UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12 (g) OF THE SECURITIES EXCHANGE ACT OF 1934
NEVADA 88-0397234
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16133 VENTURA BLVD., SUITE 635, ENCINO 91436
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(Address of Principal Executive Office) (ZipCode)
(818) 981-4519
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Telephone Number
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Securities to be registered under Section 12(b)
of the Exchange Act:
None
Securities to be registered under Section 12(g)
of the Exchange Act:
TABLE OF CONTENTS
Page
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PART I
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Item 1. Description of Business....................................... 1
Item 2. Management's Discussion and Analysis
or Plan of Operation......................................18
Item 3. Description of Property.......................................38
Item 4. Security Ownership of Certain Beneficial Owners
and Management............................................39
Item 5. Directors, Executive Officers, Promoters and
Control Persons...........................................40
Item 6. Executive Compensation........................................41
Item 7. Certain Relationships and Related Transactions................41
Item 8. Description of Securities.....................................42
PART II
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Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters...............43
Item 2. Legal Proceedings.............................................43
Item 3. Changes in and Disagreements with Accountants.................43
Item 4. Recent Sales of Unregistered Securities.......................43
Item 5. Indemnification of Directors and Officers.....................44
PART F/S
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Financial Statements.....................................................45/F-1
PART III
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Item 1. Index to Exhibits.............................................46
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Sitestar Corporation (the "Company" or "Sitestar") is a diversified Internet holding company. Our near term strategy is to acquire and invest in emerging Internet-based enterprises to create a broad and diverse set of core Internet businesses that deliver a variety of online solutions. In addition to developing and integrating Internet-based technologies, our primary objective is to create a mix of Internet operating companies and Internet-related portfolio investments that will enhance the value of our current businesses in the following areas:
o Internet e-commerce
o Value-added content
o Internet Service Providers (ISP)
o Internet Portals/Community Web sites
o Strategic investments in internet-related ventures
We will attempt to develop and refine the products and services of our existing businesses and businesses or assets we acquire with the goal of significantly increasing revenue as new products are commercially introduced. Additionally, we will continue to pursue strategic investments in new Internet-related opportunities to leverage its existing assets.
CORPORATE HISTORY
We were incorporated under the name of White Dove Systems, Inc. in December 1992 under the laws of the State of Nevada to engage in any lawful corporate activity.
In October 1998 we acquired all the issued and outstanding shares of Interfoods Consolidated, Inc. ("IFCO"), a California corporation, in exchange for 5,580,000 shares of our Common Stock. IFCO, operating under the trade name of Holland American International Specialties ("HAIS"), is a retailer and wholesaler of imported and domestic specialty gourmet foods which was founded in 1943. HAIS' product offering ranges from exotic European delicacies to mainstream specialty candies, chocolates and other confectionery products. In connection with the acquisition, we changed our name to Interfoods Consolidated, Inc.
In January 1999 we acquired 9% of the outstanding Common Stock of Sierra Madre Foods, Inc. ("SMF"), a California corporation, for $200,000 through a joint venture. SMF, formerly known as Queen International Foods ("QIF"), is a manufacturer and wholesaler of frozen Mexican food products such as burritos and chimichangas. We acquired our equity interest from the U.S. Bankruptcy court proceedings along with the debtor-in-possession as our joint venture partner. QIF filed for Chapter 11 Bankruptcy protection on April 1998. We formed SMF as a joint venture with the debtor-in-possession for the sole purpose of acquiring substantially all of the assets of QIF from the U.S. Bankruptcy court.
In July 1999 we acquired all the issued and outstanding shares of Sitestar, Inc. ("SYTE"), a Delaware corporation, in exchange for 3,491,428 shares of our Common Stock. SYTE is a Web development, design and hosting company formed in 1996 and is based in Annapolis, Maryland.
In August 1999 we acquired substantially all of the assets of Greattools.com in exchange for 49,000 shares of our Common Stock. Greattools.com is an online low cost retailer of power tools.
Effective as of September 30, 1999 we sold the non-Internet assets of HAIS to IFCO Group, LLC ("IFCO"), whose members consist of certain shareholders of the Company, including Frederick T. Manlunas, our Chairman of the Board. We retained the assets consisting of the Internet web site Holland-American.com. HAIS will continue to serve as Holland-American.com's exclusive fulfillment center. The purchase consideration for HAIS was $900,000 and was based upon a business appraisal by an independent third party appraiser. The consideration included $200,000 which was applied as a discount for services rendered by members of IFCO in connection to the acquisition of Sitestar, Inc., the assumption of $654,000 of liabilities and a promissory note in the amount of $46,000. The note bears interest at a rate of 8% per annum, and is payable in annual installments of $15,333, and is due and payable on September 30, 2002. The note is secured by HAIS' accounts receivable and inventory.
On September 30, 1999, we sold our 9% equity interest in SMF to IFCO for $200,000. The consideration was paid in the form of assumption of $160,000 of debt related to the investment and the balance of $40,000 paid by a promissory note payable in three annual installments of $13,334 each. The note bears interest at a rate of 8% per annum. The purchase consideration was equal to our original investment in January 1999.
POSSIBLE FUTURE ACQUISITIONS
We have signed letters of intent to acquire two companies, as described below. These letters of intent do not create binding obligations of us or the sellers. Accordingly, neither party is bound to proceed to complete the purchase and sale. Further, the purchase price and other material terms and conditions of any acquisition may change in connection with the negotiation and execution of the final agreement. Accordingly, no assurance can be given that we will complete either of these acquisitions, or that we will complete either of these acquisitions in accordance with the terms of the letters of intent.
We have signed a letter of intent, dated September 30, 1999, to acquire
Neocom Microspecialists, Inc., an Internet access provider and Web development
company for 1,976,571 shares of our Common Stock. Neocom has advised us that
(i), as of August 31, 1999 it provided Internet access and enhanced products and
services to approximately 250 small and medium sized enterprises and
approximately 4,100 dial-up customers in the mid-Atlantic region and Web hosting
services to approximately 400 customers, and (ii) its revenues for the nine
months ended September 30, 1999 were $1.387 million.
We have also signed a letter of intent to acquire Eastern Shorenet, an Internet access provider, for 96,000 shares of our Common Stock. The letter of intent also requires us to assume liabilities of $18,000. Eastern Shorenet has advised us that (i) as of August 31, 1999 it provided Internet access and enhanced products and services to approximately 1,000 dial-up customers in the eastern-shore region of Maryland, and (ii) its revenues for nine months ended September 30, 1999, were $144,000.
MARKET OPPORTUNITY
OVERVIEW. We believe that the Internet has become an important global medium enabling growing numbers of people to obtain and share information and conduct business electronically. Its expanded use has made the Internet a critical tool for information and communications for many users. We believe that Internet access and enhanced Internet services, including Web hosting and electronic commerce services, represent two of the fastest growing segments of the telecommunications services market. International Data Corporation ("IDC") estimates that at the end of 1997 there were over 38 million Web users in the United States and over 68 million worldwide, and projects that by the end of 2002 the number of Web users will increase to over 135 million in the United States and over 319 million worldwide. We believe that the availability of Internet access, advancements in technologies required to navigate the Internet, and the proliferation of content and applications available over the Internet have attracted a rapidly growing number of Internet users.
GROWTH IN BUSINESS USE OF THE INTERNET. We believe that the dramatic growth in Internet usage in recent years, combined with enhanced functionality, accessibility and security, has made the Internet increasingly attractive to businesses as a medium for communication and commerce. We feel that for many businesses, the Internet has created a new communication and sales channel which enables large numbers of geographically dispersed organizations and consumers to be reached quickly and cost-effectively. IDC estimates that the number of consumers buying goods and services on the Internet will grow from 17.6 million in 1997 to 128.4 million in 2002, and that the total value of goods and services purchased over the Internet will increase from approximately $12 billion in 1997 to approximately $426 billion by 2002.
We believe that businesses will increasingly add a variety of enhanced services and applications to their basic Internet access, Web sites and e-commerce applications in order to more fully capitalize on the power of the Internet. We feel that these services and applications will allow them to more efficiently and securely communicate company information, expand and enhance their distribution channels, increase productivity through back-office automation, ensure reliability and reduce costs. We see opportunities for growth in the following areas:
o DEMAND FOR INTERNET ACCESS SERVICES. Internet access services represent the means by which ISPs interconnect their customers to the Internet or corporate intranets and extranets. According to Forrester Research, Internet access revenues from businesses are expected to increase from less than $1 billion in 1997 to more than $16 billion in 2002. Due, in part, to their size, small and medium sized enterprises often seek to outsource these services..
o DEMAND FOR WEB HOSTING SERVICES. Many businesses are seeking to outsource to ISPs services such as Web hosting, collocation and file transfer protocol data storage and retrieval.
o DEMAND FOR SECURE PRIVATE NETWORKS. We believe that concerns relating to the security of internal and proprietary information, data loss and reduced transmission speed has led businesses to demand Internet services that include the ability to provide electronic security monitoring and threat responses.
THE SMALL AND MEDIUM SIZED ENTERPRISE MARKET. We have specifically targeted small and medium sized enterprises because:
o We believe that these enterprises increasingly need high-speed data and Internet connections to access business information and to communicate more effectively with employees, customers and vendors.
o We believe that a relatively small percentage of these enterprises currently utilize the Internet, but that this number is increasing rapidly. The small and medium sized enterprise segment is expected to be one of the fastest growing segments of the Internet industry.
o Many of these enterprises lack the resources and expertise to develop, maintain and expand, on a cost-effective basis, the facilities and network systems necessary for successful Internet operations.
o We believe that these enterprises will prefer an Internet service provider with locally-based personnel who are available to assist in developing and implementing their growing use of the Internet and to respond to technical problems in a timely manner.
o We believe that these enterprises rely more heavily on their Internet service provider than larger enterprises and tend to change Internet service providers relatively infrequently.
INTERNET SERVICES IN SECONDARY MARKETS. Small and medium sized enterprises are often concentrated in so-called "secondary markets" to avoid the higher costs associated with locating in a metropolitan area. A secondary market is any market smaller than the 100 most populated U.S. metropolitan markets. However, national ISPs have historically placed their largest points of presence, or POPs, only in or around densely populated major cities. A POP is an access point at which customers in a traditional ISP network architecture can connect to data circuits in order to obtain Internet access and other services. While customers located within a few miles from these POPs often receive cost savings on their access pricing, customers located in secondary markets that are as close as 20 to 75 miles away from these POPs have typically been charged higher prices for Internet access services.
We believe that small and medium sized enterprises located in high-growth secondary markets are currently underserved by both national and local providers of Internet access and related services. National ISPs, on the one hand, typically lack the local presence to provide local support. Local ISPs, on the other hand, often lack the requisite scale and resources to provide a full range of services at acceptable quality and pricing levels.
OUR GROWTH STRATEGY
Our goal is to be a premier Internet company that offers products ranging from Internet access and a complete suite of Internet products and services to a variety of e-commerce platforms targeting small and medium sized enterprises in our target markets. We would like to offer a variety of business-to-consumer and business-to-business e-commerce solutions to our customers.
Key elements of our strategy include:
FOCUS GROWTH ON SECONDARY MARKETS. We intend to expand into selected secondary markets by replicating our regional network and marketing model. Our network architecture and scalable sales and marketing plan are designed to allow us to penetrate additional regions rapidly and cost-effectively.
MARKET A VARIETY OF SERVICES TO NEW AND EXISTING CUSTOMERS. We intend to offer a comprehensive suite of a variety of products and services to meet the expanding needs and complexity of our customers' Internet operations allowing us to increase revenue per customer and maintain a high customer retention rate by strengthening relationships with our customers.
USE OF CENTRALIZED SALES AND MARKETING OPERATIONS. We intend to use our centralized sales and marketing staff to help implement our regional strategy cost-effectively. We intend to hire and train additional local sales and marketing personnel within our target regions to complement the core of our sales and marketing staff, which will continue to be concentrated in one centralized location to maximize efficiency. These regionally located employees are intended to add local market knowledge, expertise and familiarity to our sales and marketing efforts to allows us to maintain a field presence in each of our regions, while maximizing our central operations.
STRATEGIC RELATIONSHIPS AND ACQUISITIONS. We intend to enter into strategic relationships, such as partnerships and joint ventures, and to make acquisitions to expand our line of enhanced products and services.
As part of this strategy, we recently signed letters of intent to acquire Neocom Microspecialists, Inc. and Eastern Shorenet, providers of Web hosting and co-location services in the Mid-Atlantic region. These planned acquisitions are consistent with our growth strategy of building our presence in secondary markets that have traditionally been under served by the larger Internet services companies. In addition, we are also actively seeking acquisition opportunities and/or candidates in the Mid-Atlantic region that would help us achieve critical mass in terms of our Internet access, development and hosting customers.
INTERNET INDUSTRY OVERVIEW
We believe that Internet commerce is reshaping the way consumers and businesses conduct business. According to new projections from Forrester Research, worldwide e-commerce sales will reach as high as $3.2 trillion in 2003, representing nearly 5% of all global sales. These sales figures include business-to-business and business-to-consumer sales and EDI (electronic data interchange) orders placed on the Internet, but exclude the value of financial transactions. E-commerce is defined as the trade of goods and services in which the final order is placed over the Internet.
We feel strongly that the growing popularity of the Internet represents an opportunity for companies like us to take advantage of the potential for commercial transactions conducted online, referred to as electronic commerce or e-commerce. International Data, Inc., a market research firm, estimates that business-to-consumer commerce over the Internet will increase from over $12 billion worldwide at the end of 1997 to approximately $425 billion worldwide by the end of 2002. In addition, Jupiter Communications, another market research firm, predicts that by 2002, 44% of Internet users will make purchases online, as compared to an estimated 22% that did so in 1997. Several factors are driving the growth in both business to consumer and business to business electronic commerce. These factors include:
o increasing familiarity with the Internet;
o broadening consumer acceptance of online shopping;
o increasing acceptance on online distribution relationships by businesses; o improved online network security and infrastructure;
o the growing base of personal computers and improved Internet access; and
o expanding network bandwidth and access speeds.
We believe that the Internet is particularly well-suited for promoting, marketing, selling and distributing merchandise both on a retail and a wholesale level, permitting customers throughout the world to have direct access to suppliers. Online stores can provide direct customer service and product information to a large number of customers at the same time with a substantially smaller sales staff than traditional stores. Online stores also have the ability to rapidly and continually update such information. Internet merchandisers, unlike traditional stores, do not have the same expenses associated with operation of physical stores and warehouse facilities, and can change stores design without substantial cost. In contrast to catalog merchandisers, Internet retailers can react quickly to change product descriptions, pricing or product mix and are not subject to the costs of catalog publication and distribution. Additionally, online merchandisers have the ability to track directly customer responses and preferences which enables the merchandisers to customize their online stores to target specific customer groups and individuals.
In the early days of the Internet, users consisted mainly of young, technology-savvy or upscale males. Today, while the online population has appears to have changed drastically, it remains a fairly elite group. Demographics from Mediamark Research show that Internet users are approximately twice as likely to have high household incomes, college degrees and management positions than the overall U.S. population. They are also more likely to be young and single. Geographically, Internet users can be found in all corners of the U.S., although, according to researcher Inteco, the level of Internet use in several major metropolitan areas exceeds the overall U.S. average.
We believe broadening consumer acceptance and retailer ambitions will combine to fuel a rapid growth in online retail sales and to drive more than 40 million U.S. households to shop online by 2003, producing $108 billion revenues. According to Forrester Research, online retail sales will account for 6% of U.S. consumer retail spending in the U.S. by 2003. Analysts estimate that by the end of 1998, nearly 9 million U.S. households will have shopped online for travel services and retail goods other than automobiles, generating $7.8 billion in online sales. We expect these numbers to grow rapidly over the next five years as high speed Internet connections become more popular and consumers overcome security and privacy concerns and embrace the convenience of Web shopping.
Although retail online shopping appears to receive more attention, analysts predict a much larger growth in business-to-business e-commerce. Forrester Research estimates that by year 2003, consumers will spend $108 billion to buy goods online, while businesses will spend $1.3 trillion. As expected, computing and electronic equipment will remain one of the largest categories of goods traded between businesses, reaching $395 billion in revenue by 2003, while other industries, such as cars and petrochemicals, will also top the $150 billion mark. In addition to the $1.3 trillion in business-to-business sales of products, Forrester also reports that online transactions in business services will equal $220 billion by 2003. Michael Putnam of Forrester Research states that "Just as the Internet has revolutionized the goods industries, the services industry is going to be reinvented."
Internet-based businesses have already created more than 200 on-line marketplaces for conducting business-to-business (B2B) electronic commerce. These Internet locations bring buyers and sellers together in a central marketplace and, in addition, provide services such as procurement management, financial settlement and quality assurance. These services enhance the B2B sites' value to the end customers and allow it to become an integral part of those customers' business processes.
By providing a central on-line hub that automates transactions, aggregates information, improves market reach and provides related services, we believe these B2B sites will help their participants reduce both product and process costs. By resolving information-based inefficiencies, they act as catalysts to compress time, slash costs and improve processes in ways that were previously unimaginable. Leading research firms estimate that product and process cost savings afforded by B2B sites will amount to $57 billion by 2003.
Sitestar.net offers a variety of Internet access solutions. These solutions range from 56K and ISDN dial-up accounts to 3Mbps wireless access connections. We are one of the few ISP's in the country [Is this supported?] to offer Internet access with wireless technology. Our wireless service ranges in speed
from 128Kbps to up to 3Mbps. We are also offering high-speed Digital Subscriber Line (DSL) service in Annapolis, Baltimore, and Washington D.C. All dial-up accounts include e-mail, unlimited Internet access, Usenet newsgroups and require no long-term contracts. The prices of our Internet services range from 16.95 to 79.95 per month.
Web Hosting
We provide web hosting services utilizing both Unix and Windows NT Servers. Standard hosting services include access to the web site via FTP and/or Microsoft FrontPage. As additional services we offer Secure Transactions (SSL), E-commerce shopping carts, Cold Fusion, Real Audio, Real Video, Chat Rooms, Bulletin Boards, Online Calendars, and more]. In addition to these services, we also offer server co-location, high-end hosting solutions and Internet/Intranet server setup services.
Website Design
We have provided web site design services since 1996 and, as of September 1999, have developed web sites for 250 customers. We provide a free initial consultation. Our customers can choose from several customized possible web layouts for their business requirements. After our customer's selection, we develop a prototype site and work with customers to design the site to their specifications
Banner Development
We also design banner advertisements for our customers and, as of September, 1999, we have developed 300 banner advertisements.
Online Marketing
We offer web site marketing services that continually build upon our customer's current listing to improve their placement in the search engines. Initial launch of our customer's web site reaches over 400 search engines and services.
Our customer base consists primarily of small and medium sized enterprises and dial-up customers located in secondary markets.
We use targeted marketing and media advertising to develop brand awareness and supplement these efforts with our highly customized sales process and personalized customer service. Through our marketing managers, we seek to develop strong customer relationships within local communities.
Our marketing managers will also provide assistance and support to our centralized sales staff. This enables us to evaluate customers' needs more effectively, to design customized solutions and to reinforce our local presence as a value-added provider of enhanced Internet services. Our marketing managers also identify market trends, provide constant data regarding changes in the competitive landscape and also may identify and initiate contact with new customers. We also attend trade shows and other events to further reach the targeted small and medium sized enterprises in each region.
o Pricing;
o Quality and breadth of products and services;
o Ease of use;
o Personal customer support and service; and
o Brand awareness.
We believe that we compete favorably based on these factors, particularly due to our:
o Regionally focused operating strategy;
o Superior customer support and service;
o High performance; and
o Competitive pricing.
Our current competitors include many large companies that have substantially greater market presence, brand-name recognition and financial resources than we do. Some of our local or regional competitors may also enjoy greater recognition within a particular community. We currently compete, or expect to compete, with the following types of companies:
o national Internet service providers, such as PSINet, Inc., Concentric Network Corporation, Earthlink, Netcom and Mindspring;
o providers of Web hosting, collocation and other Internet-based business services, such as Verio, Inc. and Navisite;
o numerous regional and local Internet service providers, some of which have significant market share in their particular market area;
o established on-line service providers, such as America Online, Inc. and Prodigy;
o computer hardware and other technology companies that provide Internet connectivity with their or other products, including the International Business Machines Corporation and Microsoft Corporation;
o national long distance carriers such as AT&T Corporation, MCI WorldCom, Inc., Qwest Communications International Inc. and Sprint Communications Company, L.P.;
o regional Bell operating companies and local telephone companies;
o providers of free Internet service, including NetZero, Inc. and MicroWorkz Computer Corporation; cable operators or their affiliates, including At Home Corporation and Time Warner Entertainment Company, L.P.;
o terrestrial wireless and satellite Internet service providers; and
o non-profit or educational ISPs.
Many of the major cable companies and some other Internet access providers have begun to offer or are exploring the possibility of offering Internet connectivity through the use of cable modems. Cable companies, however, are faced with large-scale upgrades of their existing plant, equipment and infrastructure in order to support connections to the Internet backbone via high-speed cable access devices. We believe that there is a trend toward horizontal integration through acquisitions or joint ventures between cable companies and telecommunications carriers. Other alternative service companies have also announced plans to enter the Internet connectivity market with various wireless terrestrial and satellite-based service technologies. In addition, several competitive local exchange carriers and other Internet access providers have launched national or regional digital subscriber line programs providing high speed Internet access using the existing copper wire telephone infrastructure. Several of these competitive local exchange carriers have announced strategic alliances with local, regional and national service providers to provide broadband Internet access. If we are unable to provide technologically competitive service, our revenues and profit margins may decline materially, and our ability to attract additional customers may suffer.
Recently, several national access providers have begun to offer dial-up Internet access for free or at substantial discounts to prevailing rates, which may result in significant pricing pressure for dial-up Internet access services. We also believe that manufacturers of computer hardware and software products, media and telecommunications companies and others will continue to enter the Internet services market, which will also intensify competition, especially for dial-up access providers. If we are unable to compete with lower-cost providers by providing superior service and support, our revenues and profit margins may decline materially, and our ability to attract additional customers may suffer.
Greattools.com is a direct merchandiser of over 60 specialty tool products
designed for light to heavy industrial applications. We market our products
under the name Great Tools Direct(TM) and maintain a diverse product line
comprised of five categories: (1) Power Tools; (2) Cutting Tools; (3) Masonry;
(4) Accessories; and (5) Automotive. We offer a comprehensive product line
aggregating approximately 90 different models of cordless drills, batteries,
cutting tools, sanders, grinders and miscellaneous power tool accessories. Our
main product and primary source of revenue is the cordless drill. Sales from
cordless drill account for about 80% of our Greattools.com revenues. We offer a
variety of cordless drills from the least powerful 2.4volt model to the more
advanced 18.8volt power drill. The 14.4volt cordless drill has become the
standard consumer drill for household use. We offer a 16.8volt drill and an
18.8volt drill at discounted prices. We have recently introduced a 24volt drill
and plan on introducing other products based on our assessment of trends and
market demand.
All GREAT TOOLS DIRECT products are designed and manufactured in China by Tehao and Hitachi, two large manufacturers of industrial products, according to strict specifications determined by our fulfillment center. Our fulfillment center, Global Sourcing Group, frequently develops innovative design concepts in an effort to improve and differentiate their product line from existing competition. .
Our home page features advertisements, testimonials and promotions for various in-stock merchandise. Our in-stock merchandise is carried entirely by our fulfillment center. Global Sourcing Group's inventory acts as our "virtual" inventory which translates to savings with regards inventory related costs. The web site provides customers with product information and the ability to directly purchase products over the Internet in a secure environment.
We maintain a standard refund policy to any consumer who purchases a defective product. We have a thirty-day money back guarantee wherein we refund or replace any products within thirty days from purchase. From inception, we have refunded on the average less than three percent of our sales.
Our target market consists of retail customers located throughout the United States, Canada and South America. We target value-oriented consumers, do-it-yourselfers and contractors who use power tools for light to heavy industrial applications. We also target professionals who require tools in their daily activity, such as plumbers, carpenters, electricians and a variety of other services and repair professionals.
The retail segment also includes consumers who use power tools for household applications. These include hobbyists, homemakers, students and other do-it-yourselfers.
The Company's market development strategy is based on several marketing channels:
Direct Response Advertising
We advertise in specialty magazines and consumer publications, including
Popular Mechanics (circulation: 1,000,000), American Woodworker (circulation:
400,000), Wood Magazine (circulation: 650,000), Popular Woodworker (circulation:
220,000) and American How To (circulation: 750,000). We believe that these
publications are the most efficient medium to reach its target market. The
advertisements highlight our product line and feature the Internet address as
the primary means of ordering products, as well as a toll-free telephone number.
Database Marketing
We have created a database of customers for repeat sales and special promotions. The database currently contains over 35,000 names. Each time a customer places an order online, the database is updated to reflect that customer's information and buying patterns. Due to the database's sorting capabilities, we believe it receives a greater percentage of responses from direct mail to the database targets than it would receive from a generic mass mailing. We repeatedly mail marketing materials, catalogs and brochures to our customers. Our catalog, produced once a year, lists the products we maintain in our warehouse and products we can order directly from Tehao. The catalog is mailed to all of the 35,000 names on our mailing list as well as new potential customers generated by our Web site and regular advertisements.
We believe that a large portion of our potential success relies on the reputation we have created in our "Great Tools Direct" brand name. However, we do not have any specific plans to protect our mark "Great Tools Direct" by filing a trademark application with the United States Patent and Trademark office (PTO). We have conducted a trademark search on the label Great Tools Direct which did not result in the discovery of any other commercial entity using the Great Tools Direct or a substantially similar label in the United States. We decided that we could better use our limited capital in advertising and other expenses rather than investing in protecting its Great Tools Direct brand name.
Dominated by large home centers and hardware and lumber cooperatives such as Home Depot, Loews, Menard's, Ace and True Value, the tool market is large, highly fragmented and characterized by multiple channels of distribution. The distribution channels in the power tools market include retail outlets, small distributorships, national, regional and local distributors, direct mail suppliers, large warehouse stores and manufacturer's own direct sales forces.
Products imported from low-cost labor countries have increased the competitive pressures on pricing. Cost pressures from more established name brands are providing a focus on high quality, low cost alternatives. Aggressive value pricing has redefined the basis for competition in many of the Company's product lines.
There are many discount retailers in the industry offering products at competitive prices and blurring the distinction between wholesale and retail such as Home Depot, Menards and Wal-Mart. Warehouse clubs and other category leaders are establishing a new economic framework for the retail business, forcing industry participants to reduce costs. Major marketers have focused on value pricing strategies, changing the nature of merchandising throughout the industry.
The power tool market in which we operate is extremely competitive, and we expect such competition to intensify in the future. Our current and prospective competitors include many large companies that have substantially greater market presence and financial, technical, marketing and other resources than we have. We compete with many retailers and direct marketers who sell merchandise over the Internet and through catalogs. We also compete with traditional retailers who sell similar merchandise to that sold by us. Those retailers usually offer brand name products at prices higher than our products. As newer and more powerful tools are being introduced into the market, intense competition between manufacturers has developed. Companies in the industry are developing new features to attract customers and tools are becoming more reliable, efficient and quiet. At the same time, prices are becoming more competitive as power tool companies are vying to gain market share. Moreover, as brand delineation becomes more challenging, pricing becomes more competitive, thus further increasing the drive to gain market share.
We believe that our ability to compete successfully depends on a number of factors, including: (1) our ability to continually provide the customer with value by offering quality products at prices lower than the prices usually charged for name brand products; and (2) maintaining a flexible product line and quickly adapting to the changing needs and tastes of the market.
We believe there are acquisition opportunities among the many small sellers of power tools. If we believe a favorable opportunity exists, we anticipate that we will enter into discussions with the owners of such businesses regarding the possibility of an acquisition by the Company. As of the date hereof, we do not have any agreements or pending acquisitions and have not entered into any letters of intent with respect to pending acquisitions. No assurance can be given that we will identify satisfactory acquisition candidates or, if identified, that we will be able to consummate an acquisition on terms acceptable to us.
Holland-American.com is an online purveyor of imported and domestic specialty gourmet foods. We sell specialty products, such as condiments, sauces and toppings, entrees, prepared foods and soups, breads, pasta, grains and beans, crackers/snacks, desserts and confections and oils and vinegar.
Specialty Food Market Today
The products we sell are known as "gourmet and specialty food," defined by the industry as a whole as distinctive food of high quality. This includes traditional gourmet food and confections. This category also includes branded specialty products which are available in specialty restaurants or retail shops. Our criteria for determining whether to classify a food product as gourmet or specialty include:
o cost of ingredients;
o cost of processing;
o freshness/perishability;
o uniqueness;
o newness/cutting edge;
o cost of packaging; and
o cost of importation/distribution.
We work closely with our fulfillment center, Holland American International Specialties, our former food distribution division, in selecting products for our Web site through a formal review process which involves review of the supplier background and the details of their product line. Our fulfillment center's product review committee then samples representative products from each supplier and rates the products by standardized criteria.
Retail Market
The retail food market involves the sale of food products to individual consumers and households. The gourmet and specialty food industry is a sizable segment of the United States retail food market. According to a 1995 market report published by Packaged Facts, retail sales of gourmet and specialty food are projected to reach approximately $48 billion in 2000. Currently, specialty food is principally sold through the following retail channels:
o supermarkets;
o gourmet and specialty food stores;
o mail order catalogs;
o department stores;
o 32-television shopping channels; and
o discount warehouse retailers.
The combination of the size of the specialty food market and the growth of online shopping have created what we believe to be a sizable market opportunity.
Wholesale Market
The wholesale market consists of specialty food retailers, gift shops, caterers, restaurants and other resellers of specialty food products. Traditionally, suppliers of specialty food have distributed their products either by using a food broker to sell to retailers at wholesale prices, or by selling their products to specialty food distributors who in turn sell to retailers. In these arrangements, food brokers generally receive a 10% commission on the wholesale price and distributors generally purchase the product at a 20% to 25% discount from the supplier's wholesale price. The assortment of specialized food brokers and distributors that currently supports the industry is highly fragmented. As a result, many retail outlets for specialty food products are underserved or have limited access to these food brokers and distributors.
Online opportunity in Specialty Foods
In both the retail and wholesale markets, we believe electronic commerce offers opportunities to improve the specialty food shopping experience and selection. We believe traditional specialty food businesses face a number of challenges in providing a satisfying experience:
o the specialty food market is highly fragmented with no single dominant retailer or wholesaler, and we estimate there are at least 5,000 suppliers throughout the United States;
o this fragmentation leaves both retail and wholesale customers without access to a broad base of specialty food products;
o distributors who carry specialty food products are limited in the products they can offer by inventory holding costs, inventory spoilage and warehouse size, which restricts the supply and selection available for customers;
o mail order catalogs are not updated as inventory level or consumer demand changes and are expensive to produce and mail; and
o traditional retail stores have costs associated with occupying and operating a physical store and selection is limited by the size of the store and inventory considerations.
We believe that sales of gourmet and specialty food over the Internet provides a means to address many of these challenges.
Customers and Marketing
Specialty foods are value-added, premium-priced items that are specifically
targeting consumers who are willing to pay a premium. The Company's primary
target market consists of discriminating consumers who seek imported specialty
gourmet foods. According to the National Association of the Specialty Food
Trade, such consumers typically share certain of the following demographics: (1)
Reside on the Pacific Coast or in New England; (2) Live in an urban community;
(3) are in the 25-44 age group; (4) College educated; (5) A professional or
proprietor/manager; (6) Earn upwards of $50,000 per annum; and (7) Have children
under the age of six.
We also have a potential to market to multiple secondary target markets in the wholesale sector. Such potential customers include corporate coffeehouses, restaurant chains, gift shops, supermarkets, grocery stores, institutional accounts and other specialty stores.
The cornerstone in our marketing strategy is our personnel's knowledge of the consumer. We believe that tomorrow's specialty food consumer will have a broader age range from teens to elderly and will be more health conscious and adventurous when it comes to specialty foods products. According to the International Dairy-Deli-Bakery Association's 1996 year-end report, the next generation will have a slant toward global environmentalism, blurred political boundaries and cross-cultural values. In terms of the food consumer of tomorrow, the report found that "clean" or "organic" food will be in great demand as baby boomers and young people, with their concern for the environment, do more shopping.
The development of the Holland-American.com market potential is predicated upon the establishment of a diversified product portfolio capable of serving the different types of imported specialty gourmet food needs of its target customers. This would be crucial if we intend to exploit the opportunity to influence "impulse" purchases. According to a 1996 A.C. Nielsen (Schaumburg, Illinois) survey, cookies, crackers and other specialty snacks are among the "high impulse" items.
We believe that convenience is the driving force spurring the desires of America's specialty gourmet food product needs. A growing number of consumers are embracing the convenience of shopping for specialty foods online. Our commitment to carrying a comprehensive product line, making shopping a fun and easy experience for the consumer and shipping orders in a timely manner will play a critical role in our objective in achieving critical mass.
We operate in a competitive environment. The industry is dominated by large regional retail establishments such as Whole Foods Market, Wild Oats, Trader Joe's, Gelson's and Bristol Farm that rely heavily on aggressive marketing campaigns and customer referrals. Many of these traditional retailers offer diverse product lines and competitive pricing. In some instances, these firms do market their products over the Internet such as Whole Foods Market, Wild Oats and Bristol Farms.
We enjoy three competitive advantages over these larger, regional firms:
(1) More diverse product lines, enabling the Company to act as a single-source
provider for all the customer's specialty foods needs; (2) the convenience of
online shopping; and (3) Prompt shipment of all customer orders.
We intend to consider potential acquisitions to attempt to increase our market share and revenues. To date, we have not entered into discussions with any specific acquisition candidates. No assurance can be given that we will identify satisfactory acquisition candidates or, if identified, that we will be able to consummate an acquisition on terms acceptable to us.
Soccersite.com is a content-oriented and e-commerce Internet site with over 400 pages of information about the sport of soccer. We provide traditional news on recent professional soccer games, and we allow visitors to post amateur league and tournament information and training camps. We also provide a forum for coaches to interact with players and other coaches. We also host a special section that caters to young soccer enthusiasts. In addition, we provide a search capacity for visitors to explore specific topics. All content information is provided free of charge to the visitor.
To capitalize on the retail opportunities associated with our web site, we created SoccerMall, an e-commerce retailer of soccer-related merchandise and apparel. All orders to SoccerMall are fulfilled directly by us through our relationship with a local distributor in Annapolis, Maryland. The merchandise selection of our fulfillment center also acts as our "virtual" inventory.
Widely regarded as the world's most popular sport, soccer is growing at a rapid pace in the United States. Largely attributed to the expansive Latino immigrant fan base, Southern California has become the epicenter for the soccer community in North America. According to the Los Angeles Times, attendance at international soccer games hosted in Los Angeles is up over 200% from its introduction in 1997. In comparison to other professional Los Angeles sports teams, the L.A. Galaxy (Major League Soccer professional team) consistently drew larger home game crowds than any other local team except the Los Angeles Dodgers with the local fan base largely comprised of members of the Latino community. Strategy Research Corp., a leading industry association which tracks trends in the Latino community, estimates the Southern California Latino consumers yield a collective buying power of $57 billion.
To date, we have had no targeted marketing campaign. Nonetheless, word-of-mouth advertising and traffic generated by search engines, have resulted in nearly one million visitors to the web site in the past year.
In addition to retail sales through SoccerMall, we sell advertising space on the web site to merchants and manufacturers.
We are currently developing a marketing strategy designed to attract more consumers to the web site, build greater advertising opportunities and further advance the sport of soccer. This strategy will likely include sponsoring amateur and professional soccer events, advertising in major industry publications and participating in cooperative ventures with industry associations.
There are numerous soccer-related organizations which have a presence on the Internet. Most web sites are retail e-commerce websites offering soccer merchandise and apparel. There are a smaller number of web sites that look to combine a content-oriented format with the convenience of retail, including Soccerweek.com and Soccermadness.com.
We believe there are acquisition opportunities among the providers of value added information about the sport of soccer. In furtherance of our acquisition strategy, we anticipate reviewing and conducting investigations of potential acquisitions. If we believe a favorable opportunity exists, we anticipate that we will enter into discussions with the owners of such businesses regarding the possibility of an acquisition by us. As of the date hereof, we do not have any agreements or pending acquisitions and have entered into any letters of intent with respect to pending acquisitions. No assurance can be given that we will identify satisfactory acquisition candidates or, if identified, that we will be able to consummate an acquisition on terms acceptable to us.
EMPLOYEES
As of September 30, 1999, we employed twelve (12) full time individuals. We have four from management, six from sales and marketing and two from administration. Our employees are not unionized, and we consider our relations with our employees to be favorable.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH OUR FINANCIAL STATEMENTS AND THE RELATED NOTES TO THE FINANCIAL STATEMENTS
APPEARING ELSEWHERE IN THIS REGISTRATION STATEMENT. THE FOLLOWING INCLUDES A
NUMBER OF FORWARD-LOOKING STATEMENTS THAT REFLECT OUR CURRENT VIEWS WITH RESPECT
TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. WE USE WORDS SUCH AS ANTICIPATES,
BELIEVES, EXPECTS, FUTURE, AND INTENDS, AND SIMILAR EXPRESSIONS TO IDENTIFY
FORWARD-LOOKING STATEMENTS. INVESTORS SHOULD NOT PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH APPLY ONLY AS OF THE DATE OF THIS REGISTRATION
STATEMENT. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR OUR PREDICTIONS. FOR A DESCRIPTION OF THESE RISKS, SEE THE
SECTION ENTITLED "FACTORS THAT MAY AFFECT FUTURE RESULTS."
OVERVIEW
We changed our corporate focus from that of a food holding company to an Internet holding company with the acquisition of Sitestar Corporation in July 1999. Soon after concluding this acquisition, we started focusing on acquiring and investing in Internet-based enterprises. Our mission is to develop our Internet operating subsidiaries and future investments in other Internet enterprises into highly focused and successful stand-alone Internet businesses. We intend to achieve a fast-track development process by tapping the services, support and knowledge of individuals and organizations that have extensive experience in developing Internet concepts and technologies.
In July 1999, we began to implement our current strategy of acquiring and investing in emerging internet based enterprises to create a broad and diverse set of core Internet businesses which deliver a variety of online solutions. In addition to developing and integrating internet-based technologies, our primary objective is to create a mix of Internet operating companies and Internet-related portfolio investments that will enhance the value of its core holdings.
Our Internet services subsidiary began providing Internet services to its customers in 1996 by providing Internet access and enhanced products and services to small and medium sized enterprises in selected high growth markets. We target primarily small and medium sized enterprise customers located in selected high growth secondary markets. We currently provide our customers with Internet access and enhanced products and services in the mid-Atlantic area of the United States. We have designed our comprehensive suite of enhanced products and services to meet the expanding needs of our customers and to increase our revenue per customer. The products and services we provide include: * Internet access services;
* Web design services;
* Web hosting services;
* End to end e-commerce solutions;
* Online marketing consulting; and
* Management of mission critical Internet applications.
RESULTS OF OPERATIONS
Prior to our change in corporate focus from that of a food holding company to that of an Internet holding company, we generated all of our revenues from sales of specialty food products. We have historically derived a majority of our revenues from small independent specialty food retail customers. From inception until July 1999, we generated revenues exclusively from wholesale and retail sales. We derive income from our wholesale and retail sales from the excess of the wholesale and retail prices we charge our customers over the product costs we pay our suppliers. We have a wholesale program in which we sell bulk quantities of specialty food products to registered retailers at wholesale prices. In this program, we purchase products from suppliers at a distributor's discounted price and derive income from the difference between this discounted price and the wholesale price we charge. Additionally, our retail customers pay for orders by cash or credit card while we pay our suppliers on extended terms. As a result, we are able to increase our working capital between the time we receive payment for orders and the time we are required to pay suppliers.
Our net revenues have grown since inception, from $1,553,926 in 1997 to $2,175,867 in 1998. Specialty food sales are inherently seasonal, with highest volumes during the fourth quarter holiday season. Additionally, our business has a large gift-giving component. As a result of these two factors, approximately 46% of our 1998 sales were realized in the fourth quarter. We have taken steps intended to reduce the magnitude of this trend such as expanding our product selection, and emphasizing non-holiday occasions and personal consumption. However, we expect fourth quarter sales to continue to represent a disproportionate amount of annual sales in the future.
We incurred net losses of $197,839 in the six months ended June 30, 1999, $284,494 in year ended December 31, 1998 and $194,069 in seven months ended December 31, 1997. At June 30, 1999 we had an accumulated deficit of $676,402. On a pro forma basis, had the divestiture of Holland American taken place at January 1, 1999, our net loss in the six months ended June 30, 1999 would have been $103,830. We also anticipate to further cut the losses as a result of the elimination of the additional corporate expenses related to our spun-off food operations.
We have a limited operating history on which to base an evaluation of our business and prospects. You must consider our prospects in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets such as online commerce. To address these risks, we must obtain sufficient operating capital, maintain and expand our customer base, continue to increase our product offerings, successfully implement our business, marketing and promotional strategies, continue to develop our order processing technology, respond to competitive developments in the specialty food market, and attract, retain and motivate qualified personnel. We cannot assure you that we will be successful in addressing these risks and our failure could be harmful to our business, prospects, financial condition and results of operations.
The following table sets forth statement of operations data as a percentage of revenues for the periods indicated:
Year Seven Months Six Months
Ended Ended Ended June 30,
December 31, December 31, -----------------
1998 1997 1999 1998
------------ ------------ ------ ------
Revenues 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of revenues 74.2 75.8 75.1 69.8
Selling, general and
Administrative 38.0 36.7 43.7 29.1
----- ----- ----- -----
112.2 112.5 118.8 98.9
----- ----- ----- -----
Operating loss (12.2) (12.5) (18.8) 1.1
----- ----- ------ -----
Net loss (12.2)% (12.5)% (18.8)% 1.1%
====== ====== ====== ======
|
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
REVENUES. Net revenues consist of product sales to customers and charges to customers for outbound shipping and handling costs and are net of product returns and promotional discounts. Revenues are recognized upon the shipment of products from our suppliers. Net revenues decreased to $870,249 for the six months ended June 30, 1999 from $882,471 for the six months ended June 30, 1998. This decrease reflects a decreased number of transactions due to a shortage of products in the first quarter.
COST OF GOODS SOLD. Cost of goods sold consists primarily of the costs of products sold to customers and actual outbound shipping and handling costs. Cost of goods sold increased to $654,011 for the six months ended June 30, 1999 from $616,688 for the six months ended June 30, 1998. Our gross profit margin decreased to 24.9% of net revenues for the six months ended June 30, 1999 from 30.1% of net revenues for the six months ended June 30, 1998. This decrease in gross profit margin was due to a few factors: During the first quarter of 1999, we offered many products at promotional prices to increase sales after the holiday season. As part of our promotional campaign, we also experienced substantial demand in the first quarter of 1999 for products for which our prices did not allow us to recoup our shipping costs. However, once our promotional campaign is over, we anticipate to recoup all our shipping costs in all future sales.
SELLING, GENERAL AND ADMINISTRATIVE. Sales and marketing expenses consist primarily of advertising and promotional expenditures and payroll and related expenses for personnel engaged in sales and marketing activities. Selling, general and administrative expenses increased by $123,817, or 48.2%, to $380,623 for the six months ended June 30, 1999 compared to $256,806 for the six months ended June 30, 1998. As a percentage of revenues, selling, general and administrative expenses increased to 43.7% for the six months ended June 30, 1999 from 29.1% for the six months ended June 30, 1998. This increase is primarily attributable to the increase in general and administrative personnel and an increase in corporate expenses. Our corporate general and administrative expenses, which were not incurred in the seven months ending December 31, 1997, increased by $103,830.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE SEVEN MONTHS ENDED DECEMBER 31,
1997
REVENUES. Net revenues consist of product sales to customers and charges to customers for outbound shipping and handling costs and are net of product returns and promotional discounts. Revenues are recognized upon the shipment of products from our operations facility. Revenues increased by $621,941 or 40%, to $2.176 million for the year ended December 31, 1998 from $1.554 million for the seven months ended December 31, 1997. This increase in revenues resulted from the Company's first full year of operation compared to the seven months ended December 31, 1997. On a pro forma annualized basis, our sales would have been estimated at $2.664 million if we had an additional five months in the seven months ended December 31, 1997. On a pro forma basis, this decrease in revenues reflects a decreased number of transactions due to the lack of products due to a deficiency in our working capital. All of the Company's revenues came in from its specialty food operations during fiscal years 1997 and 1998. We do not anticipate the same revenue sources due to our recent divestiture of our food operations.
COST OF GOODS SOLD. Cost of goods sold consists primarily of the costs of products sold to customers and actual outbound shipping and handling costs. Cost of goods sold increased by $437,047, or 37%, to $1.614 million for the year ended December 31, 1998 from $1.177 million for the seven months ended December 31, 1997. This increase was primarily attributable to the increase in our sales period from seven months ending December 31, 1997 to twelve months ending December 31, 1998. On a pro forma annualized basis, our cost of goods sold would have been estimated at $2.017 million. The decrease of cost of goods sold in the twelve months ended December 31, 1998 compared to the annualized cost of goods sold for fiscal year 1997 was primarily to the decrease in revenues in the twelve months ended December 31, 1998. As a percentage of revenues, cost of goods sold were 74.2% for the year ended December 31, 1998, compared to 75.8% for the year ended December 31, 1997. Our gross profit margin increased to 25.8% of net revenues for the twelve months ended December 31, 1998 from 24.2% of net revenues for the seven months ended December 31, 1997. This increase in gross profit margin was due to the new products we offered that have slightly higher margins during fiscal year 1999 to broaden our product offering.
SELLING, GENERAL AND ADMINISTRATIVE. Sales and marketing expenses consist primarily of advertising and promotional expenditures and payroll and related expenses for personnel engaged in sales and marketing activities. Selling, general and administrative expenses increased by $256,922, or 45%, to $827,040 for the year ended December 31, 1998 from $570,118 in the seven months ended December 31, 1997. This increase was primarily attributable to the increase in our sales period from seven months ending December 31, 1997 to twelve months ending December 31, 1998. On a pro forma annualized basis, selling, general and administrative expenses in fiscal year 1997 would have been estimated at $977,345. As a percentage of revenues, these expenses were 38.0% for the year ended December 31, 1998, compared to 36.6% for the year ended December 31, 1997. This increase in selling, general and administrative expense in dollars and as a percentage of revenues is primarily attributable to the increase in selling, general and administrative on the corporate level related on acquisition related expenses such as legal, accounting and public relations.
LIQUIDITY AND CAPITAL RESOURCES
Our business plan has required, and is expected to continue to require, substantial capital to fund operations, capital expenditures, expansion of sales and marketing capabilities and acquisitions.
To date, we have financed our operation primarily through short-term borrowings and internally generated cash flow form our operations. In addition since December 31, 1998, we borrowed approximately $415,000 from various investors and approximately $144,000 from our stockholders in exchange for promissory notes in these principal amounts which bear interest at the rate of 8 percent per year.
We believe that the net cash position on a pro forma basis with the acquisition of Sitestar, together with our existing cash and cash equivalents, will be sufficient to meet our working capital and capital expenditure requirements for at least the next 6 months. Thereafter, we may be required to seek additional sources of financing. We may also be required to raise additional financing before such time. If additional funds are raised through the issuance of equity securities, our existing shareholders may experience significant dilution. Furthermore, additional financing may not be available when needed or, if available, such financing may not be on terms favorable to us or our shareholders. If such sources of financing are insufficient or unavailable, or if we experience shortfalls in anticipated revenue or increases in anticipated expenses, we may need to slow down or stop the expansion of our e-commerce business, including our ISPs and reduce our marketing and development efforts. Any of these events could harm our business, financial condition or results of operations.
IMPACT OF THE YEAR 2000 ISSUE
Many computer programs have been written using two digits rather than four to define the applicable year. This poses a problem at the end of the century because these computer programs may recognize a date using 00 as the year 1900 rather than the year 2000. This, in turn, could result in major system failures or miscalculations, and is generally referred to as the year 2000 issue. We have formulated and, to a large extent, implemented a plan to address our year 2000 issues.
During 1999, we established a year 2000 compliance program to coordinate our efforts to resolve our year 2000 issues. We are addressing our year 2000 issues through a comprehensive assessment of both our internal systems and the systems of our external operating and suppliers.
INTERNAL SYSTEMS ASSESSMENT AND REVIEW
Our internal systems assessment and review consists of four-phases, which we expect to complete by the end of the third quarter of 1999:
* ASSESSMENT--We have conducted an inventory of our existing systems, performed risk assessment on these systems, prioritized the importance of these systems, and determined appropriate allocation of resources. This assessment is substantially complete.
* ANALYSIS AND PLANNING--We have selected corrective methods where needed, developed appropriate test standards, determined conversion sequences where needed, and established a detailed timeline for correcting any known year 2000 problems. This analysis and planning is substantially complete.
* CONVERSION AND TESTING--We are developing and modifying operating codes, purchasing or installing vendor-provided solutions and conducting unit and system tests. Our conversion and testing phase is substantially complete.
* IMPLEMENTATION--We have begun modifying previously non-compliant systems, installing third party solutions, updating operational procedures, and training our employees as needed. This implementation phase is substantially complete.
We also face risks from customer-provided hardware and software that we host in our data centers that in many cases has been customized by outside service providers or customer personnel. While we inform our customers that they are responsible for year 2000 compliance of their hosted hardware and software, we cannot assure you that our customers will take the steps necessary to achieve year 2000 compliance. The failure of our customers and third-party providers to ensure that their hosted hardware and software is year 2000 compliant could disrupt our operations and materially adversely affect our financial condition and operating results.
EXTERNAL SYSTEMS ASSESSMENT AND REVIEW
We have also conducted a four-phase review of the systems of our operatings, suppliers, and other third parties (including equipment providers and other telecommunications service providers) to assess their year 2000 compliance efforts. The first phase, which is completed, included identifying our critical operatings, suppliers, and vendors. This phase involved requesting information from these critical operatings, analyzing their responses, studying their published year 2000 statements, performing our own risk assessments, prioritizing the importance of potential non-compliant systems and determining appropriate allocation of resources.
Our second phase includes developing personal contacts with critical operatings' year 2000 staff, articulating our concerns and requesting assistance from them with respect to their products. This phase is substantially complete. Our third phase includes receiving information from responses to our requests for assistance, researching Web sites, making phone contacts and summarizing the results of the information that we receive. Finally, our fourth phase includes actively evaluating different systems, testing critical operatings' year 2000 updates, reviewing such information with our management team and identifying any additional resources that may be needed. We believe that phases three and four of our review will be substantially complete prior to the end of the third quarter of 1999.
We have reviewed and analyzed the year 2000 compliance of Sitestar.net, which we acquired in July 1999. We are in the process of integrating Sitestar.net into our operations. We do not believe that this integration of their systems with ours will have an adverse effect on our year 2000 compliance status.
During the year ended December 31, 1998, we spent over $8,000 in connection with the upgrade and continuing build-out of our technical operations and network. We believe that all of this newly acquired equipment is year 2000 compliant. We have incurred costs and expect to incur additional costs in 1999 in connection with our year 2000 program, which we believe will not be material.
We currently believe that our most likely worst case scenario related to the year 2000 issue is associated with concerns with our suppliers' products and software. If one or more of our suppliers experience year 2000 problems which result in decreased Internet usage and that delay or interfere with our ability to receive or transmit our customers' data, our business and operations could be adversely affected.
We believe that our plan to address year 2000 issues will be fully executed prior to January 1, 2000; however, any failure of this plan could have a material adverse effect on our operating results. Despite the testing performed by us and our vendors, our products, services and systems may contain undetected errors or defects associated with year 2000 date functions. In the event any material errors or defects are not detected and fixed, or third parties cannot timely provide us with products, services or systems that meet the year 2000 requirements, our operating results could be materially adversely affected. We cannot guarantee that we will be able to timely and successfully modify our products, services and systems to comply with year 2000 requirements if we have failed to accurately assess, test and correct year 2000 issues. Known or unknown errors or defects that affect the operation of our products, services or systems could result in a delay in the receipt of payment, interruption of network services, cancellation of customer contracts, diversion of development resources, damage to our reputation and litigation costs. We cannot guarantee that these or other factors relating to year 2000 compliance issues will not have a material adverse effect on our business.
We have prepared a contingency plan in the event that any of our products, services or systems remain non-compliant as of December 31, 1999. As part of this contingency plan, we may replace any non-compliant suppliers or other third party providers with those with demonstrated year 2000 compliance.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. Forward-looking statements in this document and those made from time to time by us are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements concerning the expected future revenues or earnings or concerning projected plans, performance, product development, product release or product shipment, as well as other estimates related to future operations are necessarily only estimates of future results and there can be no assurance that actual results will not materially differ from expectations. We undertake no obligation to publicly release the results of any revisions to forward-looking statements which may be made to reflect events or circumstances occurring after the date such statements were made or to reflect the occurrence of unanticipated events.
Factors that could cause actual results to differ materially from results anticipated in forward-looking statements include, but are not limited to the following:
RISKS PARTICULAR TO SITESTAR CORPORATION
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU MAY EVALUATE US.
Our new corporate philosophy was formulated in July 1999. Although we have grown significantly since then, we have a limited operating history upon which you may evaluate our business and prospects. We and our wholly owned operating companies are among the many companies that have entered into the emerging e-commerce market. All of our operating companies are in the early stages of
their development. Our business and prospects must be considered in light of the risk, expense and difficulties frequently encountered by companies in an early stage of development, particularly companies in new and rapidly evolving markets such as e-commerce. If we are unable to effectively allocate our resources and help grow existing operating companies, our stock price may be adversely affected and we may be unable to execute our strategy of developing a collaborative network of operating companies.
OUR BUSINESS DEPENDS UPON THE PERFORMANCE OF OUR OPERATING COMPANIES, WHICH IS UNCERTAIN.
Economic, governmental, industry and internal company factors outside our control affect each of our operating companies. If our operating companies do not succeed, the value of our assets will decline. The material risks relating to our operating companies include:
o fluctuations in the market price of the common stock of our future publicly traded operating companies, which are likely to affect the price of our common stock;
o lack of the widespread commercial use of the Internet, which may prevent our operating companies from succeeding; and
o intensifying competition for the products and services our operating companies offer, which could lead to the failure of some of our operating companies.
The other material risks relating to our operating companies are more fully described below under "Risks Particular to Our Operating Companies."
OUR BUSINESS MODEL IS UNPROVEN.
Our strategy is based on an unproven business model. Our business model depends on the willingness of companies to join our collaborative network and the ability of the collaborative network to assist our operating companies. Our business model depends on our ability to share information within our network of operating companies. If competition develops among our operating companies, we may be unable to fully benefit from the sharing of information within our network of operating companies. If we cannot convince companies of the value of our business model, our ability to attract new companies will be adversely affected and our strategy of building a collaborative network may not succeed.
WE MAY HAVE TO TAKE CERTAIN ACTIONS TO AVOID REGISTRATION UNDER THE INVESTMENT COMPANY ACT OF 1940.
We believe that we are actively engaged in the business of e-commerce through our network of operating companies. However, due to a significant possibility that many of our future operating companies may not be majority-owned subsidiaries, changes in the value of our interests in our operating companies and the income/loss and revenue attributable to our operating companies could require us to register as an investment company under the Investment Company Act unless we take action to avoid being required to
register. For example, we may be unable to sell minority interests we would otherwise want to sell and may need to sell some assets which are not considered to be investment securities, including interests in operating companies. We may also have to ensure that we retain at least a 25% ownership interest in our operating companies after their initial public offerings. In addition, we may have to acquire additional income or loss-generating assets that we might not otherwise have acquired or may have to forgo opportunities to acquire interests in companies that we would otherwise want to acquire would be important to our strategy. It is not feasible for us to register as an investment company because the Investment Company Act regulations are inconsistent with our strategy of actively managing, operating and promoting collaboration among our network of operating companies.
FLUCTUATIONS IN OUR QUARTERLY RESULTS MAY ADVERSELY AFFECT OUR STOCK PRICE.
We expect that our quarterly results will fluctuate significantly due to many factors, including:
* the operating results of our operating companies;
* changes in equity losses or income and amortization of goodwill related to the acquisition or divestiture of interests in operating companies;
* changes in our methods of accounting for our operating company interests, which may result from changes in our ownership percentages of our operating companies;
* sales of equity securities by our operating companies, which could cause us to recognize gains or losses under applicable accounting rules;
* the pace of development or a decline in growth of the e-commerce market;
* intense competition from other potential acquirors of B2B e-commerce companies, which could increase our cost of acquiring interests in additional companies, and competition for the goods and services offered by our operating companies; and
* our ability to effectively manage our growth and the growth of our operating companies during the anticipated rapid growth of the e-commerce market.
We believe that period-to-period comparisons of our operating results are not meaningful. Additionally, if our operating results in one or more quarters do not meet securities analysts' or your expectations, the price of our common stock could decrease.
OUR SUCCESS IS DEPENDENT ON OUR KEY PERSONNEL AND THE KEY PERSONNEL OF OUR OPERATING COMPANIES.
We believe that our success will depend on continued employment by us and our operating companies of senior management and key technical personnel. Our success also depends on the continued assistance of our Advisory Board members, some of whom may from time to time leave our Advisory Board. If one or more members of our senior management, our operating companies' senior management or our Advisory Board were unable or unwilling to continue in their present positions, our business and operations could be disrupted.
As of September 30, 1999, all of our management personnel have worked for us for less than one year. Our efficiency may be limited while these employees and future employees are being integrated into our operations. In addition, we may be unable to find and hire additional qualified management and professional personnel to help lead us and our operating companies.
The success of some of our operating companies also depends on their having highly trained technical and marketing personnel. Our operating companies will need to continue to hire additional personnel as their businesses grow. A shortage in the number of trained technical and marketing personnel could limit the ability of our operating companies to increase sales of their existing products and services and launch new product offerings.
Our expenses will increase as we build an infrastructure to implement our business model. For example, we expect to hire additional employees, expand information technology systems and lease more space for our corporate offices. In addition, we plan to significantly increase our operating expenses to:
* broaden our operating company support capabilities;
* explore acquisition opportunities and alliances with other companies; and
* facilitate business arrangements among our operating companies.
Expenses may also increase due to the potential effect of goodwill amortization and other charges resulting from completed and future acquisitions. If any of these and other expenses are not accompanied by increased revenue, our operating losses will be greater than we anticipate.
OUR OPERATING COMPANIES ARE GROWING RAPIDLY AND WE MAY HAVE DIFFICULTY ASSISTING THEM IN MANAGING THEIR GROWTH.
Our operating companies have grown, and we expect them to continue to grow, rapidly by adding new products and services and hiring new employees. This growth is likely to place significant strain on their resources and on the resources we allocate to assist our operating companies. In addition, our management may be unable to convince our operating companies to adopt our ideas for effectively and successfully managing their growth.
We may compete with some of our shareholders and operating companies, and our operating companies may compete with each other.
WE FACE COMPETITION FROM OTHER POTENTIAL ACQUIRERS OF E-COMMERCE COMPANIES.
We face competition from other capital providers including publicly-traded Internet companies, venture capital companies and large corporations. Many of these competitors have greater financial resources and brand name recognition than we do. These competitors may limit our opportunity to acquire interests in new operating companies. If we cannot acquire interests in attractive companies, our strategy to build a collaborative network of operating companies may not succeed.
OUR SUCCESS COULD BE IMPAIRED BY VALUATIONS PLACED ON INTERNET-RELATED COMPANIES BY THE FINANCIAL MARKETPLACE.
Our strategy involves creating value for our shareholders and the employees of our operating companies by helping our operating companies grow and access the capital markets. We are therefore dependent on the market for Internet-related companies in general and for public offerings of those companies in particular. To date, there have been a substantial number of Internet-related initial public offerings and additional offerings are expected to be made in the future. If the market for Internet-related companies and initial public offerings were to weaken for an extended period of time, the ability of our operating companies to grow and access the capital markets will be impaired, and we may need to provide additional capital to our operating companies.
WE MAY BE UNABLE TO OBTAIN MAXIMUM VALUE FOR OUR OPERATING COMPANY INTERESTS.
We have significant positions in our operating companies. While we generally do not anticipate selling our interests in our operating companies, if we were to divest all or part of them, we may not receive maximum value for these positions. For future operating companies with publicly-traded stock, we may be unable to sell our interest at then-quoted market prices. Furthermore, for those operating companies that do not have publicly-traded stock, the realizable value of our interests may ultimately prove to be lower than the carrying value currently reflected in our consolidated financial statements.
RISKS INHERENT TO OUR ACQUISITION STRATEGY
We have in the past, and intend to in the future, to expand through the
acquisition of businesses, technologies, products and services, such as the
recent acquisitions of Sitestar.net, Soccersite.com, Greattools.com and
Holland-American.com. Acquisitions may result in the potentially dilutive
issuance of equity securities, the incurrence of additional debt, development
costs and the amortization of goodwill and other intangible assets. Further,
acquisitions involve a number of special problems, including difficulty
integrating technologies, operations and personnel and diversion of management
attention in connection with both negotiating the acquisitions and integrating
the assets. There can be no assurance that we will be successful in addressing
such problems. In addition, growth associated with numerous acquisitions places
significant strain on our managerial and operational resources. Our future
operating results will depend to a significant degree on its ability to
successfully manage growth and integrate acquisitions. Furthermore, many of our
operating companies are early-stage companies, with limited operating histories
and limited or no revenues; there can be no assurance that we will be successful
in developing such companies.
UNCERTAINTIES ASSOCIATED WITH SELLING ASSETS
A significant element of our business plan involves selling, in public or private offerings, portions of the companies it has acquired and developed. The Company's ability to engage in any such transactions, the timing of such transactions and the amount of proceeds from such transactions are dependant on market and other conditions largely beyond our control. Accordingly, there can be no assurance that we will be able to engage in such transactions in the future or that when we are able to engage in such transactions they will be at favorable prices. If we were unable to liquidate portions of its portfolio companies at favorable prices, our business, financial condition and results of operations would be adversely affected.
WE MAY NOT HAVE OPPORTUNITIES TO ACQUIRE INTERESTS IN ADDITIONAL COMPANIES.
We may be unable to identify companies that complement our strategy, and even if we identify a company that complements our strategy, we may be unable to acquire an interest in the company for many reasons, including:
* failure to agree on the terms of the acquisition, such as the amount or price of our acquired interest;
* incompatibility between us and management of the company;
* competition from other acquirers of e-commerce companies;
* a lack of capital to acquire an interest in the company; and
* the unwillingness of the company to operating with us.
If we cannot acquire interests in attractive companies, our strategy to build a collaborative network of operating companies may not succeed.
OUR RESOURCES AND OUR ABILITY TO MANAGE NEWLY ACQUIRED OPERATING COMPANIES MAY BE STRAINED AS WE ACQUIRE MORE AND LARGER INTERESTS IN E-COMMERCE COMPANIES.
We have acquired, and plan to continue to acquire, significant interests in both Business to Consumer and Business to Business e-commerce companies that complement our business strategy. In the future, we may acquire larger percentages or larger interests in companies than we have in the past, or we may seek to acquire 100% ownership of companies as we have done in our initial stages of development. These larger acquisitions may place significantly greater strain on our resources, ability to manage such companies and ability to integrate them into our collaborative network. Future acquisitions are subject to the following risks:
* Our acquisitions may cause a disruption in our ongoing support of our operating companies, distract our management and other resources and make it difficult to maintain our standards, controls and procedures.
* We may acquire interests in companies in e-commerce markets in which we have little experience. * We may not be able to facilitate collaboration between our operating companies and new companies that we acquire.
* To fund future acquisitions we may be required to incur debt or issue equity securities, which may be dilutive to existing shareholders.
OUR SYSTEMS AND THOSE OF OUR OPERATING COMPANIES AND THIRD PARTIES MAY NOT BE YEAR 2000 COMPLIANT, WHICH COULD DISRUPT OUR OPERATIONS AND THE OPERATIONS OF OUR OPERATING COMPANIES.
Many computer programs have been written using two digits rather than four digits to define the applicable year. This poses a problem at the end of the century because these computer programs may recognize a date using "00" as the year 1900, rather than the year 2000. This in turn could result in major system failures or miscalculations and is generally referred to as the Year 2000 issue. We may realize exposure and risk if our systems and the systems on which our operating companies are dependent to conduct their operations are not Year 2000 compliant. Our potential areas of exposure include products purchased from third parties, computers, software, telephone systems and other equipment used internally. If our present efforts and the efforts of our operating companies to address the Year 2000 compliance issues are not successful, or if distributors, suppliers and other third parties with which we and our operating companies conduct business do not successfully address such issues, our business and the businesses of our operational companies may not be operational for a period of time. If the Web-hosting facilities of our operating companies are not Year 2000 compliant, their production Web sites would be unavailable and they would not be able to deliver services to their users.
RISKS PARTICULAR TO OUR OPERATING COMPANIES
Sitestar and our operating companies' result of operations, and accordingly the price of its common stock, may be adversely affected by the following factors:
* lack of acceptance of the Internet as an advertising medium;
* inability to develop a large base of users of its Web sites who possess demographic characteristics attractive to advertisers;
* lower advertising rates;
* slow development of the e-commerce market;
* lack of acceptance of its Internet content;
* loss of key content providers;
* intense competition;
* loss of key personnel; and
* inability to manage growth.
THE SUCCESS OF OUR OPERATING COMPANIES DEPENDS ON THE DEVELOPMENT OF THE E-COMMERCE MARKET, WHICH IS UNCERTAIN.
All of our operating companies rely on the Internet for the success of their businesses. The development of the e-commerce market is in its early stages. If widespread commercial use of the Internet does not develop, or if the Internet does not develop as an effective medium for the provision of products and services, our operating companies may not succeed.
Our long-term success depends on widespread market-acceptance of e-commerce. A number of factors could prevent such acceptance, including the following:
* the unwillingness of businesses to shift from traditional processes to e-commerce processes;
* the necessary network infrastructure for substantial growth in usage of e-commerce may not be adequately developed;
* increased government regulation or taxation may adversely affect the viability of e-commerce;
* insufficient availability of telecommunication services or changes in telecommunication services could result in slower response times for the users of e-commerce; and
* concern and adverse publicity about the security of e-commerce transactions.
OUR OPERATING COMPANIES MAY FAIL IF THEIR COMPETITORS PROVIDE SUPERIOR INTERNET- RELATED OFFERINGS OR CONTINUE TO HAVE GREATER RESOURCES THAN OUR OPERATING COMPANIES HAVE.
Competition for Internet products and services is intense. As the market for e-commerce grows, we expect that competition will intensify. Barriers to entry are minimal, and competitors can offer products and services at a relatively low cost. Our operating companies compete for a share of a customer's: * purchasing budget for services, materials and supplies with other online providers and traditional distribution channels;
* dollars spent on consulting services with many established information systems and management consulting firms; and
* advertising budget with online services and traditional off-line media, such as print and trade associations.
In addition, some of our operating companies compete to attract and retain a critical mass of buyers and sellers. Several companies offer competitive solutions that compete with one or more of our operating companies. We expect that additional companies will offer competing solutions on a stand-alone or combined basis in the future. Furthermore, our operating companies' competitors may develop Internet products or services that are superior to, or have greater market acceptance than, the solutions offered by our operating companies. If our operating companies are unable to compete successfully against their competitors, our operating companies may fail.
Many of our operating companies' competitors have greater brand recognition and greater financial, marketing and other resources than our operating companies. This may place our operating companies at a disadvantage in responding to their competitors' pricing strategies, technological advances, advertising campaigns, strategic partnerships and other initiatives.
DEPENDENCE ON THIRD-PARTY RELATIONSHIPS
Our operating subsidiaries are currently, and expect to be in the future, dependent on a number of third-party relationships. These relationships include arrangements relating to the creation of traffic on Sitestar-affiliated Web sites and resulting generation of advertising and commerce-related revenue. The termination of, or the failure of such Sitestar-affiliated Web sites to renew on reasonable terms, such relationships could have an adverse effect on our business, results of operations and financial condition. Our operating companies also are generally dependent on other third-party relationships with advertisers, sponsors and partners. Most of these arrangements do not require future minimum commitments to use our services, are often not exclusive and are often short-term or may be terminated at the convenience of the other party. There can be no assurance that these third parties will not reassess their commitment to our operating companies at any time in the future, or that they will not develop their own competitive services or products. Further, there can be no assurance that the services of these companies will achieve market acceptance or commercial success and therefore there can be no assurance that our existing relationships will result in sustained or successful business partnerships or significant revenues for us.
SOME OF OUR OPERATING COMPANIES MAY BE UNABLE TO PROTECT THEIR PROPRIETARY RIGHTS AND MAY INFRINGE ON THE PROPRIETARY RIGHTS OF OTHERS.
Proprietary rights, particularly in the form of copyrights, are important to the success and competitive position of many of our operating companies. Although our operating companies seek to protect their proprietary rights, their actions may be inadequate to protect any trademarks, copyrights and other proprietary rights. In addition, effective copyright and trademark protection may be unenforceable or limited in certain countries, and the global nature of the Internet makes it impossible for some of our operating companies to control the dissemination of their work and use of their services. Some of our operating companies also license content from third parties and it is possible that they could become subject to infringement actions based upon the content licensed from those third parties. Our operating companies generally obtain representations as to the origin and ownership of such licensed content; however, this may not adequately protect them. Any of these claims, with or without merit, could subject our operating companies to costly litigation and the diversion of their technical and management personnel. If our operating companies incur costly litigation and their personnel are not effectively deployed, the expenses and losses incurred by our operating companies will increase and their profits, if any, will decrease.
SOURCE OF SUPPLY FOR GREATTOOLS.COM.
Since 1999, Greattools.com has been operating pursuant to an oral agreement with Global Sourcing Group ("GSG"), a power tool wholesaler located in Thousand Oaks, California, which supplies 100% of the products sold by the Company in its Web site. While the Company anticipates that it will continue operating under the oral agreement, it intends to enter into a written exclusive fulfillment agreement with GSG as soon as it's practicable. The Company intends to enter into this fulfillment arrangement to assure it could continue to source all of its products.
Gateway Holdings, Inc. the private equity fund managed by our Chairman Frederick T. Manlunas beneficially owns and controls 14.6% of the total outstanding shares of Global Sourcing Group. The Company is reliant on Mr. Manlunas' relationship with GSG for its Greattools.com's fulfillment needs.
SOURCE OF SUPPLY FOR HOLLAND-AMERICAN.COM.
Since September 1999, Holland-American.com has been operating pursuant to an oral agreement with Holland American International Specialties ("HAIS"), a specialty foods wholesaler and retailer located in Bellflower, California, which supplies 100% of the products sold by the Company in its Web site. While the Company anticipates that it will continue operating under the oral agreement, it intends to enter into a written exclusive fulfillment agreement with HAIS as soon as it's practicable. We intend to enter into this fulfillment arrangement to assure it could continue to source all of its products.
IFCO Group, LLC ("IFCO"), whose members consist of certain shareholders of the Company, including Frederick T. Manlunas, owns HAIS. Our Chairman of the Board, Mr. Manlunas, beneficially owns and controls 32.75% of the total outstanding membership interest of IFCO Group, LLC. However, the Company is not reliant on Mr. Manlunas' relationship with HAIS for its Holland-American.com's fulfillment needs.
OUR OPERATING COMPANIES THAT PUBLISH OR DISTRIBUTE CONTENT OVER THE INTERNET MAY BE SUBJECT TO LEGAL LIABILITY.
Some of our operating companies may be subject to legal claims relating to the content on their Web sites, or the downloading and distribution of this content. Claims could involve matters such as defamation, invasion of privacy and copyright infringement. Providers of Internet products and services have been sued in the past, sometimes successfully, based on the content of material. In addition, some of the content provided by our operating companies on their Web sites is drawn from data compiled by other parties, including governmental and commercial sources, and our operating companies re-enter the data. This data may have errors. If any of our operating companies' Web site content is improperly used or if any of our operating companies supply incorrect information, it could result in unexpected liability. Any of our operating companies that incur this type of unexpected liability may not have insurance to cover the claim or its insurance may not provide sufficient coverage. If our operating companies incur substantial cost because of this type of unexpected liability, the expenses incurred by our operating companies will increase and their profits, if any, will decrease.
OUR OPERATING COMPANIES' COMPUTER AND COMMUNICATIONS SYSTEMS MAY FAIL, WHICH MAY DISCOURAGE CONTENT PROVIDERS FROM USING OUR OPERATING COMPANIES' SYSTEMS.
All of our operating companies' businesses depend on the efficient and uninterrupted operation of their computer and communications hardware systems. Any system interruptions that cause our operating companies' Web sites to be unavailable to Web browsers may reduce the attractiveness of our operating companies' Web sites to third party content providers. If third party content providers are unwilling to use our operating companies' Web sites, our business, financial condition and operating results could be adversely affected. Interruptions could result from natural disasters as well as power loss, telecommunications failure and similar events.
OUR OPERATING COMPANIES' BUSINESSES MAY BE DISRUPTED IF THEY ARE UNABLE TO UPGRADE THEIR SYSTEMS TO MEET INCREASED DEMAND.
Capacity limits on some of our operating companies' technology, transaction processing systems and network hardware and software may be difficult to project and they may not be able to expand and upgrade their systems to meet increased use.
As traffic on our operating companies' Web sites continues to increase, they must expand and upgrade their technology, transaction processing systems and network hardware and software. Our operating companies may be unable to accurately project the rate of increase in use of their Web sites. In addition, our operating companies may not be able to expand and upgrade their systems and network hardware and software capabilities to accommodate increased use of their Web sites. If our operating companies are unable to appropriately upgrade their systems and network hardware and software, the operations and processes of our operating companies may be disrupted.
OUR OPERATING COMPANIES MAY NOT BE ABLE TO ATTRACT A LOYAL BASE OF USERS TO THEIR WEB SITES.
While content is important to all our operating companies' Web sites, our 18 market maker operating companies are particularly dependent on content to attract business. Our success depends upon the ability of these operating companies to deliver compelling Internet content to their targeted users. If our operating companies are unable to develop Internet content that attracts a loyal user base, the revenues and profitability of our operating companies could be impaired. Internet users can freely navigate and instantly switch among a large number of Web sites. Many of these Web sites offer original content. Thus, our operating companies may have difficulty distinguishing the content on their Web sites to attract a loyal base of users.
OUR OPERATING COMPANIES MAY BE UNABLE TO ACQUIRE OR MAINTAIN EASILY IDENTIFIABLE WEB SITE ADDRESSES OR PREVENT THIRD PARTIES FROM ACQUIRING WEB SITE ADDRESSES SIMILAR TO THEIRS.
Some of our operating companies hold various Web site addresses relating to their brands. These operating companies may not be able to prevent third parties from acquiring Web site addresses that are similar to their addresses, which could adversely affect the use by businesses of our operating companies' Web sites. In these instances, our operating companies may not grow as we expect. The acquisition and maintenance of Web site addresses generally is regulated by governmental agencies and their designees. The regulation of Web site addresses in the United States and in foreign countries is subject to change. As a result, our operating companies may not be able to acquire or maintain relevant Web site addresses in all countries where they conduct business. Furthermore, the relationship between regulations governing such addresses and laws protecting trademarks is unclear. Some of our operating companies are dependent on barter transactions that do not generate cash revenue.
Our operating companies plans to enter into barter transactions in which they provide advertising for other internet companies in exchange for advertising for the operating company. In a barter transaction the operating company will reflect the sales of the advertising received as an expense and the value of the advertising provided, in an equal amount, as revenue. However, barter transactions also do not generate cash revenue, which may adversely affect the cash flows of some of our operating companies. Limited cash flows may adversely affect a operating company's abilities to expand its operations and satisfy its liabilities.
RISKS RELATING TO THE INTERNET INDUSTRY
CONCERNS REGARDING SECURITY OF TRANSACTIONS AND TRANSMITTING CONFIDENTIAL INFORMATION OVER THE INTERNET MAY HAVE AN ADVERSE IMPACT ON OUR BUSINESS.
We believe that concern regarding the security of confidential information transmitted over the Internet prevents many potential customers from engaging in online transactions. If our operating companies that depend on such transactions do not add sufficient security features to their future product releases, our operating companies' products may not gain market acceptance or there may be additional legal exposure to them.
Despite the measures some of our operating companies have taken, the infrastructure of each of them is potentially vulnerable to physical or electronic break-ins, viruses or similar problems. If a person circumvents the security measures imposed by any one of our operating companies, he or she could misappropriate proprietary information or cause interruption in operations of the operating company. Security breaches that result in access to confidential information could damage the reputation of any one of our operating companies and expose the operating company affected to a risk of loss or liability. Some of our operating companies may be required to make significant investments and efforts to protect against or remedy security breaches. Additionally, as e-commerce becomes more widespread, our operating companies' customers will become more concerned about security. If our operating companies are unable to adequately address these concerns, they may be unable to sell their goods and services.
RAPID TECHNOLOGICAL CHANGES MAY PREVENT OUR OPERATING COMPANIES FROM REMAINING CURRENT WITH THEIR TECHNICAL RESOURCES AND MAINTAINING COMPETITIVE PRODUCT AND SERVICE OFFERINGS.
The markets in which our operating companies operate are characterized by rapid technological change, frequent new product and service introductions and evolving industry standards. Significant technological changes could render their existing Web site technology or other products and services obsolete. The e-commerce market's growth and intense competition exacerbate these conditions. If our operating companies are unable to successfully respond to these developments or do not respond in a cost-effective way, our business, financial condition and operating results will be adversely affected. To be successful, our operating companies must adapt to their rapidly changing markets by continually improving the responsiveness, services and features of their products and services and by developing new features to meet the needs of their
customers. Our success will depend, in part, on our operating companies' ability to license leading technologies useful in their businesses, enhance their existing products and services and develop new offerings and technology that address the needs of their customers. Our operating companies will also need to respond to technological advances and emerging industry standards in a cost-effective and timely manner.
GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES MAY PLACE FINANCIAL BURDENS ON OUR BUSINESS AND THE BUSINESSES OF OUR OPERATING COMPANIES
As of September 30, 1999, there were few laws or regulations directed specifically at e-commerce. However, because of the Internet's popularity and increasing use, new laws and regulations may be adopted. These laws and regulations may cover issues such as the collection and use of data from Web site visitors and related privacy issues, pricing, content, copyrights, online gambling, distribution and quality of goods and services. The enactment of any additional laws or regulations may impede the growth of the Internet and e-commerce, which could decrease the revenue of our operating companies and place additional financial burdens on our business and the businesses of our operating companies.
Laws and regulations directly applicable to e-commerce or Internet communications are becoming more prevalent. For example, Congress recently enacted laws regarding online copyright infringement and the protection of information collected online from children. Although these laws may not have a direct adverse effect on our business or those of our operating companies, they add to the legal and regulatory burden faced by e-commerce companies.
RISKS RELATING TO FUTURE OFFERINGS
SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT SHAREHOLDERS MAY DECREASE THE PRICE OF OUR COMMON STOCK.
If our shareholders sell substantial amounts of our common stock, including shares issued upon the exercise of outstanding options, in the public market following future offerings, then the market price of our common stock could fall. Restrictions under the securities laws and certain lock-up agreements limit the number of shares of common stock available for sale in the public market.
OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE.
The market price for our common stock is likely to be highly volatile as the stock market in general and the market for Internet-related stocks and the stock. The trading prices of many technology and Internet-related company stocks have reached historical highs within the last year and have reflected relative valuations substantially above historical levels. During the same period, the stocks of these companies have also been highly volatile and have recorded lows well below such historical highs. We cannot assure you that our common stock will trade at the same levels of other Internet stocks or that Internet stocks in general will sustain their current market prices.
The following factors will add to our common stock price's volatility:
* actual or anticipated variations in our quarterly operating results and those of our operating companies;
* new sales formats or new products or services offered by us, our operating companies and their competitors;
* changes in our financial estimates and those of our operating companies by securities analysts;
* conditions or trends in the Internet industry in general and the e-commerce industry in particular;
* announcements by our operating companies and their competitors of technological innovations;
* announcements by us or our operating companies or our competitors of significant acquisitions, strategic partnerships or joint ventures;
* changes in the market valuations of our operating companies and other Internet companies;
* our capital commitments;
* additions or departures of our key personnel and key personnel of our operating companies; and * sales of our common stock.
Many of these factors are beyond our control. These factors may decrease the market price of our common stock, regardless of our operating performance.
ITEM 3. DESCRIPTION OF PROPERTY.
We lease our principal executive offices, as well as our administrative offices, which are located in a 1,084 square feet office facility in Encino, California at an annual rent of $24,715.20. This facility also houses our customer service, administrative and corporate center functions. This lease will expire in June 2001.
We also lease 2,100 square feet of office space in Annapolis, Maryland. This facility houses Sitestar.net's, Greattools.com's and Holland-American.com's executive offices, customer service, and administrative functions. This lease is currently on a month-to-month bases with a rental fee of $33,072 per annum.
Our annual rents are subject to adjustments. We anticipate that we will require additional space for our ISP operations as we expand, and we believe that we will be able to obtain suitable space as needed on commercially reasonable terms.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of September 30, 1999 regarding the record and beneficial ownership of the Common Stock by: (i) any individual or group (as that term is defined in the federal securities laws) of affiliated individuals or entities who is known by the Company to be the beneficial owner of more than five percent of the outstanding shares of our Common Stock; (ii) each executive officer and Director of the Company; and (iii) the executive officers and Directors of the Company as a group.
Name and Address of Number of Shares Percent Beneficial Owner Beneficially Owned (1) of Class (2) ------------------ ---------------------- ------------ Frederick T. Manlunas 3,039,255 16.34% 16133 Ventura Blvd., Suite 635 Encino, CA 91436 Clinton J. Sallee 1,926,170 10.35% 16133 Ventura Blvd., Suite 635 Encino, CA 91436 Franklin Christopher 1,466,400 7.88% 326 First Street, Suite 26 Annapolis, MD 21403 Kevorak Zoryan -0- * 16133 Ventura Blvd., Suite 635 Encino, CA 91436 All directors and officers 6,431,825 34.57% as a group (4 persons) |
* Less than 1%
(2) Percent of class is based on 18,600,036 shares of Common Stock outstanding as of September 30, 1999.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following table sets forth certain information with respect to the directors and executive officers of Sitestar.
Name Age(1) Position
--------------- ------ -------------------
Frederick T. Manlunas 31 Chairman of the Board and
Managing Director
Clinton J. Sallee 27 President and Chief
Executive Officer
Kevorak Zoryan 26 Director
----------------------------
|
(1) Ages are given as of September 30, 1999
FREDERICK T. MANLUNAS, has been a Director of the Company since October of 1998 and has served as the Company's Chairman of the Board since July 1999. Mr. Manlunas manages Gateway Holdings, Inc., a private equity fund based in Los Angeles since 1995. Prior to founding Gateway, Mr. Manlunas was an Associate with Arthur Andersen LLP's Retail Management Consulting division from 1991 to 1995. Mr. Manlunas also serves as Director for MenuDirect, Inc., a Delaware corporation, and Xcel Medical Pharmacy, a California corporation. Mr. Manlunas received a Bachelor of Science degree in Journalism from Florida International University and he earned a Masters of Business Administration degree from Pepperdine University.
CLINTON J. SALLEE has been a Director of the Company since May of 1999 and has served as the Compay's President and Chief Executive Officer since July 1999. In 1996, Mr. Sallee founded Sallee Zoryan, a concept development firm, where he served as President since inception. Prior to founding Sallee Zoryan, Mr. Sallee was an Associate with W.E. Myers & Company, a boutique investment bank, specializing in industry consolidations. Mr. Sallee earned a Bachelor of Science degree in Business Administration from the Marshall School of Business at the University of Southern California in 1994.
KEVORK A. ZORYAN has been a Director of the Company since July of 1999. From March 1997 to July 1999, Mr. Zoryan served on the acquisition team of the Morgan Stanley Real Estate Fund, a leading international private equity real estate investment fund. From March 1995 to May 1996, Mr. Zoryan served as an analyst of the JE Robert Companies, and from June 1993 to February 1995, as a staff analyst with Ernst & Young. Mr. Zoryan co-founded Sallee Zoryan, a concept development firm in 1996, and currently serves as its Partner. Mr. Zoryan earned a BS in Business Administration from the Marshall School of Business at the University of Southern California in 1994. He currently attends the Harvard Business School as a member of the MBA Class of 2001.
The Company is currently actively searching for a Chief Financial Officer. Management has interviewed several candidates and expects to finalize its selection before the end of the current quarter.
ITEM 6. EXECUTIVE COMPENSATION.
The following table summarizes the compensation by the Company to Frederick T. Manlunas, its former President and CEO for the last three fiscal years. No officer of the Company received compensation in excess of $100,000 during such years.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
---------------------------------------------- ------------------------------------------------
Other Restricted
Annual Stock Options LTIP All Other
Position Year Salary ($) Bonuses($) Compensation Awards SARs Payouts ($) Compensation
-------- ---- ---------- ---------- ------------ ---------- ------- ----------- ------------
Frederick T. 1998 96,000 -- -- -- -- -- --
Manlunas 1999 120,000 -- -- -- -- -- --
Chairman of the
Board
Clinton J. 1999 120,000 -- -- -- -- -- --
Sallee
President & Chief
Executive Officer
|
The Company currently has no long-term compensation, annuity, pension or retirement plans.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Effective as of September 30, 1999 we sold the non-Internet assets of HAIS to IFCO Group, LLC ("IFCO"), whose members consist of certain shareholders of the Company, including Frederick T. Manlunas, our Chairman of the Board. We retained the assets consisting of the Internet web site Holland-American.com. HAIS will continue to serve as Holland-American.com's exclusive fulfillment center. The purchase consideration for HAIS was $900,000 and was based upon a business appraisal by an independent third party appraiser. The consideration included $200,000 which was applied as a discount for services rendered by members of IFCO in connection to the acquisition of Sitestar, Inc., the assumption of $654,000 of liabilities and a promissory note in the amount of $46,000. The note bears interest at a rate of 8% per annum, and is payable in annual installments of $15,333, and is due and payable on September 30, 2002. The note is secured by HAIS' accounts receivable and inventory.
On September 30, 1999, we sold our 9% equity interest in SMF to IFCO for $200,000. The consideration was paid in the form of assumption of $160,000 of debt related to the investment and the balance of $40,000 paid by a promissory note payable in three annual installments of $13,334 each. The note bears interest at a rate of 8% per annum. The purchase consideration was equal to our original investment in January 1999.
In January 1999, Mr. Manlunas, a majority stockholder of the Company, loaned $80,300 to the Company for use as working capital based on an oral agreement. The amounts owed to Mr. Manlunas are not accruing interest, and are due and payable upon demand. To date, the Company has made no payments to Mr. Manlunas in satisfaction of this obligation.
ITEM 8. DESCRIPTION OF SECURITIES.
We are authorized to issue 75,000,000 shares of common stock, par value $0.001 per share. Holders of common stock are entitled to one vote for each share held of record on all matters on which the holders of common stock are entitled to vote. There are no redemption or sinking fund provisions applicable to the common stock. The outstanding shares of common stock are, and the common stock issuable pursuant to this registration statement will be, when issued, fully paid and non-assessable.
We are authorized to issue 10,000,000 shares of "blank check" preferred
stock, par value $0.001 per share, in one or more series from time to time with
such designations, rights and preferences as may be determined from time to time
by the Board of Directors, including, but not limited to (i) the designation of
such series; (ii) the dividend rate of such series, the conditions and dates
upon which such dividends shall be payable, the relation which such dividends
shall bear to the dividends payable on any other class or classes or series of
our capital stock and whether such dividends shall be cumulative or
non-cumulative; (iii) whether the shares of such series shall be subject to
redemption for cash, property or rights, including securities of any other
corporation, by Sitestar or upon the happening of a specified event and, if made
subject to any such redemption, the times or events, prices, rates, adjustments
and other terms and conditions of such redemption; (iv) the terms and amount of
any sinking fund provided for the purchase or redemption of the shares of such
series (v) whether or not the shares of such series shall be convertible into,
or exchangeable for, at the option of either the holder or Sitestar or upon the
happening of a specified event, shares of any other class or classes or of any
other series of the same class of Sitestar's capital stock and, if provision be
made for the conversion or exchange, the times or events, prices, rates,
adjustments and other terms and conditions of such conversions or exchanges;
(vi) the restrictions, if any, on the issue or reissue of any additional
preferred stock; (vii) the rights of the holders of the shares of such series
upon the voluntary or involuntary liquidation, dissolution or winding up of
Sitestar; and (viii) the provisions as to voting, optional and/or other special
rights and preferences, if any, including, without limitation, the right to
elect one or more directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which adversely affect the
voting power or other rights of the holders of the common stock. In the event of
issuance, the preferred stock could be utilized, under certain circumstances, as
a way of discouraging, delaying or preventing an acquisition or change in
control of Sitestar.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS.
Our Common Stock is traded over-the-counter and is currently quoted on the OTC Bulletin Board (symbol "SYTE"). On July 14, 1999 we effected a 3-for-1 stock split. All prices listed below reflect this split. The closing bid price for the Common Stock was $.53 on October 19, 1999.
Set forth below are the high and low closing bid prices for the Common Stock of the company for each quarterly period commencing September 30, 1998:
Period Low High ------ --- ---- 1998 ---- Quarter ended December 31, 1998 1.00 1.03 1999 ---- Quarter ended March 31, 1999 1.00 1.03 Quarter ended June 30, 1999 1.00 1.03 Quarter ended September 30, 1999 .875 3.75 Quarter through October 19, 1999 .45 .875 |
Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.
As of September 30, 1999 the Company had 93 shareholders of record.
ITEM 2. LEGAL PROCEEDINGS.
The Company is not involved in any material pending legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not Applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
(a) Securities Sold
In October 1998, in connection with the acquisition of Interfoods Consolidated, Inc., we issued 5,580,000 shares of our Common Stock to the shareholders of Interfoods Consolidated, Inc. The issuance of these shares was exempt from the registration an prospectus delivery requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.
In July 1999, in connection with the acquisition of Sitestar, Inc., we
issued 3,491,428 shares of our Common Stock to the shareholders of Sitestar,
Inc. The issuance of these shares was exempt from the registration an prospectus
delivery requirements of the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof.
In August 1999, in connection with the acquisition of Greattools.com, we
issued 49,000 shares of our Common Stock to the shareholders of Sitestar, Inc.
The issuance of these shares was exempt from the registration an prospectus
delivery requirements of the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof.
In May 1999, we issued and sold an aggregate of 140,000 shares of our Common Stock for $140,000. The issuance and sale of these shares was exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Except for acts or omissions which involve intentional misconduct, fraud or known violation of law or for the payment of dividends in violation of Nevada Revised Statutes, there shall be no personal liability of a director or officer to the Company, or its stockholders for damages for breach of fiduciary duty as a director or officer. The Company may indemnify any person for expenses incurred, including attorneys fees, in connection with their good faith acts if they reasonably believe such acts are in and not opposed to the best interests of the Company and for acts for which the person had no reason to believe his or her conduct was unlawful. The Company may indemnify the officers and directors for expenses incurred in defending a civil or criminal action, suit or proceeding as they are incurred in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount of such expenses if it is ultimately determined by a court of competent jurisdiction in which the action or suit is brought determined that such person is fairly and reasonably entitled to indemnification for such expenses which the court deems proper.
Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to officers, directors or persons controlling the Company pursuant to the foregoing, the Company has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is therefore unenforceable.
INDEX TO FINANCIAL STATEMENTS
INTERFOODS CONSOLIDATED, INC.
Report of Independent Public Accountants..................................F-2 Balance Sheets as of December 31, 1997 and 1998 and for the Six Months Ended June 30, 1999 (Unaudited) and 1998 (Unaudited).........F-3 Statements of Operations for the Year Ended December 31, 1998, Seven Months Ended December 31, 1997 and for the Six Months Ended June 30, 1999 (Unaudited) and 1998 (Unaudited).....................F-4 Statements of Stockholders' Equity for the Years Ended December 31, 1998 and 1998 and for the Six Months Ended June 30, 1999 (Unaudited)................................................F-5 Statements of Cash Flows for the Year Ended December 31, 1998, Seven Months Ended December 31, 1997 and the Six Months Ended June 30, 1999 (Unaudited) and 1998 (Unaudited).....................F-6 Notes to Financial Statements.............................................F-8 |
SITESTAR CORPORATION AND SUBSIDIARY
Report of Independent Public Accountants..................................F-20
Consolidated Balance Sheets as of December 31, 1998 and 1997..............F-21
Consolidated Statements of Operations for the Years Ended
December 31, 1998 and 1997...............................................F-22
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1998 and 1997.........................................F-23
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997................................................F-24
Notes to Consolidated Financial Statements................................F-26
INTERFOODS CONSOLIDATED, INC
PROFORMA FINANCIAL INFORMATION ...........................................F-33
Proforma Balance Sheet as of June 30, 1999................................F-34
Proforma Statement of Operations for Six Months
Ended June 30, 1999......................................................F-35
Proforma Statement of Operations for the Year Ended December 31, 1998.....F-36
Notes to Proforma Financial Statements....................................F-37
45/F-1
|
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
INTERFOODS CONSOLIDATED, INC.
We have audited the accompanying balance sheets of Interfoods Consolidated, Inc. as of December 31, 1998 and 1997, and the related statements of operations, stockholders' equity (deficiency) and cash flows for the year ended December 31, 1998 and the initial period June 1, 1997 to December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 Interfoods Consolidated, Inc. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the year ended December 31, 1998 and the initial period June 1, 1997 to December 31, 1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company has had net losses and cash flow deficiencies from operations since inception and the Company is in default on its line of credit and has notes payable in default. These factors, among others, as discussed in Note 1 to the financial statements, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
Los Angeles, California
October 12, 1999
INTERFOODS CONSOLIDATED, INC.
BALANCE SHEETS
December 31, June 30,
1998 1997 1999 1998
----------- ---------- ----------- -----------
(Unaudited) (Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ - $ 59,306 $ - $ 10,611
Accounts Receivable, Less Allowance for
Doubtful Accounts of $16,378, $10,000,
$16,378 and $10,000, respectively 196,206 356,818 89,210 111,590
Inventories 542,081 661,630 469,004 566,092
Note Receivable - Stockholder 71,657 - 75,310 69,016
Other Current Assets 20,381 45,900 42,966 70,664
----------- ---------- ----------- -----------
Total Current Assets 830,325 1,123,654 676,490 827,973
EQUIPMENT AND FURNITURE, Net 18,643 2,880 56,020 2,880
INVESTMENT 125,000 - 200,000 -
----------- ---------- ----------- -----------
TOTAL ASSETS $ 973,968 $1,126,534 $ 932,510 $ 830,853
=========== ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICENCY)
CURRENT LIABILITIES
Book Overdraft $ 29,546 - $ 37,956 $ -
Accounts Payable and Accrued Expenses 372,725 692,803 156,198 192,199
Line of Credit 200,000 - 200,000 176,865
Advance from Stockholders 102,960 - 246,702 -
Notes Payable 119,500 - 305,839 19,081
Capital Lease Obligations - Current Portion - - 4,155 -
----------- ---------- ----------- -----------
Total Current Liabilities 824,731 692,803 950,850 388,145
CAPITAL LEASE OBLIGATIONS, Less Current Portion - - 30,262 -
----------- ---------- ----------- -----------
TOTAL LIABILITIES 824,731 692,803 981,112 388,145
----------- ---------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8) - - - -
STOCKHOLDERS' EQUITY (DEFICENCY)
Common Stock, $.001 par value, 25,000,000 shares
authorized, 6,200,012 and 5,580,000 shares
issued and outstanding, respectively 6,200 5,580 6,200 5,580
Additional Paid-in Capital 621,600 622,220 621,600 622,220
Accumulated Deficit ( 478,563) ( 194,069) ( 676,402) ( 185,092)
----------- ---------- ----------- -----------
Total Stockholders' Equity (Deficiency) 149,237 433,731 ( 48,602) 442,708
----------- ---------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICENCY) $ 973,968 $ 1,126,534 $ 932,510 $ 830,853
=========== =========== ========== =============
|
The accompanying notes are an integral part of the financial statements.
INTERFOODS CONSOLIDATED, INC.
STATEMENTS OF OPERATIONS
Seven
Year Ended Months Ended Six Months Ended
December 31, December 31, June 30,
1998 1997 1999 1998
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
SALES $ 2,175,867 $ 1,553,926 $ 870,249 $ 882,471
COST OF GOODS SOLD 1,614,924 1,177,877 654,011 616,688
------------ ------------ ------------ -----------
GROSS PROFIT 560,943 376,049 216,238 265,783
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 827,040 570,118 380,623 256,806
------------ ------------ ------------ ------------
(LOSS) INCOME FROM OPERATIONS ( 266,097) ( 194,069) ( 164,385) 8,977
INTEREST EXPENSE 18,397 - 33,454 -
------------ ------------ ------------ ------------
(LOSS) INCOME BEFORE INCOME TAXES ( 284,494) ( 194,069) ( 197,839) 8,977
INCOME TAXES - - - -
------------ ------------ ------------ ------------
NET (LOSS) INCOME $( 284,494) $( 194,069) $( 197,839) $ 8,977
============ =========== ============ ============
BASIC LOSS PER SHARE $( 0.04) $( 0.03) $( 0.03) $ 0.00
============ =========== ============ ============
DILUTED LOSS PER SHARE $( 0.04) $( 0.03) $( 0.03) $ 0.00
============ =========== ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 5,693,810 5,580,000 6,200,012 5,580,000
============ =========== ============ ============
|
The accompanying notes are an integral part of the financial statements.
INTERFOODS CONSOLIDATED, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIENCY)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
--------- ---------- ------------ ------------ ------------
Balance at June 1, 1997 - $ - $ - $ - $ -
Issuance of Shares for Cash 5,580,000 5,580 622,220 - 627,800
Net Loss - - - ( 194,069) ( 194,069)
--------- ---------- ----------- ----------- -----------
Balance at December 31, 1997 5,580,000 5,580 622,220 ( 194,069) 433,731
Issuance of Shares in Merger with
White Dove Systems, Inc. 620,012 620 ( 620) - -
Net Loss - - - ( 284,494) ( 284,494)
--------- ---------- ----------- ----------- ----------
Balance at December 31, 1998 6,200,012 6,200 621,600 ( 478,563) 149,237
Net Loss (unaudited) - ( 197,839) ( 197,839)
--------- ---------- ----------- ----------- -----------
Balance at June 30, 1999 (unaudited) 6,200,012 $ 6,200 $ 621,600 $( 676,402) $( 48,602)
========= ========== =========== ============ ============
|
The accompanying notes are an integral part of the financial statements.
INTERFOODS CONSOLIDATED, INC.
STATEMENTS OF CASH FLOWS
Seven
Year Ended Months Ended Six Months Ended
December 31, December 31, June 30,
1998 1997 1999 1998
------------ ------------ ------------ -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $( 284,494) $( 194,069) $( 197,839) $ 8,977
Adjustments to Reconcile Net (Loss) Income
to Net Cash Used In Operating Activities:
Allowance for Doubtful Accounts 6,378 10,000 - 6,378
Depreciation and Amortization Expense 1,678 - 2,163 -
(Increase) Decrease in:
Accounts Receivable 154,234 ( 366,818) 106,996 238,850
Inventories 87,805 ( 661,630) 69,424 26,522
Other Current Assets ( 14,394) ( 45,900) ( 22,585) ( 24,764)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses ( 320,078) 692,803 ( 216,527) ( 500,604)
Advances from Stockholders 63,000 - 18,000 -
------------ ------------ ------------ -----------
Net Cash Used In Operating Activities ( 305,871) ( 565,614) ( 240,368) ( 244,641)
------------ ------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Equipment and Furniture ( 17,441) ( 2,880) ( 1,200) -
Investment ( 125,000) - ( 75,000) -
------------ ------------ ------------ -----------
Net Cash Used In Investing Activities ( 142,441) ( 2,880) ( 76,200) -
------------ ------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Book Overdraft 29,546 - 8,410 -
Advance from Stockholder, Net 39,960 - 125,742 -
Proceeds from Line of Credit 200,000 - - 176,865
Proceeds from Notes Payable 169,500 - 416,309 19,081
Repayment of Notes Payable ( 50,000) - ( 229,970) -
Repayment of Capital Lease Obligations - - ( 3,923) -
Issuance of Common Stock - 627,800 - -
------------ ------------ ------------ -----------
Net Cash Provided By Financing Activities 389,006 627,800 316,568 195,946
------------ ------------ ------------ -----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS ( 59,306) 59,306 - ( 48,695)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 59,306 - - 59,306
------------ ------------ ------------ -----------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ - $ 59,306 $ - $ 10,611
============ =========== =========== ==========
|
The accompanying notes are an integral part of the financial statements.
PAGE>
INTERFOODS CONSOLIDATED, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
During the year ended December 31, 1998 and the seven months ended December 31, 1997, the Company paid no income taxes and interest of approximately $15,000 and $0, respectively.
During the six months ended June 30, 1999 and 1998, the company paid no income taxes and interest of approximately $16,750 (unaudited) and $0 (unaudited), respectively.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS
In 1998, the Company sold its gift basket business, Wrap-It Up, for $71,657. A note receivable was received for the total sales price.
During the six months ended June 30, 1999, the Company acquired equipment totaling $38,340 (unaudited) with capital lease obligations.
The accompanying notes are an integral part of the financial statements.
INTERFOODS CONSOLIDATED, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED)
AND 1998 (UNAUDITED)
NOTE 1 - THE ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
On March 20, 1998, HAIS completed a stock purchase agreement with DHS Industries, Inc. ("DHS") whereby DHS issued 31,942,950 shares of its common stock in exchange for all of the issued and outstanding common stock of HAIS. The acquisition was accounted for as a pooling of interest. However, on September 30, 1998 the agreement was rescinded and the stockholders of HAIS returned the shares of DHS for their shares of HAIS.
In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to generate positive cash flows from operations. The financial statements do not include any adjustments, relating to the recoverability and classification of recorded asset amounts and classifications of liabilities that might be necessary should the Company be unable to continue its existence. Management plans to take the following steps that it believes will be sufficient to provide the Company with the ability to continue in existence:
INTERFOODS CONSOLIDATED, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED)
AND 1998 (UNAUDITED)
NOTE 1 - THE ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
o Management plans to overhaul the personnel structure of the Company. It intends to increase income from operations by cutting back on its work force.
o Management plans to join other specialty foods distributors in forming a buying cooperative to maximize economies of scale and cut costs.
o Management intends to raise $500,000 through sale of its common stock and use the proceeds to pay-off existing debt.
INTERFOODS CONSOLIDATED, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED)
AND 1998 (UNAUDITED)
NOTE 1 - THE ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
INTERFOODS CONSOLIDATED, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED)
AND 1998 (UNAUDITED)
NOTE 1 - THE ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
INTERFOODS CONSOLIDATED, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED)
AND 1998 (UNAUDITED)
NOTE 2 - EQUIPMENT AND FURNITURE
The cost of equipment and furniture consisted of the following as of:
December 31, June 30,
-------------------- ---------------------
1998 1997 1999 1998
-------- -------- --------- --------
(Unaudited) (Unaudited)
Computers $ 1,300 $ - $ 36,998 $ -
Furniture and Fixtures 19,021 2,880 22,863 2,880
------- --------- --------- ---------
20,321 2,880 59,861 2,880
Less: Accumulated
Depreciation 1,678 - 3,841 -
-------- -------- --------- ---------
$ 18,643 $ 2,880 $ 56,020 $ 2,880
======== ======== ========= =========
|
Depreciation expense was $1,678 and $0 for the year ended December 31, 1998 and the seven months ended December 31, 1997, respectively, and $2,163 (unaudited) and $0 (unaudited) for the six months ended June 30, 1999 and 1998, respectively.
NOTE 3 - NOTE RECEIVABLE - STOCKHOLDER
In 1997, the Company purchased for $2,800 the trade name "Wrap-It Up" and operated the business through April 1998. In April 1998, the Company sold the business to a stockholder of the Company for $71,657, which was equal to the amount of the Company's investment (which was the cost of inventories used in the operations) at the time of sale. The sales price was consummated by the stockholder's issuance, to the Company, of a promissory note for the full sales price. The note receivable is due on demand, and secured by common stock of the Company, owned by the stockholder, of an amount equal to the December 31, 1998 market value to cover the face value of the note as of December 31, 1998.
NOTE 4 - INVESTMENT
As of December 31, 1998, the Company paid a $125,000 deposit on the
acquisition of a 9% interest of Sierra Madre Foods, Inc. (See Note 13
- Subsequent Events "Acquisition.")
INTERFOODS CONSOLIDATED, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED)
AND 1998 (UNAUDITED)
NOTE 5 - LINE OF CREDIT
As of December 31, 1998, the Company had a $200,000 line of credit that expired on May 4, 1999. On the expiration date the line of credit was extended to September 4, 1999 and was not paid on the extended expiration date. The line bears interest at United National Bank Lending Index ("UNBLI"), plus 1% (UNBLI was 8.25%, 8.25% and 9.00% on June 30, 1999, December 31, 1998 and 1997, respectively).
The Line of credit is secured by substantially all assets of the Company and is guaranteed by the Company's general manager and his spouse. The Company's ability to borrow under this line of credit is based upon a percentage of defined accounts receivable and inventory. The outstanding line of credit was $200,000 as of December 31, 1998.
The line of credit agreement contains a covenant that requires the Company to maintain stockholders' equity of at least $200,000. As of December 31, 1998 the Company was not in compliance with this covenant and technically is in default. Also, the line of credit was due in full on September 4, 1999.
NOTE 6 - ADVANCES FROM STOCKHOLDERS
A majority stockholder of the Company has advanced $80,300 for operating funds. The advances are non-interest bearing and due on demand. Also, a minority stockholder of the Company has drawn advances from his personal credit card accounts for operating funds. The balance due at December 31, 1998 was $22,660. The Company is making the minimum payments each month.
INTERFOODS CONSOLIDATED, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED)
AND 1998 (UNAUDITED)
NOTE 7 - NOTES PAYABLE
Notes payable consist of the following as of:
December 31, June 30,
---------------------- --------------------
1998 1997 1999 1998
-------- -------- -------- ----------
(Unaudited) (Unaudited)
12% - Note payable with all accrued
interest and principal due on
December 15, 1999 $ 50,000 $ - $ 50,000 $ -
8% - Note payable with all accrued
interest and principal due on demand 29,000 - 29,000 -
Non-interest bearing note payable
due in March 1999 25,000 - - -
19% - Note payable with all accrued
interest and principal due on demand,
note is secured by certain accounts
receivable of the Company 15,500 - 39,342 -
3% per month notes payable with all
accrued interest and principal due
from November 22, 1999 through
November 30, 1999 - - 144,052 -
15% - Note payable with monthly
interest and principal payments of
$1,662 - - 18,445 -
12% - Note payable with all accrued
interest and principal due on demand - - 25,000 -
-------- -------- -------- --------
Total $119,500 $ - $305,839 $ -
======== ======== ======== =========
|
INTERFOODS CONSOLIDATED, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED)
AND 1998 (UNAUDITED)
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities for its corporate offices, warehouse and retail store under non-cancelable operating leases. Total rent expense for the year ended December 31, 1998 and the seven months ended December 31, 1997 and for the six months ended June 30, 1999 (unaudited) and 1998 (unaudited) was $50,000, $21,000, $30,680 (unaudited) and $12,000 (unaudited), respectively.
During the six months ended June 30, 1999, the Company entered into non-cancelable capital lease agreements for the purchase of equipment. The obligations are secured by the equipment purchased.
Future minimum lease payments under non-cancelable capital and operating leases with initial or remaining terms of one year or more are as follows:
Capital
Leases Operating
(Unaudited) Leases
----------- -----------
Year ending December 31,
1999 $ 6,968 $ 61,000
2000 13,967 63,000
2001 13,967 52,000
2002 6,055 20,000
2003 4,479 -
Thereafter 747 -
--------- -----------
Net Minimum Lease Payments 46,123 $ 196,000
===========
Less: Amounts Representing Interest 11,705
---------
Present Value of Net Minimum
Lease Payments 34,418
Less: Current Portion 4,156
---------
Long-Term Portion $ 30,262
|
INTERFOODS CONSOLIDATED, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED)
NOTE 9 - STOCKHOLDERS' EQUITY
During 1998, the Company issued 620,012 shares of its common stock for the acquisition of White Dove Systems, Inc. (See Note 1).
NOTE 10 - COST OF GOODS SOLD
The Company has a key employee who is the principal contact with the suppliers for the inventory purchased for the Company's Holland related products. If the employee was terminated, for any reason, the Company could potentially lose access to approximately 30% of its product mix, and would be forced to purchase these items from other suppliers at a cost approximately 10% - 15% higher than the current cost, which would have a significant impact on the Company's gross profit.
INTERFOODS CONSOLIDATED, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED)
NOTE 11 - INCOME TAXES
The reconciliation of the effective income tax rate to the federal statutory rate is as follows:
December 31, June 30,
1998 1997 1999 1998
------- --------- -------- -------
Federal Income Tax Rate 34.00% 34.00% 34.00% 34.00%
Effect of Valuation
Allowance (34.00) (34.00) (34.00) (34.00)
------- ------- ------- -------
Effective Income Tax Rate 0.0% 0.0% 0.00% 0.00%
======= ======= ======= =======
|
Deferred tax assets and liabilities reflect the net effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
December 31, June 30,
1998 1997 1999 1998
--------- -------- --------- --------
Deferred Tax Assets
Loss Carry forwards $ 163,000 $ 66,000 $ 203,000 $ 66,000
Less: Valuation Allowance (163,000) (66,000) (203,000) (66,000)
--------- -------- --------- --------
Net Deferred Tax Assets $ - $ - $ - $ -
========= ======== ========= ========
|
At December 31, 1998 and 1997, the Company has provided a valuation allowance for the deferred tax asset since management has not been able to determine that the realization of that asset is more likely than not. The net change in the valuation allowance for the year ended December 31, 1998, the seven months ended December 31, 1997 and the six months ended June 30, 1999 (unaudited) increased by $97,000, $66,000 and $40,000 (unaudited), respectively. Net operating loss carry forwards expire in 2012 and 2013.
INTERFOODS CONSOLIDATED, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED)
NOTE 12 - ACQUISITION
On June 1, 1997, the Company purchased its food inventory and a business name from an unrelated third party for $500,000. In conjunction with the purchase, the Company commenced operations of its international specialty foods business at the same location of the previous owner.
NOTE 13 - SUBSEQUENT EVENTS
On January 8, 1999, the Company acquired for $200,000 a 9% equity interest in Sierra Madre Foods, Inc ("SMF") formerly known as Queen International Foods ("QIF") a manufacture and wholesaler of frozen Mexican food products such as frozen burritos and chimichangas. The Company acquired its 9% interest from QIF bankruptcy proceedings along with the Debtor-in-Possession as its joint venture partners.
INTERFOODS CONSOLIDATED, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED)
NOTE 13 - SUBSEQUENT EVENTS (Continued)
On September 30, 1999, the Company sold its 9% interest in SMF (see Acquisitions above) for an amount equal to the Company's investment of $200,000. The purchaser of the assets is a partnership with the majority partners being the majority stockholders of the Company. Given that the sale was not an arms-length transaction, the Company had the business valued by an independent appraiser to determine the fair value purchase price. The sales price of $200,000 is to be paid as follows: 1) $160,000 for the buyer's assumption of debt related to the investment, and 2) the remaining $40,000 in the form of a note payable to the Company in three annual installments of $13,333 each plus accrued interest at 8% per annum.
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
SITESTAR CORPORATION
We have audited the accompanying consolidated balance sheets of Sitestar Corporation and Subsidiary as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 Sitestar Corporation and Subsidiary as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company incurred a net loss of $163,704 and $138,423 for the years ended December 31, 1998 and 1997, respectively. These factors, among others, as discussed in Note 1 to the financial statements, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
October 6, 1999
SITESTAR CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
1998 1997
----------- ----------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 3,923 $ 4,744
Inventory 15,600 -
----------- ----------
Total Current Assets 19,523 4,744
EQUIPMENT, Net 46,393 16,005
EXCESS OF COST OVER FAIR VALUE OF
NET ASSETS ACQUIRED, Net of
Accumulated Amortization of $376 9,728 -
INVESTMENT IN UNCONSOLIDATED AFFILIATE - 2,800
----------- ----------
TOTAL ASSETS $ 75,644 $ 23,549
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 28,603 $ 825
Advances from Related Party 20,200 12,100
----------- ----------
Total Current Liabilities 48,803 12,925
----------- ----------
COMMITMENTS AND CONTINGENCIES (Note 4) - -
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, 200,000
shares authorized, 92,000 shares
issued and outstanding 920 920
Additional Paid-in Capital 328,048 148,127
Accumulated Deficit ( 302,127) ( 138,423)
----------- ----------
Total Stockholders' Equity 26,841 10,624
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 75,644 $ 23,549
=========== ==========
|
The accompanying notes are an integral part of the consolidated financial statements.
SITESTAR CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997
----------- ----------
REVENUE $ 69,128 $ 51,012
COST OF REVENUE 108,191 60,319
----------- ----------
GROSS LOSS ( 39,063) ( 9,307)
SELLING GENERAL AND ADMINISTRATIVE EXPENSES 123,720 129,116
----------- ----------
EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATE ( 921) -
LOSS BEFORE INCOME TAXES ( 163,704) ( 138,423)
INCOME TAXES - -
----------- ----------
NET LOSS $( 163,704) $( 138,423)
=========== ==========
BASIC LOSS PER COMMON SHARE $( 1.78) $( 1.50)
=========== ==========
DILUTED LOSS PER COMMON SHARE $( 1.78) $( 1.50)
=========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 92,000 92,000
=========== ==========
|
The accompanying notes are an integral part of the consolidated financial statements.
SITESTAR CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Additional Discount
Common Stock Paid-in on Accumulated
Shares Amount Capital Stock Deficit Total
------ -------- ---------- ----------- ----------- ----------
Balance at January 1, 1997 - $ - $ - $ - $ - $ -
Issuance of Shares as Founder's Stock 92,000 920 - ( 920) - -
Fair Value of Services and Equipment
Contributed by Related Party - - 149,047 - - 149,047
Reclassification of Discount on Stock
to Additional Paid-In Capital - - ( 920) 920 - -
Net Loss - - - - ( 138,423) ( 138,423)
------ -------- ---------- ---------- ---------- ---------
Balance at December 31, 1997 92,000 920 148,127 - ( 138,423) 10,624
Fair Value of Services and Equipment
Contributed by Related Party - - 179,921 - - 179,921
Net Loss - - - - ( 163,704) ( 163,704)
------ -------- ---------- ---------- ---------- ---------
Balance at December 31, 1998 92,000 $ 920 $ 328,048 $ - $( 302,127) $ 26,841
====== ======= ========== ========== ========== ==========
|
The accompanying notes are an integral part of the consolidated financial statements.
SITESTAR CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $( 163,704) $ ( 138,423)
Adjustments to Reconcile Net Loss
to Net Cash Used in Operating
Activities:
Depreciation and Amortization 5,930 2,798
Contribution of Services by Related Party 145,166 132,876
Equity in Loss of Unconsolidated Affiliate 921 -
Changes in Assets and Liabilities:
Increase in Accounts Payable
and Accrued Expenses 8,678 825
----------- -----------
Total Cash Used in Operating Activities ( 3,009) ( 1,924)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Equipment ( 1,187) ( 2,632)
Investment in Soccersite, Inc. - ( 2,800)
Acquisition of Soccersite, Inc.,
Net of Cash Acquired ( 4,725) -
----------- -----------
Total Cash Used in Investing Activities ( 5,912) ( 5,432)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from Related Party 8,100 12,100
----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS: ( 821) 4,744
CASH AND CASH EQUIVALENTS -
Beginning Of Period 4,744 -
----------- -----------
CASH AND CASH EQUIVALENTS -
End Of Period $ 3,923 $ 4,744
========== ============
|
The accompanying notes are an integral part of the consolidated financial statements.
SITESTAR CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
For the years ended December 31, 1998 and 1997, the Company paid no interest or income taxes.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:
A related company owned by the principal stockholder of the Company contributed services and equipment. The fair value of these services and equipment amounted to $179,921 and $149,047 for the years ended December 31, 1998 and 1997, respectively.
The accompanying notes are an integral part of the consolidated financial statements.
SITESTAR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - THE ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
In view of the matters described in the preceding paragraph, recoverability of the equipment and excess cost over fair value of net assets acquired shown in the accompanying consolidated balance sheets are dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to generate positive cash flows from operations. The financial statements do not include any adjustments, relating to the recoverability and classification of recorded asset amounts and classifications of liabilities that might be necessary should the Company be unable to continue its existence. Management plans to take the following steps that it believes will be sufficient to provide the Company with the ability to continue in existence:
o The Company has been acquired by a publicly held company (See Note 7).
o The Company is working to raise additional capital and debt financing to fund operations, increase revenue, and reduce operating costs.
SITESTAR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
SITESTAR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Subsequent to the termination of the Company's S Corporation election (See Note 7), provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed by Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
SITESTAR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
SITESTAR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - EQUIPMENT
Equipment is summarized as follows at December 31,:
1998 1997
---------- ----------
Computer Equipment $ 54,745 $ 18,803
Less: Accumulated Depreciation 8,352 2,798
---------- ----------
$ 46,393 $ 16,005
========== ==========
|
Depreciation expense was $5,554 and $2,798 for the years ended December 31, 1998 and 1997, respectively.
NOTE 3 - RELATED PARTY
A related company owned by the principal stockholder of the Company provided services (programming and administrative labor, use of premises, insurance and telephone) and equipment. The fair value of these services and equipment amounting to $179,921 and $149,047 for the years ended December 31, 1998 and 1997, respectively, were recorded as additional paid-in capital.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
NOTE 5 - ADVERTISING COSTS
Advertising costs incurred and recorded as expense in the consolidated statements of operations were $13,825 and $12,911 for the years ended December 31, 1998 and 1997, respectively.
NOTE 6 - ACQUISITION
On July 15, 1998, the Company acquired the remaining two-third interest of Soccersite, Inc. for $6,000, in addition to the $1,879 original one-third interest for a total purchase price of $7,879. The acquisition was accounted for by the purchase method of accounting; accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of acquisition. The excess of the purchase price over estimated fair value of net assets acquired of $10,104 has been recorded as excess of cost over fair value of net assets acquired, which is being amortized over ten years.
SITESTAR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 6 - ACQUISITION (continued)
The estimated fair value of assets acquired and liabilities assumed is summarized as follows:
Cash $ 1,275
Other Assets 10,104
Liabilities ( 3,500)
--------
Purchase Price $ 7,879
========
|
NOTE 7 - SUBSEQUENT EVENTS
Capital Operating
Year Ended December 31, Leases Lease
---------- -----------
1999 $ 8,357 $ 2,425
2000 16,340 21,065
2001 16,340 -
2002 7,982 -
---------- ----------
Net Minimum Lease Payments 49,019 $ 23,490
==========
Less: Amounts Representing
Interest 4,010
----------
Present Value of Net Minimum
Lease Payment $ 45,009
==========
|
The assets of the Company are subject to a lien by the lessor of a capital obligation. In addition, the lease is secured by the personal guarantee of two stockholders of the Company.
In 1999, the Company continued to occupy the office space of a related party through the termination of the lease. Upon termination of the lease, the related party vacated the space and the Company is occupying the premises on a month-to-month basis until such time a lease is negotiated.
SITESTAR CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7 - SUBSEQUENT EVENTS (continued)
PRO FORMA FINANCIAL INFORMATION
INTERFOODS CONSOLIDATED, INC.
Subsequent to June 30, 1999, the latest balance sheet date presented in this registration statement, the registrant acquired Sitestar Corporation. Additionally, the Company sold all of the assets relating to its specialty foods operations. The details of these transactions are presented in the notes to the financial statements presented elsewhere in this registration statement.
The pro forma balance sheet reflects the historical consolidated balance sheet of the Company, after the sale of the specialty food assets, and the balance sheet of Sitestar Corporation as of June 30, 1999. The Company acquired Sitestar on July 27, 1999 and sold the specialty food assets on September 30, 1999. Pro forma adjustments have been made to give effect to the acquisition of Sitestar and the sale of the specialty food assets as if they had occurred on June 30, 1999.
The pro forma statement of operations for the six month period ended June 30, 1999 reflects the historical statement of operations of the Company, after the sale of the specialty food assets, and the statement of operations of Sitestar Corporation. Pro forma adjustments have been made to give effect to these transactions as if they had occurred as of the January 1, 1999.
INTERFOODS CONSOLIDATED, INC.
PROFORMA BALANCE SHEET
JUNE 30, 1999
Proforma Adjustments
Proforma Adjustments to to Reflect Sale
Reflect Acquisition of of Specialty food
Sitestar Sitestar As of June Assets As of June
Balance Balance 30, 1999 30, 1999
Sheet Sheet ----------------------- Adjusted ------------------- Proforma
June 30, June 30, Dr Cr June 30, Dr Cr June 30,
1999 1999 1999 1999
--------- --------- --------- ------- ---------- -------- --------- ----------
Assets
Current Assets
Cash and Cash Equivalents $ - $ 11,915 $ 11,915 $ 11,915
Accounts Receivable 89,210 89,210 2) 89,210 -
Inventories 469,004 469,004 2) 469,004 -
Note Receivable - Stockholder 75,310 75,310 2) 86,000 161,310
Other Current Assets 42,966 42,966 2) 33,920 9,046
-------- -------- ---------- ---------
Total Current Assets 676,490 11,915 688,405 182,271
Equipment and Furniture, Net 56,020 99,079 155,099 2) 38,020 117,079
Excess Cost Over Fair Value of
Net Assets Acquired - 9,352 1) 7,743,850 3) 387,193 7,366,009 7,366,009
Investment 200,000 200,000 2) 200,000 -
========= =========== ========== ==========
Total Assets $ 932,510 $ 120,346 $8,409,513 $7,665,359
========= =========== ========== ==========
Liabilities and Stockholders'
Equity (Deficiency)
Current Liabilities
Book Overdraft $ 37,956 $ - $ 37,956 $ 37,956
Accounts payable and Accrued
Expenses 156,198 6,008 162,206 2) 156,199 6,007
Line of Credit 200,000 - 200,000 2) 200,000 -
Advance from Stockholders 246,702 - 246,702 117,545 129,157
Notes Payable 305,839 - 305,839 2) 305,839 -
Capital Lease Obligations -
Current Portion 4,155 5,112 9,267 2) 4,155 5,112
--------- --------- ---------- ---------
Total Current Liabilities 950,850 11,120 961,970 178,232
Capital Lease Obligations, Less
Current Portion 30,262 14,705 44,967 2) 30,262 14,705
--------- --------- ---------- ---------
Total Liablities
981,112 25,825 1,006,937 192,937
--------- --------- ---------- ---------
Commitments and Contingencies
Stockholders Equity (Deficiency)
Common Stock, $0.001 par value,
25,000,000 shares authorized,
9,691,440 issued and outstanding 6,200 920 1) 920 1) 3,491 9,691 9,691
Additional Paid-in Capital 621,600 500,357 1) 500,357 1) 7,939,509 8,561,109 8,561,109
Accumulated Deficit (676,402) (406,756) 3) 387,193 1) 302,127 (1,168,224) 4) 69,846 (1,098,378)
--------- --------- ---------- ---------
Total Stockholders
Equity (Deficiency) (48,602) 94,521 7,402,576 7,472,422
--------- --------- ---------- ---------
Total Liabilities and
Stockholders Equity
(Deficiency) $932,510 $ 120,346 $ 8,409,513 $7,665,359
======== ========== =========== ==========
|
INTERFOODS CONSOLIDATED, INC.
PROFORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
Proforma Adjustments
Proforma Adjustments to to Reflect Sale
Sitestar Reflect Acquisition of of Specialty Food
Statement Statement Sitestar As of June Assets As of June
of of 30, 1999 30, 1999
Operations Operations ----------------------- Adjusted --------------------- Proforma
June 30, June 30, Dr Cr June 30, Dr Cr June 30,
1999 1999 1999 1999
--------- --------- --------- --------- ---------- ---------- --------- ----------
Sales $ 870,249 $ 115,084 $ 985,333 5) 870,249 $ 115,084
Cost of Goods Sold 654,011 124,116 778,127 5) 654,011 124,116
--------- --------- --------- --------
Gross Profit (Loss) 216,238 (9,032) 207,206 ( 9,032)
Selling, General and
Administrative Expenses 380,623 95,597 3) 387,193 863,413 5) 276,793 586,620
--------- --------- --------- ---------
Loss From Operations (164,385) (104,629) (656,207) (595,652)
--------- --------- -------- ---------
Other Income (Expenses)
Gain (Loss) On Sale of Assets - - - 4) 69,846 69,846
Interest Expense (33,454) - (33,454) 5) 33,454 (66,908)
-------- --------- -------- --------
Total Other Income(Expenses) (33,454) - (33,454) 2,938
-------- --------- -------- --------
Loss Before Income Taxes (197,839) (104,629) (689,661) (592,714)
Taxes - - - -
-------- --------- -------- --------
Net Loss $(197,839) $(104,629) $(689,661) $(592,714)
========= ========= ========= =========
Basic Loss Per Share
Historical $( 0.03)
=========
Proforma $( 0.06)
=========
Weighted Average Shares Outstanding
Historical 6,200,012
=========
Proforma 9,691,440
=========
|
INTERFOODS CONSOLIDATED, INC.
PROFORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
Proforma
Adjustments Proforma Adjustments
to Reflect to Reflect Sale
Sitestar Acquisition of of Specialty Food
Statement Statement Sitestar As of Assets As of
of of December 31,1998 December 31, 1998
Operations Operations ----------------- Adjusted --------------------- Proforma
December 31, December 31, Dr Cr December Dr Cr December 31,
1998 1998 31, 1998 1998
--------- --------- --------- ------ ---------- ---------- -------- -----------
Sales $2,175,867 $ 69,128 $2,244,995 5) 2,175,867 $ 69,128
Cost of Goods Sold 1,614,924 108,191 1,723,115 7) 1,614,924 108,191
---------- --------- ---------- ----------
Gross Profit (Loss) 560,943 ( 39,063) 521,880 ( 39,063)
Selling, General and
Administrative Expenses 827,040 123,720 6) 774,385 1,725,145 7) 656,390 1,068,755
---------- --------- ---------- ----------
Loss From Operations (266,097) ( 162,783) (1,203,265) (1,107,818)
---------- --------- ---------- ----------
Other Income (Expenses)
Gain (Loss) On Sale of Assets - - - - -
Interest Expense (18,397) - (18,397) 7) 18,397 (36,794)
---------- --------- ---------- ----------
Total Other Income(Expenses) (18,397) - (18,397) (36,794)
---------- --------- ---------- ----------
Loss Before Income Taxes (284,494) (162,783) (1,221,662) (1,144,612)
Taxes - - - -
---------- --------- ---------- ----------
Net Loss $ (284,494) $(162,783) $(1,221,662) $(1,144,612)
========== ========= =========== ===========
Basic Loss Per Share
Historical $( 0.04)
===========
Proforma $( 0.12)
===========
Weighted Average Shares Outstanding
Historical 5,693,810
===========
Proforma 9,185,238
===========
|
NOTES TO PRO FORMA FINANCIAL STATEMENTS
INTERFOODS CONSOLIDATED, INC.
1) To reflect the acquisition of Sitestar Corporation as if it occurred on June 30, 1999. This acquisition closed as of July 27, 1999. The acquisition, accounted for as a purchase, was achieved through the issuance of 3,491,428 shares of the Company's common stock in exchange for all of the issued and outstanding shares of common stock held by Sitestar Corporation's Stockholders. The total acquisition price is $7,943,000 resulting in excess cost over fair value of net assets acquired of $7,742,929, calculated as follows:
Acquisition price $ 7,943,000
Net assets acquired 200,071
-----------
Excess cost over fair
Value of net assets
Acquired $ 7,742,929
===========
|
2) To reflect the sale of the specialty foods assets as if it occurred on June 30, 1999. This transaction closed on September 30, 1999. The sales price was $1,100,000 with a $200,000 discount, for the stockholders' formation of the Company for an adjusted price of $900,000. The consideration was a, assumption of $814,000 of Company's debt, related to the specialty foods business, and a promissory note for $86,000. The net book value of the assets was $830,154 for a gain on sale of assets of $69,846.
3) To reflect amortization of excess cost over the fair value of net assets acquired for the six month period.
4) To reflect the gain on sale of the specialty food assets.
5) To restate operations to remove the operations of the Specialty foods assets.
6) To reflect amortization of excess cost over the fair value of net assets acquired for the year ended.
7) To restate operations to remove the operations of the Specialty foods assets.
PART III
Item 1. INDEX TO EXHIBITS
The following exhibits are filed with this Registration Statement:
Exhibit
Number Description
------- -------------------------------
2.1 Agreement and Plan of Reorganization, dated October 25, 1998
2.2 Agreement and Plan of Reorganization, dated July 27, 1999
2.3 Asset Sale and Agreement re divestiture of Holland American
Specialties, dated September 30, 1999
2.4 Asset Sale and Agreement re divestiture of Sierra Madre Foods, Inc.,
dated September 30, 1999
2.5 Letter of Intent to Acquire Eastern Shore Net, dated August 17, 1999
2.6 Letter of Intent to Acquire Neocom Microspecialists, Inc., dated
September 2, 1999
3.1(i) Articles of Incorporation of the Registrant (December 17, 1992)
|
3.1(ii) Amended Articles of Incorporation (July 29, 1998)
3.1(iii) Amended Articles of Incorporation (October 26, 1998)
3.1(iv) Amended Articles of Incorporation (July 14, 1999)
3.1(v) Amended Articles of Incorporation (July 28, 1999) 3.2(i) By-laws of the Registrant (December 17, 1992) 22 Subsidiaries of the Registrant 27 Financial Data Schedule |
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
SITESTAR CORPORATION
(Registrant)
Date: October 21, 1999 By: /s/ Frederick T. Manlunas
-------------------------
Frederick T. Manlunas
Chairman of the Board
|
Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (hereinafter referred to as the "Agreement") is entered into as of this 25th day of October, 1998, by and between INTERFOODS CONSOLIDATED, INC. (hereinafter referred to as "HAIS"), FREDERICK T. MANLUNAS, EDWARD C. REYES, CHRISTOPER P. TSENG, EILEEN LEE, EMMANUEL CORPUS, RENATO A. LUTTAUA, ROSE FEJARDO, SOCORRO P. GIL and GLEN H. PEREZ (hereinafter individually and collectively referred to as "Shareholder") and WHITE DOVE SYSTEMS, INC. (hereinafter referred to as "WDVE").
WITNESSETH
WHEREAS, HAIS is a California corporation with 4,000,000 shares of common stock issued and outstanding (hereinafter "HAIS Shares"); and
WHEREAS, WDVE is a Nevada corporation with authorized capital stock of 25,000,000 shares of Common Stock $.001 par value per share, of which 1,860,000 shares were issued and outstanding as of October 25, 1998, and
WHEREAS, Shareholder owns all of the issued and outstanding shares of stock in HAIS; and
WHEREAS, WDVE desires to purchase from Shareholder all of the issued and outstanding shares of HAIS owned by him in exchange for 5,580,000 shares of common stock ("Stock"), and
WHEREAS, it is the intention of Shareholder to exchange the HAIS Shares held by him f or Stock of WDVE, on the terms and conditions set forth herein; and
WHEREAS, it is the intention of WDVE, HAIS and Shareholder that the transactions contemplated hereby constitute a tax-free "reorganization" as defined in Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended ("B Reorganization") and that all the terms and provisions of this Agreement be interpreted, construed and enforced to effectuate this intent.
NOW THEREFORE in consideration of the foregoing and the mutual covenants, promises, representations and warranties contained herein, the parties hereto agree as follows:
Article I
EXCHANGE
1. 1. Exchange of Stock of HAIS. At the Closing Date (as defined in Article VIII hereof), in accordance with the provisions of this Agreement and applicable law, Shareholder shall transfer and WDVE shall acquire all of the stock of HAIS Shares owned by Shareholder.
Article II
CONSIDERATION
2.1. Exchange. Shareholder and WDVE agree that all of the HAIS Shares owned by Shareholder shall be exchanged with WDVE for 5,580,000 shares of Stock of WDVE. Such Stocks shall be issued in Certificates of such denominations, amounts and names as may be requested by Shareholder.
2.2. Investment Intent and Delivery. Shareholder represents and warrants that he is acquiring said stock for investment purposes only and not with a view towards resale or redistribution. Shareholder agrees to deliver to WDVE on the Closing Date, a letter setting forth an agreement that said Stock is being acquired for investment purposes only and will not be sold except in compliance with the Securities Act of 1933, as amended, and the Rules and Regulations promulgated thereunder. At said closing, WDVE shall deliver certificates for the HAIS Shares, duly endorsed in negotiable form, with signatures guaranteed, free and clear from all claims and encumbrances.
Article III
REPRESENTATTONS AND WARRANTIES OF WDVE
WDVE represents the warrants to Shareholder as follows:
3.1. Organization. WDVE is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Nevada, has the corporate power and authority to own or lease its properties and to carry on business as now being conducted.
3.2. Capitalization. As of the date hereof, the authorized capital stock of WDVE consists of 25,000,000 shares of capital stock, of which 1,860,000 shares are presently issued and outstanding. All said Stock is validly issued and outstanding, fully paid and nonassessable. As of the Closing Date, there will be no shares of common stock subject to unexpired exercisable options.
3.3. Financial Statements. WDVE has furnished to Shareholder financial statements as of July 30, 1998. Said financial statements contain the balance sheet and income statement of WDVE. All of said financial statements, (i) are in accordance with WDVE's books and records, (ii) present fairly and financial position of WDVE as of such dates, and its results of operations and changes in financial position for the respective periods indicated, (iii) have been prepared in conformity with generally accepted accounting principles applied on a consistent basis, and (iv) consistent with prior business practice, contain adequate reserves for all known or contingent liabilities, losses and refunds with respect to services or products already rendered or sold.
3.4. Contracts. Prior to the Closing Date, WDVE will furnish HAIS with a true and complete list and description of all contracts by and between WDVE and with others. Each of the agreements, contracts, commitments, leases, plans and other instruments, documents and undertakings to be supplied is valid and enforceable in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting the rights of creditors generally, and by equitable principles. WDVE is not in default of the performance, observance or fulfillment of any material obligations, covenant or condition contained therein; and no event has occurred which with or without the giving of notice or lapse of time, or both, would constitute a default thereunder; furthermore, except as may be disclosed in writing at the time of delivery, no such agreement, contract, commitment, lease, plan or other instrument, document or undertaking, in the reasonable opinion of WDVE, contains any contractual requirement with which there is a likelihood WDVE will be unable to comply.
3.5. Registration Rights. No shareholder of WDVE has any demands or "piggy back" registration rights with regards to the outstanding shares or options of WDVE.
3.6. Authorization. WDVE has the power to enter into this Agreement, and this Agreement, when duly executed and delivered, will constitute the valid and binding obligation of WDVE.
3.7. Effect of Agreement. The execution and delivery by WDVE of this Agreement and the consummation of the transactions herein contemplated, (i) will not conflict with or result in a breach of the terms of, or constitute any default under or violation of, any law or regulation of any governmental authority, or the Articles of Incorporation or By-Laws of WDVE, or any material agreement or instrument to which WDVE is a party or by which it is bound or is subject; (ii) now will it give to others any interest or rights, including rights of termination, acceleration or cancellation, in or with respect to any of the properties, assets, agreements, leases, or business of WDVE.
Article IV
REPRESENTATIONS AND WARRANTIES OF HAIS AND SHAREHOLDER
HAIS and Shareholder, and each of them, represent and warrant to WDVE as follows:
4.1. Organization. HAIS is a corporation duly organized, validly existing and in good standing under the laws of the State of California, has the corporate power and authority to own or lease its properties and to carry on business as now being conducted.
4.2. Capitalization. The authorized capital stock of HAIS consists of one class of common stock, 20,000,000 shares authorized, of which 4,000,000 are outstanding Shares are validly issued and outstanding, fully paid and nonassessable. All of the issued and outstanding shares are owned by Shareholder.
4.3. Authority. HAIS and Shareholder have the full power and authority to enter into this Agreement and to carry out its obligations hereunder. Other than approval by the Board of Directors, no proceedings on the part of Shareholder is necessary to authorize this Agreement or the transactions completed hereby. This Agreement constitutes the legal, valid and binding obligation of HAIS and Shareholder enforceable in accordance with its terms.
4.4. Financial Statements. HAIS and Shareholder had furnished to WDVE its business plan and current financial statements. Said financial statements contain the balance sheet and income statement of HAIS. All of said financial statements, (i) are in accordance with HAIS books and records, (ii) present fairly the financial position of HAIS as of such dates, and its results of operations and changes in financial position for the respective periods indicated, (iii) have been prepared in conformity with generally accepted accounting principles applied on a consistent basis, and (iv) consistent with prior business practice, contain adequate reserves for all known or contingent liabilities, losses and refunds with respect to services or products already rendered or sold.
4.5. Contracts. Prior to the Closing Date, HAIS will furnish WDVE with a true and complete list and description of all contracts by and between HAIS and with others. Each of the agreements, contracts, commitments, leases, plans and other instruments, documents and undertakings to be supplied is valid and enforceable in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting the rights of creditors generally, and by equitable principles. HAIS is not in default of the performance, observance or fulfillment of any material obligations, covenant or condition contained therein; and no event has occurred which with or without the giving of notice or lapse of time, or both, would constitute a default thereunder; furthermore, except as
may be disclosed in writing at the time of delivery, no such agreement, contract, commitment, lease, plan or other instrument, document or undertaking, in the reasonable opinion of HAIS, contains any contractual requirement with which there is a likelihood HAIS will be unable to comply.
4.6. Competition. Except as set forth in the contracts described in 4.5 above, neither HAIS, nor any officer or director or Shareholder of HAIS has any material direct or indirect financial or economic interest in any related industry entity or in any competition or customer of HAIS.
4.7. Effect of Agreement. The execution and delivery by HAIS of this Agreement and the consummation of the transactions herein contemplated, (i) will not conflict with, or result in a breach of the terms of, or constitute and default under or violation of, any law or regulation of any governmental authority, or the Articles of Incorporation or By-Laws of RAIS, or any material agreement or instrument to which HAIS is a party or by which it is bound or is subject; (ii) nor will it give to rise to any interests or rights, including rights of termination, acceleration or cancellation, in or with respect to any of the properties, assets, agreements, leases, or business of HAIS.
4.8. Properties. All of the property, assets and equipment owned by or used by HAIS is in good repair, well maintained, and in good and satisfactory operating condition consistent with their age, free from any known defects, except such minor defects as do not substantially interfere with the continued use thereof in the conduct of normal operations and such property, assets, and equipment which is owned by HAIS is valued on the Balance Sheet at original purchase price less reasonable depreciation consistently applied in accordance with generally accepted accounting principles.
4.9. Minutes Book. The records of meetings and other corporate actions of Shareholder and the Board of Directors (including any committees of the Board) of HAIS which are contained in the Minute Books of HAIS contain complete and accurate records of the matters reflected in such minutes.
4.10. Litigation; Claims. HAIS is not a party and there are no claims, actions, suits, investigations or proceedings pending, threatened against HAIS or its business, at law or in equity, or before or by any governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, which if determined adversely would have a material effect on the business or financial condition of HAIS or the ability of HAIS to carry on its business. The consummation of the transactions herein contemplated will not conflict with or result in the breach or violation of any judgement, order, writ, injunction or decree of any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign.
4.11. Taxes and Reports. At the Closing Date, HAIS (i) will have filed all tax returns required to be filed by any jurisdiction, domestic or foreign, to which it is or has been subject, (ii) has paid in full all taxes due and taxes claimed to be due by each jurisdiction, and any interest and penalties with respect thereto, and (iii) has adequately reflected as liabilities on its books, all taxes that have accrued for any period to and including the Closing Date.
4.12. Compliance with Laws and Regulations. HAIS and Shareholder have complied with, and is not in violation of any federal, state, local or foreign statute, law, rule or regulation with respect to the conduct of its businesses, which violation might have a material adverse effect on the business, financial condition or earnings of HAIS.
4.13. Finders. HAIS is not obligated, absolutely or contingently, to any person for financial advice, a finder's fee, brokerage commission, or other similar payment in connection with the transactions contemplated by this Agreement.
4.14. Nature of Representations. No representation, warranty or agreement made by HAIS in this Agreement and no statement or disclosure furnished by Shareholder in connection with the transactions herein contemplated contains, or will contain, any untrue statement of a material fact necessary to make any statement, representation, warranty or agreement not misleading.
Article V
ACCESS TO INFORMATION
5.1. Access to Information. HAIS and Shareholder shall afford representatives of WDVE reasonable access to officers, personnel, and professional representatives of HAIS and such of the financial, contractual and corporate records of HAIS as shall be reasonably necessary for WDVE's investigations and appraisal of HAIS.
5.2. Effect of Investigations. Any such investigation by WDVE of RAIS shall not affect any of the representations and warranties hereunder and shall not be conducted in such manner as to interfere unreasonably with the operation of the business of HAIS.
Article VI
CONDITIONS TO OBLIGATIONS OF WDVE
The obligations of WDVE under this Agreement are, at the option of WDVE, subject to the satisfaction, at and prior to the Closing Date, of the following conditions:
6.1. Fulfillment of Covenants. All the terms, covenants and conditions of this Agreement to be complied with and performed by HAIS at or before the Closing Date shall have been duly complied with and performed.
6.2. Accuracy of Representations and Warranties: Other Documents. All of the representations and warranties made by all parties to this Agreement shall be true as of the Closing Date.
6.3. No Litigation. Except for certain claims which may have their genesis in connection with the rescission of that certain transaction by and between Shareholder and Glenhills Corporation, there shall be no action, proceeding, investigation or pending or actual litigation the purpose of which is to enjoin or may be to enjoin the transactions contemplated by this Agreement or which would have the effect, if successful, of imposing a material liability upon WDVE, or any of the officers or directors thereof, because of this consummation of the transactions contemplated by this Agreement.
Article VII
CONDITIONS TO OBLTGATIONS OF SHAREHOLDER
The obligations of Shareholder under this Agreement are, at the option of Shareholder, subject to the satisfaction, at and prior to the Closing Date, of the following conditions:
7.1. Fulfillment of Covenants. All the terms, covenants and conditions of this Agreement to be complied with and performed by WDVE at or before the Closing Date shall have been duly complied with and performed.
7.2. Accuracy of Representations and Warranties; Other Documents. All of the representations and warranties made by all parties to this Agreement shall be true as of the Closing Date.
7.3. No Litigation. There shall be no action, proceeding, investigation or pending or actual litigation the purpose of which is to enjoin or may be to enjoin the transactions contemplated by this Agreement or which would have the effect, if successful, of imposing a material liability upon HAIS, or any of the officers or directors thereof, because of the consummation of the transactions contemplated by this Agreement.
7.4. Additional Conditions. Prior to the Closing Date, the Board of Directors of WDVE will adopt a resolution to amend the Articles of Incorporation as follows:
Article FIRST is hereby amended to read as follows:
"FIRST. The name of the corporation is: InterFoods Consolidated, Inc.
Article FOURTH is hereby amended to read as follows:
"FOURTH. The aggregate number of shares which the corporation shall have the authority to issue is Twenty-Five Million (25,000,000) shares of common stock at $.001 par value, and Ten Million (10,000,000) shares of Serial Preferred Stock at $.001 par value.
A. Each share of Common Stock shall entitle the holder thereof to one vote on any matter submitted to a vote of or for consent of holders of Common Stock. Subject to the provisions of applicable law and this Article Fourth, any dividends paid or distributed on or with respect to the Common Stock of the corporation shall be paid or distributed ratably to the holders of its Common Stock. In the event of any liquidation, dissolution or winding-up of the corporation, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the corporation and any amounts to which the holders of any Serial Preferred Stock shall be entitled, as hereinafter provided, the holders of Common Stock shall be entitled to share ratably in the remaining assets of the corporation.
B. Subject to the terms and provisions of this Article Fourth, the Board of Directors is authorized to provide from time to time for the issuance of shares of Serial Preferred Stock in series and to fix and determine from time to time before issuance the designation and relative rights and preferences of the shares of each series of Serial Preferred Stock and the restrictions or qualifications thereof, including, without limiting the generality of the foregoing, the following:
(1) The series designation and Authorized number of shares;
(2) The dividend rate and the date or dates on which such dividends will be payable;
(3) The amount or amounts to be received by the holders in the event of voluntary or involuntary dissolution or liquidation of the corporation;
(4) The price or prices at which shares may be redeemed, if any, and any terms, conditions, limitations upon such redemptions;
(5) The sinking fund provisions, if any, for redemption or purchase of shares; and
(6) The terms and conditions, if any, on which shares may be converted at the election of the holders thereof into shares of other capital stock, or of other series of Serial Preferred Stock, of the corporation.
C. The holders of the shares of Common Stock or Serial Preferred Stock shall not be entitled to cumulative voting on any matter.
D. Upon the amendment of this Article Fourth to read as hereinabove set forth, each three (3) outstanding shares of common stock is reverse split, reconstituted and converted into one (1) share. No fractional shares shall be issued.
Article VIII
CLOSING
8.1. Closing Date. The consummation of the exchange shall take place at the offices of White Dove Systems, Inc. 6767 West Tropicana Avenue, Suite 207, Las Vegas, Nevada 89103, on November 20, 1998, or such other time or place as shall be mutually agreed upon by the parties to this Agreement.
8.2. Actions to be Taken by Parties on the Closing Date. On the Closing Date, each party shall deliver to the other all documents or agreements provided or herein to be-delivered on the Closing Date.
Article IX
INDEMNIFICATION AND ARBITRATION
9.1. Indemnification. Each of the parties agree to indemnify and hold harmless the other against any and all damages, claims, losses, expenses, obligations and liabilities (including reasonable attorney's fees) resulting from or related to any breach of, or failure by each of the parties to perform any of their representations, warranties, covenants, conditions or agreements in this Agreement or in any schedule, certificate, exhibit or other document furnished, or to be furnished under this Agreement.
9.2. Claims of Indemnification. Any claim for indemnification pursuant to this Agreement, unless otherwise received by means of direct negotiation among the parties upon reasonable oral notification by the party seeking indemnification to all other parties, shall be made by writing of the nature and amount of the claim to the other.
Article X
PAYMENT OF EXPENSES
10. 1. Expenses. Each party shall bear its own expenses.
Article XI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
11.1. Survival. All statements contained in any schedules, any exhibit or other instrument delivered by or on behalf of any party or in connection with the transactions contemplated by this Agreement, shall be deemed to be representations made by or on behalf of the parties to this Agreement, all representations, warranties and agreements made by the parties to this Agreement or pursuant hereto shall survive.
Article XII
GENERAL
12.1. Partial Invalidity. If any term or provision of this Agreement or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those to which it is held invalid or unenforceable, shall not be affected thereby, and each such term and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law.
12.2. Waiver. No waiver of any breach of any covenant or provision herein contained shall be deemed a waiver of any pre- ceding or succeeding breach thereof, or of any other covenant or provision herein contained. No extension of time for performance of any obligation or act shall be deemed and extension of the time for performance of any other obligation or act.
12.3. Notices. All notices or other communications required or permitted hereunder shall be in writing, and shall be sent by registered or certified mail, postage prepaid, return receipt requested, and shall be deemed received upon mailing thereof.
To: White Dove Systems, Inc.
Shareholders
c/o InterFoods Consolidated, Inc.
16133 Ventura Boulevard, Suite 635
Encino, California 91436
InterFoods Consolidated, Inc.
16133 Ventura Boulevard, Suite 635
Encino, California 91436
|
Notice of change of address shall be given by written notice in the manner detailed in this subparagraph 12.3.
12.4. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the permitted successors and assigns of the parties hereto.
12.5. Professional Fees. in the event of the bringing of any action or suit by a party hereto against another party hereunder by reason of any breach of any of the covenants, agreements or provisions on the part of the other party arising out of this Agreement, then in that event the prevailing party shall be entitled to have and recover of and from the other party all costs and expenses of the action or suit, including actual attorney's fees, accounting fees, and other professional fees resulting therefrom.
12.6. Entire Agreement. This Agreement is the final expression of, and contains the entire agreement between, the parties with respect to the subject matter hereof and supersedes all prior understandings with respect thereto. This Agreement may not be modified, changed, supplemented or terminated, nor may any obligations hereunder be waived, except by written instrument signed by the party to be charged or by his agent duly authorized in writing or as otherwise expressly permitted herein. The parties do not intend to confer any benefit hereunder on any person, firm or corporation other than the parties hereto.
12.7. Time of Essence. The parties hereby acknowledge and agree that time is strictly of the essence with respect to each and every term, condition, obligation and provision hereof and that failure to timely perform any of the terms, conditions, obligations or provisions hereof by either party shall constitute a material breach of and non-curable (but waivable) default under this Agreement by the party so failing to perform.
12-8. Construction. Headings at the beginning of each paragraph and subparagraph are solely for the convenience of the parties and are not a part of the Agreement. Whenever required by the context of this Agreement, the singular shall include the plural and the masculine shall include the feminine. This Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if both parties had prepared the same. Unless otherwise indicated, all references to paragraphs and subparagraphs are to this Agreement. In the event the date on which any party is required to take any action under the terms of this Agreement is not a business day, the action shall be taken on the next succeeding day.
12.9. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be an original and all of which taken together shall constitute one instrument.
12.10. Governing Law. The parties hereto expressly agree that this Agreement shall be governed by, interpreted under, and construed and enforced in accordance with the laws of the State of Nevada.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date hereof.
INTERFOODS CONSOLIDATED, INC.
By: /s/ Frederick T. Manlunas ----------------------------------- |
WHITE DOVE SYSTEMS, INC
By: /s/ Frederick T. Manlunas ----------------------------------- FREDERICK T. MANLUNAS |
INTERFOODS CONSOLIDATED, INC.
By: ____________________________
InterFood:Plan.Reorganization
Exhibit 2.2
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (hereinafter referred to as the
"Agreement") is entered into as of this 27th day of July, 1999, by and between
SITESTAR CORPORATION (hereinafter referred to as "SCOR"), FRANKLIN CHRISTOPHER,
RICHARD RASCHKE, VANCE STONE, HAROLD SOUTHWELL and WILLIAM McCRACKEN
(hereinafter individually and collectively referred to as "Shareholder") and
INTERFOODS CONSOLIDATED, INC. (hereinafter referred to as "IFCO").
WITNESSETH
WHEREAS, SCOR is a Delaware corporation with 92,000 shares of common stock issued and outstanding (hereinafter "SCOR Shares"); and
WHEREAS, IFCO is a Nevada corporation with authorized capital stock of 75,000,000 shares of Common Stock $.001 par value per share, of which 18,600,036 shares shall be issued and outstanding by July 27, 1999, and
WHEREAS, Shareholder owns all of the issued and outstanding shares of stock in SCOR; and,
WHEREAS, IFCO desires to purchase from Shareholder all of the issued and outstanding shares of SCOR owned by him in exchange for 3,491,428 shares of common stock ("Stock"); and
WHEREAS, it is the intention of Shareholder to exchange the SCOR Shares held by him for stock of IFCO, on the terms and conditions set forth herein; and
WHEREAS, it is the intention of IFCO, SCOR and Shareholder that the transactions contemplated hereby constitute a tax-free "reorganization" as defined in Section 268 (a) (1) (B) of the Internal Revenue Code of 1986, as amended ("B Reorganization") and that all the terms and provisions of this Agreement be interpreted, construed and enforced to effectuate this intent.
NOW THEREFORE in consideration of the foregoing and the mutual covenants, promises, representations and warranties contained herein, the parties hereto agree as follows: ARTICLE 1
EXCHANGE
1.1. Exchange of Stock of SCOR. At the Closing Date (as defined in Article VIII hereof), in accordance with the provisions of this Agreement and applicable law, shareholder shall transfer and IFCO shall acquire all of the stock of SCOR shares owned by Shareholder.
ARTICLE II
CONSIDERATION
2.1. Exchange. Shareholder and IFCO agree that all of the SCOR Shares owned by Shareholder shall be exchanged with IFCO for 3,491,428 shares of Stock of IFCO. Such Stocks shall be issued in Certificates of such denominations, amounts and names as may be requested by Shareholder.
2.2. Investment Intent and Delivery. Shareholder represents and warrants that he is acquiring said Stock for investment purposes only and not with a view towards resale or redistribution. Shareholder agrees to deliver to IFCO on the Closing Date, a letter setting forth an agreement that said Stock is being acquired for investment purposes only and will not be sold except in compliance with the Securities Act of 1933, as amended, and the Rules and Regulations promulgated thereunder. At said closing, IFCO shall deliver certificates for the SCOR Shares, duly endorsed in negotiable form, with signatures guaranteed, free and clear from all claims and encumbrances.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF IFCO
IFCO represents the warrants to Shareholder as follows:
3.1. Organization. IFCO is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Nevada, has the corporate power and authority to own or lease its properties and to carry on business as now being conducted.
3.2. Capitalization. As of the date hereof, the authorized capital stock of IFCO consists of 75,000,000 shares of capital stock, of which 18,600,036 shares shall be issued and outstanding by July 27, 1999. All said stock shall be validly issued and outstanding, fully paid and nonassessable. As of the Closing Date, there will be no shares of common stock subject to unexpired exercisable options.
3.3. Financial Statements. IFCO has furnished to Shareholder financial statements as of June 30, 1999. Said financial statements contain the balance sheet and income statement of IFCO. All of said financial statements, (I) are in accordance with IFCO's books and records, (ii) present fairly and financial position of IFCO as of such dates, and its results of operations and changes in financial position for the respective periods indicated, (iii) have been prepared in conformity with generally accepted accounting principles applied on a consistent basis, and (iv) consistent with prior business practice, contain adequate reserves for all known or contingent liabilities, losses and refunds with respect to services or products already rendered or sold.
3.4. Contracts. Prior to the Closing Date, IFCO will furnish SCOR with a true and complete list and description of all contracts by and between IFCO and with others. Each of the agreements, contracts, commitments, leases, plans and other instruments, documents and undertakings to be supplied is valid and enforceable in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting the rights of creditors generally, and by equitable principles. IFCO is not in default of the performance, observance or fulfillment of any material obligations, covenant or
condition contained therein; and no event has occurred which with or without the giving of notice or lapse of time, or both, would constitute a default thereunder; furthermore, except as may be disclosed in writing at the time of delivery, no such agreement, contract, commitment, lease, plan or other instrument, document or undertaking, in the reasonable opinion of IFCO, contains any contractual requirement with which there is a likelihood IFCO will be unable to comply.
3.5. Registration Rights. No shareholder of IFCO has any demands or "piggy back" registration rights with regards to the outstanding shares or options of IFCO.
3.6. Authorization. IFCO has the power to enter into this Agreement, and this Agreement, when duly executed and delivered, will constitute the valid and binding obligation of IFCO.
3.7. Effect of Agreement. The execution and delivery by IFCO of this Agreement and the consummation of the transactions herein contemplated, (I) will not conflict with, or result in a breach of the terms of, or constitute any default under or violation of, any law or regulation of any governmental authority, or the Articles of Incorporation or By-Laws of IFCO, or any material agreement or instrument to which IFCO is a party or by which it is bound or is subject; (ii) now will it give to others any interest or rights, including rights of termination, acceleration or cancellation, in or with respect to any of the properties, assets, agreements, leases, or business of IFCO.
3.8. Minute Book. The records of meetings and other corporate actions of shareholders and the Boards of Directors (including any committees of the Board) of IFCO which are contained in the Minute Books of IFCO contain complete and accurate records of all corporate actions are reflected in such minutes.
3.9. Litigation; Claims. IFCO is not a party and there are no claims, actions, suits, investigations or proceedings pending, threatened against or affecting IFCO or its business, at law or in equity, or before or by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which if determined adversely would have a material effect on the business or financial condition of IFCO or the ability of transactions herein contemplated will not conflict with or result in the breach or violation of any judgement, order, writ, injunction or decree of any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign.
3.10. Taxes and Reports. Prior to the Closing Date, IFCO (I) will have filed all tax returns required to be filed by any jurisdiction, domestic or foreign, to which it is or has been subject, (ii) has paid in full all taxes due and taxes claimed to be due by each jurisdiction, and any interest and penalties with respect thereto, and (iii) have adequately reflected as liabilities on its books, all taxes that have accrued for any period to and including January 31, 1994.
3.11. Compliance with Laws and Regulations. IFCO has complied with, and is not in violation of any federal, state, local or foreign statute, law, rule or regulation with respect to the conduct of its businesses, which violation might have a material adverse effect on the business, financial condition or earnings of IFCO.
3.12. Finders. IFCO is not obligated, absolutely or contingently, to any person for financial advice, a finder's fee, brokerage commission, or other similar payment in connection with the transactions contemplated by this Agreement.
3.13. Nature of Representations. No representations, warranty or agreement made by IFCO in this Agreement and no statement or disclosure furnished by IFCO in connection with the transactions herein contemplated contains, or will contain, any untrue statement of a material fact necessary to make any statement, representation, warranty or agreement not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SCOR AND SHAREHOLDER
SCOR and Shareholder, and each of them, represent and warrant to IFCO as follows:
4.1. Organization. SCOR is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has the corporate power and authority to own or lease its properties and to carry on business as now being conducted.
4.2. Capitalization. The authorized capital stock of SCOR consists of one class of common stock, 92,000 shares authorized, of which 92,000 are outstanding Shares are validly issued and outstanding, fully paid and nonassessable. All of the issued and outstanding shares are owned by Shareholder.
4.3. Authority. SCOR and Shareholder have the full power and authority to enter into this agreement and to carry out its obligations hereunder. Other than approval by the Board of Directors, no proceedings on the part of Shareholder is necessary to authorize this Agreement or the transactions completed hereby. This Agreement constitutes the legal, valid and binding obligation of SCOR and Shareholder enforceable in accordance with its terms.
4.4. Financial Statements. SCOR and Shareholder had furnished to IFCO its business plan and current financial statements. Said financial statements contain the balance sheet and income statement of SCOR. All of said financial statements, (I) are in accordance with SCOR books and records, (ii) present fairly the financial position of SCOR as of such dates, and its results of operations and changes in financial position for the respective periods indicated, (iii) have been prepared in conformity with generally accepted accounting principles applied on a consistent basis, and (iv) consistent with prior business practice, contain adequate reserves for all known or contingent liabilities, losses and refunds with respect to services or products already rendered or sold.
4.5. Contracts. Prior to the Closing Date, SCOR will furnish IFCO with a true and complete list and description of all contracts by and between SCOR and with others. Each of the agreements, contracts, commitments, leases, plans and other instruments, documents and undertakings to be supplied is valid and enforceable in accordance with its terms except as the enforceability thereof
may be limited by bankruptcy, insolvency or similar laws affecting the rights of creditors generally, and by equitable principles. SCOR is not in default of the performance, observance or fulfillment of any material obligations, covenant or condition contained therein; and no event has occurred which with or without the giving of notice or lapse of time, or both, would constitute a default thereunder; furthermore, except as may be disclosed in writing at the time of delivery, no such agreement, contract, commitment, lease, plan or other instrument, document or undertaking, in the reasonable opinion of SCOR, contains any contractual requirement with which there is a likelihood SCOR will be unable to comply.
4.6. Competition. Except as set forth in the contracts described in 4.5 above, neither SCOR, nor any officer or director or Shareholder of SCOR has any material direct or indirect financial or economic interest in any related industry entity or in any competition or customer of SCOR.
4.7. Effect of Agreement. The execution and delivery by SCOR of this Agreement and the consummation of the transactions herein contemplated, (i) will not conflict with, or result in a breach of the terms of, or constitute and default under or violation of, any law or regulation of any governmental authority, or the Articles of Incorporation or By-Laws of SCOR, or any material agreement or instrument to which SCOR is a party or by which it is bound or is subject; (ii) nor will it give to rise to any interests or rights, including rights of termination, acceleration or cancellation, in or with respect to any of the properties, assets, agreements, leases, or business of SCOR.
4.8. Properties. All of the property, assets and equipment owned by or used by SCOR is in good repair, well maintained, and in good and satisfactory operating condition consistent with their age, free from any known defects, except such minor defects as do not substantially interfere with the continued use thereof in the conduct of normal operations and such property, assets, and equipment which is owned by SCOR is valued on the Balance Sheet at original purchase price less reasonable depreciation consistently applied in accordance with generally accepted accounting principles.
4.9. Minutes Book. The record of meetings and other corporate actions of Shareholder and the Board of Directors (including any committees of the Board) of SCOR which are contained in the Minute Books of SCOR contain complete and accurate records of the matters reflected in such minutes.
4.10. Litigation; Claims. SCOR is not a party and there are no claims, actions, suits, investigations or proceedings pending, threatened against SCOR or its business, at law or in equity, or before or by any governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, which is determined adversely would have a material effect on the business or financial condition of SCOR or the ability of SCOR to carry on its business. The consummation of the transactions herein contemplated will not conflict with or result in the breach or violation of any judgement, order, writ, injunction or decree of any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign.
4.11. Taxes and Reports. At the Closing Date, SCOR (i) will have filed all tax returns required to be filed by any jurisdiction, domestic or foreign, to which it is or has been subject, (ii) has paid in full all taxes due and taxes claimed to be due by each jurisdiction, and any interest and penalties with respect thereto, and (iii) has adequately reflected as liabilities on its books, all taxes that have accrued for any period to and including the Closing Date.
4.12. Compliance with Laws and Regulations. SCOR and Shareholder have complied with, and is not in violation of any federal, state, local or foreign statute, law, rule or regulation with respect to the conduct of its businesses, which violation might have a material adverse effect on the business, financial condition or earnings of SCOR.
4.13. Finders. SCOR is not obligated, absolutely or contingently, to any person for financial advice, a finder's fee, brokerage commission, or other similar payment in connection with the transactions contemplated by this Agreement.
4.14. Nature of Representations. No representation, warranty or agreement made by SCOR in this Agreement and no statement or disclosure furnished by Shareholder in connection with the transactions herein contemplated contains, or will contain, any untrue statement of a material fact necessary to make any statement, representation, warranty or agreement not misleading.
ARTICLE V
ACCESS TO INFORMATION
5.1. Access to Information. SCOR and Shareholder shall afford representatives of IFCO reasonable access to officers, personnel, and professional representatives of SCOR and such of the financial, contractual and corporate records of SCOR as shall be reasonably necessary for IFCO's investigations and appraisals of SCOR.
5.2. Effect of Investigations. Any such investigation by IFCO of SCOR shall not affect any of the representations and warranties hereunder and shall not be conducted in such manner as to interfere unreasonably with the operation of the business of SCOR.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF IFCO
The obligations of IFCO under this Agreement are, at the option of IFCO, subject to the satisfaction, at and prior to the Closing Date, of the following conditions:
6.1. Fulfillment of Covenants. All the terms, covenants and conditions of this Agreement to be complied with and performed by SCOR at or before the Closing Date shall have been duly complied with and performed.
6.2. Accuracy of Representations and Warranties; Other Documents. All of the representations and warranties made by all parties to this Agreement shall be true as of the Closing Date.
6.3. No Litigation. There shall be no action, proceeding, investigation or pending or actual litigation to purpose of which is to enjoin or may be to enjoin the transactions contemplated by this Agreement or which would have the effect, if successful, of imposing a material liability upon IFCO, or any of the officers or directors thereof, because of this consummation of the transactions contemplated by this Agreement.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF SHAREHOLDER
The obligations of Shareholder under this Agreement are, at the option of Shareholder, subject to the satisfaction, at and prior to the Closing Date, of the following conditions:
7.1. Fulfillment of Covenants. All the terms, covenants and conditions of this Agreement to be complied with and performed by IFCO at or before the Closing Date shall have been duly complied with and performed.
7.2. Accuracy of Representations and Warranties; Other Documents. All of the representations and warranties made by all parties to this Agreement shall be true as of the Closing Date.
7.3. No Litigation. There shall be no action, proceeding, investigation or pending or actual litigation the purpose of which is to enjoin or may be to enjoin the transactions contemplated by this Agreement or which would have the effect, if successful, of imposing a material liability upon SCOR, or any of the officers or directors thereof, because of the consummation of the transactions contemplated by this Agreement.
ARTICLE VIII
CLOSING
8.1. Closing Date. The consummation of the exchange shall take place at the offices of Interfoods Consolidated, Inc. 16133 Ventura Boulevard, Suite 635, Encino, California 91436 on July 27, 1999, or such other time or place as shall be mutually agreed upon by the parties to this Agreement.
8.2. Actions to be Taken by Parties on the Closing Date. On the Closing Date, each party shall deliver to the other all documents or agreements provided or herein to be delivered on the Closing Date.
ARTICLE IX
INDEMNIFICATION AND ARBITRATION
9.1. Indemnification. Each of the parties agree to indemnify and hold harmless the other against any all damages, claims, losses, expenses, obligations and liabilities (including reasonable attorney's fees) resulting from or related to any breach of, or failure by each of the parties to perform any of their representations, warranties, covenants, conditions or agreements in this Agreement or in any schedule, certificate, exhibit or other document furnished, or to be furnished under this Agreement.
9.2. Claims of Indemnification. Any claim for indemnification pursuant to this Agreement, unless otherwise received by means of direct negotiation among the parties upon reasonable oral notification by the party seeking indemnification to all other parties, shall be made by writing of the nature and amount of the claim to the other.
ARTICLE X
PAYMENT OF EXPENSES
10.1. Expenses. Each party shall bear its own expenses.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
11.1. Survival. All statements contained in any schedules, any exhibit or other instrument delivered by or on behalf of any party or in connection with the transactions contemplated by this Agreement, shall be deemed to be representations made by or on behalf of the parties to this Agreement, all representations, warranties and agreements made by the parties to this Agreement or pursuant hereto shall survive.
ARTICLE XII
GENERAL
12.1. Partial Invalidity. If any term or provision of this Agreement or the application thereof to any person or circumstances shall, to any extent, be valid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those to which it is held invalid or unenforceable, shall not be affected thereby, and each such term and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law.
12.2. Waiver. No waiver of any breach of any covenant or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or of any other covenant or provision herein contained. No extension of time for performance of any obligation or act shall be deemed and extension of the time for performance of any other obligation or act.
12.3. Notices. All notices or other communications required or permitted hereunder shall be in writing, and shall be sent by registered or certified mail, postage prepaid, return receipt requested, and shall de deemed received upon mailing thereof.
To: Interfoods Consolidated, Inc.
16133 Ventura Boulevard
Suite 635
Encino, California 91436
Sitestar Corporation
Shareholders
326 First Street
Suite 26
Annapolis, Maryland 21403
Notice of change of address shall be given by written notice in the manner detailed in this subparagraph 12.3.
12.4. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the permitted successors and assigns of the parties hereto.
12.5. Professional Fees. In the event of the bringing of any action or suit by a party hereto against another party hereunder by reason of any breach of any of the covenants, agreements or provisions on the part of the other party arising out of this Agreement, then in that event the prevailing party shall be entitled to have and recover of and from the other party all costs and expenses of the action or suit, including actual attorney's fees, accounting fees, and other professional fees resulting therefrom.
12.6. Entire Agreement. This Agreement is the final expression of, and contains the entire agreement between, the parties with respect to the subject matter hereof and supersedes all prior understandings with respect thereto. This Agreement may not be modified, changed, supplemented or terminated, nor may any obligations hereunder be waived, except by written instrument signed by the party to be charged or by his agent duly authorized in writing or as otherwise expressly permitted herein. The parties do not intend to confer any benefit hereunder on any person, firm or corporation other than the parties hereto.
12.7. Time of Essence. The parties hereby acknowledge and agree that time is strictly of the essence with respect to each and every term, condition, obligation and provision hereof and that failure to timely perform any of the terms, conditions, obligations or provisions hereof by either party shall constitute a material breach of and non-curable (but waivable) default under this Agreement by the party so failing to perform.
12.8. Construction. Headings at the beginning of each paragraph and subparagraph are solely for the convenience of the parties and are not a part of the Agreement. Whenever required by the context of this Agreement, the singular shall include the plural and the masculine shall include the feminine. This Agreement shall not be construed as if it had been prepared by on of the parties, but rather as if both parties had prepared the same. Unless otherwise indicated, all references to paragraphs and subparagraphs are to this Agreement. In the event the date on which any of the party is required to take any action under the terms of this Agreement is not a business day, the action shall be taken on the next succeeding day.
12.9. Counterparts. This Agreement may be executed in on or more counterparts, each of which shall be an original and all of which taken together shall constitute on instrument.
12.10. Governing Law. The parties hereto expressly agree that this Agreement shall be governed by, interpreted under, and construed and enforced in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date hereof.
SITESTAR CORPORATION
/s/ Clinton J. Sallee
By:____________________________
President
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INTERFOODS CONSOLIDATED, INC.
/s/ Frederick Manlunus
By:_________________________________
Chief Executive Officer
/s/ Franklin Christopher
---------------------------
Franklin Christopher
/s/ Richard Raschke
---------------------------
Richard Raschke
/s/ Vance Stone
---------------------------
Vance Stone
/s/ Harold Southwell
---------------------------
Harold Southwell
/s/ William McCracken
---------------------------
William McCracken
/s/ Clinton J. Sallee
By:___________________________
Sitestar Corporation
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EXHIBIT 2.3
ASSET SALE AND PURCHASE AGREEMENT
THIS AGREEMENT, is made and entered into this 30th day of September, 1999, by and between SITESTAR CORPORATION, a Nevada corporation, hereinafter called "Seller" or the "Company" and IFCO GROUP, a California partnership, hereinafter called "Purchaser."
Purchaser hereby agrees to purchase and the Seller agrees to sell all of the assets presently used in the operation of the Company's business, including but not limited to the business name "HOLLAND AMERICAN INTERNATIONAL SPECIALTIES"; telephone number(s) and fax number(s); Seller's office furniture and equipment; all vehicles and operating equipment; telephone number (s); telephone equipment; computers and software; supplies; inventories; licenses; work in progress; and all other items used in the operation of the business in its present form, historic and present customer and vendor records and relationships; customer and vendor contracts and agreements, goodwill and all other assets used in the operation of the business known as HOLLAND AMERICAN INTERNATIONAL SPECIALTIES, located at 10343 E. Artesia Blvd., Bellflower, CA 90706 (a non-exclusive list of such assets is attached hereto as Exhibit "A" and by reference incorporated herein).
Purchaser is to receive all of the business assets other than cash or cash equivalents, all as more fully described on Exhibit "B" which is attached hereto and by reference incorporated herein, and Purchaser is to assume no debts and /or liabilities of the Company.
1. PURCHASE PRICE The total purchase price of $900,000.00 is payable as follows:
a. $ 200,000.00 Amount equivalent for the cost of Sitestar, Inc. with the "Public" status of Sitestar Corporation (f/k/a Interfoods Consolidated, Inc.).
b. $654,000.00 The Assumption of all trade, short and long term liabilities as of July 31, 1999.
c. $46,000.00 Balance of purchase price to be paid to Seller pursuant to terms of promissory note in said amount, in the form attached hereto as Exhibit "C" and by reference incorporated herein, payable in four (3) annual installments of $15,333.00 each plus accrued interest or more including interest at eight percent (8%) per annum, accruing from close of acquisition, until paid in full.
$900,000.00 Total Purchase Price.
2. PURCHASE PRICE ADJUSTMENT/COMPENSATION AND BENEFITS.
(a) PURCHASE PRICE ADJUSTMENT. The purchase price of Nine Hundred Thousand and /100 Dollars ($900,000.00) described above is based upon the company's aggregate assets (current assets plus fixed assets, plus inventory less prepaid taxes, less all cash and cash equivalents) at closing being not less than the company's aggregate assets on the balance sheet dated September 30, 1999, a copy of which is attached hereto as Exhibit "B" and by reference incorporated herein. In the event the current aggregate assets at the closing are different than as stated on the September 30, 1999 balance sheet, the purchase price shall be subject to adjustment accordingly.
(b) EMPLOYEE BENEFITS. Seller and Purchaser have further agreed that the Seller will assume 100% responsibility for all obligations to all personnel of the business for all matters related to accrued vacation and sick leave incurred by the business prior to the date of closing. Attached hereto as Exhibit "H", Purchaser and Seller have agreed to the amounts to which Seller is obligated to employees and this amount will be paid to the employees by Seller prior to the Date of Closing (outside of escrow) , or will be given as a credit to Purchaser and debit Seller, whereupon Purchaser shall assume all such obligations to said employees.
3. SECURITY. All of the Purchaser's obligations under this Agreement including
the Promissory Note and the Non-Compete Agreement shall be secured by two
(2) Security Agreements in form attached hereto as Exhibits "D" and "E" and
by reference incorporated herein, covering the assets being purchased as a
part of this transaction, including its leasehold interest, approximate
$500,000.00 inventory, of Holland American International Specialties, Inc.
and corporate guarantees of Purchaser. If Purchaser is in material breach
of any of the terms, conditions covenants or obligations to be performed
under any of said instruments or under the underlying Lease, Seller shall
provide written notice to Purchaser, and Purchaser shall have thirty (30)
days from the date of such written notice to cure the material breach. If,
at the expiration of such thirty (30) day period the material breach has not been cured, Purchaser shall be in default of such terms, conditions, covenants or obligations. In the event that Purchaser is in default of any of the terms, conditions, covenants or obligations to be performed under any of said instruments or under the underlying lease, said default shall constitute a default under all of said instruments. In such event Seller is authorized, at its sole option, to exercise any and all remedies available to it at law or at equity, as well as by the terms of any or all of said instruments or the Lease.
4. INVENTORY All inventory used in this business is to be transferred to Purchaser at close of escrow, see Exhibit "L".
5. AGREEMENT NOT TO COMPETE. Seller and Selling Shareholders, individually, agree that they will not engage, either directly or indirectly, in any business whose products or activities compete in whole or in part with the products or activities of Purchaser within the states of Washington and/or Oregon for a period of three (3) years after cessation of the Selling Shareholder's employment with the Purchaser all as more fully described in the Non-Compete Agreement attached hereto as Exhibit "F" and by reference incorporated herein.
6. TRAINING, TRANSITION AND CONSULTING. Transition training services shall be provided over a period of three (3) months from the Date of Closing of the transaction at no cost to Purchaser.
After expiration of the transition training by Seller, if so desired by both parties, then Seller and Purchaser may enter into a longer term possible employment contract under such terms as the parties may mutually agree.
7. SELLER AND SELLING SHAREHOLDERS REPRESENTATIONS AND WARRANTIES. Seller and Selling Shareholders hereby represent and warrant to Purchaser as follows:
(a) Organization. That Seller is a corporation duly organized and validly existing under the laws of the State of Nevada and is in good standing.
(b) Authorization. That the execution, delivery, and performance of this Agreement by Seller has been duly and effectively authorized by Seller's Board of Directors and Shareholders.
(c) Binding Obligation. That the officer Of Seller executing this Agreement on its behalf is duly authorized to do so and to deliver the same on behalf of Seller, and that this Agreement constitutes a valid and binding obligation of Seller and Selling Shareholders in accordance with its terms.
(d) Business operations. That Seller has not materially altered the conduct of its business, and has not taken any action; made any sales, loans, or liquidation outside the ordinary course of business; altered any business or accounting practices; changed business hours; or entered into any unusual transactions that are likely to have any adverse affect on the value of the business from the time of the mutually agreed upon letter of intent up through the date of closing.
(e) Title. That Seller is the true and lawful owner of all of the assets and inventory of the business, including, without limitation, those listed on Exhibit "A," free and clear of all title defects, security interests, claims, liens or encumbrances and that such assets and inventory are not subject to any agreement for their sale to or use by any third party.
(f) Condition. At Closing, to Seller's and Selling Shareholders' actual knowledge, the leased premises, equipment and other tangible assets of Seller are in good operating condition and repair. subject to ordinary wear and tear, are adequate for the uses to which they are being put, and to the best of Seller's and Selling Shareholders' knowledge are not in need of maintenance or repairs except for ordinary, routine maintenance and repairs.
(g) Supplies and Sample Materials. Prior to Closing, Purchaser will review and agree in writing with Seller as to quantities of supplies and materials that are transferred.
(h) Taxes. Seller shall pay and shall hold Purchaser harmless from all taxes due to any governmental body from activities prior to Closing. Seller has in a timely manner filed all federal, state and local tax returns relating to the assets or the business, including, but not limited to, those taxes with respect to income, property, worker's compensation, Medicaid and unemployment, and has paid all taxes, penalties and interest on said returns or arising therefrom.
(i) Compensation and Benefits. Attached hereto as Exhibit "H" is an accurate list and description of all employee compensation rates, accrued vacation time, sick leave and retirement benefits, bonus, profit sharing, retirement, stock purchase, stock option, insurance, hospitalization, or other benefit plans or programs for Seller's employees in the business, and a statement of their obligations under such programs.
(j) Labor. Seller is not a party to any labor agreement with any labor organization. Seller has experienced no attempt by organized labor to conform to labor demands in any manner. To its best knowledge, Seller is in compliance with all applicable laws respecting employment and is not engaged in any unfair labor practice.
(k) Default. Seller is not in default under any contract for work or services to be performed. There has been no unresolved claim for negligence or breach of warranty or breach of contract arising out of services delivered or installed, or services rendered by the business.
(l) Litigation. There is no pending or anticipated litigation, proceeding, investigation, controversy, judgment, order, writ, injunction or decree which would jeopardize the business or Purchaser's title to the assets being sold.
(m) Compliance With Law and Other Instruments. Seller holds, and has at all times held, all material licenses, permits and authorizations necessary for the lawful conduct of its business pursuant to all applicable statutes, laws, ordinances, rules and regulations of all federal, state and local governmental agencies having jurisdiction over it or over any part of its operations or the Assets, and Seller knows of no violations thereof. The execution and delivery of this Agreement and the compliance with the provisions hereof by Seller will not conflict with or result in any breach of any of the terms, conditions and provisions of, or constitute a default under, or result in the creation of a lien, charge or encumbrance upon any of the assets or outstanding capital stock of Seller pursuant to any charter documents, indenture, mortgage, lease, agreement or other instrument to which Seller is a party or by which it is bound.
(n) Environmental. Seller has not: caused or permitted its business to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process any "hazardous substances" or other toxic substances, except in compliance with all applicable federal, state and local laws or regulations.
(o) Material Misstatements or Omissions. No representations or warranties by Seller or Selling Shareholders in this Agreement nor any document, statement, certificate or schedule provided by seller or Selling Shareholders, contains any untrue statement of a material fact. Seller and Selling Shareholders have not withheld knowledge of any material event, condition or fact which they know or have reasonable grounds to believe may affect Seller's business.
(p) Sufficiency of the Assets. The assets sold pursuant to this Agreement include all assets necessary to the operation of the business. Said assets are sufficient to carry on the business as carried on by Seller prior to Closing.
(q) Terminability Of Employees. The employment of all employees of Seller is terminable at will. Seller will terminate the employment of all employees as of the Closing Date. Purchaser may, but is not required to, employ one or more said employees following Closing on terms to be determined by Purchaser and said employee(s).
(r) No Violations. Neither this Agreement nor the transactions contemplated herein shall cause seller to be in violation of any order, decree or law, or in violation of any contract or other document by which Seller is or may be bound.
(s) Vendors & Suppliers. At closing, to Seller's and Selling Shareholders, actual knowledge, no notice has been received from any current vendors stating their intentions to cease selling products to Seller on substantially the same terms and conditions as said products have been sold in the past.
(t) Current Customers. At closing, to Seller's and Selling
Shareholders, actual knowledge, no notice has been received from any
current customer who accounts for more than 5% of the prior twelve
(12) months revenue of the Seller that said customer no longer intends
to purchase products from Seller on substantially the same terms and
conditions as said customer has purchased products in the past;
provided however these warranties and representation do not pertain to
customers whose business is obtained via public bids.
8. PURCHASER REPRESENTATIONS AND WARRANTIES. Purchaser represents and warrants to Seller as follows:
(a) That Purchaser is a corporation duly organized and validly existing under the laws of the State of California.
(b) That the execution, delivery, and performance of this Agreement by Purchaser has been duly and effectively authorized by Purchaser's Board of Directors.
(c) That the officer of Purchaser executing this Agreement on its behalf is duly authorized to do so and to deliver the same on behalf of Purchaser, and that this Agreement constitutes a valid and binding obligation of Purchaser in accordance with its terms.
(d) The Purchaser has had full opportunity to review any and all financial information from Seller, including financial statements, tax returns, income and expense information, and all other information related to the business that Purchaser deems important in evaluating this business.
(e) Financial statements and any other financial records which Purchaser has provided to Seller are true and correct in every respect as of the dates thereof; and that there have been no material changes in Seller's financial position since the dates thereof.
9. SURVIVAL 0F REPRESENTATIONS AND WARRANTIES. Seller's and Purchaser's representations and shall survive the closing of this transaction.
10. AGENCY DISCLOSURE. At the signing of this Agreement the selling/listing agent and Acquisition Services Group, Inc. represented Seller. Each party signing this document confirms that prior oral and/or written disclosure of agency was provided to him/her in this transaction.
11. LIABILITIES. Purchaser assumed only those liabilities that are expressly set forth in the agreements between the parties. Seller warrants that at Closing it will give a good, clear and marketable title to business or business assets being sold; and that it has disclosed all known liabilities of any kind to the Purchaser regardless of whether such liabilities affect title to the assets and expressly agrees to hold Purchaser free and harmless from any such liabilities. Seller agrees to furnish to Purchaser a copy of a Uniform Commercial Code 11R showing no encumbrances except for those mentioned above.
12. ATTORNEY'S FEES - Purchaser and Seller agree that in the event of any litigation, between any of the parties, arising out of the transaction (whether closed or not), is instituted, the prevailing party or parties shall be entitled to recover from the other(s) their reasonable attorney's fees and reasonable costs incurred (whether or not statutory).
13. PRO-RATIONS. The sales (use) tax on furniture and equipment shall be paid by the Purchaser at settlement through escrow and personal property taxes, other taxes, and similar expenses shall he prorated as of the date of transfer of ownership.
14. SEVERABILITY. Each paragraph, section and/or provision of this agreement shall be considered severable, and if, for any reason, any paragraph, section and/or provision herein is determined to be invalid and contrary to any existing or future law or regulation, such shall not impair the operation of or affect the remaining paragraphs, sections and/or provisions of this agreement.
15. GENERAL PROVISIONS.
AS TO PURCHASER: By signing this agreement, Purchaser hereby acknowledges that Purchaser is relying solely on Purchaser's own inspection of the business and its assets and representations of seller with regard to the prior operating history of the business and all other material facts relating to Purchaser's decision to purchase.
AS TO SELLER: Seller acknowledges no representations were made concerning the credit-worthiness or ability of Purchaser to complete this transaction and relies solely on Purchaser's representations.
16. ALLOCATION OF VALUES SHALL BE:
Vehicles: $_________
Machinery & Equipment: $_________
Non-Competition Agreement: $_________
Goodwill: $_________
Net Other Assets Transferred: $_________
----------
TOTAL: $900,000.00
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17. DATE OF CLOSING. The Date of Closing of this transaction shall be defined as September 30, 1999. Purchaser is entitled to possession on October 1, 1999 at 12:01 a.m. At closing, Purchaser shall deposit all funds required to close this along with all executed original documents required by Seller to close this transaction.
18. ASSET SALE AND INDEMNIFICATIONS. This is a purchase of certain specified assets and the assumption of certain specified liabilities of seller, as set forth elsewhere in this document and attached Exhibits.
(a) Seller and Selling Shareholders agree to indemnify and hold Purchaser harmless with respect to any and all obligations and claims arising from the operation of the business, including but not limited to taxes due (except as assumed), wages payable, and accounts payable (except as assumed), which indebtedness or claims arose or were incurred prior to the date of possession by Purchaser. In the event Purchaser is required to satisfy any obligation or claim arising from Seller's operation of the business, Purchaser may deduct said amount from the next installment(s) after a minimum fifteen (15) day notice to Seller and-Seller shall thereafter have a period of thirty (30) days (or such greater time as may be mutually agreed to by the parties) to settle, compromise or otherwise resolve said claim. Provided, however, Purchaser's right of offset shall be cumulative and not an exclusive remedy for any such default and Purchaser shall have any and all legal and equitable remedies available to it in addition to such right of offset. It is further agreed that said right of offset shall cover claims for a period of one (1) year following the close of escrow.
(b) Purchaser agrees to indemnify and hold Seller harmless with respect to any loss, liability, cost, expense, or claim arising out of Purchaser's operation of the business after the date of possession by Purchaser.
19. PREMISES LEASE. Purchaser acknowledges receipt of a valid Lease Agreement from the landlord for the premises occupied by the business prior to the Date of Closing, which Lease Agreement is a condition of closing.
20. EQUIPMENT LEASES. There are no leased items of personal property subject to leases with Seller.
21. NOTICES. Any notice, request, or other document to be given under this Agreement after the date hereof by any party to any other, shall be in writing and shall be sent by hand delivery, or by mail, postage prepaid, return receipt requested. The effective date of mailed notice shall be deemed to be three (3) calendar days following mailing.
PURCHASER: IFCO Group
c/o Frederick Manlunas
10343 E. Artesia Blvd.
Bellflower, CA 90706
8
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SELLER: Sitestar Corporation
C/O Clinton J. Sallee
16133 Ventura Blvd., Suite 635
Encino, CA 91436
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25. WAIVERS/EXTENSION. The parties may, by written instrument, extend the time for the performance for any of the obligations or other act of any other party and (a) waive any inaccuracy of such other party in any representation or warranties contained herein or in any document delivered pursuant to this Agreement; (b) waive compliance with any of the covenants of such other parties' performance of any of the obligation set out in this Agreement. Any waiver or extension hereunder shall not constitute a waiver or extension of any other provision of this Agreement.
26. SUCCESSORS/ASSIGNS. This Agreement shall be binding on the parties, their successors, assigns and subsidiaries.
27. REMEDIES IN EQUITY. The parties agree that damages at law may be an inadequate remedy for breach or threatened breach of the terms of this Agreement and agree that the respective rights and obligations hereunder shall be enforceable, pending ultimate resolution of any dispute by arbitration or appeals therefrom, by specific enforcement, injunction, or other equitable remedy, as well as at law.
28. PERIODIC FINANCIAL STATEMENTS. Purchaser hereby agrees to provide accurate and timely financial statements on a quarterly basis to Seller throughout the term of this Agreement so long as there is a balance due and owing to Seller under the Promissory Note, the Non-Compete Agreements and/or the Employment Agreement (if any), and anticipating breach provisions will be included.
29. WORK IN PROCESS. Work in Progress will be memorialized by schedules supplied as of the closing of business on October 30, 1999, and attached as Exhibit "K".
30. ENTIRE AGREEMENT. This Agreement together with its exhibits and attachments contains the entire agreement between the Seller and Purchaser, and supersedes or cancels any prior agreements, understandings or inducements relating to the transaction provided for herein.
31. TRANSFER DOCUMENTS. At closing, Seller shall execute and deliver to Purchaser a Bill Of Sale in the form attached hereto as Exhibit "G".
32. COOPERATION AND ADJUSTMENTS. The parties agree to take all steps, and to execute all documents, whether before, at or after Closing, reasonably necessary or advisable to carry out this Agreement and the transactions described herein. The parties recognize that there may be some overlooked or unclear. technicalities that need to be cleared up after Closing, and they shall attempt to resolve those by mutual agreement.
33. CROSS-DEFAULT. Since the obligations of the parties are interdependent, the parties intend for such obligations to be cross-secured. Therefore, a default by a party under this Agreement, the Lease Agreement or any of the agreements referenced herein, subject to the provisions of paragraph 3 above, shall be a default under the others as well, at the option of the non-defaulting party-
34. ARBITRATION. All disputes relating to this Agreement and/or the
relationship of the parties hereunder shall be settled and finally
determined by arbitration in Vancouver under the American Arbitration
Association (AAA) Commercial Arbitration Rules with Expedited Procedures in
effect on the date hereof. There shall be one arbitrator, who shall be an
attorney with at least 15 years commercial law experience, selected by the
parties as follows: each party shall submit a list of three proposed
arbitrators within ten (10) days of the arbitration demand, and if the
parties do not select an arbitrator within five (5) days, then within three
(3) days one impartial arbitrator shall be appointed by the Presiding
Judge. California law shall apply and arbitrator may award attorneys fee.
The judgment upon the award rendered in any such arbitration shall be final
and binding upon the parties, and may be entered in any court having
jurisdiction thereof.
SIGNED and DATED this 30th day of September, 1999.
SELLER: PURCHASER:
Sitestar Corporation IFCO Group
/s/ Clinton J. Sallee /s/ Frederick Manlunas
By: _____________________ By: __________________________
Clinton J. Sallee, President and CEO Frederick Manlunas, President
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EXHIBIT 2.4
ASSET SALE AND PURCHASE AGREEMENT
THIS AGREEMENT, is made and entered into this 30th day of September, 1999, by and between SITESTAR CORPORATION, a Nevada corporation, hereinafter called "Seller" or the "Company" and IFCO GROUP, a California partnership, hereinafter called "Purchaser."
Purchaser hereby agrees to purchase and the Seller agrees to sell all of the assets presently used in the operation of the Company's business, including but not limited to the business name " Sierra Madre Foods, Inc. "; telephone number(s) and fax number(s); Seller's office furniture and equipment; all vehicles and operating equipment; telephone number (s); telephone equipment; computers and software; supplies; inventories; licenses; work in progress; and all other items used in the operation of the business in its present form, historic and present customer and vendor records and relationships; customer and vendor contracts and agreements, goodwill and all other assets used in the operation of the business known Sierra Madre Foods, Inc., located at 10343 E. Artesia Blvd., Bellflower, CA 90706 (a non-exclusive list of such assets is attached hereto as Exhibit "A" and by reference incorporated herein).
Purchaser is to receive all of the business assets other than cash or cash equivalents, all as more fully described on Exhibit "B" which is attached hereto and by reference incorporated herein, and Purchaser is to assume no debts and /or liabilities of the Company.
1. PURCHASE PRICE The total purchase price of $200,000.00 is payable as follows:
a. $ 160,000.00 Assumption of $160,000 of debt related services.
40,000.00 Promissory note, payable in three (3) annual installments of $13,334.00 each plus accrued interest or more including interest at eight percent (8%) per annum, accruing from close of acquisition, until paid in full.
$ 200,000.00 Total Purchase Price.
2. PURCHASE PRICE ADJUSTMENT/COMPENSATION AND BENEFITS.
(a) Purchase Price Adjustment. The purchase price of Two Hundred Thousand and 00/100 Dollars ($200,000.00) described above is based upon the company's aggregate assets (current assets plus fixed assets, plus inventory less prepaid taxes, less all cash and cash equivalents) at closing being not less than the company's aggregate assets on the balance sheet dated September 30, 1999, a copy of which is attach hereto as Exhibit "B" and by reference incorporated herein. In the event the current aggregate assets at the closing are different than as stated on the September 30, 1999 balance sheet, the purchase price shall be subject to adjustment accordingly.
(b) Employee Benefits. Seller and Purchaser have further agreed that the Seller will assume 100% responsibility for all obligations to a personnel of the business for all matters related to accrued vacation and sick leave incurred by the business prior to the date of closing. Attached hereto as Exhibit "H", Purchaser and Seller have agreed to the amounts to which Seller is obligated to employees and this amount will be paid to the employees by Seller prior to the Date of Closing (outside of escrow) , or will be given as a credit to Purchaser and debit Seller, whereupon Purchaser shall assume all such obligations to said employees.
3. SECURITY. All of the Purchaser's obligations under this Agreement including
the Promissory Note and the Non-Compete Agreement shall be secured by two
(2) Security Agreements in form attached hereto as Exhibits "D" and "E" and
by reference incorporated herein, covering the assets being purchased as a
part of this transaction, including its leasehold interest, approximate
$500,000.00 inventory, of Sierra Madre Foods, Inc. and corporate guarantees
of Purchaser. If Purchaser is in material breach of any of the terms,
conditions covenants or obligations to be performed under any of said
instruments or under the underlying Lease, Seller shall provide written
notice to Purchaser, and Purchaser shall have thirty (30) days from the
date of such written notice to cure the material breach. If, at the
expiration of such thirty (30) day period the material breach has not been
cured, Purchaser shall be in default of such terms, conditions, covenants
or obligations. In the event that Purchaser is in default of any of the
terms, conditions, covenants or obligations to be performed under any of
said instruments or under the underlying lease, said default shall
constitute a default under all of said instruments. In such event Seller is
authorized, at its sole option, to exercise any and all remedies available
to it at law or at equity, as well as by the terms of any or all of said
instruments or the Lease.
4. INVENTORY All inventory used in this business is to be transferred to Purchaser at close of escrow, see Exhibit "L".
5. AGREEMENT NOT TO COMPETE. Seller and Selling Shareholders, individually, agree that they will not engage, either directly or indirectly, in any business whose products or activities compete in whole or in part with the products or activities of Purchaser within the state of California for a period of three (3) years after cessation of the Selling Shareholder's employment with the Purchaser all as more fully described in the Non-Compete Agreement attached hereto as Exhibit "F" and by reference incorporated herein.
6. TRAINING, TRANSITION AND CONSULTING. Transition training services shall be provided over a period of three (3) months from the Date of Closing of the transaction at no cost to Purchaser.
After expiration of the transition training by Seller, if so desired by both parties, then Seller and Purchaser may enter into a longer term possible employment contract under such terms as the parties may mutually agree.
7. SELLER AND SELLING SHAREHOLDERS REPRESENTATIONS AND WARRANTIES. Seller and Selling Shareholders hereby represent and warrant to Purchaser as follows:
(a) Organization. That Seller is a corporation duly organized and validly existing under the laws of the State of Nevada and is in good standing.
(b) Authorization. That the execution, delivery, and performance of this Agreement by Seller has been duly and effectively authorized by Seller's Board of Directors and Shareholders.
(c) Binding Obligation. That the officer Of Seller executing this Agreement on its behalf is duly authorized to do so and to deliver the same on behalf of Seller, and that this Agreement constitutes a valid and binding obligation of Seller and Selling Shareholders in accordance with its terms.
(d) Business operations. That Seller has not materially altered the conduct of its business, and has not taken any action; made any sales, loans, or liquidation outside the ordinary course of business; altered any business or accounting practices; changed business hours; or entered into any unusual transactions that are likely to have any adverse affect on the value of the business from the time of the mutually agreed upon letter of intent up through the date of closing.
(e) Title. That Seller is the true and lawful owner of all of the assets and inventory of the business, including, without limitation, those listed on Exhibit "A," free and clear of all title defects, security interests, claims, liens or encumbrances and that such assets and inventory are not subject to any agreement for their sale to or use by any third party.
(f) Condition. At Closing, to Seller's and Selling Shareholders' actual knowledge, the leased premises, equipment and other tangible assets of Seller are in good operating condition and repair. subject to ordinary wear and tear, are adequate for the uses to which they are being put, and to the best of Seller's and Selling Shareholders' knowledge are not in need of maintenance or repairs except for ordinary, routine maintenance and repairs.
(g) Supplies and Sample Materials. Prior to Closing, Purchaser will review and agree in writing with Seller as to quantities of supplies and materials that are transferred.
(h) Taxes. Seller shall pay and shall hold Purchaser harmless from all taxes due to any governmental body from activities prior to Closing. Seller has in a timely manner filed all federal, state and local tax returns relating to the assets or the business, including, but not limited to, those taxes with respect to income, property, worker's compensation, Medicaid and unemployment, and has paid all taxes, penalties and interest on said returns or arising therefrom.
(i) Compensation and Benefits. Attached hereto as Exhibit "H" is an accurate list and description of all employee compensation rates, accrued vacation time, sick leave and retirement benefits, bonus, profit sharing, retirement, stock purchase, stock option, insurance, hospitalization, or other benefit plans or programs for Seller's employees in the business, and a statement of their obligations under such programs.
(j) Labor. Seller is not a party to any labor agreement with any labor organization. Seller has experienced no attempt by organized labor to conform to labor demands in any manner. To its best knowledge, Seller is in compliance with all applicable laws respecting employment and is not engaged in any unfair labor practice.
(k) Default. Seller is not in default under any contract for work or services to be performed. There has been no unresolved claim for negligence or breach of warranty or breach of contract arising out of services delivered or installed, or services rendered by the business.
(l) Litigation. There is no pending or anticipated litigation, proceeding, investigation, controversy, judgment, order, writ, injunction or decree which would jeopardize the business or Purchaser's title to the assets being sold.
(m) Compliance With Law and Other Instruments. Seller holds, and has at all times held, all material licenses, permits and authorizations necessary for the lawful conduct of its business pursuant to all applicable statutes, laws, ordinances, rules and regulations of all federal, state and local governmental agencies having jurisdiction over it or over any part of its operations or the Assets, and Seller knows of no violations thereof. The execution and delivery of this Agreement and the compliance with the provisions hereof by Seller will not conflict with or result in any breach of any of the terms, conditions and provisions of, or constitute a default under, or result in the creation of a lien, charge or encumbrance upon any of the assets or outstanding capital stock of Seller pursuant to any charter documents, indenture, mortgage, lease, agreement or other instrument to which Seller is a party or by which it is bound.
(n) Environmental. Seller has not: caused or permitted its business to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce or process any "hazardous substances" or other toxic substances, except in compliance with all applicable federal, state and local laws or regulations.
(o) Material Misstatements or Omissions. No representations or warranties by Seller or Selling Shareholders in this Agreement nor any document, statement, certificate or schedule provided by seller or Selling Shareholders, contains any untrue statement of a material fact. Seller and Selling Shareholders have not withheld knowledge of any material event, condition or fact which they know or have reasonable grounds to believe may affect Seller's business.
(p) Sufficiency of the Assets. The assets sold pursuant to this Agreement include all assets necessary to the operation of the business. Said assets are sufficient to carry on the business as carried on by Seller prior to Closing.
(q) Terminability Of Employees. The employment of all employees of Seller is terminable at will. Seller will terminate the employment of all employees as of the Closing Date. Purchaser may, but is not required to, employ one or more said employees following Closing on terms to be determined by Purchaser and said employee(s).
(r) No Violations. Neither this Agreement nor the transactions contemplated herein shall cause seller to be in violation of any order, decree or law, or in violation of any contract or other document by which Seller is or may be bound.
(s) Vendors & Suppliers. At closing, to Seller's and Selling Shareholders, actual knowledge, no notice has been received from any current vendors stating their intentions to cease selling products to Seller on substantially the same terms and conditions as said products have been sold in the past.
(t) Current Customers. At closing, to Seller's and Selling Shareholders, actual knowledge, no notice has been received from any current customer who accounts for more than 5% of the prior twelve (12) months revenue of the Seller that said customer no longer intends to purchase products from Seller on substantially the same terms and conditions as said customer has purchased products in the past; provided however these warranties and representation do not pertain to customers whose business is obtained via public bids.
8. PURCHASER REPRESENTATIONS AND WARRANTIES. Purchaser represents and warrants to Seller as follows:
(a) That Purchaser is a corporation duly organized and validly existing under the laws of the State of California.
(b) That the execution, delivery, and performance of this Agreement by Purchaser has been duly and effectively authorized by Purchaser's Board of Directors.
(c) That the officer of Purchaser executing this Agreement on its behalf is duly authorized to do so and to deliver the same on behalf of Purchaser, and that this Agreement constitutes a valid and binding obligation of Purchaser in accordance with its terms.
(d) The Purchaser has had full opportunity to review any and all financial information from Seller, including financial statements, tax returns, income and expense information, and all other information related to the business that Purchaser deems important in evaluating this business.
(e) Financial statements and any other financial records which Purchaser has provided to Seller are true and correct in every respect as of the dates thereof; and that there have been no material changes in Seller's financial position since the dates thereof.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Seller's and Purchaser's representations and shall survive the closing of this transaction.
10. AGENCY DISCLOSURE. At the signing of this Agreement the selling/listing agent and Acquisition Services Group, Inc. represented Seller. Each party signing this document confirms that prior oral and/or written disclosure of agency was provided to him/her in this transaction.
11. LIABILITIES. Purchaser assumed only those liabilities that are expressly set forth in the agreements between the parties. Seller warrants that at Closing it will give a good, clear and marketable title to business or business assets being sold; and that it has disclosed all known liabilities of any kind to the Purchaser regardless of whether such liabilities affect title to the assets and expressly agrees to hold Purchaser free and harmless from any such liabilities. Seller agrees to furnish to Purchaser a copy of a Uniform Commercial Code 11R showing no encumbrances except for those mentioned above.
12. ATTORNEY'S FEES - Purchaser and Seller agree that in the event of any litigation, between any of the parties, arising out of the transaction (whether closed or not), is instituted, the prevailing party or parties shall be entitled to recover from the other(s) their reasonable attorney's fees and reasonable costs incurred (whether or not statutory).
13. PRO-RATIONS. The sales (use) tax on furniture and equipment shall be paid by the Purchaser at settlement through escrow and personal property taxes, other taxes, and similar expenses shall he prorated as of the date of transfer of ownership.
14. SEVERABILITY. Each paragraph, section and/or provision of this agreement shall be considered severable, and if, for any reason, any paragraph, section and/or provision herein is determined to be invalid and contrary to any existing or future law or regulation, such shall not impair the operation of or affect the remaining paragraphs, sections and/or provisions of this agreement.
15. GENERAL PROVISIONS.
AS TO PURCHASER: By signing this agreement, Purchaser hereby acknowledges that Purchaser is relying solely on Purchaser's own inspection of the business and its assets and representations of seller with regard to the prior operating history of the business and all other material facts relating to Purchaser's decision to purchase.
AS TO SELLER: Seller acknowledges no representations were made concerning the credit-worthiness or ability of Purchaser to complete this transaction and relies solely on Purchaser's representations.
16. ALLOCATION OF VALUES SHALL BE:
Vehicles: $_________
Machinery & Equipment: $_________
Non-Competition Agreement: $_________
Goodwill: $_________
Net Other Assets Transferred: $_________
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TOTAL: $200,000.00
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17. DATE OF CLOSING. The Date of Closing of this transaction shall be defined as September 30, 1999. Purchaser is entitled to possession on October 1, 1999 at 12:01 a.m. At closing, Purchaser shall deposit all funds required to close this along with all executed original documents required by Seller to close this transaction.
18. ASSET SALE AND INDEMNIFICATIONS. This is a purchase of certain specified assets and the assumption of certain specified liabilities of seller, as set forth elsewhere in this document and attached Exhibits.
(a) Seller and Selling Shareholders agree to indemnify and hold Purchaser harmless with respect to any and all obligations and claims arising from the operation of the business, including but not limited to taxes due (except as assumed), wages payable, and accounts payable (except as assumed), which indebtedness or claims arose or were incurred prior to the date of possession by Purchaser. In the event Purchaser is required to satisfy any obligation or claim arising from Seller's operation of the business, Purchaser may deduct said amount from the next installment(s) after a minimum fifteen (15) day notice to Seller and-Seller shall thereafter have a period of thirty (30) days (or such greater time as may be mutually agreed to by the parties) to settle, compromise or otherwise resolve said claim. Provided, however, Purchaser's right of offset shall be cumulative and not an exclusive remedy for any such default and Purchaser shall have any and all legal and equitable remedies available to it in addition to such right of offset. It is further agreed that said right of offset shall cover claims for a period of one (1) year following the close of escrow.
(b) Purchaser agrees to indemnify and hold Seller harmless with respect to any loss, liability, cost, expense, or claim arising out of Purchaser's operation of the business after the date of possession by Purchaser.
19. PREMISES LEASE. Purchaser acknowledges receipt of a valid Lease Agreement from the landlord for the premises occupied by the business prior to the Date of Closing, which Lease Agreement is a condition of closing.
20. EQUIPMENT LEASES. There are no leased items of personal property subject to leases with Seller.
21. NOTICES. Any notice, request, or other document to be given under this Agreement after the date hereof by any party to any other, shall be in writing and shall be sent by hand delivery, or by mail, postage prepaid, return receipt requested. The effective date of mailed notice shall be deemed to be three (3) calendar days following mailing.
PURCHASER: IFCO Group
10343 E. Artesia Blvd.
Bellflower, CA 90706
SELLER: Sitestar Corporation
C/O Clinton J. Sallee
16133 Ventura Blvd., Suite 635
Encino, CA 91436
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25. WAIVERS/EXTENSION. The parties may, by written instrument, extend the time for the performance for any of the obligations or other act of any other party and (a) waive any inaccuracy of such other party in any representation or warranties contained herein or in any document delivered pursuant to this Agreement; (b) waive compliance with any of the covenants of such other parties' performance of any of the obligation set out in this Agreement. Any waiver or extension hereunder shall not constitute a waiver or extension of any other provision of this Agreement.
26. SUCCESSORS/ASSIGNS. This Agreement shall be binding on the parties, their successors, assigns and subsidiaries.
27. REMEDIES IN EQUITY. The parties agree that damages at law may be an inadequate remedy for breach or threatened breach of the terms of this Agreement and agree that the respective rights and obligations hereunder shall be enforceable, pending ultimate resolution of any dispute by arbitration or appeals therefrom, by specific enforcement, injunction, or other equitable remedy, as well as at law.
28. PERIODIC FINANCIAL STATEMENTS. Purchaser hereby agrees to provide accurate and timely financial statements on a quarterly basis to Seller throughout the term of this Agreement so long as there is a balance due and owing to Seller under the Promissory Note, the Non-Compete Agreements and/or the Employment Agreement (if any), and anticipating breach provisions will be included.
29. WORK IN PROCESS. Work in Progress will be memorialized by schedules supplied as of the closing of business on October 30, 1999, and attached as Exhibit "K".
30. ENTIRE AGREEMENT. This Agreement together with its exhibits and attachments contains the entire agreement between the Seller and Purchaser, and supersedes or cancels any prior agreements, understandings or inducements relating to the transaction provided for herein.
31. TRANSFER DOCUMENTS. At closing, Seller shall execute and deliver to Purchaser a Bill Of Sale in the form attached hereto as Exhibit "G".
32. COOPERATION AND ADJUSTMENTS. The parties agree to take all steps, and to execute all documents, whether before, at or after Closing, reasonably necessary or advisable to carry out this Agreement and the transactions described herein. The parties recognize that there may be some overlooked or unclear. technicalities that need to be cleared up after Closing, and they shall attempt to resolve those by mutual agreement.
33. CROSS-DEFAULT. Since the obligations of the parties are interdependent, the parties intend for such obligations to be cross-secured. Therefore, a default by a party under this Agreement, the Lease Agreement or any of the agreements referenced herein, subject to the provisions of paragraph 3 above, shall be a default under the others as well, at the option of the non-defaulting party.
34. ARBITRATION. All disputes relating to this Agreement and/or the
relationship of the parties hereunder shall be settled and finally
determined by arbitration in Vancouver under the American Arbitration
Association (AAA) Commercial Arbitration Rules with Expedited Procedures in
effect on the date hereof. There shall be one arbitrator, who shall be an
attorney with at least 15 years commercial law experience, selected by the
parties as follows: each party shall submit a list of three proposed
arbitrators within ten (10) days of the arbitration demand, and if the
parties do not select an arbitrator within five (5) days, then within three
(3) days one impartial arbitrator shall be appointed by the Presiding
Judge. California law shall apply and arbitrator may award attorneys fee.
The judgment upon the award rendered in any such arbitration shall be final
and binding upon the parties, and may be entered in any court having
jurisdiction thereof.
SIGNED and DATED this 30th day of September, 1999.
SELLER: PURCHASER:
Sitestar Corporation IFCO Group.
/s/ Clinton J. Sallee /s/ Frederick Manlunas
By: _____________________ By: __________________________
Clinton J. Sallee, President and CEO Frederick Manlunas, President
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Exhibit 2.5
CONFIDENTIAL August 17, 1999
LETTER OF INTENT
Stock Purchase Agreement
Eastern Shore Net Incorporated
I. ACQUIRING ENTITY
Sitestar Corporation (the "Buyer" "Sitestar"), incorporated in the State of Nevada, will purchase (the "Purchase") Eastern Shore Net Incorporated, a Nevada corporation (the "Company" "ESN"); its principal owner being Mr. Gary Thompson (the "Principal Shareholder"). The Company is represented by Optimum Strategic Finance (OSF) through Mr. Roger Morrison. (the "Intermediary").
II. STRUCTURE AND CONSIDERATION
Buyer will purchase 100% the Company's stock. The aggregate consideration for the transaction will be approximately $192,000 paid in common stock in Sitestar at a $3.00 per share strike price.
III. PURCHASE CONSIDERATION
Purchase consideration is based on the Company's aggregate net worth and general financial performance at closing being not less than as reflected on data provided to the Buyer during negotiations. Should the aggregate net worth and/or the general financial performance at the closing differ, the purchase price shall be subject to adjustment accordingly. Assets of the Company are to include all balance sheet items and other assets presently utilized in the ISP business. A definitive list of assets and accompanying obligations shall be compiled and agreed upon by Buyer and the Company. The additional terms and conditions of the purchase consideration will be addressed in the definitive agreement.
IV. PAYMENT STRUCTURE
Buyer will deliver to the Shareholders stock certificates equal to the purchase price at the closing and the execution of a definitive agreement.
CONFIDENTIAL August 17, 1999
V. COVENANTS
A. Purchase price will be adjusted to reflect a multiple of one (1) year's gross revenues, based on number of accounts at the close of the transaction. Should the number of accounts differ from the current 800, the purchase price will be adjusted accordingly. The current offer of $192,000 is based on ESN delivering Sitestar 800 customers at closing.
B. One half (50%) of the shares issued to ESN in consideration of this transaction will be registered in Sitestar's SB-2 Registration Statement. ESN will have the option to sell these shares as soon as the Registration statement is deemed effective. The SB-2 will begin no later than 150 days from the close of this transaction. The remaining shares will be restricted from sale on the public market for a period of one (1) year from the date of the transaction.
C. At the end of the period of restriction, in the event that the per share value should fall below $3.50 for a consecutive ten (10) day period, Sitestar will issue ESN additional shares, on a dollar-for-dollar basis, to eliminate any ESN loss in value due to market decline.
D. ESN will structure a fair-market lease for a Sitestar office in its existing facility for a period of one (1) year. Included in this agreement will be the right for Sitestar to display signage on ESN's marquis.
E. Each party shall be responsible for their own legal and transactional expenses.
F. Sitestar will provide seven (7) employees, to be named by Mr. Thompson at closing, unlimited dial-up internet access, free of charge. This access will only be subject to termination in the event that Sitestar divests its ISP operations.
VI. NON-COMPETE CONTRACTS
Principal Shareholder will enter into a non-compete contract pertaining to internet access, web development and web hosting with Buyer for a period of thirty six (36) months. This agreement will be in effect for all customers acquired during the transaction. ESN will have the right to solicit new web development customers,
CONFIDENTIAL August 17, 1999
not included in the transaction. The non-compete
agreement will not include designated unpaid accounts
(which will not be included in determining the size
of the transaction) or other e-commerce sites
currently under development by ESN. The terms and
conditions of this agreement will be addressed in the
definitive agreement.
VII. TIMETABLE FOR CLOSING
It is the objective of the Buyer to close the
acquisition within thirty (30) days from the
execution of this letter. Buyer's obligation to close
the acquisition will be subject to (i) the execution
of the definitive purchase agreement and related
documentation (collectively the "Definitive
Agreement") reflecting the terms of the acquisition
as set forth herein and containing representations,
warranties covenants and agreements of the Seller,
satisfactory in form and substance to Buyer; (ii) the
receipt of all material consents and approvals
necessary for the consummation of the acquisition and
the ongoing operation of the business of the Seller;
(iii) the absence of any material adverse change in
the business, assets, condition (financial or
otherwise), or prospects of the Seller.
VIII. CONDUCT OF BUSINESS
From the date of your acceptance hereof, through the
closing date, the Seller shall conduct its business
only in the ordinary course and consistent with
relationships and goodwill existing on the date
hereof and promptly notify Buyer of any emergency or
other change in the ordinary course of the Seller's
business
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IX. EXCLUSIVITY
For a period of thirty (30) days following the
execution of this agreement, the Seller will not
directly or indirectly through any officer, employee,
stockholder, director, agent, affiliate or otherwise
(i) enter into any agreement, agreement in principal
or commitment (whether or not legally binding)
relating to any business combination with,
recapitalization of, or acquisition or purchase of
all or a significant portion of the assets of , or a
material portion of the equity interest in the Seller
or relating to any similar transaction (a "Competing
Transaction"), (ii) solicit, initiate or encourage
the submission of any proposal or offer from any
person or entity relating to any Competing
Transaction, or (iii) participate in any discussions
or negotiations regarding a
CONFIDENTIAL August 17, 1999
Competing Transaction. The Seller shall notify the
Buyer promptly if any proposal regarding a Competing
Transaction (or any inquiry or any contact with any
person or entity with respect thereto) is made and
shall advise Buyer of the contents thereof. In
addition, the Seller will immediately terminate all
discussions, negotiations or agreements now pending
with other potential participants in a Competing
Transaction.
X. ACCESS
Seller agrees to provide Buyer and its advisors with
timely and reasonable access to the Company and all
information that any of them reasonably requests.
XI. CONFIDENTIALITY
The purchase price and terms of this agreement and
acquisition will be held by the parties in strict
confidence and will not be disclosed to anyone other
than the agents or representatives and financing
sources of the parties who need to know such
information in connection with the transaction
completed hereby.
XII. BINDING EFFECT
This letter does not constitute a binding obligation
to effect the acquisition, it is understood that such
obligation shall arise only from the Definitive
Agreement.
XIII. CLOSING
A. Subject to completion of final due diligence,
accounting review and the completion of legal
documentation, the closing date of this transaction
will be at a place, and on a date mutually
acceptable to Buyer and the Company, and the date at
the very latest September 17, 1999.
B. Buyer and the Company agree that OSF has represented
the Company on this transaction, and that the
Company is solely responsible for all fees.
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CONFIDENTIAL August 17, 1999
Please evidence your agreement with the foregoing by executing this agreement in the space provided below. We very much look forward to working with you towards the successful completion of this transaction and building a mutually beneficial relationship.
AGREED AND ACCEPTED:
Eastern Shore Net Incorporated Sitestar Corporation
/s/ Gary R. Thompson /s/ Clinton J. Sallee
------------------------- ------------------------
By: Gary Thompson By: Clinton J. Sallee
President President
Date: August 17, 1999 Date: August 17, 1999
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EXHIBIT 2.6
LETTER OF INTENT
Stock Purchase Agreement
NEOCOM Microspecialists, Inc.
I. ACQUIRING ENTITY
Sitestar Corporation (the "Buyer" "Sitestar"), incorporated in the State of Nevada, will purchase (the "Purchase") all the outstanding shares of NEOCOM Microspecialists, Inc., a Virginia corporation (the "Company" "NEOCOM"); its principal owners being Mr. Tom Albanese, Mr. Joe Albanese and Mr. Fred Herring (the "Principal Shareholders"). The Company is represented by Optimum Strategic Finance (OSF) through Mr. Roger Morrison. (the "Intermediary").
II. STRUCTURE AND CONSIDERATION
Buyer will purchase 100% of the total outstanding stock of the Company. The aggregate consideration for the transaction will be $6.918 million paid as follows:
A. $5.995 million in common stock in Sitestar at $3.50 per share.
B. Conversion of $123,000 of NEOCOM debt to Sitestar common stock at $3.50 per share.
C. The retirement of $800,000 in NEOCOM debt.
III. PURCHASE CONSIDERATION
Purchase consideration is based on the Company's aggregate net worth and general financial performance at closing being not less than as reflected on data provided to the Buyer during negotiations. Should the aggregate net worth and/or the general financial performance at the closing differ, the purchase price shall be subject to adjustment accordingly. Assets of the Company are to include all balance sheet items and other assets presently utilized in the business and any and all equipment, machines or material that do not appear on the balance sheet, such as the business name and licenses, but are used in the business. A definitive list of assets shall be compiled and agreed upon by Buyer and the Company. The additional terms and conditions of the purchase consideration will be addressed in the definitive agreement.
CONFIDENTIAL September 2, 1999
IV. PAYMENT STRUCTURE
Buyer will deliver to the Shareholders stock certificates equal to the purchase price at the closing and the execution of a definitive agreement.
V. COVENANTS
A. Sitestar shares will list on the NASD Bulletin Board within sixty (60) days of the execution of this agreement with an opening price of $3.50 per share.
B. For a period of thirty (30) days from the consummation of this transaction, Buyer will compensate Seller in additional shares in Sitestar should Sitestar stock fall below $1.75 per share for a consecutive ten (10) day period. Said compensation will be designed to make Seller whole in original purchase price.
C. Buyer will initiate an SB-2 fundraising effort within thirty (30) days from the listing of Sitestar. Barring unforeseen delays by the Securities and Exchange Commission (SEC), the SB-2 fundraising effort will be completed within 120 days from the close of this transaction.
D. Buyer will raise a minimum of $2 million during the prescribed fundraising effort.
E. Commensurate with the Buyer's Virginia-area ISP consolidation strategy, Buyer will commit a minimum of $500,000 in capital resources to said strategy. The Buyer intends for Seller to serve as foundation for said strategy and, as such, will commit a minimum of $200,000 directly to Company to facilitate growth.
F. At the close of the transaction, Seller will personally assume all debt currently charged to NEOCOM. Cash flow from NEOCOM operations will continue to service said debt during the Buyer's fundraising efforts. Buyer will issue free trading shares during SB-2 fundraising effort to be utilized to retire said debt and eliminate Seller's personal guarantees. Buyer intends to retire said debt within (120) days from the close of the transaction.
G. Buyer agrees to assume any tax consequences faced by Seller in accordance with the retirement of debt described in Section V(F).
CONFIDENTIAL September 2, 1999
H. Seller's Board of Directors will remain in effect until
which time as all contingencies are satisfied or waived
by both parties.
I. Each party shall be responsible for their own legal and
transactional expenses. Buyer will be responsible for
the travel expenses of one principal Shareholder to Los
Angeles during the due diligence period.
VI. EMPLOYMENT CONTRACTS
A. Principal Shareholders will enter into an employment /
management contract with the Buyer for a minimum of
twenty four (24) months with further compensation from
Buyer, with a reasonable compensation package, the
terms and conditions of which will be addressed in the
definitive agreement.
B. Buyer and Seller have an understanding as to the
specific needs of Mr. Herring's employment / management
contract. During the due diligence period, Parties will
structure an agreement that enables Mr. Herring to
receive compensation and benefits for a period of sixty
(60) months.
VII. NON-COMPETE CONTRACTS
Principal Shareholders will enter into a non-compete
contract with Buyer after the term of the management
contract for an additional period of thirty six (36) months
the terms and conditions of which will be addressed in the
definitive agreement.
VIII. TIMETABLE FOR CLOSING
It is the objective of the Buyer to close the acquisition
within thirty (30) days from the execution of this letter.
Buyer's obligation to close the acquisition will be subject
to (i) the execution of the definitive purchase agreement
and related documentation (collectively the "Definitive
Agreement") reflecting the terms of the acquisition as set
forth herein and containing representations, warranties
covenants and agreements of the Seller, satisfactory in form
and substance to Buyer; (ii) the receipt of all material
consents and approvals necessary for the consummation of the
acquisition and the ongoing operation of the business of the
Seller; (iii) the absence of any material adverse change in
the business, assets, condition (financial or otherwise), or
prospects of the Seller.
3
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CONFIDENTIAL September 2, 1999
IX. Conduct of Business
From the date of your acceptance hereof, through the closing
date, the Seller shall conduct its business only in the
ordinary course and consistent with relationships and
goodwill existing on the date hereof and promptly notify
Buyer of any emergency or other change in the ordinary
course of the Seller's business
X. EXCLUSIVITY
For a period of thirty (30) days following the execution of
this agreement, the Seller will not directly or indirectly
through any officer, employee, stockholder, director, agent,
affiliate or otherwise (i) enter into any agreement,
agreement in principal or commitment (whether or not legally
binding) relating to any business combination with,
recapitalization of, or acquisition or purchase of all or a
significant portion of the assets of , or a material portion
of the equity interest in the Seller or relating to any
similar transaction (a "Competing Transaction"), (ii)
solicit, initiate or encourage the submission of any
proposal or offer from any person or entity relating to any
Competing Transaction, or (iii) participate in any
discussions or negotiations regarding a Competing
Transaction. The Seller shall notify the Buyer promptly if
any proposal regarding a Competing Transaction (or any
inquiry or any contact with any person or entity with
respect thereto) is made and shall advise Buyer of the
contents thereof. In addition, the Seller will immediately
terminate all discussions, negotiations or agreements now
pending with other potential participants in a Competing
Transaction.
XI. ACCESS
Seller agrees to provide Buyer and its advisors with timely
and reasonable access to the Company and all information
that any of them reasonably requests.
XII. CONFIDENTIALITY
The purchase price and terms of this agreement and
acquisition will be held by the parties in strict confidence
and will not be disclosed to anyone other than the agents or
representatives and financing sources of the parties who
need to know such information in connection with the
transaction completed hereby.
4
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CONFIDENTIAL September 2, 1999
XIII. BINDING EFFECT
This letter does not constitute a binding obligation to
effect the acquisition, it is understood that such
obligation shall arise only from the Definitive Agreement.
XIV. CLOSING
A. Subject to completion of final due diligence,
accounting review and the completion of legal
documentation, the closing date of this transaction
will be at a place, and on a date mutually acceptable
to Buyer and the Company, and the date at the very
latest September 30, 1999.
B. Buyer and the Company agree that OSF has represented
the Company on this transaction, and that the Company
is solely responsible for all fees.
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Please evidence your agreement with the foregoing by executing this agreement in the space provided below. We very much look forward to working with you towards the successful completion of this transaction and building a mutually beneficial relationship.
AGREED AND ACCEPTED:
NEOCOM Microspecialists, Inc. Sitestar Corporation
/s/ Tom Albanese /s/ Clinton J. Sallee
------------------------- ------------------------
By: Tom Albanese By: Clinton J. Sallee
President President
/s/ Joe Albanese
-------------------------
By: Joe Albanese
Vice President
/s/ Fred Herring
-------------------------
By: Fred Herring
Vice President
Date: August 31, 1999 Date: September 2, 1999
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Exhibit 3.1(i)
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
DEC 17 1992
CHERYL A. LAU SECKTARY OF STATE
No. 13820-92
ARTICLES OF INCORPORATION
OF
WHITE DOVE SYSTEMS, INC.
FIRST. The name of the Corporation is:
WHITE DOVE SYSTEMS. INC.
SECOND. Its registered office in the State of Nevada is located at 2810 W. CHARLESTON BLVD., SUITE G6723, LAS VEGAS, NV 89102 that this corporation may maintain an office, or offices, in such other place within or without the State of Nevada as may be from time to time designated by the Board of Directors, or by the By-Laws of said corporation, and that this Corporation may conduct all Corporation business of every kind and nature, including the holding of all meetings of Directors and Stockholders, outside the State of Nevada as well as within the State of Nevada.
THIRD. The objects for which this Corporation is formed are: in any lawful activity, including, but not limited to the following:
(A) Shall have such rights, privileges and powers as may be conferred upon corporations by any existing law.
(B) May at any time exercise such rights, privileges and powers, when not inconsistent with the purposes and objects for which this corporation is organized.
(C) Shall have power to have succession by its corporate name for the period limited in its certificate or articles of incorporation, and when no period is limited, perpetually, or until dissolved and its affairs wound up according to law.
(D) Shall have power to sue and be sued in any court of law or equity.
(E) Shall have power to make contracts.
(F) Shall have power to hold, purchase and convey real and personal estate and to mortgage or lease any such real and personal estate with its franchises. The power to hold real and personal estate shall include the power to take the same by devise or bequest in the State of Nevada, or in any other state, territory or country.
(G) Shall have power to appoint such officers and agents as the affairs of the corporation shall require, and to allow them suitable compensation.
(H) Shall have power to make bylaws not inconsistent with the constitution or laws of the United States, or of the State of Nevada, for the management, regulation and government of its affairs and property, the transfer of its stock, the transaction of its business, and the calling and holding of meetings of its stockholders.
(I) Shall have power to wind up and dissolve itself, or be wound up or dissolved.
(J) Shall have power to adopt and use a common seal or stamp, and alter the same at pleasure. The use of a seal or stamp by the corporation on any corporate documents is not necessary. The corporation may use a seal or stamp, if it desires, but such use or non-use shall not in any way affect the legality of the document.
(K) Shall have power to borrow money and contract debts when necessary for the transaction of its business, or for the exercise of its corporate rights, privileges or franchises, or for any other lawful purpose of its incorporation; to issue bonds, promissory notes, bills of exchange, debentures, and other obligations and evidences of indebtedness, payable at a specified time or times, or payable upon the happening of a specified event or events, whether secured by mortgage, pledge or otherwise, or unsecured, for money borrowed, or in payment for property purchased, or acquired, or for any other lawful object.
(L) Shall have power to guarantee, purchase, hold, sell, assign, transfer, mortgage, pledge or otherwise dispose of the shares of the capital stock of, or any bonds, securities or evidences of the indebtedness created by, any other corporation or corporations of the State of Nevada, or any other state of government, and, while owners of such stock, bonds, securities or evidences of indebtedness, to exercise all the rights, powers and privileges of ownership, including the right to vote, if any.
(M) Shall have power to purchase, hold, sell and transfer shares of its own capital stock, and use therefor its capital, capital surplus, surplus, or other property or fund.
(N) Shall have power to conduct business, have one or more offices, and hold, purchase, mortgage and convey real and personal property in the State of Nevada, and in any of the several states, territories, possessions and dependencies of the United States, the District of Columbia and any foreign countries.
(0) Shall have power to do all and everything necessary and proper for the accomplishment of the objects enumerated in its certificate or articles of incorporation, or any amendment thereof, or necessary or incidental to the protection and benefit of the corporation, and, in general, to carry on any lawful business necessary or incidental to the attainment of the objects of the corporation, whether or not such business is similar in nature to the objects set forth in the certificate or articles of incorporation of the corporation, or any amendment thereof.
(P) Shall have power to make donations for the public welfare or for charitable, scientific or educational purposes.
(Q) Shall have power to enter into partnerships, general or limited, or joint ventures, in connection with any lawful activities.
FOURTH. That the total number of voting common stock authorized that may be issued by the Corporation is TWENTY-FIVE THOUSAND (25,000) shares of stock without nominal or par value and no other class of stock shall be authorized.
Said shares without nominal or par value may be issued by the corporation from time to time for such considerations as may be fixed from time to time by the Board of Directors.
FIFTH. The governing board of this corporation shall be known as directors, and the number of directors may from time to time be increased or decreased in such manner as shall be provided by the By-Laws of this Corporation, providing that the number of directors shall not be reduced to less than one (1).
The name and post office address of the first Board of Directors shall be
1) in number and listed as follows:
NAME POST OFFICE ADDRESS
CORT W. CHRISTIE 2810 W. CHARLESTON BLVD
SUITE G6723
LAS VEGAS, NV 89102
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SIXTH. The capital stock, after the amount of the subscription price, or par value' has been pain in, shall not be subject to assessment to pay the debts of the corporation.
SEVENTH. The name and post office address of the Incorporator signing the Articles of Incorporation is as follows.
NAME POST OFFICE ADDRESS
CORT W. CHRISTIE 2810 W. CHARLESTON BLVD
SUITE G6723
LAS VEGAS, NV 89102
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EIGHT. The resident agent for this corporation shall be:
NEVADA CORPORATE HEADQUARTERS, INC
The address of the said agent, and, the principal or statutory address of this corporation in the state of Nevada, shall be:
2810 W. CHARLESTON BLVD.
SUITE G6723
LAS VEGAS, NV 89102
NINTH. The corporation is to have perpetual existence.
TENTH. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized.
Subject to the By-Laws, if any, adopted by the Stockholders, to make, alter or amend the By-Laws of the Corporation.
To fix the amount to be reserved as working capital over and above its capital stock paid in; to authorize and cause to be executed, mortgages and liens upon the real and personal property of this Corporation.
By resolution passed by a majority of the whole Board, to designate one (1) or more committees, each committee to consist of one or more of the Directors of the Corporation, which, to the extent provided in the resolution, or in the By-Laws of the Corporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation. Such committee, or committees, shall have such name, or names, as may be stated in the By-Laws of the Corporation, or as may be determined from time to time by resolution adopted by the Board of Directors.
When and as authorized by the affirmative vote of the Stockholders holding stock entitling them to exercise at least a majority of the voting power given at a Stockholders meeting called for that purpose, or when authorized by the written consent of the holders of at least a majority of the voting stock issued and outstanding, the Board of Directors shall have power and authority at any meeting to sell, lease or exchange all of the property and assets of the Corporation, including its good will and its corporate franchises, upon such terms and conditions as its board of Directors deems expedient and for the best interests of the Corporation.
ELEVENTH. No shareholder shall be entitled as a matter of right to subscribe for or receive additional shares of any class of stock of the Corporation, whether now or hereafter authorized, or any bonds, debentures or securities convertible into stock, but such additional shares of stock or other securities convertible into stock may be issued or disposed of by the Board of Directors to such persons and on such terms as in its discretion it shall deem advisable.
TWELFTH. No director or officer of the Corporation shall be personally liable to the Corporation or any of its stockholders for damages for breach of fiduciary duty as a director or officer involving any act or omission of any such director or officer; provided, however, that the foregoing provision shall not eliminate or limit the liability of a director or officer (i) for acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or (ii) the payment of dividends in violation of Section 78.300 of the Nevada Revised Statutes. Any repeal or modification of this Article by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director or officer of the Corporation for acts or omissions prior to such repeal or modification.
THIRTEENTH. This corporation reserves the right to amend, alter, change or repeal any provision contained in the Articles of Incorporation, in the manner now or hereafter prescribed by statute, or by the Articles of Incorporation, and all rights conferred upon Stockholders herein are granted subject to this reservation.
I, THE UNDERSIGNED, being the Incorporator hereinbefore named for the purpose of forming a Corporation pursuant to the General Corporation Law of the State of Nevada, do make and file these Articles of Incorporation, hereby declaring and certifying that the facts herein stated are true, and accordingly have hereunto set my hand this 4th day of December, 1992.
/s/ Cort W. Christie CORT W. CHRISTIE |
On this 4th day of December, 1992, in Tehachapi, California, before me, the undersigned,,a Notary Public in and for Tehachapi, State of California, personally appeared:
CORT W. CHRISTIE
Known to me to be the person whose name is subscribed to the foregoing document and acknowledged to me that he executed the same.
/s/ Lois L. Becher
Notary Public
I, NEVADA CORPORATE HEADQUARTERS, INC. hereby accept as Resident Agent for
the previously named Corporation.
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December 4th, 1992 Cort W. Christie -------------------- ------------------------ Date Office Administrator |
OFFICIAL NOTARY SEAL:
Seal LOIS L. BECHER
Of Notary Public - California
California KERN COUNTY
My Comm. Exp. DEC 10, 1993
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Exhibit 3.1 (ii)
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JUL 29 1998
No. C13820-98
DEAN HELLER, SECRETARY OF STATE
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock)
Filed by:
WHITE DOVE SYSTEMS, INC.
Name of Corporation
We, the undersigned LORETTA A. INGLISH, President
BART W. ANDRE, Secretary of WHITE DOVE SYSTEMS, INC.
do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened,
held on the 1st day of May, 1998, adopted a resolution to amend the original
articles as follows:
Article FOURTH is hereby amended to read as follows:
"FOURTH. That the total number of shares of stock which the Corporation shall have authority to issue is Twenty Five Million (25,000,000). The par value of each of such shares is $.001. All such shares are one class and are shares of Common Stock. Upon the amendment of this Article to read as herein above set forth, each one (1) outstanding shares is split, reconstituted and converted into one hundred (100) shares."
The number of shares of the corporation outstanding and entitled to vote on an amendment to the Articles of Incorporation is 18,600 voting in favor; that the said change (s) and amendment have been consented to and approved by a majority vote of the stockholders holding at least a majority of each class of stock outstanding and entitled to vote thereon.
/s/ Loretta A. Inglish President or Vice President |
LORETTA A. INGLISH
/s/ Bart W. Andre Secretary or Assistant Secretary |
BART W. ANDRE
State of NEVADA
County of Clark
On July, 1998, personally appeared before me, a Notary Public, Loretta A. Inglish, Bart W. Andre who acknowledged that they executed the above instrument.
/s/ Felicia Nilson
Signature of Notary
Notary Seal of Felicia Nilson
|
EXHIBIT 3.1(iii)
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
OCT 26 1998
No. C13820-92
DEAN HELLER, SECRETARY OF STATE
CERTIFICATTE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock)
Filed by:
WHITE DOVE SYSTEMS, INC.
Name of Corporation
We, the undersigned LORETTA A. INGLISH, President
BART W. ANDRE, Secretary of WHITE DOVE SYSTEMS, INC.
do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened,
held on the 26th day of October, 1998, adopted a resolution to amend the
original articles as follows:
Article FIRST is hereby amended to read as follows:
"FIRST. The name of the corporation is: InterFoods Consolidated, Inc."
Article FOURTH is hereby amended to read as follows:
"FOURTH. The aggregate number of shares which the corporation shall have the authority to issue is Twenty-Five Million (25,000,000) shares of common stock at $.001 par value, and Ten Million (10,000,000) shares of Serial Preferred Stock at $.001 par value.
A. Each share of Common Stock shall entitle the holder thereof to one vote on any matter submitted to a vote of or for consent of holders of Common Stock. Subject to the provisions of applicable law and this Article Fourth, any dividends paid or distributed on or with respect to the Common Stock of the corporation shall be paid or distributed ratably to the holders of its Common Stock. In the event of any liquidation, dissolution or winding-up of the corporation, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the corporation and any amounts to which the holders of any Serial Preferred Stock shall be entitled, as hereinafter provided, the holders of Common Stock shall be entitled to share ratably in the remaining assets of the corporation.
B. Subject to the terms and provisions of this Article Fourth, the Board of Directors is authorized to provide from time to time for the issuance of shares of Serial Preferred Stock in series and to fix and determine from time to time before issuance the designation and relative rights and preferences of the shares of each series of Serial Preferred Stock and the restrictions or qualifications thereof, including, without limiting the generality of the foregoing, the following:
(1) The series designation and Authorized number of shares;
(2) The dividend rate and the date or dates on which such dividends will be payable;
(3) The amount or amounts to be received by the holders in the event of voluntary or involuntary dissolution or liquidation of the corporation;
(4) The price or prices at which shares may be redeemed, if any, and any terms, conditions, limitations upon such redemptions;
(5) The sinking fund provisions, if any, for redemption or purchase of shares; and
(6) The terms and conditions, if any, on which shares may be converted at the election of the holders thereof into shares of other capital stock, or of other series of Serial Preferred Stock, of the corporation.
C. The holders of the shares of Common Stock or Serial Preferred Stock shall not be entitled to cumulative voting on any matter.
D. Upon the amendment of this Article Fourth to read as herein- above set forth, each three (3) outstanding shares of common stock is reverse split, reconstituted and converted into one (1) share. No fractional shares shall be issued."
The number of shares of the corporation outstanding and entitled to vote on
an amendment to the Articles of Incorporation is 1,860,000; that the said change
(s) and amendment have been consented to and approved by a majority vote of the
stockholders holding at least a majority of each class of stock outstanding and
entitled to vote thereon.
/s/ Loretta A. Inglish President or Vice President |
LORETTA A. INGLISH
/s/ Bart W. Andre
Secretary or Assistant Secretary
|
BART W. ANDRE
State of NEVADA
County of Clark
On October 26, 1998, before me, Loretta A. Inglish, personally appeared LORETTA
A. INGLISH, known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and by
his signature on the instrument the person, or the entity upon which the person
acted, executed the instrument.
Witness my hand and official seal.
/s/ Felicia Nilson Notary Public in and for said County and State |
Notary Seal of Felicia Nilson
State of NEVADA
County of Clark
On October 26, 1998, before me, Bart W. Andre, personally appeared BART W. ANDRE, known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and by his signature on the instrument the person, or the entity upon which the person acted, executed the instrument.
Witness my hand and official seal.
/s/ Felicia Nilson Notary Public in and for said County and State |
Notary Seal of Felicia Nilson:
EXHIBIT 3.1(iv)
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JUL 14 1999
No. C13820-99
IN THE OFFICE OF
DEAN HELLER, SECRETARY OF STATE
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock)
Filed by:
INTERFOODS CONSOLIDATED, INC.
We the undersigned - - FREDERICK T. MANLUNAS, President
FREDERICK T. MANLUNAS, Secretary of INTERFOODS CONSOLIDATED, INC.
do hereby certify
That the Board of Directors of said corporation at a meeting duly convened,
held on the _6th_ day of July, 1999, adopted a resolution to amend the origina
articles as follows:
Article of Fourth is hereby amended to read as follows:
"FOURTH, The Aggregate number of shares which the corporation shall have the authority to issue is Seventy-Five Million (75,000.000) shares of common stock at $. 001 par value, and Ten Million (10,000,000) shares of Serial Preferred Stock at $, 001 par value.
A. Each share of Common Stock shall entitle the holder thereof to one vote on any matter submitted to a vote of or for consent of holders of Common Stock. Subject to the provisions of applicable law and this Article Fourth, any dividends paid or distributed on or with respect to the Common Stock of the corporation shall be paid or distributed ratably to the holders of its Common Stock. In the event of any liquidation, dissolution or winding-up of the corporation, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the corporation and any amounts to which the holders of any Serial Preferred Stock shall be entitled, as hereinafter provided, the holders of Common Stock shall be entitled to share ratably in the remaining assets, of the corporation.
B. Subject to the terms and provisions of this Article Fourth, the Board of Directors is authorized to provide from time to time for the issuance of shares of Serial Preferred Stock in series and to fix and determine from time to time before issuance the designation and relative rights and preferences of the shares of each series of Serial Preferred Stock and the restrictions or qualifications thereof, including, without limiting the generality of the foregoing, the following:
(1) The series designation and Authorized number of shares;
(2) The dividend rate and the date or dates on which such dividends will be payable;
(3) The amount or amounts to be received by the holders in the event of voluntary or involuntary dissolution or liquidation of the corporation.
(4) The price or prices at which shares may be redeemed, if any, and any terms, conditions, limitations upon such redemptions,
(5) The sinking fund provisions, if any, for redemption or purchase of shares; and
(6) The terms and conditions, if any, on which shares may be converted at the election of the holders thereof into shams of other capital stock, or of other series of Serial Preferred Stock, of the corporation.
C. The holders of the shares of Common Stock or Serial Preferred Stock shall not be entitled to cumulative voting on any matter,
D. Upon the amendment of this Article Fourth to read as hereinabove set forth, each one (1) outstanding share of common stock is forward split, reconstituted and converted into three (3) shares of common stock. No fractional shares shall be issued.
The number of shares of the corporation outstanding and entitled to vote on an amendment to the Articles of Incorporation is 6,200,000; that the said change(s) and amendment have been consented to and approved by a majority vote of the stockholders holding at least a majority of each class stock outstanding and entitled to vote thereon.
/s/ Frederick T. Manlunas President or Vice President FREDERICK T. MANLUNAS /s/ Frederick T. Manlunas Secretary or Assistant Secretary FREDERICK T. MANLUNAS |
Exhibit 3.1(v)
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JUL 28 1999
No. C13820-99
IN THE OFFICE OF
DEAN HELLER, SECRETARY OF STATE
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock)
Filed by:
INTERFOODS CONSOLIDATED, INC.
We the undersigned - - FREDERICK T. MANLUNAS, President
FREDERICK T. MANLUNAS. Secretary of INTERFOODS CONSOLIDATED, INC.
do hereby certify
That the Board of Directors of said corporation at a meeting duly convened,
held on the _26th_ day of July, 1999, adopted a resolution to amend the original
articles as follows:
Article First is hereby amended to read as follows:
"FIRST. The name of the corporation is: Sitestar Corporation.'
The number of shares of the corporation outstanding and entitled to vote on an amendment to the Articles of Incorporation is 18,600,036; that the said change(s) and amendment have been consented to and approved by a majority vote of the stockholders holding at least a majority of each class stock outstanding and entitled to vote thereon.
/s/ Frederick T. Manlunas President or Vice President FREDERICK T. MANLUNAS /s/ Frederick T. Manlunas Secretary or Assistant Secretary FREDERICK T. MANLUNAS |
EXHIBIT 3.2
BY-LAWS
Of
WHITE DOVE SYSTEMS, INC.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office for the transaction of business of the corporation shall be fixed or may be changed by approval of a majority of the authorized Directors, and additional offices may be established and maintained at such other place or places as the Board of Directors may from time to time designate.
Section 2. OTHER OFFICES. Branch or subordinate offices may at any time be established by the Board of Directors at any place or places where the corporation is qualified to do business.
ARTICLE II
DIRECTORS - MANAGEMENT
Section 1. RESPONSIBILITY OF BOARD OF DIRECTORS. Subject to the provisions of applicable law and to any limitations in the Articles of Incorporation of the corporation relating to action required to be approved by the Shareholders, or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. The Board may delegate the management of the day-to-day operation of the business of the corporation to an executive committee or others, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board.
Section 2. STANDARD OF CARE. Each Director shall perform the duties of a Director, including the duties as a member of any committee of the Board upon which the Director may serve, in good faith, in a manner such Director believes to be in the best interests of the corporation, and with such care, including reasonable inquiry, as an ordinary prudent person in a like position would use under similar circumstances.
Section 3. NUMBER AND OUALIFICATION OF DIRECTORS. The authorized number of Directors shall be nine (9) until changed by a duly adopted amendment to the Articles of Incorporation or by an amendment to this by-law adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote.
1.
Section 4. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be elected at each annual meeting of the Shareholders to hold office until the next annual meeting. Each Director, including a Director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified.
Section 5. VACANCIES. Vacancies in the Board of Directors may be filled by a majority of the remaining Directors, though less than a quorum, or by a sole remaining Director, except that a vacancy created by the removal of a Director by the vote or written consent of the Shareholders or by court order may be filled only by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of holders of a majority of the outstanding shares entitled to vote. Each Director so elected shall hold office until the next annual meeting of the Shareholders and until a successor has been elected and qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to exist in the event of the death, resignation, or removal of any Director, or if the Board of Directors by resolution declares vacant the office of a Director who has been declared of unsound mind by an order of court or convicted of a felony, or if the authorized number of Directors is increased, or if the Shareholders fail, at any meeting of Shareholders at which any Director or Directors are elected, to elect the number of Directors to be voted for at that meeting.
The Shareholders may elect a Director or Directors at any time to fill any vacancy or vacancies not filled by the Direct-tars, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote.
Any Director may resign effective on giving written notice to the Chairman of the Board, the President, the Secretary, or the Board of Directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a Director is effective at a future time, the Board of Directors may elect a successor to take office when the resignation becomes effective.
No reduction of the authorized number of Directors shall have the effect of removing any Director before that Directors' term of office expires.
Section 6. REMOVAL OF DIRECTORS. Subject to applicable law, the entire Board of Directors or any individual Director may be removed from office. In such case, the remaining Board members may elect a successor Director to fill such vacancy for the remaining unexpired term of the Director so removed.
2.
Section 7. NOTICE, PLACE AND MANNER OF MEETINGS. Meetings of the Board of Directors may be called by the Chairman of the Board, or the President, or any Vice President, or the Secretary, or any two (2) Directors and shall be held at the principal executive office of the corporation, unless some other place is designated in the notice of the meeting. Members of the Board may participate in a meeting through use of a conference telephone or similar communications equipment so long as all members participating in such a meeting can hear one another. Accurate minutes of any meeting of the Board or any committee thereof, shall be maintained by the Secretary or other Officer designated for that purpose.
Section 8. ORGANIZATIONAL MEETINGS. The organizational meetings of the Board of Directors shall be held immediately following the adjournment of the Annual Meetings of the Shareholders.
Section 9. OTHER REGULAR MEETTNGS. Regular meetings of the Board of Directors shall be held at the corporate offices, or such other place as may be designated by the Board of Directors, as follows:
Time of Regular Meeting: 9:00 A.M.
Date of Regular Meeting: Last Friday of every month
If said day shall fall upon a holiday, such meetings shall be held on the next succeeding business day thereafter. No notice need be given of such regular meetings.
Section 10. SPECIAL MEETTNGS - NOTICES - WATVERS. Special meetings of the
Board may be called at any time by the President or, if he or she is absent or
unable or refuses to act, by any Vice President or the Secretary or by any two
(2) Directors, or by one (1) Director if only one is provided.
At least forty-eight (48) hours notice of the time and place of special meetings shall be delivered personally to the Directors or personally communicated to them by a corporate officer by telephone or telegraph. If the notice is sent to a Director by letter, it shall be addressed to him or her at his or her address as it is shown upon the records of the corporation, or if it is not so shown on such records or if not readily ascertainable, at the place in which the meetings of the Directors are regularly held. In case such notice is mailed, it shall be deposited in the United States mail, postage prepaid, in the place in which the principal executive officer of the corporation is located at least four (4) days prior to the time of the holding of the meeting. Such mailing, telegraphing, telephoning or delivery as above provided shall be due, legal and personal notice to such Director.
3.
When all of the Directors are present at any Directors' meeting, however, called or noticed, and either (I) sign a written consent thereto on the records of such meeting, or, (ii) if a majority of the Directors is present and if those not present sign a waiver of notice of such meeting or a consent to holding the meeting or an approval of the minute thereof, whether prior to or after the holding of such meeting, which said waiver, consent or approval shall be filed with the Secretary of the corporation, or, (iii) if a Director attends a meeting without notice but without protesting, prior thereto or at its commencement, the lack of notice, then the transactions thereof are as valid as if had at a meeting regularly called and noticed.
Section 11. DIRECTORS' ACTION BY UNANIMOUS WRITTEN CONSENT. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting and with the same force and effect as if taken by a unanimous vote of Directors, if authorized by a writing signed individually or collectively by all members of the Board. Such consent shall be filed with the regular minutes of the Board.
Section 12. OUORUM. A majority of the number of Directors as fixed by the Articles of Incorporation or By-Laws shall be necessary to constitute a quorum for the transaction of business, and the action of a majority of the Directors present at any meeting at which there is a quorum, when duly assembled, is valid as a corporate act; provided that a minority of the Directors, in the absence of a quorum, may adjourn from time to time, but may not transact any business. A meeting at which a quorum is initially present may continue to transact business, notwithstanding the withdrawal of Directors, if any action taken is approved by a majority of the required quorum for such meeting.
Section 13. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given to absent Directors if the time and place be fixed at the meeting adjourned and held within twenty-four (24) hours, but if adjourned more than twenty-four (24) hours, notice shall be given to all Directors not present at the time of the adjournment.
Section 14. COMPENSATION OF DIRECTORS. Directors, as such, shall not receive any stated salary for their services, but by resolution of the Board a fixed sum and expense of attendance, if any, may be allowed for attendance at each regular and special meeting of the Board; provided that nothing herein contained shall be construed to preclude any Director from serving the corporation in any other capacity and receiving compensation therefor.
Section 15. COMMITTEES. Committees of the Board may be appointed by resolution passed by a majority of the whole Board. Committees shall be composed of two (2) or more members of the Board and shall have such powers of the Board as may be expressly delegated to it by resolution of the Board of Directors, except those powers expressly made non-delegable by applicable law.
4.
Section 16. ADVISORY DIRECTORS. The Board of Directors from time to time may elect one or more persons to be Advisory Directors who shall not by such appointment be members of the Board of Directors. Advisory Directors shall be available from time to time to perform special assignments specified by the President, to attend meetings of the Board of Directors upon invitation and to furnish consultation to the Board. The period during which the title shall be held may be prescribed by the Board of Directors. If no period is prescribed, the title shall be held at the pleasure of the Board.
Section 17. RESIGNATIONS. Any Director may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the Corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective.
ARTICLE III
OFFICERS
Section 1. OFFICERS. The Officers of the corporation shall be a President, a Secretary, and a Chief Financial officer. The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, or one or more Assistant Treasurers, and such other Officers as may be appointed in accordance with the provisions of Section 3 of this Article. Any number of offices may be held by the same person.
Section 2. ELECTION. The Officers of the corporation, except such Officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen annually by the Board of Directors, and each shall hold office until he or she shall resign or shall be removed or otherwise disqualified to serve or a successor shall be elected and qualified.
Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such other Officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided by the By-Laws or as the Board of Directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of any Officer under any contract of employment, any Officer may be removed, either with or without cause, by the Board of Directors, at any regular or special meeting of the Board, or except in case of an Officer chosen by the Board of Directors by any officer upon whom such power of removal may be conferred by the Board of Directors.
5.
Any Officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
Section 5. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filed in the manner prescribed in the By-Laws for regular appointment to that office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer be elected, shall, if present, preside at meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned by the Board of Directors or prescribed by the By-Laws. If there is no President, the Chairman of the Board shall in addition be the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article.
Section 7. PRESIDENT/CHIEF EXECUTIVE OFFICER. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an Officer, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and Officers of the corporation. He or she shall preside at all meetings of the Shareholders and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. The President shall be ex officio a member of all the standing committees, including the Executive Committee, if any, and shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-Laws.
Section 8. VICE PRESIDENT. In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to, all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-Laws.
6.
Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of minutes at the principal office or such other place as the Board of Directors may order, of all meetings of Directors and Shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Directors' meetings, the number of shares present or represented at Shareholders' meetings and the proceedings thereof.
he Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register showing the names of the Shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings of the Shareholders and of the Board of Directors required by the By-Laws or by law to be given. He or she shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the By-Laws.
Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, earnings (or surplus) and shares. The books of accounts shall at all reasonable times be open to inspection by any Director.
This Officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and Directors, whenever they request it, an account of all of his or her transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws.
ARTICLE IV
SHAREHOLDERS' MEETINGS
Section 1. PLACE OF MEETINGS. All meetings of the Shareholders shall be held at the principal executive office of the corporation unless some other appropriate and convenient location be designated for that purpose from time to time by the Board of Directors.
7.
Section 2. ANNUAL MEETINGS. The annual meetings of the Shareholders shall be held, each year, at the time and on the day following:
Time of Meeting: 10: 00 A.M.
Date of Meeting: April 20th
If this day shall be a legal holiday, then the meeting shall be held on the next succeeding business day, at the same hour. At the annual meeting, the Shareholders shall elect a Board of Directors, consider reports of the affairs of the corporation and transact such other business as may be properly brought before the meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the Shareholders may be called at any time by the Board of Directors, the Chairman of the Board, the President, a Vice President, the Secretary, or by one or more Shareholders holding not less than one-tenth (1/10) of the voting power of the corporation. Except as next provided, notice shall be given as for the annual meeting.
Upon receipt of a written request addressed to the Chairman, President, vice President, or Secretary, mailed or delivered personally to such officer by any person (other than the Board) entitled to call a special meeting of Shareholders, such officer shall cause notice to be given, to the Shareholders entitled to vote, that a meeting will be held at a time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of such request. If such notice is not given within twenty (20) days after receipt of such request, the persons calling the meeting may give notice thereof in the same manner provided by these By-Laws.
Section 4. NOTICE OF MEETINGS - REPORTS. Notice of meetings, annual or
special, shall be given in writing not less than ten (10) nor more than sixty
(60) days before the date of the meeting to Shareholders entitled to vote
thereat. Such notice shall be given by the Secretary or the Assistant Secretary,
or if there be no such Officer, or in the case of his or her neglect or refusal,
by any Director or Shareholder.
Such notices or any reports shall be given personally or by mail and shall be sent to the Shareholder's address appearing on the books of the corporation, or supplied by him or her to the corporation for the purpose of the notice.
Notice of any meeting of Shareholders shall specify the place, the day and the hour of meeting, and (1) in case of a special meeting, the general nature of the business to be transacted and no other business may be transacted, or (2) in the case of an annual meeting, those matters which Board at date of mailing, intends to present for action by the Shareholders. At any meetings where Directors are to be elected notice shall include the names of the nominees, if any, intended at date of notice to be presented by management for election.
8.
If a Shareholder supplies no address, notice shall be deemed to have been given if mailed to the place where the principal executive office of the corporation is situated, or published at least once in some newspaper of general circulation in the County of said principal office.
Notice shall be deemed given at the time it is delivered personally or deposited in the mail or sent by other means of written communication. The officer giving such notice or report shall prepare and file an affidavit or declaration thereof.
When a meeting is adjourned for forty-five .(45) days or more, notice of the adjourned meeting shall be given as in case of an original meeting. save, as aforesaid, it shall not be necessary to give any notice of adjournment or of the business to be transacted at an adjourned meeting other than by announcement at the meeting at which said adjournment is taken.
Section 5. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The transactions of any meeting of Shareholders, however called and notice, shall be valid as through had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the Shareholders entitled to vote, not present in person or by proxy, sign a written waiver of notice, or a consent to the holding of such meeting or an approval shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance shall constitute a waiver of notice, unless objection shall be made as provided in applicable law.
Section 6. SHAREHOLDERS ACTING WITHOUT A MEETING - DIRECTORS. Any action which may be taken at a meeting of the Shareholders, may be taken without a meeting or notice of meeting if authorized by a writing signed by all of the Shareholders entitled to vote at a meeting for such purpose, and filed with the Secretary of the corporation, provided, further, that while ordinarily Directors can be elected by unanimous written consent, if the Directors fail to fill a vacancy, then a Director to fill that vacancy may be elected by the written consent of persons holding a majority of shares entitled to vote for the election of Directors.
Section 7. OTHER ACTIONS WITHOUT A MEETING. Unless otherwise provided for under applicable law or the Articles of Incorporation, any action which may be taken at any annual or special meeting of Shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize to take such action at a meeting at which all shares entitled to vote thereon were present and voted.
9.
Unless the consents of all Shareholders entitled to vote have been solicited in writing,
(1) Notice of any Shareholder approval without a meeting by less than unanimous written consent shall be given at least ten (10) days before the consummation of the action authorized by such approval, and
(2) Prompt notice shall be given of the taking of any other corporate action approved by Shareholders without a meeting be less than unanimous written consent, to each of those Shareholders entitled to vote who have not consented in writing.
Any Shareholder giving a written consent, or the Shareholder's proxyholders, or a transferee of the shares of a personal representative of the Shareholder or their respective proxyholders, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the corporation.
Section 8. QUORUM. The holder of a majority of the shares entitled to vote thereat, present in person,, or represented by proxy, shall constitute a quorum at all meetings of the Shareholders for the transaction of business except as otherwise provided by law, by the Articles of Incorporation, or by these By-Laws. If, however, such majority shall not be present or represented at any meeting of the Shareholders, the shareholders entitled to vote thereat, present in person, or by proxy, shall have the power to adjourn the meeting from time to time, until the requisite amount of voting shares shall be present. At such adjourned meeting at which the requisite amount of voting shares shall be represented, any business may be transacted which might have been transacted at a meeting as originally notified.
If a quorum be initially present, the Shareholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough Shareholders to leave less than a quorum, if any action taken is approved by a majority of the Shareholders required to initially constitute a quorum.
Section 9. VOTING. Only persons in whose names shares entitled to vote stand on the stock records of the corporation on the day of any meeting of Shareholders, unless some other day be fixed by the Board of Directors for the determination of Share- holders of record, and then on such other day, shall be entitled to vote at such meeting.
10.
Provided the candidate's name has been placed in nomination prior to the voting and one or more Shareholders has given notice at the meeting prior to the voting of the Shareholder's intent to cumulate the Shareholder's votes, every Shareholder entitled to vote at any election for Directors of any corporation for profit may cumulate their votes and give one candidate a number of votes equal to the number of Directors to be elected multiplied by the number of votes to which his or her shares are entitled to, or distribute his or her votes on the same principle among as many candidates as he or she thinks fit.
The candidates receiving the highest number of votes up to the number of Directors to be elected are elected.
The Board of Directors may fix a time in the future not exceeding thirty
(30) days preceding the date of any meeting of Shareholders or the date fixed
for the payment of any dividend or distribution, or for the allotment of rights,
or when any change or conversion or exchange of shares shall go into effect, as
a record date for the determination of the Shareholders entitled to notice of
and to vote at any such meeting, or entitled to receive any such dividend or
distribution, or any allotment of rights or to exercise the rights in respect to
any such change, conversion or exchange of shares. In such case only
Shareholders of record on the date so fixed shall be entitled to notice of and
to vote at such meeting, to receive such dividends, distribution or allotment of
rights, or to exercise such rights, as the case may be notwithstanding any
transfer of any share on the books of the corporation after any record date
fixed as aforesaid. The Board of Directors may close the books of the
corporation against transfers of shares during the whole or any part of such
period.
Section 10. PROXIES. Every Shareholder entitled to vote, or to execute consents, may do so, either in person or by written proxy, executed in accordance with the provisions of applicable law filed with the Secretary of the corporation.
Section 11. ORGANIZATION. The President, or in the absence of the President, any Vice President, shall call the meeting of the Shareholders to order, and shall act as Chairman of the meeting. In the absence of the President and all of the Vice Presidents, Shareholders shall appoint a Chairman for such meeting. The Secretary of the corporation shall act as Secretary of all meetings of the Shareholders, but in the absence of the Secretary at any meeting of the Shareholders, the presiding officer may appoint any person to act as Secretary of the meeting.
Section 12. INSPECTORS OF ELECTION. In advance of any meeting of Shareholders, the Board of Directors may, if they so elect, appoint inspectors of election to act at such meeting or any adjournment thereof. If inspectors of election be not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairman of any such meeting may, and on the request of any Shareholder or his or her proxy shall, make such appointment at the meeting in which case the number of inspectors shall be either one (1) or three (3) as determined by a majority of the Shareholders represented at the meeting.
11.
ARTICLE V
CERTIFICATES AND TRANSFER OF SHARES
Section 1. CERTIFICATES FOR SHARES. Certificates for shares shall be of such form and device as the Board of Directors may designate and shall state the name of the record holder of the shares represented thereby; its number; date of issuance; the number of shares for which it is issued; a statement of the rights, privileges preferences and restriction, if any; a statement as to the redemption or conversion, if any; a statement of liens or restrictions upon transfer or voting, if any; if the shares be assessable or, if assessments are collectible by personal action, a plain statement of such facts.
All certificates shall be signed in the name of the corporation by the Chairman of the Board or Vice Chairman of the Board or the President or Vice President and by the Chief Financial officer or an Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the number of shares and the class or series of shares owned by the Shareholder.
Any or all of the signatures on the certificate may be facsimile. In case any Officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be that Officer, transfer agent, or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent, or registrar at the date of issuance.
Section 2. TRANSFER ON THR BOOKS. Upon surrender to the Secretary or transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.
Section 3. LOST OR DESTROYED CERTIFICATES. Any person claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of that fact and shall, if the Directors so require, give the corporation a bond of indemnity, in form and with one or more sureties satisfactory to the Board, in at least double the value of the stock represented by said certificate, whereupon a new certificate may be issued in the same tender and for the same number of shares as the one alleged to be lost or destroyed.
12.
Section 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint one or more transfer agents or transfer clerks, and one or more registrars which shall be an incorporated bank or trust company, either domestic or foreign, who shall be appointed at such times and places as the requirements of the corporation may necessitate and the Board of Directors may designate.
Section 5. CLOSING STOCK TRANSFER BOOKS - RECORD DATE. In order that the corporation may determine the Shareholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect to any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days prior to the date of such meeting nor more than sixty (60) days prior to any other action.
If no record date is fixed; the record date for determining Shareholders entitled to notice of or to vote at a meeting of Shareholders shall be at the close of business on the business day next preceding the day on which notice is given or if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. The record date for determining Shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is given.
The record date for determining Shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later.
ARTICLE VI
RECORDS - REPORTS - INSPECTION
Section 1. RECORDS. The corporation shall maintain, in accordance with generally accepted accounting principles, adequate and correct accounts, books and records of its business and properties. All of such books, records and accounts shall be kept at its principal executive office as fixed by the Board of Directors from time to time.
Section 2. INSPECTION OF BOOKS AND RECORDS. All books and records shall be open to inspection of the Directors and Shareholders from time to time and in the manner provided under applicable law.
Section 3. CERTIFICATION AND INSPECTION OF BY-LAWS. The original or a copy of these By-Laws, as amended or otherwise altered to date, certified by the Secretary, shall be kept at the corporation's principal executive office and shall be open to inspection by the Shareholders at all reasonable times during office hours.
13.
Section 4. CHECK, DRAFTS, ETC. All checks, drafts, or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by the Board of Directors.
Section 5. CONTRACT, ETC, -- HOW EXECUTED. The Board of Directors, except as in the By-Laws otherwise provided, may authorize any Officer or Officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no Officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purpose or to any amount except as may be provided under applicable law.
ARTICLE VII
ANNUAL REPORTS
Section 1. REPORT TO SHAREHOLDERS, DUE DATE. The Board of Directors shall cause an annual report to be sent to the Shareholders not later than one hundred twenty (120) days after the close of the fiscal or calendar year adopted by the corporation. This report shall be sent at least fifteen (15) days before the annual meeting of Shareholders to be held during the next fiscal year and in the manner specified in Section 4 of the Article IV of these By-Laws for giving notice to Shareholders of the corporation. The annual report shall contain a balance sheet as of the end of the fiscal year and an income statement and statement of changes in financial position for the fiscal year, accompanied by any report of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation.
ARTICLE VIII
AMENDMENTS TO BY-LAWS
Section 1. AMENDMENT BY SHAREHOLDERS. New By-Laws may be adopted or these By-Laws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the Articles of Incorporation of the corporation set forth the number of authorized Directors of the corporation, the authorized number of directors may be changed only by an amendment of the Article of Incorporation.
14.
Section 2. POWERS OF DIRECTORS. Subject to the right of the Shareholders to adopt, amend or repeal By-Laws, as provided in Section 1 of this Article VIII, and the limitations, if any, under law, the Board of Directors may adopt, amend or repeal any of these By-Laws other than a By-Law or amendment thereof changing the authorized number of Directors.
Section 3. RECORD OF AMENDMENTS. Whenever an amendment or new By-Law is adopted, it shall be copied in the book of By-Laws with the original By-Laws, in the appropriate place. If any By-Law is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or written assent was filed shall be stated in said book.
ARTICLE IX
CORPORATE SEAL
Section 1. Seal. The corporate seal shall be circular in form, and shall have inscribed thereon the name of the corporation, the date and State of incorporation.
ARTICLE X
MISCELLANEOUS
Section 1. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other corporations standing in the name of this corporation may be voted or represented and all incidents thereto may be exercised on behalf of the corporation by the Chairman of the Board, the President or any Vice President and the Secretary or an Assistant Secretary.
Section 2. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a subsidiary shall not be entitled to vote on any matter. A subsidiary for these purposes is defined as a corporation, the shares of which possessing more than 25% of the total combined voting power of all classes of shares entitled to vote, are owned directly or indirectly through one (1) or more subsidiaries.
Section 3. INDEMNITY. Subject to applicable law, the corporation may indemnify any Director, Officer, agent or employee as to those liabilities and on those terms and conditions as appropriate. In any event, the corporation shall have the right to purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person against the liability insured against.
15.
Section 4. ACCOUNTING YEAR. The accounting year of the corporation shall be fixed by resolution of the Board of Directors.
16. White Dove: By-Laws
EXHIBIT 21
The following are the subsidiaries of Sitestar Corporation:
Sitestar.net
Soccersite.com
Greattools.com
Holland-American.com
| ARTICLE 5 |
| PERIOD TYPE | 6 MOS | YEAR |
| FISCAL YEAR END | Dec 31 1999 | DEC 31 1998 |
| PERIOD START | Jan 01 1999 | JAN 01 1998 |
| PERIOD END | Jun 30 1999 | DEC 31 1998 |
| CASH | 0 | 0 |
| SECURITIES | 0 | 0 |
| RECEIVABLES | 115,588 | 212,584 |
| ALLOWANCES | 16,378 | 16,378 |
| INVENTORY | 469,004 | 542,081 |
| CURRENT ASSETS | 676,490 | 830,325 |
| PP&E | 59,861 | 20,321 |
| DEPRECIATION | 3,841 | 1,678 |
| TOTAL ASSETS | 932,510 | 973,968 |
| CURRENT LIABILITIES | 950,650 | 824,731 |
| BONDS | 0 | 0 |
| PREFERRED MANDATORY | 0 | 0 |
| PREFERRED | 0 | 0 |
| COMMON | 6,200 | 6,200 |
| OTHER SE | (54,802) | 143,037 |
| TOTAL LIABILITY AND EQUITY | 932,510 | 973,968 |
| SALES | 870,249 | 2,175,867 |
| TOTAL REVENUES | 870,249 | 2,175,867 |
| CGS | 654,011 | 1,614,924 |
| TOTAL COSTS | 1,034,634 | 2,441,964 |
| OTHER EXPENSES | 0 | 0 |
| LOSS PROVISION | 0 | 0 |
| INTEREST EXPENSE | 33,454 | 18,397 |
| INCOME PRETAX | (197,839) | (284,494) |
| INCOME TAX | 0 | 0 |
| INCOME CONTINUING | (197,839) | (284,494) |
| DISCONTINUED | 0 | 0 |
| EXTRAORDINARY | 0 | 0 |
| CHANGES | 0 | 0 |
| NET INCOME | (197,839) | (284,494) |
| EPS BASIC | (0.03) | (0.04) |
| EPS DILUTED | (0.03) | (0.04) |