Attached files
As filed
with the Securities and Exchange Commission on May 25, 2010
Registration
No.333-
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
--------------------------
FORM S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES
ACT OF 1933
------------------------------
Z TRIM
HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
ILLINOIS 2040 36-4197173
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(State
or other jurisdiction of
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(Primary
Standard Industrial Classification Code Number)
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(I.R.S.
Employer
|
|
incorporation
or organization)
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Identification
No.)
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1011
CAMPUS DRIVE
MUNDELEIN,
ILLINOIS 60060
(847)
549-6002
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
STEVEN J.
COHEN
PRESIDENT
1011
CAMPUS DRIVE
MUNDELEIN,
ILLINOIS 60060
(847)
549-6002
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
BRIAN
CHAIKEN,
CHIEF
FINANCIAL OFFICER AND SECRETARY
1011
CAMPUS DRIVE
MUNDELEIN,
ILLINOIS 60060
(847)
549-6002
Copies
of communications to:
LOLA
MIRANDA HALE, ESQ.
EPSTEIN
BECKER GREEN, P.C.
150 N.
MICHIGAN AVE., 35TH FLOOR
CHICAGO,
ILLINOIS 60601-7553
(312)
499-1400
APPROXIMATE DATE
OF COMMENCEMENT OF PROPOSED SALE TO
PUBLIC: From time to time after the effective date of this
Registration Statement.
i
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with divided or
interest reinvestment plans, check the following box. [X]
If this
Form is filed to register additional securities
for an offering pursuant to Rule 462(b) under
the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this
Form is a post-effective amendment filed
pursuant to Rule 462(c) under
the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this
Form is a post-effective amendment filed
pursuant to Rule 462(d) under
the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b2 of the Exchange Act.
Large
Accelerated Filer [ ] Accelerated Filer [
] Non-Accelerated filer [ ] Smaller Reporting
Company [X]
CALCULATION
OF REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------------------------
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Title
of Each Class of Securities to be Registered
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Amount
to be registered (2)
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Proposed
maximum offering price per share
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Proposed
maximum aggregate offering price (3)
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Amount
of registration fee (4)
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Common
Stock Par value $0.00005 (1)
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18,382,191
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$1.15
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$21,139,519.65
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$1,507.24.
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(1)
Shares of common stock (x) issued upon the exercise of warrants and
for services in connection with an investor relations agreement for a total of
643,728 shares and (y) issuable upon: (a) conversion of $5,281,000 aggregate
principal amount of our 8% convertible senior secured promissory notes due in
2011 and 2012 (the “2009 Notes”), based upon a conversion rate of 10,000 shares
per $10,000 principal amount of the 2009 Notes for an aggregate of 5,281,000
shares of our Common Stock and conversion of the accrued interest on
the 2009 Notes for an aggregate of 844,960 shares at
maturity (b) the exercise of warrants issued in connection with the
issuance of our 2009 Notes (the “2009 Warrants”) at an exercise price of $1.50
per share for an aggregate 8,535,900 shares (c) the exercise of two five year
warrants issued in connection with the issuance of our 2008 Convertible Notes
(the “2008 Warrants”) at an exercise price of $0.30 per share for an aggregate
of 332,607 shares and an exercise price of $1.00 for an aggregate of 1,806,205
shares (inclusive of broker/finder warrants) (d) the exercise of warrants issued
to the 2008 Convertible Note holders at an exercise price of $0.01 per share for
an aggregate of 762,488 shares, and (e) the exercise of warrants issued in 2007
with an exercise price of $13.69 per share for an aggregate of 175,303 shares of
our common stock (the “2007 Warrants’). This registration statement is
registering the underlying shares of common stock into which the Convertible
Notes are convertible and the underlying shares of common stock into which the
all of the Warrants identified above are exercisable.
(2)
Pursuant to Rule 416 under the Securities Act of 1933, the number of shares of
common stock registered hereby shall include an indeterminate number of
additional shares of common stock that may be issuable as a result of
anti-dilution adjustments.
(3)
Estimated solely for the purpose of computing the amount of the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based on
the average of the high and low prices reported for shares of Common Stock of
the Registrant, as of May 19, 2010 of $1.15, as reported on the OTC Bulletin
Board.
(4) The
Registrant previously paid a registration fee of $874.99 in connection with the
Registration Statement amended hereby; $437.64 in connection with its
original filing on Form S-3 dated June 5, 2007 (File No. 333-143537) registering
12,450,000 shares of common stock. No securities were sold under such
registration statements. Accordingly, pursuant to Rule 457(p) under the
Securities Act of 1933, $1,312.63 is being offset against the total registration
fee due for this Registration Statement, so the Company will submit payment of
$194.61 as the additional amounts owed.
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
ii
The
Information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, Dated May 25, 2010,
PROSPECTUS
------------------
Z TRIM
HOLDINGS, INC.
COMMON
STOCK
------------------
This
prospectus relates to the sale or other
disposition of 643,728 shares of our common stock par
value $0.00005 per share and 17,738,463 shares of our common stock underlying
convertible notes and warrants by the Selling Shareholders named in this
prospectus or their transferees. In private placements effected in
2009 and 2010, we issued 8% convertible promissory notes due in 2011 and 2012.
Of the aggregate amount issued we are including shares issuable on conversion of
notes in the aggregate amount of $5,281,000 (the “2009 Notes”) and in 2009,
2008, and 2007 we issued warrants in a series of private
placements. This prospectus may be used by the Selling Stockholders
named herein to resell, from time to time, any shares of our common stock,
issuable upon conversion of the 2009 Notes at an initial conversion rate of
10,000 shares per $10,000 principal amount and upon exercise of the warrants at
exercise prices ranging from $13.69 to $0.01 per share. The issuance
of the shares upon exercise of the warrants is not covered by this prospectus;
only the resale of the shares underlying the warrants is covered. For
information about the Selling Shareholders see the section entitled: “SELLING
SHAREHOLDERS” on page 30. We will not receive any of the proceeds
from the sale of any shares of our common stock offered by this
prospectus. However, we will receive the proceeds from any cash
exercise of the Warrants. The Selling Shareholders may offer their
shares of Common Stock from time to time through public or private transactions,
on or off of the OTC Bulletin Board at prevailing market prices or at privately
negotiated prices.
Our
common stock is quoted on the regulated quotation service of the OTC Bulletin
Board under the symbol “ZTHO.” The last reported sale price of our
common stock as reported on the OTC Bulletin Board on May 12, 2010 was $1.10 per share.
The
Selling Shareholders may offer their shares of Common Stock from time to time
through public or private transactions, on or off of the OTC Bulletin Board at
prevailing market prices, at prices related to the prevailing market prices, at
fixed prices that may be changed, or at privately negotiated prices. We will not
receive any of the proceeds from the sale of the shares of Common Stock by the
Selling Shareholders, but will receive proceeds related to the exercise for cash
of warrants held by the Selling Shareholders.
The
Selling Shareholders, and any participating broker-dealers may be deemed to be
“underwriters” within the meaning of the Securities Act of 1933, and any
commissions or discounts given to any such broker-dealer may be regarded as
underwriting commissions or discounts under the Securities Act. The
Selling Shareholders have informed us that they do not have any agreement or
understanding, directly or indirectly, with any person to distribute their
common stock.
Brokers
or dealers effecting transactions in the shares should confirm the registration
of these securities under the securities laws of the states in which
transactions occur or the existence of applicable exemptions from such
registration.
INVESTING
IN THE COMMON STOCK OF OUR COMPANY INVOLVES A HIGH DEGREE OF RISK. WE URGE YOU
TO READ CAREFULLY THE ENTIRE PROSPECTUS, INCLUDING THE “RISK FACTORS” BEGINNING
ON PAGE 3 BEFORE MAKING A DECISION TO PURCHASE OUR STOCK.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL AND COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE
OF THIS PROSPECTUS IS ___, 2010.
iii
TABLE OF
CONTENTS
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Page
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ABOUT
THIS PROSPECTUS
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1
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DISCLOSURES
ABOUT FORWARD-LOOKING STATEMENTS
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1
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PROSPECTUS
SUMMARY
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2
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RISK
FACTORS
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3
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USE
OF PROCEEDS
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8
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DIVIDEND
POLICY
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8
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CAPITALIZATION
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8
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SELECTED
FINANCIAL OPERATING DATA
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8
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MANAGEMENT’
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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10
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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13
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BUSINESS
DESCRIPTION
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13
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DIRECTORS
AND EXECUTIVE OFFICERS
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14
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CORPORATE
GOVERNANCE
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15
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EXECUTIVE
COMPENSATION
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16
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OUTSTANDING
EQUITY AWARDS AT DECEMBER 31, 2009
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17
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
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18
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
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18
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LEGAL
PROCEEDINGS
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18
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SELLING
SHAREHOLDERS
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19
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PLAN
OF DISTRIBUTION
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26
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MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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27
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EQUITY
COMPENSATION PLAN INFORMATION
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27
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DESCRIPTION
OF CAPITAL STOCK
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28
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LEGAL
MATTERS
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30
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EXPERTS
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30
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WHERE
YOU CAN GET MORE INFORMATION
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30
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INDEX
TO FINANCIAL STATEMENTS
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F-1
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iv
ABOUT
THIS PROSPECTUS
You
should rely only on the information contained in or incorporated by reference
into this prospectus. We have not authorized any dealer or other person to
provide you with additional or different information. If anyone provides you
with different or inconsistent information, you should not rely on it. This
prospectus is not an offer to sell or the solicitation of an offer to buy any
securities other than the securities to which it relates and is not an offer to
sell or the solicitation of an offer to buy securities in any jurisdiction to
any person to whom it is unlawful to make an offer or solicitation in that
jurisdiction. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the front cover of
this prospectus, or that the information contained in any document incorporated
by reference is accurate as of any date other than the date of the document
incorporated by reference, regardless of the time of delivery of this prospectus
or any sale of a security.
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission, or SEC, utilizing a “shelf” registration process or
continuous offering process. Under this shelf registration process, the selling
security holders may, from time to time, sell the securities described in this
prospectus in one or more offerings. This prospectus provides you with a
description of the securities that may be offered by the selling security
holders. Each time a selling security holder sells securities, the selling
security holder is required to provide you with this prospectus and, in certain
cases, a prospectus supplement containing specific information about the selling
security holder and the terms of the offering. Any prospectus supplement may
add, update, or change information in this prospectus. If there is any
inconsistency between the information in this prospectus and any prospectus
supplement, you should rely on the information in that prospectus
supplement.
Additional
information, including our financial statements and the notes thereto, is
incorporated in this prospectus by reference to our reports filed with the
SEC. Please read “Where You Can Find More Information.” You are urged
to read this prospectus carefully, including the “Risk Factors,” and our SEC
reports in their entirety before investing in our securities.
Unless
the context requires otherwise or unless otherwise noted, all references in this
prospectus or any accompanying prospectus supplement to “Z Trim,” “Company,”
“our,” “us” or “we” are to Z Trim Holdings, Inc.
DISCLOSURES
ABOUT FORWARD-LOOKING STATEMENTS
Certain
statements contained in or incorporated by reference into this prospectus, as
well as other written and oral statements made or incorporated by reference from
time to time by us and our representatives in other reports, filings with the
SEC, press releases, conferences, or otherwise, may be deemed
forward-looking statements within the
safe harbor provisions of the Private
Securities Litigation Report Act of 1995. All statements
other than those that are purely historical are forward-looking
statements. Words such as “expect,” “anticipate,”
“believe,” “estimate,” “intend,” “plan,” “potential” and similar
expressions as they relate to us and our management also
identify forward-looking statements, although not all
forward-looking statements contain these identifying
words. Because these forward-looking statements involve
risks and uncertainties, there are important
factors that could cause our actual results, as
well as our expectations regarding materiality or
significance, to differ materially from those in the forward-looking
statements. Forward-looking statements may include, but are not limited to,
statements with respect to our history of operating losses, lack of significant
market acceptance of
our product, the fact that we will need to raise
additional capital, and our reliance on intellectual property. You
should not place undue reliance on these forward-looking statements,
which speak only as of the date made.
These forward-looking statements are based on our current
expectations and are subject to a number of risks and uncertainties,
including those identified herein under “RISK FACTORS” and elsewhere including
our Annual Report on Form 10-K for the fiscal year ended December 31,
2009, our subsequent SEC filings and those factors summarized
below. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, our actual results could
differ materially from those expressed in these forward-looking
statements, and any events anticipated in the forward-looking statements may not
actually occur. Consequently we can give no assurance that such
expectations will prove to have been correct. Except as required by law, we
undertake no duty to update any forward-looking statements after the date of
this prospectus to conform those statements to actual results or to
reflect the occurrence of unanticipated events.
We qualify all forward-looking statements contained in this prospectus by the
foregoing cautionary statements. Other factors besides those
described in this prospectus, any prospectus supplement or the documents we
incorporate by reference herein could also affect our actual results. These
forward-looking statements are largely based on our expectations and beliefs
concerning future events, which reflect estimates and assumptions made by our
management. These estimates and assumptions reflect our best judgment based on
currently known market conditions and other factors relating to our operations
and business environment, all of which are difficult to predict and many of
which are beyond our control.
Although
we believe our estimates and assumptions to be reasonable, they are inherently
uncertain and involve a number of risks and uncertainties that are beyond our
control. Our assumptions about future events may prove to be inaccurate. We
caution you that the forward-looking statements contained in this prospectus are
not guarantees of future performance, and we cannot assure you that those
statements will be realized or the forward-looking events and circumstances will
occur. All forward-looking statements speak only as of the date of this
prospectus. We do not intend to publicly update or revise any forward-looking
statements as a result of new information, future events or otherwise, except as
required by law. These cautionary statements qualify all forward-looking
statements attributable to us or persons acting on our behalf.
1
PROSPECTUS
SUMMARY
The following summary does not
contain all the information that may be important to you and is qualified in its
entirety by more detailed information appearing elsewhere in, or incorporated by
reference into, this prospectus. You should read the entire prospectus, paying
particular attention to the risks referred to under the heading “Risk Factors,”
request from us all additional public information that you wish to review
relating to us and complete your own examination of us before making an
investment decision.
THE
COMPANY
Z Trim
Holdings, Inc. deploys technology, formulation, and product performance
solutions built around cutting-edge dietary fibers for both domestic and
international food markets.
Z
Trim®
multifunctional fiber ingredients originated from a USDA patent for
minimally processed, non-caloric functional food ingredients made from healthy
dietary fiber. With an exclusive license from the USDA, this patent is
central to the company’s intellectual property portfolio. Z Trim Holdings
subsequently evolved the processing technology and expanded the fiber sources to
create innovative ingredients with unique properties that provide
multifunctional benefits that help create value for food manufacturers around
the world. Currently, Z Trim is made from corn and oat, but it can be
produced from virtually any cellulose, the substance that makes up most of a
plant’s cell walls, and is one of the most abundant organic compounds on
earth.
Z Trim
Holdings operates within global business of food additives, which, as of 2006
was a $25 billion industry. The global hydrocolloid business - which
consists of agents used for thickening, gelling and stabilizing food and
beverage products is over $19 billion per year (http://www.sriconsulting.com/CEH/Public/Reports/582.7000/)
with food applications constituting approximately $4.2 billion of that total
(http://www.foodnavigator-usa.com/Financial-Industry/Health-and-prices-dominate-hydrocolloids-debate).
Specifically, the U.S. fat replacer and bulk dietary fiber (supplement) markets
are estimated to be just over $500 million each, with carbohydrate-based fat
replacers such as Z Trim accounting for approximately 59 percent of the market
in 2000 (http://www.frost.com/prod/servlet/market-insight-top.pag?docid=10039518).
Presently,
the Company employs 25 full-time employees and one part-time
employee.
Corporate
Information
Z Trim
Holdings, Inc. was incorporated in the State of Illinois on May 5, 1994 under
the original name Circle Group Entertainment Ltd. The Company has no
operating subsidiaries. Our executive offices are located at 1011
Campus Drive, Mundelein, Illinois, 60060. Our phone number is (847)
549-6002. Our website is www.ztrim.com. Information on our
web site is not intended to be incorporated into this prospectus.
2
RISK
FACTORS
YOU
SHOULD CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION
IN THIS PROSPECTUS BEFORE INVESTING IN THE SHARES. AN INVESTMENT IN OUR COMMON
STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS, OTHER INFORMATION INCLUDED IN THIS PROSPECTUS AND
INFORMATION IN OUR PERIODIC REPORTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES FACING THE COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES MAY ALSO
ADVERSELY IMPAIR THE COMPANY’S BUSINESS OPERATIONS. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCUR, THE COMPANY’S BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS WOULD LIKELY SUFFER SIGNIFICANTLY AND COULD BE MATERIALLY
AND ADVERSELY AFFECTED. IN SUCH CASE, THE VALUE OF THE COMPANY’S
COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR
INVESTMENT.
BUSINESS
RISKS
THE
COMPANY HAS A HISTORY OF OPERATING LOSSES AND CANNOT GUARANTEE PROFITABLE
OPERATIONS IN THE FUTURE. ANY FAILURE ON OUR PART TO ACHIEVE PROFITABILITY MAY
CAUSE US TO REDUCE OR EVENTUALLY CEASE OPERATIONS.
The
Company incurred a net loss of $748,380 for the quarter ended March 31, 2010,
$12,209,580 for the twelve months ending December 31, 2009, and had an
accumulated deficit of $86,750,786 at March 31, 2010 and $86,002,406 at December
31, 2009. The Company reported a net loss of $7,416,927 for the
twelve months ending December 31, 2008. At December 31, 2008, the Company
reported an accumulated deficit of $71,662,875.
If the
Company continues to incur significant losses, our cash reserves may be depleted
earlier than currently anticipated, and the Company may be required to cease
operations or limit our future growth objectives to levels corresponding with
our then available cash reserves.
OUR
AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT REGARDING OUR ABILITY TO CONTINUE AS A
GOING CONCERN.
As of the
date of our most recent audit, which included the fiscal year ended December 31,
2009, we had not generated sufficient revenues to meet our cash flow
needs. As a result, our auditors have expressed substantial doubt
about our ability to continue as a going concern. Although we have
generated revenue, we are still operating at a net loss, and may continue to
incur losses for a period of time. We cannot assure you that we will
be able to obtain sufficient funds from our operating or financing activities to
support our continued operations. If we cannot continue as a going
concern, we may need to substantially revise our business plan or cease
operations, which may reduce or negate the value of your
investment.
WE FACE
LIQUIDITY ISSUES. OUR 8% CONVERTIBLE NOTES ISSUED IN 2008 IN THE PRINCIPAL
AMOUNT OF $4,457,000 WILL COME DUE IN 2010
As of
March 31, 2010 and December 31, 2009, respectively, we had a cash balance of
$564,766 and $324,784. Over the last several years, we have been funding
our operations through the sale of both equity and debt securities. In 2008, we
sold $4,457,000 in convertible notes. These notes are convertible
into our Common Stock at $1.00, per share and bear interest at 8% per year (See
Note 8 to our Financial Statements included elsewhere herein). The
2008 Notes come due in 2010. The first tranche in the amount of $1,400,000 is
due in June and $2,370,000 in September 2010. If our note holders
choose not to convert the 2008 Notes as they become due, we will either have to
repay the notes, or reach an agreement with the note holders to extend the terms
thereof. If we are unable to do either, we will be in default on the
2008 Notes and the 8% Convertible Notes issued in 2009 and 2010 and may face
lawsuits from our note holders. In addition, the terms of the Series
I Preferred Stock (which are designated but not yet issued) require a deferral
of the payment of dividends and mandatory redemption until the 2008 Notes and
the 2009 Notes are paid in full. Any extension of the maturity dates
on the Notes would not constitute a default under the terms of the Series I
Preferred Stock
OUR
SUCCESS IS DEPENDENT ON MARKET ACCEPTANCE OF OUR PRODUCT.
The
Company has not conducted, nor have others made available to us, results of
market research indicating how much market demand exists for Z Trim ingredients.
The Company is relying on feedback from current and prospective customers with
respect to the many different functions provided by the Z Trim ingredients. We
cannot assure you that we will be able to gain the market acceptance necessary
to achieve profitability.
WE MAKE
NO PROJECTIONS REGARDING THE VIABILITY OF OUR FUNCTIONAL FOOD INGREDIENT AND WE
CANNOT ASSURE YOU THAT WE WILL ACHIEVE THE RESULTS DESCRIBED.
We make
no projection with respect to our future income, assets or business. No expert
has reviewed our business plan for accuracy or reasonableness. It is likely that
our actual business and results of operations will differ from those presented
herein. The underlying USDA patent, to which we have an exclusive license,
expires in 2015.
WE HAVE A
SIGNIFICANT PORTION OF OUR CURRENT REVENUES AND ORDER BOOKINGS WITH A SMALL
NUMBER OF CUSTOMERS.
Revenues
recognized over the past year and order bookings received to date are
concentrated with a small number of customers. The loss of one or
more of our customers or material changes to the contracts with or payment terms
of these customers may result in a significant business interruption through
reduced revenues, reduced cash flows, delays in revenues or cash flows and such
delays or reductions could have a material impact on the future revenue growth
and profitability of the Company.
WE WILL
NEED ADDITIONAL FUNDING AND SUCH FUNDING MAY NOT BE AVAILABLE. IF SUCH FUNDING
IS AVAILABLE, IT MAY NOT BE OFFERED ON SATISFACTORY TERMS.
We will
require additional financing to fund ongoing operations, as our current sales
and revenue growth are insufficient to meet our operating costs and perhaps our
maturing obligations. Our inability to obtain necessary capital or financing to
fund these needs will adversely affect our ability to fund operations and
continue as a going concern. Our inability to obtain necessary capital or
financing to fund these needs could adversely affect our business, results of
operations and financial condition. Additional financing may not be available
when needed or may not be available on terms acceptable to us. If adequate funds
are not available, in addition to being required to delay, scale back or
eliminate one or more of our business strategies, which may affect our overall
business results of operations and financial condition our ability to continue
as a going concern may be affected.
ECONOMIC
CONDITIONS MAY ADVERSELY IMPACT DEMAND FOR OUR PRODUCTS, REDUCE ACCESS TO CREDIT
AND CAUSE OUR CUSTOMERS AND OTHERS WITH WHICH WE DO BUSINESS TO SUFFER FINANCIAL
HARDSHIP, ALL OF WHICH COULD ADVERSELY IMPACT OUR BUSINESS, RESULTS OF
OPERATIONS, FINANCIAL CONDITION AND CASH FLOWS.
Economic
conditions have recently deteriorated significantly in the United States, and
may remain challenging for the foreseeable future. General business and economic
conditions that could affect us include short-term and long-term interest rates,
unemployment, inflation, fluctuations in debt markets and the strength of the US
economy and the local economies in which we operate. There could be a
number of other effects from these economic developments on our business,
including reduced demand for products; insolvency of our customers, resulting in
increased provisions for credit losses; decreased customer demand, including
order delays or cancellations and counterparty failures negatively impacting our
operations.
3
OUR
MANUFACTURING FACILITY IS CURRENTLY OPERATING AT A LOSS.
We are
presently operating at a negative gross margin in that the cost of production
exceeds the sales price of the product. The changes that are being
made to the manufacturing process to allow us to produce at a positive gross
margin have yet to be completed and may not be successful. The
current manufacturing facility is merely a pilot plant. In order to
fully implement our business plans we will need to move the operations to a
larger facility, develop strategic partnerships or find other means to produce
greater volumes of finished product.
WE RELY
UPON A LIMITED NUMBER OF PRODUCT OFFERINGS.
The
majority of the products that we have sold as of March 31, 2010 and December 31,
2009 have been based on corn and oat. Although we will market our products, as
an active food ingredient for inclusion in other companies’ products, and in
other ways, a decline in the market demand for our products, could have a
significant adverse impact on us.
THE
AVAILABILITY AND COST OF AGRICULTURAL PRODUCTS THAT WE USE IN OUR BUSINESS ARE
SUBJECT TO WEATHER AND OTHER FACTORS BEYOND OUR CONTROL.
All of
our current products depend on our proprietary technology using agricultural
products, mainly corn and oat. Historically, the costs of corn and oat are
subject to substantial fluctuations depending upon a number of factors which
affect commodity prices in general and over which the Company has no control,
including crop conditions, weather, government programs and purchases by foreign
governments. Commodity price changes may result in unexpected increases in raw
material, packaging, and energy costs. If we are unable to increase productivity
to offset these increased costs or increase our prices, we may experience
reduced margins and profitability. We currently do not hedge against changes in
commodity prices.
THE
COMPANY IS SUBSTANTIALLY DEPENDENT ON ITS MANUFACTURING FACILITIES; ANY
OPERATIONAL DISRUPTION COULD RESULT IN A REDUCTION OF THE COMPANY’S SALES
VOLUMES AND COULD CAUSE IT TO INCUR SUBSTANTIAL LOSSES.
The
Company’s revenues are and will continue to be derived from the sale of
functional food ingredient made from dietary fiber that the Company’s
manufactures at its facility. The Company’s operations may be subject to
significant interruption if its facility experiences a major accident or is
damaged by severe weather or other natural disasters. In addition, the Company’s
operations may be subject to labor disruptions and unscheduled downtime, or
other operational hazards inherent in the industry, such as equipment failures,
fires, explosions, abnormal pressures, blowouts, pipeline ruptures,
transportation accidents and natural disasters. Some of these operational
hazards may cause personal injury or loss of life, severe damage to or
destruction of property and equipment or environmental damage, and may result in
suspension of operations and the imposition of civil or criminal penalties. The
Company’s insurance may not be adequate to fully cover the potential operational
hazards described above or that it will be able to renew this insurance on
commercially reasonable terms or at all.
THE
AGREEMENT GOVERNING THE COMPANY’S OUTSTANDING CONVERTIBLE NOTES CONTAIN VARIOUS
COVENANTS THAT LIMIT ITS ABILITY TO TAKE CERTAIN ACTIONS AND THE COMPANY’S
FAILURE TO COMPLY WITH ANY OF THE DEBT COVENANTS COULD HAVE A MATERIAL ADVERSE
EFFECT ON THE COMPANY’S BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The
agreements governing the company’s outstanding convertible notes contain a
number of significant covenants that, among other things, limit its ability to
incur additional debt or liens, pay dividends or redeem any of its outstanding
capital stock without prior approval of the note holders.
WE FACE
COMPETITION.
Competition
is intense in our targeted industries, including nutraceuticals, functional food
ingredients, oils, gums and a large number of businesses engaged in the various
fat replacement industries. Many of our competitors have established reputations
for successfully developing and marketing their products, including products
that are widely recognized as providing similar calorie reduction. In addition,
many of our competitors have greater financial, managerial, and technical
resources than we have. If we are not successful in competing in
these markets, we may not be able to attain our business
objectives.
OUR
INABILITY TO SECURE AND PROTECT OUR INTELLECTUAL PROPERTY MAY RESULT IN COSTLY
AND TIME-CONSUMING LITIGATION AND COULD IMPEDE US FROM EVER ATTAINING MARKET
SUCCESS.
We hold
several patents, trademarks and copyrights with respect to our products and
expect to continue to file applications in the future as a means of protecting
our intellectual property. In addition, we seek to protect our
proprietary information and know-how through the use of trade secrets,
confidentiality agreements and other similar security measures. With
respect to patents, there can be no assurance that any applications for patent
protection will be granted, or, if granted, will offer meaningful
protection. The technology employed by Z Trim in its products is
licensed to the company by the United States Department of Agriculture. The USDA
patent expires 2015. Although the company has additional process
patents on file and intends to file a patent for NanoGum in the next few months,
there can be no assurance that new patents will in fact issue or that they will
provide effective protection.
Additionally,
there can be no assurance that competitors will not develop, patent or gain
access to similar know-how and technology, or reverse engineer our products, or
that any confidentiality agreements upon which we rely to protect our trade
secrets and other proprietary information will be adequate to protect our
proprietary technology. The occurrence of any such events could have a material
adverse effect on our results of operations and financial
condition.
CONFIDENTIALITY
AGREEMENTS WITH EMPLOYEES AND OTHERS MAY NOT ADEQUATELY PREVENT DISCLOSURE OF
TRADE SECRETS AND OTHER PROPRIETARY INFORMATION AND MAY NOT ADEQUATELY PROTECT
OUR INTELLECTUAL PROPERTY.
We rely
on trade secrets to protect some of our technology, especially where we do not
believe patent protection is appropriate or obtainable. However, trade secrets
are difficult to protect. In order to protect our proprietary
technology and processes, we also rely in part on confidentiality and
intellectual property assignment agreements with our corporate partners,
employees, consultants, outside scientific collaborators and sponsored
researchers and other advisors. These agreements may not effectively prevent
disclosure of confidential information nor result in the effective assignment to
us of intellectual property, and may not provide an adequate remedy in the event
of unauthorized disclosure of confidential information or other breaches of the
agreements. In addition, others may independently discover our trade
secrets and proprietary information, and in such case we could not assert any
trade secret rights against such party. Enforcing a claim that a
party illegally obtained and is using our trade secrets is difficult, expensive
and time consuming, and the outcome is unpredictable. In addition,
courts outside the United States may be less willing to protect trade
secrets. Costly and time-consuming litigation could be necessary to
seek to enforce and determine the scope of our proprietary rights, and failure
to obtain or maintain trade secret protection could adversely affect our
competitive business position.
4
IF OUR
FOOD PRODUCTS BECOME ADULTERATED, MISBRANDED, OR MISLABELED, WE MIGHT NEED TO
RECALL THOSE ITEMS AND MAY EXPERIENCE PRODUCT LIABILITY CLAIMS IF CONSUMERS ARE
INJURED.
We may
need to recall some of our products if they become adulterated, misbranded, or
mislabeled. A widespread product recall could result in significant
losses due to the costs of a recall, the destruction of product inventory, and
lost sales due to the unavailability of product for a period of
time. We could also suffer losses from a significant product
liability judgment against us. A significant product recall or
product liability case could also result in adverse publicity, damage to our
reputation, and a loss of consumer confidence in our food products, which could
have a material adverse effect on our business results and the value of our
brands.
OUR
COMPETITORS MAY DESIGN PRODUCTS AROUND OUR INTELLECTUAL PROPERTY
PROTECTION.
We hold
an intellectual property portfolio, including patent, trademark, copyright and
trade secret protection. Our competitors, however, may design around
our patent claims, rendering our patent protection ineffective against such
competitor. Similarly, our competitors may independently develop
technology similar to our trade secrets and technical know-how. Such
occurrences could increase competitive pressure on our marketing and sales
efforts.
OUR
INTELLECTUAL PROPERTY RIGHTS ARE VALUABLE, AND ANY INABILITY TO PROTECT THEM
COULD REDUCE THE VALUE OF OUR PRODUCTS, SERVICES AND BRAND.
Our
patents, trademarks, trade secrets, copyrights and other intellectual property
rights are important assets for us. Various events outside of our
control pose a threat to our intellectual property rights as well as to our
products and services. For example, effective intellectual property protection
may not be available in every country in which our products and services are
distributed. Also, the efforts we have taken to protect our
proprietary rights may not be sufficient or effective. Any
significant impairment of our intellectual property rights could harm our
business or our ability to compete. Also, protecting our intellectual
property rights is costly and time consuming. Any increase in the
unauthorized use of our intellectual property could make it more expensive to do
business and harm our operating results.
Although
we seek to obtain patent protection for our innovations, it is possible we may
not be able to protect some of these innovations. In addition, given
the costs of obtaining patent protection, we may choose not to protect certain
innovations that later turn out to be important. Furthermore, there
is always the possibility, despite our efforts, that the scope of the protection
gained will be insufficient or that an issued patent may be deemed invalid or
unenforceable.
WE MAY
NOT BE SUCCESSFUL IN AVOIDING CLAIMS THAT WE INFRINGE OTHERS’ PROPRIETARY RIGHTS
AND COULD BE REQUIRED TO PAY JUDGMENTS OR LICENSING FEES.
Any
infringement claim, whether meritorious or not, could be time consuming and
result in costly litigation, and could require us to discontinue any of our
practices that are found to be in violation of another party’s
rights. Any failure to maintain rights to our intellectual property
used in our business could adversely affect the development, functionality, and
commercial value of our products.
GOVERNMENT
REGULATION
We are
subject to extensive regulation, and compliance with existing or future laws and
regulations may require us to incur substantial expenditures or require us to
make product recalls. New regulations or regulatory-based claims could adversely
affect our business. We are subject to a broad range of federal,
state, local and foreign laws and regulations intended to protect public health
and the environment. Food production and marketing are highly
regulated by a variety of federal, state, local, and foreign
agencies. Changes in laws or regulations that impose additional
regulatory requirements on us could increase our cost of doing business or
restrict our actions, causing our results of operations to be adversely
affected. In addition, we advertise our products and could be the
target of claims relating to alleged false or deceptive advertising under
federal, state, and foreign laws and regulations and of new laws or regulations
restricting our right to advertise products. Our operations are also
subject to regulation by various federal agencies, including the Alcohol and
Tobacco Tax Trade Bureau, the Occupational Safety and Health Administration, the
Food and Drug Administration and the Environmental Protection Agency, and by
various state and local authorities. Such regulation covers virtually
every aspect of our operations, including production facilities, marketing,
pricing, labeling, packaging, advertising, water usage, waste water discharge,
disposal of hazardous wastes and omissions and other
matters. Violations of any of these laws and regulations may result
in administrative, civil or criminal penalties being levied against us, permit
revocation or modification, performance of environmental investigatory or
remedial activities, voluntary or involuntary product recalls, or a cease and
desist order against operations that are not in compliance. These
laws and regulations may change in the future and we may incur material costs in
our efforts to comply with current or future laws and regulations or to affect
any product recalls. These matters may have a material adverse effect
on our business.
IF Z
TRIM’S PRODUCTS DO NOT SATISFY CERTAIN GOVERNMENTAL
REGULATIONS, Z TRIM MAY BE UNABLE TO OBTAIN
REGULATORY APPROVAL OR MAY BE REQUIRED TO OBTAIN MULTIPLE LICENSES
TO SELL OUR PRODUCTS.
Z
Trim has self-certified that all components of its
products are generally recognized as safe or GRAS according to the U.S. Food and
Drug Administration regulations. A GRAS designation exempts the
products from the regulations of the U.S. Department of Agriculture, permitting
the sale of the products anywhere in the United
States without obtaining a license. Should the products
lose their GRAS designation, Z Trim will be required to sell the products as
feed additives by obtaining a license to sell from each individual state in
which sales would occur. There is no assurance
that Z Trim would be able to successfully obtain or maintain licenses in
all states in which sales are expected to be made or that the cost of obtaining
and maintaining these licenses would not limit its ability to sell its
products.
WE ARE
SUBJECT TO PERIODIC LITIGATION AND OTHER REGULATORY PROCEEDINGS, WHICH COULD
RESULT IN UNEXPECTED EXPENSE OF TIME AND RESOURCES.
We are a
defendant from time to time in lawsuits and regulatory actions relating to our
business, including litigation brought by former employees. Due to
the inherent uncertainties of litigation and regulatory proceedings, we cannot
accurately predict the ultimate outcome of any such proceedings. An
unfavorable outcome could have an adverse impact on our business, financial
condition and results of operations. In addition, any significant
litigation in the future, regardless of its merits, could divert management’s
attention from our operations and result in substantial legal fees.
WE HAVE
IDENTIFIED MATERIAL WEAKNESSES IN OUR INTERNAL CONTROL OVER FINANCIAL REPORTING,
WHICH COULD IMPACT NEGATIVELY OUR ABILITY TO REPORT OUR RESULTS OF OPERATIONS
AND FINANCIAL CONDITION ACCURATELY AND IN A TIMELY MANNER.
Effective
internal controls over financial reporting are necessary for us to provide
reliable financial reports. If we cannot provide reliable reports our
reputation and operating results may be harmed.
As
required by Section 404 of the Sarbanes-Oxley Act of 2002, management has
conducted an evaluation of the effectiveness of our internal control over
financial reporting at December 31, 2009. We identified three
material weaknesses in our internal control over financial reporting and
concluded that, as of December 31, 2009, we did not maintain effective control
over financial reporting based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Each of our material weaknesses results
in more than a remote likelihood that a material misstatement of the annual or
interim financial statements that we prepare will not be prevented or
detected. As a result, we must perform additional work to obtain
reasonable assurance regarding the reliability of our financial
statements.
If we are
unsuccessful in implementing or following our remediation plan, or fail to
update our internal control over financial reporting as our business evolves or
to integrate acquired businesses into our controls system, we may not be able to
timely or accurately report our financial condition, results of operations or
cash flows or to maintain effective disclosure controls and
procedures. If we are unable to report financial information in a
timely and accurate manner or to maintain effective disclosure controls and
procedures, we could be subject to, among other things, regulatory or
enforcement actions by the SEC, securities litigation and a general loss of
investor confidence, any one of which could adversely affect our business
prospects and the market value of our common stock.
5
MARKET
RISKS
OUR STOCK
IS NO LONGER LISTED ON THE AMERICAN STOCK EXCHANGE AND NOW TRADES IN THE OTC
BULLETIN BOARD.
Since our
common stock is currently traded on the OTC Bulletin Board, investors may find
it difficult to obtain accurate quotations of our common stock and may
experience a lack of buyers to purchase such stock or a lack of market makers to
support the stock price. Being a penny stock also could limit the
liquidity of our common stock and limit the coverage of our stock by
analysts. The OTC Bulletin Board generally provides less liquidity
than Amex and the Pink Sheets generally provide less liquidity than the OTC
Bulletin Board. Stocks trading on both the OTC Bulletin Board and the
Pink Sheets may be very thinly traded and highly volatile, and quotations for
Pink Sheet companies are generally very difficult to obtain, if available at
all. Therefore, should the Company’s stock be quoted on the Pink
Sheets, holders of the Company’s common stock may be unable to sell their shares
at any price, whether or not such shares have been registered for
resale. A public trading market having the desired characteristics of
depth, liquidity and orderliness depends on the presence in the marketplace of
willing buyers and sellers of our common shares at any given
time. This presence depends on the individual decisions of investors
and general economic and market conditions over which we have no
control. Given the lower trading volume of our common shares,
significant sales of our common shares, or the expectation of these sales, could
cause our share price to fall. Also, as a result of the Company’s
withdrawal from Amex, the Company will not be required to seek, and will,
generally, not seek, shareholder approval in connection with its equity
offerings. Since our common stock is currently traded on the OTC
Bulletin Board, investors may find it difficult to obtain accurate quotations of
our common stock and may experience a lack of buyers to purchase such stock or a
lack of market makers to support the stock price. Being a penny stock also could
limit the liquidity of our common stock and limit the coverage of our stock by
analysts.
THE
FLUCTUATION IN OUR STOCK PRICE MAY RESULT IN A DECLINE IN THE VALUE OF YOUR
INVESTMENT.
The price
of our common stock may fluctuate widely, depending upon many factors, including
the differences between our actual financial and operating results and those
expected by investors and analysts, changes in analysts’ recommendations or
projections, short selling of our stock in the market, changes in general
economic or market conditions and broad market
fluctuations. Companies that experience volatility in the market
price of their securities often are subject to securities class action
litigation. This type of litigation, if instituted against us, could
result in substantial costs and divert management’s attention and resources away
from our business.
SHARES
ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET.
Certain
of our shareholders are and from time to time others may become eligible to sell
all or some of their shares of Common Stock by means of ordinary brokerage
transactions in the open market pursuant to Rule 144, promulgated under the
Securities Act, subject to certain limitations. In general, pursuant
to Rule 144, a stockholder, who is not an affiliate of the company
and who has satisfied a six-month holding period may, under if there
is current information publicly available concerning the
company. Rule 144 also permits, the sale of securities, without any
conditions, by our shareholders that are non-affiliates that have satisfied a
one-year holding period. Any substantial sale of our Common Stock
pursuant to Rule 144 or pursuant to any resale prospectus may have a material
adverse effect on the market price of the Common Stock.
THE
ISSUANCE OF PREFERRED STOCK, NOTES, WARRANTS AND COMMON STOCK UPON EXERCISE OR
CONVERSION COULD RESULT IN PRICE REDUCTIONS IN OUTSTANDING CONVERTIBLE
SECURITIES AND SUBSTANTIAL DILUTION TO HOLDERS OF OUR COMMON STOCK.
Additional
sales of substantial amounts of the Common Stock could reduce the market price
for the Common Stock. We will need additional equity funding to provide the
capital to achieve our objectives. Such equity issuance would cause a
substantially larger number of shares to be outstanding, thereby diluting the
ownership interest of our existing shareholders. In addition, public sales of
substantial amounts of the Common Stock after this offering could reduce the
market price for the Common Stock. If we raise capital in the future
by issuing additional equity securities, investors may experience a decline in
the value of their securities purchased in this offering. We are
authorized to issue up to 200,000,000 shares of our common stock, of which
3,603,217 shares were outstanding at the close of business on
May 10, 2010, and
10,000,000 shares of preferred stock, of which none were outstanding at the
close of business on May 10, 2010. The Board of Directors has
authorized the issuance of up to 1 Million shares of the Series I Preferred
Stock under certain circumstances. Our Articles of Incorporation (as
amended to date) gives our Board of Directors authority to issue the
undesignated shares of preferred stock with such designations, rights,
preferences and limitations as the Board may determine. At the close
of business on May
10,2010, we had
outstanding the 2008 and 2009 Notes convertible into 10,000,000 shares of our common
stock (the “Notes”) warrants to purchase an aggregate 11,755,218 shares of our
common stock, and outstanding options to purchase approximately
2,976,330 shares of our common stock. At May 1,2010, we also had
approximately 16,769,004 shares of our common stock reserved for future
stock options under our 2004 Equity Incentive Plan.. At maturity,
interest on the 2008 Notes and 2009 Notes (Collectively, the “Notes”) will be
convertible into an additional 713,120 and 886,880 shares,
respectively. The issuance of shares of our common stock upon
conversion of the 2009 Notes and 2008 Notes, exercise of the warrants and
exercise of outstanding options, or in other transactions would cause dilution
of existing stockholders’ percentage ownership of the
Company. Holders of our common stock do not have preemptive rights,
meaning that current shareholders do not have the right to purchase any new
shares in order to maintain their proportionate ownership in the
Company. Such stock issuances and the resulting dilution could also
adversely affect the price of our common stock. We also entered into
registration rights agreements in connection with the 2008 and 2009 private
placements pursuant to which we have agreed to file with the Securities and
Exchange Commission (the “SEC”) a registration statement covering the resale of
the Common Stock underlying the Notes and the warrants issued in connection
therewith.
On
January 6, 2010 the Company was advised that J.P. Turner, the placement agent
and former collateral agent for the 2008 Note offering, intended to take the
position that as a result of the issuance, by the Company on or about February
9, 2009, of warrants providing for the purchase of the Common Stock of the
Company, at an exercise price per share of $0.01 per share (the “Penny
Warrants”), the exercise price of the of the warrants issued to J.P. Turner, as
partial consideration for its services as placement agent (the “Turner
Warrant”), should be adjusted from $1.00 per share to $.01 per share and that
the number shares of Common Stock issuable under the
warrant should be adjusted to 38 million rather than 685,661
shares. The Penny Warrants were issued to the 2008 Noteholders in
consideration for obtaining the Noteholders’ consent to an amendment to the 2008
Notes. The amendment removed a prohibition against any reverse stock
split of the Company’s Common Stock (the “Amendment”). The Company
issued Penny Warrants exercisable for an aggregate of 936,860, shares of its
Common Stock. The Company believes that there is no basis for the
position being taken by J.P. Turner and that the Turner Warrant expressly
provides that there is to be no adjustment under the circumstances of the
transaction pursuant to which the Penny Warrants were issued. Section
6(h) of the Turner Warrant provides in relevant part as follows:
“(h). No Adjustment of Exercise
Price in Certain Cases. No adjustment of the Exercise Price
shall be made...
(iii)
Upon the issuance of any shares of capital stock or the grant of warrants or
options (or the exercise thereof) as consideration for
mergers, acquisitions, strategic alliances and other commercial
transactions, other than in connection with a financing
transaction.” Emphasis Added.
No
financing was involved or sought by the Company in connection with the
Amendment. The Penny Warrants were issued in consideration for the
consents to the Amendment. Although the Company believes that there
is no validity to the position being asserted by J.P. Turner there can, of
course, be no assurance that the placement agent will not, nonetheless, initiate
legal proceedings to pursue and attempt to realize on its claim or any assurance
on the ultimate outcome of any such proceeding.
RECENTLY,
THE COMPANY COMPLETED A PRIVATE PLACEMENT IN WHICH A SINGLE PURCHASER,
BRIGHTLINE VENTURES I, LLC (“BRIGHTLINE”) ACQUIRED CONVERTIBLE NOTES AND
WARRANTS GIVING IT A BENEFICIAL OWNERSHIP OF 69% OF THE COMPANY’S COMMON
STOCK
Brightline
may have significant influence over our policies and affairs, including the
election of directors. Furthermore such concentration of voting power
could enable Brightline to delay or prevent another party from taking control of
our company even where such change of control transaction might be desirable to
other shareholders.
OUR STOCK
PRICE MAY DROP UNEXPECTEDLY DUE TO SHORT SELLING OF OUR COMMON STOCK IN THE
MARKET.
Regulation
SHO began on January 3, 2005 and was adopted to update short sale regulation in
light of numerous market developments since short sale regulation was first
adopted in 1938. We have experienced and may continue to experience
unexpected declines in our stock price due to manipulation of the market by
individuals who profit by short selling our common stock. Short
selling occurs when an individual borrows shares from an investor through a
broker and then sells those borrowed shares at the current market price. The
“short seller” profits when the stock price falls because he or she can
repurchase the stock at a lower price and pay back the person from whom he or
she borrowed, thereby making a profit. We cannot assure you that
short sellers will not continue to drive the stock price down in the future,
causing decline in the value of your investment.
6
THE
TRADING PRICE OF THE COMMON STOCK IS VOLATILE, WHICH COULD CAUSE THE VALUE OF AN
INVESTMENT OUR SECURITIES TO DECLINE.
The
market price of shares of our Common Stock has been volatile. The market
price of our common stock has in the past been highly volatile. In fiscal year
2008, the price of our common stock traded, at post-reverse split prices, in the
range of $14.40 to $0.60 per share; in fiscal 2009, our common stock traded in
the range of $2.20 to $0.25 per share. From January 1, 2010 to May
10, 2010, our stock traded in the range of $1.95 to $0.90. This
volatility is likely to continue for the foreseeable future. Factors
affecting potential volatility include:
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developments
and resolution of current litigation that we are a party
to;
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our
cash resources and our ability to obtain additional
funding;
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announcements
of private or public sales of
securities
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announcements
by us or a competitor of business development or exhibition
projects;
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our
entering into or terminating strategic business
relationships;
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changes
in government regulations;
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changes
in our revenue or expense levels;
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fluctuations
in operating results and general economic and other external market
factors
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negative
reports on us by security analysts;
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announcements
of new products or technologies by us or our
competitors.
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The
occurrence of any of these events may cause the price of the Common Stock to
fall. In addition, the stock market in general has experienced
volatility that often has been unrelated to the operating performance or
financial condition of individual companies. Any broad market or
industry fluctuations may adversely affect the trading price of our Common
Stock, regardless of operating performance or prospects.
THE
IMPLEMENTATION OF CURRENT ACCOUNTING STANDARDS RELATED TO STOCK BASED
COMPENSATION HAS
REDUCED AND MAY CONTINUE TO REDUCE OUR REPORTED EARNINGS, WHICH COULD RESULT IN
A DECLINE IN OUR STOCK PRICE.
As part
of our compensation to employees, directors and consultants, we issue equity
awards, primarily in the form of stock options, warrants and shares of common
stock. Many of the companies within our industry and with whom we
compete for skilled employees use stock-based compensation as a means to attract
personnel, although not all do and many do not issue the same level of
awards. As a result, the impact of the January 1, 2006
implementation of current accounting standards relating to stock based
compensation may be more significant for us as compared to other
companies. In addition, if we unexpectedly hire additional employees
or acquire another company, the impact of the implementation of current
accounting standards may be more significant for us than previously
forecasted. To the extent investors believe the costs incurred for
current accounting standards relating to stock based compensation by the Company
are higher than those incurred by other companies, our stock price could be
negatively impacted.
WE DO NOT
PLAN TO PAY DIVIDENDS TO HOLDERS OF COMMON STOCK.
We do not
anticipate paying cash dividends to the holders of the Common Stock at any
time. Accordingly, investors must rely upon subsequent sales after
price appreciation as the sole method to realize a gain on
investment. There are no assurances that the price of Common Stock
will ever appreciate in value. Investors seeking cash dividends should not buy
our securities.
OUR
COMMON STOCK IS SUBJECT TO THE PENNY STOCK RULES.
The term
“penny stock” generally refers to low-priced, speculative securities of very
small companies. Before a broker-dealer can sell a penny stock, SEC
rules require the broker-dealer to first approve the customer for the
transaction and receive from the customer a written agreement to the
transaction. The broker-dealer must furnish the customer a document
describing the risks of investing in penny stocks. The broker-dealer
must tell the customer the current market quotation, if any, for the penny stock
and the compensation the broker-dealer and its broker will receive for the
trade. Finally, the broker-dealer must send monthly account
statements showing the market value of each penny stock held in the customer’s
account. These requirements make penny stocks more difficult to
trade. Because the Common Stock is subject to the penny stock rules,
the market liquidity of the Common Stock may be adversely affected.
7
USE
OF PROCEEDS
All of
the shares of Common Stock offered by this prospectus are being
offered by the Selling Shareholders. For information
about the Selling Shareholders, see “Selling Shareholders” on page 30. We will not
receive any of the proceeds from the sale of the shares of Common
Stock offered by the Selling Shareholders, but will receive proceeds related to
the exercise of warrants for cash held by
the Selling Shareholders. We intend to
use the net proceeds generated by such warrant exercises
for general corporate purposes, including but not limited to working capital,
capital expenditures and acquisitions, if any. We cannot estimate how
many, if any, warrants and options may be exercised as a result of this
offering. We are obligated to bear the expenses of the registration
of the shares. We anticipate that these expenses will be
approximately $25,000.
DIVIDEND
POLICY
We have
not paid, and do not currently intend to pay cash dividends on our common stock
in the foreseeable future. The payment of dividends is prohibited
without the consent of the holders of the Company’s 8% Convertible Notes issued
in 2008, 2009 and 2010. The declaration of dividends, if any, will be
subject to the discretion of our Board of Directors.
CAPITALIZATION
The
following table sets forth the capitalization of the Company as of March 31,
2010. This table should be read in conjunction with the “Selected
Financial Operating Data”, Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our financial statements and related
notes included elsewhere in this prospectus.
|
Actual
|
|
|
Shareholders’
equity
|
|
|
Preferred
stock- Subscription Payable
|
$9,000
|
|
Common
stock
|
$177
|
|
Additional
paid-in capital (1)
|
$76,906,256
|
|
Accumulated
deficit
|
($86,750,786
)
|
|
Total
shareholders’ equity (deficit)
|
($9,835,353)
|
_______________________________
(1)
Includes 3,603,217 shares of Common Stock
(as of March 31, 2010) issuable upon exercise of stock options outstanding; and
11,755,218 shares of Common Stock issuable upon exercise of warrants
outstanding. Until such time
as the Notes are converted, the convertible notes are treated as short term
debt.
SELECTED
FINANCIAL OPERATING DATA
Results
of Operations
Quarter
Ending March 31, 2010 Compared to Quarter Ending March 31, 2009
(Unaudited)
Revenues
Revenues
increased 40.9% for the three months ended March 31, 2010 from $127,969 for the
three months ended March 31, 2009 to $180,251 as a result of an increase in
product revenues. The increase in product revenue was primarily due
to the increase in Z Trim products sales to large food
processors. The following table provides a breakdown of the revenues
for the periods indicated:
Quarter
ended March 31,
2010 2009
--------- --------
Products $
180,251 $
127,969
-------------- ------------
Total
Revenues $
180,251
$ 127,969
========= ========
Operating
expenses
Operating
expenses consist of payroll and related costs, stock option and warrant expense,
insurance, occupancy expenses, professional fees, and general operating
expenses. Total operating expenses increased by $396,412 to
$2,258,886 or 21.3% for the first quarter that ended March 31, 2010 from
$1,862,474 for the first quarter that ended March 31, 2009. The increase in
operating expenses was due to increases in director fees ($188,000), investor
relations expense ($490,000), stock option expense ($141,095) offset by
decreases in depreciation expense of $65,000, warrant expense of $231,000 and
administrative and officers’ salaries of $59,000. Excluding those
non-cash expenses, our operating expenses in the first quarter for 2010 were
only approximately $790,000. Comparably, excluding the same
non-cash expenses, our operating expenses in the first quarter of 2009 were
approximately $898,000. Excluding the non-cash items from our
operating expenses is not in accordance with GAAP, and is provided solely to aid
in the understanding of our financial performance.
The stock
based compensation expense and warrant expense for the first quarter ended March
31, 2010 was $684,434 and $0, respectively. The stock based
compensation expense and warrant expense for the first quarter ended March 31,
2009 was $543,339 and $230,882, respectively.
Other
income (expense)
Total
other income for the first quarter ending on March 31, 2010 was $1,873,677
compared to other expense of $864,671 for the first quarter ending on March 31,
2009. The decrease to other expense was due to the change in the fair
value – derivative of $3,823,694 offset by the increase of interest expense of
$736,838 and loss on derivatives of $325,928.
Net
loss
The
Company incurred a net loss of $748,380 for the first quarter ending on March
31, 2010 or $(.22) per share, compared to the net loss of $2,949,793 for the
first quarter ending March 31, 2009 or $(1.13) per share. But for the non cash
expenses, the net loss for the first quarter ending on March 31, 2010 would have
been $982,364 or $(.29) per share and in 2009 the loss would be $986,121 or
$(.38) per share.
Liquidity
and Capital Resources
At March
31, 2010, we had cash and cash equivalents, of $564,766 compared to $104,931 at
March 31, 2009.
Net cash
used by operating activities increased by 362.0% to $(1,107,115) for the quarter
ended March 31, 2010 as compared to $(284,658) for the quarter ended March 31,
2009. This increase was due to three main items. First, in
the first quarter of 2009, our accounts payable increased by approximately
$463,000, due to our lack of cash resources. Comparatively, in the
first quarter of 2010, our accounts payable increased by approximately
$62,000. This amounts to an increase in use of cash for operating
activities of approximately $525,000. Second, we spent $208,000
pre-paying for some equipment we will use to increase our plant capacity and
efficiency. Third, we incurred additional operating costs due to the
strengthening of our sales and research and development departments since the
first quarter of 2009. In these two areas, we spent over $100,000
more in salaries and employment recruitment costs in the first quarter of 2010
versus the first quarter of 2009.
8
Net cash
used by investing activities was $261,634 for the quarter ended March 31, 2010
as compared to $203,107, inclusive of an offset for proceeds from sale of a
fixed asset of $90,000 for the quarter ended March 31, 2009. The increase was
due to the higher cost of purchased equipment in 2010 compared to the purchases
of equipment in 2009 for our manufacturing plant. Specifically, we spent
$208,000 pre-paying for some equipment we will uise to increase our plant
capacity and efficiency.
Net cash
provided by financing activities was $1,608,731 for the quarter ended March 31,
2010, and $0 for the quarter ended March 31, 2009. In the first
quarter of 2010 we sold $1,596,000 worth of convertible notes.
As of
March 31, 2010, our cash balance was $564,766. To successfully grow
our business, we must improve our cash position through greater and sustainable
sales of our product lines, increase the productivity of the production process,
as well as raise additional capital through a combination of public or private
equity offerings, strategic alliances or debt financing to allow us to make
necessary changes to our plant and to provide working capital until we achieve
profitability. The Company estimates that it will take from 18 to 30
months to achieve profitability. Given this estimate, the Company
will likely need to find sources of funding for both the short and long
terms. The Company does not expect or anticipate that its concerns
over its ability to continue as a going concern will have any impact on its
ability to raise capital from internal and external sources.
Results
of Operations
Year
Ending December 31, 2009 Compared to Year Ending December 31, 2008
(Audited)
Revenues
Revenues
decreased 22.3% for the year ended December 31, 2009, from $720,889 for the year
ended December 31, 2008 to $559,910 for the year ended December 31,
2009. The decrease in product revenue was primarily due to the
decrease in Z Trim sales to one of our international distributors, resulting
from production limitations in the second half of the year. The following table
provides a breakdown of the revenues for the periods indicated:
Year
ended December 31,
2009 2008
----------- ------------
Products $559,910 $720,899
----------- ------------
Total
Revenues $559,910 $720,899
======= =======
Operating
expenses
Operating
expenses consist of payroll and related costs, stock option expense, insurance,
occupancy expenses, professional fees, and general operating expenses. Total
operating expenses increased by $545,915 or 12.7% to $4,856,334 for the year
ended December 31, 2009 from $4,310,419 for the year ended December 31, 2008.
The increase in operating expenses was primarily due to increases in stock
option expense of $525,230, warrants expense of $674,240, and investor relations
of $440,784 that was partially offset by a decrease in litigation expense of
$246,892, audit fees of $ 181,460, directors’ fees of $172,800, impairment of
intangibles of $136,668 and Amex registration fees of $111,267.
Other income
(expense)
Total
other expense increased by $4,836,221 or 340%, to $6,234,008 for the year ended
December 31, 2009, from $1,397,787 for the year ended December 31,
2008. The increase in expense in 2009 was due to interest expense
(from fund-raising activities) of $2,426,032, a derivative expense of
$3,623,519, liquidated damages of $80,100, and a settlement loss of
$103,137. Further, in 2008, although there was a settlement loss for
$772,202 there was interest expense of $670,042 offset by income of
$44,978.
Net loss
The
Company incurred a net loss of $12,209,580 for the year ended December 31, 2009,
or $4.48 per share, compared to $7,416,927 for the year ended December 31, 2008
or $2.95 per share. The higher loss was due primarily to the cost of
raising funds.
Liquidity and Capital
Resources Year ending December 31, 2009 Compared to Year Ending December 31,
2008
At
December 31, 2009, we had cash and cash equivalents of $324,784, compared to
$592,696 at December 31, 2008. The Company raised $3,196,366 and
$3,615,966 in additional capital through equity and convertible debt
transactions during the year ended December 31, 2009 and 2008
respectively.
Net cash
used by operating activities decreased by $1,949,398 or 38.08%, to $3,169,632
for the year ended December 31, 2009 as compared to $5,119,030 for the year
ended December 31, 2008. The decrease resulted primarily from a
reduction in fees paid to outside professionals (including accountants, auditors
and attorneys).
Net cash
used by investing activities was $294,645 for the year ended December 31, 2009,
as compared to $340,820 for the year ending December 31, 2008. The decrease was
due to proceeds from asset disposals. The 2008 number does not
include pre-payment for equipment that was to be delivered in 2009.
Net cash
provided by financing activities was $3,196,365 for the year ended December 31,
2009, as compared to $3,615,966 for the year ended December 31, 2008. Net cash
provided by financing activities for the year ended December 31, 2009 was
primarily from the net proceeds from the sale of convertible notes and exercise
of warrants. Net cash provided by financing activities for the year
ended December 31, 2008 was primarily from the net proceeds from the sale of
convertible notes offset by a return of common stock.
As of
April 5, 2010, our cash balance was approximately $672,764. To successfully grow
our business, we must improve our cash position through greater and sustainable
sales of our product lines, increase the productivity of the production process,
as well as raise additional capital through a combination of public or private
equity offerings, strategic alliances or debt financing to allow us to make
necessary changes to our plant and to provide working capital until we achieve
profitability. The Company estimates that it will take from 16 to 24
months to achieve profitability. Given this estimate, the Company
will likely need to find sources of funding for both the short and long
terms.
9
MANAGEMENT’
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE
FOLLOWING DISCUSSION IS INTENDED TO ASSIST IN UNDERSTANDING THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF Z TRIM HOLDINGS, INC. YOU SHOULD READ THE
FOLLOWING DISCUSSION ALONG WITH OUR FINANCIAL STATEMENTS AND RELATED NOTES
INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS, UNCERTAINTIES AND
ASSUMPTIONS. OUR ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS IN 2010 AND BEYOND
MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN, OR IMPLIED BY, THESE FORWARD
LOOKING STATEMENTS.
First Fiscal Quarter Ended
March 31, 2010
Overview
Z Trim is
a functional food ingredient company which provides custom product solutions
that help answer the food industry’s problems. Z Trim’s revolutionary
technology provides value-added ingredients across virtually all food industry
categories. Z Trim’s all-natural products, among other
things, help to reduce fat and calories, add fiber, provide
shelf-stability, prevent oil migration, and add binding capacity – all without
degrading the taste and texture of the final food products. Perhaps
most significantly, Z Trim’s products can help extend finished products, and
thereby increase its customers’ gross margins. Under the direction of
new management since December 2007, Z Trim has focused its efforts and resources
towards the manufacture, marketing and sales of its industry-changing
products.
Z Trim,
through an exclusive license to technology patented by the United States
Department of Agriculture, has developed products that both reduce fat and add
fiber, with the added benefit of maintaining taste and mouth-feel associated
with full fat products. The global market for Z Trim's line of
products spans the entire food and nutritional beverage industry, including fat
free, low-fat, reduced fat and full fat, across meats, baked goods,
dairy and non-dairy products, snacks, beverages, dressings, sauces and
dips.
As our
current facility is a prototype plant, being the first of its kind to produce
our innovative products, we are constantly seeking ways to improve efficiencies
and achieve economies of scale. We are currently re-designing the process to
make use of newer separation technologies and thereby optimize plant capacity.
In order to fully realize the potential of our business model, the Company will
eventually need to move to a larger facility, enter into strategic partnerships,
or find some other means to produce greater volumes of finished
product.
Results of
Operations
In 2010,
our revenues increased by 43.8% from 2009. The primary reason behind
the increase in sales was our ability to produce more product to meet increasing
demand. We are in the process of making material changes to our
production process that we believe will be completed by the end of the second
quarter in 2010. Specifically, we entered into two lease-to-own
contracts for two substantial pieces of equipment that will allow us to increase
our manufacturing capacity and lower our costs of goods sold.
Additionally,
in the first quarter of 2010, our cost of goods sold increased by $192,805 or
55% to $543,422 in 2010 from $350,617 in 2009. This increase
was due primarily to increases in production as well as increases in direct
labor, supervisor costs, utility cost, product analysis and testing, repairs and
maintenance, and depreciation.
Significantly,
cash flows used in operating activities increased by $1,030,457or 362.0%, to
$1,315,115 for the quarter ended March 31, 2010 as compared to $284,658 for the
quarter ended March 31, 2009. This increase was due to three main
items. First, in the first quarter of 2009, our accounts payable
increased by approximately $463,000, due to our lack of cash
resources. Comparatively, in the first quarter of 2010, our accounts
payable increased by approximately $62,000. This amounts to an
increase in use of cash for operating activities of approximately
$525,000. Second, we spent $208,000 pre-paying for some equipment we
will use to increase our plant capacity and efficiency. Third, we
incurred additional operating costs due to the strengthening of our sales and
research and development departments since the first quarter of
2009. In these two areas, we spent over $100,000 more in salaries and
employment recruitment costs in the first quarter of 2010 versus the first
quarter of 2009.
Additionally,
we have reduced our accounts payable by $61,866 during the first quarter of
2010. On December 31, 2009, we had a total of $373,841 in accounts
payable. On March 31, 2010 we had a total of $311,975 in accounts payable. We
expect to further reduce our accounts payable in 2010.
Liquidity and Capital
Resources
As of
March 31, 2010, we had a cash balance of $564,766. Over the last several years,
we have been funding our operations through the sale of both equity and debt
securities. In the first quarter of 2010 we sold $1,596,000 worth of convertible
notes. In 2009 we sold $3,747,000 worth of convertible notes with
$20,000 being converted to common stock in 2010. In 2008, we sold
$4,457,000 in convertible notes. These notes are convertible at
$1.00, and bear interest at 8% per year (See also Note 6 to our Financial
Statements set forth herein). The 2008 notes come due in
2010. If our note holders choose not to convert the notes, we will
either have to repay the notes, or reach an agreement with the note holders to
extend the terms thereof. As we continue to sustain operating losses,
we will need to raise additional funds for working capital.
Recent Material
Developments
The
Company incurred substantial non-cash expenses related to derivative liabilities
stemming from the issuance of convertible notes and warrants, and employee stock
options. The reason for these large non-cash expenses is that, as a
Company lacking cash resources, we had to find ways to both fund our operations,
as well as incentivize our employees.
Sales and
Manufacturing
Our first
quarter sales results for 2010 are up over 40.9% versus the first quarter of
2009, and are up over 300% the results of the first quarter of
2008:
Q1
2010 Q1
2009 Q1 2008
Sales
Revenue $180,251 $127,969 $
66,444
Cost of
Goods
Sold $543,422 $350,617 $573,114
During
the first quarter of 2010, the Company entered into two equipment leases for
plant equipment. The equipment is to be delivered during the second
quarter. The Company shall have the option to purchase the equipment
at the end of each lease. The first lease is for a minimum of 6
months at $10,000 per month, with a purchase price of $108,000 (the rental
payments would be applied to the purchase price). The second lease is
for 18 months at $24,167 per month, with a $100,000 up front
payment. The purchase price of the equipment is $535,006, and both
the initial and rental payments would be applied to the purchase
price.
10
Capitalization
On April
27, 2009, the Company entered into an Investment Banking Agreement with Legend
Securities, Inc. ("Legend"), pursuant to which Legend agreed to provide business
advisory services to us for a period of up to twelve months. In exchange for
Legend's services, we agreed to issue Legend a warrant to purchase 350,000
shares of our common stock at an exercise price per share equal to $1.10 per
share. On January 7, 2010 the parties agreed to mutually terminate that
agreement, and to cancel the Company's obligation to issue the 350,000 warrants.
In return, the Company has agreed to issue Legends 100,000 shares of Common
Stock.
Also on
January 7, 2010, the parties entered into a new Investment Banking Agreement
with Legend, pursuant to which Legend agreed to provide business advisory
services for us for a period of up to twelve months. In exchange for Legend's
services, we agreed to pay Legend the sum of $6,250 per month, as well as a
one-time fee of 250,000 shares of Common Stock. Under the Investment Banking
Agreement, we also agreed to give Legend unlimited "piggy back" registration
rights with respect to the shares of our common stock in any registration
statement filed by us in connection with an underwritten offering of our common
stock.
On
January 15, 2010, we entered into a private placement subscription agreement
with Brightline Ventures I, LLC, a Delaware Limited Liability Company(the
"purchaser" or "Brightline") pursuant to which we sold 130 units consisting of
convertible notes and warrants, for an aggregate offering price of $1,300,000.
The Company has agreed to extend Brightline's right to invest an additional
$1,200,000 on substantially similar terms until February 28, 2010. Since October
15, 2009, we have sold an additional 1.7 units for an aggregate offering price
of $17,000, of which $12,000 was in return for forgiveness of rent owed to our
landlord. Each of the units (individually, a "Unit" and collectively, the
"Units") consists of a $10,000 24-month senior secured promissory note (each a
"Note" and collectively the "Notes") convertible at the rate of $1.00 per share
into 10,000 shares of our common stock, $.00005 par value (the "Common Stock"),
bearing interest at the rate of 8% per annum, which interest is accrued annually
in Common Stock at the rate of $1.00 per share. The Notes will be secured by a
first lien on all of our assets for so long as the Notes remain outstanding
pursuant to the form of Security Agreement (the "Security Agreement"). The Notes
are convertible into a total of 1,317,000 shares of Common Stock exclusive of
interest. The interest is payable in additional shares of the Company's Common
Stock, quarterly or upon maturity of the Notes. The Investors also received one
five-year warrant for each Unit purchased, to purchase 15,000 shares of Common
Stock per unit with an exercise price of $1.50 per share ("Warrants"). The total
warrants issued to the purchasers were 1,975,500. The terms and conditions of
the Units are substantially identical to the terms and conditions and constitute
a part of the units previously sold by us in 2009 and reported on a Form 8-K
filed by us on October 16, 2009 (the "2009 Units").
We also
entered into registration rights agreements substantially similar to the
registration rights agreement entered into with the purchasers of the 2008 Units
pursuant to which we have agreed to file with the Securities and Exchange
Commission a registration statement covering the resale of the Common Stock
underlying the Notes and the Warrants, with the exception that Brightline has
agreed to suspend our obligation to do so until 45 days after we file our Form
10-K for the year ended December 31, 2009.
Additionally,
on or about October 14, 2009, the Company issued, pursuant to a consulting
agreement, one five year warrant for the purchase of 10,000 shares of Common
Stock with an exercise price of $1.50 per share.
Between
February 1 and March 31, 2010, we entered into a series of private placement
subscription agreements with accredited investors (the "purchasers") pursuant to
which we sold 39.9 units consisting of convertible notes and warrants, for an
aggregate offering price of $399,000. Additionally, between April 1 and 3, 2010,
we sold an additional 9.7 units. Each of the units (individually, a
"Unit" and collectively, the "Units") consists of a $10,000 24-month senior
secured promissory note (each a "Note" and collectively the "Notes") convertible
at the rate of $1.00 per share into 10,000 shares of our common stock, $.00005
par value (the "Common Stock"), bearing interest at the rate of 8% per annum,
which interest is accrued annually in Common Stock at the rate of $1.00 per
share. The Notes will be secured by a first lien on all of our assets for so
long as the Notes remain outstanding pursuant to the form of Security Agreement
(the "Security Agreement"). The Notes are convertible into a total of 496,000
shares of Common Stock exclusive of interest. The interest is payable in
additional shares of the Company's Common Stock, quarterly or upon maturity of
the Notes. The Investors also received one five-year warrant for each Unit
purchased, to purchase 15,000 shares of Common Stock per unit with an exercise
price of $1.50 per share ("Warrants"). The total warrants issued to the
purchasers were 598,500. The terms and conditions of the Units are substantially
identical to the terms and conditions and constitute a part of the units
previously sold by us in 2009 and reported on a Form 8-K filed by us on October
16, 2009 (the "2009 Units").
We also
entered into registration rights agreements substantially similar to the
registration rights agreement entered into with the purchasers of the 2008 Units
pursuant to which we have agreed to file with the Securities and Exchange
Commission a registration statement covering the resale of the Common Stock
underlying the Notes and the Warrants.
The
descriptions herein are qualified in their entirety by reference to the copies
of the forms of the Subscription Agreement, the Notes, the Warrant, the Security
Agreements and the Registration Rights Agreement which are attached as exhibits
to our Form 8-K filed on October 16, 2009.
We
determined that all of the securities sold and issued in the private placement
were exempt from registration under the Securities Act of 1933, as amended (the
“Act”) pursuant to Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. We based this determination on the non-public manner
in which we offered the securities and on the representations of the persons
purchasing such securities, which included, in pertinent part, that such persons
were "accredited investors" within the meaning of Rule 501 of Regulation D
promulgated under the Act, and that such persons were acquiring such securities
for investment purposes for their own respective accounts and not as nominees or
agents, and not with a view to resale or distribution, and that each such person
understood such securities may not be sold or otherwise disposed of without
registration under the Act or an applicable exemption therefrom.
Fiscal Year Ended December
31, 2009
Overview
Z Trim is
a functional food ingredient company which provides custom product solutions
that help answer the food industry’s problems. Z Trim’s revolutionary
technology provides value-added ingredients across virtually all food industry
categories. Z Trim’s all-natural products, among other
things, help to reduce fat and calories, add fiber, provide
shelf-stability, prevent oil migration, and add binding capacity – all without
degrading the taste and texture of the final food products. Perhaps
most significantly, Z Trim’s products can help extend finished products, and
thereby increase its customers’ gross margins. Under the direction of
new management since December 2007, Z Trim has focused its efforts and resources
towards the manufacture, marketing and sales of its industry-changing
products.
Z Trim,
through an exclusive license to technology patented by the United States
Department of Agriculture, has developed products that both reduce fat and add
fiber, with the added benefit of maintaining taste and mouth-feel associated
with full fat products. The global market for Z Trim’s line of
products spans the entire food and nutritional beverage industry, including fat
free, low-fat, reduced fat and full fat, across meats, baked goods,
dairy and non-dairy products, snacks, beverages, dressings, sauces and
dips.
As our
current facility is a prototype plant, being the first of its kind to produce
our innovative products, we are constantly seeking ways to improve efficiencies
and achieve economies of scale. We are currently re-designing the process to
make use of newer separation technologies and thereby optimize plant capacity.
In order to fully realize the potential of our business model, the Company will
eventually need to move to a larger facility, enter into strategic partnerships,
or find some other means to produce greater volumes of finished
product.
11
Results of
Operations
In 2009,
our revenues decreased by 22.3% from 2008. The primary reason behind
the decline in sales was our inability to produce enough product to meet
demand. We are in the process of making material changes to our
production process that we believe will be completed by the end of the second
quarter in 2010. In making these changes, we have worked with
industry specialists to improve our separation technology, as well as with
scientists from the Aveka Group (see www.aveka.com for
more information on the Aveka Group), to assist in finding ways to improve our
capacity and reduce our costs. By applying new separation technology,
in addition to the new dryer we previously purchased, we believe we will be able
to increase our capacity and meet expected demand. In 2010, we expect
demand to be approximately three times the amount of sales revenues achieved in
2009. The Company anticipates to be able to meet this demand, based
on its plans to improve production.
Additionally,
in 2009, our cost of goods sold decreased by $750,472 or 30.9% from $2,429,620
in 2008 to $1,679,148 in 2009. In 2008 our cost of goods sold
decreased by $655,708 or 21.2%, from $3,085,328 in 2007 to $2,429,620 in
2008. We continue to be more efficient in our production process,
reducing cycle times and lowering utility costs. We believe that the
trend of declining costs of goods sold will continue into 2010 and
beyond.
Significantly,
cash flows used in operating activities decreased by $1,949,397 or 38.08%, to
$3,169,633 for the year ended December 31, 2009 as compared to $5,119,030 for
the year ended December 31, 2008. Similarly, cash flows used in
operating activities decreased by 22% for the year ended December 31, 2008
compared to the year ended December 31, 2007. Since the beginning of
2008, management has made great efforts to reduce the amount of fees paid to
outside professionals, and to focus all of its limited resources on items core
to the Company’s business model. We believe the trend of decreasing
operating cash losses will continue into 2010 and beyond.
Additionally,
we have reduced our accounts payable by $170,484 in 2009, on top of a reduction
of $427,152 during 2008. On December 31, 2009, we had a total of
$373,841 in accounts payable. We expect to further reduce our
accounts payable in 2010.
Liquidity and Capital
Resources
As of
December 31, 2009, we had a cash balance of $324,784. Over the last several
years, we have been funding our operations through the sale of both equity and
debt securities. In 2008, we sold $4,457,000 in convertible
notes. These notes are convertible at $1.00, and bear interest at 8%
per year (See also Note 8 to our Financial Statements set forth
herein). These notes come due in 2010. If our note holders
choose not to convert the notes, we will either have to repay the notes, or
reach an agreement with the note holders to extend the terms
thereof. As we continue to sustain operating losses, we will need to
raise additional funds for working capital.
RECENT
MATERIAL DEVELOPMENTS
Potential
Liquidated Damages Relating to Registration Rights
In
connection with certain private placements of the Company’s securities (the
“Registrable Securities”) effected in 2008 the Company entered into registration
rights agreements (the “RRA”) that required the Company to file a registration
statement covering the Registrable Securities with the Securities and Exchange
Commission no later than thirty days after the final closing as contemplated in
the Private Placement Memorandum for the 2008 offering (the “Filing
Deadline”). The Company filed a registration statement on December
14, 2009. However, the statement has not been declared effective as the Company
is not S-3 eligible and will need to file an amended filing to convert the S-3
to an S-1. Management intends to file the S-1 after it files the 10-K for the
year ended December 31, 2009. Under the terms of the registration rights
agreement, as partial compensation, the Company was required to make pro rata
payments to each Investor in an amount equal to 1.5% of the aggregate amount
invested by such Investor for each 30-day period or pro rata for any portion
thereof following the Filing Deadline for which no registration statement was
filed. We obtained a release and waiver of the amounts due from 74 of
the 2008 investors. As of April 5, 2010, there are 5 investors who
have yet to sign the release and waiver. Under the terms of the RRA,
as of that date we potentially owe, and therefore recognized as liquidated
damages, the amount of $80,100.
Reverse
Stock Split
As of the
close business on February 6, 2009, the Company effectuated a one-for-thirty
(1:30) reverse stock split. As part of this split, the Company’s
stock began trading on February 9, 2009 under the symbol “ZTHO” on the
Over-the-Counter Bulletin Board.
Annual
Shareholder’s Meeting and changes to Board of Directors
On March
21, 2009, for personal reasons, Director Sheldon Drobny resigned as Director and
Audit Chair of the Company. On March 25, 2009, the Company appointed
Morris Garfinkle as Director and Audit Chair.
On
December 22, 2009, the Company held its Annual Shareholders’
meeting. The shareholders voted for a slate of five
directors: Steven Cohen, Mark Hershhorn, Brian Israel, Morris
Garfinkle and Edward Smith III. The following directors were not
re-elected: Triveni Shukla.
Key
Hires Bring Wealth of Industry Experience
Over the last 16 months, we have added
key members to our management team:
|
•
|
Kyle
Hanah – Director of Plant
Operations
|
|
•
|
Mr.
Hanah, a chemical engineer, has 20 years experience in the food industry.
He joined the company in late 2008 having previously worked at Kraft
Foods, Sara Lee Corporation and ConAgra
Foods.
|
|
•
|
Lynda
Carroll – Director of Applications
|
|
•
|
Ms.
Carroll has degrees in food science and in culinary arts with 25 years
experience in the food industry. She previously contributed to
applications and quality assurance for Campbell's Soup Company and Conway
Import Co., Inc., manufactures of Conway Salad Dressings and Sauces for
foodservice.
|
|
•
|
Dr.
Therese Malundo – VP Science and
Technology
|
|
•
|
Dr.
Malundo has a PhD in food science and an MBA with over 15 years
experience, working for such companies as Pernod Ricard Americas and US
Distilled Products, Co. She brings product development, process
optimization, QA/QC and regulatory experience to our
team.
|
Applications
Highlights
Preliminary
results from recent research and development efforts point to promising growth
opportunities that address market trends and the needs of manufacturers and
consumers alike. A key market trend is convenience, as hectic
lifestyles force consumers to the grocery store freezer seeking high quality,
quick meals and snacks. Z Trim® ingredients have shown to eliminate
the hard edges during microwave cooking and reduce sogginess of frozen hand-held
microwave snacks when used in the dough and meat fillings. Another
major market driver, greater nutrition awareness, has prompted major food
companies to proactively reduce the salt, fat, and sugar content of their
standard product lines. Additionally, new legislation requires
food manufacturers and foodservice establishments to clearly communicate
nutritional profiles, including fat and calorie content. Recent
studies where Z Trim® was added to the batter and breading used to coat fried
chicken resulted in reduced oil absorption of 15% or more. This
product application represents an enormous growth opportunity with fast-food
companies as well as with manufacturers of frozen convenience
meals.
12
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On
December 22, 2009, our shareholders approved the re-appointment of M&K CPAs,
LLC as our public accountant. There are no disagreements with our accountant on
accounting and financial disclosure.
BUSINESS
Z Trim
Holdings, Inc. deploys technology, formulation, and product performance
solutions built around cutting-edge dietary fibers for both domestic and
international food markets.
Z
Trim®
multifunctional fiber ingredients originated from a USDA patent for
minimally processed, non-caloric functional food ingredients made from healthy
dietary fiber. With an exclusive license from the USDA, this patent is
central to the company’s intellectual property portfolio. Z Trim Holdings
subsequently evolved the processing technology and expanded the fiber sources to
create innovative ingredients with unique properties that provide
multifunctional benefits that help create value for food manufacturers around
the world. Currently, Z Trim is made from corn and oat, but it can be
produced from virtually any cellulose, the substance that makes up most of a
plant’s cell walls, and is one of the most abundant organic compounds on
earth.
The
Company’s core product portfolio of multifunctional dietary fiber food
ingredients includes corn Z Trim® and non-GMO oat Z Trim®. The
superior water-holding capacity and amorphous structure of Z Trim ingredients
are key to the exclusive multifunctional attributes they contribute to food
product design, including moisture management, oil deflection, texture and
appearance quality, fat and calorie reduction, and cost control. Z
Trim® is now being used by food manufacturers, restaurants, schools, and
consumers on 6 continents, across a multitude of food categories, such as meats,
sauces, soups, dressings, baked goods, fillings, toppings, prepared meals, dairy
products, frozen handheld snacks, and pizza dough. Food formulators are seeking
greater functionality and product performance than they can get from starches,
gums, fats, and other fibers – for both standard and lower fat content foods -
and are increasingly discovering how Z Trim® multifunctional fiber ingredients
can help to delight their consumers with finished products that have enhanced
eating quality, outstanding product performance, and frequently, improved
nutritional profiles.
Major
market drivers such as greater nutrition awareness, increasing obesity trends,
the economy, rising costs and hectic lifestyles have triggered an evolution of
the food industry and consumer expectations. The Company’s goal is to
further enable food manufacturers to address the challenges and opportunities of
this evolution by helping them to differentiate their products, achieve their
growth objectives, and delight their consumers. Z Trim®
multifunctional fiber ingredients create value for both food manufacturers and
consumers in three primary areas: product formulation, processing improvements,
and finished product performance. Through ongoing product
applications research, the Company develops solutions that help food
manufacturers solve formulation and product challenges and capture market
opportunities with high quality, innovative products that fulfill consumer
expectations.
The
Company currently manufactures and markets Z Trim® products as cost-competitive
ingredients that help improve the food industry’s ability to deliver on its
promises of quality, taste, and healthfulness. The Company’s primary goal is
establishing Z Trim as an important ingredient in the evolution of the food
industry and consumer expectations. The Company is developing its
market through (i) direct and brokered sales to major food manufacturers, as
well as small and mid size companies for packaged retail foods, and (ii) direct
and brokered sales to large and small foodservice manufacturers that supply to
restaurants, hospitals, schools and cafeterias. Our R&D team, in conjunction
with our customers and strategic industry partners, continues to work on the
development of additional products and applications. In addition to
direct sales, we use a network of ingredient distributors, both domestic and
international, to distribute our products.
Raw
materials are sourced principally in the United States. Approximately
70% of our raw materials consist of corn bran and oat hulls and are generally
available from a variety of suppliers. Our major suppliers include
Bunge and Didion Milling, Inc. We seek to mitigate the risk of a shortage of raw
materials through identification of alternative suppliers for the same or
similar raw materials, where available. We have purchasing staff with extensive
knowledge of our products who work with marketing, product research and
development and quality control personnel to source raw materials for products
and other items.
The
Company’s customers are food manufacturers, school districts and the general
public. There were three significant customers who accounted for 20%,
20% and 14% of total sales for the year ended December 31,
2009. There were two significant customers who accounted for 37% and
13% of total sales for the year ended December 31, 2008.
Z Trim
Holdings, Inc. was incorporated in the State of Illinois on May 5, 1994 under
the original name Circle Group Entertainment Ltd. The Company has no
operating subsidiaries.
Z Trim
Holdings operates within global business of food additives, which, as of 2006
was a $25 billion industry. The global hydrocolloid business - which
consists of agents used for thickening, gelling and stabilizing food and
beverage products is over $19 billion per year (http://www.sriconsulting.com/CEH/Public/Reports/582.7000/)
with food applications constituting approximately $4.2 billion of that total
(http://www.foodnavigator-usa.com/Financial-Industry/Health-and-prices-dominate-hydrocolloids-debate).
Specifically, the U.S. fat replacer and bulk dietary fiber (supplement) markets
are estimated to be just over $500 million each, with carbohydrate-based fat
replacers such as Z Trim accounting for approximately 59 percent of the market
in 2000 (http://www.frost.com/prod/servlet/market-insight-top.pag?docid=10039518).
Food
systems are complex, and in order to meet consumers’ taste and quality
expectations, various ingredients must be used to achieve the structural,
organoleptic, performance and shelf-life properties specific to a given food
product.
Z Trim®
ingredients compete with a wide variety of hydrocolloids and other fiber
ingredients. Depending on the food application, required functional
properties and product development objectives, competitive ingredients might
include gums (e.g. guar, xanthan, locust bean, and Arabic), seaweed extracts
(e.g. alginates, carrageenan), starches (native, modified and resistant), and
fibers (e.g. oat bran, corn bran, pea fiber, potato fiber). Most of
these competitive ingredients are well-established in the food industry, and
many of the companies that supply them have substantially greater resources than
our Company. However, we believe that the unique properties of Z Trim
multifunctional fiber ingredients pose not only significant market opportunities
for our Company, but also provide tremendous differentiation and growth
opportunities for food companies. No other single hydrocolloid or
fiber has the combined water holding and binding capacity that’s effective
across as wide a pH and temperature range as Z Trim®, nor imparts as many
superior attributes to the finished consumer food
product. Furthermore, Z Trim® ingredients can have synergistic
effects with other hydrocolloids and fibers, allowing food manufacturers to
achieve even greater processing improvements, cost efficiencies, and finished
product performance.
The
Company protects intangible assets that includes patents pending and issued, as
well as trade secrets and know how. Central to this portfolio is an
exclusive license to US Patent No. 5,766,662, including all related
international patents, issued to Dr. George Inglett of the USDA. This
license expires upon the expiration of the underlying patent in 2015.
Additionally, the USDA patent was filed in several countries throughout the
world. Through the process of development and commercialization of
the technology, the Company has identified and sought patent protection for
improvements to the manufacturing process, product applications and is currently
developing several spin-off technologies. On December 1, 2009, we were
issued U.S. Patent No. 7,625,591 B2; such will expire in 2026 with payment of
maintenance fees. We require all employees and visitors to our plant
to execute a non-disclosure agreement. Our success depends to a
significant degree upon our ability to develop proprietary products and
technologies and to obtain patent coverage for these products and technologies.
We intend to continue to file patent applications covering any newly developed
products and technologies. However, there can be no guarantee that any of our
pending or future filed applications will issue as patents.
Presently,
the Company employs 25 full-time employees and one part-time
employees.
The
Company has spent $20,337 in 2009 and $10,811 in 2008 for research and
development expense, and is still innovating toward developing value-added
products to add to its core line.
We occupy
approximately 44,000 square feet of leased space at 1011 Campus Drive,
Mundelein, Illinois. This space is leased for $26,900 per month, including
property taxes, pursuant to a non-cancelable operating lease. The
current lease term is through March 2011, and the Company has a one year
option.
13
DIRECTORS
AND EXECUTIVE OFFICERS
Set forth
below is information regarding our current directors and executive
officers
|
AGE
|
NAME
|
POSITION
|
|||
|
53
|
Steve
J. Cohen
|
Director
and President
|
|||
|
39
|
Brian
Chaiken
|
Chief
Financial Officer
|
|||
|
60
|
Mark
Hershhorn*
|
Director
|
|||
|
52
|
Brian
Israel*
|
Director
|
|||
|
34
|
Edward
Smith III
|
Director
|
|||
|
61
|
Morris
Garfinkle*
|
Director
|
|||
|
66
|
Triveni
Shukla
|
Former
Director and Executive VP
|
|||
*
Indicates member of Audit, Nominating or Compensation Committee.
As
described below in the experience and qualifications of each of our directors,
each director has achieved an extremely high level of success in his
career.
STEVE J.
COHEN, the Company’s President has been employed by Z Trim since 2002 when he
was hired as its director of investor relations. He was promoted to Vice
President of Corporate Development in 2003 and to President in March of 2006
when he also began serving on the Board of Directors. In August of
2007 Mr. Cohen assumed the role of chief executive officer. Prior to
joining Z Trim, Mr. Cohen had 25 years’ experience at the Chicago Mercantile
Exchange where he worked in various brokerage house positions as well as a
trader. Mr. Cohen attended college at the University of Illinois and Oakton
Community College. Mr. Cohen was a member of the U.S. Olympic team at
the 1988 Olympics in Seoul and was a coach for the U.S. Olympic Team at the 2000
Olympics in Sydney Australia.
BRIAN
CHAIKEN, J.D., was hired by the Company to serve as General Counsel and Vice
President of Business Development in July of 2006. In January of
2008, Mr. Chaiken was appointed to be the Company’s Chief Financial
Officer. In January of 2009, Mr. Chaiken was appointed the role of
Chief Legal Officer as well. He received his Bachelor of Science in
Accountancy from the University of Illinois, Champaign-Urbana and passed the CPA
examination on his first sitting. Mr. Chaiken obtained his Juris Doctor from DePaul
University, and is a member of the Illinois and Florida Bars, as well as those
of the Northern District Court of Illinois, United States Court of Appeals of
the 11th Circuit and the Southern District Court of Florida. Prior to
joining Z Trim, Mr. Chaiken spent five years as the Executive Vice-President of
Legal Affairs for Supra Telecommunications and Information Systems, Inc., a
Competitive Local Exchange Carrier (telecommunications provider) in South
Florida. There, Mr. Chaiken was a senior executive for a company with
more than 300 employees in Florida, Costa Rica and the Dominican
Republic. He was instrumental in helping the company grow annual
revenues from $10 million to approximately $150 million over an 18 month
period. He successfully litigated and arbitrated multi-million dollar
disputes involving trademark, anti-trust, fraud, bankruptcy and complex
commercial transactions.
BRIAN S.
ISRAEL was appointed on May 23, 2007 to fill a vacancy on the
Company’s Board of Directors. He presently serves as Chairman of the
Compensation and Nominating Committees. Mr. Israel spent more than 20
years in the real estate finance industry, during which he managed teams
responsible for production, operations, risk management, product and policy
development, technology and project management functions for a major national
lender and a large regional commercial bank. In his most recent position, he
served From March 1989 to January 2004 as Vice President and
Division Administrator for the Residential Mortgage Division of Harris
Trust and Savings Bank’s Consumer lending Center. Since retiring from the
corporate world in January of 2004, he has dedicated his time and energy
primarily to Community Service in the non-profit sector as President of the
River North Residents Association, which works with city officials and local
businesses to enhance the quality of life for nearly 10,000 members through
advocacy for responsible development and commerce, improvements to
infrastructure and amenities, and the creation, protection and improvement
of public open space.
He is a
Mentor and a member of the Advisory Council of Big Brothers Big Sisters of
Metropolitan Chicago, President of the Chicago Hospitality Resource
Partnership, and a member of the Ely Chapter of Lambda Alpha
International. He also provides strategic planning, training and project
management services to businesses and non-profit entities as an independent
consultant and serves as President of North Shore Custom Homes, Ltd., a
developer of upscale residential real estate.
MARK
HERSHHORN has a background in the marketing and operations of nutrition systems,
food industry marketing and transactional television. Mark was
appointed to the Company’s Board of Directors at the shareholder meeting, held
on December 19, 2007. From August 1998 to present, Mark has served as
President and co-owner of CKS & Associates Management LLC; President and CEO
of CKS & Associates; CEO of Midwest Real Estate Investment LLC; General
Partner of New Horizons West LLP, and CEO of New Horizons Real Estate Holdings
LLC. During much of the 1990’s, Mark served as President, CEO
and director of National Media Corporation (NYSE-NMC) and as Chairman of the
company’s international subsidiary, Quantum International Ltd. Prior
to that, Mark served as Senior Vice President of food operations and joint
ventures for Nutri/System, Inc. During the 1980’s, Mark was Chief
Financial Officer, Treasurer, Vice President and director of the Franklin
Mint. Mark has also held positions with companies such as
Price-Waterhouse, Pfizer Diagnostics, and Wallace and Wampole
Laboratories. Mark received his BS Degree in Economics from Rutgers
University and an MBA from the Wharton School of Finance, University of
Pennsylvania.
MORRIS
GARFINKLE is the Founder, President and CEO of GCW Consulting, a consulting firm
based out of Arlington, Virginia. He received his Juris Doctor from
Georgetown University and his B.S. in Economics (cum Laude) from the Wharton
School of Finance & Commerce, University of Pennsylvania. He was
appointed to the Board in March of 2009, and reelected by the shareholders at
the December 22, 2009 shareholders’ meeting. Mr. Garfinkle has over
35 years of experience in restructuring, mergers and acquisitions, investment
assessment, competitive positioning, strategic planning and capital
raising. His clients have included United Airlines Creditors’ Committee,
Pension Benefit Guaranty Corporation, Air China and Dallas-Fort Worth
International Airport, among many others. He also served on the Board of
Directors of HMSHost from 2000 - 2006.
EDWARD
SMITH III is Managing Partner of Brightline Capital Management, LLC (“BCM”), a
New York-based investment firm founded in 2005. BCM is the investment manager of
Brightline Ventures I, LLC and Brightline Capital Partners, LP. Prior to
founding BCM, Mr. Smith worked at Gracie Capital, GTCR Golder Rauner and Credit
Suisse First Boston. Mr. Smith holds a Bachelor of Arts in Social Studies
from Harvard College and a Masters in Business Administration from Harvard
Business School. Mr. Smith was elected to the Board at the shareholders’ meeting
held on December 22, 2009.
TRIVENI
P. SHUKLA, Ph.D. is currently a Special Advisor to the President of the
Company. Previously he served as a Director and as the Executive Vice
President, Manufacturing & Technology for Z Trim Holdings, Inc., and has
been with the Company since January 1, 2004, and was appointed to serve as a
director on December 19, 2007. Prior to joining Z Trim, Dr. Shukla
was the President of F.R.I. Enterprises LLC from 1985 through March 2003.
Dr. Shukla served as Corporate Manager, R&D, Technical Service, and
Engineering for the Krause Milling Company, which became part of ADM in 1985,
from 1973 through 1984. Dr. Shukla served as Associate Director, Research
and Planning, for Phelco-Land O’Lake from 1969 through 1973. He was in charge of
quality control for the National Dairy Research Institute, India and was the
youngest gazetted Officer approved by Union Public Service Commission,
India. Dr. Shukla was a third party expert for International Finance
Corporation/Word Bank from 1991 through 2001. Dr. Shukla has provided
advisory services to the following companies around the globe: US Feed Grains
Council, Indian Council of Agricultural Research, Winrock International, Labbat
Anderson Group, Anheuser-Busch, A.E. Staley, American Maize Co.,
Bimbo (Mexico), Cedarburg Dairy/Kemp, Cargill, ConAgra, Experience Inc., Frigo
Cheese Co./Unigated Ltd., Grupo Minsa s.a. de c.v. (Mexico), Heinz Co./Ore-Ida
Foods, Heinz Co./Foodways Natl., Hershey Foods Corporation, Illinois Cereal
Mills, Kraft-General Foods, Mexican Accent Inc., Monsanto Company, Nabisco
Brands, National Honey Board, Nagarjuna Chemicals and Vertilizers, India, Oscar
Meyer Foods/Philip Morris, Procter & Gamble, Quaker Oats, Sigma
Alimentos/Grupo Alpha (Mexico), Group Minsa of Mexico and Matrix Group of
Malaysia. Dr. Shukla’s advisory services have been of the nature of
privatization, business planning, innovation and R&D, plant start-up, and
management of intangible assets. Dr. Shukla has designed turnkey
facilities in Colombia, India, Malaysia, and Taiwan. Dr. Shukla received
his B.Sc. (Agricultural Engineering) from the University of Gorakhpur, India,
First in the University, and his M.Sc. (Food/ Engineering) from Agra University,
India, First in the Faculty of Agriculture, and his Ph.D. (Food/Dairy
Technology) from University of Illinois, Urbana-Champaign.
The term
of office of each director expires at each annual meeting of stockholders and
upon the election and qualification of his successor. Other than with Edward
Smith III, there are/were no arrangements with any director or officer regarding
their election or appointment. There are no family relationships
between any of our directors or executive officers.
14
CORPORATE
GOVERNANCE
Code
of Ethics and Business Conduct
The
members of our Board of Directors also are required to comply with a Code of
Ethics and Business Conduct (the “Code”). The Code is intended to focus the
Board and the individual Directors on areas of ethical risk, help Directors
recognize and deal with ethical issues, provide mechanisms to report unethical
conduct, and foster a culture of honesty and accountability. The Code covers all
areas of professional conduct relating to service on the Z Trim Board, including
conflicts of interest, unfair or unethical use of corporate opportunities,
strict protection of confidential information, compliance with all applicable
laws and regulations and oversight of ethics and compliance by employees of the
Company.
The full
text of both Z Trim’s Code of Ethics and Business Conduct is published on our
website at http://www.ztrim.com/pages/code_of_ethics___business_conduct/40.php. We
will disclose any future amendments to, or waivers from, provisions of these
ethical policies and standards for Officers and Directors on our website within
two business days following the date of such amendment or waiver.
Committees
of the Board of Directors
Our
business, property and affairs are managed under the direction of our Board of
Directors. Members of our Board are kept informed of our business through
discussions with our Chief Executive Officer and other officers, by reviewing
materials provided to them, by visiting our offices and plants and by
participating in meetings of the Board and its Committees.
All Board
members are expected to attend our Annual Meeting of Shareholders, unless an
emergency prevents them from doing so. At our 2008 and 2009 Annual Meetings, all
of our directors standing for election attended.
Our Board
of Directors currently has three Committees. Those Committees consisted of an
Audit Committee, a Compensation Committee and a Nominating
Committee.
Nominating
Committee
The Board
Nominating Committee, composed of two independent directors of the Company,
identifies candidates for director nominees through recommendations solicited
from other directors, the Company’s executive officers, search firms or other
advisors, shareholders pursuant to the procedures set forth below, and through
such other methods as the independent directors deem to be helpful. Brian Israel
and Mark Hershhorn were appointed as members of the Nominating Committee, with
Brian Israel serving as chairman. In determining whether to nominate each of the
current directors for another term (or new directors for a first term), the
Board’s Nominating Committee, composed of two independent directors, considered
a candidate’s knowledge of the Company’s business and industry, prior education,
demonstrated ability to exercise sound business judgment, reputation for
integrity and high moral and ethical character, potential to contribute to the
diversity of viewpoints, backgrounds, or experiences of the Board as a whole and
diligence and dedication to the success of the Company. The Nominating
Committee concluded that each of the current directors standing for re-election
possesses unique talents, backgrounds, perspectives, attributes and skills that
will enable each of them to continue to provide valuable insights to Company
management and play an important role in helping the Company achieve its
long-term goals and objectives.
The composition of the board must meet
the independence requirements promulgated by the American Stock Exchange. The
Company requires its directors to possess certain minimum qualifications,
including adequate experience, the absence of any conflicts of interest and the
absence of any prior bad acts. Among the further considerations of the Company
in its selection of director are a candidate’s knowledge of the Company’s
business and industry, prior education, demonstrated ability to exercise sound
business judgment, reputation for integrity and high moral and ethical
character, potential to contribute to the diversity of viewpoints, backgrounds,
or experiences of the board as a whole and diligence and dedication to the
success of the Company. Additional specific director qualification criteria are
set forth in the Company's bylaws.
Audit
Committee
The Board
of Directors has an Audit Committee composed of one director, Morris Garfinkle,
who is considered an “independent director” under the rules of the American
Stock Exchange and the Securities and Exchange Commission. The Board
of Directors has determined that Morris Garfinkle qualifies as an “audit
committee financial expert” under SEC rules. The function of the
Audit Committee is to assist the Board of Directors in preserving the integrity
of the financial information published by the Company through the review of
financial and accounting controls and policies, financial reporting systems,
alternative accounting principles that could be applied and the quality and
effectiveness of the independent public accountants.
Compensation
Committee
The
Compensation Committee, composed entirely of independent directors, administers
the Company’s executive compensation program. The role of the Committee is to
oversee Z Trim’s compensation and benefit plans and policies, administer its
stock plans (including reviewing and approving equity grants to elected
officers) and review and approve annually all compensation decisions for elected
officers including those for the Chairman and CEO and the other executive
officers named in the Summary Compensation Table (the “Named Executive
Officers”). The Committee submits its compensation decisions for the CEO to the
Board for ratification. Z Trim’s Compensation Committee Charter is
available online at
http://www.ztrim.com/pages/compensation_committee_charter/41.php.
Brian
Israel was appointed to serve as chairman of the Compensation Committee in April
of 2007. On December 19, 2007, Michael Donahue was appointed to serve as a
member of the Compensation Committee. On September 19, 2008, Mark Hershhorn was
appointed to replace Michael Donahue as a member of the Compensation Committee.
Brian Israel and Mark Hershhorn each qualifies as an “independent director”
under the rules of the American Stock Exchange.
The
Compensation Committee, pursuant to its Charter, is responsible for the
following:
|
|
1.
|
Review
and approve corporate goals and objectives relevant to the compensation of
the Company’s Chief Executive Officer (“CEO”), evaluate the CEO’s
performance in light to those goals and objectives, and either as a
committee or together with the other independent directors (as directed by
the Board), determine, or recommend to the Board for determination, the
CEO’s compensation level based on this evaluation. In determining or
recommending the long-term incentive component of CEO compensation, the
Committee shall consider, among other factors, the Company’s performance
and relative shareholder return, the value of similar incentive awards to
CEO’s at comparable companies, the awards given to the CEO in past years,
and such other factors as the Committee shall so
determine.
|
|
|
2.
|
Either
as a committee or together with the other independent directors (as
directed by the Board), determine, or recommend to the Board for
determination, the compensation of all other officers of the
Company.
|
|
|
3.
|
Make
recommendations to the Board with respect to the Company’s incentive
compensation plans and equity-based plans, oversee the activities of the
individuals and committees responsible for administering these plans, and
discharge any responsibilities imposed on the Committee by any of these
plans.
|
|
|
4.
|
In
consultation with management, oversee regulatory compliance with respect
to compensation matters, including overseeing the Company’s policies on
structuring compensation programs to preserve tax deductibility, and, as
and when required, establishing performance goals and certifying that
performance goals have been attained for purposes of Section 162 (m) of
the Internal Revenue Code.
|
|
|
5.
|
To
review and approve any severance or similar termination payments proposed
to be made to any current or former officer of the
Company.
|
|
|
6.
|
Prepare
an annual Report of the Compensation Committee on Executive Compensation
for inclusion in the Company’s annual proxy statement in accordance with
applicable SEC rules and
regulations.
|
|
|
7.
|
Periodically
review and assess the adequacy of this charter and recommend any proposed
changes to the Board for approval, including changes concerning the
structure and operations of the
Committee.
|
|
|
8.
|
Perform
any other duties or responsibilities expressly delegated to the Committee
by the Board from time to time relating to the Company’s compensation
programs.
|
15
Compensation
Committee Report
The Z
Trim Compensation Committee of the Board of Directors has reviewed and discussed
with Z Trim management the Compensation Discussion and Analysis and, based on
that discussion, recommended it to the Z Trim’s Board of Directors for inclusion
in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2009 and which is included in this prospectus.
The
Committee, with the assistance of Z Trim’s Human Resource functions, completed
an assessment of the risks associated with Z Trim’s compensation policies and
practices.
At the
end of the risk assessment process, the Committee concluded that (1) the
Senior Executive Officer (SEO) compensation programs do not encourage
excessive and unnecessary risk taking; (2) other employee compensation
plans do not encourage unnecessary or excessive risk taking, threaten the value
of the Company, or reward short-term results to the detriment of long-term value
creation; and (3) Z Trim’s compensation programs do not encourage the
manipulation of reported earnings.
THE
COMPENSATION COMMITTEE
|
Brian
Israel (Committee Chairman)
|
|
Mark
Hershhorn
|
Compensation
Committee Interlocks and Insider Participation
The
Compensation Committee is composed entirely of persons who are neither
Associates nor former or current officers of the Company. There is not, nor was
there during fiscal 2009, any compensation committee interlock or insider
participation on the Compensation Committee.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table summarizes the compensation earned in the fiscal
years ended December 31, 2009 and 2008 by our
chief executive officer and the two most highly
paid executive officers whose
total salary and bonus awards exceeded $100,000
for the fiscal years ended December 31, 2009 and 2008. In this
document, we refer to these individuals as our “named executive
officers.”
|
NAME
AND PRINCIPAL
|
||||||
|
POSITION
|
YEAR
|
SALARY
|
BONUS
|
OPTION
AWARDS ($) (1)
|
||
|
Steve
J. Cohen
|
2009
|
$141,181
|
--
|
$94,500
|
||
|
Director
and President
|
2008
|
$143,367
|
--
|
--
|
||
|
Triveni
Shukla
|
2009
|
$141,153
|
--
|
$94,500
|
||
|
Former
Director and VP
|
2008
|
$137,100
|
--
|
--
|
||
|
Brian
Chaiken
|
2009
|
$114,751
|
--
|
$94,500
|
||
|
Chief
Financial Officer
|
2008
|
$113,000
|
--
|
--
|
||
|
(1)
|
The
amounts in this column reflect the dollar amount recognized as expense
with respect to stock options for financial statement reporting purposes
during the twelve months ended December 31, 2009 in accordance with FASB
ASC Topic 718. However, all of these stock option awards were
rescinded by mutual agreement to be null and void from
inception. In consideration, the Company issued 315,000 stock
options to each employee, with exercise prices of $1.01 for Mr. Shukla and
Mr. Chaiken and $1.10 for Mr.
Cohen.
|
OPTION
GRANTS
The
following table contains information concerning the grant of options to purchase
shares of our common stock to each of the named executive officers during the
fiscal year ended December 31, 2009. The percentage of total options granted to
employees set forth below is based on an aggregate of 100,000 shares subject to
options granted in 2009. All options are fully vested and
exercisable.
Option
Grants in Last Fiscal Year
Name Number
of securities1
Underlying
unexercised % of total
options Exercise or Base
Price Expiration
Date
options
Steve J.
Cohen 210,000 15.9% $0.4725 2/18/14
Triveni
P.
Shukla 210,000 15.9% $0.45
2/18/14
Brian
Chaiken 210,000 15.9% $0.45 2/18/14
________
|
(1)
|
Subsequent
to the fiscal year end these options were rescinded by mutual agreement to
be null and void from inception. In consideration, the Company
issued 315,000 stock options to each employee, with exercise prices of
$1.01 for Mr. Shukla and Mr. Chaiken and $1.10 for Mr.
Cohen.
|
16
OUTSTANDING
EQUITY AWARDS AT DECEMBER 31, 2009
The
following table contains information regarding outstanding equity awards held at
December 31, 2009, by the named executive officers.
|
Name
|
Number
of1
securities underlying unexercised
options exercisable
|
Option
Exercise Price
|
Option
expiration date
|
||
|
Steve
Cohen
|
210,000
|
$0.475
|
2/18/2014
|
||
|
Triveni
Shukla
|
210,000
|
$0.45
|
2/18/2014
|
||
|
Brian
Chaiken
|
210,000
|
$0.45
|
2/18/2014
|
||
________
|
(1)
|
Subsequent
to the fiscal year end these options were rescinded by mutual agreement to
be null and void from inception. In consideration, the Company
issued 315,000 stock options to each employee, with exercise prices of
$1.01 for Mr. Shukla and Mr. Chaiken and $1.10 for Mr.
Cohen.
|
2009
Director Compensation
Employee
directors do not receive any separate compensation for their Board activities.
Non-employee directors receive $1,500 per in-person meeting in which they
attend, 30,000 shares of common stock with a maximum 35% tax gross up not to
exceed $10,000 per board member.
Non-employee
directors are reimbursed for travel expenses incurred in conjunction with their
duties as directors. Furthermore, the Company will provide the broadest form of
indemnification under Illinois law under which liabilities may arise as a result
of their role on the Board and payments for reimbursements for expenses incurred
by a director in defending against claims in connection with their role, and the
director satisfies the statutory standard of care.
The
following table provides compensation for non-employee directors who served
during fiscal 2009.
|
2009 Compensation of Non-Employee
Directors
|
|||||||||||||||||
|
Name
|
Fees
Earned
|
Stock
Awards
|
All
Other
|
Total
($)
|
|||||||||||||
|
or
Paid in Cash ($)
|
($)(1)
|
Compensation
($)(2)
|
|||||||||||||||
|
Morris
Garfinkle
|
$3,000
|
$19,200
|
$0
|
$22,200
|
|||||||||||||
|
Mark
Hershhorn
|
$0
|
$13,500
|
$19,000
|
$32,500
|
|||||||||||||
|
Edward
Smith
|
$1,500
|
$0
|
$0
|
$1,500
|
|||||||||||||
|
Brian
Israel
|
$0
|
$13,500
|
$19,000
|
$32,500
|
|||||||||||||
|
(1)
Mark Hershhorn and Brian Israel received 30,000 shares of stock on
February 27, 2009, at which time the fair value of the stock was $0.45 per
share. Morris Garfinkle received 30,000 shares of common stock
on March 24, 2009, at which time the fair value of the stock was $0.64 per
share.
|
|
(1)
Mark Hershhorn and Brian Israel converted their respective $10,000 tax
gross ups plus an additional $9,000 in fees earned for attendance at
in-person meetings into investments in the Company’s 2009 Convertible Debt
Private Placement Offering, as described in the Company’s April 21, 2009
Form 8-K. The Company prepaid $1,000 in fees to each of these
Directors, which was used to purchase units in the Company’s 2009
Convertible Debt Private Placement
Offering.
|
17
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of May
11, 2010, by the following individuals,
entities or groups:
o each person
or entity who we know beneficially owns more
than five percent of our outstanding common stock;
o each
of the named executive officers;
o each
director and nominee; and
o all
directors and executive officers as a group.
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting or investment power with respect to the
shares. In computing the number of shares beneficially owned by a person and
the percentage ownership of
that person, shares of common stock
subject to options and warrants held by
that person that are currently
exercisable or convertible or will become exercisable or convertible
within 60 days after May 10, 2010 are deemed outstanding,
while the shares are not deemed outstanding for purposes of
computing percentage ownership of any other
person. Except as otherwise indicated, and subject to applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of common stock held by
them.
Applicable
percentage ownership in the following table is based on 3,603,217 shares of
common stock outstanding as of May
11, 2010. Except as
provided below, the address for each stockholder listed in the table is c/o Z
Trim Holdings, Inc., 1011 Campus Drive, Mundelein, Illinois 60060.
|
NUMBER
OF
|
PERCENTAGE
OF
|
||||||
|
NAME
OF
|
SHARES
|
SHARES
|
|||||
|
BENEFICIAL OWNER
|
BENEFICIALLY OWNED
|
BENEFICIALLY OWNED
|
|||||
|
BENEFICIAL
OWNERS
|
|||||||
|
Brightline
Ventures I, LLC (1)
1120
Avenue of the Americas, Suite 1505
New
York, NY 10036
|
7,921,250
|
69.00%
|
|||||
|
FORMER
DIRECTORS AND EXECUTIVE OFFICERS
|
|||||||
|
Sheldon
Drobny (2)
1535
Lake Cook Rd., Suite 110
Northbrook,
IL 60062
|
382,852
|
9.83%
|
|||||
|
Triveni
Shukla (3)
1011
Campus Dr., Mundelein, IL 60060
|
395,000
|
9.88%
|
|||||
|
CURRENT
DIRECTORS AND EXECUTIVE OFFICERS
All
such addresses are:
1011
Campus Dr., Mundelein, IL 60060
|
|||||||
|
Steve
J. Cohen (4)
|
525,000
|
12.7%
|
|||||
|
Mark
Hershhorn (5)
|
271,056
|
7.00%
|
|||||
|
Brian
Israel (6)
|
123,332
|
3.31%
|
|||||
|
Mo
Garfinkle (7)
|
185,000
|
4.88%
|
|||||
|
Brian
Chaiken (8)
|
525,000
|
12.7%
|
|||||
|
Ed
Smith (1)(9)
|
40,000
|
1.10%
|
|||||
|
Total
of All Current Directors and Executive Officers
|
|||||||
|
1,669,388
|
31.66%
|
||||||
|
(1)
Brightline Capital Management, LLC, a Delaware limited liability company
(“Brightline Capital”), Nick Khera, and Brightline Ventures I,
LLC, a Delaware limited liability company (“Brightline Ventures”), each
are deemed to beneficially own 69.0% of the Company’s Common Stock, par
value $0.00005 per share (the “Shares”), and (ii) Edward B. Smith, III,
beneficially owns 1.24% of the Shares. Messrs. Khera and Smith
are the managing members of Brightline Capital, an investment management
firm that serves as the investment manager of Brightline Ventures.
Brightline Venture holds promissory notes convertible into 3,152,500
shares of common stock initially at $1.00 per share and warrants to
purchase 4,728,750 shares of the Company’s common stock at an exercise
price of $1.50 per share (the “Note Units”). Mr. Smith owns an
additional 40,000 Shares in a personal account. Messrs. Khera and Smith,
through their roles at Brightline Capital, exercise investment discretion
over Brightline Ventures.
|
|||||||
|
(2)
Includes ownership of notes and warrants to purchase 382,852 shares of
common stock
|
|||||||
|
(3) Includes
395,000 options to purchase shares of common
stock
|
|||||||
|
(4)
Includes 525,000 options to purchase shares of common
stock
|
|||||||
|
(5)
Includes ownership of notes convertible into 120,000 shares of common
stock and warrants to purchase 84,390 shares of common
stock
|
|||||||
|
(6)
Includes ownership of notes, warrants and options to purchase or
convertible into 56,666 shares of common stock
|
|||||||
|
(7) Includes
ownership of notes convertible into 50,000 shares of common stock and
warrants to purchase 75,000 shares of common stock
|
|||||||
|
(8)
Includes 525,000 options to purchase shares of common
stock
|
|||||||
|
(9)
Mr. Smith is a Managing Partner of Brightline Ventures I, LLC -- see Note
(1) above
|
|||||||
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The
Company’s independent directors are: Mark Hershhorn, Brian Israel, Morris
Garfinkle, and Edward Smith, III. In compliance with the American Stock
Exchange’s rules for director independence, more than 50% of the Company’s
directors are independent. Each of these directors has purchased
convertible notes pursuant to a private placement offering, and such purchases
are reflected in the table set forth in the above section entitled “Security
Ownership of Certain Beneficial owners and Management and related Stockholder
Matters.
LEGAL
PROCEEDINGS
On July
7, 2007, the Company was served with a complaint by Joseph Sanfilippo and James
Cluck for violation of the Consumer Fraud Act and is seeking damages in excess
of $200,000. Management believes that the allegations are frivolous
and wholly without merit and will vigorously defend the claim. The Company
currently has a Motion to Dismiss pending in the Circuit Court, Twentieth
Judicial Circuit, St. Clair County, Illinois. The pleadings are still
at issue and discovery is just getting underway. Thus, the outcome is
unknown as of the date hereof.
On August
4, 2009, the Company was served with a complaint by Daniel Caravette, alleging
the Company breached the parties’ settlement agreement dated April 24, 2008 and
seeking damages in excess of $75,000. Management believes that the
allegations are frivolous and wholly without merit and will vigorously defend
the claim. The case is set for trial in July of 2010 before the
Circuit Court of the Nineteenth Judicial District, Lake County, Illinois. A
defense motion for summary judgment is pending and undetermined as of the date
hereof.
18
SELLING
SHAREHOLDERS
This
prospectus includes the shares of our Common Stock $0.00005 par value per share
issued and underlying convertible notes and warrants issued by us on various
dates since 2007 which are described below. The number of shares, the
conversion prices of the notes and exercise prices of the warrants have been
adjusted to reflect the 1 for 30 reverse stock split effected by us on February
6, 2009 and to reflect any anti-dilution provisions.
This
prospectus includes 5,281,000 shares of our common stock (including 844,960
shares issuable on maturity as interest) underlying a portion of our 8% Senior
Secured Convertible Notes which were issued from May 1, 2009 through April 4,
2010 and in April 2009 to three directors of the Company in an aggregate
principal amount of $5,281,000. We refer to these notes and the 2009
Notes. We are also registering 8,535,900 shares of our Common Stock
underlying warrants issued by us from April 1, 2009 through April 5, 2010
(inclusive of broker/finder warrants). The 2009 Notes were offered as
part of a private placement offering we conducted and pursuant to which we
entered into subscription agreements with Brightline Ventures I, LLC, a Delaware
Limited Liability Company (“Brightline”), its affiliates and certain other
investors pursuant to which we sold an aggregate of 554.3 units consisting of 8%
24 convertible secured notes in the aggregate principal amount of $5,543,000 and
five year warrants. We refer to these as the 2009 Note
Units. Each of the 2009 Note Units consists of a $10,000 24-month
senior secured note convertible at the rate of $1.00 per share into 10,000
shares of our common stock, $.00005 par value and a five year warrant for 15,000
shares with an exercise price of $1.50 per share. We refer to the warrants as
the 2009 Warrants. The 2009 Notes bear interest at the rate of 8% per annum
payable in shares of Common Stock at the rate of $1.00 per share payable
quarterly or at maturity. At maturity 884,442 shares of Common Stock, in the
aggregate, will be issuable as interest on the 2009 Notes. The total
2009 Warrants issued are exercisable for 8,535,900 shares of our Common Stock
(inclusive of broker/finder warrants). We also entered into
registration rights agreements substantially similar to the registration rights
agreement entered into with the purchasers of the 2008 Units, described below,
pursuant to which we have agreed to file with the Securities and Exchange
Commission a registration statement covering the resale of the Common Stock
underlying the 2009 Notes and 2009 Warrants. The description of the
terms of sale of the securities described above is qualified in its entirety by
reference to the full text of the underlying documents filed as exhibits to our
Current Reports on Form 8-K filed on October 16, 2009, January 21, and April 5,
2010 and incorporated herein.
This
prospectus includes 350,000 shares of our common stock issued in January 2010 to
Legend Securities, Inc. in settlement of prior agreements and in connection with
a new agreement to provide investment banking services. The description of the
terms of sale of these securities is qualified in its entirety by reference to
the full text of the underlying documents filed as exhibits to our Current
Reports on Form 8-K filed on January 12, 2010 and incorporated
herein. These shares, at the request of Legend Securities, Inc., have
been broken up into three parts, to be issued as follows: 17,500 to
Legends Securities, Inc., 83,125 to John Columbia and 249,375 to Thomas
Wagner.
In
January 26, 2009 the Company agreed issue to certain note holders who had
purchased on various dates in 2008, certain notes and warrants of the Company,
as described below, new warrants to purchase, at an exercise price of $0.01 per
share, that number of shares of our Common Stock, to which a Note
Holder would be entitled upon full conversion of a note after a reverse
split of the Common Stock with a ratio of one for thirty. We refer to
these warrants as the New Warrants. Effective February 6, 2009 the
Company effected a 1 for 30 stock split. We refer to this split as the “Reverse
Split.” After the effective date of the Reverse Split, for each
$100,000 in principal amount of the Notes purchased in 2008, note holders
received a New Warrant exercisable for 20,833 shares of our common stock and
936,860 shares in the aggregate for all such New Warrants at an exercise price
of $0.01 per share. The description of the terms of sale of the
securities described above is qualified in its entirety by reference to the full
text of the underlying documents filed as an exhibit to this registration
statement. We seek to register 762,488 shares of common stock
underlying the New Warrants.
This
prospectus includes (i) 65,133 shares of our common stock issued upon exercise
of warrants with an exercise price of $.01 and $.30 per share (ii) 332,607
shares underlying warrants with an exercise price of $.30 per share and (iii)
1,806,205 shares underlying warrants with an exercise price of $1.00. On June
18, September 2, and November 12, 2008, we sold an aggregate of 44.57
units. Each of the units consists of a $100,000 24-month 8% senior
secured promissory note convertible at the rate of $1.00 per share into shares
of our common stock plus additional shares upon the conversion of accrued
interest at maturity into our common stock. Interest, at the rate of 8% per
annum, is accrued in Common Stock at the rate of $1.00 per share. We
refer to the units as the 2008 Units and to the notes as the 2008 Notes.
The 2008 Notes are convertible into a total of 4,456,997 shares of our
Common Stock plus 713,117 shares for accrued interest at maturity. We are
not registering the shares of Common stock underlying the 2008
Notes. Investors of each Unit also received two five-year warrants,
one to purchase 7,692 shares of our Common Stock per unit and 409,509 in the
aggregate for all such warrants (including placement agent’s warrants), with an
exercise price of $0.30 per share (the “$0.30 Warrants”), and the other to
purchase 5,128 shares of Common Stock per unit and 1,652,770 (including
placement agent’s warrants) in the aggregate for all such warrants, with an
exercise price of $1.00 per share. We refer to these warrants as the “$1.00
Warrants” and the “$0.30 Warrants”. We refer to them collectively as
the “2008 Warrants”. We are registering the shares of our common
stock issued upon exercise of (65,133), as well as the shares issuable (332,607,
including the placement agent’s warrants) under the outstanding $.30 Warrants
for a total of 397,740 shares of our common stock. We are not
registering 228,595 shares issued upon a cashless exercise of the $.01 and $.30
Warrants. In addition to a cash commission, the placement agent
received for each 2008 Unit sold two five-year warrants, one to
purchase 66,667 shares of Common Stock, with an exercise price of $.30 per share
and the other to purchase 555,670 shares with an exercise price of
$1.00. Such warrants are included in the total of the share of common
stock set forth in the first sentence of this paragraph. We also
entered into registration rights agreements in connection with the private
placement pursuant to which we have agreed to file with the Securities and
Exchange Commission a registration statement covering the resale of the Common
Stock underlying the Notes and the Warrants, unless the underlying common stock
can be sold without any limitations or conditions under Rule 144. The
placement agent’s warrants carry registration rights that are the same as those
afforded to investors in the private placement. The description of
the terms of sale of the securities described above is qualified in its entirety
by reference to the full text of the underlying documents filed as exhibits to
our Current Reports on Form 8-K filed on June 24 and September 2,
2008.
This
prospectus includes 151,635 shares of our common stock underlying warrants
issued in 2007 at an exercise price of $13.69 per share. The numbers
have been adjusted to reflect application of anti-dilution provisions and
the one for 30 reverse split that took effect in February of
2009. We refer to these warrants as the “2007 Warrants.” On March 29,
2007, we sold unregistered shares of our common stock and warrants exercisable
for our Common Stock. We sold 80 units in the private placement at a price of
$100,000 per unit, with each unit consisting of 3,333
shares of Common Stock and a five-year warrant with an exercise price of $13.69
per share (as adjusted) to purchase approximately 2,159 shares (as adjusted) of
Common Stock for an aggregate of 175,303 shares of our common
stock. We also entered into a registration rights agreement in
connection with the private placement pursuant to which we agreed to file with
the Securities and Exchange Commission this registration statement covering the
resale of the Common Stock and Common Stock underlying the Warrants. J.P. Turner
& Company, LLC served as the lead placement agent in connection with the
private placement.
This
prospectus includes 40,000 shares of our common stock underlying warrants issued
in 2007 to the placement agent for the offering described above. J.P.
Turner, together with any affiliate placement agents, received warrants to
purchase 40,000 shares of Common Stock on terms which are identical to the 2007
Warrants except that the exercise price is $1.00 per share. In
addition, the placement agent’s warrant has registration rights that are the
same as those afforded to investors in the private placement. The
description of the terms of sale of the securities described above is qualified
in its entirety by reference to the full text of the underlying documents filed
as exhibits to our Annual Report on Form 10KSB filed on April 2, 2007 and which
exhibits are incorporated herein by reference.
19
The
following table sets forth information with respect to the beneficial ownership
of our common stock as of May 10, 2010 by each of the Selling Shareholders and
the maximum number of shares that may be sold hereunder. The term
“Selling Stockholder” includes the Shareholders listed below and their
respective transferees, assignees, pledges, donees and other
successors. The number of shares that may be actually sold by any
Selling Stockholder will be determined by the Selling Stockholder. Because the
Selling Shareholders may sell all, some or none of the shares of common stock
which they hold, and because the offering contemplated by this prospectus is not
currently being underwritten, no estimate can be given as to the number of or
percentage of total shares of Common Stock that will be held by the Selling
Shareholders upon termination of the offering. Except as noted below,
no Selling Stockholder is a broker-dealer or an affiliate of a
broker-dealer. As of May 10, 2010 there were 3,603,217 shares of
Common Stock outstanding. The following table reflects the 30 for 1 reverse
stock split affected on February 6, 2009.
|
Name
|
Beneficial
Ownership (1)
Before
the Offering
Number Percentage
|
Maximum
Number of Shares to be
Sold
Hereunder(2)
|
Beneficial
Ownership
After
the Offering
Number
Percentage
|
|
Clark
Wingert
|
177,906
(3) 5%
|
33,381
|
144,525
3.86%
|
|
Michael
McMahon
|
86,762
(4) 2%
|
28,762
|
58,000
*
|
|
Cary
Moscarello
|
174,664
(5) 5%
|
55,331
|
119,333
3.21%
|
|
Ralph
and Nancy Cotton
|
42,832
(6) *
|
8,624
|
34,208
*
|
|
Marlene
McGuire
|
85,665
(7) 2%
|
13,402
|
72,263
*
|
|
Carl
J. Sagasser Living Trust
|
6,575
(8) *
|
6575
|
0
|
|
Lee
and Kay Bettenhausen
|
130,143
(9) 4%
|
43,143
|
87,000
2.36%
|
|
Zev
and Pam Davis
|
10,957
(10) *
|
10957
|
0
|
|
John
Majic
|
10,957
(11) *
|
10957
|
0
|
|
Ryan
Schiff
|
2,191
(12) *
|
2191
|
0
|
|
Philip
Trast
|
2,191 (13) *
|
2191
|
0
|
|
Paul
Zeedyk
|
4,382
(14) *
|
4382
|
0
|
|
William
and Christine Geiger
|
4,382
(15) *
|
4382
|
0
|
|
Richard
and Annette Crawford
|
2,191 (16) *
|
2191
|
0
|
|
Jeff
and Kim Clymer
|
171,331 (17) 5%
|
55,331
|
116,000
3.12%
|
|
Peter
D. Kochanowski
|
44,476
(18) *
|
15,476
|
29,000
*
|
|
Paul
Werner
|
172,643(19) 5%
|
54,235
|
116,000
3.12%
|
|
Patrick
J. Monahan Revocable Trust
|
547
(20) *
|
547
|
0
|
|
Wallace
and Sharon Clark
|
4,382
(21) *
|
4382
|
0
|
|
Walter
Jakovcic
|
46,667(22) *
|
17,667
|
29,000
*
|
|
Joseph
Laura
|
6,575 (23) *
|
6575
|
0
|
|
John
and Alisa Peragine
|
86,762
(24) 2%
|
28,762
|
58,000
*
|
|
Jerry
Schwartz
|
5,478
(25) *
|
5478
|
0
|
|
Greg
Fresca
|
547
(26) *
|
547
|
0
|
|
Frank
Fresca
|
2,191 (27) *
|
2191
|
0
|
|
Martin
Hodds
|
3,288
(28) *
|
3288
|
0
|
|
Stephen
Phillips
|
20,819
(29) *
|
20819
|
0
|
|
Kyle
McKenzie
|
2,191 (30) *
|
2191
|
0
|
|
Scott
and Jolene McPherson
|
2,191 (31) *
|
2191
|
0
|
|
Kenneth
and Tammy Balatgek
|
2,191 (32) *
|
2191
|
0
|
|
CKS
Warehouse Group, Mark Hershhorn
|
291,628(33) 8%
|
86,428
|
205,200
5.39%
|
|
Harry
and Carol Heller
|
173,522
(34) 5%
|
57,522
|
116,000
3.12%
|
|
Billy
Knott
|
349,238
(35) 10%
|
64,033
|
285,205
7.33%
|
|
Cleco
Corp.
|
353,622
(36) 10%
|
121,622
|
232,000
6.05%
|
|
J.W.
Harman
|
44,476 (37) *
|
15,476
|
29,000
*
|
|
Alan
Axelrod
|
4,931
(38) *
|
4931
|
0
|
|
Endevour
L.P.
|
342,664
(39) 10%
|
110,664
|
232,000
6.05%
|
|
Jerome
Gildner
|
2,191 (40) *
|
2191
|
0
|
|
Marvin
Mauel
|
172,428
(41) 5%
|
56,428
|
116,000
3.12%
|
|
Albert
Geisler
|
67,656
(45) 2%
|
9,846
|
57,810
*
|
|
Angilletta,
Dominick
|
42,285
(46) *
|
13,285
|
29,000
*
|
|
Anita
Green-Eigen Charles Schwab
|
42,285
(47) *
|
13,285
|
29,000
*
|
|
Ashcraft,
Joseph
|
17,666
(48) *
|
17,666
|
0
|
|
Barak,
Eddie
|
84,570
(49) 2%
|
26,570
|
58,000
*
|
|
Bartos,
John R
|
19,598(50) *
|
2,462
|
17,135
*
|
|
Becker,
Rachel Sophia Becker, Paul J
|
169,140(51) 5%
|
24,615
|
144,525
3.86%
|
|
Beisser,
Frederick G
|
25,370(52) *
|
7,970
|
17,400
*
|
|
Bennie
P Scibek Charles Schwab & Co
|
42,285
(53) *
|
13,285
|
29,000
*
|
|
Benny
Ray
|
16,915
(54) *
|
5,315
|
11,600
*
|
|
Callahan,
Jerry
|
16,915
(56) *
|
3,232
|
13,683
*
|
|
Castillero,
Michael
|
9,001
(57) *
|
4636
|
4,365
*
|
|
Chandler,
Michael
|
42,285
(58) *
|
13,285
|
29,000
*
|
|
Chaskes,
Barry
|
9,999
(59) *
|
9,999
|
0
|
|
Cherkes,
Joseph
|
214,170
(60) 6%
|
6,648
|
207,522
5.45%
|
|
Clemson,
D Buckey
|
42,285
(63) *
|
13,285
|
29,000
*
|
|
Cobblestone,
Inc
|
179,842
(65) 5%
|
53,140
|
126,702
3.40%
|
|
Columbia,
John
|
97,280
(66) *
|
97,280
|
0
|
|
Compania
Dopler S.A.
|
507,409
(67) 14%
|
159,409
|
348,000
8.81%
|
|
Cosley,
Steven M
|
42,285
(68) *
|
13,285
|
29,000
*
|
|
Cotroneo,
George
|
16,915
(69) *
|
5,315
|
11,600
*
|
|
Curt
Hedberg
|
16,915
(71) *
|
5,315
|
11,600
*
|
|
DAW
Capital LLC
|
169,140
(72) 5%
|
45,448
|
123,692
3.40%
|
|
Donner,
Brad
|
15,001
(73) *
|
15,001
|
0
|
|
Dout,
Robert
|
16,915
(74) *
|
2,462
|
14,452
*
|
|
Drinkwater,
Stanley
|
84,571
(75) *
|
12,308
|
72,263
*
|
|
Anshell,
Inc.
|
422,852
(76) 12%
|
132,852
|
290,000
7.45%
|
|
Fauci,
Paul
|
67,656
(78) *
|
21,256
|
46,400
*
|
|
Femiano,
John
|
30,998
(79) *
|
30,998
|
0
|
|
Ford,
Robert
|
42,285
(80) *
|
13,285
|
29,000
*
|
|
Genecco,
David L
|
169,140
(81) 5%
|
53,140
|
116,000
3.12%
|
|
Ghezzi,
Gary
|
16,915(82) *
|
2,462
|
14,452
*
|
|
Gorman,
Robert TTEE
|
84,570
(83) 2%
|
26,570
|
58,000
*
|
|
Guidicipiero,
Rocco
|
112,601
(84) 3%
|
100,498
|
12,103
*
|
|
Harman,
Chris
|
67,285
(85) 2%
|
13,285
|
54,000
*
|
|
Holtman
Investments LLC
|
42,285
(89) *
|
13,285
|
29,000
*
|
|
Howling
Wolf Music - Sudden, Mark
|
16,915
(90) *
|
5,315
|
11,600
*
|
|
Huff,
Rick
|
42,285
(91) *
|
13,285
|
29,000
*
|
|
InterMountain
Management Group, Inc
|
169,140
(92) 5%
|
53,140
|
116,000
3.12%
|
|
J.P.
Turner & Company, LLC
|
40,000
(93) *
|
40,000
|
0
|
|
J.P.
Turner Partners, LP
|
98,746(94) 3%
|
98,746
|
0
|
|
Jarolimek,
Leroy
|
25,371
(96) *
|
7,971
|
17,400
*
|
|
JSEC
INC
|
169,140
(97) 5%
|
24,615
|
144,525
3.86%
|
|
Kaghan,
Scott/Rebecca Nixon
|
42,285
(98) *
|
13,285
|
29,000
*
|
|
Keeton,
Roberto
|
4,997
(99) *
|
4,997
|
0
|
|
Klos,
Daniel H & Antoinette
|
16,915
(100) *
|
5,315
|
11,600
*
|
|
Kniewel,
Russell G TTEE
|
42,285
(101) *
|
13,285
|
29,000
*
|
|
Kortemeir,
William
|
25,371(105) *
|
3,692
|
21,679
*
|
|
Lee,
Thomas & Linda
|
42,285
(106) *
|
13,285
|
29,000
*
|
|
Migliano,
Gabe
|
21,999
(110) *
|
21,999
|
0
|
|
Minor,
Steven
|
67,656
(111) 2%
|
21,256
|
46,400
*
|
|
Monson,
Dale
|
42,285(112) *
|
13,285
|
29,000
*
|
|
Nix,
Franklin
|
169,140
(114) 5%
|
53,140
|
116,000
3.12%
|
|
Nuciforo,
Michael
|
42,285
(115) *
|
13,285
|
29,000
*
|
|
Pauzauskie,
William
|
42,285
(116) *
|
13,285
|
29,000
*
|
|
Pension
Financial (Jeffrey Elam)
|
42,285
(117) *
|
13,285
|
29,000
*
|
|
Power,
Patrick
|
81,079
(119) 2%
|
81,079
|
0
|
|
Pullin,
Jr Ray
|
16,915
(120) *
|
5,315
|
11,600
*
|
|
Reese,
Larry
|
33,828
(121) *
|
10,628
|
23,200
*
|
|
Robert
A Zyontz Charles Schwab & Co
|
42,285
(122) *
|
13,285
|
29,000
*
|
|
Roberts.
William F & Judy D
|
42,285(123) *
|
6154
|
36,131
*
|
|
Rose,
Mike
|
65,829
(124) 2%
|
65,829
|
0
|
|
Rosen,
Gary B
|
169,140
(125) 5%
|
53,140
|
116,000
3.12%
|
|
Roughgarden,
Keith W & Chris L
|
169,140
(126) 5%
|
53,140
|
116,000
3.12%
|
|
Ruchaber,
Gary D
|
84,571
(127) 2%
|
26,571
|
58,000
*
|
|
Schwartz,
Gerald
|
42,285
(128) *
|
6,154
|
36,131
*
|
|
Simineri,
Karen & Michael
|
16,915
(129) *
|
5,315
|
11,600
*
|
|
Skovronck,
Jean Paul
|
17,497
(130) *
|
17,497
|
0
|
|
Smyser,
William E
|
42,618
(131) *
|
13,285
|
29,333
*
|
|
Sternberg,
Ken
|
16,915
(132) *
|
5,315
|
11,600
*
|
|
Strom,
Robert
|
82,412
(133) 2%
|
26,571
|
55,841
*
|
|
Stuhitiager
Sr, Joseph / Scott James
|
169,140
(134) 5%
|
53,140
|
116,000
3.12%
|
|
Stulp,
Kevin & Marie
|
112,504
(135) 3%
|
53,171
|
59,333
*
|
|
Wade,
George A
|
169,140
(137) 5%
|
53,140
|
116,000
3.12%
|
|
Wagner,
Thomas
|
487,607(138) 14%
|
487,607
|
0
|
|
Weber,
David A
|
42,285
(139) *
|
13,285
|
29,000
*
|
|
Dana
Dabney
|
544,560(142) 15%
|
404,440
|
140,120
3.74%
|
|
Marc
& Carol Rubinger TT
|
79,000
(143) 2%
|
37,500
|
41,500
*
|
|
Morris
Garfinkle
|
193,000
(144) 5%
|
75,000
|
118,000
3.17%
|
|
Terri
Oram
|
133,000
(145) 4%
|
75,000
|
58,000
*
|
|
Brian
Israel
|
118,900
(146) 3%
|
30,000
|
88,900
2.41%
|
|
Weir
& Larson -
|
39,900
(148) *
|
22,500
|
17,400
*
|
|
Corad
Investments
|
79,800
(149) 2%
|
45,000
|
34,800
*
|
|
David
and Laura Livesay
|
47,180
(150) *
|
39,900
|
7,280
*
|
|
Jack
& Janet Stulp
|
26,600
(152) *
|
26,600
|
0
|
|
Dieter
Schmidtke
|
26,600
(153) *
|
26,600
|
0
|
|
Loeb
& Loeb
|
931,000
(156) 26%
|
931,000
|
0
|
|
Steve
Drake
|
53,200
(157) *
|
53,200
|
0
|
|
Thomas
Gibbons
|
66,500
(158) 2%
|
66,500
|
0
|
|
Wade
Woodard
|
79,800
(159) 2%
|
79,800
|
0
|
|
Robert
Wegner
|
46,550
(160) *
|
46,550
|
0
|
|
Dearborn
Asset Management Services
|
457,520
(161) 13%
|
457,520
|
0
|
|
Brightline
Ventures I, LLC
|
10,141,250
(162) 69%
|
10,141,250
|
0
|
|
Bruce
& Karen Lippa
|
79,800
(164) 2%
|
79,800
|
0
|
|
Michaelson
Family Trust
|
26,600
(165) *
|
26,600
|
0
|
|
Rancho
Vista De Dios -E&D Michaelson
|
26,600
(166) *
|
26,600
|
0
|
|
Mary
Schmidtke
|
72,425(167) 2%
|
66,500
|
5,925
*
|
|
Leonard
D Perlman
|
50,762
(168) *
|
30,000
|
20,762
*
|
|
Clyde
J Berg
|
266,000
(169) 7%
|
266,000
|
0
|
|
Stan
Raymond
|
66,500
(170) 2%
|
66,500
|
0
|
|
Jack
Stewart
|
91,500
(171) 3%
|
66,500
|
25,000 *
|
|
Garfinkle,
Matthew B
|
186,200
(172) 5%
|
186,200
|
0
|
|
Trim,Ryan
& Julie
|
79,800
(173) 2%
|
79.800
|
0
|
|
Jacobs,
Gary & Carolyn
|
266,000(174) 7%
|
266,000
|
0
|
|
Novak,
Ronald & Joyce
|
133,000(175) 4%
|
133,000
|
0
|
|
Jacobsen,
Frummen & Marion
|
266,000(176) 7%
|
266,000
|
0
|
|
Wilen,
Jack
|
133,000(177) 4%
|
133,000
|
0
|
|
Akman,
Larry
|
133,000
(178)
4%
|
133,000
|
0
|
|
Legends
Securities Inc.
|
17,500 *
|
17,500
|
0
|
|
Corporate
Capital Group Int’l Ltd.
|
211,400
(179) 6%
|
211,400
|
0
|
|
MWC
|
10,000
(180) *
|
10,000
|
0
|
* Less
than one percent.
21
(1)
Except as otherwise indicated, each Selling Stockholder
named in the table has sole voting and investment power with respect
to all shares of common stock beneficially owned by such
shareholder. The numbers and percentages shown
include (a) the shares of common stock actually owned as
May 10, 2010 and (b)
the shares of common stock which the person
or group had the right to acquire within 60 days upon
the exercise of warrants held by
such Selling Stockholder on May 10, 2010. In
calculating the percentage of ownership, all
shares of common stock that
the identified person or group had the right to
acquire within 60 days upon
the exercise of warrants held by such Selling
Stockholder are deemed to be outstanding for the purpose
of computing the percentage of the shares of common stock
owned by such person or group, but are not deemed to be
outstanding for the purpose of computing the percentage of the shares
of common stock owned by any other person or group.
(2) Intentionally left
blank.
(3)
Includes 100,000 shares issuable upon conversion of a convertible note, 16,000
shares issuable as interest at maturity, 8,766 shares issuable upon exercise of
warrants at $13.69 per share, and 24,615 shares issuable upon exercise of
warrants at $1.00.
(4)
Includes 50,000 shares issuable upon conversion of a convertible note, 8,000
shares issuable as interest at maturity, 10,417 shares issuable upon exercise of
warrants at $.01 per share, 3,846 shares issuable upon exercise of warrants at
$.30 per share, 12,308 shares issuable upon exercise of warrants at $1.00 per
share and 2,191 shares issuable upon exercise of warrants at $13.69 per
share.
(5)
Includes 100,000 shares issuable upon conversion of a convertible note, 16,000
shares issuable at maturity as interest on the convertible note, 20,833 shares
issuable upon exercise of warrants at $.01 per share, 7,692 shares issuable upon
exercise of warrants at $.30 per share, 24,615 shares issuable upon exercise of
warrants at $1.00 per share and 2,191 shares issuable upon exercise of warrants
at $13.69 per share.
(6)
Includes 25,000 shares issuable upon conversion of a convertible note, 4,000
shares issuable as interest at maturity, 547 shares issuable upon exercise of
warrants at $13.69 per share, 1,923 shares issuable upon exercise of warrants at
$.30 per share and 6,154 shares issuable upon exercise of warrants at $1.00 per
share.
(7) Includes
50,000 shares issuable upon conversion of a convertible note, 8,000 shares
issuable as interest at maturity, 1,094 shares issuable upon exercise of
warrants at $13.69 per share and 12,308 shares issuable upon exercise of
warrants at $1.00 per share.
(8)
Includes 6,575 shares issuable upon exercise of warrants at $13.69 per
share. Carl J. Sagasser has sole voting and investment control over
the shares held by Carl J. Sagasser Living Trust.
(9)
Includes 75,000 shares issuable upon conversion of a convertible note, 12,000
shares issuable at maturity as interest on the convertible note, 15,625 shares
issuable upon exercise of warrants at $.01 per share, 5,769 shares issuable upon
exercise of warrants at $.30 per share, 18,461 shares issuable upon exercise of
warrants at $1.00 per share and 3,288 shares issuable upon exercise of warrants
at $13.69 per share.
(10)
Includes 10,957 shares issuable upon exercise of warrants at $13.69 per
share.
(11)
Includes 10,957 shares issuable upon exercise of warrants at $13.69 per
share.
(12)
Includes 2,191 shares issuable upon exercise of warrants at $13.69 per
share.
(13)
Includes 2,191 shares issuable upon exercise of warrants at $13.69 per
share.
(14)
Includes 4,382 shares issuable upon exercise of warrants at $13.69 per
share.
(15)
Includes 4,382 shares issuable upon exercise of warrants at $13.69 per
share.
(16)
Includes 2,191 shares issuable upon exercise of warrants at $13.69 per
share.
(17)
Includes 100,000 shares issuable upon conversion of a convertible note, 16,000
shares issuable as interest at maturity, 20,833 shares issuable upon exercise of
warrants at $.01 per share, 7,692 shares issuable upon exercise of warrants at
$.30 per share, 24,615 shares issuable upon exercise of warrants at $1.00 per
share and 2,191 shares issuable upon exercise of warrants at $13.69 per
share.
(18)
Includes 25,000 shares issuable upon conversion of a convertible note, 4,000
shares issuable as interest at maturity, 5,208 shares issuable upon exercise of
warrants at $.01 per share, 1,923 shares issuable upon exercise of warrants at
$.30 per share, 6,154 shares issuable upon exercise of warrants at $1.00 per
share and 2,191 shares issuable upon exercise of warrants at $13.69 per
share.
(19)
Includes 100,000 shares issuable upon conversion of a convertible note, 16,000
shares issuable as interest at maturity of the convertible note, 20,833 shares
issuable upon exercise of warrants at $.01 per share, 7,692 shares issuable upon
exercise of warrants at $.30 per share, 24,616 shares issuable upon exercise of
warrants at $1.00 per share and 1,094 shares issuable upon exercise of warrants
at $13.69 per share.
(20)
Includes 547 shares issuable upon exercise of warrants at $13.69 per share.
Patrick J. Monahan has sole voting and investment control over the shares held
by Patrick J. Monahan Revocable Trust.
(21)
Includes 4,382 shares issuable upon exercise of warrants at $13.69 per
share.
(22)
Includes 25,000 shares issuable upon conversion of a convertible warrant, 4,000
shares issuable as interest upon maturity of the convertible note, 5,208 shares
issuable upon exercise of warrants at $.01 per share, 1,923 shares issuable upon
exercise of warrants at $.30 per share, 6,154 shares issuable upon exercise of
warrants at $1.00 per share and 4,382 shares issuable upon exercise of warrants
at $13.69 per share.
(23)
Includes 6,575 shares issuable upon exercise of warrants at $13.69 per
share.
(24)
Includes 50,000 shares issuable on conversion of a convertible note, 8,000
shares issuable as interest at maturity of the convertible note, Includes 10,417
shares issuable upon exercise of warrants at $.01 per share, 3,846 shares
issuable upon exercise of warrants at $.30 per share and 12,308 shares issuable
upon exercise of warrants at $1.00 per share and 2,191 shares issuable upon
exercise of warrants at $13.69 per share.
(25)
Includes 5,478 shares issuable upon exercise of warrants at $13.69 per
share.
(26)
Includes 547 shares issuable upon exercise of warrants at $13.69 per
share.
(27)
Includes 2,191 shares issuable upon exercise of warrants at $13.69 per
share.
(28)
Includes 3,288 shares issuable upon exercise of warrants at $13.69 per
share.
(29)
Includes 20,819 shares issuable upon exercise of warrants at $13.69 per
share.
(30)
Includes 2,191 shares issuable upon exercise of warrants at $13.69 per
share.
(31)
Includes 2,191 shares issuable upon exercise of warrants at $13.69 per
share.
(32)
Includes 2,191 shares issuable upon exercise of warrants at $13.69 per
share.
(33)
Includes 120,000 shares issuable upon conversion of convertible note, 19,200
shares issuable at maturity as interest on the convertible note, 30,000 shares
issuable upon exercise of warrants at $1.50 per share, 20,833 shares issuable
upon exercise of warrants at $.01 per share, 7,692 shares issuable upon exercise
of warrants at $.30 per share and 24,615 shares issuable upon exercise of
warrants at $1.00 per share, and 3,288 shares issuable upon exercise of warrants
at $13.69 per share. Mark Hershhorn has sole voting and investment
control over the shares held by CKS Warehouse Group. Mr.
Hershhorn is a director of the Company.
(34)
Includes 100,000 shares issuable on conversion of a convertible note, 16,000
shares issuable as interest at maturity on the convertible note, 20,833 shares
issuable upon exercise of warrants at $.01 per share, 7,692 shares issuable upon
exercise of warrants at $.30 per share, 24,615 shares issuable upon exercise of
warrants at $1.00 per share and 4,382 shares issuable upon exercise of warrants
at $13.69 per share.
(35)
Includes 200,000 shares issuable upon conversion of a convertible note, 32,000
shares issuable upon maturity of the convertible notes, 50,602 3,846 shares
issuable upon exercise of warrants at $.30 per share, 49,231 shares issuable
upon exercise of a warrants at $1.00 per share, and 10,957 shares issuable upon
exercise of warrants at $13.69 per share
(36) Includes
200,000 shares issuable upon conversion of a convertible note, 32,000 shares
issuable as interest at maturity on the convertible note, 15,341 shares issuable
upon exercise of warrants at $13.69 per share, 41,666 shares issuable upon
exercise of warrants at $.01 per share, 15,385 shares issuable upon exercise of
warrants at $.30 per share and 49,230 shares issuable upon exercise of warrants
at $1.00 per share. J. W. Harman has sole voting and investment
control over the shares held by Cleco Corp.
(37)
Includes 25,000 shares issuable upon conversion of a convertible note, 4,000
shares issuable as interest at maturity, 5,208 shares issuable upon exercise of
warrants at $.01 per share, 1,923 shares issuable upon exercise of warrants at
$.30 per share, 6,154 shares issuable upon exercise of warrants at $1.00 per
share and 2,191 shares issuable upon exercise of warrants at $13.69 per
share.
(38) Includes
4,931 shares issuable upon exercise of warrants at $13.69 per
share.
(39)
Includes 200,000 shares issuable upon conversion of a convertible note, 32,000
shares issuable as interest at maturity, 41,666 shares issuable upon exercise of
warrants at $.01 per share, 15,385 shares issuable upon exercise of warrants at
$.30 per share and 49,230 shares issuable upon exercise of warrants at $1.00 per
share and 4,382 shares issuable upon exercise of warrants at $13.69 per
share. John F. Maring has sole voting and investment control over the
shares held by Endevour L.P.
(40)
Includes 2,191 shares issuable upon exercise of warrants at $13.69 per
share.
(41)
Includes 100,000 shares issuable upon conversion of a convertible
note, 16,000 shares issuable at maturity as interest on the convertible note,
20,833 shares issuable upon exercise of warrants at $.01 per share, 7,692 shares
issuable upon exercise of warrants at $.30 per share, 24,615 shares
issuable upon exercise of warrants at $1.00 per share and 3,288 shares issuable
upon exercise of warrants at $13.69 per share.
(42)
Intentionally left blank.
(43)
Intentionally left blank.
(44)
Intentionally left blank.
22
(45)
Includes 40,000 shares issuable upon conversion of a convertible note, 6,400
shares issuable as interest at maturity 10,758 shares issued upon a cashless
exercise of warrants at $.01 and at $.30 per share and 9,846 shares issuable
upon exercise of warrants at $1.00 per share.
(46)
Includes 25,000 shares issuable upon conversion of a convertible note, 4,000
shares issuable as interest at maturity 5,208 shares issuable upon exercise of
warrants at $.01 per share, 1,923 shares issuable upon exercise of warrants at
$.30 per share and 6,154 shares issuable upon exercise of warrants at $1.00 per
share.
(47)
Includes 25,000 shares issuable upon conversion of a convertible note, 4,000
shares issuable as interest at maturity, 5,208 shares issuable upon exercise of
warrants at $.01 per share, 1,923 shares issuable upon exercise of warrants at
$.30 per share and 6,154 shares issuable upon exercise of warrants at $1.00 per
share.
(48)
Includes 1,667 shares issuable upon exercise of warrants at $.30 per share and
15,999 shares issuable upon exercise of warrants at $1.00 per
share.
(49)
Includes 50,000 shares issuable upon conversion of a convertible note, 8,000
shares issuable as interest at maturity 10,417 shares issuable upon exercise of
warrants at $.01 per share, 3,846 shares issuable upon exercise of warrants at
$.30 per share and 12,307 shares issuable upon exercise of warrants at $1.00 per
share.
(50)
Includes 11,600 shares subject to our 2008 Notes together with interest thereon
at maturity, 2,683 shares issued upon a cashless exercise of warrants at $.01
and $.30 per share and 2,462 shares issuable upon exercise of warrants at $1.00
per share.
(51)
Includes 116,000 shares subject to our 2008 Notes together with interest thereon
at maturity, 25,984 shares issued upon a cashless exercise of
warrants at $.01 and at $.30 per share and 24,615 shares issuable upon exercise
of warrants at $1.00 per share.
(52)
Includes 17,400 shares subject to our 2008 Notes together with interest thereon
at maturity, 3,125 shares issuable upon exercise of warrants at $.01 per share,
1,154 shares issuable upon exercise of warrants at $.30 per share and 3,691
shares issuable upon exercise of warrants at $1.00 per share.
(53)
Includes 29,000 shares subject to our 2008 Notes together with interest thereon
at maturity, 5,208 shares issuable upon exercise of warrants at $.01 per share,
1,923 shares issuable upon exercise of warrants at $.30 per share and 6,154
shares issuable upon exercise of warrants at $1.00 per share.
(54)
Includes 11,600 shares subject to our 2008 Notes together with interest thereon
at maturity, 2,083 shares issuable upon exercise of warrants at $.01 per share,
769 shares issuable upon exercise of warrants at $.30 per share and 2,462 shares
issuable upon exercise of warrants at $1.00 per share.
(55) Intentionally
left blank.
(56)
Includes 11,600 shares subject to out 2008 Notes together with interest thereon
at maturity, 2,069 shares issued upon a cashless exercise of warrants at $.01
and at $.30 per share and 2,462 shares issuable upon exercise of warrants at
$1.00 per share.
(57)
Includes 4635 shares issued upon exercise and 4636 issuable upon exercise of
warrants at $1.00 per share.
(58)
Includes 29,000 shares subject to our 2008 Notes together with interest thereon
at maturity, 5,208 shares issuable upon exercise of warrants at $.01 per share,
1,923 shares issuable upon exercise of warrants at $.30 per share and 6,154
shares issuable upon exercise of warrants at $1.00 per share.
(59)
Includes 9,999 shares issuable upon exercise of warrants at $1.00 per
share.
(60)
Includes 31,320 shares subject to our 2008 Notes together with interest due on
maturity, 7,223 shares issued upon a cashless exercise of warrants at $.01
and at $.30 per share and 6,648 shares issuable upon exercise of
warrants at $1.00 per share.
(61)
Intentionally left blank.
(62) Intentionally
left blank.
(63)
Includes 25,000 shares issuable upon conversion of a convertible note, 4,000
shares issuable at maturity as interest on the convertible note, 5,208 shares
issuable upon exercise of warrants at $.01 per share, 1,923 shares issuable upon
exercise of warrants at $.30 per share and 6,154 shares issuable upon exercise
of warrants at $1.00 per share.
(64)
Intentionally left blank. (65) Includes 100,000 shares issuable upon the
conversion of a convertible note, 16,000 shares issuable upon maturity of the
convertible note, 20,833 shares issuable upon exercise of warrants at $.01 per
share, 7,692 shares issuable upon exercise of warrants at $.30 per share and
24,615 shares issuable upon exercise of warrants at $1.00 per
share.
(66)
Includes 5,659 shares issuable upon exercise of warrants at $.30 per share and
8,496 shares issuable upon exercise of warrants at $1.00 per share.
(67)
Includes 300,000 shares issuable upon conversion of a convertible note, 48,000
shares issuable at maturity as interst on the convertible note, 62,499 shares
issuable upon exercise of warrants at $.01 per share, 23,074 shares issuable
upon exercise of warrants at $.30 per share and 73,836 shares issuable upon
exercise of warrants at $1.00 per share.
(68)
Includes 25,000 shares issuable upon conversion of a convertible note, 4,000
shares issuable at maturity as interest on the convertible note, 5,208 shares
issuable upon exercise of warrants at $.01 per share, 1,923 shares issuable upon
exercise of warrants at $.30 per share and 6,154 shares issuable upon exercise
of warrants at $1.00 per share.
(69)
Includes 11,600 shares subject to our 2008 Notes together with interest thereon
at maturity, 2,083 shares issuable upon exercise of warrants at $.01 per share,
769 shares issuable upon exercise of warrants at $.30 per share and 2,462 shares
issuable upon exercise of warrants at $1.00 per share.
(70)
Intentionally left blank.
(71)
Includes 11,600 shares subject to our 2008 Notes together with interest thereon
at maturity, 2,083 shares issuable upon exercise of warrants at $.01 per share
and 769 shares issuable upon exercise of warrants at $.30 per share and 2,462
shares issuable upon exercise warrants at $1.00 per share.
(72)
Includes 116,000 shares subject to our 2008 Notes together with interest at
maturity, 20,833 shares issuable upon exercise of warrants at $.01 per share
7,692 shares issuable upon exercise of warrants at $.30 per share and 24,615
shares issuable upon exercise of warrants at $1.00 per share.
(73)
Includes 15,001 shares issuable upon exercise of warrants at $1.00 per
share.
(74)
Includes 11,600 shares subject to our 2008 Notes together with interest at
maturity, 2,644 shares issued upon a cashless exercise of warrants at $.01 and
at $.30 per share and 2,462 shares issuable upon exercise of warrants at $1.00
per share.
(75)
Includes 58,000 shares subject to our 2008 Notes together with interest at
maturity, 13,378 shares issued upon a cashless exercise of warrants at $.01 per
share and at $.30 per share and 12,308 shares issuable upon exercise of warrants
at $1.00 per share.
(76)
Includes 290,000 shares subject to our 2008 Notes together with interest thereon
at maturity, 52,083 shares issuable upon exercise of warrants at $.01 per share,
19,231 shares issuable upon exercise of warrants at $.30 per share and 61,538
shares issuable upon exercise of warrants at $1.00 per share.
(77)
Intentionally left blank.
(78)
Includes 46,400 shares subject to our 2008 Notes including interest at maturity,
11,410 shares issued upon exercise of warrants at $.01 and at $.30 per share and
9,846 shares issuable upon exercise of warrants at $1.00 per share.
(79)
Includes 30,998 shares issuable upon exercise of warrants at $1.00 per
share.
(80)
Includes 29,000 shares subject to our 2008 Notes together with interest at
maturity, 7,131 shares issued upon exercise of warrants at $.01
and at $.30 per share and 6,154 shares issuable upon exercise of
warrants at $1.00 per share.
(81)
Includes 116,000 shares subject to our 2008 Notes together with interest at
maturity, 20,833 shares issuable upon exercise of warrants at $.01 per share,
7,692 shares issuable upon exercise of warrants at $.30 per share and 24,615
shares issuable upon exercise of warrants at $1.00 per share.
(82)
Includes 11,600 shares subject to our 2008 Notes together with interest at
maturity, 2,674 shares issued upon a cashless exercise of warrants at $.01 and
at $.30 per share and 2,462 shares issuable upon exercise of warrants at $1.00
per share.
(83)
Includes 58,000 shares subject to our 2008 Notes together with interest at
maturity, 10,417 shares issuable upon exercise of warrants at $.01 per share,
3,846 shares issuable upon exercise of warrants at $.30 per share and 12,307
shares issuable upon exercise of warrants at $1.00 per share.
(84)
Includes 100,498 shares issuable upon exercise of warrants at $1.00 per
share.
(85)
Includes 29,000 shares subject to our 2008 Notes together with interest at
maturity, 5,208 shares issuable upon exercise of warrants at $.01 per share,
1,923 shares issuable upon exercise of warrants at $.30 per share and 6,154
shares issuable upon exercise of warrants at $1.00 per share.
(86)
Intentionally left blank. (87) Intentionally left blank.
(88)
Intentionally left blank.
23
(89)
Includes 29,000 shares subject to our 2008 Notes together with interest at
maturity, 5,208 shares issuable upon exercise of warrants at $.01 per share,
1,923 shares issuable upon exercise of warrants at $.30 per share and 6,154
shares issuable upon exercise of warrants at $1.00 per share.
(90)
Includes 11,600 shares subject to our 2008 Notes together with interest at
maturity, 2,083 shares issuable upon exercise of warrants at $.01 per share, 769
shares issuable upon exercise of warrants at $.30 per share and 2,462 shares
issuable upon exercise of warrants at $1.00 per share.
(91)
Includes 29,000 shares subject to our 2008 Notes together with interest at
maturity, 5,208 shares issuable upon exercise of warrants at $.01 per share,
1,923 shares issuable upon exercise of warrants at $.30 per share and 6,154
shares issuable upon exercise of warrants at $1.00 per share.
(92)
Includes 116,000 shares subject to our 2008 Notes together with interest at
maturity, 20,833 shares issuable upon exercise of warrants at $.01 per share,
7,692 shares issuable upon exercise of warrants at $.30 per share and 24,615
shares issuable upon exercise of warrants at $1.00 per share.
(93)
Includes 40,000 shares issuable upon exercise of warrants at $1.00 per share,.
JP Turner & Company, LLC is a registered broker dealer and FINRA member
firm, located at 3060 Peachtree Road, 11th Floor, Atlanta, Georgia 30305. JP
Turner & Company, LLC acted as a placement agent in connection with our
offering of common stock and warrants in 2007 and 2008. All of the
shares being registered were received by JP Turner & Company, LLC as
compensation for investment banking services. JP Turner &
Company, LLC distributed such warrants to JP Turner Partners, LP, an associated
entity. William L. Mello has sole voting and investment
control over shares held by JP Turner Partners, LP.
(94)
Includes 89,996 shares issuable upon exercise of warrants at $1.00 per share and
8,750 shares issuable upon exercise of warrants at $.30 per
share. See also footnote 93 for information regarding JP Turner
Partners, LP.
(95) Intentionally
left blank.
(96)
Includes 17,400 shares subject to our 2008 Notes together with interest at
maturity, 3,125 shares issuable upon exercise of warrants at $.01 per share,
1,154 shares issuable upon exercise of warrants at $.30 per share and 3,692
shares issuable upon exercise of warrants at $1.00 per share.
(97)
Includes 116,000 shares subject to our 2008 Notes together with interest thereon
at maturity, 25,943 shares issued upon a cashless exercise of warrants at $.01
and at $.30 per share and 24,615 shares issuable upon exercise of warrants at
$1.00 per share.
(98)
Includes 29,000 shares subject to our 2008 Notes together with interest at
maturity, 5,208 shares issuable upon exercise of warrants at $.01 per share,
1,923 shares issuable upon exercise of warrants at $.30 per share and 6,154
shares issuable upon exercise of warrants at $1.00 per share.
(99)
Includes 4,997 shares issuable upon exercise of warrants at $1.00 per
share.
(100)
Includes 11,600 shares subject to our 2008 Notes together with interest at
maturity, 2,083 shares issuable upon exercise of warrants at $.01 per share, 769
shares issuable upon exercise of warrants at $.30 per share and 2,462 shares
issuable upon exercise of warrants at $1.00 per share.
(101)
Includes 29,000 shares subject to our 2008 Notes together with interest at
maturity, 5,208 shares issuable upon exercise of warrants at $.01 per share,
1,923 shares issuable upon exercise of warrants at $.30 per share and 6,154
shares issuable upon exercise of warrants at $1.00 per share.
(102) Intentionally left
blank.
(103) Intentionally
left blank
(104) Intentionally
left blank. (105) Includes 17,400 shares subject to the 2008 Note together with
interest at maturity, 3,948 shares issued upon a cashless exercise of warrants
at $.01 and at $.30 per share and 3,692 shares issuable upon exercise
of warrants at $1.00 per share.
(106) Includes
29,000 shares subject to our 2008 Notes together with interest at maturity,
5,208 shares issuable upon exercise of warrants at $.01 per share, 1,923 shares
issuable upon exercise of warrants at $.30 per share and 6,154 shares issuable
upon exercise of warrants at $1.00 per share.
(107)
Intentionally left blank
(108)
Intentionally left blank
(109)
Intentionally left blank (110) Includes 21,999 shares issuable upon exercise of
warrants at $1.00 per share.
(111)
Includes 46,400 shares subject to our 2008 Notes together with interest at
maturity, 8,333 shares issuable upon exercise of warrants at $.01 per share,
3,077 shares issuable upon exercise of warrants at $.30 per share and 9,846
shares issuable upon exercise of warrants at $1.00 per share.
(112)
Includes 29,000 shares subject to our 2008 Notes together with interest at
maturity, 5,208 shares issuable upon exercise of warrants at $.01 per share,
1,923 shares issuable upon exercise of warrants at $.30 per share and 6,154
shares issuable upon exercise of warrants at $1.00 per share.
(113)
Intentionally left blank
(114)
Includes 116,000 shares subject to our 2008 Notes together with interest at
maturity, 20,833 shares issuable upon exercise of warrants at $.01 per share,
7,692 shares issuable upon exercise of warrants at $.30 per share and 24,615
shares issuable upon exercise of warrants at $1.00 per share.
(115)
Includes 29,000 shares subject to our 2008 Notes together with interest at
maturity, 5,208 shares issuable upon exercise of warrants at $.01 per share,
1,923 shares issuable upon exercise of warrants at $.30 per share and 6,154
shares issuable upon exercise of warrants at $1.00 per share.
(116)
Includes 29,000 shares subject to our 2008 Notes together with interest at
maturity, 5,208 shares issuable upon exercise of warrants at $.01 per share,
1,923 shares issuable upon exercise of warrants at $.30 per share and 6,154
shares issuable upon exercise of warrants at $1.00 per share.
(117)
Includes 29,000 shares subject to our 2008 Notes together with interest at
maturity, 5,208 shares issuable upon exercise of warrants at $.01 per share,
1,923 shares issuable upon exercise of warrants at $.30 per share and 6,154
shares issuable upon exercise of warrants at $1.00 per share.
(118)
Intentionally left blank.
(119)
Includes 7,083 shares issuable upon exercise of warrants at $.30 per share and
73,996 shares issuable upon exercise of warrants at $1.00 per
share.
(120)
Includes 11,600 shares subject to our 2008 Notes together with interest at
maturity, 2,083 shares issuable upon exercise of warrants at $.01 per share, 769
shares issuable upon exercise of warrants at $.30 per share and 2,462 shares
issuable upon exercise of warrants at $1.00 per share.
(121)
Includes 23,200 shares subject to our 2008 Notes together with interest at
maturity, 4,167 shares issuable upon exercise of warrants at $.01 per share,
1,538 shares issuable upon exercise of warrants at $.30 per share and 4,923
shares issuable upon exercise of warrants at $1.00 per share.
(122)
Includes 29,000 shares subject to our 2008 Notes together with interest at
maturity, 5,208 shares issuable upon exercise of warrants at $.01 per share,
1,923 shares issuable upon exercise of warrants at $.30 per share and 6,154
shares issuable upon exercise of warrants at $1.00 per share.
(123)
Includes 29,000 shares subject to the Company’s 2008 Notes together with
interest at maturity, 6,709 shares issued upon a cashless exercise of warrants
at $.01 and at $.30 per share and 6,154 shares issuable upon exercise of
warrants at $1.00 per share.
(124)
Includes 5,833 shares issuable upon exercise of warrants at $.30 per share and
59,996 shares issuable upon exercise of warrants at $1.00 per
share.
(125)
Includes 100,00 shares issuable on conversion of a convertible note, 16,000
shares issuable as interest at maturity on the convertible note, 20,833 shares
issuable upon exercise of warrants at $.01 per share, 7,692 shares issuable upon
exercise of warrants at $.30 per share and 24,615 shares issuable upon exercise
of warrants at $1.00 per share.
(126)
Includes 116,000 shares subject to our 2008 Notes together with interest at
maturity, 20,833 shares issuable upon exercise of warrants at $.01 per share,
7,692 shares issuable upon exercise of warrants at $.30 per share and 24,615
shares issuable upon exercise of warrants at $1.00 per share.
(127)
Includes 50,000 shares issuable on conversion of a convertible note, 8,000
shares issuable at maturity as interest on the convertible note, 10,417 shares
issuable upon exercise of warrants at $.01 per share, 3,846 shares issuable upon
exercise of warrants at $.30 per share and 12,308 shares issuable upon exercise
of warrants at $1.00 per share.
(128)
Includes 29,000 shares subject to the Company’s 2009 Note together with interest
at maturity, 6,709 shares issued upon a cashless exercise of warrants
at $.01 and at $.30 per share and 6,154 shares issuable upon exercise of
warrants at $1.00 per share.
(129)
Includes 11,600 shares subject to our 2008 Notes together with interest at
maturity, 2,083 shares issuable upon exercise of warrants at $.01 per share, 769
shares issuable upon exercise of warrants at $.30 per share and 2,462 shares
issuable upon exercise of warrants at $1.00 per share.
(130)
Includes 17,497 shares issuable upon exercise of warrants at $1.00 per
share.
(131)
Includes 29,000 shares subject to our 2008 Notes together with interest at
maturity, 5,208 shares issuable upon exercise of warrants at $.01 per share,
1,923 shares issuable upon exercise of warrants at $.30 per share and 6,154
shares issuable upon exercise of warrants at $1.00 per share.
(132)
Includes 2,083 shares issuable upon exercise of warrants at $.01 per share, 769
shares issuable upon exercise of warrants at $.30 per share and 2,462 shares
issuable upon exercise of warrants at $1.00 per share.
(133)
Includes26,571 shares issued upon exercise of warrants at $.01 per share, $.30
per share and 12,308 shares issued upon exercise of warrants at $1.00 per
share.
(134)
Includes 116,000 shares subject to our 2008 Notes together with interest at
maturity, 20,833 shares issuable upon exercise of warrants at $.01 per share,
7,692 shares issuable upon exercise of warrants at $.30 per share and 24,615
shares issuable upon exercise of warrants at $1.00 per share.
(135)
Includes 60,000 shares issuable upon conversion of convertible note, 9,600
shares issuable upon maturity of the convertible note, and 15,000 shares
issuable upon exercise of warrants at $1.50 per share. Also includes 10,417
shares issuable upon exercise of warrants at $.01 per share, 3,846 shares
issuable upon exercise of warrants at $.30 per share and 12,308 shares issuable
upon exercise of warrants at $1.00 per share.
(136) Intentionally left
blank.
24
(137)
Includes 100,000 shares issuable on conversion of a convertible note, 16,000
share issuable at maturity as interest on the convertible note, 20,833 shares
issuable upon exercise of warrants at $.01 per share, 7,692 shares issuable upon
exercise of warrants at $.30 per share and 24,615 shares issuable upon exercise
of warrants at $1.00 per share.
(138)
Includes 23,235 shares issuable upon exercise of warrants at $.30 per share and
214,997 shares issuable upon exercise of warrants at $1.00 per
share.
(139)
Includes 29,000 shares subject to our 2008 Notes together with interest at
maturity, 5,208 shares issuable upon exercise of warrants at $.01 per share,
1,923 shares issuable upon exercise of warrants at $.30 per share and 6,154
shares issuable upon exercise of warrants at $1.00 per share.
(140)
Intentionally left blank.
(141)
Intentionally left blank.
(142)
Includes 166,000 shares issuable upon conversion of convertible note, 26,560
shares issuable upon maturity of the convertible note, and 249,000 shares
issuable upon exercise of warrants at $1.50 per share.
(143)
Includes 25,000 shares issuable upon conversion of convertible note, 4,000
shares issuable upon maturity of the convertible note, and 37,500 shares
issuable upon exercise of warrants at $1.50 per share.
(144)
Includes 50,000 shares issuable upon conversion of convertible note, 8,000
shares issuable upon maturity of the convertible note, and 75,000 shares
issuable upon exercise of warrants at $1.50 per share. Mr. Garfinkle
is a director of the Company.
(145)
Includes 50,000 shares issuable upon conversion of convertible note, 8,000
shares issuable upon maturity of the convertible note, and 75,000 shares
issuable upon exercise of warrants at $1.50 per share.
(146)
Includes 20,000 shares issuable upon conversion of convertible note, 3,200
shares issuable upon maturity of the convertible note, and 30,000 shares
issuable upon exercise of warrants at $1.50 per share. Mr. Israel is
a director of the Company.
(147)
Intentionally left blank.
(148)
Includes 15,000 shares issuable upon conversion of convertible note, 2,400
shares issuable upon maturity of the convertible note, and 22,500 shares
issuable upon exercise of warrants at $1.50 per share.
(149)
Includes 30,000 shares issuable upon conversion of convertible note, 4,800
shares issuable upon maturity of the convertible note, and 45,000 shares
issuable upon exercise of warrants at $1.50 per share.
(150)
Includes 15,000 shares issuable upon conversion of convertible note, 2,400
shares issuable upon maturity of the convertible note, and 22,500 shares
issuable upon exercise of warrants at $1.50 per share.
(151)
Intentionally left blank.
(152)
Includes 10,000 shares issuable upon conversion of convertible note, 1,600
shares issuable upon maturity of the convertible note, and 15,000 shares
issuable upon exercise of warrants at $1.50 per share.
(153)
Includes 10,000 shares issuable upon conversion of convertible note, 1,600
shares issuable upon maturity of the convertible note, and 15,000 shares
issuable upon exercise of warrants at $1.50 per share.
(154)
Intentionally left blank. (155) Intentionally left blank.
(156)
Includes 350,000 shares issuable upon conversion of convertible note, 56,000
shares issuable upon maturity of the convertible note, and 525,000 shares
issuable upon exercise of warrants at $1.50 per share.
(157)
Includes 20,000 shares issuable upon conversion of convertible note, 3,200
shares issuable upon maturity of the convertible note, and 30,000 shares
issuable upon exercise of warrants at $1.50 per share.
(158)
Includes 25,000 shares issuable upon conversion of convertible note, 4,000
shares issuable upon maturity of the convertible note, and 37,500 shares
issuable upon exercise of warrants at $1.50 per share.
(159)
Includes 30,000 shares issuable upon conversion of convertible note, 4,800
shares issuable upon maturity of the convertible note and 45,000 shares issuable
upon exercise of warrants at $1.50 per share.
(160)
Includes 17,500 shares issuable upon conversion of convertible note, 2,800
shares issuable upon maturity of the convertible note, and 26,250 shares
issuable upon exercise of warrants at $1.50 per share.
(161)
Includes 172,000 shares issuable upon conversion of convertible note, 27,520
shares issuable upon maturity of the convertible note, and 258,000 shares
issuable upon exercise of warrants at $1.50 per share.
(162)
Includes 3,812,500 shares issuable upon conversion of convertible note, 610,000
shares issuable upon maturity of the convertible note, and 5,718,750 shares
issuable upon exercise of warrants at $1.50 per share.
(163)
Intentionally left blank.
(164)
Includes 30,000 shares issuable upon conversion of convertible note, 4,800
shares issuable upon maturity of the convertible note, and 45,000 shares
issuable upon exercise of warrants at $1.50 per share.
(165)
Includes 10,000 shares issuable upon conversion of convertible note, 1,600
shares issuable upon maturity of the convertible note, and 15,000 shares
issuable upon exercise of warrants at $1.50 per share.
(166)
Includes 10,000 shares issuable upon conversion of convertible note, 1,600
shares issuable upon maturity of the convertible note, and 15,000 shares
issuable upon exercise of warrants at $1.50 per share.
(167)
Includes 25,000 shares issuable upon conversion of convertible note, 4,000
shares issuable upon maturity of the convertible note, and 37,500 shares
issuable upon exercise of warrants at $1.50 per share.
(168)
Includes 30,000 shares issuable upon exercise of warrants at $1.50 per
share.
(169)
Includes 100,000 shares issuable upon conversion of convertible note, 16,000
shares issuable upon maturity of the convertible note, and 150,000 shares
issuable upon exercise of warrants at $1.50 per share.
(170)
Includes 25,000 shares issuable upon conversion of convertible note, 4,000
shares issuable upon maturity of the convertible note, and 37,500 shares
issuable upon exercise of warrants at $1.50 per share.
(171)
Includes 25,000 shares issuable upon conversion of convertible note, 4,000
shares issuable upon maturity of the convertible note, and 37,500 shares
issuable upon exercise of warrants at $1.50 per share.
(172)
Includes 70,000 shares issuable upon conversion of a convertible note, 11,220
shares issuable upon maturity of the convertible note, and 105,000 issuable upon
exercise of warrants at $1.50.
(173)
Includes 30,000 shares issuable upon conversion of a convertible note, 4800
shares issuable upon maturity of the convertible note, and 45,000 shares
issuable upon exercise of warrants at $1.50.
(174)
Includes 100,000 shares issuable upon conversion of a convertible note, 16,000
shares issuable upon maturity of the convertible note, and 150,000 shares
issuable upon exercise of warrants at $1.50.
(175)
Includes 50,000 shares issuable upon conversion of a convertible note, 8,000
shares issuable upon maturity of the convertible note, and 75,000 shares
issuable upon exercise of warrants at $1.50.
(176)
Includes 100,000 shares issuable upon conversion of a convertible note, 16, 000
shares issuable upon maturity of the convertible note, and 150, 000 shares
issuable upon exercise of warrants at $1.50
(177)
Includes 50,000 shares issuable upon conversion of a convertible note, 8,000
shares issuable upon maturity of the convertible note, and 75,000 shares
issuable upon exercise of warrants at $1.50.
(178)
Includes 50,000 shares issuable upon conversion of a convertible note, 8,000
shares issuable upon maturity of the convertible note, and 75,000 shares
issuable upon exercise of warrants at $1.50.
(179)
Includes 211,400 shares issuable upon exercise of warrants at
$1.50.
(180)
Includes 10,000 shares issuable upon exercise of warrants at $1.50.
25
PLAN
OF DISTRIBUTION
The
selling shareholders (the “Selling Shareholders”), which, as used herein,
includes donees, pledgees, transferees or
other successors-in-interest of a Selling Stockholder selling shares
of Common Stock or interests in shares of Common Stock received after
the date of this prospectus from a Selling Shareholder as a gift, pledge,
partnership distribution or other transfer) may, from time to time, sell,
transfer or otherwise dispose of any or all of their shares of Common Stock or
interests in shares of Common Stock on any stock exchange, market
or trading facility on which the shares are traded or in
private transactions. These dispositions may be at fixed
prices, at prevailing market prices at the time of sale, at prices related to
the prevailing market price, at varying prices determined at the time
of sale, or at negotiated prices. The Selling Shareholders may use
any one or more of the following methods when disposing of shares or
interests therein:
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ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
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block
trades in which the broker-dealer will attempt to sell the
shares as agent, but may position and resell a portion of the block
as principal to facilitate the
transaction;
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purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
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an
exchange distribution in accordance with the rules
of the applicable exchange;
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privately
negotiated transactions;
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short
sales effected after the date
the registration statement of which this Prospectus
is a part is declared effective by the
SEC;
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through
the writing or settlement of options or other hedging
transactions, whether through an options exchange or
otherwise;
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broker-dealers
may agree with the Selling Shareholders to sell a specified number of such
shares at a stipulated price per share; and a combination of any such
methods of sale.
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The
Selling Shareholders may, from time to time, pledge or grant a security interest
in some or all of the shares of Common Stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of Common Stock, from time to time,
under this Prospectus, or under an amendment to this Prospectus under Rule
424(b)(3) or other applicable provision of the 1933
Act amending the list of Selling Shareholders
to include the pledgee, transferee or other successors-in- as Selling
Shareholders under this Prospectus. The Selling Shareholders also may
transfer the shares of Common Stock in other circumstances, in which
case the transferees, pledgees or other successors-in-interest will be the
selling, beneficial owners for purposes of this Prospectus.
Broker-dealers
engaged by the Selling Shareholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or
discounts from the Selling Shareholders (or, if
any broker-dealer acts as agent for the purchaser of shares, from
the purchaser) in amounts to be negotiated. The Selling
Shareholders do not expect these commissions and discounts to exceed what is
customary in the types of transactions involved.
In
connection with the sale of our Common Stock or interests therein, the Selling
Shareholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the Common
Stock in the course of hedging the positions they
assume. The Selling Shareholders may also sell shares of our Common
Stock short and deliver these securities to close out their short positions, or
loan or pledge the Common Stock to broker-dealers that in turn may
sell these securities. The Selling Shareholders may also
enter into option or other transactions with broker-dealers or
other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this Prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
Prospectus (as supplemented or amended to reflect such
transaction).
The
Selling Shareholders will receive the aggregate proceeds from the sale of the
Common Stock offered by them. The aggregate proceeds to the Selling
Shareholders from the sale of the
Common Stock offered by them will be the
purchase price of the Common Stock less discounts or commissions, if
any. Each of the Selling Shareholders reserves the right to accept
and, together with their agents from time to time, to reject, in whole or in
part, any proposed purchase of Common Stock to be made directly or through
agents. We will not receive any of the proceeds from the sale of
Common Stock in this offering. We may receive proceeds
from holders who exercise their warrants and pay the applicable cash exercise
price in connection with those exercises.
The
Selling Shareholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144
under the 1933 Act rather than under this Prospectus, provided that they meet
the criteria and conform to the requirements of that rule.
The
Selling Shareholders and any underwriters, broker-dealers or agents that
participate in the sale of the Common Stock or interests therein may be
“underwriters” within the meaning of Section 2(11) of the
1933 Act. Any discounts, commissions,
concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the 1933
Act. Selling Shareholders who are “underwriters” within
the meaning of Section 2(11) of the 1933 Act will be subject to the prospectus
delivery requirements of the 1933 Act.
To the
extent required the shares of our Common Stock to be sold, the names
of the Selling Shareholders, the respective purchase prices and public offering
prices, the names of any agent, dealer or underwriter, any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate,
a post-effective amendment to the registration statement that
includes this Prospectus.
In order
to comply with the securities laws of some states, if applicable, the
Common Stock may be sold in these jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states
the Common Stock may not be sold unless it has been registered or qualified for
sale or an exemption
from registration or qualification requirements
is available and is complied with.
We have
advised the Selling Shareholders that the anti-manipulation rules of Regulation
M under the 1934 Act may apply to sales of shares in the market and
to the activities of the Selling Shareholders and their
affiliates. In addition, we will make copies of this Prospectus (as
it may be supplemented or amended from time to time) available to the Selling
Shareholders for the purpose of satisfying the prospectus delivery requirements
of the 1933 Act. The Selling Shareholders may indemnify any
broker-dealer that participates in transactions involving the sale of
the shares of Common Stock against certain liabilities, including
liabilities arising under the 1933 Act.
We will
pay all of the expenses incident to registration other than commissions, fees
and discounts of underwriters, brokers, dealers and agents. We will pay for
offering expenses including the SEC registration fee, accounting fees, legal
fees, printing expenses and other related have agreed to indemnify the Selling
Shareholders against liabilities, including liabilities under the 1933 Act and
state securities laws, relating to the registration of the
shares offered by this Prospectus.
We have
agreed with the Selling Shareholders to keep the registration
statement of which this Prospectus constitutes a part effective until the
earlier of (1) such time as all of the shares covered by this Prospectus have
been disposed of pursuant to and in accordance with the registration statement
or (2) the date on which the shares may be sold pursuant to Rule 144 without any
restrictions of the 1933 Act.
26
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The
following table sets forth, for the periods indicated, the high and low closing
prices for our common stock, as quoted for trading on the American Stock
Exchange under the symbol “ZTM” and on the Over-the-Counter Bulletin Board under
the symbol “ZTMH” and “ZTHO.” Our common stock began trading on the American
Stock Exchange on March 31, 2004. On September 16, 2008, our Company
moved from the American Stock Exchange and began trading on the Over-the-Counter
Bulletin Board. As of the close of business on February 6, 2009, the
Company effectuated a one-for-thirty (1:30) reverse stock split. All
prices in the following table reflect post-reverse split prices.
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Common Stock
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Quarter Ended
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High
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Low
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2008
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March
31, 2008
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$14.40
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$6.30
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June
30, 2008
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$10.80
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$3.60
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September
30, 2008
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$6.90
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$0.90
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December
31, 2008
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$4.50
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$0.60
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2009
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March
31, 2009
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$1.50
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$0.25
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June
30, 2009
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$2.20
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$0.99
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September
30, 2009
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$1.11
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$0.79
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December
31, 2009
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$2.00
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$0.62
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2010
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March
31, 2010
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$1.95
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$0.99
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May
10, 2010
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$1.20
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$0.90
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As of May
10, 2010, there were approximately 5,424 record holders of the common
stock. This number does not include shareholders whose shares are
held in securities position listings. We have never paid any
dividends on our common stock and do not anticipate paying any dividends in the
foreseeable future. Our 8% Convertible Notes issued in 2008, 2009 and
2010 restrict our ability to pay dividends without the consent of the
Noteholders.
EQUITY
COMPENSATION PLAN INFORMATION
(AS OF
DECEMBER 31, 2009)
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NUMBER
OF SHARES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND
RIGHTS
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WEIGHTED-AVERAGE
EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS
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REMAINING
AVAILABLE FOR FUTURE ISSUANCE UNDER EQUITY COMPENSATION PLANS (EXCLUDING
SECURITIES REFLECTED IN 1ST PLAN CATEGORY COLUMN
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Equity
compensation plans approved by security holders (consisting of the 2004
Stock Incentive Plan):
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1,405,062
(2)
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$0.66
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18,471,605
(1)
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(1)
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Reflects
20,000,000 shares registered under the plan less the outstanding options
less 123,333 shares issued to external directors under the
Plan.
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(2)
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On
or about May 10, 2010, the Company rescinded by mutual agreement all stock
options issued in 2009 that had an exercise price below $1.00 to be null
and void from inception. In total 1,320,000 stock options were
rescinded. In consideration for such, the Company issued
1,882,500 stock options to employees, of which 1,567,500 were issued with
an exercise price of $1.01, and 315,000 were issued with a strike price of
$1.10.
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Plans not
approved by shareholders: None
27
DESCRIPTION
OF CAPITAL STOCK
Our
authorized capitalization consists of 200,000,000 shares of common stock,
$.00005 par value per share, and 50,000,000 shares of preferred stock of which
5,000,000 have been designated Series A and 1,000,000 have been designated
Series I. As May 1, 2010 none of the preferred have been issued.
COMMON
STOCK
We have
3,603,217 shares of our common stock issued and outstanding as of May 10, 2010.
In addition we have warrants to purchase 11,755,218 shares of our common stock
at prices ranging from $30.00 to $0.01 per share.
Voting
Rights. The holder of a share of common stock is entitled to one vote for all
purposes. Cumulative voting is permitted in the election of directors.
Accordingly, every shareholder has the right to vote the number of shares owned
by him for as many persons as there are directors to be elected, or to cumulate
their shares, and give one candidate as many votes as the number of directors
multiplied by the number of his/her shares, or to distribute them on the same
principle among as many candidates as the shareholder desires. On all matters,
other than the election of directors a vote of majority of the votes cast,
except where the Illinois Business Corporation Act prescribes a greater
percentage of votes and/or exercise of voting power, such as an amendment of our
Articles of Incorporation..
Dividend
Rights. Subject to preferential rights with respect to future outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available therefor. We have never paid any dividends on our common stock. The
declaration in the future of any cash or stock dividends will be at the
discretion of the board of directors and will depend upon the earnings, capital
requirements, and financial position of the Company, general economic
conditions, and other pertinent factors. In addition the 8% Convertible Notes of
the Company issued in 2008 and 2009 restrict the Company’s ability to pay
dividends. The Series A and the Series I Convertible Preferred Stock of the
Company also restricts the Company’s ability to pay dividends on its common
stock. There is no assurance that any dividends will be paid in the future as we
have no present plans to pay dividends.
Liquidation
Rights. In the event of a liquidation, dissolution or winding up, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and satisfaction of preferential rights and have no rights to
convert their Common Stock into any other securities.
Preemptive
Rights, Conversion Rights, Redemption Provisions, Sinking Fund Provision and
Liability to Further Calls and Assessments. There are no preemptive or
conversion rights, redemption provisions, or sinking fund provisions relating to
the common stock. All currently outstanding shares of common stock are fully
paid and nonassessable. The rights of holders of the existing class of common
stock may in the future become subject to prior and superior rights and
preferences of the Series A and Series I as well as any other series that the
board of directors may establish.
PREFERRED
STOCK.
The
Company has authority to issue 10,000,000 shares of Preferred
Stock. As of the date hereof, there are no shares of the Company’s
Preferred Stock outstanding. The Company’s board of directors may issue the
authorized Preferred Stock in one or more series and may fix the number of
shares of each series of Preferred Stock. The board of directors also
has the authority to set the voting powers, designations, preferences and
relative, participating, optional or other special rights of each series of
Preferred Stock, including the dividend rights, dividend rate, terms of
redemption, redemption price or prices, conversion and voting rights and
liquidation preferences. Preferred Stock can be issued and its terms set by the
board of directors without any further vote or action by the Company’s
shareholders. The Board of Directors has authorized a Series A
preferred stock which it currently has no intention to issue. It has also
authorized a Series I 8% Convertible Preferred Stock for a maximum of 1,000,000
shares of the Series I. Payment of the dividend, mandatory redemption and any
provisions requiring payment on the Preferred Stock are deferred (the
“Deferral”) until the 2008 Notes (as defined below) due in 2010 and the 2009
Notes due in 2011 and 2012 (collectively the “Notes”) are paid in
full. Such Deferral, even if the maturity dates on the Notes are extended, will
not constitute a default under the Preferred Stock terms.
Dividend
Provisions. Subject
to the Deferral, the holders of shares of Series I Preferred Stock are entitled
to receive dividends, out of any assets legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable other than in
shares of common stock of the Company, or other securities and rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock) on the shares of Common Stock, at
the rate of 8% of $5.00 per share (the “Original Series I Issue
Price”) per annum, payable in shares of the Common Stock, at the option
of the Holder, either quarterly or on the Redemption Date (as hereinafter
defined). The Original Series I Issue Price of the Series I Preferred
Stock is $5.00 per share. The initial Conversion Price is
$1.00. Dividends accrue on each share from the date of issuance of
the Series I Preferred Stock(the “Issuance Date”), and
accrue from day to day, whether or not earned or declared. Dividends
are cumulative.
Liquidation Preference. In
the event of any liquidation, dissolution or winding up of the Company, either
voluntary or involuntary, subject to the rights of a series of preferred stock
that may from time to time come into existence, the holders of Series I
Preferred Stock are entitled to receive ratably, prior to and in
preference to any distribution of any of the assets of the Company to the
holders of Common Stock, an amount per share equal to the sum of (i) the
Original Series I Issue Price, ($5.00) for each outstanding share of Series I
Preferred Stock and (ii) accrued but unpaid dividends on such
share. A liquidation, dissolution or winding up of the Company shall
be deemed to be occasioned by, or to include, (A) the acquisition of the Company
by another entity by means of any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation but,
excluding any merger effected exclusively for the purpose of changing the
domicile of the Company); or (B) a sale of all or substantially all of the
assets of the Company; unless the Company’s
shareholders of record as constituted immediately prior to such acquisition or
sale will, immediately after such acquisition or sale (by virtue of securities
issued as consideration for the Company’s acquisition or sale or otherwise) hold
at least 50% of the voting power of the surviving or acquiring entity (each of
such events, a “Deemed
Liquidation Event”). In any of such events, if the consideration received
by the Company is other than cash, its value will be deemed its fair market
value.
Redemption.
Subject to the rights of preferred stock which may from time to time come into
existence and the Deferral referred to above, the Company shall
redeem, pro rata, from any source of funds legally available therefor, the
Series I Preferred Stock 24 months after the Issuance Date of each share of such
Series I Preferred Stock (the “Series I Redemption
Date”). The redemption by the Company must be
paid in cash in exchange for the shares of Series I Preferred Stock
to be redeemed in an amount equal to the sum of $5.00 per
share of Series I Preferred Stock (as adjusted for any stock dividends,
combinations or splits with respect to such shares) plus all accrued or
accumulated but unpaid dividends, on such shares payable in the shares of the
Common Stock (the “Series I Redemption
Price”). Conversion. Each
share of Series I Preferred Stock shall be convertible, at the option of the
Holder thereof, at any time after the date of issuance of such share and on or
prior to the fifth day prior to the Redemption Date, if any, at the office of
the Company or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing (x) the
Original Series I Issue Price plus the amount represented by accrued but unpaid
dividends on such share by (y) the Conversion Price (as defined
below) applicable to such share, determined as hereafter provided, in
effect on the date the certificate is surrendered for conversion.
Conversion
Price/Adjustment. The initial Conversion Price per share for shares of Series I
Preferred Stock is $1.00 , subject to adjustment, stock splits and combinations,
certain dividends and distributions; reclassification, exchange or substitution,
reorganization, merger, consolidation or sales of assets. In addition, in the
event that the Company sells or issues Common Stock after the Issuance Date at a
price less than the Conversion Price in effect immediately prior to such sale or
issuance, then the Conversion Price shall be reduced immediately thereafter so
that it shall equal the price at which such Conversion Shares are sold or
issued, as applicable. Subject to the readjustment provisions
hereinafter set forth, in case the Company shall at any time after the Issuance
Date issue options, rights or warrants to subscribe for Common Stock, or issue
any securities convertible into or exchangeable for Common Stock (collectively
the “Rights”), for a consideration per share less than the Conversion Price in
effect immediately prior to the issuance of such Rights, or without
consideration, the Conversion Price in effect immediately prior to the issuance
of such Rights, shall be reduced to the price established for such Rights that
entitle the holders thereof to receive Common Stock . Readjustment
Provisions. If (i)any change shall occur in the price per
share provided for in any of the Rights: (ii) any change shall occur in the
price per share at which the securities referred to in this subsection are
exchangeable; (iii) any of the Rights are exercised in an amount or at a price
different from the assumed aggregate maximum number of shares or the minimum
purchase price provided in this subsection; or (iv) any of the Rights are
cancelled or expire without being exercised, then (x) such Rights, as the case
may be, shall be deemed to have been cancelled, expired or terminated on the
date when such price change, exercise or expiration became effective in respect
to shares not theretofore issued pursuant to the exercise or exchange thereof,
(y) the Company shall be deemed to have issued upon such date new Rights at the
new price in respect of the number of shares issuable upon the exercise of such
Rights, and (z) the adjustment to Conversion Price provided in this subsection
shall be recalculated as if the original issuance causing the prior adjustment
to Conversion Price had not occurred. Consequently, if the Rights are
subsequently modified, cancelled or expire without exercise, any adjustment
previously made to the Conversion Price shall be readjusted to reflect such
modification, cancellation and or expiration. Any reset of the
Conversion Price shall not reduce the Conversion Price below $0.10.
28
No
Adjustment of Conversion Price in Certain Cases. No adjustment of the Conversion
Price shall be made:
(A) Upon
issuance or sale of the Series I Preferred Stock, or the warrants and warrant
shares issued in connection with the issuance of the Series I Preferred Stock,
or shares of Common Stock issuable upon exercise of other options, warrants and
convertible securities outstanding as of the Issuance Date of the Series I
Preferred Stock.
(B) Upon
the issuance or sale of any shares of capital stock, or the grant of options
exercisable therefor, outstanding as of, or granted, exercised, issued or
issuable on or after the first issuance of the Series I Preferred Stock, to
directors, officers, employees, advisers and consultants of the Corporation or
any subsidiary pursuant to any incentive or non-qualified stock option plan or
agreement, stock purchase plan or agreement, stock restriction agreement or
restricted stock plan, employee stock ownership plan (ESOP), consulting
agreement, stock appreciation right (SAR), stock depreciation right (SDR), bonus
stock arrangement, or such other similar compensatory options, issuances,
arrangements, agreements or plans approved by the Board of Directors of the
Corporation.
(C) Upon
the issuance of any shares of capital stock or the grant of warrants or options
(or the exercise thereof) as consideration for mergers (other than as referred
to in Subsection D. 4. (a) (iv) above), acquisitions, strategic alliances and
other commercial transactions, other than in connection with a financing
transaction.
(D) If
the amount of said adjustment shall be less than one cent ($0.01) per security
issuable upon conversion of the Series I Preferred Stock; provided, however,
that in such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least one cent ($0.01) per security issuable upon
conversion of the Series I Preferred Stock.
If the
Company fails for any reason to deliver to any Holder any certificate or
certificates by the fifth Trading Day after the Conversion Date, the Company
shall pay to such Holder, in cash, as liquidated damages and not as a penalty,
for each $1,000 of the amount of the Redemption Price for the shares of the
Series I Preferred Stock being converted, $5 per Trading Day (increasing to $10
per Trading Day after five Trading Days after such damages begin to accrue) for
each Trading Day after such fifth Trading Day until such certificates are
delivered.
Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion. In addition to any other rights available to the Holder,
if the Company fails for any reason to deliver to the Holder any certificate or
certificates required by the fifth Trading Day after the Conversion Date, and if
after such fifth Trading Day the Holder is required by its brokerage firm to
purchase (in an open market transaction or otherwise) Common Stock to deliver in
satisfaction of a sale by such Holder of the Conversion Shares which the Holder
anticipated receiving upon such conversion (a “Buy-In”), then the
Company shall (i) pay in cash to the Holder (in addition to any remedies
available to or elected by the Holder) the amount by which (x) the Holder’s
total Original Series I Issue Price (including brokerage commissions, if any)
for the Common Stock so purchased exceeds (y) the product of (1) the aggregate
number of shares of Common Stock that such Holder anticipated receiving from the
conversion at issue multiplied by (2) the actual sale price of the Common Stock
at the time of the sale (including brokerage commissions, if any) giving rise to
such purchase obligation and (ii) at the option of the Holder, either
reissue Series I Preferred Stock in an amount equal to the Original
Series I Issue Price of the attempted conversion or deliver to the Holder the
number of shares Common Stock that would have been issued had the Company timely
complied with its delivery requirements.
Fractional Shares. No
fractional shares of Common Stock shall be issued upon conversion of the Series
I Preferred Stock. In lieu of any fractional shares to which a Holder
would otherwise be entitled, the Company shall pay in cash any remainder
resulting from after the number of whole Common Stock is determined as a result
of any conversion. If the Company elects not, or is unable, to make
such a cash payment, the Holder shall be entitled to receive, in lieu of the
final fraction of a Common Share, one whole Common Share.
Voting Rights. The
Holder of each share of Series I Preferred Stock shall not have the have the
right to vote except as expressly set forth under the section
entitled “Waiver” below and as may be required under the
Illinois Business Company Act.
Waiver.
Any of the rights, powers, preferences and other terms of the Series I Preferred
Stock may be amended or waived on behalf of all holders of the Series I
Preferred Stock by the affirmative written consent or vote of the holders of at
least a simple majority of the Series I Preferred Stock then
outstanding.
Protective
Provisions. The
terms of the Series I Preferred Stock also contain provisions, subject to the
rights of the holders of other series of preferred stock, which
prohibit the Company from taking certain actions as long as at least 1,200,000
shares of the Series I Preferred stock (subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) or 30% of the total number of shares of
the Series I Preferred Stock issued, whichever is less, are outstanding, without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least a majority of the then outstanding shares of
the Series I Preferred Stock.
29
8%
CONVERTIBLE SECURED NOTES ISSUED IN 2008
The 8%
Convertible Notes (the “2008 Notes”) are convertible at any time until maturity,
at the election of the 2008 Note holder, into shares of Common Stock at the rate
of $1.00 per share (or 100,000 shares per each Unit investment of
$100,000). The 2008 Notes mature in 2010. The conversion price is
subject to adjustment on the basis of a full ratchet anti-dilution provision. At
maturity, the 2008 Note holders will have the option to convert their 2008 Note
in full to Common Stock or will be entitled to be repaid the principal amount of
the 2008 Note in cash. The 2008 Notes bear interest, payable in
Common Stock at the rate of 8% per annum, payable in shares of Common Stock at
the election of the Holder quarterly in arrears or upon maturity. The
number of Common Shares to be issued to the Holder is equal to the result
obtained by dividing (x) the amount of interest accrued by (y) the Conversion
Price. The 2008 Notes are secured by a first lien on all assets of
the Company for so long as the 2008 Notes remain outstanding. The 2008 Notes
restrict that Company’s ability to take certain actions including paying
dividends or redeeming its capital stock. The 2008 Notes rank pari
passu, with the 2009 Notes described below. At maturity, interest on
the 2008 Notes would be convertible into an additional 713,120 shares. The 2008
Notes do not confer any voting rights or any other rights as a Company
stockholder The Company entered into registration rights agreements with the
holder of the 2008 Notes covering the shares of common stock issuable upon
conversion of the 2008 Notes and exercise of the 2008 warrants that were issued
in connection with the purchase of the 2008 Notes. The foregoing
description is qualified in its entirety by reference to a copy of the form of
the 2008 Notes and related documentation filed with the SEC as an exhibit to the
Company’s Current Report on Form 8-K on June 24, 2008.
8%
CONVERTIBLE SECURED NOTES ISSUED IN 2009
The 8%
Convertible Notes (the “2009 Notes”) are convertible at any time until maturity,
at the election of the Note holder, into shares of Common Stock at the rate of
$1.00 per share (or 10,000 shares per each Unit investment of
$10,000). The 2009 Notes mature in 2011 and 2012. At
maturity, the 2009 Note holders will have the option to convert their 2009 Note
in full to Common Stock or will be entitled to be repaid the principal amount of
the Note in cash. The 2009 Notes bear interest, payable in Common
Stock at the rate of 8% per annum, payable in common stock, at the option of the
holder either quarterly or upon maturity. The 2009 Notes are secured
by a first lien on all assets of the Company for so long as the Notes remain
outstanding. The Notes restrict the Company’s ability to take certain
actions including, paying dividends or redeeming its capital stock. The 2009
Notes rank pari passu with the 2008 Notes. The 2009 Notes
do not confer any voting rights or any other rights as a Company stockholder.
The 2009 Notes, warrants and the other documents comprising the 2009 offering
were amended to conform to the terms and conditions of the 2008 Notes and
related documents and agreements, including a registration rights agreement and
full ratchet anti dilution conversion and exercise price adjustment provisions
applicable to the 2009 Note and the warrant; as well as the payment of interest
on the Notes in Common Stock, at the option of the holder, quarterly or at
maturity rather than just at maturity. The 2009 Notes may be amended or modified
and the observance of any term may be waived, with the consent of the holders of
2009 Notes representing a majority of the aggregate outstanding
principal. At maturity, interest on the 2009 Notes will be
convertible into an additional 884,442 shares. The foregoing description is
qualified in its entirety by reference to a copy of the form of the 2009 Notes,
as amended, and the related documentation, filed as an exhibit to the
Company’s Current Report on Form 8-K with the SEC on October 16,
2009.
WARRANTS
AND VARIABLE PRICE 11,755,218 shares of Common Stock issuable upon exercise of
warrants outstanding, including warrants for 83,333
shares at a variable price equal to the lowest twelve-trading-day
average closing price of our Common Stock at any point between February 13, 2008
and February 8, 2011, as elected by the holder (the “Variable Warrants”),
expiring February 8, 2011. Any exercise of the Variable
Warrants could be at a substantial discount to the then-current market price,
which could result in charges to earnings and substantial dilution to existing
shareholders.
2008
Warrants
The
following is a summary of certain provisions of the two types of warrants issued
by the Company in connection with a private placement effected at various dates
in 2008 (the “2008 Warrants”). This summary does not purport to be
complete and is qualified in all respects by reference to the actual text of the
Warrants, the forms of which were filed as exhibits to the Company’s Current
Report on Form 8-K filed with the SEC on June 24, 2008. Each 2008 Warrant
entitles the holder thereof to purchase shares of Common Stock, at any time
until five years from the date of issuance, at a per share price of
$0.30 for the $0.30 Warrants and $4.80 per share for the $4.80 Warrants, subject
to certain adjustments. No fractional shares will be issued upon the exercise of
the 2008 Warrants. The exercise price and the number of shares of
Common Stock purchasable upon the exercise of the Warrants are subject to
adjustment upon the occurrence of certain events, including stock dividends,
stock splits, combinations or reclassifications of the Common Stock.
Additionally, an adjustment would be made in the case of a reclassification or
exchange of Common Stock, consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the surviving corporation) or sale of all or substantially all of the assets
of the Company in order to enable holders of the 2008 Warrants to acquire the
kind and number of shares of stock or other securities or property receivable in
such event by a holder of the number of shares of Common Stock that might
otherwise have been purchased upon the exercise of the 2008
Warrant. The 2008 Warrants also contain a full ratchet anti-dilution
adjustment that is applicable upon the Company issuing certain stock or warrants
for a consideration per share less than the exercise price in effect immediately
prior to the issuance or sale of such shares. No adjustment to the number of
shares and exercise price of the shares subject to the Warrants will be made for
dividends (other than stock dividends), if any, paid on the Company’s Common
Stock as well as certain other events set forth in the 2008
Warrants. The Warrants do not confer upon holders any voting,
dividend or other rights as shareholders of the Company.
2009
Warrants
The
following is a summary of certain provisions of the 2009
Warrants and does not purport to be complete and is qualified in all
respects by reference to the actual text of the Warrants, the form of which was
filed as an exhibit to Company’s Current Report on form 8-K filed with the SEC
on October 16, 2009. Each Warrant entitles the holder thereof to
purchase shares of the Common Stock at any time until five years after the date
of issuance, at a per share price of $1.50. The exercise price and the number of
shares of Common Stock purchasable upon the exercise of the Warrants are subject
to adjustment upon the occurrence of certain events, including stock dividends,
stock splits, combinations or reclassifications of the Common
Stock. Additionally, an adjustment would be made in the case of a
reclassification or exchange of Common Stock, consolidation or merger of the
Company with or into another corporation (other than a consolidation or merger
in which the Company is the surviving corporation) or sale of all or
substantially all of the assets of the Company in order to enable holders of the
Warrants to acquire the kind and number of shares of stock or other securities
or property receivable in such event by a holder of the number of shares of
Common Stock that might otherwise have been purchased upon the exercise of the
Warrant. No adjustment to the number of shares and exercise price of
the shares subject to the Warrants will be made for dividends (other than stock
dividends), if any, paid on the Company’s Common Stock as well as certain other
events set forth in the Warrant. No fractional shares will
be issued upon the exercise of the Warrants. The Warrants also
contain full ratchet anti-dilution adjustment protection that is applicable upon
the Company issuing certain stock or warrants for a consideration per share less
than the exercise price in effect immediately prior to the issuance or sale of
such shares. Holders of warrants representing a majority of the underlying
warrant shares may waive a price adjustment. The Warrants do not confer upon
holders any voting, dividend or other rights as shareholders of the
Company.
The
Transfer Agent and Registrar for shares of our common stock is
American Stock Transfer. Our Transfer Agent and Registrar’s telephone number is
718.921.8208
LEGAL
MATTERS
The
validity of the Common Stock registered hereunder has been passed upon for us by
Epstein Becker & Green, P.C., Chicago, Illinois.
EXPERTS
Our
financial statements as of and for the year ended December
31, 2009 and 2008 included in this prospectus and in the registration
statement have been audited by M&K CPAS, PLLC, an independent registered
public accounting firm as stated in the reports included herein.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
At the
present time our By Laws provide broad indemnification of our current and former
directors and officers and certain corporate officers.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, the registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable.
WHERE
YOU CAN GET MORE INFORMATION
We have
filed with the SEC a registration statement on Form S-1 under the Securities Act
of 1933 with respect to the shares of common stock offered
hereby. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information in the registration statement
and the exhibits of the registration statement. For further information with
respect to us and the securities being offered under this prospectus, we refer
you to the registration statement, including the exhibits and schedules
thereto.
You may
read and copy the registration statement of which this prospectus is a part at
the SEC’s Public Reference Room, which is located at 100 F Street, N.E.
Washington, D.C. 20549. You can request copies of the registration statement by
writing to the SEC and paying a fee for the copying cost. Please call the
Commission at 1-800-SEC-0330 for further information on the public reference
room. The Commission maintains a Web site at “www.sec.gov” that contains
reports, proxy and information statements and other information regarding
companies that file electronically with the Commission, including the
Company. You may access thee registration statement of which this
prospectus is a part at the SEC’s Internet web site. We are subject
to the information reporting requirements of the Securities Exchange Act of
1934, and we will file reports, proxy statements and other information with the
SEC.
Z
TRIM HOLDINGS INC.
INDEX
TO FINANCIAL STATEMENTS
INDEX
TO INTERIM FINANCIAL STATEMENTS
FORM
10-Q for the Quarter ended
March
31, 2010
|
PAGE
|
||||||||||
|
Consolidated
Balance Sheets at March 31, 2010 (unaudited) and December 31,
2009
|
F-2
|
|||||||||
|
Consolidated
Statements of Operations for three months ended as of March 31,
2010
|
||||||||||
|
and
2009 (unaudited)
|
F-4
|
|||||||||
|
Consolidated
Statements of Cash Flows for the three months ended as of March
31,
|
|
|||||||||
|
2010
and 2009 (unaudited)
|
F-5 | |||||||||
|
Notes
to Consolidated Financial Statements as of March 31, 2010 and 2009
(unaudited)
|
F-6
|
|||||||||
INDEX TO FINANCIAL STATEMENTS
Form
10-K for the years ended
December
31, 2009 and 2008
|
Report
of Independent Registered Public Accounting Firm
|
F-15
|
|||||||||
|
Consolidated
Balance Sheets for the years ended December 31, 2009 and
2008
|
F-16
|
|||||||||
|
Consolidated
Statements of Operations for the years ended December 31, 2009 and
2008
|
F-18
|
|||||||||
|
Consolidated
Statements of Stockholders’ Equity (Deficit) for the years ended December
31, 2009 and 2008
|
F-19
|
|||||||||
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009 and
2008
|
F-20
|
|||||||||
|
Notes
to Consolidated Financial Statements
|
F-21
|
|||||||||
|
Z
TRIM HOLDINGS, INC.
|
||||
|
BALANCE
SHEETS
|
||||
|
MARCH 31, 2010
|
||||
|
ASSETS
|
||||
|
(Unaudited)
|
||||
|
3/31/2010
|
12/31/2009
|
|||
|
Current
Assets
|
||||
|
Cash
and cash equivalents
|
$ 564,766
|
$ 324,784
|
||
|
Accounts
receivable
|
110,420
|
96,024
|
||
|
Inventory
|
122,926
|
118,979
|
||
|
Prepaid
expenses and other assets
|
116,880
|
97,802
|
||
|
Total
current assets
|
914,992
|
637,589
|
||
|
Property
and equipment, net
|
3,398,931
|
3,545,344
|
||
|
Long
Term Assets
|
||||
|
Deposit
on Fixed Asset
|
208,000
|
-
|
||
|
Other
Assets
|
||||
|
Prepaid
Loan Cost - Long Term, Net
|
223,808
|
368,171
|
||
|
Deposits
|
15,003
|
15,003
|
||
|
Total
other assets
|
238,811
|
383,174
|
||
|
TOTAL
ASSETS
|
$ 4,760,734
|
$ 4,566,107
|
The accompanying notes are an integral part of
the financial statements.
F-2
|
Z
TRIM HOLDINGS, INC.
|
||||
|
BALANCE
SHEETS
|
||||
|
MARCH 31, 2010
|
||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||
|
(Unaudited)
|
||||
|
3/31/2010
|
12/31/2009
|
|||
|
Current
Liabilities
|
||||
|
Accounts
payable
|
$ 311,975
|
$ 373,841
|
||
|
Accrued
expenses and other
|
889,658
|
700,830
|
||
|
Accrued
Liquidated Damages
|
100,125
|
80,100
|
||
|
Derivative
Liabilities
|
8,477,231
|
10,285,578
|
||
|
Convertible
Notes Payable, Net
|
4,457,000
|
4,008,950
|
||
|
Total
Current Liabilities
|
14,235,989
|
15,449,299
|
||
|
Long
Term Liabilities
|
||||
|
Convertible
Notes Payable, Net
|
360,098
|
-
|
||
|
Total
Long Term Liabilities
|
360,098
|
-
|
||
|
Total
Liabilities
|
14,596,087
|
15,449,299
|
||
|
Stockholders'
Equity (Deficit)
|
||||
|
Common
stock, $0.00005 par value; authorized 200,000,000
|
||||
|
shares;
issued and outstanding 3,535,068 and
|
||||
|
2,806,878
shares, March 31, 2010 and December 31, 2009
|
177
|
140
|
||
|
respectively
|
||||
|
Subscription
Payable-Preferred Stock
|
9,000
|
-
|
||
|
Additional
paid-in capital
|
76,906,256
|
75,119,074
|
||
|
Accumulated
deficit
|
(86,750,786)
|
(86,002,406)
|
||
|
Total
Stockholders' Equity (Deficit)
|
(9,835,353)
|
(10,883,192)
|
||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$ 4,760,734
|
$ 4,566,107
|
||
The accompanying notes are an integral part of
the financial statements.
F-3
|
Z
TRIM HOLDINGS, INC.
|
|||
|
STATEMENTS
OF OPERATIONS
|
|||
|
(Unaudited)
|
(Unaudited)
|
||
|
FOR
THE QUARTER ENDED MARCH 31
|
2010
|
2009
|
|
|
REVENUES:
|
|||
|
Products
|
$ 180,251
|
$ 127,969
|
|
|
Total
revenues
|
180,251
|
127,969
|
|
|
COST
OF REVENUES:
|
|||
|
Products
|
543,422
|
350,617
|
|
|
Total
cost of revenues
|
543,422
|
350,617
|
|
|
GROSS
MARGIN
|
(363,171)
|
(222,648)
|
|
|
OPERATING
EXPENSES:
|
|||
|
Selling,
general and administrative
|
2,258,886
|
1,742,786
|
|
|
Loss(Gain)
on asset disposals, net
|
-
|
119,688
|
|
|
Total
operating expenses
|
2,258,886
|
1,862,474
|
|
|
OPERATING
LOSS
|
(2,622,057)
|
(2,085,122)
|
|
|
OTHER
INCOME (EXPENSES):
|
|||
|
Rental
and other income
|
40
|
3,101
|
|
|
Interest
income
|
670
|
219
|
|
|
Interest
expense
|
-
|
(55)
|
|
|
Interest
expense - Note Payable
|
(1,139,973)
|
(403,135)
|
|
|
Liquidated
Damages
|
(20,025)
|
-
|
|
|
Change
in Fair Value - Derivative
|
3,358,893
|
(464,801)
|
|
|
Loss
on Derivative Settlement
|
(320,294)
|
-
|
|
|
Loss
on Conversion of Note Payable
|
(5,634)
|
-
|
|
|
Settlement
(loss) gain
|
-
|
-
|
|
|
Total
other income (expenses)
|
1,873,677
|
(864,671)
|
|
|
NET
LOSS
|
$ (748,380)
|
$ (2,949,793)
|
|
|
Deemed
Dividend
|
-
|
-
|
|
|
NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$ (748,380)
|
$ (2,949,793)
|
|
|
NET
LOSS PER SHARE - BASIC AND DILUTED
|
$ (0.22)
|
$ (1.13)
|
|
|
Weighted
Average Number of Shares Basic and Diluted
|
3,363,577
|
2,621,546
|
The accompanying notes are an integral part of
the financial statements.
F-4
|
Z
TRIM HOLDINGS, INC.
|
|||
|
STATEMENTS
OF CASH FLOWS
|
(Unaudited)
|
(Unaudited)
|
|
|
FOR
THE QUARTER ENDED MARCH 31
|
2010
|
2009
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|||
|
Net
loss
|
(748,380)
|
(2,949,793)
|
|
|
Adjustments
to reconcile loss from continuing operations to
|
|||
|
net
cash used in operating activities:
|
|||
|
Depreciation
|
200,047
|
253,148
|
|
|
Loss
on asset disposal
|
-
|
119,688
|
|
|
Change
in Derivative Liability, net of bifurcation
|
(3,038,599)
|
464,801
|
|
|
Stock
based compensation
|
684,434
|
774,221
|
|
|
Shares
issued for director fees
|
234,000
|
46,200
|
|
|
Shares
issued per Legend Agreement
|
490,000
|
-
|
|
|
Interest
Charge on BCF
|
811,058
|
||
|
Loan
Cost Amortization
|
144,363
|
118,800
|
|
|
Loss
on conversion of NP
|
5,634
|
195,195
|
|
|
Changes
in operating assets and liabilities
|
|||
|
Accounts
receivable
|
(14,396)
|
115,477
|
|
|
Inventory
|
(3,947)
|
8,860
|
|
|
Prepaid
expenses and other assets
|
(19,078)
|
23,725
|
|
|
Increase/(Decrease)
in:
|
|||
|
Accounts
payable and accrued expenses
|
127,724
|
545,020
|
|
|
Accrued
Liquidated Damages
|
20,025
|
-
|
|
|
CASH
USED FOR OPERATING ACTIVITIES
|
(1,107,115)
|
(284,658)
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|||
|
Purchase
of Fixed Assets
|
(261,634)
|
(293,107)
|
|
|
Proceeds
from asset disposals
|
-
|
90,000
|
|
|
CASH
USED FOR INVESTING ACTIVITIES
|
(261,634)
|
(203,107)
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITES
|
|||
|
Loan
Costs
|
-
|
-
|
|
|
Rescinded
Shares
|
-
|
-
|
|
|
Borrowing
on debt
|
1,596,000
|
-
|
|
|
Proceeds
from sale of stock
|
9,000
|
||
|
Exercise
of options and warrants for cash
|
3,731
|
-
|
|
|
CASH
PROVIDED BY FINANCING ACTIVITIES
|
1,608,731
|
-
|
|
|
NET
(DECREASE)INCREASE IN CASH
|
239,982
|
(487,765)
|
|
|
CASH
AT BEGINNING OF YEAR
|
324,784
|
592,696
|
|
|
CASH
AT THE QUARTER ENDED MARCH 31
|
564,766
|
104,931
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|||
|
Issuance
of common stock for issuance of stock
|
|||
|
Cash
less exercise of warrants
|
9
|
||
|
Note
Payable conversion
|
20,762
|
||
|
Discount
on convertible debentures
|
1,596,000
|
||
|
Change
in derivative liability due to exercise of warrants
|
354,292
|
||
|
Transfer
from Deposit on Fixed Assets to Construction in Progress
|
240,000
|
||
|
Cummulative
Effect - Adoption of EITF07-5
|
2,219,530
|
||
|
Reverse
Stock split
|
3,775
|
The accompanying notes are an integral part of
the financial statements.
F-5
Z TRIM HOLDINGS, INC.
NOTES TO INTERIM UNAUDITED FINANCIAL
STATEMENTS
MARCH 31, 2010 AND 2009
NOTE 1 – NATURE OF BUSINESS
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of
Business
Z Trim
Holdings, Inc. (the “Company”) manufactures a line of functional food
ingredients that can be used to reduce costs, manage moisture, replace fats and
deliver fiber to a wide variety of foods. The Company’s products can
be used by food manufacturers and processors, restaurants, schools, and the
general public worldwide. The Company continues to explore all available options
for its other Z Trim technologies and related assets.
The
Company owns an exclusive license to Z Trim, a natural, agriculture-based
functional food ingredient
A summary
of significant accounting policies follows.
Presentation of Interim
Information
The
financial information at March 31, 2010 is unaudited, but includes all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of the financial information set
forth herein, in accordance with accounting principles generally accepted in the
United States (“U.S. GAAP”) for interim financial information, and with the
instructions to Form 10-Q. Accordingly, such information does not include
all of the information and footnotes required by U.S. GAAP for annual financial
statements. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company’s annual Report on
Form 10-K for the year ended December 31, 2009.
The
results for the three months ended March 31, 2010 may not be indicative of
results for the year ending December 31, 2010 or any future
periods.
Principle of Consolidation
and Presentation
The
accompanying consolidated financial statements include the accounts of Z Trim
Holdings, Inc. and its subsidiaries after elimination of significantly all
intercompany accounts and transactions.
Use of
Estimates
The
preparation of the accompanying consolidated financial statements in conformity
with accounting principles generally accepted in the United States (U.S. GAAP)
requires management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Revenue
Recognition
The
Company generally recognizes product revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable, and
collectability is probable. In instances where the final acceptance of the
product is specified by the customer, revenue is deferred until all acceptance
criteria have been met. No provisions were established for estimated product
returns and allowances based on the Company’s historical
experience.
Allowance for Doubtful
Accounts
Management
of the Company makes judgments as to its ability to collect outstanding
receivables and provide allowances for the portion of receivables when
collection becomes doubtful. Provisions are made based upon a specific review of
all significant outstanding invoices. For those invoices not specifically
reviewed, provisions are provided at differing rates, based upon the age of the
receivable. In determining these percentages, management analyzes its historical
collection experience and current economic trends. If the historical data the
Company uses to calculate the allowance for doubtful accounts does not reflect
the future ability to collect outstanding receivables, additional provisions for
doubtful accounts may be needed and the future results of operations could be
materially affected. As of march 31, 2010 the allowance for doubtful
accounts is $0.
Accounting for Derivative
Instruments
All
derivatives have been recorded on the balance sheet at fair value based on the
lattice model calculation. These derivatives, including embedded derivatives in
the Company’s warrants and its Convertible 8% Senior Secured Notes issued in
2010 and 2009, which have reset provisions to the exercise price and conversion
price if the Company issues equity or other derivatives at a price less than the
exercise price set forth in such warrants and notes, are separately valued and
accounted for on the Company’s balance sheet. Fair values for exchange traded
securities and derivatives are based on quoted market prices. Where market
prices are not readily available, fair values are determined using market based
pricing models incorporating readily observable market data and requiring
judgment and estimates.
Lattice Valuation
Model
The
Company valued the conversion features and warrants in their convertible notes
using a lattice valuation model, with the assistance of a valuation consultant.
The lattice model values these instruments based on a probability weighted
discounted cash flow model. The Company uses the model to develop a set of
potential scenarios. Probabilities of each scenario occurring during the
remaining term of the debentures are determined based on management's
projections. These probabilities are used to create a cash flow projection over
the term of the instruments and determine the probability that the projected
cash flow will be achieved. A discounted weighted average cash flow for each
scenario is then calculated and compared to the discounted cash flow of the
instruments without the compound embedded derivative in order to determine a
value for the compound embedded derivative.
Cash and cash
equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid
investments with a maturity of three months or less to be cash equivalents.
There were no cash equivalents at March 31, 2010 and December 31,
2009.
F-6
Z TRIM HOLDINGS, INC.
NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
NOTE 1 – NATURE OF BUSINESS
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair value of financial
instruments
The
Company’s financial instruments consist of cash and cash equivalents, accounts
receivable, inventory, accounts payable, accrued liabilities and long-term debt.
The estimated fair value of cash, accounts receivable, accounts payable and
accrued liabilities approximate their carrying amounts due to the short-term
nature of these instruments. The carrying value of long-term debt also
approximates fair value since their terms are similar to those in the lending
market for comparable loans with comparable risks. None of these instruments are
held for trading purposes.
The
Company utilizes various types of financing to fund its business needs,
including convertible debt with warrants attached. The Company reviews its
warrants and conversion features of securities issued as to whether they are
freestanding or contain an embedded derivative and, if so, whether they are
classified as a liability at each reporting period until the amount is settled
and reclassified into equity with changes in fair value recognized in current
earnings. At March 31, 2010, the Company had convertible debt and warrants to
purchase common stock, the fair values of which are classified as a liability.
Some of these units have embedded conversion features that are treated as a
discount on the notes. Such financial instruments are initially recorded at fair
value and amortized to interest expense over the life of the debt using the
effective interest method.
Inputs
used in the valuation to derive fair value are classified based on a fair value
hierarchy which distinguishes between assumptions based on market data
(observable inputs) and an entity’s own assumptions (unobservable inputs). The
hierarchy consists of three levels:
|
|
Level
one — Quoted market prices in active markets for identical assets or
liabilities;
|
|
|
Level
two — Inputs other than level one inputs that are either directly or
indirectly observable; and
|
||
|
|
Level three — Unobservable inputs developed using estimates and
assumptions, which are developed by the reporting entity and reflect
those assumptions that a market participant would
use.
|
||
Determining
which category an asset or liability falls within the hierarchy requires
significant judgment. The Company evaluates its hierarchy disclosures each
quarter. The Company’s only asset or liability measured at fair value on a
recurring basis is its derivative liability associated with the units consisting
of convertible debt and warrants to purchase common stock (discussed above). The
Company classifies the fair value of these warrants under level three. The fair
value of the derivative liability at March 31, 2010 was $8,477,231, and the gain
due to valuation for the three months ended March 31, 2010 was
$3,358,893.
Concentrations
Cash and
cash equivalents are maintained with several financial institutions. Deposits
held with banks may exceed the amount of insurance provided on such deposits.
Generally, these deposits may be redeemed upon demand and therefore bear minimal
risk.
Inventory
Inventory
is stated at the lower of cost or market, using the first-in, first-out
method.
Property and
Equipment
Property
and equipment are stated at cost. Maintenance and repair costs are
expensed as incurred. Depreciation is calculated on the accelerated
and straight-line methods over the estimated useful lives of the assets.
Estimated useful lives of five to ten years are used for machinery and
equipment, office equipment and furniture, and automobile. Estimated useful
lives of up to five years are used for computer equipment and related software.
Depreciation and amortization of leasehold improvements are computed using the
term of the lease.
Intangible
Assets
Intangible
assets were carried at the purchased cost less accumulated amortization.
Amortization was computed over the estimated useful lives of the respective
assets, generally from fifteen to twenty years.
Impairment of Long-Lived
Assets
Long-lived
assets and certain identifiable intangible assets to be held and used are
reviewed for impairment whenever events or changes in circumstance indicate that
the carrying amount of such assets may not be recoverable. Determination of
recoverability is based on an estimate of undiscounted future cash flows
resulting from the use of the asset and its eventual disposition. Measurement of
an impairment loss for long-lived assets and certain identifiable intangible
assets that management expects to hold and use is based on the fair value of the
asset. Long-lived assets and certain identifiable intangible assets to be
disposed of are reported at the lower of carrying amount or fair value less
costs to sell.
Income
Taxes
The
Company and its subsidiaries are included in the consolidated federal income tax
return filed by the Parent. The amount of current and deferred taxes
payable or refundable is recognized as of the date of the financial statements,
utilizing currently enacted tax laws and rates. Deferred tax expenses
or benefits are recognized in the financial statements for the changes in
deferred tax liabilities or assets between years.
F-7
Z TRIM HOLDINGS, INC.
NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
NOTE 1 – NATURE OF BUSINESS
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising
Costs
The
Company expenses all advertising costs as incurred. The amount for
the three months ended March 31, 2010 was $529. The amount for the
three months ended March 31, 2009 was $3,797.
Income (Loss) Per Common
Share
Basic net
income (loss) per share includes no dilution and is computed by dividing net
income (loss) available to common stockholders by the weighted average number of
common stock outstanding for the period. Diluted earnings per share is computed
by dividing net income by the weighted average number of shares outstanding and,
when diluted, potential shares from options and warrants to purchase common
stock using the treasury stock method. Diluted net loss per common share does
not differ from basic net loss per common share since potential shares of common
stock are anti-dilutive for all periods presented.
Cashless Exercise of
Warrants
The
Company has issued warrants to purchase common stock where the holder is
entitled to exercise the warrant via a cashless exercise, when the exercise
price is less than the fair value of the common stock. The Company accounts for
the
issuance of common stock on the cashless exercise of warrants on a net
basis.
Stock Based
Compensation
The
Company estimates the fair value of share-based payment awards made to employees
and directors, including stock options, restricted stock and employee stock
purchases related to employee stock purchase plans, on the date of grant using
an option-pricing model. The value of the portion of the award that is
ultimately expected to vest is recognized as an expense ratably over the
requisite service periods. We estimate the fair value of each
share-based award using the Black-Scholes option pricing model. The
Black-Scholes model is highly complex and dependent on key estimates by
management. The estimates with the greatest degree of subjective judgment are
the estimated lives of the stock-based awards and the estimated volatility of
our stock price. The Company recognized pre-tax compensation expense related to
stock options of $684,434 and $543,339 the year ended March 31, 2010 and 2009,
respectively.
Reverse
Split
Effective
February 6, 2009, we had a 30 to 1 reverse stock split. All
information in this Form 10-Q has been retrospectively adjusted to reflect the
reverse stock split as it took place as of the earliest period
presented.
New Accounting
Pronouncements
In
October 2009, the Financial Accounting Standards Board (“FASB”) issued new
revenue recognition standards for arrangements with multiple deliverables, where
certain of those deliverables are non-software related. The new standards permit
entities to initially use management’s best estimate of selling price to value
individual deliverables when those deliverables do not have Vendor Specific
Objective Evidence (“VSOE”) of fair value or when third-party evidence is not
available. Additionally, these new standards modify the manner in which the
transaction consideration is allocated across the separately identified
deliverables by no longer permitting the residual method of allocating
arrangement consideration. These new standards are effective for annual periods
ending after June 15, 2010 and early adoption is permitted. The Company is
currently evaluating the impact of adopting this standard on the Company’s
consolidated financial position, results of operations and cash
flows.
In
June 2009, the FASB issued guidance establishing the Codification as the source
of authoritative U.S. Generally Accepted Accounting Principles (“U. S. GAAP”)
recognized by the FASB to be applied by non-governmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (“SEC”) under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. The Codification supersedes all existing non-SEC accounting
and reporting standards. All other non-grandfathered non-SEC accounting
literature not included in the Codification will become non-authoritative. The
FASB will no
longer issue new standards in the form of Statements, FASB Staff Positions, or
Emerging Issues Task Force Abstracts. Instead, the FASB will issue Accounting
Standards Updates, which will serve only to update the Codification, provide
background information about the guidance and provide the bases for conclusions
on changes in the Codification. All content in the Codification carries the same
level of authority, and the U.S. GAAP hierarchy was modified to include only two
levels of U.S. GAAP: authoritative and non-authoritative. The Codification is
effective for the Company’s interim and annual periods beginning with the
Company’s year ending December 31, 2009. Adoption of the Codification affected
disclosures in the Consolidated Financial Statements by eliminating references
to previously issued accounting literature, such as SFASs, EITFs and
FSPs.
In
June 2009, the FASB issued amended standards for determining whether to
consolidate a variable interest entity. These new standards amend the
evaluation criteria to identify the primary beneficiary of a variable interest
entity and require ongoing reassessment of whether an enterprise is the primary
beneficiary of the variable interest entity. The provisions of the new standards
are effective for annual reporting periods beginning after November 15, 2009 and
interim periods within those fiscal years. The adoption of the new standards
will not have an impact on the Company’s consolidated financial position,
results of operations and cash flows.
In
May 2009, the FASB issued guidance establishing general standards for accounting
for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued and shall be
applied to subsequent events not addressed in other applicable generally
accepted accounting principles. This guidance, among other things, sets forth
the period after the balance sheet date during which management should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and the disclosures an entity should make about events or
transactions that occurred after the balance sheet date. The adoption of this
guidance had no impact on the Company’s consolidated financial position, results
of operations and cash flows.
The
Emerging Issue Task Force released a pronouncement related to determining
whether an instrument (or imbedded Feature) is indexed to an entity’s own
stock. This became effective for the Company on March 31,
2009. The Company’s warrants and its Convertible 8% Senior Secured
Notes issued in 2008 have reset provisions to the exercise price and conversion
price if the Company issues equity or other derivatives at a price less than the
exercise price set forth in such warrants and notes. The adoption of
the pronouncement on January 1, 2009, the company recorded a cumulative effect
of a change in accounting principle resulting in a reclassification of the
Company’s outstanding warrants from stockholders’ equity to liabilities, which
required the warrants to be fair valued at each reporting period, with the
changes in fair value recognized in the Company’s consolidated statement of
operations. At March 31, 2010, the Company recorded a derivative
liability of $8,477,231, a change in the fair value – derivative
liability of $3,358,893, and a loss on derivative of $325,928.
NOTE 2 – GOING
CONCERN
The
Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. In
the near term, the Company expects operating costs to continue to exceed funds
generated from operations. As a result, the Company expects to
continue to incur operating losses and may not have enough capital to grow its
business in the future. The Company can give no assurance that it
will achieve profitability or be capable of sustaining profitable
operations. As a result, operations in the near future are expected
to continue to use working capital.
To
successfully grow the business, the Company must decrease its cash outflows,
improve its cash position and its revenue base, and succeed in its ability to
raise additional capital through a combination of primarily public or private
equity offerings or strategic alliances. The Company is currently in
the process of obtaining additional financing for its current operations – See
information on current financing in Note 6 herein below.
F-8
Z TRIM HOLDINGS, INC.
NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
NOTE 3–
INVENTORY
At March 31, 2010 and December 31, 2009, inventory consists of the
following:
|
3/31/2010
|
12/31/2009
|
||
|
Raw
materials
|
$ 34,149
|
$ 23,773
|
|
|
Packaging
|
1,046
|
1,010
|
|
|
Work-in-process
|
8,928
|
7,437
|
|
|
Finished
goods
|
74,393
|
80,299
|
|
|
Other
Inventory
|
4,410
|
6,461
|
|
|
Total
inventory
|
$ 122,926
|
$ 118,979
|
|
NOTE 4 – PROPERTY AND
EQUIPMENT, NET
At March 31, 2010
and December 31, 2009, property and equipment, net consists of the
following:
|
3/31/2010
|
12/31/2009
|
|||
|
Production,
engineering and other equipment
|
$5,651,279
|
$5,651,279
|
||
|
Leasehold
improvements
|
$2,822,834
|
$2,822,834
|
||
|
Office
equipment and furniture
|
$577,226
|
$577,226
|
||
|
Computer
equipment and related software
|
$140,245
|
$140,246
|
||
|
Construction
in process - Equipment
|
$125,810
|
$72,177
|
||
|
Construction
in process - Leasehold Impr
|
$0
|
$0
|
||
|
$9,317,394
|
$9,263,762
|
|||
|
Accumulated
depreciation
|
($5,918,463)
|
($5,718,418)
|
||
|
Property
and equipment, net
|
$3,398,931
|
$3,545,344
|
| Depreciation expense was $200,047 and $253,148 for the three months ended March 31, 2010 and March 31, 2009 respectively. | |
|
During
the first quarter of 2010, no equipment was sold, but in 2009, the Company
sold an unused piece of equipment of bottling equipment for
$90,000. The Company recognized a loss with respect to such
equipment, totaling $119,688.
|
|
NOTE 5 – ACCRUED EXPENSES
AND OTHER
At March 31, 2010
and December 31, 2009 accrued expenses consist of the
following:
|
3/31/2010
|
12/31/2009
|
||
|
Accrued
legal
|
$ 15,940
|
$ -
|
|
|
Accrued
payroll and taxes
|
6,230
|
4,787
|
|
|
Accrued
settlements
|
-
|
-
|
|
|
Accrued
Interest
|
772,219
|
575,357
|
|
|
Accrued
expenses and other
|
95,269
|
120,686
|
|
|
Total
accrued expenses & other
|
$ 889,658
|
$ 700,830
|
F-9
Z TRIM HOLDINGS, INC.
NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
NOTE 6 – CONVERTIBLE NOTES
PAYABLE
Private Placement
Offerings
On
January 15, 2010, we entered into a private placement subscription agreement
with Brightline Ventures I, LLC, a Delaware Limited Liability Company(the
"purchaser" or "Brightline") pursuant to which we sold 130 units consisting of
convertible notes and warrants, for an aggregate offering price of $1,300,000.
The Company has agreed to extend Brightline's right to invest an additional
$1,200,000 on substantially similar terms until February 28, 2010. Since October
15, 2009, we have sold an additional 1.7 units for an aggregate offering price
of $17,000, of which $12,000 was in return for forgiveness of rent owed to our
landlord. Each of the units (individually, a "Unit" and collectively, the
"Units") consists of a $10,000 24-month senior secured promissory note (each a
"Note" and collectively the "Notes") convertible at the rate of $1.00 per share
into 10,000 shares of our common stock, $.00005 par value (the "Common Stock"),
bearing interest at the rate of 8% per annum, which interest is accrued annually
in Common Stock at the rate of $1.00 per share. The Notes will be secured by a
first lien on all of our assets for so long as the Notes remain outstanding
pursuant to the form of Security Agreement (the "Security Agreement"). The Notes
are convertible into a total of 1,317,000 shares of Common Stock exclusive of
interest. The interest is payable in additional shares of the Company's Common
Stock, quarterly or upon maturity of the Notes. The Investors also received one
five-year warrant for each Unit purchased, to purchase 15,000 shares of Common
Stock per unit with an exercise price of $1.50 per share ("Warrants"). The total
warrants issued to the purchasers were 1,975,500. The terms and conditions of
the Units are substantially identical to the terms and conditions and constitute
a part of the units previously sold by us in 2009 and reported on a Form 8-K
filed by us on October 16, 2009 (the "2009 Units"). Total accrued interest for
the three months ended March 31, 2010 is $21,370.
We also
entered into registration rights agreements substantially similar to the
registration rights agreement entered into with the purchasers of the 2008 Units
pursuant to which we have agreed to file with the Securities and Exchange
Commission a registration statement covering the resale of the Common Stock
underlying the Notes and the Warrants, with the exception that Brightline has
agreed to suspend our obligation to do so until 45 days after we file our Form
10-K for the year ended December 31, 2009.
Additionally,
on or about October 14, 2009, the Company issued, pursuant to a consulting
agreement, one five year warrant for the purchase of 10,000 shares of Common
Stock with an exercise price of $1.50 per share.
Between
February 1 and March 31, 2010, we entered into a series of private placement
subscription agreements with accredited investors (the "purchasers") pursuant to
which we sold 29.6 units consisting of convertible notes and warrants, for an
aggregate offering price of $296,000. Each of the units (individually, a "Unit"
and collectively, the "Units") consists of a $10,000 24-month senior secured
promissory note (each a "Note" and collectively the "Notes") convertible at the
rate of $1.00 per share into 10,000 shares of our common stock, $.00005 par
value (the "Common Stock"), bearing interest at the rate of 8% per annum, which
interest is accrued annually in Common Stock at the rate of $1.00 per share. The
Notes will be secured by a first lien on all of our assets for so long as the
Notes remain outstanding pursuant to the form of Security Agreement (the
"Security Agreement"). The Notes are convertible into a total of 496,000 shares
of Common Stock exclusive of interest. The interest is payable in additional
shares of the Company's Common Stock, quarterly or upon maturity of the Notes.
The Investors also received one five-year warrant for each Unit purchased, to
purchase 15,000 shares of Common Stock per unit with an exercise price of $1.50
per share ("Warrants"). The total warrants issued to the purchasers were
744,000. The terms and conditions of the Units are substantially identical to
the terms and conditions and constitute a part of the units previously sold by
us in 2009 and reported on a Form 8-K filed by us on October 16, 2009 (the "2009
Units"). Total accrued interest for the three months ended March 31,
2010 is $486.
We also
entered into registration rights agreements substantially similar to the
registration rights agreement entered into with the purchasers of the 2008 Units
pursuant to which we have agreed to file with the Securities and Exchange
Commission a registration statement covering the resale of the Common Stock
underlying the Notes and the Warrants.
The
descriptions herein are qualified in their entirety by reference to the copies
of the forms of the Subscription Agreement, the Notes, the Warrant, the Security
Agreements and the Registration Rights Agreement which are attached as exhibits
to our Form 8-K filed on October 16, 2009.
We
determined that all of the securities sold and issued in the private placement
were exempt from registration under the Securities Act of 1933, as amended (the
“Act”) pursuant to Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. We based this determination on the non-public manner
in which we offered the securities and on the representations of the persons
purchasing such securities, which included, in pertinent part, that such persons
were "accredited investors" within the meaning of Rule 501 of Regulation D
promulgated under the Act, and that such persons were acquiring such securities
for investment purposes for their own respective accounts and not as nominees or
agents, and not with a view to resale or distribution, and that each such person
understood such securities may not be sold or otherwise disposed of without
registration under the Act or an applicable exemption therefrom.
Amortization on Convertible
Notes
The
Company recognized debt discount amortization related to the convertible notes
in the amount of $811,058 for the three months ended March 31, 2010
and $1,449,214 for the twelve months ended December 31, 2009. In
addition, the Company recognized debt discount amortization of $17,090 related
to the conversion of $20,000 note payable balance. The $17,090 was offset by the
derivative liability of $11,456 for a total loss of $5,634.
NOTE 7 – LIQUIDATED
DAMAGES
In
connection with certain private placements of the Company’s securities (the
“Registrable Securities”) effected in 2008 the Company entered into registration
rights agreements (the “RRA”) that required the Company to file a registration
statement covering the Registrable Securities with the Securities and Exchange
Commission no later than thirty days after the final closing as contemplated in
the Private Placement Memorandum for the 2008 offering (the “Filing
Deadline”). The Company filed a registration statement on December
14, 2009. However, the statement has not been declared effective as the Company
is not S-3 eligible and will need to file an amended filing to convert the S-3
to an S-1. Management intends to file the S-1 after it files the 10-K for the
year ended December 31, 2009. Under the terms of the registration rights
agreement, as partial compensation, the Company was required to make pro rata
payments to each Investor in an amount equal to 1.5% of the aggregate amount
invested by such Investor for each 30-day period or pro rata for any portion
thereof following the Filing Deadline for which no registration statement was
filed. We obtained a release and waiver of the amounts due from 74 of
the 2008 investors. As of May 20, 2010, there are 5 investors who
have yet to sign the release and waiver. Under the terms of the RRA,
as of that date we potentially owe, and recognized as liquidated damages, the
additional amount of $20,025 for a total accrual of $100,125.
F-10
Z
TRIM HOLDINGS, INC.
NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
NOTE 8 – DERIVATIVE
LIABILITIES
The
Company’s warrants and its Convertible 8% Senior Secured Notes issued in 2008,
2009 and 2010 have reset provisions to the exercise price and conversion price
if the Company issues equity or other derivatives at a price less than the
exercise price set forth in such warrants and notes. This ratchet provision
results in a derivative liability in our financial statements.
Our
derivative liabilities decreased from $10,285,578 at March 31, 2010 to
$8,477,231 at December 31, 2009. The change in fair value during the three
months ended March 31, 2010 is $3,038,599 and the loss on derivative settlement
is $325,928.
The
following tabular presentation reflects the components of derivative financial
instruments on the Company’s balance sheet at March 31, 2010 and December 31,
2009:
|
March
31, 2010
|
December
31, 2009
|
|||||
|
Common
stock warrants
|
4,881,634
|
5,387,788
|
||||
|
Embedded
conversion features –part of note discount
|
3,595,597
|
4,897,790
|
||||
|
Total
|
$8,477,231
|
$
|
$10,285,578
|
|||
|
March
31, 2010
|
|||
|
Beginning
Balance
|
10,285,577
|
||
|
Bifurcated
Amount
|
1,596,000
|
||
|
Conversion
and Exercise of Warrants
|
(365,748)
|
||
|
Change
in Derivative Liability
|
(3,038,599)
|
||
|
Total
|
$
8,477,231
|
NOTE 9 –
EQUITY
Exercising of Stock Warrants
and Options
During
the first three months of 2010, 237,427 warrants were exercised, of these
176,658 warrants were on a cashless basis. During the first three
months of 2009 no warrants were exercised. No stock options were
exercised in the first quarter of 2010 or 2009.
Common Stock Issued for
Convertible Note Conversion
On
January 4, 2010, the Company issued 20,762 shares of its common stock to a note
holder for conversion of principal of $20,000 and accrued interest of $762. The
company recognized a loss on derivative due to the excess discount over the
derivative liability of $5,634 included in the total loss on derivative of
$325,928.
Common Stock Issued to
Directors
On
January 4, 2010 the Company issued 120,000 shares of common stock to four of its
external directors (30,000 each) – Mark Hershhorn, Brian Israel, Morris
Garfinkle and Edward Smith III. The Company recognized a total of
expense of $234,000 related to these issuances.
Common Stock Issued for
Services
On April
27, 2009, the Company entered into an Investment Banking Agreement with Legend
Securities, Inc. ("Legend"), pursuant to which Legend agreed to provide business
advisory services to us for a period of up to twelve months. In exchange for
Legend's services, we agreed to issue Legend a warrant to purchase 350,000
shares of our common stock at an exercise price per share equal to $1.10 per
share. On January 7, 2010 the parties agreed to mutually terminate that
agreement, and to cancel the Company's obligation to issue the 350,000
warrants. In return, the Company has agreed to issue Legends 100,000
shares of Common Stock.
Also on
January 7, 2010, the parties entered into a new Investment Banking Agreement
with Legend, pursuant to which Legend agreed to provide business advisory
services for us for a period of up to twelve months. In exchange for
Legend's services, we agreed to pay Legend the sum of $6,250 per month, as well
as a onetime fee of 250,000 shares of Common Stock. Under the Investment
Banking Agreement, we also agreed to give Legend unlimited "piggy back"
registration rights with respect to the shares of our common stock in any
registration statement filed by us in connection with an underwritten offering
of our common stock.
We
determined that all of the securities issued pursuant to the agreement were
exempt from registration under the Securities Act of 1933, as amended (the
"Act") pursuant to Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. We based this determination on the non-public manner
in which we offered the securities and on the representations of the persons
purchasing such securities, which included, in pertinent part, that such persons
were "accredited investors" within the meaning of Rule 501 of Regulation D
promulgated under the Act, and that such persons were acquiring such securities
for investment purposes for their own respective accounts and not as nominees or
agents, and not with a view to resale or distribution, and that each such person
understood such securities may not be sold or otherwise disposed of without
registration under the Act or an applicable exemption therefrom.
F-11
Z
TRIM HOLDINGS, INC.
NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
NOTE 10 – STOCK OPTION PLAN
AND WARRANTS
Options
The
Company has a Stock Option Plan (the Plan) effective January 2, 1999 and amended
in 2002 and 2004, which provides for the issuance of qualified options to all
employees and non-qualified options to directors, consultants and other service
providers.
No stock
options were exercised in the first quarter of 2010 or 2009.
A summary
of the status of stock options as of March 31, 2010 and March 31, 2009 is as
follows:
|
3/31/2010
|
3/31/2009
|
|||||
|
Weghted
|
Weghted
|
|||||
|
Number
|
Average
|
Number
|
Average
|
|||
|
of
|
Exercise
|
of
|
Exercise
|
|||
|
Shares
|
Price
|
Shares
|
Price
|
|||
|
Outstanding
at beginning of year
|
1,405,062
|
$ 0.66
|
431,073
|
$ 32.04
|
||
|
Granted
|
1,592,000
|
$ 1.46
|
1,320,000
|
$ 0.45
|
||
|
Exercised
|
-
|
$ -
|
-
|
$ -
|
||
|
Expired
and Cancelled
|
(9,399)
|
$ 35.65
|
(316,678)
|
$ 31.75
|
||
|
Outstanding
at end of period
|
2,987,663
|
$ 0.98
|
1,434,395
|
$ 3.04
|
||
|
Exercisable
at end of period
|
1,879,913
|
$ 2.12
|
1,381,895
|
$ 3.42
|
During
the three months ended March 31, 2010, the company granted 1,592,000
options. The total fair value of options vested during the first
quarter of 2010 was $684,434 and was expensed as stock based
compensation.
The fair
value of each stock option granted is estimated on the date of grant using the
Black-Scholes option valuation model. This model uses the assumptions
listed in the table below. Expected volatilities are based on the
historical volatility of the Company’s stock. The risk-free rate for
periods within the expected life of the option is based on the U.S. Treasury
yield curve in effect at the time of grant.
|
3/31/2010
|
2009
|
||
|
Weighted
average fair value per option granted
|
$ 1.44
|
$ 0.43
|
|
|
Risk-free
interest rate
|
0.92%
|
1.99
- 2.99%
|
|
|
Expected
dividend yield
|
0.00%
|
0.00%
|
|
|
Expected
lives
|
1
- 2.5
|
1
- 2.5
|
|
|
Expected
volatility
|
267.54%
|
130.25%
|
As of
March 31, 2010, the unrecognized compensation cost related to non-vested
share-based compensation arrangements granted under the plan was $1,536,725 of
which $512,242 will be recognized per quarter for the next three quarters as the
majority of the options vest 25% each quarter.
At March
31, 2010 the aggregate intrinsic value of all outstanding options was $1,193,800
with a weighted average remaining contractual term of 4.6 years, of which
1,879,913 of the outstanding options are currently exercisable with an aggregate
intrinsic value of $3,982,685; a weighted average exercise price of $2.12 and a
weighted average remaining contractual term of 4.6 years. The total
intrinsic value of options exercised during the quarter ended March 31, 2010 was
$0.
As of
March 31, 2010, the Company had reserved 20.0 million shares for issuance under
the Plan. As of March 31, 2010, the Company had 16,769,004 options
available for grant under the Plan. (20,000,000 less 2,987,663 options less
243,333 director shares =16,769,004)
Stock
options outstanding at March 31, 2010 are as follows:
|
Weighted
|
||||||||
|
Average
|
Weighted
|
|||||||
|
Range
of
|
Remaining
|
Average
|
||||||
|
Exercise
|
Options
|
Contractual
|
Exercise
|
Options
|
||||
|
Prices
|
Outstanding
|
Life
|
Price
|
Exercisable
|
||||
|
$0.01-$1.50
|
2,587,000
|
4.5
|
$ 0.97
|
1,636,750
|
||||
|
$1.51-$3.00
|
325,000
|
4.8
|
$ 1.58
|
167,500
|
||||
|
$3.01
& over
|
75,663
|
0.5
|
$ 35.27
|
75,663
|
||||
|
2,987,663
|
4.3
|
$ 1.87
|
1,879,913
|
F-12
Z
TRIM HOLDINGS, INC.
NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
NOTE 10 – STOCK OPTION PLAN
AND WARRANTS (Cont.)
Warrants
As of
March 31, 2010 and 2009, the Company has warrants outstanding to purchase
11,467,528 and 1,880,664 shares of the Company’s common stock, respectively, at
prices ranging from $0.01 to $36.00 per share. These warrants expire
at various dates through March 2015. There were 2,394,000 and 0
warrants issued in the first quarter of 2010 and 2009, respectively. The fair
value of the warrants granted during the three months ended March 31, 2010 is
included in the calculation of the derivative liability as the warrants
associated with the convertible note payable also contain certain ratchet
provisions. The summary of the status of the warrants issued by the Company as
of March 31, 2010 and 2009 are as follows:
|
Quarter Ended
|
Quarter
Ended
|
|||||||
|
3/31/2010
|
3/31/2009
|
|||||||
|
Number
of Shares
|
Weighted
Average Exercise Price
|
Number
of Shares
|
Weighted
Average Exercise Price
|
|||||
|
Outstanding
at beginning of year
|
9,682,380
|
$ 1.61
|
943,804
|
$ 5.86
|
||||
|
Granted
|
2,394,000
|
$ 1.50
|
-
|
$ -
|
||||
|
Exercised
|
(60,769)
|
$ 0.06
|
-
|
$ -
|
||||
|
Cashless
|
(198,085)
|
$ 0.16
|
-
|
$ -
|
||||
|
Expired
and Cancelled
|
(350,000)
|
$ 1.10
|
-
|
$ -
|
||||
|
11,467,526
|
943,804
|
|||||||
|
Outstanding,
end of period
|
11,467,526
|
$ 1.63
|
943,804
|
$ 5.86
|
||||
|
Exercisable
at end of period
|
11,467,526
|
$ 1.63
|
943,804
|
$ 5.86
|
||||
During
the first three months of 2010, 237,427 warrants were exercised, of these
176,658 warrants were on a cashless basis. During the first three
months of 2009 no warrants were exercised. No stock options were
exercised in the first quarter of 2010 or 2009.
On April
27, 2009, the Company entered into an Investment Banking Agreement with Legend
Securities, Inc. ("Legend"), pursuant to which Legend agreed to provide business
advisory services to us for a period of up to twelve months. In exchange for
Legend's services, we agreed to issue Legend a warrant to purchase 350,000
shares of our common stock at an exercise price per share equal to $1.10 per
share. On January 7, 2010 the parties agreed to mutually terminate that
agreement, and to cancel the Company's obligation to issue the 350,000
warrants. In return, the Company has agreed to issue Legends 100,000
shares of Common Stock.
NOTE 11 – MAJOR CUSTOMERS
AND CREDIT CONCENTRATION
The
Company’s customers are food manufacturers, school districts and the general
public that orders directly over the internet. There were two
significant customers that accounted for greater than 10% (each) for the quarter
ended March 31, 2010. These two customers accounted for 40 and 24% of total
sales. There were three significant customers for the quarter ended
March 31, 2009. These three customers accounted for 35%, 13%, and 12%
of total sales. There were no outstanding amounts at March 31,
2010.
The
Company maintains cash deposits with major banks, which from time to time may
exceed federally insured limits. At March 31, 2010 and December 31,
2009, the Company was not in excess of federally insured limits. The
Company periodically assesses the financial condition of the institutions and
believes that the risk of any loss is minimal.
NOTE 12 –
COMMITMENTS
Building
Lease
The
Company leases a combined production and office facility located in Mundelein,
Illinois. The facility is approximately 44,000 square
feet. The Company extended the lease until March 2011 and the
required monthly rental payments increased to $21,000, exclusive of property
taxes. The Company also is responsible for payment of all
property taxes. Insurance and maintenance are billed when
due. If we were to lose this lease or not be able to extend our lease
due to the specific requirements of our Company, the outcome to our operations
could be substantial.
The
Company recognizes escalating lease expense on a straight line basis in
accordance with current accounting
guidance.
For the
three months ended March 31, 2010 and 2009, respectively, the Company recognized
rent expense of $48,420 and $56,922. The future minimum annual rental payments
and sub-lease income for the years ended December 31 under the lease terms are
as follows:
|
Year Ended
|
Rentals
|
|
2011
|
252,000
|
|
2012
|
42,000
|
|
2013
|
-
|
|
2014
|
|
|
2012
|
-
|
|
$ 294,000
|
During
the first quarter of 2010, the Company entered into two equipment leases for
plant equipment. The equipment is to be delivered during the second
quarter. The Company shall have the option to purchase the equipment
at the end of each lease. The first lease is for a minimum of 6
months at $10,000 per month, with a purchase price of $108,000 (the rental
payments would be applied to the purchase price). The second lease is
for 18 months at $24,167 per month, with a $100,000 up front
payment. The purchase price of the equipment is $535,006, and both
the initial and rental payments would be applied to the purchase
price.
F-13
Z
TRIM HOLDINGS, INC.
NOTES TO INTERIM
UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2010 AND
2009
NOTE 13 – PENDING
LITIGATION/ CONTINGENT LIABILITY
On July
7, 2007, the Company was served with a complaint by Joseph Sanfilippo and James
Cluck for violation of the Consumer Fraud Act and is seeking damages in excess
of $200,000. Management believes that the allegations are frivolous
and wholly without merit and will vigorously defend the claim. The Company
currently has a Motion to Dismiss pending in the Circuit Court, Twentieth
Judicial Circuit, St. Clair County, Illinois. The pleadings are still
at issue and discovery is just getting underway. Thus, the outcome is
unknown as of the report date.
On August
4, 2009, the Company was served with a complaint by Daniel Caravette, alleging
the Company breached the parties’ settlement agreement dated April 24, 2008 and
seeking damages in excess of $75,000. Management believes that the
allegations are frivolous and wholly without merit and will vigorously defend
the claim. The case is set for trial in July of 2010 before the
Circuit Court of the Nineteenth Judicial District, Lake County, Illinois. A
defense motion for summary judgment is pending and undetermined as of the report
date.
NOTE 14 – RELATED PARTY
TRANSACTIONS
In
2009, two of the Company’s external Directors, Mark Hershhorn and
Brian Israel each agreed to apply $20,000 of unpaid Directors’ fees (80% of
which is past due), to the purchase of Units pursuant to the terms of the
convertible notes set forth in Note 6 hereinabove. Further, our third
external director, Morris Garfinkle, also invested $50,000 in the
offering.
NOTE 15 –
GUARANTEES
The
Company from time to time enters into certain types of contracts that
contingently require the Company to indemnify parties against third party
claims. These contracts primarily relate to: (i) divestiture agreements, under
which the Company may provide customary indemnifications to purchasers of the
Company’s businesses or assets; (ii) certain real estate leases, under which the
Company may be required to indemnify property owners for environmental and other
liabilities, and other claims arising from the Company’s use of the applicable
premises; and (iii) certain agreements with the Company's officers, directors
and employees, under which the Company may be required to indemnify such persons
for liabilities arising out of their employment relationship. The
terms of such obligations vary. Generally, a maximum obligation is not
explicitly stated. Because the obligated amounts of these types of agreements
often are not explicitly stated, the overall maximum amount of the obligations
cannot be reasonably estimated. Historically, the Company has not been obligated
to make significant payments for these obligations, and no liabilities have been
recorded for these obligations on its consolidated balance sheet as of March 31,
2010.
In
general, the Company offers a one-year warranty for most of the products it
sold. To date, the Company has not incurred any material costs
associated with these warranties.
NOTE 17 – SUBSEQUENT
EVENTS
Between
April 1 and 3, 2010, we sold 9.7 units. Each of the units
(individually, a "Unit" and collectively, the "Units") consists of a $10,000
24-month senior secured promissory note (each a "Note" and collectively the
"Notes") convertible at the rate of $1.00 per share into 10,000 shares of our
common stock, $.00005 par value (the "Common Stock"), bearing interest at the
rate of 8% per annum, which interest is accrued annually in Common Stock at the
rate of $1.00 per share. The Notes will be secured by a first lien on all of our
assets for so long as the Notes remain outstanding pursuant to the form of
Security Agreement (the "Security Agreement"). The Notes are convertible into a
total of 97,000 shares of Common Stock exclusive of interest. The interest is
payable in additional shares of the Company's Common Stock, quarterly or upon
maturity of the Notes. The Investors also received one five-year warrant for
each Unit purchased, to purchase 15,000 shares of Common Stock per unit with an
exercise price of $1.50 per share ("Warrants"). The total warrants issued to the
purchasers were 145,500. The terms and conditions of the Units are substantially
identical to the terms and conditions and constitute a part of the units
previously sold by us in 2009 and reported on a Form 8-K filed by us on October
16, 2009 (the "2009 Units").
On or
about May 10, 2010, the Company rescinded all stock options issued in 2009 that
had an exercise price below $1.00. In total 1,320,000 stock options
were rescinded. In consideration for such, the Company issued
1,882,500 stock options to employees, of which 1,567,500 were issued with an
exercise price of $1.01, and 315,000 were issued with an exercise price of
$1.10.
On April
30, 2010, the Company issued 55,841 shares of its common stock to a note holder
for conversion of principal of $50,000 and accrued interest of
$5,841.
On April
20, 2010, the Company issued 12,308 shares of its common stock for the exercise
of 12,308 warrants with an exercise price of $1.00.
F-14
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and
Stockholders
of Z Trim Holdings, Inc.
We have
audited the accompanying consolidated balance sheets of Z Trim Holdings, Inc. as
of December 31, 2009 and 2008, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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 Z Trim Holdings, Inc. as of
December 31, 2009 and 2008, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the Unites States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the company will continue as a going concern. As discussed in Note 2
to the consolidated financial statements, the company has suffered recurring
losses from operations and requires additional financing to continue in
operation. These conditions raise substantial doubt about its ability
to continue as a going concern. Management’s plans in regard to these
matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
the uncertainty.
|
/s/
M&K CPAs,PLLC
Houston,
Texas
April
9, 2010
|
F-15
|
Z
TRIM HOLDINGS, INC.
|
||||
|
CONSOLIDATED
BALANCE SHEETS
|
||||
|
DECEMBER 31, 2009 and
2008
|
||||
|
ASSETS
|
||||
|
12/31/2009
|
12/31/2008
|
|||
|
Current
Assets
|
||||
|
Cash
and cash equivalents
|
$ 324,784
|
$ 592,696
|
||
|
Accounts
receivable (net of allowance of $0 and $10,067
|
||||
|
as
of December 31, 2009 and December 31,
2008)
|
96,024
|
206,231
|
||
|
Inventory
|
118,979
|
182,971
|
||
|
Prepaid
expenses and other assets
|
97,802
|
86,445
|
||
|
Total
current assets
|
637,589
|
1,068,343
|
||
|
Property
and equipment, net
|
3,545,344
|
4,061,436
|
||
|
Long
Term Assets
|
||||
|
Deposit
on Fixed Asset
|
-
|
240,000
|
||
|
Other
Assets
|
||||
|
Prepaid
Loan Cost - Long Term, Net
|
368,171
|
880,650
|
||
|
Deposits
|
15,003
|
14,453
|
||
|
Total
other assets
|
383,174
|
895,103
|
||
|
TOTAL
ASSETS
|
$ 4,566,107
|
$ 6,264,882
|
||
The accompany notes are an integral part of the
consolidated financial statements.
F-16
|
Z
TRIM HOLDINGS, INC.
|
||||
|
CONSOLIDATED
BALANCE SHEETS
|
||||
|
DECEMBER 31, 2009 and
2008
|
||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||
|
12/31/2009
|
12/31/2008
|
|||
|
Current
Liabilities
|
||||
|
Accounts
payable
|
$ 373,841
|
$ 544,325
|
||
|
Accrued
expenses and other
|
700,830
|
335,718
|
||
|
Accrued
Liquidated Damages
|
80,100
|
-
|
||
|
Derivative
Liabilities
|
10,285,578
|
-
|
||
|
Convertible
Notes Payable, Net
|
4,008,950
|
2,559,736
|
||
|
Total
Current Liabilities
|
15,449,299
|
3,439,779
|
||
|
Total
Liabilities
|
15,449,299
|
3,439,779
|
||
|
Stockholders'
Equity (Deficit)
|
||||
|
Common
stock, $0.00005 par value; authorized 200,000,000
|
||||
|
shares;
issued and outstanding 2,806,878 and
|
||||
|
2,597,879
shares, December 31, 2009 and December 31, 2008
|
140
|
130
|
||
|
respectively
|
||||
|
Additional
paid-in capital
|
75,119,074
|
74,487,848
|
||
|
Accumulated
deficit
|
(86,002,406)
|
(71,662,875)
|
||
|
Total
Stockholders' Equity (Deficit)
|
(10,883,192)
|
2,825,103
|
||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$ 4,566,107
|
$ 6,264,882
|
||
The accompany notes are an integral part of the
consolidated financial statements.
F-17
|
Z
TRIM HOLDINGS, INC.
|
|||
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|||
|
FOR
THE YEAR ENDED DECEMBER 31
|
2009
|
2008
|
|
|
REVENUES:
|
|||
|
Products
|
$ 559,910
|
$ 720,899
|
|
|
Services
|
-
|
-
|
|
|
Total
revenues
|
559,910
|
720,899
|
|
|
COST
OF REVENUES:
|
|||
|
Products
|
1,679,148
|
2,429,620
|
|
|
Total
cost of revenues
|
1,679,148
|
2,429,620
|
|
|
GROSS
MARGIN
|
(1,119,238)
|
(1,708,721)
|
|
|
OPERATING
EXPENSES:
|
|||
|
Selling,
general and administrative
|
4,729,683
|
4,245,405
|
|
|
Impairment
of intangible assets
|
-
|
136,668
|
|
|
Amortization
of intangible assets
|
-
|
3,333
|
|
|
Loss(Gain)
on asset disposals, net
|
126,651
|
(74,987)
|
|
|
Total
operating expenses
|
4,856,334
|
4,310,419
|
|
|
OPERATING
LOSS
|
(5,975,572)
|
(6,019,140)
|
|
|
OTHER
INCOME (EXPENSES):
|
|||
|
Rental
and other income
|
3,826
|
24,451
|
|
|
Interest
income
|
901
|
20,526
|
|
|
Interest
expense
|
(5,947)
|
(520)
|
|
|
Interest
expense - Note Payable
|
(2,426,032)
|
(670,042)
|
|
|
Liquidated
Damages
|
(80,100)
|
-
|
|
|
Derivative (loss)
gain
|
(3,623,519)
|
-
|
|
|
Settlement
(loss) gain
|
(103,137)
|
(772,202)
|
|
|
Total
other income (expenses)
|
(6,234,008)
|
(1,397,787)
|
|
|
NET
LOSS
|
$ (12,209,580)
|
$ (7,416,927)
|
|
|
Deemed
Dividend
|
-
|
(74,863)
|
|
|
NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$ (12,209,580)
|
$ (7,491,790)
|
|
|
NET
LOSS PER SHARE - BASIC AND DILUTED
|
$ (4.48)
|
$ (2.95)
|
|
|
Weighted
Average Number of Shares Basic and Diluted
|
2,727,793
|
2,540,032
|
The accompany notes are an integral part of the
consolidated financial statements.
F-18
|
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
|
||||||
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
||||||
|
Shares
of
|
Additional
|
|||||
|
Common
|
Common
|
Paid-In
|
Unamortized
|
Accumulated
|
||
|
Stock
|
Stock
|
Capital
|
Expenses
|
Deficit
|
Total
|
|
|
Balance
at December 31, 2007 (Restated)
|
2,401,879
|
$ 3,600
|
$
69,603,639
|
$ -
|
$ (64,171,085)
|
$ 5,436,154
|
|
Common
Stock issued for settlement loss
|
208,167
|
312
|
1,353,388
|
1,353,700
|
||
|
Stock
issued for directors fees
|
33,333
|
50
|
229,950
|
230,000
|
||
|
Cancellation
of retired shares in process
|
10
|
149,990
|
150,000
|
|||
|
Rescinded
Shares
|
(45,500)
|
(68)
|
(74,432)
|
(74,500)
|
||
|
Warrants
issued for settlement loss
|
524,665
|
524,665
|
||||
|
Warrants
issued for placement fees
|
309,547
|
309,547
|
||||
|
Discount
on convertible debt
|
2,247,784
|
2,247,784
|
||||
|
Deemed
Dividend
|
74,863
|
(74,863)
|
-
|
|||
|
Stock
Based Compensation
|
40,613
|
40,613
|
||||
|
Options
issued for compensation
|
24,067
|
24,067
|
||||
|
Net
loss
|
(7,416,927)
|
(7,416,927)
|
||||
|
Balance
at December 31, 2008
|
2,597,879
|
3,904
|
$
74,484,074
|
$ -
|
$ (71,662,875)
|
$ 2,825,103
|
|
Common
Stock reduced due to split
|
(3,774)
|
3,774
|
-
|
|||
|
Stock
issued for accounts payable
|
60,000
|
2
|
104,399
|
104,401
|
||
|
Stock
issued for directors fees
|
90,000
|
5
|
46,196
|
46,201
|
||
|
Exercised
warrants or options
|
4,365
|
0
|
4,365
|
4,365
|
||
|
Exercised
cashless warrants
|
51,927
|
3
|
(3)
|
-
|
||
|
Stock
Based Compensation
|
565,848
|
565,848
|
||||
|
Initial
valuation of the derivative liabilities
|
(89,579)
|
(2,129,951)
|
(2,219,530)
|
|||
|
Rounding
due to reverse stock split
|
2,707
|
0
|
-
|
|||
|
Net
loss
|
(12,209,580)
|
(12,209,580)
|
||||
|
Balance
at December 31, 2009
|
2,806,878
|
140
|
75,119,074
|
-
|
(86,002,406)
|
(10,883,192)
|
The accompany notes are an integral part of the
consolidated financial statements.
F-19
|
Z
TRIM HOLDINGS, INC.
|
|||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|||
|
FOR
THE YEARS ENDED DECEMBER 31
|
2009
|
2008
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|||
|
Net
loss
|
(12,209,580)
|
(7,416,927)
|
|
|
Adjustments
to reconcile loss from continuing operations to
|
|||
|
net
cash used in operating activities:
|
|||
|
Depreciation
|
922,321
|
1,228,335
|
|
|
Loss
on asset disposal
|
128,416
|
-
|
|
|
Change
in Derivative Liability, net of bifurcation
|
3,623,519
|
-
|
|
|
Stock
based compensation
|
565,848
|
40,613
|
|
|
Shares
issued for director fees
|
46,201
|
230,000
|
|
|
Shares
issued for debt
|
44,401
|
-
|
|
|
Warrants
issued for services
|
632,982
|
-
|
|
|
Warrants
issued for accounts payable
|
62,547
|
-
|
|
|
Amortization
on discounts on debt
|
1,449,214
|
-
|
|
|
Loan
Cost Amortization
|
512,479
|
-
|
|
|
Impairment
of intangible assets
|
-
|
136,668
|
|
|
Stock
and warrant settlements
|
-
|
582,219
|
|
|
BCF
Amortization
|
350,520
|
||
|
Changes
in operating assets and liabilities
|
|||
|
Accounts
receivable
|
110,207
|
(198,708)
|
|
|
Inventory
|
63,991
|
409,695
|
|
|
Prepaid
expenses and other assets
|
(3,907)
|
66,637
|
|
|
Increase/(Decrease)
in:
|
|||
|
Accounts
payable and accrued expenses
|
801,629
|
(548,082)
|
|
|
Accrued
Liquidated Damages
|
80,100
|
-
|
|
|
CASH
USED FOR OPERATING ACTIVITIES
|
(3,169,632)
|
(5,119,030)
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|||
|
Purchase
of Fixed Assets
|
(389,145)
|
(340,820)
|
|
|
Proceeds
from asset disposals
|
94,500
|
-
|
|
|
CASH
USED FOR INVESTING ACTIVITIES
|
(294,645)
|
(340,820)
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITES
|
|||
|
Loan
Costs
|
-
|
(766,535)
|
|
|
Rescinded
Shares
|
-
|
(74,499)
|
|
|
Borrowing
on debt
|
3,192,000
|
4,457,000
|
|
|
Exercise
of options and warrants for cash
|
4,365
|
-
|
|
|
CASH
PROVIDED BY FINANCING ACTIVITIES
|
3,196,365
|
3,615,966
|
|
|
NET
(DECREASE)INCREASE IN CASH
|
(267,912)
|
(1,843,884)
|
|
|
CASH
AT BEGINNING OF YEAR
|
592,696
|
2,436,580
|
|
|
CASH
AT THE YEARS ENDED DECEMBER 31
|
324,784
|
592,696
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|||
|
Issuance
of common stock for issuance of stock
|
|||
|
Deferred
Loan Costs
|
309,547
|
||
|
Discount
on Convertible Debentures
|
3,747,000
|
2,247,784
|
|
|
Warrants
issued for settlement loss - Zaghi
|
368,822
|
||
|
Common
Stock issued for settlement - Zaghi
|
839,850
|
||
|
Warrants
issued for settlement loss-Basic Investors
|
87,324
|
||
|
Common
Stock issued for stock payable
|
149,990
|
||
|
Deemed
Dividend
|
74,863
|
||
|
Options
issued for compensation
|
24,067
|
||
|
Transfer
from Deposit on Fixed Assets to Construction in Progress
|
240,000
|
||
|
Cummulative
Effect - Adoption of EITF07-5
|
2,219,530
|
||
|
Convertible
Debt issued for Settlement of AP
|
555,000
|
The accompany notes are an
integral part of the consolidated financial statements.
F-20
Z Trim
Holdings, Inc.
Notes To
Consolidated Financial Statements
December
31, 2009
NOTE 1 – NATURE OF
BUSINESS
Nature of
Business
Z Trim
Holdings, Inc. (the “Company”) manufactures a line of functional food
ingredients that can be used to reduce costs, manage moisture, replace fats and
deliver fiber to a wide variety of foods. The Company’s products can
be used by food manufacturers and processors, restaurants, schools, and the
general public worldwide. The Company continues to explore all available options
for its other Z Trim technologies and related assets.
The
Company owns an exclusive license to Z Trim, a natural, agriculture-based
functional food ingredient.
NOTE 2 – GOING
CONCERN
The
Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. In
the near term, the Company expects operating costs to continue to exceed funds
generated from operations. As a result, the Company expects to
continue to incur operating losses and may not have enough capital to grow its
business in the future or continue as a going concern. The Company
can give no assurance that it will achieve profitability or be capable of
sustaining profitable operations. As a result, operations in the near
future are expected to continue to use working capital.
To
successfully grow the business, the Company must decrease its cash outflows,
improve its cash position and its revenue base, and succeed in its ability to
raise additional capital through a combination of primarily public or private
equity offerings or strategic alliances.
The
Company is currently in the process of trying to obtain additional financing for
its current operations.
NOTE 3 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Use of
Estimates
The
preparation of the accompanying consolidated financial statements in conformity
with accounting principles generally accepted in the United States (U.S. GAAP)
requires management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Revenue
Recognition
The
Company generally recognizes product revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable, and
collectability is probable. In instances where the final acceptance of the
product is specified by the customer, revenue is deferred until all acceptance
criteria have been met. No provisions were established for estimated product
returns and allowances based on the Company’s historical
experience.
Allowance for Doubtful
Accounts
Management
of the Company makes judgments as to its ability to collect outstanding
receivables and provide allowances for the portion of receivables when
collection becomes doubtful. Provisions are made based upon a specific review of
all significant outstanding invoices. For those invoices not specifically
reviewed, provisions are provided at differing rates, based upon the age of the
receivable. In determining these percentages, management analyzes its historical
collection experience and current economic trends. If the historical data the
Company uses to calculate the allowance for doubtful accounts does not reflect
the future ability to collect outstanding receivables, additional provisions for
doubtful accounts may be needed and the future results of operations could be
materially affected. As of December 31, 2009, the allowance for doubtful
accounts was $0. As of December 31, 2008 the allowance for doubtful
accounts was $10,067.
Cash and cash
equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid
investments with a maturity of three months or less to be cash
equivalents. There were no cash equivalents as of December 31, 2009
and 2008.
Inventory
Inventory
is stated at the lower of cost or market, using the first-in, first-out
method.
Property and
Equipment
Property
and equipment are stated at cost. Maintenance and repair costs are
expensed as incurred. Depreciation is calculated on the accelerated
and straight-line methods over the estimated useful lives of the assets.
Estimated useful lives of five to ten years are used for machinery and
equipment, office equipment and furniture, and automobile. Estimated useful
lives of up to five years are used for computer equipment and related software.
Depreciation and amortization of leasehold improvements are computed using the
term of the lease.
F-21
Z Trim
Holdings, Inc.
Notes to
Consolidated Financial Statements
December 31,
2009
NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES Cont.
Deferred Loan
Costs
Loan
acquisition costs are amortized over the life of the applicable indebtedness
using the effective interest method.
Intangible
Assets
Intangible
assets are carried at the purchased cost less accumulated amortization.
Amortization is computed over the estimated useful lives of the respective
assets, generally from fifteen to twenty years.
Impairment of Long-Lived
Assets
Long-lived
assets and certain identifiable intangible assets to be held and used are
reviewed for impairment whenever events or changes in circumstance indicate that
the carrying amount of such assets may not be recoverable. Determination of
recoverability is based on an estimate of undiscounted future cash flows
resulting from the use of the asset and its eventual disposition. Measurement of
an impairment loss for long-lived assets and certain identifiable intangible
assets that management expects to hold and use is based on the fair value of the
asset. Long-lived assets and certain identifiable intangible assets to be
disposed of are reported at the lower of carrying amount or fair value less
costs to sell.
Income
Taxes
The
Company and its subsidiaries are included in the consolidated federal income tax
return filed by the Parent. The amount of current and deferred taxes
payable or refundable is recognized as of the date of the financial statements,
utilizing currently enacted tax laws and rates. Deferred tax expenses
or benefits are recognized in the financial statements for the changes in
deferred tax liabilities or assets between years.
Principle of Consolidation
and Presentation
The
accompanying consolidated financial statements include the accounts of Z Trim
Holdings, Inc. and its subsidiaries after elimination of significantly all
intercompany accounts and transactions.
Accounting for Derivative
Instruments
All
derivatives have been recorded on the balance sheet at fair value based on the
lattice model calculation. These derivatives, including embedded derivatives in
the Company’s warrants and its Convertible 8% Senior Secured Notes issued in
2008 and 2009, which have reset provisions to the exercise price and conversion
price if the Company issues equity or other derivatives at a price less than the
exercise price set forth in such warrants and notes, are separately valued and
accounted for on the Company’s balance sheet. Fair values for exchange traded
securities and derivatives are based on quoted market prices. Where market
prices are not readily available, fair values are determined using market based
pricing models incorporating readily observable market data and requiring
judgment and estimates.
Lattice Valuation
Model
The
Company valued the conversion features and warrants in their convertible notes
using a lattice valuation model, with the assistance of a valuation consultant.
The lattice model values these instruments based on a probability weighted
discounted cash flow model. The Company uses the model to develop a set of
potential scenarios. Probabilities of each scenario occurring during the
remaining term of the debentures are determined based on management's
projections. These probabilities are used to create a cash flow projection over
the term of the instruments and determine the probability that the projected
cash flow will be achieved. A discounted weighted average cash flow for each
scenario is then calculated and compared to the discounted cash flow of the
instruments without the compound embedded derivative in order to determine a
value for the compound embedded derivative.
Fair Value of Financial
Instruments
The
Company’s financial instruments consist of cash and cash equivalents, accounts
receivable, inventory, accounts payable, accrued liabilities and long-term debt.
The estimated fair value of cash, accounts receivable, accounts payable and
accrued liabilities approximate their carrying amounts due to the short-term
nature of these instruments. The carrying value of long-term debt also
approximates fair value since their terms are similar to those in the lending
market for comparable loans with comparable risks. None of these instruments are
held for trading purposes.
The
Company utilizes various types of financing to fund its business needs,
including convertible debt with warrants attached. The Company reviews its
warrants and conversion features of securities issued as to whether they are
freestanding or contain an embedded derivative and, if so, whether they are
classified as a liability at each reporting period until the amount is settled
and reclassified into equity with changes in fair value recognized in current
earnings. At December 31, 2009, the Company had convertible debt and warrants to
purchase common stock, the fair values of which are classified as a liability.
Some of these units have embedded conversion features that are treated as a
discount on the notes. Such financial instruments are initially recorded at fair
value and amortized to interest expense over the life of the debt using the
effective interest method.
Inputs
used in the valuation to derive fair value are classified based on a fair value
hierarchy which distinguishes between assumptions based on market data
(observable inputs) and an entity’s own assumptions (unobservable inputs). The
hierarchy consists of three levels:
|
·
|
Level
one — Quoted market prices in active markets for identical assets or
liabilities;
|
|
·
|
Level two — Inputs other than level one inputs that are either directly or
indirectly observable; and
|
|
·
|
Level
three — Unobservable inputs developed using estimates and assumptions,
which are developed by the reporting entity and reflect those assumptions
that a market participant would
use.
|
Determining
which category an asset or liability falls within the hierarchy requires
significant judgment. The Company evaluates its hierarchy disclosures each
quarter. The Company’s only asset or liability measured at fair value on a
recurring basis is its derivative liability associated with the units consisting
of convertible debt and warrants to purchase common stock (discussed above). The
Company classifies the fair value of these warrants under level three. The fair
value of the derivative liability at December 31, 2009 was $10,285,578, and the
loss due to valuation for the twelve months ended December 31, 2009 was
$3,623,519.
Advertising
Costs
The
Company expenses all advertising costs as incurred. The amount for
the year ended December 31, 2009 and 2008 was $13,953 and $55,981
respectively.
Income (Loss) Per Common
Share
Basic net
income (loss) per share includes no dilution and is computed by dividing net
income (loss) available to common stockholders by the weighted average number of
common stock outstanding for the period. Diluted earnings per share is computed
by dividing net income by the weighted average number of shares outstanding and,
when diluted, potential shares from options and warrants to purchase common
stock using the treasury stock method. Diluted net loss per common share does
not differ from basic net loss per common share since potential shares of common
stock are anti-dilutive for all periods presented.
F-22
Z Trim
Holdings, Inc.
Notes to
Consolidated Financial Statements
December 31,
2009
NOTE 3 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES Cont.
Cashless Exercise of
Warrants
The
Company has issued warrants to purchase common stock where the holder is
entitled to exercise the warrant via a cashless exercise. The Company accounts
for the issuance of common stock on the cashless exercise of warrants on a net
basis.
Stock Based
Compensation
The Company estimates the fair value of
share-based payment awards made to employees and directors, including stock
options, restricted stock and employee stock purchases related to employee stock
purchase plans, on the date of grant using an option-pricing model. The
value of the portion of the award that is ultimately expected to vest is
recognized as an expense ratably over the requisite service
periods. We estimate the fair value of each share-based award using
the Black-Scholes option pricing model. The Black-Scholes model is highly
complex and dependent on key estimates by management. The estimates with the
greatest degree of subjective judgment are the estimated lives of the
stock-based awards and the estimated volatility of our stock price.
The Company recognized
pre-tax compensation expense related to stock options of $565,848 and $40,613for
the year ended December 31, 2009 and 2008, respectively.
Reverse
Split
Effective
February 6, 2009, we had a 30 to 1 reverse stock split. All
information in this Form 10-K has been retrospectively adjusted to reflect the
reverse stock split as it took place as of the earliest period
presented.
New Accounting
Pronouncements
In
October 2009, the Financial Accounting Standards Board (“FASB”) issued new
revenue recognition standards for arrangements with multiple deliverables, where
certain of those deliverables are non-software related. The new standards permit
entities to initially use management’s best estimate of selling price to value
individual deliverables when those deliverables do not have Vendor Specific
Objective Evidence (“VSOE”) of fair value or when third-party evidence is not
available. Additionally, these new standards modify the manner in which the
transaction consideration is allocated across the separately identified
deliverables by no longer permitting the residual method of allocating
arrangement consideration. These new standards are effective for annual periods
ending after June 15, 2010 and early adoption is permitted. The Company is
currently evaluating the impact of adopting this standard on the Company’s
consolidated financial position, results of operations and cash
flows.
In June
2009, the FASB issued guidance establishing the Codification as the source of
authoritative U.S. Generally Accepted Accounting Principles (“U. S. GAAP”)
recognized by the FASB to be applied by non-governmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (“SEC”) under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. The Codification supersedes all existing non-SEC accounting
and reporting standards. All other non-grandfathered non-SEC accounting
literature not included in the Codification will become non-authoritative. The
FASB will no longer issue new standards in the form of Statements, FASB Staff
Positions, or Emerging Issues Task Force Abstracts. Instead, the FASB will issue
Accounting Standards Updates, which will serve only to update the Codification,
provide background information about the guidance and provide the bases for
conclusions on changes in the Codification. All content in the Codification
carries the same level of authority, and the U.S. GAAP hierarchy was modified to
include only two levels of U.S. GAAP: authoritative and non-authoritative. The
Codification is effective for the Company’s interim and annual periods beginning
with the Company’s year ending December 31, 2009. Adoption of the Codification
affected disclosures in the Consolidated Financial Statements by eliminating
references to previously issued accounting literature, such as SFASs, EITFs and
FSPs.
In
June 2009, the FASB issued amended standards for determining whether to
consolidate a variable interest entity. These new standards amend the
evaluation criteria to identify the primary beneficiary of a variable interest
entity and require ongoing reassessment of whether an enterprise is the primary
beneficiary of the variable interest entity. The provisions of the new standards
are effective for annual reporting periods beginning after November 15, 2009 and
interim periods within those fiscal years. The adoption of the new standards
will not have an impact on the Company’s consolidated financial position,
results of operations and cash flows.
In May
2009, the FASB issued guidance establishing general standards for accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued and shall be
applied to subsequent events not addressed in other applicable generally
accepted accounting principles. This guidance, among other things, sets forth
the period after the balance sheet date during which management should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and the disclosures an entity should make about events or
transactions that occurred after the balance sheet date. The adoption of this
guidance had no impact on the Company’s consolidated financial position, results
of operations and cash flows.
The
Emerging Issue Task Force released a pronouncement related to determining
whether an instrument (or imbedded Feature) is indexed to an entity’s own
stock. This became effective for the Company on March 31,
2009. The Company’s warrants and its Convertible 8% Senior Secured
Notes issued in 2008 have reset provisions to the exercise price and conversion
price if the Company issues equity or other derivatives at a price less than the
exercise price set forth in such warrants and notes. The adoption of
the pronouncement on January 1, 2009, the company recorded a cumulative effect
of a change in accounting principle resulting in a reclassification of the
Company’s outstanding warrants from stockholders’ equity to liabilities, which
required the warrants to be fair valued at each reporting period, with the
changes in fair value recognized in the Company’s consolidated statement of
operations. At December 31, 2009, the Company recorded a derivative
liability of $10,285,578 and a change in the fair value – derivative liability
for the year ended December 31, 2009 of ($3,623,519).
NOTE 4 –
INVENTORY
At
December 31, inventory consists of the following:
|
12/31/2009
|
12/31/2008
|
||
|
Raw
materials
|
$ 23,773
|
$ 35,471
|
|
|
Packaging
|
1,010
|
1,114
|
|
|
Work-in-process
|
7,437
|
1,879
|
|
|
Finished
goods
|
80,299
|
133,649
|
|
|
Other
Inventory
|
6,461
|
10,858
|
|
|
Total
inventory
|
$ 118,979
|
$ 182,971
|
|
F-23
Z Trim
Holdings, Inc.
Notes to
Consolidated Financial Statements
December 31,
2009
NOTE 5 – PROPERTY AND
EQUIPMENT, NET
At
December 31, property and equipment, net consists of the following:
|
12/31/2009
|
12/31/2008
|
|||
|
Production,
engineering and other equipment
|
$5,651,279
|
$5,301,635
|
||
|
Leasehold
improvements
|
$2,822,834
|
$2,801,053
|
||
|
Office
equipment and furniture
|
$577,226
|
$598,860
|
||
|
Computer
equipment and related software
|
$140,246
|
$140,245
|
||
|
Construction
in process - Equipment
|
$72,177
|
$53,361
|
||
|
Construction
in process - Leasehold Impr
|
$0
|
$18,855
|
||
|
$9,263,762
|
$8,914,009
|
|||
|
Accumulated
depreciation
|
($5,718,418)
|
($4,852,573)
|
||
|
Property
and equipment, net
|
$3,545,344
|
$4,061,436
|
Depreciation
expense was $922,321 and $1,228,335 for the years ended December 31, 2009 and
2008, respectively. During the year ended December 31, 2009, the
Company sold three fixed assets with a combined net book value of $221,151 in
exchange for cash of 94,500 and recorded a loss on sale of $126,651. During the
year ended December 31, 2008, the Company did not dispose of any fixed
assets.
NOTE 6 – INTANGIBLE
ASSETS
During
2009, no significant intangible assets were acquired and in 2008 certain
software license rights were impaired as management deemed no future economic
benefit and wrote off $136,668.
|
License
Rights to
|
||||
|
Website
|
2009
|
2008
|
||
|
Gross
Carrying Amount
|
$ -
|
$ 200,000
|
||
|
Accumulated
Amortization
|
$ -
|
$ (200,000)
|
||
|
Net
|
$ -
|
$ -
|
Amortization
of intangibles was $0 and $3,333 for the years ended December 31, 2009 and 2008,
respectively.
A
reduction of intangible assets in the amount of $136,668 was taken in the first
quarter of 2008. For the year ended December 31, 2008, the Company sold an
intangible asset, which was previously impaired during fiscal year ended
December 31, 2006, for cash in the amount of $74,987 and recorded a gain on sale
of $74,987.
NOTE 7 – ACCRUED
EXPENSES
At
December 31, accrued expenses consist of the following:
|
12/31/2009
|
12/31/2008
|
||
|
Accrued
legal
|
$ -
|
$ -
|
|
|
Accrued
payroll and taxes
|
4,787
|
31,795
|
|
|
Accrued
settlements
|
-
|
100,000
|
|
|
Accrued
Interest
|
575,357
|
124,090
|
|
|
Accrued
expenses and other
|
120,686
|
79,833
|
|
|
Total
accrued expenses & other
|
$ 700,830
|
$ 335,718
|
|
F-24
Z Trim
Holdings, Inc.
Notes to
Consolidated Financial Statements
December 31,
2009
F-29
NOTE 8–CONVERTIBLE NOTES
PAYABLE
2009 Convertible
Notes
On April
15, 2009, we entered into private placement subscription agreements pursuant to
which we sold 24.2 units consisting of convertible notes and warrants, for an
aggregate offering price of $242,000. Each of the units (individually, a "Unit"
and collectively, the "Units") consists of a $10,000 24-month senior secured
promissory note (each a "Note" and collectively the "Notes") convertible at the
rate of $1.00 per share into 10,000 shares of our common stock, $.00005 par
value (the "Common Stock"), bearing interest at the rate of 8% per annum, which
interest is accrued annually in Common Stock at the rate of $1.00 per share. The
Notes will be secured by a first lien on all assets of the Company for so long
as the Notes remain outstanding pursuant to the form of Security Agreement filed
as an exhibit to this report. The Notes are convertible into a total of 242,000
shares of Common Stock. The interest is payable upon maturity of the Notes.
Investors of each Unit also received one five-year warrant, one to purchase
15,000 shares of Common Stock per unit with an exercise price of $1.50 per share
("Warrants"). The total warrants issued to the note-holders were
383,000.
As part
of the aggregate, two of the Company's external Directors, Mark Hershhorn and
Brian Israel each agreed to apply $20,000 of unpaid Directors' fees (80% of
which is past due), to the purchase of Units pursuant to the terms of the
offering set forth above. Further, our third external director, Morris
Garfinkle, also invested $50,000 in the offering.
As a
result of the conversion rate being set at $1.00 for these agreements, the
conversion rate for the convertible notes and $4.80 warrants entered into by the
company in June, September and November of 2008 are automatically reset to
$1.00. The impact of this change is that the number of shares that could be
obtained by converting the June, September and November 2008 notes increases
from 928,541 to 4,456,997, and the interest shares (if the holders elect to be
paid in shares instead of cash) on such notes increases from 148,566 to
713,117.
We
determined that all of the securities sold and issued in the private placement
were exempt from registration under the Securities Act of 1933, as amended (the
"Act") pursuant to Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. We based this determination on the non-public manner
in which we offered the securities and on the representations of the persons
purchasing such securities, which included, in pertinent part, that such persons
were "accredited investors" within the meaning of Rule 501 of Regulation D
promulgated under the Act, and that such persons were acquiring such securities
for investment purposes for their own respective accounts and not as nominees or
agents, and not with a view to resale or distribution, and that each such person
understood such securities may not be sold or otherwise disposed of without
registration under the Act or an applicable exemption therefrom.
On April
27, 2009, the Company entered into an Investment Banking Agreement with Legend
Securities, Inc. ("Legend"), pursuant to which Legend agreed to provide business
advisory services to us for a period of up to twelve months. In exchange for
Legend's services, we agreed to issue Legend a warrant to purchase 350,000
shares of our common stock at an exercise price per share equal to $1.10 per
share. The warrant will vest as to 87,500 of the warrant shares upon issuance,
and then at a rate of 87,500 shares per quarter starting on the quarterly
anniversary of issuance, and will be exercisable for a period of five years.
Under the Investment Banking Agreement, we also agreed to give Legend unlimited
"piggy back" registration rights with respect to the shares of our common stock
underlying the warrant in any registration statement filed by us in connection
with an underwritten offering of our common stock. The Company recorded the fair
value of the above warrants as warrant expense in the amount of $243,238 using
the lattice valuation model. The amount is included in selling,
general, and administrative expenses of $4,729,683 at December 31, 2009. The
Company also included the warrants in the derivative liabilities valuation as
they contained a reset provision to the exercise and conversion
prices.
We
determined that all of the securities issued pursuant to the agreement were
exempt from registration under the Securities Act of 1933, as amended (the
"Act") pursuant to Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. We based this determination on the non-public manner
in which we offered the securities and on the representations of the persons
purchasing such securities, which included, in pertinent part, that such persons
were "accredited investors" within the meaning of Rule 501 of Regulation D
promulgated under the Act, and that such persons were acquiring such securities
for investment purposes for their own respective accounts and not as nominees or
agents, and not with a view to resale or distribution, and that each such person
understood such securities may not be sold or otherwise disposed of without
registration under the Act or an applicable exemption therefrom.
Between
May 1 and May 14, 2009, we entered into private placement subscription
agreements pursuant to which we sold 38.5 units consisting of convertible notes
and warrants, for an aggregate offering price of $385,000. Each of the units
(individually, a "Unit" and collectively, the "Units") consists of a $10,000
24-month senior secured promissory note (each a "Note" and collectively the
"Notes") convertible at the rate of $1.00 per share into 10,000 shares of our
common stock, $.00005 par value (the "Common Stock"), bearing interest at the
rate of 8% per annum, which interest is accrued annually in Common Stock at the
rate of $1.00 per share. The Notes will be secured by a first lien on all assets
of the Company for so long as the Notes remain outstanding pursuant to the form
of Security Agreement filed as an exhibit to this report. The Notes are
convertible into a total of 385,000 shares of Common Stock. The interest is
payable upon maturity of the Notes. Investors of each Unit also received one
five-year warrant, one to purchase 15,000 shares of Common Stock per unit with
an exercise price of $1.50 per share ("Warrants"). The total warrants issued to
the note-holders were 577,500. The terms of the offering are identical to those
announced on the Company's Form 8-K, dated April 21, 2009. The description of
the terms of sale of the securities described in this report is qualified in its
entirety by reference to the full text of the underlying documents which have
been filed as exhibits to the April 21, 2009 Form 8-K.
On May 1,
2009, we entered into private placement subscription agreements pursuant to
which we sold 6 units consisting of shares of common stock and warrants, for an
aggregate offering price of $60,000. Each of the units (individually, a "Unit"
and collectively, the "Units") consists of 10,000 shares of unregistered common
stock plus one five-year warrant, one to purchase 15,000 shares of Common Stock
per unit with an exercise price of $1.50 per share ("Warrants"). A total of
60,000 shares of common stock and 90,000 warrants are to be issued pursuant to
the terms of this offering. All such Units were sold pursuant to an agreement
with an equipment supplier whereby the Company agreed to apply $60,000 of unpaid
and past due amounts towards the purchase and installation of two boilers, to
the purchase of the 6 Units. The equipment supplier agreed to accept such Units
as payment for the $60,000 of unpaid and past due amounts.
On May
13, 2009, the Company entered into a Material Definitive Agreement with its
patent litigation counsel, whereby the Company agreed to apply $350,000 of
unpaid and past due legal fees owed to such counsel, to the purchase of 35 Units
pursuant to the terms of the offering set forth above. The patent litigation
counsel agreed to accept such Units as payment for the $350,000 of unpaid and
past due legal fees. These Units are included in the totals set forth in the
first paragraph above.
We
determined that all of the securities sold and issued in the private placement
were exempt from registration under the Securities Act of 1933, as amended (the
"Act") pursuant to Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. We based this determination on the non-public manner
in which we offered the securities and on the representations of the persons
purchasing such securities, which included, in pertinent part, that such persons
were "accredited investors" within the meaning of Rule 501 of Regulation D
promulgated under the Act, and that such persons were acquiring such securities
for investment purposes for their own respective accounts and not as nominees or
agents, and not with a view to resale or distribution, and that each such person
understood such securities may not be sold or otherwise disposed of without
registration under the Act or an applicable exemption therefrom.
F-25
Z Trim
Holdings, Inc.
Notes to
Consolidated Financial Statements
December 31,
2009
NOTE 8–CONVERTIBLE NOTES
PAYABLE Cont.
Between
May 18 and July 15, 2009, we entered into private placement subscription
agreements pursuant to which we sold 49.75 units consisting of convertible notes
and warrants, for an aggregate offering price of $497,500. Each of the units
(individually, a "Unit" and collectively, the "Units") consists of a $10,000
24-month senior secured promissory note (each a "Note" and collectively the
"Notes") convertible at the rate of $1.00 per share into 10,000 shares of our
common stock, $.00005 par value (the "Common Stock"), bearing interest at the
rate of 8% per annum, which interest is accrued annually in Common Stock at the
rate of $1.00 per share. The Notes will be secured by a first lien on all assets
of the Company for so long as the Notes remain outstanding pursuant to the form
of Security Agreement filed as an exhibit to to the April 21, 2009 Form
8-K. The Notes are convertible into a total of 497,500 shares of
Common Stock. The interest is payable upon maturity of the Notes. Investors of
each Unit also received one five-year warrant, one to purchase 15,000 shares of
Common Stock per unit with an exercise price of $1.50 per share ("Warrants").
The total warrants issued to the note-holders were 746,250. The terms of the
offering are identical to those announced on the Company's Form 8-K, dated April
21, 2009. The description of the terms of sale of the securities described in
this report is qualified in its entirety by reference to the full text of the
underlying documents which have been filed as exhibits to the April 21, 2009
Form 8-K.
On June
29, 2009, the Company entered into a Material Definitive Agreement with its
landlord, whereby the Company agreed to apply $130,000 of unpaid and past due
rent owed to such landlord, to the purchase of 13 Units pursuant to the terms of
the offering set forth above. The landlord agreed to accept such Units as
payment for the $130,000 of unpaid and past due rent. These Units are included
in the totals set forth in the paragraph above.
We
determined that all of the securities sold and issued in the private placement
were exempt from registration under the Securities Act of 1933, as amended (the
"Act") pursuant to Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. We based this determination on the non-public manner
in which we offered the securities and on the representations of the persons
purchasing such securities, which included, in pertinent part, that such persons
were "accredited investors" within the meaning of Rule 501 of Regulation D
promulgated under the Act, and that such persons were acquiring such securities
for investment purposes for their own respective accounts and not as nominees or
agents, and not with a view to resale or distribution, and that each such person
understood such securities may not be sold or otherwise disposed of without
registration under the Act or an applicable exemption therefrom.
On
October 15, 2009, we entered into a private placement subscription agreement
with Brightline Ventures I, LLC, a Delaware Limited Liability Company(the
"purchaser" or "Brightline") pursuant to which we sold 185.25 units consisting
of convertible notes and warrants, for an aggregate offering price of
$1,852,500. Furthermore, since July 14, 2009, we had sold an additional 75.3
units for an aggregate offering price of $753,000, including a total of $660,000
sold to affiliates of Brightline. Each of the units (individually, a "Unit" and
collectively, the "Units") consists of a $10,000 24-month senior secured
promissory note (each a "Note" and collectively the "Notes") convertible at the
rate of $1.00 per share into 10,000 shares of our common stock, $.00005 par
value (the "Common Stock"), bearing interest at the rate of 8% per annum, which
interest is accrued annually in Common Stock at the rate of $1.00 per share. The
Notes will be secured by a first lien on all of our assets for so long as the
Notes remain outstanding pursuant to the form of Security Agreement filed as an
exhibit to this report (the "Security Agreement"). The Notes are convertible
into a total of 2,605,500 shares of Common Stock. The interest is payable
quarterly or upon maturity of the Notes. The Investors also received one
five-year warrant for each Unit purchased, to purchase 15,000 shares of Common
Stock per unit with an exercise price of $1.50 per share ("Warrants"). The total
warrants issued to the purchaser and its affiliates were 3,768,750. The Company
has agreed to pay a finder cash commissions aggregating 8% of the gross proceeds
of the offering sold to an investor introduced by that finder up to a maximum of
250 Units purchased by such investor and an equal amount of five year warrants
at an exercise price of $1.50 per share (for example, if the finder's fee equals
$200,000, then the finder will also receive 200,000 warrants with an exercise
price of $1.50). The Company has reserved the right to negotiate a lower
commission for any Units above the 250 purchased by such investor. The terms and
conditions of the Units are substantially identical to the terms and conditions
and constitute a part of the units previously sold by us in 2009 and reported on
a Form 8-K filed by us on April 21, 2009 (the "2009 Units"). The amount of Units
purchased by Brightline and its affiliates, represents at least a majority of
all of the Units and the 2009 Units taken as a whole, and, consequently, under
the terms of the Notes, the purchaser has the ability, together with us to amend
the Notes and Security Agreements comprising the Units and the 2009 Units. In
consideration of Brightline's (and its affiliates') purchase of Note Units in
the amount of $2,512,500 pursuant to the terms of the Note Memorandum, the
Company granted to Brightline, the right to purchase additional Note Units
and/or Preferred Stock Units, as available, up to an additional aggregate amount
of $2,487,500.
Pursuant
to the terms of the subscription agreement we agreed with the Purchaser to amend
the Units (the "Amended Units") to reflect the terms and conditions of the Units
sold by us in 2008 (the "2008 Units") as described in our Current Reports on
Form 8-K filed on June 24 and September 2, 2008 which include among other things
a full ratchet anti-dilution formulation with respect to the adjustments to the
conversion price of the Notes and the exercise price of the Warrants instead of
the weighted average anti-dilution formula contained in the Units and the
payment of interest on the Notes, at the option of the holder, quarterly or at
maturity rather than just at maturity. As a result of the amendment, all of the
Notes and the 2009 Notes and corresponding Security Agreements will be amended
to read as set forth in Exhibits 4.2 and 4.4 attached hereto. The Warrants sold
to the purchaser have also been amended. We also agreed to offer to amend the
warrants and to offer a registration rights agreement to the noteholders under
the 2009 Units on terms identical to those granted to the purchaser. The Notes,
the Amended and Restated Notes (including the Notes issued as part of the 2009
Units) and Notes issued as part of the 2008 Units rank pari passu with each
other.
We also
entered into registration rights agreements substantially similar to the
registration rights agreement entered into with the purchasers of the 2008 Units
pursuant to which we have agreed to file with the Securities and Exchange
Commission a registration statement covering the resale of the Common Stock
underlying the Amended and Restated Notes and the Amended and Restated
Warrants.
The
descriptions herein are qualified in their entirety by reference to the copies
of the forms of the Subscription Agreement, the Amended and Restated Notes, the
Amended and Restated Warrant, the Amended and Restated Security Agreements and
the Registration Rights Agreement which are attached as exhibits to the Form 8-K
filed with the SEC on October 16, 2009.
We
determined that all of the securities sold and issued in the private placement
were exempt from registration under the Securities Act of 1933, as amended (the
"Act") pursuant to Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. We based this determination on the non-public manner
in which we offered the securities and on the representations of the persons
purchasing such securities, which included, in pertinent part, that such persons
were "accredited investors" within the meaning of Rule 501 of Regulation D
promulgated under the Act, and that such persons were acquiring such securities
for investment purposes for their own respective accounts and not as nominees or
agents, and not with a view to resale or distribution, and that each such person
understood such securities may not be sold or otherwise disposed of without
registration under the Act or an applicable exemption therefrom.
For the
period ending December 31, 2009, the 2009 Notes have a debt discount
in the amount of $3,747,000. The warrants value and the beneficial
conversion value are discounted against the Notes and are being amortized as
interest expense using the effective interest method over the term of the
Notes. The warrant and beneficial conversion feature exceeded the
face value of the note and the total amortization for the twelve months ending
December 31, 2009 is $479,412 resulting in a remaining discount of
$3,267,588.
2008 Convertible
Notes
On June
18, 2008, the Company issued 8% Convertible Senior Secured Notes in the
aggregate principal amount of $1,400,000 (“Notes”). On September 2,
2008, the Company entered into private placement subscription agreements
pursuant to which we sold 23.7 units consisting of convertible notes and
warrants, for an aggregate offering price of $2,370,000. On November
12, 2008, we entered into private placement subscription agreements pursuant to
which we sold 6.87 units consisting of convertible notes and warrants, for an
aggregate offering price of $687,000. The Notes mature in two years
from date of issuance. The Notes and accrued interest are payable in
full at maturity. All amounts due under the Notes may be converted at
any time, in part or in whole, at the written election of the holder thereof,
into shares of the Company’s common stock at a conversion price of $1.00 per
share. The Notes are secured by a first priority perfected interest
in all the assets of the Company.
We
determined that all of the securities issued pursuant to the agreement were
exempt from registration under the Securities Act of 1933, as amended (the
“Act”) pursuant to Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. We based this determination on the non-public manner
in which we offered the securities and on the representations of the persons
purchasing such securities, which included, in pertinent part, that such persons
were "accredited investors" within the meaning of Rule 501 of Regulation D
promulgated under the Act, and that such persons were acquiring such securities
for investment purposes for their own respective accounts and not as nominees or
agents, and not with a view to resale or distribution, and that each such person
understood such securities may not be sold or otherwise disposed of without
registration under the Act or an applicable exemption there from.
For the
period ending December 31, 2009, the 2008 Notes have a beneficial
conversion feature, which have a value of $1,897,264. The warrants value
and the beneficial conversion value are discounted against the Notes and are
being amortized as interest expense using the effective interest method over the
term of the Notes. The warrant and beneficial conversion feature
exceeded the face value of the note and the total amortization for the twelve
months ending December 31, 2009 is $969,802 resulting in a remaining discount of
$927,462.
F-26
Z Trim
Holdings, Inc.
Notes to
Consolidated Financial Statements
December 31,
2009
NOTE 8–CONVERTIBLE NOTES
PAYABLE Cont.
Amortization on Convertible
Notes
For the
twelve months ending December 31, 2009, the Company recognized debt discount
amortization in the amount of $1,449,214. For the twelve months
ending December 31, 2008, the Company recognized debt discount amortization in
the amount of $350,520.
The
convertible note payable balance as of December 31, 2009 of $8,204,000,
excluding the debt discount of $4,195,050, matures as follows:
Year
Ended Principal
2010 4,457,000
2011 3,747,000
2012 -
2013 -
2014 -
Total 8,204,000
NOTE 9- LIQUIDATED
DAMAGES
Liquidated
Damages
In
connection with certain private placements of the Company’s securities (the
“Registrable Securities”) effected in 2008 the Company entered into registration
rights agreements (the “RRA”) that required the Company to file a registration
statement covering the Registrable Securities with the Securities and Exchange
Commission no later than thirty days after the final closing as contemplated in
the Private Placement Memorandum for the 2008 offering (the “Filing
Deadline”). The Company filed a registration statement on December
14, 2009. However, the statement has not been declared effective as the Company
is not S-3 eligible and will need to file an amended filing to convert the S-3
to an S-1. Management intends to file the S-1 after it files the 10-K for the
year ended December 31, 2009. Under the terms of the
registration rights agreement, as partial compensation, the Company was required
to make pro rata payments to each Investor in an amount equal to 1.5% of the
aggregate amount invested by such Investor for each 30-day period or pro rata
for any portion thereof following the Filing Deadline for which no registration
statement was filed. We obtained a release and waiver of the amounts
due from 74 of the 2008 investors. As of April 5, 2010, there are 5
investors who have yet to sign the release and waiver. Under the
terms of the RRA, as of that date we potentially owe, and recognized as
liquidated damages, the amount of $80,100.
NOTE 10 –DERIVATIVE
LIABILITIES
The
Company’s warrants and its Convertible 8% Senior Secured Notes issued in 2008
and 2009 have reset provisions to the exercise price and conversion price if the
Company issues equity or other derivatives at a price less than the exercise
price set forth in such warrants and notes. This ratchet provision results in a
derivative liability in our financial statements.
Our
derivative liabilities increased from $0 at December 31, 2008 to $10,285,578 at
December 31, 2009. As of January 1, 2009, the fair value of these warrants of
$2,219,530 was recognized and resulted in a cumulative effect adjustment to
accumulated deficit of $86,002,406. The change in fair value during the year
ended December 31, 2009 of $4,319,048. $3,623,519 is recorded as a derivative
loss, $632,982 is included in selling, general, and administrative expenses for
warrants issued for services, and $62,547 is included in settlement loss for
warrants issued for accounts payable.
The
following tabular presentation reflects the components of derivative financial
instruments on the Company’s balance sheet at December 31, 2009 and December 31,
2008:
|
December
31, 2009
|
December
31, 2008
|
|||||
|
Common
stock warrants
|
5,387,788
|
-
|
||||
|
Embedded
conversion features –part of note discount
|
4,897,790
|
-
|
||||
|
Total
|
$
|
10,285,578
|
$
|
-
|
||
|
December
31, 2009
|
|||
|
Cumulative
Effect
|
2,219,530 | ||
|
Bifurcated
Amount
|
3,747,000 | ||
|
Change
in Derivative Liability
|
4,319,048 | ||
|
Total
|
$ 10,285,578 |
F-27
Z Trim
Holdings, Inc.
Notes to
Consolidated Financial Statements
December 31,
2009
NOTE
11–EQUITY
Common Stock Issued for
Settlement
On May 1,
2009, we entered into private placement subscription agreements pursuant to
which we sold 6 units consisting of shares of common stock and warrants, for an
aggregate offering price of $60,000. Each of the units (individually, a
"Unit" and collectively, the "Units") consists of 10,000 shares of unregistered
common stock plus one five-year warrant, one to purchase 15,000 shares of Common
Stock per unit with an exercise price of $1.50 per share ("Warrants"). A
total of 60,000 shares of common stock and 90,000 warrants are to be issued
pursuant to the terms of this offering. All such Units were sold pursuant
to an agreement with an equipment supplier whereby the Company agreed to apply
$60,000 of unpaid and past due amounts towards the purchase and installation of
two boilers, to the purchase of the 6 Units. The equipment supplier agreed
to accept such Units as payment for the $60,000 of unpaid and past due
amounts.
We
determined that all of the securities issued pursuant to the agreement were
exempt from registration under the Securities Act of 1933, as amended (the
“Act”) pursuant to Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. We based this determination on the non-public manner
in which we offered the securities and on the representations of the persons
purchasing such securities, which included, in pertinent part, that such persons
were "accredited investors" within the meaning of Rule 501 of Regulation D
promulgated under the Act, and that such persons were acquiring such securities
for investment purposes for their own respective accounts and not as nominees or
agents, and not with a view to resale or distribution, and that each such person
understood such securities may not be sold or otherwise disposed of without
registration under the Act or an applicable exemption there
from.
During
2008, the Company issued 208,167 shares of common stock pursuant to three
settlement agreements, more fully described in Note 12 herein.
Common Stock Issued for
Services
In 2009,
the Board of Directors approved a grant of 30,000 shares of common stock to each
of the Company’s three external directors. A tax gross up of up to
35% was included, not to exceed $10,000. 60,000 shares were granted
on February 27, 2009, with a fair market value of $27,000 based on the closing
price of stock on the grant date, and 30,000 shares were issued on March 24,
2009, with a fair market value of $19,200 based on the closing price of stock on
the grant date.
On
January 3, 2008, the Board of Directors approved a compensation plan that
includes a grant of 6,666.67 shares of common stock to each of the five external
directors. A tax gross up of up to 35% was included, not to exceed
$10,000. These shares were issued on May 15, 2008. The
fair market value of the stock on, 2008 was $.23 or $6.90 on a post-reverse
split basis, which results in a total cost of $230,000 for the shares
granted. No additional or bonus shares were granted to any
Director.
Common Stock Issued on the
Exercise of Warrants and/or Options
During
2009, 4,365 stock warrants were exercised, and no options were
exercised. In 2008, no stock warrants or options were
exercised.
Common Stock Issued on the
Cashless Exercise of Warrants
During
2009, the company issued 51,927 shares of common stock on the cashless exercise
of warrants. No shares of common stock were issued on the cashless
exercise of warrants in 2008.
Rescinded/Retired Shares of
Common Stock
The
Company did not rescind or retire any shares of common stock during
2009.
During
2008, the Company rescinded 34,666 shares of common stock, relating to the
return of stock received by virtue of the exercise of stock options by the
Company’s former CEO, Greg Halpern and 10,833 shares were retired relating to
Wexler, Willow Cove, and David Dabney. As of December 31, 2008, a
total of 45,500 shares were rescinded and/or retired.
NOTE 12 – STOCK OPTION PLAN
AND WARRANTS
Exercising of Stock Warrants
and Options
During
2009, 4,365 stock warrants were exercised, and no options were
exercised. In 2008, no stock warrants or options were
exercised. During 2009, the company issued 51,927 shares of common
stock on the cashless exercise of warrants. No shares of common stock
were issued on the cashless exercise of warrants in 2008.
A summary
of the status of the warrants issued by the Company as of December 31, 2009 and
2008 are as follows:
|
Year Ended
|
Year Ended
|
|||||||||
|
12/31/2009
|
12/31/2008
|
|||||||||
|
Number
of Warrants
|
Weighted
Average Exercise Price
|
Number
of Warrants
|
Weighted
Average Exercise Price
|
|||||||
|
Outstanding
at beginning of year
|
1,084,368
|
$ 7.55
|
319,641
|
$ 26.46
|
||||||
|
Granted
|
8,801,455
|
$ 1.46
|
1,196,770
|
$ 4.20
|
||||||
|
Exercised
for cash
|
(4,365)
|
$ 1.00
|
-
|
$ -
|
||||||
|
Cashless
|
(57,051)
|
$ 0.09
|
-
|
|||||||
|
Expired
and Cancelled
|
(142,027)
|
$ 4.55
|
(432,043)
|
$ 12.24
|
||||||
|
Outstanding,
end of period
|
9,682,380
|
$ 1.61
|
1,084,368
|
$ 7.55
|
||||||
|
Unexercisable
at end of period
|
(87,500)
|
$ 1.10
|
0
|
|||||||
|
Exercisable
at end of period
|
9,594,880
|
$ 1.61
|
1,084,368
|
$ 7.55
|
||||||
As of
December 31, 2009 and 2008, the Company has warrants outstanding to purchase
9,594,880 and 1,084,368 shares of the Company’s common stock, respectively, at
prices ranging from $0.01 to $36.00 per share. These warrants expire
at various dates through December of 2014. There were 7,278,400
and 3,167,469 warrants issued in 2009 and 2008 respectively. Included
in the numbers for 2008, were 103,750 warrants issued pursuant to settlement
agreements as set forth in more detail in Note 12 below, as well as 223,281
warrants issued to our placement agent as a result of our private placement as
set forth in Note 8 above.
F-28
Z Trim
Holdings, Inc.
Notes to
Consolidated Financial Statements
December 31,
2009
NOTE 12 – STOCK OPTION PLAN AND
WARRANTS Cont.
Stock Option
Plan
The
Company has a Stock Option Plan (the Plan) effective January 2, 1999 and amended
in 2002 and 2004, which provides for the issuance of qualified options to all
employees and non-qualified options to directors, consultants and other service
providers.
A summary
of the status of stock options issued by the Company as of December 31, 2009 and
2008 are as follows:
|
12/31/2009
|
12/31/2008
|
|||||
|
Weghted
|
Weghted
|
|||||
|
Number
|
Average
|
Number
|
Average
|
|||
|
of
|
Exercise
|
of
|
Exercise
|
|||
|
Shares
|
Price
|
Shares
|
Price
|
|||
|
Outstanding
at beginning of year
|
431,073
|
$ 32.04
|
553,184
|
$ 31.20
|
||
|
Granted
|
1,320,000
|
$ 0.45
|
3,333
|
$ 8.10
|
||
|
Exercised
|
-
|
$ -
|
-
|
$ -
|
||
|
Expired
and Cancelled
|
(346,011)
|
$ 31.24
|
(125,435)
|
$ 27.71
|
||
|
Outstanding
at end of period
|
1,405,062
|
$ 2.56
|
431,082
|
$ 32.04
|
||
|
Exercisable
at end of period
|
1,405,062
|
$ 0.66
|
429,415
|
$ 32.13
|
||
At
December 31, 2009, the aggregate intrinsic value of all outstanding options was
$787,800 of which 1,405,062 outstanding options are currently exercisable at a
weighted average exercise price of $ .66 and a weighted average remaining
contractual term of 1.2 years.
The fair
value of each stock option granted is estimated on the date of grant using the
Black-Scholes option valuation model. This model uses the assumptions
listed in the table below. Expected volatilities are based on the
historical volatility of the Company’s stock. The risk-free rate for
periods within the expected life of the option is based on the U.S. Treasury
yield curve in effect at the time of grant.
|
2009
|
2008
|
||
|
Weighted
average fair value per option granted
|
$ 0.43
|
$ 0.90
|
|
|
Risk-free
interest rate
|
1.99
- 2.99%
|
3
- 4.6 %
|
|
|
Expected
dividend yield
|
0.00%
|
0.00%
|
|
|
Expected
lives
|
1
- 2.5
|
1
- 1.5
|
|
|
Expected
volatility
|
130.25
- 250.50%
|
86.32
- 130.22%
|
On
February 27, 2009, the Company granted 1,320,000 options to
employees. 96% of the options were fully vested at the grant
date. The remaining 4% vested every three months with the options
becoming fully vested September 15, 2009. At December 31, 2009, the
Company recognized a total of $565,844 in stock based compensation related to
the options granted above.
As of
December 31, 2009, the Company had reserved 18,471,605 million shares of Common
Stock to be issued upon the exercise of qualified options issued under the
Plan. As of December 31, 2009 the Company had 6,117,536 million
shares available for grant under the Plan.
Stock
options outstanding at December 31, 2009 are as follows:
|
Weighted
|
||||||||
|
Average
|
Weighted
|
|||||||
|
Range
of
|
Remaining
|
Average
|
||||||
|
Exercise
|
Options
|
Contractual
|
Exercise
|
Options
|
||||
|
Prices
|
Outstanding
|
Life
|
Price
|
Exercisable
|
||||
|
$0.01-$1.50
|
1,320,000
|
4.2
|
$ 0.42
|
1,320,000
|
||||
|
$3.01
& over
|
85,062
|
0.6
|
$ 2.14
|
85,062
|
||||
|
1,405,062
|
3.9
|
$ 0.53
|
1,405,062
|
|||||
F-29
Z Trim
Holdings, Inc.
Notes to
Consolidated Financial Statements
December 31,
2009
NOTE 13 – SETTLEMENT
LOSSES
On May 1,
2009, we entered into private placement subscription agreements pursuant to
which we sold 6 units consisting of shares of common stock and warrants, for an
aggregate offering price of $60,000. Each of the units (individually, a
"Unit" and collectively, the "Units") consists of 10,000 shares of unregistered
common stock plus one five-year warrant, one to purchase 15,000 shares of Common
Stock per unit with an exercise price of $1.50 per share ("Warrants"). A
total of 60,000 shares of common stock and 90,000 warrants are to be issued
pursuant to the terms of this offering. All such Units were sold pursuant
to an agreement with an equipment supplier whereby the Company agreed to apply
$60,000 of unpaid and past due amounts towards the purchase and installation of
two boilers, to the purchase of the 6 Units. The equipment supplier agreed
to accept such Units as payment for the $60,000 of unpaid and past due
amounts.
On June
29, 2009, the Company entered into a Material Definitive Agreement with its
landlord, whereby the Company agreed to apply $130,000 of unpaid and past due
rent owed to such landlord, to the purchase of 13 Units pursuant to the terms of
the offering set forth above. The landlord agreed to accept such Units as
payment for the $130,000 of unpaid and past due rent.
The
amount of the settlement losses for the twelve months ended December 31, 2009
was $103,137, comprised of the fair value of the investments, above the debts
owed by the Company, made by the equipment supplier and landlord as set forth
above.
The
Company executed an agreement with Farhad Zaghi on February 8,
2008. Pursuant to the agreement, 100,000 shares of the Company’s
common stock were issued at a fair value of $840,000 and 83,333 warrants are to
be issued with a fair value of $400,549 as of March 31, 2008. These
losses were record in 2007, as the shares and warrants were originally issued in
2007.
In April
2008, the Company settled a case with a former employee, Daniel
Caravette. The Company agreed to pay $50,000 cash, and to provide
8,166 shares of unrestricted common stock with a fair value of $63,700 and 6,666
three-year warrants at a strike price of $7.80, with a fair value of $33,326, in
exchange for a release of all claims.
On
September 2, 2008, the Company announced an update with respect to its ongoing
litigation with George Foreman Enterprises. The parties have settled
all outstanding litigation on amicable terms. Pursuant to the Agreement,
both Parties are obligated to dismiss with prejudice all existing claims between
them, in both the Federal and State courts after Z-Trim satisfies all of its
obligations in the Agreement. Z Trim is obligated to pay to George
Foreman Enterprises a total sum of $300,000 with $150,000 payable on September
3, 2008, and three additional payments of $50,000 each on January 1, 2009,
February 1, 2009 and March 1, 2009, respectively. Z Trim has further
agreed to issue to George Foreman Enterprises a total of 100,000 shares of the
Company's common stock with a fair value of $480,000 and to register such shares
on a best efforts basis. All other obligations between the parties have
been mutually resolved and neither party has admitted wrong-doing or
liability of any kind.
The
amount of the settlement losses for the twelve months ended December 31, 2008
was $772,202 for the three afore-mentioned agreements.
NOTE 14 – INCOME
TAXES
During
2009 and 2008, the Company incurred net losses, and therefore had no tax
liability. The net deferred tax asset generated by the loss carry
forward has been fully reserved. The cumulative net loss carry
forward is approximately $64,822,705 and $52,613,125 for the years ended
December 31, 2009 and 2008 respectively, and will expire in the years 2019
through 2028.
At
December 31, 2009, the net deferred tax asset consisted of the
following:
Net
Operating
Loss $18,727,333
Less: Valuation
allowance ($18,272,333)
Net
Deferred tax
asset $_____0_____
After
evaluating our own potential tax uncertainties, the Company has determined that
there are no material uncertain tax positions that have a greater than 50%
likelihood of reversal if the Company were to be audited. Our tax
return for the year ended December 31, 2009 may be subject to IRS
audit.
NOTE 15 – MAJOR CUSTOMERS
AND CONCENTRATIONS
The
Company’s customers are food manufacturers, school districts and the general
public. There were three significant customers who accounted for 20%,
20% and 14% of total sales for the year ended December 31,
2009. There were two significant customers who accounted for 37% and
13% of total sales for the year ended December 31, 2008. Further, two
significant customers accounted for 78% and 11% of the total accounts receivable
for the year ended December 31, 2009. Two significant customers
accounted for 80% and 6% of the total accounts receivable for the year ended
December 31, 2008.
The
Company maintains cash deposits with major banks, which from time to time may
exceed federally insured limits. At December 31, 2009 and 2008,
$324,874 and $492,696 a, respectively, were in excess of federally insured
limits. The Company periodically assesses the financial condition of
the institutions and believes that the risk of any loss is minimal.
NOTE 16 –
COMMITMENTS
Building
Lease
The
Company leases a combined production and office facility located in Mundelein,
Illinois. The facility is approximately 44,000 square
feet. The Company extended the lease until March 2010 and the
required monthly rental payments increased to $21,000, exclusive of property
taxes. The Company also is responsible for payment of all
property taxes. Insurance and maintenance are billed when
due. If we were to lose this lease or not be able to extend our lease
due to the specific requirements of our Company, the outcome to our operations
could be substantial.
The
Company also leased a 5,000 square foot warehouse in Mundelein,
Illinois. The lease commenced on August 1, 2007 and was terminated in
October of 2009. The monthly net rent was $2,834.
The
Company recognizes escalating lease expense on a straight line basis in
accordance with current accounting standards.
The
future minimum annual rental payments and sub-lease income for the years ended
December 31 under the lease terms are as follows:
|
Year Ended
|
Rentals
|
|
2010
|
252,000
|
|
2011
|
63,000
|
|
2012
|
-
|
|
2013
|
-
|
|
$ 315,000
|
|
The total
rent expense for the years ended December 31, 2009 and 2008, respectively, was
$351,472 and $286,415.
F-30
Z Trim
Holdings, Inc.
Notes to
Consolidated Financial Statements
December 31,
2009
NOTE 17– PENDING LITIGATION/
CONTINGENT LIABILITY
On July
7, 2007, the Company was served with a complaint by Joseph Sanfilippo and James
Cluck for violation of the Consumer Fraud Act and is seeking damages in excess
of $200,000. Management believes that the allegations are frivolous
and wholly without merit and will vigorously defend the claim. The Company
currently has a Motion to Dismiss pending in the Circuit Court, Twentieth
Judicial Circuit, St. Clair County, Illinois. The pleadings are still at issue
and discovery is just getting underway, however, a potential loss is
unlikely.
On August
4, 2009, the Company was served with a complaint by Daniel Caravette, alleging
the Company breached the parties’ settlement agreement dated April 24, 2008 and
seeking damages in excess of $75,000. Management believes that the
allegations are frivolous and wholly without merit and will vigorously defend
the claim. The case is set for trial in July of 2010 before the
Circuit Court of the Nineteenth Judicial District, Lake County,
Illinois. A defense motion for summary judgement is pending and a
potential loss is unlikely.
NOTE 18 –
GUARANTEES
The
Company from time to time enters into certain types of contracts that
contingently require the Company to indemnify parties against third party
claims. These contracts primarily relate to: (i) divestiture agreements, under
which the Company may provide customary indemnifications to purchasers of the
Company’s businesses or assets; (ii) certain real estate leases, under which the
Company may be required to indemnify property owners for environmental and other
liabilities, and other claims arising from the Company’s use of the applicable
premises; and (iii) certain agreements with the Company's officers, directors
and employees, under which the Company may be required to indemnify such persons
for liabilities arising out of their employment relationship. The
terms of such obligations vary. Generally, a maximum obligation is not
explicitly stated. Because the obligated amounts of these types of agreements
often are not explicitly stated, the overall maximum amount of the obligations
cannot be reasonably estimated. Historically, the Company has not been obligated
to make significant payments for these obligations, and no liabilities have been
recorded for these obligations on its consolidated balance sheet as of December
31, 2009.
In
general, the Company offers a one-year warranty for most of the products it
sold. To date, the Company has not incurred any material costs
associated with these warranties.
NOTE 19 – RELATED PARTY
TRANSACTIONS
Two of
the Company’s external Directors, Mark Hershhorn and Brian Israel each agreed to
apply $20,000 of unpaid Directors’ fees (80% of which is past due), to the
purchase of Units pursuant to the terms of the convertible notes set forth in
Note 8 hereinabove. Further, our third external director, Morris
Garfinkle, also invested $50,000 in the offering.
NOTE 20 – SUBSEQUENT
EVENTS
Subsequent
events were evaluated through the report date, April 9, 2010.
Subsequent
to December 31, 2009, the Company has issued 237,428 shares of its common stock
for the cashless exercise of warrants.
On
January 4, 2010, a convertible note holder elected to convert principal of
$20,000 and interest of $762 at a conversion price of $1.00 into 20,762 shares
of common stock.
On
January 4, 2010, the Board of Directors approved a grant of 30,000 shares of
common stock to four of the five Company’s board of directors for a total of
120,000 shares of common stock. The total fair value of the common
stock is $234,000 based at the closing price at date of grant.
On
January 7, 2010 the Legend and Z Trim agreed to mutually terminate that
agreement, and to cancel the Company's obligation to issue the 350,000 warrants.
In return, the Company has agreed to issue Legends 100,000 shares of Common
Stock. The total value of the common stock is $140,000 based at the
closing price at date of grant.
Also on
January 7, 2010, the parties entered into a new Investment Banking Agreement
with Legend, pursuant to which Legend agreed to provide business advisory
services for us for a period of up to twelve months. In exchange for Legend's
services, we agreed to pay Legend the sum of $6,250 per month, as well as a
one-time fee of 250,000 shares of Common Stock valued at $350,000 based on the
closing price on January 7, 2010. Under the Investment Banking Agreement, we
also agreed to give Legend unlimited "piggy back" registration rights with
respect to the shares of our common stock in any registration statement filed by
us in connection with an underwritten offering of our common stock.
On
January 15, 2010, we entered into a private placement subscription agreement
with Brightline Ventures I, LLC, a Delaware Limited Liability Company(the
"purchaser" or "Brightline") pursuant to which we sold 130 units consisting of
convertible notes and warrants, for an aggregate offering price of $1,300,000.
The Company has agreed to extend Brightline's right to invest an additional
$1,200,000 on substantially similar terms until February 28, 2010. Since October
15, 2009, we have sold an additional 1.7 units for an aggregate offering price
of $17,000, of which $12,000 was in return for forgiveness of rent owed to our
landlord. Each of the units (individually, a "Unit" and collectively, the
"Units") consists of a $10,000 24-month senior secured promissory note (each a
"Note" and collectively the "Notes") convertible at the rate of $1.00 per share
into 10,000 shares of our common stock, $.00005 par value (the "Common Stock"),
bearing interest at the rate of 8% per annum, which interest is accrued annually
in Common Stock at the rate of $1.00 per share. The Notes will be secured by a
first lien on all of our assets for so long as the Notes remain outstanding
pursuant to the form of Security Agreement (the "Security Agreement"). The Notes
are convertible into a total of 1,317,000 shares of Common Stock exclusive of
interest. The interest is payable in additional shares of the Company's Common
Stock, quarterly or upon maturity of the Notes. The Investors also received one
five-year warrant for each Unit purchased, to purchase 15,000 shares of Common
Stock per unit with an exercise price of $1.50 per share ("Warrants"). The total
warrants issued to the purchasers were 1,975,500. The terms and conditions of
the Units are substantially identical to the terms and conditions and constitute
a part of the units previously sold by us in 2009 and reported on a Form 8-K
filed by us on October 16, 2009 (the "2009 Units").
On
January 19, 2010, the Company issued 1,377,000 employee stock
options. On January 25, 2010, the Company issued an additional
115,000 employee stock options.
Between February
1 and April 1, 2010, we entered into a series of private placement
subscription agreements with accredited investors (the “purchasers”)
pursuant to which we sold 39.9 units consisting of convertible notes and
warrants, for an aggregate offering price of $399,000. Each of the
units (individually, a “Unit” and collectively, the “Units”) consists of a
$10,000 24-month senior secured promissory note (each a “Note” and collectively
the “Notes”) convertible at the rate of $1.00 per share into 10,000 shares of
our common stock, $.00005 par value (the “Common Stock”), bearing interest at
the rate of 8% per annum, which interest is accrued annually in Common Stock at
the rate of $1.00 per share. The Notes will be secured by a first
lien on all of our assets for so long as the Notes remain outstanding pursuant
to the form of Security Agreement (the “Security Agreement”). The
Notes are convertible into a total of 399,000 shares of Common Stock
exclusive of interest. The interest is payable in additional shares
of the Company's Common Stock, quarterly or upon maturity of the
Notes. The Investors also received one five-year warrant for each
Unit purchased, to purchase 15,000 shares of Common Stock per unit with an
exercise price of $1.50 per share (“Warrants”). The total warrants
issued to the purchasers were 598,500. The terms and conditions
of the Units are substantially identical to the terms and conditions and
constitute a part of the units previously sold by us in 2009 and reported on a
Form 8-K filed by us on October 16, 2009 (the “2009 Units”).
We also
entered into registration rights agreements substantially similar to the
registration rights agreement entered into with the purchasers of the 2008 Units
pursuant to which we have agreed to file with the Securities and Exchange
Commission a registration statement covering the resale of the Common Stock
underlying the Notes and the Warrants.
The
descriptions herein are qualified in their entirety by reference to the copies
of the forms of the Subscription Agreement, the Notes, the Warrant,
the Security Agreements and the Registration Rights Agreement which
are attached as exhibits to our Form 8-K filed on October 16, 2009.
We
determined that all of the securities sold and issued in the private placement
were exempt from registration under the Securities Act of 1933, as amended (the
“Act”) pursuant to Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. We based this determination on the
non-public manner in which we offered the securities and on the representations
of the persons purchasing such securities, which included, in pertinent part,
that such persons were “accredited investors” within the meaning of Rule 501 of
Regulation D promulgated under the Act, and that such persons were acquiring
such securities for investment purposes for their own respective accounts and
not as nominees or agents, and not with a view to resale or distribution, and
that each such person understood such securities may not be sold or otherwise
disposed of without registration under the Act or an applicable exemption
therefrom.
F-31
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM 13.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We are
not issuing any common stock under this Registration Statement. All
Common Stock registered pursuant to
this Registration Statement is being
registered on behalf of Selling Shareholders. We have agreed to pay
all costs of this
Registration Statement. The following table
sets forth the estimated expenses to
be incurred in connection with
the issuance and resale of the securities offered by this
prospectus. We are responsible for the payment of all expenses set
forth below.
Registration
fee $ 1507.24
Legal
fees and
expenses $ 25,000.00
Accounting
fees and
expenses $ 5,000.00
Miscellaneous
$ 492.76
Total
$ 32,000.00
ITEM 14.
INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company’s bylaws authorize the
Company to indemnify directors and officers and
other corporate agents to the fullest
extent permitted under the laws of Illinois. Because
indemnification of liabilities arising under the
Securities Act of 1933 may be permitted to
our directors, officers or controlling persons by these provisions or otherwise,
we have been advised that in the opinion of the Securities and Exchange
Commission this indemnification is
against public policy as expressed in
the Securities Act of 1933 and is
therefore unenforceable. In the event that a claim for
indemnification against liabilities, other than the payment by us of expenses
incurred or paid by one of our directors, officers or controlling
persons in the successful defense of any action, suit or proceeding, is asserted
by a director, officer or controlling person in connection with the securities
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
indemnification by us is against public policy as
expressed in the Securities Act of 1933 and will be governed by the
final adjudication of the issue.
ITEM 15.
RECENT SALES OF UNREGISTERED SECURITIES.
All
numbers of shares and exercise prices have been adjusted to reflect the 1 for 30
reverse stock split of the company effected in February 2009 and for share and
price adjustments pursuant to anti-dilution provisions o the
securities.
On
January 7, 2010 in connection with a settlement of prior agreements and in
connection with a new agreement to provide investment banking services, the
Company has agreed to issue Legend Securities, Inc. 100,000 shares of Common
Stock and to pay the sum of $6,250 per month, as well as a one time fee of
250,000 shares of Common Stock. Under the Investment Banking Agreement, we also
agreed to give Legend unlimited "piggy back" registration rights with respect to
the shares of our common stock in any registration statement filed by us in
connection with an underwritten offering of our common stock. The description of
the terms of sale of these securities is qualified in its entirety by reference
to the full text of the underlying documents filed as exhibits to our Current
Reports on Form 8-K filed on January 12, 2010 and incorporated
herein.
During
the period April 1, 2009 through April 4, 2010 we sold an aggregate of 554.3
units consisting of a $10,000 24-month senior secured note convertible at the
rate of $1.00 per share into 10,000 shares of our common
stock $.00005 par value per share and a five year warrant for 15,000
shares with an exercise price of $1.50 per share. The 2009 Notes are
secured by a lien on all of the assets of the company which lien ranks pari
passu with the 2008 Notes described below. We refer to these as the 2009 Note
Units The Notes were issued in the aggregate principal amount
of $5,543,000. The 2009 Notes bear interest at the rate of 8% per
annum payable in shares of Common Stock at the rate of $1.00 per share payable
quarterly or at maturity An additional 886,880 shares are issuable on
maturity of the 2009 Notes, as interest. We refer to these notes as
the 2009 Notes. The warrants issued are exercisable for an aggregate of
8,314,500 shares of our Common Stock. We refer to these as the 2009
Warrants. We also entered into registration rights agreements
substantially similar to the registration rights agreement entered into with the
purchasers of the 2008 Units, described below, pursuant to which we have agreed
to file with the Securities and Exchange Commission a registration statement
covering the resale of the Common Stock underlying the 2009 Notes and 2009
Warrants. The Company agreed to pay a finder cash commissions
aggregating 8% of the gross proceeds of the offering sold to an investor
introduced by that finder up to a maximum of 250 Units purchased by such
investor and an equal amount of five year warrants at an exercise price of $1.50
per share Pursuant to the terms of the subscription agreement
with a purchaser who acquired a majority of the 2009 Units we agreed
to amend the 2009 Units (the "Amended Units") to reflect the terms and
conditions of the Units sold by us in 2008 (the "2008 Units") as described below
and in our Current Reports on Form 8-K filed on June 24 and September
2, 2008 which include among other things a full ratchet anti-dilution
formulation with respect to the adjustments to the conversion price of the Notes
and the exercise price of the Warrants instead of the weighted average
anti-dilution formula contained in the original 2009 Units and the
payment of interest on the Notes, at the option of the holder, quarterly or at
maturity rather than just at maturity. As a result of the amendment, the 2009
Warrants, 2009 Notes and corresponding Security Agreements were amended. The
2008 Notes, the Amended and Restated Notes (including the Notes issued as part
of the 2009 Units) rank pari passu with each other. We agreed to use our
reasonable best efforts to nominate a representative of the purchaser for
election to our Board of Directors and we also agreed subject to certain
conditions to permit an observer designated by the purchaser to attend meetings
of the Board The descriptions herein are qualified in their entirety by
reference to the copies of the forms of the Subscription Agreement, the Notes,
the Warrant, the Security Agreements and the Registration Rights Agreement which
are attached as exhibits to our Current Reports on Form 8-K filed on October
16, May 14, and April 21, 2009 and incorporated
herein.
On May
13, 2009, the Company entered into a Material Definitive Agreement with its
patent litigation counsel, whereby the Company agreed to apply $350,000 of
unpaid and past due legal fees owed to such counsel, to the purchase of 35 2009
Units pursuant to the terms of the offering set forth above. The patent
litigation counsel agreed to accept such Units as payment for the $350,000 of
unpaid and past due legal fees. These Units are included in the totals set forth
in the first paragraph above.
As part
of the aggregate 2009 Units, two of the Company's external Directors, Mark
Hershhorn and Brian Israel each agreed to apply $20,000 of unpaid Directors'
fees (80% of which is past due), to the purchase of Units pursuant to the terms
of the offering set forth above. Further, our third external director, Morris
Garfinkle, also invested $50,000 in the offering.
On June
29, 2009, the Company entered into a Material Definitive Agreement with its
landlord, whereby the Company agreed to apply $130,000 of unpaid and past due
rent owed to such landlord, to the purchase of 13 of the 2009 Units pursuant to
the terms of the offering set forth above. The landlord agreed to accept such
Units as payment for the $130,000 of unpaid and past due rent. These Units are
included in the totals set forth in the first paragraph above
Additionally,
on or about October 14, 2009, the Company issued, pursuant to a consulting
agreement, one five year warrant for the purchase of 10,000 shares of Common
Stock with an exercise price of $1.50 per share
As a
result of the conversion rate being set at $1.00 for these agreements, the
conversion rate for the convertible notes and $4.80 warrants entered into by the
company in June, September and November of 2008 are automatically reset to
$1.00. The impact of this change is that the number of shares that could be
obtained by converting the June, September and November 2008 notes increases
from 928,541 to 4,456,997, and the interest shares (if the holders elect to be
paid in shares instead of cash) on such notes increases from 148,566 to
713,117.
II-1
We
determined that all of the securities sold and issued in the private placement
were exempt from registration under the Securities Act of 1933, as amended (the
"Act") pursuant to Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. We based this determination on the non-public manner
in which we offered the securities and on the representations of the persons
purchasing such securities, which included, in pertinent part, that such persons
were "accredited investors" within the meaning of Rule 501 of Regulation D
promulgated under the Act, and that such persons were acquiring such securities
for investment purposes for their own respective accounts and not as nominees or
agents, and not with a view to resale or distribution, and that each such person
understood such securities may not be sold or otherwise disposed of without
registration under the Act or an applicable exemption therefrom.
In
February 2008, in connection with its settlement of its litigation with Farhad
Zaghi and related parties the Company agreed in addition to the
issuance of 100,000 shares of our common stock, to issue and register for resale
a three year warrant to purchase an
additional 83,333 shares of the
Company’s common stock. The warrant is immediately
exercisable, with a variable exercise price equal to the lowest
twelve-trading-day average closing price of the Company’s common stock during
the period between the date of issuance and date of notice of exercise. The
description of the terms of sale of the securities described above is qualified
in its entirety by reference to the full text of the underlying documents filed
as an exhibit to this registration statement.
In April
2008, the Company settled a case with a former employee, Daniel
Caravette. The Company agreed to pay $50,000 cash, and to provide
8,166 shares of common stock and 6,666 three-year warrants at a strike price of
$7.80, with a fair
value of $33,326, in exchange for a release of all claims.
On August
29, 2008, in connection with a settlement of outstanding litigation with George
Foreman Enterprises, the Company issued to George Foreman Enterprises a total of
100,000 shares of the company's common stock.
On
various dates commencing June 18, through November 3, 2008, the Company issued
8% Convertible Senior Secured Notes in the aggregate principal amount of
$4,457,000 (“2008 Notes”). Interest is accrued quarterly at the rate of 8% per
annum in shares of common stock of the Company at $1.00 per share. Upon the
event of a default, the stated interest rate of the Notes will be increased to
18% per annum. The terms of the Notes require redemption in cash at 115% of face
value upon certain defaults The Notes mature in two years from date of issuance.
The Notes and accrued interest are payable in full at maturity. All amounts due
under the Notes may be converted at any time, in part or in whole, at the
written election of the holder thereof, into shares of the Company’s common
stock at a conversion price of $1.00 per share. The Notes are secured by a first
priority perfected interest in all the assets of the Company. At
maturity, interest on the 2008 Notes will represent an additional 713,120
shares. Each $100,000 principal amount of Notes is convertible, at the option of
the holders, into 100,000 shares of the Company’s common stock. Holders of each
$100,000 principal amount of 2008 Notes received two five-year warrants,
one with an exercise price of $0.30 per share to purchase 7,692
shares of Common Stock (the “$.30 Warrants”) and the other with an exercise
price of $1.00 to purchase 24,615 shares of Common Stock (the “$1.00 Warrants”
and collectively with the $.30 Warrants, the “2008 Warrants”) . In connection
with the issuance of the 2008 Notes, the Company entered into registration
rights agreements and has agreed to file with the Securities and Exchange
Commission a registration statement covering the resale of the Common Stock
underlying the Notes and the Warrants. . In addition to a cash
commission, the placement agent received a five-year warrant to purchase 66,667
shares of Common Stock for each 2008 Unit sold, with an exercise price of $.30
per share. The placement agent’s warrants carry registration rights
that are the same as those afforded to investors in the private
placement. The description of the terms of sale of the securities
described above is qualified in its entirety by reference to the full text of
the underlying documents filed as exhibits to our Current Reports on Form 8-K
filed on June 24 and September 2, 2008.
In
January 26, 2009 the Company agreed issue to certain note holders who had
purchased on various dates in 2008, 2008 Notes and 2008 Warrants of the Company,
as described above, new warrants to purchase, at an exercise price of $0.01 per
share, that number of shares of our Common Stock, to which a Note
Holder would be entitled upon full conversion of a note after a reverse
split of the Common Stock with a ratio of one for thirty. We refer to
these warrants as the New Warrants. Effective February 6, 2009 the
Company affected a 1 for 30 stock split. We refer to this split as the “Reverse
Split.” After the effective date of the Reverse Split, for each
$100,000 in principal amount of the Notes purchased in 2008, note holders
received a New Warrant exercisable for 20,833 shares of our common stock and
936,860 shares in the aggregate for all such New Warrants at an exercise price
of $0.01 per share. The description of the terms of sale of the
securities described above is qualified in its entirety by reference to the full
text of the underlying documents filed as an exhibit to this registration
statement.
The 2008
Note Units and the 2009 Notes Units were sold
to “accredited investors” within the meaning of Rule 501 under the
Securities Act of 1933, as amended (the “Securities Act”), in reliance upon the
private placement exemption afforded by Section 4(2) of the Securities Act and
of Regulation D promulgated under the Act.
We
determined that all of the securities sold and issued in the private placement
were exempt from registration under the Securities Act of 1933, as amended (the
“Act”) pursuant to Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. We based this determination on the non-public manner
in which we offered the securities and on the representations of the persons
purchasing such securities, which included, in pertinent part, that such persons
were "accredited investors" within the meaning of Rule 501 of Regulation D
promulgated under the Act, and that such persons were acquiring such securities
for investment purposes for their own respective accounts and not as nominees or
agents, and not with a view to resale or distribution, and that each such person
understood such securities may not be sold or otherwise disposed of without
registration under the Act or an applicable exemption therefrom. In connection
with the issuance of the Notes, the Company entered into registration rights
agreements and has agreed to file with the Securities and Exchange Commission a
registration statement covering the resale of the Common Stock underlying the
Notes and the Warrants.
In May
2007, the Company conducted an offering of the Company’s common stock. The stock
was sold for $100,000 per unit. Each unit consisted of 3,333 shares of common
stock and 833 warrants. The warrants are exercisable at $36.00 per share and
expire in five (5) years after purchase of the above-described unit. The Company
sold and issued 29,333 shares and received proceeds of $880,000 under the
offering. The Company has received a stock subscription for 5,000 shares of its
common stock and 1,250 warrants under the offering.
On
November 19, 2007, the Company settled a dispute with Basic Investors, Inc.
(“Basic Investors”). The Company agreed to issue Basic Investors, 12,500 three
year warrants at an exercise price of $21.00 per share. The parties exchanged
mutual releases.
During
2007, 33,805 stock warrants and options were exercised. The Company received
total proceeds of $872,290. The 2007 warrants exercised are net of 29,333 shares
rescinded by the Board of Directors on April 30, 2007.
The
Company determined that all of the securities sold and issued in the private
placements were exempt from registration under the Securities Act of 1933, as
amended (the “Act”) pursuant Section 4(2) of the Act and Rule 506 of Regulation
D Promulgated under the Act. The Company based this determination on the
non-public manner in which it offered the securities and on the representations
of the persons purchasing such securities, which included, in pertinent part,
that such persons were “accredited investors” within the meaning of Rule 501 of
Regulation D promulgated under the Act, and that such persons were acquiring
such securities for investment purposes for their own respective accounts and
not as nominees or agents, and not with a view to resale or distribution, and
that each such persons understood such securities may not be sold to or
otherwise disposed of without registration under the Act or an applicable
exemption there from.
II-2
ITEM 16.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
EXHIBITS The exhibits filed with this registration statement or incorporated by
reference herein are listed on the exhibit index, which appears elsewhere herein
and is incorporated herein by reference.
(b)FINANCIAL
STATEMENT SCHEDULES. Schedules filed with this
registration statement are set forth on the “Index to Financial Statements” set
forth elsewhere herein.
ITEM 17.
UNDERTAKINGS
(a) The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To
include any prospectus required by
section 10(a)(3)of the Securities Act.
(ii) To
reflect in the prospectus any facts or
events arising after the effective date of
the registration statement (or the most recent
post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth
in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume
of securities offered (if the total
dollar value of securities offered would not
exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the
maximum aggregate offering price set forth in
the “Calculation of Registration Fee” table in the effective
registration statement; and
(iii) To
include any material information with respect
to the
plan of distribution not previously disclosed in
the registration statement or any material change to such information
in the registration statement;
PROVIDED, HOWEVER, that
paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in
the registration statement.
(2) That,
for the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) For
purposes of determining any liability under the Securities Act of
1933, each filing of the registrant’s annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an
employee benefit plan’s annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that
is incorporated by reference in the
registration statement shall be deemed to
be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(5)
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, has duly caused this
Amendment No. 1 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Mundelein, State of
Illinois, on this 24th day
of May, 2010.
Z TRIM
HOLDINGS, INC.
By: /s/
Steven J. Cohen
---------------------------
Steven J.
Cohen
President
(Principal Executive Officer)
In accordance with
the requirements of
the Securities Act of 1933, as
amended, this registration statement has been
signed on May 24, 2010 by the following persons in the
capacities indicated:
/s/
Steven J.
Cohen /s/
Brian Chaiken
----------------------
----------------------
Steven J.
Cohen, Director and
President Director Chief
Financial Officer
(Principal
Executive
Officer) (Principal
Financial Officer)
/s/ Peggy
Perucca *
------------------- -------------------
Peggy
Perucca,
Controller Edward
Smith, III
Director
* *
------------------- -------------------
Morris
Garfinkle Mark
Hershhorn
Director
Director
*
-------------------
Brian S.
Israel
Director
|
*By:
|
/S/ Steven
J. Cohen
|
|
|
Steven
J. Cohen.
Attorney-in-Fact
|
II-3
INDEX
OF EXHIBITS
The
agreements included as exhibits to this registration statement contain
representations and warranties by each of the parties to the applicable
agreement. There representations and warranties were made solely for the benefit
of the other parties to the applicable agreement and (i) were not intended to be
treated as categorical statements of fact, but rather as a way of allocating the
risk to one of the parties if those statements prove to be inaccurate;( ii) have
been qualified by disclosures that were made to the other party in connection
with the negotiation of the applicable agreement, (iii) ma apply contract
standards of “materiality” that are different from “materiality” under
applicable securities laws; and (iv) were made only as of the registrant
acknowledges that notwithstanding the inclusion of the foregoing cautionary
statements, its is responsible for considering whether additional specific
disclosures of material information regarding material contractual provisions
are required to make the statements in this registration statement not
misleading. Additional information about the registrant may be found elsewhere
in this registration statement and in the registrant’s other public filings
which are available without charge through the SEC’s website at
www.sec.gov.
|
No.
|
Description
|
|
4.1
|
Form
of Subscription Agreement [Filed as Exhibit 4.1 to the Company’s current
report on Form 8-K filed on October 16,2009 and Incorporated
herein by reference,]
|
|
4.2
|
Form
of Amended and Restated Convertible Promissory Note[Filed as Exhibit 4.2
to the Company’s current report on Form 8-K filed on October
16,2009 and incorporated herein by reference,]
|
|
4.3
|
Form
of Amended and Restated Warrant to Purchase Common Stock[Filed as Exhibit
4.3 to the Company’s current report on Form 8-K filed on
October 16,2009 and Incorporated herein by reference,]
|
|
4.4
|
Form
of Amended and Restated Security Agreement [Filed as Exhibit 4.4
to the Company’s current report on Form 8-K filed on October
16,2009 and incorporated herein by
reference,]
|
|
4.5
|
Form
of Registration Rights Agreement[Filed as Exhibit 4.5 to the Company’s
current report on Form 8-K filed on October 16,2009 and
incorporated herein by reference,]
|
|
4.6
|
Form
of Agreement with equipment supplier[Filed as Exhibit 4.1 to the Company’s
Current Report on Form 8K filed on May 14, 2009 and
incorporated herein by reference,]
|
|
4.7
|
Form
of Agreement with patent litigation firm [Filed as Exhibit 4.2 to the
Company’s Current Report on Form 8K filed on May 14,
2009 and incorporated herein by reference,]
|
|
4.12
|
Form
of Subscription Agreement[Filed as Exhibit 4.1 to the Company’s Current
Report on Form 8K filed on November 18,2008 and incorporated
herein by reference,]
|
|
4.13
|
Form
of Convertible Promissory Note[Filed as Exhibit 4.2 to the Company’s
Current Report on Form 8K filed on November 18,2008 and
incorporated herein by reference,]
|
|
4.14
|
Form
of Warrant to Purchase Common Stock[Filed as Exhibit 4.3 to the Company’s
Current Report on Form 8K filed on November 18,2008 and
incorporated herein by reference,]
|
|
4.15
|
Form
of Security Agreement[Filed as Exhibit 4.4 to the Company’s Current Report
on Form 8K filed on November 18,2008 and incorporated herein by
reference,]
|
|
4.16
|
Form
of Registration Rights Agreement[Filed as Exhibit 4.5 to the Company’s
Current Report on Form 8K filed on November 18,2008 and
incorporated herein by reference,]
|
|
4.17
|
Form
of Subscription Agreement[Filed as Exhibit 4.1 to the Company’s Current
Report on Form 8K filed on September 3, 2008 and incorporated
herein by reference,]
|
|
4.19
|
Form
of Convertible Promissory Note[Filed as Exhibit 4.2 to the Company’s
Current Report on Form 8K filed on September 3,2008 and
incorporated herein by reference,]
|
|
4.20
|
Form
of Warrant to Purchase Common Stock[Filed as Exhibit 4.3 to the Company’s
Current Report on Form 8--K filed on September 3,2008 and
incorporated herein by reference,]
|
|
4.21
|
Form
of Security Agreement [Filed as Exhibit 4.4 to the Company’s Current
Report on Form 8K filed on September 3, 2008 and incorporated
herein by reference,]
|
|
4.22
|
Form
of Registration Rights Agreement [Filed as Exhibit 4.5 to the Company’s
Current Report on Form 8K filed on September 3, 2008 and
incorporated herein by reference,]
|
|
4.23
|
Form
of Subscription Agreement [Filed as Exhibit 4.1 to the Company’s Current
Report on Form 8K filed on June 24, 2008 and incorporated
herein by reference,]
|
|
4.24
|
Form
of Convertible Promissory Note[Filed as Exhibit 4.2 to the Company’s
Current Report on Form 8-K filed on June 24, 2008 and
incorporated herein by reference,]
|
|
4.25
|
Form
of Warrant to Purchase Common Stock[Filed as Exhibit 4.3 to the Company’s
Current Report on Form 8-K filed on June 24, 2008 and
incorporated herein by reference,]
|
|
4.26
|
Form
of Security Agreement[Filed as Exhibit 4.4 to the Company’s Current Report
on Form 8-K filed on June 24, 2008 and incorporated herein by
reference,]
|
|
4.27
|
Form
of Registration Rights Agreement[Filed as Exhibit 4.5 to the Company’s
Current Report on Form 8-K filed on June 24, 2008 and
incorporated herein by reference,]
|
|
4.28
|
Form
of Subscription Agreement [Filed as
Exhibit 4.5 to the Company’s
Form 10KSB filed on April 2, 2007 and incorporated herein by
reference].
|
|
4.29
|
Form
of Warrant to
Purchase Common Stock [Filed as Exhibit
4.6 to the Company’s Form 10KSB filed on April 2, 2007 and
incorporated herein by reference).
|
|
4.30
|
Form
of Registration Rights Agreement [Filed
as Exhibit 4.7 to the Company’s Form 10KSB filed on
April 2, 2007 and incorporated herein by
reference].
|
|
4.31
|
Zaghi
Warrant Agreement to Purchase Common Stock dated February 8, 2008
+
|
|
4.32
|
Form
of Amendment to the note, warrant and security agreement filed
as Exhibits 4.2,4.3 and 4.4 respectively, to the
Company’s Current Report on Form 8-K filed on September 3, 2008 and
incorporated herein by reference. This Amendment was filed as Exhibit 4.32
to the Registration Statement (File No..333-163708) which this Amendment
No. 1 amends.
|
|
4.33
|
Form
of Warrant issued on February 9, 2009 for shares of Common Stock at $0.01
per share +
|
|
4.34
|
Legends
Agreement filed as Exhibit 4.12 to the Current Report on Form 8-K filed
January 12, 2010
|
| 5.1 | Opinion of Epstein Becker & Green, P.C. *+ |
| 23.1 | Consent of M&K CPAS, PLLC + |
| 23.2 | Consent of Epstein Becker & Green, P.C., included as part of Exhibit 5.1 herein |
|
24.1
|
Power
of Attorney previously included on signature page
of the Registration Statement *
|
|
24.2
|
Power
of Attorney for Edward Smith filed herewith. +
|
|
99.1
|
Consent
of Edward Smith III pursuant to Rule 438, filed as an Exhibit to the S-3
Registration Statement (file No. 333-163708), which this Amendment No. 1
amends.
|
_______
+ Filed
herewith.