UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 14, 2006
SIMPLAGENE USA, INC.
(Exact Name of Registrant as Specified in Charter)
NEVADA 333-100110 01-0741042
(State or Other (Commission (IRS Employer
Jurisdiction of Incorporation) File Number) Identification No.)
500 BI-COUNTY BOULEVARD, SUITE 400, FARMINGDALE, NY 11735
(Address of Principal Executive Offices (Zip Code)
(631) 694-1111
(Registrant's telephone number, including area code)
11900 WAYZATA BLVD., SUITE 100, HOPKINS, MN 55305
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (See General Instruction A.2.below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
ITEM 1.01. ENTRY IN A MATERIAL DEFINITIVE AGREEMENT.
Reference is made to Item 2.01 for a description of the Merger Agreement,
the Stock Purchase Agreement, the Escrow Agreement and the Registration Rights
Agreement, all entered into on July 14, 2006 and related to the reverse
acquisition of SimplaGene USA, Inc. (the "Registrant").
Reference is made to Item 3.02 for a description of the Subscription
Agreement, Convertible Debentures, Warrants, Registration Rights Agreement and
Security Agreement, all entered into on July 14, 2006 and related to a private
placement of securities of the Registrant.
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
Pursuant to an Agreement and Plan of Reorganization, dated July 14, 2006
(the "Merger Agreement"), among the Registrant, SMPG Merco Co., Inc., a Delaware
corporation and a wholly owned subsidiary of the Registrant ("Merco"), New
Colorado Prime Holdings, Inc., a privately owned Delaware corporation ("NCPH"),
and Craig Laughlin ("Laughlin"), on July 14, 2006 (the "Closing Date"), the
Registrant acquired, through a merger (the "Merger") of Merco with and into
NCPH, all of the issued and outstanding capital stock, of NCPH (the "NCPH
Capital Stock"). In exchange for all of the NCPH Capital Stock, and taking
account of the stock purchase with Laughlin described below, the former NCPH
shareholders and NCPH's financial advisor have acquired approximately 93.5% of
the issued and outstanding shares of common stock, par value $0.001 per share
(the "SMPG Capital Stock"), of the Registrant. This transaction may be deemed to
have resulted in a change in control of Laughlin to the former shareholders of
NCPH. In connection with the change of control, Paul A. Roman, Chairman of the
Board and Chief Executive Officer of NCPH, became Chairman of the Board and
Chief Executive Officer of the Registrant, Thomas McNeill, Vice President, Chief
Financial Officer and a director of the NCPH, became Vice President, Chief
Financial Officer and a director of the Registrant, and Richard Gray, a director
of NCPH, became a director of the Registrant. Laughlin, formerly the sole
officer and director of the Registrant, resigned from these positions at the
time the transaction was consummated. Laughlin was the majority stockholder of
the Registrant immediately prior to the Closing Date.
On the Closing Date, NCPH and Laughlin entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement") pursuant to which Laughlin sold
999,300 shares of SMPG Common Stock to NCPH in consideration of a cash payment
of $449,042. On the Closing Date, NCPH surrendered the shares to the Registrant
for cancellation. Accordingly, on the Closing Date, the Registrant issued
25,799,141 shares of the SMPG Common Stock in exchange for all of the issued and
outstanding securities of NCPH. In addition, an additional 2,250,000 shares of
SMPG Common Stock were issued to Crusader Securities, LLC, NCPH's financial
advisor. Immediately after closing, the Registrant had 50,000,000 shares of
SMPG Common Stock authorized and approximately 30,000,000 shares of the SMPG
Common Stock issued and outstanding. Immediately following the closing, the
former shareholders of the Registrant held 1,950,700, or 6.5%, of the issued and
outstanding SMPG Common Stock.
Pursuant to the Merger Agreement, Laughlin agreed to indemnify and hold
harmless after the Closing Date, up to a maximum amount of $160,000, NCPH and
the Registrant from and against any and all losses that result from inaccuracies
or breach or non-performance of the representations, warranties, covenants or
agreements made by the Registrant, Merco and/or Laughlin in or pursuant to the
Merger Agreement. Pursuant to the Merger Agreement and an Escrow Agreement,
dated as of the Closing Date, among the Registrant, NCPH, Laughlin and an escrow
agent (the "Escrow Agreement"), Laughlin placed in escrow for the benefit of
NCPH and the Registrant after the Closing date, 900,000 shares of SMPG Common
Stock, representing all of the remaining shares of SMPG Common Stock owned by
him, as collateral for the payment of any indemnification obligation on the part
of Laughlin arising under the Merger Agreement. In further consideration of the
transaction contemplated by the Stock Purchase Agreement, on the Closing Date,
the Registrant and Laughlin entered into a Registration Rights Agreement (the
"Registration Rights Agreement") pursuant to which the Registrant granted to
Laughlin certain "piggy-back" registration rights with respect to the shares of
SMPG Common Stock owned by him.
The foregoing descriptions of the Merger Agreement, the Stock Purchase
Agreement, the Escrow Agreement and the Registration Rights Agreement and the
transactions contemplated thereby are subject to the more detailed provisions
set forth in each of the agreements, which are attached hereto as Exhibits 2.1,
10.1, 10.2 and 10.3, respectively, and which are incorporated herein by
reference.
Information in response to this Item 2.01 below is keyed to the Item
numbers of Form 10-SB.
PART I.
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
Prior to the Merger, the Registrant was a public "shell" company with nominal
assets whose sole business had been to identify, evaluate and investigate
various companies with the intent that, if such investigation warranted, a
reverse acquisition transaction be negotiated and completed pursuant to which
the Registrant would acquire a target company with an operating business with
the intent of continuing the acquired company's business as a publicly held
entity. In 2004, prior to becoming a shell company, the Registrant discontinued
its operations which related to the marketing of hepatitis B virus genetic data.
A summary of the business of NCPH is described in below. As used herein, unless
the context otherwise requires, "NCPH" refers to the Delaware company having the
legal name, "New Colorado Prime Holding, Inc." and its subsidiaries and the
"Company" (and "we", "our" and similar expressions) refer to the business of
NCPH and its subsidiaries before the Merger and the Registrant after the Merger,
as applicable, and the "Registrant" refers to SimplaGene USA, Inc.
GENERAL
NCPH has been recognized as a leader in the Home Meal Replacement market
for consumers nationwide. We are a leading multi-channel direct to consumer
retailer of branded, prepared, premium quality frozen proteins (such as beef,
chicken, pork and fish), meals, soups, appetizers and deserts. We market through
multiple channels, including direct mail, catalog, print, public relations,
e-retailing and through our inbound, outbound call center.
NCPH is a Delaware corporation established in 2001. The Company owns 100%
of Colorado Prime Corporation, a company originally established in 1959 to
provide in-home "restaurant quality" beef shopping services throughout the
United States. Prior to its reorganization in 2003, NCPH had a direct sales
force in approximately 33 states with 55 offices. Due to a rapid
over-expansion of the core business and other non-core business activities, the
Company experienced financial difficulties leading to a strategic reorganization
in 2003. To generate cash to fund its operations and to repay its then
principal lenders, the Company sold its accounts receivable at a significant
discount. In addition, the Company restructured its operations and closed down
its direct to consumer sales and telemarketing operations which included closing
all offices outside of its corporate office, and all distribution routes. The
Company terminated approximately 930 employees nationally. These actions
allowed the Company to satisfy all its outstanding obligations under its
then-existing credit facility.
Under its new business model, the Company no longer participates in the
collection of its accounts receivable, a function that remains outsourced to
Shoppers Charge Accounts Co., a division of TD Banknorth. In addition the
Company can receive customer payments by use of any major credit card. Over the
last two years, the Company has (i) returned to its core competency of providing
a quality, value-added product, (ii) restructured its operating business to
improve cash flow by emphasizing expense control, eliminating overhead, closing
offices, and exiting non-core businesses, and (iii) re-established and expanded
its marketing channels.
To capitalize on changing consumer lifestyles and trends, the Company
recognized a market opportunity to reposition its business through a prepared
meals product offering that would satisfy the increasing demands of a time
constrained population. As a result, during 2005 the DineWise brand was
created to serve this market by attracting new customers through multi-channel
media which includes catalogues, e-commerce and strategic alliances, as well as
existing customer referrals. DineWise is a direct-to-consumer gourmet home
meal replacement provider. DineWise targets lifestyle profiles, i.e. busy moms,
singles, retirees, seniors, and working couples, as well as health profiles
including diabetic, heart smart, low carbohydrate, low calorie, and weight loss.
The Company has positioned its DineWise brand as the solution for
time-constrained but discerning consumers focused on satisfying every member of
the family by offering a broad array of the highest quality meal planning,
delivery, and preparation services. Products are customized meal solutions,
delivered fresh-frozen directly to the home. Using the efficiency, exposure and
reach of the Internet and other direct marketing channels, DineWise capitalizes
on consumers' emerging need for convenient, simple, customized solutions for
home meal planning and preparation that satisfies the consumers' health and
lifestyle needs in three (3) market segments:
- - HOME MEAL REPLACEMENT ("HMR"), which includes ready-to-eat,
ready-to-heat, or ready-to-assemble hot or cold meals or entrees.
- - DIRECT-TO-CONSUMER ("DTC") FOODS, which includes all direct-mail
catalogs and online shopping.
- - DTC DIET AND HEALTH COMPLIANT FOODS MARKET, which includes branded
product programs and branded compliant products.
The Company has identified the diet market as an opportunity to mirror its
premium frozen prepared meals and its meal planning services. Trained
nutritional consultants are available to answer questions, custom design, and
recommend a meal plan to help each customer achieve their individualized or
family taste preferences. Our website, www.dinewise.com, provides customers the
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flexibility of ordering products 24 hours a day, seven days a week. Customers
can either choose from our gourmet prepared food meals in pre-set packages
ranging from $199 - $499, or customize their orders to their own particular
preferences. We ship orders directly to our customers in 48 states through our
contracted third-party fulfillment providers.
We are also a direct marketer of gourmet prime cut proteins such as filet
mignon, rack of lamb, rib roast, chicken cordon bleu, jumbo shrimp, tuna steaks
and lobster tails. Our products are flash frozen in waste free, safe, and
portion controlled packaging. We also offer hors d'oeuvres, desserts and other
complimentary items, such as our "kitchen indispensable" housewares line. We
have grown our offerings from just beef to an assortment of approximately 125
prime cut proteins, 225 assorted vegetables, soups, appetizers, desserts and
other meals accents. In addition, with our new branded proprietary DineWise
product line, we have expanded our offerings to include approximately 100
gourmet prepared meals and meal compliments, with approximately 2,000 various
meal combinations.
PRODUCTS
Our assortment of approximately 125 prime cut proteins such as filet
mignon, rack of lamb, rib roast, chicken cordon bleu, jumbo shrimp, tuna steaks
and lobster tails, and 225 assortments of vegetables, soups, appetizers,
desserts and other meals accents is complimented by our new branded proprietary
DineWise product line that offers approximately 100 gourmet prepared meals and
meal compliments, with approximately 2,000 meal combinations. With our unique
Mix & Match customized meal builder software, DineWise provides its customers
more choice than other online food sites in our marketing space. DineWise
products include:
PREPARED MEALS
CHEF SELECTIONS
Chef Dana McCauley was engaged to craft a selection of
complete meals, ensuring that each entre is perfectly balanced for
peak flavor. Examples include:
- Herbed Salmon w/Butternut Squash & Broccoli & Red Peppers
- Beef Top Blade w/Roasted Potatoes & Asparagus
- Rack of Lamb w/Red Skin Mashed Potatoes & Snap Peas & Carrots
- Stuffed Cajun Pork Chop w/Apple Pecan Stuffing & Baby Carrots
EXPRESS MEALS
Chef-prepared Express Meals are complete meals individually
packaged in microwave containers. The traditional "comfort food" menu
is children-friendly and they have been very popular as office
lunches.
MINUTE PASTA
Minute Pastas have the sauce baked into the fiber of each
individual piece of pasta.
FAMILY STYLE
The chef-prepared entr es, sides, and vegetables are
available in convenient, single serving quantities of four. These same
entr es, sides, and vegetables are available as Mix & Match/ a la
carte offerings.
MEAL ACCENTS
APPETIZERS/ SOUPS
Such as:
- Mini Chicken Wellingtons
- Spanikopita
- Crab Cakes, Maryland Style
- Cream of Asparagus with Lobster
GOURMET DESSERTS
Such as:
- Chocolate Truffle Lava Cake
- Single Serving Margarita Cheesecake
MEAL SOLUTIONS
MEAL PLANS
$199 Combo Plan - 21 Meals
$199 Mix-n-Match Plan - 16 Meals
$299 Value Plan - 38 Meals
$299 Favorites Plan - 32 Meals
$299 Gourmet Plan - 24 Meals
$399 Value Plan - 52 Meals
$399 Favorites Plan - 44 Meals
$399 Gourmet Plan - 32 Meals
$499 Combo Plan - 60 Meals
$499 Mix-n-Match Plan - 52 Meals
NUTRITIONAL FOODS
DIET MIX & MATCH
The Company offers foods that meet the qualifications for
diabetic and other nutrient specific needs such as low fat, low carb,
or low calorie. These items are available on an ala carte basis.
DIET FRIENDLY
Using the same offerings as the Diet Mix & Match offer,
DineWise also offers meal plans based on 1,300-1,500, 1,600-1,900, and
2,000-2,300 Calories. Qualitative information/links include daily
nutritional needs calculators as well as access to a registered
dietician consultation.
HOUSEWARES KITCHEN INDISPENSABLES
The Company offers their "kitchen indispensables", a
high-end (SRP) complimentary houseware line. The Company used a model
similar to the Hammacher Schlemmer Institute in which a group of
trend-setting consumer peers have chosen the most innovative
housewares centered on convenience and food preparation. The
housewares category affords DineWise the opportunity to expand its
online advertising and to create more web traffic to its site.
FREEZERS
To facilitate product purchasing, the Company offers
freezers in three sizes: five cubic feet (5 ft3), fourteen cubic feet
(14 ft3), or twenty one cubic feet (21 ft3) through its national
service relationship with Sears.
GIFTS & GIFT CERTIFICATES
Gift certificates or any of the above items can be sent as
gifts for weddings, bridal showers, baby showers, new parents,
corporate occasions, newlyweds, single moms/dads, or to college
students.
PRODUCT DEVELOPMENT
In addition to an advisory board consisting of two executive chefs, a
nutritionist and a registered dietician, DineWise leverages the expertise of
leading third party food developers with proven commercial success. These
relationships support the ongoing development of nutritionally correct products
that meet the ongoing dieting and healthy eating needs of the consumer, as well
as high quality gourmet and fine dining products. Areas of future product
development include organic and ethnic food offerings. All of our foods are
evaluated for nutrition and compliance with our programs, using taste test
panels. We continually evaluate the latest technologies in microwave packaging
and the improvements in taste and preparation are constantly being monitored.
Further, we engage consulting firms and work directly with packaging vendors to
evaluate and test the latest developments. We are working with the latest
functional food and ingredients that replace fat, salt and improve the
nutritional value of our food and are evaluating a wide range of new products
world-wide for import, private label or exclusive distribution.
DISTRIBUTION METHODS
Consumers can place orders twenty four (24) hours a day, seven (7) days a
week, via a toll-free call or the Internet, and charge their orders to any major
credit card, or with a Company-offered credit program. The Company's outsourced
supply and fulfillment vendors ship directly to the consumer's home (or other
designated shipping address) within 48 states from their state-of-the-art
fulfillment centers. Coolers are shipped with dry ice to insure that contents
arrive frozen at the customer's convenience, and provide attractive, branded,
private label express delivery to the consumer's home within two-to-three days
of placing their order.
GROWTH STRATEGY
Our strategy for DineWise is to become the leading direct-to-consumer
provider of upscale home meal replacement solutions by delivering superior
customer satisfaction in terms of taste, nutritional content, variety and
convenience, while significantly reducing customer acquisition costs and
generating attractive profit margins. Initiatives to accomplish this objective
center on the Company's core competencies of customer shopping convenience, meal
planning, sourcing gourmet food products, home delivery of perishables foods,
and high reorder customer satisfaction trends. Further, the Company intends to
expedite this organic growth through potential acquisitions of companies with
strategic products, distribution channels, internet reach, or prepared product
manufacturers.
Using the efficiency, exposure and reach of the Internet and other proven
direct marketing channels, the Company will strive to capitalize on consumers'
growing need for convenient, customized solutions that satisfies their health
and lifestyle needs in three market segments:
- - HOME MEAL REPLACEMENT ("HMR"), which includes ready-to-eat,
ready-to-heat, or ready-to-assemble hot or cold meals or entrees.
- - DIRECT-TO-CONSUMER ("DTC") FOODS, which includes all direct-mail
catalogs and online shopping.
- - DTC DIET AND HEALTH COMPLIANT FOODS MARKET, which includes branded
product programs and branded compliant products, sold through various
channels of distribution.
To address the growth opportunities in these three market segments, the
Company has positioned its brand, DineWise , as the solution for
time-constrained but discerning consumers focused on satisfying every member of
the family by offering a broad array of the highest quality prepared meals,
along with value added services like meal planning, one stop shopping and
preparation services, as well as nutritional consultation. Products are
customized meal solutions, delivered fresh-frozen directly to the home. Along
with the tag line of "rethink meals", DineWise communicates the Company's broad
offering and brand positioning, and speaks to the markets the Company has
targeted.
The future growth of DineWise is expected to be generated from more
effective customer acquisition, retention, and use of prospect databases. The
Company expects to generate new revenue streams by providing several channels to
purchase products without a large purchase commitment. The Company's marketing
objective is to appreciably increase its user base, while significantly reducing
customer acquisition costs generating attractive profit margins.
The Company has identified a gap in the diet market and believes premium,
fully prepared, fresh frozen foods will be a competitive advantage. Trained
nutritional consultants are available to answer questions, custom design, and
recommend a meal plan to help each customer achieve their individualized or
family taste preferences. We expect to launch a weight management system in the
first half of 2007. The DineWise Diet Plan will be based on portion-
controlled, premium prepared frozen meals. Our plan will consist of complete
prepared meals and prepared a la carte portions that are designed to be low
calorie, low fat, contain complex carbohydrates and low sodium. The customer
will be able to choose one of our pre-set food packages or customize their
monthly order. To promote our brand, we expect to market our weight management
system through multiple media channels, which may include television, print,
direct mail, internet and public relations.
Other areas of growth may include gifting, both personal and business to
business, corporate wellness plans and expanded product lines to include
organic, vegetarian, ethnic, kids, babies, party plans and seniors market with a
value priced variety of monthly plans.
MARKETS
U.S. consumers spend $1 trillion per year on food consumption (according to
the U.S. Bureau of Statistics) and are increasingly seeking fresh, quick,
convenient and healthy ways to prepare meals at home as a result of heightened
concern over personal wellness. Providers of fresh prepared foods (from
supermarkets and restaurants) respond to this need by providing nutritious
products that require reduced meal preparation time. A study by the NPD Group, a
provider of global sales and marketing data, found that 70% of consumers do not
plan dinner until dinnertime, causing more people to choose convenient meal
solutions. Our long-term product development and marketing plans are based on
our thesis that over time individuals are becoming more aware of the negative
health and financial consequences of being overweight and, therefore, will focus
not only on weight loss but also on healthy weight maintenance.
The Company has a multi-channel reach with few demographic restrictions,
currently marketing in 48 contiguous U.S. states.
Currently, DineWise targets the high end of the HMR / DTC food market.
This "mass affluent" group includes twenty three million households with incomes
of $75,000 or more. Fast food chains serve the "mass-market" segment of HMR,
e.g., Subway.
The Company's primary targets are (i) dual income families with children
(ii) professional females, (iii) time-starved couples and individuals who
appreciate fine cuisine, and (iv) those seeking quick, easy, quality foods and
prepared meals. DineWise also targets niche markets such as (i) diabetics and
their families, (ii) health conscious, and (iii) branded diet followers. A
secondary target is gifting-both personal and corporate which is a natural
extension of the Company's focus.
Targeted consumers represent a proven market for home meal replacement and
direct-to-consumer marketing as they (i) value convenience and variety, (ii) are
concerned with portion size, (iii) have a high interest in caloric and
nutritional content, (iv) and represent a significant portion of the population
with the purchasing power to provide a strong volume base for DineWise . These
targeted groups, which includes single urban professionals, empty nesters, and
caregivers to the elderly, can readily access DineWise products through
convenient online or offline access.
SALES & MARKETING
2005 was focused on investing in the DineWise brand and beta testing,
while 2006 is about refining the brand, products, and customer base creation and
retention. The Company has initial plans to partner with circulation and content
rich partners on a variable cost basis, helping control expenses. Along with
this business development relationship or "storefront", the Company has
additionally initiated both on and offline traditional media and promotional
strategies.
- - ONLINE ADVERTISING - The Company's online advertising strategy
includes the use of keyword search terms, email newsletters and target
emails primarily to its own or partners' email database. The Company
also places online banner advertising through affiliate programs that
compensate advertisers on a cost-per-customer acquired basis.
- - OFFLINE ADVERTISING - Offline advertising is used to encourage
qualified customers to either call a certified nutritionist or access
the Company's website increasing online or telephone availability
awareness. The Company expects to reach its target audience through a
combination of direct response television, home shopping, print and
catalog requests, as well as "ride along" supplemental advertising.
Our in-house call centers enable us to retain greater control of the
quality, timeliness and cost of fulfilling product orders over other marketers
who outsource fulfillment services to unrelated contractors. Through our
toll-free numbers, customers place orders, request catalogs or make merchandise
and order inquiries. Customers generally have access to real-time product
availability information and are able to select a desired receipt date at the
time of order. Our experienced customer service representatives are an integral
part of our business. We hire, train and retain customer-friendly customer
service agents to answer telephone and email inquiries, to offer online customer
service and to provide prompt attention and helpful information in response to
our customers' inquiries. Our representatives are knowledgeable about our
products and are encouraged to upsell with their sales skills.
We have initiated a cross marketing campaign to approximately 18,000 of our
existing Colorado Prime Foods customers with our new branded DineWise product
line. And as new DineWise customers are attained, we will also be able to
offer the wide array of Colorado Prime Foods products as well. Given the
Company's wide customer base and direct to consumer reach, it has no financial
reliance on any one customer.
SUPPLIERS
Currently, the Company's order fulfillment is handled by two contracted
outsourced providers. In order to meet our high quality standards for product
creation and development, current fulfillment providers are directed to purchase
from approximately 85 vendors. They, then assemble, pick, pack, and fulfill
orders for final delivery by FedEx ground or air from orders that are received
online, by phone or mail, and digitally transmitted through the Company's order
fulfillment software.
COMPETITION
In the Direct To Consumer/ Home Meal Replacement market for lifestyle meals
and plans our competition is limited to a few small competitors and expansion by
some larger companies such as Omaha Steaks and Schwanns, which have
significantly greater financial, technical, sales and marketing resources than
the Company. We believe, however, there is no company that offers the breadth,
depth and customization of products and services that we do for both the DTC/HMR
and diet markets.
In the DTC weight loss food product market the competition is limited to a
few small companies, as well as Jenny Craig, e-Diets, NutriSystem and Zone Chef.
We believe our competitive advantage is a superior consumer value
proposition that is inclusive of both premium, non-dietary products, as well as
premium diet / healthy offerings. Our customers may choose from a large
selection of fresh frozen meals and meal components that allow them to dine
without the pressure of refrigerated shelf life exposure. The Company's premium
offering is a higher quality than usually found competitively. We also believe
our competitive strength is customization based on individual or family
requirements and preferences, along with portion-control that adds to an
excellent customer value proposition.
Our core competencies include:
- - QUALITY - DineWise offers gourmet, restaurant-quality meals to the
individual or family. Working with product development specialists
Dana McCauley & Associates, a nutritionist and registered dietician,
DineWise is continually developing nutritionally sound products that
meet the ongoing dieting and healthy eating needs of the consumer.
- - CHOICE - The Company offers over 2,000 gourmet meal combinations
through its unique mix-and-match automated ordering system. In
addition to these meal plans, the Company offers premium desserts,
appetizers and soups, giving the Company the ability to market to
singles, busy couples with children, seniors, diabetics, as well as
diet conscious consumers.
- - CONVENIENCE - Phone, Internet, live chat, catalogue, person-to-person,
whichever venue a customer prefers, is available to place an order.
Once delivered, the fresh frozen aspect of the program allows the
consumer to eat the food when they want, they do not have to worry
about spoilage and the entrees are always at their peak freshness.
- - SAFETY - As food safety is always important, DineWise products are
sourced from a "food chain insured" supervisory umbrella of all agency
protocols. All products are flash frozen products to maintain their
flavor, vitamins and overall color and consistency. Flash freezing
provides for a longer shelf life and is generally viewed as a superior
process versus traditional freezing techniques.
Based upon the above factors, we believe we can compete effectively in the
DTC/HMR and diet markets. We, however, have no control over how successful
competitors will be in addressing these factors.
EMPLOYEES
As of June 16, 2006, the Company has 36 employees; 19 in sales and
marketing, 4 in customer service, 11 in finance, administration, information
systems and operations, and 2 executive officers. None of our employees are
represented by a labor union, and we consider relations with our employees to be
good.
RISK FACTORS
An investment in our securities involves a high degree of risk. In
determining whether to purchase our securities, you should carefully consider
all of the material risks described below, together with the other information
contained in this filing before making a decision to purchase our securities.
You should only purchase our securities if you can afford to suffer the loss of
your entire investment.
RISKS RELATED TO THE DUTCHESS AGREEMENTS
On July 14, 2006, we entered into agreements with Dutchess Equities Fund,
LP and Dutchess Private Equities Fund, II, LP (collectively, the "Investors")
pursuant to which we issued convertible debentures and warrants to Dutchess as
more fully described in Item 3.02. The Dutchess agreements may result in
substantial dilution to our shareholders and significant declines in the price
of our common stock, due to, among other things, the inclusion of non-fixed
pricing provisions in the financing agreements. In addition, such agreements
require us to file a registration statement to cover the resale of the shares of
common stock underlying the debentures and warrants, set forth time deadlines
for the initial filing, responding to the SEC comments and becoming effective,
and provide significant penalties for failing to meet the time deadlines.
- - In the event that the Investors sell shares of our common stock
underlying the debentures and warrants, the price of our stock could
decrease. If our stock price decreases, the Investors may have a
further incentive to sell the shares of our common stock that they
hold. Such sales of common stock could cause the market price of our
common stock to decline significantly.
- - The issuance of shares of our common stock upon conversion of the
debentures or exercise of the warrants will result in the dilution to
the interests of other holders of our common stock. The conversion
price of the debentures is based upon a discount to the future market
price of our stock at various times up, and until, time of conversion.
Given the variability and potential volatility of this non-fixed price
formula, this can result in:
- - A very substantial dilution to existing shareholders
- - The need to increase our authorized shares outstanding, which is
subject to shareholder approval. If shareholder approval is not
received, substantial penalties could be incurred inclusive of cash
penalties.
- - There are various potential liquidated damages payable by us to the
Investors which include lowering the future conversion prices of the
debentures, increasing the principal amount outstanding and other cash
liquidated damages as a result our performance under the agreements,
including the following:
- - Not filing the registration statement timely
- - Not responding to SEC comments on a timely basis or causing the
registration statement to be declared effective on a timely basis by
the SEC
- - Not having enough shares registered
- - Not filing timely reports with the SEC
We can not offer any guaranties that the registration statement for the
Investors' shares will be declared effective, the timing of being declared
effective, and any resulting liquidated damages or events of default that this
may cause under the agreements, which may result in cash payments or a
substantial dilution of the your shares of our common stock. In view of this
type of transaction (reverse merger into a public shell with non-fixed price
formula financing and high potential ownership by the Investors), we are likely
to have a very difficult time getting a registration statement through the SEC
commenting process.
There is no assurance that we will have the funds to pay principal
and interest, if payable in cash, or cash penalties.
RISKS ASSOCIATED WITH INVESTING IN OUR COMPANY
Our business, operations and financial condition are subject to various
risks. Some of these risks are described below and you should take these risks
into account in making a decision to invest in our common stock. This section
does not describe all risks associated with us, our industry or our business,
and it is intended only as a summary of the material risk factors. If any of the
following risks actually occurs, we may not be able to conduct our business as
currently planned and our financial condition and operating results could be
seriously harmed. In that case, the market price of our common stock could
decline, and you could lose all or part of your investment in our common stock.
OUR FINANCIAL RESULTS HAVE WORSENED OVER THE PAST SEVERAL YEARS AND THERE IS NO
ASSURANCE THAT OUR NEW STRATEGY WILL BE SUCCESSFUL.
Over the last three years, our revenues have decreased from $39,964,000 in
2003, to $20,743,000 in 2004 and to $14,880,000 in 2005. For the first quarter
of 2006, our revenues were $2,828,000 as compared to $4,001,000 in the
comparable quarter in 2005. Although we were profitable, prior to allocation to
preferred holders, in 2003, 2004 and 2005, for the first quarter of 2006 we
suffered a loss of $232,000 ($1,425,000 net loss available to common stock). At
March 31, 2006, we had a working capital deficit of $1,051,000 and a
stockholders' deficit of $906,000. In 2003 we effectuated a restructuring, as
described in "Description of Business" above in this Item 2.01, pursuant to
which we significantly curtailed operations. As a result of the curtailment of
direct sales offices, we have relied on repeat customer business and call
center efforts. We are currently in the early stages of our new business
strategy and plan to increase marketing efforts. There is no assurance that our
new strategy will be successful or that we will ever return to profitability.
WE ARE SUBJECT TO IMBEDDED DERIVATIVE ACCOUNTING WHICH WOULD SIGNIFICANTLY
NEGATIVELY EFFECT OUR REPORTED FINANCIAL CONDITION.
FAS 133 Accounting for Derivative Instruments and Hedging Activities
discusses contracts that do not in their entirety meet the definition of a
derivative instrument and may contain "embedded" derivative instruments. We
believe that this is the case with the convertible debt and warrants issued to
Investors, in which case the imbedded derivatives will be reflected as a
liability on our balance sheet. This will significantly increase our liabilities
and negatively effect our stockholders' equity (or deficit) and net income (or
loss).
WE MAY BE REQUIRED TO OBTAIN ADDITIONAL FINANCING, FOR WHICH THERE IS NO
ASSURANCE OF OBTAINING OR OBTAINING ON A FAVORABLE BASIS.
At July 14, 2006, after the closing of the financing with the Investors,
our cash position, net of expenses and payments in connection with the Merger
and the financing, was approximately $750,000. While we are effectuating our new
business strategy, we expect to operate on a negative cash flow basis. There is
no assurance that our current funds, plus the additional funds ($1,250,000) that
the Investors have agreed to provide for additional securities upon the filing
of a registration statement, will be sufficient to fund operations over an
extended period of time. If we were to require additional funds, there can be no
assurance that any funds will be available or available on favorable terms. Any
additional financing will also likely cause substantial dilution.
WE MAY NOT SUCCESSFULLY MANAGE OUR GROWTH.
Our success will depend upon the expansion of our operations and the
effective management of our growth, which will place a significant strain on our
management and administrative, operational, and financial resources. To manage
this growth, should there be growth, we must expand our facilities, augment our
operational, financial and management systems, and hire and train additional
qualified personnel. If we are unable to manage our growth effectively, our
business would be harmed.
WE ARE DEPENDENT ON OUR CHIEF EXECUTIVE OFFICER AND OTHER KEY EXECUTIVE OFFICERS
AND EXECUTIVES FOR FUTURE SUCCESS.
Our future success depends to a significant degree on the skills, experience and
efforts of our Chief Executive Officer, Chief Financial Officer, Chief Marketing
Officer, and other key executives. The loss of the services of any of these
individuals could harm our business. Only two key executives, our Chief
Executive Officer and Chief Financial Officer, have employment agreements with
us. In addition, we have not obtained life insurance on any key executive
officers. If any key executive officers left us or were seriously injured and
became unable to work, our business could be harmed.
WE RELY ON THIRD PARTIES TO PROVIDE US WITH ADEQUATE FOOD SUPPLY AND CERTAIN
FULFILLMENT, INTERNET, NETWORKING AND CALL CENTER SERVICES, THE LOSS OF ANY OF
WHICH COULD CAUSE OUR REVENUE, EARNINGS OR REPUTATION TO SUFFER.
Food Manufacturers . We rely solely on third-party manufacturers to
supply all of the food and other products we sell. We currently have a written
contract with two of these fulfillment centers and therefore are not assured of
an adequate supply or pricing on a long-term basis. If we are unable to obtain
sufficient quantity, quality and variety of food and other products in a timely
and low cost manner from our manufacturers, we will be unable to fulfill our
customers' orders in a timely manner, which may cause us to lose revenue and
market share or incur higher costs.
Fulfillment . 100% of our order fulfillment is handled by third parties.
Should they be unable to service our needs for even a short duration, our
revenue and business could be harmed. Additionally, the cost and time associated
with replacing them on short notice would add to our costs. Any replacement
fulfillment provider would also require startup time, which could cause us to
lose sales and market share.
Internet, Networking and Call Centers. Our business also depends on a
number of third parties for internet access, networking and call center
services. Should our network connections go down, our ability to fulfill orders
would be delayed. Further, if our website or call center become unavailable for
a noticeable period of time due to internet or communication failures, our
business could be adversely affected.
We are dependent on maintaining good relationships with these third parties. The
services we require from these parties may be disrupted by a number of factors
associated with their businesses, including the following:
- labor disruptions;
- delivery problems with national carriers;
- internal inefficiencies;
- equipment failure;
- natural or man-made disasters; and
- with respect to our food suppliers, shortages of ingredients or
United States Department of Agriculture ("USDA") and United States Food and Drug
Administration ("FDA") compliance issues.
THE FOOD INDUSTRY IS SUBJECT TO GOVERNMENTAL REGULATION THAT COULD INCREASE IN
SEVERITY AND HURT RESULTS OF OPERATIONS.
The food industry is subject to federal, state and other governmental
regulation. For example, food manufacturers are subject to rigorous inspection
and other requirements of the USDA and FDA. If federal, state, or local
regulation of the industry increases for any reason, then the Company may be
required to incur significant expenses, as well as modify its operations to
comply with new regulatory requirements, which could harm operating results.
Additionally, remedies available in any potential administrative or regulatory
actions may require the Company to refund amounts paid by all affected customers
or pay other damages, which could be substantial.
THE SALE OF INGESTED PRODUCTS INVOLVES PRODUCT LIABILITY AND OTHER RISKS.
Like other food distributors, the Company faces an inherent risk of
exposure to product liability claims if the use of its products results in
illness or injury. Distributors of food products have been named as defendants
in product liability lawsuits from time to time. The successful assertion or
settlement of a claim or a significant number of insured claims could harm the
Company by adding costs to the business and by diverting the attention of senior
management from the operation of the business. The Company may also be subject
to claims that its products contain contaminants, are improperly labeled,
include inadequate instructions as to preparation or inadequate warnings
covering food borne illnesses or allergies. While we have product liability
insurance, product liability litigation, even if not meritorious, is very
expensive and could also entail adverse publicity for the Company, thereby
reducing revenue and operating results.
THE FOOD SERVICE INDUSTRY IS HIGHLY COMPETITIVE. IF ANY COMPETITORS OR A NEW
ENTRANT INTO THE MARKET WITH SIGNIFICANT RESOURCES PURSUES A STRATEGY AND
PRODUCT LINE SIMILAR TO DINEWISE , THE BUSINESS COULD BE SIGNIFICANTLY AFFECTED.
Competition is intense in the food service industry, and the Company must
remain competitive in the areas of, price, taste, customer service and brand
recognition. Some competitors are significantly larger than DineWise and have
substantially greater resources. The business could be adversely affected if
someone with significant resources decided to imitate the Company's strategy.
For example, if a major supplier of gourmet frozen food decided to enter this
market and made a substantial investment of resources in advertising and
training food specialists, the business could be significantly affected. Any
increased competition from new entrants into the industry or any increased
success by existing competition could result in reductions in DineWise sales or
prices, or both, which could have an adverse effect on the business and
operating results.
OUR FUTURE GROWTH AND PROFITABILITY WILL DEPEND IN LARGE PART UPON THE
EFFECTIVENESS AND EFFICIENCY OF OUR MARKETING EXPENDITURES AND OUR ABILITY TO
SELECT THE RIGHT MARKETS AND MEDIA IN WHICH TO ADVERTISE.
Our future growth and profitability will depend in large part upon the
effectiveness and efficiency of our marketing expenditures, including our
ability to:
- create greater awareness of our brand and our programs;
- identify the most effective and efficient level of spending in
each market, media and specific media vehicle;
- determine the appropriate creative message and media mix for
advertising, marketing and promotional expenditures;
- effectively manage marketing costs (including creative and
media) in order to maintain acceptable customer
acquisition costs;
- select the right market, media and specific media vehicle in
which to advertise; and
- convert consumer inquiries into actual orders.
Our planned marketing expenditures may not result in increased revenue or
generate sufficient levels of brand name and program awareness. We may not be
able to manage our marketing expenditures on a cost-effective basis whereby our
customer acquisition cost may exceed the contribution profit generated from each
additional customer.
IF WE ARE UNABLE TO ACCURATELY TARGET THE APPROPRIATE SEGMENT OF THE CONSUMER
MARKET WITH OUR DIRECT MARKETING INITIATIVES AND ACHIEVE ADEQUATE RESPONSE
RATES, WE COULD EXPERIENCE LOWER SALES.
We have historically relied on revenues generated from customers initially
contacted through our call center. The success of our direct marketing business
largely depends on our ability to achieve adequate response rates to our direct
marketing initiatives, which have historically fluctuated. Any of the following
could cause customers to forgo or defer future purchases:
- the failure by us to offer a mix of products that is attractive
to our customers;
- the size and breadth of our product offering and the timeliness
and condition of delivery of our service;
- the customer's particular economic circumstances or general
economic conditions.
ONE OF OUR SUBSIDIARIES MAY BE SUBJECT TO CLAIMS AND THERE IS NO ASSURANCE THAT
WE MAY NOT ULTIMATELY BE HELD LIABLE FOR ONE OR MORE OF THESE CLAIMS.
At the time of our restructuring in 2003, we had a subsidiary which
conducted business throughout the United States. As a result of the
restructuring, we terminated operations at this subsidiary and may be subject
to lawsuits for failure to pay certain creditors or vendors. We have accrued
amounts for these potential claims as noted in our December 25, 2005 financial
statements, however settlement of any claims will result in a reduction of cash,
and a potential increased expense in our statement of operations.
FUTURE ACQUISITIONS AND THE PURSUIT OF NEW BUSINESS OPPORTUNITIES PRESENT RISKS,
AND WE MAY BE UNABLE TO ACHIEVE THE FINANCIAL AND STRATEGIC GOALS OF ANY
ACQUISITION OR NEW BUSINESS.
A component of our growth strategy is to acquire existing businesses or
pursue other business opportunities in the market for lifestyle and wellness
products and services. Even if we succeed in acquiring or building such
businesses, we will face a number of risks and uncertainties, including:
- - difficulties in integrating newly acquired or newly started businesses
into existing operations, which may result in increasing operating
costs that would adversely affect our operating income and earnings;
- - the risk that our current and planned facilities, information systems,
personnel and controls will not be adequate to support our future
operations;
- - diversion of management time and capital resources from our existing
businesses, which could adversely affect their performance and our
operating results;
- - dependence on key management personnel of acquired or newly started
businesses and the risk that we will be unable to integrate or retain
such personnel;
- - the risk that the new products or services we may introduce or begin
offering, whether as a result of internal expansion or business
acquisitions, will not gain acceptance among consumers and existing
customers;
- - the risk that new efforts may have a detrimental effect on our brand;
- - the risk that we will face competition from established or larger
competitors in the new markets we may enter, which could adversely
affect the financial performance of any businesses we might acquire or
start; and
- - the risk that the anticipated benefits of any acquisition or of the
commencement of any new business may not be realized, in which event
we will not be able to achieve any return on our investment in that
new business.
IF WE DO NOT CONTINUE TO RECEIVE REFERRALS FROM EXISTING CUSTOMERS, OUR CUSTOMER
ACQUISITION COST MAY INCREASE.
We rely on word of mouth advertising for a portion of our new customers. If
our brand suffers or the number of customers acquired through referrals drops
due to other circumstances, our costs associated with acquiring new customers
and generating revenue will increase, which will, in turn, have an adverse
affect on our profitability.
THE COMPANY ENGAGES AN ADVISORY PANEL TO DEVELOP AND PROMOTE THE DINEWISE
PRODUCTS. IF THESE SPOKESPERSONS SUFFER ADVERSE PUBLICITY, THE COMPANY'S REVENUE
COULD BE ADVERSELY AFFECTED.
The marketing strategy depends in part on the Company's advisory panel,
such as Dr. Howard Shapiro, nutrition expert and author, Franklin Becker,
executive chef and author, and Chef Dana McCauley, in-house food expert. Any of
these or the other panelists may become the subject of adverse news reports,
negative publicity or otherwise be alienated from a segment of the customer
base, whether food and nutrition related or not. If so, such events may reduce
the effectiveness of his or her endorsement and, in turn, adversely affect the
Company's revenue and results of operations.
WE MAY BE SUBJECT TO CLAIMS THAT OUR PERSONNEL ARE UNQUALIFIED TO PROVIDE PROPER
WEIGHT LOSS ADVICE.
Most of our counselors for our weight management program do not have
extensive training or certification in nutrition, diet or health fields and have
only undergone the training they receive through online course studies. We may
be subject to claims from our customers alleging that our personnel lack the
qualifications necessary to provide proper advice regarding weight loss and
related topics. We may also be subject to claims that our personnel have
provided inappropriate advice or have inappropriately referred or failed to
refer customers to health care providers for matters other than weight loss.
Such claims would result in damage to our reputation and divert management's
attention from our business, which would adversely affect our business.
CHANGES IN CONSUMER PREFERENCES AND DISCRETIONARY SPENDING COULD NEGATIVELY
IMPACT OPERATING RESULTS.
The Company offers gourmet prepared frozen foods that offer convenience and
value to customers. The Company's continued success depends, to a large degree,
upon the continued popularity of its offerings and the desire for convenience
and gourmet quality. Changes in consumer tastes and preferences away from these
products and services and any failure to provide innovative responses to these
changes, may have a materially adverse impact on our business, financial
condition, operating results, cash flows and/or prospects.
Additionally, the success of the business and operating results are
dependent on discretionary spending by consumers. A decline in discretionary
spending could adversely affect the business, financial condition, operating
results and cash flows. The business could also be adversely affected by general
economic conditions, demographic trends, consumer confidence in the economy and
changes in disposable consumer income.
RISKS ASSOCIATED WITH INVESTING IN OUR COMMON STOCK
THERE HAS BEEN NO TRADES IN OUR COMMON STOCK SINCE OCTOBER 2004 AND THERE CAN BE
NO ASSURANCE THAT AN ESTABLISHED TRADING MARKET WILL DEVELOP.
The last trade in our common stock was in October 2004. Although
quotations for the common stock appear on the OTC Bulletin Board, the absence of
any transactions in the common stock for nearly two years indicates that there
is no established trading market for the common stock. Virtually all of our
shareholders who hold "non-restricted" stock reside in China. Due to the
difficulties of trading OTC Bulletin Board stocks from that country, such
holders have refrained from trading. We are currently seeking to simplify the
trading process for these persons, but there is no assurance that we will be
successful.
IF A TRADING MARKET FOR OUR COMMON STOCK DOES DEVELOP, TRADING PRICES MAY BE
VOLATILE.
In the event that a trading market develops following the Merger, the
market price of our shares of common stock may be based on factors that may not
be indicative of future market performance. Consequently, the market price of
our common stock after this transaction may vary greatly. If a market for our
common stock develops, there is a significant risk that our stock price may
fluctuate dramatically in the future in response to any of the following
factors, some of which are beyond our control:
- - variations in our quarterly operating results;
- - announcements that our revenue or income/loss levels are below analysts'
expectations;
- - general economic slowdowns;
- - changes in market valuations of similar companies;
- - announcements by us or our competitors of significant contracts,
- - acquisitions, strategic partnerships, joint ventures or capital
commitments.
THERE IS NO ASSURANCE THAT OUR COMMON STOCK WILL REMAIN ON THE OTC BULLETIN
BOARD.
In order to maintain the quotation of our shares of common stock on the OTC
Bulletin Board, we believe that we may have to become a reporting company under
the Securities Exchange Act of 1934. This will require to comply with Sections
14 (proxy statement requirements) and Section 16 (Form 3, 4 and 5 and 6
month-trading rule) of that Act. While we intend to so qualify in the near
future, it is possible that our common stock could be removed from the OTC
Bulletin Board and then be traded on the less desirous Pink Sheets. In either
venue, an investor may find it difficult to obtain accurate quotations as to the
market value of the common stock. In addition, if we failed to meet the criteria
set forth in SEC regulations, various requirements would be imposed by law on
broker-dealers who sell our securities to persons other than established
customers and accredited investors. Consequently, such regulations may deter
broker-dealers from recommending or selling the common stock, which may further
affect its liquidity. This would also make it more difficult for us to raise
additional capital.
WE ARE SUBJECT TO THE REPORTING REQUIREMENTS OF FEDERAL SECURITIES LAWS, WHICH
CAN BE EXPENSIVE.
We are a voluntary reporting public reporting company in the U.S. and,
accordingly, subject to the information and reporting requirements of the
Securities Exchange Act of 1934 and other federal securities laws, and the
compliance obligations of the Sarbanes-Oxley Act. The costs of preparing and
filing annual and quarterly reports, and other information with the SEC will
cause our expenses to be higher than they would be if we were a privately-held
company. In addition, we will incur substantial expenses in connection with the
preparation of the registration statement with respect to the registration of
resales of our common stock by certain shareholders to whom we have given
registration rights.
OUR COMPLIANCE WITH THE SARBANES-OXLEY ACT AND SEC RULES CONCERNING INTERNAL
CONTROLS MAY BE TIME CONSUMING, DIFFICULT AND COSTLY.
Although individual members of our management team have experience as officers
of publicly-traded companies, much of that experience came prior to the adoption
of the Sarbanes-Oxley Act of 2002. It may be time consuming, difficult and
costly for us to develop and implement the internal controls and reporting
procedures required by Sarbanes-Oxley after the reverse acquisition transaction.
We may need to hire additional financial reporting, internal controls and other
finance staff in order to develop and implement appropriate internal controls
and reporting procedures. If we are unable to comply with Sarbanes-Oxley's
internal controls requirements, we may not be able to obtain the independent
accountant certifications that Sarbanes-Oxley Act requires publicly-traded
companies to obtain.
BECAUSE WE BECAME PUBLIC BY MEANS OF A "REVERSE ACQUISITION", WE MAY NOT BE ABLE
TO ATTRACT THE ATTENTION OF MAJOR BROKERAGE FIRMS.
Additional risks may exist since we will become public through a "reverse
acquisition." Securities analysts of major brokerage firms may not provide
coverage of us since there is little incentive to brokerage firms to recommend
the purchase of our common stock. No assurance can be given that brokerage firms
will want to conduct any secondary offerings on behalf of our company in the
future.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information contained in this Form 8-K, other than historical
information, may include forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. Words such as "may", "will", "expect",
"intend", "anticipate", "believe", "estimate", "continue", "plan" and similar
expressions in this report identify forward-looking statements. The
forward-looking statements are based on current views with respect to future
events and financial performance. Actual results may differ materially from
those projected in the forward-looking statements. The forward-looking
statements are subject to risks, uncertainties and assumptions, including, among
other things those associated with:
- our ability to meet our financial obligations;
- the relative success of marketing and advertising;
- the continued attractiveness of our lifestyle and diet programs;
- competition, including price competition and competition with
self-help weight loss and medical programs;
- our ability to obtain and continue certain relationships with
the providers of popular nutrition and fitness approaches and
the supplier of our meal delivery service;
- adverse results in litigation and regulatory matters, more
aggressive enforcement of existing legislation or regulations,
a change in the interpretation of existing legislation or
regulations, or promulgation of new or enhanced legislation or
regulations;
- general economic and business conditions.
The factors listed in the section entitled "Risk Factors" in the section
immediately above, as well as any other cautionary language in this report,
provide examples of risks, uncertainties and events which may cause our actual
results to differ materially from the expectations we described in our
forward-looking statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the financial
information included elsewhere in this Form 8-K. SimplaGene USA, Inc. has not
conducted any operations during 2004, 2005 or the first six months of 2006.
Because of the reverse acquisition, the following discussion relates to the
separate financial statements of NCPH and reference to the Company and to "we",
"our" and words of similar import refer to NCPH.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This management discussion and analysis is based on our consolidated
financial statements which are prepared using certain critical accounting
policies that require management to make judgments and estimates that are
subject to varying degrees of uncertainty. While we believe that these
accounting policies, and management's judgments and estimates, are reasonable,
actual future events can and often do result in outcomes that can be materially
different from management's current judgments and estimates. We believe that the
accounting policies and related matters described in the paragraphs below are
those that depend most heavily on management's judgments and estimates.
Fiscal Year. The Company's fiscal year ends on the last Sunday in
December. The Company's 2005 fiscal year consisted of the fifty-two week period
beginning on December 27, 2004 and ending on December 25, 2005. The Company's
2004 fiscal year consisted of the fifty-two week period beginning on December
29, 2003 and ending on December 26, 2004.
Revenue Recognition. The Company recognizes revenue from product sales
when (i) persuasive evidence of an arrangement exists and the sales price is
fixed or determinable (evidenced by written sales orders), (ii) delivery of the
product has occurred, and (iii) collectibility of the resulting receivable is
reasonably assured. Shipping and handling expenses of $1,991,000 and $2,814,000
are included in selling, general and administrative expenses for the fiscal
years ended December 25, 2005 and December 26, 2004 respectively. Although the
Company accepts product returns, historical returns have been insignificant.
The Company has sold separately-priced warranty arrangements covering
certain durable goods. In accordance with FASB Technical Bulletin No. 90-1,
Accounting for Separately Priced Extended Warranty and Product Maintenance
Contracts, revenue on these warranty arrangements is recognized on a
straight-line basis over the warranty service period, which is typically
thirty-six months. Costs associated with these warranty arrangements are
recognized as they are incurred. As of April 2003, the Company no longer offers
these warranty arrangements.
Deferred revenue consists principally of the unearned portion of the above
described separately priced warranties as well as advance billings for customer
food orders.
Impairment of Fixed Assets and Intangibles. The Company determines the
recoverability of its long-lived assets in accordance with Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Long-lived assets, such as property, plant and
equipment, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset group may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset group to estimated undiscounted
future cash flows expected to be generated by the asset group. If the carrying
amount of an asset group exceeds its estimated future cash flows, an impairment
charge is recognized for the amount by which the carrying amount of the asset
group exceeds the fair value of the asset group. Management believes there is no
impairment of any long-lived assets as of December 25, 2005.
Income Taxes. The Company accounts for its income taxes in accordance
with SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be realized 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.
RESULTS OF OPERATIONS
Revenues and expenses consist of the following components:
Revenues. Revenues consist primarily of food sales. Food sales include
sales of prime cut proteins (such as beef, chicken, pork and fish) and assorted
vegetables, soups, appetizers, desserts and other meal accents, as well as
gourmet, prepared meals and prepared meal compliments. Included in revenues
are shipping and handling charges billed to customers and sales credits and
adjustments, including product returns. Although we accept product returns,
historical returns have been insignificant. Also included in revenues are sales
of durable goods such as cutlery, cookware and appliances and deferred service
revenues related to warranty arrangements covering certain durable goods. We
follow Financial Accounting Standards Board Technical Bulletin no. 90-1,
Accounting for Separately Priced Extended Warranty and Product Maintenance
Contracts. Revenue related to these warranty arrangements is recognized on a
straight line basis over the warranty service period. Costs associated with
these arrangements are expensed as incurred. As of April 2003, we no longer
offer warranty arrangements.
Cost of Goods Sold. Cost of goods sold consists primarily of the cost of
the food and durable products sold and the costs of outside fulfillment of food
orders.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist of compensation for sales, marketing, delivery,
administrative, information technology, and customer service personnel,
advertising, marketing and promotional expenses, shipping and handling expenses,
facility expenses, website development costs, professional service fees and
other general corporate expenses.
Restructuring and other one time recoveries. In 2003, our principal
lenders accelerated debt repayment due to non-compliance with certain financial
ratios under the then existing credit arrangement. As a result, we sold our
accounts receivable at a significant loss to repay the debt and at the same
time, in order to enhance liquidity, we restructured our operations by closing
down our direct to consumer sales and telemarketing operations, all sales
offices and all distribution routes and terminating 930 employees resulting in a
net restructuring charge in 2003 of $1,831,000. In connection with these
restructuring activities full liabilities have been properly recorded in the
financial statements, however we are continuing to negotiate settlements with
vendors and lessors. Certain settlements have resulted in recoveries of
previously recorded liabilities.
Interest Income, Net. Interest income, net consists of interest income
earned on cash balances and marketable securities, net of interest expense.
Income Taxes. We are subject to corporate level income taxes and record
a provision for income taxes based on an estimated effective tax rate for the
year.
YEAR ENDED DECEMBER 25, 2005 COMPARED TO YEAR ENDED DECEMBER 26, 2004
Revenue. Revenue decreased to $14.9 million for the year ended December
25, 2005 from $20.7 million for the year ended December 26, 2004. The decline in
revenue from 2004 to 2005 resulted primarily from a reduction in reorder food
sales and the focus of sales and marketing on the new DineWise branded product
line. The decline in revenue of $5.8 million, or 28%, resulted primarily from a
reduction in reorder food sales, $12.4 million in 2005 compared to $17.8 million
in 2004, offset slightly by an increase in new customer food sales of $.3
million or 160% primarily due to the initial sales of the Company's new branded
DineWise product line during 2005. In addition, service revenues related to
warranty arrangements decreased to $.8 million as compared with $1.6 million in
the prior year period, and houseware sales were $1.2 million as compared to $1.4
million a year ago. In 2003, the Company stopped offering warranty arrangements
and as a result, service revenues will continue to decline. Revenues related to
these arrangements are recognized over the life of the contract, generally up to
36 months.
Cost of Goods Sold. Cost of goods sold decreased $2.8 million to $6.8
million for the year ended December 25, 2005 from $9.6 million for the year
ended December 26, 2004. This reduction was primarily due to the above mentioned
reduction in sales. Gross margin as a percent of revenue increased slightly to
54.2% in 2005 from 53.8% in 2004.
Operating Expenses. Selling, general and administrative expenses
decreased $1.3 million to $7.2 million in 2005 from $8.5 million in 2004. The
decrease is attributable to a continued focus on controlling costs and overall
lower sales volumes. The primary cost savings were in connection with a net
reduction in compensation and benefit costs of $575,000 consisting principally
of a (i) reduction in employee bonuses and other compensation of $478,000
($77,000 in 2005 and $555,000 in 2004) and (ii) a net reduction in salaries of
$86,000 ($2.4 million in 2005 and $2.5 million in 2004) as well as a reduction
in professional fees of $254,000 ($225,000 in 2005 as compared to $479,000 in
2004) and other miscellaneous general and administrative expense savings
including consultants ($57,000), bank charges ($31,000), and utilities
($31,000). Other factors contributing to the reduction in expenses are lower
delivery expenses of $800,000 ($2.0 million in 2005 and $2.8 million in 2004)
and reduced accounts receivable financing fees of $179,000 ($425,000 in 2005 and
$604,000 in 2004) both of which are directly related to the decline in sales.
The cost savings and expense reductions were offset by an increase in marketing
expenses excluding payroll related expenses of $477,000 ($1.193 million in 2005
and $716,000 in 2004) directly associated with the re-positioning of the Company
and the launch of the DineWise brand, and lower bad debt recoveries in 2005 of
$249,000 ($264,000 in 2005 and $513,000 in 2004). Overall marketing expenses
increased $.5 million to $1.4 million in 2005 from $.9 million in 2004.
Marketing expenses in 2005 is comprised of payroll related to marketing and
advertising ($182,000), marketing department expense ($984,000) and exhibit
shows ($209,000). Almost all marketing expenses related to developing and
promoting the transition and re-positioning and launch of the new branded
DineWise product line.
Restructuring and other one time recoveries. In 2005 and 2004, we recorded
a gain of $6,000 and $56,000, respectively, in connection with certain
settlements of accounts payable relating to the company's 2003 restructuring
activities. In addition, in 2004, we recorded a net gain of $130,000 in
connection with the extinguishment of certain capital leases also related to the
2003 restructuring plan.
Depreciation and amortization. Depreciation and amortization decreased
in 2005 to $136,000 from $235,000 primarily due to the 2004 extinguishment of
capital leases and the disposal of certain obsolete equipment in 2004 offset by
an increase in software development and trademark and intangibles amortization
of $46,000.
Interest Expense. Interest expense, net decreased $70,000 in 2005 from
$71,000 in 2004 primarily due to the extinguishment of capital leases during
2004.
Income Taxes. In 2005 and 2004 we recorded income tax expenses of $6,000
and $10,000, respectively, which is comprised principally of state franchise
taxes. The Company has and continues to provide for a full valuation allowance
against its deferred income tax assets. The valuation allowance is subject to
adjustment based upon the Company's ongoing assessment of its future income and
may be wholly or partially reversed in the future.
Net Income. For the year ended December 25, 2005, net income decreased
by $1.8 million to $.8 million from net income of $2.6 million in 2004. The
decrease in net income in 2005 is primarily due to lower sales volumes in 2005
as compared to 2004 resulting primarily from a decline in food re-orders as well
as higher marketing spending related to the Company's transitioning of the new
DineWise brand, as well as a $249,000 decline in bad debt recoveries in 2005 as
compared to 2004.
THREE MONTHS ENDED MARCH 26, 2006 COMPARED TO THREE MONTHS ENDED MARCH 27, 2005
Revenue. Revenue for the three months ended March 26, 2006 and March 27,
2005 was $2.8 million and $4.0 million, respectively. The decline in revenue
from 2005 to 2006 resulted primarily from a reduction in reorder food sales and
the focus of sales and marketing on the new DineWise branded product line. The
DineWise brand was beta launched in July 2005 with a targeted completion of the
brand launch during the second quarter of 2006. The decline in revenue of $1.2
million, or 29%, resulted primarily from a reduction in sales of food products,
$2.6 million for the three months ended March 26, 2006 compared to $3.5 million
for the three months ended March 27, 2005. In addition, service revenues
related to warranty arrangements for the three months ended March 26, 2006
decreased by $183,000 from the three months ended March 27, 2005. Revenues
related to these arrangements are recognized over the life of the contract,
generally up to 36 months. In 2003, the Company stopped offering warranty
arrangements and as a result service revenue has been declining with 2006 the
final year in which service revenue will be recognized.
Costs of Goods Sold. Cost of goods sold decreased $383,000 to $1.4
million for the three months ended March 26, 2006 from $1.8 million for the
three months ended March 27, 2005. This was primarily due to the above
mentioned reduction in sales. Overall gross margin as a percent of revenue
decreased to 49% for the three months ended March 26, 2006 as compared with 54%
for the three months ended March 27, 2005. This decrease was primarily due to
lower deferred service revenue in the 2006 quarter ($26,000) as compared to the
2005 quarter ($206,000).
Operating Expenses. Selling, general and administrative expenses
decreased $406,000 to $1.6 million for the three months ended March 26, 2006
from $2.0 million for the three months ended March 27, 2005. The decrease is
primarily attributable to a continued focus on controlling costs as well as
overall lower sales volumes. The primary cost savings were in connection with a
reduction in delivery expenses of $207,000 directly related to lower sales
volumes ($386,000 in 2006 as compared with $593,000 in 2005), a reduction of
$88,000 in compensation expense, principally salaries and related expenses
($608,000 in 2006 as compared with $696,000 in 2005), reduced marketing expenses
of $80,000 ($258,000 in 2006 as compared with $338,000 in 2005) and reduced
accounts receivable financing fees of $26,000. The cost savings and expense
reductions were partially offset by an increase in professional fees of $18,000.
Restructuring and other one time recoveries. For the three months ended
March 26,2006 and March 27, 2005 we recorded a gain $0 and $5,000 respectively,
in connection with certain settlements of accounts payable relating to the
Company's 2003 restructuring activities.
Depreciation and amortization. Depreciation and amortization increased
$15,000 to $37,000 for the three months ended March 26, 2006 compared to $22,000
for the three months ended March 27, 2005. The increase is primarily due to the
amortization of trademarks and intangibles capitalized during 2005 in connection
with the DineWise brand and website development.
Interest Expense. Interest expense was $0 in the three months ended
March 26, 2006 as compared with $1,000 in the three months ended March 27, 2005.
Income Taxes. For the three months ended March 26, 2006 and the three
months ended March 27, 2005, we recorded income tax expense of $1,000 and
$1,000, respectively, which is comprised principally of state franchise taxes.
The Company has and continues to provide for a full valuation allowance against
its deferred income tax assets. The valuation allowance is subject to
adjustment based upon the Company's ongoing assessment of its future income and
may be wholly or partially reversed in the future.
Net Income/Loss. For the three months ended March 26, 2006, the Company
incurred a net loss from operations of $231,000 as compared with net income for
the three months ended March 27, 2005 of $171,000. The decrease of $402,000 is
primarily due to the overall lower sales volumes and lower gross profit margins
on sales for the three months ended March 26, 2006 compared to the same period
in 2005.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
As of December 25, 2005, our principal commitments consisted of an
obligation under an operating lease in connection with office space for our
corporate headquarters. Although we have no material commitments for capital
expenditures, we anticipate continuing requirements for capital expenditures
consistent with anticipated growth in operations, infrastructure and personnel.
Following is a summary of our contractual obligations. We have no other
commercial commitments.
Future minimum operating lease payments, adjusted for a lease amendment as of
December 25, 2005, are as follows:
2006 $ 118
2007 121
2008 125
2009 128
2010 132
Thereafter 432
$1,056
------
For the year ended December 25, 2005, the Company has an employment
agreement with the Chairman and Chief Executive Officer dated September 1, 1998.
The agreement automatically renews for one-year periods unless terminated with
30 days notice. The agreement provides for base compensation of $350,000 per
year, a car allowance of $9,000 per year and payment of his medical, dental and
life insurance that the Company may have in effect from time to time, as well as
payments upon termination.
Other than the lease and the employment agreement, there were no items that
significantly impacted our commitments and contingencies as disclosed in the
notes to the consolidated financial statements for the year ended December 25,
2005. In addition, we have no off-balance sheet financing arrangements.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA FOR THE YEAR ENDED
DECEMBER 25, 2005
At December 25, 2005, the Company had a cash balance of $1.3 million
compared to a cash balance of $2.1 million at December 26, 2004. Our principal
source of cash comes from the financing of accounts receivable through a third
party financial institution whereby substantially all receivables are submitted
for collection, without recourse. Generally payments, net of financing fees of
approximately 3%, are received within 3-5 business days from the date of
submission. At December 25, 2005, we had a working capital deficit of
($828,000), as compared with a working capital deficit at December 26, 2004 of
($1,230,000). At December 25, 2005 and for the full year then ended, we had no
bank debt, term or revolving credit facilities to fund operations or investment
opportunities. We currently have no off-balance sheet financing arrangements.
For the year ended December 25, 2005, cash used in operations was $417,000.
This was primarily attributable to net income for the period, adjusted for
non-cash items of $895,000, decreases in accounts receivable of $117,000 and
decreases in prepaid expenses and other assets of $138,000, more than offset by
decreases in accrued expenses of $747,000 and deferred service revenue $839,000.
The Company's operations are organized to have a cash-to-cash cycle of
approximately 5 days. This is accomplished by paying for inventory to
outsourced vendors just prior to shipment to the customer and financing the
accounts receivable from a third party financial institution.
In the year ended December 25, 2005, net cash used in investing activities
was $388,000 which primarily consisted of website and other software and
development costs associated with the re-positioning and transition to DineWise
and capital expenditures incurred for computer equipment and trade show booths.
In the year ended December 25, 2005, net cash used in financing activities
was $5,000 related to the repayment of capital lease obligations.
We have not declared or paid any dividends in 2005. A redemption of
preferred stock in the amount of $1.8 million was paid in 2004. As a result of
the Merger, the preferred stock of NCPH was converted into the common stock of
the Registrant.
FOR THE THREE MONTHS ENDED MARCH 26, 2006
At March 26, 2006, the Company had a cash balance of $1.0 million compared
to a cash balance of $1.3 million at December 25, 2005. The Company's principal
source of cash comes from the financing of accounts receivable through a third
party financial institution whereby substantially all receivables generated from
sales to customers are submitted for collection, without recourse. Generally
payments, net of financing fees of approximately 3%, are received within 3-5
business days from the date of submission. The Company had working capital
(deficits) at March 26, 2006 and December 25, 2005 of ($1.1 million) and
($828,000), respectively. Included in the Company's accrued expenses at March
26, 2006 and December 25, 2005 are net restructuring charges of $1.2 million and
$1.3 million, respectively. In connection with these accrued charges, the
Company is currently in negotiations with several vendors to pay reduced amounts
which could result in forgiveness of debt income. At March 26, 2006 and for the
period then ended, we had no bank debt, term or revolving credit facilities to
fund operations or investment opportunities. We currently have no off-balance
sheet financing arrangements.
For the three months ended March 26, 2006, cash used in operations was
$305,000, compared to cash used in operations of $187,000 for the period ended
March 27, 2005. This was primarily attributable to a net loss for the period,
adjusted for non-cash items of ($196,000), increases in accounts receivable of
$48,000, increases in inventory of $55,000 and decreases in accrued expenses of
$31,000, offset by decreases in prepaid expenses and other assets $29,000, and
decreases in accounts payable of $10,000. The Company's operations are
organized to have a cash-to-cash cycle of approximately 5 days. This is
accomplished by paying for inventory to outsourced vendors just prior to
shipment to the customer and financing the accounts receivable from a third
party financial institution
For the three months ended March 26, 2006 the Company expended no cash for
investing or financing activities.
On July 14, 2006, the Company engaged in a financing transaction with
Dutchess Private Equity Fund, LP and Dutchess Private Equities Fund II, LP,
pursuant to which the Company sold convertible debentures and warrants to the
Investors. Reference is made to Item 3.02 of this Form 8-K for a detailed
description of this transaction.
We have not declared or paid any dividends for the three months ended March
26, 2006. The Company had accumulated accrued preferred stock dividends in the
amount of $16.7 million at March 26, 2006. The obligation to pay accrued and
ongoing dividends terminated on July 14, 2006 in connection with the reverse
acquisition of the Registrant, pursuant to which the preferred stock of the
Company was converted into common stock of the Registrant. The declaration and
payment of dividends in the future will be determined by our Board of Directors
in light of conditions then existing, including our earnings, financial
condition, capital requirements and other factors.
SEASONALITY
The Company's business does not experience fluctuation in sales due to
seasonality.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS 123R, Share-Based Payment. SFAS No. 123R addresses all forms of
share-based payment awards, including shares issued under employee stock
purchase plans, stock options, restricted stock and stock appreciation rights.
It requires companies to recognize in the statement of earnings the grant-date
fair value of stock options and other equity-based compensation issued to
employees, but expresses no preference for a type of valuation model. The
statement eliminates the intrinsic value-based method prescribed by APB Opinion
No. 25, and related interpretation, that the Company currently uses. The Company
has adopted SFAS No. 123R effective January 1, 2006 using the modified
prospective method. Had the Company previously adopted this pronouncement, the
effects would have been immaterial. Currently the Company has no stock option
plan however expects to adopt one in the future.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company leases approximately 5,330 square feet in Farmingdale, New
York, which houses the corporate headquarters and all business functions. The
lease term expiring January 31, 2014, has an annual base rent of approximately
$120,000 and $117,000 for the years ended December 25, 2005 and December 26,
2004. The Company believes this facility is adequate to meet its current and
future operating needs.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of July 14, 2006, certain information as
to the Common Stock ownership of each of the Registrant's directors, each of the
executive officers included in the Summary Compensation Table, all executive
officers and directors as a group and all persons known by the Company to be the
beneficial owners of more than five percent of the Common Stock of the
Registrant. The table gives effect to the conversion of the common and preferred
stock of NCHP into common stock of the Registrant pursuant to the Merger
Agreement.
Number of Shares Beneficially Owned
NUMBER OF SHARES
NAME AND ADDRESS BENEFICIALLY OWNED PERCENTAGE OF CLASS
- ------------------ ------------------- ---------------------
MacKay Securities (1) 11,534,911 38.4%
Trust Company of the West (2) 4,276,177 14.3%
Golden Tree Asset Management, LP (3) 2,845,695 9.5%
Paul A. Roman (4) 4,020,041 13.4%
AIG Global Investment (5) 1,520,308 5.1%
Crusader Securities, LLC (6) 1,800,000 6.0%
All Directors and
executive officers
as a group
(2 persons) 4,020,041 13.4%
<FN>
(1) The address for MacKay Securities is 9 West 57th Street, New York, New York
10019.
(2) The address for Trust Company of the West is 11100 Santa Monica Boulevard,
Suite 2000, Los Angeles, California 90025.
(3) The address for Golden Tree Asset Management, LP is 300 Park Avenue, 25th
Floor, New York, New York 10022.
(4) The address for Paul A. Roman is c/o New Colorado Prime Holdings, Inc., 500
Bi-County Boulevard, Suite 400 Farmingdale, New York 11735.
(5) The address for AIG Global Investment is 2929 Allen Parkway, A37, Houston,
Texas 77109.
(6) The address for Crusader Securities, LLC is 230 Park Avenue, New York, New
York 10169.
As of July 14, 2006, there were no outstanding options or warrants.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS.
As of July 14, 2006, the executive officers and directors of the Company were as
follows:
NAME AGE DESCRIPTION POSITIONS AND OFFICES WITH THE REGISTRANT
- -------------- --- ------------------------------ --------------------------------------------------------------
Paul A. Roman 56 Executive Officer and Director Chairman, President & Chief Exectuive Officer
Thomas McNeill 43 Executive Officer and Director Vice President & Chief Financial Officer
Richard Gray 51 Director Vice President Business Development & Chief Marketing Officer
Paul A. Roman has served as the Chairman of our Board and as our Chief
Executive Officer since June 1999. From 1990 to 1998, Mr. Roman was President
of Rollins Protective Services, a division of Rollins, Inc. (NYSE: ROL), a
leading provider of electronic security services for commercial and residential
alarm customers throughout the United States, prior to the company's sale to
Ameritech, a regional Bell operating company. From 1987 to 1990, Mr. Roman was
Managing Director of LVI, a Los Angeles based advisory firm specializing in
Mergers and Acquisitions, financing, and various general management assignments
for service companies with contracted recurring revenue streams.
Thomas McNeill has served as Vice President and Chief Financial Officer of
the Company since April 17, 2006. Previously he was corporate Secretary of
Global Payment Technologies Inc. ("GPT"), a Nasdaq NMS technology company, since
March 1997 and was Vice President and Chief Financial Officer since September
1997. From October 1996 to September 1997 he served as Controller of GPT. From
March 1995 through October 1996, Mr. McNeill was Director of Finance for Bellco
Drug Corp., a pharmaceutical distribution company. From January 1991 through
August 1992 he was Controller and from August 1992 to May 1994 he was Vice
President of Operations for the Marx & Newm and Co. division of United States
Shoe Corporation, a manufacturer and distributor of women's footwear. Mr.
McNeill is a Certified Public Accountant.
Richard Gray has been Vice President Business Development & Chief Marketing
Officer since October 2003 on a consulting basis. His background consists of
twenty five years of general management, operations and marketing experience.
In 1979 Mr. Gray sold his healthcare company to W.R. Grace, continuing on to do
mergers, acquisitions, joint ventures and licensing agreements for Chemed, a
wholly-owned subsidiary of W.R. Grace. He possesses broad experience in direct
marketing with detailed knowledge of effective lifetime customer value
strategies and integrated multi-channel programs. Prior to joining the Company,
he has consulted in all areas of direct-to-consumer marketing and sales of
perishable foods including: Atkinsnutritionals.com, Balduccis.com, and
Vitamins.com.
AUDIT COMMITTEE
The Company does not currently have an Audit Committee (and, accordingly,
has no audit committee financial expert on an Audit Committee) due to its
current resources. However, it may form an Audit Committee in the future based
upon the needs and resources of the Company. Currently, the entire Board
constitutes the Audit Committee.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth for the years ended December 25, 2005,
December 26, 2004, and December 28, 2003 the compensation awarded to, paid to,
or earned by, our Chief Executive Officer. No other executive officer had total
compensation during the year ended December 25, 2005 in excess of $100,000.
Executive Compensation
The following table sets forth for the years ended December 31, 2005, 2004, and
2003 the compensation awarded to, paid to, or earned by, our Chief Executive
Offices and our three most highly compensated executive officers whose total
compensation during t
Annual Compensation Long-Tem Compensation
----------------------------- -----------------------
Name and Principal Position Year Salary ($) Bonus ($) Restricted Stock Awards
- --------------------------- ---- ---------- --------- -----------------------
Paul Roman, Chairman & CEO 2005 $350,000 $ - $ -
2004 $350,000 $ 17,000 $ 238,000(1)
2003 $350,000 $188,000 $ -
<FN>
Note: Effective April 17, 2006, the Company hired Thomas McNeill as its Vice
President, Chief Financial Officer.
(1) In March 2004, Mr. Roman was granted 3,200 shares of preferred stock of
NCHP in consideration of services rendered, which converted into common stock on
July 14, 2006 as a result of the Merger.
Mr. Roman, the Company's sole Board member during the last fiscal year, did
not receive compensation for services rendered as a Board member.
On September 1, 1998, the Company entered into an employment agreement with
Paul A. Roman. Pursuant to the agreement, Mr. Roman receives a base salary and
is eligible for year-end bonus awards based upon individual performance and the
achievement of specified financial and operating targets. The employment
agreement further provides a non-competition agreement for a period of two years
following termination for Good Cause (as defined in the agreement) and for a
period of one year following termination without Good Cause. If the Company
terminates Mr. Roman without Good Cause, he has the right to receive his base
salary for one year from the date of termination and any other benefits to which
he would otherwise be entitled. If Mr. Roman terminates his employment with the
Company for good reason, as that term is defined in the employment agreement, he
has the right to receive his base salary for one year from the date of
termination, any other benefits to which he would otherwise be entitled and any
incentive bonus award earned and due, pro rated as through the date of
termination.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 8. DESCRIPTION OF SECURITIES.
Common stock
We are authorized to issue up to 50,000,000 shares of common stock. As of
July 14, 2006, giving effect to the Merger and related transactions, there are
approximately 30,000,000 shares of common stock issued and outstanding.
The holders of common stock are entitled to one vote per share on each
matter submitted to a vote of stockholders. In the event of liquidation, holders
of common stock are entitled to share ratably in the distribution of assets
remaining after payment of liabilities, if any. Holders of common stock have no
cumulative voting rights, and, accordingly, the holders of a majority of the
outstanding shares have the ability to elect all of the directors. Holders of
common stock have no preemptive or other rights to subscribe for shares. Holders
of common stock are entitled to such dividends as may be declared by the board
of directors out of funds legally available.
Preferred stock
We are authorized to issue up to 10,000,000 shares of preferred stock. As
of July 14, 2006, there are no shares of preferred stock issued and outstanding.
Our preferred stock may be issued from time to time in one or more series, with
such distinctive serial designations as may be stated or expressed in the
resolution or resolutions providing for the issue of such stock adopted from
time to time by our board of directors. Our board of directors is expressly
authorized to fix:
- - Voting rights;
- - The consideration for which the shares are to be issued;
- - The number of shares constituting each series;
- - Whether the shares are subject to redemption and the terms of redemption;
- - The rate of dividends, if any, and the preferences and whether such
dividends shall be cumulative or noncumulative;
- - The rights of preferred stockholders regarding liquidation, merger,
consolidation, distribution or sale of assets, dissolution or winding up
of the Company; and
- - The rights of preferred stockholders regarding conversion or exchange of
shares for another class of our shares.
The availability of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of discouraging takeover proposals, and the issuance of
preferred stock could have the effect of delaying or preventing a change in
control of the Company not approved by the board of directors.
Convertible Debentures and Warrants
Reference is made to Item 3.02 for a description of the Convertible
Debentures and Warrants issued, on July 14, 2006, to the Investors.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Quotations for the common stock of the Registrant are included in the
NASD's Over-the-Counter Bulletin Board system under the symbol "SMPG." The
following table sets forth for the respective periods indicated the prices of
the common stock in the over-the-counter market, as reported and summarized on
the OTC Bulletin Board. Such prices are based on inter-dealer bid and ask
prices, without markup, markdown, commissions, or adjustments and may not
represent actual transactions.
CALENDAR QUARTER ENDED: HIGH BID ($) LOW BID ($)
----------------------- ------------ -----------
November 30, 2003 0.51 0.25
February 29, 2004 0.55 0.51
May 31, 2004 0.60 0.40
August 31, 2004 0.40 0.40
The last trade in the common stock of the Company was in October 2004 at a
price of $0.40 per share. Although quotations for the common stock appear on the
OTC Bulletin Board (bid price $0.30 per share and asked price of $0.58 per share
on June 23, 2006), the absence of any transactions in the common stock in nearly
two years indicates there is no established trading market for the common stock.
Consequently, the Company is of the opinion that any published prices for the
year ended August 31, 2005, or at present cannot be attributed to a liquid and
active trading market and, therefore, do not indicate any meaningful market
value.
Since inception, no dividends have been paid on the common stock. The Company
intends to retain any earnings for use in its business activities, so it is not
expected that any dividends on the common stock will be declared and paid in the
foreseeable future. At June 23, 2006, there were approximately 200 holders of
record of the common stock.
ITEM 2. LEGAL PROCEEDINGS.
The Company has no material legal proceedings.
ITEM 3. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS.
See Item 4.01 of this Form 8-K for a description relating to a change in
accountants by the Company.
ITEM 4. RECENT ISSUANCES OF UNREGISTERED SECURITIES.
On March 2, 2004, NCPH issued 4,000 shares of Series A-2 Preferred Stock to
certain members of NCPH management (the "Management Stockholders") in
consideration of services rendered to NCPH by the Management Stockholders. The
issuance of these shares was exempt from registration pursuant to Section 4(2)
of the Securities Act. No general solicitation or advertising was made in
connection with the offering and the offering was made to persons with access to
all material information regarding CPH.
See Item 3.02 of this Form 8-K for a description of a recent financing by
the Company.
ITEM 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Our Bylaws provide that we will indemnify each person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Registrant) by
reason of the fact that he or she is or was a director, officer, employee or
agent of the Registrant, or is or was serving at the request of the Registrant
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by such in connection with such action, suit or proceeding if that
person (i) is not liable under Section 78.138 of the Nevada Revised Statutes
("NRS") or (ii) acted in good faith and in a manner reasonably believed to be in
or not opposed to the best interests of the Registrant, and with respect to any
criminal action or proceeding, had not reasonable cause to believe the person's
conduct was illegal. In addition, pursuant to NRS 78.751 and our bylaws,
discretionary indemnification may be authorized by the stockholders, a majority
vote of a quorum of disinterested directors, or by legal opinion of counsel, if
no quorum of disinterested directors can be obtained or if so directed by a
quorum of disinterested directors.
Section 78.138 of the NRS provides that, with certain specified exceptions, or
unless the articles of incorporation or an amendment thereto, in each case filed
on or after October 1, 2003, provide for greater individual liability, a
director or officer is not individually liable to the Registrant or its
stockholders or creditors for any damages as a result of any act or failure to
act in his capacity as a director or officer unless it is proven that his act or
failure to act constituted a breach of his fiduciary duties as a director or
officer and his breach of those duties involved intentional misconduct, fraud or
a knowing violation of the law. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere of its equivalent will not, of itself, create a presumption that the
person is liable pursuant to NRS 78.138 or did not act in good faith and in a
manner which such person reasonably believed to be in or not opposed to the best
interests of the Registrant, with respect to any criminal action or proceeding,
had reasonable cause to believe that such person's conduct was unlawful.
PART F/S
Reference is made to the filings by SimplaGene USA, Inc. on Form 10-KSB and Form
10-QSB for such company's financial statements. The financial statements of
NCPH begin on page F-1.
PART III
The exhibits are listed and described in Item 9.01 of this Form 8-K.
ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES
On July 14, 2006, (the "Closing Date"), the Registrant entered into a
Subscription Agreement with Dutchess Private Equities Fund, LP and Dutchess
Private Equities Fund, II, LP (collectively, the "Investors") pursuant to which
the Registrant agreed to sell to the Investors an aggregate of $2,500,000 of the
Registrant's Five-Year Convertible Debentures (the "Convertible Debentures") and
warrants to purchase up to an aggregate of $2,500,000 worth of SMPG Common Stock
(the "Warrants"). $1,250,000 was funded immediately and the remaining
$1,250,000 will be funded upon the filing of the Registration Statement (as
defined below) with the Securities and Exchange Commission (the "SEC").
The Convertible Debentures bear interest at a rate of 10% per annum,
payment of which shall commence on August 1, 2006 and continue monthly
thereafter. Interest is payable in cash or shares of Common Stock at the
election of the Investors. If the Registration Statement (as defined below) is
not declared effective by January 1, 2007, we will have to make payments of
principal in the amount of $150,000 each month through March 2007 and
$260,416.67 for each month thereafter, until no further Debentures are
outstanding, so long as the Registration Statement is not effective. The
Investors may convert the unpaid face value of, plus the accrued interest on,
the Convertible Debentures into SMPG Common Stock at any time at the lesser of
(i) ninety percent (90%) of the average of the five lowest closing best bid
prices of the SMPG Common Stock during the period commencing on the 21st day
immediately following the filing of this Form 8-K and ending on the earlier of
the effective date of the Registration Statement or the one-hundred-twentieth
(120th) day following the filing of this Form 8-K (the "Maximum Conversion
Price") and (ii) eighty percent (80%) of the lowest closing bid price on the
SMPG Common Stock during the ten (10) trading days immediately preceding the
receipt by the Registrant of a notice of conversion by the Investors (the
"Conversion Price").
In connection with the issuance of the Convertible Debentures, the
Registrant issued to the Investors Warrants to purchase $2,500,000 worth of SMPG
Common Stock at an exercise price equal to the greater of the 1)the Maximum
Conversion Price; or 2) eighteen cents ($.18) per share. The Warrants may be
exercised for a period of seven years and the exercise price is subject to
antidilution provisions.
We are required at all times to reserve sufficient shares for full
conversion of the Convertible Debentures and exercise of the Warrants.
If an event of default occurs, as defined in the Convertible Debentures,
the Investors may exercise their right to increase the face amount of the
Convertible Debenture by three percent (3%) as an initial penalty and by three
percent (3%) for each subsequent event of default. In addition, the Investors
may exercise their right to increase the face amount by two-and-a-half percent
(2.5%) per month to be paid as liquidated damages, compounded daily.
Pursuant to a Debenture Registration Rights Agreement, dated as of the
Closing Date, by and among the Registrant and the Investors (the "Registration
Rights Agreement"), the Registrant is obligated to file a registration statement
by August 4, 2006 (the "Filing Deadline") registering the SMPG Common Stock
issuable upon conversion of the Convertible Debenture and exercise of the
Warrants (the "Registration Statement"). If the Registrant does not file the
Registration Statement with the SEC by the Filing Deadline, it is obligated to
pay liquidated damages to the Investors in an amount equal to two percent (2%)
of the face value of the Convertible Debenture outstanding, compounded daily,
per month until the Registration Statement is filed. In addition, if the
Registrant fails to file the Registration Statement with the SEC by the fifth
(5th) day following the Filing Deadline, and for each fifteen (15) day period
the Registrant fails to file the Registration Statement thereafter, the
Conversion Price of the Convertible Debenture will decrease by ten percent (10%)
of the original Conversion Price. The Registrant is further obligated to use
its best efforts to cause the SEC to declare the Registration Statement
effective within 135 days after the Closing Date. If the Registration Statement
does not become effective within 135 days following the Closing Date, then the
Registrant is obligated to pay liquidated damages to the Investors in an amount
equal to two percent (2%) of the face value of the Convertible Debenture
outstanding, compounded daily, for each thirty (30) day period following the 135
days until the Registration Statement becomes effective. Additional time
deadlines and liquidated damage provisions also apply.
Pursuant to a Security Agreement, dated as of the Closing Date, by and
among the Registrant and the Investors (the "Security Agreement"), the
Registrant's obligation to repay the amounts outstanding under the Convertible
Debenture is secured by a first priority security interest in the assets of the
Registrant. In addition, shares of SMPG Common Stock currently owned or
hereafter acquired by the Registrant's Chief Executive Officer, Chief Financial
Officer and Chief Marketing Officer have been pledged as security for repayment
of the Debentures, which shares may be sold by the holders thereof only pursuant
to Leak-Out agreements executed by each of such holders with the Investors.
All securities were issued in reliance upon an exemption from registration
under Section 4(2) of the Securities Act and/or Rule 506 of Regulation D
promulgated thereunder as a transaction not involving a public offering. In
addition, the Investors are accredited investors, the Investors had access to
information about the Registrant and their investment, the Investors took the
securities for investment and not for resale and the Registrant took appropriate
measures to restrict the transfer of securities.
The above descriptions of the Subscription Agreement, Convertible
Debentures, Warrants, Registration Rights Agreement and Security Agreement as
well as the form of the Security Agreement and Leak-out agreements referred to
above are qualified in their entirety by reference to the actual agreements,
copies of which are filed as exhibits 10.6, 4.1, 4.2, 10.7, 10.8, 10.9 and
10.10, respectfully, hereto and incorporated herein by reference.
ITEM 4.01 CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
On July 14, 2006, as a direct result of the reverse acquisition then
completed and fully described in Item 2.01 in this Form 8-K, the Registrant has
decided to hire BDO Seidman LLP as its principal independent accountant, which
had been the independent accountants for NCHP since the year ended December 28,
2003. Accordingly, S.W. Hatfield, CPA ("Hatfield") will be dismissed subsequent
to the filing of Form 10-QSB, on or about July 20, 2006, related to the
Registrant's status as a shell company for the period ended May 31, 2006.
The reports of Hatfield on the Registrant's financial statements for the
fiscal years ended August 31, 2004 and August 31, 2005 did not contain any
adverse opinion, or disclaimer of opinion, nor were they qualified or modified
as to uncertainty, audit scope or accounting principles.
During the fiscal years ended August 31, 2004 and August 31, 2005 and the
review for the subsequent interim periods, (a) there were no disagreements with
Hatfield on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Hatfield, would have caused Hatfield to make
reference to the subject matter of the disagreements in connection with its
report, and (b) there were no "reportable events" as the term is defined in Item
304(a)(1)(v) of Regulation S-K.
ITEM 5.01. CHANGES IN CONTROL OF THE REGISTRANT.
On the Closing Date, the Registrant consummated the transactions contemplated by
the Merger Agreement and the Stock Purchase Agreement, pursuant to which the
Registrant acquired all of the issued and outstanding shares of stock of NCPH in
exchange for the issuance of shares of the common stock of the Registrant to the
NCPH shareholders and its investment banker representing 93.5% of the issued and
outstanding shares of the Registrant. The issuance of the Shares was exempt
from registration under the Securities Act of 1933, as amended ("Securities
Act"), pursuant to either Section 4(2) of, and Regulation D promulgated under,
the Securities Act. Following the Merger, NCPH became a wholly-owned subsidiary
of the Registrant and designees of NCPH became the sole officers and directors
of the Registrant. Reference is made to Item 2.01 of this Form 8-K for a more
extensive description of these transactions.
Other than the transactions and agreements disclosed in this Form 8-K, the
Registrant knows of no arrangements which may result in a change in control of
the Registrant.
No officer, director, promoter, or affiliate of the Registrant has, or proposes
to have, any direct or indirect material interest in any asset proposed to be
acquired by the Registrant through security holdings, contracts, options, or
otherwise.
ITEM 5.02. DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF
DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS.
In connection with the transactions contemplated by the Merger Agreement, there
was a complete change in the Registrants' Board of Directors and in management.
Prior to the consummation of the transaction, the Registrant's Board of
Directors was comprised of one member, Craig S. Laughlin. Laughlin was also the
Registrant's sole executive officer (President and Secretary). Effective at the
closing of the transactions contemplated by the Merger Agreement, Laughlin
resigned from his positions as President, Secretary and Director.
Simultaneously at closing, the then Directors and executive officers of NCPH
were appointed as Directors and executive officers of the Registrant as follows:
Paul A. Roman: Chairman of the Board, President and Chief Executive Officer
Thomas McNeill: Director, Vice President and Chief Financial Officer
Richard Gray: Director
Reference is made to Item 2.01 above for certain information regarding the
executive officers and directors of the Registrant.
ITEM 5.03. AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN
FISCAL YEAR
In conjunction with the merger described in Item 2.01, and on the Closing
Date, the Registrant will utilize a December fiscal year-end (the last Sunday in
December), in keeping with the historical fiscal year end used by NCPH. The
Registrant's year end was previously August 31st. In accordance with SEC
regulations, the Registrant is not required to file a transition report. The
Registrant's next filing on Form 10-QSB will be on or about July 20, 2006 with
respect to the shell company for the period ended May 31, 2006. With respect to
the past closing entity, the Registrant will file on Form 10-QSB, on or about
August 31, 2006, for the period ended June 25, 2006.
ITEM 5.06. CHANGE IN SHELL COMPANY STATUS.
As the result of the completion of the Merger effectuated pursuant to the
Merger Agreement, the Registrant is no longer a shell company. Reference is made
to Item 2.01 for a more complete description of the transaction and the business
of the Company subsequent to the Closing Date.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business acquired.
---------------------------------------------
Audited consolidated financial statements of the Company as of and for the years
ended December 25, 2005 and December 26, 2004 and unaudited condensed
consolidated financial statements as of March 26, 2006 and for the three months
ended March 26, 2006 and March 27, 2005 and for the periods then ended appear
elsewhere herein.
(b) Pro forma financial information.
----------------------------------
Unaudited pro forma consolidated balance sheet of the Company as of March 26,
2006 and unaudited pro forma consolidated statements of operations for the year
ended December 25, 2005 and the quarter ended March 26, 2006 appear elsewhere
herein.
(c) Exhibits.
--------
Exhibit No. Description
2.1 Agreement and Plan of Reorganization, dated July 14, 2006, by and
among SimplaGene USA, Inc., SMPG Merco, Inc., New Colorado Prime
Holdings, Inc. and Craig Laughlin
4.1 Debenture Agreement, dated July 14, 2006, by and among SimplaGene USA,
Inc. and Dutchess Private Equities Fund, LP and Dutchess Private
Equities Fund, II, LP
4.2 Warrant Agreement, dated as of July 14, 2006, by and among SimplaGene
USA, Inc. and Dutchess Private Equities Fund, LP and Dutchess Private
Equities Fund, II, LP
10.1 Stock Purchase Agreement, dated July 14, 2006, by and between New
Colorado Prime Holdings, Inc. and Craig Laughlin
10.2 Escrow Agreement, dated July 14, 2006, by and between New Colorado
Prime Holdings, Inc., SimplaGene USA, Inc., Craig Laughlin and Scott
B. Mitchell
10.3 Registration Rights Agreement, dated July 14, 2006, by and between
SimplaGene USA, Inc. and Craig Laughlin
10.4 Advisory Engagement Agreement, dated April 15, 2005, by and between
New Colorado Prime Holdings, Inc. and Crusader Securities, LLC and
addendum thereto, dated July 14, 2006
10.5 Registration Rights Agreement, dated July 14, 2006, by and between
SimplaGene USA, Inc. and Crusader Securities, LLC
10.6 Subscription Agreement, dated July 14, 2006, by and among SimplaGene
USA, Inc. and Dutchess Private Equities Fund, LP and Dutchess Private
Equities Fund, II, LP
10.7 Debenture Registration Rights Agreement, dated July 14, 2006, by and
among SimplaGene USA, Inc. and Dutchess Private Equities Fund, LP and
Dutchess Private Equities Fund, II, LP
10.8 Security Agreement, dated July 14, 2006, by and among SimplaGene USA,
Inc. and Dutchess Private Equities Fund, LP and Dutchess Private
Equities Fund, II, LP
10.9 Form of Security Agreement, dated July 14, 2006, by and among Dutchess
Private Equities Fund, LP, Dutchess Private Equities Fund, II, LP and
Paul A. Roman
10.10 Form of Leak out Agreement, dated July 14, 2006, by and among Dutchess
Private Equities Fund, LP, Dutchess Private Equities Fund, II, LP and
each of Paul A. Roman, Thomas McNeill and Richard Gray
10.11 Employment Agreement, dated September 1, 1998, by and between Colorado
Prime Holdings, Inc. and Paul Roman
10.12 Employment Agreement, dated March 16, 2006, between New Colorado Prime
Holdings, Inc. and Thomas McNeill
10.13 Shoppers Accounts Receivable Agreement
10.14 Lease Agreement, as amended on June 14, 2004, by and between New
Colorado Prime Holdings, Inc. and 500 Bi-County Associates, L.P.
32.1 Certification of the Registant's Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley act
of 2002 and Section 1350 of 18 U.S.C. 63.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SIMPLAGENE USA, INC.
--------------------
(Registrant)
Dated: July 19, 2006
--------------
Thomas McNeill, Vice President,
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description
2.1 Agreement and Plan of Reorganization, dated July 14, 2006, by and
among SimplaGene USA, Inc., SMPG Merco, Inc., New Colorado Prime
Holdings, Inc. and Craig Laughlin
4.1 Debenture Agreement, dated July 14, 2006, by and among SimplaGene USA,
Inc. and Dutchess Private Equities Fund, LP and Dutchess Private
Equities Fund, II, LP
4.2 Warrant Agreement, dated as of July 14, 2006, by and among SimplaGene
USA, Inc. and Dutchess Private Equities Fund, LP and Dutchess Private
Equities Fund, II, LP
10.1 Stock Purchase Agreement, dated July 14, 2006, by and between New
Colorado Prime Holdings, Inc. and Craig Laughlin
10.2 Escrow Agreement, dated July 14, 2006, by and between New Colorado
Prime Holdings, Inc., SimplaGene USA, Inc., Craig Laughlin and Scott
B. Mitchell
10.3 Registration Rights Agreement, dated July 14, 2006, by and between
SimplaGene USA, Inc. and Craig Laughlin
10.4 Advisory Engagement Agreement, dated April 15, 2005, by and between
New Colorado Prime Holdings, Inc. and Crusader Securities, LLC and
addendum thereto, dated July 14, 2006
10.5 Registration Rights Agreement, dated July 14, 2006, by and between
SimplaGene USA, Inc. and Crusader Securities, LLC
10.6 Subscription Agreement, dated July 14, 2006, by and among SimplaGene
USA, Inc. and Dutchess Private Equities Fund, LP and Dutchess Private
Equities Fund, II, LP
10.7 Debenture Registration Rights Agreement, dated July 14, 2006, by and
among SimplaGene USA, Inc. and Dutchess Private Equities Fund, LP and
Dutchess Private Equities Fund, II, LP
10.8 Security Agreement, dated July 14, 2006, by and among SimplaGene USA,
Inc. and Dutchess Private Equities Fund, LP and Dutchess Private
Equities Fund, II, LP
10.9 Form of Security Agreement, dated July 14, 2006, by and among Dutchess
Private Equities Fund, LP, Dutchess Private Equities Fund, II, LP and
Paul A. Roman
10.10 Form of Leak out Agreement, dated July 14, 2006, by and among Dutchess
Private Equities Fund, LP, Dutchess Private Equities Fund, II, LP and
each of Paul A. Roman, Thomas McNeill and Richard Gray
10.11 Employment Agreement, dated September 1, 1998, by and between Colorado
Prime Holdings, Inc. and Paul Roman
10.12 Employment Agreement, dated March 16, 2006, between New Colorado Prime
Holdings, Inc. and Thomas McNeill
10.13 Shoppers Accounts Receivable Agreement
10.14 Lease Agreement, as amended on June 14, 2004, by and between New
Colorado Prime Holdings, Inc. and 500 Bi-County Associates, L.P.
32.1 Certification of the Registant's Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley act of
2002 and Section 1350 of 18 U.S.C. 63.
NEW COLORADO PRIME HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 25, 2005 AND DECEMBER 26, 2004
1
NEW COLORADO PRIME HOLDINGS, INC. AND SUBSIDIARIES
CONTENTS
Report of Independent Registered Public Accounting Firm 3
Consolidated balance sheets 4
Consolidated statements of operations 5
Consolidated statements of stockholders' deficit 6
Consolidated statements of cash flows 7
Summary of significant accounting policies 8-11
Notes to consolidated financial statements 12-20
2
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of New Colorado
Prime Holdingns, Inc. and Subsidiaries as of December 25, 2005 and December 26,
2004, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the 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. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of New Colorado Prime
Holdings, Inc. at December 25, 2005 and December 26, 2004, and the results of
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
As disclosed in Note 11, the Company has restated its 2004 financial statements
to reflect the issuance and redemption of preferred stock.
March 31, 2006
3
NEW COLORADO PRIME HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
December
26, 2004
DECEMBER 25, (As restated
2005 See Note 11)
-------------- --------------
ASSETS
- ------
CURRENT:
Cash $ 1,306 $ 2,116
Due from financial institution 101 218
Inventories 21 20
Prepaid expenses and other assets, net 190 328
-------------- --------------
TOTAL CURRENT ASSETS 1,618 2,682
PROPERTY, PLANT AND EQUIPMENT, NET 354 156
OTHER ASSETS, NET 54 -
-------------- --------------
TOTAL ASSETS $ 2,026 $ 2,838
-------------- --------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
- ----------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 466 $ 461
Accrued expenses 1,384 2,031
Deferred revenue 319 1,158
Income and other taxes payable 272 257
Other liabilities 5 5
-------------- --------------
TOTAL CURRENT LIABILITIES 2,446 3,912
LONG-TERM LIABILITIES:
Accrued expenses, long-term portion 250 350
Other liabilities 3 8
-------------- --------------
TOTAL LIABILITIES 2,699 4,270
COMMITMENTS
- -----------
STOCKHOLDERS' DEFICIT
Preferred stock, $0.01 par value per
share authorized 24,000, issued and
outstanding 22,200 shares; at
liquidation value 37,682 33,266
Common stock, $0.01 par value per share
authorized 1,200,000 issued and
outstanding, 913,690 shares 9 9
Additional paid in capital - 577
Accumulated deficit (38,364) (35,284)
-------------- --------------
TOTAL STOCKHOLDERS' DEFICIT (673) (1,432)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,026 $ 2,838
<fn>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
4
NEW COLORADO PRIME HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
December
26, 2004
DECEMBER 25, (As restated
Years Ended 2005 See Note 11)
- ----------- -------------- --------------
REVENUES $ 14,880 $ 20,743
COST OF GOODS SOLD 6,810 9,578
-------------- --------------
GROSS PROFIT 8,070 11,165
-------------- --------------
OPERATING EXPENSES:
- --------------------
Selling, general and administrative 7,174 8,451
Restructuring and other one time recoveries, net (6) (186)
Depreciation and amortization 136 235
-------------- --------------
TOTAL OPERATING EXPENSES 7,304 8,500
-------------- --------------
OPERATING INCOME 766 2,665
-------------- --------------
Interest expense 1 71
-------------- --------------
INCOME BEFORE PROVISION FOR INCOME TAXES 765 2,594
PROVISION FOR INCOME TAXES 6 10
-------------- --------------
NET INCOME $ 759 $ 2,584
-------------- --------------
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS $ (3,657) $ (642)
-------------- --------------
NET LOSS PER SHARE (BASIC & DILUTED) $ (4.00) $ (.70)
-------------- --------------
COMMON SHARES USED IN COMPUTING NET
LOSS PER SHARE AMOUNTS (BASIC & DILUTED) 913,690 913,690
-------------- --------------
<FN>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
5
NEW COLORADO PRIME HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Preferred Stock Common Stock
----------------- -----------------
Shares Amount Shares Amount Additional paid-in capital Accumulated deficit Total
------ ------- ------- ------ -------------------------- ------------------- ---------
Balance at December
28, 2003 20,000 $27,840 913,690 $9 $7,503 $(37,868) $ (2,516)
Issuance of preferred
stock to management 4,000 4,000 - - (3,700) - 300
Payment of preferred
stock redemption (1,800) (1,800) - - - - (1,800)
Accrual of preferred
stock dividends - 3,226 - - (3,226) - -
Net income - - - - - 2,584 2,584
------ ------- ------- ------ -------------------------- ------------------- ---------
Balance at December
26, 2004 (As restated
see note 11) 22,200 33,266 913,690 9 577 (35,284) (1,432)
Accrual of preferred
stock dividends - 4,416 - - (577) (3,839) -
Net income - - - - - 759 759
------ ------- ------- ------ -------------------------- ------------------- ---------
Balance at
December 25, 2005 22,200 $37,682 913,690 $9 $ - $(38,364) $ (673)
------ ------- ------- ------ -------------------------- ------------------- ---------
<FN>
See accompanying summary of significant accounting policies
and notes to consolidated financial statements.
6
NEW COLORADO PRIME HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
December
26, 2004
DECEMBER 25, (As restated
Years Ended 2005 See Note 11)
- ----------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 759 $ 2,584
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 136 235
Compensation charge associated with preferred
shares issued to management - 300
Gain on extinguishment of capital lease - (130)
Change in operating assets and liabilities:
Accounts receivable 117 61
Inventories (1) 27
Prepaid expenses and other assets 138 322
Accounts payable 5 (405)
Accrued expenses (747) (1,017)
Deferred revenue (839) (1,590)
Income and other taxes payable 15 11
-------------- --------------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (417) 398
-------------- --------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, plant and equipment (316) (13)
Purchase of other long term asset (72) -
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (388) (13)
-------------- --------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Redemption of preferred stock - (1,800)
Principal repayment of capital
lease obligations (5) (80)
-------------- --------------
NET CASH USED IN FINANCING ACTIVITIES (5) (1,880)
-------------- --------------
NET DECREASE IN CASH (810) (1,495)
CASH, BEGINNING OF YEAR 2,116 3,611
-------------- --------------
CASH, END OF YEAR 1,306 $ 2,116
-------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ 71
Income taxes 26 30
-------------- --------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Write-off of asset held under capital
lease and extinguishment of related
obligation $ - $ 2,595
Accrual of preferred stock dividends 4,416 3,226
-------------- --------------
<FN>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
7
NEW COLORADO PRIME HOLDINGS, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include
the accounts of New Colorado Prime Holdings, Inc. ("NCPH") and its wholly owned
subsidiaries (the "Company"). Intercompany accounts and transactions have been
eliminated in consolidation.
FISCAL YEAR The Company's fiscal year ends on the last Sunday in December.
The Company's 2005 fiscal year consisted of the fifty-two week period beginning
on December 27, 2004 and ending on December 25, 2005. The Company's 2004 fiscal
year consisted of the fifty-two week period beginning on December 29, 2003 and
ending on December 26, 2004.
REVENUE RECOGNITION The Company recognizes revenue from product sales, when
(i) persuasive evidence of an arrangement exists and the sales price is fixed or
determinable (evidenced by written sales orders), (ii) delivery of the product
has occurred, and (iii) collectibility of the resulting receivable is reasonably
assured. Shipping and handling expenses of $1,991 and $2,814 are included in
selling, general and administrative expenses for the fiscal years ended December
25, 2005 and December 26, 2004 respectively. Although the Company accepts
product returns, historical returns have been insignificant.
The Company has sold separately-priced warranty arrangements covering
certain durable goods. In accordance with FASB Technical Bulletin No. 90-1,
Accounting for Separately Priced Extended Warranty and Product Maintenance
Contracts, revenue on these warranty arrangements is recognized on a
straight-line basis over the warranty service period, which is typically
thirty-six months. Costs associated with these warranty arrangements are
recognized as they are incurred. As of April 2003, the Company no longer offers
these warranty arrangements.
Deferred revenue consists principally of the unearned portion of the above
described separately priced warranties as well as advance billings for customer
food orders.
8
DUE FROM FINANCIAL INSTITUTION The Company submits substantially all
accounts receivable to a third party financial institution for collection,
without recourse. Payment is generally received from this financial institution
within three business days. The financial institution holds in escrow
approximately 3% of the net receivables that have been submitted by the Company
and not collected. This escrow is evaluated by the financial institution on a
quarterly basis.
PROPERTY, PLANT AND EQUIPMENT Property, plant, and equipment are stated at
cost, net of accumulated depreciation and amortization. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the related assets or, in the case of leasehold improvements,
the lesser of the life of the related leases or the life of the improvement.
Costs of internal use software are accounted for in accordance with
Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" and Emerging Issue Task Force
No. 00-02 ("EITF 00-02"). "Accounting for Website Development Costs." SOP 98-1
and EITF 00-02 require that the Company expense computer software and website
development costs as they are incurred during the preliminary project stage.
Once the capitalization criteria of SOP 98-1 and EITF 00-02 have been met,
external direct costs of materials and services consumed in developing or
obtaining internal-use software, including website development, are capitalized.
Capitalized costs are amortized using the straight-line method over the
software's estimated useful life, estimated at three years. Capitalized
internal use software and website development costs are included in property,
plant and equipment, net, in the accompanying balance sheets.
Estimate useful lives are as follows:
Machines and office equipment 5 to 8 years
Capitalized software and development 3 years
9
LONG-LIVED ASSETS The Company determines the recoverability of its
long-lived assets in accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Long-lived assets, such as property, plant and equipment, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset group may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
the asset group to estimated undiscounted future cash flows expected to be
generated by the asset group. If the carrying amount of an asset group exceeds
its estimated future cash flows, an impairment charge is recognized for the
amount by which the carrying amount of the asset group exceeds the fair value of
the asset group. Management believes there is no impairment of any long-lived
assets as of December 25, 2005
INCOME TAXES The Company accounts for its income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be realized 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.
USE OF ESTIMATES The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
10
CONCENTRATION RISK The Company purchased 100% of their food products from one
vendor during the year ended December 25, 2005 and December 26, 2004. The
Company is not obligated to purchase from this vendor, and, if necessary, there
are other vendors from which the Company can purchase food products from.
11
NEW COLORADO PRIME HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. THE COMPANY AND NATURE OF OPERATIONS The Company is a direct marketer
of food, groceries, appliances and accessories related to in-home dining and
entertainment directly to consumers located throughout the United States.
2. PLAN OF RESTRUCTURING In March 2003, the Company advised its lenders
it was in default with certain financial ratios under its credit agreement. The
principal lenders advised the Company that maturity of the borrowings
outstanding under the credit agreement were accelerated, and that availability
of future borrowings under its credit agreement were suspended.
To generate cash to fund the operations of the Company, and to satisfy
the requirement to repay the financial institution, the Company sold its
accounts receivables at a significant discount throughout 2003.
In addition, the Company restructured its operations to enhance
short-term liquidity through cost reductions. In April, 2003, the Company closed
down its direct to consumer sales and telemarketing operations. This included
closing all sales offices outside of its corporate office, all telemarketing
centers, and all distribution routes. Approximately 930 employees and 55 lessees
were terminated pursuant to the Company's revised operating plans. The Company's
present operations consist of fulfilling reorder customers through the use of an
outsourced delivery agent. Also, the Company has commenced attracting new
customers through multi-channel media which include catalogues, e-commerce,
strategic alliances and exhibit marketing as well as existing customer
referrals. The Company fully satisfied all outstanding borrowings under its
credit facility through the proceeds from the sale of accounts receivable in
July and December of 2003 with a new financial institution. Accordingly, under
the new business model, the Company no longer participates in the collection of
accounts receivable. This is now outsourced to this new financial institution
as discussed in the Summary of Significant Accounting Policies.
12
In connection with these restructuring activities, the Company
recorded net restructuring (recoveries) charges in 2005 and 2004 of $(6) and
$(186), respectively, consisting of the following:
Year ended December 25, December 26,
2005 2004
------------ ------------
Restructuring and other one-time charges:
Gain on accounts payable settlements $ (6) $ (56)
Gain on extinguishment of capital lease,
net of break fee of $590 in 2004. - (130)
------------ ------------
$ (6) $ (186)
------------ ------------
The following table summarizes the restructuring activity, which is included in
accrued expenses, as follows:
Accrued restructuring charge at
December 28, 2003 $ 1,674
Addition of capital lessee break fee 590
Utilized (asset write-offs and cash payments) (693)
Accrued restructuring charges at
December 26, 2004 $ 1,571
Utilized (asset write-offs and cash payments) (300)
Accrued restructuring charges at
December 25, 2005 $ 1,271
------------ ------------
13
The balance of accrued restructuring charges consisted of the following:
December 25, December 26,
2005 2004
------------ ------------
Accrued future minimum payments under
current lease obligations $ 921 $ 1,121
Break fee under renegotiation of lease
(See Note 10) 350 450
------------ ------------
$ 1,271 $ 1,571
In connection with the restructuring activities noted above, the
Company stopped paying various vendors who were providing goods and services to
the Company (although the related liabilities are recorded in the accompanying
consolidated balance sheet). The Company is currently negotiating with several
vendors to pay a reduced amount; when the Company reaches an agreement with the
vendor the Company may record forgiveness of debt income.
3. PREPAID EXPENSES AND OTHER ASSETS, NET Prepaid expenses and other
assets, net consists of the following as of December 25, 2005 and December 26,
2004:
DECEMBER 25, 2005 December 26, 2004
------------------- -------------------
Sales tax receivable, net $ 10 $222
Prepaid insurance, net 37 36
Other 52 70
Prepaid financing costs 91 -
------------------- -------------------
$ 190 $328
------------------- -------------------
14
4. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net
consist of the following as of December 25, 2005 and December 26, 2004:
DECEMBER 25, 2005 December 24, 2004
------------------- -------------------
Machinery and office equipment $593 $796
Capitalized software and
development 269 -
------------------- -------------------
862 796
Less accumulated depreciation
and amortization (508) (640)
------------------- -------------------
$354 $156
------------------- -------------------
5. ACCRUED EXPENSES Accrued expenses consist of the following as of
December 25, 2005 and December 26, 2004:
DECEMBER 25, 2005 December 26, 2004
------------------- -------------------
Accrued restructuring charges $1,271 $1,571
Payroll and health benefits 101 356
Professional fees 132 347
Other 130 107
------------------- -------------------
$1,634 $2,381
------------------- -------------------
Accrued expenses include the long term portion of the break fee
associated with the re-negotiation of their capital lease. At December 25, 2005
and December 26, 2004 the long term portion of the break fee was $250 and $350
respectively.
15
6. LOSS PER COMMON SHARE
Net loss per common share amounts (basic EPS) are computed by dividing net
loss available to common stockholders by the weighted average number of common
stock shares. Dilutive EPS are not presented because including potential shares
issued in connection with the outstanding warrants (see Note 8) would be
anti-dilutive.
Basic EPS computations are as follows:
52 Weeks Ended 52 Weeks Ended
Dec. 25, 2005 Dec. 26, 2004
(In thousands, except per share data) (In thousands, except per share data)
------------------------------------- --------------------------------------
Net loss Shares Per Share Net income Shares Per Share
(loss)
(Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts
----------- ------------- --------- ----------- ------------- ----------
Net (loss) income $ 759 913.7 $ .83 $ 2,584 913.7 $ 2.83
Preferred stock dividends accrued (4,416) - (4.83) (3,226) - (3.53)
----------- ------------- --------- ----------- ------------- ----------
Net loss attributable to
common stock $ (3,657) 913.7 $ (4.00) $ (642) 913.7 $ (0.70)
=========== ============= ========= =========== ============= ==========
16
7. INCOME TAXES
The provision for income taxes of $6 and $10 for the fiscal years
ended December 25, 2005 and December 26, 2004 is comprised principally of state
franchise taxes.
Significant components of deferred income tax assets and liabilities
as of December 25, 2005 and December 26, 2004 are as follows:
DECEMBER 25, 2005 December 26, 2004
----------------- -----------------
Deferred tax assets:
Depreciation $ 10 $ -
Net operating loss carryforwards 11,693 11,400
Deferred revenue 41 364
Accrued expenses and other, net 636 902
----------------- -----------------
12,380 12,666
Deferred tax liabilities:
Depreciation - 5
Prepaid expenses 14 -
----------------- -----------------
Deferred tax asset 12,366 12,661
----------------- -----------------
Less valuation allowance (12,366) (12,661)
----------------- -----------------
- -
----------------- -----------------
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax assets and liabilities,
expected future taxable income and tax planning strategies in making this
assessment. Management has considered the Company's history of generating tax
losses and its accumulated deficit as significant negative evidence as to the
realizability of its deferred tax assets. Accordingly, at December 25, 2005 and
December 26, 2004, the Company has established a valuation allowance against its
deferred tax assets.
17
At December 25, 2005 the Company has net operating loss carryforwards
for federal income tax purposes of $30,278, which are available to offset future
federal taxable income, if any. Such net operating losses expire from 2021
through 2024. Section 382 of the Internal Revenue Code could limit the
availability of the net operating loss carry forward if there has been a change
in ownership. The Company has not evaluated the applicability of this
provision.
8. STOCKHOLDERS' EQUITY In March 2004, the Company's Certificate of
Incorporation was amended to authorize and issue 4,000 shares of Preferred Stock
to certain members of the Company's management. Additionally this amendment
provides for quarterly Mandatory Redemptions of Preferred Stock under certain
circumstances based upon a calculation of an adjusted EBITDA. The potential
Mandatory Redemption amount is calculated quarterly commencing with the period
ended March 31, 2004. To date there have been no required quarterly Mandatory
Redemptions and no such redemptions are expected during the year ended December
31, 2006.
(a) Preferred Stock
The preferred shareholders are entitled to preference in the amount of
$1,000 per share in the event of liquidation of the Company, plus accreted and
unpaid dividends. The preferred shareholders have no voting rights. Dividends on
the Preferred Stock accrue at a stated rate of 12.5% per annum compounded on a
daily basis, whether or not funds are legally available and whether or not
declared by the board of directors. The Company records the accretion of these
dividends as an increase in the liquidation value and a decrease to additional
paid in capital or retained earnings where appropriate, and has accumulated
accreted preferred dividends of $15,482 and $11,066 as of December 25, 2005 and
December 26, 2004, respectively.
The Company presents its preferred stock at liquidation value on the
consolidated balance sheet. The Company may at any time redeem all or any
portion of the Preferred Stock then outstanding with the approval of the board
of directors. The Preferred Stock is contingently redeemable by the holders
based upon the performance of the Company, accordingly, such Preferred Stock is
classified within stockholders' equity.
18
During fiscal 2004, the Company redeemed 1,800 shares of Preferred
Stock for $1,800.
(b) Common Stock and Warrants
In connection with an exchange agreement, the Company issued
1 million shares of Common Stock. Holders of Common Stock are entitled to
one vote per share on all matters to be voted on by the stockholders.
On May 7, 2001, in connection with the acquisition of the Company's
predecessor, the Company issued a stock purchase warrant to purchase, in the
aggregate, 50,000 shares of the Company's common stock at an exercise price of
$50.00 per share, subject to adjustment as defined in the warrant agreement. The
warrants have a termination date of May 7, 2006. The value of the warrant was
insignificant, as calculated using the Black-Scholes option-pricing model.
9. PENSION PLAN The Company sponsors a 401(k) defined contribution plan
(the Plan) available to all employees who have attained the age of 21 and have
completed six months of service with the Company. Under the Plan, participants
may elect to defer up to 20% of their annual compensation as contributions to
the Plan. Forfeitures are used to reduce the Company's contributions. The Plan
provides for discretionary contributions, and the Company's match under the Plan
for fiscal 2005 and 2004 was fully covered by employee forfeitures.
19
10. COMMITMENTS In March 2004, the Company re-negotiated the capital
lease of its corporate headquarters located in Farmingdale, New York, converting
it to an operating lease and reducing its office space. The Company was charged
a break fee of $590, with $90 paid in 2004 and the balance payable in sixty
equal installments of approximately $8 commencing July 2004. As of December 25,
2005, the Company has accrued $350 in accrued restructuring charges relating to
this break fee. As a result of this renegotiation, the Company wrote down all
related assets and capital lease obligations, which resulted in a gain of
approximately $130 in 2004.
Future minimum operating lease payments, adjusted for the lease
amendment as of December 25, 2005 are as follows:
2006 $ 118
2007 121
2008 125
2009 128
2010 132
Thereafter 432
------
$1,056
------
Rent expense charged to operations was $120 and $117 for the years
then ended December 25, 2005 and December 26, 2004 respectively.
For the year ended December 25, 2005, the Company has an employment
agreement with the Chairman and Chief Executive Officer dated September 1, 1998.
The agreement automatically renews for one-year periods unless terminated with
30 days notice. The agreement provides for base compensation of $350 per year,
a car allowance of $9 per year and payment of his medical, dental and life
insurance that the Company may have in effect from time to time, as well as
payments upon termination.
11. RESTATEMENT The Company has restated its financial statements for
2004 as a result of a grant of 4,000 Preferred Shares which were not previously
recorded. Accordingly, the Company increased the value of the preferred shares
by the liquidation value of $4,000 plus accreted dividends of $277.
Additionally, the Company has restated its financial statements for 2004 by
adjusting for the redemption of $1,800 of preferred stock of which $300 was
treated as compensation expense to reflect redemption of those shares issued to
management. Accordingly, Net Income decreased by $300 in 2004.
20
NEW COLORADO PRIME HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 26, 2006 AND MARCH 27, 2005
1
NEW COLORADO PRIME HOLDINGS, INC. AND SUBSIDIARIES
CONTENTS
(unaudited)
Consolidated balance sheets 3
Consolidated statements of operations 4
Consolidated statements of cash flows 5
Summary of significant accounting policies 6-9
Notes to consolidated financial statements 10-14
2
NEW COLORADO PRIME HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 26, DECEMBER
2006 25, 2005
(unaudited)
-------------- --------------
ASSETS
- ------
CURRENT:
Cash $ 1,000 $ 1,306
Due from financial institution 149 101
Inventories 76 21
Prepaid expenses and other assets, net 161 190
-------------- --------------
TOTAL CURRENT ASSETS 1,386 1,618
PROPERTY, PLANT AND EQUIPMENT, NET 324 354
OTHER ASSETS, NET 48 54
-------------- --------------
TOTAL ASSETS $ 1,758 $ 2,026
-------------- --------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 476 $ 466
Accrued expenses 1,379 1,384
Deferred revenue 303 319
Income and other taxes payable 274 272
Other liabilities 5 5
-------------- --------------
TOTAL CURRENT LIABILITIES 2,437 2,446
LONG-TERM LIABILITIES:
Accrued expenses, long-term portion 225 250
Other liabilities 2 3
-------------- --------------
TOTAL LIABILITIES 2,664 2,699
-------------- --------------
COMMITMENTS
STOCKHOLDERS' DEFICIT
Preferred stock, $0.01 par value per share
authorized 24,000, issued and
outstanding 22,200 shares;
at liquidation value 38,875 37,682
Common stock, $0.01 par value per
share authorized 1,200,000 issued and
outstanding, 913,690 shares 9 9
Additional paid in capital - -
Accumulated deficit (39,790) (38,364)
-------------- --------------
TOTAL STOCKHOLDERS' DEFICIT (906) (673)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,758 $ 2,026
-------------- --------------
<FN>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
3
NEW COLORADO PRIME HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
MARCH 26, MARCH
Quarters Ended 2006 27, 2005
-------------- --------------
REVENUES $ 2,828 $ 4,001
COST OF GOODS SOLD 1,440 1,823
-------------- --------------
GROSS PROFIT 1,388 2,178
-------------- --------------
OPERATING EXPENSES:
Selling, general and administrative 1,582 1,988
Restructuring and other one time recoveries, net 0 (5)
Depreciation and amortization 37 22
-------------- --------------
TOTAL OPERATING EXPENSES 1,619 2,005
OPERATING (LOSS) INCOME (231) 173
-------------- --------------
Interest expense 0 1
-------------- --------------
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES (231) 172
PROVISION FOR INCOME TAXES 1 1
-------------- --------------
NET (LOSS) INCOME $ (232) $ 171
-------------- --------------
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS (1,425) (883)
-------------- --------------
NET LOSS PER SHARE (BASIC & DILUTED) $ (1.56) $ (0.97)
-------------- --------------
COMMON SHARES USED IN COMPUTING NET LOSS
PER SHARE AMOUNTS (BASIC & DILUTED) 913,690 913,690
-------------- --------------
<FN>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
4
NEW COLORADO PRIME HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(unaudited)
MARCH 26, MARCH
Quarters Ended 2006 27, 2005
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (232) $ 171
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 37 22
Change in operating assets and liabilities:
Accounts receivable (48) (98)
Inventories (55) 1
Prepaid expenses and other assets 27 153
Accounts payable 10 32
Accrued expenses (30) (276)
Deferred revenue (16) (201)
Income and other taxes payable 2 9
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (305) (187)
-------------- --------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, plant and equipment 0 (15)
Purchase of other long term asset 0 (43)
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES 0 (58)
-------------- --------------
CASH FLOWS USED IN FINANCING ACTIVITY:
Principal repayment of capital lease obligations (1) (1)
-------------- --------------
NET CASH USED IN FINANCING ACTIVITY (1) (1)
-------------- --------------
NET DECREASE IN CASH (306) (246)
CASH, BEGINNING OF YEAR 1,306 2,116
-------------- --------------
CASH, END OF YEAR $ 1,000 $ 1,870
-------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ -
Income taxes - -
-------------- --------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY:
Accrual of preferred stock dividends $ 1,193 $ 1,054
-------------- --------------
<FN>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
5
NEW COLORADO PRIME HOLDINGS, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include
the accounts of New Colorado Prime Holdings amd its wholly-owned subsidiaries.
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States ("GAAP") and SEC rules for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements.
The consolidated financial statements included herein should be read in
conjunction with the consolidated financial statements and the footnotes thereto
included herein.
In our opinion, the information presented reflects all adjustments necessary for
a fair statement of interim results. All such adjustments are of a normal and
recurring nature. The foregoing interim results are not necessarily indicative
of the results of operations for the full year ending December 31, 2006.
FISCAL YEAR The Company's fiscal year ends on the last Sunday in December.
The Company's first 2006 fiscal quarter consisted of the thirteen week period
beginning on December 26, 2005 and ending on March 26, 2006. The Company's
first 2005 fiscal quarter consisted of the thirteen week period beginning on
December 27, 2004 and ending on March 27, 2005.
REVENUE RECOGNITION The Company recognizes revenue from product sales, when
(i) persuasive evidence of an arrangement exists and the sales price is fixed or
determinable (evidenced by written sales orders), (ii) delivery of the product
has occurred, and (iii) collectibility of the resulting receivable is reasonably
assured. Shipping and handling expenses of $386 and $594 are included in
selling, general and administrative expenses for the fiscal quarters ended March
26, 2006 and March 27, 2005, respectively. Although the Company accepts product
returns, historical returns have been insignificant.
The Company has sold separately-priced warranty arrangements covering
certain durable goods. In accordance with FASB Technical Bulletin No. 90-1,
Accounting for Separately Priced Extended Warranty and Product Maintenance
Contracts, revenue on these warranty arrangements is recognized on a
straight-line basis over the warranty service period, which is typically
thirty-six months. Costs associated with these warranty arrangements are
recognized as they are incurred. As of April 2003, the Company no longer offers
these warranty arrangements.
Deferred revenue consists principally of the unearned portion of the above
described separately priced warranties as well as advance billings for customer
food orders.
6
DUE FROM FINANCIAL INSTITUTION The Company submits substantially all
accounts receivable to a third party financial institution for collection,
without recourse. Payment is generally received from this financial institution
within three business days. The financial institution holds in escrow
approximately 3% of the net receivables that have been submitted by the Company
and not collected. This escrow is evaluated by the financial institution on a
quarterly basis.
PROPERTY, PLANT AND EQUIPMENT Property, plant, and equipment are stated at
cost, net of accumulated depreciation and amortization. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the related assets or, in the case of leasehold improvements,
the lesser of the life of the related leases or the life of the improvement.
Costs of internal use software are accounted for in accordance with
Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" and Emerging Issue Task Force
No. 00-02 ("EITF 00-02"). "Accounting for Website Development Costs." SOP 98-1
and EITF 00-02 require that the Company expense computer software and website
development costs as they are incurred during the preliminary project stage.
Once the capitalization criteria of SOP 98-1 and EITF 00-02 have been met,
external direct costs of materials and services consumed in developing or
obtaining internal-use software, including website development, are capitalized.
Capitalized costs are amortized using the straight-line method over the
software's estimated useful life, estimated at three years. Capitalized
internal use software and website development costs are included in property,
plant and equipment, net, in the accompanying balance sheets.
Estimated useful lives are as follows:
Machines and office equipment 5 to 8 years
Capitalized software and development 3 years
7
LONG-LIVED ASSETS The Company determines the recoverability of its
long-lived assets in accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Long-lived assets, such as property, plant and equipment, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset group may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
the asset group to estimated undiscounted future cash flows expected to be
generated by the asset group. If the carrying amount of an asset group exceeds
its estimated future cash flows, an impairment charge is recognized for the
amount by which the carrying amount of the asset group exceeds the fair value of
the asset group. Management believes there is no impairment of any long-lived
assets as of March 26, 2006.
INCOME TAXES The Company accounts for its income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be realized 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.
8
USE OF ESTIMATES The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
CONCENTRATION RISK The Company purchased 100% of their food products from one
vendor during the three months ended March 26, 2006 and March 25, 2005. The
Company is not obligated to purchase from this vendor, and, if necessary, there
are other vendors from which the Company can purchase food products from.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
SFAS 123R, Share-Based Payment. SFAS No. 123R addresses all forms
of share-based payment awards, including shares issued under employee stock
purchase plans, stock options, restricted stock and stock appreciation rights.
It requires companies to recognize in the statement of earnings the grant-date
fair value of stock options and other equity-based compensation issued to
employees, but expresses no preference for a type of valuation model. The
statement eliminates the intrinsic value-based method prescribed by APB Opinion
No. 25, and related interpretation, that the Company currently uses. The Company
has adopted SFAS No. 123R effective January 1, 2006 using the modified
prospective method. Had the Company previously adopted this pronouncement, the
effects would have been immaterial. Currently the Company has no stock option
plan however expects to adopt one in the future.
9
NEW COLORADO PRIME HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. THE COMPANY AND NATURE OF OPERATIONS The Company is a direct marketer
of food, groceries, appliances and accessories related to in-home dining and
entertainment directly to consumers located throughout the United States.
2. PLAN OF RESTRUCTURING In March 2003, the Company advised its lenders
it was in default with certain financial ratios under its credit agreement. The
principal lenders advised the Company that maturity of the borrowings
outstanding under the credit agreement were accelerated, and that availability
of future borrowings under its credit agreement were suspended.
To generate cash to fund the operations of the Company, and to satisfy
the requirement to repay the financial institution, the Company sold its
accounts receivables at a significant discount throughout 2003.
In addition, the Company restructured its operations to enhance
short-term liquidity through cost reductions. In April, 2003, the Company closed
down its direct to consumer sales and telemarketing operations. This included
closing all sales offices outside of its corporate office, all telemarketing
centers, and all distribution routes. Approximately 930 employees and 55 lessees
were terminated pursuant to the Company's revised operating plans. The Company's
present operations consist of fulfilling reorder customers through the use of an
outsourced delivery agent. Also, the Company has commenced attracting new
customers through multi-channel media which include catalogues, e-commerce,
strategic alliances and exhibit marketing as well as existing customer
referrals. The Company fully satisfied all outstanding borrowings under its
credit facility through the proceeds from the sale of accounts receivable in
July and December of 2003 with a new financial institution. Accordingly, under
the new business model, the Company no longer participates in the collection of
accounts receivable. This is now outsourced to this new financial institution
as discussed in the Summary of Significant Accounting Policies.
10
In connection with these restructuring activities, the Company
recorded net restructuring recoveries in the quarters ended March 26, 2006 and
March 25,2005 of $0 and $5 consisting of gains on accounts payable settlements.
The balance of accrued restructuring charges consisted of the
following:
MARCH 26, 2006 December 25, 2005
-------------- -----------------
Accrued future minimum payments
under current lease obligations $ 921 $ 921
Break fee under renegotiation
of lease (See Note 10) 325 350
-------------- -----------------
$ 1,246 $ 1,271
-------------- -----------------
In connection with the restructuring activities noted above, the
Company stopped paying various vendors who were providing goods and services to
the Company (although the related liabilities are recorded in the accompanying
consolidated balance sheet). The Company is currently negotiating with several
vendors to pay a reduced amount; when the Company reaches an agreement with the
vendor the Company may record forgiveness of debt income.
11
3. ACCRUED EXPENSES Accrued expenses consist of the following as of
March 26, 2006 and December 25, 2005:
MARCH 26, 2006 December 25, 2005
-------------- -----------------
Accrued restructuring charges $1,246 $1,271
Payroll and health benefits 93 101
Professional fees 137 132
Other 128 130
-------------- -----------------
$1,604 $1,634
-------------- -----------------
Accrued expenses include the long term portion of the break fee
associated with the re-negotiation of their capital lease. At March 26, 2006
and December 25, 2005 the long term portion of the break fee was $225 and $250
respectively.
12
4. LOSS PER COMMON SHARE
Net loss per common share amounts (basic EPS) are computed by dividing net loss
available to common stockholders by the weighted average number of common stock
shares. Dilutive EPS are not presented because including potential shares issued
in connection with the outstanding warrants would be anti-dilutive.
Basic EPS computations are as follows:
Three Months Ended Three Months Ended
March 26, 2006 March 27, 2005
(In thousands, except per share data) (In thousands, except per share data)
------------------------------------- --------------------------------------
Net loss Shares Per Share Net income Shares Per Share
(loss)
(Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts
----------- ------------- --------- ----------- ------------- ----------
Net (loss) income $ (232) 913.7 $(.25) $ 171 913.7 $ .18
Preferred stock dividends accrued (1,193) - (1.31) (1,054) - (1.15)
----------- ------------- --------- ----------- ------------- ----------
Net loss attributable to
common stock $ (1,425) 913.7 $ (1.56) $ (883) 913.7 $ (0.97)
=========== ============= ========= =========== ============= ==========
13
5. COMMITMENTS In March 2004, the Company re-negotiated the capital lease of
its corporate headquarters located in Farmingdale, New York, converting it to an
operating lease and reducing its office space. The Company was charged a break
fee of $590, with $90 paid in 2004 and the balance payable in sixty equal
installments of approximately $8 commencing July 2004. As of March 26, 2006 and
December 25, 2005, the Company has accrued $325 and $350 respectfully in accrued
restructuring charges relating to this break fee.
Future minimum operating lease payments, adjusted for the lease amendment
as of March 26, 2006 are as follows:
Year ended
2006 $ 88
2007 121
2008 125
2009 128
2010 132
Thereafter 432
------
$1,026
------
Rent expense charged to operations was $29 and $30 for the quarters
ended March 26, 2006 and March 27, 2005 respectively.
6. SUBSEQUENT EVENT
On July 14 2006, the Company completed a merger with a shell company and
simultaneously issued $2,500,000 of convertible debt and $2,500,000 of warrants.
This transaction is being accounted for as a reverse merger and a
recapitalization of the Company. The Company has identified embedded derivatives
withing the convertible debt agreement, which the Company is in the process of
evaluating.
14
Proforma Financials
-------------------
On July 14, 2006, Simplagene USA, Inc. (the "Registrant") acquired, through a
merger of Merco, a wholly owned subsidiary of the Registrant, with and into New
Colorado Prime Holdings ("NCPH"), all of the issued and outstanding capital
stock of NCPH. In exchange for all of the capital stock of NCPH, and taking into
account NCPH's stock purchase with Craig Laughlin, described more fully in item
2.01 of this Form 8-K filing, the former NCPH shareholders and NCPH's financial
advisor have acquired 93.5% of the issued and outstanding shares of common stock
of the Registrant. This transaction is being accounted for as a reverse merger
and recapitalization of NCPH. As a result of this transaction, Craig Laughlin
resigned as the Registrant's CEO and sole Director, and senior management of
NCPH were appointed as officers and Directors of NCPH as follows: Paul A. Roman,
President and CEO, and Thomas McNeill, Vice President and CFO, were appointed
both as Officers and Directors of the Registrant, and Richard Gray was appointed
a Director, accordingly, NCPH is deemed to be the acquiring company for
accounting purposes. The Registrant issued 25,799,141 shares of its common stock
in exchange for all the issued and outstanding shares of NCPH. In addition the
Registrant issued 2,250,000 shares to NCPH's financial advisor.
The following unaudited financial information has been developed by application
of pro forma adjustments to the historical financial statements of SMPG, defined
as the Registrant prior to the merger transaction noted above. The financials
of NCPH appear elsewhere in this filing. The unaudited pro forma information
gives effect to the Merger. Such transactions have been assumed to have occurred
on March 26, 2006 for purposes of the pro forma balance sheet for that date.
The NCPH balance sheet information for March 26, 2006 was derived from its
unaudited March 26, 2006 condensed consolidated balance sheet included herein.
The SMPG balance sheet information was derived from its unaudited February 28,
2006 balance sheet included in its Quarterly Report on Form 10-QSB.
The unaudited pro forma consolidated combined statement of operations for the
year ended December 25, 2005 is presented as if the transaction was consummated
on the first day of that year and combines the historical results of NCPH, for
the year then ended, and the results of SMPG for an annual period ending on
November 30, 2005 (this information was derived from its annual Form 10-KSB for
the year ended August 31, 2005, plus the quarterly period ended November 30,
2005 derived from its Form 10-QSB, less the quarterly period ended on November
30, 2004 derived from its Form 10-QSB).
The unaudited pro forma consolidated combined statement of operations for the
quarterly period ended March 26, 2006 is presented as if the transaction was
consummated on December 27, 2004 and combines the historical results of NCPH,
for the quarter then ended, and the results of SMPG for a quarterly period
ending on February 28, 2006 as derived from its quarterly Form 10-QSB.
The unaudited pro forma adjustments are based upon available information and
certain assumptions, as described in the accompanying notes, that we believe are
reasonable under the circumstances. The unaudited pro forma financial
information is presented for informational purposes only and does not purport to
represent what the results of operations or financial position of the Registrant
would have been had the transactions described above actually occurred on the
dates indicated, nor do they purport to project the financial condition of the
Registrant for any future period or as of any future date. The unaudited pro
forma financial information should be read in conjunction with the information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our financial statements and notes thereto included
elsewhere in this Current Report.
Simplagene USA, Inc.
Unaudited Pro Forma Balance Sheet
As of March 26, 2006
(000s, except share and per share data)
CONSOLIDATED BALANCE SHEETS
New Colorado Simplagene Merger Post-Merger
Prime Holdings USA, Inc. Adjustments Pro Forma
---------------- ------------ ------------- -------------
ASSETS
Cash $ 1,000 $ 28 $ 2,500 (2) $ 2,404
(449) (3)
$ (675) (5)
Due from financial institution 149 149
Inventories 76 76
Prepaid expenses and other assets 161 161
Total current assets 1,386 28 1,376 2,790
PROPERTY, PLANT AND EQUIPMENT-net 324 324
Other assets 48 48
Deferred loan costs $ 475 (5) $ 475
TOTAL ASSETS $ 1,758 $ 28 $ 1,851 $ 3,637
================ ============ ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 476 $ 476
Accrued expenses 1,379 1,379
Deferred revenue 303 303
Income and other taxes payable 274 274
Other liabilities 5 5
Total current liabilities 2,437 - - 2,437
Long Term liabilities: 225 225
Accrued expenses, long-term portion 2 2
Other liabilities
Derivative liability 3,681 (6) 3,681
Convertible Debt 2,500 (2)
(2,500) (6) -
Total Liabilities 2,664 - 3,681 6,345
---------------- ------------ ------------- -------------
STOCKHOLDERS' EQUITY:
Preferred Stock 38,875 (38,875) (1) -
Common Stock 9 3 18 (1) 30
Additional paid in capital - 94 39,465 (1) 39,462
(69) (4)
(28) (5)
Accumulated deficit (39,790) (69) 69 (4) (42,200)
(449) (3)
(608) (1)
(1,181) (6)
(172) (5)
Total stockholders' equity (906) 28 (1,830) (2,708)
---------------- ------------ ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,758 $ 28 $ 1,851 $ 3,637
================ ============ ============= =============
<FN>
(1) Represents adjustments for the conversion of the 913,690 outstanding shares
of common stock, and 22,200 shares of preferred stock of New Colorado Prime
Holdings, and issuances of 2,250,000 shares to investment banker, into
28,050,000 shares of Simplagene USA, Inc. as if all had occurred at the
beginning of the period, as well as the adjustment of New Colorado Prime
Holdings par value from $.01 to $.001 under Simplagene USA, Inc.
(2) Represents adjustment for the issuance of convertible debt in the amount of
$2,500.
(3) Represents adjustment for New Colorado Prime's purchase of 999,300 shares
from Simplagene controlling shareholder in the amount of $449.
(4) Represents adjustments to eliminate retained deficit of Simplagene USA,
Inc.
(5) Represents adjustments to reflect costs to complete reverse merger ($200)
and costs to issue convertible debt ($475)
(6) Represents adjustment for estimated derivative liability related to
Convertible debt and warrant issuance.
Simplagene USA, Inc.
Unaudited Pro Forma Statement of Operations
For the Year ended December 25, 2005
(000s, except share and per share data)
New Colorado Simplagene Merger Post-Merger
Prime Holdings USA, Inc. Adjustments Pro Forma
---------------- ------------ ------------- -------------
Revenues $ 14,880 $ - $ 14,880
Cost Of Goods Sold $ 6,810 $ - $ - $ 6,810
---------------- ------------ ------------- -------------
Gross profit $ 8,070 $ - $ - $ 8,070
---------------- ------------ ------------- -------------
Operating Expenses:
Selling, general and administrative 7,174 11 0 7,185
Restructuring and other one time recoveries, net (6) 0 0 (6)
Deprecaition and Amortization 136 0 136
Total operating expenses $ 7,304 $ 11 $ - $ 7,315
Total operating income (loss) $ 766 $ (11) $ - $ 755
95 (4)
1,181 (5)
500 (5)
Interest expense 1 0 250 (3) 2,027
---------------- ------------ ------------- -------------
Income (loss) before provision for income taxes 765 (11) (2,026) (1,272)
Provision for income taxes 6 0 0 6
---------------- ------------ ------------- -------------
Net income (loss) 759 (11) (2,026) (1,278)
---------------- ------------ ------------- -------------
Net Income (loss) available to common stock $ (3,657) $ (11) $ 4,416 (2) $ (1,278)
---------------- ------------ ------------- -------------
Net income (loss) per Common stock: Basic &
Fully Diluted $ (4.00) $ (0.00) $ (0.04)
common shares used in computing net income (loss)
per share amounts:
Basic and Fully Diluted 913,690 2,950,000 26,136,310 (1) 30,000,000
================ ============ ============= =============
<FN>
(1) Represents adjustments for the conversion of the 913,690 outstanding shares
of common stock and 22,200 shares of Preferred Stock of New Colorado Prime
Holdings, and issuances of 2,250,000 shares to investment banker, into
28,050,000 shares of Simplagene USA, Inc. as if all had occurred at the
beginning of the period. This amount of 28,050,000 shares, plus the
original shares of Simplagene result in approximately 30,000,000 shares
outstanding at the closing date.
(2) Represents adjustment for the elimination of 12.5% accruing preferred
dividends during the year
(3) Represents interest expense related to the issuance of convertible debt in
the amount of $2,500 and assuming it was outstanding for the full year at
an interest rate of 10% per annum.
(4) Represents adjustment to amortize loan finance costs of $475 over a five
year period (life of convertible debt), effective at the beginning of the
year.
(5) Represents debt discount related to the derivative liability. $1,181
represents the amount in which the derivative liability exceeded the
convertible note and $500 represents straight line amortization of the
$2,500 debt discount.
Simplagene USA, Inc.
Unaudited Pro Forma Statement of Operations
For the Quarter ended March 26, 2006
(000s, except share and per share data)
New Colorado Simplagene Merger Post-Merger
Prime Holdings USA, Inc. Adjustments Pro Forma
---------------- ------------ ------------- -------------
Revenues $ 2,828 $ - $ - $ 2,828
Cost Of Goods Sold $ 1,440 $ - $ - $ 1,440
---------------- ------------ ------------- -------------
Gross profit $ 1,388 $ - $ - $ 1,388
---------------- ------------ ------------- -------------
Operating Expenses:
Selling, general and administrative 1,582 18 0 1,600
Restructuring and other one time recoveries, net 0 0 0 0
Deprecaition and Amortization 37 0 37
---------------- ------------ ------------- -------------
Total operating expenses $ 1,619 $ 18 $ - $ 1,637
---------------- ------------ ------------- -------------
Total operating income $ (231) $ (18) $ - $ (249)
24 (4)
125 (5)
Interest expense 0 0 63 (3) 212
---------------- ------------ ------------- -------------
Income before provision for income taxes (231) (18) (212) (461)
Provision for income taxes 1 0 0 0
---------------- ------------ ------------- -------------
Net income (232) (18) (212) (461)
---------------- ------------ ------------- -------------
Net Income available to common stock $ (1,425) $ (18) $ 1,193 (2) $ (461)
---------------- ------------ ------------- -------------
Net Loss per Common stock $ (1.56) $ (0.01) $ (0.02)
---------------- ------------ ------------- -------------
common shares used in computing net loss
per share amounts (basic & diluted) 913,690 2,950,000 26,136,310 (1) 30,000,000
================ ============ ============= =============
<FN>
(1) Represents adjustments for the conversion of the 913,690 outstanding shares
of common stock and 22,200 shares of Preferred Stock of New Colorado Prime
Holdings, and issuances of 2,250,000 shares to investment banker, into
28,050,000 shares of Simplagene USA, Inc., that occurred on July 14, 2006,
as if all had occurred at the beginning of the period. This amount of
28,050,000 shares, plus the original shares of Simplagene result in
approximately 30,000,000 shares outstanding at the closing date.
(2) Represents adjustment for the elimination of 12.5% accruing preferred
dividends during the quarter
(3) Represents interest expense related to the issuance of convertible debt in
the amount of $2,500 and assuming it was outstanding for the entire quarter
at an interest rate of 10% per annum.
(4) Represents adjustment to amortize loan finance costs of $475 over a five
year period (life of convertible debt) effective at the beginning of the
quarter.
(5) Represents debt discount related to the derivative liability. $125
represents straight line amortization of the $2,500 debt discount.