grant. Mr.
Richman's options vested as to 50,000 shares upon grant and will vest as to
50,000 shares as of the end of each quarter, starting June 30, 2006 and ending
December 31, 2007, and as to 350,000 additional shares at December 31, 2007.
With respect to the stock options granted to each of Don Cunningham, Sean
Driscoll, Lynn Blumenfeld and Jill Fleming , 25% of the shares underlying the
options vested as of the date of grant and 25% of the shares will vest on each
of June 30, 2006, September 30, 2006 and December 31, 2006.
We believe that all of the issuances of our securities described above in
this item were exempt from registration under Section 4(2) of the Securities
Act.
Item 27. Exhibits
Exhibit Nos.
- ------------
1.1* Form of Placement Agency Agreement between the Registrant and Public
Securities, Inc.
3.1* Amended and Restated Certificate of Incorporation
3.2* By-laws
4.1* Form of 10% Convertible Promissory Note.
4.2* Form of Placement Agent Warrant.
5.1* Opinion of Eaton & Van Winkle LLP.
10.1* License Agreement, dated November 21, 2005, between the Registrant
and Dreeson's Enterprises, Inc.
10.2* Form of Stock Option Agreement between the Registrant and Jay Barry
Richman.
10.3* Form of Stock Option Agreement between Registrant and John Baring.
10.4* Form of Stock Option Agreement between Registrant and Vincent J.
McGill.
10.5* 2006 Stock Incentive Plan.
23.1* Consent of Counsel (contained in the opinion annexed as Exhibit 5.1).
23.2* Consent of Malone & Bailey, PC.
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Numbers with (*) are filed herewith.
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:
i. To include any prospectus required by Section 10(a)(3) of the Securities Act;
ii. 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;
iii. 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.
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 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective 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.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer 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 small business issuer 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.
Each prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no statement made
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in a registration statement or prospectus that is a part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of New York, State of New York on June 30, 2006.
NEWTOWN LANE MARKETING, INCORPORATED
By: /s/ Richard M. Cohen
---------------------------
Richard M. Cohen,
Chief Executive Officer
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In accordance with the Securities Act of 1933, as amended, this registration
statement has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Capacities Date
/s/ Richard M. Cohen Chief Executive Officer June 30, 2006
- --------------------- and Director (principal
Richard M. Cohen executive, financial and
accounting officer)
/s/ Vincent J. McGill Director June 30, 2006
- ---------------------
Vincent J. McGill
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NEWTOWN LANE MARKETING, INCORPORATED
INDEX OF EXHIBITS FILED WITH REGISTRATION STATEMENT
Exhibit Nos.
- ------------
1.1* Form of Placement Agency Agreement between the Registrant and Public
Securities, Inc.
3.1* Amended and Restated Certificate of Incorporation
3.2* By-laws
4.1* Form of 10% Convertible Promissory Note.
4.2* Form of Placement Agent Warrant.
5.1* Opinion of Eaton & Van Winkle LLP.
10.1* License Agreement, dated November 21, 2005, between the Registrant
and Dreeson's Enterprises, Inc.
10.2* Form of Stock Option Agreement between the Registrant and Jay Barry
Richman.
10.3* Form of Stock Option Agreement between Registrant and John Baring.
10.4* Form of Stock Option Agreement between Registrant and Vincent J.
McGill.
10.5* 2006 Stock Incentive Plan.
23.1* Consent of Counsel (contained in the opinion annexed as Exhibit 5.1).
23.2* Consent of Malone & Bailey, PC.
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