Liquidity and Capital Resources
The accountants' report for the Company's financial statements included
herein is qualified with respect to the Company's ability to continue as a going
concern. As shown in the accompanying financial statements, the Company incurred
a net loss of $875,904 and $1,013,587 during the years ended December 31, 2002
and 2003. Additionally, the company had a working capital and stockholders'
deficit of $490,850 and $1,379,485 at December 31, 2003 and its working capital
is not sufficient to support the Company's losses from operations at existing
levels for the next year. As of March 31, 2004 (Unaudited) the Company had a
working capital deficit of $478,256 and a stockholders' deficit of $1,377,615.
The Company plans to raise more capital through public or private financing,
through the issuance of its common stock, the issuance of debt instruments,
including debt convertible to equity, or otherwise attain financing, which if
available, it cannot be certain such financing will be on attractive terms.
Should the Company obtain more capital, in turn, it may cause dilution to its
existing stockholders and providing the company can obtain more capital, it
cannot be assured to ultimately attain profitability.
The Company intends to continue its efforts to complete the necessary steps
in order to meet its cash flow requirements throughout fiscal 2003 and the first
three months of fiscal 2004 and to continue its product development efforts and
adjust its operating structure to reduce losses and ultimately attain
profitability. Management's plans in this regard include, but are not limited
to, the following:
1. Raise additional working capital by either borrowing or through the
issuance of equity, or both. The Company believes that it will need to
raise an additional $1,000,000 in financing to achieve its business plans
for the next twelve to eighteen months. Depending upon the amount, if any,
which may be raised through the exercise of outstanding Common Stock
Purchase Warrants during this period, the balance of this financing will be
sought through the sale of either Common Stock or debt instruments. We
cannot be certain that such additional financing will be available to us on
reasonable terms or at all, and will be subject to a number of factors,
including market conditions, our operating performance, and investor
sentiment. If we are unable to raise this additional capital when we need
to, or are otherwise unable to achieve profitable business operations, we
may be unable to maintain our Company as a going concern and may be forced
to discontinue operations.
2. Negotiate terms with existing trade creditors and strategic vendors, in
particular by obtaining additional contract manufacturers for the Company's
product lines and establishing a competitive-bidding process for our
manufacturing requirements. In order to achieve revenue growth without the
expense of establishing an in-house sales force, the Company intends to
negotiate alliances with strategic co-venturers who may have stronger
distribution channels in the skin care, natural health and body care
markets (such as our new marketing agreement with World Wide Health
Resources, Inc.). The Company also intends, if it has sufficient financial
resources available, to commence limited manufacturing of its own products
in order to increase profit margins.
24
3. Re-align revenue producing activities and corresponding commission
arrangements on such a scale that will proportionately reduce selling
expenses and reduce other costs wherever possible to improve operating
margins and relieve the overhead burden until ultimately profitability may
be attained. As an example, the Company is presently evaluating new
commission structures and sales strategies at its resort-based pool and
beach kiosks in order to achieve better growth and profitability in those
venues. Additional and potentially stronger distribution channels,
including health food chains and specialty boutiques, are also being
evaluated.
Through May, 2004, the Company received $132,000 proceeds from the issuance
of the Company's common stock and $150,000 in financing through the issuance of
short-term convertible notes, which are convertible into shares of Common Stock
of the Company on or before October 31, 2003 (extended from the original date of
September 30, 2003). On February 27, 2004, the Note Holder converted the Note,
including accrued interest, into 225,000 shares of common stock of the Company.
The Company will utilize the proceeds of these loans, together with cash flow
from existing operations and planned subsequent financings, to manufacture
additional inventory for sale at our resort kiosks, and to start-up a new line
of skin care products for wholesale distribution, which will improve the
Company's seasonalilty revenue potential and to establish a filling and labeling
facility at our Orlando warehouse.
During the next twelve months, the Company plans to raise an additional $1
million to $2 million in capital through public or private financing, through
the issuance of its common stock or the issuance of debt instruments, including
debt convertible to equity. In addition, the Company will seek to obtain other
types of commercial financing, including inventory and receivable financing and
equipment leases. The Company anticipates that an additional $1 million in
capital would allow it to invest $300,000 in manufacturing and distribution
equipment and $500,000 in additional product inventory, with $200,000 reserved
for general working capital purposes. The Company cannot be certain that such
additional capital or financing will be available, or if available it cannot be
certain such capital or financing will be on attractive terms. Should the
Company obtain more capital, in turn, it may cause dilution to its existing
stockholders and providing the company can obtain more capital, it cannot be
assured to ultimately attain profitability.
The Company expects that it will not experience revenue growth until after
the fourth quarter of 2004 from the roll-out of its new product line. The
Company anticipates its new products will result in an additional source of
revenues it may begin to realize in the first quarter of 2004, and will be an
important source of expansion for future revenue in addition to enhancing the
growth in its existing distribution channels. In addition, we believe that
actions presently being taken to maintain reduced administrative costs and
improve manufacturing and shipping procedures will generate sufficient revenues
to provide increased gross margins and improve cash flows from operations.
However, there can be no assurance that this will occur.
25
At March 31, 2004 the Company had a working capital deficit of $478,256.
Based upon the current business operations and financial commitments, management
believes that the Company's financial condition, when augmented by additional
capital the Company is presently pursuing through either financing from the
proceeds of convertible notes, the issuance of equity, or a combination of both,
will be adequate for the foreseeable future. In addition, we believe that
sufficient additional capital will be available to us, when required, to permit
us to implement our business plans. There can be no assurance that the Company's
future business operations will generate sufficient cash flow from operations or
that its plans to obtain working capital from borrowings and equity will be
available in sufficient amounts and required time frames to accomplish all of
the Company's potential future operating requirements.
26
BUSINESS
Overview
Suncoast Naturals, Inc. (the "Company") is a Delaware corporation which
has been organized for the purpose of establishing an FDA-approved contract
manufacturing and lab facility which formulates and manufactures an all-natural
line of sun-care and skin-care products for the spa, resort and specialty
boutique markets. The Company has acquired a 60% controlling interest in
Caribbean Pacific Natural Products, Inc. ("CARIBBEAN PACIFIC NATURAL PRODUCTS"),
an Orlando, FL-based manufacturer and distributor of all-natural sun and
skin-care products using natural, non-chemical ingredients derived from organic
and renewable resources. In addition to becoming the sole-source manufacturer
for the entire CARIBBEAN PACIFIC NATURAL PRODUCTS product line, the Company will
also develop and manufacture private-label skin and sun care products for the
resort and day spa markets.
We have an authorized capitalization of 25 million shares of Common Stock
($.001 par value) and 1,000,000 shares of unclassified Preferred Stock ($.01 par
value), of which 4,075,000 shares of Common Stock, and 100,000 Shares of Class
"A" Redeemable Preferred Stock are issued and outstanding.
The Company's executive offices are located at 5422 Carrier Drive, Suite
309, Orlando, FL 32819. The Company's new laboratory facilities and
manufacturing and filling facility are presently being constructed in adjacent
warehouse/light industrial space. The telephone number is (407) 226-8889, and
the Company's corporate website is www.suncoastnaturals.com (presently under
construction) and it's on-line sales website is www.cpskincare.com.
Business Operations Of Suncoast Naturals, Inc.
The Company has been newly-organized in November, 2002 to build and operate
an Over-The-Counter (OTC), FDA-approved manufacturing facility specializing in
the development and manufacturing of a complete line of private-label Spa
Products for the resort and Day Spa markets, as well as a complete product of
all-natural Bath & Body and Suncare Products. In addition to our plans to
manufacture our own line of products under a variety of brand-names, we have
acquired a controlling 60% interest in Caribbean Pacific Natural Products, Inc.
(CARIBBEAN PACIFIC NATURAL PRODUCTS), and will be the sole-source supplier of
existing and future products which are branded under the "Caribbean Pacific"
trademark. At present, CARIBBEAN PACIFIC NATURAL PRODUCTS is the sole operating
subsidiary of the Company.
As part of our business plan, we have established a wholly-owned
manufacturing subsidiary, CP Suncoast Manufacturing, Inc., and we are presently
constructing a cosmetics laboratory and testing facility and a modular
mixing/filling facility which will specialize in small to medium size
manufacturing runs suited for small-volume, private label fulfillment. In
addition, the Company's planned in-house cosmetic chemistry and microbiological
department will allow us to provide our customers with their own line of
custom-designed sun-care and skin care products. Approximately $50,000 has been
spent by the Company toward the development of this facility, and the Company
will need to spend an additional $250,000 for its completion. If sufficient
financial resources are available to the Company, we expect that this facility
could be completed and fully-operational by the end of the fourth quarter of
2004.
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Business Operations of Our Caribbean Pacific Natural Products, Inc. Subsidiary
Our 60%-owned Caribbean Pacific Natural Products, Inc. subsidiary
(CARIBBEAN PACIFIC NATURAL PRODUCTS) is an Orlando, FL-based company which holds
an exclusive license to produce, market and distribute a proprietary line of
all-natural sun and skin care products developed over an eight-year period by
Caribbean Pacific International, Inc. The CARIBBEAN PACIFIC NATURAL PRODUCTS
product line is differentiated from its competition by the elimination of the
petrochemical, synthetic and chemical additives which are prevalent in all
standard sun and skin care products.
The Caribbean Pacific products are manufactured and marketed under an
exclusive, world-wide Product License Agreement from Caribbean Pacific
International, Inc., the original developer of the products and owner of the
"Caribbean Pacific" trademarks. The twenty-five year license agreement expires
in 2025, and provides for a payment to Caribbean Pacific International of a 5%
royalty on net sales receipts from sales of Caribbean Pacific-branded products.
The royalty is not applicable to products developed or sold by us which do not
utilize the Caribbean Pacific brandname or trademarks.
Our Product Line
The CARIBBEAN PACIFIC NATURAL PRODUCTS product line consists of over forty
sun-care, skin-care and spa products, of which sixteen are presently in
production. Our entire product line has been designed to be non-toxic, and the
ingredients and formulations used it our products are designed to be suitable
for persons who are allergic or chemically-sensitive to the chemical ingredients
contained in many cosmetic or skin-care products. Our current products include
skin moisturizers, SPF (Sun Protection Factor) rated sunscreens, natural oils,
shampoos and conditioners, and an all-natural skin gel which relieves pain and
discomfort caused by burns, bites, scrapes and sun exposure.
Our products include skin lotions and oils which contain our proprietary
formulations, and are sold under a variety of our trademarked brand-names
including "Black Pearl Oil", "Diamond Rose Oil", "Solcreme" SPF suntan lotions,
"Kukui Rose" skin moisturizer, "Karibbean Kidz" SPF protection for children,
"Sport Sol" dry-grip products for the golf and tennis markets, and "Bye-Beast"
natural insect repellent.
Distribution Channels
We sell our products through a variety of distribution channels, including
wholesale, retail, web sales, and 800# telephone marketing. We have placed a
particular emphasis on sales made through pool and beach kiosks located at major
resorts in Florida, Mexico and Hawaii. Because of our all-natural and
non-chemical ingredients, our products are utilized by several "eco-sensitive"
resorts, including Anheuser-Busch's Discovery Cove in Orlando, FL and Mexico's
most famous archeological water park resorts Xel-Ha and Xcaret.
The CARIBBEAN PACIFIC NATURAL PRODUCTS Custom Label program is presently
represented throughout major hotel and resort chains, providing a line of
private-label products for resorts including Hyatt, Marriott, Westin, Allegro,
and Wyndham, as well as specialty companies such as "Pusser's" rum.
The Company's product line has been designed for a market niche of
high-end and luxury consumers, and we promote directly to this market through
our sales representatives at premier resorts in Florida, California, Arizona,
Mexico, the Caribbean and Hawaii. CARIBBEAN PACIFIC NATURAL PRODUCTS utilizes a
number of sales and promotional venues within these resorts including pool and
28
beach concessions, in-room sales, gift and pro shops and group/convention
packages.
As an example of our effort to broaden our product distribution channels,
we are presently expanding the marketing program of our specialty golf and
tennis "dry-grip" products by utilizing independent manufacturer's
representatives to place these products in golf and tennis pro shops throughout
the United States. These "dry-grip products contain our proprietary formulations
which provide SPF (sun protection factor) protection while minimizing sweat
which would otherwise interfere with golf or tennis players playing in hot or
humid climates.
Marketing Strategy
Recognizing the growth of the luxury Spa and Day Spa market in the United
States, and the higher margins from their luxury product lines, the Company
intends to aggressively market its formulation and manufacturing capabilities to
those markets, with a particular emphasis on private-label formulations for
small to medium size Day Spas which are generally not served by existing
manufacturers. As part of this strategy, management will establish direct
contact with Spa Directors and will utilize top Estheticians and former Spa
management in the field to remain an integral part of the customer's growth as
well as to obtain new customers.
Business relationships in the Spa market are primarily based on credibility
and referrals, and despite its burgeoning growth it still remains a relatively
insulated industry. As a result of its individualized marketing approach, the
Company intends to establish itself as a leader in unique and specialized
product development. The wide variety of products offered by the Company, as
well as the vertical integration which will be afforded by its in-house
development, formulation and manufacturing capabilities, provides ample growth
opportunity by replacing other suppliers who are not able to provide
individualized private-label formulations.
During the early development of the luxury and day Spa market in the United
States, many different products from many different companies were prevalent in
the retail venues, and there was no consistency or uniqueness to differentiate
the particular Spa's indigenous characteristics or marketing niche. By
specializing in custom-designed private-label products, as well as its generic
line of Spa and Resort products, the Company intends to market itself as a major
supplier within a rapidly-growing industry, and in particular, as one of the
premier suppliers of all-natural and high-quality products.
The Company intends to establish a unique position in the packaging and
manufacturing industry with its revenue growth and stability based upon being
the developer, manufacturer and distributor of its own product line, as well as
being a sole-source contract manufacturer of private-label products. This
vertically-integrated strategy not only protects the client base from other
potential suppliers and provides direct on-going dialogue as a 'partner', but
also provides higher margins by removing the middle man (distributor) and
creates additional barriers-to-entry for future potential competitors.
29
Our Company Website
We maintain a fully-transactional sales and information website at
www.cpskincare.com which not only provides consumers with detailed information
about our products and formulations, but allows our customers to purchase our
products on-line. We also maintain an 800 toll-free number at 800-432-6723 to
assist customers with product information and for mail orders of our products.
We are also working on launching an additional website at
www.suncoastnaturals.com which will provide Company news and information to our
shareholders and the general public, as well as information about new products
under development and new distribution channels as they become implemented. This
site is presently under construction and we expect to have it fully operational
in the third quarter of 2004.
As part of our business plan we will be exploring various opportunities for
web-based marketing of our products, including advertising on internet portals
and co-marketing arrangements with other websites. At the present time, we are
not in negotiations with any parties to broaden our web-based marketing.
Marketing Considerations
The Company has identified several market considerations which it believes
will allow it to achieve growth in both the near- and long-term:
* Broad product line: The Company's wide range of products and formulations
of specialty ingredients can be readily custom blended. The array of premium
all-natural ingredients and essential oils which are available to be utilized by
the Company provides product differentiation within a highly-competitive
industry.
* Technological Expertise: The Company is establishing a staff of cosmetic
professionals under the direction of Dr. Sam Saliba, President of the Company's
manufacturing subsidiary and our Director of Research and Development. Upon
completion of our planned manufacturing and filling/bottling facility, as well
as a Research & Development laboratory and testing facility, the Company
believes that it will be positioned to compete in the custom private label
sector of the health and beauty care industry.
* Vertical Integration: From product concept to fulfillment to the market
place, the Company has been organized to provide a vertically-integrated
operation, with the ability to provide all associated tasks of R&D, formulation,
blending, filling and customized packaging, as well as the laboratory capability
to test raw materials and assure quality control of the finished product. If we
are able to obtain sufficient financial resources, we plan to construct within
the next three to six months a fully-licensed research and development
laboratory, blending and filling facility as well as a microbiology laboratory
devoted to ensuring the quality of the Company's ingredients and blends. The
versatility of having in-house compounding and filling capabilities will provide
us with the ability to not only improve our profit margins by eliminating or
reducing our contract manufacturing requirements, but also to have ample
capacity to fulfill many of the of small to medium-size private label customers.
Manufacturing
The Company's present product line is presently manufactured by a
non-affiliated contract manufacturer operating under a confidentiality agreement
with respect to the Company's proprietary formulations. At present, there are no
supply or other contracts with any manufacturer, including our current contract
manufacturer, and terms are negotiated for each product and order. We anticipate
that our present manufacturing system will be supplemented, and possibly
replaced, by the Company's planned laboratory and manufacturing facility, as
30
well as additional contract manufacturers which may be necessary for the
Company's expanding product lines and to provide competitive bidding for our
requirements.
If we are able to obtain sufficient financial resources, our in-house
manufacturing facility could be fully-functional within three to six months. We
estimate that we will require approximately $350,000 to complete this facility.
The Company's planned microbiology laboratory will be subject to the approval of
and licensing by the U.S. Food & Drug Administration (FDA) and the State of
Florida. The Company believes that the completion of this laboratory facility
and the required licensing could be obtained within thirty days from the
completion of the facility.
Prior to the completion of its manufacturing facility, the Company will
initially operate its own filling and labeling operation for those products
which do not require FDA licensing (non-SPF-rated products). This facility,
located in the Company's existing warehouse space in Orlando, FL, became
operational during the third quarter of 2003 on a limited basis, and we expect
that this capability will immediately increase our manufacturing flexibility as
well as improve our net profit margins. This capability would become fully
operational upon the completion of the manufacturing facility.
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