PATIENT PORTAL TECHNOLOGIES, INC. - SB-2/A - 20040625 - MANAGEMENTS_DISCUSSION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and the related notes included elsewhere
in this prospectus. Historical results are not necessarily indicative of the
operating results for any future period.
Results Of Operations
The Company was established in November, 2002. On December 31, 2002, the
Company acquired a 60% controlling interest in Caribbean Pacific Natural
Products, Inc., which at present is its only operating subsidiary. The results
of operations for calendar years 2002 and 2003, and for the three-months ended
March 31, 2003 and 2004, include the business operations of this subsidiary.
Twelve Months Ended December 31, 2003 vs. December 31, 2002
The Company reported $1,066,027 of revenue for the twelve months ended
December 31, 2003 and $2.040,313 for the comparable period in 2002, a decrease
in sales of $974,286, or 48% when compared to 2002. This decrease is directly
attributable to a reduction in certain marketing programs and a re-alignment of
commission agreements the Company felt were counterproductive, and the
re-configuration of product mix, that the Company believes when its new
distribution alignment is fully implemented and its sales volume to the customer
base it expects to retain will ultimately result in sales volume and growth. The
Company does not immediately expect to restore its prior years volume levels,
yet the Company does expect that currently it could attain better gross margins
and contain its compensation expenses.
Cost of sales for the twelve months ended December 31, 2003 were $577,669
which consisted of product royalties of $23,837 and other product costs
including manufacturing and handling charges of $553,832 as compared to cost of
sales of $751,150 in 2002 which consisted of product royalties of $57,945 and
other product costs including manufacturing and handling charges of $693,205.
This represents total cost of sales of 54.1%, as a percentage of revenue in
2003, consisting of 2.2% for royalties and 51.9% for other product costs
compared with a total of 36.8% in the same period in 2002, including 2.8% for
royalties and 34% for other product costs for the same period in 2002. This
deterioration of margins is also attributable to the discontinuance of certain
products and product arrangements the company believes in the long run will
increase profitability, and an increase in the royalty ratio for the twelve
months in 2003 and is the result of a non-recurring charge of approximately
$33,000 to re-align a royalty arrangement due to changing the mix of product
sales the Company renegotiated in the third quarter, which the Company believes,
when combined with developing its own new proprietary products not subject to
existing royalty agreements, should keep the blended royalty expense under 5% at
current volume levels going forward.
Selling and marketing expenses were $529,846 for the twelve months ended
December 31, 2003 as compared to $1,183,303 in 2002, a decrease of $653,457,
over the prior year expenses. This consisted of sales compensation and fringes
of $20,075 and other selling and marketing costs of $509,771, most of which were
concession fees and commissions and the updating of marketing materials,
incurred in this period in 2003 as compared to selling and marketing expenses in
2002 which consisted of sales compensation and fringes of $112,489 and other
selling and marketing costs of $1,070,814. This represents total selling and
marketing expenses of 49.7, as a percentage of revenue in the twelve months
ended December 31, 2003, consisting of 1.9% for sales compensation and fringes
and 47.9% for other selling and marketing costs compared with a total of 57.9%
in 2002, including 5.5% for sales compensation and fringes and 52.4% for other
selling and marketing costs in same period in 2002. The increase of the ratio
for non-salary expenses in the current nine month period is primarily due to
additional costs for new marketing materials, packaging design and product
concept fees incurred to implement changes in the Company's marketing plan,
including improving its product and packaging mix, which we anticipate will
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ultimately facilitate flexibility in the Company's product mix and ultimately
reduce overall selling costs.
Administrative expenses were $826,122 for the twelve months ended December 31,
2003 as compared to $992,182 in 2002, a decrease of $166,060, or an 16.7%
decrease over the prior year as a percentage of the same expenses. This
consisted of administrative compensation and fringes of $332,737 and other
administrative expenses of $493,385, which include general corporate overhead,
in 2003 as compared to administrative expenses in the same period in 2002 which
consisted of administrative compensation and fringes of $251,552 and other
administrative expenses of $740,630. This represents total administrative
expenses of 77.5%, as a percentage of revenue in 2003, consisting of 31.2% for
administrative compensation and fringes and 46.3% for other administrative
expenses compared with a total of 48.6% in the same period in 2002, including
12.3% for administrative compensation and fringes and 36.3% for other
administrative expenses in the same period in 2002. The decrease in general
corporate overhead is attributable to reduced outsourcing to professionals,
offset by the increased administrative salary and fringe costs in general
corporate overhead for the current nine month period, resulting in a net dollar
decrease in the current period. Reduced sales in the current nine month period
vs. the prior year were the primary reason the ratio of these expenses rose, and
management plans on maintaining similar overhead and anticipates improvements in
gross sales and gross margin to improve this ratio.
Interest costs were $44,131 for the twelve month period ended December 31,
2003 compared to $63,582 in 2002, as liabilities to the former parent were
higher in 2002 than the present value of the redeemable preferred stock as of
December 31, 2003. Start up costs of $75,199 were incurred in 2003 in connection
with the transaction to acquire Caribbean Pacific Natural Products, Inc., the
Company's 100%-owned subsidiary.
The Company reported a net loss of $1,013,587 for the twelve month period
ended December 31, 2003 as compared to a net loss of $875,904 during the twelve
months ended December 31, 2002. Historically this represents a loss per share of
$.25 for the twelve months ended December 31, 2003 as compared to a loss per
share of $.21 for the twelve months ended December 31, 2002.
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Three Months Ended March 31, 2004 vs. March 31, 2003
The Company reported $53,259 of revenue for the three months ended March
31, 2004 and $420,930 for the comparable period in 2003, a decrease in sales of
$367,671, or 87.3% when compared to 2003. This decrease is primarily
attributable to a reduction in certain marketing programs and a re-alignment of
commission agreements the Company felt were counterproductive, and the
re-configuration of product mix, that should the Company retain its current
volume and grow to restore its prior years volume levels, the Company could
attain better gross margins and contain its compensation expenses.
In particular, as a result of increasing expenses, we discontinued our
direct sales operations in Mexico, which accounted for approximately 10.6% of
our total revenue during the first three months of 2003, and we are instead
presently negotiating with an independent distributor in Mexico who will
represent and distribute our products to Mexican resorts and retail
establishments beginning in the third quarter of 2004.
In addition, with respect to our resort and retail sales in the United
States, we discontinued direct sales at resorts and spas, which accounted for
approximately 60.5% of our total revenue during the first three months of 2003,
and have begun the process of recruiting distributors and product brokers who
will purchase our products on a wholesale basis and service our existing resort
market as well as new retail markets such as cruise ships, spas, and health
clubs. By shifting our emphasis to a wholesale basis, we will be able to
continue to eliminate the costs associated with direct sales and marketing, and
allow us to increase our revenue and improve our profit margins. Our in-house
retail sales will be limited to our internet marketing program and our 800#
sales program, both of which provide high profit margins and which are presently
being expanded. Through our distributors, we also plan to increase the marketing
of our proprietary "Sport Grip" product in specialty retail markets including
golf and tennis pro shops, outdoor sports retailers, and day spas. However,
until such time as we are able to fully implement these initiatives, we expect
our revenues to significantly decrease compared to our revenues for the prior
years.
Cost of sales for the three months ended March 31, 2004 were $34,667 which
consisted of product royalties of $0 and other product costs including
manufacturing and handling charges of $34,667 as compared to cost of sales of
$129,828 in 2003 which consisted of product royalties of $8,226 and other
product costs including manufacturing and handling charges of $121,602. This
represents total cost of sales of 65.0%, as a percentage of revenue in 2004,
consisting of 0% for royalties and 65.0% for other product costs compared with a
total of 30.8% in the same period in 2003, including 1.9% for royalties and
28.9% for other product costs for the same period in 2003. This deterioration of
margins is also attributable to the discontinuance of certain products and
product arrangements the company believes in the long run will increase
profitability, and an increase in the royalty ratio for the three months in 2004
which is a result of a one time charge of approximately $33,000 to re-align a
royalty arrangement due to a positive effect of changing the mix of product
sales the Company renegotiated in the third quarter, which should keep the
blended royalty expense under 5% at current volume levels.
Selling and marketing expenses were $23,543 for the three months ended
March 31, 2004 as compared to $278,291 in 2003, a decrease of $254,748, over the
prior year expenses. This consisted of sales compensation and fringes of $2,138
and other selling and marketing costs of $21,405, most of which were concession
fees and commissions and the updating of marketing materials, incurred in this
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period in 2004 as compared to selling and marketing expenses in 2003 which
consisted of sales compensation and fringes of $7,004 and other selling and
marketing costs of $271,287. This represents total selling and marketing
expenses of 44.2%, as a percentage of revenue in the three months ended March
31, 2004, consisting of 4.0% for sales compensation and fringes and 40.2% for
other selling and marketing costs compared with a total of 66.1% in 2003,
including 1.6% for sales compensation and fringes and 64.5% for other selling
and marketing costs in same period in 2003. The decrease of the ratio for
non-salary expenses in the current three month period is primarily due to new
marketing materials and packaging design and product concept fees incurred to
implement changes in the Company=s marketing plan, including improving its
product and packaging mix, which were implemented during 2003.
Administrative expenses were $115,715 for the three months ended March 31,
2004 as compared to $184,238 in 2003, a decrease of $68,523, or an 37.2%
decrease over the prior year as a percentage of the same expenses. This
consisted of administrative compensation and fringes of $55,736 and other
administrative expenses of $59,979, which include general corporate overhead, in
2004 as compared to administrative expenses in the same period in 2003 which
consisted of administrative compensation and fringes of $103,695 and other
administrative expenses of $80,543. This represents total administrative
expenses of 217.3%, as a percentage of revenue in 2004, consisting of 104.6% for
administrative compensation and fringes and 112.7% for other administrative
expenses compared with a total of 43.8% in the same period in 2003, including
24.6% for administrative compensation and fringes and 19.2% for other
administrative expenses in the same period in 2003. The decrease in general
corporate overhead is attributable to reduced outsourcing to professionals,
offset by the increased administrative salary and fringe costs in general
corporate overhead for the current nine month period, resulting in a net dollar
decrease in the current period. Reduced sales in the current nine month period
vs. the prior year were the primary reason the ratio of these expenses rose, and
management plans on maintaining similar overhead and anticipates improvements in
gross sales and gross margin to improve this ratio.
Interest costs were $10,466 for the current period in 2004 compared to
$7,817 in 2003, as a bridge note liability, which was converted into equity in
March 2004, did not exist during the same period in 2003. Start up costs of
$17,000 were incurred during the period ended March 31, 2004 in connection with
the transaction to acquire Caribbean Pacific Natural Products, Inc., the
Company's 60%-owned subsidiary.
The Company reported a net loss of $148,130 for the current three months
ended March 31, 2004 as compared to a net loss of $205,244 during the three
months ended March 31, 2003. Historically this represents a loss per share of
$.04 during the current three months ended March 31, 2004 as compared to a loss
per share of $.05 for the three months ended March 31, 2003.
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CRITICAL ACCOUNTING POLICIES
RECAPITALIZATION OF CARIBBEAN PACIFIC NATURAL PRODUCTS, INC.
Material sales and expenses included in these consolidated financial
statements result from the inclusion of financial information of the
Company's60% owned subsidiary Caribbean Natural Products, Inc., which develops
and markets all-natural sun-care and skincare products for luxury resorts, theme
parks and spas. In December 2002, the Board of Directors of the Company approved
a plan to acquire CARIBBEAN PACIFIC NATURAL PRODUCTS, and on January 22, 2003,
the Company acquired a 60% equity interest in CARIBBEAN PACIFIC NATURAL
PRODUCTS. In exchange for its 60% equity interest in CARIBBEAN PACIFIC NATURAL
PRODUCTS, the Company issued to The Quigley Corporation : (i) 750,000 shares of
the Company's common stock, which Suncoast has agreed, at its cost, to register
for public resale through an appropriate registration statement; and (ii)
100,000 shares of Suncoast's Series A Redeemable Preferred Stock, which bears
certain redemption futures discussed in Note 9 Redeemable Preferred Stock.
Pursuant to SFAS No. 141, which applies to business combinations afterJune
30, 2001, which requires the use of the purchase method of accounting forall
business combinations, carrying forward the guidance from APB 16 withrespect to;
(a) the principles of historical cost accounting, (b) determiningthe cost of the
acquired entity and (c) allocation of cost to assets andliabilities assumed;
"CARIBBEAN PACIFIC NATURAL PRODUCTS" is considered the acquiring entity. As such
the historical balances of "CARIBBEAN PACIFIC NATURAL PRODUCTS" assets and
liabilities representing the carrying value and the corresponding allocation of
the purchase price, and therefore, the transaction is equivalent to a reverse
acquisition, which in this case, no partial step up in asset values discussed in
EITF 90-3 apply, and thereby no goodwill or intangible assets have been
recorded. The equity issued by the Company was valued at the (a) present value
of the redeemable preferred shares issued to "Quigley" and (b) common stock and
additional paid in capital was recorded at the value of the remaining liability
to "Quigley" canceled by the exchange agreement.
ACCOUNTING FOR BUSINESS COMBINATION OF CARIBBEAN PACIFIC NATURAL PRODUCTS,
APPLICATION OF SAB 103
During the years ended December 31, 2000, 2001 and 2002, the results
ofoperations, cash flows and assets and liabilities of CARIBBEAN PACIFIC NATURAL
PRODUCTS were included in the consolidated financial statements of the Quigley
Corporation, the effect of which were reported as discontinued operations in
2002. The financial statements of "Quigley" were audited by another auditor, and
the results of this subsidiary were not reported separately. Recently the staff
of Corporate Finance Division of the Securities and Exchange Commission, "SEC",
provided guidance in the codification of its staff accounting bulletins ("SABS")
and in discussion of accounting for former subsidiaries, such as the case with
CARIBBEAN PACIFIC NATURAL PRODUCTS, indicated that reasonable estimates for
expenses of the use of a parent company's capital (ie. interest) and other
corporate charges connected with operating as a stand alone entity (including
legal fees, audit fees and administrative expenses) should be estimated when the
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division or subsidiary is presented individually. The financial statements
include such estimates and additional expenses were recorded, and a like amount
was credited to additional paid in capital for the periods presented as follows:
Years Ended Three Months Ended
December 31, March 31,
2002 2003 2003 2004
------ ------ ------ ------
(Unaudited)
Interest and
administrative costs $55,782 $15,000 $10,000 $0
======= ======= ======= ==
LOSS PER SHARE
The Company has adopted SFAS No.128, "Earnings per Share." Earnings
percommon share are computed by dividing income available to common stockholders
bythe weighted average number of common shares outstanding during the period.
Theearnings per common share computation, assuming dilution, gives effect to
alldilutive potential common shares during the period. The computation assumes
thatthe outstanding stock options and warrants were exercised and that the
proceedswere used to purchase common shares of the Company. Common equivalent
shareshave been excluded from the computation of diluted earnings per share
sincetheir effect is antidilutive. Loss per share are also calculated
givingretroactive recognition for the number of equivalent shares issued to
Quigley in connection with the acquisition of "CARIBBEAN PACIFIC NATURAL
PRODUCTS," and the 3,100,000 shares issued for information services and
cancellation of advances in 2002 as being outstanding at the beginning of all
periods presented.
REDEEMABLE PREFERRED STOCK
On December 31, 2002, the Company issued 100,000 Shares of Preferred Stock,
designated Class "A" Redeemable Preferred Stock, to The QuigleyCorporation as
partial consideration for the acquisition of 60% of the CommonStock of Caribbean
Pacific Natural Products, Inc.
The holders of the Series A Stock shall be entitled to receive,
inpreference to the holders of the Corporation's Common Stock, when, as and
ifdeclared by the Corporation's Board of Directors, annual dividends at the
rateof $.10 per share and no more. Dividends on the Series A Stock shall
becumulative, and declared but unpaid dividends shall not bear interest.
Theholders of Series A Stock shall have no voting rights. No other Series or
Classof Preferred Stock which may subsequently be designated or authorized by
theBoard of Directors shall be granted or otherwise be entitled to any
votingrights.
The Corporation shall have the right to redeem the shares of Series A
Stockat any time following the date of issuance. The Redemption Price for each
shareshall be $10.00 per share plus an interest factor which shall accrue from
thedate of issuance through the date of redemption. The interest rate shall be
afixed annual rate equal to the prime rate announced by Citibank, NA, New
YorkCity, on the date of issuance, and may be payable in cash or accrued
untilredemption. In the event that all shares are not put by the holder to
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the Corporation or redeemed by the Corporation prior to December 31, 2007, all
suchshares shall be redeemed by the Corporation at face value, together with
accrued interest, if any, as of that date. These preferred shares were valued
at$937,596, which represented the net present value of the redemption
obligation,which absent early redemption by the Company, has a fixed redemption
date ofJanuary 22, 2007.
The holders of the Series A Stock have the right to put their shares each
calendar quarter (on or before the 45th day following the end of the quarter) to
the Corporation for a price of $10.00 per share plus an interest factor which
shall accrue from the date of issuance through the date of redemption. The
interest rate shall be a fixed annual rate equal to the prime rate announced by
Citibank, NA, New York City, on the date of issuance. The holders of the Series
A Stock have a put option equal to the number of Shares which represent 50% of
the free cash flow reported by the Corporation in the immediately preceding
quarter divided by the redemption price of $10.00 per share.
During the year ended December 31, 2003 and the three month period ended
March 31, 2004, the Company imputed $31,231 and $7,960 of interest expense on
this obligation.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASBStatements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
TechnicalCorrections." This statement rescinds SFAS No. 4, "Reporting Gains and
Lossesfrom Extinguishment of Debt," and an amendment of that statement, SFAS No.
44,"Accounting for Intangible Assets of Motor Carriers," and SFAS No.
64,"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements."
Thisstatement amends SFAS No. 13, "Accounting for Leases," to
eliminateinconsistencies between the required accounting for sale-leaseback
transactionsand the required accounting for certain lease modifications that
have economiceffects that are similar to sale-leaseback transactions. Also, this
statementamends other existing authoritative pronouncements to make various
technicalcorrections, clarify meanings, or describe their applicability under
changedconditions. Provisions of SFAS No. 145 related to the rescission of SFAS
No. 4were effective for the Company on November 1, 2002 and provisions affecting
SFASNo. 13 were effective for transactions occurring after May 15, 2002.
Theadoption of SFAS No. 145 did not have a material impact on our financial
statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for CostsAssociated
with Exit or Disposal Activities." This statement coversrestructuring type
activities beginning with plans initiated after December 31,2002. Activities
covered by this standard that are entered into after that datewill be recorded
in accordance with the provisions of SFAS No. 146. Managementdoes not believe
there will be a significant impact on our consolidatedfinancial position or
results of operations.
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In December 2002, the FASB issued SFAS 148, "Accounting for
Stock-BasedCompensation-Transition and Disclosure," which provides alternative
methods oftransition for a voluntary change to fair value based method of
accounting forstock-based employee compensation as prescribed in SFAS 123,
"Accounting forStock-Based Compensation." Additionally, SFAS 148 required more
prominent andmore frequent disclosures in financial statements about the effects
of stock-based compensation. The provisions of this Statement are effective for
fiscalyears ending after December 15, 2002, with early application permitted
incertain circumstances. The Company has adopted the disclosure provisions in
these consolidated financial statements as disclosed above under Stock
BasedCompensation.
In November 2002, the FASB Issued FASB interpretation (FIN) No.
45"Guarantor's Accounting and Disclosure Requirements for Guarantees,
IncludingIndirect Guarantees of Indebtedness of Other." FIN No. 45 requires
guarantor torecognize, at the inception of a qualified guarantee, a liability
for the fairvalue of the obligation undertaken in issuing or modified after
December 31,2002. Management does not expect adoption of this Interpretation to
have amaterial impact on the Company's financial condition or results of
operations.
"Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51." FIN 46 requires certain variable interest entities to be consolidated by
the primary beneficiary of the entity if the equity investors in the entity do
not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The adoption of FIN 46 did not
have a significant impact on our consolidated financial position or results of
operations.
In May 2003, the FASB issued SFAS Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity". This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). This
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of nonpublic entities, if applicable. It is to be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the
Statement and still existing at the beginning of the interim period of adoption.
The adoption of this statement is not expected to have a significant impact on
the Company's results of operations or financial position.
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Current Plan Of Operations
Our business strategy for the next year is to expand our existing Caribbean
Pacific line with several new products, including an all-natural, non-chemical
shampoo, conditioner, and body wash; supplement our resort-based Caribbean
Pacific product sales with a new Internet marketing and sales campaign backed by
a national publicity campaign using newspaper and radio editorial features;
establish a new, all-natural product line for the fast- growing health food and
health products markets; and establish our own in- house manufacturing
capabilities to improve profit margins.
In June, 2004, we reached an agreement with Halcyon LLC to be the exclusive
world-wide licensee for our line of all-natural "XCEL" isotonic sports drinks
and "Opti-Woman" nutritional supplement drinks, and we are presently developing
additional products for our all-natural nutritional supplement lines. These
products will be sold to retailers through our distributors, and directly to
consumers through our Internet marketing program.
We anticipate that in the coming year it will be possible to continue to
reduce many of our present general and administrative expenses as we shift the
primary focus of our product distribution channels from highly labor- intensive
resort pool and beach kiosk locations to lower cost distribution channels
utilizing commission-based manufacturer's representatives and independent
distributors within the health food and health product markets. Through our
distributors, we will also be increasing our marketing capabilities in specialty
retail markets including golf and tennis pro shops, outdoor retailers and day
spas, with a particular emphasis on increasing sales and distribution of our
proprietary "Sports Grip" product.
During the third and fourth quarters of 2004, we plan to increase our
internet marketing capabilities. 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.
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Seasonality
Our present distribution channel is heavily focused on sales through major
resort pool and beach kiosks in over twenty-five locations in Hawaii, Mexico and
Florida. As such, our sales are dependent upon the same seasonal fluctuations
caused by weather, changes in travel patterns, and holiday periods that are
faced by the hotels and resorts where we are located. Management is currently
developing additional product lines which will be distributed through national
wholesale distributors and which will therefore reduce the seasonality of our
operations.
Liquidity and Capital Resources
The accountants' report for the Company's financial statements included
herein is qualified with respect to the Company's ability to continue as a going
concern. As shown in the accompanying financial statements, the Company incurred
a net loss of $875,904 and $1,013,587 during the years ended December 31, 2002
and 2003. Additionally, the company had a working capital and stockholders'
deficit of $490,850 and $1,379,485 at December 31, 2003 and its working capital
is not sufficient to support the Company's losses from operations at existing
levels for the next year. As of March 31, 2004 (Unaudited) the Company had a
working capital deficit of $478,256 and a stockholders' deficit of $1,377,615.
The Company plans to raise more capital through public or private financing,
through the issuance of its common stock, the issuance of debt instruments,
including debt convertible to equity, or otherwise attain financing, which if
available, it cannot be certain such financing will be on attractive terms.
Should the Company obtain more capital, in turn, it may cause dilution to its
existing stockholders and providing the company can obtain more capital, it
cannot be assured to ultimately attain profitability.
The Company intends to continue its efforts to complete the necessary steps
in order to meet its cash flow requirements throughout fiscal 2003 and the first
three months of fiscal 2004 and to continue its product development efforts and
adjust its operating structure to reduce losses and ultimately attain
profitability. Management's plans in this regard include, but are not limited
to, the following:
1. Raise additional working capital by either borrowing or through the
issuance of equity, or both. The Company believes that it will need to
raise an additional $1,000,000 in financing to achieve its business plans
for the next twelve to eighteen months. Depending upon the amount, if any,
which may be raised through the exercise of outstanding Common Stock
Purchase Warrants during this period, the balance of this financing will be
sought through the sale of either Common Stock or debt instruments. We
cannot be certain that such additional financing will be available to us on
reasonable terms or at all, and will be subject to a number of factors,
including market conditions, our operating performance, and investor
sentiment. If we are unable to raise this additional capital when we need
to, or are otherwise unable to achieve profitable business operations, we
may be unable to maintain our Company as a going concern and may be forced
to discontinue operations.
2. Negotiate terms with existing trade creditors and strategic vendors, in
particular by obtaining additional contract manufacturers for the Company's
product lines and establishing a competitive-bidding process for our
manufacturing requirements. In order to achieve revenue growth without the
expense of establishing an in-house sales force, the Company intends to
negotiate alliances with strategic co-venturers who may have stronger
distribution channels in the skin care, natural health and body care
markets (such as our new marketing agreement with World Wide Health
Resources, Inc.). The Company also intends, if it has sufficient financial
resources available, to commence limited manufacturing of its own products
in order to increase profit margins.
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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.
27
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.
Competition
Our sun-care and skin-care business competes directly with entrenched,
well-funded and highly regarded multi-national competitors such as Johnson &
Johnson, Schering-Plough, and Lancome, as well as mass-market sun-care products
such as Hawaiian Tropic and Banana Boat. Their earlier entry, greater resources
and broader presence in the United States could make competing against these
entities impracticable. Our e-commerce unit also faces intense competition from
traditional retailers; websites maintained by online retailers of similar
merchandise; and Internet portals and online service providers that feature
shopping services, such as America Online and Yahoo! These competitors may be
able to secure products from vendors on more favorable terms, fulfill customer
orders more efficiently and adopt more aggressive pricing or inventory
availability policies than we can.
We believe that our ability to compete successfully depends on many
factors, including the quality of our products; the market acceptance of our
products, websites and online services and the success of our sales and
marketing efforts. More specifically, we have formulated our products using
all-natural ingredients without chemical additives or preservatives, and they
are derived from organic and renewable resources. Our products are designed to
be suitable for most people with chemical sensitivities or who are allergic to
the chemicals found in many sun-care and skin-care products.
Although we have developed and are marketing a full line of sun-care,
skin-care, and body-care products containing only natural and non-chemical
ingredients; however, we are faced with the challenge of gaining market
recognition for our products and services. However, we cannot be certain that we
will have sufficient resources to establish our brands or achieve the level
commercial acceptance necessary for our offerings to effectively compete in this
industry. The failure to create this recognized brand identity could have a
material adverse effect on our ability to continue business operations.
31
Recent Agreements
In May, 2003, we entered into a Sales Management and Service Agreement with
Worldwide Health Resources, Inc., an unaffiliated company, to create an
independent marketing and sales organization for a new line of all-natural sun,
skin, and body-care products to be launched in the United States and Canada
later this year. In particular, this consultant is helping us to design a new
line of products which will be targeted to health food chains and specialty
boutiques. The agreement is for a one-year period and provides for a monthly
retainer of $5000.00 and a 15% commission of net invoice amounts based on
product sales generated through its marketing efforts.
In May, 2003, and effective on October 1, 2003, we entered into a
three-year national advertising and promotion agreement with News USA, Inc., a
non-affiliated company, which will provide the Company with a minimum of fifty
different newspaper feature articles and fifty radio features, with 25,000
guaranteed editorial placements reaching an estimated 375 million households in
the United States. The Company intends to use these editorial placements to
promote the Company's unique all-natural product lines and to promote the
Company's new Internet sales promotion campaign for the Caribbean Pacific
products. The total cost to the Company under this Agreement will be $500,000,
with half paid in cash and half paid in equity (100,000 shares of common stock
and 200,000 $1.00 Warrants). We paid News USA $5,000 and 50,000 $1.00 Warrants
upon signing, and will pay $2500.00 in cash and $2500.00 in equity for each
newspaper or radio feature provided to us.
Research and Development
We have not yet conducted any research or development activities. When we
acquired the controlling interest in Caribbean Pacific Natural Products, we
acquired their existing products and formulas. In the future, research
activities will primarily aimed at discovering and developing new and enhanced
sunscreens and skin care products. Company sponsored research and development
expenditures were $0 in 2003, 2002 and 2001.
The Company's research activities will be concentrated in the areas of
all-natural sun-, skin-, and body-care products. It cannot be predicted when or
if any of these products might be developed or become available for commercial
sale.
Government Regulation
Pharmaceutical companies are subject to extensive regulation by a number of
national, state and local agencies. Of particular importance is the FDA. It has
jurisdiction over all our businesses and administers requirements covering the
testing, approval, safety, effectiveness, manufacturing and labeling of our
"SPF" (sun protection factor) labeled products. The extent of FDA requirements
and/or reviews is limited to our SPF suncare products, and would affect the
amount of resources necessary to develop new products and bring them to market
in the United States. The FDA does not have regulatory jurisdiction over our
non-SPF products.
We are not required to submit our products to the FDA or obtain any approval
from the FDA prior to manufacturing or selling our products. The regulations
imposed by the FDA are compliance related and are required standards we must
meet in the testing, safety, manufacturing and labeling of our products. For
32
example, our SPF products cannot contain certain elements under FDA regulations,
but we are not required to have the FDA review and test our products to ensure
they do not contain those banned elements. The FDA does has the ability to
institute an investigation based on complaints received, which could involve a
review of and testing of our products.
On an ongoing basis, the FDA regulates the facilities and procedures used to
manufacture pharmaceutical products in the United States or for sale in the
United States. All products made in such facilities are to be manufactured in
accordance with Good Manufacturing Practices (GMPs) established by the FDA. Our
products are presently manufactured by Absolute Packaging, Inc., a contract
manufacturer which is FDA-approved. The FDA periodically inspects their
facilities and procedures to evaluate compliance.
Failure to comply with governmental regulations can result in delays in the
release of products, delays in the approvals of new products, seizure or recall
of products, suspension or revocation of the authority necessary for the
production and sale of products, fines and other civil or criminal sanctions.
Environment
To date, compliance with federal, state and local environmental protection laws
has not had a materially adverse effect on the Company. The Company will make
necessary expenditures for environmental protection. Capital expenditures during
2003 did not include any spending for environmental control purposes. It is
anticipated that continued compliance with such environmental regulations will
not significantly affect the Company's financial statements or its competitive
position.
Employees
At May 12, 2004, we had 6 full-time salaried employees and 2 part-time
hourly employees, of which 2 full-time employees were in executive or managerial
positions and 6 employees were in sales/manufacturing/clerical positions. The
Company expects to add additional hourly employees as our manufacturing facility
is completed and becomes operational, as well additional professional salaried
employees for laboratory and research/development positions. The Company intends
to increasingly utilize independent marketing organizations and manufacturer's
representatives who will promote the Company's product line on a commission
basis and thereby avoid the expense of creating an in-house marketing
capability. We do not expect a significant increase in either full-time or
part-time salaried employees during the next three to six months, but we expect
that an additional four to six hourly employees will be hired during that
period.
Properties
Our principal office facility is located in a 5088 sqft office facility at
5422 Carrier Drive, Orlando, FL. This facility is presently occupied pursuant to
a lease which expires on 11/30/05 for $6340.00 per month. In addition, we also
lease on a month-to-month basis an adjacent 3984 sqft light-industrial facility
at a rent of approximately $2563.00 per month. This additional space is
presently utilized for warehouse purposes, but it is our intention to develop
this space for an in-house manufacturing capability.
33
We believe that these lease arrangements are adequate for our immediately
foreseeable business needs.
Legal Proceedings
The Company and its subsidiaries are at present not involved in any legal
proceedings which management believes will have a material effect upon the
financial condition of the Company, nor are any such material legal proceedings
anticipated.
34
MANAGEMENT
Our directors and executive officers are as follows:
Name Age Position
---- --- --------
William J. Reilly 50 Chairman & President
Thomas Hagan 64 Secretary, Director
Dr. Sam Saliba 66 Director
Matthew Cohen 42 Director
The principal occupation for the past five years and current public
directorships of each of our directors and executive officers is as follows:
WILLIAM J. REILLY, ESQ., President and Chairman
Mr. Reilly has served as an Officer and Director of the Company since its
inception, and also serves as Chairman of the Board. From March, 1986 to
January, 1991, Mr. Reilly served as President of American Leisure Entertainment
Corp., and was responsible for developing its entertainment restaurant concept.
Under his direction, American Leisure completed an initial public offering of
its stock in October, 1987. From 1996 to May, 1999, Mr. Reilly was an Officer
and a member of the Board of Directors of BusinessNet Holdings Corp., an
internet security software company, and since January, 2001 as Secretary and a
member of the Board of Directors of Invicta Corporation, a publicly-traded
consumer optical manufacturer headquartered in Boca Raton, FL.
Mr. Reilly received his Bachelor of Arts degree from the State University of New
York in 1974, and a Juris Doctor degree from St. John's University School of Law
in 1978. From 1978 to 1981, Mr. Reilly served as a Law Clerk to a Justice of the
New York State Supreme Court. From 1982 to 1983, he was Assistant Counsel to the
Speaker of the New York State Assembly and, from 1983 to 1984, as Assistant
Counsel to the Chairman of the New York State Assembly Ways and Means Committee.
He presently serves with the rank of Commander in the United States Naval
Reserve, Judge Advocate General's Corps, specializing in International Law, and
has served with the Judge Advocate General's Corps since his commission in
December, 1980. Mr. Reilly is a resident of Boca Raton, FL, and is engaged in
the full-time practice of corporate law as a member of the Bar of the State of
New York and the Federal Courts. He is a member of the American Bar Association,
the Federal Bar Association, and the New York State Bar Association.
THOMAS J. HAGAN, Secretary and Director; President of Caribbean Pacific Natural
Products, Inc. Subsidiary
Mr. Hagan joined the Company in November, 2002, and brings to the Company a
strong background in marketing and general Management. He will be responsible
for developing a comprehensive marketing plan for the Company's contract
manufacturing operations as well as the Caribbean Pacific Natural Products
operations.
Mr. Hagan served as President of The Dorette Company, a manufacturer of point of
purchase advertising products company, from January, 1987 until October, 2002,
and was responsible for a ten-fold increase in sales at that company during his
tenure. His prior business experience includes management positions at General
Electric Company in Cleveland, Philadelphia and Schenectady from 1960 to 1970.
35
As a management consultant at McKinsey & Company from 1970 to 1973, he developed
and managed marketing programs for numerous sales representative organizations,
trade shows, key accounts and national accounts. Mr. Hagan is a graduate of
Boston College School of Management, and received his Masters in Business
Administration Degree from Case Western University. He has also served as a
Captain in the U.S. Army Corps of Engineers.
DR. SAM SALIBA, Director; Director of Research & Development; President of CP
Suncoast Manufacturing, Inc. Subsidiary
Dr. Sam Saliba, joined Caribbean Pacific International, Inc. as a consultant in
1997 . From 1999 to 2001, as a consultant for Absolute Packaging, Inc., Dr.
Saliba reformulated all of the skin-care products which are now sold under the
CARIBBEAN PACIFIC NATURAL PRODUCTS brand names. Since December 2001, Dr. Saliba
also served as President of Caribbean Pacific Natural Products, Inc.. Upon the
completion of the acquisition of a controlling interest of Caribbean Pacific
Natural Products, Inc. Dr. Saliba joined the Board of Directors of the Company
in addition to his executive duties. He will also serve as the President of the
Company's manufacturing subsidiary, CP SunCoast Manufacturing, Inc.
Dr. Saliba's business experience prior to 1981 includes management positions
with BASF AG in Germany. From 1981 to 1988, he was the Marketing/Technical
Director of Sasolchem Ltd., a petrochemical company headquartered in
Johannesburg, South Africa. At Sasolchem, Dr Saliba was responsible for all
technical matters including coordination and oversight of all chemical projects
as well as international marketing of chemical specialties. From 1988 through
1996, he was the Managing Director of ChemTrading CC., an import/export trading
firm in Johannesburg, South Africa with operations in the United States, France,
Hong Kong, Africa and South America. Until 1997, he was a Director of Searose
Limited, a trading and technical consulting firm based in Beckenham, Kent,
United Kingdom.
Dr. Saliba holds several post-graduate degrees, including a Doctor of Science
degree in Chemistry and Mineralogy from Heidelberg University, a Master of
Science in Physical, Inorganic and Organic Chemistry from Heidelberg University,
a B.Sc. in Chemistry from American University and Master of Business
Administration from INCAE/Harvard University. Dr. Saliba is fluent in several
Languages.
MATTHEW J. COHEN, Director
Mr. Cohen has served as a Director of the Company since its inception. As a
consultant to the Company, Mr. Cohen will be responsible for overseeing the
financial integration of the operations of Caribbean Pacific Natural Products,
Inc. into the Company, as well as serving as Chairman of the Company's Audit
Committee.
Mr. Cohen presently serves since 2002 as Chief Financial Officer of Life Imaging
Corporation of Boca Raton, FL, a multi-location medical imaging diagnostic
service company, and previously served from 1997 to 2001 as a Director and
member of the Audit and Compensation Committee of Legal Club of America Corp.,
and from 2001 to 2002 as Chief Financial Officer of Interactive
Technologies.com, Inc., an internet-based benefit and services company. From
1988 until 1997, Mr. Cohen was Vice President and Chief Financial Officer of
36
Standard Brands of America, a retailer of consumer electronics and appliances.
Mr. Cohen received his BBA Degree in Accounting from New Paltz State University.
Board Of Directors and Committees of the Board
Our board of directors currently consists of four directors. Each director
holds office until that director's term expires or until a successor is duly
selected and qualified. All of the officers identified above serve at the
discretion of the board of directors. There is presently one vacancy on the
Board which will be filled by an outside independent Director.
Our Board of Directors maintains an Audit Committee consisting of Mr. Cohen
as Chairman and Mr. Reilly. The third member of this Committee will be an
outside independent Director to be appointed by the Board of Directors.
Director Compensation
During 2002, directors received no compensation. As compensation for their
services as members of the board of directors and agreeing to serve through
2003, each member of our board of directors received, in November, 2002,
warrants to purchase 50,000 shares of our common stock at an exercise price of
$1.00 per share. The warrants are exercisable on or before December 31, 2007.
Executive Compensation
The following table sets forth all compensation granted to the individuals
who served as Directors or Officers during calendar years 2001, 2002 and 2003,
or received compensation in excess of $100,000 during fiscal years 2001 through
2003. Of the Officers and Directors of the Company, only Dr. Saliba received
cash or other compensation for services rendered through calendar year 2002. In
calendar year 2003, William J. Reilly received compensation for services
rendered as President of the Company.
Summary Compensation Table
Long Term
Annual Compensation Compensation
Securities
Salary Other Annual Underlying Options
Name and Principal Position Year ($) Bonus ($) Compensation($) (Shares)
--------------------------- ---- ------ ----- ------------ --------
William Reilly 2003 30,000 -- -- 50,000
President
Dr. Sam Saliba Director; President of 2002 84,000 -- -- 50,000
CP Suncoast Manufacturing Inc. (1) 2001 7,000 -- -- --
-----------
(1) Received 50,000 warrants in November 2002 exercisable until 12/31/07 at
$1.00 per share for compensation as a Director for calendar year 2003.
Stock Option and Other Compensation Plans
On December 31, 2002, we adopted a stock option plan for employees, directors,
consultants and advisors, which provides for the issuance of up to 1,000,000
shares of common stock and which was ratified by the shareholders of the Company
on the same date. No options have been granted under this plan.
37
Employment Agreements
The Company has entered into a one-year employment agreement with William J.
Reilly to serve as the President and General Counsel of the Company at an annual
salary of $48,000, commencing on May 30, 2003. Other than this Agreement, the
Company has no other employment or compensation agreements.
Limitation of Liability and Indemnification of Officers and Directors
As permitted by the General Corporation Law of the State of Delaware, our
certificate of incorporation provides that neither a director nor officer is
personally liable to us or our shareholders for damages for any breach of duty
in his capacity as a director or officer unless a judgment or other final
adjudication adverse to such director or officer establishes that such director
or officer is liable for negligence or misconduct in the performance of his
duties.
The provisions of our certificate of incorporation are intended to afford
our directors and officer's protection, and limit their potential liability, to
the fullest extent permitted by Delaware law. As a result of the inclusion of
such provisions, shareholders may be unable to recover monetary damages against
directors or officers for actions taken by them that constitute negligence or,
in some cases, gross negligence or that are in violation of certain of their
fiduciary duties. This provision does not affect a director's or officer's
responsibilities under any other laws, such as the federal securities laws.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November, 2002, the Company issued 1,185,000 Shares of Common Stock in
consideration for the cancellation of $31,000 indebtedness for cash advances and
expenses incurred in the organization of the Company. These shares were issued
to William J. Reilly, the Chairman and President of the Company, and to Thomas
Hagan, Dr. Sam Saliba, and Matthew Cohen, who are all Directors of the Company,
as well as to twelve unaffiliated shareholders who were gifted shares from Mr.
Reilly.
In November, 2002, the Company issued 1,715,000 Shares of Common Stock and
425,000 warrants (the "A" warrants) to purchase 425,000 shares of Common Stock
at $1.00 per share through December 31, 2007, to officers, product marketing
consultants and directors of the Company in lieu of cash compensation for
formation services rendered to the Company valued at $50,000, and for services
to be rendered to the Company during calendar year 2003. Worldwide Health
Resources, Inc. provided us with $10,000 worth of services and received 383,000
shares of Common Stock and 85,000 warrants. News USA, Inc. provided us with
$5,000 worth of services and received 191,500 shares of common stock and 42,500
warrants. Blackmor Group, Inc. provided us with $10,000 in product marketing
services and received 383,000 shares of Common Stock and 85,000 warrants. FINX
Group, Inc. provided us with $10,000 worth of secretarial services and received
383,000 shares of Common Stock and 85,000 warrants. Charles Kyrakos provided us
with $1,000 in real estate brokerage services and received 38,300 shares of
common stock and 8,500 warrants. William J. Reilly, President, provided us with
$14,000 in corporation formation and management services, and received 536,200
shares of common stock and 119,000 warrants. This value was ascribed to the
services as the Company had yet to establish a market for the Company's common
stock and had no business operations.
38
Effective for December, 2002, the Company issued 750,000 Shares of Common
Stock to The Quigley Corporation as partial consideration for its purchase of a
60% controlling interest in Caribbean Pacific Natural Products, Inc., valued at
$582,989 and additionally the Company issued 100,000 Shares of Preferred Stock,
designated Class "A" Redeemable Preferred Stock, to The Quigley Corporation as
partial consideration for the acquisition of 60% of the Common Stock of
Caribbean Pacific Natural Products, Inc., valued at $937,596. During the six
month period ended June 30, 2003, the Company imputed $15,569 of interest
expense on this obligation. No controlling persons or shareholders of the
Quigley Corporation who have been identified as holding 5% or more of that
corporation's Common Stock are shareholders of our Company or have any business
relationships with our Company.
During the year ended December 31, 2003, the Company received $69,017 of
advances from William J. Reilly, the Company's president with no specific
repayment terms. No interest has been recorded on this debt. We used the $69,017
for product development, product manufacturing, and general working capital
purposes.
Caribbean Pacific International, Inc., the holder of the royalty agreement,
is also the 40% minority shareholder of CARIBBEAN PACIFIC NATURAL PRODUCTS.
PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDERS
The following table sets forth the beneficial ownership of our common stock
which is known to us of as of May 12, 2004, as adjusted to reflect the sale of
shares of common stock in this offering, by:
- each person or group affiliated person known to us to beneficially own
more than 5% of our outstanding common stock;
- each selling shareholder in this offering;
- each director;
- each of our named executive officers; and
- all of our directors and executive officers as a group.
Except as otherwise noted, the address of each person listed in the table
is c/o Suncoast Naturals, Inc., 5422 Carrier Drive, Orlando, FL 32819.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to shares. To our knowledge, except as otherwise indicated, the persons
named in the table have sole voting and sole investment control with respect to
all shares shown as beneficially owned. The applicable percentage of ownership
for each shareholder is based on 4,075,000 shares of common stock outstanding as
of May 12, 2004 and 4,950,000 shares outstanding after the completion of this
offering and maximum conversion of the warrants and convertible notes, in each
case together with applicable options and warrants for the selling shareholders.
Shares of common stock issuable upon exercise of options, warrants and other
rights beneficially owned that are exercisable within 60 days are deemed
outstanding for the purpose of computing the percentage ownership of the person
holding those options, warrants and other rights but are not deemed outstanding
for computing the percentage ownership of any other person.
39
For the table set forth below, Seth Fireman is the control person for Goldstand
Investments, Inc. Quigley Corporation is a publicly traded corporation, whereby
Mr. Guy J. Quigley is the largest shareholder with approximately 32.5% of the
outstanding shares. Rina Rollhaus controls Clifton Management and Trading
Pension. Goldstand Investments, Quigley Corporation, and Clifton Management and
Trading Pension are solely shareholders of our company and there is no other
relationship or affiliation.
PRINCIPAL SHAREHOLDERS
----------------------
Percentage of
Shares Shares Percentage of
Shares Beneficially Beneficially Owned Beneficially Owned Shares
Owned Prior to the Prior to the after the Beneficially Owned
Name and Address Offering Offering Offering(6) After Offering(6)
----------------- -------- -------- ----------- -----------
William J. Reilly(1)(3) (7) 500,000 13% 500,000 10%
Thomas Hagan (1)(3) (7) 100,000 2.6% 100,000 2%
Dr. Sam Saliba (1)(3) (7) 100,000 2.6% 100,000 2%
Matthew Cohen (1)(3) (7) 100,000 2.6% 100,000 2%
Goldstrand Investments, Inc. (2)(5) 225,000 5.8% 225,000 4.5%
1040 First Avenue, Suite 190
New York, New York 10022
The Quigley Corp. (2)
Shady Retreat Road
Doylestown, PA 18901 750,000 19.5% 750,000 15.1%
Clifton Management and Trading 225,000 5.8% 225,000 4.5%
Pension (2)(4)
633 Franklin Avenue
Nutley, New Jersey 07110
ALL DIRECTORS AND OFFICERS AS A
GROUP 800,000 21% 800,000 16%
------------------
(1) Denotes Officer or Director.
(2) Denotes Selling Shareholder.
(3) Includes 50,000 shares issuable to each upon the exercise of warrants.
(4) Includes 225,000 shares issuable upon the exercise of warrants.
(5) Includes 225,000 shares issuable upon conversion of Note.
(6) Assumes maximum conversion or exercise of outstanding warrants and
convertible notes.
(7) The address for officers and directors is 5422 Carrier Drive, Orlando,
Florida 32819.
For the table set forth below, Michael L. Plunkett is the control person of
Doylestown Partners, Inc. Robert K. Ashworth is the control person of Ashworth
Development LLC. Richard Smith is the control person of News USA, Inc. Erma
Limanni is the control person of Shamrock Equities, Inc.
40
SELLING SHAREHOLDERS
Percentage of Number of
Number of Shares Shares Percentage of
Shares Beneficially Beneficially Owned Beneficially Owned Shares
Owned Prior to the Prior to the after the Beneficially Owned
Name and Address Offering Offering Offering(7) After Offering(7)
----------------- -------- -------- ----------- -----------
Goldstrand Investments, Inc. (1) (2) 225,000 5.8% 0 0.00%
1040 First Avenue, Suite 190
New York, New York 10022
Doylestown Partners, Inc. (2)(3) 125,000 3.2% 0 0.00%
105 Heidi Drive
Portsmouth, RI 02871
Ashworth Development LLC (2)(3) 100,000 2.6% 0 0.00%
405 North Ocean Blvd., #1403
Pompano Beach, FL 33062
Diocese of Palm Beach (2) 115,000 3.0% 0 0.00%
9995 North Military Trail
Palm Beach Gardens, FL 33410
Clifton Management and Trading 225,000 5.8% 0 0.00%
Pension (1)(2)(4)
633 Franklin Avenue
Nutley, New Jersey 07110
Talmudic Research Center (2)(6) 100,000 2.6% 0 0.00%
News USA, Inc. (2)(5) 75,000 2.0% 0 0.00%
250 E. 54th Street
New York, NY 10022
Shamrock Equities, Inc. (2) 60,000 1.6% 0 0.00%
401 Broadway, Suite 912
New York, NY 10013
Richard Berman (2) 75,000 2.0% 0 0.00%
Total amount of shares being 1,100,000 28.6% 0 0.00%
registered
------------------
(1) Denotes Officer, Director or 5% Shareholder.
(2) Denotes Selling Shareholder.
(3) Includes 50,000 shares issuable to each upon the exercise of warrants.
(4) Includes 225,000 shares issuable upon the exercise of Class "B" warrants.
(5) Includes 25,000 shares issuable upon the exercise of Class "A" warrants.
(6) Includes 100,000 shares issuable upon the exercise of Class "A" warrants.
(7) Assumes maximum conversion or exercise of outstanding warrants and
convertible notes.
DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of our capital stock does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of our Certificate of Incorporation, and the Bylaws that are
referenced as exhibits to this Registration Statement and by provisions of
applicable law.
41
Common Stock
We are presently authorized to issue up to 25,000,000 shares of common
stock, $.001 par value per share. As of May 12, 2004, there were 4,075,000
shares of common stock outstanding. If all of the shares of common stock
registered in this Registration Statement that are reserved and issuable upon
the exercise of outstanding warrants and convertible notes are issued there will
be 4,950,000 shares outstanding. The holders of common stock are entitled to one
vote for each share held of record on each matter submitted to a vote of
stockholders. There is no cumulative voting for election of directors. Subject
to the prior rights of any series of preferred stock which may from time to time
be outstanding, holders of common stock are entitled to receive ratably such
dividends as may be declared by our board of directors out of funds legally
available therefor, and, upon our liquidation, dissolution or winding up, they
are entitled to share ratably in all assets remaining after payment of
liabilities and payment of accrued dividends and liquidation preference on the
preferred stock, if any. Holders of common stock have no preemptive rights and
have no rights to convert their common stock into any other securities.
Preferred Stock
We are presently authorized to issue up to 1,000,000 shares of preferred
stock, $.01 par value per share. Such preferred stock may be issued in one or
more series, on such terms and with such rights, preferences and designations as
our board of directors may determine. Such preferred stock may be issued without
action by stockholders. On December 31, 2002, the Company issued 100,000 Shares
of Preferred Stock, designated Class "A" Redeemable Preferred Stock, to The
Quigley Corporation as partial consideration for the acquisition of 60% of the
Common Stock of Caribbean Pacific Natural Products, Inc.
The holders of the Series A Stock shall be entitled to receive, in
preference to the holders of the Corporation's Common Stock, when, as and if
declared by the Corporation's Board of Directors, annual dividends at the rate
of $.10 per share and no more. Dividends on the Series A Stock shall be
cumulative, and declared but unpaid dividends shall not bear interest. The
holders of Series A Stock shall have no voting rights. No other Series or Class
of Preferred Stock which may subsequently be designated or authorized by the
Board of Directors shall be granted or otherwise be entitled to any voting
rights.
The Corporation shall have the right to redeem the shares of Series A Stock
at any time following the date of issuance. The Redemption Price for each share
shall be $10.00 per share plus an interest factor which shall accrue from the
date of issuance through the date of redemption. The interest rate shall be a
fixed annual rate equal to the prime rate announced by Citibank, NA, New York
City, on the date of issuance, and may be payable in cash or accrued until
redemption. In the event that all shares are not put by the holder to the
Corporation or redeemed by the Corporation prior to December 31, 2007, all such
shares shall be redeemed by the Corporation at face value, together with accrued
interest, if any, as of that date.
The holders of the Series A Stock have the right to put their shares each
calendar quarter (on or before the 45th day following the end of the quarter) to
the Corporation for a price of $10.00 per share plus an interest factor which
shall accrue from the date of issuance through the date of redemption. The
interest rate shall be a fixed annual rate equal to the prime rate announced by
Citibank, NA, New York City, on the date of issuance. The holders of the Series
A Stock have a put option equal to the number of Shares which represent 50% of
the free cash flow reported by the Corporation in the immediately preceding
quarter divided by the redemption price of $10.00 per share.
Options and Warrants
In addition to our outstanding common stock, there are, as of May 12,
2004, issued and outstanding common stock purchase warrants which are
exercisable at the price-per-share indicated, and which expire on the date
indicated, as follows:
42
Description Number Exercise Price Expiration
-------------------------------------------------------------------------------
Class "A" Warrants 660,000 $ 1.00 12/31/07
Class "B" Warrants 225,000 $ 0.66 12/31/04
We have also authorized and reserved for insurance up to 1,000,000 shares of
common stock in connection with the 2002 Incentive Stock Option Plan (to date,
no options have been granted).
Anti-Takeover Effects of Certain Provisions of Delaware Law
We are subject to Section 203 of the General Corporate Law of the State of
Delaware, which, subject to certain exceptions, prohibits a Delaware corporation
from engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless:
o prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in
the stockholders becoming an interested stockholder; or
o upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining
the numbers of shares owned by persons who are directors and also
officers and by employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer; or
o on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting
of stockholders, and not by written consent, by the affirmative vote
of at least 66 2/3% of the outstanding voting stock that is not owned
by the interested stockholder.
Section 203 defines business combination to include:
o any merger or consolidation involving the corporation and the
interested stockholder;
o any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
o subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
o any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder;
or
o the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by
or through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
This provision could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, control
of us.
43
Transfer Agent And Registrar
Our transfer agent and registrar for our common stock is Liberty Transfer
Company, 274 B New York Avenue, Huntington, NY 11743, Telephone (631) 385-1616,
Fax (631) 385-1619.
PLAN OF DISTRIBUTION
This prospectus covers 1,602,695 shares of our common stock, including
the spin off distribution of 502,695 shares of our common stock owned by The
Quigley Corporation. The distribution by the Quigley Corporation of 502,695
shares of our common stock to the Quigley Corporation shareholders will be
accomplished by direct mail upon effectiveness of the registration statement of
which this prospectus is a part. The mechanics of the the Quigley Corporation
dividend distribution will be performed by our transfer agent, Liberty Transfer
Company. See "The Spin-Off" at page 1.
All of the common stock offered hereby by the Selling Shareholders pursuant
to a Resale Prospectus. We will not realize any proceeds from the sale of the
common stock by the selling shareholders. The selling shareholders listed on
page 33 of this prospectus are offering up to 1,100,000 shares of our common
stock under this prospectus. The number of shares that the selling shareholders
may sell are comprised solely of shares of common stock, some of which they will
receive if they exercise warrants for the purchase of shares of common stock.
Through this prospectus, we are only registering the re-sale of the shares of
common stock, including those to be issued upon the exercise of warrants, and a
copy of the prospectus will be provided to each purchaser of the Shares
registered herein (the "resale prospectus").
The selling shareholders will sell their shares in public or private
transactions at an initial price of $1.00 per Share (estimated by the Company
based upon the $1.00 exercise price of the majority of the outstanding Common
Stock Purchase Warrants). Until such time as a market price for our Common Stock
is quoted on the OTC Bulletin Board, selling shareholders may sell at prevailing
market prices or at privately negotiated prices. We will not receive any
proceeds from the sale of the shares of common stock by the selling
shareholders. The shares of common stock registered in this offering that are
issuable upon the exercise of warrants are exercisable at prices from $.66 to
$1.00 per Share and the warrants do not contain cashless exercise provisions. If
these warrants are fully exercised, we will receive approximately $573,500 from
the exercise of the warrants.
The Quigley Corporation is an "underwriter" within the meaning of the
Securities Act of 1933 in connection with the distribution of its shares to its
shareholders. The shareholders of the Quigley Corporation receiving shares in
the distribution by the Quigley Corporation may be considered an "underwriter"
within the meaning of the Securities Act of 1933 in connection with the resale
of the distributed shares.
The distribution of the common stock by the selling shareholders is not
subject to any underwriting agreement. The selling shareholders may sell the
common stock offered hereby from time to time in transactions on one or more
exchanges, in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices relating to prevailing
market prices or at negotiated prices. In addition, from time to time, the
selling shareholders may engage in short sales, short sales against the box,
puts and calls and other transactions in our securities or derivatives thereof,
and may sell and deliver the common stock in connection therewith.
44
A selling security holder may enter into hedging transactions with
broker-dealers. The broker-dealers may engage in short sales of the common stock
in the course of hedging the positions they assume with the selling security
holder, including positions assumed in connection with distributions of the
shares by such broker-dealers. A selling security holder also may enter into
option or other transactions with broker-dealers that involve the delivery of
the shares to the broker-dealers, who may then resell or otherwise transfer such
shares. In addition, a selling security holder may loan or pledge shares to a
broker-dealer, which may sell the loaned shares or, upon a default by the
selling security holder of the secured obligation, may sell or otherwise
transfer the pledged shares.
Such transactions may be effected by selling the common stock to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling shareholders and/or the
purchasers of the common stock for whom such broker-dealers may act as agents.
The selling shareholders will pay any transaction costs associated with
effecting any sales that occur.
In order to comply with the securities laws of certain states, if
applicable, the common stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states, the
common stock may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with by us and the
selling shareholders. Currently, the Company's stock can only be sold in a
limited number of states, including Arizona, Kentucky, New York and Tennessee.
90 days after we are public, shareholders can also sell their shares in Iowa and
Maine. 180 days after we are public, shareholders can sell their shares in
Alabama and South Dakota. We will provide written notice to shareholders as
additional states become available for the sale of our common stock.
Under applicable rules and regulations under the Securities Exchange Act of
1934, as amended, any person engaged in the distribution of the common stock may
not simultaneously engage in market-making activities with respect to our common
stock for a period of two business days prior to the commencement of such
distribution. In addition and without limiting the foregoing, the selling
shareholders will be subject to applicable provisions of the Securities Exchange
Act of 1934 and the rules and regulations thereunder, including without
limitation, Rules 10b-6, 10b-6A and 10b-7, which provisions may limit the timing
of the purchases and sales of shares of common stock by the selling
shareholders.
The selling shareholders are not restricted as to the price or prices at
which they may sell their common stock. Sales of such shares may have an adverse
effect on the market price of the common stock.
We have agreed to pay all fees and expenses incident to the registration of
the common stock, except selling commissions and fees and expenses of counsel or
any other professionals or other advisors, if any, to the selling shareholders.
This prospectus also may be used, with our consent, by donees or other
transferees of the selling shareholders, or by other persons acquiring the
common stock under circumstances requiring or making desirable the use of this
prospectus for the offer and sale of such shares.
45
SHARES ELIGIBLE FOR FUTURE SALE
We cannot predict the effect, if any, that market sales of shares of our common
stock or the availability of shares of our common stock for sale will have on
the market price of our common stock prevailing from time to time. Sales of
substantial amounts of our common stock, including shares issued upon exercise
of outstanding warrants, in the public market after this offering could
adversely affect market prices prevailing from time to time and could impair our
ability to raise capital through the sale of our equity securities.
All of the shares sold in this offering will be freely tradable, except that any
shares acquired by our affiliates, as that term in is defined in Rule 144 under
the Securities Act, may only be sold in compliance with the limitations
described below. Any of our affiliates that are selling security holders may not
acquire shares sold in this offering until their distribution is completed.
Based on shares outstanding as of May 12, 2004, the 2,472,305 shares of our
common stock outstanding that are not registered in this prospectus will be
deemed restricted securities as defined under Rule 144. Restricted shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 or 144(k) promulgated under the Securities Act,
which rules are summarized below. Subject to the provisions of Rules 144 and
144(k), there are an additional 2,472,305 shares that are currently restricted
that will be available for sale in the public market over the next two years.
In addition, there are 260,000 shares of our common stock issuable upon exercise
of warrants, which have not been included in this registration. These shares
would be tradeable in the public market one year after the date of exercise in
the case of the warrants, assuming compliance with the other provisions of Rule
144.
Rule 144. In general, under Rule 144 as currently in effect, a person, or group
of persons whose shares are required to be aggregated, who has beneficially
owned shares that are restricted securities as defined in Rule 144 for at least
one year is entitled to sell, within any three-month period commencing 90 days
after the date of this prospectus, a number of shares that does not exceed:
o 1% of the then outstanding shares of our common stock, which will be
approximately 38,500 shares prior to this offering and 47,000 shares
assuming all of the outstanding warrants were exercised.
In addition, a person who is not deemed to have been an affiliate at any
time during the three months preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years would be entitled to sell
these shares under Rule 144(k) without regard to the requirements described
above. To the extent that shares were acquired from one of our affiliates, a
person's holding period for the purpose of effecting a sale under Rule 144 would
commence on the date of transfer from the affiliate.
LEGAL MATTERS
The legality of the shares of common stock offered hereby will be passed
upon for Suncoast Naturals by Sichenzia Ross Friedman Ference LLP, New York, New
York.
46
EXPERTS
Our consolidated financial statements as of December 31, 2002 and for the
year then ended included in this prospectus have been included in reliance upon
the report of Schuhalter Coughlin & Suozzo, PC, independent accountants, given
on the authority of said firm as experts in auditing and accounting. Our
consolidated financial statements as of December 31, 2003 and for the year then
ended included in this prospectus have been included in reliance upon the report
of Rosenberg Rich Baker Berman & Company, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
Effective as of April 13, 2004, Suncoast Naturals Inc. and Subsidiary ,
Inc. (the "Company") accepted the resignation of Schuhalter Coughlin & Suozzo
PC. as its independent accountant. The Schuhalter Coughlin & Suozzo PC.
resignation is not the result of its relationship with the Company. The
Schuhalter firm informed the Company that although they had expected in good
faith to have obtained acceptance by this time, they have yet to obtain approval
from the "PCAOB" as a Registered Firm" and do not expect such approval in time
to complete the 2003 audit in a timely fashion that would enable the Company to
meet its filing requirements for its periodic reports. Schuhalter Coughlin &
Suozzo PC. has recommended the Company engage a "Registered Firm" to complete
the 2003 audit and the Company has agreed. Effective as of April 13, 2004, the
Company engaged Rosenberg Rich Baker Berman & Company as its independent
accountant. The decision to change accountants was approved by the Board of
Directors of the Company.
The Schuhalter Coughlin & Suozzo PC. report on the Company's financial
statements for the year ended December 31, 2002 did not contain an adverse
opinion or a disclaimer of opinion, the report was neither qualified or modified
as to audit scope or accounting principles. The report on the financial
statements was qualified regarding the Company's ability to continue as a going
concern.
During the year ended December 31, 2002, and subsequent interim periods,
March 31, 2003, June 30, 2003, September 30, 2003 and until the resignation of
Schuhalter Coughlin & Suozzo PC., there were no disagreements with Schuhalter
Coughlin & Suozzo PC. on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope of procedure, which
disagreements, if not resolved to the satisfaction of Schuhalter Coughlin &
Suozzo PC., would have caused Schuhalter Coughlin & Suozzo PC. to make reference
to the subject matter of the disagreement in connection with its report.
None of the reportable events described under Item 304(a)(1)(v) of
Regulation S-K occurred within the two most recent fiscal years of the Company
year ended December 31, 2002 and the subsequent interim period to April 13,
2004.
During the two most recent fiscal years of the Company ended December 31,
2002 and the subsequent interim period to the date hereof, the Company did not
consult with Rosenberg Rich Baker Berman & Company regarding any of the matters
or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
The Company requested that Schuhalter Coughlin & Suozzo PC. furnish it with
a letter addressed to the Securities and Exchange Commission stating whether it
agrees with the foregoing statements.
47
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 with the Securities and
Exchange Commission for our common stock offered in this offering. This
prospectus does not contain all of the information set forth in the registration
statement. You should refer to the registration statement and its exhibits for
additional information. Whenever we make references in this prospectus to any of
our contracts, agreements or other documents, the references are not necessarily
complete and you should refer to the exhibits attached to the registration
statement for the copies of the actual contract, agreement or other document.
You may read our Securities and Exchange Commission filings, including the
registration statement, over the Internet at the Securities and Exchange
Commission's website at http://www.sec.gov. You may also read and copy any
document we file with the Securities and Exchange Commission at its public
reference facilities at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the Securities
and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the operation of the public reference
facilities.
48
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Rosenberg Rich Baker & Company F-1
Report of Schuhalter Coughlin and Suozzo, PC F-2
Balance Sheets as of December 31, 2003 and
March 31, 2004 (Unaudited) F-3
Statements of Operations for the two years
ended December 31, 2003 and the three months ended
March 31, 2003 and 2004 (Unaudited) F-4
Statements of Stockholders' Equity for the two years
ended December 31, 2003 and three months
ended March 31, 2003 and 2004 (Unaudited) F-5
Statements of Cash Flows for the two years ended
December 31, 2003 and the three months ended
March 31, 2003 and 2004 (Unaudited) F-6
Notes to Financial Statements F-7 to F-24
To the Board of Directors and Stockholders
Suncoast Naturals, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Suncoast
Naturals, Inc. and Subsidiary as of December 31, 2003 and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Suncoast
Naturals, Inc. and Subsidiary as of December 31, 2003 and the results of
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company incurred a net loss of $1,013,587 during the
year ended December 31, 2003, and the existing working capital may be
insufficient to fund the Company's cash flow needs for the next year. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters also are described in Note
1. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/S/ Rosenberg Rich Baker Berman & Company
Bridgewater, New Jersey
May 13, 2004
F-1
To the Board of Directors and Stockholders
Suncoast Naturals, Inc. and Subsidiary
We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity (deficit) and cash flows of Suncoast Naturals,
Inc. and Subsidiary for the year ended December 31, 2002. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to of Suncoast Naturals,
Inc. and Subsidiary above present fairly, in all material respects, the results
of operations and its cash flows for the year ended December 31, 2002 in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company incurred a net loss of $875,904 during the
year ended December 31, 2002, and the existing working capital at December 31,
2002 may be insufficient to fund the Company's cash flow needs for the next
year. These conditions raise substantial doubt about its ability to continue as
a going concern. Management's plans regarding those matters also are described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Schuhalter, Coughlin & Suozzo, PC
Certified Public Accountants
Raritan, New Jersey
March 29, 2003, except for Note 10, as to which the date is June 26, 2003.
F-2
SUNCOAST NATURALS, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
December 31, March 31,
2003 2004
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 4,722 $ 742
Accounts receivable less doubtful accounts
of $89,199 and 99,199 252,547 241,679
Inventory 121,586 104,268
Prepaid expenses and other current assets 54,958 47,458
--------- ---------
TOTAL CURRENT ASSETS 433,813 394,147
PROPERTY, PLANT AND EQUIPMENT, net 64,139 61,374
--------- ---------
OTHER ASSETS:
Other assets 16,053 16,053
--------- ---------
TOTAL OTHER ASSETS 16,053 16,053
--------- ---------
TOTAL ASSETS 514,005 471,574
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 387,260 497,133
Accrued royalties and sales commissions 79,199 71,949
Notes Payable 160,000 10,000
Other current liabilities 298,204 293,320
--------- ---------
TOTAL CURRENT LIABILITIES 924,663 872,402
--------- ---------
MINORITY INTERESTS - -
--------- ---------
REDEEMABLE PREFERRED STOCK, $.01 par value, authorized
1,000,000:Issued 100,000 shares, at par value 1,000 1,000
Present value of redemption amount in excess
of par value 967,827 975,787
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, authorized:
25,000,000, 3,850,000 and 4,075,000 shares
issued and outstanding at December 31, 2003
and March 31, 2004, respectively 3,850 4,075
Additional paid-in-capital 1,721,271 1,871,046
Retained deficit (3,104,606) (3,252,736)
----------- -----------
TOTAL STOCKHOLDERS' (DEFICIT) (1,379,485) (1,377,615)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 514,005 $ 471,574
============ ===========
See accompanying notes to financial statements.
F-3
SUNCOAST NATURALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the For the
Years Ended Three Months Ended
December 31, March 31,
2002 2003 2003 2004
(Unaudited)
NET SALES $2,040,313 $1,066,027 $ 420,930 $ 53,259
COST OF SALES 751,150 577,669 129,828 34,667
--------- --------- --------- --------
GROSS PROFIT 1,289,163 488,358 291,102 18,592
--------- --------- --------- --------
DIRECT OPERATING EXPENSES:
Sales and marketing 1,183,303 529,846 278,291 23,543
Administration 992,182 826,122 184,238 115,714
--------- --------- --------- --------
TOTAL OPERATING EXPENSES 2,175,485 1,355,967 462,529 139,257
--------- --------- --------- --------
(LOSS) FROM OPERATIONS BEFORE
OTHER INCOME AND EXPENSE (886,322) (867,609) (171,427) (120,665)
---------- ---------- --------- --------
Settlement Income (Expense) 105,000 (26,648) - -
Start Up and
Re-alignment Costs (31,000) (75,199) (26,000) (17,000)
Interest Costs (net) (63,582) (44,131) (7,817) (10,466)
---------- ---------- --------- --------
OPERATING LOSS BEFORE TAXES (875,904) (1,013,587) (205,244) (148,130)
PROVISION FOR INCOME TAX - - - -
--------- --------- --------- ---------
NET (LOSS) $ (875,904) $(1,013,587) $(205,244) $(148,130)
=========== ============ ========== ==========
Net Loss per share: $ (.21) $ (.25) $ (.05) $ (.04)
=========== ============ ========== ==========
Common shares outstanding: 4,075,000 4,075,000 4,075,000 4,075,000
=========== ============ ========== ==========
See accompanying notes to financial statements.
F-4
SUNCOAST NATURALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock Additional
$.001 Paid-In Retained
Shares Par Value Capital Deficit Total
----------- ----------- ----------- ----------- -----------
Balance January 1, 2002 750,000 $ 750 $1,440,589 $(1,215,114) $ 226,225
Other adjustments (Note 3) - - 55,782 - 55,782
Shares issued for services and
cancellation of debt 2,900,000 2,900 78,100 - 81,000
Net loss year
ended December 31, 2002 - - - (875,904) (875,904)
---------- ---------- ---------- ----------- -----------
Balance December 31, 2002 3,650,000 3,650 1,574,471 (2,091,018) (512,897)
Other adjustments (Note 3) - - 15,000 - 15,000
Issuance of Common Stock @ $.66
Per share together with warrants 200,000 200 131,800 - 132,000
Net loss for the twelve months
ended December 31, 2003 - - - (1,013,587) (1,013,587)
---------- ---------- ---------- ------------ ------------
Balance December 31, 2003 3,850,000 3,850 1,721,271 (3,104,606) (1,379,485)
Issuance of Common Stock @ $.66
Per share 225,000 225 149,775 - 150,000
Net loss for the three months
ended March 31, 2004(unaudited) - - - (148,130) (148,130)
---------- ---------- ---------- ----------- -----------
Balance March 31, 2004 (unaudited) 4,075,000 $ 4,075 $1,871,046 $(3,252,736) $(1,377,615)
========= ========== ========== ============ ============
See accompanying notes to financial statements.
F-5
SUNCOAST NATURALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the For the
Years Ended Three Months Ended
December 31, March 31,
2002 2003 2003 2004
(Unaudited)
OPERATING ACTIVITIES:
Net Income (Loss) $ (875,904) $(1,013,587) $ (205,244) $ (148,130)
Adjustments to reconcile net income
(loss) to net cash provided by
operations:
Common stock issued for services 50,000 - - -
Depreciation and amortization 19,108 20,816 5,243 2,765
Book value of assets disposed 10,952 - - -
Bad debt 9,140 110,138 4,843 10,000
(Increase) decrease in assets:
Accounts receivable (117,913) 68,623 33,124 869
Inventory 155,437 139,503 28,555 17,318
Other current assets 8,322 (1,027) 8,054 7,500
Other assets (4,464) 22,395 4,318 -
Increase (decrease) in liabilities:
Accounts payable 79,859 283,404 35,688 118,832
Accrued expenses - royalties 25,781 23,763 8,226 (7,250)
Accrued expenses - other 63,898 50,979 59,903 (5,884)
Redeemable preferred stock - 7,527 7,817 -
--------- --------- --------- ---------
Total adjustments 300,120 726,120 195,771 144,150
--------- --------- --------- ---------
NET CASH (USED IN)
OPERATING ACTIVITIES (575,784) (287,467) (9,473) (3,980)
---------- ---------- --------- ---------
INVESTING ACTIVITIES:
Purchase of fixed assets (9,081) (20,000) (12,000) -
---------- ---------- ---------- ---------
NET CASH FLOWS (USED IN) INVESTING
ACTIVITIES (9,081) (20,000) (12,000) -
---------- ---------- ---------- ---------
FINANCING ACTIVITIES:
Advance from former parent company 517,519 - - -
Issuance of Stock - 132,000 - -
Payment of purchase obligation - - - -
Proceeds from Bridge Note - 160,000 - -
Advance from officers 31,000 38,017 39,417 -
Repayment of Advance From Officers - (38,017) - -
--------- --------- --------- ---------
NET CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES 548,519 292,000 39,417 -
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH (36,346) (15,467) 17,944 (3,980)
---------- ---------- --------- ----------
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 56,535 20,189 20,189 4,722
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 20,189 $ 4,722 $ 38,133 $ 742
======== ======== ======== ========
See accompanying notes to financial statements.
F-6
SUNCOAST NATURALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited for the periods March 31, 2003 and March 31, 2004)
NOTE 1 - GOING CONCERN
As shown in the above financial statements, the Company incurred a net loss
of $875,904 during the year ended December 31, 2002 and $1,013,587 during the
year ended December 31, 2003. Additionally, the company had a stockholders'
deficit of $1,379,485 at December 31, 2003 and its working capital at that time
is not sufficient to support the Company's losses from operations at existing
levels for the next year. The Company plans to raise more capital through public
or private financing, through the issuance of its common stock, the issuance of
debt instruments, including debt convertible to equity, or otherwise attain
financing, which if available, it cannot be certain such financing will be on
attractive terms. Should the Company obtain more capital, in turn, it may cause
dilution to its existing stockholders and providing the company can obtain more
capital, it cannot be assured to ultimately attain profitability. These factors
create substantial doubt as to the Company's ability to continue as a going
concern.
The Company intends to continue its efforts to complete the necessary steps
in order to meet its cash flow requirements throughout fiscal 2004 and to
continue its product development efforts and adjust its operating structure to
reduce losses and ultimately attain profitability. Management's plans in this
regard include, but are not limited to, the following:
1. Raise additional working capital by either borrowing or through the
issuance of equity, or both;
2. Negotiate terms with existing trade creditors and strategic vendors;
negotiate an alliance with strategic co-venturers for stronger distribution
channels in the skin care, natural health and body care markets and
commence limited manufacturing of its own products to reduce product costs.
3. Re-align revenue producing activities and corresponding commission
arrangements on such a scale that will proportionately reduce selling
expenses and reduce other costs wherever possible to improve operating
margins and relieve the overhead burden until ultimately profitability may
be attained.
Management believes that actions presently being taken will generate
sufficient revenues to provide cash flows from operations and that sufficient
capital will be available, when required, to permit the Company to realize its
plans. However, there can be no assurance that this will occur. The accompanying
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
F-7
NOTE 2 - ORGANIZATION AND NATURE OF BUSINESS
Suncoast Naturals, Inc. (the "Company") organized under the laws of the
State of Delaware, in November, 2002. The Company is a sun-care and skin-care
Company specializing in the development, manufacture and sale of all-natural
sun-, skin-, and body-care products to the resort, boutique, spa, and natural
health markets. The Company's executive office and distribution facility are
located in Orlando, Florida.
Effective December 31, 2002, the Company acquired a 60% ownership position
in Caribbean Pacific Natural Products, Inc., ("CARIBBEAN PACIFIC NATURAL
PRODUCTS") which is a developer and marketer of all-natural sun-care and
skincare products for luxury resorts, theme parks and spas. In December 2002,
the Board of Directors of The Quigley Corporation ("Quigley") approved a plan to
sell CARIBBEAN PACIFIC NATURAL PRODUCTS and on January 22, 2003, completed the
sale of Quigley's 60% equity interest in CARIBBEAN PACIFIC NATURAL PRODUCTS to
the Company.
CP Suncoast Manufacturing, Inc., a wholly-owned subsidiary, was organized
in May, 2003 and is intended to manufacture the Company's products as well as
provide contract manufacturing for non-competing products formulated or
distributed by other non-affiliated companies.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Consolidated Financial Statements include the accounts of the Company
and its 60% owned subsidiary, Caribbean Pacific Natural Products, Inc. All
inter-company transactions and balances have been eliminated. In the opinion of
management, all adjustments necessary to present fairly the consolidated
financial position, consolidated results of operations and consolidated cash
flows, for the periods indicated, have been made. Certain prior period amounts
have been reclassified to conform with the 2002 presentation.
RECAPITALIZATION OF CARIBBEAN PACIFIC NATURAL PRODUCTS, INC.
Material sales and expenses included in these consolidated financial
statements result from the inclusion of financial information of the Company's
60% owned subsidiary Caribbean Natural Products, Inc. ("CARIBBEAN PACIFIC
NATURAL PRODUCTS"), which is a developer and marketer of all-natural sun-care
and skincare products for luxury resorts, theme parks and spas. In December
2002, the Board of Directors of the Company approved a plan to acquire CARIBBEAN
PACIFIC NATURAL PRODUCTS. On January 22, 2003, the Company acquired a 60% equity
interest in CARIBBEAN PACIFIC NATURAL PRODUCTS. In exchange for its 60% equity
interest in CARIBBEAN PACIFIC NATURAL PRODUCTS, the Company issued to the
Quigley Corporation : (i) 750,000 shares of the Company's common stock, which
Suncoast has agreed, at its cost, to register for public resale through an
appropriate registration statement; and (ii) 100,000 shares of Suncoast's Series
A Redeemable Preferred Stock, which bears certain redemption features discussed
in Note 9 - Redeemable Preferred Stock.
F-8
Pursuant to SFAS No. 141, which applies to business combinations after June
30, 2001, which requires the use of the purchase method of accounting for all
business combinations, carrying forward the guidance from APB 16 with respect
to; (a) the principles of historical cost accounting, (b) determining the cost
of the acquired entity and (c) allocation of cost to assets and liabilities
assumed; "CARIBBEAN PACIFIC NATURAL PRODUCTS" is considered the acquiring
entity. As such the historical balances of "CARIBBEAN PACIFIC NATURAL PRODUCTS"
assets and liabilities representing the carrying value and corresponding
allocation of the purchase price, and therefore, the transaction is equivalent
to a reverse acquisition, which in this case, no partial step up in asset values
discussed in EITF 90-3 apply, and thereby no goodwill or intangible assets have
been recorded. The equity issued by the Company was valued at the (a) present
value of the redeemable preferred shares issued to "Quigley" and (b) common
stock and additional paid in capital was recorded at the value of the remaining
liability to "Quigley" canceled by the exchange agreement.
ACCOUNTING FOR BUSINESS COMBINATION OF CARIBBEAN PACIFIC NATURAL PRODUCTS,
APPLICATION OF SAB 103
During the years ended December 31, 2000, 2001 and 2002, the results of
operations, cash flows and assets and liabilities of CARIBBEAN PACIFIC NATURAL
PRODUCTS were included in the consolidated financial statements of the Quigley
Corporation, the effect of which were reported as discontinued operations in
2002. The financial statements of "Quigley" were audited by another auditor, and
the results of this subsidiary were not reported separately. Recently the staff
of Corporate Finance Division of the Securities and Exchange Commission, "SEC",
provided guidance in the codification of its staff accounting bulletins ("SABS")
and in discussion of accounting for former subsidiaries, such as the case with
CARIBBEAN PACIFIC NATURAL PRODUCTS, indicated that reasonable estimates for
expenses of the use of a parent company's capital (ie. interest) and other
corporate charges connected with operating as a stand alone entity (including
legal fees, audit fees and administrative expenses) should be estimated when the
division or subsidiary is presented individually. The financial statements
include such estimates and additional expenses were recorded, and a like amount
was credited to additional paid in capital for the periods presented as follows:
Years Ended Three Months Ended
December 31, March 31,
2002 2003 2003 2004
(Unaudited)
Interest and
administrative costs $55,782 $15,000 $10,000 $0
======= ======= ======= ==
F-9
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation is provided
on the straight-line method over estimated useful lives of three to five years.
INVENTORIES
Inventories are stated at the lower of cost or market. The Company uses the
first-in, first-out ("FIFO") method of determining cost for all inventories.
Inventories are comprised of raw materials and finished goods.
INTERIM FINANCIAL INFORMATION
The interim financial information at March 31, 2004 and for the three
months ended March 31, 2003 and 2004 is unaudited. In the opinion of management
the interim financial statements have been prepared on the same basis as the
annual financial statements and includes all adjustments (consisting of normal
recurring adjustments) that the Company considers necessary for a fair
presentation of its financial position at such date and its operating results
and cash flows for those periods. Results for the interim period are not
necessarily indicative of the results to be expected for the entire year, or any
future period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the dates of the financial statements
and the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
F-10
CASH EQUIVALENTS
The Company considers all highly liquid investments with an initial
maturity of three months or less at the time of purchase to be cash equivalents.
Cash equivalents include cash on hand and monies invested in money market funds.
The carrying amount approximates the fair market value due to the short-term
maturity of these investments.
CONCENTRATION OF RISKS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and trade
accounts receivable.
Trade accounts receivable potentially subjects the Company to credit risk.
The Company extends credit to its customers based upon an evaluation of the
customer's financial condition and credit history and generally does not require
collateral. The Company has historically incurred minimal credit losses. The
Company's range of customers includes hotels, resorts and theme park gift shops,
product stands and individual sales representatives.
LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment on an exception
basis whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through future cash flows. If it is
determined that an impairment loss has occurred based on the expected cash
flows, a loss is recognized in the Statement of Operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for
Suncoast's cash, accounts receivable, accounts payable and accrued expenses
approximate their fair values due to the short maturities of these financial
instruments. The carrying amounts reported in the consolidated balance sheets
for Suncoast's long-term debt due to related parties approximate their fair
values as they represent the amount the Company expects to liquidate these
obligations with cash or cash equivalents, and the amounts recorded as other
liabilities - redeemable preferred stock approximate their fair value as they
represent the amount in which the Company expects to satisfy these obligations
by payment in cash in 2007 or by the issuance of the Company's equity without
material gain or loss.
F-11
REVENUE RECOGNITION
Sales are recognized at the time ownership is transferred to the customer,
which is primarily the time the shipment is received by the customer. In limited
instances, selected trial periods, whereby the customer has the right of return
until the selected trial period ends, the Company recognizes revenue when the
trial period ends and no right of return exists.
Sales returns and allowances are provided for in the period that the
related sales are recorded. Provisions for these reserves are based on
historical experience.
As required, effective January 1, 2003, the Company has adopted the
Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements" which provides guidelines on
applying generally accepted accounting principals to revenue recognition based
upon the interpretations and practices of the SEC. The Company recognizes
revenue for its products at the time of shipment, at which time, no other
significant obligations of the Company exist, other than normal product
warranties.
SHIPPING AND HANDLING
The Company includes costs of shipping and handling billed to customers in
revenue and the expense of shipping and handling costs is included in cost of
sales.
STOCK BASED COMPENSATION
Financial Accounting Statement No. 123, Accounting for Stock Based
Compensation, encourages, but does not require companies to record compensation
cost for stock-based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation using the intrinsic
method prescribed in Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock. The Company has adopted the
"disclosure only" alternative described in SFAS 123 and SFAS 148, which require
pro forma disclosures of net income and earnings per share as if the fair value
method of accounting had been applied.
ROYALTIES
The Company includes royalties and founders commissions incurred as cost of
sales based on agreement terms.
F-12
ADVERTISING
Advertising costs are expensed within the period in which they are
utilized. Advertising expense is comprised of media advertising, presented as
part of sales and marketing expense; co-operative advertising, which will be
accounted for as a deduction from sales; and free product, which is accounted
for as part of cost of sales. No advertising costs incurred for the years ended
December 31, 2003 and 2002.
INCOME TAXES
The Company utilizes an asset and liability approach which requires the
recognition of deferred tax assets and liabilities for the future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, the Company
generally considers all expected future events other than enactments of changes
in the tax law or rates. See Notes to Financial Statements, Note 7 - Income
Taxes for further discussion.
START-UP AND RE-ALIGNMENT COSTS
Pursuant to Statement of Position 98-5, the Company expenses start-up costs
associated with its ;parent company's activation activities and costs and
expensed incurred in connection with the acquisition of CARIBBEAN PACIFIC
NATURAL PRODUCTS, which pursuant to FASB 142 and APB 16, were expensed as
transaction costs. The Statement of Position broadly defines start-up activities
as activities related to organizing a new business, as well as one-time
activities associated with, opening a new facility, introducing new products or
services, conducting business with a new class of customers or in a new
territory, and starting a new process in an existing facility or starting a new
operation. Re-alignment costs are costs associated with changing the contractual
distribution agreements to an existing customer base. Start up and re-alignment
costs for the years ended December 31, 2002 and 2003 were $31,000 and $75,199
and for the three months ended March 31, 2003 and 2004 (unaudited) were $26,000
and $17,000, respectively.
MINORITY INTERESTS
The Company's "CARIBBEAN PACIFIC NATURAL PRODUCTS" subsidiary is 40% owned
by a related party whom has made a nominal investment, of which losses since
inception have reduced the investment to a value of $0. The Company has not
recorded earnings in the "CARIBBEAN PACIFIC NATURAL PRODUCTS" subsidiary Should
the Company attain and record net income in this subsidiary, 40% would be
allocated to the minority shareholders, and cumulatively, should this subsidiary
accumulate earnings in excess of its cumulative losses, the Company would record
amounts allocable to "minority interest", which would be a reduction of
stockholders' equity.
F-13
SETTLEMENT INCOME
During the year ended 2002, the Company recorded settlement income of
$105,000, net of expenses, for payments received in connection with a settlement
with Virgin Atlantic Company. Virgin Atlantic had challenged a trademark granted
to the Company in the United States and the Company agreed to retire the
trademark in question as a condition of the settlement.
STATEMENT OF CASH FLOW SUPPLEMENTAL INFORMATION
Years Ended Three Months Ended
December 31, March 31,
2002 2003 2003 2004
(Unaudited)
Interest paid, net $ - $ - $ - $ -
======= ======= ======= =======
Taxes paid $ - $ - $ - $ -
======= ======= ======= =======
Schedule of non-cash Investing and
Financing Activities:
Conversion of liability to former
parent to common stock $582,989 $ - $ - $ -
======= ======= ======= =======
Conversion of liability to former
parent to redeemable preferred
stock $937,596 $ - $ - $ -
======= ======= ======= =======
Conversion of note payable to
related party (2002) and
investor (2004) to common stock $ 31,000 $ - $ - $150,000
======= ======= ======= =======
F-14
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement rescinds SFAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt," and an amendment of that statement, SFAS No. 44,
"Accounting for Intangible Assets of Motor Carriers,"and SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." This
statement amends SFAS No. 13, "Accounting for Leases," to eliminate
inconsistencies between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. Also, this statement
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. Provisions of SFAS No. 145 related to the rescission of SFAS No. 4
were effective for the Company on November 1, 2002 and provisions affecting SFAS
No. 13 were effective for transactions occurring after May 15, 2002. The
adoption of SFAS No. 145 did not have a material impact on our financial
statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement covers
restructuring type activities beginning with plans initiated after December 31,
2002. Activities covered by this standard that are entered into after that date
will be recorded in accordance with the provisions of SFAS No. 146. Management
does not believe there will be a significant impact on our consolidated
financial position or results of operations.
F-15
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which provides alternative methods of
transition for a voluntary change to fair value based method of accounting for
stock-based employee compensation as prescribed in SFAS 123, "Accounting for
Stock-Based Compensation." Additionally, SFAS 148 required more prominent and
more frequent disclosures in financial statements about the effects of
stock-based compensation. The provisions of this Statement are effective for
fiscal years ending after December 15, 2002, with early application permitted in
certain circumstances. The Company has adopted the disclosure provisions in
these consolidated financial statements as disclosed above under Stock Based
Compensation.
In November 2002, the FASB Issued FASB interpretation (FIN) No. 45
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Other." FIN No. 45 requires guarantor to
recognize, at the inception of a qualified guarantee, a liability for the fair
value of the obligation undertaken in issuing or modified after December 31,
2002. Management does not expect adoption of this Interpretation to have a
material impact on the Company's financial condition or results of operations.
"Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51." FIN 46 requires certain variable interest entities to be consolidated by
the primary beneficiary of the entity if the equity investors in the entity do
not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The adoption of FIN 46 did not
have a significant impact on our consolidated financial position or results of
operations.
In May 2003, the FASB issued SFAS Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity". This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). This
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of nonpublic entities, if applicable. It is to be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the
Statement and still existing at the beginning of the interim period of adoption.
The adoption of this statement is not expected to have a significant impact on
the Company's results of operations or financial position.
F-16
NOTE 4 - INVENTORY
Inventory consists mainly of the Company's skin care and health products
and corresponding branded packaging materials. Inventory is comprised of the
following:
December 31, March 31,
2003 2004
(Unaudited)
Raw Materials $ 66,414 $ 62,399
Finished goods 75,172 61,869
------- ------
Total 141,586 124,268
Less: Reserve for obsolescence (20,000) (20,000)
------- -------
Inventory, Net $121,586 $104,268
======== ========
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of:
December 31, March 31,
2003 2004
(Unaudited)
Improvements and fitouts $17,650 $17,650
Machinery and equipment 9,857 9,857
Computer software and website 49,649 49,649
Furniture and fixtures 37,070 37,070
-------- --------
114,226 114,226
Less: Accumulated depreciation (50,087) (52,852)
-------- ---------
Property, Plant and Equipment, net $64,139 $61,374
======== ========
Depreciation expense for the years ended December 31, 2003 and 2002 was
$20,816 and $19,108 respectively and $2,765 and $5,243 for the three months
ended March 31, 2004 and 2003, respectively.
F-17
NOTE 6 - SEGMENT INFORMATION
The Company has one reporting segment relating to the sales of all-natural
sun-care and skincare products for luxury resorts, theme parks and spas. As
defined in SFAS 31, "Disclosures about Segments of an Enterprise and Related
Information," allocate resources and assess the performance of the Company based
on revenue and overall profitability.
For the years ended December 31, 2003 and 2002, the Company had one
customer who contributed greater than 19.2% and 11.5%, respectively, of the
Company's total revenues.
The level of sales to any single customer may vary and the loss of this
customer, or a decrease in the level of sales to this customers, could have a
material impact on the Company's financial condition or results of operations.
The Company's operations area conducted in the United States and Mexico.
The Company only has sales stations in Mexico and all operations including
distribution, marketing and administrative services are performed in the United
States. The Company has not incurred any foreign currency trading adjustments as
all of its sales are settled in U.S. dollars. In addition, all of its business
units books are maintained in U.S. dollars.
Certain information related to the Company's operations by geographic area
is presented below (in thousands). The Company's revenues are attributed to the
geographic areas according to the location of their sales stations.
Years Ended Three Months Ended
December 31, March 31,
2002 2003 2003 2004
Net Sales
United States $ 1,601 $ 810 $ 382 $ 36
Mexico 439 256 39 17
----- ----- ---- ----
Total $ 2,040 $ 1,066 $ 421 $ 53
===== ===== ==== ====
All of the Company's long-lives assets are located in the United States.
NOTE 7 - INCOME TAXES
At December 31, 2002 and 2003, the Company had net operating loss
carryforwards of approximately $2,091,000 and $3,007,000, respectively, for book
and tax purposes, expiring from 2007 to 2022. As a result of the Tax Reform Act
of 1986, the Company may be obligated to pay an alternative minimum tax on its
alternative minimum taxable income, even though it has a loss carryfoward. These
carryforwards are subject to possible limitations on annual utilization if there
are "equity structural shifts" or "owner shifts" involving "5% shareholders" (as
these terms are defined in Section 382 of the Internal Revenue Code), which
result in more than a 50% point change in ownership.
F-18
At this time, the Company does not believe it can reliably predict
profitability beyond the current fiscal year. Accordingly, the deferred tax
asset applicable to operations subsequent to December 31, 2003 has been reduced
in its entirety by the valuation allowance. For the periods ending December 31,
2002 and 2003 the provision for taxes is comprised only of appropriate state
income taxes.
Reconciliation of income taxes shown in the financial statements and
amounts computed by applying the Federal income tax rate of 34% for the years
ended December 31, 200 and 2003 respectively is as follows:
2002 2003
Loss Before Income Taxes $(875,904) $(1,013,587)
Computed expected tax credit 297,805 344,620
Operating loss for which no
benefits were provided (297,805) (344,620)
State and local tax $ - $ -
======= =======
Provision for income taxes$ $ - $ -
======= =======
NOTE 8 - LOSS PER SHARE
The Company has adopted SFAS No.128, "Earnings per Share." Earnings per
common share are computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding during the period. The
earnings per common share computation, assuming dilution, gives effect to all
dilutive potential common shares during the period. The computation assumes that
the outstanding stock options and warrants were exercised and that the proceeds
were used to purchase common shares of the Company. Common equivalent shares
have been excluded from the computation of diluted earnings per share since
their effect is antidilutive. Loss per share is also calculated giving
retroactive recognition for the number of equivalent shares issued to Quigley in
connection with the acquisition of "CARIBBEAN PACIFIC NATURAL PRODUCTS," and the
3,100,000 shares issued for formation services and cancellation of advances in
2002 as being outstanding at the beginning of all periods presented.
F-19
NOTE 9 - REDEEMABLE PREFERRED STOCK
On December 31, 2002, the Company issued 100,000 Shares of Preferred Stock,
designated Class "A" Redeemable Preferred Stock, to The Quigley Corporation as
partial consideration for the acquisition of 60% of the Common Stock of
Caribbean Pacific Natural Products, Inc.
The holders of the Series A Stock shall be entitled to receive, in
preference to the holders of the Corporation's Common Stock, when, as and if
declared by the Corporation's Board of Directors, annual dividends at the rate
of $.10 per share and no more. Dividends on the Series A Stock shall be
cumulative, and declared but unpaid dividends shall not bear interest. The
holders of Series A Stock shall have no voting rights. No other Series or Class
of Preferred Stock which may subsequently be designated or authorized by the
Board of Directors shall be granted or otherwise be entitled to any voting
rights.
The Corporation shall have the right to redeem the shares of Series A Stock
at any time following the date of issuance. The Redemption Price for each share
shall be $10.00 per share plus an interest factor which shall accrue from the
date of issuance through the date of redemption. The interest rate shall be a
fixed annual rate equal to the prime rate announced by Citibank, NA, New York
City, on the date of issuance, and may be payable in cash or accrued until
redemption. In the event that all shares are not put by the holder to the
Corporation or redeemed by the Corporation prior to December 31, 2007, all such
shares shall be redeemed by the Corporation at face value, together with accrued
interest, if any, as of that date. These preferred shares were valued at
$937,596, which represented the net present value of the redemption obligation,
which absent early redemption by the Company, has a fixed redemption date of
January 22, 2007.
During the year ended December 31, 2003 and the three month period ended
March 31, 2004, the Company imputed $31,231 and $7,960 of interest expense on
this obligation.
F-20
NOTE 10 - CAPITAL STOCK
Significant provisions of the Company's capital stock are highlighted below
and are subject to the provisions of the Company's Certificate of Incorporation
and the Bylaws:
Preferred Stock
The Company presently authorized to issue up to 1,000,000 shares of
preferred stock, $.01 par value per share. Such preferred stock may be issued in
one or more series, on such terms and with such rights, preferences and
designations as our board of directors may determine. Such preferred stock may
be issued without action by stockholders. On December 31, 2002, the Company
issued 100,000 Shares of Preferred Stock, designated Class "A" Redeemable
Preferred Stock, to The Quigley Corporation as partial consideration for the
acquisition of 60% of the Common Stock of Caribbean Pacific Natural Products,
Inc. (See Note 9.)
Common Stock
The Company is presently authorized to issue up to 25,000,000 shares of
common stock, $.001 par value per share. The holders of common stock are
entitled to one vote for each share held of record on each matter submitted to a
vote of stockholders. Subject to the prior rights of any series of preferred
stock which may from time to time be outstanding, holders of common stock are
entitled to receive ratably such dividends as may be declared by our board of
directors out of funds legally available therefor, and, upon our liquidation,
dissolution or winding up, they are entitled to share ratably in all assets
remaining after payment of liabilities and payment of accrued dividends and
liquidation preference on the preferred stock, if any. Holders of common stock
have no preemptive rights and have no rights to convert their common stock into
any other securities.
In November, 2002, the Company issued 1,915,000 Shares of Common Stock and
425,000 warrants (the "A" warrants) to purchase 425,000 shares of Common Stock
at $1.00 per share through December 31, 2007, to officers, consultants and
directors for formation services rendered to the Company valued at $50,000, the
value ascribed to the services as the Company had yet to establish a market for
the Company's common stock.
In November, 2002, the Company issued 1,185,000 Shares of Common Stock in
consideration for the cancellation of $31,000 indebtedness for cash advances.
Effective for December, 2002, the Company issued 750,000 Shares of Common
Stock to The Quigley Corporation as partial consideration for its purchase of a
60% controlling interest in Caribbean Pacific Natural Products, Inc., valued at
$582,989.
F-21
In April and May, 2003, the Company issued 200,000 shares of Common Stock
at the price of $.66 per share, together with 125,000 warrants (the "A"
warrants) to purchase 125,000 shares of Common Stock at $1.00 per share through
December 31, 2007, for total proceeds to the Company of $132,000.
In May, 2003, the Company issued $150,000 principal value of Convertible
Notes, convertible into 225,000 shares of Common Stock at the price of $.66 per
share on or prior to the initial maturity date of September 30, 2003. This
convertible note
In May, 2003, the Company issued 100,000 warrants (the "A" warrants) to
purchase 100,000 shares of Common Stock at $1.00 per Share through December,
2007, and 225,000 warrants (the "B" warrants) to purchase 225,000 shares of
Common Stock at $.66 per share initially exercisable through December, 2003 and
extended through December 3, 2004.
Options and Warrants
In addition to our outstanding common stock, there are, as of March 31,
2004, issued and outstanding common stock purchase warrants which are
exercisable at the price-per-share indicated, and which expire on the date
indicated, as follows:
Description Number Weighted Average Expiration
Outstanding Exercise Price
Class "A" Warrants 650,000 $ 1.00 12/31/07
Class "B" Warrants 450,000 $ 0.66 12/31/04
Total 1,100,000 $ .86
Reserved Shares
The Company has also reserved for insurance up to 1,000,000 shares of
common stock in connection with the 2002 Incentive Stock Option Plan. To date,
no options have been granted under this plan.
In July 2003 the Company agreed to a public relations agreement including
provisions to issue up to 350,000 shares consisting of provisions for equity
compensation of 100,000 shares to be issued for services based upon attainment
of certain benchmarks and a warrant for up to 250,000 shares at an exercise
price of $1.00 per share may be issued under the agreement.
F-22
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Operating Leases
Certain operating leases for the years ended December 31, 2002 and 2003 for
office and warehouse space maintained by the Company resulted in rent expense of
$102,572 and $125,076, respectively, and $21,630 and $20,920 for March 31, 2003
and 2004, respectively.
The total future minimum rental payments for premises required are as
follows:
2004 $ 130,159
2005 123,672
-------
$ 253,831
Additionally, the Company leased fixtures and office equipment for the
years ended December 31, 2002 and 2003 under operating leases which resulted in
equipment rental expenses of $33,785 and $25,319, respectively, and $9,459 and
$5,499 for March 31, 2003 and 2004, respectively.
The total future minimum rental payments for equipment required are as
follows:
The Caribbean Pacific products are manufactured and marketed under an
exclusive, world-wide Product License Agreement from Caribbean Pacific
International, Inc. , the original developer of the products and owner of the
trademarks. The twenty five year licenses agreement expires in 2025, and
provides for a payment to Caribbean Pacific International, Inc. of a 5% royalty
on net sales receipts from sales of Caribbean Pacific-branded products. The
royalty is not applicable to products developed or sold by us which do not
utilize the Caribbean Pacific brand-name or trademarks. During the years ended
December 31, 2001 and 2002 the Company recorded royalty expense to Caribbean
Pacific International, Inc. of $57,945 and $23,837, respectively, and during the
three months ended March 31, 2003 and 2004 the Company recorded royalty expense
to Caribbean Pacific International, Inc. of $8,226 and $0, respectively.
Employment Agreements
The Company has entered into a one-year employment agreement with William
J. Reilly to serve as the President and General Counsel of the Company at an
annual salary of $48,000, commencing on May 30, 2003.
F-23
Litigation
From time to time the Company may be involved in various legal proceedings
and other matters, including nominal disputes with creditors relating to the
dollar amount of outstanding obligations of the Company, arising in the normal
course of business. The Company believes no such actions would result in
liabilities in excess of amounts accrued in the financial statements.
NOTE 12 - RELATED PARTY TRANSACTIONS
In November, 2002, the Company issued 1,185,000 Shares of Common Stock in
consideration for the cancellation of $31,000 indebtedness for cash advances.
Effective for December, 2002, the Company issued 750,000 Shares of Common
Stock to The Quigley Corporation as partial consideration for its purchase of a
60% controlling interest in Caribbean Pacific Natural Products, Inc., valued at
$582,989 and additionally the Company issued 100,000 Shares of Preferred Stock,
designated Class "A" Redeemable Preferred Stock, to The Quigley Corporation as
partial consideration for the acquisition of 60% of the Common Stock of
Caribbean Pacific Natural Products, Inc., valued at $937,596. During the year
ended December 31, 2003, and the three months ended March 31, 2004 the Company
imputed $31,231 and $7,960, respectively, of interest expense on this
obligation.
During the year ended December 31, 2003, the Company received $38,017 of
advances from the Company's president which have been repaid in full through
that date. Interest expense of $3,017 was recorded on this debt for the year
ended December 31, 2003.
Caribbean Pacific International, Inc., the holder of the royalty agreement,
is also the 40% minority shareholder of CARIBBEAN PACIFIC NATURAL PRODUCTS.
NOTE 13 - SUBSEQUENT EVENTS
In March, 2004, the Company issued 225,000 shares of its common stock and
extended through December 31, 2004 a like amount of warrants to purchase one
share each of the Company's common stock at $.66 per share, pursuant to the
conversion of a $150,000 note payable discussed in Note 10.
F-24
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our certificate of incorporation provides that all directors, officers,
employees and agents of the registrant shall be entitled to be indemnified by us
except that such indemnification shall not eliminate or limit the liability of a
director (a) for any breach of the director's duty or loyalty to the corporation
or its stockholders, (b) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (c) under Section
174 of the Delaware Corporation Law, or (d) for any transaction from which the
director derived an improper personal benefit.
Section 145 of the Delaware General Corporation Law concerning
indemnification of officers, directors, employees and agents is set forth below.
"Section 145. Indemnification of officers, directors, employees and
agents; insurance.
(a) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
II-1
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made, with
respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by former directors and officers or other
employees and agents may be so paid upon such terms and conditions, if any, as
the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
II-2
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers, and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of The Company in a successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, The Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to the court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Securities and Exchange Commission Filing Fee ....................$ 150
*Accountants' fees and expenses.................................. $ 25,000
*Legal fees and expenses......................................... $ 25,000
The foregoing costs and expenses will be paid by the Company. Other
than the Securities and Exchange Commission filing fee, all fees and expenses
are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During its organizational activities, commencement of its business
operations, and in connection with its acquisition of Caribbean Pacific Natural
Products, Inc., the Company has issued a total of 4,075,000 Shares of Common
Stock, 650,000 Common Stock Purchase Warrants, and 100,000 Shares of Preferred
Stock in the following transactions. All of these securities were issued in
privately-negotiated transactions with Officers and Directors of the Company as
well as affiliated and non-affiliated shareholders, not pursuant to an offering
or plan of distribution, and for investment purposes only. In issuing these
securities, the Company relied upon the available exemption from registration
afforded by Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act").
II-3
In June, 2003, we issued 10,000 common stock purchase warrants,
exercisable at $1.00, to Mr. Robert Jaffe, our former counsel. The warrants were
issued in exchange for legal services valued at $1,000 performed for us.
In May, 2003, the Company, as additional consideration for the issuance of
a convertible note described below and issued contemporaneous therewith, issued
100,000 warrants (the "A" warrants) to purchase 100,000 shares of Common Stock
at $1.00 per Share through December, 2007 to Seth Fireman, an unaffiliated
party, and 225,000 warrants (the "B" warrants) to purchase 225,000 shares of
Common Stock at $.66 per Share through December, 2003 to Clifton Management and
Trading Pension, an affiliate of the Company (an affiliate due to its holding of
5% or more of the Company's common stock), each of whom were accredited
investors pursuant to Rule 506 of Regulation D under the Securities Act. Each
investor receiving securities represented that they were accredited investors as
defined in Regulation D under the Securities Act of 1933 or had sufficient
knowledge and experience in financial matters to be capable of evaluating the
risk of such an investment, and based on those representations, the Company
determined the investors to be accredited investors. The exercise date of the B
warrants was extended to December 31, 2004.
In May, 2003, the Company issued $150,000 principal value of Convertible
Notes, convertible into 225,000 shares of Common Stock at the price of $.66 per
share on or prior to the maturity date of September 30, 2003 to Goldstrand
Investments, Inc., an affiliate of the Company (an affiliate due to its holding
of 5% or more of the Company's common stock), who is an accredited investor
pursuant to Rule 506 of Regulation D under the Securities Act. Goldstrand
represented that they were an accredited investor as defined in Regulation D
under the Securities Act of 1933 or had sufficient knowledge and experience in
financial matters to be capable of evaluating the risk of such an investment,
and based on those representations, the Company determined the investor to be an
accredited investor.On February 27, 2004, the Note Holder converted the Note,
including accrued interest, into 225,000 shares of common stock of the Company.
In April and May, 2003, the Company issued 200,000 shares of Common Stock
at the price of $.66 per share, together with 125,000 warrants (the "A"
warrants) to purchase 125,000 shares of Common Stock at $1.00 per share through
December 31, 2007, for total proceeds to the Company of $132,000 to unaffiliated
shareholders listed below, each of whom were accredited investors pursuant to
Rule 506 of Regulation D under the Securities Act. Each investor receiving
securities represented that they were accredited investors as defined in
Regulation D under the Securities Act of 1933 or had sufficient knowledge and
experience in financial matters to be capable of evaluating the risk of such an
investment, and based on those representations, the Company determined the
investors to be accredited investors. These shares were issued to the following
persons in the corresponding amounts:
Doylestown Partners, Inc. 18,940 shares
Ashworth Development, LLC 22,727 shares
Shamrock Equities, Inc. 9,469 shares
Robert K. Ashworth 4,924 shares
Phil Schuman 30,303 shares
Norman Gottlieb 75,756 shares
Richard Berman 37,879 shares
Effective for December, 2002, the Company issued 750,000 Shares of Common
Stock to The Quigley Corporation as partial consideration for its purchase of a
60% controlling interest in Caribbean Pacific Natural Products, Inc., valued at
$582,989 and additionally the Company issued 100,000 Shares of Preferred Stock,
designated Class "A" Redeemable Preferred Stock, to The Quigley Corporation as
II-4
partial consideration for the acquisition of 60% of the Common Stock of
Caribbean Pacific Natural Products, Inc., valued at $937,596. During the nine
month period ended September 30, 2003, the Company imputed $23,189 of interest
expense on this obligation.
In November, 2002, the Company issued 1,185,000 Shares of Common Stock in
consideration for the cancellation of $31,000 indebtedness for cash advances and
expenses incurred by William J. Reilly, the Chairman and President of the
Company, in the organization of the Company. These shares were issued to William
J. Reilly, Thomas Hagan, Dr. Sam Saliba, and Matthew Cohen, who are all
Directors of the Company and received their shares in lieu of cash compensation
for services rendered. In addition, Mr. Reilly gifted shares to twelve
shareholders listed below. These shares were issued to the following persons in
the corresponding amounts:
Diocese of Palm Beach 115,000 shares
Erin Furman 62,500 shares
John Furman 12,500 shares
Louis Gleckel 5,000 shares
Christopher Reilly 10,000 shares
Marielle Reilly 25,000 shares
Shannon Reilly 30,000 shares
Margaret Testa 7,500 shares
Charles Nicosia 10,000 shares
Cyrus Holman 1,000 shares
Robert K. Ashworth 162,500 shares
Scott Strady 155,000 shares
With the exception of Christopher and Shannon Reilly who are children of
William Reilly, our President, and Marielle Reilly, who is the wife of William
Reilly, all these shareholders are unaffiliated with the Company.
In November, 2002, the Company issued 1,715,000 Shares of Common Stock and
425,000 warrants (the "A" warrants) to purchase 425,000 shares of Common Stock
at $1.00 per share through December 31, 2007, to officers, product marketing
consultants and directors of the Company in lieu of cash compensation for
formation services rendered to the Company valued at $50,000, and for services
to be rendered to the Company during calendar year 2003. This value was ascribed
to the services as the Company had yet to establish a market for the Company's
common stock and had no business operations. Worldwide Health Resources, Inc.
provided us with $10,000 worth of services and received 10,000 shares of Common
Stock and 10,000 warrants. News USA, Inc. provided us with $5,000 worth of
services and received 62,500 shares of common stock and 37,500 warrants.
Blackmor Group, Inc. provided us with $10,000 in product marketing services and
received 115,000 shares of Common Stock and 85,000 warrants. FINX Group, Inc.
provided us with $10,000 worth of secretarial services and received 50,000
shares of Common Stock and 50,000 warrants. Charles Kyrakos provided us with
$1,000 in real estate brokerage services and received 10,000 shares of common
stock. William J. Reilly, President, provided us with $14,000 in corporation
formation and management services, and received 1,467,500 shares of common stock
and 242,500 warrants.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Following is a list of exhibits filed as part of this Registration on Form
SB-2. Where so indicated by footnote, exhibits which were previously filed are
incorporated by reference.
EXHIBIT NUMBER
REFERENCE DESCRIPTION
(3a) Certificate of Incorporation. (1)
(3b) By-laws. (1)
(4a) Specimen of Common Stock certificate. (1)
(4b) Certificate of Designation of Series "A" Redeemable
Preferred Stock issued to the Quigley Corporation. (4)
II-5
(5) Opinion of Sichenzia Ross Friedman Ference LLP
(10a) Form of $150,000 Principal Value Convertible Note. (1)
(10b) Share Exchange Agreement, dated as of December 31, 2002,
by and between Suncoast Naturals, Inc. and The Quigley
Corporation
(10c) Warrant Agreement to purchase up to 325,000 shares of
common stock issued to Goldstrand Investments, Inc.(3)
(10d) Sales Management and Service Agreement dated May 28, 2003
with Worldwide Health Resources, Inc. (3)
(10e) Lease Agreement (4)
(10f) Product License Agreement With Caribbean Pacific
International, Inc. (4)
(10h) Employment Agreement with William J. Reilly, Esq. (4)
(10i) Agreement with News USA, Inc. (4)
(10j) Form of Common Stock Purchase Warrant.
(10k) Lease Agreement(4)
(10l) License Agreement with Halcyon LLC, dated as of
June 22, 2004.
(16.1) Letter from Schuhalter, Coughlin & Suozzo, PC on Change
in Certifying Accountant
(21) Subsidiaries (1)
(23a) Consent of Schuhalter, Coughlin & Suozzo, PC
(23b) Consent of Rosenberg Rich Baker Berman & Company
(23c) Consent of legal counsel (see Exhibit 5)
(1) Filed with the initial filing of the Registration Statement on Form SB-2 on
August 11, 2003.
(2) Filed with Amendment No. 1 to this Registration Statement on October 30,
2003.
(3) Filed with Amendment No. 2 to this Registration Statement on January 20,
2004.
(4) Filed with Amendment No. 3 to this Registration Statement on March 8, 2004.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(i) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
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(ii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii)
do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
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Signatures
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boca Raton, State of Florida, on the 25th day of
June, 2004.
SUNCOAST NATURALS, INC.
By: /s/ William J. Reilly
----------------------
Name: William J. Reilly
Principal Executive Officer,
Acting Principal Financial
Officer and Acting Principal
Accounting Officer
Power of Attorney
Suncoast Naturals, Inc. and each of the undersigned do hereby appoint
William J. Reilly, President its or his true and lawful attorney to execute on
behalf of Suncoast Naturals, Inc. and the undersigned any and all amendments to
the registration statement on Form SB-2 and to file the same with all exhibits
thereto and other documents in connection therewith, with the SEC.
Pursuant to the requirements of the Exchange Act, this Registration
Statement has been signed below by the following persons on behalf of Suncoast
Naturals, Inc. and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ William J. Reilly President and Director June 25, 2004
------------------------
William J. Reilly
/s/ Thomas Hagan Secretary and Director June 25, 2004
------------------------
Thomas Hagan
/s/ Sam Saliba Director June 25, 2004
------------------------
Dr. Sam Saliba
Director June 25, 2004
------------------------
Matthew Cohen
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EXHIBIT 5.1
SICHENZIA ROSS FRIEDMAN FERENCE LLP
1065 Avenue of the Americas, 21st Flr.
New York, NY 10018
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: Suncoast Naturals, Inc.
Form SB-2 Registration Statement (File No. 333-107826)
Ladies and Gentlemen:
We refer to the above-captioned registration statement on Form SB-2
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), filed by Suncoast Naturals, Inc., a Delaware corporation (the
"Company"), with the Securities and Exchange Commission.
We have examined the originals, photocopies, certified copies or other
evidence of such records of the Company, certificates of officers of the Company
and public officials, and other documents as we have deemed relevant and
necessary as a basis for the opinion hereinafter expressed. In such examination,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as certified copies or photocopies and the
authenticity of the originals of such latter documents.
Based on our examination mentioned above, we are of the opinion that
the 1,602,695 shares of common stock, $.001 par value, being sold pursuant to
the Registration Statement are duly authorized, legally and validly issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under "Legal Matters" in
the related Prospectus. In giving the foregoing consent, we do not hereby admit
that we are in the category of persons whose consent is required under Section 7
of the Act, or the rules and regulations of the Securities and Exchange
Commission.
/s/ Sichenzia Ross Friedman Ference LLP
Exhibit 10(b)
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (this "Agreement") is made and entered
into as of the 31st day of December, 2002, (the Effective Date) by and between
THE QUIGLEY CORPORATION, a Nevada corporation ("Quigley"), and SUNCOAST
NATURALS, INC., a Delaware corporation ("Suncoast").
In consideration of the premises and the mutual terms and provisions
set forth in this Agreement, the parties hereto agree as follows:
ARTICLE ONE
ACQUISITION AND EXCHANGE OF SHARES
Section 1.1. Acquisition of the CPNP Shares. Subject to the terms and
conditions hereof, as of the Effective Date, Quigley agrees to assign, transfer,
deliver and convey unto Suncoast, and Suncoast agrees to acquire from Quigley,
all of Quigley's right, title and interest in and to the 600,000 shares of
Common Stock of Caribbean Pacific Natural Products, Inc. ("CPNP"), representing
60% of CPNP's authorized and outstanding Common Stock now owned by Quigley (the
"CPNP Shares").
Section 1.2. Eschange of Shares: Nomination and Endorsement Agreement
(a) In exchange for the transfer of the CPNP Shares, on the Effective
Date, Suncoast agrees to issue to Quigley, subject to the terms and conditions
hereof, 750,000 shares of Suncoast's Common Stock and 100,000 shares of its
Class A Redeemable Preferred Stock. When exchanged, the shares issued to Quigley
hereunder shall be duly authorized and validly issued, fully paid and
non-assessable, and not issued in violation of any preemptive rights.
(b) The shares of Suncoast's Common Stock issued to Quigley in
connection herewith (the "Common Shares") shall, once issued, have the same
dividend rights, conversion rights, voting powers, preferences, priorities and
other special rights and powers as all other issued and outstanding shares of
Suncoast's Common Stock, and shall represent not more than 19.5% of the issued
and outstanding voting stock of Suncoast on the Effective Date or thereafter.
(c) The shares of Suncoast's Class A Redeemable Preferred Stock issued
to Quigley in connection herewith (the "Preferred Shares") shall be non- voting.
Quigley shall have an option to sell (i.e. "Put") the Preferred Shares to
Suncoast, and Suncoast shall be required to purchase such shares, at such times
and in the maximum quantities set forth on Schedule "A" attached hereto and
incorporated herein by this reference and for the per share cash consideration
hereinafter described. At any time following the first anniversary of the
Effective Date, Suncoast shall have an option to purchase (i.e."call") those
Preferred Shares not yet put to Quigley for the per share cast consideration
described in Schedule "A". Any party exercising its rights to put or call
hereunder shall give written notice thereof to the other party in accordance
with the provisions of Section 7.1 hereof. The notice shall specify the number
of shares covered, the purchase price of such shares (including the interest
factor to the date of payment and delivery) as well as the date of payment and
delivery which shall be a date not less than seven (7) nor more than thirty (30)
days following the date such notice shall be deemed to have been given or made
as in Section 7.1 provided. On the delivery date, Quigley shall surrender to
Suncoast, or its duly authorized designee,
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possession of all certificates representing the Preferred Shares covered by the
put or call notice, endorsed in blank or accompanied by duly executed stock
powers, and such Preferred Shares shall be free and clear of any claims, liens,
charges, encumbrances or other restrictions or commitments of any nature
whatsoever.
(d) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of Suncoast, the holders of the Preferred Shares shall
be entitled to receive out of the assets of Suncoast available for distribution
to the stockholders, before any distribution of assets shall be made to the
holders of other shares of Suncoast capital stock, an amount equal to the value
of any unexercised put or call rights provided for in Section 1.2(c) above. The
value of unexercised put or call rights provided for in Section 1.2(c) shall be
for the entire face value of the put or call rights together with accrued
interest. Except for this preference payment, the holders of the Preferred
Shares shall have no other rights to share in the assets of Suncoast upon the
liquidation, dissolution or winding up of Suncoast.
Section 1.3. Exchange Procedures: Surrender of Certificates.
As of the Effective Date, Quigley shall surrender to Suncoast, or its duly
authorized designee, possession of all certificates representing the CPNP
Shares, endorsed in blank or accompanied by duly executed stock powers
effectively transferring the CPNP Shares to Suncoast. Thereupon, Suncoast shall
issue, in the name of Quigley, certificates representing the Common Shares and
the Preferred Shares.
Section 1.4. The Closing. The closing of the transactions contemplated
hereunder shall take place at Quigley's principal executive office and be
effective as of 12 p.m. EST, December 31, 2002.
Section 1.5. Actions At Closing.
At the Closing, the following deliveries shall be made, each to be
deemed concurrent with all others:
(a) Suncoast shall deliver the following documents to Quigley:
(1) A certificate signed by an authorized officer of Suncoast
stating that each of the representations and warranties
contained in Article Two is true and correct in all material
respects at the time of Closing with the same force and effect
as if such representations and warranties had been made as of
the Effective Date;
(2) A copy of the resolutions duly adopted by the Board of
Directors and stockholders of Suncoast authorizing the
execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby, duly certified, as of
the Effective Date, by the secretary of Suncoast;
(3) Certificates representing the Common Shares and the
Preferred Shares registered in the name of Quigley; and
(b) Quigley shall deliver the following documents to Suncoast:
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(1) A certificate signed by an authorized officer of Quigley
stating that each of the representations and warranties
contained in Article Three is true and correct in all material
respects at the time of Closing with the same force and effect
as if such representations and warranties had been made as of
the Effective Date;
(2) A copy of the resolutions duly adopted by the Board of
Directors of Quigley authorizing the execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereby, duly certified, as of the Effective Date,
by the secretary of Quigley;
(3) The certificates representing the CPNP Shares, endorsed in
blank or accompanied by duly executed stock powers effectively
transferring the CPNP Shares to Suncoast.
ARTICLE TWO
REPRESENTATIONS AND WARRANTIES OF SUNCOAST
Section 2.1. Corporate Organization and Capital Stock.
(a) Suncoast is a corporation duly organized, validly existing and in
good standing under the law of the State Delaware with full power and
authority to carry on its business as now being conducted.
(b) The authorized capital stock of 26,000,000 consists of (i)
25,000,000 shares of Common Stock, of which, as of the date hereof,
3,100,000 shares prior to the issuance of such shares as stated in
Paragraph 1.2(a) are issued and outstanding, and (ii) 1,000,000 shares
of unclassified Preferred Stock, of which, as of the date hereof, no
shares are issued and outstanding. All of the issued and outstanding
shares of Suncoast's capital stock are duly and validly issued and
outstanding and are fully paid and non-assessable. None of the
outstanding shares of Suncoast's capital stock has been issued in
violation of any preemptive rights of the current or past stockholders
of Suncoast.
(c) The Common Shares and the Preferred Shares that are to be issued to
Quigley hereunder, when so issued in accordance with the terms of this
Agreement, will be validly issued and outstanding, fully paid and non-
assessable.
Section 2.2. Authorization. As of the Effective Date, (i) there will be
no provision in Suncoast's Articles of incorporation or in its By-Laws, as
amended, which prohibits or limits Suncoast's ability to consummate the
transactions contemplated hereby (ii) Suncoast shall have the right, power and
authority to enter into this Agreement and to consummate all of the transactions
and fulfill all of the obligations contemplated hereby and (iii) the execution
and delivery of this Agreement and the due consummation by Suncoast of the
transactions contemplated hereby will have been duly authorized by all necessary
corporate action of the Board of Directors and stockholders of Suncoast. This
Agreement constitutes a legal, valid and binding agreement of Suncoast
enforceable against Suncoast in accordance with its terms.
-3-
Section 2.3. No Conflict or Violation. Subject to the fulfillment of
all of the conditions set forth in Article Five hereof, neither the execution
and delivery of this Agreement, nor the consummation of the transactions
contemplated hereby in accordance herewith, nor compliance by Suncoast with any
of the provisions hereof will result in, as of the Effective Date: (i) a
violation of or a conflict with any provision of Suncoast's Articles of
Incorporation or By-Laws, as amended, (ii) a breach of or default under any
term, condition or provision of any obligation, agreement or undertaking,
whether oral or written to which Suncoast is a party, or an event which, with
the giving of notice, lapse of time, or both, would result in any such breach,
(iii) a violation of any applicable law, rule, regulation, order, decree or
other requirement having the force of law, or order, judgment, writ, injunction,
decree or award, or an event which, with the giving of notice, lapse of time, or
both, would result in any such violation, or (iv) any person having the right to
enjoin, rescind or otherwise prevent or impede the transactions contemplated
hereby or to obtain damages from Suncoast or to obtain any other judicial or
administrative relief as a result of any transaction carried out in accordance
with the provisions of this Agreement.
Section 2.4. Litigation and Proceedings. There is no action, suit,
proceeding or investigation pending or, to the knowledge of Suncoast, threatened
which challenges the validity of this Agreement or the transactions contemplated
hereby, or otherwise seeks to prevent, directly or indirectly the consummation
of such transactions.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES OF QUIGLEY
Section 3.1. Corporate Organization. Quigley is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and qualified to do business in Pennsylvania with full power and
authority to carry on its business as it is now being conducted.
Section 3.2. Authorization. Quigley has full right, power and authority
to enter into this Agreement and to consummate or cause to be consummated all of
the transactions and to fulfill all of the obligations contemplated hereby The
execution and delivery of this Agreement and the due consummation by Quigley of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action of the Board of Directors of Quigley. This Agreement
constitutes a legal, valid and binding agreement of Quigley enforceable against
Quigley in accordance with its terms.
Section 3.3. No Conflict or Violation. Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby nor compliance by Quigley with any of the provisions hereof
will result in: (i) a violation of or a conflict with any provision of the
Articles of Incorporation or By-Laws of Quigley, (ii) a breach of or default
under any term, condition or provision of any obligation, agreement or
undertaking, whether oral or written to which Quigley is a party, or an event
which, with the giving of notice, lapse of time, or both, would result in any
such breach, (iii) a violation of any applicable law, rule, regulation, order,
decree or other requirement having the force of law, or order, judgment, writ,
injunction, decree or award, or an event which, with the giving of notice, lapse
of time, or both, would result in any such violation, or (iv) any person having
the right to enjoin, rescind or otherwise prevent or impede the transactions
contemplated hereby or to obtain damages from Quigley or to obtain any other
judicial or administrative relief as a result of any transaction carried out in
accordance with the provisions of this Agreement.
-4-
Section 3.4. Title to CPNP Shares. Quigley possesses good and
marketable title to the CPNP Shares and has full right to transfer the same as
contemplated herein. The CPNP Shares are, and will be as of the Effective Date,
free and clear of any claims, lien, charges, encumbrances or other restrictions
or commitments of any nature whatsoever. Except that Quigley gives no warranty
as to the rights of third parties regarding to contest its ownership of shares
based on an action brought by Herbert Krackow against Caribbean Pacific
International, Caribbean Pacific Natural Products, Inc. and The Quigley
Corporation in the circuit Court of the Ninth Judicial Circuit in and for Orange
County, Florida (Case Number: 02-CA-11074) alleging that CPNP was formed as a
result of a fraudulent asset conveyance pursuant to 726, et seq. Florida
statutes.
Section 3.5. Sale of Substantially All Assets. The CPNP Shares do not
constitute all or substantially all of the assets of Quigley.
ARTICLE FOUR
AGREEMENTS OF PARTIES
Section 4.1. Agreements of Quigley
(a) Quigley shall, in the event it has knowledge of the occurrence, or
impending or threatened occurrence, of any event or condition which
would cause or constitute a breach (or would have caused or constituted
a breach had such event occurred or been known prior to the date
hereof) of any of its representations, warranties or agreements
contained or referred to herein, give prompt written notice thereof to
Suncoast and use reasonable efforts to prevent or promptly remedy the
same.
(b) Quigley shall use reasonable efforts to perform and fulfill all
conditions and obligations on its part to be performed or fulfilled
under this Agreement and to effect the exchange contemplated hereby in
accordance with the terms and conditions hereof.
Section 4.2. Agreements of Suncoast
(a) Suncoast shall, in the event it has knowledge of the occurrence, or
impending or threatened occurrence, of any event or condition which
would cause or constitute a breach (or would have caused or constituted
a breach had such event occurred or been known prior to the date
hereof) of any of its representations, warranties or agreements
contained or referred to herein, give prompt written notice thereof to
Quigley and use reasonable efforts to prevent or promptly remedy the
same.
(b) Suncoast shall use reasonable efforts to perform and fulfill all
conditions and obligations on its part to be performed or fulfilled
under this Agreement and to effect the exchange contemplated hereby in
accordance with the terms and conditions hereof.
(c) Suncoast shall execute a corporate guarantee of the real property
lease obligations of CPNP in place and stead of the existing corporate
guarantees of Quigley.
(d) Suncoast acknowledges the existing Royalty Agreement between CPNP
and Caribbean Pacific International, Inc. and the obligations of CPNP
-5-
thereunder.
(e) Suncoast agrees that it will at its cost, within sixty days from
the Closing, register for public sale through an appropriate
Registration Statement the Shares of Common Stock issued to Quigley
pursuant to Section 2.1 hereof.
(f) Suncoast agrees to hold Quigley harmless from any claim from any
creditor of CPNP or any shareholder or director of Caribbean Pacific
International, Inc. who claims that CPNP was formed as a result of a
fraudulent asset conveyance under ss.726, et seq. Florida statutes
and/or any other similar cause of action which would attach Quigley's
ownership of its interest in CPNP and/or assert the transaction which
created CPNP contravened any statute of Florida, Delaware or
Pennsylvania.
(g) Suncoast shall indemnify and hold Quigley harmless including
attorneys' fees and costs for any action brought against Quigley as a
result of any claim referenced in the paragraph above or Section 3.4 of
this Agreement.
ARTICLE FIVE
CONDITIONS PRECEDENT TO THE EXCHANGE
Section 5.1. Conditions to the Obligations of Quigley. Quigley's
obligations to effect the exchange shall be subject to the satisfaction (or
waiver by Suncoast) of the following conditions prior to or at the Closing:
(a) The representations and warranties made by Quigley in this
Agreement shall be true in all material respects at the Closing with
the same effect as though such representations and warranties had been
made or given on and as of the Effective Date;
(b) Suncoast shall have performed and complied in all material respects
with all of its obligations and agreements required to be performed
prior to the Closing under this Agreement;
(c) No temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the
exchange contemplated herein shall be in effect, nor shall any
proceeding by any authority or other person seeking any of the
foregoing be pending. There shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the exchange which makes the consummation of the exchange
illegal; and
(d) All necessary approvals, consents and authorizations required by
law for consummation of the exchange including, without limitation, the
approval by the Board of Directors of Quigley shall have been obtained.
(e) Quigley shall have received all executed documents required to be
received from Suncoast on or prior to the Closing; all in form and
substance reasonably satisfactory to Quigley.
Section 5.2. Conditions to the Obligations of Suncoast. Suncoast's
obligations to effect the exchange shall be subject to the satisfaction (or
waiver by Quigley) of the following conditions prior to the Closing:
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(a) The representatives and warranties made by Suncoast in this
Agreement shall be true in all material respects at the Closing with
the same effect as though such representations and warranties had been
made or given on and as of the Effective Date;
(b) Suncoast shall have performed and complied in all material respects
with all of its obligations and agreements required to be performed
prior to the Closing under this Agreement;
(c) No temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the
exchange contemplated herein shall be in effect, nor shall any
proceeding by any authority or other person seeking any of the
foregoing be pending. There shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the exchange which makes the consummation of the exchange
illegal; and
(d) All necessary approvals, consents and authorizations required by
law for consummation of the exchange including, without limitation,
approval by the Board of Directors and Shareholders of Suncoast or
before the Closing shall have been obtained.
(e) Suncoast shall have received the opinion of Quigley's counsel as
required herein.
(f) Suncoast shall have received all executed documents required to be
received from Quigley on or prior to the Closing; all in form and
substance reasonably satisfactory to Suncoast.
ARTICLE SIX
TERMINATION OR ABANDONMENT
Section 6.1. Mutual Agreement. This Agreement may be terminated by the
mutual written consent of the parties at any time prior to the Closing,
regardless of whether stockholder approval of this Agreement and the
transactions contemplated hereby shall have been previously obtained.
Section 6.2. Breach of Agreements. In the event there is a material
breach in any of the representations and warranties or agreements of Quigley or
Suncoast, which breach is not cured within thirty (30) days after notice to cure
such breach is given by the non-breaching party, then the non-breaching party,
regardless of whether stockholder approval of this Agreement and the
transactions contemplated hereby shall have been previous obtained, may
terminate and cancel this Agreement by providing written notice of such action
to the other party hereto.
Section 6.3. Failure of Conditions. In the event any of the conditions
to the obligations of either party are not satisfied or waived as specified in
Article Five hereof, and if any applicable cure period provided in Section 6.2
hereof has lapsed, then the party for whose benefit such conditions were imposed
may, regardless of whether stockholder approval of this Agreement and the
transactions contemplated hereby shall have been previously obtained, terminate
and cancel this Agreement by delivery of written notice of such action to the
other party on such date.
ARTICLE SEVEN
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MISCELLANEOUS PROVISIONS
Section 7.1. Notices. Any notice or other communication shall be in
writing and shall be deemed to have been given or made on the date of delivery
in the case of hand delivery, or three (3) business days after deposit in the
United States Registered Mail, postage prepaid, or upon receipt if transmitted
by facsimile telecopy or any other means, addressed (in any case) as follows:
(a) if to Quigley:
The Quigley Corporation
621 Shady Retreat Road
Doylestown, PA 18901
Attention: Mr. Guy Quigley
with a copy to:
Attention:
and
(b) if to Suncoast:
Suncoast Naturals, Inc.
5447 NW 42nd Avenue
Boca Raton, FL 33496
Attention: William J. Reilly, Esq.
with copies to:
Attention:
or to such other address as any party may from time to time designate by notice
to the others.
Section 7.2. Liabilities. In the event that this Agreement is
terminated pursuant to the provisions of Section 6.2 or Section 6.3 hereof on
account of a breach of any of the representations and warranties set forth
herein or any breach of any of the agreements set forth herein or any failure of
conditions precedent to the exchange herein contained, then the non- breaching
party or the party for whose benefit such conditions were imposed shall be
entitled to recover appropriate damages from the breaching party; provided,
however, that notwithstanding the foregoing, in the event this Agreement is
terminated by reason of a failure of a condition precedent set forth in Sections
5.1 (c) or (d), or Sections 5.2(c) or (d), no party hereto shall have any
liability to any other party for costs, expenses, damages or otherwise.
Section 7.3. Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes and cancels any and all prior
discussions, negotiations, undertakings and agreements between the parties
relating to the subject matter hereof.
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Section 7.5. Headings and Captions. The captions of Articles and
Sections hereof are for convenience only and shall not control or affect the
meaning or construction of any of the provisions of this Agreement.
Section 7.6. Waiver. Amendment or Modification. The conditions of this
Agreement which may be waived may only be waived by notice to the other party
waiving such condition. The failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect the right at a
later time to enforce the same. This Agreement may not be amended or modified
except by a written document duly executed by the parties hereto.
Section 7.7. Rules of Construction. Unless the context otherwise
requires: (a) a term has the meaning assigned to it; (b) an accounting term not
otherwise defined has the meaning assigned to it in accordance with generally
accepted accounting principles; (c) "or" is not exclusive; and (d) words in the
singular may include the plural and in the plural include the singular.
Section 7.8. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
shall be deemed one and the same instrument.
Section 7.9. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
administrators, successors and assigns, including any successor by merger,
reorganization or acquisition of substantially all the assets of a party hereto.
There shall be no third party beneficiaries hereof.
Section 7.10. Governing Law; Assignment. This Agreement shall be
governed by the law of the State of Delaware. This Agreement may not be
assigned by either of the parties hereto.
Section 7.11. Severability. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction is, as to such
jurisdiction, ineffective to the extent of any such prohibition,
unenforceability or nonauthorization without invalidating the remaining
provisions hereof, or affecting the validity inforceability or legality of such
provision in any other jurisdiction, unless the ineffectiveness of such
provision would result in such a material change as to cause completion of the
transactions contemplated hereby to be unreasonable.
SCHEDULE "A"
The put or call cash consideration payable for the Preferred Shares pursuant to
this Section 1.2(c) (the "Redemption Price") shall be $10.00 per share (for an
aggregate cash consideration not to exceed $1,000,000) plus an interest factor
which shall accrue from the Effective Date through the date of sale or purchase
pursuant to a put or call provided for in this Section 1.2(c). The interest
shall be a fixed annual rate equal to the prime rate announced by Citibank NA,
New York City on the Effective Date, and may be payable in cash or accrued. In
the event that all Preferred Shares are not put by Quigley to Suncoast or called
by Suncoast on or before December 31, 2007, all such shares shall be redeemed by
Suncoast at face value, together with accrued interest, if any, as of that date.
Schedule of Put Options By Quigley:
(1) On or After March 31, 2003, and for each calendar quarter thereafter (on
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or before the 45th day following the end of each Quarter), a Put Option equal to
the number of Shares which represents 50% of the free cash flow reported by
Suncoast in the immediately preceding quarterly financial statements divided by
the Redemption Price of $10.00 per Share. In the event that all Preferred Shares
are not put by Quigley to Suncoast or called by Suncoast on or before December
31, 2007, all such shares shall be redeemed by Suncoast at face value, together
with accrued interest, if any, as of that date.
IN WITNESS WHEREOF, the undersigned have set their hand and seals as of the date
first above written.
THE QUIGLEY CORPORATION
BY: /s/ Guy Quigley
Guy Quigley
President
SUNCOAST NATURALS, INC.
BY: /s/ William J. Reilly
William J. Reilly
President
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Exhibit 10(L)
LICENSE & DISTRIBUTION AGREEMENT
THIS AGREEMENT made as of June 22, 2004, by and between HALCYON, LLC, a Florida
corporation, with offices located at 4030 NE 30th Avenue, Lighthouse Point,
Florida 33064, ("HALCYON") and SUNCOAST NATURALS, INC., a Delaware corporation
with offices located at 5422 Carrier Drive, Suite 309, Orlando, Florida 32819,
("SUNCOAST").
RECITALS
WHEREAS, HALCYON has developed and may develop secret formulas, processes and
other know how from which certain Products (as hereinafter defined) are
produced;
WHEREAS, HALCYON owns and possess certain rights in trademarks, trade names
and/or logos, in connection with the Products or otherwise;
WHEREAS, SUNCOAST has manufacturing, production, process, marketing and
distribution expertise for the Products; and
WHEREAS, HALCYON desires to grant to SUNCOAST, and SUNCOAST desires to secure
from HALCYON a license to manufacture, prepare, bottle, package, market,
advertise, promote, distribute and sell the Products in the Territories (as
hereafter defined). Such activity shall be performed utilizing the Trademarks
(as hereafter defined) and processes in accordance with the specifications
therefor and upon other terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants, agreements and
promises herein contained, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by both parties, HALCYON
and SUNCOAST agree as follows:
1. DEFINED TERMS
1.1 As used in this Agreement, and in addition to other terms defined elsewhere
in this Agreement, the following terms shall have the following meaning:
A. Confidential Information. The term "Confidential Information" shall
mean any and all information which is or was disclosed or made
available by HALCYON to SUNCOAST in connection with the Products,
their production, manufacturing or sales or any negotiations and/or
discussions related, directly or indirectly, thereto, including
without limitation, any confidential or proprietary information,
copyrighted material and trade secrets of HALCYON, including but not
limited to all information regarding the concentrate formulas,
contents and/or recipes, the identity of or any other information
regarding HALCYON's suppliers, testers, manufacturers, importers,
exporters, custom brokers, etc., HALCYON's financial condition,
HALCYON's financial sources or information of business affairs,
customers, pricing, processes, techniques, licenses, patents,
trademarks, copyrights, know how or methods, marketing and sales
information and business methodologies and strategies and includes
without limitation, formulas, forms, written documents, drawings,
photographs, samples, tests, demonstrations, observations, computer
discs and other data in whatever form, oral disclosures and any other
information which may otherwise be perceived, reproduced, transmitted
or communicated, as well as all analyses, computations, data studies,
reports and other documents and oral or written disclosures pertaining
to or containing directly or indirectly in whole or in part any such
Confidential Information and shall specifically include the Procedures
Manual, referred to hereunder. Confidential Information shall not
include information generally known to the public prior to the date of
disclosure by HALCYON to SUNCOAST.
B. HALCYON Obligations. The term "HALCYON Obligations" refers to the
HALCYON Obligations hereunder, as set forth in ss.9 of this Agreement
or otherwise set forth herein.
C. Products. The term "Products" shall mean any beverages, including but
not limited to isotonic sports drinks (XCEL), Opti-Woman, and the
concentrate(s) and other ingredients used to make such beverages as
well as any promotional products of any nature whatsoever related to
such beverages, which are manufactured, prepared, bottled, packaged,
marketed, advertised, distributed, promoted and/or sold by SUNCOAST
and which may be identified by means of the Trademark(s), including
without limitation those described in Schedule 1(J) attached hereto,
and shall include, without limitation, the beverages, the
concentrates, the containers, carriers, cartons and labels with and in
which such beverages are packaged, marketed or sold. It shall include
all present and future Products.
E. Royalty or Royalties. The terms "Royalty" or "Royalties" refers to the
royalties payable to HALCYON by SUNCOAST in accordance with the terms
of this Agreement, including but not limited to ss.6 hereof.
F. Sub-Licensee. The term "Sub-Licensee" or "Sub-Licensees" means any
entity engaged or authorized by SUNCOAST, as allowed under this
Agreement, to perform any of SUNCOAST'S Obligations hereunder,
including but not limited to Sub-Licensees, Sub-Distributors,
Co-Packers and/or licensed manufacturers.
G. SUNCOAST Obligations. The term "SUNCOAST Obligations" refers to
SUNCOAST'S obligations to manufacture, prepare, bottle, package,
market, advertise, promote, distribute and sell the Products as set
forth herein, including all obligations under this Agreement,
including, but not limited to, ss.8 hereof.
H. Territories. The term "Territory" or "Territories" shall mean the
geographic area encompassed by, and the territories comprised of the
United States of America, Canada, South America and Europe.
I. Term. The term "Term" shall mean the term as set forth herein and any
possible extension(s) thereof and including the Initial Term and
Renewal Terms, as hereafter defined.
J. Trademarks. The term "Trademarks" shall mean those trademarks and the
trade names, distinctive bottle and label designs, electronic and
printed promotional and advertising materials and all other
communications in whatever form used or to be used in connection with
the manufacture, preparation, bottling, packaging, advertising,
promotion, production, marketing, sale or distribution of the
Products, including, without limitation, the trademarks, designs and
trade names set forth in Schedule 1(J) currently owned by HALCYON or
hereafter acquired and/or developed by HALCYON. Notwithstanding any
other provisions of this Agreement, HALCYON discloses, and SUNCOAST
acknowledges, that (i) there are currently pending certain challenges
to, and/or issues with, the Xcel Trademark and (ii) that the
Opti-Woman Trademark is still pending and may be subject to challenge.
HALCYON shall have the sole responsibility for obtaining the
Opti-Woman Trademark and to defend the Xcel Trademark. If HALCYON is
not able to obtain the clear use for either Xcel or Opti-Woman then it
shall so inform SUNCOAST and SUNCOAST shall immediately cease the use
of said Trademarks, if such use is prohibited to HALCYON or otherwise.
2. TERRITORIES
2.1 Granted Territories. SUNCOAST shall have the exclusive right to manufacture,
bottle, package, distribute, market, advertise, promote and sell the Products in
the Territories and use the Trademarks in connection therewith. Under no
circumstances shall SUNCOAST manufacture, prepare, bottle, package, market,
advertise, promote or sell the Products or use the Trademarks in any geographic
area outside of the Territories, nor shall SUNCOAST sell or distribute the
Products to any person or entity inside the Territories, if SUNCOAST knows that
such person intends to sell or distribute the Products in the Territories for
resale outside the Territories, or to transport the Products for sale or
distribution outside the Territories, without prior written approval from
HALCYON.
2.2 Extra-Territorial Inquiries. In the event that SUNCOAST receives any
inquiries relating to the Products from any potential customers, manufactruers,
distributors, etc. outside of the Territories, SUNCOAST shall promptly relay
such inquiries to HALCYON.
2.3 Expansion of Territories. During the Term of this Agreement, so long as
SUNCOAST is in substantial compliance with its obligations hereunder, SUNCOAST
may request from HALCYON the right to expand the Territories to include any
other country or region in which HALCYON is not active (each such country or
region an "Expansion Territory"). Such request shall include a projected
timetable for entering each Expansion Territory and executing sales plans,
preliminary and binding sales forecasts for each Expansion Territory which may
exist at the time such request for expansion is made and a proposed compensation
structure to HALCYON to cover each such requested Expansion Territory. If
SUNCOAST and HALCYON mutually agree on terms covering each Expansion Territory,
then HALCYON's consent to any such request shall not be unreasonably withheld.
If the agreement is reached relative to and Expansion Territory or Expansion
Territories, the remaining terms and conditions of this Agreement shall be
applicable to each Expansion Territory or Expansion Territories as part of the
Territories hereunder.
3. GRANT OF LICENSE
3.1 General. Subject to the terms, conditions and limitations of this Agreement
and the schedules attached hereto, all as, if and when amended, HALCYON hereby
grants to SUNCOAST an exclusive license (the "License"), in the Territories
only, in order:
A. To manufacture, prepare, bottle and package the Products in accordance
with, in conformance with and in full compliance with HALCYON's
Procedures as set forth in the Procedures Manual to be provided by
HALCYON to SUNCOAST (the "Procedures Manual");
B. To manufacture, prepare, bottle, package, market, advertise, promote,
distribute and sell the Products in the Territories;
C. To use the Trademarks, including those which are set forth in Schedule
1(J), solely in connection with the performance of SUNCOAST's
Obligations and rights under this Agreement and solely in conjunction
with the manufacture, preparation, bottling, packaging, marketing,
advertising, promotion, distribution and sale of the Products in the
Territories, including the display of the Trademarks on SUNCOAST or
Sub-Licensee vehicles and other merchandising equipment or on Products
and on stationery, packaging and other advertising and promotional
materials.
3.2 Limit on License. In no event shall SUNCOAST have the right whatsoever,
without the express prior written consent of HALCYON:
A. To assign to any individual corporation, partnership, joint venture,
association, governmental agency, or other entity of whatsoever nature
(each "Person"), any portion or all of the License granted to SUNCOAST
hereunder; or
B. To grant a sub-license to any Person to use or do any of the
foregoing. Notwithstanding the foregoing, SUNCOAST may grant limited
sub-licenses or permission to its Sub-Licensee(s), pursuant to ss.3.5
of this Agreement, such Sub-Licenses to be effective only during the
terms of such sub-distributorships or co-packaging agreements and at
all times subject to this Agreement. SUNCOAST shall assure that such
Sub-Licensees shall be bound by all the License and confidentiality
provisions hereunder. SUNCOAST shall provide HALCYON with all
Sub-License Agreements as and when they are entered into.
3.3 No Registration of the License. SUNCOAST shall not, under any circumstances
without prior express written consent of HALCYON, register or attempt to
register any of the License, the Trademarks or any of the processes or
procedures set forth in the Procedures Manual at the United States Patent and
Trademark Office, or at the equivalent office of any foreign jurisdiction.
3.4 No Rights in Trademarks. This Agreement shall not be construed to give
SUNCOAST any vested rights, title or interest in any of the Trademarks,
Confidential Information or copyrighted material of HALCYON except to the extent
and in the manner, time and places SUNCOAST is authorized and permitted to use
the Trademarks pursuant to the License and the provisions of this Agreement.
3.5 Sub-Licensees.
A. In order to achieve the maximum sales of the Products in connection
with the performance of SUNCOAST's Obligations, SUNCOAST may employ
persons or engage Sub-Licensees to manufacture, warehouse, sell and
deliver the Products in the Territories. Prior to appointing any such
Sub-Licensee, SUNCOAST must obtain the prior written approval for such
Sub-Licensee from HALCYON. HALCYON must grant prior written approval
for all such Sub-Licensees and SUNCOAST shall only provide such
Sub-Licensing authority and provide such information as is absolutely
necessary for the Sub-Licensee to possess in order to execute its
obligations under the Sub-License Agreement. Under all circumstances,
HALCYON must pre-approve the Sub-Licensing Agreement and all such
Sub-Licensing Agreements must assure that each such Sub-Licensee shall
be bound by the Terms and Conditions of this Agreement as are
applicable thereto, including but not limited to the Confidentiality
and Non-Competition provisions.
B. SUNCOAST may grant to such Sub-Licensees as are permissible hereunder,
such rights with respect to the use of the Trademarks as SUNCOAST has
been granted by this Agreement, and all Sub-Licensees shall be bound
by the provisions hereof concerning limitations on the use of the
Trademarks and the obligations to sell and distribute only Products
which conform with the Procedures Manual. SUNCOAST shall provide
HALCYON with all Sub-Licensee Agreements as and when they are entered
into.
3.6 Halcyon Sales. Notwithstanding any other provisions of this Agreement, and
subject to the terms hereof, HALCYON shall have the right, throughout the world
except in the Territories to manufacture, prepare, bottle, package, market,
advertise, promote, distribute and sell (and to assign and/or license others to
do so in conformity herewith) and otherwise deal in and with any and all
products, including without limitation the Products under its names and marks
and to manufacture products on a private label basis for third parties, in each
case whether or not they compete with any of the Products. HALCYON shall not
market, sell or distribute any of the Products, or use the Trademarks in
Schedule 1(J), to any Person if HALCYON knows such Person intends to sell or
distribute such Products in the Territories.
3.7 Additional Rights. In addition to those rights enumerated in P. 3.1, HALCYON
grants to SUNCOAST within the Territories, subject to HALCYON's prior written
approval, (a) the right of first refusal to market and sell all future HALCYON
Products, provided mutually acceptable terms for same are agreed upon, (b) the
right to develop and implement marketing plans, strategies and programs
regarding the Products, and (c) the right to establish pricing for the Products
sold by SUNCOAST.
3.8 Licensing Fee. As and for consideration for the granting of the exclusive
License in the Territories as set forth herein, SUNCOAST shall, within 30 days
of the effective date of SUNCOAST going public (of SEC approving SUNCOAST as a
publicly traded entity), issue to HALCYON 50,000 stock warrants of SUNCOAST that
will have been registered within 60 days of the initial registration and that
have an established value of $1.00 per share, and which shares shall have no
restrictions on exercise or alienation and HALCYON will be free to exercise the
warrants and trade the shares.
4. TERM
4.1 Term. This Agreement and the granting of the License hereunder shall be
effective as of the date hereof and shall continue in effect for an initial term
of 5 years, unless earlier terminated pursuant to this Agreement (the "Initial
Term").
4.2 Extension of Term. Upon the expiration of the Initial Term, SUNCOAST shall
have the option to renew this Agreement for four successive, 5 year renewal
terms (the "Renewal Terms"). This right to renew shall be exercised by SUNCOAST
by giving at least 6 months prior written notice to HALCYON of its intent to
renew this Agreement before the expiration of the previously existing Initial
Term or Renewal Term. SUNCOAST's successive rights to renew this Agreement shall
be subject to and contingent upon SUNCOAST and HALCYON mutually agreeing upon
the Royalty amounts to be paid and other sales performance requirements to be
applicable during each such Renewal Term.
5. PRICING
5.1 Pricing for Initial Purchase of Concentrates. Subject to any increases
permitted hereunder, prices for certain concentrates and/or components of the
Products sold by HALCYON to SUNCOAST hereunder for the manufacture, preparation,
bottling, packaging, marketing, advertising, promoting, distribution and sale,
pursuant to this Agreement, shall initially be as set forth in Schedule 5.1
hereto and shall be amended as permitted hereunder.
5.2 Price Changes. Three months prior to the end of the Initial Term and each
Renewal Term of this Agreement, either party may request a meeting to review the
prices set forth on Schedule 5.1. Notwithstanding the foregoing, HALCYON shall
have the right, once during each two year period commencing on the date hereof,
to increase prices for the Products or other components pursuant to Schedule 5.1
up to any "CPI Increase". As used herein, a "CPI Increase" shall mean an amount
equal to the Base Prices (as hereinafter defined) multiplied by the percentage
increase in the Consumer Price Index (as hereinafter defined) over the Base CPI
(as hereinafter defined). For purposes hereof:
A. "Consumer Price Index" shall mean the Revised Consumer Price Index for
Urban Wage Earners Clerical Workers, All Items (base index year
1982-84 = 100), for the entire United States, as published by the
United States Department of Labor, Bureau of Labor Statistics. If the
manner in which the Consumer Price Index is determined by the Bureau
of Labor Statistics shall be substantially revised, including, without
limitation, a change in the base index year, an adjustment shall be
made by HALCYON in such revised index which would produce results
equivalent, as nearly as possible, to those which would have been
obtained if such Consumer Price Index had not so been revised. If the
Consumer Price Index shall become unavailable to the public because
publication is discontinued, or otherwise, or if equivalent data is
not readily available, then HALCYON will substitute therefore a
comparable index based upon changes in the cost of living or
purchasing power of the consumer dollar published by another
governmental agency, or, if no such index shall be available, then a
comparable index published by a major bank or other financial
institution or by a university or recognized financial publication.
B. "Base CPI" shall mean the Consumer Price Index for December, 2003.
C. "Base Prices" shall mean the prices set forth on Schedule 5.1.
6. ROYALTIES
6.1 Royalties Payable. In consideration of the grant of the License and other
rights under this Agreement, SUNCOAST will pay to HALCYON in U.S. dollars the
following royalties on the annual "net sales" of the Products:
Up to $10,000,000 2.5%
$10,000,001-$20,000,000 2.25%
$20,000,001 and over 2.00%
For purposes of this Agreement, (i) "net sales" is defined as all sales, direct
or indirect, less returns, during the Term of this Agreement and (ii) "annual"
is defined as calendar year.
6.2 Payments of Royalties. Such Royalties shall be paid by SUNCOAST within forty
five (45) days after the end of each calendar quarter on all sales of the
Products by SUNCOAST or any permitted Sub-Licensees of SUNCOAST during such
calendar quarter. SUNCOAST shall provide HALCYON, together with each Royalty
payment made hereunder, a detailed report of all sales of the Products, or
components thereof, made by SUNCOAST or any Sub-Licensees during such calendar
quarter. All sales by any Sub-Licensees are subject to and shall be deemed to be
sales of SUNCOAST for purposes of this Agreement.
7. MINIMUM QUALITY STANDARDS
7.1 Use.In order to preserve the considerable reputation, image, value and
goodwill associated with the Products, the manufacture, preparation, bottling,
packaging, marketing, advertising, promotion, distribution and sale by SUNCOAST
of the Products and all services performed by SUNCOAST in connection therewith
and hereunder, (i) shall meet minimum standards of quality and professionalism
as and when, from time to time are established by HALCYON and shall otherwise be
satisfactory to HALCYON in its sole discretion and (ii) shall be in accordance
with the Procedures Manual. SUNCOAST agrees to use the Products and the
Trademarks in accordance with the designs, specifications, drawings and other
information supplied or approved by HALCYON in accordance with standards set by
HALCYON and in accordance with the Procedures Manual. SUNCOAST shall obtain the
consent of HALCYON before undertaking any modifications of any the Products or
Trademarks.
7.2 Prohibited Use. The Products prepared, bottled, packaged, marketed,
advertised, promoted, distributed or sold by SUNCOAST shall be:
A. Not adulterated or misbranded within the meaning of the Federal Food
Drug and Cosmetics Act, as amended, and not an article which may not
(under the provisions of P. 404 or P. 505 of the Act) be introduced to
interstate commerce; and
B. Not adulterated or misbranded within the meaning of the Federal
Insecticide Fungicide and Rodenticide Act, the Federal Hazardous
Substance Act, or within the meaning of any applicable state pure
foods act or any other applicable federal, state or local law, rule or
regulation.
7.3 Right to Inspect. In order to monitor SUNCOAST's compliance with the
requirements of this Section and in accordance with the Procedures Manual,
HALCYON shall have the right, upon reasonable prior notice to SUNCOAST, to
observe and inspect all of SUNCOAST's business operations pertaining to the
Products and to conduct surveys of SUNCOAST's Sub-Licensees, distributors or
customers regarding SUNCOAST's manufacturing, preparation, bottling, packaging,
marketing, advertising, promoting, distributing or sales of the Products.
HALCYON and its representatives shall have the right, to enter upon and examine
the plants and other facilities where the Products are produced, bottled,
packaged and stored and to make any further examination reasonably necessary to
properly ascertain whether the Products comply with this Agreement and the
Procedures Manual. HALCYON may observe and examine all operating methods,
quality control procedures and production and inventory and financial records
relevant to the business conducted pursuant to this Agreement. SUNCOAST shall
provide HALCYON with such samples of the Products, or raw materials or other
materials and supplies from which the Products are produced, as HALCYON may
reasonably request.
7.4 Default for Failure to Meet Minimum Standards. To the extent SUNCOAST fails
to meet HALCYON'S minimum standards of quality, HALCYON shall promptly notify
SUNCOAST in writing of any deficiency and if such deficiency is not cured by
SUNCOAST to HALCYON'S satisfaction within 60 days from receipt of such notice,
SUNCOAST shall be deemed to be in default and HALCYON shall have the right to
enforce corrective action and/or compliance which, if not complied with, could
result in HALCYON's termination of this Agreement.
7.5 Removal of Non-Conforming Products. If for any reasons of safety, health or
consumer protection, HALCYON deems it necessary to remove any amount of Products
from the market in any portion of the Territories, it shall so inform SUNCOAST
in writing and SUNCOAST shall do so forthwith at its sole expense. If SUNCOAST
fails to do so forthwith, HALCYON may take any action it deems necessary or
proper to so remove such Products and all costs and expenses incurred in
association therewith shall be SUNCOAST's sole responsibility and sums
additionally due hereunder from SUNCOAST to HALCYON.
8. SUNCOAST'S OBLIGATIONS
8.1 SUNCOAST's Obligations shall include, but not be limited to, the following,
and shall include all items and matters necessary to accomplish the following:
A. At its sole expense, use its best reasonable commercial efforts to
manufacture, prepare, bottle, package, market, advertise, promote,
distribute and sell the Products in the Territories.
B. Timely make to HALCYON the Royalty and other payments hereunder,
including any payments due for concentrates, etc. pursuant to the
payments listed in Schedule 5.1 of this Agreement, according to the
terms in effect at the time such payments are due.
C. Market, advertise and promote, at SUNCOAST's sole expense, the sale of
the Products by such methods which, in SUNCOAST's judgment, are best
suited for the sale of the Products. SUNCOAST shall be responsible for
all advertising, sales and promotional materials for the Products
within the Territories, but HALCYON shall have the right, upon
HALCYON's reasonable request, to approve such advertising, sales and
promotional materials. During the first calendar year of the Initial
Term of this Agreement, SUNCOAST shall spend, for advertising and
promotion of the Products as approved by HALCYON pursuant hereto,
which can include but not be limited to marketing, advertising,
promotions, overhead, infomercials and other creative services, an
amount equal to $1.00 for each case of each individual and separate
Product that SUNCOAST sells. After the first year, SUNCOAST and
HALCYON shall negotiate in good faith with respect to additional
promotional spending by SUNCOAST.
D. Comply with all Federal, State and Local laws, rules, regulations and
ordinances applicable to the manufacture, preparation, bottling,
packaging, marketing, advertising, promotions, distribution and sales
of the Products.
E. Deliver to HALCYON, at least 30 days prior to the start of each
calendar quarter, a written forecast of the number of units of each
class or type of the Products, concentrates or components that
SUNCOAST expects to purchase from HALCYON during each of the next 12
months.
F. Review new products of HALCYON proposed by HALCYON for SUNCOAST
distribution, including, without limitation, those products set forth
on Schedule 8(F) hereto, all of which products SUNCOAST acknowledges
to be the exclusive property of HALCYON.
G. Develop, implement and provide to HALCYON marketing strategies,
resource allocations, marketing distribution plans and strategies,
sales plans and day to day business operation plans for the
manufacture, preparation, bottling, packaging, marketing,
distribution, advertising, promotion and sales of the Products.
H. SUNCOAST will have the sole responsibility to provide the expertise
necessary to appoint authorized Sub-Licensees to manufacture and/or
distribute the Products for the Initial Term and/or Renewal Term(s).
I. Reimburse HALCYON for all reasonable travel and other expenses
incurred by HALCYON in providing consulting or advisory services to
SUNCOAST.
J. Manufacture, bottle, label and package the Products in accordance with
the Terms of this Agreement and the Procedures Manual and in
quantities sufficient to meet the demand therefor within the
Territories.
K. All ingredients and packaging materials (including but not limited to
bottles, labels, crowns, caps and cartons) used for the production and
distribution of the Products shall conform to the Procedures Manual
and other specifications of HALCYON permitted under this Agreement and
shall be purchased by SUNCOAST for its own accounts, from HALCYON for
the necessary concentrate and as otherwise required, and from other
sources which HALCYON shall have the right to approve for the
remaining ingredients. HALCYON reserves the right at any time, and
from time to time, to change its secret formula or formulations of the
concentrate, processes, and the Procedures Manual.
L. Consult with HALCYON, and obtain its prior written approval before the
implementation of any packaging or marketing changes proposed by
SUNCOAST. HALCYON must approve, in writing all changes of bottles,
labels, crowns, cartons, Trademark designs and all advertising and
point of sale materials used in connection with the Products.
M. Annually, but no later than sixty (60) days prior to a new calendar
year, SUNCOAST will provide HALCYON with a projected annual growth of
sales and distribution and of the level of support it intends to
allocate to the Products in order to realize these projections (the
"Annual Projections").
N. Six months into each new calendar year, SUNCOAST will review with
HALCYON the status of the Products and business as measured against
the Annual Projections and/or business measures that may be relevant
at any time.
O. SUNCOAST shall maintain accurate and complete business records with
respect to its manufacture, preparation, bottling, packaging,
marketing, advertising, promotion, distribution and sale of the
Products. Such records shall be kept in such form as is customary in
the beverage industry. SUNCOAST shall make the originals of such
records, including sales records and financial statements and records
available to HALCYON and its agents and representatives during regular
business hours and shall send to HALCYON copies of any such records as
HALCYON may from time to time reasonably request.
P. Purchase all of the concentrates and other components necessary only
from HALCYON and from no other provider unless otherwise previously
approved in writing by HALCYON prior to such purchase.
Q. Fulfill and meet any other obligations to be performed by SUNCOAST
hereunder.
9. HALCYON'S OBLIGATIONS
9.1 HALCYON's Obligations shall include, but not be limited to, the following
and shall include all items and matters necessary to accomplish the following:
A. Promptly fill SUNCOAST orders for Products, concentrates or other
components which SUNCOAST shall order from HALCYON.
B. Give SUNCOAST prior written notice of each change in price of the
concentrates or other components of the Products as contemplated by
ss.5 hereof and honor SUNCOAST's existing purchase orders at the
prices in effect immediately prior to effective date of any such price
increase.
C. Provide consulting and advising services to SUNCOAST, at SUNCOAST's
request, as needed, with respect to (a) assisting SUNCOAST to
establish and maintain Product quality control in its manufacturing,
production, packaging and distribution facilities, (b) develop and
execute specific marketing programs, and (c) devise the Annual
Projections and any other annual sales plan(s).
D. Maintain the Products' ingredients, supply and quality.
E. Provide to SUNCOAST, as requested, the expertise necessary to procure
additional ingredients for SUNCOAST's use, i.e. Citric Acid,
Maltodextrin, Crystalline Fructose, and any other ingredients
requested by SUNCOAST to support SUNCOAST's Product penetrations into
and operations in the Territories.
F. Fulfill any other obligations to be performed by HALCYON hereunder.
10. TERMINATION
10.1 HALCYON Termination. HALCYON shall have the right to terminate this
Agreement by written notice to SUNCOAST in the event that (a) SUNCOAST fails to
pay when due any Royalty or any other amount or sums due or owing by SUNCOAST
pursuant to this Agreement, and such failure continues for a period of 30 days
after notice of such failure is given by HALCYON to SUNCOAST and/or (b) SUNCOAST
fails to perform any covenant or obligation owing by it to HALCYON under this
Agreement (other than an obligation to pay money) including, without limitation,
the failure to meet minimum quality standards, and such failure continues for a
period of 60 days after notice of such failure is given by HALCYON to SUNCOAST.
10.2 SUNCOAST Termination. SUNCOAST shall have the right to terminate this
Agreement by written notice to HALCYON in the event that HALCYON fails to
perform any covenant or obligation owing by it to SUNCOAST under this Agreement
and such failure continues for a period of 60 days after notice of such failure
is given by SUNCOAST to HALCYON.
10.3 Termination by Either Party. Either party may, in its sole discretion,
terminate this Agreement by written notice to the other party in the event that
the other party (a) is dissolved, ceases to exist, participates in any merger,
consolidation or other absorption, sells, assigns or otherwise transfers or
disposes of all or substantially all of its assets, becomes incompetent or
insolvent (however such insolvency is defined), generally fails to pay its debts
as they become due, or suspends or ceases its present business, and/or (b) has
any receiver, trustee, liquidator, sequestrator or custodian for it or any of
its assets appointed, makes assignment for the benefit of creditors or commences
or has commenced against it any case or any proceeding pursuant to any
bankruptcy, insolvency or other similar law or any formal or informal proceeding
for the dissolution, liquidation or winding up of the affairs of, or for the
settlement of claims against it.
10.4 Events Following Termination. The following shall occur upon the expiration
or termination of this Agreement in accordance with its provisions:
A. Each party shall be liable to the other for all payments, defenses and
indemnity obligations arising on or before, or based on facts or
circumstances in existence on or before, the effective date of
termination or expiration.
B. SUNCOAST's rights to use the Products and the Trademarks shall
immediately cease, and SUNCOAST shall promptly discontinue all such
use and shall return to HALCYON, or destroy at HALCYON's direction
(and at SUNCOAST's expense), all materials containing or relating to
the Products and the Trademarks. Subject to the foregoing, SUNCOAST,
for a period of 90 days after the termination or expiration of this
Agreement, shall have the right to complete the manufacture,
distribution and sale of all the Products which are in process on the
date of termination or expiration.
C. All rights, Licenses and privileges granted to SUNCOAST under this
Agreement shall immediately cease and terminate.
D. Any indebtedness of either party to the other not already due shall
become immediately due and payable as of the effective date of
termination or expiration of this Agreement for any reason. In no
event shall either party be liable for any debt of the other party to
its customer or its other creditors, except as otherwise provided in
this Agreement.
11. IMPROVEMENTS, INVENTIONS AND DEVELOPMENT
11.1 HALCYON Improvements. Any invention, development, modification or
improvement to the Products conceived or developed by HALCYON during the Term of
this Agreement or to which HALCYON has acquired title from a third Person (an
"Improvement"), shall (a) be and remain the sole, absolute and exclusive
property of HALCYON and shall constitute Confidential Information hereunder, and
(b) shall, upon prior notice to SUNCOAST, be incorporated by HALCYON and
SUNCOAST into the Products for purposes of this Agreement. No new or additional
License fees or royalties shall be imposed upon SUNCOAST with respect to any
such Improvement.
11.2 SUNCOAST Improvements. Any Improvement conceived or developed by SUNCOAST
during the Term of this Agreement, for the Products, shall be and shall remain
the sole exclusive property of HALCYON and shall, at HALCYON'S option, be
incorporated into the Products.
12. CONFIDENTIALITY
12.1 SUNCOAST acknowledges that HALCYON is the owner of all Confidential
Information and proprietary rights in and to such Confidential Information and
secret formulas, processes and methods furnished to SUNCOAST and that such
Confidential Information, processes and methods constitute trade secrets of
HALCYON which are revealed to SUNCOAST in confidence solely for purposes of this
Agreement.
12.2 SUNCOAST acknowledges that SUNCOAST may, during the course of its
activities under this Agreement, obtain access to HALCYON's Confidential
Information including information which is not generally available to the public
and which HALCYON desires to keep confidential.
12.3 SUNCOAST shall take all reasonable steps and precautions to safeguard the
confidential nature of the Confidential Information and to take all specific
actions to safeguard such confidentiality and as HALCYON may reasonably request.
17
12.4 Neither SUNCOAST nor any employee, Sub-Licensee, agent, independent
contractor, representative or affiliate of SUNCOAST (each an "Agent") shall at
any time, whether during or after the Term of this Agreement, directly or
indirectly use, sell transfer, disclose, publish or otherwise make available to
any Person, any Confidential Information without the prior written consent of
HALCYON. All Confidential Information shall at all times, remain the personal
property of HALCYON and all documents and other tangible items which constitute
or contain Confidential Information shall, together with copies thereof, be
returned to HALCYON immediately upon the earlier demand by HALCYON or the
expiration or termination of this Agreement for any reason. SUNCOAST will bind
its Agents in writing to observe the provisions of this Section 12 prior to
allowing any of such Agents access to such Confidential Information.
12.5 Annexed to this Agreement as Schedule 12 is HALCYON's current standard form
of Confidentiality and Non-Disclosure Agreement (the "Confidentiality
Agreement"). Upon execution of this Agreement, SUNCOAST agrees to also execute
the Confidentiality Agreement and to cause each affiliate and Sub-Licensee of
SUNCOAST to execute the Confidentiality Agreement. SUNCOAST shall furnish a copy
of each such signed Confidentiality Agreement(s) to HALCYON.
12.6 SUNCOAST is not given, nor has it acquired, any right to disclose,
duplicate, license, sell or reveal any portion of such Confidential Information
to any Person other than its employees, Sub-Licensees and such of SUNCOAST's
representatives as permitted hereunder, and which may be required, by their work
pursuant to this Agreement and in the production and/or marketing of the
Products, to be familiar with relevant portions thereof.
12.7 SUNCOAST shall itself keep and respect the confidence extended to it by
HALCYON hereunder and shall take all reasonable measures to insure that any of
its Sub-Licensees, representative or employees to whom such Confidential
Information, processes and methods may be revealed, keep and respect the
confidence extended to them as set forth herein.
13. NON-COMPETE
In consideration of the exclusive right and License granted to SUNCOAST
hereunder, SUNCOAST agrees that, during the Term of this Agreement and for 1
year following the later of the expiration and/or termination of this Agreement,
neither SUNCOAST nor any of its shareholders, directors, principals, officers,
employees, agents, representatives, Sub-Licensees or affiliates shall, directly
or indirectly, alone or as a partner, joint venturer, officer, director, member,
employee, consultant, agent, independent contractor or stockholder of, or lender
to, any company or business, engaged in the manufacturing, preparation,
bottling, packaging, marketing, advertising, promoting, distributing or selling
of any product or system which is the same as, substantially similar to or
directly or indirectly competitive with any of the Products, in the Territories
or in any other Territory where HALCYON sells or distributes the Products.
14. PROTECTION OF INTELLECTUAL PROPERTY
14.1 Subject to the provisions of ss.1.1(J) above, SUNCOAST acknowledges
HALCYON's worldwide ownership of and exclusive rights in the Trademarks of the
Products and acknowledges the validity of the Trademarks and all federal, state
and foreign registrations and applications relating to the Trademarks. SUNCOAST
covenants that it will not, at any time, whether during or after the Term of
this Agreement, challenge, impugn or attack, or assist any other person in
challenging impugning or attacking, the ownership or validity of the Trademarks
or the Products or any application or registrations relating to the Trademarks.
14.2 HALCYON shall have the responsibility, at its expense to bring any
enforcement action with respect to, or to bring any other claim or action
against any Person involving, any actual or potential infringement or
unauthorized use of the Trademarks or the Products, and any recovery relating to
any such action shall inure solely to the benefit of HALCYON. SUNCOAST shall
promptly notify HALCYON of any actual, potential or suspected action known to it
by any Person which may constitute or result in an infringement of the
Trademarks of the Products. Furthermore, if additional Trademark protection is
needed in the Territories, HALCYON will proceed to make application(s) in such
countries in the Territories, on an as needed basis, once SUNCOAST commits to
HALCYON, in writing, its commitment to manufacture and market the Products in
such countries.
14.3 HALCYON shall defend any challenge to or claim or infringement against or
involving the Trademarks of the Products brought by any third Person. SUNCOAST
shall promptly notify HALCYON of any actual or threatened claim known to it
against or involving the Trademarks of the Products, shall cooperate fully in
the Territories in the defense thereof and, to the extent such claim arose out
of SUNCOAST's authorized use of the Trademarks of the Products pursuant to this
Agreement, shall share equally in the cost of any such defense. To the extent
any such claim by a third Person arises out of SUNCOAST's unauthorized use of
the Trademarks of the Products, SUNCOAST shall be solely responsible for, and
shall indemnify and hold HALCYON harmless from and against, any and all costs,
liabilities, judgments and expenses (including, without limitation, reasonable
legal fees, costs and expenses) incurred by HALCYON in connection with the
defense of such action(s).
14.4 SUNCOAST's use of the Trademarks of the Products shall inure to the benefit
of HALCYON and this Agreement shall not operate to transfer or convey any
proprietary interest in the Trademarks of the Products to SUNCOAST. All approved
Sub-Licenses, if any, shall be subject to the same terms hereof.
15. WARRANTIES
15.1 HALCYON'S Warranties. HALCYON represents and warrants to SUNCOAST that, to
the best of its knowledge:
A. Subject to the provisions of ss.1.1(J) above, HALCYON is the owner or
exclusive licensee of the Trademarks and know how pertaining to the
Products and has the power, authority and right to grant the License
under this Agreement.
B. Subject to the provisions of ss.1.1(J) above, SUNCOAST's exercise of
the License and use of the Trademarks to manufacture, prepare, bottle,
package, market, advertise, promote, distribute and sell the Products
will not infringe, misuse or misappropriate any patent, trademark,
copyright, trade secret, license right or other intellectual property
right of any other third party.
C. No approval of the Food or Drug Administration or any other government
agencies is required for the manufacture, marketing, distribution or
sale of the Products and to the extent any such approval or permission
is required, HALCYON has obtained or shall obtain all such approvals
and consents and SUNCOAST is entitled to the benefit of such approvals
or consents.
D. HALCYON warrants that it will possess good and marketable title to the
Products or components delivered to SUNCOAST hereunder and those
Products when ready for export to SUNCOAST will be free from
encumbrances, be of merchantable quality and meet HALCYON's
specifications.
15.2 SUNCOAST Warranties. SUNCOAST represents and warrants to HALCYON that, to
the best of its knowledge:
A. The execution of this Agreement by SUNCOAST has been duly authorized
by all necessary corporate action of SUNCOAST and constitutes the
valid and binding obligation of SUNCOAST.
B. The execution of this Agreement by SUNCOAST and the consummation of
the transactions contemplated hereby does not conflict with or result
in a default under or a breach of:
(a) SUNCOAST's articles of incorporation, by-laws or other
organizational documents,
(b) Any agreement, indenture, mortgage, contact or instrument to
which SUNCOAST is bound or by which any of its properties or
assets are subject,
(c) Any order, writ, injunction, decree or judgment of any court or
governmental agency applicable to SUNCOAST or to which any of its
assets are bound, or
(d) Any law, rule or regulation applicable to SUNCOAST or by which
any of its assets are bound.
16. INSURANCE AND INDEMNIFICATION
16.1 Insurance. In addition to any other provisions of this Agreement, SUNCOAST
shall at all times maintain in full force and effect, for the benefit of itself
and of HALCYON as an additional insured, general liability insurance coverage
(including Sub-Licensees) on its operations, including broad form vendor's
coverage and products liability insurance. Said insurance shall be in an amount
of not less than five million dollars ($5,000,000.00) (US) dollars for each
accident or occurrence. Such insurance shall be with a company which has a
rating of not less than A++ Financial Strength policy in the A.H. Best Insurance
Guide which shall be satisfactory to HALCYON. Such insurance shall name HALCYON
as an additional insured. At the inception of this Agreement and annually
thereafter, SUNCOAST shall furnish HALCYON with a certificate of insurance
evidencing that it has such insurance coverage in force. Such insurance policy
shall provide the insurance will not be cancelled or materially modified except
upon 30 days prior written notice to HALCYON. Failure to keep this insurance in
full force and effect is grounds for Termination by HALCYON pursuant to this
Agreement.
16.2 Indemnification and Defense. SUNCOAST shall indemnify, defend and hold
HALCYON harmless against and from any and all claims made against HALCYON based
upon, arising out of or in any way related to:
A. The operation or condition of any part of any of SUNCOAST's bottling
plants or manufacturing facilities.
B. The preparation, manufacture, bottling, packaging, storage,
warehousing, marketing, advertising, promotion, distribution or sale
of the Products or any other beverage or product manufactured or sold
by SUNCOAST.
C. SUNCOAST's conduct of its business and, especially but not only,
pursuant to this Agreement.
D. SUNCOAST's ownership or possession of properties.
E. Any negligent acts, misfeasance, or nonfeasance by SUNCOAST or any of
its agents, contractors, servants, employees or Sub-Licensees.
F. Any claims arising out of or in connection with the Products.
G. Any and all fees, (including reasonable attorneys fees) costs and
expenses incurred by or on behalf of HALCYON in the investigation of
or defense against any and all of the foregoing claims.
H. Under no circumstances shall HALCYON be liable for any consequential,
incidental, indirect, special or punitive damages (including without
limitation lost profits) even if HALCYON was or should have been aware
of the possibility of such damages.
16.3 Procedures Relating to Indemnification and Defense of Third Party Claims.
A. In order for a HALCYON to be entitled to any indemnification provided
for under this Agreement from SUNCOAST in respect of, arising out of
or involving a claim made by any Person not a party to this Agreement
against HALCYON (the "Third Party Claim") HALCYON must notify SUNCOAST
in writing, and in reasonable detail, of the Third Party Claim within
a reasonable time after receipt by HALCYON of written notice of the
Third Party Claim; provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder.
Thereafter, HALCYON shall deliver to SUNCOAST promptly after HALCYON's
receipt thereof, copies of all notices and documents (including court
papers) received by HALCYON relating to the Third Party Claim.
B. If a Third Party Claim is made against HALCYON, SUNCOAST will be
entitled to participate in the defense thereof and, if it so chooses,
to assume the defense thereof with counsel selected by the HALCYON. If
SUNCOAST assumes such defense, HALCYON shall have the right to
participate in the defense thereof and to employ counsel, separate
from the counsel employed by SUNCOAST at SUNCOAST's expense. If
SUNCOAST chooses to defend or prosecute a Third Party Claim, all the
parties hereto shall cooperate in the defense and prosecution thereof.
Such cooperation shall include the retention and (upon SUNCOAST's
request) the provision to SUNCOAST of records and information which
are reasonably relevant to such Third Party Claim, and making
employees available on a mutually convenient basis to provide
additional information and explanation of any material provided
hereunder. SUNCOAST cannot enter into any settlement, compromise or
discharge of such Third Party Claim without HALCYON's prior written
consent. Regardless of whether SUNCOAST assumes the defense of a Third
Party Claim, it shall be fully responsible for all of HALCYON's
expenses and fees (including but not limited to legal and expert costs
and fees) and any awards against HALCYON, including all appeals.
17. RELATIONSHIP BETWEEN THE PARTIES
Nothing in this Agreement shall be construed to create an agency or joint
venture relationship between SUNCOAST and HALCYON. SUNCOAST is an independent
contractor. Accordingly, neither party shall be liable for any debts, accounts,
obligations or other liabilities or torts of the other party, or its agents or
employees.
18. EQUITABLE REMEDIES
SUNCOAST acknowledges and understands that the covenants contained in this
Agreement are necessary for the protection of the Confidential Information,
Trademarks and the Products and are essential for the advancement of HALCYON's
legitimate business interests. SUNCOAST further acknowledges and agrees that a
breach by SUNCOAST of any of its covenants contained in this Agreement will
cause irrevocable harm to the legitimate business interests of HALCYON.
Therefore, SUNCOAST agrees that, notwithstanding ss.19 hereof, in the event of
any actual or threatened breach of any such provision by SUNCOAST, HALCYON may
seek and obtain from a court of competent jurisdiction, an injunction, a
restraining order, specific performance, or any other available equitable relief
against SUNCOAST to enforce such provision, which right shall be in addition to,
and not in lieu of, any other remedy to which HALCYON is entitled under this
Agreement or applicable law, including, without limitation, monetary damages.
19. DISPUTE RESOLUTION
19.1 Negotiation and Mediation.
A. If any dispute, difference or disagreement arises out of or relates to
this Agreement, or the breach or claimed breach thereof, in the first
instance the parties shall attempt to resolve such disputes,
differences, or disagreements directly with each other through
negotiation and in the spirit of cooperation, without formal
proceedings.
B. If such dispute, difference, or disagreement cannot be settled through
such direct negotiations and discussions between the parties, the
parties hereby further agree to then endeavor to settle the dispute,
difference, or disagreement in an amicable manner by mediation with a
mediator mutually selected by the parties (or appointed as set forth
below) from the roster of mediators in the (i) New York State Supreme
Court 8th Judicial District ADR program and/or (ii) the New York Erie
County Bar Association Mediator Roster.
C. If the parties cannot agree on a mediator within ten (10) days from
the date that the direct negotiations have ceased and one of the
parties has formally requested a mediation, in writing, then a
mediator shall be appointed by the then administrator of either the
8th Judicial District panel or the New York Erie County Bar
Association panel upon the request of either party.
D. Unless the parties agree otherwise, the mediation shall be conducted
within thirty (30) days of the selection or appointment of the
mediator.
E. The cost of mediation shall be borne equally by the parties, unless
they agree otherwise in the course of the mediation.
F. Notwithstanding any other provisions of this ss.19 the negotiation and
mediation provisions of this Agreement shall be enforceable by either
a court or an arbitrator.
G. Except as set forth in ss.18 above for emergency, injunctive and other
equitable relief, engaging in a good faith mediation between the
parties for at least one (1) full day, or at least 10 hours over
multiple days, with such mediator shall be a condition precedent to
any further proceedings.
20. MISCELLANEOUS
20.1 Force Majeur. The obligations of each party to perform under this Agreement
shall be suspended during each period of delay caused by matters such as
strikes, shortages of raw materials, government orders or acts of God which are
reasonably beyond the control of the party whose obligation to perform is
affected by such matters and such suspension from performance shall be
co-extensive with the cause of such delay.
20.2 Notice. All notices, requests or demands delivered by either party pursuant
to this Agreement shall be in writing and shall be deemed to have been duly
given if hand delivered, if mailed by prepaid certified or registered mail,
return receipt requested, or by Federal Express or other recognized overnight
courier, to the address of the appropriate party listed below or to such other
person and place as either party shall furnish to the other party in accordance
with this notice provision.
To HALCYON: Attn: DeChia J. Cuypers, Managing Director
4030 NE 30th Ave.
Lighthouse Point, FL 33064:
With a copy to: Attn: Krista Gottlieb, Esq.
Mattar & D'Agostino, LLP
17 Court Street, Suite 600
Buffalo, New York 14202-3294
To SUNCOAST: Attn: William J. Reilly, Chief Financial Officer
Suncoast Naturals, Inc.
1803 Juno Isles Blvd.
Juno Beach, FL 33408
20.3 Binding Effects. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective successors and permitted assigns.
20.4 Entire Agreement. This Agreement and the attached schedules constitute the
entire agreement between the parties with respect to the subject matter hereof.
This Agreement supercedes all other prior written, oral and/or contemporaneous
agreements, understandings, negotiations and representations, if any, between
the parties. This Agreement is intended by the parties as the final expression
of their agreement with respect to such terms as are included in this Agreement
and may not be contradicted by evidence of any prior or contemporaneous
agreement. Each of the parties acknowledges that it is entering into this
Agreement as a result of its own independent investigation and not as a result
of any representations of any other party not contained herein.
20.5 Severability. If any provision of this Agreement shall be determined by a
court of competent jurisdiction to be invalid or unenforceable, such provision
shall be deemed to be modified to the minimum extent required to make such
provision enforceable under applicable law. In the event such provision cannot
be so modified, such determination of invalidity or unenforceability shall not
affect the remaining provisions of this Agreement, all of which shall remain in
full force and effect.
20.6 Governing Law. This Agreement shall be governed by and construed and
interpreted in accordance with the internal laws of the State of New York,
U.S.A., without regard to conflict of laws principles.
20.7 Amendments; Modifications; Waiver. This Agreement may not be released,
discharged, amended or modified except by an instrument in writing, duly signed
by the party to be charged therewith. No waiver of any breach of this Agreement
or of any right or remedy hereunder shall be valid unless contained in writing
signed by the waiving party, and any such written waiver shall only apply to the
specific instance referred to therein and shall not be deemed to be a waiver of
any other or subsequent breach or right or remedy. No failure to enforce any
right or exercise any remedy shall be held to be a waiver of that right or
remedy or of any other or subsequent right or remedy hereunder.
20.8 Taxes. Any and all taxes, excises, assessments, levies, import duties,
costs, charges and penalties which may be assessed, levied, demanded or imposed
by an governmental agency in connection with this Agreement shall be paid by the
party upon which they are imposed and shall be the sole obligation of such
party.
20.9 Assignment. This Agreement and SUNCOAST's rights and obligations hereunder
shall not be transferred, assigned, encumbered, pledged or hypothecated in full
or in part, either voluntarily or by operation of law or otherwise, without
HALCYON's prior written consent. Any attempt to transfer assign, encumbrance,
pledge or hypothecation by SUNCOAST without HALCYON's prior written consent,
shall be null and void ab initio and shall have the effect of immediately
terminating this Agreement.
20.10 Headings. Section headings are for convenience purposes only and are not
to be construed as part of this Agreement or its interpretation.
20.11 Construction. This Agreement shall be construed as if drafted by both
parties, with no presumptions.
IN WITNESS WHEREOF, HALCYON and SUNCOAST have duly executed this Agreement as of
the date first above written.
SUNCOAST NATURALS, INC.
By: /s/ William J. Reilly
---------------------
William J. Reilly,
Chief Financial Officer
HALCYON, L.L.C.
By: /s/ DeChia J. Cuypers
----------------------
DeChia J. Cuypers
Managing Director
EXHIBIT 16.1
Schuhalter Coughlin and Suozzo PC.
Raritan, New Jersey
June 25, 2004
Office of the Chief Accountant
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sir or Madam:
We have read the second through fifth paragraphs under the caption "Experts"
included on page 46 in the Amendment No. 5 to Form SB-2 dated June 25, 2004 of
Suncoast Naturals, Inc. to be filed with the Securities and Exchange Commission
and are in agreement with the statement in the second paragraph that the
Schuhalter Coughlin & Suozzo PC. resignation is not the result of its
relationship with the Company and the statements contained in the third through
fifth paragraphs referencing our firm.
As an independent public accounting firm, we hereby consent to the use of
our report dated March 29, 2003, except for Note 13, as to which the date is
June 26, 2003 and to all references to our Firm included in or made a part of
this Amendment No. 5 to the registration statement.
/s/ Schuhalter, Coughlin & Suozzo, PC
Raritan, New Jersey
June 25, 2004
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
As an independent registered public accounting firm, we hereby consent
to the use of our report dated May 13, 2004, and to all references to our Firm
included in or made a part of this Amendment No. 5 to the registration
statement.
/s/ Rosenberg Rich Baker Berman & Company
Bridgewater, New Jersey
June 25, 2004
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