SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-KSB
[X] ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF
1934
For the
fiscal year ended December 31, 2007
OR
[
] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF
1934
COMMISSION
FILE NUMBER: 001-32134
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Z TRIM HOLDINGS,
INC.
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(Name
of Small Business Issuer in its Charter)
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ILLINOIS
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36-4197173
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(State or Other
Jurisdiction of Identification No.)
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(I.R.S.
Employer)
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1011 CAMPUS
DRIVE
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MUNDELEIN, ILLINOIS
60060
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(847)
549-6002
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(Address of Principal
Executive Offices,
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(Registrant's
Telephone Number,
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including Zip
Code)
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Including Area
Code)
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SECURITIES
REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
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Name of Each
Exchange on
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Title of Each
Class
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Which
Registered
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Common Stock,
$.00005 par value
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American Stock
Exchange
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SECURITIES
REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
None
Check
whether the issuer is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act [ ]
Check whether the issuer: (1) filed all reports required to
be filed by Section 13 of 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes [X] No
[ ]
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form
10-KSB. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
The
issuer's revenues for its most recent fiscal year were: $616,848
The aggregate market value of the voting stock of the issuer held by
non-affiliates of the issuer as
of April 9, 2008 was $
16,155,780. This
aggregate market value is estimated solely for purposes of this report and are
based on the closing price for the issuer's common stock on April 9, 2008, as
reported on the American Stock Exchange. For the purpose of this
report, it has been assumed that all officers and directors of the issuer are
affiliates of the issuer. The statements made herein shall not be
construed as an admission for determining the affiliate status of any
person.
The
number of shares of the registrant's common stock outstanding as of April 9,
2008 was 75,056,375.
Transitional
Small Business Disclosure Format:
Yes [
]
No [X]
PART
I
ITEM
1. DESCRIPTION OF BUSINESS.
Z Trim
Holdings, Inc. is an emerging growth company focused on the production,
marketing and distribution of functional food ingredients and formulated foods
for both domestic and international markets. The Company’s core product, Z
Trim®, is a USDA-developed, all-natural, zero calorie functional food ingredient
made from healthy dietary fiber. The Company has an extensive intellectual
property portfolio, highlighted by an exclusive license from the USDA to make,
use and sell Z Trim both domestically and internationally. Currently,
corn and oats are used to make Z Trim, but it can be produced from virtually any
other agricultural product. Current Z Trim products include gel and
powder used to replace portions of fat, gums, starches and carbohydrates in
foods. The Company’s core product portfolio of wellness foods and
dietary fiber food ingredients includes corn Z Trim, non-GMO oat Z Trim, and
functional emulsions and gels. The Company recently introduced
finished products to its sales line, including salad dressings and
mayonnaise. Z Trim is now being used by manufacturers, restaurants,
schools, and consumers on 6 continents to replace as much as 80% of the fat and
calories in foods without changing taste, texture, appearance or digestive
properties in baked goods, dairy products, snacks, deserts, sauces, dressings,
processed meats and many other foods.
After
years of development, Z Trim is now commercialized. The Company currently
manufactures and markets Z Trim products as competitive ingredients that improve
the food industry's ability to deliver on its promises of healthier foods. The
Company's primary goal is establishing Z Trim as an important ingredient in
revolutionizing the food industry. The Company is developing its
market through (i) direct sales to major food manufacturers, as well as small
and mid size companies, (ii) direct sales to the consumer, and (iii) direct
sales to large food institutions such as those that supply to restaurants,
hospitals, schools and cafeterias. We have an aggressive plan to educate both
the food industry and consumers about the uses and benefits of Z Trim products,
and our R&D team, including strategic industry partners, continues to
develop additional products.
Z Trim
Holdings, Inc. was incorporated in the State of Illinois on May 5, 1994 under
the original name Circle Group Entertainment Ltd. In 2007 we had four
operating subsidiaries: FiberGel Technologies, Inc., thebraveway.com, Inc.,
operating as The Brave Way Training Systems, On-Line Bedding Corp., and Z-Amaize
Technologies, Inc. The Company dissolved thebraveway.com, Inc.,
Z-Amaize Technologies, Inc., and On-Line Bedding Corp. in 2007.
Z Trim’s
core products compete against fats, fat replacers, modified starches, gums, and
similar ingredients. None of these other products functions
identically to our products. Our business is part of the global
$25-30 billion per year (2006) business of food additives. The global
hydrocolloid business is a comparably minor $3.80 billion per
year. Specifically, the U.S. fat replacer and bulk dietary fiber
(supplement) markets are estimated to be $ 500 million each. The
global business of hydrocolloids at large is intensely oligopolistic with few
major players and the food sector market, although growing at 6.5%, is very
competitive.
The
Company protects an array of intangible assets that includes patents pending and
issued, as well as a wide array of trade secrets and know-how, trademarks and
copyrights. Central to this portfolio is an exclusive license to US Patent
No. 5,766,662, including all related international patents, issued to Dr. George
Inglett of the USDA. This license expires upon the expiration of the
underlying patent in late 2015. Through the process of development and
commercialization of the technology, the Company has identified and sought
patent protection for improvements to the manufacturing process, product
applications and is currently developing several commercially promising spin-off
technologies. The Company also maintains a stable of trademarks that has
continued to gain value through usage and increased brand
recognition.
The
Company has spent $14,325 in 2007 and $4,231 in 2006 for research and
development expense over the last two years, and is still innovating toward
developing value-added products to add to its core line.
Presently,
the Company employs 26 full-time employees and no part-time
employees.
OPERATING
SEGMENTS
In 2007
we operated three reportable segments, food product development, defense product
development, and e-tailer. The defense product development and
e-tailer segments were dissolved by year end 2007.
Our
management reviews the operating companies' income to evaluate segment
performance and allocate resources. Our operating companies' income
for the reportable segments excludes income taxes and amortization of goodwill.
Provision for income taxes is centrally managed at the corporate level and,
accordingly, such items are not presented by segment since they are excluded
from the measure of segment profitability reviewed by our
management.
DISCONTINUED
OPERATIONS
As a result of discontinued operations
in 2007, we have broken out our financial reporting to show only those segments
(Z Trim and FiberGel) which are a part of continuing operations. As
such, what we report here as 2006 numbers will differ from the consolidated
statements reported for year end 2006.
For
financial data on the reportable segments, you should refer to the Consolidated
Financial Statements and the notes thereto.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-KSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 ("Securities Act"), as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
forward-looking statements are principally contained in the section entitled
"Description of Business." These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to differ, perhaps materially, from any future results,
performance or achievements expressed or implied by the forward-looking
statements. Forward-looking statements include, but are not limited to,
statements about:
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Our
product development efforts;
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The
commercialization of our products;
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Anticipated
operating losses and capital
expenditures;
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Our
estimates regarding our needs for additional
financing;
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Our
estimates for future revenues and profitability;
and
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Sources
of revenues and anticipated revenues, including contributions from
corporate collaborations, license agreements and other
collaborative efforts for the development and commercialization of our
product candidates, and the continued viability and duration of those
agreements and efforts.
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In some
cases, you can identify forward-looking statements by terms such as
"may,"
"will," "should," "could," "would," "expect," "plan," anticipate," "believe,"
"estimate," "project," "predict," "intend," potential" and similar expressions
intended to identify forward-looking statements. These statements reflect our
current views with respect to future events and are based on assumptions and
subject to risks and uncertainties. Given these uncertainties, you should not
place undue reliance on these forward-looking statements. We discuss
many of these risks in greater detail in the foregoing section under the heading
"Risk Factors." Also, these forward-looking statements represent our estimates
and assumptions only as of the date of this Annual Report.
You
should read this Annual Report and the documents that we reference in this
Annual Report with the understanding that our actual future results may be
materially different from what we expect. We do not intend to update
any of these statements or to publicly announce the result of any revisions to
any of these forward-looking statements. We qualify all of our
forward-looking statements by these cautionary statements.
ITEM
2. DESCRIPTION OF PROPERTY.
We occupy
approximately 44,000 square feet of leased space at 1011 Campus
Drive,
Mundelein, Illinois. This space is leased for $26,900 per month, including
property taxes, pursuant to a non-cancelable operating lease. The
current lease term is through 2010, and the Company is currently negotiating an
extension. All of our subsidiaries and divisions are operated out of
this space. We also maintain a 5,000 square foot warehouse at 110
Terrace, Mundelein, Illinois at a cost of $2,750 per month.
ITEM
3. LEGAL PROCEEDINGS.
As the
Company previously reported, on November 29, 2007 the settlement agreement
concerning the Company's litigation with Farhad Zaghi and related parties
(collectively, "Zaghi") was deemed null and void by Zaghi.
The
parties have since attended a court-ordered settlement conference, and all
parties other than Greg Halpern (the Company's former CEO), who is negotiating a
separate settlement on his own behalf, have reached a new settlement agreement.
Whereas the old agreement had two components: (1) the Company would have an
open-ended obligation to issue common stock to Zaghi until he realized proceeds
of approximately $1.7 million from the sale of stock before the litigation would
be dismissed, and (2) the issuance of approximately 2.26 million warrants, the
new agreement requires only that a fixed number of shares and warrants be issued
to Zaghi. Specifically, under the new settlement agreement, the Company has
agreed to issue to a Zaghi affiliate and register for resale 3 million shares of
the Company's common stock and a warrant to purchase an additional 2.5 million
shares of the Company's common stock. The warrant is immediately exercisable,
with a three-year term and a variable exercise price equal to the lowest
twelve-trading-day average closing price of the Company's common stock during
the period between the date of issuance of the warrant and the date of notice of
exercise. The warrants were valued at $400,549 and are included in additional
paid-in-capital. Under the new settlement agreement, the parties to
the agreement have agreed to dismiss their cases without prejudice, and have
exchanged covenants not to sue. The Company's registration obligation with
respect to the settlement shares and the shares underlying the warrants is on a
best-efforts basis, but because the registration was not effective by March 17,
2008, Zaghi has the right to terminate the agreement. The Company has
already listed the shares with Amex, and filed a registration statement with the
S.E.C. As soon as the S.E.C. approves the registration statement, the
shares will become free-trading, and the parties will be obligated to dismiss
the case.
On
November 23, 2005, the Company entered into a Letter of Agreement ("LOA") with
George Foreman Enterprises, Inc. ("GFME") pursuant to which both parties would
form a new limited liability company for the purpose of promoting the Company's
zero calorie fat replacement food ingredient, Z Trim®. The parties
did not reach any definitive Agreement as is required by the LOA. On
May 9, 2006, the Company filed a lawsuit alleging breach of the Parties'
nondisclosure agreement and trade secret misappropriation in the Circuit Court
of the 19th Judicial District, Lake County, Illinois seeking damages and
injunctive relief against GFME. On August 3, 2006 the court, based
upon a finding that the Company has demonstrated a likelihood of success on the
merits of the case, issued an order granting the Company a preliminary
injunction enforcing the non-disclosure agreement between the
parties. GFME subsequently appealed the preliminary
injunction. The Appellate Court denied GFME’s appeal, and the
injunctive order remains in place.
On July
17, 2006, George Foreman Enterprises, Inc. filed a complaint against Z Trim
Holdings, Inc. in the U.S. District Court seeking damages in excess of
$70,000,000 for specific performance, breach of contract, promissory estoppel
and unjust enrichment. The basis for all such claims is the
underlying LOA, set forth above. The Company received summary
judgment in its favor as to the count seeking promissory
estoppel. Further, on September 18, 2007, the Court issued a number
of orders limiting the evidence that GFME may bring in support of its claims.
Management believes that GFME’s allegations are frivolous and wholly without
merit and will vigorously defend the claim. The trial date of
February 2008 has been stricken, and reset for September 2008.
On March
20, 2007, the Company filed a patent infringement suit in the United States
District Court for the Western District of Wisconsin seeking unspecified damages
and equitable relief against a manufacturer of a competing
product. On January 28, 2008, the Court granted summary judgment in
favor of the defendant, finding non-infringement, and in favor of the Company
finding the patent valid and enforceable. The Company has filed a
notice of appeal with respect to the Court’s finding of
non-infringement.
On
January 18, 2007, the Company was served with a complaint by Daniel Caravette
for breach of contract and violation of the Illinois Wage Payment and Collection
Act, seeking damages in excess of $1,000,000. Management believes
that the allegations are frivolous and wholly without merit and will vigorously
defend the claim. The case is set for trial in April
2008.
On July
7, 2007, the Company was served with a complaint by Joseph Sanfilippo and James
Cluck for violation of the Consumer Fraud Act. Management believes
that the allegations are frivolous and wholly without merit and will vigorously
defend the claim.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The
Company held its annual shareholders’ meeting on December 19,
2007. At that time, the shareholders voted in a new slate of
directors, as described more fully herein below at Item 6. The vote
tabulation for each director was as follows:
Cumulative
votes
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Votes
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FOR DIRECTORS
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RECEIVED
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AGAINST
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ABST.
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BROKER
NON-VOTES
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Steve
Cohen
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43,685,541
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n/a
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n/a
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0
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Triveni
Shukla
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43,184,327
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n/a
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n/a
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0
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Brian
Israel
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42,992,605
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n/a
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n/a
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0
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Michael
Donahue
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63,143,524
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n/a
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n/a
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0
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Mark
Hershhorn
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63,214,678
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n/a
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n/a
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0
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Harvey
Rosenfeld
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63,212,578
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n/a
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n/a
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0
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Randal
Hoff
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63,213,978
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n/a
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n/a
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0
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Due to
the use of cumulative voting, it is impossible to determine the number of votes
against and the number of votes abstained.
The
selection of Blackman Kallick, LLP as independent outside auditors of the
Company for the fiscal year ending December 31, 2007 was submitted to the
stockholders for ratification in December 2007. There were 56,209,361 votes cast
in favor, 146,443 votes cast against and 365,661 abstentions and broker
non-votes, which vote was sufficient for approval of Blackman Kallick, LLP as
independent accountants of the Company for the fiscal year ending December 31,
2007.
PART
II
ITEM
5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES.
The
following table sets forth, for the periods indicated, the high and low closing
prices for our common stock, as quoted for trading on the American Stock
Exchange under the symbol "ZTM." Our common stock began trading on the American
Stock Exchange on March 31, 2004.
2006
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HIGH
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LOW
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1st
Quarter
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$
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1.38
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$
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0.78
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2nd
Quarter
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$
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1.84
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$
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1.03
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3rd
Quarter
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$
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1.39
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$
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1.03
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4th
Quarter
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$
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1.34
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$
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0.79
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2007
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HIGH
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LOW
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1st
Quarter
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$
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1.60
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$
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0.90
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2nd
Quarter
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$
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1.49
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$
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0.95
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3rd
Quarter
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$
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1.11
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$
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0.61
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4th
Quarter
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$
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0.84
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$
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0.35
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As
of April 9, 2008, there were 386 record holders of the common stock.
This
number does not include shareholders whose shares are held in securities
position listings. We have never paid any dividends on our common
stock and do not anticipate paying any dividends in the foreseeable
future.
EQUITY
COMPENSATION PLAN INFORMATION
(AS
OF DECEMBER 31, 2007)
NUMBER
OF SHARES
REMAINING
AVAILABLE
WEIGHTED-AVERAGE
EXERCISE
PRICE OF
OUTSTANDING
OPTIONS,
WARRANTS
AND
RIGHTS
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FOR
FUTURE ISSUANCE
UNDER
EQUITY
COMPENSATION
PLANS
(EXCLUDING
SECURITIES
REFLECTED
IN 1ST
PLAN
CATEGORY
COLUMN)
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NUMBER
OF SHARES TO BE
ISSUED
UPON EXERCISE OF
OUTSTANDING
OPTIONS
WARRANTS
AND RIGHTS
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Equity
compensation plans approved by security holders (consisting of the 2004
Stock Incentive Plan):
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$
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1.04
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3,281,821
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23,359,757
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Plans not
approved by shareholders: None
ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
THE
FOLLOWING DISCUSSION IS INTENDED TO ASSIST IN UNDERSTANDING THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF Z TRIM HOLDINGS, INC. YOU SHOULD READ THE
FOLLOWING DISCUSSION ALONG WITH OUR FINANCIAL STATEMENTS AND RELATED NOTES
INCLUDED ELSEWHERE IN THIS FORM 10-KSB. THE FOLLOWING DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS, UNCERTAINTIES AND
ASSUMPTIONS. OUR ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS IN 2007 AND BEYOND
MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN, OR IMPLIED BY, THESE FORWARD
LOOKING STATEMENTS.
Z Trim
currently sits in a position of tremendous opportunity. The food
industry, not just in the United States, but also globally, has been searching
for foods that reduce fat, add fiber, or both. Z Trim, through an
exclusive license to technology patented by the United States Department of
Agriculture, has developed products that both reduce fat and add fiber, with the
added benefit of maintaining taste and mouth-feel associated with full fat
products. The market for Z Trim's line of products spans the entire
food industry, both low-fat and full fat, including meats, baked goods, dairy
and non-dairy products, snacks, beverages, dressings, sauces and
dips. This makes the likelihood of Z Trim achieving success very
high. Positive feedback from consumers, doctors and industry
professionals have Z Trim convinced that its timing is right and thus presents
enormous opportunity for success.
The Z
Trim product line is the result of the extensive research and development
efforts spearheaded by Dr. Triveni Shukla. Pricing strategies for the
various product lines are still being developed based on the various added-value
attributes that our products provide to each segment of the food
industry. The Company fully intends to seek and maintain protection
for all intellectual property deemed by the Company to be both valuable and
protectable.
One of
the most exciting and significant recent events is our development of a new line
of food ingredient products that provide additional functionality and
value-added propositions to the food industry. Under the direction of
renowned food scientist Dr. Triveni Shukla, our R & D team has developed a
new product stream similar in function to certain gum
products. Remarkably, this derives from an improvement to the Z Trim
manufacturing process and is therefore a cost effective means of producing
incremental revenue from the same incoming raw materials. In fact,
this innovation will enable our plant to nearly triple production capacity of
saleable products while driving down the unit cost of goods sold.
As our
current facility is a prototype plant, being the first of its kind to produce
our innovative products, we are constantly seeking ways to improve efficiencies
and achieve economies of scale. We are currently re-designing the process to
make use of newer drying technologies and thereby optimize plant capacity. In
order to fully realize the potential of our business model, the Company will
eventually need to move to a larger facility, enter into strategic partnerships,
or find some other means to produce greater volumes of finished
product.
Several
major food manufacturers have tested the Company's initial product lines and the
response has been overwhelmingly positive. The product is being used
and touted in several school districts nationwide, and is gaining national
recognition as a product that can help make foods healthier while still
retaining great taste. We have reason to believe that a number of
large companies will launch national product lines incorporating Z Trim products
in the near future.
Additionally,
the Company has launched its own retail line of salad dressings in four
upscale grocery stores in the Chicago, Illinois area. These retail
products have been very well received by buyers, and the Company is considering
launching into more grocery chains in various geographic regions.
We have
made a series of evolutionary changes to prepare for a steepening sales cycle in
the months ahead. We are in the process of hiring a new sales
manager, with years of specific industry experience, to work with our existing
management team. We have created a number of internal committees that
meet regularly to ensure that every aspect of our organization is on the same
page with respect to production, financing, marketing and accounting
issues. No material expenditures will be made without thoroughly
considering all alternatives and reaching consensus on the best
one.
RECENT
MATERIAL DEVELOPMENTS
Resignation
of Former CEO and Chairman
On August
20, 2007, Gregory J. Halpern resigned his positions of Chief Executive Officer
and Director of the Company, effective immediately. The Board of
Directors forfeited Mr. Halpern’s stock options under the Company’s 2004 Equity
Incentive Plan. Mr. Halpern held options to purchase 2,848,182 shares
as of August 19, 2007.
Management
has taken steps to strengthen the Company with the implementation of several new
policies, the addition of a number of employees in key areas, and several new
board members with industry ties and experience. The Board has also
appointed Steve Cohen to run the Company going forward. Implementing
new policies and strengthening the Board and the staff are important for the
Company’s growth; and by adding additional personnel to the sales, marketing,
financial, and production areas of the Company, the Company has taken strong
steps designed to improve its short-term and long-term future.
On
November 9, 2007, the Board of Directors accepted David Lansky’s resignation
from the Board. The Board appointed Michael Donahue to fill the
vacancy created by Mr. Lansky’s departure, effective November 14,
2007. In connection with his service on the Board, Mr. Donahue
received an option under the Company's 2004 Stock Equity Plan to purchase
100,000 shares of the Company's common stock with an exercise price equal to the
market price of the Company's common stock as of the date of Mr. Donahue’s
acceptance of his appointment.
Annual
Shareholder’s Meeting, Board of Directors and Bylaws Changes.
In
December 2007, the Company held its Annual Shareholders’ meeting. The
shareholders voted for a slate of seven directors: Steven Cohen,
Triveni Shukla, Michael Donahue, Mark Hershhorn, Brian Israel, Randal Hoff and
Harvey Rosenfeld. The following directors were not re-elected: Steven Salgan,
Alan Orlowsky, Stanford Levin, and Dana Dabney.
On
November 1, 2007, the Company announced that the Company’s board of directors
amended the Company’s bylaws to include a procedure for nomination of candidates
to the board of directors.
On
November 14, 2007, the Company’s board of directors amended the Company’s bylaws
to change the number of seats on the Board from eight to
seven.
Internal
Investigation and Status with Respect to Amex Listing Requirements
Background.
On
August 17, 2007, we received a deficiency letter from the American Stock
Exchange (“Amex”) notifying us that the staff of the Amex had determined we were
not in compliance with certain of Amex’ continued listing
standards. The deficiencies (which are described in our Current
Report on Form 8-K filed August 23, 2007) included failure to report Section
16(a) filing delinquencies, failure of the board to subject a related party
transaction to review by the Audit Committee, granting stock options in a manner
contrary to our stock option plans, failure to properly account for stock option
grants with exercise prices below fair market value on the date of grant,
failure to provide certain information to Amex, and allowing internal control
weaknesses to exist.
In
response to the deficiency letter, we prepared and submitted to Amex a
compliance plan outlining our proposal for regaining compliance with Amex’
continued listing standards and addressing the matters contained in the
deficiency letter. The compliance plan was accepted by Amex on
November 2, 2007 (as reported in our Current Report on Form 8-K filed November
5, 2007).
Internal
Investigation.
Pursuant to the compliance plan, we conducted an
internal investigation relating to the primary issues of concern identified by
Amex, principally including equity accounting and the related control
environment. We engaged the independent accounting firm of Blackman
Kallick, LLP (“Blackman”) to perform certain procedures to assist us with our
internal investigation. The objective of Blackman’s engagement was to
help us assess the financial reporting figures, processes, and internal controls
related to our equity transactions for the period January 1, 2002 through June
30, 2007, and to make specific recommendations to strengthen the reporting and
control environment. Blackman completed its investigation in early November
2007.
Some of
the specific remedial actions our new management team has completed include the
following:
·
|
We
have implemented equity control policies and will seek to strengthen those
policies.
|
·
|
Shareholders
have elected new independent directors to our
board.
|
·
|
Shareholders
have elected new independent auditors (see Item 4 of this
report).
|
·
|
We
have invested in the implementation of additional and enhanced information
technology systems commensurate with the needs of our business and our
financial reporting requirements and have engaged an independent firm to
advise us in this regard.
|
·
|
We
have initiated a number of changes to our human resources policies and
have engaged an independent firm to audit our human resources
functions.
|
·
|
We
have engaged a separate accounting firm to help us prepare for compliance
with our upcoming Sarbanes-Oxley Section 404 compliance
requirements.
|
·
|
We
have applied (or reapply, as the case may be) with Amex to list the shares
of common stock (and stock underlying warrants) issued by us without
current Amex approval. Amex has since approved the listing of
such shares.
|
We
believe the measures described above have remediated the material weaknesses we
have identified and strengthen our internal control over financial reporting. We
are committed to continuing to improve our internal control processes and to
diligently review our financial reporting controls and procedures. As we
continue to evaluate and work to improve our internal control over financial
reporting, we may determine to take additional measures to address control
deficiencies or determine to modify, or in appropriate circumstances not to
complete, certain of the remediation measures described above.
Conclusion.
On
February 26, 2008, the Company received a letter from Amex in which Amex stated
that the Company has resolved the continued listing deficiencies referenced in
the Amex letter dated August 17, 2007. As is the case for all listed
issuers, Z Trim Holdings' continued listing eligibility will be assessed on an
ongoing basis. However, the threat of de-listing resulting from the notification
of non-compliance on August 17, 2007 no longer exists.
Restatements
On
October 31, 2007, the Company determined that its financial statements for the
quarters ended March 31, 2007 and June 30, 2007 should no longer be relied upon
because of accounting errors in those financial statements relating to a
specific equity transaction.
The March
31, 2007 consolidated financial statements have been restated to account for the
shares released from restrictions on March 9, 2007. The Company recognized an
expense of $2,182,175 related to the transaction. As a result of this
correction, net loss for the three months ended March 31, 2007 has increased to
$3,906,811 from $1,724,636, and net loss per share increased to $0.06 from
$0.03. The June 30, 2007 consolidated financial statements have been restated to
account for the shares released from restrictions on March 9, 2007. The Company
recognized an expense of $2,182,175 related to the transaction. As a result of
this correction, net loss for the six months ended June 30, 2007 has increased
to $6,392,498 from $4,210,323, and net loss per share increased to $0.09 from
$0.06. There was no change for the three months ended June 30,
2007.
Sales
and Operational Developments
On March
6, 2008 the Company announced that its specialty corn fiber gel ingredient Z
Trim® is being used to enhance several innovative culinary-based prepared food
items formulated, manufactured and marketed by Grayslake, Illinois-based Amazing
Food Creations (AFC), manufacturers of the Chef Papillote Entrees(TM) line of
unique, proprietary gourmet meal/packages. Z Trim is included in many
of the Chef Papillote Entrees in addition to many of the frozen and refrigerated
consumer packaged food products formulated by AFC for some of the world's best
known brands. AFC also uses Z Trim to add texture and enhanced stability to
sauces used in the meals they provide to international flights on several major
airlines, as well as in some refrigerated entrees for top fundraising programs
in schools.
On
October 5, 2007, the Company announced that it has received an order from the
food service operation of the Flagler County Public Schools in Florida. The
transaction activates Z Trim's vendor partnership with the P.O.W.E.R. Buying
Group (Purchasing Organization with Educational Results), a Florida buying
consortium that consists of 38 county school districts, totaling over 900
schools and serving over 800,000 meals per school day. In addition, Z
Trim continues to assist both students and district food service administration
for Flagler County Public Schools in planning the school system's food service
menu to meet USDA nutritional requirements. In the United States, schools are
currently serving over 125,000 meals a day containing Z Trim to replace fat and
calories in dressings, mayonnaise, wet salads and baked goods. Based upon the
success Z Trim is having with student meal programs, we expect these numbers to
continue to increase.
In
October 2007, the Company’s management decided to no longer manufacture and sell
the Company’s appetite control capsule product. The Company is in
discussions with companies in the nutraceutical industry to expand Z Trim’s
reach into the dietary supplement market.
On
September 17, 2007, the Company announced recent sales of Z Trim products to
Ball State University and Ohio University, signaling the launch of Z Trim
Holdings, Inc. into the college and university food service
sub-sector. The purchase of Z Trim's Mayo Spread by the food service
operations at Ball State University in Muncie, Indiana, as well sales of the Z
Trim gel natural specialty fiber food ingredient direct from Z Trim to Ohio
University in Athens, Ohio, indicate a food service expansion for Z Trim
Holdings beyond the national news stories that broke earlier this year when K-12
school cafeterias began using Z Trim as a solution that could satisfy both the
taste and lower fat profiles sought by dietitians and food service directors in
the USDA's school meals program.
On August
30, 2007, the Company announced that it had received from Kraki, market leader
for value-adding ingredients and solutions to the South American food industry,
two purchase orders for a total of over 12 tons of Z Trim functional food
ingredient, dwarfing the previously largest order in Company history of
approximately 5 tons. Over the last year, Kraki has ordered a cumulative total
of over 17 tons of Z Trim.
RESULTS
OF OPERATIONS
YEAR
ENDING DECEMBER 31, 2007 COMPARED TO THE YEAR ENDING DECEMBER 31,
2006
Revenues
Revenues,
excluding those from the discontinued on-line bedding segment, increased 493%
for the year ended December 31, 2007 from $104,004 for the year ended December
31, 2006 to $616,848, as a result of an increase in product
revenues. The increase in product revenue was primarily due to the
increase in Z Trim products sales. The following table provides a
breakdown of the revenues for the periods indicated:
|
|
Year
ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Products
|
|
$
|
616,799
|
|
|
$
|
103,269
|
|
Services
|
|
|
49
|
|
|
|
735
|
|
Total
Revenues
|
|
$
|
616,848
|
|
|
$
|
104,004
|
|
Operating
expenses
Operating
expenses consist of payroll and related costs, stock option expense,
insurance, occupancy expenses, professional fees, and general
operating
expenses. Total
operating expenses decreased by $3,259,783 or 21.9% to
$11,633,459
for the year ended December 31, 2007 from $14,893,242 for the year ended
December 31, 2006. The de
crease
in operating expenses was primarily due to
a decrease in stock option
expense of $5,931,449 that was partially offset by an increase in selling,
general and administrative expense of $3,009,171.
The stock
option expense for the year ended December 31, 2006 was $9,419,028.
The stock
option expense for the year ended December 31, 2007 was $3,487,579.
Other
income (expense)
Total
other expense for the year ended December 31, 2007 was $847,190 compared to
other income of $126,314 for the year ended December 31, 2006. The
decrease from other income to other expense was primarily due to a settlement
loss of $1,360,981 that was partially offset by a recovery of a loan loss of
$300,000.
Net
loss
The
Company incurred a net loss of $14,625,317 for the year ended December 31,
2007 or
$0.21 per share, a 10.9% decrease from the net loss of $16,430,884
for year
ended December 31, 2006. This was due to a combination of a decrease
in stock option expense offset by an increase in the introduction and promotion
of Z Trim products, and for a settlement loss.
LIQUIDITY
AND CAPITAL RESOURCES
YEAR
ENDING DECEMBER 31, 2007 COMPARED TO THE YEAR ENDING DECEMBER 31,
2006
At
December 31, 2007, we had cash and cash equivalents of $2,436,581, compared to
$675,043 at December 31, 2006. The Company raised approximately
$9,010,000 in additional equity capital through equity transactions during the
year ended December 31, 2007.
Net cash
used by operating activities increased by 34% to $6,564,026 for the year ended
December 31, 2007 as compared to $4,882,891 for the year ended December 31,
2006. The increase resulted primarily from our net loss of
$14,625,317, adjusted for non-cash items including: depreciation and
amortization of $663,956, stock option expense of $3,487,579, non-cash services
of $2,188,940, loss on asset disposals of $107,905, stock and warrant
settlements of $1,357,373, recovery of loan loss of $300,000. Remaining net cash
used by operating activities resulted from net increase in assets and
liabilities of approximately $406,000.
Net cash
used by investing activities was $717,210 for the year ended December 31, 2007,
as compared to $378,294 for the year ending December 31, 2006. The increase was
due to additions of property and equipment for our manufacturing plant in the
current year.
Net cash
provided by financing activities was $8,996,217 for the year ended December 31,
2007, as compared to $5,953,837 for the year ended December 31,
2006. Net cash provided by financing activities for the year ended
December 31, 2007 was primarily from the proceeds received from the sale of
stock, options and warrants exercised. Net cash provided by financing
activities for the year ended December 31, 2006 was primarily from the proceeds
received from notes receivable, sale of stock, options and warrants
exercised.
RESULTS
OF OPERATIONS
YEAR
ENDING DECEMBER 31, 2006 COMPARED TO YEAR ENDING DECEMBER 31, 2005
Revenues
Revenues
increased 17% for the year ended December 31, 2006 from $514,608 for the year
ended December 31, 2005 to $601,544, as a result in both product and service
revenues. These include revenues from discontinued
operations. The increase in product revenue was primarily due to
increase in Z Trim products sales as well as increased demand by e-tailer
customers, as a result of a recovery by the airline industry. The
increase in service revenue was primarily due to increase in demand for security
training service. The following table provides a breakdown of the
revenues for our divisions for the periods indicated:
|
|
Year
Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
Products
|
|
$
|
594,383
|
|
|
$
|
510,947
|
|
Services
|
|
|
7,161
|
|
|
|
3,661
|
|
Total
Revenues
|
|
$
|
601,544
|
|
|
$
|
514,608
|
|
Operating
Expenses
Operating
expenses consist of payroll and related costs, stock option expense, insurance,
occupancy expenses, professional fees, and general operating
expenses. Total operating expenses increased by $11,198,850 or 225%
to $16,173,781 for the year ended December 31, 2006 from $4,974,931 for the year
ended December 31, 2005. The increase in operating expenses was
primarily due to the change in the accounting treatment for stock option
expense, an impairment charge of intangible asset of $341,250, and increase in
public and investor relation and payroll expenses.
The stock
option expense for the year ended December 31, 2006 was
$9,419,028. There was no stock option expense for the year ended
December 31, 2005.
Other
Income
Total
other income for the year ended December 31, 2006 was $126,314 compared to
expense of $935,218 for the year ended December 31, 2005. The
increase from other expense to other income was primarily due to a provision of
an uncollectible note receivable of $965,000 in 2005 and the increase in
interest income in 2006.
Net
Loss
The
Company incurred a net loss of $16,430,884 for the year ended December 31, 2006
or $0.28 per share, a 172% increase from the net loss of $6,025,585 or $0.13 per
share for year ended December 31, 2005. This was due primarily to the
implementation of the change in accounting for stock option expense, net of
increase in revenues.
LIQUIDITY
AND CAPITAL RESOURCES
YEAR
ENDING DECEMBER 31, 2006 COMPARED TO THE YEAR ENDING DECEMBER 31,
2005
At
December 31, 2006, we had cash and cash equivalents of $696,499, compared to
$24,999 at December 31, 2005. The Company raised approximately
$5,799,831 in additional equity capital through equity transactions during the
year ended December 31, 2006.
Net cash
used by operating activities increased by 34% to $4,904,043 for the year
ended December 31, 2006 as compared to $3,662,280 for the year ended
December 31, 2005. The increase resulted
primarily from our net loss of $16,414,503, adjusted for non-cash
items including depreciation and amortization of $661,703, reduction of
intangible asset of $341,250, stock option expense of $9,419,028, and non-cash
services of $1,902,416, and for the net cash used from the net increases and
decreases in assets and liabilities of approximately $813,937.
Net cash
used by investing activities was $378,294 for the year ended December 31, 2006,
as compared to net cash used by investing activities of $181,186 for the year
ended December 31, 2005. The increase was due to additions of
property and equipment for our manufacturing plant in current
year.
Net cash
provided by financing activities was $5,983,837 for the year ended December 31,
2006, as compared to $3,774,717 for the year ended December 31, 2005. Net cash
provided by financing activities for the year ended December 31, 2006 was
primarily from the proceeds received from the sale of stock, options and
warrants exercised and notes receivable for stock subscriptions of $5,984,831.
Net cash provided by financing activities for the year ended December 31, 2005
was primarily from the proceeds received from notes receivable for stock
subscriptions of $2,350,000 and from sale of our stocks and exercising of
options and warrants of $1,453,567.
As of
March 31, 2008, our cash balance was approximately $1,000,376. To
successfully grow our business, we must improve our cash position through
greater and sustainable sales of our product lines, increase the productivity of
the production process, as well as raise additional capital through a
combination of public or private equity offerings, strategic alliances or debt
financing to allow us to make necessary changes to our plant and to provide
working capital until we achieve profitability. The Company estimates
that it will take from 18 to 30 months to achieve
profitability. Given this estimate, the Company will likely need to
find sources of funding for both the short and long terms.
OFF-BALANCE
SHEET ARRANGEMENTS
We have
no off-balance sheet arrangements as defined in Item 303(c) of Regulation
S-B.
RISK
FACTORS
The
following risks are material risks that we face. If any of the
following risks occur, the business of the Company and its operating results
could be seriously harmed.
BUSINESS
RISKS
WE
HAVE A HISTORY OF OPERATING LOSSES AND CANNOT GUARANTEE PROFITABLE OPERATIONS IN
THE FUTURE. ANY FAILURE ON OUR PART TO ACHIEVE PROFITABILITY MAY CAUSE US TO
REDUCE OR EVENTUALLY CEASE OPERATIONS.
We
reported a net loss of $16,430,884 for the twelve months ending December 31,
2006 and a net loss of $14,625,317 for the twelve months ending December 31,
2007. At December 31, 2006 and December 31, 2007, respectively, we reported
accumulated deficits of $49,484,299 and $64,109,616. If we continue to incur
significant losses, our cash reserves may be depleted earlier than currently
anticipated, and we may be required to limit our future growth objectives to
levels corresponding with our then available cash reserves.
OUR
SUCCESS IS DEPENDENT ON MARKET ACCEPTANCE OF OUR PRODUCT.
We have
not conducted, nor have others made available to us, results of market research
indicating how much market demand exists for Z Trim, our functional food
ingredient. We are relying on the current concerns over obesity, weight-health
issues, and the rising cost of health care to drive demand for Z Trim in the
marketplace. We cannot assure you that we will be able to gain the market
acceptance necessary to achieve profitability.
WE
MAKE NO PROJECTIONS REGARDING THE VIABILITY OF OUR FUNCTIONAL FOOD INGREDIENT
AND WE CANNOT ASSURE YOU THAT WE WILL ACHIEVE THE RESULTS
DESCRIBED.
We make
no projection with respect to our future income, assets or business. No expert
has reviewed our business plan for accuracy or reasonableness. It is likely that
our actual business and results of operations will differ from those presented
herein.
WE
WILL NEED ADDITIONAL FUNDING AND SUCH FUNDING MAY NOT BE AVAILABLE. IF SUCH
FUNDING IS AVAILABLE, IT MAY NOT BE OFFERED ON SATISFACTORY TERMS.
We will
require additional financing to fund ongoing operations, as our current sales
and revenue growth are insufficient to meet our operating costs.
The Company estimates that it will take
from 18 to 30 months to achieve profitability.
Our inability
to obtain necessary capital or financing to fund these needs will adversely
affect our ability to fund operations and continue as a going concern. Our
inability to obtain necessary capital or financing to fund these needs could
adversely affect our business, results of operations and financial condition.
Additional financing may not be available when needed or may not be available on
terms acceptable to us. If adequate funds are not available, we may be required
to delay, scale back or eliminate one or more of our business strategies, which
may affect our overall business results of operations and financial
condition.
OUR
MANUFACTURING FACILITY IS CURRENTLY OPERATING AT A LOSS.
We are
presently operating at a negative gross margin in that the cost of production
exceeds the sales price of the product. The changes that are being
made to the manufacturing process to allow us to produce at a positive gross
margin have yet to be completed and may not be successful. The
current manufacturing facility is merely a pilot plant. In order to
fully implement our business plans we will need to move the operations to a
larger facility, develop strategic partnerships or find other means to produce
greater volumes of finished product.
THE
AVAILABILITY AND COST OF AGRICULTURAL PRODUCTS THAT WE USE IN OUR BUSINESS ARE
SUBJECT TO WEATHER AND OTHER FACTORS BEYOND OUR CONTROL.
All of
our current products depend on our proprietary technology using agricultural
products, mainly corn and oat. Historically, the costs of corn and oat are
subject to substantial fluctuations depending upon a number of factors which
affect commodity prices in general and over which we have no control, including
crop conditions, weather, government programs and purchases by foreign
governments.
WE
FACE COMPETITION.
Competition
is intense in our targeted industries, including nutraceuticals, functional food
ingredients, oils, gums and a large number of businesses engaged in the various
fat replacement industries. Many of our competitors have established reputations
for successfully developing and marketing their products, including products
that are widely recognized as providing similar calorie reduction. In addition,
many of our competitors have greater financial, managerial, and technical
resources than us. If we are not successful in competing in these markets, we
may not be able to attain our business objectives.
WE
MAY EXPAND OUR OPERATIONS BY MAKING ACQUISITIONS WHICH COULD SUBJECT US TO A
NUMBER OF OPERATIONAL RISKS.
In order
to grow our business, we may expand our operations by acquiring other businesses
in the future. We cannot predict whether or when any acquisitions will occur.
Acquisitions commonly involve certain risks, and we cannot assure you that any
acquired business will be successfully integrated into our operations or will
perform as we expect. Any future acquisitions could involve certain other risks,
including the assumption of additional liabilities, potentially dilutive
issuances of equity securities, and diversion of management's attention from
other business concerns. We may also enter into joint venture transactions.
Joint ventures have the added risk that the other joint venture partners may
have economic, business or legal interests or objectives that are inconsistent
with our interests and objectives.
OUR
INABILITY TO SECURE AND PROTECT OUR INTELLECTUAL PROPERTY MAY RESULT IN COSTLY
AND TIME-CONSUMING LITIGATION AND COULD IMPEDE US FROM EVER ATTAINING MARKET
SUCCESS.
We hold
several patents as well as copyrights and trademarks with respect to our
products and expect to continue to file applications in the future as a means of
protecting our intellectual property. In addition, we seek to protect our
proprietary information and know-how through the use of trade secrets,
confidentiality agreements and other similar security measures. With respect to
patents, there can be no assurance that any applications for patent protection
will be granted, or, if granted, will offer meaningful protection.
Additionally,
there can be no assurance that competitors will not develop, patent or gain
access to similar know-how and technology, or reverse engineer our products, or
that any confidentiality agreements upon which we rely to protect our trade
secrets and other proprietary information will be adequate to protect our
proprietary technology. The occurrence of any such events could have a material
adverse effect on our results of operations and financial
condition.
THE
LOSS OF SERVICE OF KEY MANAGEMENT COULD HAVE A NEGATIVE IMPACT ON OUR
PERFORMANCE.
Our
success depends to a significant degree upon the performance of our Executive
Vice-President of Technology and Marketing, Dr. Triveni Shukla. The
loss of service of Dr. Shukla could have a material adverse effect on our
operating performance and viability as a going concern.
OUR
STOCK PRICE MAY DROP UNEXPECTEDLY DUE TO SHORT SELLING OF OUR COMMON STOCK IN
THE MARKET.
Regulation
SHO began on January 3, 2005 and was adopted to update short sale regulation in
light of numerous market developments since short sale regulation was first
adopted in 1938. We have experienced and may continue to experience unexpected
declines in our stock price due to manipulation of the market by individuals who
profit by short selling our common stock. Short selling occurs when an
individual borrows shares from an investor through a broker and then sells those
borrowed shares at the current market price. The "short seller" profits when the
stock price falls because he or she can repurchase the stock at a lower price
and pay back the person from whom he or she borrowed, thereby making a profit.
We cannot assure you that short sellers will not continue to drive the stock
price down in the future, causing decline in the value of your
investment.
THE
FLUCTUATION IN OUR STOCK PRICE MAY RESULT IN A DECLINE IN THE VALUE OF YOUR
INVESTMENT.
The price
of our common stock may fluctuate widely, depending upon many factors, including
the differences between our actual financial and operating results and those
expected by investors and analysts, changes in analysts' recommendations or
projections, short selling of our stock in the market, changes in general
economic or market conditions and broad market fluctuations. Companies that
experience volatility in the market price of their securities often are subject
to securities class action litigation. This type of litigation, if instituted
against us, could result in substantial costs and divert management's attention
and resources away from our business.
MARKET
RISKS THE COMMON STOCK IS SUBJECT TO THE PENNY STOCK RULES.
The term
"penny stock" generally refers to low-priced, speculative securities of very
small companies. Before a broker-dealer can sell a penny stock, SEC rules
require the broker-dealer to first approve the customer for the transaction and
receive from the customer a written agreement to the transaction. The
broker-dealer must furnish the customer a document describing the risks of
investing in penny stocks. The broker-dealer must tell the customer the current
market quotation, if any, for the penny stock and the compensation the
broker-dealer and its broker will receive for the trade. Finally, the
broker-dealer must send monthly account statements showing the market value of
each penny stock held in the customer's account. These requirements make penny
stocks more difficult to trade. Because the Common Stock is subject to the penny
stock rules, the market liquidity of the Common Stock may be adversely
affected.
SHARES
ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET.
From time
to time, certain of our shareholders may be eligible to sell all or some of
their shares of Common Stock by means of ordinary brokerage transactions in the
open market pursuant to Rule 144, promulgated under the Securities Act, subject
to certain limitations. In general, pursuant to Rule 144, a stockholder (or
shareholders whose shares are aggregated) who has satisfied a six-month holding
period may, under certain circumstances, sell within any three-month period a
number of securities which does not exceed the greater of 1% of the then
outstanding shares of Common Stock or the average weekly trading volume of the
class during the four calendar weeks prior to such sale. Rule 144 also permits,
under certain circumstances, the sale of securities, without any limitation, by
our shareholders that are non-affiliates that have satisfied a one-year holding
period. Any substantial sale of our Common Stock pursuant to Rule 144 or
pursuant to any resale prospectus may have a material adverse effect on the
market price of the Common Stock.
THE
ISSUANCE OF ADDITIONAL COMMON STOCK COULD RESULT IN SUBSTANTIAL
DILUTION.
We will
need additional equity funding to provide the capital to achieve our objectives.
Such equity issuance would cause a substantially larger number of shares to be
outstanding, thereby diluting the ownership interest of our existing
shareholders. In addition, public sales of substantial amounts of the Common
Stock after this registration statement could reduce the market price for the
Common Stock. If we raise capital in the future by issuing additional equity
securities, investors may experience a decline in the value of their
securities.
THE
TRADING PRICE OF THE COMMON STOCK IS VOLATILE, WHICH COULD CAUSE THE VALUE OF AN
INVESTMENT OUR SECURITIES TO DECLINE.
The
market price of shares of our Common Stock has been volatile. The price of the
Common Stock may continue to fluctuate in response to a number of factors, such
as:
-
|
developments
and resolution of current litigation that we are a party
to;
|
-
|
our
cash resources and our ability to obtain additional
funding;
|
-
|
announcements
by us or a competitor of business development or exhibition
projects;
|
-
|
our
entering into or terminating strategic business
relationships;
|
-
|
changes
in government regulations;
|
-
|
changes
in our revenue or expense levels;
and
|
-
|
negative
reports on us by security analysts;
|
The
occurrence of any of these events may cause the price of the Common Stock to
fall. In addition, the stock market in general has experienced volatility that
often has been unrelated to the operating performance or financial condition of
individual companies. Any broad market or industry fluctuations may adversely
affect the trading price of our Common Stock, regardless of operating
performance or prospects.
WE
DO NOT PLAN TO PAY DIVIDENDS TO HOLDERS OF COMMON STOCK.
We do not
anticipate paying cash dividends to the holders of the Common Stock at any time.
Accordingly, investors must rely upon subsequent sales after price appreciation
as the sole method to realize a gain on investment. There are no assurances that
the price of Common Stock will ever appreciate in value. Investors seeking cash
dividends should not buy our securities.
ITEM
7. FINANCIAL STATEMENTS
See
consolidated financial statements starting on page F-1 and the related footnotes
thereto.
ITEM
8. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On
December 19, 2007, the shareholders approved the change of accountants from
Spector & Wong to Blackman Kallick, LLP.
ITEM
8A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls
and Procedures
.
The
Company maintains internal controls and procedures (as defined in Rule 13a-15(e)
of the Securities Exchange Act) designed to provide reasonable assurance that
the information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in the SEC’s rules and
forms. These include controls and procedures designed to ensure that
this information is accumulated and communicated to the Company’s management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.
The
Disclosure Committee, which is made up of the Company’s Chief Executive Officer,
Chief Financial Officer and other management staff, meets on a quarterly basis
and has overview responsibility for this process. The Committee
reviews a checklist of items during its meetings to document the review of any
unusual items or issues raised. The Disclosure Committee conducted an
evaluation of the effectiveness of the Company’s disclosure controls and
procedures.
Changes in Internal Control Over
Financial Reporting
. During the third and fourth
quarters of 2007, we began the implementation of remedial measures as described
in our Current Report on Form 8-K filed on November 16, 2007. These
efforts are now complete.
Management’s Annual Report on
Internal Control over Financial Reporting.
Management of the
Company is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). The Company’s internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external reporting purposes of accounting principles generally accepted in
the United States.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance of achieving
their control objectives.
Management,
with the participation of the Chief Executive and Chief Financial Officers,
evaluated the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2007. In making this assessment,
management used the criteria set forth by the committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control – Integrated
Framework. Based on this evaluation, management, with the
participation of the Chief Executive and Chief Financial Officers, concluded
that, as of December 31, 2007, the Company’s internal control over financial
reporting was effective.
ITEM
8B. Other Information. None.
PART
III
ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a)OF THE ACT.
AGE
|
|
|
NAME
|
|
|
POSITION
|
52
|
|
|
Steve
J. Cohen
|
|
|
Director
and President
|
|
|
|
|
|
|
|
55
|
|
|
Michael
J. Theriault
|
|
|
Chief
Operating Officer
|
|
|
|
|
|
|
|
37
|
|
|
Brian
Chaiken
|
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
from
January 14, 2008
|
|
|
|
|
|
|
|
50
|
|
|
Michael
Donahue
|
|
|
Director
from December
|
|
|
|
|
|
|
14,
2007
|
|
|
|
|
|
|
|
58
|
|
|
Mark
Hershhorn
|
|
|
Director
from December
|
|
|
|
|
|
|
19,
2007
|
|
|
|
|
|
|
|
55
|
|
|
Randal
Hoff
|
|
|
Director
from December
|
|
|
|
|
|
|
19,
2007
|
|
|
|
|
|
|
|
50
|
|
|
Brian
Israel
|
|
|
Director
from May 1, 2007
|
|
|
|
|
|
|
|
60
|
|
|
Harvey
Rosenfeld
|
|
|
Director
from December
|
|
|
|
|
|
|
19,
2007
|
|
|
|
|
|
|
|
65
|
|
|
Triveni
P. Shukla
|
|
|
Director
from December
|
|
|
|
|
|
|
19,
2007 and Executive
|
|
|
|
|
|
|
Vice
President –
|
|
|
|
|
|
|
Marketing
& Technology
|
Steven
Cohen, the Company's President has been employed by Z Trim since 2002 when he
was hired as its director of investor relations. He was promoted to Vice
President of Corporate Development in 2003 and to President in 2006 when he also
began serving on the Board of Directors. In August of 2007 Mr. Cohen
assumed the role of chief executive officer. Prior to joining Z Trim, Mr.
Cohen had 25 years' experience at the Chicago Mercantile Exchange where he
worked in various brokerage house positions as well as a trader. Mr. Cohen
attended college at the University of Illinois and Oakton Community
College. Mr. Cohen, was a member of the U.S. Olympic team at the 1988
Olympics in Seoul and was a coach for the U.S. Olympic Team at the 2000 Olympics
in Sydney Australia.
Michael
Donahue is recognized around the world for his ability to change the fundamental
way companies project their “story” under ever-evolving global business and
market dynamics. During his twenty plus year career Mr. Donahue has
been a trusted advisor to boards and CEOs of Fortune 500 companies requiring the
need to build credibility and trust among a diverse group of constituents,
employees, customers, shareholders, the media, and the public. In 2006, Mr.
Donahue established a multidimensional communications, marketing and issue
management firm. From 1987 to 2006, Mr. Donahue worked for McDonalds
Corporation. During the first ten years of his career with
McDonald’s, Mr. Donahue served in increasingly responsible positions to become
an officer and senior executive as Vice President of
Communications. Mr. Donahue brought clear vision to the office of the
President and CEO and aligned cross-functional disciplines from the executive
suite to the field. His actions were critical to establishing new
brand relevance and consumer loyalty, which resulted in one of the most
significant turnarounds in recent corporate history, i.e. from the first
quarterly loss in thirty years to record breaking sales. Before joining
McDonald’s, Mr. Donahue spent five years as a Manager/Director with the Illinois
Retail Merchants Association, National Federation of Independent Business and 3M
Corporation where he created favorable environments for small businesses to
conduct business with minimal regulatory restriction. He then transitioned into
public office to assist the incumbent Governor to address small business
concerns as Deputy Director for the State of Illinois Commerce
Department.
Triveni
P. Shukla, Ph.D. is the Executive Vice President, Marketing & Technology for
Z Trim Holdings, Inc. Prior to joining Z Trim, Dr. Shukla was the President of
F.R.I. Enterprises LLC from 1985 through 2003. Dr. Shukla served as
Corporate Manager, R&D, Technical Service, and Engineering for the Krause
Milling Company, which became part of ADM in 1985, from 1973 through
1984. Dr. Shukla served as Associate Director, Research and Planning,
for Phelco-Land O’Lake from 1969 through 1973. He was Quality Control Incharge
for the National Dairy Research Institute, India and was the youngest
gazetted Officer approved by Union Public Service Commission,
India. Dr. Shukla was a third party expert for International Finance
Corporation/Word Bank from 1991 through 2001. Dr. Shukla has provided
advisory services to the following companies around the globe: US Feed Grains
Council, Indian Council of Agricultural Research, Winrock International, Labbat
Anderson Group, Anheuser-Busch, A.E. Staley, American
Maize Co., Bimbo (Mexico), Cedarburg Dairy/Kemp, Cargill, ConAgra, Experience
Inc., Frigo Cheese Co./Unigated Ltd., Grupo Minsa s.a. de c.v. (Mexico), Heinz
Co./Ore-Ida Foods, Heinz Co./Foodways Natl., Hershey Foods Corporation, Illinois
Cereal Mills, Kraft-General Foods, Mexican Accent Inc., Monsanto
Company, Nabisco Brands, National Honey Board, Oscar Meyer Foods/Philip Morris,
Procter & Gamble, Quaker Oats, Sigma Alimentos/Grupo Alpha (Mexico), Group
Minsa of Mexico and Matrix Group of Malaysia. Dr. Shukla’s advisory
services have been of the nature of privatization, business planning, innovation
and R&D, plant start-up, and management of intangible assets. Dr.
Shukla has designed turnkey facilities in Colombia, India, Malaysia, and
Taiwan. Some of Dr. Shukla’s accomplishments include
·
|
Congressional
Liaison, Institute of Food Technology’s research
Committee
|
·
|
Chairman,
Technical Board, American Corn Miller’s Federation, Washington,
D.C.(1977-1984)
|
·
|
Industry
Member USDA’s NC-51 (1980-84)
|
·
|
Panelist
at Harvard’s Agriculture and Biotechnology
Program
|
·
|
Member,
Advisory Panel, American Association of Cereal
Chemists(1999-Present)
|
·
|
Cornerstone
Member, Council of Agricultural Science and
Technology
|
·
|
Member,
Board of Directors, Matrix Specialties, K.L., Malaysia
|
·
|
Business
Planning Advisor to Universal Food’s, Milwaukee, WI and Pinahs Co.,
Waukesha, WI
|
Dr.
Shukla received his B.Sc. (Agricultural Engineering) from the University of
Gorakhpur, India, First in the University, and his M.Sc. (Food/ Engineering)
from Agra University, India, First in the Faculty of Agriculture, and his Ph.D.
(Food/Dairy Technology) from University of Illinois,
Urbana-Champaign.
Mark
Hershhorn has a background in the marketing and operations of nutrition systems,
food industry marketing and transactional television. Mark currently
serves as President and co-owner of CKS & Associates Management LLC;
President and CEO of CKS & Associates; CEO of Midwest Real Estate Investment
LLC; General Partner of New Horizons West LLP, and CEO of New Horizons Real
Estate Holdings LLC. During much of the 1990’s, Mark served
as President, CEO and director of National Media Corporation
(NYSE-NMC) and as Chairman of the company’s international subsidiary, Quantum
International Ltd. Prior to that, Mark served as Senior Vice
President of food operations and joint ventures for Nutri/System,
Inc. During the 1980’s, Mark was Chief Financial Officer, Treasurer,
Vice President and director of the Franklin Mint. Mark has also held
positions with companies such as Price-Waterhouse, Pfizer Diagnostics, and
Wallace and Wampole Laboratories. Mark received his BS Degree in
Economics from Rutgers University and an MBA from the Wharton School of Finance,
University of Pennsylvania.
Randal
Hoff is a senior executive with over thirty years of diverse general management,
sales, financial, and administrative experience with the industrial group of a
$2.5 billion multinational food company. Mr. Hoff has been
Vice-President and General Manager of McCormick and Co, Inc.’s McCormick Flavor
Division since 2000, where he managed the Ingredient, Seasoning and Flavor
sub-divisions for their industrial business in the United States. He
was additionally responsible for McCormick Canada and McCormick Pesa, the
industrial divisions of McCormick in Canada and Mexico, with total sales of
approximately $400 million with over 1100 employees and 6 manufacturing
plants. From 1998 to 2000, Mr. Hoff was the Vice President – Sales
and Marketing for McCormick Flavor Division, managing a direct sales force of
over 20 Account Managers, 3 Regional Directors and sales organization to cover
all major multi-national consumer product food companies in the United
States. From 1997 to 1998, Mr. Hoff served as Vice President Business
Development – Flavors for McCormick Flavor Division, creating a strong
organizational and sales/marketing emphasis on the development and sale of
Flavors by McCormick, where he achieved market credibility and double digit
sales growth. Mr. Hoff served as President of McCormick & Wild,
Inc. from 1994 through 1997, a $13 million joint venture specializing in the
development, sale and manufacture of natural fruit flavors in North
America. From 1982 through 1994, Mr. Hoff held various management
positions in McCormick Flavor Group and McCormick & Wild, Inc. including
Director of Finance and Administration, Account Manager, Director – MIS,
Director – Quality Management, and Controller & CFO. Mr. Hoff has
a B.A. in Accounting and Economics from Augustana College, an MBA in Finance and
MIS from Northwestern University, J.L. Kellogg Graduate School of
Management, and is a Certified Public Accountant.
Brian S.
Israel was appointed in 2007 to fill a vacancy in the Company’s Board of
Directors. He currently provides strategic planning, training and
project management services to businesses and non-profit entities as an
independent consultant. He also serves as President of North Shore Custom Homes,
Ltd. Mr. Israel has spent more than 20 years in the real estate
finance industry, during which he managed teams responsible for production,
operations, risk management, product and policy development, technology and
project management functions for a major national lender and a large regional
commercial bank.
Harvey
Rosenfeld has been the Chairman and CEO of U.S.A. Group, Inc. since July of
1987. He founded the third party administration company to provide
plan services to wholesale and retail sectors of the employee benefits
marketplace. Mr. Rosenfeld served as Vice President and Group Manager
of Continental Illinois Bank from 1979 to 1987. At Continental, he
was the Senior Manager with bottom line responsibility for one
internationally-based and six domestic Trust businesses as well as the bank’s
Safekeeping Division. From 1975 to 1979, Harvey served as Vice
President and Manager of Southeast Banks, and from 1967 to 1975 he served as
Vice President of Maryland National Bank. Mr. Rosenfeld established a
global network covering financial institutions in twenty-three countries to
facilitate trading of international securities and currencies, he has taught
graduate level courses offered by the Wharton School of Business to industry
executives, as well as the CEBS program to benefits professionals, and he is a
frequent speaker at industry seminars and conventions and has authored articles
on benefits issues for various publications.
The term
of office of each director expires at each annual meeting of stockholders and
upon the election and qualification of his successor. There are no arrangements
with any director or officer regarding their election or
appointment. There are no family relationships between any of our
directors or executive officers.
AUDIT
COMMITTEE
The Board
of Directors has an Audit Committee composed of two directors,
Randal
Hoff and Harvey Rosenfeld, each whom is considered an “independent
director"
under the rules of the American Stock Exchange and the Securities
and
Exchange Commission. The Board of Directors has determined that
Randal
Hoff
qualifies as an "audit committee financial expert" under SEC rules.
The
function of the Audit Committee is to assist the Board of Directors in
preserving
the integrity of the financial information published by the
Company
through the review of financial and accounting controls and policies,
financial
reporting
systems, alternative accounting principles that
could be applied and the quality and effectiveness of the independent public
accountants.
COMPENSATION
OF DIRECTORS
Our
outside directors currently receive $1,500 per meeting as cash
compensation. This practice began as of December 19,
2007. Prior to that, no directors received any cash compensation for
serving on our board, but were eligible to receive options and/or restricted
shares of our common stock pursuant to our 2004 Stock Equity Plan. In 2007, Mr.
Michael Donahue received 100,000 options, and Mr. Brian Israel received 200,000
options. The current board has also approved a grant of 200,000
shares of common stock per external director, as well as the ability to
participate in a pool of an additional 500,000 shares of common stock based on
the amount of time spent per director on Company affairs outside of monthly
board meetings. The cumulative minimum number of annual External
Director work hours required prior to any distribution of the pool is
1,000.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant
to Section 16(a) of the Exchange Act and the rules promulgated thereunder,
officers and directors of the company and persons who beneficially own more than
10% of our common shares are required to file with the SEC and furnish to the
Company reports of ownership and change in ownership with respect to all equity
securities of the company. Based solely on our review of the copies of such
reports received by us during or with respect to the fiscal year ended December
31, 2007 and all prior years, and written representations from such reporting
persons, we believe that those persons who were our officers, directors and 10%
shareholders during any portion of the fiscal year ended December 31, 2007,
complied with all Section 16(a) filing requirements applicable to such
individuals with the exception of the following late filings: (a) Mr. Michael
Theriault was late filing 1 Form 4 with respect to 7 transactions; (b) Mr. Alan
Orlowsky was late filing 3 Form 4s with respect to 10 transactions; (c) Mr.
Stanford Levin was late filing 1 Form 4 with respect to 5 transactions; (d) Mr.
Dana Dabney was late filing 1 Form 4 with respect to 9 transactions; (e) Mr.
Steve Salgan was late filing 1 Form 4 with respect to 4 transactions; (f) Mr.
Steve Cohen was late filing 2 Form 4s with respect to 8 transactions; and (g)
Messrs. Michael Donahue, Mark Hershhorn, Randal Hoff, Harvey Rosenfeld and
Treveni Shukla were each late filing a Form 3.
CODE
OF ETHICS
We have
adopted a code of ethics, known as our Code of Ethics and Business Conduct that
applies to all employees. This code of ethics can be found on our
website at www.ztrim.com. Stockholders may also obtain a copy of the
Code of Ethics and Business Conduct by submitting a request for such copy to Z
Trim Holdings, Inc., 1011 Campus Drive, Mundelein, Illinois 60060.
ITEM
10. EXECUTIVE COMPENSATION.
The
following table summarizes the compensation earned in the fiscal
years ended December 31, 2007 and 2006 by our
chief executive officer and the two most highly
paid executive officers whose
total salary and bonus awards exceeded $100,000
for the fiscal years ended December 31, 2007 and 2006. In this
document, we refer to these individuals as our "named executive
officers."
SUMMARY
COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL
COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
|
AWARDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNDERLYING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESTRICTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTIONS
|
|
NAME
AND PRINCIPAL
|
|
|
|
|
|
|
|
|
|
OTHER
|
|
|
STOCK
|
|
POSITION
|
|
YEAR
|
|
SALARY
|
|
|
BONUS
|
|
|
COMPENSATION
|
|
|
AWARDS
|
|
Gregory
J. Halpern
|
|
2007
|
|
$
|
119,099
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
--
|
|
Former
Chairman and
|
|
2006
|
|
$
|
142,538
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
1,225,000
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve
J. Cohen
|
|
2007
|
|
$
|
131,175
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
--
|
|
Director
and President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
G. Orlowsky
|
|
2007
|
|
$
|
106,608
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
750,000
|
|
Former
Director and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Triveni
P. Shukla
|
|
2007
|
|
$
|
119,400
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
--
|
|
Director
and Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice
President - Marketing & Technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTION
GRANTS
The
following table contains information concerning the grant of options to purchase
shares of our common stock to each of the named executive officers during the
fiscal year ended December 31, 2007. The percentage of total options granted to
employees set forth below is based on an aggregate of 2,532,000 shares subject
to options granted in 2007. All options are fully vested and
exercisable.
OPTION GRANTS IN
LAST FISCAL YEAR
INDIVIDUAL
GRANTS
|
NAME
|
|
NUMBER
OF
SECURITIES
UNDERLYING
OPTIONS
GRANTED
|
|
|
PERCENT
OF
TOTAL
OPTIONS
GRANTED
EMPLOYEES
IN 2007
|
|
|
TO
EXERCISE OR
BASE
PRICE
($/SHARE)
|
|
EXPIRATION
DATE
|
Gregory
J. Halpern
(via grants to his children)
|
|
|
30,000
|
|
|
|
1.2
|
%
|
|
$
|
1.18
|
|
Rescinded by Board
action
|
Steve J.
Cohen
|
|
|
0
|
|
|
|
-
|
|
|
|
-
|
|
-
|
Alan G.
Orlowsky
|
|
|
750,000
|
|
|
|
29.6%
|
|
|
$
|
1.36
|
|
5/1/10
|
Triveni P.
Shukla
|
|
|
0
|
|
|
|
-
|
|
|
|
-
|
|
-
|
OPTIONS
EXERCISED DURING 2007 AND OPTIONS VALUES AT DECEMBER 31, 2007
The
following table contains information regarding options exercised during 2007 and
unexercised options held at December 31, 2007, by the named executive officers.
All of the unexercised options are exercisable.
EXERCISED
AND UNEXERCISED
OPTIONS
FOR 2007
NAME
|
|
AQUIRED ON
EXERCISED
|
|
|
SHARES
REALIZED
|
|
|
IN-THE-MONEY
OPTIONS
AT
DECEMBER 31,
2007
EXERCISABLE/
UNEXERCISABLE
|
|
|
OUT-OF-MONEY
OPTIONS
DECEMBER 31, 2007
EXERCISABLE/
UNEXERCISABLE
|
|
Gregory J.
Halpern
|
|
|
0
|
|
|
$
|
--
|
|
|
|
0
|
|
|
|
-
|
|
Steve J.
Cohen
|
|
|
0
|
|
|
$
|
--
|
|
|
|
0
|
|
|
|
1,299,309
|
|
Alan G.
Orlowsky
|
|
|
0
|
|
|
$
|
--
|
|
|
|
0
|
|
|
|
1,470,000
|
|
Triveni P.
Shukla
|
|
|
0
|
|
|
$
|
--
|
|
|
|
0
|
|
|
|
840,000
|
|
ITEM
11. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table sets forth information regarding the beneficial
ownership of our common stock as of April
9, 2008, by the following
individuals, entities or groups:
o each person
or entity who we know beneficially owns more
than five percent of our outstanding common stock;
o each
of the named executive officers;
o each
director and nominee; and
o all
directors and executive officers as a group.
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting or investment power with respect to the
shares. In computing the number of shares beneficially owned by a person and
the percentage ownership of
that person, shares of common stock
subject to options and warrants held by
that person that are currently
exercisable or convertible or will become exercisable or
convertible within 60 days after April
9, 2008
are deemed outstanding, while the shares are
not deemed outstanding for purposes of
computing percentage ownership of any other
person. Except as otherwise indicated, and subject to applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of common stock held by
them.
Applicable
percentage ownership in the following table is based on
75,056,375 shares of
common stock outstanding as of April
9, 2008. Except as provided below, the address for each
stockholder listed in the table is c/o Z Trim Holdings, Inc., 1011 Campus Drive,
Mundelein, Illinois 60060.
NAME
OF
BENEFICIAL
OWNER
|
|
|
NUMBER OF SHARES
BENEFICIALLY
OWNED
|
|
|
|
PERCENTAGE
OF SHARES
BENEFICIALLY
OWNED
|
|
|
|
|
|
|
|
|
|
|
BENEFICIAL
OWNERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nurieel Akhamzadeh(1)
4020 Moorpark Avenue, #117
|
|
|
7,500,000
|
|
|
|
9.67
|
%
|
|
|
|
|
|
|
|
|
|
FORMER DIRECTORS AND
NAMED EXECUTIVE OFFICERS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory
J. Halpern(2)
|
|
|
12,105,800
|
|
|
|
16.30
|
%
|
Alan G.
Orlowsky(3)
|
|
|
1,470,000
|
|
|
|
1.95
|
%
|
|
|
|
|
|
|
|
|
|
CURRENT
DIRECTORS AND EXECUTIVE OFFICERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve
J. Cohen(4)
|
|
|
1,299,400
|
|
|
|
1.73
|
%
|
Brian
Chaiken(5)
|
|
|
500,000
|
|
|
|
0.66
|
%
|
Michael
J. Theriault(6)
|
|
|
1,934,000
|
|
|
|
2.58
|
%
|
Michael
Donahue(7)
|
|
|
100,000
|
|
|
|
0.13
|
%
|
Mark
Hershhorn(8)
|
|
|
187,500
|
|
|
|
0.25
|
%
|
Randal
Hoff(9)
|
|
|
0
|
|
|
|
0.00
|
%
|
Brian
Israel(10)
|
|
|
200,000
|
|
|
|
0.27
|
%
|
Harvey
Rosenfeld
|
|
|
483,870
|
|
|
|
0.64
|
%
|
Triveni
P. Shukla(11)
|
|
|
840,000
|
|
|
|
1.11
|
%
|
Total
of all Directors and Executive Officers(12)
|
|
|
5,544,770
|
|
|
|
7.39
|
%
|
-----------------------
(1) Based
on the Schedule 13D filed by Nurieel Akhamzadeh with the SEC on April 3, 2008,
with respect to 5,000,000 shares of common stock. Includes 2,500,000
warrants exercisable within 60 days of April 9, 2008.
(2)
Gregory J. Halpern, as of August 20, 2007, was no longer an officer or
director. Based on the Schedule 13D/A filed by Gregory J. Halpern
with the SEC on April 9, 2008.
(3) Alan
Orlowsky, as of January 14, 2008, was no longer an officer or
director. His shares include 1,470,000 options exercisable within 60
days of April 9, 2008.
(4) Includes
1,299,309
options exercisable within 60 days of
April 9, 2008.
(5)
Includes 500,000 options exercisable within 60 days of April 9,
2008.
(6)
Includes 1,755,000 options exercisable within 60 days of April 9,
2008.
(7)
Includes 100,000 options exercisable within 60 days of April 9,
2008.
(8)
Includes 37,500 warrants exercisable within 60 days of April 9,
2008.
(9)
Intentionally left blank.
(10)
Includes 200,000 options exercisable within 60 days of April 9,
2008.
(11)
Includes 840,000 options exercisable within 60 days of April 9,
2008.
(12)
Excludes the shares of Greg Halpern and Alan Orlowsky.
ITEM 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
The
Company's independent directors are: Mark Hershhorn, Brian Israel, Michael
Donahue, Randal Hoff, and Harvey Rosenfeld. In compliance with the American
Stock Exchange's rules for director independence, more than 50% of the Company's
directors are independent.
ITEM
13. EXHIBITS
A list of
the exhibits required to be filed as part of this report are presented in the
Exhibit Index.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The
following is a summary of the fees billed to us by Spector & Wong, LLP for
professional services rendered for the fiscal year ended December 31, 2007 and
December 31, 2006, respectively:
FEE
CATEGORY
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Audit
Fees(1)
|
|
$
|
56,889
|
|
|
$
|
85,448
|
|
Audit-Related
Fees(2)
|
|
|
--
|
|
|
|
--
|
|
Tax
Fees(3)
|
|
|
--
|
|
|
|
--
|
|
All Other
Fees(4)
|
|
|
--
|
|
|
|
--
|
|
Total
Fees
|
|
$
|
56,889
|
|
|
$
|
85,448
|
|
The
following is a summary of the fees billed to us by Blackman Kallick, LLP
for
professional services rendered for the fiscal year ended
December 31, 2007 and December 31, 2006, respectively:
FEE
CATEGORY
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Audit
Fees(1)
|
|
$
|
107,780
|
|
|
|
--
|
|
Audit-Related
Fees(2)
|
|
|
--
|
|
|
|
--
|
|
Tax
Fees(3)
|
|
|
--
|
|
|
|
--
|
|
All Other
Fees(4)
|
|
$
|
295.115
|
|
|
|
--
|
|
Total
Fees
|
|
$
|
402,895
|
|
|
|
--
|
|
----------------------
(1) Audit
Fees consist of fees billed for professional services rendered for the audit of
our financial statements and
for reviews of the interim financial statements
included in our quarterly reports on Form 10-QSB.
(2)
Audit-Related Fees consist of fees billed for professional services rendered for
audit-related services, including consultation on SEC
filings and the issuance of consents and consultations on other financial
accounting and reporting related matters.
(3) Tax
Fees consists of fees billed for professional services relating to tax
compliance and other tax advice.
(4) All
Other Fees consist of fees billed for all other services. These fees
consist of fees for services stemming from the internal investigation of
internal controls and equity transactions referenced hereinabove, as well as for
a forensic accounting relating to prior management. The engagements
from which these fees stem were initiated in late August or early September 2007
and were substantially completed in early November 2007.
PRE-APPROVAL
POLICY
Our Audit
Committee Charter provides that the Audit Committee shall pre-approve all
auditing services, internal control-related services and permitted non-audit
services (including the terms thereof) to be performed for us by our independent
auditor, subject to the de minimis exceptions for non-audit services described
in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934, as amended,
which are approved by the Committee prior to the completion of the service. The
Committee may also form and delegate authority to sub-committees consisting of
one or more members when appropriate, including the authority to grant
pre-approvals of audit and permitted non-audit services, provided that decisions
of such subcommittee to grant pre-approvals shall be presented to the full
Committee at its next scheduled meeting. In accordance with the pre-approval
policy, the Audit Committee has approved certain specified audit and non-audit
services to be provided by Spector & Wong LLP for up to twelve (12) months
from the date of the pre-approval. Any additional services to be provided by our
independent auditors following such pre-approval requires the additional
pre-approval of the Audit Committee.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized as of April 2, 2008.
|
Z TRIM HOLDINGS,
INC
|
|
|
|
|
|
|
By:
|
/s/ Steven
J. Cohen
|
|
|
|
Steven
J. Cohen
|
|
|
|
Director, and Chief Executive
Officer
|
|
|
|
|
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities as of April
2, 2008.
/s/
Steven J. Cohen
Director
and Chief Executive Officer
(principal
executive officer)
/S/ Brian
Chaiken
Brian
Chaiken
Chief
Financial Officer
(principal
financial
or
accounting officer)
/S/ Mark
Hershhorn
Mark
Hershhorn
Director
/S/ Brian
Israel
Brian
Israel
Director
/S/
Michael Donahue
Michael
Donahue
Director
/S/
Triveni P. Shukla
Triveni
P. Shukla
Director
/S/
Randal Hoff
Randal
Hoff
Director
/S/
Harvey Rosenfeld
Harvey
Rosenfeld
Director
INDEX
OF EXHIBITS
EXHIBIT
NO.
|
DESCRIPTION
|
|
|
3(i)
|
Articles
of Incorporation of Z Trim Holdings, Inc. (filed as Exhibit 2.1 to the
Company's Form 10-SB filed on August 21, 2000, and as Exhibit 3.3 to the
Company's Form 10-QSB filed on August 16, 2004, and incorporated herein by
reference).
|
3(ii)
|
Bylaws
of Z Trim Holdings, Inc., as amended (filed as Exhibit 2.2 to the
Company’s Registration Statement on Form 10-SB, Exhibit 3(ii) to the
Company’s Form 8-K filed on November 2, 2007, and as Exhibit 3(ii) to the
Company’s Form 8-K filed on November 16, 2007, and incorporated herein by
reference).
|
4.1
|
Specimen
Certificate for common stock (filed as Exhibit 3.1 to the Company's Form
10-SB filed on August 21, 2000, and incorporated herein by
reference).
|
4.2
|
Form
of Subscription Agreement (filed as Exhibit 4.1 to the Company's Form 8-K
filed on March 30, 2006 and incorporated herein by
reference).
|
4.3
|
Form
of Warrant to Purchase Common Stock (filed as Exhibit 4.2 to the Company's
Form 8-K filed on March 30, 2006 and incorporated herein by
reference).
|
4.4
|
Form
of Registration Rights Agreement (filed as Exhibit 4.3 to the Company's
Form 8-K filed on March 30, 2006 and incorporated herein by
reference).
|
4.5
|
Form
of Subscription Agreement (filed as Exhibit 4.5 to the Company’s Form
10-KSB filed on April 2, 2007 and incorporated herein by
reference).
|
4.6
|
Form
of Warrant to Purchase Common Stock (filed as Exhibit 4.6 to the Company’s
Form 10-KSB filed on April 2, 2007 and incorporated herein by
reference).
|
4.7
|
Form
of Registration Rights Agreement (filed as Exhibit 4.7 to the Company’s
Form 10-KSB filed on April 2, 2007 and incorporated herein by
reference).
|
10.1
|
Steve
Cohen Employment Agreement (filed as Exhibit 10.12 to the Company’s Form
10-QSB for the quarter ending June 20, 2006 and incorporated herein by
reference).
|
10.2*
|
Brian
Chaiken Employment Agreement, dated October 17,
2007
|
10.3
|
Michael
J. Theriault Employment Agreement (filed as Exhibit 10.2 to the Company’s
Form 10-KSB filed on April 2, 2007 and incorporated herein by
reference).
|
10.4
|
Z
Trim Holdings, Inc. 2004 Equity Incentive Plan (filed as Appendix C to the
Z Trim's Proxy Statement for its Annual Meeting conducted on June 16, 2004
and approved by its Shareholders on that date and incorporated herein by
reference).
|
10.5
|
Industrial
Lease Agreement between CLO Enterprises and Z Trim Holdings, Inc. dated
May 20, 1999 (filed as Exhibit 6.7 the Company’s Registration Statement on
Form 10-SB and incorporated herein by
reference).
|
10.6
|
Industrial
Lease Agreement between CLO Enterprises and Z Trim Holdings, Inc. dated
June 18, 1999 (filed as Exhibit 6.8 to Z Trim's Registration Statement on
Form 10-SB and incorporated herein by
reference).
|
10.7
|
Assignment
of License Agreement between UTEK Corporation, Z Trim Holdings, Inc. and
Brookhaven Science Associates dated March 26 2003 (filed as Exhibit 10.14
to Z Trim's Form 10-QSB for the quarter ending September 30, 2003 and
incorporated herein by reference).
|
10.8
|
Assignment
of License Agreement between UTEK Corporation, Z Trim Holdings, Inc. and
University of Illinois dated July 9, 2003 (filed as Exhibit 10.15 to Z
Trim's Form 10-QSB for the quarter ending September 30, 2003
and incorporated herein by
reference).
|
10.9
|
Assignment
of License Agreement between Z Trim Holdings, Inc. and Brookhaven Science
Associates dated July 22, 2003 (filed as Exhibit 10.16 to Z Trim's Form
10-QSB for the quarter ending September 30, 2003 and incorporated herein
by reference).
|
23.1*
|
Consent
of Blackman Kallick, LLP.
|
23.2*
|
Consent
of Spector & Wong.
|
31.1*
|
Statement
Under Oath of Principal Executive Officer of the Company pursuant to
Section 302 of Sarbanes-Oxley Act of
2002.
|
31.2*
|
Statement
Under Oath of Principal Financial Officer of the Company pursuant to
Section 302 of Sarbanes-Oxley Act of
2002.
|
32.1*
|
Statement
Under Oath of Principal Executive Officer of the Company pursuant to
Section 906 of Sarbanes-Oxley Act of
2002.
|
32.2*
|
Statement
Under Oath of Principal Financial Officer of the Company pursuant to
Section 906 of Sarbanes-Oxley Act of
2002.
|
*Filed
herewith
INDEX
TO FINANCIAL STATEMENTS
|
PAGE
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated
Balance Sheets
|
F-4
|
|
|
Consolidated
Statements of Operations
|
F-6
|
|
|
Consolidated
Statements of Stockholders'
Equity
(Deficit)
|
|
|
|
Consolidated
Statements of Cash Flows
|
F-8
|
|
|
Notes
to Consolidated Financial Statements
|
F-9
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and
Stockholders
of Z Trim Holdings, Inc.
Mundelein,
Illinois
We have
audited the accompanying consolidated balance sheet of Z Trim Holdings, Inc. as
of December 31, 2007 and the related consolidated statements of operations,
changes in stockholders' equity (deficit) and cash flows for the year then
ended. These consolidated financial statements are the responsibility
of the company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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 Z Trim Holdings, Inc. as of December
31, 2007 and the results of its operations and its cash flows for the year then
ended
in conformity with accounting principles generally
accepted in the Unites States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the company will continue as a going concern. As discussed in Note 2
to the consolidated financial statements, the company has suffered recurring
losses from operations and requires additional financing to continue in
operation. These conditions raise substantial doubt about its ability
to continue as a going concern. Management’s plans in regard to these
matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
the uncertainty.
/s/
Blackman Kallick, LLP
Chicago,
Illinois
April 14,
2008
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and
Stockholders
of Z Trim Holdings, Inc.
We have
audited the accompanying consolidated balance sheets of Z Trim Holdings, Inc. as
of December 31, 2006 and 2005, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principals used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Z Trim Holdings, Inc. as of
December 31, 2006 and 2005, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the Unites States of America.
/s/
Spector & Wong, LLP
Pasadena,
California
March
30, 2007
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER 31
ASSETS
Current
Assets
|
|
2007
|
|
|
2006
|
|
Cash
and cash equivalents
|
|
$
|
2,436,581
|
|
|
$
|
675,043
|
|
Accounts
receivable (net of allowance of $1,005 in 2007 and $0 in
2006)
|
|
|
7,522
|
|
|
|
11,945
|
|
Inventory
|
|
|
592,666
|
|
|
|
204,536
|
|
Prepaid
expenses and other assets
|
|
|
152,597
|
|
|
|
94,417
|
|
Net
assets of discontinued operations
|
|
|
485
|
|
|
|
32,196
|
|
Total
current assets
|
|
|
3,189,851
|
|
|
|
1,018,137
|
|
Property
and equipment, net
|
|
|
6,221,653
|
|
|
|
6,262,971
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
|
140,001
|
|
|
|
153,334
|
|
Deposits
|
|
|
14,453
|
|
|
|
11,103
|
|
Total
other assets
|
|
|
154,454
|
|
|
|
164,437
|
|
TOTAL
ASSETS
|
|
$
|
9,565,958
|
|
|
$
|
7,445,545
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
F-4
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER 31
LIABILITIES
AND STOCKHOLDERS' EQUITY
Current
Liabilities
|
|
2007
|
|
|
2006
|
|
Accounts
payable
|
|
$
|
709,027
|
|
|
$
|
355,679
|
|
Accrued
expenses
|
|
|
2,039,308
|
|
|
|
162,500
|
|
Other
liabilities
|
|
|
150,000
|
|
|
|
-
|
|
Capital
lease obligations
|
|
|
-
|
|
|
|
14,074
|
|
Total
current liabilities
|
|
|
2,898,335
|
|
|
|
532,253
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
Common
stock, $0.00005 par value; authorized 200,000,000 shares; issued and
outstanding 72,056,375 and
61,984,484
shares, respectively
|
|
|
3,600
|
|
|
|
3,096
|
|
Additional
paid-in capital
|
|
|
70,773,639
|
|
|
|
56,507,834
|
|
Unamortized
expenses
|
|
|
|
|
|
|
(113,339
|
)
|
Accumulated
deficit
|
|
|
(64,109,616
|
)
|
|
|
(49,484,299
|
)
|
Total
stockholders' equity
|
|
|
6,667,623
|
|
|
|
6,913,292
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
9,565,958
|
|
|
$
|
7,445,545
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
F-5
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER31
|
|
2007
|
|
|
2006
|
|
REVENUES:
Products
|
|
$
|
616,799
|
|
|
$
|
103,269
|
|
Services
|
|
|
49
|
|
|
|
735
|
|
Total
revenues
|
|
|
616,848
|
|
|
|
104,004
|
|
COST
OF REVENUES:
|
|
|
|
|
|
|
|
|
Products
|
|
|
2,776,362
|
|
|
|
1,788,594
|
|
Total
cost of revenues
|
|
|
2,776,362
|
|
|
|
1,788,594
|
|
GROSS
MARGIN
|
|
|
(2,159,514
|
)
|
|
|
(1,684,590
|
)
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
8,024,642
|
|
|
|
5,098,631
|
|
Stock
based compensation expense
|
|
|
3,487,579
|
|
|
|
9,419,028
|
|
Reduction
of intangible assets
|
|
|
-
|
|
|
|
341,250
|
|
Amortization
of intangible assets
|
|
|
13,333
|
|
|
|
34,333
|
|
Loss
on asset disposals, net
|
|
|
107,905
|
|
|
|
-
|
|
Total
operating expenses
|
|
|
11,633,459
|
|
|
|
14,893,242
|
|
OPERATING
LOSS
|
|
|
(13,792,973
|
)
|
|
|
(16,577,832
|
)
|
OTHER
INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
Rental
and other income
|
|
|
44,105
|
|
|
|
42,000
|
|
Interest
income
|
|
|
173,256
|
|
|
|
90,873
|
|
Recovery
of loan loss
|
|
|
300,000
|
|
|
|
-
|
|
Interest
expense
|
|
|
(3,570
|
)
|
|
|
(14,059
|
)
|
Settlement
(loss) gain
|
|
|
(1,360,981
|
)
|
|
|
7,500
|
|
Total
other income (expenses)
|
|
|
(847,190
|
)
|
|
|
126,314
|
|
LOSS
FROM CONTINUING OPERATIONS
|
|
$
|
(14,640,163
|
)
|
|
$
|
(16,451,518
|
)
|
DISCONTINUED
OPERATIONS
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
(net
of applicable tax of $0 in 2007 and 2006)
|
|
$
|
14,846
|
|
|
$
|
20,634
|
|
NET
LOSS
|
|
$
|
(14,625,317
|
)
|
|
$
|
(16,430,884
|
)
|
Net
Loss per Share from continuing operations
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.21
|
)
|
|
$
|
(0.28
|
)
|
Net
Loss per Share - Basic and Diluted
|
|
|
70,454,211
|
|
|
|
59,635,899
|
|
Weighted
Average Number of Shares Basic and Diluted
|
|
$
|
(0.21
|
)
|
|
$
|
(0.28
|
)
|
The
accompanying notes are an integral part of the consolidated financial
statements.
F-6
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
Shares
of
Common
Stock
|
|
|
Common
Stock
and
Additional Paid-In Capital
|
|
|
Unamortized
Expenses
|
|
|
Notes
Receivable
Issued
for
Stock
|
|
|
Accumulated
Deficit
|
|
|
Treasury
Stock
|
|
|
Total
|
|
Balance
at December 31, 2005
|
|
|
50,016,782
|
|
|
$
|
39,544,903
|
|
|
$
|
(257,318
|
)
|
|
$
|
(185,000
|
)
|
|
$
|
(33,053,415
|
)
|
|
$
|
(11,269
|
)
|
|
$
|
6,037,901
|
|
Stock
issued for services
|
|
|
1,356,871
|
|
|
|
1,312,731
|
|
|
|
(744,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
568,131
|
|
Stock
and warrants issued for cash, net of fees
|
|
|
9,487,304
|
|
|
|
5,156,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,156,433
|
|
Exercise
of stock warrants and options
|
|
|
1,123,527
|
|
|
|
652,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
652,025
|
|
Warrants
issued for services
|
|
|
|
|
|
|
437,079
|
|
|
|
(437,079
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Proceeds
from notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
185,000
|
|
|
|
|
|
|
|
|
|
|
|
185,000
|
|
Stock
options issued expense
|
|
|
|
|
|
|
9,419,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,419,028
|
|
Amortization
of services
|
|
|
|
|
|
|
|
|
|
|
1,325,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,325,658
|
|
Treasury
stock retired
|
|
|
|
|
|
|
(11,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,269
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,430,884
|
)
|
|
|
|
|
|
|
(16,430,884
|
)
|
Balance
at December 31, 2006
|
|
|
61,984,484
|
|
|
$
|
56,510,930
|
|
|
$
|
(113,339
|
)
|
|
$
|
-
|
|
|
$
|
(49,484,299
|
)
|
|
$
|
-
|
|
|
$
|
6,913,292
|
|
Stock
issued for services
|
|
|
6,150
|
|
|
|
6,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,765
|
|
Stock
and warrants issued for cash, net of fees
|
|
|
8,880,000
|
|
|
|
7,838,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,838,000
|
|
Stock
issued for settlement
|
|
|
285,000
|
|
|
|
29,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,500
|
|
Exercise
of stock warrants and options
|
|
|
1,014,163
|
|
|
|
872,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
872,290
|
|
Cashless
exercise of warrants
|
|
|
11,578
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Release
ofrestricted shares
|
|
|
|
|
|
|
2,182,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,182,175
|
|
Stock
options issued expense
|
|
|
|
|
|
|
3,487,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,487,579
|
|
Amortization
of services
|
|
|
|
|
|
|
|
|
|
|
113,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,339
|
|
Retired
shares
|
|
|
(125,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Retired
shares in process
|
|
|
-
|
|
|
|
(150,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150,000
|
)
|
Netloss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,625,317
|
)
|
|
|
|
|
|
|
(14,625,317
|
)
|
Balance
at December 31, 2007
|
|
|
72,056,375
|
|
|
$
|
70,777,239
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(64,109,616
|
)
|
|
$
|
-
|
|
|
$
|
6,667,623
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
F-7
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31
|
|
2007
|
|
|
2006
|
|
Cash
Flows From Operating Activities From Continuing
Operations:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(14,625,317
|
)
|
|
$
|
(16,430,884
|
)
|
Less:
Income from discontinued operations, net of tax
|
|
|
14,846
|
|
|
|
20,634
|
|
Adjustments
to reconcile loss from continuing operations to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
663,956
|
|
|
|
661,359
|
|
Provision
forbad debt
|
|
|
1,005
|
|
|
|
-
|
|
Issuance
of common stock and warrants for services
|
|
|
2,188,940
|
|
|
|
576,758
|
|
Amortization
of noncash expenses associated with stock and warrants issued for
services
|
|
|
113,339
|
|
|
|
1,325,658
|
|
Stock
based compensation expense
|
|
|
3,487,579
|
|
|
|
9,419,028
|
|
Recovery
of loan loss
|
|
|
(300,000
|
)
|
|
|
-
|
|
Reduction
of intangible assets
|
|
|
-
|
|
|
|
341,250
|
|
Loss
on asset disposals, net
|
|
|
107,905
|
|
|
|
-
|
|
Stock
settlement
|
|
|
1,357,373
|
|
|
|
-
|
|
(Increase)
in:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
3,418
|
|
|
|
2,823
|
|
Inventory
|
|
|
(388,130
|
)
|
|
|
(123,274
|
)
|
Prepaid
expenses and other assets
|
|
|
(58,180
|
)
|
|
|
(12,099
|
)
|
Deposits
|
|
|
(3,350
|
)
|
|
|
-
|
|
Increase
in:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
902,282
|
|
|
|
(622,876
|
)
|
Cash
flows used in operating activities from continuing
operations
|
|
|
(6,564,026
|
)
|
|
|
(4,882,891
|
)
|
Cash
Flows From Investing Activities From Continuing
Operations:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(784,685
|
)
|
|
|
(378,294
|
)
|
Proceeds
from asset disposals
|
|
|
67,475
|
|
|
|
-
|
|
Cash
flows used in investing activities from continuing
operations
|
|
|
(717,210
|
)
|
|
|
(378,294
|
)
|
Cash
Flows From Financing Activities From Continuing
Operations:
|
|
|
|
|
|
|
|
|
Net
proceeds from sales of stock
|
|
|
7,838,001
|
|
|
|
5,156,433
|
|
Exercise
of options and warrants
|
|
|
872,290
|
|
|
|
643,398
|
|
Payments
on capital lease obligations
|
|
|
(14,074
|
)
|
|
|
(30,994
|
)
|
Proceeds
from notes receivable for stock, net
|
|
|
300,000
|
|
|
|
185,000
|
|
Cash
flows provided by financing activities from continuing
operation
|
|
|
8,996,217
|
|
|
|
5,953,837
|
|
Net
cash and cash equivalents provided by continuing
operations
|
|
|
1,714,981
|
|
|
|
692,652
|
|
Net
cash and cash equivalents provided (used) by discontinued
operat
|
|
|
46,557
|
|
|
|
(34,044
|
)
|
Net
increase in cash and cash equivalents
|
|
|
1,761,538
|
|
|
|
658,608
|
|
Cash
and cash equivalents, at beginning of period
|
|
|
675,043
|
|
|
|
16,435
|
|
Cash
and cash equivalents, at end of period
|
|
$
|
2,436,581
|
|
|
$
|
675,043
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
3,570
|
|
|
$
|
14,059
|
|
Supplemental
Schedule of Noncash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
Issuance
of common stock and warrants for services
|
|
$
|
2,188,940
|
|
|
$
|
1,758,437
|
|
Stock
subscription payable
|
|
$
|
150,000
|
|
|
$
|
-
|
|
Retirement
of treasury stock
|
|
$
|
-
|
|
|
$
|
11,269
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
F-8
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 1 – NATURE OF
BUSINESS
Nature of
Business
Z Trim
Holdings, Inc. (the “Company”) manufactures a line of functional food
ingredients that can be used to replace fats and deliver fiber to a wide variety
of foods. The Company’s products can be used by food manufacturers
and processors, restaurants, schools, and the general public worldwide. The
company continues to explore all available options for its other Z Trim
technologies and related assets.
The
Company has participated in several public and private offerings and has
expanded its business. In 2002, the Company acquired FiberGel
Technologies, Inc. (“FiberGel”), which owns an exclusive license to Z Trim, an
all-natural, agriculture-based fat replacement.
Up to
July 2007 the Company had three reportable business unit segments: food product
development, security product development and e-tailer. The Company
operates through its FiberGel, The Brave Way Training Systems, Inc.
(“Braveway”), On-Line Bedding Corp. (“On-Line”), and Z-Amaize Technologies, Inc.
divisions. On July 18, 2007 the Board of Directors resolved to
dissolve and liquidate On-Line, which is the E-tailer operating
segment. On September 17, 2007 the Board of Directors resolved to
dissolve all company subsidiaries, other than FiberGel, by December 31,
2007. The related assets over liabilities of the dissolved segments
have an approximate carrying deficit of $6,700, including intercompany payables
of $6,200.
NOTE 2 – GOING
CONCERN
The
Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. In
the near term, the Company expects operating costs to continue to exceed funds
generated from operations. As a result, the Company expects to
continue to incur operating losses and may not have enough capital to grow its
business in the future. The Company can give no assurance that it
will achieve profitability or be capable of sustaining profitable
operations. As a result, operations in the near future are expected
to continue to use working capital.
To
successfully grow the business, the Company must decrease its cash outflows,
improve its cash position and its revenue base, and succeed in its ability to
raise additional capital through a combination of primarily public or private
equity offerings or strategic alliances.
The
Company is currently in the process of obtaining additional financing for its
current operations.
NOTE 3 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Principle of Consolidation
and Presentation
The
accompanying consolidated financial statements include the accounts of Z Trim
Holdings, Inc. and its subsidiaries after elimination of significantly all
intercompany accounts and transactions.
On
September 17, 2007, the Company resolved to discontinue all subsidiaries, other
than FiberGel. Accordingly, the accompanying consolidated financial
statements for the years ended December 31, 2007 and 2006 have been restated to
present the results of two out of three segments as discontinued
operations.
Reclassifications
Certain
prior period items have been reclassified from operating expenses to cost of
goods sold for ease of comparison. This reclassification affects neither the net
loss nor the accumulated deficit of the Company. Specifically,
manufacturing overhead costs in the amount of $1,183,724 were previously
combined with selling, general and administrative expenses in
2006. Manufacturing overhead costs are now classified as products
expense in the cost of revenues for the years ended December 31, 2007 and
2006.
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 3–SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of
Estimates
The
preparation of the accompanying consolidated financial statements in conformity
with accounting principles generally accepted in the United States (U.S. GAAP)
requires management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Revenue
Recognition
The
Company generally recognizes product revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable, and
collectability is probable. In instances where the final acceptance of the
product is specified by the customer, revenue is deferred until all acceptance
criteria have been met. No provisions were established for estimated product
returns and allowances based on the Company’s historical
experience.
Allowance for Doubtful
Accounts
Management
of the Company makes judgments as to its ability to collect outstanding
receivables and provide allowances for the portion of receivables when
collection becomes doubtful. Provisions are made based upon a specific review of
all significant outstanding invoices. For those invoices not specifically
reviewed, provisions are provided at differing rates, based upon the age of the
receivable. In determining these percentages, management analyzes its historical
collection experience and current economic trends. If the historical data the
Company uses to calculate the allowance for doubtful accounts does not reflect
the future ability to collect outstanding receivables, additional provisions for
doubtful accounts may be needed and the future results of operations could be
materially affected. As of December 31, 2007 the allowance for
doubtful accounts is $1,005. As of December 31, 2006, no allowance
for doubtful accounts was provided as management believed that all accounts as
of those dates were fully collectible.
Cash and cash
equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid
investments with a maturity of three months or less to be cash
equivalents.
Fair value of financial
instruments
All
financial instruments are carried at amounts that approximate estimated fair
value.
Concentrations
Cash and
cash equivalents are maintained with several financial institutions. Deposits
held with banks may exceed the amount of insurance provided on such deposits.
Generally, these deposits may be redeemed upon demand and therefore bear minimal
risk.
Inventory
Inventory
is stated at the lower of cost or market, using the first-in, first-out
method.
Property and
Equipment
Property
and equipment are stated at cost. Maintenance and repair costs are
expensed as incurred. Depreciation is calculated on the accelerated
and straight-line methods over the estimated useful lives of the assets.
Estimated useful lives of five to ten years are used for machinery and
equipment, office equipment and furniture, and automobile. Estimated useful
lives of up to five years are used for computer equipment and related software.
Depreciation and amortization of leasehold improvements are computed using the
term of the lease.
Intangible
Assets
Intangible
assets are carried at the purchased cost less accumulated amortization.
Amortization is computed over the estimated useful lives of the respective
assets, generally from fifteen to twenty years.
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 3 –SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of Long-Lived
Assets
Long-lived
assets and certain identifiable intangible assets to be held and used are
reviewed for impairment whenever events or changes in circumstance indicate that
the carrying amount of such assets may not be recoverable. Determination of
recoverability is based on an estimate of undiscounted future cash flows
resulting from the use of the asset and its eventual disposition. Measurement of
an impairment loss for long-lived assets and certain identifiable intangible
assets that management expects to hold and use is based on the fair value of the
asset. Long-lived assets and certain identifiable intangible assets to be
disposed of are reported at the lower of carrying amount or fair value less
costs to sell.
Income
Taxes
The
Company and its subsidiaries are included in the consolidated federal income tax
return filed by the Parent. The amount of current and deferred taxes
payable or refundable is recognized as of the date of the financial statements,
utilizing currently enacted tax laws and rates. Deferred tax expenses
or benefits are recognized in the financial statements for the changes in
deferred tax liabilities or assets between years.
Advertising
Costs
The
Company expenses all advertising costs as incurred. The amount for
2007 was $465,713. The amount for 2006 was $1,271,355.
Income (Loss) Per Common
Share
Basic net
income (loss) per share includes no dilution and is computed by dividing net
income (loss) available to common stockholders by the weighted average number of
common stock outstanding for the period. Diluted earnings per share is computed
by dividing net income by the weighted average number of shares outstanding and,
when diluted, potential shares from options and warrants to purchase common
stock using the treasury stock method. Diluted net loss per common share does
not differ from basic net loss per common share since potential shares of common
stock are anti-dilutive for all periods presented.
Cashless Exercise of
Warrants
The
Company has issued warrants to purchase common stock where the holder is
entitled to exercise the warrant via a cashless exercise, when the exercise
price is less than the fair value of the common stock. The Company accounts
for
the
issuance of common stock on the cashless exercise of warrants on a net
basis.
Stock Based
Compensation
Effective
January 1, 2006, the Company adopted the fair value recognition provisions of
FASB Statement No. 123(R), “Share-Based Payment” (SFAS 123R), using the
modified-prospective-transition method. Under that transition method,
compensation cost recognized in 2006 includes: (a) compensation cost for all
share-based payments granted prior to, but not yet vested as of January 1, 2006
based on the grant date fair value calculated in accordance with the original
provisions of SFAS 123, and (b) compensation cost for all share-based payments
granted subsequent to December 31, 2005, based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123(R).
As a
result of adopting SFAS 123(R) on January 1, 2006, the Company recognized
pre-tax compensation expense related to stock options of $3,487,579 and
$9,419,028 for years ended December 31, 2007 and 2006,
respectively. The 2007 stock option expense includes an additional
charge of $1,731,545 from the modification of 13,791,773 out-of-money
options. Of these options, 345,000 were granted a two year extension,
45,000 of these options were modified for an increase of $2.70 to the exercise
price, 310,000 were re-issued and granted a one year extension not to exceed an
exercise date of August 20, 2010 and 13,091,773 were granted a one year
extension not to exceed an exercise date of August 20, 2010. The 2006
stock option expense includes an additional charge of $1,199,402 from the
modification of 1,620,000 out-of-money options. These options were granted a
lower exercise price and a two year extension.
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 3 –SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New Accounting
Pronouncements
In May
2007, the FASB issued FASB Staff Position No. FIN 48-1 (“FSP 48-1”),
Definition of Settlement in FASB
Interpretation No. 48
. FSP 48-1 amended FIN 48 to provide
guidance on how an enterprise should determine whether a tax position is
effectively settled for the purpose of recognizing previously unrecognized tax
benefits. FSP 48-1 required application upon the initial adoption of
FIN 48. The adoption of FSP 48-1 did not affect the Company’s
consolidated financial statements.
In
February 2007, the Financial Accounting Standards Board (“FASB”) issued
Financial Accounting Standards (“FAS”) No. 159,
The Fair Value Option for Financial
Assets and
Financial
Liabilities - Including an amendment of FASB Statement No. 115
, which
permits entities to choose to measure many financial instruments and certain
other items at fair value at specified election dates. A business entity is
required to report unrealized gains and losses on items for which the fair value
option has been elected in earnings at each subsequent reporting date. This
statement is expected to expand the use of fair value measurement. FAS No.159 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The Company is
currently evaluating the impact of this standard.
In
September 2006, the FASB issued FAS No. 157,
Fair Value Measurements
. FAS
No. 157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. This statement addresses how to calculate fair value
measurements required or permitted under other accounting pronouncements.
Accordingly, this statement does not require any new fair value measurements.
However, for some entities, the application of the statement will change current
practice. FAS No. 157 is effective for the Company beginning January 1, 2008.
The Company is currently evaluating the impact of this standard.
In
December 2007, the FASB issued SFAS No. 141 (R),
Business Combinations
, and
SFAS No. 160,
Noncontrolling
Interests in Consolidated Financial Statements
. SFAS N. 141
(R) requires an acquirer to measure the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the acquiree at their
fair values on the acquisition date, with goodwill being the excess value over
the net identifiable assets acquired. SFAS No. 160 clarifies that a
noncontrolling interest in a subsidiary should be reported as equity in the
consolidated financial statements. The calculation of earnings per
share will continue to be based on income amounts attributable to the
parent. SFAS No. 141 (R) and SFAS No. 160 are effective for financial
statements issued for fiscal years beginning after December 15,
2008. Early adoption is prohibited. We have not yet
determined the effect on our consolidated financial statements, if any, upon
adoption of SFAS No. 141 (R) or SFAS No. 160.
NOTE 4 –
INVENTORY
At
December 31, inventory consists of the following:
|
|
2007
|
|
|
2006
|
|
Raw
materials
|
|
$
|
30,402
|
|
|
$
|
27,527
|
|
Work-in-process
|
|
|
4,850
|
|
|
|
11,414
|
|
Packaging
|
|
|
67,422
|
|
|
|
17,622
|
|
Finished
goods
|
|
|
489,992
|
|
|
|
147,973
|
|
Total
inventory
|
|
$
|
592,666
|
|
|
$
|
204,536
|
|
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 5 – PROPERTY AND
EQUIPMENT, NET
At
December 31, property and equipment, net consists of the following:
|
|
2007
|
|
|
2006
|
|
Production,
engineering and other equipment
|
|
$
|
5,213,084
|
|
|
$
|
4,717,341
|
|
Leasehold
improvements
|
|
|
2,798,972
|
|
|
|
2,745,917
|
|
Office
equipment and furniture
|
|
|
591,384
|
|
|
|
601,067
|
|
Computer
equipment and related software
|
|
|
185,603
|
|
|
|
305,005
|
|
Construction
in process - equipment
|
|
|
64,859
|
|
|
|
133,532
|
|
|
|
|
8,853,902
|
|
|
|
8,502,862
|
|
Accumulated
depreciation
|
|
|
(2,632,249
|
)
|
|
|
(2,239,891
|
)
|
Property
and equipment, net
|
|
$
|
6,221,653
|
|
|
$
|
6,262,971
|
|
Depreciation
expense was $650,623 and $627,026 for the years ended December 31, 2007 and
2006, respectively.
NOTE 6 – INTANGIBLE
ASSETS
During
2007, no significant identified intangible assets were acquired and no
identified intangible assets were impaired.
At
December 31, 2007, intangible assets, net, consist of the
following:
License
Rights to
Website
|
|
2007
|
|
|
2006
|
|
Gross
Carrying Amount
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
Accumulated
Amortization
|
|
$
|
(59,999
|
)
|
|
$
|
(46,666
|
)
|
Net
|
|
$
|
140,001
|
|
|
$
|
153,334
|
|
Amortization
of intangibles was $13,333 and $34,333 for the years ended December 31, 2007 and
2006, respectively.
Based on
the carrying amount of the intangibles as of December 31, 2007, and assuming no
impairment of the underlying assets, the estimated future amortization is as
follows:
Years
ended December 31,
|
|
|
|
2008
|
|
$
|
13,333
|
|
2009
|
|
|
13,333
|
|
2010
|
|
|
13,333
|
|
2011
|
|
|
13,333
|
|
2012
|
|
|
13,333
|
|
Thereafter
|
|
|
73,336
|
|
Total
amortization
|
|
$
|
140,001
|
|
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 7 – ACCRUED
EXPENSES
At
December 31, accrued expenses consist of the following:
|
|
2007
|
|
|
2006
|
|
Accrued
legal
|
|
$
|
458,145
|
|
|
$
|
109,513
|
|
Accrued
payroll and taxes
|
|
|
66,102
|
|
|
|
-
|
|
Accrued
settlements
|
|
|
1,327,873
|
|
|
|
52,987
|
|
Other
accrued expenses
|
|
|
187,188
|
|
|
|
-
|
|
Total
accrued expenses
|
|
$
|
2,039,308
|
|
|
$
|
162,500
|
|
NOTE 8 – CAPITAL LEASE
OBLIGATION
In August
2002, the Company sold certain property and equipment to an unrelated party for
$121,500 and leased the equipment back from the party under three lease
agreements that were classified as capital leases in accordance with SFAS 13,
“Accounting for Leases.” These assets are being depreciated over their estimated
useful economic lives and are included in the depreciation expense for the years
ended December 31, 2007 and 2006.
The
following table presents the future minimum lease payments under the capital
leases together with the present value of the minimum lease payments at December
31, 2006. The leases were paid in full in 2007.
Year
Ending December 31, 2006
|
|
|
|
2007
|
|
$
|
14,895
|
|
Total
minimum lease payments
|
|
|
14,895
|
|
Lease
amount representing interest
|
|
|
821
|
|
Present
value of minimum lease payments
|
|
|
14,074
|
|
Less:
current portion
|
|
|
14,074
|
|
Non-current
portion
|
|
$
|
-
|
|
The
leases had interest rates ranging from 17.29% to 20.88%.
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 9 – STOCKHOLDERS'
EQUITY/ SUBSEQUENT EVENT
Private Placement
Offerings
On
February 2, 2007, the Company entered into an agreement with J.P. Turner &
Company, L.L.C. to sell shares of the Company’s common stock, par value $0.00005
per share (“Common Stock”), and warrants exercisable for Common Stock (the
“Warrants”). The purchase price was $1.00 per share, which was
greater than 70% of the volume weighted average price of the Company’s common
stock for the 90 days from the day prior to the closing date, which was March
29, 2007. The investors also received a 25% stock warrant at an
exercise price equal to 120% of the purchase price. The Warrants have
a term of 5 years.
The
offering closed on March 29, 2007. In the aggregate the Company sold
8,000,000 shares of its common stock and 2,000,000 warrants. J.P.
Turner & Company, L.L.C received a placement fee of 10% of the gross
proceeds and 15% warrant coverage with an exercise price equal to the purchase
price. The Company received $6,958,000 in proceeds, which is net of
offering costs and commissions of $1,042,000.
The
Company filed a Registration Statement covering the resale of the Common Stock
underlying the units and Warrants with the SEC. The Company has
responded to all SEC comments and is waiting for the registration approval from
the SEC.
In May
2007, the Company conducted a self-underwritten offering of the Company’s common
stock. The stock was sold for $100,000 per unit. Each unit
consisted of 100,000 shares of common stock and 25,000 warrants. The
warrants are exercisable at $1.20 per share and expire in five (5) years after
purchase of the above-described unit. The Company sold and issued
880,000 shares and received proceeds of $880,000 under the
offering. The Company has received a stock subscription for 150,000
shares of its common stock and 37,500 warrants under the offering.
On March
24 through 30, 2006, the Company entered into private placement subscription
agreements pursuant to which it sold unregistered shares of common stock, par
value $0.00005 per share (“Common Stock”), and warrants exercisable for Common
Stock. The Company sold approximately 205 units in the private
placement, with each unit consisting of 40,323 shares of Common
Stock. In addition, investors who invested at least $500,000 in the
private placement received a five-year warrant with an exercise price of $1.00
per share to purchase a number of shares of Common Stock equal to 10% of the
number of shares of Common Stock purchased (the “Warrants”). In the
aggregate the Company sold 8,245,368 shares of Common Stock, and Warrants to
purchase an additional 161,292 shares of Common Stock. Proceeds from the
sale, net of commissions and fees of $521,865, totaled
$4,536,433. The Company has registered the Common Stock and
underlying Warrants with the SEC as free trading shares.
National
Securities Corporation (“National Securities”) served as the lead placement
agent in connection with the private placement. National Securities received
cash fees in the aggregate of $521,865 and warrants to purchase 824,537 shares
of Common Stock on terms which are identical to the Warrants included in the
units except that the exercise price is $0.68 per share and they contain an
assignment provision. In addition, the placement agent’s warrant has
registration rights that are the same as those afforded to investors in the
private placement.
In
January 2006, the Company conducted a self-underwritten offering of the
Company’s common stock up to $1.24 million. The stock was sold for
$31,000 per unit. Each unit consisted of 50,000 shares of common
stock and 50,000 warrants. The warrants are exercisable at $1.00 per
share and expire in three (3) years after purchase of the above-described
unit. The Company sold and issued 1,000,000 shares and received
proceeds of $620,000 under the offering.
The
Company determined that all of the securities sold and issued in the private
placements were exempt from registration under the Securities Act of 1933, as
amended (the “Act”) pursuant Section 4(2) of the Act and Rule 506 of Regulation
D Promulgated under the Act. The Company based this determination on
the non-public manner in which it offered the securities and on the
representations of the persons purchasing such securities, which included, in
pertinent part, that such persons were “accredited investors” within the meaning
of Rule 501 of Regulation D promulgated under the Act, and that such persons
were acquiring such securities for investment purposes for their own respective
accounts and not as nominees or agents, and not with a view to resale or
distribution, and that each such persons understood such securities may not be
sold to or otherwise disposed of without registration under the Act or an
applicable exemption there from.
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 9 – STOCKHOLDERS'
EQUITY/ SUBSEQUENT EVENT (CONTINUED)
Exercising of Stock Warrants
and Options
During
2007, 1,014,163 stock warrants and options were exercised. The
Company received total proceeds of $872,290. The 2007 warrants
exercised are net of 879,996 shares rescinded by the Board of Directors on April
30, 2007.
During
2006, 1,273,527 stock warrants and options were exercised. The
Company received total proceeds of $643,398. The Company applied
$8,627 of proceeds due from a consultant exercising options during 2006 against
services rendered for the Company. There was no actual tax benefit
realized for the tax deductions from option and warrant exercises for the years
ended December 31, 2007 and 2006.
On August
20, 2007, the Board cancelled all outstanding options held by the former CEO
Gregory J. Halpern and his family. This resulted in the cancellation
of 3,462,682 options.
Common Stock Issued on the
Cashless Exercise of Warrants
During
February 2007 the Company issued 11,578 shares of common stock on the cashless
exercise of warrants.
Release of Common Stock Stop
Order
On
November 22, 2004, the Company entered into a two-year engagement with David
Shemesh and Mordechai Tobian for investor relations services in consideration of
2,250,000 shares of restricted common stock of the Company (the "Shemesh/Tobian
Shares") and a warrant to purchase 275,000 shares of restricted common stock at
$.80 per share through November 21, 2007.
Based on
a closing price of the Company's common stock of $.79 on November 22, 2004, the
Company recorded paid-in-capital of $1,777,500 as of that date and began to
recognize investor relation expenses on a quarterly basis over the life of the
two-year contract.
On August
24, 2005, the Company took the position that Shemesh and Tobian had failed to
perform as agreed and the Company purported to rescind the contract.
Simultaneously, the Company placed a stop order on the Shemesh/Tobian Shares.
Through that date, the Company had recognized $765,325 of expense relating to
the contract. Accordingly, at September 30, 2005 the Company wrote off the
remaining $1,012,175 against paid-in-capital.
Shemesh
and Tobian disputed the Company's basis for rescinding the contract and because
they were referred to the Company by Farhad Zaghi, the Company's purported
rescission became an issue in the Company's ongoing litigation with Zaghi and
his affiliates. In order to eliminate one of the issues of contention between
the parties and facilitate further settlement negotiations, on March 9, 2007,
the Company released the stop order on the Shemesh/Tobian Shares and allowed the
shares to be traded. The Company recognized an expense to investor
relations of $2,182,175, based on the closing price on March 9,
2007.
Director’s Grant of
Equity
On
January 3, 2008, the Board of Directors approved a compensation plan that
includes a grant of 200,000 shares of common stock to each of the five external
directors. A tax gross up of up to 35% will be
included. These shares have yet to be issued. The fair
market value of the stock on January 3, 2008 was $.37, which results in a total
cost of $370,000 for the shares granted. The Board also created a pool of an
additional 500,000 shares of common stock that will be awarded based on the
amount of time spent per director on Company affairs outside of monthly board
meetings.
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 10 – NET LOSS PER
SHARE
The
computation of basic and diluted net loss per share is as follows:
|
|
Years
ended
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Numerator:
|
|
|
|
|
|
|
Net loss from
continuing operations
|
|
$
|
(14,640,163
|
)
|
|
$
|
(16,451,518
|
)
|
Income
from discontinued operations
|
|
$
|
14,846
|
|
|
$
|
20,634
|
|
Net
loss
|
|
$
|
(14,625,317
|
)
|
|
$
|
(16,430,884
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
70,454,211
|
|
|
|
59,635,899
|
|
Net
loss per share from continuing operations- basic and
diluted
|
|
$
|
(0.21
|
)
|
|
$
|
(0.28
|
)
|
Income
per share from discontinued operations - basic and diluted
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
Net
loss per share-basic and diluted
|
|
$
|
(0.21
|
)
|
|
$
|
(0.28
|
)
|
As the
Company incurred net losses for the year ended December 31, 2007 and 2006, the
effect of dilutive securities totaling 3,006,621 and 4,178,620 equivalent
shares, respectively, has been excluded from the calculation of diluted loss per
share because the effect was anti-dilutive.
NOTE 11 – STOCK OPTION PLAN
AND WARRANTS
The
Company has a Stock Option Plan (the Plan) effective January 2, 1999 and amended
in 2002 and 2004, which provides for the issuance of qualified options to all
employees and non-qualified options to directors, consultants and other service
providers.
A summary
of the status of stock options issued by the Company as of December 31, 2007 and
2006 are as follows:
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Weghted
|
|
|
|
|
|
Weghted
|
|
|
|
Number
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
|
of
|
|
|
Exercise
|
|
|
of
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
Outstanding
at beginning of year
|
|
|
20,285,749
|
|
|
$
|
0.99
|
|
|
|
12,892,939
|
|
|
$
|
1.03
|
|
Granted
|
|
|
2,532,000
|
|
|
|
1.19
|
|
|
|
10,826,337
|
|
|
|
1.05
|
|
Exercised
|
|
|
(453,318
|
)
|
|
|
0.77
|
|
|
|
(1,113,527
|
)
|
|
|
0.46
|
|
Expired
and Cancelled
|
|
|
(5,768,908
|
)
|
|
|
0.96
|
|
|
|
(2,320,000
|
)
|
|
|
1.00
|
|
Outstanding
at end of period
|
|
|
16,595,523
|
|
|
$
|
1.04
|
|
|
|
20,285,749
|
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at end of period
|
|
|
16,270,523
|
|
|
$
|
1.04
|
|
|
|
19,985,749
|
|
|
$
|
0.98
|
|
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 11 – STOCK OPTION PLAN
AND WARRANTS (CONTINUED)
At
December 31, 2007, the aggregate intrinsic value of all outstanding options was
$71,095 with a weighted average remaining contractual term of 2.0 years, of
which 16,270,523 of the outstanding options are currently exercisable with an
aggregate intrinsic value of $65,095, a weighted average exercise price of $1.04
and a weighted average remaining contractual term of 2.1 years. The
total intrinsic value of options exercised during the year ended December 31,
2007 was $273,694. The total fair value of options vested during 2007
was $3,487,579.
The fair
value of each stock option granted is estimated on the date of grant using the
Black-Scholes option valuation model. This model uses the assumptions
listed in the table below. Expected volatilities are based on the
historical volatility of the Company’s stock. The risk-free rate for
periods within the expected life of the option is based on the U.S. Treasury
yield curve in effect at the time of grant.
|
|
2007
|
|
|
2006
|
|
Weighted
average fair value per option granted
|
|
$
|
0.32
|
|
|
$
|
0.76
|
|
Risk-free
interest rate
|
|
|
3.07
|
%
|
|
|
4.73
|
%
|
Expected
dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected
lives
|
|
|
3.00
|
|
|
|
3.00
|
|
Expected
volatility
|
|
|
90.72
|
%
|
|
|
120.08
|
%
|
As of
December 31, 2007, the unrecognized compensation cost related to non-vested
share-based compensation arrangements granted under the plan was $253,581, which
had an average expense recognition period of 44.3 days. Pursuant to a
Separation and Release agreement with the former CFO, Alan Orlowsky, during
January 2008, the Company will recognize $229,338 of unrecognized compensation
cost related to the immediate vesting of non-vested shares. The
remaining $24,243 is expected to be recognized over the subsequent nine
months.
As of
December 31, 2007, the Company had reserved 20.0 million qualified options for
issuance under the Plan. As of December 31, 2007, the Company had
3.28 million options available for grant under the Plan.
Stock
options outstanding at December 31, 2007 are as follows:
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
Range
of
|
|
|
|
Remaining
|
|
Average
|
|
|
Exercise
|
|
Options
|
|
Contractual
|
|
Exercise
|
|
Options
|
Prices
|
|
Outstanding
|
|
Life
|
|
Price
|
|
Exercisable
|
$0.01-$1.50
|
|
16,100,523
|
|
2.0
years
|
|
$ 1.00
|
|
15,775,523
|
$1.51-$5.00
|
|
495,000
|
|
2.2
years
|
|
$ 2.35
|
|
495,000
|
|
|
16,595,523
|
|
2.0
years
|
|
$ 1.04
|
|
16,270,523
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2007 and 2006, the Company has warrants outstanding to purchase
7,089,234 and 5,931,824 shares of the Company’s common stock, respectively, at
prices ranging from $0.68 to $1.28 per share. These warrants expire
at various dates through May 2012. There were 3,420,000 and
2,897,765 warrants issued in 2007 and 2006 respectively.
NOTE 12 – SETTLEMENT LOSSES/
SUBSEQUENT EVENT
In April
2007, the Company and two former investor relations consultants entered into
revised settlement agreements to replace and rescind the original settlement
agreements signed in October 2006. As a result, an additional 10,000
shares of the Company’s common stock at a fair value of $29,500 were issued and
recorded. On April 1, 2007, 275,000 shares were issued in excess of
the revised agreement and will be cancelled pending regulatory approval from the
American Stock Exchange.
In July
2007, the Company paid court awarded costs of $3,608 in a patent infringement
suit that was dismissed owing to a technicality.
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 12 – SETTLEMENT LOSSES/
SUBSEQUENT EVENT (CONTINUED)
On
November 19, 2007, the Company settled a dispute with Basic Investors, Inc. and
agreed to issue 375,000 warrants with a fair value of $87,324.
The
Company executed an agreement with Farhad Zaghi on February 8, 2008 (Note
16). Pursuant to the agreement, 3,000,000 shares of the Company’s
common stock were issued at a fair value of $840,000 and 2,500,000 warrants were
issued with a fair value of $400,549.
The
amount of the settlement losses for the twelve months ended December 31, 2007
was $1,360,981 for the four afore-mentioned agreements. See also Note
16.
NOTE 13 – INCOME
TAXES
The
deferred net tax assets consist of the following at December 31:
|
|
2007
|
|
|
2006
|
|
Tax
benefit on net operating loss carryforward
|
|
$
|
16,623,045
|
|
|
$
|
12,056,813
|
|
Temporary
difference in depreciation and amortization
|
|
|
(527,635
|
)
|
|
|
(523,440
|
)
|
Tax
credits and carryforwards
|
|
|
11,603
|
|
|
|
229,802
|
|
Stock
based expense
|
|
|
822,961
|
|
|
|
398,545
|
|
Less:
valuation allowance
|
|
|
(16,929,974
|
)
|
|
|
(12,161,720
|
)
|
Net
deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The
reconciliation between the U.S. federal statutory income tax rate of 34% and our
effective tax rate is shown below for calendar years 2007 and 2006:
|
|
2007
|
|
|
2006
|
|
Income
tax benefit at U.S. federal stautory rates
|
|
|
(34.0
|
)
%
|
|
|
(34.0
|
)
%
|
State
income taxes
|
|
|
7.3
|
|
|
|
7.3
|
|
Valulation
allowance
|
|
|
26.7
|
|
|
|
26.7
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
At
December 31, 2007, net federal and state operating losses of approximately $44
million and $24 million, respectively, are available for carry-forward against
future years’ taxable income and expire through 2027. The Company’s ability to
utilize its net operating loss carry forwards is uncertain and thus a valuation
reserve has been provided against the Company’s net deferred tax
assets. The company has $837,171 of carry forward deductions relating
to stock options exercised as of December 31, 2007. These will be
carried forward and utilized after the Company utilizes its current net
operating loss carry forwards.
NOTE 14 – MAJOR CUSTOMERS
AND CREDIT CONCENTRATION
The
Company’s customers are food manufacturers, school districts and the general
public that orders directly over the internet. There were no
significant customers for the year ended December 31, 2007. There was
one significant customer that accounted for approximately 25% for the year ended
December 31, 2006. There were no outstanding amounts at December 31,
2007.
The
Company maintains cash deposits with major banks, which from time to time may
exceed federally insured limits. At December 31, 2007 and 2006,
$2.337,048 and $575,043, respectively, were in excess of federally insured
limits. The Company periodically assesses the financial condition of
the institutions and believes that the risk of any loss is minimal.
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 15 –
COMMITMENTS
Building
Lease
The
Company leases a combined production and office facility located in Mundelein,
Illinois. The facility is approximately 44,000 square
feet. The Company extended the lease until March 2010 and the
required monthly rental payments increased to $21,000, exclusive of property
taxes. The Company also is responsible for payment of all
property taxes. Insurance and maintenance are billed when
due.
The
Company subleases approximately 9,800 square feet of the facility to two
tenants. Both tenants terminated their respective leases in
2008. .
The
Company also leases a 5,000 square foot warehouse in Mundelein,
Illinois. The lease commenced on August 1, 2007 and ends July 31,
2011. The monthly net rent is $2,750.
The
future minimum annual rental payments and sub-lease income for the years ended
December 31 under the lease terms are as follows:
Year
Ended
|
|
Rentals
|
|
|
Sub-Lease
Rentals
|
|
|
Minimum
Annual
Rentals,
Net
|
|
2008
|
|
$
|
285,000
|
|
|
$
|
28,500
|
|
|
$
|
256,500
|
|
2009
|
|
|
285,000
|
|
|
|
22,000
|
|
|
|
263,000
|
|
2010
|
|
|
96,000
|
|
|
|
-
|
|
|
|
96,000
|
|
2011
|
|
|
19,250
|
|
|
|
-
|
|
|
|
19,250
|
|
|
|
$
|
685,250
|
|
|
$
|
50,500
|
|
|
$
|
634,750
|
|
Royalties
In
accordance with the licensing agreement to a website (see Note 6), the Company
is subject to a minimum royalty payment of $5,000 per year beginning July 1,
2005 for fourteen years.
The
future minimum annual royalty payments at December 31 under the agreement are as
follows:
|
|
Amount
|
|
2008
|
|
$
|
5,000
|
|
2009
|
|
|
5,000
|
|
2010
|
|
|
5,000
|
|
2011
|
|
|
5,000
|
|
2012
|
|
|
5,000
|
|
Thereafter
|
|
|
30,000
|
|
|
|
$
|
55,000
|
|
Employment/ Separation
Agreements
During
2007, the Company entered into four employment agreements with its principal
officers. The annual salaries range from $102,000 to
$185,000. The agreements expire May 2009 through January
2010.
On
January 14, 2008, the Company and Alan Orlowsky, the CFO, entered into a
Separation and Release Agreement terminating the officer’s
employment. Pursuant to the agreement, Mr. Orlowsky received a
lump-sum severance payment equal to six weeks salary and the immediate vesting
of 250,000 options not previously vested. At that time Mr. Orlowsky
also resigned from the Board of Directors.
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 16 – PENDING
LITIGATION/ CONTINGENT LIABILITY/ SUBSEQUENT EVENT
As the
Company previously reported, on November 29, 2007 the settlement agreement
concerning the Company's litigation with Farhad Zaghi and related parties
(collectively, "Zaghi") was deemed null and void by Zaghi.
The
parties have since attended a court-ordered settlement conference, and all
parties other than Greg Halpern (the Company's former CEO) have reached a new
settlement agreement. Whereas the old agreement had two components: (1) the
Company would have an open-ended obligation to issue common stock to Zaghi until
he realized proceeds of approximately $1.7 million from the sale of stock before
the litigation would be dismissed, and (2) the issuance of approximately 2.26
million warrants, the new agreement requires only that a fixed number of shares
and warrants be issued to Zaghi. Specifically, under the new settlement
agreement, the Company has agreed to issue to a Zaghi affiliate and register for
resale 3 million shares of the Company's common stock and a warrant to purchase
an additional 2.5 million shares of the Company's common stock. See
also Note 12 for disclosure of the 2007 loss recognized. The warrant
is immediately exercisable, with a three-year term and a variable exercise price
equal to the lowest twelve-trading-day average closing price of the Company's
common stock during the period between the date of issuance of the warrant and
the date of notice of exercise. Under the new settlement agreement, the parties
to the agreement have agreed to dismiss their cases without prejudice, and have
exchanged covenants not to sue. The Company's registration obligation with
respect to the settlement shares and the shares underlying the warrants is on a
best-efforts basis, but because the registration was not effective by March 17,
2008, Zaghi has the right to terminate the agreement. The Company has
already listed the shares with Amex, and filed a registration statement with the
S.E.C. As soon as the S.E.C. approves the registration statement, the
shares will become free-trading, and the parties will be obligated to dismiss
the case.
On July
7, 2007, the Company was served with a complaint by Joseph Sanfilippo and James
Cluck for violation of the Consumer Fraud Act, purportedly due to the Company’s
refusal to allow for the exercise of 300,000 stock
options. Management believes that the allegations are frivolous and
wholly without merit and will vigorously defend the claim.
On March
20, 2007, the Company filed a patent infringement suit in the United States
District Court for the Western District of Wisconsin seeking unspecified damages
and equitable relief against a manufacturer of a competing
product. On January 28, 2008, the Court granted summary judgment in
favor of the Defendant, finding non-infringement. The Company has
since filed an appeal.
On
January 18, 2007, the Company was served with a complaint by Daniel Caravette
for breach of contract and violation of the Illinois Wage Payment and Collection
Act, seeking damages in excess of $1,000,000. Management believes
that the allegations are frivolous and wholly without merit and will vigorously
defend the claim.
On
November 19, 2007, the Company settled a dispute with Basic Investors, Inc.
(“Basic Investors”). The Company agreed to issue Basic Investors,
375,000 three year warrants at an exercise price of $.70 per
share. The Company also agreed to provide an attorney letter and
corporate authorization to remove any restrictions on 355,000 shares of the
Company’s common stock previously issued to Basic under a Consulting Agreement
dated February 21, 2006. The parties exchanged mutual releases. In the
event that American Stock Exchange does not approve the transaction, the
agreement would be deemed null and void. The Company has accrued
$87,324 at December 31, 2007 as a settlement expense for this
agreement.
On
November 23, 2005, the Company entered into a Letter of Agreement ("LOA") with
George Foreman Enterprises, Inc. ("GFME") pursuant to which both parties would
form a new limited liability company for the purpose of promoting the Company's
zero calorie fat replacement food ingredient, Z Trim®. The parties
did not reach any definitive Agreement as is required by the LOA. On
May 9, 2006, the Company filed a lawsuit alleging breach of the Parties'
nondisclosure agreement and trade secret misappropriation in the Circuit Court
of the 19th Judicial District, Lake County, Illinois seeking damages and
injunctive relief against GFME. On August 3, 2006 the court, based
upon a finding that the Company has demonstrated a likelihood of success on the
merits of the case, issued an order granting the Company a preliminary
injunction enforcing the non-disclosure agreement between the
parties. GFME subsequently appealed the preliminary
injunction. The Appellate Court denied GFME’s appeal, and the
injunctive order remains in place.
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 16 – PENDING
LITIGATION/ CONTINGENT LIABILITY/ SUBSEQUENT EVENT
(CONTINUED)
On July
17, 2006, George Forman Enterprises, Inc. filed a complaint against Z Trim
Holdings, Inc. in the U.S. District Court seeking damages in excess of
$70,000,000 for specific performance, breach of contract, promissory estoppel
and unjust enrichment. The basis for all such claims is the
underlying LOA, set forth above. The Company received summary
judgment in its favor as to the count seeking promissory
estoppel. Further, on September 18, 2007, the Court issued a number
of orders limiting the evidence that GFME may bring in support of its claims.
Management believes that GFME’s allegations are frivolous and wholly without
merit and will vigorously defend the claim. The trial date of
February 2008 has been stricken, and reset for September 2008.
During
November 2007, the Company determined, through the course of its
investigation of all prior equity transactions, that 1,040,000 options that were
issued in 2002 and 2003 to a former officer were both issued without proper
authorization and non-qualified stock options, as opposed to
qualified. The Company had previously treated these options as if
properly issued and as qualified “incentive stock options.” The
former officer exercised these options in 2004 and 2005, resulting in the
issuance of 1,040,000 shares of common stock. The Company shall seek
to rescind these transactions and thus recover the shares. In order
to do so, the Company would have to reimburse the former officer the amount paid
to exercise the options (listed at $132,000). If the Company is
unsuccessful in recovering the shares, it could potentially be responsible for
unpaid FICA and Medicare taxes resulting from the re-classification of the
options from qualified to non-qualified. This potential liability
would be for approximately $166,000, half of which would be the responsibility
of the Company, and half of which would the responsibility of the former
officer.
NOTE 17 – RELATED PARTY
TRANSACTIONS
As of
December 31, 2007 there were employees’ advances of $3,275. These
advances will be repaid during 2008.
In May
2007, the Board of Directors resolved to rescind a consulting agreement pursuant
to which options were issued on October 5, 2006. The agreement was
with the brother of the Vice President. The related options were
exercised for 200,000 shares at $0.75 per share or $150,000 in October
2006. The Board further resolved to approve the related party to use
the proceeds to subscribe the shares pursuant to the Company’s May 2007
self-underwritten offering (see Note 6). The subscription is pending
regulatory approval from the American Stock Exchange. Common stock
and paid in capital were decreased and other liabilities was increased for
$150,000.
The
Company had a stock subscription receivable of $20,000 from the President
related to exercising his stock options in 2005. The stock
subscription receivable was paid in full on September 30, 2006 including $675 of
interest.
On April
12, 2006, the Company advanced $2,500 to the President, prior to his assuming
the position of President. The advance was repaid on July 31,
2006.
NOTE 18 –
GUARANTEES
The
Company from time to time enters into certain types of contracts that
contingently require the Company to indemnify parties against third party
claims. These contracts primarily relate to: (i) divestiture agreements, under
which the Company may provide customary indemnifications to purchasers of the
Company’s businesses or assets; (ii) certain real estate leases, under which the
Company may be required to indemnify property owners for environmental and other
liabilities, and other claims arising from the Company’s use of the applicable
premises; and (iii) certain agreements with the Company's officers, directors
and employees, under which the Company may be required to indemnify such persons
for liabilities arising out of their employment relationship. The
terms of such obligations vary. Generally, a maximum obligation is not
explicitly stated. Because the obligated amounts of these types of agreements
often are not explicitly stated, the overall maximum amount of the obligations
cannot be reasonably estimated. Historically, the Company has not been obligated
to make significant payments for these obligations, and no liabilities have been
recorded for these obligations on its consolidated balance sheet as of December
31, 2007.
In
general, the Company offers a one-year warranty for most of the products it
sold. To date, the Company has not incurred any material costs
associated with these warranties.
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 19 – RESIGNATION OF
CHIEF EXECUTIVE OFFICER/ REPLACEMENT
On August
20, 2007 the founder and Chief Executive Officer (“CEO”), Gregory J. Halpern,
resigned as CEO and member of the Board of Directors. Steve J. Cohen,
the Company’s President, replaced Mr. Halpern as the Company’s chief executive
and also serves on the Company's Board of Directors.
The
company entered into a Resignation Agreement and Release with Mr. Halpern
pursuant to which the company awarded Mr. Halpern three months' severance pay
and six months' health insurance benefits. In addition, under the
Agreement the Company was to receive a release of claims from Mr.
Halpern. In addition, under the provisions of the company's stock
option plan, Mr. Halpern's and his immediate family members’ outstanding stock
options have been rescinded. The company allowed Mr. Halpern until
August 31, 2007 to rescind the Agreement.
On August
31, 2007 Gregory Halpern exercised his right to revoke the Resignation Agreement
and Release he signed on August 20, 2007. Mr. Halpern's revocation of
the Agreement does not affect his prior resignation as an officer and director
of the Company and does not affect the Board of Directors' previous forfeiture
of Mr. Halpern's stock options under the Company's 2004 Equity Incentive
Plan.
NOTE 20 – DISCONTINUED
OPERATIONS
In the
third quarter 2007, the Company resolved to discontinue all subsidiaries, other
than FiberGel.
Pursuant
to SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets,” the accompanying consolidated financial statements have been
reclassified to reflect the discontinued business. Accordingly, the revenues,
costs and expenses, assets and liabilities, and cash flows of the discontinued
business have been segregated in the consolidated statements of operations,
consolidated balance sheet and consolidated cash flows. The net operating
results, net assets and net cash flows of this business have been reported as
“Discontinued Operations.”
Following
is summarized financial information for the discontinued
operations:
|
|
Years
ended
December
31,
|
|
|
|
|
2007
|
|
|
|
2006
|
|
REVENUES:
|
|
$
|
227,629
|
|
|
$
|
497,540
|
|
INCOME FROM DISCONTINUED
OPERATIONS
(NET OF TAX OF $0)
(a)
|
|
$
|
14,846
|
|
|
$
|
20,634
|
|
NET
ASSETS OF DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
485
|
|
|
$
|
21,456
|
|
Accounts
receivable
|
|
|
-
|
|
|
|
59,231
|
|
Inventory
|
|
|
-
|
|
|
|
15,069
|
|
Net
other assets
|
|
|
-
|
|
|
|
79
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
-
|
|
|
|
(63,639
|
)
|
Net
assets of discontinued operations
(b)
|
|
$
|
485
|
|
|
$
|
32,196
|
|
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 20 – DISCONTINUED
OPERATIONS (CONTINUED)
Summarized
cash flow information for the discontinued operations is as
follows:
|
|
Years
ended
|
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Net
cash used by operating activites of
|
|
|
|
|
|
|
discontinued
operations
|
|
$
|
46,557
|
|
|
$
|
(34,044
|
)
|
|
|
|
|
|
|
|
|
|
NET
CASH USED BY DISCONTINUED
|
|
|
|
|
|
|
|
|
OPERATIONS
|
|
$
|
46,557
|
|
|
$
|
(34,044
|
)
|
The
discontinued opertations did not provide or use any cash in investing or
financing activities for the years ended December 31, 2007 and
2006.
NOTE 21 – SEGMENT
INFORMATION
The
Company evaluates its reporting segments in accordance with SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. The Chief
Executive Officer has been identified as the Chief Operating Decision Maker as
defined by SFAS No. 131. The Chief Executive Officer allocates resources to each
segment based on their business prospects, competitive factors, net sales and
operating results.
The
Company’s structure includes three principal operating segments: (i) Food
Product Development, (ii) Security Training and Products and (iii)
E-tailer. The food product development segment owns the exclusive,
worldwide license to Z Trim(TM). The Security training offers cost
effective self-defense training courses and products with a uniquely targeted
curriculum. The e-tailer segment is a distributor of pillows,
blankets, and other bedding products. In third quarter of 2007, the
Company resolved to discontinue all subsidiaries, other than Fiber-Gel. As a
result, the security training and products segment and e-tailer segment are
reclassified to discontinued operations and the food product development segment
remains as the Company’s reportable segment The Company also has other
subsidiaries that do not meet the quantitative thresholds of a reportable
segment.
The
Company reviews the operating segments’ income to evaluate performance and to
allocate resources. Operating companies' income for the reportable segments
excludes income taxes, minority interest and amortization of goodwill. Provision
for income taxes is centrally managed at the corporate level and, accordingly,
such items are not presented by segment. The segments' accounting policies are
the same as those described in the summary of significant accounting
policies.
Intersegment
transactions are recorded at cost.
Z
TRIM HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
NOTE 21 – SEGMENT
INFORMATION (CONTINUED)
Summarized
financial information of the Company’s results by operating segment is as
follows:
|
|
Years
ended
|
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Net
Revenue:
|
|
|
|
|
|
|
Food
Product Development
|
|
$
|
616,799
|
|
|
$
|
103,269
|
|
Net
Revenue by Reportable Segment
|
|
$
|
616,799
|
|
|
$
|
103,269
|
|
All
Other Operating
|
|
|
49
|
|
|
|
735
|
|
Consolidated
Net Revenue
|
|
$
|
616,848
|
|
|
$
|
104,004
|
|
Operating
Income (Loss):
|
|
|
|
|
|
|
|
|
Food
Product Development
|
|
$
|
(3,971,429
|
)
|
|
$
|
(2,899,880
|
)
|
Operating
Loss by Reportable Segment
|
|
$
|
(3,971,429
|
)
|
|
$
|
(2,899,880
|
)
|
All
Other Operating Loss
|
|
|
(9,821,544
|
)
|
|
|
(13,677,952
|
)
|
Consolidated
Operating Loss
|
|
$
|
(13,792,973
|
)
|
|
$
|
(16,577,832
|
)
|
Net
Loss:
|
|
|
|
|
|
|
|
|
Food
Product Development
|
|
$
|
(3,971,718
|
)
|
|
$
|
(2,904,646
|
)
|
Net
Loss by Reportable Segment
|
|
$
|
(3,971,718
|
)
|
|
$
|
(2,904,646
|
)
|
All
Other Net Loss
|
|
|
(10,668,445
|
)
|
|
|
(13,546,872
|
)
|
Consolidated
Net Loss from Continuing Operations
|
|
$
|
(14,640,163
|
)
|
|
$
|
(16,451,518
|
)
|
Net
(Loss) Income from Discontinued
|
|
|
|
|
|
|
|
|
Operations
|
|
|
|
|
|
|
|
|
Personal
Safety Training and Products
|
|
$
|
1,725
|
|
|
$
|
5,866
|
|
E-tailer
|
|
|
13,121
|
|
|
|
14,768
|
|
Net
(Loss) Income from Discontinued Operations
|
|
$
|
14,846
|
|
|
$
|
20,634
|
|
Consolidated
Net Loss
|
|
$
|
(14,625,317
|
)
|
|
$
|
(16,430,884
|
)
|
|
|
December
31,
|
|
Total
Assets:
|
|
2007
|
|
|
2006
|
|
Food
Product Development
|
|
$
|
6,397,484
|
|
|
$
|
6,036,440
|
|
All
other segments
|
|
|
3,167,989
|
|
|
|
1,376,909
|
|
|
|
|
9,565,473
|
|
|
|
7,413,349
|
|
Discontinued
Operations:
|
|
|
|
|
|
|
|
|
Personal
Safety Training and Products
|
|
|
485
|
|
|
|
3,102
|
|
E-tailer
|
|
|
-
|
|
|
|
29,094
|
|
|
|
|
485
|
|
|
|
32,196
|
|
Consolidated
assets
|
|
$
|
9,565,958
|
|
|
$
|
7,445,545
|
|
F-25
Z-Trim Holdings, (AMEX:ZTM)
Gráfico Histórico do Ativo
De Nov 2024 até Dez 2024
Z-Trim Holdings, (AMEX:ZTM)
Gráfico Histórico do Ativo
De Dez 2023 até Dez 2024