x
|
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the fiscal year ended December 31, 2010
|
|
or
|
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Nevada
|
84-1575085
|
|
(State of incorporation)
|
(I.R.S. Employer Identification Number)
|
Title of Each Class
|
Name of Each Exchange on Which Registered
|
|
Common Stock ($0.01 par value)
|
Over the Counter
|
Large accelerated filer
o
|
Accelerated filer
o
|
Non-accelerated filer
o
|
Smaller reporting company
x
|
Page
|
||
PART I
|
||
Item 1.
|
1 | |
Item 1A.
|
11 | |
Item 1B.
|
19 | |
Item 2.
|
19 | |
Item 3.
|
20 | |
PART II
|
||
Item 5.
|
20 | |
Item 6.
|
21 | |
Item 7.
|
21 | |
Item 7A.
|
26 | |
Item 8.
|
27 | |
Item 9.
|
27 | |
Item 9A.
|
27 | |
Item 9B.
|
28 | |
PART III
|
||
Item 10.
|
28 | |
Item 11.
|
31 | |
Item 12.
|
35 | |
Item 13.
|
36 | |
Item 14.
|
37 | |
PART IV
|
||
Item 15.
|
38 | |
39 |
●
|
supplements are supported with publicly available scientific research and references;
|
●
|
our manufacturers carry applicable manufacturing licenses;
|
●
|
ingredients are combined so that their effectiveness is not impaired;
|
●
|
ingredients are in dosage levels that fall within tolerable upper intake levels established for healthy people by the Institute of Medicine of the National Academies;
|
●
|
products are free of adulterated ingredients such as ephedra, creatine, androstenedione, aspartame, steroids or human growth hormones;
|
●
|
formulations have a minimum one year shelf life; and
|
●
|
products are 100% free of lead and the typical allergens of wheat, corn and yeast.
|
●
|
Bobby Lashley (MMA Fighter): Two-time ECW World Champion Wrestler and Strikeforce mixed martial arts fighter;
|
●
|
Tina Charles (basketball): Professional woman’s basketball player, Team USA member at World Championship
|
●
|
Anastasia Ashley (surfer): 2010 Pipeline Women's Pro Champion
|
●
|
Tom Pernice, Jr. (golfer): Winner of two PGA tournaments;
|
●
|
Skyler Weekes (climber): Four-time Dyno world record holder; and
|
●
|
Christy Hill (fitness model): 2009 NPC First Place Fitness Competitor.
|
·
|
the formulation, manufacturing, packaging, labeling, holding, storage, distribution, advertising, and sale of our products;
|
·
|
product claims and advertising, including direct claims and advertising by us, as well as claims and advertising by independent distributors, for which we may be held responsible;
|
·
|
taxation of Ambassadors (which in some instances could impose an obligation on us to collect the taxes and maintain appropriate records).
|
●
|
proper new product selection;
|
●
|
successful sales and marketing efforts;
|
●
|
timely delivery of new products;
|
●
|
availability of raw materials;
|
●
|
pricing of raw materials;
|
●
|
regulatory allowance of the products; and
|
●
|
customer acceptance of new products.
|
High
|
Low
|
|||||||
2009
|
||||||||
First Quarter
|
$
|
0.50
|
$
|
0.20
|
||||
Second Quarter
|
$
|
0.45
|
$
|
0.18
|
||||
Third Quarter
|
$
|
0.36
|
$
|
0.18
|
||||
Fourth Quarter
|
$
|
0.45
|
$
|
0.14
|
||||
2010
|
||||||||
First Quarter
|
$
|
0.30
|
$
|
0.05
|
||||
Second Quarter
|
$
|
0.27
|
$
|
0.13
|
||||
Third Quarter
|
$
|
0.29
|
$
|
0.13
|
||||
Fourth Quarter
|
$
|
0.26
|
$
|
0.14
|
ITEM
7.
|
MANGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Year Ended
|
||||||||
December 31,
|
||||||||
2010
|
2009
|
|||||||
Product Category
|
% of Sales
|
% of Sales
|
||||||
Bazi®
|
95
|
%
|
93
|
%
|
||||
Legacy Products*
|
3
|
%
|
2
|
%
|
||||
Other — educational materials, apparel
|
2
|
%
|
5
|
%
|
Report of Independent Registered Public Accounting Firm
|
F-1
|
Consolidated Balance Sheets as of December 31, 2010 and 2009
|
F-2
|
Consolidated Statements of Operations for the years ended December 31, 2010 and 2009.
|
F-3
|
Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the years ended December 31, 2010 and 2009
|
F-4
|
Consolidated Statements of Cash Flows for the Years Ending December 31, 2010 and 2009
|
F-5
|
Notes to Consolidated Financial Statements
|
F-6
|
|
|
ITEM
9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
(a)
|
Evaluation of disclosure controls and procedures.
|
(b)
|
Management's Annual Report on Internal Control over Financial Reporting.
|
Name
|
Age
|
Position
|
Committee
|
||||||
Daniel W. Rumsey
|
49
|
Chairman
|
Nominating
|
||||||
Kevin Sherman
|
40
|
Chief Executive Officer, President, Director
|
—
|
||||||
John D. Pougnet
|
39
|
Chief Financial Officer
|
—
|
||||||
Deborah K. Wildrick
|
52
|
Executive Vice President – Sales and Marketing
|
—
|
||||||
AJ Robbins
|
64
|
Director
|
Audit/Compensation/ Nominating
|
||||||
Milton Makris
|
57
|
Director
|
Compensation/Nominating
|
||||||
Anthony DiGiandomenico
|
44
|
Director
|
Audit/Compensation
|
|
|
Name and
Principal
Position
|
Year
|
Salary ($)
|
Bonus ($)
|
Stock Awards ($)
|
Option Awards
($)(1)
|
All Other Compen-
sation ($)
|
Total ($)
|
||||||||||||||||||
Daniel W. Rumsey, | |||||||||||||||||||||||||
Chairman, Former Chief Executive Officer,
Director
(
2)
|
2010
|
—
|
—
|
|
28,732
|
70,000
|
98,732
|
||||||||||||||||||
2009
|
—
|
|
5,000
|
—
|
44,133
|
46,033
|
95,166
|
||||||||||||||||||
Kevin Sherman, | |||||||||||||||||||||||||
Chief Executive Officer, President and Director
(4)
|
2010
|
139,098
|
—
|
—
|
90,428
|
—
|
229,526
|
||||||||||||||||||
2009
|
94,813
|
—
|
—
|
31,756
|
—
|
126,569
|
|
John D.
Pougnet,
|
2010
|
117,212
|
2,500
|
—
|
47,235
|
(5) |
—
|
166,947
|
|||||||||||||||||
Chief Financial Officer (3) | |||||||||||||||||||||||||
2009
|
148,270
|
—
|
—
|
—
|
—
|
148,270
|
|
(1)
|
The Company uses a Black-Scholes option-pricing model (Black-Scholes model) to estimate the fair value of the stock option grant. The use of a valuation model requires the company to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on the historical volatility of the company’s stock price. In the future the average expected life will be based on the contractual term of the option and expected employee exercise and post-vesting employment termination behavior. Currently it is based on the simplified approach provided by SAB 107. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of the grant. The following were the factors used in the Black Sholes model to calculate the compensation expense:
|
For the year ended
December 31, 2010
|
||||
Stock price volatility
|
142.0 – 155.7
|
%
|
||
Risk-free rate of return
|
0.57 – 2.21
|
%
|
||
Annual dividend yield
|
0
|
|||
Expected life
|
2.25 to 5 Years
|
(2)
|
Mr. Rumsey currently serves as the Company’s Chairman of the Board of Directors, and received $5,000 per month from July 2009 to March 2010 and $2,000 per month thereafter. Mr. Rumsey was appointed Interim Chief Executive Officer and President in June 2009 and served in that capactiy until July 2010.
|
(3)
|
Mr. Pougnet resigned as Chief Executive Officer on June 1, 2009 and resigned as a Director on June 10, 2009.
|
(4)
|
Mr. Sherman was appointed Vice President of the Company on June 1, 2009, and Chief Executive Officer and President on February 1, 2010.
|
(5)
|
On December 14, 2010, Mr. Pougnet forfeited options to purchase a total of 475,000 shares of common stock, consisting of: (i) 9/12/2005 grant of 50,000 options with an exercise price of $1.80; (ii) 3/10/2006 grant of 100,000 options with an exercise price of $1.39; (iii) 5/28/2006 grant of 100,000 options with an exercise price of $0.65; (iv) 3/26/2007 grant of 100,000 options with an exercise price of $1.55; and (v) 1/8/2008 grant of 125,000 options with an exercise price of $1.00. The options were forfeited in exchange for a grant of a new option on December 14, 2010 to purchase a total of 99,891 shares of common stock, which options vest ratably over four years.
|
Name
|
Grant
Date
(1)
|
All Other
Option Awards:
Number of Securities
Underlying Options
(#)
(2)
|
Exercise or
Base Price
of Option
Awards
($/ Sh)
(1)
|
||||||
Daniel W. Rumsey,
|
1/1/2010
|
250,000
|
0.15
|
||||||
Former Chief Executive Officer and Director | |||||||||
Kevin Sherman,
|
3/18/2010
|
100,000
|
0.18
|
||||||
Chief Executive Officer, President, Director |
7/5/2010
|
250,000
|
0.25
|
||||||
8/10/2010
|
100,000
|
0.19
|
|||||||
John Pougnet,
|
12/14/2010
|
360,000
|
0.18
|
||||||
Chief Financial Officer |
(1)
|
The Company uses the same date for the grant date and the approval date.
|
(2)
|
The award was granted under the Company’s 2003 Stock Incentive Plan.
|
Option Awards
|
||||||||
Name
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity Incentive
Plan Awards:
Number of Securities
Underlying
Unexercised
Unearned Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
|||
John Pougnet,
|
3,750
|
356,250
|
—
|
0.18
|
12/13/2015
|
|||
Chief Financial Officer
|
||||||||
Daniel W. Rumsey,
|
80,000
|
0
|
—
|
1.01
|
8/16/2012
|
|||
Former Chief Executive
|
25,000
|
0
|
—
|
1.00
|
8/18/2013
|
|||
Officer and Director
|
125,000
|
0
|
—
|
0.24
|
6/21/2014
|
|||
166,667
|
0
|
—
|
0.18
|
12/30/2014
|
||||
250,000
|
0
|
—
|
0.15
|
12/31/2014
|
||||
Kevin Sherman,
|
39,583
|
60,417
|
—
|
0.40
|
6/7/2014
|
|||
Chief Executive Officer |
19,792
|
80,208
|
—
|
0.18
|
3/17/2015
|
|||
15,625
|
234,375
|
—
|
0.25
|
7/4/2015
|
||||
4,688
|
95,312
|
—
|
0.19
|
8/9/2015
|
Name
|
Fees Earned or
Paid in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
All Other
Compensation
($)
|
Total
($)
|
|||||||||||||||
AJ Robbins
|
0
|
0
|
28,915
|
0
|
28,915
|
|||||||||||||||
Anthony DiGiandomenico
|
0
|
0
|
21,635
|
0
|
21,635
|
|||||||||||||||
Milton Makris
(1)
|
0
|
0
|
9,586
|
0
|
9,586
|
|
(1)
Mr. Makris was appointed to the Board of Directors on March 5, 2010.
|
|
|
Name and Address
|
Number of Shares
(1)
|
Percent of Class
(2)
|
||||||||||
Daniel Rumsey
|
666,667 | (3 | ) | 1.6 | % | |||||||
Chairman
|
||||||||||||
Kevin Sherman
|
103,125 | (4 | ) | 0 | % * | |||||||
Chief Executive Officer, President and Director
|
||||||||||||
John D Pougnet
|
55,750 | (5 | ) | 0 | % * | |||||||
Chief Financial Officer
|
||||||||||||
Deborah K. Wildrick
|
17,187 | (6 | ) | 0 | % * | |||||||
Executive Vice President – Sales and Marketing
|
||||||||||||
Anthony DiGiandomenico
|
374,576 | (7 | ) | 0 | % * | |||||||
Director
|
||||||||||||
AJ Robbins
|
350,555 | (8 | ) | 0 | % * | |||||||
Director
|
||||||||||||
Milton Makris
|
69,500 | (9 | ) | 0 | % * | |||||||
Director
|
||||||||||||
Total beneficial ownership of directors and officers:
|
1,637,360 | 3.9 | % | |||||||||
Sanford D. Greenberg
|
3,409,406 | (10 | ) | 8.4 | % | |||||||
1400 16
th
Street #330
|
||||||||||||
Denver, CO 80202
|
||||||||||||
John Thomas Financial, Inc.
|
2,520,000 | (11 | ) | 5.6 | % | |||||||
14 Wall Street 23
rd
Floor
|
||||||||||||
New York, New York 10005
|
(1)
|
All entries exclude beneficial ownership of shares issuable pursuant to options that have not vested or that are not otherwise exercisable as of the date hereof or which will not become vested or exercisable within 60 days of March 31, 2011.
|
||||
(2)
|
Percentages are rounded to nearest one-tenth of one percent. Percentages are based on 40,812,671 shares of common stock outstanding. Options that are presently exercisable or exercisable within 60 days are deemed to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage of any other person.
|
||||
(3)
|
Comprised of 20,000 shares held of record and 646,667 shares issuable pursuant to options which are presently exercisable or which become exercisable within 60 days of March 31, 2011.
|
||||
(4)
|
Comprised of 103,125 shares pursuant to options which are presently exercisable or which become exercisable within 60 days of March 31, 2011. Does not include options exercisable for 466,875 shares of common stock which remain subject to vesting conditions.
|
(5)
|
Comprised of 29,500 shares held of record and 26,250 shares issuable pursuant to options which are presently exercisable or which become exercisable within 60 days of March 31, 2011.
|
||||
(6)
|
Does not include options exercisable for 400,000 shares of common stock which remain subject to vesting conditions.
|
||||
(7)
|
Comprised of 66,800 shares held of record and 307,776 shares pursuant to options which are presently exercisable or which become exercisable within 60 days of March 31, 2011.
|
||||
(8)
|
Comprised of 350,555 shares issuable pursuant to options which are presently exercisable or which become exercisable within 60 days of March 31, 2011.
|
||||
(9)
|
Comprised of 69,500 shares issuable pursuant to options which are presently exercisable or which become exercisable within 60 days of March 31, 2011.
|
||||
(10)
|
Comprised of 3,409,406 shares held of record either directly or as custodian for a minor child.
|
||||
(11)
|
Comprised of 2,000,000 shares held of record by John Thomas Financial Inc., and 250,000 shares and 20,000 shares issuable pursuant to warrants held by Anastasios Belesis, its President and sole shareholder, exercisable through February 18, 2013 at a purchase price of $1.50 per share.
|
|
|
|
(a) Exhibits
|
Exhibit No
|
Description
|
|
3.1
|
Articles of Incorporation incorporated by reference to Exhibit 3.01 filed with Form SB-2 filed February 27, 2001
|
|
3.1.1
|
Certification of Amendment to the Articles of Incorporation incorporated by reference to Exhibit 3.1.1 filed with Form 10-QSB filed November 14, 2003
|
|
3.2
|
Amended and Restated By-laws filed with Form 10-KSB on March 3, 2005, as Exhibit 3.2, and incorporated herein by reference.
|
|
3.3
|
Amended and Restated Articles of Incorporation files with Form 8-K on August 2, 2010 as Exhibit 3.1, and incorporated herein by reference.
|
|
10.1
|
VitaCube Systems Holdings, Inc. 2003 Stock Incentive Plan incorporated by reference to Exhibit 10.1 filed with Form 10-QSB filed November 14, 2003
|
|
10.1.1
|
Form of Incentive Stock Option Agreement under the 2003 Stock Incentive Plan filed with Form 10-KSB on March 3, 2005, as Exhibit 10.1.1, and incorporated herein by reference.
|
|
10.1.2
|
Form of Nonqualified Stock Option Agreement under the 2003 Stock Incentive Plan filed with Form 10-KSB on March 3, 2005, as Exhibit 10.1.2, and incorporated herein by reference.
|
|
10.2
|
Agreement Concerning the Exchange of Securities by and between the Company and VitaCube Systems, Inc. and the Security Holders of VitaCube Systems, Inc. incorporated by reference to Exhibit 2 filed with Form 8-K filed July 1, 2003
|
|
10.3
|
Amended Sanford Greenberg Employment Agreement filed with Form 10-KSB on March 30, 2007 and incorporated herein by reference.
|
|
10.4
|
Exclusive Manufacturing Agreement with Arizona Production and Packaging, L.L.C. filed on August 2, 3007 and incorporated herein by reference.
|
|
10.5
|
Employment Agreement for John D. Pougnet filed with Form 8-K on June 3, 2009 and incorporated herein by reference.
|
|
10.6
|
Employment Agreement for Kevin Sherman filed with Form 8-K on February 4, 2010 and incorporated herein by reference.
|
|
10.7
|
Amended Employment Agreement for John D. Pougnet filed with Form 10-Q on May 12, 2010 and incorporated herein by reference.
|
|
10.8
|
Amended Employment Agreement for John D. Pougnet filed herewith.
|
|
10.9
|
Employment Agreement for Deborah K. Wildrick filed herewith.
|
|
14.1
|
Code of Ethics filed herewith.
|
|
14.2
|
Board Charter filed herewith.
|
|
14.3
|
Audit Committee Charter filed herewith.
|
|
14.4
|
Compensation Committee Charter filed herewith
|
|
14.5
|
Nominating & Corporate Governance Committee charter filed herewith.
|
|
21.1
|
Subsidiaries of Bazi International, Inc. filed herewith.
|
|
31.1
|
Certification of CEO as Required by Rule 13a-14(a)/15d-14 filed herewith.
|
|
31.2
|
Certification of CFO as Required by Rule 13a-14(a)/15d-14 filed herewith.
|
|
32.1
|
Certification of CEO as Required by Rule 13a-14(a) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code filed herewith.
|
|
32.2
|
Certification of CFO as Required by Rule 13a-14(a) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code filed herewith.
|
BAZI INTERNATIONAL, INC.
|
||
By
|
/s/ John D. Pougnet.
|
|
John D. Pougnet
|
||
Chief Financial Officer (Principal Accounting Officer)
|
||
By
|
/s/ Kevin Sherman
|
|
Kevin Sherman
|
||
Chief Executive Officer, President and Director
|
||
By
|
/s/ Anthony DiGiandomenico
|
|
Anthony DiGiandomenico
|
||
Director
|
||
By
|
/s/ AJ Robbins
|
|
AJ Robbins
|
||
Director
|
||
By
|
/s/ Milton Makis
|
|
Milton Makis
|
||
Director
|
||
By
|
/s/ Daniel W. Rumsey
|
|
Daniel W. Rumsey
|
||
Director
|
||
December 31,
|
December 31,
|
||||||||
ASSETS
|
2010
|
2009
|
|||||||
Current assets:
|
|||||||||
Cash and cash equivalents
|
$ | 41,067 | $ | 45,289 | |||||
Accounts receivable, net of allowance for doubtful accounts of
|
|||||||||
$1,843 and $1,205, respectively
|
6,041 | 8,754 | |||||||
Inventory, net of allowance for obsolescence of
|
|||||||||
$28,022 and $113,790, respectively
|
43,030 | 222,847 | |||||||
Prepaid expenses and other current assets
|
75,087 | 173,933 | |||||||
Deferred loan costs
|
465,262 | - | |||||||
Total current assets
|
630,487 | 450,823 | |||||||
Intangible assets, net
|
21,185 | 26,973 | |||||||
Property and equipment, net
|
26,317 | 17,224 | |||||||
Total assets
|
$ | 677,989 | $ | 495,020 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
|
|||||||||
Current liabilities:
|
|||||||||
Accounts payable
|
$ | 621,020 | $ | 554,675 | |||||
Return reserve
|
956 | 134,836 | |||||||
Accrued payroll and benefits
|
47,983 | 60,668 | |||||||
Accrued interest
|
12,552 | - | |||||||
Other accrued expenses
|
19,072 | 114,973 | |||||||
Notes payable
|
88,876 | - | |||||||
Total current liabilities
|
790,459 | 865,152 | |||||||
Long term liabilities:
|
|||||||||
Senior notes payable
|
1,814,641 | - | |||||||
Total liabilities
|
2,605,100 | 865,152 | |||||||
Commitments and Contingencies (Note 9)
|
|||||||||
SHAREHOLDERS’ EQUITY (DEFICIT) (Note 2):
|
|||||||||
Preferred stock, authorized 5,000,000 shares, $.001
|
|||||||||
par value, none issued or outstanding
|
- | - | |||||||
Common stock, authorized 50,000,000 shares, $.001 par value,
|
|||||||||
19,952,170 and 15,697,170 shares issued and outstanding respectively
|
19,952 | 15,697 | |||||||
Additional paid in capital
|
26,073,358 | 24,215,754 | |||||||
Accumulated (deficit)
|
(28,020,421 | ) | (24,601,583 | ) | |||||
Total shareholders’ equity (deficit)
|
(1,927,111 | ) | (370,132 | ) | |||||
Total liabilities and shareholders’ equity
|
$ | 677,989 | $ | 495,020 |
For the Year
Ended
December 31, 2010
|
For the Year
Ended
December 31, 2009
|
|||||||
Net sales
|
$ | 2,274,337 | $ | 6,251,707 | ||||
Cost of goods sold
|
786,563 | 1,493,784 | ||||||
Gross profit
|
1,487,774 | 4,757,923 | ||||||
Operating expenses:
|
||||||||
Selling and marketing expenses
|
2,246,126 | 4,496,863 | ||||||
General and administrative expenses
|
2,269,329 | 2,241,075 | ||||||
Research and development expenses
|
13,330 | 5,061 | ||||||
Depreciation and amortization
|
35,473 | 20,463 | ||||||
Total operating expenses
|
4,564,258 | 6,763,462 | ||||||
Net (loss) from operations
|
(3,076,484 | ) | (2,005,539 | ) | ||||
Other income (expense)
|
||||||||
Interest income
|
617 | 6,001 | ||||||
Interest (expense)
|
(346,541 | ) | - | |||||
Gain on disposal of asset
|
3,570 | - | ||||||
Total other income (expense)
|
(342,354 | ) | 6,001 | |||||
Net (loss)
|
$ | (3,418,838 | ) | $ | (1,999,538 | ) | ||
Net (loss) per common share
|
||||||||
Basic and diluted net (loss) per share
|
$ | (0.20 | ) | $ | (0.13 | ) | ||
|
||||||||
Weighted average common shares
|
||||||||
outstanding, basic and diluted
|
17,331,855 | 15,697,170 |
Total
|
||||||||||||||||||||
Additional
|
shareholders’
|
|||||||||||||||||||
Common Stock
|
paid in
|
Accumulated
|
equity
|
|||||||||||||||||
Shares
|
Amount
|
capital
|
(deficit)
|
(deficit)
|
||||||||||||||||
Balances, January 1, 2009
|
15,697,170
|
$
|
15,697
|
$
|
23,958,422
|
$
|
(22,602,045
|
)
|
$
|
1,372,074
|
||||||||||
Stock-based compensation
|
—
|
—
|
257,332
|
—
|
257,332
|
|||||||||||||||
Net (loss)
|
—
|
—
|
—
|
(1,999,538
|
)
|
(1,999,538
|
)
|
|||||||||||||
Balances, December 31, 2009
|
15,697,170
|
$
|
15,697
|
$
|
24,215,754
|
$
|
(24,601,583
|
)
|
$
|
(370,132)
|
||||||||||
Issuance of common stock
|
1,350,000
|
1,350
|
238,650
|
240,000
|
||||||||||||||||
Issuance of common stock for services
|
2,905,000
|
2,905
|
602,695
|
605,600
|
||||||||||||||||
Beneficial conversion feature on bridge notes
|
21,333
|
21,333
|
||||||||||||||||||
Beneficial conversion feature on senior notes and payment in kind notes
|
737,313
|
737,313
|
||||||||||||||||||
Discount on promissory note
|
12,136
|
12,136
|
||||||||||||||||||
Stock-based compensation
|
—
|
—
|
245,477
|
—
|
245,477
|
|||||||||||||||
Net (loss)
|
—
|
—
|
—
|
(3,418,838
|
)
|
(3,418,838
|
)
|
|||||||||||||
Balances, December 31, 2010
|
19,952,170
|
$
|
19,952
|
$
|
26,073,358
|
$
|
(28,020,421
|
)
|
$
|
(1,927,111
|
)
|
2010
|
2009
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income (loss)
|
$ | (3,418,838 | ) | $ | (1,999,538 | ) | ||
Adjustments to reconcile
|
||||||||
Depreciation and amortization
|
35,473 | 20,463 | ||||||
Gain on disposal of asset
|
(3,570 | ) | - | |||||
Stock based compensation
|
851,077 | 257,332 | ||||||
Amortization of debt discount
|
152,187 | - | ||||||
Change in valuation reserve on other current assets
|
(64,313 | ) | 64,313 | |||||
Change in allowance for doubtful accounts
|
638 | (1,866 | ) | |||||
Change in allowance for inventory obsolescence
|
(85,768 | ) | (2,305 | ) | ||||
Change in allowance for product returns
|
(133,880 | ) | - | |||||
Changes in assets and liabilities:
|
||||||||
Accounts receivable
|
2,075 | (63 | ) | |||||
Inventory
|
265,585 | (44,306 | ) | |||||
Other current assets
|
163,159 | 271,131 | ||||||
Accrued interest
|
170,000 | - | ||||||
Accounts payable and accrued expenses
|
(42,241 | ) | (88,965 | ) | ||||
Net cash (used) by operating activities
|
(2,108,416 | ) | (1,523,804 | ) | ||||
Cash flows from investing activities:
|
||||||||
Proceeds from sale of equipment
|
3,570 | - | ||||||
Capital expenditures
|
(38,778 | ) | (7,417 | ) | ||||
Net cash (used) by investing activities
|
(35,208 | ) | (7,417 | ) | ||||
Cash flow from financing activities:
|
||||||||
Issuance of senior secured convertible notes
|
1,569,402 | - | ||||||
Proceeds from loan
|
100,000 | - | ||||||
Proceeds from bridge loan financing
|
230,000 | - | ||||||
Issuance of common stock
|
240,000 | - | ||||||
Net cash provided from financing activities
|
2,139,402 | - | ||||||
NET INCREASE (DECREASE) IN CASH
|
(4,222 | ) | (1,531,221 | ) | ||||
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD
|
45,289 | 1,576,510 | ||||||
CASH AND CASH EQUIVALENTS, END OF THE PERIOD
|
$ | 41,067 | $ | 45,289 | ||||
NON CASH FINANCING AND INVESTING ACTIVITIES
|
||||||||
Accrued interest paid by issuance of senior notes
|
$ | 157,448 | $ | - | ||||
Discount on senior notes recorded to additional paid in capital
|
$ | 758,646 | $ | - | ||||
Loan fees incurred from issuance of convertible notes
|
$ | 539,951 | $ | - | ||||
Bridge notes paid by issuance of senior notes
|
$ | 230,000 | $ | - | ||||
SUPPLEMENTAL CASH FLOW DISCLOSURE
|
||||||||
Interest paid in cash
|
$ | - | $ | - |
December 31, 2010
|
December 31, 2009
|
|||||||
Purchased materials
|
$
|
6,169
|
$
|
51,843
|
||||
Finished goods
|
64,883
|
284,794
|
||||||
Reserve for obsolete inventory
|
(28,022
|
)
|
(113,790
|
)
|
||||
$
|
43,030
|
$
|
222,847
|
2010
|
2009
|
|||||||
Balance as of January 1
|
$
|
113,790
|
$
|
116,095
|
||||
Addition to provision
|
41,418
|
23,126
|
||||||
Write-off of obsolete inventory
|
(127,186
|
)
|
(25,431
|
)
|
||||
Balance as of December 31
|
$
|
28,022
|
$
|
113,790
|
Year ended December 31,
2010
|
Year ended December 31, 2009
|
|||||||
Stock price volatility
|
142.0 – 155.7
|
%
|
103.0 – 137.4
|
% | ||||
Risk-free rate of return
|
0.57 – 2.21
|
%
|
0.50 – 2.27
|
% | ||||
Annual dividend yield
|
0
|
%
|
0
|
%
|
||||
Expected life
|
2.25 to 5 Years
|
1.5 to 4.5 Years
|
Warrants
Outstanding
|
Weighted
Average
Exercise Price
|
||||
Outstanding, January 1, 2009
|
7,218,660
|
3.51
|
|||
Granted
|
-
|
-
|
|||
Exercised
|
-
|
-
|
|||
Expired
|
434,424
|
1.50
|
|||
Outstanding, December 31, 2009
|
6,784,236
|
3.79
|
|||
Granted
|
860,000
|
0.48
|
|||
Exercised
|
-
|
-
|
|||
Expired
|
4,195,736
|
4.70
|
|||
Outstanding, December 31, 2010
|
3,448,500
|
1.41
|
|||
|
Weighted
|
Weighted
|
|||||
Warrants Outstanding
|
Average
Exercise Price
|
Average
Remaining Life (Yrs)
|
|||||
850,000 |
$
|
0.48
|
4.75
|
||||
1,468,500 |
$
|
1.50
|
1.43
|
||||
81,000 |
$
|
1.83
|
1.39
|
||||
1,049,000 |
$
|
2.00
|
1.95
|
||||
3,448,500 |
$
|
1.41
|
2.41
|
Weighted
|
||||||||||||||||||||||||
Qualified
|
Non-qualified
|
Exercise
|
Average
Exercise
|
|||||||||||||||||||||
Options
|
Options
|
Total
|
Price Range
|
Price
|
||||||||||||||||||||
Balances, January 1, 2009
|
1,595,000
|
1,319,700
|
2,914,700
|
$
|
0.45
|
to
|
$
|
5.00
|
$
|
1.43
|
||||||||||||||
Granted
|
335,000
|
608,667
|
943,667
|
$
|
0.17
|
to
|
$
|
0.40
|
$
|
0.23
|
||||||||||||||
Forfeited
|
(750,000
|
)
|
(97,725
|
)
|
(847,725
|
)
|
$
|
1.00
|
to
|
$
|
5.00
|
$
|
1.92
|
|||||||||||
Balances, December 31, 2009
|
1,180,000
|
1,830,642
|
3,010,642
|
$
|
0.17
|
to
|
$
|
5.00
|
$
|
1.26
|
||||||||||||||
Granted
|
1,285,000
|
1,030,607
|
2,315,607
|
$
|
0.15
|
to
|
$
|
0.26
|
$
|
0.19
|
||||||||||||||
Forfeited
|
(889,000
|
)
|
(637,876
|
)
|
(1,526,876
|
)
|
$
|
0.18
|
to
|
$
|
5.00
|
$
|
1.24
|
|||||||||||
Balances, December 31, 2010
|
1,576,000
|
2,223,373
|
3,799,373
|
$ |
0.15
|
to
|
$
|
5.00
|
0.63
|
|||||||||||||||
Number of options exercisable
|
||||||||||||||||||||||||
At December 31, 2010
|
196,222
|
2,151,498
|
2,347,720
|
$ |
0.15
|
to
|
$
|
5.00
|
$
|
0.88
|
Outstanding
|
Exercisable
|
||||||||||||
Weighted
|
|||||||||||||
Weighted
|
Average
|
Number of
|
Weighted
|
||||||||||
Exercise
|
Number of
|
Average
|
Contractual
|
Shares
|
Average
|
||||||||
Prices
|
Outstanding
|
Exercise Price
|
Life (Yrs)
|
Exercisable
|
Exercise Price
|
||||||||
$
|
3.20 to 5.00
|
180,000
|
$
|
4.60
|
1.78
|
180,000
|
$
|
4.60
|
|||||
1.35 to 2.19
|
265,000
|
$
|
2.12
|
1.29
|
265,000
|
$
|
2.12
|
||||||
1.00 to 1.15
|
337,875
|
$
|
1.01
|
2.04
|
333,272
|
$
|
1.01
|
||||||
0.40 to 0.65
|
220,000
|
$
|
0.46
|
1.87
|
159,110
|
$
|
0.49
|
||||||
0.22 to 0.28
|
777,000
|
$
|
0.24
|
4.00
|
341,818
|
$
|
0.23
|
||||||
0.15 to 0.20
|
2,019,498
|
$
|
0.18
|
4.39
|
1,068,520
|
$
|
0.18
|
||||||
3,799,373
|
2,347,720
|
Weighted
|
|||||||||||
Non-qualified
|
Exercise
|
Average Exercise
|
|||||||||
Options
|
Total
|
Price Range
|
Price
|
||||||||
Balances, January 1, 2009
|
282,500
|
282,500
|
$ 0.38 to $1.90
|
$
|
1.06
|
||||||
Granted
|
334,000
|
334,000
|
$
|
0.16 to $0.42
|
$
|
0.20
|
|||||
Forfeited
|
(15,500
|
)
|
(15,500
|
)
|
$
|
0.49 to $1.35
|
$
|
0.96
|
|||
Balances, December 31, 2009
|
601,000
|
601,000
|
$
|
0.16 to $1.90
|
$
|
0.59
|
|||||
Granted
|
305,000
|
305,000
|
$ |
0.15 to $0.26
|
$ |
0.18
|
|||||
Forfeited
|
(63,000
|
)
|
(63,000
|
)
|
$ |
1.08 to $1.90
|
$ |
1.30
|
|||
Balances, December 31, 2010
|
843,000
|
843,000
|
$
|
0.15 to $1.18
|
$
|
0.39
|
|||||
Number of options exercisable
|
|||||||||||
At December 31, 2010
|
793,000
|
793,000
|
$
|
0.15 to $1.18
|
$
|
0.39
|
Outstanding
|
Exercisable
|
||||||||||||
Weighted
|
Weighted
|
Weighted
|
|||||||||||
Average
|
Average
|
Number of
|
Average
|
||||||||||
Exercise
|
Number of
|
Exercise
|
Contractual
|
Shares
|
Exercise
|
||||||||
Prices
|
Outstanding
|
Price
|
Life (months)
|
Exercisable
|
Price
|
||||||||
$
|
1.00 to 1.18
|
163,500
|
$
|
1.15
|
1.52
|
163,500
|
$
|
1.15
|
|||||
$
|
0.16 to 0.49
|
679,500
|
$
|
0.20
|
3.73
|
629,500
|
$
|
0.20
|
|||||
843,000
|
793,000
|
December 31,
2010
|
December 31,
2009
|
|||||||
Furniture & fixtures
|
$
|
5,000
|
$
|
50,963
|
||||
Office equipment
|
10,846
|
12,023
|
||||||
Software
|
158,991
|
245,912
|
||||||
Leasehold improvements
|
7,658
|
121,605
|
||||||
182,495
|
430,503
|
|||||||
Accumulated depreciation
|
(156,178
|
)
|
(413,280
|
)
|
||||
$
|
26,317
|
$
|
17,224
|
December 31,
2010
|
December 31,
2009
|
|||||||
Patents and trademarks
|
$
|
49,951
|
$
|
80,479
|
||||
Accumulated amortization and Impairment
|
(28,766
|
)
|
(53,506
|
)
|
||||
$
|
21,185
|
$
|
26,973
|
Patent and trademark amortization
|
Deferred loan cost amortization
|
|||||||
2011
|
1,691 | 92,050 | ||||||
2012
|
1,691 | 106,207 | ||||||
2013
|
1,691 | 111,905 | ||||||
2014
|
1,691 | 118,230 | ||||||
2015
|
1,691 | 36,869 | ||||||
Thereafter
|
12,730 | - |
2010
|
2009
|
|||||||
Current:
|
$
|
$
|
||||||
Federal
|
—
|
—
|
||||||
State
|
—
|
—
|
||||||
—
|
—
|
|||||||
Deferred:
|
||||||||
Federal
|
—
|
—
|
||||||
State
|
—
|
—
|
||||||
—
|
—
|
|||||||
Income Tax Provision
|
$
|
—
|
$
|
—
|
2010
|
2009
|
|||||||
Federal taxes at statutory rate
|
34.00
|
%
|
34.00
|
%
|
||||
State taxes, net of federal benefit
|
2.96
|
%
|
3.28
|
%
|
||||
Permanent items
|
(1.14
|
)%
|
2.47
|
%
|
||||
Generation of general business credits
|
(0.02
|
)%
|
(0.24
|
)%
|
||||
Valuation allowance
|
(35.79
|
)%
|
(39.51
|
)%
|
||||
Effective income tax rate
|
—
|
—
|
2010
|
2009
|
|||||||
Deferred tax assets:
|
||||||||
Net operating losses
|
$
|
7,316,466
|
$
|
6,276,975
|
||||
Stock based compensation and other
|
1,232,094
|
1,047,932
|
||||||
Gross deferred tax assets
|
8,548,560
|
7,324,907
|
||||||
Deferred tax liabilities:
|
||||||||
Gross deferred tax liabilities
|
—
|
—
|
||||||
Net deferred tax assets before valuation allowance
|
8,548,560
|
7,324,907
|
||||||
Valuation Allowance
|
(8,548,560
|
)
|
(7,324,907
|
)
|
||||
Deferred Tax Assets (Liabilities), Net
|
$
|
—
|
$
|
—
|
December 31,
|
||||
2010
|
||||
Senior Convertible Notes issued
|
$
|
2,085,000
|
||
Accrued Interest paid in kind
|
157,449
|
|||
Bridge Notes converted (including accrued interest)
|
233,019
|
|||
Total senior notes outstanding, at par
|
2,475,468
|
|||
Beneficial conversion feature allocated to additional paid in capital
|
(737,313
|
)
|
||
Net discounted senior notes
|
1,738,155
|
|||
Amortization of note discount
|
76,486
|
|||
Senior secured notes balance
|
$
|
1,814,641
|
Year
|
||||
2011
|
$ | 64,181 | ||
2012
|
81,599 | |||
2013
|
48,846 | |||
2014
|
1,857 | |||
$ | 196,483 |
1.
|
Term and Termination
. The Term of the Agreement, as set forth in Section 3 thereof, shall be extended for an additional one year period until December 1, 2011. Upon the expiration of the term, the Agreement will automatically renew for successive periods of one year each, unless the Company provides written notice to Employee of its intention not to renew the Agreement at least 60 days prior to the expiration of the then-current term.
|
2.
|
Compensation; Benefits.
The Compensation set forth in Section 4 of the Agreement shall be amended as follows:
|
A.
|
Base Salary
. During the term of this Agreement, the Company will pay to Employee base salary (“Base Salary”) at the rate of $138,500 (One Hundred Thirty Eight Thousand Five Hundred and No/100 dollars) per annum beginning on September 12, 2010.
|
B.
|
Options
. The Company and Employee agree that the Employee shall forfeit all stock options previously granted to Employee, including, but not limited to, options granted on September 12, 2005, March 10, 2006, May 28, 2006, March 26, 2007 and January 8, 2008, aggregating 475,000 shares of the Company’s Common Stock (“Old Options”), in exchange for the award of an option to purchase 360,000 shares of the Company’s Common Stock, exercisable at $0.18 per share, which New Options shall be granted under the terms of the Company’s 2003 Stock Option Plan. The New Options shall vest ratably over four years. The Company and Employee agree and acknowledge that, as a result of this Second Amendment, the Old Options shall terminate and be of no further force or effect.
|
3.
|
Conflict
.
Unless specifically set forth herein, or the context otherwise requires, each of the terms and conditions set forth in the Agreement shall survive execution of this Second Amendment, and shall continue in full force and effect. In the event of a conflict in the terms and conditions set forth in this Second Amendment and the Agreement, the terms and conditions set forth herein shall apply.
|
EMPLOYEE:
By:
/s/ John D. Pougnet
Name: John D. Pougnet
Title: Chief Financial Officer
|
COMPANY:
BAZI INTERNATIONAL, INC.
By:
Kevin Sherman
Name: Kevin Sherman
Title: Chief Executive Officer
|
·
|
We will not tolerate fraud, deceit or concealment.
|
·
|
Business and company decisions must be based on fact and fairness, not bias or prejudice.
|
·
|
Business and company decisions must be based on strict principles of right and wrong as defined by the principles set forth in this Code.
|
|
A.
|
FAIR DEALING:
We will deal honestly and ethically with BAZI and with its affiliates, customers, suppliers, competitors, endorsers, employees and other stakeholders.
|
|
B.
|
CONFLICT SITUATIONS:
A conflict situation can arise when one of us takes action or has interests that may make it difficult to perform our work objectively and effectively.
|
|
For example:
|
1.
|
We will deal with all suppliers, customers, and all other persons doing business with BAZI in a completely fair and objective manner without favor or preference based upon personal financial or relationship considerations.
|
2.
|
We will not accept from or give to any supplier, customer, or competitor any gift or entertainment except as allowed under “Gifts, Meals and Entertainment” under Policy D below.
|
3.
|
We will not do business on behalf of BAZI with a member of our household or a close relative, unless the transaction is disclosed in writing to the CEO, and it is determined that the transaction is on arms-length terms and is consistent with the purposes of this Principle. A close relative would include, for example, at a minimum, a spouse, domestic partner, parent, parent-in-law, sibling, sibling-in-law, child or son/daughter-in-law, or stepparent, stepsibling, or stepchild.
|
4.
|
We will not, directly or indirectly, have a financial interest in any firm or company which is a competitor of BAZI if such financial interest represents a material percentage of the total net worth of the Covered Person, or if such ownership creates a direct conflict of interest for the Covered Person in connection with work the Covered Person is performing for BAZI.
|
5.
|
We will not, directly or indirectly, have a financial interest in or hold any employment, managerial, directorial, consulting or other position with any firm or company which does or seeks to do business with BAZI, if such interest or position may influence any decision that we might make in the performance of our regular duties.
|
6.
|
Officers and employees must disclose to the CEO, and a director must disclose to the Board of Directors, the existence of any such conflict of interest or position, whether actual or proposed. BAZI will review such case with the appropriate officers, directors and legal counsel, if necessary, and they will determine whether the existence of such conflict of interest or position is or may be in conflict with this Principle or otherwise detrimental to the best interest of BAZI or any of its operations. If they determine that such conflict or detrimental effect may occur, such steps as are necessary to correct the situation will be immediately taken.
|
|
C.
|
OPPORTUNITIES:
When presented with opportunities related to BAZI’s business interests, we must first offer those opportunities to BAZI. We will not: (a) take for ourselves personally, or for members of our household or close relatives, opportunities that are discovered through the use of BAZI property, information or position; or, (b) use BAZI property, information, or position for personal gain.
|
|
D.
|
GIFTS, MEALS AND ENTERTAINMENT:
When you are providing a gift, meal, entertainment or other accommodation in connection with BAZI business, you must do so in a manner that is in good taste and without excessive expense. You may not furnish or offer to furnish any gift that is of more than token value or that goes beyond the common courtesies associated with accepted business practices.
|
|
E.
|
ACCURACY AND INTEGRITY OF BOOKS, RECORDS AND ACCOUNTS:
All BAZI books, records and accounts must accurately reflect the nature of the transactions recorded. Books and records include but are not limited to ledgers, vouchers, bills, invoices, time sheets, expense reports, payroll and benefits records and other essential company data.
|
|
|
F.
|
PROTECTION OF CONFIDENTIAL INFORMATION OF CUSTOMERS AND OTHERS:
We must not accept non-public information provided by a supplier or other party with the condition or understanding that it be kept confidential unless such information is subject to a written confidential disclosure agreement or confidentiality provision drafted or approved by BAZI’s legal advisors.
|
|
G.
|
FULL, FAIR, ACCURATE TIMELY AND UNDERSTANDABLE DISCLOSURES:
We will ensure that BAZI’s public disclosures comply with all applicable securities laws, including all applicable financial reporting and accounting regulations. Strict compliance with corporate accounting policies and procedures is required, as is full cooperation with internal and external auditors.
|
|
H.
|
COMPLIANCE WITH THE LAW:
We are required to familiarize ourselves with all the laws, rules and regulations that apply in the areas within the scope of our work responsibilities, including, as applicable, the following areas:
|
|
1.
|
Food and Drug Laws.
We must comply with all applicable laws, rules, regulations, consent decrees and other orders of the United States Food and Drug Administration governing research, development, manufacture, distribution and promotion of foods, nutritional or related products and services.
|
|
2.
|
Antitrust and Competition Laws:
When we are dealing with competitors, the following policies shall apply:
|
·
|
We must not enter into any agreement or understanding that has the purpose or effect of improperly restraining competition. Illegal agreements or understandings among competitors include price fixing, market allocation, and bid rigging.
|
·
|
We must not exchange, discuss, or benchmark with any competitor information relating to BAZI prices or pricing policies, distribution policies, supplier pricing or selection, customer selection or classification, credit policies, advertising policies or any other similar competitive information.
|
·
|
We must not participate in any formal or informal trade association or other meetings with competitors at which agreements or understandings of the type described in paragraph (1) are being made or at which competitive information of the type described in paragraph (2) is being exchanged or discussed.
|
|
3.
|
Insider Trading.
If a person possesses material non–public information concerning a company that issues publicly–traded securities, it is generally illegal for the person to trade in securities of that company or to “tip” others who might trade in such securities.
|
|
4.
|
Laws Relating to Payments to Government Officials/Employees.
|
|
5.
|
Laws Relating to Equal Employment Opportunity and Workplace Harassment and Discrimination.
|
|
6.
|
Laws Relating to Data Privacy
|
|
7.
|
Laws Relating to the Environment.
|
|
8.
|
Laws Relating to Political Contributions.
|
|
9.
|
Anti Money-Laundering Laws
|
|
I.
|
PROTECTION OF RESOURCES:
We must safeguard BAZI’s assets against loss, damage, carelessness, waste, misuse and theft.
|
|
J.
|
PROTECTION OF CONFIDENTIAL INFORMATION:
The disclosure of confidential information regarding BAZI’s business, financial, or legal matters or operations, whether intentional or accidental, can adversely affect the financial stability and competitive position of BAZI and the job security of its employees.
|
|
K.
|
EMPLOYEE HEALTH AND SAFETY:
BAZI is committed to protecting the health and safety of its employees. We will act promptly to address any unhealthy or unsafe condition. This includes taking steps to protect the physical safety and security of BAZI employees.
|
|
L.
|
ELECTRONIC MEDIA USAGE:
BAZI provides access to and use of electronic mail, voicemail, the intranet, the Internet, and other electronic media for business purposes. We do this to make it easier for BAZI employees to communicate with each other and with appropriate outside parties – including distributors, contractors, suppliers, and customers.
|
|
M.
|
ACCOUNTABILITY FOR ADHERENCE TO THIS CODE:
Each of us is responsible for our decision–making and for adherence to the Principles set forth in this Code. BAZI will address violations or potential violations of the Code in a variety of ways including, but not limited to, internal investigations and disciplinary action. Disciplinary action may, when appropriate, include dismissal.
|
3.
|
Independent Directors: The Board believes that a majority of the Board should be independent.
|
1.
|
Review and discuss with management and the independent auditor the annual audited financial statements, including disclosures made in management's discussion and analysis, and recommend to the Board of Directors whether the audited financial statements should be included in BAZI's Form 10-K.
|
2.
|
Review and discuss with management and the independent auditor BAZI's quarterly financial statements prior to the filing of its Form 10-Q, including the results of the independent auditor's review of the quarterly financial statements.
|
3.
|
Discuss with management BAZI's earnings press releases, including use of "pro forma" or "adjusted" non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies.
|
4.
|
Review and discuss with management and the independent auditors significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including any significant changes in BAZI's selection or application of accounting principles and the qualitative judgments regarding both the appropriateness and acceptability of auditing and accounting policies and principles and financial disclosure practices used or proposed to be adopted by BAZI.
|
5.
|
Review and discuss reports from the independent auditors on:
|
A.
|
All critical accounting principles and practices which BAZIwill use, and the qualities of those policies and practices;
|
B.
|
All alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatment preferred by the independent auditor; and
|
C.
|
Other material written communications between the independent auditor and management, such as any management letter or schedule of adjusted differences.
|
6.
|
Discuss with the independent auditor and then disclose the matters required to be disclosed by Statement on Auditing Standards No. 61, including any difficulties the independent auditor encounters in the course of the audit work, any restrictions on the scope of the independent auditor’s activities, or on its access to requested information, and any significant disagreements with management.
|
7.
|
Review disclosures made to the Audit Committee by BAZI's Chief Executive Officer or Principal Accounting Officer during their certification process for the Form 10-K and Form 10-Q.
|
8.
|
Resolve any disagreements between management and the independent auditor regarding financial reporting.
|
Oversight of BAZI's Relationship with the Independent Auditors
|
9.
|
Appoint, retain or replace, and establish the audit fees of BAZI’s independent auditor. The independent auditor shall report directly to, and be responsible to, the Audit Committee. Review and evaluate the performance of the independent auditors and review with the Board of Directors any proposed discharge.
|
10.
|
Pre-approve all auditing services and non-auditing services, including fees and terms thereof, to be performed for BAZIby the independent auditor, subject to the de minimus exceptions for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934 which are approved by the Audit Committee prior to the completion of the audit. The Audit Committee shall have the sole authority to pre-approve all auditing services and non-audit services.
|
11.
|
Confirm the independence of the independent auditor, including reviewing each major non-audit service provided by the independent auditor to BAZI, and the fees therefore. Ensure the receipt of periodic reports from the independent auditor delineating all relationships between the independent auditor and BAZI consistent with Independence Standards Board Standard 1. Discuss such reports with the auditor, and if deemed necessary by the Audit Committee, take or recommend that the full Board of Directors take, appropriate action to oversee the independence of the auditor. Ascertain that the lead and concurring partners serve in that capacity for no more than 5 years. Review at least annually a report by the independent auditor describing the firm’s internal quality-control procedures, and any issues brought up by that review, government inquiries, peer review and how the issues have been dealt with.
|
12.
|
Discuss with the independent auditor the overall scope and plans for the audit, including the adequacy of staffing, compensation and resources.
|
Compliance Oversight Responsibilities
|
13.
|
Consider and review with the independent auditors the adequacy of BAZI's system of internal controls, and any related significant audit findings and recommendations, together with management's responses thereto. Inquire about significant risks and exposures facing the company. Assess steps taken by management to minimize these risks.
|
14.
|
Retain special legal, accounting or other consultants to advise the Audit Committee. The Audit Committee may request any officer or employee of BAZI or BAZI's outside counsel or independent auditor to attend a meeting of the Audit Committee or to meet with any members of, or consultants to, the Audit Committee.
|
15.
|
Advise the Board of Directors with respect to BAZI's policies and procedures regarding compliance with applicable laws and regulations and BAZI’s code of ethics and compliance. The Audit Committee shall establish a process for reviewing (a) all transactions of the Company with "related parties", and (b) potential conflicts of interest of BAZI’s officers and/or directors. Review the policies and procedures with respect to officers’ expense accounts.
|
16.
|
Conduct such investigations into matters within the general scope of its responsibilities as it may deem appropriate from time to time or as may be referred to it by the Board of Directors. Consider with management the rationale for employing audit firms other than the principal independent auditors.
|
17.
|
Establish procedures for the receipt, retention and treatment of complaints received by BAZIregarding accounting, internal accounting controls, auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
|
18.
|
Adopt such rules and procedures for the conduct of its affairs as it deems necessary if not inconsistent with this Charter. Periodically review the Company’s Code of Conduct to insure that it is adequate.
|
Report and Recommendations
|
19.
|
Prepare the report of the Audit Committee required by the rules of the Securities and Exchange Commission to be included in BAZI's annual proxy statement or annual report on form 10-K.
|
20.
|
Maintain minutes or other records of meetings and activities of the Audit Committee.
|
21.
|
Review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board of Directors for approval as a result of new laws or regulations.
|
I.
|
PURPOSE
|
·
|
Identify and recommend qualified individuals to become members of the Board of Directors (the “Board”) of Bazi International, Inc. (the “Company”);
|
·
|
Assist the Board in determining the composition of the Board and its committee membership; and
|
·
|
Assist the Board in developing and monitoring the Company’s corporate governance guidelines.
|
A.
|
Membership
|
B.
|
Meetings
|
1.
|
Review and make recommendations on the range of skills and expertise that should be represented on the Board, and the eligibility criteria for individual Board and committee membership;
|
2.
|
Review and recommend to the Board the appropriate structure of the Board;
|
|
4.
|
Implement a policy and procedures with regard to the consideration of any director candidates recommended by security holders;
|
|
5.
|
Review and recommend to the Board the appropriate structure of Board committees, committee assignments and the position of chairman of each committee;
|
|
7.
|
Assist the Board in implementing a policy providing for a process for security holders to send communications to the Board;
|
|
8.
|
Develop and monitor a procedure for conducting Board member self-assessments on an annual basis; and
|
|
9.
|
Review and reassess the adequacy of this Committee and its Charter not less than annually and recommend any proposed changes to the Board for consideration and approval.
|
Name
|
State or Other Jurisdiction of Incorporation
|
|
Bazi Company, Inc.
|
Colorado
|
|
Bazi, Inc.
|
Colorado
|
XELR8 International, Inc.
|
Colorado
|
XELR8 Canada, Corp
|
Nova Scotia, Canada
|
|
1. I have reviewed this annual report on Form 10-K of Bazi International, Inc.;
|
|
|
|
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
|
|
|
|
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
|
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
|
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
|
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles
|
|
|
|
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
|
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
|
|
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
|
|
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
|
|
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Kevin Sherman
|
|
Kevin Sherman
|
|
Chief Executive Officer
|
|
1. I have reviewed this annual report on Form 10-K of Bazi International, Inc.;
|
|
|
|
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
|
|
|
|
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
|
|
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
|
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
|
|
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
|
|
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
|
|
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
|
|
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
|
|
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
|
|
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
|
/s/
John D. Pougnet
|
John D. Pougnet
|
|
Chief Financial Officer
|
|
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
|
|
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/
Kevin Sherman
|
||
Kevin Sherman
|
||
Chief Executive Officer
|
||
March 31, 2011
|
|
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
|
|
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
|
/s/
John D. Pougnet
|
||
John D. Pougnet
|
||
Chief Financial Officer
|
||
March 31, 2011
|