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OF THE SECURITIES EXCHANGE ACT OF 1934
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ADVANCED REFRIGERATION TECHNOLOGIES, INC.
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ADVANCED REFRIGERATION TECHNOLOGIES, INC.
5 Whatney
Irvine, California 92618
INFORMATION STATEMENT
May___, 2004
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. THE ACTION, DEFINED BELOW, HAS ALREADY BEEN APPROVED BY WRITTEN CONSENT
OF HOLDERS OF A MAJORITY OF THE OUTSTANDING COMMON STOCK OF THE COMPANY. A VOTE
OF THE REMAINING SHAREHOLDERS IS NOT NECESSARY.
General
This Information Statement is first being furnished on or about May___,
2004 to shareholders of record as of the close of business on March 31, 2004
(the "Record Date") of the common stock, no par value per share (the "Common
Stock") of Advanced Refrigeration Technologies, Inc. ("ART" or the "Company") in
connection with the following (the "Action"):
I. PROPOSAL NUMBER ONE. AMENDMENT TO THE ARTICLES OF INCORPORATION, CHANGING THE
NAME OF THE COMPANY TO JOYSTAR, INC.
II. PROPOSAL NUMBER TWO. ADOPTION OF AMENDED 2002 EQUITY AND STOCK OPTION PLAN.
III. PROPOSAL NUMBER THREE. ADOPTION OF 2003 EQUITY COMPENSATION PLAN.
The Board of Directors has approved, and a majority of the shareholders
(the "Consenting Shareholders") representing not less than 12,820,000 shares of
the 18,228,439 shares outstanding of the Common Stock as of the Record Date have
consented in writing to the Action. Such approval and consent constitute the
approval and consent of a majority of the total number of shares of outstanding
of Common Stock and are sufficient under the California General Corporation Law
and ART's Bylaws to approve the Action. Accordingly, the Action will not be
submitted to the other shareholders of ART for a vote and this Information
Statement is being furnished to shareholders to provide them with certain
information concerning the Action in accordance with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
regulations promulgated thereunder, including Regulation 14C.
ART will pay all costs associated with the distribution of the Information
Statement, including the costs of printing and mailing. ART will reimburse
brokerage firms and other custodians, nominees and fiduciaries for reasonable
expenses incurred by them in sending this Information Statement to the
beneficial owners of ART's Common Stock.
The principal executive office of ART is located at 5 Whatney, Irvine,
California 92618.
1
I. PROPOSAL NUMBER ONE. AMENDMENT TO THE ARTICLES OF INCORPORATION TO CHANGE THE
NAME OF THE COMPANY
The Board of Directors has unanimously adopted and the Consenting
Shareholders have approved an amendment to the Articles of Incorporation, as
amended, of ART (the "Name Amendment") to change the name of the Company from
"Advanced Refrigeration Technologies, Inc." to "Joystar, Inc." The text of the
Name Amendment is attached as Exhibit A and is incorporated herein by reference.
Reasons for the Name Change
In the judgment of the Board of Directors, the change of ART's corporate
name is desirable in view of the acquisition by ART pursuant to the Agreement
and Plan of Reorganization dated as of June 10, 2003 (the "Agreement") by and
between ART and Joystar, Inc. ("Joystar"). Pursuant to the Agreement, as of June
11, 2003, the Company acquired from the shareholders of Joystar all of the
shares of Joystar (the "Acquisition") and Joystar became a wholly owned
subsidiary of the Company. Joystar is a provider of online travel services.
Joystar is a development stage company and the auditors of Joystar raised
substantial doubts as to Joystar's ability to continue as a going concern.
Joystar's net losses for the nine months ended September 30, 2003 are $573,617.
None of the former officers or directors of ART had or received any security
interest in Joystar prior to the merger with Joystar or after such merger.
Former officers and directors of ART included: Rick McEwan, Clare Schrum and
Allan Schrum. The Company has not received any opposition to any action taken by
the majority shareholders. Following the Acquisition, the Company discontinued
its operations relating to refrigeration fan controllers business and
concentrated on the business conducted by Joystar. Accordingly, the directors of
the Company believe that the Name Amendment will result in the Company having a
name which more accurately reflects its business and the focus of its
operations.
Description of the Acquisition of Joystar
1. Summary Term Sheet as of June 11, 2003 (the Closing of the
Acquisition):
- exchange of all of the outstanding shares of Joystar for 13,880,599 newly
issued shares of ART to Joystar shareholders;
- total outstanding shares of Joystar: 13,880,599 shares of common stock;
- total outstanding shares of ART: 3,322,840 shares of common stock;
- outstanding shares of ART after the Acquisition: 17,203,439 shares of
common stock;
- appointment of William M. Alverson to the Board of Directors of the Company
and as the President, CEO and CFO of the Company; resignation of the then
current officers and directors;
- payment of debts of ART by Joystar in the approximate amount of $60,000; -
assumption of additional liabilities of ART by Joystar in the approximate
amount of $50,000;
- concurrent with the Closing of the Acquisition, the sale of certain assets
of ART valued at approximately $85,000 to Advanced Refrigeration Controls,
Inc., a California corporation controlled by Allen and Clare Schrum in
consideration for assumption of certain liabilities of ART in the
approximate amount of $105,000.
2. Contact Information
The contact information for the Company is William M. Alverson, President. The
Company's address is 5 Whatney, Irvine, California 92618. The Company's previous
address was at 9309 Narnia Drive, Riverside, California 92503.
3. Business Conducted.
ART was in the business of designing, manufacturing and marketing an energy
efficiency evaporator fan motor controller for walk-in refrigerators and
freezers that can save the customers in refrigeration energy costs. The Company
has not been able to successfully sell enough units to be profitable and has
sustained losses every year since inception. The Company has not been successful
in obtaining necessary funding to continue the business. Since August, 2002, the
Company has been actively engaged in finding a potential investor to acquire the
Company and bring in a new business.
2
JOYSTAR, INC.
Overview
Joystar is a provider of online and offline travel services for the leisure and
small business traveler. Joystar derives revenue from annual membership fees
from its partner agents as well as from travel transactions from its customers
and agents. Joystar offers reliable, real time access to research and
reservation services for over 400 airlines, 50,000 lodging properties, all major
cruise lines, tour operators, and car rental companies. By accessing Joystar's
website at www.joystar.com, both Joystar's agents and customers enter a one stop
shopping environment for their travel purchases 24 hours a day, 7 days a week.
All officers of Joystar are full-time and devote a minimum of 40 hours per week
to the business of the Company.
The Company also develops and markets its Independent Travel Agent Program
(website at Iamatravelagent.com)- a business opportunity targeted to two main
groups: (1) affluent leisure travelers and small business owners who are looking
to save money on their travel; and (2) the growing population of people who wish
to supplement their primary income working part-time as well as full-time
home-based entrepreneurs.
Joystar's travel agent program, is designed for individuals from all walks of
life who desire to earn a part-time or full-time income from the comfort of
their home or office. The simplicity of the program allows people to receive
commissions on their travel as well as travel purchases made by people they
refer to the agency. The travel agent program centers more on loyalty marketing
than any special skills required by the independent agent as the actual
bookings, payment processing, and fulfillment are handled by Joystar or the
travel supplier (airline, hotel, cruise line, etc.).
The benefits of being an independent travel agent include access to "agent only"
specials and deeply discounted travel offered by travel suppliers, cash
incentives and the possibility of upgrades when the agent is traveling. Booking
tools, exclusive specials, on-line training and educational opportunities,
important news and comprehensive information for initiating and increasing sales
are all available to Joystar travel agents. Essential to this is building
meaningful preferred supplier relationships to the ultimate benefit of the
traveler. With the buying power of tens of thousands of travel agents, Joystar
can strive to provide exceptional value to its consumers and agents alike.
Joystar blends the best of the online model (instant access to vast amounts of
information) with personal service from experience travel agents. Joystar
provides its "outside" travel agents and their customers reliable, real-time
access to one of the largest databases of "published" travel products, including
over 400 airlines, 65,000 lodging properties, and all major car rental
companies. In addition, Joystar provides access to "unpublished" fares. An
"unpublished" airfare is a consolidator (wholesaler) fare. Those fares are not
offered to the public. They are only available to the travel agents. Airlines
contract with consolidators for excess seats on certain flights. Consolidators
in turn, resell these seats to travel agents (with a small mark-up) allowing the
agent to mark up the fare and still offer the customer the same or lower fare
than what is "published" by the airline.
Joystar also offers Preferred Supplier Program, which is a resource to help
increase Joystar agents' earnings and drive the revenues of the Company. Through
negotiated discounts and overrides, Joystar agents enjoy commission increases of
up to 20% over industry standards for travel bookings. Joystar's agreements with
its partners and consortium will also protect the agency from commission cuts.
These products, in particular, offer our agents dramatically enhanced
commissions while still providing significantly lower costs to their retail
customers. Joystar's most basic assumption is that Joystar has two key
customers: the consumer and the independent travel agent. Joystar's success
depends on the loyalty and growth of both groups.
Joystar's management believes that its success will be due both to the advent of
new technologies, and innovative marketing strategies and relentless focus on
the improvement of Joystar's customer service functions. Joystar intends to set
an outstanding example of building economic power and revenues through astute
forms of vertical relationships - downstream through our travel agents, upstream
through the travel suppliers (air consolidators, hotels, cruise lines, car
rental agencies, etc.). Joystar's strategy is the lower cost information and
extensive use of outsourcing which allows Joystar to rapidly scale operations to
meet the demands of its growing agent and traveler base.
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The Company maintains its corporate offices in Irvine, California. The Company
occupies 6,200 square fees pursuant to the lease agreement entered in June,
2003. The Company pays $1.10 per square foot. The lease agreement is for a term
of one year with three one year options to extend the lease.
Business Development
The Company is developing a global travel marketplace in which travel suppliers
can reach, in a highly efficient manner, a large audience of consumers who are
actively planning and purchasing travel. The Company offers suppliers a broad
range of merchandising strategies designed to increase their revenues. The
Company currently offers travel services provided by over 450 airlines and
43,000 lodging properties, all major car rental companies, numerous vacation
packages and cruise lines and many hundreds of destination service merchants
such as attractions and local transportation and tour providers.
The Company has three separate business models: the agency model, the merchant
model and the agent host model. Under the agency model, the Company acts as an
agent in the transaction, passing a customer's reservation to the travel
supplier (airline, hotel, car rental company or destination service provider).
The Company receives a commission from the travel supplier for our services as
an agent. In an agency transaction, the supplier sets the retail price paid by
the customer, and the supplier is the merchant of record for the transaction.
Under the merchant model, the Company receives inventory (airline seats and
hotel rooms) from suppliers at negotiated rates. Then the Company determines the
retail price that the customer pays and process the transactions as the merchant
of record in the transaction. Acting as a merchant enables the Company to
achieve a higher level of gross profit per transaction than in the agency model
and provides better prices to customers than in agency transaction. Integrating
merchant inventory with the online booking technology platform enables the
Company to create that benefit both customers and suppliers. In addition to the
revenue the Company receives from the sale of travel planning services under the
agency and merchant models, the Company is also to derive revenue from sales of
advertisements on our websites, and licensing of components of our technology.
In addition to the travel revenue, Joystar offers hosting and support services
to home-based travel agents. The Company has three hosting packages priced at
$49, $149 and $479, depending on the scope of services offered. The Company also
derives revenue from transaction fees and commissions the agents create from
booking travel with their clients. The Company plans to develop a membership
base of 100,000 home-based agents over the next 3 years. The majority of the
members' annual renewal fees will be $149. The Company believes that with the
tools, marketing resources, and support it provides, its agents may average
$10,000 per year in leisure bookings. Revenue on leisure travel is expected to
be approximately 15% or $1,500 per agent. One hundred thousand agents annually
renewing at $149 can be expected to generate $14,900,000 in membership revenue
and approximately $150 million in revenue on $1 billion in bookings if each
agent averages $10,000/year in bookings. There are no assurances that such a
plan of operations will be successful.
Market Target
The travel industry is very large and highly fragmented. According to the World
Travel and Tourism Council, worldwide travel and tourism spending for calendar
year 2003 was estimated to be $3.7 trillion.
Consumers planning and purchasing a trip generally engage in a predictable
process that begins with considering destinations, dates and budgets, and
progresses to a series of purchase decisions involving transportation,
accommodations and destination activities. Historically, this planning and
purchasing process has been inefficient because consumers have to spend a
significant amount of time piecing together the information from a variety of
sources. Consumers frequently consulted many different media and people, such as
guidebooks, magazines, travel agents, friends, co-workers and individual travel
suppliers. The supply side of the travel industry can be equally inefficient.
The supplier community includes hundreds of airlines, thousands of hotels,
dozens of car rental companies, numerous vacation packages and cruise lines and
hundreds of thousands of destination services merchants such as restaurants,
attractions, and local transportation and tour providers. These suppliers spend
substantial amounts of money to reach and attract potential purchasers. The
fragmental nature of the global consumer travel market makes it difficult and
inefficient for suppliers to effectively target those consumers who are
currently engaged in the travel planning process.
4
Consumers and suppliers rely on travel agents as intermediaries to provide
information on their travel choices and help them purchase their trips. Joystar
travel agents have access to comprehensive information on the availability and
pricing of airline seats through global distribution systems. The Company makes
it possible for our travel agents to provide consumers reliable, personalized or
comprehensive travel information.
The Company has been able to combat the inefficiency and fragmentation of the
industry with technology. Joystar uses technology to make the process of
planning and purchasing travel easier for their customers. This technology
empowers customers to be their own travel agent and make fully informed
decisions about their choice of travel services.
GEOGRAPHIC AREA OF SERVICES. The Company plans to offer travel planning services
in the United Sates, the United Kingdom, Germany, Canada, France, Italy and the
Netherlands. Joystar products are planned to include direct-to- consumer travel
planning services sold via the Internet and call centers, our co-branded private
label business.
UNITED STATES
In the United States, Joystar offers customers a broad range of features and
travel products through the Joystar.com website, our live agent operations, our
co-branded and private label business.
FLIGHT, HOTEL, VACATION PACKAGE, CAR AND CRUISE. Consumers can search for and
compare airline, rental car, hotel room, destination services and cruise pricing
and availability information and can also purchase tickets or make reservations
by selecting from our published rate and negotiated rate offerings. In addition,
agent members can combine elements of their trip into custom built packages
through tools in the "Agent Only" section of Joystar. Joystar's co-branded and
private label program enables partners to market our suppliers' inventory to
consumers under their own brand.
Customer Service at 1-877-800-STAR. For all travel offerings, the Company
provides a competent agent-based support service. This service is accessible
through toll-free telephone support or via email. For purposes of operational
flexibility, the Company plans to provide this support infrastructure with a
combination of in-house and outsourced call centers. Customer support will be
split between our own call center and outsourced third parties. All supplier
support is managed by Joystar.
INTERNATIONAL
The Company's long term international strategy is to leverage our technology
platform to enter markets with large existing travel markets and established
consumer behavior for planning and purchasing travel either on the Internet or
over the telephone. The Company plans to customize each of its international
points of sale to reflect language, customs, traveler behavior and preferences,
and available supplier inventory that may vary from country to country.
GOVERNMENT REGULATION
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TRAVEL INDUSTRY REGULATION
Joystar must comply with laws and regulations relating to the travel industry
and the sale of travel services. These include registering with various states
and countries as a seller of travel, complying with certain disclosure
requirements and participating in state restitution funds. Both the Federal
Trade Commission and the Department of Transportation take the position that
their regulations prohibiting unfair and deceptive advertising practices apply
to our business.
REGULATIONS OF THE INTERNET
Currently, few laws and regulations apply directly to the Internet and
commercial online services and, to the extent such laws exist or apply to us, we
believe we are in compliance with all of them. The following summary does not
purport to be complete discussion of all enacted or pending regulations and
policies that may affect our business. This summary focuses primarily on the
enacted federal, state and international legislation specific to businesses that
operate as we do. For further information concerning the nature and extent of
federal, state and international regulation of online businesses, you should
review public notices and rulings of the U.S. Congress, state and local
legislature and international bodies.
5
Due to the growth of the Internet and online commerce, coupled with publicity
regarding Internet fraud, new laws and regulations are continually being
considered (at the federal, state and international levels) regarding property
ownership, sales and other taxes, pricing and content, advertising, intellectual
property rights, libel, user privacy, and information security. New laws or
different applications of existing laws would likely impose additional burdens
on companies conducting business online and may decrease the growth of the
Internet or commercial online services. In turn, this could decrease the demand
for our products and services or increase our cost of doing business. We cannot
predict whether any of the proposed privacy legislation currently pending will
be enacted and what effect, if any, it would have on our company.
TAXES. Federal regulation imposing limitations on the ability of states to
impose taxes on Internet-based sales was enacted in 1998 and extended in 2001.
The Internet Tax Non-Disclosure Act, as this legislation is known, exempts
certain types of sales transactions conducted over the Internet from multiple or
discriminatory state and local taxation through November 1, 2003. It is possible
this legislation will not be renewed when it terminates. Failure to renew this
legislation could allow state and local governments to impose taxes on
Internet-based sales, and these taxes could decrease the demand for our products
or services or increase our cost of operations.
PRIVACY. As an online business, customers provide us with personally
identifiable information (PII) that has been specifically and voluntarily given.
PII includes information that can identify a customer as a specific individual,
such as name, phone number, or e-mail address. This information is used only for
the purpose of responding to and fulfilling customer requests for our travel
products and services. We will only share customer PII with our authorized
travel service providers, and only as necessary in order to complete a
transaction that customers specifically request. We do not sell or rent PII to
anyone. We provide customers with choice and control over the collection and use
of their PII, as well as a means of updating, correcting, or removing any PII
stored in their customer profile. Customers are provided the opportunity to
specifically choose the promotional marketing communications they wish to
receive from our company. If they choose to opt-out any of the promotional
e-mail services that we provide, then we will only send e-mail that relates to a
specific travel purchase they have made through us.
CURRENT US FEDERAL PRIVACY REGULATION. Increasing concern over consumer privacy,
including regulations related to the use of the Internet for conducting
transactions and electronic commerce, has led to the introduction of proposed
legislation at the federal level. The most far-reaching of these current laws
are focused on financial institutions, health care providers, and companies that
voluntarily solicit information form children. For businesses that operate
online such as Joystar, the Unsolicited Electronic Mail Act of 1999 has been
enacted to protect individuals, families, and internet service providers form
unsolicited and unwanted electronic mail, commonly referred to as spamming.
Additionally, the Federal Trade Commission has a role in consumer privacy
protection and is involved with related enforcement activities.
CURRENT STATE PRIVACY REGULATION. Most states have enacted legislation to
regulate the protection of consumer's information on the Internet. Much of this
legislation is focused on financial institutions and health care providers. The
legislation that has become state law is a small percentage of the number still
pending, and is similar to what has been enacted at the federal level. The
Company cannot predict whether any of the proposed state privacy legislation
currently pending review will be enacted and what effect, if any, it would have
on our Company.
6
SPECIAL RISK FACTORS
Prospective investors should carefully consider the risks of an investment in
any speculative start-up business and the risks and the speculative factors
inherent to and affecting the Company's business described below.
Factors that may cause Joystar to fail are the following:
- The Company's prospects must be considered in light of the risks,
uncertainties, expenses and difficulties frequently encountered by
companies in their early stages of development.
- Our inability to obtain new customers at reasonable cost, retain existing
customers or encourage repeat purchases.
- Decreases in the number of visitors to our websites or our inability to
convert visitors to our websites into customers.
- Our inability to adequately maintain, upgrade and develop our websites, the
systems that we use to process customers' orders and payments or our
computer network.
- Our inability to retain existing airlines, hotels, rental car companies and
other suppliers of travel services ("travel suppliers") or to obtain new
travel suppliers .
- Our inability to obtain travel products on satisfactory terms from our
travel suppliers.
- The ability of our competitors to offer new or enhanced websites, services
or products.
- Fluctuating gross margins due to a changing mix of revenues.
- The termination of existing relationships with key service providers or
failure to develop new ones.
- The amount and timing of operating costs relating to expansion of our
operations.
- Economic conditions specific to the Internet, online commerce and the
travel industry
- Attract additional travel suppliers and consumers to our service.
- Maintain and enhance our brand.
- Expand our service offerings.
- Operate, expand and develop our operations and systems efficiently.
- Maintain adequate control of our expense
- Respond to technological changes.
- Respond to competitive market conditions
- We may not be successful in accomplishing these objectives and our failure
to do so may have a material adverse effect on our business, operating
results and financial condition.
- We depend on our relationships with travel suppliers, licensees and
computer reservation systems; our business could be harmed by adverse
changes in these relationships.
7
- Our business model relies on relationships with travel suppliers, and it
would be negatively affected by adverse changes in these relationships. We
depend on travel suppliers to enable us to offer our customers
comprehensive access to travel services and products. Consistent with
industry practices, we currently have few agreements with our travel
suppliers obligating them to sell services or products through our
websites. It is possible that travel suppliers may choose not to make their
inventory of services and products available through online distribution.
Travel suppliers could elect to sell exclusively through other sales and
distribution channels or to restrict our access to their inventory, either
of which could significantly decrease the amount or breadth of our
inventory of available travel offerings. We will also depend on travel
suppliers for advertising revenues.
- In addition to our relationships with travel suppliers, our business model
relies on our relationships with licensees and computer reservations
systems. Our license revenues are generated through new and existing travel
agents.
- Adverse changes in any of these relationships could have a material adverse
effect on our business, operating results and financial condition.
- A decline in commission rates or the elimination of commissions could hurt
our business.
- A substantial majority of our online revenues depends on the commissions
paid by travel suppliers for bookings made through our online travel
service. Generally, we do not have written commission agreements with our
suppliers. As is standard practice in the travel industry, we rely on
informal arrangements for the payment of commissions. Travel suppliers are
not obligated to pay any specified commission rate for bookings made
through our websites. We cannot assure you that airlines, hotel chains or
other travel suppliers will not reduce current industry commission rates or
eliminate commissions entirely, either of which could have a material
adverse effect on our business, operating results and financial condition.
For example, in 1995, most of the major airlines placed a cap on per-ticket
commissions payable to all travel agencies for domestic airline travel. In
September 1997, the major United States airlines 9 reduced the commission
rate payable to traditional travel agencies from 10% to 8%. In 1997, the
major United States airlines reduced the commission rate payable for online
reservations from 8% to 5%. In addition, since 1998, many airlines have
implemented a zero commission of for domestic round trip ticket sales.
- Consumers, travel suppliers and advertisers may not accept our website as a
valuable commercial tool which would harm our business.
- For us to achieve significant growth, travel agents, consumers, travel
suppliers, and advertisers must accept our website as a valuable commercial
tool. Consumers who have historically purchased travel products using
traditional commercial channels, such as local travel agents and calling
airlines directly must instead purchase these products through our website.
- Similarly, travel suppliers and advertisers will also need to accept or
expand their use of our website. Travel suppliers will need to view our
websites as an efficient and profitable channel of distribution for their
travel products. Advertisers will need to view our website as effective
ways to reach their potential customers.
- In order to achieve the acceptance of consumers, travel suppliers and
advertisers contemplated by our business plan, we will need to continue to
make substantial investments in our technology and brand. We cannot,
however, assure you that these investments will be successful. Our failure
to make progress in these areas will harm our business.
- Intense competition could reduce our market share and harm our financial
performance.
- The markets for the products and services offered by us are intensely
competitive. We compete with other online travel reservation services,
traditional travel agencies, and travel suppliers offering their services.
We also compete with many of the same parties and others in the licensing
of technology to home based travel agents and corporate travel agencies.
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- We compete with a variety of companies with respect to each product or
service we offer. These competitors include: Internet travel agencies such
as Expedia, Orbitz, and Travelocity; local, regional, and national and
international traditional travel agencies;consolidators and wholesalers of
airline tickets and other travel products, including online consolidators
such as Cheaptickets.com, Hotwire and Priceline.com.; individual airlines,
hotels, rental car companies, cruise operators and other travel service
providers, some of which are suppliers to our websites; operators of travel
industry reservation databases.
In addition to the traditional travel agency channel, many travel suppliers,
including many suppliers with which we will do business, also offer their travel
services as well as third- party travel services directly through their own
websites. Suppliers also sell their own services directly to consumers,
predominantly by telephone. As the market for online travel services grows, we
believe that the companies involved in the travel services industry, including
travel suppliers, traditional travel agencies and travel industry information
providers, will increase their efforts to develop services that compete with our
services by selling inventory from a wide variety of suppliers. We cannot assure
you that our online operations will compete successfully with any current or
future competitors.
Many of our competitors have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial, marketing and
other resources than we have and may enter into strategic or commercial
relationships with larger, more established and better-financed companies. Some
of our competitors may be able to secure services and products from travel
suppliers on more favorable terms, devote greater resources to marketing and
promotional campaigns and commit more resources to website and systems
development than we are able to devote. In addition, the introduction of new
technologies and the expansion of existing technologies may increase competitive
pressures. Increased competition may result in reduced operating margins, as
well as loss of market share and brand recognition. We cannot assure you that we
will be able to compete successfully against current and future competitors.
Competitive pressures faced by us could have a material adverse effect on our
business, operating results and financial condition.
We believe that establishing, maintaining and enhancing the Joystar brand will
be a critical aspect of our efforts to attract and expand our online traffic.
The number of Internet sites that offer competing services, many of which
already have well-established brands in online services or the travel industry
generally, increases the importance of establishing and maintaining brand
recognition. Promotion of the Joystar brand will depend largely on our success
in providing a high-quality online experience supported by a high level of
customer service. In addition, to attract and retain online users and to respond
to competitive pressures, we intend to increase our spending substantially on
marketing and advertising with the intention of expanding our brand recognition.
However, we cannot assure you that these expenditures will be effective to
promote our brand or that our marketing efforts generally will achieve our
goals.
If we are unable to provide high-quality online services or customer support, if
we fail to promote and maintain our brand or if we incur excessive expenses in
these efforts, our business, operating results and financial condition would be
materially adversely affected. If we are unable to introduce and sell new
products and services, our business may be harmed.
We need to broaden the range of travel products and services and increase the
availability of products and services that we offer in order to enhance our
service. We will incur substantial expenses and use significant resources trying
to expand the range of products and services that we offer. However, we may not
be able to attract sufficient travel suppliers and other participants to provide
desired products and services to our consumers. In addition, consumers may find
that delivery through our service is less attractive than other alternatives. If
we launch new products and services and they are not favorably received by
consumers, our reputation and the value of the Joystar brand could be damaged.
Our relationships with consumers and travel suppliers are mutually dependent
since consumers will not use a service that does not offer a broad range of
travel services. Similarly, travel suppliers will not use a service unless
consumers actively make travel purchases through it. We cannot predict whether
we will be successful in expanding the range of products and services that we
offer. If we are unable to expand successfully, our business, operating results
and financial condition may be materially adversely affected. We may be unable
to plan and manage our operations and growth effectively.
9
- Growth and our anticipated future operations will continue to place, a
significant strain on our management, systems and resources. We will
continue to increase the scope of our operations and the size of our
workforce. In addition to needing to train and manage our workforce, we
will need to continue to improve and develop our financial and managerial
controls and our reporting systems and procedures. A failure to plan,
implement and integrate these systems successfully could adversely affect
our business.
- Our growth may increase our expense levels and the difficulties we face in
managing our operations.
- Declines or disruptions in the travel industry, such as those caused by
terrorism or general economic downturns, could reduce our revenues.
- We rely on the health and growth of the travel industry. Travel is highly
sensitive to travel safety concerns, and thus declines may occur after acts
of terrorism that affect the safety of travelers. The terrorist attacks of
September 11, 2001 on the World Trade Center in New York City and the
Pentagon in northern Virginia using hijacked commercial airliners resulted
in bookings industry wide. The long-term effects of these events could
include, among other things, a protracted decrease in demand for air travel
due to fears regarding additional acts of terrorism, military responses to
acts of terrorism and increased costs and reduced operations by airlines
due, in part, to new security directives adopted by the Federal Aviation
Administration. These effects, depending on their scope and duration which
we cannot predict at this time together with any future terrorist attacks,
could significantly impact our long-term results of operations or financial
condition.
- In addition, travel is sensitive to business and personal discretionary
spending levels and tends to decline during general economic downturns,
which could also reduce our revenues. Other adverse trends or events that
tend to reduce travel are likely to hurt our business. These may include:
o Price escalation in the airline industry or other travel-related
industries.
o Increased occurrence of travel-related accidents.
o Airline or other travel-related strikes.
o Political instability.
o Regional hostilities and terrorism.
o Bad weather
o Interruptions in service from third parties could hurt our business.
- We rely on third-party computer systems and third-party service providers,
including the computerized central reservation systems of the airline,
hotel and car rental industries to make airline ticket, hotel room and car
rental reservations and credit card verifications and confirmations. Any
interruption in these third-party services or deterioration in their
performance could hurt our business. If our arrangement with any of these
third parties is terminated, we may not find an alternate source of systems
support on a timely basis or on commercially reasonable terms.
- Our success depends on maintaining the integrity of our systems and
infrastructure.
- As our operations grow in both size and scope, domestically and later
internationally, we will need to improve and upgrade our systems and
infrastructure to offer an increasing number of travel agents, customers
and travel suppliers enhanced products, services, features and
functionality. The expansion of our systems and infrastructure will require
us to commit substantial financial, operational and technical resources
before the volume of business increases, with no assurance that the volume
of business will increase. Travel agents, consumers and suppliers will not
tolerate a service hampered by slow delivery times, unreliable service
levels or insufficient capacity, any of which could have a material adverse
effect on our business, operating results and financial condition.
10
- In this regard, our operations face the risk of systems failures. Our
systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, break-ins, earthquake and
similar events. Business interruption insurance may not adequately
compensate us for losses that may occur. The occurrence of a natural
disaster or unanticipated problems at our leased facilities could cause
interruptions or delays in our business, loss of data or render us unable
to process reservations. In addition, the failure of our computer and
communications systems to provide the data communications capacity required
by us, as a result of human error, natural disaster or other operational
disruption could result in interruption of our service. The occurrence of
any or all of these events could adversely affect our reputation, brand and
business.
- Rapid technological changes may render our technology obsolete or decrease
the competitiveness of our services.
- To remain competitive, we must continue to enhance and improve the
functionality and features of our website. The Internet and the online
commerce industry are rapidly changing. If competitors introduce new
services embodying new technologies, or if new industry standards and
practices emerge, our existing website and proprietary technology and
systems may become obsolete. Our future success will depend on our ability
to do the following:
o Enhance our existing services.
o Develop and license new services and technologies that address the
increasingly sophisticated and varied needs of our prospective
customers and suppliers.
o Respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis
Developing our website and other proprietary technology entails significant
technical and business risks. We may use new technologies ineffectively or we
may fail to adapt our websites, transaction-processing systems and network
infrastructure to customer requirements or emerging industry standards. If we
face material delays in introducing new services, products and enhancements, our
customers and suppliers may forego the use of our services and use those of our
competitors.
The success of our business will depend on continued growth of online commerce
and the Internet.
Our future revenues and profits depend upon the widespread acceptance and use of
the Internet and online services as a medium for commerce. Rapid growth in the
use of the Internet and online services is a recent phenomenon. This growth may
not continue. A sufficiently broad base of consumers may not accept, or continue
to use, the Internet as a medium of commerce. Demand for and market acceptance
of recently introduced products and services over the Internet are subject to a
high level of uncertainty.
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. Our success
will depend upon the development and maintenance of the Internet's
infrastructure to cope with this increased traffic. This will require a reliable
network backbone with the necessary speed, data capacity and security and the
timely development of complementary products for providing reliable Internet
access and services. Major online service providers and the Internet itself have
experienced outages and other delays as a result of software and hardware
failures and could face such outages and delays in the future. Outages and
delays are likely to affect the level of Internet usage and the processing of
transactions on our websites. In addition, the Internet could lose its viability
because of delays in the development or adoption of new standards to handle
increased levels of activity or of increased government regulation. The adoption
of new standards or government regulation may require us to incur substantial
compliance costs.
- Our business is exposed to risks associated with online commerce security
and credit card fraud.
11
Consumer concerns over the security of transactions conducted on the Internet or
the privacy of users may inhibit the growth of the Internet and online commerce.
To transmit confidential information such as customer credit card numbers
securely, we rely on encryption and authentication technology. Unanticipated
events or developments could result in a compromise or breach of the systems we
use to protect customer transaction data. Furthermore, our servers may also be
vulnerable to viruses transmitted via the Internet. While we proactively check
for intrusions into our infrastructure, a new and undetected virus could cause a
service disruption.
Under current credit card practices, we may be held liable for fraudulent credit
card transactions and other payment disputes with customers. A failure to
control fraudulent credit card transactions adequately would adversely affect
our business.
- Our planned international operations will involve risks.
At some time in the future, we plan to operate in the United Kingdom, Germany,
Canada, France, the Netherlands and Italy and may expand our operations to other
countries. In order to achieve widespread acceptance in each country we enter,
we believe that we must tailor our services to the unique customs and cultures
of that country. Learning the customs and cultures of various countries,
particularly with respect to travel patterns and practices, is a difficult task
and our failure to do so could slow our growth in those countries. We will be
subject to the normal risks of doing business internationally, as well as risks
specific to Internet-based companies in foreign markets. These risks include:
o Delays in the development of the Internet as a broadcast, advertising
and commerce medium in international markets.
o Difficulties in managing operations due to distance, language and
cultural differences, including issues associated with establishing
management systems infrastructures in individual foreign markets.
o Unexpected changes in regulatory requirements.
o Export and import restrictions.
o Tariffs and trade barriers and limitations on fund transfers.
o Difficulties in staffing and managing foreign operations.
o Potential adverse tax consequences.
o Exchange rate fluctuations.
- Increased risk of piracy and limits on our ability to enforce our
intellectual property rights.
Any of these factors could harm our business. We may not elect to hedge our
foreign currency exposures.
We may be found to have infringed on intellectual property rights of others
which could expose us to substantial damages and restrict our operations.
We could be subject to claims that we have infringed the patents, copyrights or
other intellectual property rights of others. In addition, we may be required to
indemnify travel suppliers for claims made against them. Any claims against us
could require us to spend significant time and money in litigation, delay the
release of new products or services, pay damages, develop new intellectual
property or acquire licenses to intellectual property that is the subject of the
infringement claims. These licenses, if required, may not be available on
acceptable terms or at all. As a result, intellectual property claims against us
could have a material adverse effect on our business, operating results and
financial condition.
- Because our market is seasonal, our quarterly results will fluctuate.
12
- Our limited operating history and anticipated rapid growth will make it
difficult for us to assess the impact of seasonal factors on our business.
Nevertheless, we expect our business to be subject to seasonal
fluctuations, reflecting seasonal trends for the products and services
offered by our websites. For example, demand for travel bookings may
increase in anticipation of summer vacations and holiday periods, but
online travel bookings may decline with reduced Internet usage during the
summer months. These factors could cause our revenues to fluctuate from
quarter to quarter. Our results may also be affected by seasonal
fluctuations in the inventory made available to our service by travel
suppliers. Airlines, for example, typically enjoy high demand for tickets
through traditional distribution channels for travel during holiday
periods. As a result, during these periods, airlines may either have fewer
inventories to offer through our service or available tickets may be less
competitively priced. These same factors are expected to affect rental
cars, hotels and other travel products and services.
- Our success depends in large part on the continuing efforts of a few
individuals and our ability to continue to attract, retain and motivate
highly skilled employees.
- We will depend substantially on the continued services and performance of
our senior management, particularly William M. Alverson, our Chief
Executive Officer and President. The loss of the services of any executive
officers or other key employees could hurt our business.
- Our website will rely on intellectual property, and we cannot be sure that
this intellectual property will be protected from copy or use by others,
including potential competitors.
- We regard some of our content and technology as proprietary and will try to
protect our proprietary technology by relying on trademarks, copyrights,
trade secret laws and confidentiality agreements with consultants. In
connection with our license agreements with third parties, we seek to
control access to and distribution of our technology, documentation and
other proprietary information. Even with all of these precautions, it is
possible for someone else to copy or otherwise obtain and use our
proprietary technology without our authorization or to develop similar
technology independently. Effective trademark, copyright and trade secret
protection may not be available in every country in which our services are
made available through the Internet, and policing unauthorized use of our
proprietary information is difficult and expensive. We cannot be sure that
the steps we will take will prevent misappropriation of our proprietary
information. This misappropriation could have a material adverse effect on
our business. In the future, we may need to go to court to enforce our
intellectual property rights, to protect our trade secrets or to determine
the validity and scope of the proprietary rights of others. This litigation
might result in substantial costs and diversion of resources and management
attention.
- We plan to license from third parties, certain technologies incorporated
into our website. As we introduce new services that incorporate new
technologies, we may be required to license additional technology from
third parties. We cannot be sure that these third-party technology licenses
will continue to be available on commercially reasonable terms, if at all.
- Critical Accounting Policies and Estimates
a) Revenue Recognition
We recognize agency revenues on hotel, cruise and car rental reservations at the
earlier of notification of the amount of the commission from a commission
clearinghouse or a supplier or on receipt of the commissions from an individual
supplier. Override commissions are recognized each period based upon our
projected and actual attainment of predetermined target sales levels. Where
historical financial data is not available to project the target sales levels,
we record the override commission upon receipt of the commission from the
supplier.
Our merchant revenues are derived from transactions where we are the merchant of
record and determine the price. We have agreements with suppliers for blocks of
inventory that we sell and these sales generate the majority of our total
merchant revenues. We do not have purchase obligations for unsold inventory.
Recognition of merchant revenue occurs on the date the traveler uses the
inventory, such as the date of airline departure or hotel stay.
13
b) Reserves
Accounting estimates are an integral part of the financial statements prepared
by management and are based on management's current judgments. Those judgments
are normally based on knowledge and experience about past and current events and
on assumptions about future events.
We are potentially subject to a concentration of credit risk from our accounts
receivable. Also, we record a reserve against the use of fraudulent credit cards
on our Web sites and customer service related chargebacks.
- We are subject to other risks and uncertainties common to growing
technology-based companies, including rapid technological change, growth
and commercial acceptance of the Internet, dependence on third-party
technology, challenges to patents, new service introductions and other
activities of competitors, dependence on key personnel, international
expansion, and limited operating history. In addition, we are subject to
uncertainty caused by economic, political and transportation climates and
events, such as the September 11, 2001 terrorist activities, which may
impact future demand for the products and services that we sell.
Regulatory and legal uncertainties could harm our business.
The laws and regulations applicable to the travel industry affect us and our
travel suppliers. We are subject to laws and regulations relating to the sale of
travel services, including those prohibiting unfair and deceptive practices and
those requiring us to register as a seller of travel, comply with disclosure
requirements and participate in state restitution funds. In addition, many of
our travel suppliers and computer reservation systems providers are heavily
regulated by the United States and other governments. Our services are
indirectly affected by regulatory and legal uncertainties affecting the
businesses of our travel suppliers and computer reservation systems providers.
We are also subject to laws and regulations applicable to businesses generally
and online commerce. Currently, few laws and regulations directly apply to the
Internet and commercial online services. Moreover, there is currently great
uncertainty about whether or how existing laws governing issues such as property
ownership, sales and other taxes, libel and personal privacy apply to the
Internet and commercial online services. It is possible that laws and
regulations may be adopted to address these and other issues. Further, the
growth and development of the market for online commerce may prompt calls for
more stringent consumer protection laws. New laws or different applications of
existing laws would likely impose additional burdens on companies conducting
business online and may decrease the growth of the Internet or commercial online
services. In turn, this could decrease the demand for our products and services
increase our cost of operations or otherwise hurt our business.
The market price for our common stock is likely to be highly volatile and
subject to wide fluctuations in response to factors including the following:
o Actual or anticipated variations in our quarterly operating results.
o Announcements of technological innovations or new services by us or
our competitors.
o Changes in financial estimates by securities analysts.
o Conditions or trends in the Internet or online commerce industries.
o Changes in the economic performance or market valuations of other
Internet, online commerce or travel companies.
o Announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments.
o Additions or departures of key personnel.
o Release of lock-up or other transfer restrictions on our outstanding
shares of common stock or sales of additional shares of common stock.
o Potential litigation
14
The market prices of the securities of Internet-related and online commerce
companies have been especially volatile. Broad market and industry factors may
adversely affect the market price of our common stock, regardless of our actual
operating performance. In the past, following periods of volatility in the
market price of their stock, many companies have been the subject of securities
class action litigation. If we were sued in a securities class action, it could
result in substantial costs and a diversion of management's attention and
resources and would adversely affect our stock price.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. Sales of substantial amounts of our
common stock in the public market after the restrictions lapse could adversely
affect the prevailing market price and impair our ability to raise equity
capital in the future.
We will need to raise additional capital in order to remain competitive in the
online travel services industry. This capital may not be available on acceptable
terms, if at all.
We will not be able to fund our growth if we lack adequate resources. If we
raise additional funds by issuing equity or convertible debt securities, the
percentage ownership of our stockholders will be diluted. Any securities could
have rights, preferences and privileges senior to those of the common stock.
4. Terms of the Transaction
As of June 11, 2003, Advanced Refrigeration Technologies, Inc., a California
corporation ("ART" or the "Company") consummated a transaction, whereby the
Company acquired all of the issued and outstanding shares of Joystar, Inc., a
Nevada corporation ("Joystar") in exchange for the issuance by the Company of a
total of 13,880,599 newly issued restricted shares of common voting stock to the
Joystar shareholders pursuant to the Agreement and Plan of Reorganization (the
"Agreement"), dated as of June 10, 2003, by and between the Company and Joystar
(the "Closing").
Since ART had not been able to successfully sell enough units to be profitable
and had sustained losses every year since inception and it had not been
successful in obtaining necessary funding to continue the business, the Company
had been actively engaged in finding a potential investor to acquire the Company
and bring in a new business. At the time of the Acquisition, ART did not have
any operations, did not have any funding to pay off its liabilities and did not
have any funds to maintain its filing requirements with the Securities and
Exchange Commission. The Company approved the Acquisition because it was in the
best interest of the Company and it was the only viable option for the Company
and its shareholders to bring in a new business, have its liabilities paid off
and to continue operations.
The Parties made contacts through the pre-existing business relationships
between the professionals of both companies. No introduction or finders fees
were paid to anyone in connection with the transaction. The parties initially
entered a letter of intent on April 24, 2003 which included the major terms of
the transaction such as the issuance of approximately 78% of the common stock of
Advanced Refrigeration Technologies, Inc. to Joystar shareholders and the
repayment of Advanced Refrigeration Technologies, Inc. debt equal to
approximately $125,000. In addition, the remaining liabilities and assets were
to be transferred to a newly formed corporation. Those terms were subsequently
negotiated by the parties to the final terms set forth in the share exchange
agreement. ART issued a total of 13,880,599 shares of common stock of ART to
Joystar shareholders in the transaction. The number of shares that was issued in
the transaction was determined by the number of shares outstanding in Joystar,
Inc. and was not based on value of Joystar or ART since ART was a company with
losses and Joystar, Inc. was a development stage start-up company. Joystar, Inc.
paid $60,000 at the Closing of the transaction for some of the debts of Advanced
Refrigeration Technologies, Inc., and instead of signing a note for $55,000 to
repay the remaining debts, it assumed such liabilities. The cash paid by Joystar
in the transaction was determined by the amount of the outstanding liabilities
of ART that had to be paid and which ART's then current management determined as
priority debts needed to be repaid. The debt that Joystar, Inc. paid at the
closing of the share exchange transaction in the approximate amount of $60,000,
included a repayment of $24,000 advanced to the Company by the entity owned by
the former shareholders of the Company. Other debts included accounting fees,
legal fees, accounts payable and miscellaneous payments. Also, in May, 2003, the
Board of Directors of Advanced Refrigeration Technologies, Inc. held a Board of
Directors meeting at which an action was taken to cancel all the options and
warrants that were at such time outstanding.
15
The Asset Sale and Purchase Contract which was entered by and between Advanced
Refrigeration Technologies, Inc. and Advanced Refrigeration Controls, Inc, a
newly formed corporation by the former shareholders, Allen and Clare Schrum, of
Advanced Refrigeration Technologies, Inc. included the total assets consisting
of inventories, fixed assets and patents for a total value of $85,063 and the
assumption of liabilities including primarily former shareholders loans,
including a loan to Clare Schrum's mother, for a total amount of $105,217. The
Company had a gain of $20,154 on the disposition of assets and liabilities.
Pursuant to the terms of the Agreement, Joystar provided the payment of debts of
ART in the amount of $60,000 and assumed additional liabilities of ART in the
approximate amount of $55,000. Immediately prior to the share exchange, there
were approximately 3,322,840 shares of the Company's common stock issued and
outstanding. As a result of the acquisition, there were approximately 17,203,439
shares of common stock issued and outstanding. Concurrent with the Closing of
the Acquisition, the Company sold certain assets of ART valued at approximately
$85,000 to Advanced Refrigeration Controls, Inc., a California corporation
controlled by Allen and Clare Schrum in consideration for assumption of certain
liabilities of ART in the approximate amount of $105,000, pursuant to the Asset
Sale and Purchase Contract by and between ART and Advanced Refrigeration
Controls, Inc., as described above.
Upon the Closing, the all present officers of the Company (Rick McEwan, Allen
Schrum and Clare Schrum) resigned and William M. Alverson was appointed as the
Company's President, Chief Financial Officer and Secretary. Prior to the
Closing, Rick McEwan and Allen Schrum were the directors of the Company. Upon
the Closing, William M. Alverson was appointed to the Board of Directors of the
Company. Subsequently to the Closing, Rick McEwan resigned as a director of the
Company on June 13, 2003, and Katherine T. West was appointed as a new director
as of June 18, 2003. Allen Schrum resigned as the Company's director as of June
20, 2003. After June 20, 2003, the Board of Directors consisted of William M.
Alverson and Katherine T. West. None of the former directors of Advanced
Refrigeration Technologies, Inc. (Rick McEwan and Allen Schrum) received any
compensation for services from the Company after the merger. None of the former
officers and directors of Advanced Refrigeration Technologies, Inc., Rick
McEwan, Allen Schrum or Clare Schrum, had any management positions with the
Company.
Following the consummation of the acquisition, the Company issued a total of
450,000 shares of common stock to the officers and directors of Joystar (William
M. Alverson and Katherine T. West)and a total of 360,000 shares of common stock
to the Company's consultants. The consultants who received the shares are not
members of the management or beneficial owners of the Company (William M.
Alverson and Katherine T. West). All such shares were issued pursuant to the
Company's existing stock option plans. The Company does not have any specific
plans to issue additional securities to its management or beneficial owners,
other than may exist pursuant to certain consulting or employment agreements in
the regular course of business with the Company's consultants and/or employees.
Currently, there are no agreements in place that would contemplate the issuance
of securities to members of management or beneficial owners.
16
The approval of shareholders for the Acquisition of Joystar was not required by
the California law. The Board of Directors of the Company approved the
Acquisition. The majority shareholders and the board of directors of Joystar
approved the Acquisition.
There are no differences in the rights of security holders of ART following the
Acquisition of Joystar.
The Acquisition of Joystar by the Company as of June 11, 2003 has been accounted
for as a purchase and treated as a reverse acquisition since the former owners
of Joystar controlled 81% of the total shares of common stock of the Company
outstanding immediately following the Acquisition. On this basis, the historical
financial statements prior to June 11, 2003 have been restated to be those of
the accounting acquirer Joystar. The historical stockholders' equity prior to
the reverse acquisition has been retroactively restated (a recapitalization) for
the equivalent number of shares received in the acquisition after giving effect
to any difference in par value of the issuer's and acquirer's stock. The
original 3,322,840 shares of common stock outstanding prior to the
reorganization have been reflected as an addition in the stockholders' equity
account of the Company on June 11, 2003.
The management of the Company believes that the Acquisition was exempt from any
federal income taxes and there are no federal tax consequences to the Company.
5. Regulatory Approvals.
The Board of Directors of ART and the Board of Directors and the majority
shareholders of Joystar approved the Acquisition. No other approvals were
required.
6. Reports, opinions, appraisals.
No report, opinion or appraisal was obtained with respect to the Acquisition.
7. Financial Information
Set forth below is the following financial information for Joystar, Inc. and
Advanced Refrigeration Technologies, Inc.:
Independent Auditors' Report of Berger Mendoza & Company, LLP.
Balance Sheets as of December 31, 2002 and December 31, 2003
Statements of Operations for the Fiscal Year Ended December 31, 2003, for the
period from inception (May 23, 2001) through December 31, 2002 and for the
period from inception (May 23, 2001) through December 31, 2003
Statement of Changes in Stockholders' Equity (Deficit)
Statements of Cash Flows for the Fiscal Year Ended December 31, 2003, for the
period from inception (May 23, 2001) through December 31, 2002 and for the
period from inception (May 23, 2001) through December 31, 2003
Notes to Financial Statements
17
JOYSTAR, INC.
(FORMERLY KNOWN AS SOLUTIONS RESOURCE, INC.)
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
FROM INCEPTION (MAY 23, 2001)
THROUGH DECEMBER 31, 2003
18
TABLE OF CONTENTS
Independent Auditors' Report.................................................20
Balance Sheets...............................................................21
Statements of Operations.....................................................22
Statement of Changes in Stockholders' Equity (Deficit).......................23
Statements of Cash Flows.....................................................24
Notes to Financial Statements................................................25
19
INDEPENDENT AUDITORS REPORT
To the Board of Directors of Advanced Refrigeration Technologies, Inc. and
Subsidiary
We have audited the accompanying consolidated balance sheets of Advanced
Refrigeration Technologies, Inc. and Subsidiary (formerly known as Solutions
Resource, Inc. and a development stage company) as of December 31, 2003 and 2002
and the related statements of operations, shareholders' equity (deficit) and
cash flows for the years then ended and for the period from inception (May 23,
2001) through December 31, 2003. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform our audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Advanced
Refrigeration Technologies, Inc. and Subsidiary as of December 31, 2003 and
2002, and the results of its operations and cash flows for the years then ended
and for the period from inception (May 23, 2001) through December 31, 2003 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed further in Note 3,
the Company has been in the development stage since its inception ( May 23,
2001) and continues to incur significant losses. The Company's viability is
dependent upon its ability to obtain future financing and the success of its
future operations. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plan in regard to these
matters is also described in Note 3. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
MENDOZA BERGER & COMPANY, LLP
March 24, 2004
Irvine, California
20
ADVANCED REFRIGERATION TECHNOLOGIES, INC. & SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------------------------------
ASSETS
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
Current assets:
Cash $ 136,319 $ 5,025
Other receivables 2,000 --
Prepaid expenses 8,042 --
------------ ------------
Total current assets 146,361 5,025
------------ ------------
Property and equipment, net 22,690 2,406
------------ ------------
Total assets $ 169,051 $ 7,431
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 132,198 $ 9,718
Accrued salaries and payroll taxes 198,474 81,811
Accrued rent 35,000 54,000
Loans from shareholder 83,795 62,577
------------ ------------
Total current liabilities 449,467 208,106
------------ ------------
Commitments and contingency -- --
Stockholders' equity:
Preferred stock (no par value) 10,000,000 shares authorized;
none issued -- --
Common Stock, no par value, 50,000,000 shares authorized;
21,051,277 and 16,785,667 shares issued and outstanding at
December 31, 2003 and December 31, 2002, respectively 1,895,241 122,713
Stock issued for deferred compensation (894,250) --
Stock subscribed not issued, 118,667 shares 176,800 --
Deficit accumulated during development stage (1,458,207) (323,388)
------------ ------------
Total stockholders' (deficit) (280,416) (200,675)
------------ ------------
Total liabilities and stockholders' equity $ 169,051 $ 7,431
============ ============
The accompanying notes to financial statements are an integral part of these statements
21
ADVANCED REFRIGERATION TECHNOLOGIES, INC. & SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------------------------
CUMULATIVE AMOUNTS
FROM INCEPTION
FOR THE YEAR FOR THE YEAR (MAY 23, 2001)
ENDED ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2003
-------------- -------------- --------------
Income:
Travel agent program $ 43,170 $ 6,263 $ 49,433
-------------- -------------- --------------
Operating expenses:
General and administrative 655,535 190,518 862,768
Marketing and sales 400,868 122,418 523,286
-------------- -------------- --------------
Total operating expenses 1,056,403 312,936 1,386,054
-------------- -------------- --------------
Loss from operations before interest and taxes (1,013,233) (306,673) (1,336,621)
-------------- -------------- --------------
Interest 5,644 -- 5,644
Provision for taxes -- -- --
-------------- -------------- --------------
Net loss $ (1,018,877) $ (306,673) $ (1,342,265)
============== ============== ==============
Loss per share $ (0.06) $ (0.02)
============== ==============
Weighted average number of common
shares outstanding 18,106,979 16,822,686
============== ==============
The accompanying notes to financial statements are an integral part of these statements
22
ADVANCED REFRIGERATION TECHNOLOGIES, INC. & SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION MAY 23, 2001 TO DECEMBER 31, 2003
---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
---------------------------
Deficit
Stock issued Stock Accumulated Total
for Subscribed During the Stockholders'
Number of Deferred not Development Equity
Shares Amount Compensation Issued Stage (Deficit)
------------ ------------ ------------ ------------ ------------ ------------
Balance at inception - May 23, 2001 -- $ -- $ -- $ -- $ -- $ --
Stock issued for services 16,715,000 16,715 -- -- -- 16,715
Net loss -- -- -- -- (16,715) (16,715)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2001 16,715,000 16,715 -- -- (16,715) --
Stock issued various dates for cash
at $1.50 per share 70,667 105,998 -- -- -- 105,998
Net loss -- -- -- -- (306,673) (306,673)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2002 16,785,667 122,713 -- -- (323,388) (200,675)
Shares canceled by majority
shareholder (3,000,000) -- -- -- -- --
Stock issued various dates
for cash at $1.50 per share 94,932 142,300 -- -- -- 142,300
------------ ------------ ------------ ------------ ------------ ------------
Balance June 11, 2003 date of
acquisition of Joystar, Inc. shares
in a reverse merger 13,880,599 265,013 -- -- (323,388) (58,375)
Cancel Joystar shares (13,880,599) -- -- -- -- --
Advanced Refrigeration shares
outstanding at June 11, 2003 3,322,840 -- -- -- -- --
Issue Advanced Refrigeration
Technologies, Inc. shares 13,880,599 -- -- -- (115,942) (115,942)
Stock issued pursuant to the
stock option plan June 11, 2003
at market value of
stock $0.03 per
share 810,000 24,300 -- -- -- 24,300
Stock issued for services 215,000 15,000 -- -- -- 15,000
Stock issued for past and future
compensation 2,400,000 1,008,000 -- -- -- 1,008,000
Future compensation deferred until earned -- -- (894,250) -- -- (894,250)
Stock issued various dates for cash
at between $0.50 and $1.50 per share 394,267 531,500 -- -- -- 531,500
Stock issued for services 28,571 51,428 -- -- -- 51,428
Stock subscribed not issued 118,667 shares -- -- -- 176,800 -- 176,800
Net loss -- -- -- -- (1,018,877) (1,018,877)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2003 21,051,277 $ 1,895,241 $ (894,250) $ 176,800 $(1,458,207) $ (280,416)
============ ============ ============ ============ ============ ============
The accompanying notes to financial statements are an integral part of these statements
23
ADVANCED REFRIGERATION TECHNOLOGIES, INC. & SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------------------------------------------
CUMULATIVE AMOUNTS
FROM INCEPTION
FOR THE YEAR FOR THE YEAR (MAY 23, 2001)
ENDED ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2003
-------------- -------------- --------------
Cash flows from operating activities:
Net loss $ (1,018,877) $ (306,673) $ (1,342,265)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 2,608 -- 2,608
Stock issued for services 204,478 -- 221,193
Changes in assets and liabilities:
Increase in prepaid expenses (8,042) -- (8,042)
Increase in other receivables (2,000) -- (2,000)
Increase in accounts payable 122,480 9,718 132,198
Increase in accrued salaries and payroll taxes 116,663 81,811 198,474
Increase (decrease) in accrued rent expense (19,000) 54,000 35,000
-------------- -------------- --------------
Net cash used by operations (601,690) (161,144) (762,834)
-------------- -------------- --------------
Cash flows from investing activities:
Acquisition of property and equipment (22,892) (2,406) (25,298)
-------------- -------------- --------------
Net cash used by investing activities (22,892) (2,406) (25,298)
-------------- -------------- --------------
Cash flows from financing activities:
Loans from shareholders - net 21,218 62,577 83,795
Issuance of common stock 673,800 105,998 779,798
Stock subscribed not issued 176,800 -- 176,800
Payment of debt assumed in reverse acquisition (115,942) -- (115,942)
-------------- -------------- --------------
Net cash provided by financing activities 755,876 168,575 924,451
-------------- -------------- --------------
Net increase in cash 131,294 5,025 136,319
Cash, beginning of period 5,025 -- --
-------------- -------------- --------------
Cash, end of period $ 136,319 $ 5,025 $ 136,319
============== ============== ==============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of stock for services $ 204,478 $ 16,715 $ 221,193
============== ============== ==============
The accompanying notes to financial statements are an integral part of these statements
24
ADVANCED REFRIGERATION TECHNOLOGIES, INC. & SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
AND CUMULATIVE FROM INCEPTION MAY 23, 2001 TO DECEMBER 31, 2003
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
---------------------
On June 11, 2003, Advanced Refrigeration Technologies, Inc. a California
corporation (" the Company") acquired all of the issued and outstanding common
stock of Joystar, Inc., a Nevada corporation ("Joystar") in exchange for the
issuance by the Company of a total of 13,880,599 newly issued restricted shares
of common voting stock to the Joystar shareholders pursuant to the Agreement an
Plan of Reorganization dated as of June 10, 2003. Prior to the issuance of the
shares, the Company had 3,322,840 shares of common stock issued and outstanding.
Subsequent to the exchange there were 17,203,439 shares issued and outstanding.
The shareholders of Joystar own 81% of the common stock outstanding of the
Company after the issuance of the 13,880,599 shares.
The acquisition of Joystar by the Company on June 11, 2003 has been accounted
for as a purchase and treated as a reverse acquisition since the former owners
of Joystar controlled 81% of the total shares of Common Stock outstanding of the
Company immediately following the acquisition.
On this basis, the historical financial statements prior to June 11, 2003 have
been restated to be those of the accounting acquirer Joystar. The historical
stockholders' equity prior to the reverse acquisition has been retroactively
restated (a recapitalization) for the equivalent number of shares received in
the acquisition after giving effect to any difference in par value of the
issuer's and acquirer's stock. The original 3,322,840 shares of common stock
outstanding prior to the exchange reorganization have been reflected as an
addition in the stockholders' equity account of the Company on June 11, 2003.
The Company has been in the development stage since its inception May 23, 2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of the
Company, and its wholly owned subsidiary Joystar, Inc.. All material
inter-company balances and transactions have been eliminated in
consolidation.
REVENUE RECOGNITION
--------------------
The Company records revenues from travel related sales transactions
where the Company both purchases from the supplier and sells to the
customer the requested travel service. This is reflected in the
Consolidated Statement of Operations at the net amount, which reflects
the gross amount charged to the customer less the cost paid to the
supplier. The Company also receives commissions from travel suppliers
for processing reservations.
PROPERTY AND EQUIPMENT
----------------------
Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful life of the assets,
which is three to seven years for furniture and equipment and three
years for computer equipment.
USE OF ESTIMATES
----------------
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
25
INCOME TAXES
------------
Deferred income taxes are reported using the liability method. Deferred
tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
NET LOSS PER SHARE
------------------
In February 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 128 "Earnings Per Share" which requires the Company to
present basic and diluted earnings per share, for all periods
presented. The computation of loss per common share (basic and diluted)
is based on the weighted average number of shares actually outstanding
during the period. The Company has no common stock equivalents, which
would dilute earnings per share.
FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
Financial instruments consist principally of cash and various current
liabilities. The estimated fair value of these instruments approximates
their carrying value.
RECLASSIFICATIONS
-----------------
Certain amounts in the prior period presented have been reclassified to
conform to the current period financial statement presentation. These
reclassifications have no effect on previously reported change in
accumulated deficit.
3. GOING CONCERN
-------------
The accompanying financial statements, which have been prepared in
conformity with accounting principles generally accepted in the United
States of America, contemplates the continuation of the Company as a
going concern. However, the Company has been in the development stage
since its inception (May 23, 2001), sustained significant losses and
has used capital raised through the issuance of stock and debt to fund
activities. Continuation of the Company as a going concern is
contingent upon establishing and achieving profitable operations. Such
operations will require management to secure additional financing for
the Company in the form of debt or equity.
Management believes that actions currently being taken to revise the
Company's funding requirements will allow the Company to continue its
development stage operations. However, there is no assurance that the
necessary funds will be realized by securing debt or through stock
offerings.
26
4. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consist of the following:
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
Office furniture $ 11,900 $ 1,864
Computers 13,398 542
--------------- ---------------
25,298 2,406
Less: accumulated depreciation 2,608 --
--------------- ---------------
$ 22,690 $ 2,406
=============== ===============
5. CAPITAL STOCK
-------------
COMMON STOCK
------------
On November 2, 2001, the Company issued 16,715,000 (post-forward-split)
restricted shares of common stock at $0.001 per share totaling $16,715
for services rendered in connection with the start up of the Company.
At various dates in 2002, the Company issued for cash of $105,998,
70,667 shares of common stock at $1.50 per share through a private
placement, pursuant to provisions of Section 4(2) of the Securities Act
of 1933 and Rule 506 of Regulation D.
At various dates in 2003, the Company issued for cash of $673,800,
489,199 shares of common stock at $0.50 to $1.50 per share through a
private placement, pursuant to provisions of Section 4(2) of the
Securities Act of 1933 and Rule 506 of Regulation D.
Subsequent to year end, the Company issued 62,000 shares of common
stock for cash of $93,000 and 20,000 shares of common stock in exchange
for services rendered in the amount of $30,000 which is $1.50 per
share.
COMMON STOCK SPLIT
------------------
On November 1, 2001, the Board of Directors of the Company approved a
stock split of the Company's common stock at a ratio of 1,000 for 1.
All references in the accompanying financial statements to the number
of common stock and per share amounts reflect the stock split.
STOCK CANCELED
--------------
A majority shareholder, William M. Alverson, canceled 3,000,000 shares
of stock in anticipation of the acquisition of Advanced Refrigeration
Technologies, Inc on June 11, 2003.
STOCK ISSUED IN REVERSE MERGER JUNE 11, 2003
--------------------------------------------
The Company acquired all of the issued and outstanding common stock of
Joystar, Inc., a Nevada corporation ("Joystar") in exchange for the
issuance by the Company of a total of 13,880,599 newly issued
restricted shares of common voting stock dated as of June 10, 2003.
STOCK ISSUED UNDER STOCK OPTION PLAN AND FOR PAYMENT OF SERVICES
----------------------------------------------------------------
The Company issued 810,000 shares of common stock pursuant to the
Company's Stock Option Plans on June 11, 2003 valued at the market
price of the stock on that date $0.03.
The Company issued 215,000 shares of common stock in payment of
invoices for professional services of $15,000 in June, 2003.
On July 30, 2003 the Company entered into a two and three year
employment Agreement with two employees. The agreement provided for
100,000 and 300,000 Shares of restricted common stock to be issued. The
value of the compensation was based on the stock price on the agreement
date of $0.42, a total $168,000. The Company issued the 400,000 shares
November 14, 2003 and recorded compensation expense of $33,173 for
period ended December 31, 2003 and deferred compensation of $141,780.
27
On July 30, 2003 the Company entered into a four-year employment
agreement for a Vice President of Business Development. The agreement
provides for 2,000,000 shares of restricted Common stock to be issued.
The value of the compensation was based on the stock price on the
agreement date of $0.42, a total of $840,000. The Company issued the
2,000,000 shares November 14, 2003 and recorded compensation expense of
$87,500 for period ended December 31, 2003 and deferred compensation of
$752,500.
On November 11, 2003 the Company issued 28,571 common shares of
restricted stock for services valued at the closing market price of the
Company's stock on that date of $1.80, or $51,428.
6. RELATED PARTY TRANSACTIONS
--------------------------
The Company received loans in the amount of $80,570 and $5,000 from two
shareholders. The $80,570 bears interest at 10% and is evidenced by a
note payable to the shareholder and can be converted to common stock at
$1.50 per share. The $5,000 bears interest at 10%, but is not evidenced
by a note.
7. STOCK OPTIONS
-------------
The Board of Directors has approved in April, 2003 a Company stock
option plan, which was amended by the Company in July, 2003. All the
shares (480,000 shares) under 2002 Equity and Stock Option Plan were
issued in June, 2003. In July, 2003, the Company approved 2003 Equity
Compensation Plan which provides for the grant to directors, officers,
employees and consultants of the Company of stock based awards and
options to purchase up to an aggregate of 2,500,000 shares of Common
Stock. No grants have been made yet under 2003 Equity Compensation
Plan.
On June 11, 2003 the Company granted and issued a total of 810,000
shares under the 2000 and 2002 stock compensation plans for services to
the Company. The valuation of the shares issued were at the market
price on the Grant date of $0.03, or $24,300.
8. INCOME TAXES
------------
The components of the deferred tax asset is as follows:
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
Deferred tax assets:
Net operating loss carry-forward $ 530,000 $ 128,000
Less: valuation allowance (530,000) (128,000)
-------------- --------------
Net deferred tax assets $ -- $ --
============== ==============
The Company's operations are headquartered in the State of California
and are subject to California state income taxes. The Company had
available approximately 1,328,000 and $323,000 of unused Federal and
State net operating loss carry-forwards at December 31, 2003 and
December 31, 2002, respectively that may be applied against future
taxable income. These net operating loss carry-forwards expire through
2022 for Federal purposes. There is no assurance that the Company will
realize the benefit of the net operating loss carry-forwards.
SFAS No. 109 requires a valuation allowance to be recorded when it is
more likely that some or all of the deferred tax assets will not be
realized. At December 31, 2002 and 2001, valuations for the full amount
of the net deferred tax asset were established due to the uncertainties
as to the amount of the taxable income that would be generated in
future years.
28
Reconciliation of the differences between the statutory tax rate and
the effective income tax rate is as follows:
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
Statutory federal tax (benefit) rate (34.00)% (34.00)%
Statutory state tax (benefit) rate (5.83)% (5.83)%
----------------- -----------------
Effective tax rate (39.83)% (39.83)%
Valuation allowance 39.83% 39.83%
----------------- -----------------
Effective income tax rate 0.00% 0.00%
================= =================
9. COMMITMENTS AND CONTINGENCY
---------------------------
LEGAL PROCEEDINGS
-----------------
In March, 2004 a former employee of the Company who was terminated
prior to the acquisition of Joystar, filed a lawsuit for breach of
contract and specific performance, relating to the exercise of options,
among other causes of action. The Company considers the basis of the
lawsuit without merit and intends to vigorously defend itself.
OPERATING LEASE
---------------
The Company leases office space under an operating lease, which expires
in April of 2004. As of December 31, 2003, future minimum lease
payments for 2004 are $18,000.
Rental expense was $47,000 and $54,000 for the years ended December 31,
2003 and 2002, respectively
29
Management's Discussion and Analysis of Financial Condition and Results
of Operations
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
ALL FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE DEEMED BY THE COMPANY TO BE
COVERED BY AND TO QUALIFY FOR THE SAFE HARBOR PROTECTION PROVIDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. PROSPECTIVE SHAREHOLDERS SHOULD
UNDERSTAND THAT SEVERAL FACTORS GOVERN WHETHER ANY FORWARD - LOOKING STATEMENT
CONTAINED HEREIN WILL BE OR CAN BE ACHIEVED. ANY ONE OF THOSE FACTORS COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED HEREIN. THESE
FORWARD - LOOKING STATEMENTS INCLUDE PLANS AND OBJECTIVES OF MANAGEMENT FOR
FUTURE OPERATIONS, INCLUDING PLANS AND OBJECTIVES RELATING TO THE PRODUCTS AND
THE FUTURE ECONOMIC PERFORMANCE OF THE COMPANY. ASSUMPTIONS RELATING TO THE
FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS, FUTURE
ECONOMIC, COMPETITIVE AND MARKET CONDITIONS, FUTURE BUSINESS DECISIONS, AND THE
TIME AND MONEY REQUIRED TO SUCCESSFULLY COMPLETE DEVELOPMENT PROJECTS, ALL OF
WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND MANY OF WHICH ARE
BEYOND THE CONTROL OF THE COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS UNDERLYING THE FORWARD - LOOKING STATEMENTS CONTAINED HEREIN ARE
REASONABLE, ANY OF THOSE ASSUMPTIONS COULD PROVE INACCURATE AND, THEREFORE,
THERE CAN BE NO ASSURANCE THAT THE RESULTS CONTEMPLATED IN ANY OF THE FORWARD -
LOOKING STATEMENTS CONTAINED HEREIN WILL BE REALIZED. BASED ON ACTUAL EXPERIENCE
AND BUSINESS DEVELOPMENT, THE COMPANY MAY ALTER ITS MARKETING, CAPITAL
EXPENDITURE PLANS OR OTHER BUDGETS, WHICH MAY IN TURN AFFECT THE COMPANY'S
RESULTS OF OPERATIONS. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE
FORWARD - LOOKING STATEMENTS INCLUDED THEREIN, THE INCLUSION OF ANY SUCH
STATEMENT SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER
PERSON THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE ACHIEVED.
General
Advanced Refrigeration Technologies, Inc. (the "Company") was
incorporated in the State of California on February 5, 1998. It designed,
manufactured and marketed an energy efficiency evaporator fan motor controller
for walk-in refrigerators and freezers until June 11, 2003 when it acquired all
of the issued and outstanding common stock of Joystar, Inc., a Nevada
corporation ("Joystar") in exchange for the issuance by the Company of a total
of 13,880,599 newly issued restricted shares of common voting stock to the
Joystar shareholders pursuant the Agreement an Plan of Reorganization dated as
if June 10, 2003. Prior to the issuance of the shares, the Company had 3,322,840
shares of common stock issued and outstanding. Subsequent to the exchange there
were 17,203,439 shares issued and outstanding. The shareholders of Joystar own
81% of the common stock outstanding of the Company after the issuance of the
13,880,598 shares. Concurrent with the acquisition of Joystar the Company
disposed of the fan control business extinguishing approximately $125,000 of
debt for $105,000 of fan control assets.
In July 2003, our Board of Directors and majority shareholder approved a name
changed from "Advanced Refrigeration Technologies, Inc." to "Joystar, Inc."
Joystar was incorporated on May 23, 2001. Joystar is a provider of
online and offline travel services for the leisure and small business traveler.
Joystar has been in the development stage since its inception, May 23,2001.
The restructuring and re-capitalization has been treated as a reverse
acquisition with Joystar becoming the accounting acquirer. The accompanying
financial statements represent Joystar's activity since inception May 23, 2001
through December 31, 2003.
The following discussion should be read in conjunction
the financial statements and notes to financial statements.
Overview
Agency revenues are derived from airline ticket transactions, hotel, cruise,
vacation packages, and car rental reservations. Although it is customary in the
travel industry, absent a contractual arrangement with us, travel suppliers are
not obligated to pay any specified fees rate for supplies or bookings made
through our agency and website. Also customary, in the travel industry certain
suppliers will pay us override commission compensation typically related to
achieving specific performance targets.
30
We recognize agency revenues on air transactions when the reservation is made
and secured by a credit card. We recognize agency revenues on hotel, cruise, and
car rental reservations on receipt of the commission. Override commissions are
recognized each period based upon our projected and actual attainment of
predetermined target sales levels. We record the override commission upon
receipt of the commission from the supplier.
Our merchant revenues are derived from transactions where we are the merchant of
record and determine the price. We access hotel suppliers and air consolidators
for blocks of inventory that we sell and these sales generate the majority of
our total merchant revenues. We do not have purchase obligations for unsold
inventory. Recognition of merchant revenue occurs on the date the traveler uses
the inventory (e.g., the date of airline departure or hotel stay)
We also sell travel services through other websites and distribution channels.
We offer co-branded online travel businesses that supply Joystar services and
inventory to certain third party websites. When a customer books travel on a
Joystar co-branded site, we collect the revenue and pay the third party a
transaction fee for each sale generated through the partners' websites.
We have applied the accounting methodology and revenue presentation required by
Emerging Issues Task Forces (EITF) Issue No. 99-19, reporting Revenue Gross as a
Principal versus Net as an Agent. All merchant transactions are recorded at the
net amount, which is the amount charged to the customer less the amount paid to
the supplier. Recognition of merchant revenue occurs on the date of the
traveler's flight or stay.
We derive revenues from annual membership fees from our growing network of
Independent Travel Agents and from the sales of advertisements on our websites.
We generally recognize advertising and membership revenues ratably over the
membership or advertising period, depending on the terms of the contract. Fees
from the licensing of our software are another source of revenues. The fixed
portion of these license fees are recognized ratably over the lives of the
contracts. Transaction-based fees are recognized when the relevant transactions
occur.
The costs of agency revenues and membership consist primary of fees paid to our
fulfillment vendors for customer service and reserves and related payments for
travel products purchased with fraudulent credit cards, fees paid to our
licensing partners for use of their computer reservation and information
services system and allocated and direct internal costs for the operation of our
data center and call center. The costs of membership revenues consist of credit
card merchant fees and allocated and direct costs for the operation of our data
center and the internal and direct costs of operating the call centers.
Our direct production development expenses consist primarily of compensation for
personnel and development and maintenance of our websites, including
enhancements to and maintenance of the sites. Our direct sales and marketing
expenses consist of advertising, distribution and public relations expenses as
well as personnel-related costs. Our distribution activities relate to associate
marketing agreements with internet websites. Our direct general and
administrative expenses consist primarily of compensation for personnel to
support functions such as finance, legal, and human resources.
Our revenues are impacted by the seasonality of the travel industry. Traditional
leisure travel supplier and agency bookings typically are highest in the first
two calendar quarters of the year as consumers plan and purchase their spring
and summer travel and then the number of bookings flattens in the last two
calendar quarters of the year. Our growth should show seasonal trends, however,
with the highest sequential revenue growth occurring the first calendar quarter
and then slowing in the remaining three quarters of each year. Growth will be
driven by the continuing shift by customers from offline travel planning to
online planning and our continued market share growth.
Our business is dependent on the health and growth of the travel industry.
Travel is highly sensitive to traveler safety concerns, and thus declines after
acts of terrorism that affect the safety of travelers. The terrorist attacks of
September 11, 2001, resulted in a decrease in new travel bookings worldwide and
may reduce our revenues in future quarters. The long-term effects of these
events could include, among other things, a protracted decrease in demand for
air travel due to fears regarding additional acts of terrorism, military
responses to acts of terrorism and increased costs and reduced operations by
airlines due, in part, to new security directives adopted by the Federal
Aviation Administration. These effects, depending on their scope and directives,
which we cannot predict at this time, together with any future terrorist
attacks, could significantly impact our long-term results of operations or
financial condition.
31
RESULTS OF OPERATIONS
The Company has been in the development stage since its inception.
Revenues for the year ended December 31, 2003 increased to $43,170 from $6,263
for the year ended December 31, 2002. The increase of $36,907, 589% is due to
increased sales effort.
Marketing and sales expenses for the year ended December 31, 2003 increased to
$400,868 from $122,418 for the year ended December 31, 2002. The increase of
$278,450, 227% is due primarily to the increased use of independent contractors
$142,500, increased sales and marketing materials $56,100, increased telephone
use for telemarketing activities $15,400 and additional printing and
reproduction expenses $12,800.
General and Administrative expenses for the year ended December 31, 2003
increased to $655,535 from $190,518 for the year ended December 31, 2002. The
increase of $465,017, 244% is due primarily to the increased salaries and wages
$309,000, increased legal and accounting expenses related to the merger of
Joystar, Inc. $59,300, increased insurance expense $12,000 and an increase in
all other general and administrative expenses of $80,000.
Interest expense for the year ended December 31, 2003 increased to $5,644. There
was no interest incurred in the year ended December 31, 2002. The increase was
due to the necessity for the Company to borrow operating funds.
Net loss for the year ended December 31, 2003 increased to $1,018,877 from
$306,673 for the year ended December 31, 2002. The increase in loss $712,204,
232% was primarily due to the increased expenses detailed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a cash balance of $136,319 at December 31, 2003 as compared to
$5,025 at December 31, 2002.
The Company had negative working capital at December 31, 2003. The Company has
been able to raise sufficient capital to continue operations by selling stock.
In 2002 the Company raised $105,000 and in 2003, a total of $673,800. The
Company has funded certain expenses by issuing shares for compensation and
services. During the year ended 2003 the Company issued 3,453,571 shares valued
at $1,098,728, of which $204,478 were for current year expenses and $894,250
were deferred to future year expenses.
The Name Amendment will become effective upon the filing of a
certificate of amendment relating thereto with the Secretary of State of the
State of California, which will occur on or about May____, 2004. Under federal
securities, laws, ART cannot file the certificate of amendment until at least 20
days after the mailing of this Information Statement.
II. PROPOSAL NUMBER TWO. ADOPTION OF AMENDED 2002 EQUITY AND STOCK OPTION PLAN
In April, 2003, the Company's Board of Directors unanimously approved
the Company's 2002 Stock Option Plan, which the Company's Board of Directors
amended as of June 30, 2003 (collectively, the "2002 Plan"). The Consenting
Shareholders approved the 2002 Plan in July, 2003. The purpose of the 2002 Plan
is to enable the Company to attract and retain top-quality employees, officers,
directors and consultants and to provide such employees, officers, directors and
consultants with an incentive to enhance stockholder returns. The full text of
the 2002 Plan appears as Exhibit B to this Information Statement and the
description of the 2002 Plan herein is qualified by reference to Exhibit B.
Executive Compensation
The following table sets forth all compensation awarded or paid by the
Company to its Chief Executive Officer and all other executive officers for
services rendered during the fiscal year ended December 31, 2003 and the fiscal
year December 31, 2002.
32
Summary Compensation Table
Awards
------
Annual Other
Name and Position Year Salary Bonus Compensation
-----------------------------------------------------------------------------------------
William Alverson 2003 120,000
CEO and CFO 2002 46,000
Katherine West 2003 60,000
Executive VP 2002 35,000
Rick R. McEwan 2001 8,000 -0- -0-
former President(1) 2002 18,000 -0- -0-
Allan E. Schrum 2001 2,000 -0- -0-
former Vice President
Engineering (1) 2002 4,500 -0- -0-
David J. Kimber 2001 52,000 -0- -0-
former Vice President/
Marketing (until 5/2002)
Clare C. Schrum 2001 6,000 -0- -0-
former Secretary,
Chief Financial Officer (1) 2002 13,500 -0- -0-
(1) Until June, 2003
The following table sets forth for each of the named executives certain
information concerning stock and stock options granted during fiscal 2003.
----------------------------------------------------------------------------------------------
Name and Position Number of Securities % of Total Options
Underlying Granted to Exercise Price Expiration
Options Employees per Share Date
----------------------------------------------------------------------------------------------
William M. Alverson 300,000 37% $0.03 June 11, 2003
Katherine West 150,000 18.5% $0.03 June 11, 2003
No stock option grants were made to any employees during fiscal 2002.
DESCRIPTION OF THE 2002 PLAN
Administration and Participation. The Company's 2002 Plan is administered
by the Company's Board of Directors, which may delegate its duties in whole or
in part to any subcommittee solely consisting of at least two individuals who
are non-employee directors within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, and outside directors within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended. 2002 Plan
allows the Compensation Committee to make awards of stock options and stock
based awards to any individual who is selected by the Compensation Committee to
participate in 2002 Plan.
The Compensation Committee has the authority to interpret our stock
incentive plan, to establish, amend and rescind any rules and regulations
relating to our 2002 Plan and to make any other determinations that the
Compensation Committee deems necessary or desirable for the administration of
our 2002 Plan. The Compensation Committee may also correct any defect or supply
any omission or reconcile any inconsistency in our stock incentive plan in the
manner and to the extent the Compensation Committee deems necessary or
desirable. Any decision of the Compensation Committee in the interpretation and
administration of our 2002 Plan lies within its sole and absolute discretion and
is final, conclusive and binding on all parties concerned, including
participants in our 2002 Plan and their beneficiaries or successors.
33
Limitations. An aggregate of 480,000 shares of the Company's common stock
has been authorized and issued under the Company's 2002 Plan.
Stock options. Stock options granted under our 2002 Plan may be
non-qualified or incentive stock options for federal income tax purposes. The
Compensation Committee will set option exercise prices and terms and will
determine the time at which stock options will be exercisable. However, the term
of a stock option may not exceed 10 years.
The Compensation Committee may also grant options that are intended to be
incentive stock options, which comply with Section 422 of the Internal Revenue
Code of 1986, as amended. Fair market value is defined as the closing price of
the shares as reported on the grant date as quoted on the NASD's Bulletin Board.
Stock-based awards. The Compensation Committee has the authority to grant
stock-based awards, which may consist of awards of common stock, restricted
stock and awards that are valued in whole or in part by reference to, or are
otherwise based on the fair market value of, shares of common stock. Stock-based
awards may be granted on a stand-alone basis or in addition to any other awards
granted under our 2002 Plan. The Compensation Committee will determine the form
of stock-based awards and the conditions on which they may be dependent. The
conditions may include the right to receive one or more shares of common stock
or the equivalent value in cash upon the completion of a specified period of
service or the occurrence of an event or the attainment of performance
objectives. The Compensation Committee will also determine the participants to
whom stock-based awards may be made, the timing of those awards, the number of
shares to be awarded, whether those other stock-based awards will be settled in
cash, stock or a combination of cash and stock and all other terms of those
awards.
General. Stock options and restricted stock awards are not transferable or
assignable, except for estate planning purposes. The Company may deduct
sufficient sums to pay withholding required for federal, state and local taxes
or other taxes as a result of the exercise of a stock award.
In the event of any stock dividend or split, reorganization,
recapitalization, merger, consolidation, spin-off, combination or exchange of
stock or other corporate exchange or any distribution to shareholders other than
regular cash dividends, the Compensation Committee may, in its sole discretion,
make a substitution or adjustment, as the Compensation Committee deems to be
equitable, to the number or kind of stock issued or reserved for issuance under
our 2002 Plan under outstanding awards and the term, including option price, of
those awards.
Except as otherwise provided in a stock award agreement, in the event of
our change in control or a change of control of the Company, the Compensation
Committee may, in its sole discretion, accelerate a stock award, cause us to
make a cash payment in exchange for a stock award or require the issuance of a
substitute stock award.
Certain income tax consequences. The Company has been advised by counsel
that the material federal income tax consequences to the Company and the
participants in the 2002 Plan of the grant and exercise of options under
existing and applicable provisions of the Internal Revenue Code of 1986, as
amended, and regulations will generally be as follows:
Incentive stock options. A participant will not realize any taxable
income at the time an incentive stock option is granted or exercised, and
the Company will not receive an income tax deduction at the time of grant
or exercise. If a participant does not sell stock acquired upon the
exercise of an incentive stock option within (1) two years after the date
of the grant or (2) one year after the date of exercise, then a subsequent
sale of such stock generally will be taxed as capital gain or loss. If a
participant disposes of shares acquired upon the exercise of an incentive
stock option within the period set forth in clause (1) or (2) above, then
that participant will generally realize ordinary income in an amount equal
to the lesser of (a) the gain realized by that participant upon such
disposition and (b) the excess of the fair market value of the stock on the
date of exercise over the exercise price. In that event, the Company would
generally be entitled to an income tax deduction equal to the amount
recognized as ordinary income by the applicable participant. Any gain in
excess of the amount recognized by the participant as ordinary income would
be taxed as short-term or long-term capital gain, depending on the holding
period.
34
Non-qualified stock options. A participant will not realize taxable
income upon the grant of a non-qualified stock option, and the Company will
not receive an income tax deduction at such time. Upon exercise of a
non-qualified stock option, the applicable participant will realize
ordinary income in an amount equal to the excess of the fair market value
of the stock on the date of exercise over the exercise price. Upon a
subsequent sale of such stock, the participant will recognize short-term or
long-term capital gain depending on his or her holding period for the
shares. The Company is generally allowed an income tax deduction at the
same time and in the same amount recognized as ordinary income by the
participant.
Stock-based awards. Amounts received by the participant upon the grant
of other stock-based awards are ordinarily taxed as ordinary income when
received. However, if such other stock-based awards consist of property
subject to restrictions, the amounts generally will not be taxed until the
restrictions lapse or until the participant makes an election under Section
83(b) of the Internal Revenue Code. The Company is generally allowed an
income tax deduction at the same time and in the same amount recognized as
ordinary income by the participant.
Compliance with Section 162(m). Our 2002 Plan should allow certain
stock options and other stock-based awards to be treated as qualified
performance-based compensation under Section 162(m) of the Internal Revenue
Code. However, the Compensation Committee may, from time to time, award
compensation that is not deductible under Section 162(m).
III. PROPOSAL NUMBER THREE. ADOPTION OF 2003 EQUITY COMPENSATION PLAN
In July, 2003, the Company's Board of Directors unanimously approved the
Company's 2003 Equity Compensation Plan, (the "2003 Plan"). The Consenting
Shareholders approved the 2003 Plan in July, 2003. The purpose of the 2003 Plan
is to enable the Company to attract and retain top-quality employees, officers,
directors and consultants and to provide such employees, officers, directors and
consultants with an incentive to enhance stockholder returns. The full text of
the 2003 Plan appears as Exhibit C to this Information Statement and the
description of the 2003 Plan herein is qualified by reference to Exhibit C.
DESCRIPTION OF THE 2003 PLAN
The 2003 Plan provides for the grant to directors, officers, employees and
consultants of the Company (including its subsidiaries) of stock based awards
and options to purchase up to an aggregate of 2,500,000 shares of Common Stock.
All of the Company's executive officers, directors and employees of the
Company and its subsidiary will be eligible to participate in the 2003 Plan. The
Company has not granted any options yet nor other stock awards under the 2003
Plan.
Administration and Participation. The Company's 2003 Plan is administered
by the Company's Board of Directors, which may delegate its duties in whole or
in part to any subcommittee solely consisting of at least two individuals who
are non-employee directors within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, and outside directors within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended. 2003 Plan
allows the Compensation Committee to make awards of stock options and stock
based awards to any individual who is selected by the Compensation Committee to
participate in 2003 Plan.
The Compensation Committee has the authority to interpret our stock
incentive plan, to establish, amend and rescind any rules and regulations
relating to our 2003 Plan and to make any other determinations that the
Compensation Committee deems necessary or desirable for the administration of
our 2003 Plan. The Compensation Committee may also correct any defect or supply
any omission or reconcile any inconsistency in our stock incentive plan in the
manner and to the extent the Compensation Committee deems necessary or
desirable. Any decision of the Compensation Committee in the interpretation and
administration of our 2003 Plan lies within its sole and absolute discretion and
is final, conclusive and binding on all parties concerned, including
participants in our 2003 Plan and their beneficiaries or successors.
Limitations. An aggregate of 2,500,000 shares of the Company's common stock
has been authorized for issuance under the Company's 2003 Plan. No options to
purchase common stock nor other stock awards has been issued by the Company.
35
Stock options. Stock options granted under our 2003 Plan may be
non-qualified or incentive stock options for federal income tax purposes. The
Compensation Committee will set option exercise prices and terms and will
determine the time at which stock options will be exercisable. However, the term
of a stock option may not exceed 10 years.
The Compensation Committee may also grant options that are intended to be
incentive stock options, which comply with Section 422 of the Internal Revenue
Code of 1986, as amended. Fair market value is defined as the closing price of
the shares as reported on the grant date as quoted on the NASD's Bulletin Board.
Stock-based awards. The Compensation Committee has the authority to grant
stock-based awards, which may consist of awards of common stock, restricted
stock and awards that are valued in whole or in part by reference to, or are
otherwise based on the fair market value of, shares of common stock.
Stock-based awards may be granted on a stand-alone basis or in addition
to any other awards granted under our 2003 Plan. The Compensation Committee will
determine the form of stock-based awards and the conditions on which they may be
dependent. The conditions may include the right to receive one or more shares of
common stock or the equivalent value in cash upon the completion of a specified
period of service or the occurrence of an event or the attainment of performance
objectives. The Compensation Committee will also determine the participants to
whom stock-based awards may be made, the timing of those awards, the number of
shares to be awarded, whether those other stock-based awards will be settled in
cash, stock or a combination of cash and stock and all other terms of those
awards.
General. Stock options and restricted stock awards are not transferable or
assignable, except for estate planning purposes. The Company may deduct
sufficient sums to pay withholding required for federal, state and local taxes
or other taxes as a result of the exercise of a stock award.
In the event of any stock dividend or split, reorganization,
recapitalization, merger, consolidation, spin-off, combination or exchange of
stock or other corporate exchange or any distribution to shareholders other than
regular cash dividends, the Compensation Committee may, in its sole discretion,
make a substitution or adjustment, as the Compensation Committee deems to be
equitable, to the number or kind of stock issued or reserved for issuance under
our 2003 Plan under outstanding awards and the term, including option price, of
those awards.
Except as otherwise provided in a stock award agreement, in the event of
our change in control or a change of control of the Company, the Compensation
Committee may, in its sole discretion, accelerate a stock award, cause us to
make a cash payment in exchange for a stock award or require the issuance of a
substitute stock award.
Certain income tax consequences. The Company has been advised by counsel
that the material federal income tax consequences to the Company and the
participants in the 2003 Plan of the grant and exercise of options under
existing and applicable provisions of the Internal Revenue Code of 1986, as
amended, and regulations will generally be as follows:
Incentive stock options. A participant will not realize any taxable
income at the time an incentive stock option is granted or exercised, and
the Company will not receive an income tax deduction at the time of grant
or exercise. If a participant does not sell stock acquired upon the
exercise of an incentive stock option within (1) two years after the date
of the grant or (2) one year after the date of exercise, then a subsequent
sale of such stock generally will be taxed as capital gain or loss. If a
participant disposes of shares acquired upon the exercise of an incentive
stock option within the period set forth in clause (1) or (2) above, then
that participant will generally realize ordinary income in an amount equal
to the lesser of (a) the gain realized by that participant upon such
disposition and (b) the excess of the fair market value of the stock on the
date of exercise over the exercise price. In that event, the Company would
generally be entitled to an income tax deduction equal to the amount
recognized as ordinary income by the applicable participant. Any gain in
excess of the amount recognized by the participant as ordinary income would
be taxed as short-term or long-term capital gain, depending on the holding
period.
36
Non-qualified stock options. A participant will not realize taxable
income upon the grant of a non-qualified stock option, and the Company will
not receive an income tax deduction at such time. Upon exercise of a
non-qualified stock option, the applicable participant will realize
ordinary income in an amount equal to the excess of the fair market value
of the stock on the date of exercise over the exercise price. Upon a
subsequent sale of such stock, the participant will recognize short-term or
long-term capital gain depending on his or her holding period for the
shares. The Company is generally allowed an income tax deduction at the
same time and in the same amount recognized as ordinary income by the
participant.
Stock-based awards. Amounts received by the participant upon the grant
of other stock-based awards are ordinarily taxed as ordinary income when
received. However, if such other stock-based awards consist of property
subject to restrictions, the amounts generally will not be taxed until the
restrictions lapse or until the participant makes an election under Section
83(b) of the Internal Revenue Code. The Company is generally allowed an
income tax deduction at the same time and in the same amount recognized as
ordinary income by the participant.
Compliance with Section 162(m). Our 2003 Plan should allow certain
stock options and other stock-based awards to be treated as qualified
performance-based compensation under Section 162(m) of the Internal Revenue
Code. However, the Compensation Committee may, from time to time, award
compensation that is not deductible under Section 162(m).
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
Persons Entitled to Notice
The Record Date for the determination of the shareholders entitled to
notice of and to consent to the Action has been fixed as of the close of
business on July 11, 2003. As of July 11, 2003, there were outstanding 18228,439
shares of Common Stock. The Actions have been duly approved by the Consenting
Shareholders holding a majority of the outstanding Common Stock. Approval or
consent of the remaining shareholders is not required and is not being solicited
hereby or by any other means.
The California General Corporation Law does not provide for dissenters
rights in connection with the adoption of the Actions.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 31, 2004, the stock ownership of all
persons known to own beneficially five percent or more of the Company's voting
stock and all directors and officers of the Company, individually and as a
group. Each person has sole voting and investment power over the shares
indicated, except as noted. Unless otherwise stated in the notes to the table,
each person named below has sole authority to vote and dispose of the shares
shown. Under Rule 13d-3(d)(1) of the Securities Exchange Act of 1934, as
amended, in calculating percentage ownership, each person named below is deemed
to beneficially own securities that such person has the right to acquire within
sixty days through the exercise of any option or warrant or through the
conversion of any security. Shares of Common Stock subject to options or
warrants currently exercisable, or exercisable within 60 days, are deemed
outstanding for purposes of computing the percentage of the person holding such
options or warrant, but are not deemed outstanding for purposes of computing the
percentage of any other person. As of March 31, 2004, there were 18,228,439
shares of common stock issued and outstanding. The address of those individuals
for which an address is not otherwise indicated is 5 Whatney, Irvine, California
92618.
37
Percent of
Number of Outstanding
Name and Address Voting Shares Voting Shares
---------------- ------------- -------------
William M. Alverson 12,820,000 (1) 60.57%
Director, President
CFO & Secretary
5 Whatney
Irvine, CA 92618
Katherine T. West 12,820,000 (2) 60.57%
Director
5 Whatney
Irvine, CA 92618
Tydus Richards 2,000,000 (3) 9.45%
5 Whatney
Irvine, CA 92618
Rick McEwan -0-
Former Officer & Director
Allan E. Schrum -0-
Former Director & Officer
Clare C. Schrum -0-
Former Officer
All directors and officers 12,820,000 60.57%
as a group (2 persons)
(1) Includes 2,000,000 shares of common stock held by Katherine T. West
with respect to which shares Mr. Alverson, her husband, disclaims
beneficial ownership.
(2) Includes 10,820,000 shares of common stock held by William Alverson
with respect to which shares Ms. West, his wife, disclaims beneficial
ownership.
(3) Mr. Richards is an employee of the Company. Mr. Richards' shares were
issued pursuant to an employment agreement by and between him and the
Company (the "Agreement"). Under the terms of the Agreement, he is
entitled to 500,000 shares of common stock after six months of
employment. Although the share certificate was issued to Mr. Richards
for 2,000,000 shares of common stock, it includes a restrictive legend
indicating that Mr. Richards is entitled to the shares pursuant to the
Agreement. The 2,000,000 shares will be deemed earned and fully paid
for according to the terms of the Agreement in 2007.
The Company had 21,163,277 shares of common stock issued and outstanding as of
March 31, 2004. The Company had 82 shareholders as of March 31, 2004.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ William M. Alverson
--------------------------------------------
William M. Averson, President and Secretary
38
Exhibit A
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ADVANCED REFRIGERATION TECHNOLOGIES, INC.,
A California Corporation
William M. Alverson certifies that:
1. He is the President and the Secretary, respectively, of Advanced
Refrigeration Technologies, Inc., a California corporation (the "Corporation").
2. Article I. of the Articles of Incorporation of this Corporation is
amended to read as follows:
"The name of this corporation is: Joystar, Inc.".
3. The foregoing amendment of Articles of Incorporation has been duly
approved by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of Shareholders in accordance with Section 902 of
the Corporations Code. The total number of outstanding shares of the Corporation
is 18,228,439. The number of shares voting in favor of the amendment was
10,820,000 (70.3%) constituting a majority of the outstanding shares entitled to
vote.
I further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of my own knowledge.
DATE: May___, 2004
/s/ William M. Alverson
--------------------------------------------
William M. Alverson, President and Secretary
A-1
Exhibit B
AMENDED 2002 EQUITY AND STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purpose of the Plan is to aid the Company, its Subsidiaries and
Affiliates, as may be applicable, in recruiting and retaining key individuals of
outstanding ability and to motivate such individuals to exert their best efforts
on behalf of the Company, its Subsidiaries and Affiliates by providing
incentives through the granting of Awards. The Company expects that it will
benefit from the added interest which such key individuals will have in the
welfare of the Company as a result of their proprietary interest in the
Company's success.
2. DEFINITIONS
The following capitalized terms used in the Plan have the respective
meanings set forth in this Section:
(a) Act: The Securities Exchange Act of 1934, as amended, or any
successor thereto.
(b) Affiliate: With respect to the Company, any company directly or
indirectly controlling, controlled by, or under common control
with, the Company or any other entity designated by the Board of
Directors of the Company in which the Company has an interest.
(c) Award: An Option or Stock-Based Award granted pursuant to the
Plan. (d) Beneficial Owner: A "beneficial owner", as such term is
defined in Rule 13d-3 under the Act (or any successor rule
thereto).
(d) Beneficial Owner: A "beneficial owner" as such term is defined in
Rule 13d-3 under the Act (or any successor rule thereto)
(e) Board: The Board of Directors of the Company.
(f) Board Change: Within the twenty-four consecutive month period
following the occurrence of any of the events set forth in Section
2(v)(i), individuals who immediately prior to the occurrence of
any of such events constitute the Board cease for any reason to
constitute at least a majority thereof (other than in the event of
a director's death or Disability).
(g) Cause: In the event that a Participant is a party to an employment
agreement with the Company, the Parent, a Subsidiary or an
Affiliate at the date an Award is granted, "Cause" shall have the
same meaning ascribed to such term in such employment agreement.
In the event that a Participant is not party to any such
employment agreement or there is no
(h) such definition, "Cause" shall be defined as follows:
(i) a Participant's continued failure substantially to perform the
Participant's duties (other than as a result of total or
partial incapacity due to physical or mental illness) for a
period of 10 days following written notice by the Company to
the Participant of such failure; or
B-1
(ii)dishonesty in the performance of, or willful malfeasance or
willful misconduct in connection with, a Participant's duties;
or
(iii) an act or acts on a Participant's part constituting (x) a
felony under the laws of the United States or any state thereof
or (y) a misdemeanor involving moral turpitude; or
(iv)any act or omission of a Participant which is materially
injurious to the financial condition or business reputation of
Parent, the Company or any of its Subsidiaries or Affiliates;
or
(v) a Participant's breach of any restrictive covenants contained
in any agreement with the Company or any of its Subsidiaries or
Affiliates to which Participant is a party.
(i) Change in Control: The occurrence of any of the following events:
(i) any Person, other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan
of the Company, or any company owned, directly or indirectly,
by the shareholders of the Company in substantially the same
proportions as their ownership of Stock of the Company,
becomes the Beneficial Owner, directly or indirectly, of
securities of the Company, (a) representing a greater
percentage of the combined voting power of the Company's
then-outstanding securities than the percentage of the
combined voting power of the Company's then-outstanding
securities held by Parent and its Affiliates and (b)
representing 30% or more of the combined voting power of the
Company's then-outstanding securities; or
(ii) during any period of twenty-four months (not including any
period prior to the Effective Date), individuals who at the
beginning of such period constitute the Board, and any new
director (other than (A) a director nominated by a Person who
has entered into an agreement with the Company to effect a
transaction described in Sections 2(h)(i), (iii) or (iv) of
the Plan, (B) a director nominated by any Person (including
the Company) who publicly announces an intention to take or
to consider taking actions (including, but not limited to, an
actual or threatened proxy contest) which if consummated
would constitute a Change in Control or (C) a director
nominated by any Person, other than Parent and its
Affiliates, who is the Beneficial Owner, directly or
indirectly, of securities of the Company representing 10% or
more of the combined voting power of the Company's
securities) whose election by the Board or nomination for
election by the Company's shareholders was approved in
advance by a vote of at least two-thirds ( 2/3) of the
directors then still in office who either were directors at
the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason
to constitute at least a majority thereof; or
(iii) the Company is merged or consolidated with any other company,
other than a merger or consolidation which would result in
the shareholders of the Company immediately prior thereto
B-2
continuing to own (either by remaining outstanding or by
being converted into voting securities of the surviving
entity) more than 50% of the combined voting power of the
voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation;
or
(iv) the complete liquidation of the Company or the sale or
disposition by the Company of all or substantially all of the
Company's assets, other than a liquidation of the Company or
sale of its assets to an Affiliate into a wholly-owned
subsidiary.
(j) Code: The Internal Revenue Code of 1986, as amended, or any
successor thereto.
(k) Committee: The Board of Directors of the Company, the
Compensation Committee of the Board, or, if applicable, the
subcommittee to which such Committee delegates its duties and
powers.
(l) Company: Advanced Refrigeration Technologies, Inc.
(m) Disability: Inability to engage in any substantial gainful
activity by reason of a medically determinable physical or mental
impairment which constitutes a permanent and total disability, as
defined in Section 22(f)(3) of the Code (or any successor section
thereto). The determination whether a Participant has suffered a
Disability shall be made by the Committee based upon such
evidence as it deems necessary and appropriate. A Participant
shall not be considered disabled unless he or she furnishes such
medical or other evidence of the existence of the Disability as
the Committee, in its sole discretion, may require.
(n) Effective Date: The date set by the Company's Board of Directors.
(o) Employer: The Company, a Subsidiary or an Affiliate, as
applicable, which employs any given Participant.
(p) Fair Market Value: on a given date, the closing price of the
Shares as reported on such date on the Composite Tape of the
principal national securities exchange on which such Shares are
listed or admitted to trading, or, if no Composite Tape exists
for such national securities exchange on such date, then on the
principal national securities exchange on which such Shares are
listed or admitted to trading, or, if the Shares are not listed
or admitted on a national securities exchange, the per Share
closing bid price on such date as quoted on the National
Association of Securities Dealers Automated Quotation System (or
such market in which such prices are regularly quoted), or, if
there is no market on which the Shares are regularly quoted, the
Fair Market Value shall be the value established by the Committee
in good faith; If no sale of Shares shall have been reported on
such Composite Tape or such national securities exchange on such
date or quoted on the National Association of Securities Dealer
Automated Quotation System on such date, then the immediately
preceding date on which sales of the Shares have been so reported
or quoted shall be used.
B-3
(q) ISO: An Option that is also an incentive stock option granted
pursuant to Section 6(d) of the Plan.
(r) Stock-Based Awards: Awards granted pursuant to Section 8 of the
Plan. Option: A stock option granted pursuant to Section 6 of the
Plan. Option Price: The purchase price per Share of an Option, as
determined pursuant to Section 6(a) of the Plan.
(w) Participant: An employee or director of the Company, its Parent,
Subsidiary or Affiliate, or an individual who is not such an
employee or director but who otherwise performs services for the
Company, its Parent, Subsidiary or Affiliate, and in any case,
who is selected by the Committee to participate in the Plan.
(x) Performance-Based Awards: Certain Other Stock-Based Awards
granted pursuant to Section 8(b) of the Plan.
(y) Person: A "person", as such term is used for purposes of Section
13(d) or 14(d) of the Act (or any successor section thereto).
(z) Plan: The Advanced Refrigeration Technologies, Inc. Amended 2002
Equity and Stock Option Plan.
(aa) Public Offering: A sale of shares of the Company's common stock
to the public pursuant to a registration statement under the
Securities Act of 1933, as amended, that has been declared
effective by the Securities and Exchange Commission (other than a
registration statement on Form S-4 or Form S-8, or any other
successor or other forms promulgated for similar purposes, or a
registration statement in connection with an offering to
employees of the Company and its Subsidiaries) that results in an
active trading market in the Company's common stock; provided,
that there shall be deemed to be an "active trading market" if
the Company's common stock is listed or quoted on a national
stock exchange or the NASDAQ National Market.
(bb) Shares: Shares of Common Stock of the Company, no par value per
Share.
(cc) Subsidiary: A subsidiary corporation, as defined in Section
424(f) of the Code (or any successor section thereto).
3. SHARES SUBJECT TO THE PLAN
The total number of Shares which may be issued under the Plan is less than
15% of the total Shares outstanding, which shall not exceed 480,000 Shares. The
Shares may consist, in whole or in part, of unissued Shares or treasury Shares.
The issuance of Shares or the payment of cash upon the exercise of an Award
shall reduce the total number of Shares available under the Plan, as applicable.
Shares which are subject to Awards which terminate or lapse may be granted again
under the Plan.
4. ADMINISTRATION
The Plan shall be administered by the Board of Directors or the Committee,
which may delegate its duties and powers in whole or in part to any subcommittee
thereof consisting solely of at least two individuals who are intended to
qualify as "non-employee directors" within the meaning of Rule 16b-3 under the
Act (or any successor rule thereto) and "outside directors" within the meaning
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of Section 162(m) of the Code (or any successor section thereto). Awards may, in
the discretion of the Committee, be made under the Plan in assumption of, or in
substitution for, outstanding awards previously granted by the Company or its
affiliates or a company acquired by the Company or with which the Company
combines. The number of Shares underlying such substitute awards shall be
counted against the aggregate number of Shares available for Awards under the
Plan. The Committee is authorized to interpret the Plan, to establish, amend and
rescind any rules and regulations relating to the Plan, and to make any other
determinations that it deems necessary or desirable for the administration of
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan in the manner and to the extent the
Committee deems necessary or desirable. Any decision of the Committee in the
interpretation and administration of the Plan, as described herein, shall lie
within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned (including, but not limited to, Participants
and their beneficiaries or successors). The Committee shall have the full power
and authority to establish the terms and conditions of any Award consistent with
the provisions of the Plan and to waive any such terms and conditions at any
time (including, without limitation, accelerating or waiving any vesting
conditions). The Committee shall require payment of any amount it may determine
to be necessary to withhold for federal, state, local or other taxes as a result
of the exercise of an Award. Unless the Committee specifies otherwise, the
Participant may elect to pay a portion or all of such withholding taxes by (a)
delivery in Shares or (b) having Shares withheld by the Company from any Shares
that would have otherwise been received by the Participant.
5. LIMITATIONS
No Award may be granted under the Plan after the tenth anniversary of the
Effective Date, but Awards theretofore granted may extend beyond that date.
6. TERMS AND CONDITIONS OF OPTIONS
Options granted under the Plan shall be, as determined by the Committee,
nonqualified or incentive stock options for federal income tax purposes, as
evidenced by the related Award agreements, and shall be subject to the foregoing
and the following terms and conditions and to such other terms and conditions,
not inconsistent therewith, as the Committee shall determine:
(a) Option Price. The Option Price per Share shall be determined by
the Committee.
(b) Exercisability. Options granted under the Plan shall be
exercisable at such time and upon such terms and conditions as may
be determined by the Committee, but in no event shall an Option be
exercisable more than ten years after the date it is granted.
(c) Exercise of Options. Except as otherwise provided in the Plan or
in an Award agreement, an Option may be exercised for all, or from
time to time any part, of the Shares for which it is then
exercisable. For purposes of Section 6 of the Plan, the exercise
date of an Option shall be the later of the date a notice of
exercise is received by the Company and, if applicable, the date
payment is received by the Company pursuant to clauses (i), (ii)
or (iii) in the following sentence. The purchase price for the
Shares as to which an Option is exercised shall be paid to
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the Company in full at the time of exercise at the election of the
Participant (i) in cash or its equivalent (e.g., by check); (ii)
in Shares having a Fair Market Value equal to the aggregate Option
Price for the Shares being purchased and satisfying such other
requirements as may be imposed by the Committee; provided, that
such Shares have been held by the Participant for no less than six
months (or such other period as established from time to time by
the Committee or generally accepted accounting principles); (iii)
partly in cash and partly in such Shares; or (iv) through the
delivery of irrevocable instruments to a broker to deliver
promptly to the Company an amount equal to the aggregate Option
price for the shares being purchased. No Participant shall have
any rights to dividends or other rights of a stockholder with
respect to Shares subject to an Option until the Participant has
given written notice of exercise of the Option, paid in full for
such Shares and, if applicable, has satisfied any other conditions
imposed by the Committee pursuant to the Plan.
(d) ISOs. The Committee may grant to employees Options under the Plan
that are intended to be ISOs. Such ISOs shall comply with the
requirements of Section 422 of the Code (or any successor section
thereto), including, without limitation the requirement that the
Option Price per Share subject to an ISO shall not be less than
100% of the Fair Market Value of the Shares on the date an ISO is
granted.. No ISO may be granted to any Participant who at the time
of such grant, owns more than ten percent of the total combined
voting power of all classes of stock of the Company or of any
Subsidiary, unless (i) the Option Price for such ISO is at least
110% of the Fair Market Value of a Share on the date the ISO is
granted and (ii) the date on which such ISO terminates is a date
not later than the day preceding the fifth anniversary of the date
on which the ISO is granted. Any Participant who disposes of
Shares acquired upon the exercise of an ISO either (i) within two
years after the date of grant of such ISO or (ii) within one year
after the transfer of such Shares to the Participant, shall notify
the Company of such disposition and of the amount realized upon
such disposition.
(e) Attestation. Wherever in this Plan or any agreement evidencing an
Award a Participant is permitted to pay the exercise price of an
Option or taxes relating to the exercise of an Option by
delivering Shares, the Participant may, subject to procedures
satisfactory to the Committee, satisfy such delivery requirement
by presenting proof of beneficial ownership of such Shares, in
which case the Company shall treat the Option as exercised without
further payment and shall withhold such number of Shares from the
Shares acquired by the exercise of the Option.
7. STOCK-BASED AWARDS
(a) Generally. The Committee, in its sole discretion, may grant Awards of
Shares, Awards of restricted Shares and Awards that are valued in whole
or in part by reference to, or are otherwise based on the Fair Market
Value of, Shares ("Stock-Based Awards"). Such Stock-Based Awards shall
be in such form, and dependent on such conditions, as the Committee
shall determine, including, without limitation, the right to receive
one or more Shares (or the equivalent cash value of such Shares) upon
the completion of a specified period of service, the occurrence of an
event and/or the attainment of performance objectives. Stock-Based
Awards may be granted alone or in addition to any
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other Awards granted under the Plan. Subject to the provisions of the
Plan, the Committee shall determine to whom and when other Stock-Based
Awards will be made, the number of Shares to be awarded under (or
otherwise related to) such Stock-Based Awards; whether such Stock-Based
Awards shall be settled in cash, Shares or a combination of cash and
Shares; and all other terms and conditions of such Awards (including,
without limitation, the vesting provisions thereof and provisions
ensuring that all Shares so awarded and issued shall be fully paid and
non-assessable).
(b) Performance-Based Awards. Notwithstanding anything to the contrary
herein, certain Stock-Based Awards granted under this Section 8 may be
granted in a manner which is deductible by the Company under Section
162(m) of the Code (or any successor section thereto)
("Performance-Based Awards"). A Participant's Performance-Based Award
shall be determined based on the attainment of written performance
goals approved by the Committee for a performance period established by
the Committee (i) while the outcome for that performance period is
substantially uncertain and (ii) no more than 90 days after the
commencement of the performance period to which the performance goal
relates or, if less, the number of days which is equal to 25 percent of
the relevant performance period. The performance goals, which must be
objective, shall be based upon one or more of the following criteria:
(i) consolidated earnings before or after taxes (including earnings
before interest, taxes, depreciation and amortization); (ii) net
income; (iii) operating income; (iv) earnings per Share; (v) book value
per Share; (vi) return on shareholders' equity; (vii) expense
management; (viii) return on investment; (ix) improvements in capital
structure; (x) profitability of an identifiable business unit or
product; (xi) maintenance or improvement of profit margins; (xii) stock
price; (xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi)
cash flow; (xvii) working capital and (xviii) return on assets. The
foregoing criteria may relate to the Company, one or more of its
Subsidiaries or one or more of its divisions or units, or any
combination of the foregoing, and may be applied on an absolute basis
and/or be relative to one or more peer group companies or indices, or
any combination thereof, all as the Committee shall determine. In
addition, to the degree consistent with Section 162(m) of the Code (or
any successor section thereto), the performance goals may be calculated
without regard to extraordinary items. The Committee shall determine
whether, with respect to a performance period, the applicable
performance goals have been met with respect to a given Participant
and, if they have, to so certify and ascertain the amount of the
applicable Performance Based Award. No Performance-Based Awards will be
paid for such performance period until such certification is made by
the Committee. The amount of the Performance-Based Award actually paid
to a given Participant may be less than the amount determined by the
applicable performance goal formula, at the discretion of the
Committee. The amount of the Performance-Based Award determined by the
Committee for a performance period shall be paid to the Participant at
such time as determined by the Committee in its sole discretion after
the end of such performance period; provided, however, that a
Participant may, if and to the extent permitted by the Committee and
consistent with the provisions of Section 162(m) of the Code, elect to
defer payment of a Performance-Based Award.
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8. ADJUSTMENTS UPON CERTAIN EVENTS
Notwithstanding any other provisions in the Plan to the contrary, the
following provisions shall apply to all Awards granted under the Plan:
(a) Generally. In the event of any change in the outstanding Shares
after the Effective Date by reason of any Share dividend or split,
reorganization, recapitalization, merger, consolidation, spin-off,
combination or exchange of Shares or other corporate exchange, or
any distribution to shareholders of Shares other than regular cash
dividends or any transactions similar to the foregoing, the
Committee in its sole discretion and without liability to any
person may make such substitution or adjustment, if any, as it
deems to be equitable, as to (i) the number or kind of Shares or
other securities issued or reserved for issuance pursuant to the
Plan or pursuant to outstanding Awards, (ii) the Option Price
and/or (iii) any other affected terms of such Awards.
(b) Change in Control. Except as otherwise provided in an Award
agreement or an employment, severance or change in control
agreement, in the event of a Change in Control or a Parent
Triggering Event, the Committee in its sole discretion and without
liability to any person may take such actions, if any, as it deems
necessary or desirable with respect to any Award (including,
without limitation, (i) the acceleration of an Award, (ii) the
payment of a cash amount in exchange for the cancellation of an
Award and/or (iii) the requiring of the issuance of substitute
Awards that will substantially preserve the value, rights and
benefits of any affected Awards previously granted hereunder) as
of the date of the consummation of the Change in Control.
9. NO RIGHT TO EMPLOYMENT OR AWARDS
The granting of an Award under the Plan shall impose no obligation on the
Company or any Subsidiary to continue the employment or service or consulting
relationship of a Participant and shall not lessen or affect the Company's or
Subsidiary's right to terminate the employment or service or consulting
relationship of such Participant. No Participant or other Person shall have any
claim to be granted any Award, and there is no obligation for uniformity of
treatment of Participants, or holders or beneficiaries of Awards. The terms and
conditions of Awards and the Committee's determinations and interpretations with
respect thereto need not be the same with respect to each Participant (whether
or not such Participants are similarly situated).
10. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of the Company and
a Participant, including without limitation, the estate of such Participant and
the executor, administrator or trustee of such estate, or any receiver or
trustee in bankruptcy or representative of the Participant's creditors.
11. NONTRANSFERABILITY AWARDS
Unless otherwise determined by the Committee or as hereinafter provided, an
Award shall not be transferable or assignable by the Participant otherwise than
by will or by the laws of descent and distribution. An Award exercisable after
the death of a Participant may be exercised by the legatees, personal
representatives or distributees of the Participant. However, unless the Award
agreement provides otherwise, a Participant may transfer his or her rights under
a nonqualified Option agreement, by assignment, satisfactory in form and
substance to the Committee, to a trust or similar entity established solely for
the benefit of the Participant's lineal descendants; provided, that such
assignee must first agree to be bound by the same terms and conditions as the
Participant with respect to such Option; and provided, further, that the rights
of such assignee shall not themselves be transferable.
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12. AMENDMENTS OR TERMINATION
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which, (a) without the approval of
the shareholders of the Company, would (except as is provided in Section 9 of
the Plan), increase the total number of Shares reserved for the purposes of the
Plan or change the maximum number of Shares for which Awards may be granted to
any Participant or (b) without the consent of a Participant, would impair any of
the rights or obligations under any Award theretofore granted to such
Participant under the Plan; provided, however, that the Committee may amend the
Plan in such manner as it deems necessary to permit the granting of Awards
meeting the requirements of the Code or other applicable laws. Notwithstanding
anything to the contrary herein, the Board may not amend, alter or discontinue
the provisions relating to Section 8(b) of the Plan after the occurrence of a
Change in Control.
13. INTERNATIONAL PARTICIPANTS
With respect to Participants who reside or work outside the United States
of America and who are not (and who are not expected to be) "covered employees"
within the meaning of Section 162(m) of the Code, the Committee may, in its sole
discretion, amend the terms of the Plan or Awards with respect to such
Participants in order to conform such terms with the requirements of local law.
14. CHOICE OF LAW
The Plan shall be governed by and construed in accordance with the laws of
the State of California, without regard to conflicts of laws.
15. EFFECTIVENESS OF THE PLAN
The Plan shall be effective as of the Effective Date.
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EXHIBIT C
2003 EQUITY COMPENSATION PLAN
1. PURPOSE OF THE PLAN
The purpose of the Plan is to aid the Company, its Subsidiaries and
Affiliates, as may be applicable, in recruiting and retaining key individuals of
outstanding ability and to motivate such individuals to exert their best efforts
on behalf of the Company, its Subsidiaries and Affiliates by providing
incentives through the granting of Awards. The Company expects that it will
benefit from the added interest which such key individuals will have in the
welfare of the Company as a result of their proprietary interest in the
Company's success.
2. DEFINITIONS
The following capitalized terms used in the Plan have the respective
meanings set forth in this Section:
(a) Act: The Securities Exchange Act of 1934, as amended, or any
successor thereto.
(b) Affiliate: With respect to the Company, any company directly or
indirectly controlling, controlled by, or under common control
with, the Company or any other entity designated by the Board of
Directors of the Company in which the Company has an interest.
(c) Award: An Option or Stock-Based
Award granted pursuant to the Plan. (d) Beneficial Owner: A
"beneficial owner", as such term is defined in Rule 13d-3 under
the Act (or any successor rule thereto).
(d) Beneficial Owner: A "beneficial owner" as such term is defined in
Rule 13d-3 under the Act (or any successor rule thereto)
(e) Board: The Board of Directors of the Company.
(f) Board Change: Within the twenty-four consecutive month period
following the occurrence of any of the events set forth in Section
2(v)(i), individuals who immediately prior to the occurrence of
any of such events constitute the Board cease for any reason to
constitute at least a majority thereof (other than in the event of
a director's death or Disability).
(g) Cause: In the event that a Participant is a party to an employment
agreement with the Company, the Parent, a Subsidiary or an
Affiliate at the date an Award is granted, "Cause" shall have the
same meaning ascribed to such term in such employment agreement.
In the event that a Participant is not party to any such
employment agreement or there is no
(h) such definition, "Cause" shall be defined as follows:
(i) a Participant's continued failure substantially to perform the
Participant's duties (other than as a result of total or
partial incapacity due to physical or mental illness) for a
period of 10 days following written notice by the Company to
the Participant of such failure; or
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(ii)dishonesty in the performance of, or willful malfeasance or
willful misconduct in connection with, a Participant's duties;
or
(iii) an act or acts on a Participant's part constituting (x) a
felony under the laws of the United States or any state thereof
or (y) a misdemeanor involving moral turpitude; or
(iv)any act or omission of a Participant which is materially
injurious to the financial condition or business reputation of
Parent, the Company or any of its Subsidiaries or Affiliates;
or
(v) a Participant's breach of any restrictive covenants contained
in any agreement with the Company or any of its Subsidiaries or
Affiliates to which Participant is a party.
(i) Change in Control: The occurrence of any of the following events:
(i) any Person, other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan
of the Company, or any company owned, directly or
indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of
Stock of the Company, becomes the Beneficial Owner, directly
or indirectly, of securities of the Company, (a)
representing a greater percentage of the combined voting
power of the Company's then-outstanding securities than the
percentage of the combined voting power of the Company's
then-outstanding securities held by Parent and its
Affiliates and (b) representing 30% or more of the combined
voting power of the Company's then-outstanding securities;
or
(ii) during any period of twenty-four months (not including any
period prior to the Effective Date), individuals who at the
beginning of such period constitute the Board, and any new
director (other than (A) a director nominated by a Person who
has entered into an agreement with the Company to effect a
transaction described in Sections 2(h)(i), (iii) or (iv) of
the Plan, (B) a director nominated by any Person (including
the Company) who publicly announces an intention to take or
to consider taking actions (including, but not limited to, an
actual or threatened proxy contest) which if consummated
would constitute a Change in Control or (C) a director
nominated by any Person, other than Parent and its
Affiliates, who is the Beneficial Owner, directly or
indirectly, of securities of the Company representing 10% or
more of the combined voting power of the Company's
securities) whose election by the Board or nomination for
election by the Company's shareholders was approved in
advance by a vote of at least two-thirds ( 2/3) of the
directors then still in office who either were directors at
the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason
to constitute at least a majority thereof; or
(iii) the Company is merged or consolidated with any other company,
other than a merger or consolidation which would result in
the shareholders of the Company immediately prior thereto
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continuing to own (either by remaining outstanding or by
being converted into voting securities of the surviving
entity) more than 50% of the combined voting power of the
voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation;
or
(iv) the complete liquidation of the Company or the sale or
disposition by the Company of all or substantially all of the
Company's assets, other than a liquidation of the Company or
sale of its assets to an Affiliate into a wholly-owned
subsidiary.
(j) Code: The Internal Revenue Code of 1986, as amended, or any
successor thereto.
(k) Committee: The Board of Directors of the Company, the
Compensation Committee of the Board, or, if applicable, the
subcommittee to which such Committee delegates its duties and
powers.
(l) Company: Advanced Refrigeration Technologies, Inc.
(m) Disability: Inability to engage in any substantial gainful
activity by reason of a medically determinable physical or mental
impairment which constitutes a permanent and total disability, as
defined in Section 22(f)(3) of the Code (or any successor section
thereto). The determination whether a Participant has suffered a
Disability shall be made by the Committee based upon such
evidence as it deems necessary and appropriate. A Participant
shall not be considered disabled unless he or she furnishes such
medical or other evidence of the existence of the Disability as
the Committee, in its sole discretion, may require.
(n) Effective Date: The date set by the Company's Board of Directors.
(o) Employer: The Company, a Subsidiary or an Affiliate, as
applicable, which employs any given Participant.
(p) Fair Market Value: on a given date, the closing price of the
Shares as reported on such date on the Composite Tape of the
principal national securities exchange on which such Shares are
listed or admitted to trading, or, if no Composite Tape exists
for such national securities exchange on such date, then on the
principal national securities exchange on which such Shares are
listed or admitted to trading, or, if the Shares are not listed
or admitted on a national securities exchange, the per Share
closing bid price on such date as quoted on the National
Association of Securities Dealers Automated Quotation System (or
such market in which such prices are regularly quoted), or, if
there is no market on which the Shares are regularly quoted, the
Fair Market Value shall be the value established by the Committee
in good faith;
If no sale of Shares shall have been reported on such Composite
Tape or such national securities exchange on such date or quoted
on the National Association of Securities Dealer Automated
Quotation System on such date, then the immediately preceding
date on which sales of the Shares have been so reported or quoted
shall be used.
C-3
(q) ISO: An Option that is also an incentive stock option granted
pursuant to Section 6(d) of the Plan.
(r) Stock-Based Awards: Awards granted pursuant to Section 8 of the
Plan. Option: A stock option granted pursuant to Section 6 of the
Plan. Option Price: The purchase price per Share of an Option, as
determined pursuant to Section 6(a) of the Plan.
(w) Participant: An employee or director of the Company, its Parent,
Subsidiary or Affiliate, or an individual who is not such an
employee or director but who otherwise performs services for the
Company, its Parent, Subsidiary or Affiliate, and in any case,
who is selected by the Committee to participate in the Plan.
(x) Performance-Based Awards: Certain Other Stock-Based Awards
granted pursuant to Section 8(b) of the Plan.
(y) Person: A "person", as such term is used for purposes of Section
13(d) or 14(d) of the Act (or any successor section thereto).
(z) Plan: The Advanced Refrigeration Technologies, Inc. 2003 Equity
Compensation Plan.
(aa) Public Offering: A sale of shares of the Company's common stock
to the public pursuant to a registration statement under the
Securities Act of 1933, as amended, that has been declared
effective by the Securities and Exchange Commission (other than a
registration statement on Form S-4 or Form S-8, or any other
successor or other forms promulgated for similar purposes, or a
registration statement in connection with an offering to
employees of the Company and its Subsidiaries) that results in an
active trading market in the Company's common stock; provided,
that there shall be deemed to be an "active trading market" if
the Company's common stock is listed or quoted on a national
stock exchange or the NASDAQ National Market.
(bb) Shares: Shares of Common Stock of the Company, no par value per
Share.
(cc) Subsidiary: A subsidiary corporation, as defined in Section
424(f) of the Code (or any successor section thereto).
3. SHARES SUBJECT TO THE PLAN
The total number of Shares which may be issued under the Plan is less than
15% of the total Shares outstanding, which shall not exceed 2,500,000 Shares.
The Shares may consist, in whole or in part, of unissued Shares or treasury
Shares. The issuance of Shares or the payment of cash upon the exercise of an
Award shall reduce the total number of Shares available under the Plan, as
applicable. Shares which are subject to Awards which terminate or lapse may be
granted again under the Plan.
4. ADMINISTRATION
The Plan shall be administered by the Board of Directors or the Committee,
which may delegate its duties and powers in whole or in part to any subcommittee
thereof consisting solely of at least two individuals who are intended to
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qualify as "non-employee directors" within the meaning of Rule 16b-3 under the
Act (or any successor rule thereto) and "outside directors" within the meaning
of Section 162(m) of the Code (or any successor section thereto). Awards may, in
the discretion of the Committee, be made under the Plan in assumption of, or in
substitution for, outstanding awards previously granted by the Company or its
affiliates or a company acquired by the Company or with which the Company
combines. The number of Shares underlying such substitute awards shall be
counted against the aggregate number of Shares available for Awards under the
Plan. The Committee is authorized to interpret the Plan, to establish, amend and
rescind any rules and regulations relating to the Plan, and to make any other
determinations that it deems necessary or desirable for the administration of
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan in the manner and to the extent the
Committee deems necessary or desirable. Any decision of the Committee in the
interpretation and administration of the Plan, as described herein, shall lie
within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned (including, but not limited to, Participants
and their beneficiaries or successors). The Committee shall have the full power
and authority to establish the terms and conditions of any Award consistent with
the provisions of the Plan and to waive any such terms and conditions at any
time (including, without limitation, accelerating or waiving any vesting
conditions). The Committee shall require payment of any amount it may determine
to be necessary to withhold for federal, state, local or other taxes as a result
of the exercise of an Award. Unless the Committee specifies otherwise, the
Participant may elect to pay a portion or all of such withholding taxes by (a)
delivery in Shares or (b) having Shares withheld by the Company from any Shares
that would have otherwise been received by the Participant.
5. LIMITATIONS
No Award may be granted under the Plan after the tenth anniversary of the
Effective Date, but Awards theretofore granted may extend beyond that date.
6. TERMS AND CONDITIONS OF OPTIONS
Options granted under the Plan shall be, as determined by the Committee,
nonqualified or incentive stock options for federal income tax purposes, as
evidenced by the related Award agreements, and shall be subject to the foregoing
and the following terms and conditions and to such other terms and conditions,
not inconsistent therewith, as the Committee shall determine:
(a) Option Price. The Option Price per Share shall be determined by
the Committee.
(b) Exercisability. Options granted under the Plan shall be
exercisable at such time and upon such terms and conditions as may
be determined by the Committee, but in no event shall an Option be
exercisable more than ten years after the date it is granted.
(c) Exercise of Options. Except as otherwise provided in the Plan or
in an Award agreement, an Option may be exercised for all, or from
time to time any part, of the Shares for which it is then
exercisable. For purposes of Section 6 of the Plan, the exercise
date of an Option shall be the later of the date a notice of
exercise is received by the Company and, if applicable, the date
payment is received by the Company pursuant to clauses (i), (ii)
or (iii) in the following sentence. The purchase price for the
Shares as to which an Option is exercised shall be paid to
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the Company in full at the time of exercise at the election of the
Participant (i) in cash or its equivalent (e.g., by check); (ii)
in Shares having a Fair Market Value equal to the aggregate Option
Price for the Shares being purchased and satisfying such other
requirements as may be imposed by the Committee; provided, that
such Shares have been held by the Participant for no less than six
months (or such other period as established from time to time by
the Committee or generally accepted accounting principles); (iii)
partly in cash and partly in such Shares; or (iv) through the
delivery of irrevocable instruments to a broker to deliver
promptly to the Company an amount equal to the aggregate Option
price for the shares being purchased. No Participant shall have
any rights to dividends or other rights of a stockholder with
respect to Shares subject to an Option until the Participant has
given written notice of exercise of the Option, paid in full for
such Shares and, if applicable, has satisfied any other conditions
imposed by the Committee pursuant to the Plan.
(d) ISOs. The Committee may grant to employees Options under the Plan
that are intended to be ISOs. Such ISOs shall comply with the
requirements of Section 422 of the Code (or any successor section
thereto), including, without limitation the requirement that the
Option Price per Share subject to an ISO shall not be less than
100% of the Fair Market Value of the Shares on the date an ISO is
granted.. No ISO may be granted to any Participant who at the time
of such grant, owns more than ten percent of the total combined
voting power of all classes of stock of the Company or of any
Subsidiary, unless (i) the Option Price for such ISO is at least
110% of the Fair Market Value of a Share on the date the ISO is
granted and (ii) the date on which such ISO terminates is a date
not later than the day preceding the fifth anniversary of the date
on which the ISO is granted. Any Participant who disposes of
Shares acquired upon the exercise of an ISO either (i) within two
years after the date of grant of such ISO or (ii) within one year
after the transfer of such Shares to the Participant, shall notify
the Company of such disposition and of the amount realized upon
such disposition.
(e) Attestation. Wherever in this Plan or any agreement evidencing an
Award a Participant is permitted to pay the exercise price of an
Option or taxes relating to the exercise of an Option by
delivering Shares, the Participant may, subject to procedures
satisfactory to the Committee, satisfy such delivery requirement
by presenting proof of beneficial ownership of such Shares, in
which case the Company shall treat the Option as exercised without
further payment and shall withhold such number of Shares from the
Shares acquired by the exercise of the Option.
7. STOCK-BASED AWARDS
(a) Generally. The Committee, in its sole discretion, may grant Awards of
Shares, Awards of restricted Shares and Awards that are valued in whole
or in part by reference to, or are otherwise based on the Fair Market
Value of, Shares ("Stock-Based Awards"). Such Stock-Based Awards shall
be in such form, and dependent on such conditions, as the Committee
shall determine, including, without limitation, the right to receive
one or more Shares (or the equivalent cash value of such Shares) upon
the completion of a specified period of service, the occurrence of an
event and/or the attainment of performance objectives. Stock-Based
Awards may be granted alone or in addition to any
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other Awards granted under the Plan. Subject to the provisions of the
Plan, the Committee shall determine to whom and when other Stock-Based
Awards will be made, the number of Shares to be awarded under (or
otherwise related to) such Stock-Based Awards; whether such Stock-Based
Awards shall be settled in cash, Shares or a combination of cash and
Shares; and all other terms and conditions of such Awards (including,
without limitation, the vesting provisions thereof and provisions
ensuring that all Shares so awarded and issued shall be fully paid and
non-assessable).
(b) Performance-Based Awards. Notwithstanding anything to the contrary
herein, certain Stock-Based Awards granted under this Section 8 may be
granted in a manner which is deductible by the Company under Section
162(m) of the Code (or any successor section thereto)
("Performance-Based Awards"). A Participant's Performance-Based Award
shall be determined based on the attainment of written performance
goals approved by the Committee for a performance period established by
the Committee (i) while the outcome for that performance period is
substantially uncertain and (ii) no more than 90 days after the
commencement of the performance period to which the performance goal
relates or, if less, the number of days which is equal to 25 percent of
the relevant performance period. The performance goals, which must be
objective, shall be based upon one or more of the following criteria:
(i) consolidated earnings before or after taxes (including earnings
before interest, taxes, depreciation and amortization); (ii) net
income; (iii) operating income; (iv) earnings per Share; (v) book value
per Share; (vi) return on shareholders' equity; (vii) expense
management; (viii) return on investment; (ix) improvements in capital
structure; (x) profitability of an identifiable business unit or
product; (xi) maintenance or improvement of profit margins; (xii) stock
price; (xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi)
cash flow; (xvii) working capital and (xviii) return on assets. The
foregoing criteria may relate to the Company, one or more of its
Subsidiaries or one or more of its divisions or units, or any
combination of the foregoing, and may be applied on an absolute basis
and/or be relative to one or more peer group companies or indices, or
any combination thereof, all as the Committee shall determine. In
addition, to the degree consistent with Section 162(m) of the Code (or
any successor section thereto), the performance goals may be calculated
without regard to extraordinary items. The Committee shall determine
whether, with respect to a performance period, the applicable
performance goals have been met with respect to a given Participant
and, if they have, to so certify and ascertain the amount of the
applicable Performance Based Award. No Performance-Based Awards will be
paid for such performance period until such certification is made by
the Committee. The amount of the Performance-Based Award actually paid
to a given Participant may be less than the amount determined by the
applicable performance goal formula, at the discretion of the
Committee. The amount of the Performance-Based Award determined by the
Committee for a performance period shall be paid to the Participant at
such time as determined by the Committee in its sole discretion after
the end of such performance period; provided, however, that a
Participant may, if and to the extent permitted by the Committee and
consistent with the provisions of Section 162(m) of the Code, elect to
defer payment of a Performance-Based Award.
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8. ADJUSTMENTS UPON CERTAIN EVENTS
Notwithstanding any other provisions in the Plan to the contrary, the
following provisions shall apply to all Awards granted under the Plan:
(a) Generally. In the event of any change in the outstanding Shares
after the Effective Date by reason of any Share dividend or split,
reorganization, recapitalization, merger, consolidation, spin-off,
combination or exchange of Shares or other corporate exchange, or
any distribution to shareholders of Shares other than regular cash
dividends or any transactions similar to the foregoing, the
Committee in its sole discretion and without liability to any
person may make such substitution or adjustment, if any, as it
deems to be equitable, as to (i) the number or kind of Shares or
other securities issued or reserved for issuance pursuant to the
Plan or pursuant to outstanding Awards, (ii) the Option Price
and/or (iii) any other affected terms of such Awards.
(b) Change in Control. Except as otherwise provided in an Award
agreement or an employment, severance or change in control
agreement, in the event of a Change in Control or a Parent
Triggering Event, the Committee in its sole discretion and without
liability to any person may take such actions, if any, as it deems
necessary or desirable with respect to any Award (including,
without limitation, (i) the acceleration of an Award, (ii) the
payment of a cash amount in exchange for the cancellation of an
Award and/or (iii) the requiring of the issuance of substitute
Awards that will substantially preserve the value, rights and
benefits of any affected Awards previously granted hereunder) as
of the date of the consummation of the Change in Control.
9. NO RIGHT TO EMPLOYMENT OR AWARDS
The granting of an Award under the Plan shall impose no obligation on the
Company or any Subsidiary to continue the employment or service or consulting
relationship of a Participant and shall not lessen or affect the Company's or
Subsidiary's right to terminate the employment or service or consulting
relationship of such Participant. No Participant or other Person shall have any
claim to be granted any Award, and there is no obligation for uniformity of
treatment of Participants, or holders or beneficiaries of Awards. The terms and
conditions of Awards and the Committee's determinations and interpretations with
respect thereto need not be the same with respect to each Participant (whether
or not such Participants are similarly situated).
10. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of the Company and
a Participant, including without limitation, the estate of such Participant and
the executor, administrator or trustee of such estate, or any receiver or
trustee in bankruptcy or representative of the Participant's creditors.
11. NONTRANSFERABILITY AWARDS
Unless otherwise determined by the Committee or as hereinafter provided, an
Award shall not be transferable or assignable by the Participant otherwise than
by will or by the laws of descent and distribution. An Award exercisable after
the death of a Participant may be exercised by the legatees, personal
representatives or distributees of the Participant. However, unless the Award
agreement provides otherwise, a Participant may transfer his or her rights under
a nonqualified Option agreement, by assignment, satisfactory in form and
substance to the Committee, to a trust or similar entity established solely for
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the benefit of the Participant's lineal descendants; provided, that such
assignee must first agree to be bound by the same terms and conditions as the
Participant with respect to such Option; and provided, further, that the rights
of such assignee shall not themselves be transferable.
12. AMENDMENTS OR TERMINATION
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which, (a) without the approval of
the shareholders of the Company, would (except as is provided in Section 9 of
the Plan), increase the total number of Shares reserved for the purposes of the
Plan or change the maximum number of Shares for which Awards may be granted to
any Participant or (b) without the consent of a Participant, would impair any of
the rights or obligations under any Award theretofore granted to such
Participant under the Plan; provided, however, that the Committee may amend the
Plan in such manner as it deems necessary to permit the granting of Awards
meeting the requirements of the Code or other applicable laws. Notwithstanding
anything to the contrary herein, the Board may not amend, alter or discontinue
the provisions relating to Section 8(b) of the Plan after the occurrence of a
Change in Control.
13. INTERNATIONAL PARTICIPANTS
With respect to Participants who reside or work outside the United States
of America and who are not (and who are not expected to be) "covered employees"
within the meaning of Section 162(m) of the Code, the Committee may, in its sole
discretion, amend the terms of the Plan or Awards with respect to such
Participants in order to conform such terms with the requirements of local law.
14. CHOICE OF LAW
The Plan shall be governed by and construed in accordance with the laws of
the State of California, without regard to conflicts of laws.
15. EFFECTIVENESS OF THE PLAN
The Plan shall be effective as of the Effective Date.
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