U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
|X| Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2000
Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to
-------- --------
Commission file number 0-29245
Health & Nutrition Systems International, Inc.
(Name of small business issuer in its charter)
FLORIDA 65-0452156
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
3750 Investment Lane, Suite 5
West Palm Beach, Florida 33407
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (561) 863-8446
Securities registered under Section 12(b) of the Exchange Act:
None
Name of each exchange on which registered:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X ]
No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference to Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $5,404,253
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. The aggregate market
value of the voting stock held by non-affiliates on March 30, 2001 was
$1,668,501 (computed at the closing price of the common stock of the issuer
outstanding on March 30, 2001)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 3,629,813 shares of common
stock were outstanding as of March 30, 2001.
Documents Incorporated by Reference: None
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
FORM 10-KSB
INDEX
PART I......................................................................................................................2
ITEM 1. DESCRIPTION OF BUSINESS.......................................................................................2
ITEM 2. DESCRIPTION OF PROPERTY.......................................................................................9
ITEM 3. LEGAL PROCEEDINGS.............................................................................................9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................................................12
PART II....................................................................................................................12
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.....................................................12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION....................................................14
ITEM 7. FINANCIAL STATEMENTS.........................................................................................25
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON.............................................................25
PART III...................................................................................................................26
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT.................................................................................................26
ITEM 10. EXECUTIVE COMPENSATION.......................................................................................27
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT...................................................................................................32
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................................................33
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.............................................................................35
SIGNATURES.................................................................................................................38
i
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This annual report on Form 10-KSB contains various forward-looking statements
and information, including (but not limited to) under the caption "Management's
Discussion and Analysis or Plan of Operation," that are based on management's
beliefs as well as assumptions made by and information currently available to
management, including statements regarding future economic performance and
financial condition, liquidity and capital resources and management's plans and
objectives. When used in this document, the words "expect," "anticipate,"
"estimate," "believe," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to various risks and
uncertainties, which could cause actual results to vary materially from those,
stated. Should one or more of these risks or uncertainties materialize or should
underlying assumptions prove incorrect actual results may vary materially from
those anticipated, estimated, expected or projected. Some important factors that
could cause actual results or outcomes to differ materially from those discussed
in the forward-looking statements include, but are not limited to the following:
our limited operating history; competition; our ability to manage growth and
integration; risks of technological change; competition for customers; pricing
and transportation of products; our dependence on key personnel; marketing
relationships with third party suppliers; our ability to protect our
intellectual property rights; economic and political factors; uncertainty
regarding infringing intellectual property rights of others; security risks; and
the other risks and uncertainties described under "Certain Factors That May
Affect Future Operations" in this Annual Report. All such factors are difficult
to predict, contain uncertainties, which may materially affect actual results,
and are beyond our control.
1
PART I
ITEM 1 DESCRIPTION OF BUSINESS
General
Health & Nutrition Systems International, Inc. (the "Company," "HNS,"
"we" or "us") was organized as a Florida corporation on October 25, 1993. Our
fiscal year end is December 31. Our corporate offices are located at 3750
Investment Lane Building, Building #5, West Palm Beach, FL 33404. Our phone
number is (561) 863-8446.
We market and sell weight management, energy and sports nutrition
products to more than 25,000 national and regional, food, drug, health, pharmacy
and mass-market accounts, as well as 4,000 independent health and pharmacy
accounts. We established our products in more than 15,000 new locations during
calendar year 2000.
Our strategy focuses on positioning the Company as a market leader and
innovator for diet, energy and sports nutrition. We carefully research and test
market products before bringing any formula to market both from a product
quality and sale-ability stand point. We plan to create market awareness and
sales through name branding both the Health and Nutrition Systems name and each
individual product.
We have established our products in more than 25,000 locations such as
Walgreens (2,941 locations), Rite-Aid (3,825 locations), CVS (4,098 locations),
Brooks (Maxi Drug) (250 locations), Vitamin World (500 locations), H. E. Butt
Grocery Co. (280 locations), Wakefern (200 locations), Sav-On (1,300 locations),
Giant Landover (180 locations), Giant Eagle (160 locations), Eckerd's (2,898
locations), GNC (4,000 locations), Target (968 locations), Albertsons (2,128
locations), Duane Reade (170 locations), Long's (416 locations) and Vitamin
Shoppe (78 locations).
o We plan to increase the number of those outlets significantly
during 2001 by establishing relationships with additional
mass-market retailers and supermarkets.
o We plan to expand the HNS Direct program using our existing
web site, HNSDirect.com and our in-house telemarketing program
to add additional retailers.
o We plan to expand our e-commerce by launching a new site,
www.mydietworld.com a unique diet fitness "community" portal
that will provide education content as well as diet tips and
food recipes and exercise programs to all demographics of diet
consumers.
o We also plan to test both direct response 30/60-second radio
spots and full-length 30-minute infomercials to generate
additional revenue and build its consumer database.
New product development and testing is ongoing. On January 12, 2001,
the company acquired the trademark to Acutrim, a nationally recognized diet
brand for more than 18 years. The product had been offered in more than 40,000
2
food, drug and general retail locations. We are marketing a new non-drug herbal
formula "Acutrim Natural," currently the only natural herbal brand that has a
patented time released delivery system. The new formula was acquired with
distribution in several large retail chains including Walgreens, Rite-Aid,
Target and American Stores. We are currently developing and testing Fat
Cutter(TM), a proprietary formula and unique delivery system that utilizes
bi-layer tablet technology. We are also introducing line extensions in the
sports nutrition body-builder market. The HNS product line has been or is in the
process of being tested in double blind placebo trials to show weight loss. The
studies will help HNS gain consumer confidence and remain compliant with all
regulatory bodies. The company also plans to test categories outside of the
diet/sports nutrition category such as natural alternatives to cholesterol
reduction and target the diabetic demographic.
Marketing
We currently design and develop all of our product concepts, marketing
and advertising in house. We plan to create market awareness and sales through
name-brand recognition of our trademarked products, such as Carb Cutter, Thin
Tab, Carbolizer and Acutrim. We are targeting print, radio and television media
to develop brand awareness and recognition. We have budgeted and spent more than
15% of our revenues advertising our products in more that 20 consumer magazines,
such as Cosmopolitan, Mademoiselle, Glamour, Fitness, Redbook, Allure, Muscle
and Fitness and others. We intend to continue promoting the Company using the
print media.
We had a very successful ad campaign for the Carb Cutter line of
products. The "I Cheat" print, radio and TV campaign has shown significant
results and will be expanded in the coming year to include contest and
promotions in media, in store and on the web. We have and will continue to
promote our products with regional radio and TV in major markets that target the
18-49 year old male and female demographic. The majority of our advertising
spending will coincide with the industry standard "diet seasons" identified as
January and June.
We have ongoing co-op programs with major retailers. In-store sales
promotions are also part of our marketing strategy, using ad vehicles such as
Sunday newspaper inserts and 10-30 day price specials with accounts such as CVS,
Target, GNC and Walgreens. These co-op programs allow the company to target
several million consumers and drive sales to the specific chain. We will
consider increasing the use of co-op sales promotions on a case-by-case basis.
Products
We market and sell the following products:
o Acutrim(R) Natural A.M. -- This is a dietary supplement that
uses a special blend of natural ingredients to help the
consumer metabolize and burn fat while controlling cravings
and appetite. The "AM" formula is designed for day time use.
3
o Acutrim(R) Natural P.M. -- This is a diet supplement that uses
a special blend of natural ingredients to help the consumer
metabolize and burn fat on a time-release basis. The "P.M."
formula is designed to be taken at bedtime.
Acutrim AM and PM both have the only patented
time-release technology for weight loss. We believe
that this gives us a significant advantage over
competition in the market place.
o Thin Tab(R) -- Thin Tab is a pure, premium herbal diet
supplement that has been helping men and women lose weight for
more than 8 years. Thin Tab is a scientifically balanced blend
of herbs and minerals designed to help the consumer feel less
hungry, reduce cravings for fats and sweets, and increase
mental and physical energy levels. When combined with regular
exercise and a balanced diet, the consumer will have all the
tools needed to reduce fat, stimulate metabolism and convert
unwanted body fat to lean muscle.
o Thin Tab Mahuang Free -- Thin Tab Mahuang Free offers the same
benefits as Thin Tab in an ephedra free formula for those
individuals who may be sensitive to stimulants.
o Carb Cutter -- Carb Cutter helps convert carbohydrates into
energy. The Carb Free Blend activates a Cellular Transport
System (CTS) that shuttles newly consumed carbs into the cells
where it then can be burned (metabolized) for energy instead
of being stored as fat. It also allows the body to access
stored fat so it can be used as an energy source while helping
to promote healthy blood sugar levels. The CTS optimizes
insulin efficiency by re-routing carbs from the bloodstream to
the cells and minimizing production of excess insulin that
leads to sugar spikes, hunger, and weight gain.
o On The Move -- On The Move is marketed as a sustained energy,
endurance and immune system booster.
o Carbolizer -- Carbolizer was created to be used as a
convenient Pre and Post Workout system for the hard-core
athlete. It combines the power and intensity of an E.C.
(Ephedra/Caffeine) Stack along with our proprietary Cellular
Transport Technology (CTT).
>> Carbolizer's Pre-Workout E.C. Stack Layer: The quick
release thermogenic blend ignites the user's
metabolism immediately, firing up body strength,
endurance, and energy to maximum levels necessary for
a longer and more intense performance. Carbolizer
helps protect valuable lean muscle tissue from being
depleted, promotes lyposis (fat breakdown) while
optimizing mental focus, razor sharp cuts, and deep
muscle separation.
4
>> Carbolizer's Post-Workout Sustained Release Layer:
The CTT activates during the user's cool down period,
shuttling newly consumed carbs into the cells where
it then can be burned (metabolized) for energy
instead of being stored as fat. It also allows the
body to access stored fat so it can be used as fuel.
The CTT optimizes insulin efficiency by re-routing
carbs from the bloodstream to the cells and
minimizing production of excess insulin that leads to
sugar spikes, hunger, and weight gain. Carbolizer
allows for stable blood sugar levels that will reduce
appetite and cravings and promote a controlled
glycemic index throughout the day.
Under Development
o Fat Cutter Plus(TM) -- Fat Cutter will be a diet pill that
contains a proprietary bi-layer Timed Released System (T.R.S.)
that has been clinically proven to enhance weight loss. The
metabo blend is the 1st patented technology that helps control
diet and cravings around the clock. It allows the body to burn
excess fat and calories, while providing super energy and
reducing excess fluids/bloating all day. The fat binding blend
releases within one minute to bind to fats in the foods eaten.
The blend also supports healthy cholesterol levels and allows
for efficient use of carbohydrates.
Manufacturing and Shipping
We contract out 100% of our manufacturing to Garden State Nutritional
(GSN), a division of Vitaquest International Inc. GSN is a state-of-the-art
supplement, liquid and powder manufacturer that owns a 200,000 square foot
manufacturing facility in West Caldwell, New Jersey. GSN has been known as an
industry leader for more than 25 years. GSN has the capacity to support
virtually unlimited production of all of HNS's product line. GSN's research and
development personnel, in conjunction with our in house team, develop our
formulations. We do not have term contracts with GSN, but acquire our needed
inventory on a purchase order basis. Although back-up suppliers are identified
and available, the loss of this supplier would have a material adverse affect on
us.
Our production/assembly personnel package products received from GSN.
We custom assemble and package our products to each customer's order. Our
production/assembly personnel also fill out shipping documents and team leaders
oversee the quality control and inventory flow. We ship approximately 50-100
packages per day with the HNS direct program via UPS. Large chain store orders
are shipped on pallets using the preferred freight company of the retailer's
choice.
Employees
We currently have 25 full time employees, six of whom are managerial,
eight are engaged in sales and marketing, five are administrative personnel and
six are assembly personnel. We believe our relationship with our employees is
good, as we believe in creating a positive environment with growth
opportunities.
5
Certificates of Analysis
All of our formulas have certificates of analysis supplied by each
manufacturer, who generally supplies each of their customers with this
documentation. These documents provide clinical test results of product quality
and ingredient accuracies and quality. The certificates of analysis are made
available to us for our further delivery to retailers or consumers.
Clinical Testing
In order to enhance consumer confidence in our products, we have
initiated independent clinical testing of our key products. The studies have
been and it is our intention that they will continue to be conducted by Marshall
Blum LLC (Marshall-Blum). Marshall-Blum is an independent research company with
20 years of experience in product testing and follows strict clinical guidelines
to ensure compliance with applicable regulations and scientific standards.
Government Regulations
The Federal Food and Drug Administration (FDA) oversees safety,
manufacturing and product information such as claims in a product's labeling,
package inserts and accompanying literature. Generally, the regulations of the
FDA and comparable state-level agencies impose labeling standards that require
full disclosure of our products' ingredients. We comply with these requirements.
The Dietary Supplements, Health and Education Act (DSHEA) prohibits us from
making precise health claims on our labels or advertising materials that cannot
be substantiated or otherwise hinting that the product is intended to cure a
disease. We comply with this requirement. Additionally, our manufacturers abide
by industry standards for manufacturing and quality control. Each manufacturer
is subject to regulatory oversight of the United States Department of Health and
Human Services, the Department of Public Health Services and the FDA.
The Federal Trade Commission (FTC) regulates the advertising of dietary
supplements in labels, labeling and other promotional materials. The
manufacturers review our labeling for compliance with FTC regulations and will
not supply us with the product unless our labeling satisfies their requirements.
Product Distribution
General Nutrition Corporation, Inc. (GNC).
GNC is a leading specialty retailer of nutritional supplements and
other health products, with more than 4,000 company-owned and franchised
locations worldwide. We have served as vendor for dietary supplements to GNC
since the fourth quarter of 1998. We have no written contract with GNC. We do,
however, have an excellent working relationship with GNC's purchasing department
that allows us to test products and programs with their cooperation.
6
Selected HNS products are included in GNC's Plan-o-gram marketing
program, a pre-planned in-store display format. The Plan-o-gram program
guarantees distribution of our products in all 4,000 GNC stores. This program
gives our products shelf positions in identical locations in all GNC stores.
Products included in the Plan-o-gram program are:
o Carbcutter (60 count bottle)
o Thin Tab (90 count bottle)
o Carbolizer (60 count bottle)
o Combo (60 count Carb Cutter 30 count Thin Tab)
o Thin Tab Mahuang Free (60 Count Bottle)
Other of our products are presently warehoused by GNC and available to
their corporate and franchise stores. In 1999, we derived $751,945 (or 40%) of
revenues from GNC sales. In 2000, we derived $2,438,840 (or 45 %) of revenues
from GNC sales. Inasmuch as GNC accounted for approximately 45% of our total
sales for 2000, the loss of this account would have a material negative effect
on us, unless we are able to increase sales through other vendors. We do not
have written contracts other than simple purchase orders with this or any other
customer.
Other Regional and Chain Stores
In addition to GNC, we have established one or both of our premier
products (Carbcutter and Acutrim) in chain stores such as Walgreens (2,941
locations), Rite-Aid (3,825 locations), CVS (4,098 locations), Brooks (Maxi
Drug) (250 locations), Vitamin World (500 locations), H. E. Butt Grocery Co.
(280 locations), Wakefern (200 locations), Sav-On (1,300 locations), Giant
Landover (180 locations), Giant Eagle (160 locations), Eckerd's (2,898
locations), GNC (4,000 locations), Target (968 locations), Albertsons (2,128
locations), Duane Reade (170 locations), Long's (416 locations) and Vitamin
Shoppe (78 locations). We estimate that Carbcutter is now available in more than
25,000 store locations nationwide. All accounts have been set up for full
distribution in each chain. In 1999, we derived $1,055,541 (or 57%) of revenues
from chain store accounts. In 2000, we derived $4,090,637 (or 76%) of revenues
from chain store accounts.
Independent Health and Pharmacy Accounts
Our in-house staff of telemarketers (HNS Direct) has opened 4,000 new
independent retail accounts since we began this program in January 1999. We
estimate, based on American Business Information (Info USA), that more than
100,000 potential retail outlets, including pharmacies, health food stores and
convenience stores exist in the U.S. We also participate in trade shows attended
by buyers for these independent retail health and pharmacy stores. At these
shows, we have sold our products to the stores as well as established contacts
to call after the show so we can follow up with more information regarding our
products. In 1999, we derived $327,870 (or 17%) of revenues from independent
health and pharmacy accounts. In 2000, we derived $1,023,377 (or 19%) of
revenues from independent health and pharmacy accounts. We offer no assurance
that we will be able to expand our number of independent retail accounts in the
near future.
7
Competition
The dietary supplement industry is highly competitive. Some of our
competitors have greater resources and name recognition. These competitors
include: Atkins Nutritional, Twinlabs, Metabolife International, Inc, Rexall
Sundown, and Dexatrim. Many competitors sell a broad range of health and
nutrition products. Our competitors sell to the same retail outlets as we do. In
addition, our suppliers will sell similar products to other marketers, although
they may not represent the same formulations.
We believe that we have several advantages over these larger
competitors.
o Our key employees in the marketing/product development area
give us the ability to develop unique product ideas and
marketing concepts in a creative fashion. We have accomplished
this with Carb Cutter, as it was the first product of its kind
to be introduced.
o Our independent retailers division (HNS Direct) gives us the
ability to receive rapid feedback as to the sales-ability and
consumer reactions to new products. These retailers represent
a broad cross-section of the population of health food stores,
pharmacies and gyms and are able to give valuable data for us
to interpret, plan and move quickly without a large marketing
expense. The majority of our competitors use nationwide
resellers who service the independent retailers forfeiting
both margin and feedback.
o Our niche focus on diet, energy and sport nutrition products
concentrates our marketing efforts on a few items, allowing us
to spend more dollars per item than some of our larger
competitors who sell a greater variety of items. We do not
market or sell any traditional vitamins or single herb
products and currently have no plans to develop any such
products, as these categories do not allow us to operate on
our planned gross profit margins. This niche approach allows
us to foster a brand awareness of our specialization in our
pre-planned categories .
Our manufacturer sells us particular formulations of product, which,
despite their uniqueness, might be seen as similar to other products made by the
same manufacturers. We strive to differentiate our products through our mixture
of ingredients and their measurement, emphasizing this uniqueness through our
marketing. We also trademark our proprietary brand names such as, the "Carb Free
Blend" in Carb Cutter and the "cellular transport system" in Carbolizer. This
concept allows some protection from exact duplication of our blends and creates
consumer loyalty to our brand as opposed to any specific ingredient and amount.
We also differentiate our products by providing distinctive packaging.
Significant barriers to entry exist within our industry. Chief
among them is the difficulty of establishing any new product. This involves a
major capital commitment to advertise, participate in trade shows, build
inventory, and pay the cost of entry with slotting fees and or free merchandise.
Test marketing also requires a significant commitment of time and capital.
Research and development is not a necessary expense, but it would be
advantageous to develop a patented proprietary product.
8
Factoring
We initially entered into a factoring agreement with NationsBank
Business Finance Corporation in November 1998. This agreement provides that
NationsBank purchases our receivables from time to time at a certain discount.
The term of this agreement was open ended. The factoring agreement with
NationsBanc (now Bank of America) was amended for a one-year term beginning
April 1, 2000 so that NationsBank will now be our exclusive factor at a discount
rate of 3%. HNS maintains a reserve account with the factor of 15% of the
outstanding receivables held by the factor. The reserve account may be charged
additional fees from 1% to 3% on invoices paid beyond the agreed to terms. We
agreed to factor a minimum of $185,000 per month for 12 months. If we fall below
for any month, we can make up the difference in the following month. However,
our account will be charged 3% of $185,000 or $5,550 per month whether we factor
or not.
This arrangement will assist us since we do not have to carry the large
dollar invoices to term. By selling our invoices, we get paid 85% of the invoice
as soon as we ship. We only factor large accounts and not telemarketing
accounts.
Insurance
We are insured for product liability claims up to an aggregate of
$5,000,000. In addition, each of our herbal supplement vendors has supplied us
with industry-standard proof of insurance. We have never had a consumer or
customer issue requiring insurance reimbursement since we commenced business.
ITEM 2. DESCRIPTION OF PROPERTY
Our corporate offices and finished product warehouse is located in a
6,000 square foot facility at 3750 Investment Lane, Building 5, West Palm Beach,
Florida, 33404. This lease expires on October 31, 2003 and provides for lease
payments of approximately $2,172 per month. We also have storage facilities at
Building 1A (located close to our corporate headquarters) which consists of
4,000 square feet with lease payments of $1,767 and expiring October 31, 2003.
All packaging and shipping is performed from these locations.
ITEM 3. LEGAL PROCEEDINGS
Sam Acquaviva vs. HNS International Marketing, Inc.
The Company was named as a defendant in Sam Acquaviva vs. HNS
International Marketing, Inc. et al., Case No. 99 CVS 7343 filed in Mecklenburg
County, North Carolina Superior Court on May 13, 1999. The complaint alleges
that the Company breached the North Carolina Business Opportunity Sales and
Unfair Trade Practices Act in connection with the plaintiff's purchase of a
distributorship business, and that the Company's subsequent decision to
terminate its contract with co-defendant HNS Marketing tortiously interfered
with plaintiff's relationship with HNS Marketing. Trial is set for October 2001.
The plaintiff has stated no exact amount of damages, although he alleges to have
paid approximately $22,500 for the services at issue in the lawsuit. North
Carolina's Business Opportunity Sales and Unfair Trade Practices Act provides
for treble damages and attorneys' fees, in addition to compensatory damages. We
believe there is a reasonably good chance that the Company will prevail, but
there is no assurance that the Company will prevail.
9
New York City Department of Consumer Affairs
In September 2000, the New York City Department of Consumer Affairs
("DCA") requested that the Company provide substantiation of certain product
advertisement representations relating to the Carb Cutter product. In January
2001, the DCA issued a Notice of Violation ("NOV"). After issuance of the NOV,
we met with the DCA to discuss their prosecution of compliance efforts. They
have requested more information, and reportedly still believe fines may be
imposed for past violations of code. In addition to fines, if any are imposed,
the adverse publicity of the DCA NOV may have a material adverse affect.
J.C. Herbert Bryant, III and KMS-Thin Tab 100, Inc.
The Company is currently involved in the following litigation adverse
to J.C. Herbert Bryant, III ("Bryant") and KMS-Thin Tab 100, Inc. ("KMS"), a
company which HNS believes is majority owned and controlled by Bryant. Bryant is
a former Chief Financial Officer, Secretary and Treasurer of the Company and was
a director of the Company until the third quarter of 1999. In addition, although
Bryant has not filed a Schedule 13D or 13G with the Securities and Exchange
Commission, based upon the Company's records, the Company believes that Bryant
is the beneficial owner of more than 5% of the outstanding common stock of the
Company.
In July 2000, the Company sued KMS and Bryant in the United States
District Court for the Southern District of Florida for trademark infringement,
unfair competition, cyberpiracy under the Anti-Cybersquatting Consumer
Protection Act of 1999, and breach of his fiduciary duties as a director of the
Company. The Company alleges that Bryant, while a director of the Company,
registered, in his own name or in the name of his company, KMS, certain domain
names which employ the Company's principal trademarks, "CARBCUTTER" and "THIN
TAB." The Company alleges that Bryant's continued use of the domain names and
related websites is causing irreparable harm to the Company and to the goodwill
of the trademarks. The Company alleges that Bryant breached his duty as an
officer and director of the Company by usurping corporate opportunities and
corporate property interests by registering the domain names while he was an
officer and director and retaining those names for his own use and benefit while
an officer and director and thereafter. Bryant counterclaimed alleging, among
other things, breach of a distribution agreement with the Company. In December
2000, Bryant's claims (and the breach of duty claim by the Company) were
dismissed as inappropriate for adjudication in a federal court.
In December 2000, Bryant caused KMS to sue the Company and three of its
officers and directors, Christopher Tisi, Anthony Musso (Mr. Musso has
subsequently resigned as Director) and Steven Pomerantz in state court (the
Fifteenth Judicial Circuit of Florida in and for Palm Beach County) alleging the
same claims that were dismissed by the federal court earlier that month. KMS
alleges that HNS breached a distribution agreement with KMS by selling HNS
products (both directly and through distributors) in the area south of Orlando,
Florida, which, according to KMS, and subject to certain exceptions, is its
exclusive distribution territory. KMS also alleges that Tisi, Pomerantz and
10
Musso tortiously interfered with the agreement between HNS and KMS by causing
HNS to breach its contract with KMS and that Tisi, Pomerantz and Musso conspired
among themselves and with unnamed others to interfere with the agreement. No
formal discovery has yet been done on the merits, if any, of KMS's claims.
Although the Company believes that Bryant's claims are wholly without merit, at
this early state of the litigation, management cannot assess the likely outcome
of the litigation or whether the outcome will materially impact the Company's
financial condition or results of operations.
The Company intends to vigorously prosecute its action against Bryant
and KMS and to vigorously defend the actions against it by Bryant and KMS.
Health and Nutrition Systems, International, Inc., Steven Pomerantz and
Anthony F. Musso, Plaintiffs, vs. Milton H. Barbarosh, Ricki Barbarosh, Stenton
Leigh Group, Inc., Stenton Leigh Capital Corp., and EAI Partners, Inc.,
Defendants
On April 13, 2001, the Company and two of its officers and
shareholders, Steven Pomerantz and Anthony Musso, sued Milton H. Barbarosh and
Ricki Barbarosh (Milton's wife) and three corporations which are owned or
controlled by Mr. Barbarosh, Stenton Leigh Group, Inc., Stenton Leigh Capital
Corp., and EAI Partners, Inc. in state court (the Fifteenth Judicial Circuit of
Florida in and for Palm Beach County).
The lawsuit is intended to resolve the uncertainty that now exists
concerning whether two blocks of the Company's common stock, which originally
belonged to Pomerantz and Musso and together comprise 235,000 post-split shares,
are currently validly issued and outstanding and, if so, the identities of the
owners of those shares.
On February 21, 2000, at the request of Pomerantz and Musso, the
Company's Board of Directors cancelled all but 25,000 (post-split) of the
affected shares and delivered the remaining 25,000 (post-split) shares to Milton
H. Barbarosh to compromise and settle any potential dispute relating to whether
the lawsuit defendants, or any of them, are entitled to ownership of some or all
of the shares. The defendants claim entitlement to the shares under the terms of
certain option and stock purchase agreements entered between Milton H. Barbarosh
and his corporations and Pomerantz and Musso, which related to advisory services
Barbarosh promised to perform for the benefit of Pomerantz, Musso and the
Company. The Company maintains that the services were not performed and
Pomerantz and Musso maintain that no consideration was received by them for
their shares.
At present, the Company is not including the 210,000 (235,000 - 25,000,
post-split) cancelled shares in our total number of shares outstanding.
Accordingly, depending on the outcome of the litigation, the number of our
outstanding shares may increase, thereby causing the dilution of our present
shareholders.
11
In addition to the particular legal matters discussed above, the
Company, from time to time, is a party to routine litigation incidental to its
business. Management does not believe that any of these pending legal
proceedings and those listed above, individually or in the aggregate, will
materially impact the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of 2000, the issuer did not submit any
matters to the vote of its security holders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the OTC Bulletin Board under the symbol
"HNNS." The following table sets forth for the period indicated the range of
high and low bid quotations per share of our common stock as reported on the OTC
Bulletin Board. There were no trades of our securities on the OTCBB prior to
October 4, 2000.
The bid quotations set forth below, reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions:
Fiscal 2000 High Low
4th Quarter $2.25 $0.50
As of March 30, 2001, there were 99 holders of record of our common
stock. See also Item 3, Legal Proceedings.
Our common stock is covered by an SEC rule that imposes additional
sales practice requirements on broker-dealers who sell such securities to
persons other than established customers and accredited investors, which are
generally institutions with assets in excess of $5,000,000, or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse. For transactions covered by the rule, the
broker-dealer must make a special suitable determination for the purchaser and
transaction prior to the sale. Consequently, the rule may affect the ability of
broker-dealers to sell our securities, and also may affect the ability of
purchasers of our stock to sell their shares in the secondary market. It may
also cause fewer broker-dealers to be willing to make a market in our common
stock, and it may affect the level of news coverage we receive.
Prior to June 29, 2000, we were not a reporting company and were not
required to file quarterly, annual and other reports with the SEC.
12
We have not declared or paid any cash dividends on our common stock
since our inception, and our Board of Directors currently intends to retain all
earnings for use in the business for the foreseeable future. Any future payment
of dividends will depend upon our results of operations, financial condition,
cash requirements and other factors deemed relevant by our Board of Directors.
Recent Sales of Unregistered Securities
In May 1998, we completed a private placement to 6 individuals of an
aggregate of 57,550 units, each unit consisting of one share of common stock and
one warrant to purchase one share of common stock at a purchase price of $2.00
per share, expiring May 19, 2000 (the "1998 Offering"). Inasmuch as these
individuals were either accredited or otherwise sophisticated individuals with
whom we had preexisting relationships and had access to relevant information
about us, the issuance of these securities was exempt form the registration
requirements of the Securities Act pursuant to the exemption set forth in
Sections 3(b) and Rule 504 of Regulation D of the Securities Act. We received
gross proceeds of $37,325 and we paid no commissions or other compensation for
sales made in this private placement.
During March 1999, we consummated the sale to 51 individuals, in a
private placement of units, each consisting of (I) four shares of common stock,
(ii) one warrant to purchase one share of common stock at a purchase price of
$.50 per share ("$.50 Warrants") and (iii) one warrant to purchase one share of
common stock at a purchase price of $2.00 per share (the "$2.00" Warrants"). The
$.50 Warrants expired one year after the date of issuance. The $2.00 Warrants
expired two years after the date of issuance. We issued an aggregate of
1,363,488 (pre-split) shares of common stock, 341,872 $.50 Warrants and 341,872
$2.00 Warrants, receiving gross proceeds of $374,898. Inasmuch as these
investors were accredited or otherwise sophisticated investors or had a
preexisting relationship with us and access to relevant information concerning
us, the issuance of these securities was exempt, from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Sections 3(b) and Rule 504 of Regulation D of the Securities Act.
During the three months ended June 30, 2000, we issued 79,000
(pre-split) shares of common stock to employees and consultants in consideration
for past and future services rendered.
On September 6, 2000, we issued 10,000 shares of our common stock to
The Winn Co., and 15,000 shares of our common stock to Flagler Communications
Group, Inc. for consulting services pursuant to an exemption from registration
under Section 4(2) of the Securities Act. We recorded compensation for
professional services in the amount of $12,500.
On October 20, 2000, we paid $1,800 and issued 30,000 shares of our
common stock to Tony D'Amato for past and future consulting services rendered.
The fair market value of our common stock at October 1, 2000 was $.50 per share.
On November 20, 2000, we issued 50,000 shares of our common stock to
First Level Capital for consulting services to be rendered. The fair market
value of our common stock at November 20, 2000 was $.875 per share.
13
On November 27, 2000, we issued 50,000 shares of common stock to
William Husa for his consulting services. The fair market value of our common
stock at November 27, 2000 was $.875 per share.
On March 23, 2001, we issued 25,000 shares of common stock to TKO
International, Inc., for consulting services to be rendered. The fair market
value of our common stock at March 23, 2001 was $1.03.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This Annual Report on Form 10-KSB contains forward-looking statements.
For this purpose, any statements contained in it that are not statements of
historical fact should be regarded forward-looking statements. For example, the
words "believes," "anticipates," "plans," and "expects" are intended to identify
forward-looking statements. There are a number of important factors that could
cause our actual results to differ materially from those indicated by such
forward-looking statements. These factors include, those shown at the end of
this section under the caption "Certain Factors That May Affect Future Results."
The following discussion of our results of operations and financial
condition should be read along with our Consolidated Financial Statements listed
in Item 7 and the Notes to them appearing elsewhere in this Form 10-KSB.
Results of Operations
NET SALES:
Year ended December 31, 2000 compared with Year ended December 31, 1999
Net sales for the twelve months ended December 31, 2000 were $5,404,253
an increase of $3,536,453 or 189%, compared to net sales of $1,867,800 for the
twelve months ended December 31, 1999. The increase was due to growth in our
in-house telemarketing accounts and new orders for our new product "Carb Cutter"
from chain store accounts CVS, Eckerd Drugs, Rite-aid, GNC, Phar-Mor and
Albertsons. Our in-house telemarketing program, which targets the independent
health food store and independent pharmacy market, generated $1,023,377 or 19%
of sales for the twelve months ending December 31,2000. Chain store sales
accounted for $4,090,637 or 76% of sales for the twelve months ending December
31,2000. Distributors accounted for $290,239 or 5% of sales. GNC, our single
largest account, accounted for 45% of sales or $2,438,840 for the twelve months
ending December 31,2000. CVS accounted for 7% of sales or $414,396 for the
twelve months ending December 31,2000.
In 2001, with Carb Cutter close to full distribution, we anticipate an
increase in sales for Carb Cutter. However, sales growth is contingent on
competition, marketing expenditures, the economy as a whole and the continued
market acceptance of Carb Cutter. Also, we believe Acutrim sales will continue
to grow in 2001. Acutrim A.M. and Acutrim P.M. are new products, however, we
have been receiving re-orders and are still receiving new orders for the
product. We believe Acutrim has name/brand recognition and we plan to support
the Acutrim program with Co-op advertising, sales promotion and print
advertising. Again, sales growth is contingent on competition, marketing
expenditures, the economy as a whole and the market acceptance of Acutrim.
14
We recently introduced Carbolizer and are soon to introduce Fat Cutter
Plus to the market. It is too soon to project Carbolizer market acceptance and
Fat Cutter is planned for testing in the 2nd quarter of 2001, therefore no
projection can be made for Fat Cutter as well.
Year ended December 31, 1999 compared with Year ended December 31, 1998
Net Sales for twelve months ended December 31, 1999 were $1,867,800 an
increase of $945,392 or 102%, as compared to net sales of $922,408 for the
twelve months ended December 31, 1998. The increase was due to restructuring
sales and marketing programs from outside marketing services to in-house sales.
Our in-house telemarketing program has generated $327,870 or 18% in sales in the
independent health food store and independent pharmacy market. Chain store sales
accounted for $1,055,541 or 57% of sales. Independent store sales accounted for
$414,402 or 22% of sales. In 1999, we derived $751,945 (or 40%) of revenues
from our GNC chain store account.
COST OF SALES
Year ended December 31, 2000 compared with Year ended December 31, 1999
Cost of sales for the twelve months ended December 31, 2000 was
$1,472.528 or 27% of net sales, compared to $729,994 or 39% of net sales for the
twelve months ended December 31, 1999. The decrease in cost of sales as a % of
net sales is primarily attributable to higher sales of our "Carb Cutter"
product, which has a lower percentage cost of goods than our other products.
This in turn results in a higher gross profit margin. We may not be able to
maintain the higher margin on "Carb Cutter" as our competitors introduce and
promote similar products. Also, as we introduce new products, we do not believe
we will maintain the lower cost of goods percentage we had with "Carbcutter".
Year ended December 31, 1999 compared with Year ended December 1998
Cost of sales for the twelve months period ending December 31, 1999 was $729,994
or 39% of net sales, as compared to $462,008 or 51% of net sales for the twelve
months ending December 31, 1998. The decrease is primarily attributable to our
decision to sell directly to stores without the use of outside marketing
companies. By eliminating the outside marketer, we eliminate that cost of sales,
thereby improving our margins without increasing prices paid by our customers.
15
GROSS PROFIT:
Year ended December 31, 2000 compared with Year ended December 31, 1999
Gross profit for the twelve months ended December 31, 2000 was
$3,931,725 an increase of $2,793,919 or 245%, compared to gross profit of
$1,137,806 for the twelve months ended December 31, 1999. As a percent of net
sales, gross profit was 73% for the twelve months ending December 31, 2000, as
compared to 61% for the twelve months ended December 31, 1999. These increases
are primarily attributable to increased sales and profit margins of our product
"Carb Cutter." We believe that our gross profit margins will go down as we
introduce new products. For example, the gross profit margin on our
recently-purchased "Acutrim" naturals AM and PM is lower than Carb Cutter.
Year ended December 31, 1999 compared with Year ended December 31, 1998
Gross Profit for the twelve months ended December 31, 1999 was
$1,137,806 compared to gross profit of $460,400 for the twelve months ending
December 31, 1998, an increase of $677,406 or 147%. The increase in gross profit
was attributable to higher margins resulting from eliminating the of use of
outside marketing companies and increased sales. As a percent of net sales,
gross profit was 61% for the twelve months ending December 31, 1999, as compared
to 50% for the twelve months ending December 31, 1998. This increase is
primarily attributable to increased sales and increased profit.
OPERATING EXPENSES:
Year ended December 31, 2000 compared with Year ended December 31, 1999
Operating expenses were $3,847,521 for the twelve months ended December
30, 2000, compared to $1,120,654 for the twelve months ended December 31, 1999,
representing an increase of $2,726,867. As a percent of net sales, operating
expenses were 71% for the twelve months ended December 31, 2000, compared to 60%
for the twelve months ended December 31,1999. The increase in operating expenses
was primarily attributable to significantly higher advertising expenditures to
establish brand identification, general administrative and personnel costs
associated with our increased sales, and higher in-store promotional expenses
during the third and fourth quarter associated with our new chain store accounts
for "Carb Cutter." We expect these in-store promotional expenses to decline as a
percentage of sales in the first quarter 2001 for Carbcutter. Because we are
introducing new products in 2001, however, there will be introductory expenses
associated with those new products. The increase in operating expenses was also
attributable to television advertising production costs during the third and
fourth quarters of $210,053 related to planned future advertisements introducing
consumers to our "Carbcutter" product.
16
Year ended December 31, 1999 compared with Year ended December 31, 1998
Operating expenses were $1,120,654 for the twelve months ending
December 31, 1999 as compared to $696,840 for the twelve months ending December
31, 1998 representing an increase of $416,098. As a percent of net sales,
operating expenses were 60% for the twelve months ending December 31, 1999 as
compared to 76% for the twelve months ending December 31, 1998. Each difference
is primarily attributable to increased sales to new channels.
NET PROFIT FROM OPERATIONS:
Year ended December 31, 2000 compared with Year ended December 31, 1999
Net profit from operations was $70,562 or $.02 per share for the twelve
months ended December 31, 2000, compared to $28,279 or $.01 per share for the
twelve months ended December 31, 1999. The modest increase in income from
operations was a direct result of our commitment to create brand awareness and
establish more than 25,000 shelf positions for Carb Cutter. Advertising,
Slotting Fees, Co-ops, Free Goods and Promotion Expenditures increased over
1287% from last year alone.
Year ended December 31, 1999 compared with Year ended December 31, 1998
NET PROFIT FROM OPERATIONS: Net Profit from operations was $27,279 or
$.01 per share for the twelve months ending December 31, 1999 as compared to a
net loss of $(254,394) or $(0.04) per share for the twelve months ending
December 31, 1998. The increase in income from operations is primarily
attributable to increased sales, increased profit margins and decreased
operating expenses.
CARRY FORWARD LOSS
We have a net operating loss carry forward of approximately $24,786 for
tax purposes to affect future taxable income. The net operating loss carry
forwards expire between 2008 and 2018.
LIQUIDITY & CAPITAL RESOURCES
Year ended December 31, 2000 compared with Year ended December 31, 1999
For the 12 months ended December 31, 2000, the Company had a working
capital surplus of $501,853. Net cash provided by operating activities for the
year ended December 31, 2000 was $25,328 and resulted primarily from the net
income for the year and payment of trade accounts and accrued expenses. Net cash
used in investing activities was $185,509 for the year ended December 31, 2000,
which resulted from purchases of equipment and investment in a Certificate of
Deposit. Net cash provided by financing activities for the year ended December
31, 2000 was $131,520, which includes proceeds from the line of credit and cash
raised from issuance of common stock.
17
We factor certain of our accounts receivable with Bank of America. Bank
of America purchases receivables for 97% of the face amount of certain invoices,
and we maintain a reserve account of 15% of the outstanding receivables held by
Bank of America as factor. The reserve account may be charged additional fees
from 1% to 3% on invoices paid beyond the agreed terms. Bank of America has
issued an aggregate factoring limit of $5,000,000 for all accounts. Our largest
account, GNC, has a factoring limit of $1,500,000.
We have experienced significant increases in accounts receivable and
inventories as our sales have grown. These increases have been offset partially
by increases in accounts payable. During calendar year 1999, the Company
financed operations and expansions from profits, factoring and issuing equity
consisting of units of our common stock and warrants. In 2000, the company
financed expansion from profits, factoring accounts receivable, increased credit
limits from vendors and issuance of common stock. We have been experiencing
positive cash flow from operating activities since the outset of the 1999 fiscal
year, and our ability to factor accounts receivable continues to be a major
source of cash flow. At March 30, 2001, Health and Nutrition Systems had cash in
bank and current accounts receivable sufficient for its expected cash
requirements for at least the next twelve months based on our current product
line and our marketing program.
In the long term, factoring large pharmacy chain accounts and large
health food accounts will continue to play an important role in providing
capital and liquidity for our future needs unless we are able to obtain a line
of credit. By establishing a line of credit, cost of borrowing money may go down
which would improve profitability.
Management believes that we may need to raise additional capital to
expand significantly our inventory levels, product lines and sales in the
future. We intend to fund our expansion through a variety of means, including
factoring major accounts, which arrangement will provide us revenue of 85% of
the invoice at time of shipment instead of carrying that account receivable for
approximately 30-90 days. In addition, we have negotiated larger credit limits
with our suppliers. For example, formerly our credit limit with Garden State
Nutritional, our primary source of product, was $80,000. Currently, we have over
$400,000 in credit with Garden State Nutritional, which is expected to increase
as our orders expand.
To the extent internal cash flow, credit lines and factoring
arrangements are not sufficient, we will consider offering equity for sale or
pursue other institutional funding if available and feasible. Proceeds from such
further financing would be directed to expand current inventory, establish a
greater profile for the Company's products, participate in additional trade
shows and perhaps develop new products in diet and energy categories, as well as
to explore e-commerce possibilities.
If we are unable to factor large accounts or obtain a line of credit,
and if we are unable to raise secondary sources of capital for expansion, then
we would not be in a position to grow as fast as we would like. Lack of accounts
receivable funding would have a significant adverse effect on our current
business. Lack of secondary sources of capital for expansion would likely have
an adverse effect on our future growth.
18
Certain Factors Which May Affect Future Results
We do not directly manufacture any of our products. We contract with
third parties to manufacture our products. Although we believe we will continue
to be able to either procure product on purchase orders as needed or negotiate
satisfactory manufacturing and supply agreements, the failure to do so would
have a material adverse effect on us. We can provide no assurance that these
manufacturers will dedicate sufficient production capacity to satisfy our
requirements within scheduled delivery times, or at all. Failure or delay by our
suppliers in fulfilling our anticipated needs would adversely affect our ability
to develop and market our products.
If our outside manufacturers fail to supply our products in sufficient
quantities and in a timely fashion, our business may suffer. We currently obtain
100% of our manufactured product from a single source of supply. We believe that
we have made satisfactory arrangements for the continued and uninterrupted
supply of our products. In the event that our supplier(s) are unable or
unwilling to provide us with the products on commercially reasonable terms, or
at all, delays in securing alternative sources of supply would result and could
have a material adverse effect on the our operations.
The dietary supplement industry is highly competitive. Some of our
competitors have greater resources and name recognition. These competitors
include: Atkins Nutritional, Twinlabs, Metabolife International Inc, Dexatrim
and Rexall Sundown, Inc. We believe that our competitive advantage over these
larger competitors lies with our focus on a limited number of products as well
as our ability to receive rapid feedback about new and existing products from
members of our independent retail health and pharmacy retailers. These retailers
represent a broad cross-section of the population able to give valuable data for
us to interpret and move quickly without a large marketing expense. If one or
more of our competitors significantly reduce their prices on existing products
in an effort to gain market share or aggressively promote new products in an
effort to enter a market, the Company's results of operations or market position
could be adversely affected.
Many of the Company's competitors, particularly manufacturers of
nationally advertised brand name products, are larger and have resources
substantially greater than those of the Company. There has been speculation
about the potential for increased participation in these markets by major
international pharmaceutical companies. In the future, if not already, one or
more of these companies could seek to compete more directly with the Company by
manufacturing and distributing their own or others' products, or by
significantly lowering the prices of existing national brand products. The
Company sells substantially all of its supplement products to customers who
re-sell the products.
We depend substantially on the continued services and performance of
our senior management. Our business may be hurt if one or more of our senior
management or key employees leave us. Although we have employment agreements
with Messrs. Pomerantz and Tisi, this does not guarantee that they will remain
with us. If we lose the services of Messrs. Pomerantz or Tisi or other key
employees, we may not be able to attract and retain additional qualified
personnel to fill their positions in the future.
19
Consolidation in the industry could adversely affect our operations.
The Company's core business products are marketed and sold through leading
national and regional chain store accounts, independent health and pharmacy
accounts. If the current consolidation trend among such retailers continues, the
number of customers of the Company could decline, resulting in increased
customer concentration which could have an adverse effect on the Company. There
can be no assurance as to what other effects, if any, the continued
consolidation among the Company's retail customers will have on the Company.
The Company's failure to develop and introduce new products could have
an adverse effect on the Company. The Company believes its ability to grow in
its existing market is partially dependent upon its ability to introduce new and
innovative products into these markets. Although the Company seeks to introduce
additional products each year in its existing markets, the success of new
products is subject to a number of variables, including developing products that
will appeal to customers and obtaining necessary regulatory approvals. The
Company cannot assure you that its efforts to develop and introduce innovative
new products will be successful, that customers will accept new products or that
the Company will obtain required regulatory approvals, if any, of such new
products.
In addition, the Company cannot assure you that individual or groups of
similar products currently experiencing strong popularity and rapid growth will
maintain sales levels over time.
The Company could be adversely affected if any of the Company's
products or any similar products distributed by other companies should prove or
be asserted to be harmful to consumers or should scientific studies provide
unfavorable findings regarding the effectiveness of the Company's products. The
Company's products consist of vitamins, minerals, herbs and other ingredients
that the Company regards as safe when taken as suggested by the Company and that
various scientific studies have suggested may involve health benefits. All of
our herbal supplement products have certificates of analysis supplied by each
manufacturer, who generally supplies each of their customers with this
documentation. These documents provide clinical test results of product quality
and ingredient accuracies. Most major retailers want to see these certificates
and, frequently, smaller retailers wish to see them as well. It has been our
experience that consumers rarely, if ever, want to see this documentation. In
order to enhance consumer confidence in our products, we also initiate
independent clinical testing of our key products. The Company is highly
dependent upon consumers' perception of the overall integrity of its business,
as well as the safety and quality of its products and similar products
distributed by other companies, which may not adhere to the same quality
standards as the Company. Our ability to attract and retain retailers could be
adversely affected by negative publicity relating to it or to other direct sales
organizations or by the announcement by any governmental agency of investigatory
proceedings regarding the business practices of the Company or other direct
sales organizations.
20
The Company, like other manufacturers and sellers of products that are
ingested, faces an inherent risk of exposure to product liability claims if,
among other things, the use of its products results in injury. The Company
currently has product liability insurance for its operations in amounts the
Company believes are adequate for its operations. There can be no assurance,
however, that such insurance will continue to be available at a reasonable
costs, or if available will be adequate to cover liabilities.
Government regulations could have a material effect on our operations.
The processing, formulation, packaging, labeling and advertising of the
Company's products are subject to regulation by one or more federal agencies,
including the FDA, the FTC, the Consumer Product Safety Commission, the United
States Department of Agriculture and the United States Environmental Protection
Agency. These activities are also regulated by various agencies of the states,
localities, and countries in which its products are sold. In addition, the
Company manufactures and markets certain of its products in compliance with the
guidelines promulgated by the United States Pharmacopoeia Convention, Inc.
("USP") and other voluntary standard organizations.
The Dietary Supplemental Health and Education Act ("DSHEA") recognizes
the importance of good nutrition and the availability of safe dietary
supplements in preventive health care. DSHEA amends the Federal Food, Drug and
Cosmetic Act by defining dietary supplements, which include vitamins, minerals,
nutritional supplements and herbs, as a new category of food, separate from
conventional food. Under DSHEA, the FDA is generally prohibited from regulating
such dietary supplements as food additives or drugs. It requires the FDA to
regulate dietary supplements so as to guarantee consumer access to beneficial
dietary supplements, allowing truthful and proven claims. Generally, dietary
ingredients that were on the market before October 15, 1994 may be sold without
FDA pre-approval and without notifying the FDA. However, new dietary ingredients
(those not used in dietary supplements marketed before October 15, 1994) require
pre-market submission to the FDA of evidence of a history of their safe use, or
other evidence establishing that they are reasonably expected to be safe. There
can be no assurance that the FDA will accept the evidence of safety for any new
dietary ingredient that the Company may decide to use, and the FDA's refusal to
accept such evidence could result in regulation of such dietary ingredients as
food additives, requiring the FDA pre-approval based on newly conducted, costly
safety testing. Also, while DSHEA authorizes the use of statements of
nutritional support in the labeling of dietary supplements, the FDA is required
to be notified of such statements, and there can be no assurance that the FDA
will not consider particular labeling statements used by the Company to be drug
claims rather than acceptable statements of nutritional support, necessitating
approval of a costly new drug application, or re-labeling to delete such
statements. It is also possible that FDA could allege false statements were
submitted to it if structure/function claim notifications was either
non-existent or so lacking in scientific support as to be plainly false.
21
DSHEA also authorizes the FDA to promulgate good manufacturing practice
regulations ("GMP") for dietary supplements, which would require special quality
controls for the manufacture, packaging, storage and distribution of
supplements. Although the final version of the GMP rules has not yet been
issued, the Company has already commenced significant facility renovations that
should allow the Company to comply with the new regulations, once they are
enacted. DSHEA further authorizes the FDA to promulgate regulations governing
the labeling of dietary supplements, including claims for supplements pursuant
to recommendations made by the Presidential Commission on Dietary Supplement
Labels. Such rules, which were issued on September 23, 1997, entail specific
requirements relative to the labeling of the Company's dietary supplements. The
rules, which took effect in March 1999, also require additional record keeping
and claim substantiation, reformulation, or discontinuance of certain products,
which required the Company to incur a significant expense.
All of our products are classified as dietary supplements under the
Federal Food, Drug and Cosmetic Act. In September 1997, the Food and Drug
Administration issued regulations governing the labeling and marketing of
dietary supplement products. These regulations cover:
o the identification of dietary supplements and their nutrition
and ingredient labeling;
o the wording used for claims about nutrients, health claims and
statements of nutritional support;
o labeling requirements for dietary supplements for which "high
potency" and "anti-oxidant" claims are made;
o notification procedures for statements on dietary supplements;
and
o pre-market notification procedures for new dietary ingredients
in dietary supplements.
The notification procedures became effective in October 1997. The
labeling requirements became effective on March 23, 1999. Where required, we
revised our product labels as necessary to reflect the requirements. We believe
we comply with these requirements. In addition, we are required to continue our
ongoing program of providing evidence for our product performance claims, and
notify the FDA of certain types of performance claims made for our products. Our
substantiation program involves ongoing compilation and review of scientific
literature pertinent to the ingredients contained in our products and the claims
we make about them.
In certain markets, including the United States, claims made with
respect to dietary supplements, personal care or any of our other products may
change the regulatory status of our products. For example, in the United States,
the FDA could possibly take the position that claims made for some of our
products make those products new drugs requiring preliminary approval. The FDA
could also place those products within the scope of its a Food and Drug
Administration over-the-counter (OTC) drug regulations and require it to comply
with a published FDA OTC monograph. OTC monographs dictate permissible
ingredients, appropriate labeling language and require the marketer or supplier
22
of the products to register and file annual drug listing information with the
Food and Drug Administration. We do not at present sell OTC drug products. If
the FDA were to assert that our product claims cause them to be considered new
drugs or fall within the scope of over-the-counter regulations, we would be
required to either file a new drug application, comply with the applicable
monographs, or change the claims made in connection with our products.
Additionally, dietary supplements are subject to the Nutrition,
Labeling and Education Act (NLEA), which regulates health claims, ingredient
labeling and nutrient content claims characterizing the level of a nutrient in a
product. NLEAt prohibits the use of any health claim for dietary supplements
unless the health claim is supported by significant scientific agreement and is
pre-approved by the Food and Drug Administration.
The FTC regulates the marketing practices and advertising of all our
products. In the past several years, the Federal Trade Commission instituted
enforcement actions against several dietary supplement companies for false and
misleading marketing practices and advertising of certain products. These
enforcement actions have resulted in consent decrees and monetary payments by
the companies involved. Under FTC standards, the dissemination of any false
advertising constitutes an unfair or deceptive act or practice actionable under
Section 45 of the Fair Trade Commission Act and a false advertisement actionable
under Section 52 of that act. A false advertisement is one that is "misleading
in a material respect." In determining whether an advertisement or labeling
information is misleading in a material respect, FTC determines not only whether
overt representations and implied representations are false but also whether the
advertisement fails to reveal material facts. Under FTC's standard, any health
benefit representation made in advertising must be backed by "competent and
reliable scientific evidence" by which FTC means:
tests, analyses, research studies, or other evidence based upon the
expertise of professionals in the relevant area, that have been
conducted and evaluated in an objective manner by persons qualified to
do so, using procedures generally accepted by the profession to yield
accurate and reliable results.
The FTC has increased its review of the use of the type of testimonials
we use in our business. The Federal Trade Commission requires competent and
reliable evidence substantiating claims and testimonials at the time that such
claims of health benefit are first made. The failure to have this evidence when
product claims are first made violates the Federal Trade Commission Act.
Although the Federal Trade Commission has never threatened an enforcement action
against us for the advertising of our products, there can be no assurance that
the Federal Trade Commission will not question our advertising or other
operations in the future.
We may be required to obtain an approval, license or certification from
a foreign country's ministry of health or comparable agency prior to entering a
new foreign market. We work with local authorities in order to obtain the
requisite approvals, license or certification before entering a foreign market.
The approval process generally requires us to present each of our products and
product ingredients to appropriate regulators and, in some instances, arrange
for testing of our products by local technicians for ingredient analysis. Such
approvals may be conditioned on reformulation of our products or may be
unavailable with respect to certain of our products or certain ingredients
23
contained in our products. We must also comply with product labeling and
packaging regulations that are different from country to country. In markets
where a formal approval license or certification is not required, we will rely
upon the advice of local counsel, in each country, to help us ensure we comply
with the law.
In addition, the Company cannot predict whether new legislation or
regulations governing the Company's activities will be enacted by legislative
bodies or promulgated by agencies regulating the Company's activities, or what
the effect of any such legislation or regulations on the Company's business
would be. The Company may be subject to additional laws or regulations
administered by the FDA or other federal, state or foreign regulatory
authorities, the repeal of laws or regulations which the Company consider
favorable, such as the DSHEA, or more stringent interpretations of current laws
or regulations, from time to time in the future. We cannot predict the content
of any future laws, regulations, interpretations or applications. We also cannot
predict the future impact of the different governmental regulations; however,
any or all of such requirements could be a burden and costly, to us. Future
regulations could, however,:
o require us to change the way we conduct business;
o require us to change the contents of our products;
o make us keep additional records;
o make us increase the available documentation of the properties
of our products; or
o make us increase or use different labeling and scientific
proof of product ingredients, safety or usefulness.
We depend on significant customers for a large percentage of our net
sales. The Company's largest customers are GNC and CVS. The Company does not
have written agreements with either GNC or CVS. In 1999 GNC represented 40% of
our net sales. In 2000 GNC represented 45% of our net sales and CVS represented
7% of our net sales. We cannot assure you that GNC and CVS will continue as
major customers of the Company. The loss of either as a customer, or a
significant reduction in purchase volume by either customer, could have a
material adverse effect on our results of operations or financial condition.
Our future success depends upon its ability to successfully implement
these growth and business strategies. Our business and operations have
experienced significant growth and increased complexity in recent years. We have
recently refined our growth and business strategies, designed to focus on and
support the Company's core brands, products and customers. We cannot assure you
that we will be able to successfully implement these strategies or, if
implemented, that the strategies will achieve the anticipated results. The
failure to successfully implement these strategies could have a material adverse
effect on the Company's results of operations and financial condition.
24
We believe that trademarks and other proprietary rights are important
to our success and competitive position. The Company's policy is to pursue
registrations for all of the trademarks associated with its key products. The
Company protects its legal rights concerning its trademarks and we are prepared
to enforce various trademarks against infringement, both in the United States
and in foreign countries. The Company relies on common law trademark rights to
protect its unregistered trademarks. Common law trademark rights do not provide
the Company with the same level of protection as afforded by a United States
federal registration of a trademark. In addition, common law trademark rights
are limited to the geographic area in which the trademark is actually used.
ITEM 7. FINANCIAL STATEMENTS
The financial statements are included beginning at F-1. See Index to
the Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
We retained as our independent auditors the firm Daszkal Bolton Manela
Devlin & Co. to replace the firm of Buthner & Kahle, CPAs, P.A. who were
dismissed as our auditors, effective July 12, 2000. This decision was approved
by the Board of Directors at a meeting held on July 12, 2000.
The reports of B&K on our financial statements for the past two years
did not contain an adverse opinion or disclaimer of opinion, and were not
qualified or modified as to uncertainty, audit scope, or accounting principles.
In connection with the audits of our financial statements for each of
the two fiscal years ended December 31, 1998 and December 31, 1999, and in the
subsequent unaudited interim period ended March 31, 2000, there were no
disagreements with B&K on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope and procedures which, if not
resolved to the satisfaction of B&K would have caused B&K to make reference to
the subject matter in their report. The Company has requested B&K to furnish it
a letter addressed to the Commission stating whether it agrees with the above
statements. A copy of B&K's letter dated September 6, 2000, has been filed as an
exhibit to our Form 8-K dated September 6, 2000.
25
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers
As of March 30, 2001, our directors and executive officers are:
Name Age Position/Office
- ---- --- ---------------
Steven Pomerantz 44 Chairman of the Board, Chief Executive Officer, Treasurer
Christopher Tisi 31 President, Secretary, and Director
Ted Alflen 54 Director
William Husa 58 Director
The following is a brief biographical summary of our officers and
directors.
Steven Pomerantz has been our Chairman of the Board and Treasurer since
November 2000 and our Chief Executive Officer since March 1998, and was our
President from March 1998 until November 2000. From 1995 to March 1998, Mr.
Pomerantz was our Vice President of Finance and Chief Operating Officer. Prior
to joining HNS, Mr. Pomerantz was the President of CSP International, Inc., a
manufacturer of pepper gas, which he co-founded with Mr. Musso in 1985 and sold
in December 1994. Mr. Pomerantz was an Account Executive with NCR from
1982-1985.
Christopher Tisi has been our President and Secretary since November
2000, and was our Chief Operating Officer from December 1999 until November
2000. From March 1998 until December 1999, Mr. Tisi was our Vice President of
Sales and Marketing. From 1994 to March 1998, Mr. Tisi was our Vice President of
Training. From 1991 to December 1994, Mr. Tisi was a Marketing Director at
Quorum International, a multi-level marketing company in Phoenix, Arizona.
Ted Alflen has been one of our directors since October 2000. In March
1991, Mr. Alflen founded TCCD International Inc. and served as President from
1991 to present. TCCD manufactures and markets Crystal Deodorants. TCCD recently
acquired Real Natural Products and the Moistic brand of all natural lip balms.
Mr. Alflen has been in sales and marketing for 29 years. He has been on the
Advisory Board of the Pompano Beach Parks and Recreation.
William A. Husa has been one of our directors since November 2000.
Since February, 2001, Mr. Husa has been the Chief Executive Officer of GoNow
Securities, Inc., a stock brokerage firm. From February 2000 to February 2001,
Mr, Husa was the President and Chief Compliance Officer of Travis Morgan
Securities. Since 1985, Mr. Husa has been the founder and President of The Winn
Company. Mr. Husa is a registered stock broker since 1980 and an NASD Arbitrator
since 1995.
26
There is no family relationship between any of the executive officers
and directors. Each director is elected at our annual meeting of shareholders
and serves for one year or until his successor is elected and qualified. The
Board elects officers and their terms of office are, except to the extent
governed by employment contract, at the discretion of the Board.
Involvement in certain legal proceedings
As noted above, KMS-ThinTab 100, Inc. ("KMS"), has sued Health and
Nutrition Systems International, Inc. ("HNS"), and three of our officers and
directors, Christopher Tisi, Anthony F. Musso (Mr. Musso resigned as a Director
effective March 22, 2001) and Steven Pomerantz. As is also noted above, Messrs.
Musso and Pomerantz are co-plaintiffs with the Company in a declaratory judgment
action against Milton H. Barbarosh, Ricki Barbarosh (Milton's wife), and certain
corporations owned or controlled by Mr. Barbarosh. Please see the discussion
under Item 3, Legal Proceedings.
Compliance With Section 16(a) of the Exchange Act.
We became a reporting company under the Securities Exchange Act of 1934
(the "Exchange Act") in June 2000. Based solely upon a review of Forms 3 and 4
and amendments thereto furnished to us under Rule 16a-3(e) of the Exchange Act
during the fiscal year ended December 31, 2000, and Forms 5 furnished to us with
respect to the fiscal year ended December 31, 2000, we are not aware of any
person that failed to file on a timely basis, as disclosed in the aforementioned
forms, reports required by Section 16(a) of the Exchange Act during the fiscal
year ended December 31, 2000, other than the unintentional failure of Steven
Pomerantz, Tony F. Musso, Christopher Tisi, and Tony D'Amato to file the initial
Form 3 subsequent to us becoming a reporting company on time. The Form 3s have
been filed with the Commission in September and October, 2000.
ITEM 10. EXECUTIVE COMPENSATION
The following table provides a summary of cash and non-cash
compensation for each of the last three fiscal years ended December 31, 1998,
1999 and 2000 received by our chief executive officer who is referred to as the
named executive officer. No executive officer received compensation in excess of
$100,000 in these fiscal years.
27
Summary Compensation Table
Long-Term
Annual Compensation Compensation Awards
--------------------
Other Annual Securities All Other
Name and Salary Bonus Compensation Underlying Compensation
Principal Position Year ($) ($) ($) (1) Options(#)(2) ($)
------------------ ---- --- --- ------- ------------- ---
Steve Pomerantz 2000 100,000 11,642 - 50,000 -
Treasurer and Chief 1999 13,356 1,022 - - -
Executive Officer(3) 1998 41,731 - - - -
-
Christopher Tisi 2000 $100,000 $18,169 - 102,000 -
Secretary and 1999 61,000 $ 4,047 - - -
President(3) 1998 - - - - -
Tony Musso(4) 2000 2,400 - - - -
1999 1,100 - - - -
1998 10,577 - - - -
- --------------------
(1) The Named Officers did not receive any other annual compensation not
categorized as salary or bonus except for perquisites and other personal
benefits which in the aggregate did not exceed the lesser of $50,000 or 10%
of the total annual salary and bonus reported for such Named Officer.
(2) Mr. Pomerantz was granted options under our 1998 Stock Option Plan for the
purchase of 50,000 shares of common stock. Such options were granted at the
then current market value of the shares. The options granted vested
immediately on the date of grant. Mr. Tisi was granted options under our
1998 Stock Option Plan for the purchase of 102,000 shares of common stock.
Such options were granted at the then current market value of the shares.
The options granted vested immediately on the date of grant.
(3) Mr. Pomerantz was elected Chief Executive Officer on October 1, 2000, and
assumed the position of Chairman of the Board on November 27, 2000. Mr.
Tisi was elected President on October 1, 2000.
(4) Mr. Musso resigned as a Director effective March 22, 2001.
28
Stock Option Grants
The following table contains information concerning the grant of stock
options under our 1998 Stock Option Plan to the Named Officers during 2000.
Option Grants in 2000
Individual Grants
Number of Securities % of Total
--------------------- -----------
Underlying Options Options to Exercise or
------------------- ----------- ------------
Granted Employee in Base Price Expiration
------- ----------------- ----------- ----------
Name (#) (1) 2000 ($/Sh) Date (2)
---- ------- ---- ------ --------
Steve Pomerantz(3) 50,000 7.58 $.50 10/01/10
Treasurer and Chief
Executive Officer
Christopher Tisi(4) 102,000 15.45 $.50 10/01/10
Secretary and President
- -------------------
(1) All options granted in 2000 are non-qualified stock options and are not
intended to qualify as an incentive stock option ("ISOs") under ss.422 of
the Internal Revenue Code of 1986, as amended. The options are exercisable
as of the date of grant. The options were granted at fair market value on
the date of the grant.
(2) The term of the options is ten (10) years from the date of grant unless
terminated earlier due to termination of employment, disability or death.
(3) Mr. Pomerantz became Chief Executive Officer October 1, 2000, and Chairman
of the Board on November 22, 2000.
(4) Mr. Tisi became President on October 1, 2000.
We do not currently have (and have not previously had) any plan
pursuant to which any stock appreciation rights ("SARs") may be granted.
29
Stock Option Exercises and Holdings
The following table sets forth information relating to options
exercised during 2000 by each of the Named Officers and the number and value of
options held on December 31, 2000 by each of them.
Aggregate Option Exercises in Fiscal Year Ended December 31, 2000
and Fiscal Year-End Option Values
Number of Securities Underlying Value of Unexercised
Unexercised In-the-Money Options at
Shares Value Options at Dec. 31, 2000 (#) Dec. 31, 2000 ($)(1)
Acquired on Realized ---------------------------- --------------------
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- --- ----------- ------------- ----------- -------------
Steve Pomerantz - - 50,000(2) 6,250
Treasurer and Chief
Executive Officer
Christopher Tisi - - 102,000(2) 12,750
Secretary and President
- ------------------
(1) Total value of unexercised options is based upon the difference between the
last sales price of our common stock on the Nasdaq National Market System
on December 31, 2000, which was $0.625 per share, and the exercise price of
the options, multiplied by the number of option shares.
(2) Options granted under our 1998 Stock Option Plan.
No options to purchase common stock were exercised by any executive
officer during the year ended December 31, 2000.
Director and Officer Compensation
During 2000, we paid to each of our non-employee directors meeting fees
of $500.00 for attendance at each board meeting. Pursuant to the terms of the
Stock Option Plan, a grant of a stock option for the purchase of common shares
may be made to each non-employee director. Those options are granted at an
exercise price equal to the fair market value of our common stock on the date of
grant, and become 25% vested on each anniversary date of grant or, if earlier,
upon a change of control as defined in the plan and expire ten years from the
date of grant or earlier in the event service as a director ceases. Options were
granted to our non-employee directors on October 2, 2000 at an exercise price of
$.50 and November 27, 2000 at an exercise price of $1.25 per share. During 2000,
we did not pay our former Chairman of the Board of Directors for his director
services provided to us.
30
EMPLOYMENT AGREEMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
On September 30, 1999, we entered into a two-year employment agreement with
Steven A. Pomerantz, our Chairman of the Board, Chief Executive Officer and
Treasurer. The agreement provides for an annual base salary of $100,000 and is
terminable for cause. The agreement also provides for quarterly bonuses of up to
$10,000, based upon our attainment of quarterly sales revenue benchmarks of
$600,000. Mr. Pomerantz has, in the past, voluntarily accrued certain portions
of his salary owed him by us. To date, all such amounts have been paid.
On September 30, 1999, we entered into a two-year employment agreement with
Christopher Tisi, our President and Secretary. The agreement provides for an
annual base salary of $100,000 and is terminable for cause. The agreement also
provides for quarterly bonuses of up to $10,000 based upon our attainment of
quarterly sales revenue benchmarks of $600,000.
On July 13, 2000, Mr. D'Amato executed and delivered to Mr. Tisi and
the Company a Shareholders' Agreement, pursuant to which D'Amato granted to Tisi
an irrevocable proxy (the "Irrevocable Proxy") authorizing Tisi to vote shares
of the Company beneficially owned by D'Amato as of that date and any shares of
the Company acquired by D'Amato thereafter. The Irrevocable Proxy has a two-year
term. On January 31, 2001, Tisi relinquished his right to vote pursuant to the
Irrevocable Proxy with respect to 125,000 shares beneficially owned by D'Amato
as of that date. Tisi has sole voting power of 769,088 shares and sole
dispositive power of 518,788 share of common stock. D'Amato has sole voting
power of 125,000 shares and sole dispositive power of 339,750 shares of common
stock.
In addition, Tisi, Musso and Pomerantz have entered into an oral
understanding with each other that each will vote, in person or by proxy, shares
of Common Stock of the Company beneficially owned by him (or, in the case of
Tisi, as to which he has voting power) together as a group, but only for the
following purposes: (i) in favor of the same person or persons to be nominated
and elected to serve on the board of directors of the Issuer to fill any
vacancies on the board, if and as such vacancies may arise from time to time
(whether such vacancy occurs by removal, resignation or an increase in the size
of the board of directors) at any time prior to the Company's 2001 annual
meeting of stockholders, or any adjournment thereof; and (ii)in favor of the
same person or persons to be nominated and elected as the slate of nominees, and
elected, to the board of directors to be voted upon by the shareholders of the
Company at its 2001 annual meeting of shareholders, or any adjournment thereof.
31
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below shows, as of March 30, 2001, the number of shares of common
stock beneficially owned by:
o each person whom we know beneficially owns more than 5% of the common
stock,
o each director and nominee for director,
o each executive officer included in the Summary Compensation Table, and
o all executive officers and directors as a group.
Shares of Common Stock
Beneficially Owned
------------------
Number of Shares and
--------------------
Name and Address of Beneficial Nature of Shares
- ------------------------------ ----------------
Owner (1) Beneficially Owned (2) Percent of Class (3)
- --------- ---------------------- --------------------
Tony D'Amato 339,750(4) 9.4%
1526 Michigan Avenue, #1
Miami Beach, FL
Tony Musso 569,329(4) 15.7%
Steven Pomerantz 516,829(4)(5) 14.0%
Christopher Tisi 769,088(4)(5) 20.6%
Ted Alflen 3,000 *
William Husa 72,500(6) 2.0%
All executive officers and directors as a 1,930,746(3)(4)(7) 51.1%
group (5 persons)
- -----------------------------
* Less than 1%
(1) The address of each executive officer and director is c/o the Company, 3750
Investment Lane, #5, West Palm Beach, FL 33404.
(2) Unless otherwise noted, all persons named in the table have sole voting and
dispositive power with respect to all shares of common stock beneficially
owned by them.
(3) Based upon 3,629,813 outstanding shares as of March 30, 2001, and, with
respect to each holder of options exercisable, or notes convertible, within
60 days of March 30, 2001, the shares issuable under such instruments.
32
(4) As disclosed in the Schedule 13G filed by Tony D'Amato ("D'Amato"), Steve
Pomerantz ("Pomerantz"), Christopher Tisi ("Tisi"), and Tony Musso
("Musso"), dated February 14, 2001, D'Amato executed and delivered to Tisi
and the Company a Shareholders' Agreement on July 13, 2000, pursuant to
which D'Amato granted to Tisi an irrevocable proxy (the "Irrevocable
Proxy") authorizing Tisi to vote shares of the Company beneficially owned
by D'Amato as of that date and any shares of the Company acquired by
D'Amato thereafter. The Irrevocable Proxy has a two-year term. On January
31, 2001, Tisi relinquished his right to vote pursuant to the Irrevocable
Proxy with respect to 125,000 shares beneficially owned by D'Amato as of
that date. Tisi has sole voting power of 769,088 shares and sole
dispositive power of 518,788 share of common stock. D'Amato has sole voting
power of 125,000 shares and sole dispositive power of 339,750 shares of
common stock.
In addition, Tisi, Musso and Pomerantz have entered into an oral
understanding with each other that each will vote, in person or by proxy,
shares of Common Stock of the Company beneficially owned by him (or, in the
case of Tisi, as to which he has voting power) together as a group, but
only for the following purposes: (i) in favor of the same person or persons
to be nominated and elected to serve on the board of directors of the
Issuer to fill any vacancies on the board, if and as such vacancies may
arise from time to time (whether such vacancy occurs by removal,
resignation or an increase in the size of the board of directors) at any
time prior to the Company's 2001 annual meeting of stockholders, or any
adjournment thereof; and (ii)in favor of the same person or persons to be
nominated and elected as the slate of nominees, and elected, to the board
of directors to be voted upon by the shareholders of the Company at its
2001 annual meeting of shareholders, or any adjournment thereof.
(5) Share ownership of the following persons includes shares subject to
immediately exercisable options or options exercisable within 60 days of
March 30, 2001, as follows: for Mr. Pomerantz - 50,000 shares and for Mr.
Tisi - 102,000 shares.
(6) Includes indirect holdings of 7,500 shares beneficially owned by Mr. Husa's
wife, regarding which Mr. Husa disclaims beneficial ownership.
(7) Includes an aggregate of 152,000 shares subject to immediately exercisable
options or options exercisable within 60 days of March 30, 2001 held by
executive officers and directors as a group.
Changes in Control
We are not aware of any arrangement that might result in a change in control in
the future.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Health & Nutritional Systems International, Inc. has, in the past,
engaged in related party transactions with J.C. Herbert Bryant III, who, served
as Vice President and Secretary between March 18, 1998 and September 13, 1999.
The entity controlled by Mr. Bryant, KMS-Thin Tab 100, Inc., purchased products
from us for resale to its customers on terms no more favorable than those given
to unaffiliated third parties in arms'-length transactions. For the year ended
December 31, 2000 KMS made aggregate purchases of $171,690. For the year ended
December 31, 1999, KMS-Thin Tab 100, Inc. made aggregate purchases of herbal
supplements of $136,944 from us. For 1998, purchases totaled $62,766.
Steven Pomerantz and Tony Musso (while Mr. Musso was a Director and
officer) and affiliated companies advanced to HNS a total of $104,109 during
1998. These advances did not bear interest and no other consideration was
received. As of this date, these advances have been repaid.
33
On November 3, 1998, we entered into a factoring agreement with
NationsBank Business Finance Corporation k/n/a Bank of America Business Finance
corporation. The Agreement provides for the sale of accounts receivables to
NationsBank for a purchase price of 96.75% of the face value of the receivables.
We are required to tender sufficient receivables each month to meet the minimum
amount of $1,250 to avoid payment of an amount equal to the excess of the
minimum amount over the discount amount. The discount amount for each calendar
month is calculated at 3.25% of the aggregate face amount of all receivables
tendered to NationsBank during such month. On March 6, 2000, we agreed to an
Addendum to Factoring Agreement, which provides for an adjusted purchase price
of our receivables from 96.75% to 97% of the face value of the receivables. In
addition, the minimum monthly amount has been increased from $1,250 to $5,500.
Should we fail to meet the minimum amount in one month, at our option we can
make up the difference in the following month. The term of the agreement is 12
months from the date of execution of the agreement with an automatic renewal
unless we terminate the agreement at the end of the initial term giving at least
sixty days notice prior to the end of each period.
Except for the ownership of our securities that we have disclosed
above, none of our directors, executive officers, holders (of whom we are aware)
of five percent (5%) of our outstanding shares of common stock, or any associate
or affiliate of such person, have, to our knowledge, had a material interest,
direct or indirect, during the three fiscal years ended December 31, 1998, 1999
and 2000 in any proposed transaction which may materially affect us.
On November 1, 2000, we terminated our investment relations contract
with Flagler Communications Group, Inc. Flagler Communications Group, Inc. will
remain our liaison with investors and perform public relations functions without
a contract. Flagler Communications Group, Inc. has a vested interest in our
company of 35,000 shares of common stock and options to purchase 15,000 shares
of common stock at an exercise price of $.50 per share and which will become
exercisable on December 1, 2001.
Steve Pomerantz provided a certificate of deposit in the principal
amount of $100,000 as collateral to SunTrust bank to obtain the loan for HNS in
the amount of $100,000. Mr. Pomerantz received a fee of $5,000 for providing the
collateral.
On March 23, 2001, we entered into an agreement with TKO International,
Inc., for certain consulting services. This agreement expires in three months
with a provision for our extending it if, among other things, we are satisfied
with the services provided. In consideration for this initial evaluation period,
we issued 25,000 shares of common stock to TKO International, Inc. We also
agreed to pay to TKO International, Inc., $4,000 per month.
34
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-KSB
Financial Statements:
o Independent Auditors' Report
o Balance Sheets as of December 31, 2000 and 1999
o Statements of Operations for the years ended December
31, 2000 and 1999
o Statements of Changes in Stockholders' Equity for the
years ended December 31, 2000 and 1999
o Statements of Cash Flows for the years ended December
31, 2000 and 1999
o Notes to Financial Statements
The following exhibits are filed as part of this form 10-KSB
The exhibits to this Form 10-KSB appear following the Company's
Financial Statements included in this report.
(3) Articles of Incorporation and By-Laws
3.1(a) Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1(A) of Registrant's registration
statement on form 10-SB, filed on January 31, 2000; Commission
File Number 0-29245).
3.1(b) Articles of Amendment to the Articles of Incorporation
(incorporated by reference to Exhibit 3.1(B) of Registrant's
registration statement on form 10-SB, filed on January 31,
2000; Commission File Number 0-29245).
3.1(c) Articles of Amendment to Articles of Incorporation
(incorporated by reference to Exhibit 3.1(C) of Registrant's
registration statement on form 10-SB, filed on January 31,
2000; Commission File Number 0-29245).
3.1(d) Articles of Amendment to Articles of Incorporation
3.2 By-Laws of the Registrant (incorporated by reference to
Exhibit 3.2 of Registrant's registration statement on form
10-SB, filed on January 31, 2000; Commission File Number
0-29245).
3.3 Amendment to the Restated ByLaws of the Company dated
September 25, 2000
3.4 Amendment to the Restated ByLaws of the Company dated November
10, 2000
(10) Material Contracts
10.1 Employment Agreement between the Company and Steven Pomerantz
dated September 30, 1999 (incorporated by reference to Exhibit
10.1 of Registrant's registration statement on form 10-SB,
filed on January 31, 2000; Commission File Number 0-29245).
35
10.2 Employment Agreement between the Company and Christopher Tisi
dated September 30, 1999 (incorporated by reference to Exhibit
10.2 of Registrant's registration statement on form 10-SB,
filed on January 31, 2000; Commission File Number 0-29245).
10.3 Factoring Agreement between NationsBank Business Finance
Corporation and the Company dated November 3, 1998
(incorporated by reference to Exhibit 10.3 of Registrant's
registration statement on form 10-SB, filed on May 11, 2000;
Commission File Number 0-29245).
10.4 Addendum to Factoring Agreement between Banc of America
Business and the Company dated March 6, 2000
10.5 Lease Agreement with Fred Keller, Trustee, dated __November,
2000
10.6 Lease Agreement with Fred Keller, Trustee dated __January 2001
10.7 Secured Party's Bill of Sale between Fleet National Bank and
the Company dated January 12, 2001 (incorporated by reference
to Exhibit 10.1 of Registrant's form 8-K, filed on January 26,
2001; Commission File Number 0-29245).
10.8 Trademark Assignment from Heritage Consumer Products, LLC to
the Company dated January 12, 2001 (incorporated by reference
to Exhibit 10.2 of Registrant's form 8-K, filed on January 26,
2001; Commission File Number 0-29245).
10.9 Agreement between the Company and Steven Pomerantz dated
January 12, 2001 (incorporated by reference to Exhibit 10.3 of
Registrant's form 8-K, filed on January 26, 2001; Commission
File Number 0-29245).
10.10 Amendment to US Corporate Services, Inc. Agreement with the
Company dated February 16, 2001
10.11 Shareholders' Agreement among Tony D'Amato, Chris Tisi, and
the Company dated July 13, 2000 (incorporated by reference to
Exhibit 1 of Christopher Tisi, Steven Pomerantz, Tony Musso,
and Tony D'Amato's Schedule 13D, filed on January February 14,
2001; Commission File Number 0-29245).
10.12 Irrevocable Proxy dated July 13, 2000 (incorporated by
reference to Exhibit 2 of Christopher Tisi, Steven Pomerantz,
Tony Musso, and Tony D'Amato's Schedule 13D, filed on January
February 14, 2001; Commission File Number 0-29245).
10.13 Waiver dated January 31, 2001 (incorporated by reference to
Exhibit 3 of Christopher Tisi, Steven Pomerantz, Tony Musso,
and Tony D'Amato's Schedule 13D, filed on January February 14,
2001; Commission File Number 0-29245).
10.14 Joint Filing Agreement dated February 13, 2001 (incorporated
by reference to Exhibit 4 of Christopher Tisi, Steven
Pomerantz, Tony Musso, and Tony D'Amato's Schedule 13D, filed
on January February 14, 2001; Commission File Number 0-29245).
36
16.1 Letter from Butner & Kahle, CPA dated September 6, 2000(4)
(24) Power of attorney (included on signature page)
(b) Reports on Form 8-K
No reports on form 8-K were filed during the quarter ended
December 31, 2000.
37
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: April , 2001 Health & Nutrition Systems International, Inc.
--------------
By: /s/ Steven A. Pomerantz
-------------------------------------------
Steven A. Pomerantz
Chairman of the Board
Chief Executive Officer, and Treasurer
(Principal executive officer)
Each person whose signature appears below hereby constitutes and
appoints Steven Pomerantz his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
report, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying all that said attorney-in-fact and agent or his substitute or
substitutes, or any of them, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Exchange Act, this report
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
Chairman of the Board, Chief Executive April 11, 2001
/s/ Steven A. Pomerantz Officer, and Treasurer
- ------------------------------------ (Principal executive officer)
Steven A. Pomerantz
/s/ Christopher Tisi President, Secretary, and Director April 12, 2001
- -------------------------------------
Christopher Tisi*
/s/ Ted Alflen Director April 12, 2001
- ------------------------------------
Ted Alflen*
William A. Husa Director April 11, 2001
- ------------------------------------
William A. Husa*
38
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
TABLE OF CONTENTS
Independent Auditor's Report......................................................................................F-1 - F-2
Financial Statements:
Balance Sheets as of December 31, 2000 and 1999................................................................F-3
Statements of Operations for the years ended December 31, 2000 and 1999........................................F-4
Statements of Changes in Stockholders' Equity for the years ended
December 31, 2000 and 1999..................................................................................F-5
Statements of Cash Flows for the years ended December 31, 2000 and 1999........................................F-6
Notes to Financial Statements ....................................................................................F-7 - F-14
DASZKAL BOLTON MANELA DEVLIN & CO.
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP OF PROFESSIONAL ASSOCIATIONS
2401 N.W. BOCA RATON BOULEVARD, SUITE 100 BOCA RATON, FLORIDA 33431
TELEPHONE (561) 367-1040 FAX (561) 750-3236
JEFFREY A. BOLTON, CPA, P.A. MEMBER OF THE AMERICAN INSTITUTE
MICHAEL I. DASZKAL, CPA, P.A. OF CERTIFIED PUBLIC ACCOUNTANTS
ROBERT A. MANELA, CPA, P.A.
TIMOTHY R. DEVLIN. CPA, P.A.
MICHAEL S. KRIDEL, CPA, P.A.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Health & Nutrition Systems International, Inc.
We have audited the accompanying balance sheet of Health & Nutrition Systems
International, Inc., as of December 31, 2000, and the related statement of
operations, changes in stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 financial position of Health & Nutrition Systems
International, Inc., as of December 31, 2000, and the results of its operations
and its cash flows for the year then ended in conformity with auditing
principles generally accepted in the United States of America.
/s/ DASZKAL BOLTON MANELA DEVLIN & CO.
Boca Raton, Florida
February 23, 2001
F-1
BUTNER & KAHLE, CPAs, PA
PHILLIPS POINT
777 SOUTH FLAGLER DRIVE, SUITE 650 EAST
WEST PALM BEACH, FL 33401
561/659-5656 FAX 561/659-5757
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Health & Nutrition Systems International, Inc.
West Palm Beach, Florida
We have audited the accompanying balance sheet of Health & Nutrition Systems
International, Inc. as of December 31, 1999 and the related statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 statements 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 financial position of Health & Nutrition Systems
International, Inc. as of December 31, 1999, and the results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ Butner & Kahle CPAs
Butner & Kahle CPAs PA
West Palm Beach, Florida
May 1, 2000
F-2
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
====================================================================================================================================
ASSETS
------
December 31,
-------------------------------
2000 1999
----------- -----------
Current assets:
Cash $ 125,585 $ 154,246
Restricted cash related to notes payable 150,687 --
Accounts receivable, net 497,835 235,173
Inventory 299,556 120,326
Prepaids and other current assets 168,454 66,239
----------- -----------
Total current assets 1,242,117 575,984
----------- -----------
Property and equipment, net 92,219 49,402
----------- -----------
Other assets:
Due from related parties 5,431 8,146
Deferred tax asset 7,888 --
Other, net 9,329 18,337
----------- -----------
Total other assets 22,648 26,483
----------- -----------
Total assets $ 1,356,984 $ 651,869
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 447,604 $ 227,305
Accrued expenses 122,377 10,945
Due to related parties 464 19,465
Capital leases, current portion 19,819 6,994
Note payable 150,000 --
----------- -----------
Total current liabilities 740,264 264,709
----------- -----------
Capital leases, less current portion 22,511 6,327
----------- -----------
Total liabilities 762,775 271,036
----------- -----------
Stockholders' equity:
Common stock, $ 0.001 par value, authorized 30,000,000
shares; 3,604,813 and 3,743,947 shares issued and
outstanding at December 31, 2000 and 1999, respectively 3,605 3,744
Additional paid-in capital 831,537 689,284
Stock subscription receivable -- (700)
Accumulated deficit (240,933) (311,495)
----------- -----------
Total stockholders' equity 594,209 380,833
----------- -----------
Total liabilities and stockholders' equity $ 1,356,984 $ 651,869
=========== ===========
F-3
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
================================================================================
December 31,
--------------------------
2000 1999
----------- -----------
Revenue $ 5,404,253 $ 1,867,800
Cost of sales 1,472,528 729,994
----------- -----------
Gross profit 3,931,725 1,137,806
----------- -----------
Operating expense:
General and administrative expense 2,217,971 901,417
Advertising and promotion 1,617,092 125,592
Depreciation and amortization 28,951 13,507
Bad debts (recovery) (16,493) 80,138
----------- -----------
Total operating expense 3,847,521 1,120,654
----------- -----------
Income from operations 84,204 17,152
----------- -----------
Other income (expense):
Interest income 2,060 2,850
Interest expense (21,152) (2,977)
Other income (expense) (2,438) 11,256
----------- -----------
Total other income (expense) (21,530) 11,129
----------- -----------
Income before income taxes 62,674 28,281
----------- -----------
Benefit (provision) for income taxes 7,888 --
----------- -----------
Net income $ 70,562 $ 28,281
=========== ===========
Net income per share - basic $ 0.02 $ 0.01
=========== ===========
Net income per share - diluted $ 0.02 $ 0.01
=========== ===========
Weighted average number of shares - basic 3,609,898 3,387,625
=========== ===========
Weighted average number of shares - diluted 3,609,898 3,729,497
=========== ===========
F-4
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000 AND 1999
====================================================================================================================================
Common Stock Additional Stock
------------------------ Paid-In Subscription Accumulated
Shares Amount Capital Receivable Deficit Total
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998
(as previously reported) 6,062,606 $ 6,062 $ 312,006 $ (1,027) $ (339,776) $ (22,735)
1-to-2 reverse stock split,
effective August 2000 (3,031,303) (3,031) 3,031 -- -- --
Common stock issued for cash 681,744 682 374,216 -- -- 374,898
Common stock issued for services 30,900 31 31 -- -- 62
Collection of subscription receivable -- -- -- 327 -- 327
Net income - December 31, 1999 -- -- -- -- 28,281 28,281
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1999 3,743,947 3,744 689,284 (700) (311,495) 380,833
Common stock retired (353,000) (353) 353 -- -- --
Common stock warrants exercised 25,366 25 25,339 -- -- 25,364
Common stock cancelled and returned (6,000) (6) (17,994) -- -- (18,000)
Subscription received -- -- -- 700 -- 700
Common stock issued for services to
consultants and employees 194,500 195 134,555 -- -- 134,750
Net income - December 31, 2000 -- -- -- -- 70,562 70,562
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 2000 3,604,813 $ 3,605 $ 831,537 $ -- $ (240,933) $ 594,209
========== ========== ========== ========== ========== ==========
F-5
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999
=====================================================================================
December 31,
----------------------
2000 1999
--------- ---------
Cash flows from operating activities:
Net income $ 70,562 $ 28,281
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Allowance for doubtful debts (16,952) --
Depreciation and amortization 28,951 13,507
Deferred tax asset (7,888) --
Common stock issued for services 134,750 62
(Increase) decrease in:
Accounts receivable (232,919) (203,886)
Inventory (179,230) (7,467)
Prepaids and other current assets (102,215) (64,173)
Other assets (2,437) (11,763)
Increase (decrease) in:
Accounts payable 220,297 113,379
Accrued expenses 112,409 (581)
--------- ---------
Net cash provided by (used in) operating activities 25,328 (132,641)
--------- ---------
Cash flows from investing activities:
Investment in trademarks (2,194) (1,747)
Investment in certificates of deposit (150,687) --
Purchases of property and equipment (32,628) (45,592)
--------- ---------
Net cash used in investing activities (185,509) (47,339)
--------- ---------
Cash flows from financing activities:
Issuance of common stock, net 7,364 374,898
Subscription receivable 700 --
Proceeds from financing 150,000 5,152
Repayment on capital leases (10,009) --
Repayments to related parties (16,535) (82,629)
--------- ---------
Net cash provided by financing activities 131,520 297,421
--------- ---------
Net increase (decrease) in cash (28,661) 117,441
Cash, beginning of period 154,246 36,805
--------- ---------
Cash, end of period $ 125,585 $ 154,246
========= =========
F-6
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 1 - DESCRIPTION OF BUSINESS
- --------------------------------
Health & Nutrition Systems International, Inc. ("HNS" or "the Company") markets
and distributes weight management, energy and sports nutrition products to over
25,000 national and regional health, food, drug and mass market accounts as well
as independent health and pharmacy accounts. The Company was incorporated in
Florida on October 25th, 1993. HNS product sales consist of seven primary
dietary supplements: Acutrim AM(R), Acutrim PM(R), Thin Tab(R), Carb Cutter(TM),
Carbolizer(TM), Thin Tab Mahuang Free(TM), and On The Move(TM). The current
markets are concentrated in North America and Puerto Rico. One manufacturer
substantially produces all of the HNS dietary supplements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. The restricted
collateral deposits are invested in certificates of deposits, which mature
within three months and are principally used as security for the note payable.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Inventories
- -----------
Inventories are stated at the lower of cost or market with cost being determined
on a first-in, first-out basis.
Depreciation and Amortization
- -----------------------------
Property and equipment are carried at cost. Depreciation is provided using the
straight-line or accelerated methods, over the estimated economic lives of the
assets, which range from three to seven years. Leasehold improvements are
amortized over the expected lease term. The Company reviews the valuation of
fixed and other assets and their remaining economic lives annually and adjusts
depreciation and amortization accordingly.
Trademarks
- ----------
The Company records the costs of trademarks as intangible assets and amortizes
their value over their estimated economic life.
Revenue Recognition
- -------------------
Revenue is recognized at the date of shipment to customers. Provision is made
for an estimate of product returns and doubtful accounts and is based on
historical experience.
F-7
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Advertising Costs
- -----------------
The Company expenses advertising production costs as they are incurred and
advertising communication costs the first time the advertising event takes
place. Advertising and promotion expenses for years ending December 31, 2000 and
1999 were $1,617,092 and $125,592, respectively.
Basic Earnings Per Share
- ------------------------
Basic income per common share is computed by dividing the net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted Earnings Per Shares
- ---------------------------
Diluted earnings per share reflect the potential dilution that could occur if
dilutive securities (stock options and stock warrants) to issue common stock
were exercised or converted into common stock that then shared in the earnings
of the Company.
NOTE 3 - FACTORING ARRANGEMENTS
The Company factors certain of its accounts receivable, without recourse, with a
commercial finance company subsidiary of a bank. The factor purchases
receivables for 97% of the face amount of certain invoices and the Company
maintains a reserve account with the factor of 15% of the outstanding
receivables held by the factor. The reserve account may be charged additional
fees from 1% to 3% on invoices paid beyond the agreed to terms.
NOTE 4 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are recorded net of an allowance for doubtful accounts of
$44,384 and $61,336 at December 31, 2000 and 1999, respectively.
NOTE 5 - RELATED PARTY TRANSACTIONS
- -----------------------------------
The Company has engaged in related party transactions with an individual who, at
the time of the transactions, was an officer of the Company, but has since
resigned. For years ended December 31, 2000 and 1999, the related party made
aggregate purchases of approximately $163,969 and $136,944, respectively.
At December 31, 2000, the Company had outstanding payables to its stockholders/
director in the amount of $464. The transactions are summarized as follows:
December 31
--------------------------------
2000 1999
----------- ------------
Balance at beginning of the period $ 19,464 $ 104,109
Repayments during the period (19,000) (84,645)
----------- ------------
Balance at the end of the period $ 464 $ 19,464
=========== ============
F-8
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
- -------------------------------------------
December 31
--------------------------------
2000 1999
----------- ------------
Cash paid for interest $ 21,152 $ 2,500
=========== =============
Cash paid for income tax $ 50,000 --
=========== =============
Non-cash investing and financing activities:
Capital lease obligations assumed $ 39,018 $ 18,748
=========== =============
Common stock issued for services $ 134,750 $ 62
=========== =============
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------
The carrying value of cash, accounts receivables, loans receivable, accounts
payable and other payables approximates fair value because of their short
maturities.
NOTE 8 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consisted of the following at December 31, 2000 and 1999:
2000 1999
----------- ------------
Furniture and equipment $ 38,713 $ 38,713
Office equipment 31,536 35,688
Warehouse equipment 24,349 4,982
Computer equipment 48,290 24,318
Software 40,126 9,822
Website development 2,155 --
Leasehold improvements 1,860 1,860
----------- ------------
187,029 115,383
Less: accumulated depreciation (94,810) (65,981)
Property and equipment, net $ 92,219 $ 49,402
=========== =============
Depreciation expense for the year ended December 31, 2000 and 1999 was
$27,853 and $12,801, respectively.
F-9
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 9 - NOTES PAYABLE
- ----------------------
On December 15, 2000 the Company received a short-term loan from a bank in the
amount of $150,000. Interest accrues at a rate of 8.1% per annum and is
collateralized by two certificates of deposits totaling $150,687. The note is
payable in eleven installments of $2,500 plus accrued interest beginning January
15, 2001. The remaining unpaid principal and accrued interest is due December
15, 2001.
NOTE 10 - LEASE COMMITMENTS
- ---------------------------
The Company leases office and warehouse space in Riviera Beach,
Florida. Rent expense for the years ended December 31, 2000 and 1999
was $24,234 and $41,654, respectively. The Company also leases various
equipment. Lease expense for the years ended December 31, 2000 and 1999
was $27,023 and $4,467, respectively.
Certain non-cancelable leases are classified as capital leases, and the
leased assets are included as part of property and equipment. Other
leases are classified as operating leases and are not capitalized. The
obligations under capital leases are at fixed rates ranging from 10% to
23% and are collateralized by the corresponding equipment.
Property under capital leases at December 31, 2000 consisted of the following:
2000 1999
----------- ------------
Machinery and equipment $ 59,502 $ 21,048
Less: accumulated amortization (13,149) (4,209)
----------- -----------
Total $ 46,353 $ 16,839
=========== ===========
Future minimum rentals for property under operating and capital leases
at December 31, 2000 are as follows:
Capita Operating
Year Ending December 31, Lease Leases
--------------------------------- ----------- ------------
2001 $ 26,142 $ 72,019
2002 23,503 72,019
2003 1,419 62,564
2004 -- 23,008
Thereafter -- 7,481
------------ -----------
Total minimum lease obligation 51,064 237,091
Less: interest (8,734) --
------------ -----------
Present value of total minimum
payments 42,330 $ 237,091
Less: current portion (19,819) ===========
------------
Non-current portion $ 22,511
============
F-10
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 11 - STOCKHOLDERS EQUITY
On August 25, 2000, the Company's Board of Directors authorized a 1-for-2
reverse stock split of its common stock, to stockholders of record on July 12,
2000. The par value per share of common stock remained unchanged, and the
additional paid in capital was adjusted. All share and per-share amounts in the
accompanying financial statements have been restated to give effect to the
reverse stock split.
During the year ended December 31, 2000, the Company issued its common stock for
cash and in exchange of services as follows:
The Company issued 194,500 shares of common stock to consultants and
employees during the year ended December 31, 2000, for professional
services rendered, valued at $134,750.
The Company retired and/or cancelled 359,000 shares of common stock
during 2000, resulting in a net decrease in equity of $18,000.
25,364 warrants were exercised during 2000 for $25,364.
During the year ended December 31, 1999, the Company issued the following common
stock:
The Company issued 681,744 shares of common stock and 341,872 warrants
resulting from a private placement offering. The Company received
proceeds of $374,898, net of costs.
Further, the Company issued 30,900 shares of common stock in exchange
for services.
NOTE 12 - LEGAL MATTERS
- -----------------------
The Company has filed a Complaint for Declaratory Relief in reference
to the effectiveness of various Stock Purchase Agreements among
shareholders, the cancellation of certain shares and the rightful
ownership of these shares. The uncertainty affects 700,000 shares of
common stock not included in the outstanding shares. Depending on the
outcome of the action, the number of outstanding shares may increase
causing dilution of the present shareholders.
The Company from time to time is a party of various legal proceedings.
In the opinion of management, none of the proceedings are expected to
have a material impact on its financial position or results of
operations.
NOTE 13 - CONCENTRATIONS
- ------------------------
Credit Risk
-----------
Financial instruments, which potentially expose the Company to
concentrations of credit risk, as defined by Statement of Financial
Accounting Standards No. 105, consist primarily of trade receivables.
The Company's officers have attempted to minimize this risk by
monitoring the companies for which it provided credit.
F-11
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 13 - CONCENTRATIONS, continued
The Company maintains bank accounts at various financial institutions.
At times during the year, balances in these accounts exceeded the
amount insured by the FDIC. At December 31, 2000, the amount that
exceeded the insured limit was $137,935.
Product Liability
-----------------
The Company is insured to the extent of $5 million for product
liability claims and uses vendors who are also insured. There is a risk
that certain vendors may not have sufficient product liability
insurance or may lose their insurance, or the Company may not be able
to insure at reasonable cost. In any of these events, there could be a
material adverse effect on the financial condition, results of
operations or cash flows of the Company.
Significant Customers
---------------------
Revenues derived from two significant customers: a nationwide chain of
nutrition centers and a nationwide chain of pharmacy stores. Sales to
these customers represent $2,853,000 (52%) and $986,000 (53%) in the
years ended December 31, 2000 and 1999, respectively.
Significant Supplier
--------------------
The Company receives 100% of its products from one manufacturer of
herbal and dietary supplements, located in Caldwell, New Jersey.
NOTE 14 - INCOME TAXES
----------------------
Income tax (benefit) consists of the following:
2000 1999
----------- -----------
Current $ -- $ --
Deferred (7,888) --
----------- -----------
Provision (benefit) for income taxes $ (7,888) $ --
=========== ===========
Under FAS No. 109, deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes. The significant components of deferred tax assets
as of December 31, 2000 and 1999 are as follows:
2000 1999
---------- -----------
Deferred tax asset:
Allowance for doubtful accounts $ -- $ 9,068
Inventory allowance differences 2,321 --
Litigation costs related to capital 4,000 --
Net operating losses 4,957 9,470
Stock issued for services -- 22,319
---------- -----------
Total deferred tax assets 11,278 40,857
---------- -----------
Deferred tax liabilities:
Allowance for doubtful accounts differences (3,390) --
---------- -----------
Net deferred tax asset before valuation allowance 7,888 40,857
Valuation allowance -- (40,857)
---------- -----------
Net deferred tax assets $ 7,888 $ --
========== ===========
F-12
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 14 - INCOME TAXES, continued
---------------------------------
A reconciliation of income tax expense (benefit) provided at a combined
federal and state statutory rate of 20% to income tax expense is as
follows:
2000 1999
---------- -----------
Taxes computed at combined federal and
state tax rate $ 12,535 $ 5,656
Non-deductible expenses 6,297 22,319
Net operating loss benefit (25,089) (27,975)
Other (1,631) --
---------- -----------
$ (7,888) $ --
========== ===========
As of December 31, 2000, the Company had an unused net operating loss
carry forward of $24,786 available for use on its future corporate
federal income tax returns. This net operating loss carry forward
expires in 2018.
NOTE 15 - STOCK OPTIONS
-----------------------
The non-qualified stock option plan adopted by the Company in May 1998,
authorized the Company to grant up to 2,500,000 shares of common stock.
Pursuant to the reverse stock split during the fiscal year 2000, the
plan authorized the Company to grant 1,082,500 of its common shares.
During the year ended December 31, 2000, the Company granted 710,000
stock options to certain employees and consultants. The stock options
were substantially granted prior to the Company trading on the Over the
Counter Bulletin Board. The weighted average fair value of options
granted during the year ended December 31, 2000 is estimated on the
date of the grant, using the Black-Scholes option-pricing method. The
weighted average grant-date fair value of the options is $0.14.
The Company has elected to account for the stock options under the
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Accordingly, no
compensation expense has been recognized on the employee stock options.
The Company accounts for stock options granted to consultants under
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation." The Company recognized $703 in compensation
expense.
During the year ended December 31, 2000, 670,000 options were granted
to officers and directors of the Company at exercise prices ranging
from $0.50 to $0.88 per share.
Had the compensation expense for the stock option plan been determined based on
the fair value of the options at the grant date consistent with the methodology
prescribed under Statement of Financial Standards No. 123, "Accounting for Stock
Based Compensation," the Company's net earnings for the year ended December 31,
2000 would have been decreased by $43,168. The fair value of each option is
estimated on the date of grant using the fair market option pricing model with
the assumption:
Risk-free interest rate 6.5%
Expected life (years) Various
Expected volatility N/A
Expected dividends None
F-13
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 15 - STOCK OPTIONS, continued
A summary of options during the years ended December 31, 2000 and 1999 is shown
below:
December 31, 2000 December 31, 1999
--------------------------------------- ---------------------------------------
Number Weighted-Average Number Weighted-Average
of Shares Exercise Price of Shares Exercise Price
------------------ ------------------ ------------------- ------------------
Outstanding at beginning of year - $ -- -- $ --
Granted 710,000 0.14 167,500 0.34
Exercised - -- (167,500) (0.34)
Forfeited - -- -- --
-------- ------- --------- -------
Outstanding at December 31 710,000 $ 0.14 -- $ --
======== ======= ========= =======
Exercisable at December 31 275,850 --
======== =========
Available for issuance at December 31 372,000 1,082,500
======== =========
At December 31, 2000, the Company's net income and earnings per share would have
been reduced to the pro forma amounts indicated below:
Net income
As reported $ 70,562
========
Pro forma $ 27,394
========
Earnings per share
As reported $ 0.019
========
Pro forma $ 0.008
========
NOTE 16 - SUBSEQUENT EVENTS
- ---------------------------
On January 12, 2001, Health & Nutrition Systems International, Inc.
purchased the Heritage Consumer Products, LLC "Acutrim" trademark and
outstanding inventory of its Acutrim Natural AM and Acutrim Natural PM
products for approximately $180,000, pursuant to a secured party's bill
of sale from Heritage Consumer Products' lender, Fleet National Bank.
In connection with the purchase, Heritage Consumer Products assigned to
Health and Nutrition Systems all of its rights, title and interest in
the "Acutrim" trademark and two related trademarks.
On January 12, 2001 the Company received a short-term loan from a bank in the
amount of $100,000. Interest accrues at 7.73% per annum and is personally
guaranteed by the Company's Chief Executive Officer. The loan matures January
12, 2002.
NOTE 17 - RECLASSIFICATIONS
- ---------------------------
Certain reclassifications have been made to the 1999 financial statements to
conform to the 2000 financial statement presentation. These reclassifications
have no effect on reported net income.
F-14
Index to Exhibits
- -----------------
Exhibit Number Description of Document
- -------------- -----------------------
3.1(a) Articles of Incorporation (1)
3.1(b) Articles of Amendment to the Articles of Incorporation(1)
3.1(c) Articles of Amendment to Articles of Incorporation (1)
3.1(d) Articles of Amendment to Articles of Incorporation
3.2 By-Laws (1)
3.3 Amendment to the Restated ByLaws of the Company dated September 25, 2000
3.4 Amendment to the Restated ByLaws of the Company dated November 10, 2000
10.1 Employment Agreement between the Company and Steven Pomerantz dated September 30,
1999(1)
10.2 Employment Agreement between the Company and Christopher Tisi dated September 30,
1999(1)
10.3 Factoring Agreement between NationsBank Business Finance Corporation and the Company
dated November 3, 1998(2)
10.4 Addendum to Factoring Agreement between Banc of America Business and the Company
dated March 6, 2000
10.5 Lease Agreement with Fred Keller, Trustee, dated __November, 2000
10.6 Lease Agreement with Fred Keller, Trustee dated __January 2001
10.7 Secured Party's Bill of Sale between Fleet National Bank and the Company dated
January 12, 2001(3)
10.8 Trademark Assignment from Heritage Consumer Products, LLC to the Company dated
January 12, 2001(3)
10.9 Agreement between the Company and Steven Pomerantz dated January 12, 2001(3)
10.10 Amendment to US Corporate Services, Inc. Agreement with the Company dated February
16, 2001
10.11 Shareholders' Agreement among Tony D'Amato, Chris Tisi, and the Company dated July
13, 2000(4)
10.12 Irrevocable Proxy dated July 13, 2000(4)
10.13 Waiver dated January 31, 2001(4)
10.14 Joint Filing Agreement dated February 13, 2001(4)
16.1 Letter from Butner & Kahle, CPA dated September 6, 2000(4)
24 Power of Attorney*
(1) Incorporated by reference to the registration statement on form 10-SB,
File No. 000-29245, as amended, as filed with the Securities and
Exchange Commission on January 31, 2000.
(2) Incorporated by reference to the registration statement on form 10-SB,
File No. 000-29245, as amended, as filed with the Securities and
Exchange Commission on May 11, 2000.
(3) Previously filed with the Company's form 8-K, dated January 26, 2001,
and incorporated by reference.
(4) Previously filed with the Joint Schedule 13D filed by Christopher Tisi,
Steven Pomerantz, Tony D'Amato, and Tony F. Musso on February 14, 2001,
and incorporated by reference.
* Included on Signature Page
EXHIBIT 3.1(d)
ARTICLES OF AMENDMENT
TO
ARTICLES OP INCORPORATION
OF
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
Pursuant to the provisions of Section 607.1006 of the Florida Business
Corporation Act, the undersigned corporation (the "Corporation") adopts the
following Articles of Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is Health & Nutrition Systems
International, Inc.
SECOND: The following provision of the Articles of Incorporation of
Health & Nutrition Systems International, Inc., a Florida Corporation, filed
with the Secretary of State on October 25, 1993, as amended on December 22,
1994, is hereby further amended as follows:
Article IV of the Articles of Incorporation of the Corporation
is amended to include the following provision:
"ARTICLE IV
CAPITAL STOCK
Effective upon the Corporation filing an Amendment to
the Articles of Incorporation ("Effective Date") in the office
of the Secretary of the State of Florida, each two (2) shares
of Common Stock, $.001 par value per share, outstanding on the
Effective Date will be changed into one (1) fully paid and
nonassessable share of Common Stock, $.001 par value per
share; and that after the Effective Date, each holder of
record of one or more certificates representing shares of the
old Common Stock shall be entitled to receive one or more
certificates representing the proportionate number of shares
of new Common Stock on surrender of a shareholder's old
certificates of cancellation. If a shareholder shall be
entitled to a number of new shares of Common Stock which is
not a whole number, then the number of new Shares of Common
Stock issued to the Shareholder shall be rounded up to the
nearest whole number in lieu of such fractional share."
REBECCA G. DISTEFANO, ESQ., FLA. BAR #0180106
Atlas Pearlman, P.A.
350 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, Florida 33301 Phone No.: (954)763-1200
THIRD: The foregoing amendment of Articles of Incorporation was adopted
as of the 12th day of July, 2000, by written consent of all of the members of
the Board of Directors and approved by written consent of the holders of a
majority of the outstanding stock of the Corporation as of the 25th day of
August, 2000. Therefore, the number of votes cast for the amendment to the
Corporation's Articles of Incorporation was sufficient for approval.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Amendment to the Articles of Incorporation as of the 30th day of August, 2000,
and does hereby certify that the facts stated in these Articles of Amendment to
the Articles of Incorporation are true and correct,
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
By: /s/ Steven Pomerantz
------------------------------------------
Steve Pomerantz, Chief Executive Officer,
President and Treasurer
-2-
EXHIBIT 3.3
AMENDMENT TO THE RESTATED BYLAWS OF
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
The Restated Bylaws dated December 21, 1994 of Health & Nutrition
Systems International, Inc. (the "Corporation"), are hereby amended, pursuant to
an affirmative vote of the Board of Directors, effective as of the 25th day of
September, 2000 as follows:
1. Article III, Section 3.02 (entitled "Annual Meetings"), be and it
hereby is deleted in its entirety and replaced with the following new Article
III, Section 3.02:
SECTION 3.02. Annual meetings. The annual meeting of the
shareholders for the election of directors and for the transaction of such other
business as may come before the meeting shall be held on the third Wednesday in
January in each year, if not a legal holiday, and if a legal holiday, then on
the next succeeding business day not a legal holiday or on such other date and
at such other time as the Board of Directors shall determine.
2. Article III, Section 3.03 (entitled "Special Meetings"), be and it
hereby is deleted in its entirety and replaced with the following new Article
III, Section 3.03:
SECTION 3.03. Special Meetings. A special meeting of the
shareholders for any purpose or purposes, unless otherwise prescribed by
statute, may be called at any time by the President, by order of the Board of
Directors or by a shareholder or shareholders holding of record at least
[twenty-eight percent (28%)] in the voting power of the outstanding shares of
the Corporation entitled to vote at such meeting.
3. Article VII, Section 7.07 (entitled "The President"), be and it
hereby is deleted in its entirety and replaced with the following new Article
VII, Section 7.07:
SECTION 7.07. The President. The President shall have general
and active management of the daily operations of the Corporation subject to the
direction of the Board of Directors. In addition, the President shall perform
such other duties and have such other responsibilities as the Board of Directors
may from time to time determine.
4. In Article VII, the following Section shall be added as a new
Article VII, Section 7.15:
SECTION 7.15. The Chief Executive Officer. The Chief Executive
Officer shall have general and active management over matters relating to
reporting and trading of the Corporation's common stock and matters relating to
financing for the Corporation. In addition, the Chief Executive Officer shall
perform such other duties and have such other responsibilities as the Board of
Directors may from time to time determine. The Chief Executive Officer may or
may not also serve as the President.
IN WITNESS WHEREOF, the undersigned has executed this Amendment to the
Restated Bylaws as of the date first written above.
/s/ Steven Pomerantz
---------------------------------
Steve Pomerantz
President
EXHIBIT 3.4
AMENDMENT TO THE RESTATED BYLAWS OF
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
The Restated Bylaws dated December 21, 1994 of Health & Nutrition
Systems International, Inc. (the "Corporation"), are hereby amended, pursuant to
an affirmative vote of the Board of Directors on November 10, 2000, as follows:
Article III, Section 3.02 (entitled "Annual Meetings"), be and
it hereby is deleted in its entirety and replaced with the following new Article
III, Section 3.02:
SECTION 3.02. Annual meetings. The annual meeting of the
shareholders for the election of directors and for the transaction of such other
business as may properly come before such meeting, shall be held at the time and
place designated by the Board of Directors of the corporation.
IN WITNESS WHEREOF, the undersigned has executed this Amendment to the
Restated Bylaws as of the date first written above.
/s/ Steve Pomerantz
------------------------------------------
Steve Pomerantz
Chief Executive Officer and Treasurer
EXHIBIT 10.4
BANK OF AMERICA
Bank of America Commercial Finance
Cash Plus/Factoring
P.O. Box 4095
Tucker, GA 30084-4095
March 6, 2000
ADDENDUM TO FACTORING AGREEMENT
The Factoring Agreement between Banc of America Business Finance Corporation
(formerly known as NationsBanc Business Finance Corporation) and Health &
Nutrition Systems International, Inc. dated November 4, 1998 amended as follows:
A.) The Purchase Price of accounts receivable, as stated in paragraph 1(a)
of the Factoring Agreement, shall be 97% of the face value thereof.
B.) The monthly minimum of $1,250 as outlined in paragraph 3(b) will be
increased to $5,500. If Health & Nutrition Systems International, Inc.
fees are less than $5,500, Health & Nutrition Systems International,
Inc. has the option to make up the difference the following month.
C.) The term of this Agreement shall be for an initial term of 12 months
("Term") from the date of execution and shall be automatically renewed
for successive renewal terms of Term periods each unless terminated at
the end of the initial term or any renewal term by the Client giving
Bank of America written notice of termination at least sixty (60) days
prior to the end of each period. If the Client obtains alternate
financing from any Bank of America or NationsBank affiliate, and wishes
to terminate this Agreement, the remaining term of this Agreement will
be waived. Bank of America shall be excused from performing any
obligation(s) to Client in the event Client commits an Event of
Default. Bank of America may terminate this Agreement by giving thirty
(30) days notice, except that in the event Client commits an Event of
Default, Bank of America may terminate immediately and without notice.
Notwithstanding termination, Bank of America shall retain all of its
rights, including all lien rights in the Receivable until all
obligations due Bank of America are fully discharged.
This Addendum is hereby made a part of the Factoring Agreement. All other
rights, terms and conditions of the original Factoring Agreement remain in
effect.
Banc of America Business Health & Nutrition Systems
Finance Corporation International, Inc.
By: /s/ By: /s/ Steven Pomerantz 3-28-00
-------------------------------- --------------------------------
Title: Vice President Title: President
----------------------------- --------------------------------
VALIDITY GUARANTY
March 6, 2000
Bank of America Business Finance Corporation
2059 Northlake Parkway
Tucker, GA 30084
Gentlemen:
The undersigned is an officer and/or director and/or stockholder and/or
party interested in Health & Nutrition Systems International, Inc. (hereinafter
referred to as "Client"). In order to induce you to enter into factoring or
other financial arrangements with Client, the undersigned hereby warrants,
represents, covenants and guarantees to you as follows:
1. That all accounts assigned to you by Client will be genuine and in
all respects what they support to be; will represent bona fide sales and bona
fide and existing obligations of Client's customers, arising out of the sale and
completed delivery of merchandise manufactured and/or sold and/or the rendition
of services by Client in the ordinary course of its business in accordance with
and in full and complete performance of customer's orders therefor: and will not
be invalid, incomplete, incorrect, defective, forged, fictitious or imperfect.
2. That client will not knowingly assign any accounts to you to which
there are offsets, defenses or counterclaims of any nature whatsoever, and that
Client will do nothing to impede or interfere with your normal collection of, or
the payments of, the accounts assigned to you.
3. That Client is solvent.
4. That the accounts assigned to you and merchandise relating thereto
will be the sole and absolute property of Client, free and clear of all liens or
claims of any nature whatsoever, other than any lien to you.
5. That the correct maturities of said accounts will have been set
forth thereon and that proper entries will have been made on Client's books
disclosing the assignment thereof to you.
6. That Client will promptly report to you all merchandise disputes,
rejections, returns, or resales or merchandise and all credits allowed by Client
upon any and all of said accounts.
The undersigned guarantees the payment of all sums owing by Client as a result
of any fraud, deceit, or criminal act on the part of any officer, employee, or
agent of Client in its dealings with you, and hereby further undertakes to save
you free and harmless from any such damage or loss which you may sustain. As a
result of the above fraud, deceit or criminal act as set forth in this
paragraph.
Nothing herein contained shall be in any way impaired or affected by any change
in or amendment of any of the documents evidencing the factoring or other
financial arrangements and this Agreement shall be binding upon the undersigned,
his heirs, agents, representatives, successors or assigns. The liability of the
undersigned hereunder is direct and unconditional, and may be enforced without
requiring you first resort to any other right, remedy or security. It is not
necessary for you to give the undersigned notice of any changes in any of your
factoring or other financial arrangements with Client, to all of which the
undersigned now hereby consents.
Upon execution of this Validity Guaranty, all personal guaranties of Steven
Pomerantz previously executed by him shall be terminated and Steven Pomerantz
shall have no further liability pursuant to any previous Guaranty executed by
him in conjunction with the Factoring Agreement entered between Bank of America
Business Finance Corporation and Health & Nutrition Systems International, Inc.
Very truly yours,
/s/ Steve Pomerantz
----------------------------------
Steven Pomerantz, President
Witness:
/s/ M. Lalla
- ------------------------------------
Accepted by:
/s/ Vice President
- ------------------------------------
EXHIBIT 10.5
BUSINESS LEASE
THIS AGREEMENT, entered into this _______ day of NOVEMBER, 2000 between
FRED KELLER, TRUSTEE, hereinafter called the Lessor, party of the first part
and, HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC. of the County of PALM BEACH
and State of FLORIDA hereinafter called the Lessee or tenant, party of the
second part:
WITNESSETH, That the said Lessor does this day lease unto said Lessee,
and said Lessee does hereby hire and take as tenant under said Lessor 3750
INVESTMENT LANE, UNIT 1A, RIVIERA BEACH, FL 33404, situate in Palm Beach County,
Florida, to be used and occupied by the Lessee as STORAGE, and for no other
purposes or uses whatsoever, for the term of 3 years, beginning the 1st day of
NOVEMBER, 2000 and ending the 31st day of October, 2003 at and for the agreed
total rental of $60,012.00 plus Florida Sales Taxes, plus rent increases/C.P.I.
increases as below payable as follows:
Annual Base Rent: $20,004.00 payable in monthly payments of $1,667.00
Plus Florida Sales Tax (Currently 6%) $ 100.02
---------
Payments due beginning 11/01/00 and on the
first day of each month: $1,767.02
Plus, Lessee will pay all relevant utilities for his space. Lessee also agrees
to pay any appropriate increase in Florida Sales Taxes.
This lease cancels and supersedes previous lease, between these parties,
executed on March 28, 2000. A security deposit from previous lease in the amount
of $1,667.00 is hereby transferred to this lease. Lessor agrees to provide basic
electric power to the leased unit with a separate meter. Lessee shall be
responsible for the Florida Power and Light account.
Lessor shall allow Lessee to install central air conditioning in said unit at
Lessee's sole expense. Lessee may remove said a/c system upon vacating unit.
Lessee will pay a Late Fee termed additional rent of $25.00 per day for any rent
received by Lessor after the 5th of the month. All parties agree that these
charges are assessed because unpaid rent increases Lessor's bookkeeping,
clerical and administrative costs. All parties agree that the amount of damages
caused by unpaid rent is not readily ascertainable, and late fees as provided
herein are a reasonable charge. All parties agree that all other charges in
addition to rent plus tax shall be deemed additional rent.
*Total Figure is based on first year's rate. Thereafter, rents shall be
increased based on the national figures of the Consumer Price Index (C.P.I.) for
All Urban Consumers as promulgated by the United States Government, utilizing
the first year of this lease as the base, or 3 percent annual increase,
whichever is greater. Any C.P.I. increases will be due and effective on the
anniversary date of this Lease, and will be back-charged to the anniversary date
of the Lease on which they become effective if notice of the increase is not
given in advance.
*Lessee will be given the option to renew this lease for 1 additional 3
year period, providing Lessee has not been or currently is in default of any of
the terms and conditions hereunder, unless written notification to the contrary
from Lessee is received by Lessor 30 days before the expiration of the base
lease term. If no notification Is received, all parties acknowledge that Lessee
has exercised said option.
EXHIBIT
All payments are to be made to the Lessor, Fred Keller, Trustee on the first day
of each and every month in advance without demand at the office of: 6758 N.
Military Trail, Suite 301 in the City of West Palm Beach, Florida 33407 or at
such other place and to such other person, as the Lessor may from time to time
designate in writing. Such payments shall be made in cash or cashier's check at
me sole discretion of the Lessor.
RADON GAS: Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risks to
persons who are exposed to it over time. Levels of radon that exceed federal and
state guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from your county public health
unit.
The following express stipulations and conditions are made a part of
this lease and are hereby assented to by the Lessee:
FIRST: The Lessee shall not assign this Lease, nor sub-let the
premises, or any part thereof, nor use the same, or any part thereof, nor permit
the same or any part thereof, to be used for any other purpose than as above
stipulated, nor make any alterations therein, and all additions thereto, without
the written consent of the Lessor, and all additions, fixtures or Improvements
which may be made by Lessee, except movable office furniture, shall become the
property of the Lessor and remain upon the premises as a part thereof, and be
surrendered with the premises at the termination of this Lease.
SECOND: All personal property placed or moved in the premises above
described shall be at the risk of the Lessee or the owner thereof, and Lessor
shall not be liable for any damage to said personal property, or to the Lessee
arising from the bursting or leaking of water pipes, or from any act of
negligence of any co-tenant or occupants of the building or of any other person
whomsoever.
THIRD: That the Lessee shall promptly execute and comply with all
statutes, ordinances, rules, orders, regulations and requirements of the Federal
State and City Government and of any and all their Departments and Bureaus
applicable to said premises, for the correction, prevention, and abatement of
nuisances or other grievances, in upon, or connected with said premises during
said term; and shall also promptly comply with and execute all rules, orders and
regulations of the Southeastern Underwriters Association for the prevention of
fires, at Lessee's own cost and expense.
FOURTH: In the event the premises shall be destroyed or so damaged or
injured by fire or other casualty during the life of this agreement, whereby the
same shall be rendered untenantable, then the Lessor shall have the right to
render sad premises tenantable by repairs within ninety days therefrom. If said
premises are not rendered tenantable within said time, it shall be optional with
either party hereto to cancel this lease, and in the event of such cancellation
the rent shall be paid only to the date of such fire or casualty. The
cancellation herein mentioned shall be evidenced in writing.
FIFTH: The prompt payment of the rent for said premises upon the dates
named, and the faithful observance of the rules and regulations printed upon
this lease, and which are hereby made a part of this covenant, and of such other
2
EXHIBIT
and further rules or regulations as may be hereafter made by the Lessor, are the
conditions upon which the lease is made and accepted and any failure on the part
of the Lessee to comply with the terms of said lease, or all of said rules and
regulations, shall at the option of the Lessor, work a forfeiture of this lease,
and all of the rights of the Lessee hereunder, and thereupon the Lessor, his
agents or attorneys shall have the right to enter said premises, and remove all
persons therefrom according to Florida statutes.
Further, it is mutually agreed by and between Lessor and Lessee that
they hereby waive trial by jury in any action, proceeding or counterclaim
brought by either of the parties hereto against the other on any matters
whatsoever arising out of or in any way connected with this lease, the
relationship of Lessor and Lessee, Lessee's use and occupancy of said premises,
and/or any claim of injury or damage, and any emergency statutory or any other
statutory remedy.
Any unpaid rents or other amounts due under the lease shall earn
interest at the highest rate allowed by law. The Lessee agrees to pay the Lessor
a reasonable fee of $100.00 to compensate Lessor for the processing and delivery
of a "3 Day Notice" for non-payment of monies owed, as well as a fee of $100.00
for the costs of administration of an eviction in addition to any other cost
reasonably and necessarily incurred, as and for liquidated damages. These fees
are termed additional rent.
SIXTH: If the Lessee shall abandon or vacate said premises before the
end of the term of this lease, or shall suffer the rent to be in arrears, the
Lessor may, at his option, forthwith cancel this lease or he may enter said
premises as the agent of the Lessee, by force or otherwise, without being liable
in any way therefor, and relet the premises with or without any furniture that
may be therein, as the agent of the Lessee, at such price and upon such terms
and for such duration of time as the Lessor may determine, and receive the rent
therefore, applying the same to the payment of the rent due by these presents,
and if the full rental herein provided shall not be realized by Lessor over and
above the expenses to Lessor in such re-Ietting, the said Lessee shall pay any
deficiency, and if more than the full rental is realized Lessor will pay over to
said Lessee the excess of demand.
SEVENTH: The Lessee agrees that he will pay any charges for rent and
electricity, water and sewer used on said premises, and should said charges at
any time remain due and unpaid for the space of five days after the same shall
have become due, the Lessor may at its option consider the said Lessee tenant at
sufferance and take possession of said premises in accordance with Florida Law.
EIGHTH: The rights and remedies of the Lessor under this Lease If
Lessee breaches this Lease, shall be cumulative and may be exercised singly,
independently, and/or as Lessor may otherwise desire and the failure on the part
of Lessor to exercise any rights given hereunder shall not operate to forfeit
any such rights, including without limitation, Lessor's right to receive and
deposit rent as defined in this Lease with actual knowledge of a default or
other non-compliance by Lessee. Lessor's rights shall include, without
limitation, all rights and remedies provided for under this Lease and/or in
accordance with Florida law, including without limitation, the right and option
of declaring the balance of the total rent for the entire term of this Lease to
be immediately due and payable for Lessee's breach.
3
EXHIBIT
NINTH: The said Lessee hereby pledges and assigns to the Lessor all the
furniture, fixtures, goods and chattels of said Lessee, which shall or may be
brought or put on said premises as security for the payment of the rent herein
reserved, and the Lessee agrees that the said lien may be enforced by distress
foreclosure or otherwise at the election of the said Lessor. Pursuant to Florida
Statutes section 83.67(3) the undersigned Lessor and Lessee agree that in the
event Lessee leaves any personal property behind on the premises after Lessee
surrenders or abandons the rental unit, Lessor is not liable or responsible for
storage or disposition of the personal property.
TENTH: The Lessor, or any of his agents, shall have the right to enter
said premises during all reasonable hours, to examine the same to make such
repairs, additions, or alterations as may be deemed necessary for the safety,
comfort, or preservation thereof, or of said building, or to exhibit said
premises, and to put or keep upon the doors or windows thereof a notice "FOR
RENT" at any time within ninety (90) days before the expiration of this lease.
The right of entry shall likewise exist for the purpose of removing placards,
signs, fixtures, alterations, or additions, which do not conform to this
agreement, or to the rules and regulations of the building.
ELEVENTH: Lessee hereby accepts the premises in the condition they are
("as is") at the beginning of this lease and agrees to maintain said premises
and to make good to said Lessor immediately upon demand, any damage to water
apparatus, or electric lights or any fixture, appliances or appurtenances of
said premises, or of the building. Lessor's maintenance crew shall perform
requested maintenance, if desired by Lessee, at a charge of $25.00 per hour plus
material costs. Such costs shall be paid with the next month's rent check and
shall be considered as "additional" rent.
TWELFTH: NO untagged or unregistered motor vehicles or trailers will be
permitted to be parked outside the units for more than two days. Lessee hereby
irrevocably appoints Lessor as attorney in fact for Lessee, so that Lessor may
have said vehicles or trailers towed away at Lessee's sole expense and
liability. No repairs are to be done outside of unit nor any vehicles in
disrepair shall be parked outside of unit. Lessee subject to Industrial Park
Rules to be distributed to Lessee at time of lease signing. A failure to adhere
to these rules shall be a breach of this agreement. Lessee acknowledges and
agrees that leased space includes outside parking area comprising 2 parking
spaces. Any vehicles controlled by Lessee utilizing any additional spaces shall
be excess usage. Such excess parking shall be assessed $25.00 per vehicle per
month or any portion thereof. Parking shall be monitored by owner's agent and
excess parking fees shall be enforced at the sole discretion of Lessor. These
fees are termed additional rent.
THIRTEENTH: If the Lessee shall become insolvent or if bankruptcy
proceedings shall be begun by or against the Lessee, before the end of said term
the Lessor is hereby irrevocably authorized at its option, to forthwith cancel
this lease, as for a default. Lessor may elect to accept rent from such
receiver, trustee, or other judicial officer during the term of their occupancy
in their fiduciary capacity without effecting Lessor's rights as contained in
this contract, but no receiver, trustee or other judicial officer shall ever
have any right, title or interest in or to the above described property by
virtue of this contract.
FOURTEENTH: Lessee is responsible for their own trash disposal. If
Lessee elects to use owners trash facility, Lessee shall pay a surcharge of 5%
of their monthly rent, termed additional rent.
4
EXHIBIT
FIFTEENTH: This contract shall bind the Lessor and its assigns or
successors, and the heirs, assigns, administrators, legal representatives,
executors or successors as the case may be, of the Lessee.
SIXTEENTH: It is understood and agreed between the parties hereto that
time is of the essence of this contract and this applies to all terms and
conditions contained herein.
SEVENTEENTH: It is understood and agreed between the parties hereto
that written notice mailed or delivered to the premises leased hereunder shall
constitute sufficient notice to the Lessee and written notice mailed or
delivered to the office of the Lessor shall constitute sufficient notice to the
Lessor, to comply with the terms of this contract.
EIGHTEENTH: The rights of the Lessor under the foregoing shall be
cumulative, and failure on the part of the Lessor to exercise promptly any
rights given hereunder shall not operate to forfeit any of the said rights.
NlNETEENTH: It Is further understood and agreed between the parties
hereto that any charges against the Lessee by the Lessor for services or for
work done on the premises by order of the Lessee or otherwise accruing under
this contract shall be considered as rent due and shall be included in any lien
for rent due and unpaid.
TWENTIETH: It Is hereby understood and agreed that any signs or
advertising to be used, including awnings, in connection with the premises
leased hereunder shall be first submitted to the Lessor for approval before
installation of same.
TWENTY-FIRST: This lease shall be interpreted to the maximum benefit of
Lessor.
TWENTY-SECOND: If by reason of the specific use of the premises by the
Lessee, any governmental agencies shall require a modification to the demised
premises, or the installation of any special equipment or safety features, such
modifications or installation shall be made solely at the expense of the Lessee,
and such requirement shall not excuse the Lessee from the requirement of this
lease.
TWENTY-THIRD: The operation of a forklift or any similar vehicle or
equipment upon the asphalt of the premises and adjacent to the demised premises
is prohibited, unless proper mats are placed on the asphalt surface. Any damage
to the premises, or asphalt, shall be deemed the responsibility of the Lessee
and shall be charged by the Lessor for repair of the same.
TWENTY-FOURTH: Lessee shall comply with all laws, orders and
regulations of federal, state, city, county and municipal authorities, fire
insurance rating organizations, the Americans with Disabilities Act, and Federal
and State environmental laws, statute and regulations which shall now or
hereafter affect the premises, including but not limited to the compliance
required by any change on the above referenced items.
TWENTY-FIFTH: In the event that there is fire, safety, burglar alarm,
or related equipment within the leased premises, or in the event the Lessor
installs such equipment in the future, Lessee shall hereby agree to allow Lessor
to let such equipment remain or be installed, as the case may be, at Lessor's
sole expense.
5
EXHIBIT
Lessee shall agree not to interfere, nor allow others to interfere with
the normal operation of such equipment through Lessee's actions or inactions,
nor shall Lessee be entitled to any abatement or discount in rent by reason of
the existence of such equipment. Lessee agrees to pay his proportionate share of
the monthly fire alarm monitoring and service contract, including applicable
telephone line charges. to Lessor on a Quarterly basis. This charge shall be
deemed additional rent.
TWENTY-SIXTH: Rent, plus applicable Florida Sales Tax, shall be due on
the first day of each month, time being strictly of the essence, without demand,
notice, offset, deduction, or abatement, at Lessor's address, or elsewhere as
may be designated from time to time by Lessor's written notice to Lessee.
TWENTY-SEVENTH: Lessee shall take good care of the premises and shall
promptly make all repairs in and about the premises required by reason of the
installation, use, or operation of equipment, machinery, or property in the
premises, the moving of Lessee's property in, on or about the premises, and/or
the misuse, act, or neglect of Lessee or any of its employees, agents,
contractors, or invitee. All repairs shall be in compliance with any applicable
governmental rules and regulations, including Lessee's obtaining any necessary
building permits and licenses if required, and the cost thereof shall be at
Lessee's sole expense and paid by Lessee in cash or its equivalent so that the
demised premises shall at all times be free of liens for labor and materials
supplied or claimed to have been supplied to the demised premises. Any
alterations shall immediately become the property of Lessor, subject only to the
use of same by Lessee during the term of this Lease. It is hereby agreed and
understood between Lessor and Lessee that in the event the Lessor decides to
remodel, alter or demolish all or any part of the premises leased hereunder, or
in the event of the sale or long term lease of all or any part of the premises
requiring this space, the Lessee hereby agrees to vacate same upon receipt of
sixty (60) days written notice and the return of any advance rental paid on
account of this lease.
Lessee covenants that during the term of this lease it will, at its
expense, keep In good order and repair the leased premises, including but not by
way of limitation, all air conditioning equipment, doors, wiring, plumbing and
sewerage equipment, overhead doors, and lighting fixtures located therein. In
the event Lessee requests Lessor to perform routine overhead door or lighting
fixture maintenance, Lessee agrees to reimburse Lessor for any materials used on
the job as well as Lessor's labor rate of $25.00 per hour. In addition, Lessee
agrees that it shall not cause accumulation of waste, garbage or other debris,
in the exterior area of the Lessor's property. The Lessee will not erect tents,
nor store any trailers, vans, shacks, tanks or any other temporary buildings or
structures without the written consent of the Lessor. In the event Lessee should
fail to make the repairs required of Lessee forthwith upon notice by Lessor,
Lessor, in addition to all other remedies available hereunder or by law and
without waving any of said alternative remedies, may make same and Lessee agrees
to repay Lessor the cost thereof as part of the rental payable as such on the
next day upon which rent becomes as failure to pay any installment of rental.
Lessee waives all right to make repairs at the expense of Lessor as provided for
in any statute or law in effect at the time of execution of this lease or any
amendment thereof or any other statute or law which may be hereafter enacted
during the term of this lease and agrees upon the expiration of the term of this
lease or sooner termination hereof to surrender unto Lessor the demised premises
in the same condition as received, ordinary wear and tear and damage by
earthquake, act of God, the elements, or fire not attributable in any respect to
Lessee, alone excepted. Lessor agrees to make necessary repairs to the roof,
exterior wails, foundations and parking areas only, within reasonable time after
6
EXHIBIT
Lessee has notified Lessor in writing of the need for such repair. Lessee agrees
during the full term of this lease, at its own cost and expense, to make all
other repairs and replacements of whatever kind or nature, either to the
exterior, including walks, or to the interior of said premises, less repairs to
roof, exterior walls, foundations and parking areas, unless said last mentioned
damage was done by Lessee, or its agents, employees, contractors or servants.
TWENTY-EIGHTH: Lessee shall not suffer or permit any mechanic's liens
or other encumbrance to be filed against the property in respect of work done at
the order of or on behalf of Lessee. In the event any such lien or encumbrance
should be filed, Lessee, at its own sole cost and expense, and within five (5)
days notice by Lessor, shall cause such lien or encumbrance to be removed. In
the event Lessee shall fail to cause such lien to be removed, Lessor, at its
option, may cause It to be removed, and the cost and expense hereby incurred by
Lessor, including reasonable attorneys fees, shall be immediately due and
payable from Lessee as and for additional rent, and this failure to act shall
constitute a breach of this Lease by Lessee.
TWENTY-NINTH: Lessor reserves the right to place "For Lease" or "For
Rent" signs on the premises at any time within ninety (90) days of the
expiration of the Lease, if Lessee has not exercised any option to renew, if
provided for herein, and Lessee agrees to permit Lessor to do so. During said
ninety day period, Lessor may show property to new prospective tenants at any
reasonable time. Lessee agrees not to conduct "Quitting Business," "Lost Our
Lease," "Bankruptcy," or other such types of sales or notices on the premises
without Lessor's written consent which may not be unreasonably withheld.
THIRTIETH: Lessee shall obtain, at Lessee's sole expense, comprehensive
public liability and property damage insurance in limits of not less than
$300,000.00- $500,000.00. All insurance policies shall name Lessor as ADDITIONAL
INSURED AND/OR LOSS PAYEE, and keep such insurance in force and effect
throughout the Lease term. Lessee shall provide Lessor with certificates of
insurance certifying that such insurance is in full force and effect within
seven (7) days of the date of written demand and that the policies shall not be
canceled or changed without at least fifteen (15) days prior written notice to
the Lessor. If Lessee fails to abide by this provision and/or if Lessee's acts
or omissions increase any hazard insurance premium, then Lessor, in Lessor's
sole discretion, may purchase such insurance for the benefit of Lessee and/or
pay any such increase in hazard insurance premium and such expense shall be
deemed additional rent and be due with the next monthly rental payment.
THIRTY-FIRST: Lessee shall indemnify and save Lessor harmless against
and from any and all liability, damages, costs and expenses, including
reasonable attorneys' fees on the trial and appellate levels, costs, actions,
judgement, and claims whatsoever based upon or by reason of any injury and/or
damage of any kind, nature, or description sustained during the term hereof, to
person or property on, in or about the lease premises, and arising out of the
use, occupancy, management, or control of me lease premises by the Lessee and
any of Lessee's agents, employees, and/or invitee. The Lessee will retain
competent counsel to defend any and all such suits and actions brought against
Lessor or in which Lessor is a designated party defendant.
THIRTY-SECOND: It is expressly understood by and between the parties to
this agreement, that the Lessor shall not be liable for any damage or injury by
water, which may be sustained by the said tenant or other person or for any
other damage or injury resulting from the carelessness, negligence, or improper
conduct on the part of any other tenant or agents, or employees, or by reason of
7
EXHIBIT
the breakage, leakage, or obstruction of the water, sewer or soil pipes, or
other leakage including roof leakage about the said building. Lessee assumes all
risk of any injury, loss, claim, demand or damage of and to any person(s) or
property of any kind or nature that may occur by reason of any of the following:
casualty, accident, occurrence, incident, and/or act of God, damage resulting
from water, wind, rain, the bursting or leaking of any pipes, waste or sewage,
from any act of negligence of Lessor and any persons or occupant in, on or about
the premises and/or common area property, theft, vandalism, graffiti, or other
criminal activity, fire or hurricane. All property of any kind or nature placed
or moved in and about the premises shall be at the sole risk of Lessee, or owner
thereof. Lessor has no insurance for such purposes and Lessee shall obtain any
desired insurance at Lessee's own expense, and Lessee will self-insure to fully
protect itself and Lessor from any and all events, conditions, or matters set
forth or alluded to herein. Lessee hereby expressly assumes the risk of loss to
any and all property that Lessee may bring in, on or about the premises,
including without limitation, any property of Lessee's invitee and/or guests.
Lessee expressly waives any and all claims, demands, rights, or remedies
whatsoever that it may, could or would otherwise have against Lessor, except for
the express assumption of risk as set forth in this paragraph. Lessee
acknowledges duty to report immediately to Lessor any broken water pipes,
running or leaking faucets or toilets. etc. If such leaks are not reported to
Lessor resulting in excessive water use, Lessee is liable for payment of such
excess use immediately upon notification of such excess use by Lessor.
THIRTY-THIRD: This Lease shall be subject and subordinate to any
mortgage which may now or hereafter affect the lease premises and/or Lessor's
interest therein, to all renewals, modifications, consolidations, replacements
and extensions thereof. This clause shall be self-operative and no further
instrument of subordination shall be required. If confirmation of such
subordination is requested, Lessee shall promptly execute any certificate that
Lessor may request and the failure to do so shall be a material breach of this
Lease.
THIRTY-FOURTH: Lessee shall not keep or have on the premises any
article or thing of a dangerous, inflammable, or explosive character that might
unreasonably increase the damage of fire or other casualty in, on or about the
premises or that might be considered hazardous by any responsible insurance
company. Lessee further agrees not to use, consume, handle, store, transport, or
dispose of hazardous or toxic materials, chemicals, or substances in, on, or
about the lease premises, including any common area portion(s), and further,
shall indemnify and hold the Lessor harmless from all losses, damages,
penalties, fines, liabilities, expenses, and costs to clean up; or
corrective-measure expenses, including reasonable attorneys' fees, arising from
or out of any violation of this provision.
THIRTY-FIFTH: If Lessee remains in possession of the premises after the
expiration date of this Lease without Lessor's written extension or renewal
thereof, Lessee shall be deemed to be a tenant at sufferance holding over
without the consent of the Lessor. Lessee acknowledges that Lessor is entitled
to twice the sum of the monthly rent for any holding over by Lessee under
Florida law and this Lease provision puts Lessee on notice that Lessor shall
demand and be entitled to recover double rent for any such time period, and all
other rights, remedies, and relief provided for under this Lease and Florida
law.
THIRTY-SIXTH: If any term, covenant, or condition of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease of the application of such
terms, covenant, or condition to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby, and
each term, covenant, or condition of this Lease shall be enforceable to the
fullest extent permissible by law.
8
EXHIBIT
THIRTY-SEVENTH: The Lease and any attached Addendum ("Lease")
represents the entire agreement of the Parties. Lessor and Lessee each stipulate
and acknowledge to each other that no other representations, promises, or
inducements of any other kind or nature were made to the other prior to the
signing of this Lease. This Lease constitutes the entire agreement of the
parties and accurately sets forth their intent.
THIRTY-EIGHTH: Lessee agrees to pay any insurance rates that are
increased by the nature of the Lessee's storage, and/or use of the premises.
Such charges shall be deemed additional rent. Lessee agrees to pay any pro-rata
increase in Lessor's insurance if due to nature of Lessee's business. In the
second and subsequent years, Lessee agrees to pay the increase of the real
estate taxes over the base year amount of the proportional annual real estate
tax for the leased premises in the base year. The obligation to make any
payments pursuant to this section shall survive the expiration of the term of
this lease. Lessor shall advise Lessee in November of each year of the pro-rated
amount due, and Lessee shall pay this amount, deemed additional rent, within 30
days of such letter.
THIRTY-NINTH: Lessee agrees not to store any equipment, material,
trash, or debris outside the Ieased unit and agrees to remove any such material,
trash, or debris from the inside of the leased unit when vacating the premises.
Lessee is responsible for all costs associated with clean-up of leased premises
and/or repairs made to leased premises performed by Lessor upon Lessee's
vacating the premises. Lessee agrees to leave unit in a "broom-clean" condition
upon vacating premises.
FORTIETH: Lessee acknowledges having been advised that Lessee Is not to
dispose of any toxic/hazardous waste products on leased property, and that
Lessee must make satisfactory disposal arrangements for any such waste, in
accordance with appropriate Federal, State, and local laws. Lessee further
warrants to hold the owner of the property harmless from any liability, as well
as taking full responsibility for any liability that may be caused as a result
of Lessee's action/non-action as a result of Lessee's activity on said premises.
Lessee agrees that failure to dispose of toxic/hazardous waste in accordance
with the aforesaid laws/regulations, the receipt of a Notice of Violation
(N.O.V) from a state, federal or local environmental agency, any loss of
environmental operating permits, or Lessor's notification to Lessee advising
discovery of poor or hazardous housekeeping practices or business operations
likely to cause imminent contamination problems constitute a breach of this
Lease, and Lessee will be subject to criminal and civil penalties.
Lessee agrees to provide to Lessor within 5 business days, a copy of
any Notice of Violation or similar environmental notification. All parties
agree, at the inception of this lease, that there are no existing discernible
environmental problems or hazardous wastes at the leased premises. If Lessee
receives a Notice of Violation, or similar notification, Lessee agrees to
immediately correct the problem in accordance with all laws and regulations, and
agrees to perform, at Lessee's sole cost and expense, a subsequent environmental
audit at the expiration of the lease term to insure to all parties that the site
has been properly remediated.
FORTY-FIRST: In the event of default of this Lease by Lessee, and/or
the necessity to pursue collection of monies due for any reason associated with
this Lease, including, but not limited to recovery of unpaid rent, bounced check
charges, repairs or cleanup performed by Lessor, removal of unauthorized signs,
9
EXHIBIT
Lessor shall be entitled to all costs and expenses of collection incurred on
both the trial and appellate levels, including a reasonable attorney's fee, and
in all other post judgment proceedings of any kind or nature in any state in the
United States, including without limitation, all professional fees, costs, and
expenses paid, or incurred, including after judgment, and/or which reduce or
limit the amount awarded by judgment or court order, such as, any contingency or
flat fee paid to any attorney or collection agent, which amount shall be equal
to the amount(s) awarded less the amount actually received by Plaintiff in any
state in the United States.
FORTY-SECOND: In the event Lessee's check in payment of any obligation
under this Lease is deposited and/or cashed by Lessor and said check is not paid
by Lessee's bank for any reason, then Lessee hereby agrees to a "Bad Check Fee"
of twenty-five dollars ($25.00) or five percent (5%) of the amount of the check,
whichever is greater. Re-depositing said check a second time and the checks
subsequent clearing does not alleviate the above mentioned "Bad Check Fee." All
other rights of the Lessor under this Lease remain in effect. This fee shall be
termed additional rent.
FORTY-THIRD: In the event of a breach of this Lease by Lessee, the
Lessee hereby agrees that Lessor shall have the right to lock the Lessee out of
the leased premises by means of changing keys, locks, adding locks, barricading,
or any other means available to Lessor according to Florida Statutes and that
Lessee hereby waives any right to recover damages for said lockout caused for
any reason, including but not limited to loss of business. All other rights of
the Lessor under this Lease remain in effect.
FORTY-FOURTH: Lessee shall not in any way pledge, mortgage, or encumber
this Lease or its rights under it.
FORTY-FIFTH: Any holding over after the expiration of the term of this
Lease with consent of Lessor shall be construed to be a renewal on a month to
month basis only, unless a new written lease or a new written addendum to this
Lease has been agreed to and ratified by both Lessor and Lessee.
FORTY-SIXTH: A security deposit in the amount of $______ is hereby
acknowledged by Lessor, and Lessee hereby agrees that said security deposit
cannot be used as payment of rent, including payment of last month's rent. Rent
must be paid in advance in accordance with this Lease and the security deposit
shall be held by Lessor until the expiration of this Lease and may be applied
against any monies due or for damages incidental to this Lease. If Lessee should
be overdue in the payment of monthly rent or other sums payable to Lessor on at
least two or more occasions during a year, Lessor may require Lessee to increase
the amount of Security Deposit now held by Lessor by an amount sufficient to
cover at least two months rent. In this event, upon receipt of the additional
security sum, Lessor and Lessee shall evidence such receipt by a letter signed
and acknowledged by both parties to be incorporated as part of this Lease.
FORTY-SEVENTH: The parties signing below as Lessee, or on behalf of the
Lessee. hereby certify that they have the authority of the Lessee to sign this
lease and make this lease legally binding upon said Lessee.
10
EXHIBIT
FORTY-EIGHTH: If Lessee is a corporation or a partnership, the person
signing this Lease on behalf of such corporation or partnership hereby warrants
that he has full authority from such corporation or partnership to sign this
Lease and obligate the corporation or partnership hereunder, and said person and
the corporation hereunder and said person and corporation or partnership shall
be jointly and severally liable for all rent and any and all other amount that
may become due and owing to Lessor under the terms of this Lease, including
attorney's fees and costs.
FORTY-NINTH: Lessee shall not commit, or allow to be committed, any
waste on the premises, create or allow any nuisance to exist on the premises, or
use or allow the premises to be used for any unlawful purposes.
FIFTIETH: In the event Lessor has determined that Lessee, either
through the normal course of his business or for any other reason, is using an
excessive amount of water, an additional water usage fee based on the pro-rata
increase over the previous period shall be paid by the Lessee to compensate
Lessor for such excessive water usage. Such charges shall be deemed additional
rent.
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
instrument for the purpose herein expressed, the day and year below written.
Signed, sealed and delivered in the presence of:
DATE 1/2/01 /s/ Agent (Seal)
- --------------------------- ------ ------------------------------------------------------
WITNESS AS TO LESSOR FRED KELLER, TRUSTEE, LESSOR
DATE HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC., LESSEE
- --------------------------- --- ------------------------------------------------------
WITNESS AS TO LESSEE
By: /s/ Christopher Tisi
-----------------------------------------------
CHRISTOPHER TISI, PRESIDENT
ADDITIONAL INFORMATION:
- ----------------------
ADDRESS:
----------------------------------
PHONE:
------------------------------------
DL#: STATE: FLORIDA
---------------------
DOB: SS#:
--------------------- -----------
11
EXHIBIT
INDUSTRIAL PARK RULES
1. IN ACCORDANCE WITH STATE AND COUNTY STATUTES, HAZARDOUS WASTE MUST BE
DISPOSED OF PROPERLY, IF ANY TENANT IS FOUND TO HAVE DUMPED HAZARDOUS
MATERIAL ON THIS PROPERTY, IT WILL BE CAUSE FOR IMMEDIATE EVICTION
AND/OR PROSECUTION BY THE APPROPRIATE AUTHORITIES.
2. ALL BUSINESS ACTIVITIES WILL BE CONDUCTED IN ACCORDANCE WITH STATE AND
COUNTY CODES AND ORDINANCES.
3. NY ALTERATIONS (ELECTRICAL, STRUCTURAL, ETC.,) INSIDE THE UNITS MUST BE
APPROVED BY THE OWNER, AND MUST CONFORM TO ANY LOCAL, COUNTY OR STATE
CODE.
4. NO UNTAGGED OR UNREGISTERED VEHICLES WILL BE PERMITTED TO BE PARKED
OUTSIDE THE UNITS FOR MORE THAN TWO DAYS, AND CARS OFFERED FOR SALE
SHALL NOT BE PARKED ON VACANT LAND WITHOUT AUTHORIZATION. ANY SUCH
UNREGISTERED OR UNTAGGED VEHICLES WILL BE TOWED FROM THE PREMISES.
5. ALL TRASH MUST BE CONTAINERIZED. WHEN CONTAINERS ARE FULL, THEY MUST BE
EMPTIED INTO DUMPSTERS. ALL AREAS AROUND PREMISES MUST BE KEPT FREE OF
LITTER AND DEBRIS. IF MAIN DUMPSTERS ARE FULL, DO NOT ADD ANY ------
MORE DEBRIS UNTIL THEY ARE EMPTY.
6. NO DOGS ALLOWED ON PROPERTY!
---------------------------
7. NO UTILITY VANS, CAMPERS, TRAILERS, BOATS OR MOBILE HOMES SHALL BE
ALLOWED TO BE PARKED ON PREMISES UNLESS THESE VEHICLES ARE BEING
REPAIRED BY TENANT.
8. ALL TENANTS ACKNOWLEDGE DUTY TO REPORT IMMEDIATELY TO OWNER ANY BROKEN
WATER PIPES, RUNNING OR LEAKING FAUCETS OR TOILETS, ETC. IF SUCH LEAKS
ARE NOT REPORTED TO OWNER RESULTING IN EXCESSIVE WATER USE, TENANT IS
LIABLE FOR PAYMENT OF SUCH EXCESS USE IMMEDIATELY UPON NOTIFICATION OF
SUCH EXCESS USE BY OWNER.
YOUR COOPERATION IS REQUIRED IN THESE MATTERS!
I have read and will comply with the above rules and regulations of Fred Keller,
Trustee.
Health & Nutrition Systems International, Inc., Lessee 12/6/00
-----------------
Date
By: /s/ Christopher Tisi
-----------------------------------------
Christopher Tisi, President
12
EXHIBIT
HAZARDOUS WASTE AGREEMENT
I, Christopher Tisi of Health & Nutrition Systems International, Inc.
occupying 3750 Investment Lane, Unit 1A, Riviera Beach, FL 33404, have been
advised by LESSOR that I am not to dispose of hazardous waste including, but not
limited to, waste oil, solvents, paint thinners and other chemicals and products
on said property and that I need to make satisfactory arrangements in accordance
with appropriate Federal, State, and local laws.
I further warrant to hold the owner of the property harmless and that I
take full responsibility for any liability that may be caused as a result of any
action/non-action as a result of my activity on said premises. If I do not
dispose of hazardous waste in accordance with the aforesaid laws/regulations, my
tenancy will immediately cease and I will be subject to criminal and civil
penalties.
Following is the name and phone number of the party who hauls/removes
my waste materials:
_________________________________ (name)
_________________________________ (phone #).
Health & Nutrition Systems International, Inc., Lessee 12/06/00
- ------------------------------------------------------ -----------------
Date
By: /s/ Christopher Tisi
---------------------------------------------
Christopher Tisi, President
13
EXHIBIT
TENANT ENVIRONMENTAL CHECK-LIST
(Please circle either Y or N for your response)
1. Does your type of business generate any hazardous
waste or contamination? Yes / No
--
If so, please list below:
----------------------------
------------------------------------------------------
------------------------------------------------------
2. In the normal course of operations, does your business
handle hazardous materials? Yes / No
--
3. If so, have you obtained the necessary federal, state,
and local permits? Yes / No
--
4. Has your business been subject to prior environmental
compliance enforcement? Yes / No
--
5. Do you now have an environmental compliance officer? Yes / No
--
6. Does your business have other off-site operations that
generate hazardous wastes? Yes / No
--
I certify that the above responses are true and correct, and if evidence shows
that any responses shown herein are false, Lessor may declare Lessee in breach
of lease.
Health & Nutrition Systems International, Inc., Lessee 12/06/00
- ------------------------------------------------------ ------------------
Date
By: /s/ Christopher Tisi
---------------------------------------------
Christopher Tisi, President
14
EXHIBIT
CREDIT QUESTIONNAIRE
1. Have you ever been a defendant in an eviction suit or |_| |X|
bankruptcy case? Yes No
If so, please explain.
2. Has any corporation (with which you have been involved |_| |X|
as an officer, director, or shareholder) been a Yes No
defendant in an eviction suit or bankruptcy case?
If so, please explain.
3. Have you or any corporation (with which you have been |_| |X|
involved as an officer, director or shareholder) Yes No
been a defendant in any suit concerning fraudulent
activities?
If so, please explain.
Tenant hereby acknowledges that any misstatements or misrepresentations
constitute a breach of lease dated ________________ for the premises located at
____________________.
12/06/00 /s/ Christopher Tisi
- ------------------------------- --------- -------------------------
Witness Date Christopher Tisi
Explanation:
------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
15
EXHIBIT 10.6
BUSINESS LEASE
--------------
THIS AGREEMENT, entered into this day ____ of JANUARY, 2001 between
FRED KELLER, TRUSTEE, hereinafter called the Lessor, party of the first part
and, HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC. of the County of PALM BEACH
and state of FLORIDA, hereinafter called the Lessee or tenant, party of the
second part:
WITNESSETH, That the said Lessor does this day lease unto said Lessee,
and said Lessee does hereby hire and take as tenant under said Lessor 3750
INVESTMENT LANE, UNIT 5, RIVIERA BEACH, FL 33404, situate in Palm Beach County,
Florida, to be used and occupied by the Lessee as PRODUCT DISTRIBUTION, and for
no other purposes or uses whatsoever, for the term of 2 years and 10 months,
beginning the 1ST day of JANUARY, 2001 and ending the 31st day of OCTOBER, 2003
at and for the agreed total rental of $69,666.00 plus Florida Sales Taxes, plus
rent increases/C.P.I. increases as below payable as follows:
Annual Base Rent: $24,588.00 payable in monthly payments of $2,049.00
Plus Florida Sales Tax (Currently 6%) $ 122.94
--------
Payments due beginning 1/1/01 and on the first day of each month $2,171.94
Plus, Lessee will pay all relevant utilities for his space. Lessee also
agrees to pay any appropriate increase in Florida Sales Taxes.
This lease cancels and supercedes previous lease dated November 29,
1994. Last month's rent in the amount of $1,031.25 and security deposit in the
amount of $1,031.25 from previous lease dated November 29, 1994 are hereby
transferred to this lease and shall be held by Lessor as security deposit only
in the amount of $2,062.50.
Lessee will pay a Late Fee termed additional rent of $35.00 per day for
any rent received by Lessor after the 5th of the month. All parties agree that
these charges are assessed because unpaid rent increases Lessor's bookkeeping,
clerical and administrative costs. All parties agree that the amount of damages
caused by unpaid rent is not readily ascertainable, and late fees as provided
herein are a reasonable charge. All parties agree that all other charges in
addition to rent plus tax shall be deemed additional rent.
*Total Figure is based on first year's rate. Thereafter, rents shall be
increased based on the national figures of the Consumer Price Index (C.P.I.) for
All Urban Consumers as promulgated by the United States Government, utilizing
the first year of this lease as the base, or 3 percent annual increase,
whichever is greater. Any C.P.I. increases will be due and effective on the
anniversary date of this Lease, and will be back-charged to the anniversary date
of the Lease on which they become effective if notice of the increase is not
given in advance.
Lessee will be given the option to renew this Lease for 1 additional 3
year period, providing Lessee has not been or currently is in default of any of
the terms and conditions hereunder, unless written notification to the contrary
from Lessee is received by Lessor 30 days before the expiration of the base
lease term. If no notification is received all parties acknowledge that Lessee
has exercised said option.
All payments are to be made to the Lessor, Fred Keller, Trustee on the
first day of each and every month in advance without demand at the office of:
6758 N. Military Trail, Suite 301, in the City of West Palm Beach, Florida 33407
or at such other place and to such other person, as the Lessor may from time to
time designate in writing. Such payments shall be made in cash or cashier's
check at the sole discretion of the Lessor.
RADON GAS: Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risks to
persons who are exposed to it overtime. Levels of radon that exceed federal and
state guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from your county public health
unit.
The following express stipulations and conditions are made a part of
this lease and are hereby assented to by the Lessee:
FIRST: The Lessee shall not assign this Lease, nor sub-let the
premises, or any part thereof, nor use the same, or any part thereof, nor permit
the same or any part thereof, to be used for any other purpose than as above
stipulated, nor make any alterations therein, and all additions thereto, without
the written consent of the Lessor, and all additions, fixtures or improvements
which may be made by Lessee, except movable office furniture, shall become the
property of the Lessor and remain upon the premises as a part thereof, and be
surrendered with the premises at the termination of this Lease.
SECOND: All personal property placed or moved in the premises above
described shall be at the risk of the Lessee or the owner thereof, and Lessor
shall not be liable for any damage to said personal property, or to the Lessee
arising from the bursting or leaking of water pipes, or from any act of
negligence of any co-tenant or occupants of the building or of any other person
whomsoever.
THIRD: That the Lessee shall promptly execute and comply with all
statutes, ordinances, rules, orders, regulations and requirements of the Federal
State and City Government and of any and all their Departments and Bureaus
applicable to said premises, for the correction, prevention, and abatement of
nuisances or other grievances, in upon, or connected with said premises during
said term; and shall also promptly comply with and execute all rules, orders and
regulations of the Southeastern Underwriters Association for the prevention of
fires, at Lessee's own cost and expense.
FOURTH: in the event the premises shall be destroyed or so damaged or
injured by fire or other casualty during the life of this agreement, whereby the
same shall be rendered untenantable, then the Lessor shall have the right to
render said premises tenantable by repairs within ninety days therefrom. If said
premises are not rendered tenantable within said time, it shall be optional with
either party hereto to cancel this lease, and in the event of such cancellation
the rent shall be paid only to the date of such fire or casualty. The
cancellation herein mentioned shall be evidenced in writing.
FIFTH: The prompt payment of the rent for said premises upon the dates
named, and the faithful observance of the rules and regulations printed upon
this lease, and which are hereby made a part of this covenant, and of such other
and further rules or regulations as may be hereafter made by the Lessor, are the
conditions upon which the lease is made and accepted and any failure on the part
of the Lessee to comply with the terms of said lease, or any of said rules and
regulations, shall at the option of the Lessor, work a forfeiture of this lease,
and all of the rights of the Lessee hereunder, and thereupon the Lessor, his
agents or attorneys snail have the right to enter said premises, and remove all
persons therefrom according to Florida statutes.
Further, it is mutually agreed by and between Lessor and Lessee that
they hereby waive trial by Jury in any action, proceeding or counterclaim
brought by either of the parties hereto against the other on any matters
whatsoever arising out of or in any way connected with this lease, the
relationship of Lessor and Lessee, Lessee's use and occupancy of said premises,
and/or any claim of injury or damage, and any emergency statutory or any other
statutory remedy.
Any unpaid rents or other amounts due under the lease shall earn
interest at the highest rate allowed by law. The Lessee agrees to pay the Lessor
a reasonable fee of $100.00 to compensate Lessor for the processing and delivery
of a "3 Day Notice" for non-payment of monies owed, as well as a fee of $100.00
for the costs of administration of an eviction in addition to any other costs
reasonably and necessarily incurred, as and for liquidated damages. These fees
are termed additional rent.
SIXTH: If the Lessee shall abandon or vacate said premises before the
end of the term of this lease, or shall suffer the rent to be in arrears, the
Lessor may, at his option, forthwith cancel this lease or he may enter said
premises as the agent of the Lessee, by force or otherwise, without being liable
in any way therefor, and relet the premises with or without any furniture that
may be therein, as the agent of the Lessee, at such price and upon such terms
and for such duration of time as the Lessor may determine, and receive the rent
therefore, applying the same to the payment of the rent due by these presents,
and if the full rental herein provided shall not be realized by Lessor over and
above the expenses to Lessor in such re-letting, the said Lessee shall pay any
deficiency, and if more than the full rental is realized Lessor will pay over to
said Lessee the excess of demand.
SEVENTH: The Lessee agrees that he will pay all charges for rent and
electricity, water and sewer used on said premises, and should said charges at
any time remain due and unpaid for the space of five days after the same shall
have become due, the Lessor may at its option consider the said Lessee tenant at
sufferance and take possession of said premises in accordance with Florida Law.
EIGHTH: The rights and remedies of the Lessor under this Lease if
Lessee breaches this Lease, shall be cumulative and may be exercised singly,
independently, and/or as Lessor may otherwise desire and the failure on the part
of Lessor to exercise any rights given hereunder shall not operate to forfeit
any such rights, including without limitation, Lessor's right to receive and
deposit rent as defined in this Lease with actual knowledge of a default or
other non-compliance by Lessee. Lessor's rights shall include, without
limitation, all rights and remedies provided for under this Lease and/or in
accordance with Florida law, including without limitation, the right and option
of declaring the balance of the total rent for the entire term of this Lease to
be immediately due and payable for Lessee's breach.
2
NINTH: The said Lessee hereby pledges and assigns to the Lessor all the
furniture, fixtures, goods and chattels of said Lessee, which shall or may be
brought or put on said premises as security for the payment of the rent herein
reserved, and the Lessee agrees that the said lien may be enforced by distress
foreclosure or otherwise at the election of the said Lessor. Pursuant to Florida
Statutes section 83.67(3) the undersigned Lessor and Lessee agree that in the
event Lessee leaves any personal property behind on the premises after Lessee
surrenders or abandons the rental unit, Lessor is not liable or responsible for
storage or disposition of the personal property.
TENTH: The Lessor, or any of his agents, shall have the right to enter
said premises during all reasonable hours, to examine the same to make such
repairs, additions, or alterations as may be deemed necessary for the safety,
comfort, or preservation thereof, or of said building, or to exhibit said
premises, and to put or keep upon the doors or windows thereof a notice "FOR
RENT at any time within ninety (90) days before the expiration of this lease.
The right of entry shall likewise exist for the purpose of removing placards,
signs, fixtures, alterations, or additions, which do not conform to this
agreement, or to the rules and regulations of the building.
ELEVENTH: Lessee hereby accepts the premises in the condition they are
("as-is") at the beginning of this lease and agrees to maintain said premises
and to make good to said Lessor immediately upon demand, any damage to water
apparatus, or electric lights or any fixture, appliances or appurtenances of
said premises, or of the building. Lessor's maintenance crew shall perform
requested maintenance, if desired by Lessee, at a charge of $25.00 per hour plus
material costs. Such costs shall be paid with the next month's rent check and
shall be considered as "additional" rent.
TWELFTH: No untagged or unregistered motor vehicles or trailers will be
permitted to be parked outside the units for more than two days. Lessee hereby
irrevocably appoints Lessor as attorney in fact for lessee, so that Lessor may
have said vehicles or trailers towed away at Lessee's sole expense and
liability. No repairs are to be done outside of unit nor any vehicles in
disrepair shall be parked outside of unit. Lessee subject to Industrial Park
Rules to be distributed to Lessee at time of lease signing. A failure to adhere
to these rules shall be a breach of this agreement. Lessee acknowledges and
agrees that leased space includes outside parking area comprising parking
spaces. Any vehicles controlled by lessee utilizing any additional spaces shall
be excess usage. Such excess parking shall be assessed $25.00 per vehicle per
month or any portion thereof. Parking shall be monitored by owners agent and
excess parking tees shall be enforced at the sole discretion of Lessor. These
fees are termed additional rent.
THIRTEENTH: if the Lessee shall become insolvent or if bankruptcy
proceedings shall be begun by or against the Lessee, before the end of said term
the Lessor is hereby irrevocably authorized at its option, to forthwith cancel
this lease, as for a default. Lessor may elect to accept rent from such
receiver, trustee, or other judicial officer during the term of their occupancy
in their fiduciary capacity without effecting Lessor's rights as contained in
this contract, but no receiver, trustee or other judicial officer shall ever
have any right, title or interest in or to the above described property by
virtue of this contract.
FOURTEENTH: Lessee Is responsible for their own trash disposal. If
Lessee elects to use owners trash facility, Lessee shall pay a surcharge of 5%
of their monthly rent, termed additional rent.
FIFTEENTH: This contract shall bind the Lessor and its assigns or
successors, and the heirs, assigns, administrators, legal representatives,
executors or successors as the case may be, of the Lessee.
SIXTEENTH: It is understood and agreed between the parties hereto that
time is of the essence of this contract and this applies to all terms and
conditions contained herein.
SEVENTEENTH: It is understood and agreed between the parties hereto
that written notice mailed or delivered to the premises leased hereunder shall
constitute sufficient notice to the Lessee and written notice mailed or
delivered to the office of the Lessor shall constitute sufficient notice to the
Lessor, to comply with the terms of this contract.
EIGHTEENTH: The rights of the Lessor under the foregoing shall be
cumulative, and failure on the part of the Lessor to exercise promptly any
rights given hereunder shall not operate to forfeit any of the said rights,
3
NlNETEENTH: It is further understood and agreed between the parties
hereto that any charges against the Lessee by the Lessor for services or for
work done on the premises by order of the Lessee or otherwise accruing under
this contract shall be considered as rent due and shall be included in any lien
for rent due and unpaid.
TWENTIETH: It is hereby understood and agreed that any signs or
advertising to be used, including awnings, in connection with the premises
leased hereunder shall be first submitted to the Lessor for approval before
installation of same.
TWENTY-FIRST: This lease shall be interpreted to the maximum benefit of
Lessor.
TWENTY-SECOND: If by reason of the specific use of the premises by the
Lessee, any governmental agencies shall require a modification to the demised
premises, or the installation of any special equipment or safety features, such
modifications or installation shall be made solely at the expense of the Lessee,
and such requirement shall not excuse the Lessee from the requirement of this
lease.
TWENTY-THIRD: The operation of a forklift or any similar vehicle or
equipment upon the asphalt of the premises and adjacent to the demised premises
is prohibited, unless proper mats are placed on the asphalt surface. Any damage
to the premises, or asphalt, shall be deemed the responsibility of the Lessee
and shall be charged by the Lessor for repair of the same.
TWENTY-FOURTH: Lessee shall comply with all laws, orders and
regulations of federal, state, city, county and municipal authorities, fire
insurance rating organizations, the Americans with Disabilities Act, and Federal
and State environmental laws, statute and regulations which shall now or
hereafter affect the premises, including but not limited to the compliance
required by any change on the above referenced items.
TWENTY-FIFTH: In the event that there is fire, safety, burglar alarm,
or related equipment within the leased premises, or in the event the Lessor
installs such equipment in the future, Lessee shall hereby agree to allow Lessor
to let such equipment remain or be installed, as the case may be, at Lessor's
sole expense.
Lessee shall agree not to interfere, nor allow others to interfere with
the normal operation of such equipment through Lessee's actions or inactions,
nor shall Lessee be entitled to any abatement or discount in rent by reason of
the existence of such equipment. Lessee agrees to pay his proportionate share of
the monthly fire alarm monitoring and service contract, including applicable
telephone line charges, to Lessor on a quarterly basis. This charge shall be
deemed additional rent.
TWENTY-SIXTH: Rent, plus applicable Florida Sales Tax, shall be due on
the first day of each month, time being strictly of the essence, without demand,
notice, offset, deduction, or abatement, at Lessor's address, or elsewhere as
may be designated from time to time by Lessor's written notice to Lessee.
TWENTY-SEVENTH: Lessee shall take good care of the premises and shall
promptly make all repairs in and about the premises required by reason of the
installation, use, or operation of equipment, machinery, or property in the
premises, the moving of Lessee's property in, on or about the premises, and/or
the misuse, act, or neglect of Lessee or any of its employees, agents,
contractors, or invitee. All repairs shall be in compliance with any applicable
governmental rules and regulations, including Lessee's obtaining any necessary
building permits and licenses if required, and the cost thereof shall be at
Lessee's sole expense and paid by Lessee in cash or its equivalent so that the
demised premises shall at all times be free of liens for labor and materials
supplied or claimed to have been supplied to the demised premises. Any
alterations shall immediately become the property of Lessor, subject only to the
use of same by Lessee during the term of this Lease. It is hereby agreed and
understood between Lessor and Lessee that in the event the Lessor decides to
remodel, alter or demolish all or any part of the premises leased hereunder, or
in the event of the sale or long term lease of all or any part of the premises
requiring this space, the Lessee hereby agrees to vacate same upon receipt of
sixty (60) days written notice and the return of any advance rental paid on
account of this lease.
Lessee covenants that, during the term of this lease, it will, at its
expense, keep in good order, repair, or replacement, if necessary, all air
conditioning equipment, doors, wiring, plumbing and sewerage equipment, overhead
doors, and lighting fixtures located in the leased premises. in the event Lessee
requests Lessor to perform routine overhead door or lighting fixture
maintenance, Lessee agrees to reimburse Lessor for any materials used on the job
as well as Lessor's labor rate of $25.00 per hour. In addition, Lessee agrees
that it shall not cause accumulation of waste, garbage or other debris, in the
exterior area of the Lessor's property. The Lessee will not erect tents, nor
store any trailers, vans, shacks, tanks or any other temporary buildings or
structures without the written consent of the Lessor. In the event Lessee should
fall to make the repairs or replacements required of Lessee forthwith upon
4
notice by Lessor, Lessor, in addition to all other remedies available hereunder
or by law and without waiving any of said alternative remedies, may make same
and Lessee agrees to repay Lessor the cost thereof as part of the rental payable
as such on the next day upon which rent becomes as failure to pay any
installment of rental. Lessee waives all right to make repairs at the expense of
Lessor as provided for in any statute or law in effect at the time of execution
of this tease or any amendment thereof or any other statute or law which may be
hereafter enacted during the term of this lease and agrees upon the expiration
of the term of this lease or sooner termination hereof to surrender unto Lessor
the demised premises in the same condition as received, ordinary wear and tear
and damage by earthquake, act of God, the elements, or fire not attributable in
any respect to Lessee, alone excepted. Lessor agrees to make necessary repairs
to the roof, exterior walls, foundations and parking areas only, within
reasonable time after Lessee has notified Lessor in writing of the need for such
repair. Lessee agrees during the full term of this lease, at its own cost and
expense, to make all other repairs and replacements of whatever kind or nature,
either to the exterior, including walks, or to the interior of said premises,
less repairs to roof, exterior walls, foundations and parking areas, unless said
last mentioned damage was done by Lessee, or its agents, employees, contractors
or servants.
TWENTY-ElGHTH: Lessee shall not suffer or permit any mechanic's liens
or other encumbrance to be filed against the property in respect of work done at
the order of or on behalf of Lessee. In the event any such lien or encumbrance
should be filed, Lessee, at its own sole cost and expense, and within five (5)
days notice by Lessor, shall cause such lien or encumbrance to be removed. In
the event Lessee shall fall to cause such lien to be removed, Lessor, at its
option, may cause it to be removed, and the cost and expense hereby incurred by
Lessor, including reasonable attorney's fees, shall be immediately due and
payable from Lessee as and for additional rent, and this failure to act shall
constitute a breach of this Lease by Lessee.
TWENTY-NINTH: Lessor reserves the right to place "For Lease" or "For
Rent" signs on the premises at any time within ninety (90) days of the
expiration of the Lease, if Lessee has not exercised any option to renew, if
provided for herein, and Lessee agrees to permit Lessor to do so. During said
ninety day period, Lessor may show property to new prospective tenants at any
reasonable time. Lessee agrees not to conduct "Quitting Business," "Lost Our
Lease," "Bankruptcy," or other such types of sales or notices on the premises
without Lessor's written consent which may not be unreasonably withheld.
THIRTIETH: Lessee shall obtain, at Lessee's sole expense, comprehensive
public liability and property damage insurance in limits of not less than
$300,000.00 - $500,000.00. All insurance policies shall name Lessor as
ADDITIONAL INSURED AND/OR LOSS PAYEE, and keep such insurance in force and
effect throughout the Lease term. Lessee shall provide Lessor with certificates
of insurance certifying that such insurance is in full force and effect within
seven (7) days of the date of written demand and that the policies shall not be
canceled or changed without at least fifteen (15) days prior written notice to
the Lessor. If Lessee falls to abide by this provision and/or if Lessee's acts
or omissions increase any hazard insurance premium, then Lessor, in Lessor's
sole discretion, may purchase such insurance for the benefit of Lessee and/or
pay any such increase in hazard insurance premium and such expense shall be
deemed additional rent and be due with the next monthly rental payment.
THIRTY-FIRST: Lessee shall indemnify and save Lessor harmless against
and from any and all liability, damages, costs and expenses, including
reasonable attorney's fees on the trial and appellate levels, costs, actions,
judgement, and claims whatsoever based upon or by reason of any injury and/or
damage of any kind, nature, or description sustained during the terms hereof, to
person or property on, in or about the lease premises, and arising out of the
use, occupancy, management, or control of the lease premises by the Lessee and
any of Lessee's agents, employees, and/or invitee. The Lessee will retain
competent counsel to defend any and all such suits and actions brought against
Lessor or in which Lessor is a designated party defendant.
THIRTY-SECOND it is expressly understood by and between the parties to
this agreement, that the Lessor shall not be liable for any damage or injury by
water, which may be sustained by the said tenant or other person or for any
other damage or injury resulting from the carelessness, negligence, or improper
conduct on the part of any other tenant or agents, or employees, or by reason of
the breakage, leakage, or obstruction of the water, sewer or soil pipes, or
other leakage including roof leakage about the said building. Lessee assumes all
risk of any injury, loss, claim, demand or damage of and to any person(s) or
property of any kind or nature that may occur by reason of any of the following:
casualty, accident, occurrence, incident, and/or act of God, damage resulting
from water, wind, rain, the bursting or leaking of any pipes, waste or sewage,
from any act of negligence of Lessor and any persons or occupant in, on or about
the premises and/or common area property, theft, vandalism, graffiti, or other
5
criminal activity, fire or hurricane. All property of any kind or nature placed
or moved in and about the premises shall be at the sole risk of Lessee, or owner
thereof. Lessor has no insurance for such purposes and Lessee shall obtain any
desired insurance at Lessee's own expense, and Lessee will self-insure to fully
protect itself and Lessor from any and all events, conditions, or matters set
forth or alluded to herein. Lessee hereby expressly assumes the risk of loss to
any and all property that Lessee may bring in, on or about the premises,
including without limitation, any property of Lessee's invitee and/or guests.
Lessee expressly waives any and all claims, demands, rights, or remedies
whatsoever that it may, could or would otherwise have against Lessor, except for
the express assumption of risk as set forth in this paragraph. Lessee
acknowledges duty to report immediately to Lessor any broken water pipes,
running or leaking faucets or toilets, etc, If such leaks are not reported to
Lessor resulting in excessive water use, Lessee Is liable for payment of such
excess use immediately upon notification of such excess use by Lessor.
THIRTY-THIRD: This Lease shall be subject and subordinate to any
mortgage which may now or hereafter affect the lease premises and/or Lessor's
interest therein, to all renewals, modifications, consolidations, replacements
and extensions thereof. This clause shall be self-operative and no further
instrument of subordination shall be required. If confirmation of such
subordination is requested, Lessee shall promptly execute any certificate that
Lessor may request and the failure to do so shall be a material breach of this
Lease.
THIRTY-FOURTH: Lessee shall not keep or have on the premises any
article or thing of a dangerous, inflammable, or explosive character that might
unreasonably increase the damage of fire or other casualty in, on or about the
premises or that might be considered hazardous by any responsible insurance
company. Lessee further agrees not to use, consume, handle, store, transport, or
dispose of hazardous or toxic materials, chemicals, or substances in, on, or
about the lease premises, including any common area portion(s), and further,
shall indemnify and hold the Lessor harmless from all losses, damages,
penalties, fines, liabilities, expenses, and costs to clean up; or
corrective-measure expenses, including reasonable attorney's fees, arising from
or out of any violation of this provision.
THIRTY-FIFTH: If Lessee remains in possession of the premises after the
expiration date of this Lease without Lessor's written extension or renewal
thereof, Lessee shall be deemed to be a tenant at sufferance holding over
without the consent of the Lessor. Lessee acknowledges that Lessor is entitled
to twice the sum of the monthly rent for any holding over by Lessee under
Florida law and this Lease provision puts Lessee on notice that Lessor shall
demand and be entitled to recover double rent for any such time period, and all
other rights, remedies, and relief provided for under this Lease and Florida
law.
THIRTY-SIXTH: If any term, covenant, or condition of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease of the application of such
terms, covenant, or condition to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby, and
each term, covenant, or condition of this Lease shall be enforceable to the
fullest extent permissible by law.
THIRTY-SEVENTH: The Lease and any attached Addendum ("Lease")
represents the entire agreement of the Parties. Lessor and Lessee each stipulate
and acknowledge to each other that no other representations, promises, or
inducements of any other kind or nature were made to the other prior to the
signing of this Lease. This Lease constitutes the entire agreement of the
parties and accurately sets forth their intent.
THIRTY-EIGHTH: Lessee agrees to pay any insurance rates that are
increased by the nature of the Lessee's storage, and/or use of the premises.
Such charges shall be deemed additional rent. Lessee agrees to pay any pro-rata
increase in Lessor's insurance if due to nature of Lessee's business. In the
second and subsequent years, Lessee agrees to pay the increase of the real
estate taxes over the base year amount of the proportional annual real estate
tax for the leased premises in the base year. The obligation to make any
payments pursuant to this section shall survive the expiration of the term of
this lease. Lessor shall advise lessee in November of each year of the pro-rated
amount due, and lessee shall pay this amount, deemed additional rent, within 30
days of such letter.
THIRTY-NINTH: Lessee agrees not to store any equipment, material,
trash, or debris outside the leased unit and agrees to remove any such material,
trash or debris from the inside of the leased unit when vacating the premises.
Lessee is responsible for all costs associated with clean-up of leased premises
and/or repairs made to leased premises performed by Lessor upon Lessee's
vacating the premises. Lessee agrees to leave unit in a "broom-clean" condition
upon vacating premises.
FORTIETH: Lessee acknowledges having been advised that Lessee is not to
dispose of any toxic/hazardous waste products on leased property, and that
Lessee must make satisfactory disposal arrangements for any such waste, in
accordance with appropriate Federal, State, and local laws. Lessee further
warrants to hold the owner of the property harmless from any liability, as well
as taking full responsibility for any liability that may be caused as a result
of Lessee's action/non-action as a result of Lessee's activity on said premises.
Lessee agrees that failure to dispose of toxic/hazardous waste in accordance
with the aforesaid laws/regulations, the receipt of a Notice of Violation
(N.O.V.) from a state, federal or local environmental agency, any loss of
6
environmental operating permits, or Lessor's notification to lessee advising
discovery of poor or hazardous housekeeping practices or business operations
likely to cause imminent contamination problems constitute a breach of this
Lease, and Lessee will be subject to criminal and civil penalties.
Lessee agrees to provide to Lessor within 5 business days, a copy of
any Notice of Violation or similar environmental notification. All parties
agree, at the inception of this lease, that there are no existing discernible
environmental problems or hazardous wastes at the leased premises. If Lessee
receives a Notice of Violation, or similar notification, Lessee agrees to
immediately correct the problem in accordance with all laws and regulations, and
agrees to perform, at Lessee's sole cost and expense, a subsequent environmental
audit at the expiration of the lease term to insure to all parties that the site
has been properly remediated.
FORTY-FIRST: In the event of default of this Lease by Lessee, and/or
the necessity to pursue collection of monies due for any reason associated with
this Lease, including, but not limited to recovery of unpaid rent, bounced check
charges, repairs or cleanup performed by Lessor, removal of unauthorized signs,
Lessor shall be entitled to all costs and expenses of collection incurred on
both the trial and appellate levels, including a reasonable attorney's fee, and
in all other post judgment proceedings of any kind or nature in any state in the
United States, including without limitation, all professional fees, costs, and
expenses paid, or incurred, including after judgment, and/or which reduce or
limit the amount awarded by judgment or court order, such as, any contingency or
flat fee paid to any attorney or collection agent, which amount shall be equal
to the amount(s) awarded less the amount actually received by Plaintiff in any
state in the United States.
FORTY-SECOND: In the event Lessee's check in payment of any obligation
under this Lease is deposited and/or cashed by Lessor and said check is not paid
by Lessee's bank for any reason, then Lessee hereby agrees to a "Bad Check Fee"
of twenty-five dollars ($25.00) or five percent (5%) of the amount of the check,
whichever is greater. Lessor's policy is not to redeposit check, however,
re-depositing said check a second time and the check's subsequent clearing does
not alleviate the above mentioned "Bad Check Fee. All other rights of the Lessor
under this Lease remain in effect. This fee shall be termed additional rent.
FORTY-THIRD: In the event of a breach of this Lease by Lessee, the
Lessee hereby agrees that Lessor shall have the right to lock the Lessee out of
the leased premises by means of changing keys, locks, adding locks, barricading,
or any other means available to Lessor according to Florida Statutes and that
Lessee hereby waives any right to recover damages for said lockout caused for
any reason, including but not limited to loss of business. All other rights of
the Lessor under this Lease remain in effect.
FORTY-FOURTH: Lessee shall not in any way pledge, mortgage, or encumber
this Lease or its rights under It.
FORTY-FIFTH: Any holding over after the expiration of the term of this
Lease with consent of Lessor shall be construed to be a renewal on a month to
month basis only, unless a new written lease or a new written addendum to this
Lease has been agreed to and ratified by both Lessor and Lessee. All other
provisions of original lease shall remain in full force and effect.
FORTY-SIXTH: A security deposit in the amount of $________ is hereby
acknowledged by Lessor, and Lessee hereby agrees that said security deposit
cannot be used as payment of rent, including payment of last month's rent. Rent
must be paid in advance in accordance with this Lease and the security deposit
shall be held by Lessor until the expiration of this Lease and may be applied
against any monies due or for damages incidental to this Lease. If Lessee should
be overdue in the payment of monthly rent or other sums payable to Lessor on at
least two or more occasions during a year, Lessor may require Lessee to increase
the amount of Security Deposit now held by Lessor by an amount sufficient to
cover at least two month's rent. In this event, upon receipt of the additional
security sum, Lessor and Lessee shall evidence such receipt by a letter signed
and acknowledged by both parties to be Incorporated as part of this Lease.
FORTY-SEVENTH: The parties signing below as Lessee, or on behalf of the
Lessee, hereby certify that they have the authority of the Lessee to sign this
lease and make this lease legally binding upon said Lessee.
FORTY-EIGHTH: If Lessee is a corporation or a partnership, the person
signing this Lease on behalf of such corporation or partnership hereby warrants
that he has full authority from such corporation or partnership to sign this
Lease and obligate the corporation or partnership hereunder, and said person and
the corporation hereunder and said person and corporation or partnership shall
be jointly and severally liable for all rent and any and all other amount that
may be due and owing to Lessor under the terms of this Lease, including
attorney's fees and costs.
7
FORTY-NINTH: Lessee shall not commit, or allow to be committed, any
waste on the premises, create or allow any nuisance to exist on the premises, or
use or allow the premises to be used for any unlawful purposes.
FIFTIETH: In the event Lessor has determined that Lessee, either
through the normal course of his business or for any other reason, is using an
excessive amount of water, an additional water usage fee based on the pro-rata
increase over the previous period shall be paid by the Lessee to compensate
Lessor for such excessive water usage. Such charges shall be deemed additional
rent.
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
instrument for the purpose herein expressed, the day and year below written.
Signed, sealed and delivered in the presence of:
Date 1/2/01 /s/ Agent (Seal)
- ------------------------------------ ------------- --------------------------------------------
WITNESS AS TO LESSOR FRED KELLER, TRUSTEE, LESSOR
Date HEALTH & NUTRITION SYSTEMS
- ------------------------------------ ------------- INTERNATIONAL, INC., LESSEE
WITNESS AS TO LESSEE
By: /s/ Christopher Tisi
---------------------------------------
CHRISTOPHER TISI, PRESIDENT
ADDITIONAL INFORMATION:
- ----------------------
ADDRESS:
-------------------------------------------
PHONE:
------------------------------------
DL#: STATE: FLORIDA
--------------------- ----------
DOB: SS#:
------------------- ---------------
8
INDUSTRIAL PARK RULES
---------------------
1. IN ACCORDANCE WITH STATE AND COUNTY STATUTES, HAZARDOUS WASTE MUST BE
DISPOSED OF PROPERLY. IF ANY TENANT IS FOUND TO HAVE DUMPED HAZARDOUS
MATERIAL ON THIS PROPERTY, IT WILL BE CAUSE FOR IMMEDIATE EVICTION
AND/OR PROSECUTION BY THE APPROPRIATE AUTHORITIES.
2. ALL BUSINESS ACTIVITIES WILL BE CONDUCTED IN ACCORDANCE WITH STATE AND
COUNTY CODES AND ORDINANCES. THERE SHALL BE NO OUTSIDE STORAGE OF ANY
KIND PERMITTED.
3. ANY ALTERATIONS (ELECTRICAL, STRUCTURAL, ETC.,) INSIDE THE UNITS MUST
BE APPROVED BY THE OWNER, AND MUST CONFORM TO ALL CODES.
4. NO UNTAGGED OR UNREGISTERED VEHICLES WILL BE PERMITTED TO BE PARKED
OUTSIDE THE UNITS FOR MORE THAN TWO DAYS, AND CARS OFFERED FOR SALE
SHALL NOT BE PARKED ON VACANT LAND. ANY SUCH UNREGISTERED OR UNTAGGED
VEHICLES WILL BE TOWED.
5. ALL TRASH MUST BE CONTAINERIZED. WHEN CONTAINERS ARE FULL, THEY MUST BE
EMPTIED INTO DUMPSTERS. ALL AREAS AROUND PREMISES MUST BE KEPT FREE OF
LITTER AND DEBRIS, IF MAIN DUMPSTERS ARE FULL, DO NOT ADD ANY ------
MORE DEBRIS UNTIL THEY ARE EMPTY. THE TENANT HAS RESPONSIBILITY TO
REGULARLY POLICE EXTERIOR AREA AROUND LEASED UNIT AND KEEP AREA FREE
FROM LITTER AND DEBRIS.
6. NO DOGS ALLOWED ON PROPERTY!
7. NO UTILITY VANS, CAMPERS, TRAILERS, BOATS OR MOBILE HOMES SHALL BE
ALLOWED TO BE PARKED ON PREMISES UNLESS THESE VEHICLES ARE BEING
REPAIRED BY TENANT.
8. ALL TENANTS ACKNOWLEDGE DUTY TO REPORT IMMEDIATELY TO OWNER ANY BROKEN
WATER PIPES, RUNNING OR LEAKING FAUCETS OR TOILETS, ETC. IF SUCH LEAKS
ARE NOT REPORTED TO OWNER RESULTING IN EXCESSIVE WATER USE, TENANT IS
LIABLE FOR PAYMENT OF SUCH EXCESS USE IMMEDIATELY UPON NOTIFICATION OF
SUCH EXCESS USE BY OWNER.
YOUR COOPERATION IS REQUIRED IN THESE MATTERS!
I have read and will comply with the above rules and regulations of Fred Keller,
Trustee.
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC., Lessee
- ------------------------------------------------------- ----------------
Date
By: /s/ Christopher Tisi
--------------------------------------------------
Christopher Tisi, President
9
HAZARDOUS WASTE AGREEMENT
-------------------------
I, Christopher Tisi of Health & Nutrition Systems International, Inc.
occupying 3750 Investment Lane, Unit 5, Riviera Beach, FL 33404, have been
advised by LESSOR that I am not to dispose of hazardous waste including, but not
limited to, waste oil, solvents, paint thinners and other chemicals and products
on said property and that I need to make satisfactory arrangements in accordance
with appropriate Federal, State, and local laws.
I further warrant to hold the owner of the property harmless and that
I take full responsibility for any liability that may be caused as a result of
any action/non-action as a result of my activity on said premises. If I do not
dispose of hazardous waste in accordance with the aforesaid laws/regulations, my
tenancy will immediately cease and I will be subject to criminal and civil
penalties.
Following is the name and phone number of the party who hauls/removes
my waste materials:
(name)
- -----------------------------------------------------------------------
(phone #)
- --------------------------------------------------------------
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC., Lessee
- ------------------------------------------------------- -----------------
Date
By: /s/ Christopher Tisi
---------------------------------------------------------------
Christopher Tisi, President
10
TENANT ENVIRONMENTAL CHECK-LIST
-------------------------------
(Please circle either Y or N for your response)
1. Does your type of business generate any hazardous waste or contamination? If so, Yes / No
please list below: --
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2. In the normal course of operations, does your business handle hazardous materials? Yes / No
--
3. If so, have you obtained the necessary federal, state, and local permits? Yes / No
--
4. Has your business been subject to prior environmental compliance enforcement? Yes / No
--
5. Do you now have an environmental compliance officer? Yes / No
--
6. Does your business have other off-site operations that generate hazardous wastes? Yes / No
--
I certify that the above responses are true and correct, and if
evidence shows that any responses shown herein are false, Lessor may declare
Lessee in breach of lease.
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC., Lessee 1/2/01
- ------------------------------------------------------ ------------
Date
By: /s/ Christopher Tisi
---------------------------------------------------------------
Christopher Tisi, President
11
CREDIT QUESTIONNAIRE
1. Have you ever been a defendant in an eviction suit or bankruptcy case?
If so, please explain.
YES NO
--
2. Has any corporation (with which you have been involved as an officer,
director, or shareholder) been a defendant in an eviction suit or
bankruptcy case?
If so, please explain.
YES NO
--
3. Have you or any corporation (with which you have been involved
as an officer, director or shareholder) been a defendant in any suit
concerning fraudulent activities?
If so, please explain.
YES NO
--
Tenant hereby acknowledges that any misstatements or
misrepresentations constitute a breach of lease dated __________________ for the
premises located at ________________________________________.
01/02/01 /s/ Christopher Tisi
- -------------------------- --------- --------------------------
Witness Date Christopher Tisi, Personally
Explanation
-------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT 10.10
AMENDMENT TO US CORPORATE SERVICES, INC. AGREEMENT WITH
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
THIS AMENDMENT to the Letter Agreement dated January 19, 2000 by and
between US CORPORATE SERVICES, INC. ("U.S.C.S.") of [P.O. Box 308, Brewster, NY
10509]* 33 1/2 Prospect St., Greenwich, CT, 06830, and HEALTH & NUTRITION
SYSTEMS INTERNATIONAL, INC. ("HNS") of 3750 Investment Lane, Suite #5, West Palm
Beach, FL 33404 (the "Agreement") is entered into on this ____ day of February,
2001.
RECITALS:
WHEREAS, HNS and U.S.C.S. desire to amend their Agreement as set forth
in this Amendment;
NOW, THEREFORE, in consideration of the promises and covenants
contained herein and other good and valuable consideration, the receipt and
adequacy of which are acknowledged, the parties hereby agree as follows:
1. U.S.C.S. acknowledges and agrees that the Term (as defined
in the Agreement) ended on march 19, 2000, sixty (60) days after January 19,
2000.
2. The first sentence of Section II of the Agreement is hereby
replaced in its entirety by the following:
If a Transaction is consummated during the Term of the
Agreement or within eighteen (18) months after the end of the Term with an
investor or lender listed on Exhibit A attached hereto, HNS will pay or cause to
be paid to U.S.C.S. a placement fee equal to ten percent (10%) of any Senior
Financing (the "Placement Fee"); provided, however, U.S.C.S. shall be entitled
to such Placement Fee only if (i) such investor or lender was directly
introduced to HNS by U.S.C.S. during the Term; and (ii) U.S.C.S. actively
participates in the negotiation and consummation of a Transaction with that
investor or lender. [U.S.C.S. shall not be entitled to any fee if either of the
two conditions set forth in the preceding sentence are not met.]* (BTM)
3. Section IV of the Agreement is hereby replaced in its
entirety by the following:
The Agreement is terminated automatically on the expiration of
the Term. No termination shall effect U.S.C.S.'s right to compensation earned on
or prior to such termination (including, without limitation, the Placement Fee
described in Section II of the Agreement).
4. Both U.S.C.S. and HNS agree to amend Section VIII of the
Agreement to remove the second & third sentences thereof.
5. The Agreement, to the extent it has not been modified by
this Amendment shall remain in full force and effect.
This Amendment may be executed in counterparts and by
facsimile, all of which counterparts taken together will constitute an original.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first above written.
HEALTH & NUTRITION SYSTEMS
INTERNATIONAL, INC., a Florida
corporation
By: /s/ Steven Pomerantz
------------------------------------------
Name: Steven Pomerantz
------------------------------------------
Title: CEO
------------------------------------------
Date: 2-16-2001
------------------------------------------
US CORPORATE SERVICES, INC., a
Florida corporation
By: /s/ B.T. McKee
------------------------------------------
Name: Brian T. McKee
------------------------------------------
Title: CEO
------------------------------------------
Date: 2-22-2001
------------------------------------------
*Deleted in Original.
2
EXHIBIT A
(1) Donald Frasier (6) Jeffrey Berman
Summit Bank Gruntal & Co.
750 Walnut Avenue One Liberty Plaza
Cranford, N.J. 07016 New York, NY 10006-1487
908-709-5367 212-409-2136
(2) Malcolm McGuire (7) RANA Investment Corp.
CCRI Attn: Fazal Ahad
3104 E. Camel Back Rd., PMB 539 Olaya St.
Phoenix, AZ 85016 P.O. Box 60148
800-828-0406 Riyadh, Saudi Arabia 11545
001-9661-462-6262
(3) Scott Flamm (8) Donald Warner
Liberty View Capital Management, Inc. DSW Investments
101 Hudson Street, Suite 3700 320 East 58th Street
Jersey City, NJ 07302 New York, NY 10022
201-369-7355 212-832-8897
(4) Philip Levy/Rosemarie Fox (9) [John Richardson
Cornerstone Financial Co, LLC Presidential Financial Corp.
354 East 50th Street 13907 N. Dale Mabry Hwy.
New York, NY 10022 Suite 205
212-519-2100 Tampa, FL 33616
801-963-7566]*
(5) David Boris Robert Kropp (10) Coleman ABBE
Ladenburg Thalmann Eisner
590 Madison Avenue 575 Madison Avenue
New York, NY 10022 New York, NY 10022
212-409-2139 212-355-1700
(11) M.H. Meyerson (12) James M. Carrazza
Steve Fuerbacher/Eric Weisblum Hobbs Melville
201-459-9500 212-785-7222
525 Washington Blvd., 34th Floor 110 Wall Street
Jersey City, NJ 07303 New York, NY 10005
(13) Montrose Securities (14) May Davis Group
40 Wall Street, 31st Floor Hunter Singer
New York, NY 10005 WTC #1
212-908-1967 New York, NY
Attn: Vinnie DeFilippio 212-775-7400
*Deleted in Original.
3