As filed with the Securities and Exchange Commission on November , 1998.
Registration No. 333-20525
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
AMENDMENT 3
XETAL, INC.
[Exact Name of Registrant As Specified In Its Charter]
Utah 1040 22-2223126
(State or Other (Primary Standard (IRS Employer
Jurisdiction of Industrial identification
Incorporation or Classification) Number)
Organization)
3590 Oceanside Road, Oceanside, New York 11572
[Principal Place of Business and Executive Offices]
Tel: (516)-594-0005
[Telephone Number]
Att.: Dr. Jan Stahl, Chief Executive Officer
Xetal, Inc.
3590 Oceanside Road
Oceanside, New York 11572
(516) 594-0005
[Name, Address and Telephone Number of Agent for Service]
Copies to:
B. Bruce Freitag, Esq. Ronald J. Brescia, Esq.
39 Sackerman Avenue, Doros & Brescia, P.C.
North Haledon, New Jersey 07508 1140 Avenue of the Americas Tel: (973)
Tel: (973) 238-1909 New York, New York 10036
Tel: (212) 921-0550
If any of the securities being registered on this Form are to be offered on a
delayed or continuing basis pursuant to Rule 415 of the Securities Act of
1933 check the following box. [X]
Approximate date of commencement of proposed sale to the public: As soon as
possible after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of Securities Amount Being Price Per Offering Registration
Being Registered Registered(9) Share/Warrant Price(1) Fee(2)(11)
Common Stock,
Par Value $0.001 540,000 Shs $5.00(2) $2,700,000 $ 931
Warrants 540,000 Wts $0.10 $ 54,000 $ 18
Common Stock
underlying Warrants 540,000 Shs $5.00 $2,700,000 $ 931
Underwriter's Warrants
(3) 54,000 Wts $0.0001 $ 5.40 $ 0
Common Stock
underlying Underwriter's
Warrants 54,000 Shs $8.25 $ 445,500 $ 154
Bridge Lender's
Common Stock (4) 100,000 Shs $5.00 $ 500,000 $ 172
Bridge Lender's
Warrants(5) 1,250,000 Wts $0.0001 $ 125 $ 0
Common Stock
Underlying Bridge
Lender's Warrants 1,250,000 Shs $5.00 $6,250,000 $2,156
Pre-Bridge Lender's
Warrants(6) 12,500 Wts $0.0001 $ 1.00 $ 0
Common Stock Under-
Lying Pre-Bridge
Lender's Warrants 12,500 Shs $5.00 $ 62,500 $ 21
Pre-Bridge Placement
Agent's Warrants(7) 6,250 Wts $0.0001 $ 0.62 $ 0
Shares underlying
Pre-Bridge Placement
Agent's Warrants 6,250 Shs $5.00 $ 31,250 $ 11
Consultant's Common
Stock (8) 10,000 Shs $5.00 $ 50,000 $ 17
Total $4,411
(11)
(Notes to the Foregoing Table)
(1) Estimated solely for purposes of calculating the Registration Fee pursuant
to Rule 457.
(2) The actual per share offering price will be determined at the effective
date of this Registration Statement and shall be slightly below the closing bid
of the Company's common shares on such date.
(3) Represents warrants (the "Underwriter's Warrants") granted at a purchase
price of $0.0001 per Underwriter's Warrant to Morgan Grant Capital Corp. (the
"Underwriter") entitling the holder(s) to acquire an aggregate of 54,000 shares
of Common Stock exercisable for a period of four years commencing one year from
the date of this Prospectus, at an exercise price equal to 165% of the price of
the Common Stock to the public in this Offering (or $8.25 per share), subject
to adjustment in amount pro rata in the event all of the Common Stock is not
sold in this Offering.
(4) Represents shares of Common Stock being registered for the account of
certain lenders (the "Bridge Lenders") who loaned the Company funds (the
"Bridge Loan") and who received Common Stock (the "Selling Shareholders").
(5) Represents warrants (the "Bridge Lenders' Warrants") granted to the Bridge
Lenders to acquire an aggregate of 1,250,000 shares of Common Stock (after
adjustment for all reverse stock splits) at a price equal to 100% of the price
of the Common Stock to the public in this Offering ($5.00 per share).
(6) Represents warrants (the "Pre-Bridge Lender's Warrants") issued to the
Pre-Bridge Lenders to acquire an aggregate of 12,500 shares of Common stock
(after adjustment for all reverse stock splits) at an adjusted price of $5.00
per share.
(7) Warrants issued to Janssen-Meyers as placement agent for placement of Pre
Bridge Notes.
(8) Consists of 10,000 Shares of common stock (after adjustment) issued to
Ameristar Group Incorporated, a non-affiliated consultant for the Company with
respect to which the Company granted "piggy-back" registration rights (See
"Selling Shareholders").
(9) Pursuant to Rule 416, there is also being registered hereunder such
additional shares of Common Stock as may become issuable pursuant to
anti-dilution provisions of all of the warrants being registered hereunder.
(10) The Company previously paid $9,402.52 in filing fees with the filing of
the original registration statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
XETAL, INC.
Cross Reference Sheet Showing Location in Prospectus of Part 1 Items
of Form SB-2 Registration Statement and the Prospectus
Registration Statement Items Heading In The
and Headings Prospectus
----------------------------------- ------------------------------
1. Forepart of Registration Statement
and Outside Front Cover Page of Facing Page; Cover Page
Prospectus of Prospectus
2. Inside Front and Outside Back Cover Inside Front and Cover Pages
Pages of Prospectus, of the Prospectus
Additional Information
3. Summary Information and Risk Factors Prospectus Summary; Risk
Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page of Prospectus;
Risk Factors; Underwriting
6. Dilution Dilution
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Cover Page of Prospectus and
Notes; Underwriting
9. Legal Proceedings Business of the Company; Legal
Proceedings
10. Directors, Executive Officers,
Promoters and Control Persons Management; Principal
Shareholders
11. Security Ownership of Certain
Beneficial Owners and Management Principal Shareholders
12. Description of Securities Description of Securities
13. Interest of Named Experts
and Counsel Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities Underwriting
15. Information With Respect to Registrant Prospectus Summary; Risk Factors;
Dilution; Management; Business
of The Company; Description of
Securities; Executive
Compensation; Financial
Statements
16. Management's Discussion and Analysis
or Plan of Operations Management's Discussion and
Analysis of Financial Condition
and Results Operations.
17. Description of Property Property
18. Certain Relationships and Related
Transactions Certain Transactions
19. Market For Common Equity and Related
Stockholder Matters Cover Page of Prospectus;
Market For Common Stock and
Related Stockholder Matters
PRELIMINARY PROSPECTUS DATED NOVEMBER , 1998 (SUBJECT TO COMPLETION)
A Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective.
Information contained herein is subject to completion or amendment. These
securities may not be sold nor may offers to buy be accepted prior to the time
the Registration Statement becomes effective. This Prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
PROSPECTUS
XETAL, INC.
540,000 Shares of Common Stock, $0.001 Par Value, at $5.00 per share and
540,000 Redeemable Common Stock Purchase Warrants, at $0.10 per Warrant.
Xetal, Inc., a Utah corporation (the "Company"), is hereby offering (the
"Offering"), through Morgan Grant Capital Corp. as underwriter (the
"Underwriter"), on a best efforts basis, up to 540,000 shares (the "Shares") of
its common stock, $0.001 par value (the "Common Stock"), and up to 540,000
Redeemable Common Stock Purchase Warrants (the "Warrants"). The shares of
Common Stock and the Warrants (which are collectively referred to as the
"Securities") are being offered separately and are separately tradable
immediately upon issuance. The minimum offering will consist of 300,000 shares
of Common Stock and 300,000 Warrants (the "Minimum Offering") and the maximum
offering will consist of 540,000 shares of Common Stock and 540,000 Warrants
(the "Maximum Offering"). Each Warrant expires on -----------,2003, five years
after the date of this Prospectus, and entitles the holder, commencing one year
after the date of this Prospectus, to purchase one share of Common Stock for
$5.00, the assumed initial public Offering price, subject to adjustment in
certain events pursuant to the anti-dilution provisions thereof. The initial
public Offering price of the Warrants will be $0.10 per Warrant. The Warrants
are redeemable by the Company at a price of $0.05 per Warrant commencing two
years after the date of this Prospectus and prior to their expiration provided
that (i) prior notice of not less than 30 days is given to the holders of the
Warrants and (ii) the closing sale price of the Common Stock as reported on
the OTC Electronic Bulletin Board (the "Bulletin Board") for 20 consecutive
trading days, ending on the tenth day prior to the date on which the Company
gives notice of redemption, has been at least $7.50, 150% of the initial public
Offering price of the Shares. The holders of the Warrants will have exercise
rights until the close of business preceding the date fixed for redemption.
See, "Description of Securities - Warrants."
In addition to the shares of Common Stock and Warrants being offered by
the Company, approximately 110,000 shares of Common Stock and 1,268,500
Warrants are being offered by Selling Shareholders. The Selling Shareholders
may be deemed to be "underwriters" under the federal securities laws.
The Company's Shares are traded in the over-the-counter market on the OTC
Electronic Bulletin Board (the "Bulletin Board"), an electronic quotation
system maintained by the NASD, under the symbol "XETX." On --------------, ,
1998, the closing bid and asked prices for a shares of the Company's Shares
were $----- and $-----, respectively. See "Market for the Company's Securities
and Related Matters."
THESE SECURITIES INVOLVE SUBSTANTIAL RISKS AND DILUTION AND SHOULD ONLY BE
PURCHASED ONLY BY THOSE WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE
"RISK FACTORS at Page 13" AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION ("COMMISSION") NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Price to Underwriting Proceeds to
Public Commissions(1) Company (2)
Per Share $5.00 $0.50 $ 4.50
Per Warrant $0.10 $0.01 $ 0.09
Total Minimum $1,530,000 $153,000 $1,377,000
Total Maximum $2,754,000 $275,400 $2,478,600
(footnotes on following page)
MORGAN GRANT CAPITAL CORP. INC.
The date of this Prospectus is , 1998
(footnotes from previous page)
(1) In addition, the Company has agreed to pay the Underwriter a
non-accountable expense allowance equal to 2% of the gross proceeds of the
Offering ($30,600 at the minimum Offering and $55,080 at the maximum Offering),
of which $25,000 has been paid as of the date of this Prospectus. The Company
has also agreed to: (i) sell to the Underwriter warrants (the "Underwriter's
Warrants") at a purchase price of $0.0001 per Underwriter's Warrant entitling
the holder(s) to acquire an aggregate of 54,000 shares of Common Stock,
exercisable for a period of four years commencing one year from the date of
this Prospectus, at an exercise price equal to 165% of the price of the Common
Stock to the public in this Offering ($8.25 per share), subject to adjustment
in amount pro rata in the event all of the Common Stock is not sold in this
Offering and subject to the adjustment pursuant to the anti-dilution provisions
hereof; and (ii) indemnify the Underwriter against certain liabilities under
the Securities Act of 1933, as amended (the "Act"). See "Description of
Securities" and "Underwriting."
(2) After deducting underwriting commissions but before payment of the
Underwriter's non-accountable expense allowance in the amount of $30,600 if the
Minimum Offering is sold or $55,080 if the Maximum Offering is sold and the
other expenses of the Offering (estimated at $150,000) payable by the Company.
See "Underwriting."
The Securities are offered through the Underwriter named herein when, as
and if received and accepted by it, subject to prior sale, withdrawal,
cancellation or modification of this Offering without notice, and approval of
certain legal matters by Doros and Brescia, P. C., counsel for the Underwriter,
and the Underwriter. The Underwriter reserves the right to reject any offer for
the Securities, in whole or in part.
The Securities are being offered on a "best efforts all or none" basis as
to the first 300,000 shares of Common Stock and 300,000 Warrants (the "Minimum
Offering") and on a "best efforts" basis as to an additional 240,000 shares of
Common Stock and 240,000 Warrants (together with the Minimum Offering, the
"Maximum Offering"), during an offering period commencing on the date hereof
and expiring on ----------, 1998, unless extended by the mutual consent of the
Company and the Underwriter for up to an additional thirty (30) days (such
period, as same may be extended, being hereinafter referred to as the "Offering
Period"). Pending the acceptance by the Company of the Minimum Offering, all
subscription proceeds will be deposited in a non-interest bearing account (the
"Escrow Account") at the Chase Manhattan Bank ("Escrow Agent").
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY OF THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
A Registration Statement on Form SB-2 (the "Registration Statement") under
the Act relating to the securities offered hereby has been filed by the Company
with the United States Securities and Exchange Commission (the "Commission") at
its regional office in New York, New York. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Company and
the securities offered hereby, reference is made to such Registration
Statement, exhibits and schedules. Statements contained in this Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other documents filed as exhibits to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected without
charge at the Commissions principal offices in Washington D. C., and copies of
all or any part thereof may be obtained from the Commission upon payment of
certain fees prescribed by the Commission.
Following this Offering, The Company will be subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will file periodic reports with the
Commission. Such reports, proxy statements and other information concerning
the Company may be inspected and copied at the public reference facilities
maintained by the Commission, Room 1024, 450 Fifth Street, N. W., Washington,
D. C. 20549, and at the Commission's New York Regional Office at 7 World Trade
Center, 13th Floor, New York, NY 10048. Copies of such material can be
obtained from the public reference Section at prescribed rates.
The Commission also maintains an Internet web site that contains reports,
proxy and information statements and other information regarding issuers that
file such documents electronically with the Commission. This and other useful
information will be available about the Company on the web site when this
registration is complete and the Company begins to file reports and other
required documentation. The Commission's web site address is:
http://www.sec.gov.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by an independent public accounting
firm and may, at its discretion, furnish quarterly reports containing unaudited
financial statements.
SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this
Prospectus. The term the "Company" refers to Xetal, Inc. and its wholly owned
subsidiaries APO Health, Inc., Universal Medical Distributors, Inc. and Dental
Alternatives, Inc., unless otherwise indicated. All numbers referring to the
Company's shares of common stock are stated after giving effect to a 1-for-10
reverse stock split effected in August 1996 and a 1-for-2 reverse split
authorized by the Board of Directors and stockholders in August and November,
1998, respectively, unless specifically indicated to the contrary.
THE COMPANY
The Company was incorporated in May, 1969 under the laws of the State of
Utah under the name "Apache Silver Oil Co., Inc." and was previously engaged in
the oil and gas business. Thereafter, in February, 1985, the Company changed
its name to "Insurance Kingdom Agency, Inc." and engaged in the insurance
business until 1992 when it ceased doing business. In September, 1994, the
Company entered into an acquisition agreement with Xetal, Inc., a New York
corporation (for purposes herein referred as "APO Health"), pursuant to which
the stockholders of APO Health acquired approximately 83 % of the issued and
outstanding capital stock of the Company in exchange for all of the capital
stock of APO Health (the "Acquisition Agreement"). Prior to the acquisition,
Dr. Jan Stahl and Mr. Peter Steil owned 100% of the capital stock of APO Health
and served as its officers and directors. As a result of the consummation of
the transactions under the Acquisition Agreement, APO Health became a wholly
owned subsidiary of the Company and Dr. Jan Stahl and Mr. Peter Steil became
became principal shareholders of the Company and thereafter became officers and
directors of the Company. In August, 1998, 450,000 additional shares of Common
Stock were issued to Dr. Stahl and Mr, Steil (225,000 shares each) in
consideration of an outstanding debt to them of $162,038, so that presently
they hold a total of 737,500 shares of Common Stock or 80.6% of the Company's
outstanding Common Stock after giving effect to all of the previously
authorized reverse stock splits. The issuance of these shares and cancellation
of the debt is subject to the sale of the minimum Offering. In January, 1995,
the Company changed its name to "Xetal, Inc." and APO Health thereafter changed
its name to "APO Health, Inc." See "Certain Transactions."
In March 1996, the Company acquired 100% of the outstanding capital stock
of Universal Medical Distributors, Inc. ("Universal"), a company principally
engaged in the business of distributing veterinary supplies. During July 1996,
the Company also acquired 100% of the outstanding capital stock of Dental
Alternatives, Inc. ("Alternatives"), a corporation owned by Dr. Jan Stahl, one
of the Company's principal shareholder, in exchange for 200,000 shares (after
adjustment) of the Company's Common Stock. Alternatives owned certain
marketing rights and trademarks to products developed by Dr. Stahl. See
"Certain Transactions."
The present operations of the Company's predecessor commenced about 1987
and presently, through its subsidiaries, the Company is a distributor, supplier
and manufacturer of disposable medical products principally to dental, medical
and veterinary professionals. These products include protective garments such
as isolation gowns, facemasks and gauze as well as other disposable items such
as latex gloves, needles, syringes, health and beauty aids and chemicals for
infection control.
Management has elected to concentrate the Company's efforts in specialized
markets for disposable dental, medical and veterinary products. The Company
currently distributes over 3,000 different products. Products are marketed and
sold primarily (i) to other distributors (accounting for approximately 79% of
revenues) (ii) directly to doctors, dentists and veterinarians (accounting for
approximately 18% of revenues) and (iii) to others, including direct consumers,
and through exporters to foreign countries (accounting for approximately 3% of
revenues). See "Business of the Company" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
In addition, the Company has introduced a complete line of dental
emergency products and first aid kits which are being marketed under the name
"Dr. Stahl's Emergency Dental Kits" and "Dental Oral Care." These products are
designed for consumer use, for relief from common dental emergencies such as
toothaches, broken dentures, lost filings and loose crowns and bridges.
Management plans to expand marketing of this product line to include catalogs,
drug chains, hotel stores and television sales. In addition, the Company plans
to introduce a consumer medical line including Dr Stahl's band-aids, gauze,
toothbrushes and medical first aid kits. See "Business of the Company."
Universal, the Company's veterinary division, is a full service veterinary
supply company with sales in excess of $2 Million, generated through direct
marketing, trade shows and mail order. See "Business of the Company.
The Company maintains its principal executive offices at 3590 Oceanside
Avenue, Oceanside, New York 11572. The Company's telephone number is (516) 59
THE OFFERING
Securities Offered: 540,000 Shares of Common Stock, par value $0.001
and 540,000 Warrants.
Common Stock
outstanding prior to
the Offering:
914,131 shares of Common Stock after giving effect to
all of the reverse stock splits authorized by the Board
of Directors and the Shareholders and the 450,000shares
to be issued to Dr. Stahl And Mr. Steil.
Common Stock to be
outstanding after the
Offering(1)(2): 1,214,131 shares of Common Stock, if only the
minimum Offering is sold (after giving effect to all
reverse splits and the issuance of 450,000 additional
shares of Common Stock to Dr. Stahl and Mr. Steil)
if only the minimum Offering is sold and 1,454,131
shares if all of the shares offered are sold.
Exercise Terms
of the Warrants: Each Warrant is exercisable into one share of Common
Stock for a period of four years commencing one year
from the date of this Prospectus at an exercise price
of $5.00 per share, 100% of the initial public
Offering price.
Expiration Date of
Warrants: ------, 2003 (5 years from the date of this Prospectus)
Redemption of
Warrants: The Warrants are redeemable by the Company after
two years from the date of this Prospectus at a price
per Warrant of $0.05, upon not less than 30 days prior
written notice to the holders of such Warrants,
provided that the closing sale price of the Shares as
reported on The OTC Electronic Bulletin Board is at
least $7.50, 150% of the initial public Offering price
of the Shares, for twenty consecutive trading days
ending on the tenth day prior to the date on which the
Company gives notice of redemption. Warrant holders may
exercise the Warrants during such 30-day notice period.
Use of Proceeds: The proceeds of this Offering will be used by the
Company to repay two Bridge Financings in the
aggregate principal amount of $500,000, plus accrued
interest thereon, $250,000 of which was incurred by
the Company in anticipation of this Offering;
to acquire key-man life insurance to protect against
the loss of two officers; to provide for the
expansion of the Company's business through
acquisition of compatible existing business
entities; to fund the Company's operational and
administrative costs and expenses; and for working
capital. See "Use of Proceeds."
(1) Gives no effect to the possible exercise of the Warrants or to the
Underwriter's Warrants.
(2) Gives no effect to the possible exercise of the Pre-Bridge Warrants (as
that term is hereinafter defined) and Bridge Warrants previously issued to
certain Pre-Bridge Lenders (as that term is hereinafter defined) and Bridge
Lenders, respectively, which Warrants and underlying Common Shares are being
registered for future sale as part of this Offering.
SUMMARY FINANCIAL INFORMATION
The following summary financial data is qualified in its entirety by, and
should be read in conjunction with the Company's Financial Statements and the
Notes thereto included elsewhere in this Prospectus and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION"
hereinafter set forth in this Prospectus. The summary financial data presented
below as of September 30, 1997, and 1996 and for each of the two years then
ended, are derived from the Financial Statements of the Company audited by
independent certified public accountants, and are included elsewhere in this
Prospectus.
The data presented for each of the nine month periods ended June 30, 1998 and
1997 are derived from unaudited financial statements which, in the opinion of
management include all adjustments (which were of a normal and recurring
nature) necessary for a fair presentation of the information set forth therein.
The pro forma balance sheet reflects the conversion of loans payable to certain
shareholders into 450,000 shares of post split Common Stock.
Summary Balance Sheet Data:
Pro Forma
September 30, September 30, June 30, June 30,
1997 1996 1998 1998
Total Assets $4,089,332 $3,023,130 $4,414,578 $4,414,578
Total Current Assets 3,773,391 2,762,834 3,862,594 3,862,594
Total Liabilities 4,056,823 3,000,056 4,024,632 3,862,594
Retained Earnings (Deficit) (582,431) (566,766) (224,994) (224,994)
Stockholders' Equity 32,509 23,074 389,946 551,984
Summary Earnings Data:
Nine Months Nine Months
Year Ended Year Ended Ended Ended
September 30, September 30, June 30, June 30,
1997 1996 1998 1997
Revenues $23,500,981 $14,615,764 $24,693,703 $16,305,219
Cost of Revenues 21,027,226 12,595,353 22,280,389 14,509,242
Gross Profit 2,473,755 2,020,411 2,413,314 1,793,277
Selling Expenses 1,049,201 911,336 891,158 717,889
General and
Administrative Exp. 1,212,929 855,056 1,039,700 871,100
Income (Loss)
from operations 211,625 (133,107) 482,956 204,288
Net Income (Loss) (15,665) (308,390) 357,237 23,168
Earnings (Loss)
per Share $ (0.03) $ (1.56) $0.77 $0.06
Weighted Average
No. of Shares 456,815 197,400 464,131 430,798
Pro-Forma Earnings
(loss) per Share $(0.02) $(0.48) $0.39 $0.03
Pro-Forma Weighted
Average Number of
Shares 906,815 647,406 914,131 880,798
RISK FACTORS
An investment in the Securities offered hereby involves a high degree of
risk. The following factors, in addition to those discussed elsewhere in this
Prospectus, should be considered carefully in evaluating the Company and an
investment in this Offering. An investment in the Securities offered hereby is
suitable only for those investors who can bear the risk of loss of their entire
investment.
1. Narrow Operating Margins.
Prior to its acquisition of APO Health in 1994, the Company was an
inactive publicly-owned corporation. All of the Company's present business
operations are conducted through its wholly-owned subsidiaries, APO Health
(which commenced operations in October, 1987), Universal (acquired in 1996) and
Alternatives (also acquired in 1996). The Company's sales are typically of low
profit margin items, with net operating margins averaging between 1% and 2% of
gross revenues. As such, any downturn in sales could adversely affect the
Company's ability to operate profitably and could result in operating losses in
the future. See, "Financial Statements" and "Business of the Company."
Although the Company's Common Stock is currently traded on the OTC
Bulletin Board there is presently no active public market for the Securities
being offered hereby and no assurance can be given that a market for such
Securities will develop subsequent to this Offering. Quotations for the
Company's Common Stock have been sporadic and in small volumes and, as a
result, purchases or sales of relatively small amounts of Common Stock can have
a significant impact upon the quoted prices. The Underwriter is not obligated
to make a market in any of the securities upon completion of this Offering and
the Underwriter is not approved by the NASD to make a market in securities.
3. Need for Additional Financing.
The Company's ability to implement its business plan is materially
dependent upon the availability of additional capital to the Company through
the successful completion of this Offering. In contemplation of a prior
offering which did not occur and this Offering, the Company also obtained a
total of $500,000 in "bridge financing" in two transactions as follows:
In January, 1996, the Company issued $250,000 in promissory notes to
certain investors ("Pre-Bridge Lenders") for interim capital prior to this
Offering (hereinafter called the "Pre-Bridge Notes"). After deducting expenses
of the financing, including commissions, legal fees and miscellaneous expenses,
the net proceeds of $190,000 were used for working capital. The Pre-Bridge
Notes were issued at an interest rate of ten percent (10%) and were due at the
earlier of (a) December 15, 1996 or (b) the consummation of this Offering. As
an added inducement to make the loan to the Company, the noteholders were
issued Warrants to purchase 12,500 shares of the Company's Common Stock (as
adjusted for two reverse splits of Common Stock) at an adjusted exercise price
of $5 per share, exercisable until January 3, 2003. The Company also granted
Warrants to purchase 6,250 shares of Common Stock under the same terms to
Janssen-Meyers Associates for placement of the Pre-Bridge Notes. All of the
holders of the Warrants were also granted certain registration rights and are
included in this Registration Statement as selling securityholders. The terms
and conditions of this transaction were made at arms-length between the
parties.
In October, 1996, the Company also sold an additional $250,000 in bridge
loan notes (hereinafter called the Bridge Notes) through the Underwriter herein
to certain investors (hereinafter called the "Bridge Lenders") to be used for
working capital. The terms of the notes were made at arms-length through
negotiation with the Underwriter and the investors. The Bridge Notes were
issued with eight percent (8%) interest and were payable at the earlier of (a)
twelve months from the date of issuance or (b) the consummation of this
Offering. After giving effect to two reverse stock splits, the Company issued
to the noteholders a total of 100,000 shares of Common Stock and Warrants to
purchase an aggregate of 1,250,000 shares of Common Stock at an exercise price
of $5.00 per share if this Offering is sold, exercisable for a period of four
(4) years commencing on October 1, 1997. In addition, the Company paid to the
Underwriter a placement fee of $25,000 in connection with the placement of the
Bridge Notes plus an unaccountable expense allowance of $7,500 and granted to
the Underwriter Warrants to purchase 125,000 shares of Common Stock (after
adjustment) exercisable at $5.00, exercisable for a period of four years
commencing October 1, 1997. The Warrants issued in this transaction to the
Underwriter were subsequently cancelled. The placement fee and expense
allowance paid to the Underwriter are in addition to the compensation to be
paid to the Underwriter for its services in the sale of this Offering. Each of
the shareholders and warrantholders were granted certain registration rights
and are included in this Registration Statement as selling securityholders.
The Company is presently in default of both the Pre-Bridge and the
Bridge Notes in the total amount of $500,000 plus accrued interest. A
substantial portion of the proceeds from this Offering will be used to pay both
the Pre-Bridge and the Bridge Notes (collectively the "Notes") which will have
the effect of reducing the amount of proceeds available for the Company's
growth and other purposes. Also the issuance of the Common Stock and the
Warrants to the holders of the Notes will have a dilutive effect on this
Offering. See "Certain Transactions," "Dilution" and "Risk Factor 16."
4. Reliance Upon Management.
The Company is principally dependent upon the personal efforts and
abilities of Dr. Jan Stahl and Mr. Peter Steil, its principal operating
officers. The loss of either of these individuals could have a materially
adverse effect upon the Company's ability to successfully carry on its
business. In addition, although APO Health intends to obtain "key man" life
insurance upon the lives of Dr. Stahl and Mr. Steil in the amount of not less
than $1,00,000 each (see "Use of Proceeds"), if the Company were to lose the
services of either Dr. Stahl or Mr. Steil, its business could be adversely
affected and there can be no assurance that the proceeds of such insurance
would be adequate to secure an adequate replacement or to fully compensate the
Company for such loss. Furthermore, as the Company expands its present
operations, it will require the services of additional skilled personnel. There
can be no assurance that it will be able to attract persons with the requisite
skills and training to meet future needs or, even if suitable persons are found
that they will be available on terms acceptable to the Company. Currently there
are employment agreements in place between the Company and each of Dr. Stahl
and Mr. Steil; however, they expire in December, 1998. See "Management" and
"Executive Compensation."
5. Potential Impact of Changing Economic Factors in the Health Care Markets.
The health care market accounts for most of the demand for non-woven
disposable products, with hospitals accounting for approximately two-thirds of
this demand. The health care industry has been typified in recent years by
strict cost containment measures imposed by federal and state governments,
private insurers and other "third party" payors of medical costs. In response
to these pressures, virtually all segments of the health care market have
become extremely cost sensitive and in many cases hospitals and other health
care providers have become affiliated with purchasing consortiums which are
charged with obtaining large quantities of needed products at the lowest
possible cost. These factors in combination have had an adverse impact upon
smaller suppliers and manufacturers, such as the Company, which are either
unable to supply the large quantities sought by the purchasing consortiums or
which are unable to respond to the need for lower product pricing. Although
management believes that its planned expansion program will enable it to meet
the demand for large quantity orders, and despite management's belief that the
dramatic increased demand for safety oriented products, such as the disposable
products offered by the Company, will offset these factors, there can be no
assurance that the Company will be able to overcome the negative impact of
these conditions in the health care marketplace.
6. Potential Adverse Impact of Environmental Concerns.
At present, most disposable products are manufactured from fabrics which
are comprised of non-biodegradable plastic fibers. In recent years concern has
grown over the effects of such products on the environment due to the country's
growing solid waste disposal "crisis," the declining landfill capacity in major
metropolitan areas able to handle such products and the much publicized hazards
of "medical wastes." These concerns have been highlighted by suppliers of
traditional reusable medical products in an attempt to overcome the growing
demand for disposable products. Although the degree to which disposable plastic
products are responsible for the country's waste disposal related problems is
the subject of serious debate at the present time, should it become the
consensus that the costs and problems for the disposal of such products
outweigh their benefits, such a development could have a materially adverse
impact upon the Company and the medical products industry in general, at least
until biodegradable, non-woven products become a feasible alternative to the
materials now being used.
7. Potential Impact of FDA and Governmental Regulation.
Some of the Company's products may be regulated as medical devices by the
federal Food and Drug Administration (the "FDA") pursuant to the federal Food
and Drug Cosmetic Act (the "ACT") and are, or may be, subject to regulation by
other federal and state governmental agencies. The FDA has comprehensive
authority to regulate the development, production, distribution and promotion
of medical devices. Furthermore, certain states impose additional requirements
on the distribution of medical devices. The FDA may require pre-market
approval of some of the Company's proposed products, requiring extensive
testing and a lengthy review process. The cost of complying with present and
future regulations may be significant. Furthermore, the regulatory approval
process and attendant costs may delay or prevent the marketing of products
developed by the Company in the future. The Mandatory Device Reporting ("MDR")
regulation obligates manufacturers including, in some cases, distributors such
as the Company, to provide information to the FDA on injuries alleged to have
been associated with the use of a product or certain product failures which
could cause injury. The FDA is empowered to take action against manufacturers
of regulated products including both civil and criminal remedies, and may also
prohibit or suspend the marketing of products if circumstances so warrant. Any
such action by the FDA could result in a disruption of the Company's operations
for an undetermined time.
8. Product Liability; Cost and Availability of Insurance.
Providers of medical products to hospitals and other health care institutions
may encounter liability for damages to patients in the event that their
products prove to be defective. Certain of the Company's products and proposed
products will be utilized in medical procedures where the Company could be
subject to claims for such injuries resulting from the use of its products.
Recent developments in the insurance industry have reduced the availability and
increased the cost of liability insurance coverage. At present the Company
maintains product liability insurance coverage in the amount of $1,000,000.
However, as a result of the continuing changes in insurance coverage and
premiums, no assurance can be given that such insurance will be adequate to
fully protect the Company in the future or that product liability insurance can
be maintained at a reasonable cost.
9. Lack of Patent Protection.
At present, the Company does not rely upon patent protection for any of its
products and such protection is not believed to be essential by management
because of the character of its products. Furthermore, there is little
likelihood that it will develop patentable products or processes in the
foreseeable future. In the absence of such protection, the Company will
primarily rely upon trade secrets and proprietary techniques, where applicable,
to attain or maintain any commercial advantage. There is no assurance that
competitors will not independently develop and market, or obtain patent
protection for, products similar to those designed or produced by the Company,
and thus negate any advantage of the Company with respect to any such products.
Even if patent protection becomes available to the Company, there can be no
assurance that such protection will be commercially beneficial.
10. Competition.
The dental, medical and veterinary products supply businesses are intensely
competitive. At present, the Company estimates that there are over 20
companies whose products compete with many of the Company's present and
proposed products. These companies range from major multinational companies to
enterprises which are smaller in size and financial ability than the Company.
The Company's present and prospective competitors also include the numerous
manufacturers and suppliers of reusable medical products and manufacturers of
raw materials used by the Company. Many of the Company's competitors have far
greater financial resources, larger staffs, and more established market
recognition in both the domestic and international markets than the Company.
See, "BUSINESS OF THE COMPANY - Competition."
11. Dependence Upon Third Party Manufacturers/Suppliers.
The Company does not directly manufacture any of the products it presently
sells. The products distributed by the Company are, for the most part,
manufactured by third parties in the United States, the Far East, Mexico and
Canada. In general, the Company does not have long-term contracts with its
manufacturers. Although the Company believes alternative sources for virtually
all of its products are readily available, there can be no assurance that the
available supply from such alternative sources would be adequate to meet the
increased demand for production that would most likely result from any
significant disruption in the Company's traditional manufacturers and suppliers
of its products. See, "Business of the Company - Manufacturing."
12. Foreign Manufacturing.
Foreign manufacturing is subject to a number of risks, including
transportation delays and interruptions, political and economic disruptions,
the imposition of tariffs and similar import/export controls and changes in
governmental policies. Although, to date, the Company has not experienced any
material adverse effects due to such risks, there can be no assurance that such
events will not occur in the future with the result of possible increases in
product costs and/or delays in product delivery which would, in all likelihood,
result in the loss of revenues and good will by the Company.
13. Potentially Adverse Effect of Agreement to Pay Commissions to Management.
Under their employment agreements with the Company, Mr. Steil, President,
and Dr. Stahl, Chief Executive Officer, beginning with the calendar year 1996,
each receive annual bonuses equal to one (1%) per cent of the Company's gross
revenues over an agreed base of $11 Million per annum in addition to their base
salaries. The bonuses are payable in cash within 30 days after completion of
the Company's audited annual financial statements (see "Management - Executive
Compensation"). The payment of such commissions will reduce any net profits of
the Company and, given the low profit margins experienced by the Company, could
have an adverse effect on future profitability. The bonus was waived for 1996
and partially waived for 1997 (i.e. each received a bonus of $6,375 or a total
of $12,750 for 1997) and Dr. Stahl and Mr. Steil waived any further balance
they were entitled to receive for 1997. From October 1, 1997 to June 30, 1998,
the sum of approximately $200,000 was accrued for the payment of bonuses, or
$100,000 each. Dr. Stahl and Mr. Steil have agreed to waive any further amounts
for 1998.
14. Related Party Transactions.
Since commencement of its new operations in 1994, the Company entered into
Three related party agreements. The first agreement was entered into in
September, 1994 between the Company and Dr. Jan Stahl and Peter Steil, Chairman
and President of the Company, respectively, pursuant to which the Company
acquired its present business by purchasing from Dr. Stahl and Mr. Steil all of
their shares of Common Stock in Xetal, Inc., ("Xetal, New York") a New York
corporation operating under the name of "APO Health," in exchange for
1,000,000 shares of the Company's Common Stock each. After adjustment for a
1-for-10 reverse stock split and the recently approved 1-for-2 reverse stock
split, the total number of shares issued to Dr. Stahl and Mr. Steil was reduced
to 50,000 shares of Common Stock of the Company each, or a total of 100,000
shares. Xetal, New York was principally owned by Dr. Stahl and Mr. Steil at
the time of the transaction. As a result of the exchange of shares with the
Company, Dr. Stahl and Mr. Steil received a control position in the Company or
approximately 83% of its total outstanding shares. In July, 1996, the Company
also acquired from Dr. Stahl and Mr. Steil their entire interest in Dental
Alternatives, Inc., a corporation which owned marketing rights and trademarks
to products developed by Dr. Stahl, in exchange for a total of 200,000 Shares
(100,000 Shares each) each) of the Company's Common Stock (after adjustment for
the 1-in-10 and the 1-for-2 reverse stock splits). Since the agreement with
Dental Alternatives was made with a Principal shareholder, it must be
considered that it was not made through arms-length negotiations and may not
have been structured in a manner favorable to the Company. Such transactions
also necessarily involve conflicts of interest between the Company and Dr.
Stahl and Mr. Steil. The Company has no policy with respect to transactions
with affiliates except that in the future all acquisitions entered into with
affiliates will be subject to an independent appraisal as to valuation.
Recently, the Company also entered into an agreement with Dr. Stahl and Mr.
Steil in which it was agreed that, subject to the completion of the Minimum
Offering, the Company's debt to them in the amount of $162,038 would be paid in
exchange for 450,000 shares of Common Stock. (See Note 8 to the Financial
Statements for the nine months ended June 30, 1998.) There are no further
transactions pre sently contemplated with any of the existing officers or
directors of the Company. See "Certain Transactions."
15. Continued Control of Present Management.
If this Offering is completed at the Minimum, officers and directors of
the Company will continue to own approximately 61.2% of the total number of
shares of Common Stock outstanding and, therefore, management will,
effectively, be in a position to continue to control the Company and institute
all of its policies. If the Offering is completed at the Maximum level (i.e.
if all 540,000 shares of Common Stock are sold) the officers and directors of
the Company will own 51.9% of the total outstanding number of shares of Common
Stock and will continue to be in a position to control the Company.
Furthermore, The Company's Articles of Incorporation do not provide for
cumulative voting. Accordingly, after completion of this Offering,
Subscribers may not be in a position to select any of the Company's directors,
appoint its officers and control its affairs and operations. The foregoing
percentage calculations were made on the basis of 914,131 shares outstanding
which gives effect to both of the Company's reverse stock splits, but no effect
was given to the exercise of outstanding warrants. See "Principal
Shareholders."
16. Dilution.
As of June 30, 1998, the net tangible book value of the Company's Shares
was $0.38 per share. If all the Securities being offered hereby are sold, the
net tangible book value of the Shares will be approximately $1.84 Consequently
the purchasers of the securities being offered hereby will suffer an immediate
dilution of approximately $3.16 per Share (approximately 63%). Conversely,
present Shareholders of the Company would receive an immediate benefit of
approximately $1.46 per Share if all the securities offered are sold. For
detailed information concerning dilution, see "Dilution."
17. No Dividends.
The Company has not paid any dividends on its Shares since its inception
and does not expect to declare or pay any cash dividends in the future. The
Company anticipates that any profits from operations will be reinvested in the
Company.
18. Authorization of Preferred Stock; Anti-takeover Provisions.
The Company's Articles of Incorporation authorize the issuance of
2,000,000 shares of Preferred Stock with such designation, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without obtaining shareholder
approval, to issue Preferred Stock with preferred dividend, liquidation,
conversion, voting or other rights that could adversely affect the voting power
or other rights of the holders of the Shares. In the event of issuance, the
Preferred Stock could be utilized, under certain circumstances, as a method of
discouraging, delaying, or preventing a change in the control of the Company.
See "Description of Securities."
19. Escrow of Investor's Funds.
Pending the completion of this Offering, all subscriber funds will be held
in a non-interest bearing escrow account (the "Escrow Account") with the Chase
Manhattan Bank (the "Escrow Agent") until the Minimum Offering is subscribed
for and cleared funds are available in the Escrow Account. As such, subscriber
funds could be held for up to sixty days, subject to extension for an
additional thirty days by the Company and the Underwriter. In the event the
Minimum Offering is not subscribed for during such period, all such amounts
will be returned without interest thereon or deduction therefrom. Therefore,
subscribers for the Securities offered hereby may not have the use of such
funds or receive interest thereon pending the completion of the Offering. See
"Underwriting."
20. No Commitment to Purchase Securities.
The Securities offered herein are offered on a "best efforts, all or none "
basis with respect to the first 300,000 shares of Common Stock and 300,000
Warrants and thereafter on a "best efforts" basis only with respect to the
remaining 240,000 shares of Common Stock and 240,000 Warrants, by the Company
through the Underwriter. No commitment exists by anyone to purchase all or any
portion of such Securities. Consequently, there can be no assurance as to how
many shares of Common Stock and Warrants over the Minimum Offering, if any,
will be sold by the Company in this Offering.
21. Potentially Adverse Effect of Agreement to Pay Warrant Solicitation Fee.
At present, the Company has an arrangement with the Underwriter to pay a
Warrant solicitation fee of 7% in connection with the possible exercise of the
Warrants being offered hereby. However, unless granted an exemption by the
Securities and Exchange Commission from the provisions of Regulation M
promulgated under the Securities Exchange Act of 1934, as amended, any
soliciting Broker/Dealers will be prohibited from engaging in any market-making
activities with regard to the Company's securities for the period from two (2)
business days prior to any solicitation of the exercise of Warrants until the
later of the termination of such solicitation activities or the termination (by
waiver or otherwise) of any right that the soliciting Broker/Dealers may have
to receive a fee for the exercise of Warrants following such solicitation. As a
result, soliciting Broker/Dealers may be unable to continue to provide a market
for the issuer's securities during periods while the Warrants are exercisable.
22. Possible Effects of SEC Rules on Market For Common Stock and Warrants.
Prior to this Offering the Company's Shares have been traded on the OTC
Electronic Bulletin Board. The Company intends to apply for approval to have
the securities offered hereby (the Warrants and Shares) approved for inclusion
on the Bulletin Board. The Company's securities must continue to be registered
under Section 12(g) of the Exchange Act. If the Company's securities are
traded for less than $5 per security, then unless the Company's net tangible
assets exceed $2,000,000 or the Company has average revenues of at least
$6,000,000 for the last three (3) years, the respective security (a "Low-Priced
Security") will be subject to SEC Rule 15g-9 concerning sales of low priced
securities or "penny stocks" unless the security is otherwise exempt from Rule
15g-9. Pursuant to Rule 15g-9, prior to concluding a sale, a broker-dealer must
make a special suitability determination for the purchaser and receive the
purchaser's written representations and agreement concerning the transaction.
In addition, Rule 15g-9 generally requires broker-dealers to provide customers
for whom they are effecting transactions in a Low-Priced Security, before the
transaction, with a standard risk disclosure document describing the customer's
right to disclosures of the (i) current bid and asked quotations, if any, (ii)
compensation of the broker-dealer and the salesperson in the transaction, and
(iii) monthly account statements showing the market value of the such stock
held in the customer's account. If the Common Stock or Warrants individually
trade for more than $5 per security, then these rules will not apply to the
transactions in the respective security trading for over $5. To the extent
that the respective security becomes a Low-Priced Security, these rules will
apply and would be expected to have a negative effect on the desire of brokers
to sell the Company's Securities; would be expected to have a negative effect
on the brokers' ability to do so; and also would be expected to have a negative
effect on the ability of purchasers in this Offering to sell the Company's
securities in the secondary market. The Underwriter, the Company and the
Selling Shareholders may also be subject to certain restrictions on bidding
for, purchasing or attempting to purchase the Company's stock and engaging in
certain stabilization activities, among other prohibitions imposed by
Regulation M.
23. Unregistered Securities.
The existing shares of Common Stock and Warrants, if any, and Common
Stock underlying the Warrants, if any, which are not being registered pursuant
to this Registration Statement are "restricted securities" as that term is
defined in the Act. Therefore, all such securities must be held indefinitely
unless subsequently registered under the Act or an exemption from registration
becomes available. One such exemption which may be available to the holders of
such securities in the future is Rule 144 adopted under the Act. Generally,
under Rule 144, any person holding restricted securities for at least one (1)
year may publicly sell, in ordinary unsolicited brokerage transactions, within
a three (3) month period, the greater of one (1%) percent of the total number
of the Company's Shares outstanding or the average weekly reported volume
during the four weeks preceding the sale, if certain conditions of Rule 144 are
satisfied by the Company and the seller. Furthermore, with respect to sellers
who are "non-affiliates" of the Company, as that term is defined in Rule 144,
Pursuant to Paragraph K of Rule 144, the volume sale limitation does not apply
after a two-year holding period and an unlimited number of shares may be sold
without restriction, provided the seller meets certain other conditions
enumerated in Rule 144. Sales under Rule 144 may have a depressive effect on
the market price of the Company's securities and could effect the sale of
Common Stock purchased in this Offering in the future. See "Restriction on
Resale." Dr. Stahl, Chairman, Mr. Steil, President and Mr. Levanthol, a
director, propose to sign lock-up agreements with the Underwriter, restricting
their sale of shares for a period of two years. The foregoing persons hold a
total of 742,500 shares of the Company's Common Stock. All other lock-up
agreements have or will shortly expire.
24. Underwriter's Warrants and Registration Rights.
The Company has agreed to sell to the Underwriter warrants (the
"Underwriter's Warrants) at a purchase price of $0.0001 per Underwriter's
Warrant to acquire an aggregate of 54,000 shares of Common Stock, entitling the
holder to purchase 54,000 shares of Common Stock exercisable for a period of
four years commencing one year from the date of this Prospectus, at an exercise
price equal to 165% of the price of the Common Stock to the public in this
Offering (i.e $8.25 per share), subject to adjustment in amount pro rata in the
event all of the shares of Common Stock and/or Warrants are not sold in this
Offering. The Underwriter's Warrants and Shares of Common Stock issuable upon
exercise of the Underwriter's Warrants are identical to those offered hereby,
except that the Underwriter's Warrants are exercisable at 165% of the public
offering price of the Common Stock. The Underwriter's Warrants are exercisable
for a period of four years commencing one year from the date of this
Prospectus. The exercise of the Underwriter's Warrants will dilute the value of
the Common Stock and may adversely affect the market price of the Common Stock.
The Underwriter has been granted (i) certain "piggy-back" registration rights
for a period of seven years from the date of this Prospectus and (ii) demand
registration rights for a period of five years from the date of the Prospectus
with respect to the registration under the Act of the Underwriter's Warrants
and the Common Stock issuable upon exercise of the Underwriter's Warrants.
25. Continuing Relationship with the Underwriter.
The Company has entered into an agreement with the Underwriter providing
for the Underwriter to designate a voting member to the Company's Board of
Directors. The existence of this agreement will cause the Company to have a
continuing relationship with the Underwriter at the expiration of the Offering
period.
26. Effect of Sales by Selling Shareholders.
To the extent that the Selling Shareholders effect sales of their
securities pursuant to this Offering at the same time as Company shares are
offered, the Company's ability to sell its Securities may be affected, the
result of which may be that the Offering will be delayed, postponed or
discontinued. Also, the Bridge Lenders previously entered into "lock up"
agreements which restricted the sale of their stock and which expired in
September, 1998.
27. Effect of Warrants.
The holders of Warrants and the Underwriter's Warrants will have an
opportunity to benefit from a rise in the market price of the Shares. During
the life of the Warrants, the terms upon which the Company could obtain
additional capital may be adversely affected. Holders of Warrants might be
expected to exercise them at a time when the market price of the Shares is in
excess of the exercise price of the Warrants. The issuance of Shares upon the
exercise of the Warrants, therefore, may result in a dilution of the equity
represented by the then outstanding Shares held by other shareholders. At such
a time the Company might be able to obtain capital, if needed, on terms more
favorable than those provided by the Warrants. See "Dilution."
DILUTION
As of June 30, 1998, the net tangible book value of the Common Stock of
the Company was $0.38 per Share. Net tangible book value per share represents
the amount of the Company's tangible net worth (total tangible assets less
total liabilities) divided by the total number of Shares outstanding.
"Dilution" means the difference between the purchase price of the Shares paid
by an investor herein and the pro-forma net tangible book value of the Shares
after giving effect to this Offering. After giving effect to the sale of
shares offered hereby and receipt of the net proceeds thereof, the pro forma
net tangible book value of the Shares at June 30, 1998, would have been $1.31
per Share, if only the minimum Offering is sold, or $1.84 per Share, if the
maximum Offering is sold. This represents an immediate increase in net
tangible book value of $0 .93 per Share, if the minimum Offering is sold and
$1.48 per Share if the maximum Offering is sold to existing holders of Shares
and an immediate dilution of $3.69 per Share or 74% (minimum) or $3.16 per
Share or 63% (maximum) of the initial public offering price to purchasers of
the Shares offered hereby. The following tables illustrate the dilution to the
purchasers of the Shares offered hereby both for the minimum and maximum
Offerings:
I. Assuming Only The Minimum Offering is Sold:
Public Offering price per share (1)(2): $ 5.00
Net tangible book value at June 30, 1998
(Before Offering): $ 0.38
Increase per share attributable to new investors: $ 0.93
Pro forma net tangible book value at June 30, 1998
(After Offering) (3): $ 1.31
Per share dilution to new investors: $ 3.69
II. Assuming The Maximum Offering is Sold:
Public Offering price per share (1)(2): $ 5.00
Net tangible book value at June 30, 1998
(Before Offering): $ 0.38
Increase per share attributable to new investors: $ 1.46
Pro forma net tangible book value at June 30, 1998
(After Offering)(3): $ 1.84
Per Share dilution to new investors $ 3.16
Assumes no value for the Warrants for the purpose of calculating dilution.
(1) Before deduction of Underwriter's commission and estimated expenses of
the Offering to be paid by the Company.
(2) Assumes no exercise of the Underwriter's Warrants.
(3) Is based upon 914,131 shares of Common Stock issued and outstanding at
June 30, 1998, which reflects the pro forma number of shares outstanding
after certain shareholders conversion of $162,038 in Loans payable to
them into 450,000 shares of Common Stock.
(4) The foregoing table assumes no value for the Warrants for the purposes of
computing dilution.
The following tables set forth, after giving effect to the assumed completion
of the Offering, at both the Minimum and Maximum Offering, the total
consideration paid and the average price per Share paid by existing
shareholders and by the public participating in this Offering:
III. Assuming Only The Minimum Offering is Sold:
Shares Owned Consideration Average Per
Number Percent Amount Percent Share Price
Present
Shareholders 914,131 75.9% $ 776,978 34.1% $ 0.85
New Investors 300,000 26.1% $1,500,000 65.9% $ 5.00
Total(1) 1,214,131 100.0% $2,276,978 100.0%
IV. Assuming The Maximum Offering is Sold:
Shares Owned Consideration Average Per
Number Percent Amount Percent Share Price
Present
Shareholders 914,131 62.9% $ 776,978 22.3% $ 0.85
New Investors 540,000 37.1% $2,700,000 77.7% $ 5.00
Total(1) 1,454,131 100.0% $3,476,978 100.0%
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(1) Does not give effect to (i) the exercise of any of the Warrants offered
hereby; (ii) the exercise of any of the Underwriter's Warrants; or (iii)
the exercise of any of the Bridge or Pre Bridge Warrants also registered
herein.
(2) Gives effect to the two reverse stock splits authorized by the Board of
Directors and Shareholders.
USE OF PR0CEEDS
The net proceeds from the sale of the Securities offered hereby, after
deducting underwriting commissions and other expenses of the Offering,
estimated in the aggregate at $284,100 if only the minimum number of shares of
Common Stock are sold, or $428,980 if all shares of Common Stock and Warrants
are sold, will be approximately $1,245,900 if the Minimum Offering is sold and
$2,325,020 if the Maximum Offering is sold. These proceeds are intended to be
applied approximately in the following manner:
Minimum Percentage(1) Maximum Percentage(1)
Amount Amount
Repayment of Bridge
Loan Financing(2) $ 603,750 48.5% $ 603,750 26.0%
Expansion of
Inventory(3) 100,000 8.0% 200,000 8.6%
Marketing(4) 50,000 4.0% 100,000 4.3%
Key-man Insurance(5) 25,000 2.0% 25,000 1.1%
Insurance(6) 20,000 1.6% 20,000 0.9%
Expansion and
Acquisition
Program(7) 200,000 16.1% 500,000 21.5%
Working Capital(8) 247,150 19.8% 876,270 37.6%
TOTALS $1,245,900 100.0% $2,325,020 100.0%
- --------------------------------
(1) All percentages are rounded to the nearest tenth.
(2) Includes principal and estimated interest payments due on two previous
bridge financing transactions completed by the Company in anticipation of this
Offering.
(3) Includes an allocation for the expansion of the Company's existing
inventory in order to permit management to take advantage of available volume
discounts offered by suppliers and to establish initial inventories of new
products either developed by the Company or as to which distribution rights
have been negotiated.
(4) This allocation is intended to meet the anticipated costs of expanding the
Company's marketing and advertising program. Although the Company has not yet
finalized its long term marketing plans, management generally intends to (i)
investigate the feasibility of expanding its use of independent marketing
representatives and to promote its product lines, particularly its proprietary
products, to new markets, other than the traditional hospital and health care
markets, through the use of a combination of advertisements in specialized
trade magazines, attendance at trade shows and a direct mail program to
potential end-users; (ii) expand its use of print advertising (including the
expansion of current advertising in trade publications) and (iii) develop,
printing and distribute product brochures and literature, particularly for the
Company's proprietary products. This allocation is estimated to be adequate to
meet the cost of such activities for a period of at least one year following
the completion of this Offering even if only the minimum Offering is sold.
(5) This allocation is intended to be used by the Company for the purchase of
key-man life insurance on The lives of Dr. Stahl and Mr. Steil in the amount of
$1,000,000 each. Based upon quotations received by management, this allocation
is deemed adequate by management to meet the first year's cost for such
insurance for both Dr. Stahl and Mr. Steil.
(6) This allocation is intended to meet the cost of (i) acquiring product
liability insurance in a minimum amount of $1 million and (ii) acquiring
officers and directors insurance following the completion of this Offering,
which management believes to be essential in order to attract new officers and
directors with the skills and experience required to fully realize the
Company's growth potential. Based upon an investigation by management, this
allocation is expected to be adequate to cover the first year premium for such
insurance.
(7) This allocation is intended to meet the cost of implementing the Company's
expansion program (see, "BUSINESS OF THE COMPANY") and is expected to be
adequate for a period of at least one year following the completion of this
Offering. However, there are no present plans, proposals, arrangements or
understandings to make any acquisitions or purchases of existing businesses.
(8) This allocation will be used as general "Working Capital" to pay various
routine administrative and operating expenses of the Company.
In connection with the application of funds for working capital as indicated
above, it should be noted that the proceeds from both the Bridge Loans and the
Pre Bridge Loans were applied for this purpose and were principally used to pay
current obligations of the Company and for inventory purchases. Proceeds from
this Offering applied to working capital will also be used primarily to pay for
current expenses of operations and to the extent necessary to supplement
additional inventory purchases.
The foregoing categories indicate the allocation of funds in the order of
priority and relative percentage of the total proceeds which is expected to be
used by the Company for the purposes indicated. The amounts set forth
represents the Company's best estimates of its required allocation of funds
based upon the current state of its business operations, its current plans, and
current economic and industry conditions. The actual expenditures may vary from
the estimates set forth in the table above, depending upon a number of factors
beyond the control of the Company. Future events, including the problems,
expenses, complications and delays frequently encountered by growing
businesses, as well as changes in economic conditions or the regulatory
environment or the Company's operations, may make changes in the allocation of
funds necessary or desirable. It is anticipated that a sufficient reserve has
been allocated to "Working Capital" to provide adequate additional funds,
without affecting the allocations set forth in other categories. To the extent
amounts received are inadequate in any particular area of expenditure,
supplemental amounts may be drawn from operating revenues, if any, or from the
allocation for "Working Capital." Conversely, in the event that actual
expenditures in any particular category are less than the amounts allocated,
any amounts not expended will be added to the reserve for "Working Capital."
It is possible that all or a portion of the funds received in this
Offering may not be utilized immediately, in which case the Company may invest
unused funds in interest bearing accounts or securities, within limitations,
until expenditure of such funds becomes necessary. It must be noted that all
funds in the Working Capital category may be used for any purpose deemed
appropriate by management without any restriction or say whatsoever by the
shareholders including purchasers of Securities herein.
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
as of June 30, 1998 as adjusted to give effect to the sale of (i) the minimum
and maximum number of Securities offered hereby and (ii) the application of the
estimated net proceeds therefrom. This table should be read in conjunction
with the Company's Financial Statements included elsewhere in this Prospectus.
See "Financial Statements."
Adjusted For
Minimum Maximum
Actual Pro Forma(1) Offering(2)(4) Offering(3)(4)
Long term debt $162,038
Stockholders' Equity:
Preferred stock,
$0.10 par value,
no shares outstanding
Common Stock,
$0.001 par value,
20,000,000 shares
authorized; 464,131
shares issued and
outstanding; Pro Forma
914,131 shares issued
and outstanding (1);
1,214,131 shares to be
outstanding upon sale
of the minimum offering(2),
1,454,131 shares upon
sale of the maximum
Offering(3) 464 914 1,214 1,454
Additional paid-in
capital (3) 614,476 776,064 1,972,141 3,051,021
Retained Earnings
(Deficit) (224,994) (224,994) (224,994) (224,994)
Total stockholders'
equity 389,946 551,984 1,748,361 2,827,572
Total Capitalization $551,984 $551,984 $1,748,361 $2,827,572
- --------------------
(1) Gives effect to the issuance of 450,000 shares to Dr. Stahl and Mr. Steil
consideration of the discharge of the Company's debt to them of $162,038. See
"Certain Transactions."
(2) As adjusted to reflect the sale of the Minimum number of Securities offered
hereby and the application of the proceeds by the Company.
(3) As adjusted to reflect the sale of the Maximum number of Securities offered
hereby and the application of the proceeds by the Company.
(4) Does not give effect to (i) the exercise of any of the Warrants offered
hereby; (ii) the exercise of any of the Underwriter's Warrants; or (iii) The
exercise of any of the Pre-Bridge or Bridge Warrants.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The information described herein represents the financial condition and
results of operations of the Company's principal subsidiaries, since the
Company itself is and has been inactive for more than two years and the
acquisition of APO Health, Inc. ("APO") by the Company for accounting purposes
has been treated as a purchase by APO (i.e. a reverse acquisition) because of
the significance of the assets and operations of APO when compared to the
Company. Therefore the financial statements predominantly represent the
historical activities and assets of APO and the two other subsidiaries acquired
by the Company.
Business of the Company
The Company distributes medical, dental and veterinary supplies which are
manufactured by others. These products include protective garments such as
disposable isolation gowns, face masks and gauzes as well as other medical
disposable items including latex gloves, needles, syringes and health and
beauty aids. Products are marketed and sold primarily (i) on a wholesale basis
to other distributors (approximately 79% of total revenues); (ii) directly to
doctors, dentists and veterinarians (approximately 18% of total revenues);
(iii) to others including to consumers and through export to foreign countries
(approximately 3% of total revenues).
Plan of Operation for the Next Twelve Months
Since the Company has operated for the last nine years based on the
capital it has generated from operations and lending sources, it is anticipated
that the Company will continue for at least the next twelve months with the
financing and credit alternatives it now has available, assuming no further
capital is received and this Offering is not sold. The Company's growth and
expansion would be substantially affected by the lack of any new funds from
sources other than what is available to the Company presently and no new
acquisitions or expansion could be made in the foreseeable future; however, in
management's opinion, the Company could continue as previously without
additional capital during the next twelve months.
Assuming the success of this Offering, however, the Company does not
anticipate the need for any additional financing during the next year; unless,
a presently unforeseen event occurs such as a new acquisition opportunity not
now in contemplation, the addition of one or more new products requiring
additional marketing expense or other events not presently anticipated.
During the next twelve months, the Company does not plan to expend any
significant funds for research and development as it has been the Company's
policy to look at acquisitions of products which are already developed and are
ready for marketing. The Company has also in the past relied upon Dr. Stahl
for the introduction of new products which have not required great expenditures
of cash.
Presently, and at least for the next twelve months, the Company also does
not anticipate any principal expenditures for product development. The
significant part of the Company's products are ready for marketing as they are,
except, perhaps, for minor improvements, and the Company expects to expend most
of the proceeds of the offering for marketing of its products rather than
development, based on present foreseeability. The Company expects to allocate
approximately $50,000 to $100,000 of the proceeds from this Offering for
marketing its products and approximately $100,000 to $200,000 in inventory
expansion and other expansion activities such as improving product distribution
through increased contact with its present customers and through sales to new
customers. The Company believes that applying funds in this manner will
contribute to the greatest growth in product distribution, rather than having
the Company become entangled in expensive product development activities.
The Company is now in the process of carrying out its objectives for the
expanded marketing of its products. The extent to which the Company can move
in this direction will be determined by the funds it receives in the Offering.
The Company's marketing objective will be to establish the need for its
products by appropriate advertising and increased contact with customers. The
Company will also devote effort to controlling manufacturing costs and
determining profit margins as part of its marketing effort.
One of the Company's chief strategies for expanding the marketing of its
products is to provide a more diversified product line to be in a position to
offer a more complete line of items to its existing customers. In this manner,
the Company will be in a position to make ancillary sales of other products to
companies who are presently buying only a few items.
Management also generally expects to look into the feasibility of
expanding its use of independent marketing representatives to promote its
product lines, particularly its proprietary items, to new markets, other than
the traditional hospital and health care industries now served, through the use
of a combination of advertisements in trade magazines, attendance at trade
shows and a direct mail program to potential end-users. As part of its new
advertising effort, the Company will also expand its use of print advertising
(including the expansion of current advertising in trade publications). The
Company also expects to develop, print and distribute product brochures and
literature, particularly for the Company's proprietary products. The Company
will also establish a tele-marketing network to achieve greater market
penetration. As stated above, a portion of the proceeds of this Offering has
been allocated to meet the costs of the Company's expanded sales and marketing
program during the coming fiscal year.
The Company does not expect to expend any significant funds for plant
acquisitions or for the purchase of any machinery or equipment, based on
current projections for the next twelve months. This, of course, is subject to
the status of the Company remaining the same for that period of time and the
fact that the Company does not make any new acquisitions during the period of
the next twelve months.
Also, based on present contemplation, there is no future intention to
expand the number of employees to any significant degree during the next twelve
months.
In the marketing of its products, the Company will face intense
competition in the distribution of hospital supplies, medical and veterinary
products. There are a number of companies presently in direct competition with
the Company which range from major multinational companies to businesses which
are smaller than the Company. Many of the Company's competitors also include
its own suppliers of raw materials and manufactured products. Many also have
far greater resources, larger numbers of employees and much better market
recognition than the Company, making competition particularly intense.
The consumer health and personal care products marketed by the Company are
also highly competitive. Competition in these markets is based principally on
price, quality of products and customer service. Although the Company believes
that it currently competes favorably as to these factors, due to the high costs
associated with quality control and customer service, and the low profit
margins typical for these products, there is no assurance that the Company will
be able to sustain its competitive position in these markets.
Several of the consumer markets in which the Company competes are
dominated by nationally advertised brand name products marketed by established
consumer packaged goods companies. The Company seeks to provide private label
products with quality equivalent to nationally advertised brand name products
at substantial cost savings to consumers and increased profit potential to
retailers. The Company has attempted to soften this competition with the
introduction of its increased product line, and the Company believes that it
presently offers one of the broadest lines of private label products available
when compared to its private label competitors. In the opinion of management,
this expanded product line provides the Company with a competitive advantage by
offering the Company's customers the ease of administration resulting from a
single supplier for many of their product needs.
The Company's primary competition is in consumer retail products and is
generally product specific. Although some crossover does exist, the Company
faces a different set of primary competitors in each product line it offers.
The Company's position in the industry is insignificant and it competes based
primarily on the basis of service and price.
Financial Condition and Liquidity.
(a) Financial Condition.
Assets
Period from September 30, 1997 to June 30, 1998.
From September 30, 1997 to June 30, 1998 total assets increased by $325,246
(approximately 8%). Cash increased by $57,564 and accounts receivable
increased by $628,741 while inventory decreased by $247,148 and the "Due from
Officer's" account decreased by $97,948, reflecting the most significant
changes in assets for the period. The increase in accounts receivable is
directly related to the increase in monthly sales during the period.
Years ended September 30, 1997, 1996 and 1995.
Total assets of the Company increased by approximately thirty-five percent
(35%) in fiscal 1997 as compared with fiscal 1996 (i.e. total assets of
$4,089,332 for 1997 and $ 3,023,130 for 1996). The notable difference in these
periods occurs because of substantially increased accounts receivable in 1997
(i.e. $2,533,090 in 1997 as compared to $1,162,602 in 1996, an increase of
approximately 118%).
This increase was more than sufficient to offset declining cash balances
at September 30, 1997, reductions in inventory and other miscellaneous
reductions in other assets in 1997 as compared with 1996.
A comparison of certain significant tangible assets of the Company and
Stockholder's Equity for the years ended September 30, 1997, 1996 and 1995, and
for the nine months ended June 30, 1998(unaudited) is as follows:
September 30, September 30, September 30, June 30,
1997 1996 1995(1) 1998
(unaudited)
Cash $ 1,163 $ 129,250 $ 247,856 $ 109,899
Receivables 2,533,090 1,162,602 1,357,114 3,161,831
Inventory 1,001,219 1,288,278 772,722 754,071
Net Property
& Equipment 96,323 78,078 76,875 83,720
---------- -------- --------- ---------
Total $ 3,631,795 $ 2,658,208 $ 2,454,567 $4,109,521
Stockholders
Equity
(Deficit) $ 32,509(2) $ 23,074(3) $ 327,364(3) $ 387,946(2)
- ----------------------
(1) Represents results of operations and financial condition for the years
ended September 30, 1997, 1996 and 1995. Also see "Introduction" above.
(2) Does not include $162,038 in previously taxed profits due to the former
shareholders of APO in earnings from operations as a Subchapter S corporation
prior to the acquisition of APO by the Company. This amount was paid to the
former shareholders in August, 1998 by issuing 450,000 shares of Common Stock.
(3) Does not include $248,038 in previously taxed profits due to the former
shareholders of APO in retained earnings from operations as a Subchapter S
corporation prior to APO's acquisition by the Company.
This comparison reveals an increase in tangible assets for each of the
periods ended June 30, 1998, September 30, 1997, 1996 and 1995 and reflects the
growth of the Company's business in these periods in terms of tangible assets.
While the growth of the Company in terms of tangible assets is evident from
this comparison, there was a significant cash decline in the years ended 1995,
1996 and 1997 which has improved at June 30, 1998 due to increased business,
improved collection of receivables and cash flow since September 30, 1997. The
decline in prior years primarily resulted from increases in receivables, the
cost of operating at higher levels, underwriting expenses and the cost of
making two acquisitions during this two year period.
The Company utilized cash flow from operations of $486,347 in the year
ended September 30, 1997, compared with a cash utilization of $51,405 for the
year ended September 30, 1996. The Company had a net cash balance of $1,163 at
September 30, 1997 which was a decline of $128,087 from the previous period.
The Company also had a cash balance of $129,250 at September 30, 1996 which was
a decline of $118,605 compared to September 30, 1995.
At the same time, a comparison of Stockholder's Equity for the period
reveals the impact of net losses incurred by the Company for the years ended
September 30, 1996 and 1995; and, by comparison, the slight improvement in net
losses for 1997. Stockholder's equity substantially improved at June 30, 1998
compared to the year ended September 30, 1997 because of a return to
profitability during the nine month period ended June 30, 1998.
While management believes that the Company has sufficient liquidity and
resources for the next year, the Company's ability to implement its plan for
expansion, as described herein, is materially dependent upon the availability
of additional capital to the Company through the successful completion of this
Offering. It should also be remembered that in contemplation of this Offering,
the Company obtained a total of $500,000 in "bridge financing" in two
transactions as follows:
(i) In January, 1996, the Company issued $250,000 in promissory notes to
certain investors for interim capital prior to this Offering (hereinafter
called the "Pre-Bridge Notes"). After deducting expenses of the financing,
including commissions, legal fees and miscellaneous expenses, the net proceeds
of $190,000 were used for working capital. The Pre-Bridge Notes were issued at
an interest rate of ten percent (10%) and were due at the earlier of (a)
December 15, 1996 or (b) the consummation of this Offering. As an added
inducement to make the loan to the Company, the noteholders were issued
Warrants to purchase a total of 12,500 shares of the Company's Common Stock (as
adjusted for two reverse splits of Common Stock) at an adjusted exercise price
of $5.00 per share, exercisable until January 3, 2003. The Company also
granted Warrants to purchase 6,250 shares of Common Stock (after adjustment)
under the same terms to Janssen-Meyers Associates for placement of the
Pre-Bridge Notes. All of the holders of the Warrants were also granted certain
registration rights and are included in this Registration Statement as selling
securityholders. terms and conditions of this transaction were made at
arms-length between the parties.
(ii) In October, 1996, the Company also sold an additional $250,000 in
bridge loan notes through the Underwriter herein to certain investors
(hereinafter called the "Bridge Notes") to be used for working capital. The
terms of the notes were made at arms-length through negotiation with the
Underwriter and the investors. The Bridge Notes were issued with eight percent
(8%) interest and were payable at the earlier of (a) twelve months from the
date of issuance or (b) the consummation of this Offering. For each unit of
$25,000 in notes purchased, the Company granted to the noteholders 10,000
shares of Common Stock (or a total of 100,000 shares after giving effect to all
reverse stock splits) and warrants to purchase an aggregate of 125,000 shares
of Common Stock (or a total of 1,250,000 warrants after adjustment for reverse
stock splits) at an adjusted exercise price of $5.00 per share if this Offering
sold, exercisable for a period of four (4) years. In addition, the Company paid
to the Underwriter a placement fee of $25,000 in connection with the placement
of the Bridge Notes plus an unaccountable expense allowance of $7,500 and
granted to the Underwriter Warrants (the "Underwriter's Bridge Warrants") to
purchase 250,000 shares (or 125,000 shares after giving effect to the recent
reverse split of Common Stock) of Common Stock exercisable at $5.00 per share
if this Offering is sold. The Underwriter's Bridge Warrants were subsequently
cancelled by mutual agreement between the Company and the Underwriter. The
placement fee, expense allowance and Warrants granted to the Underwriter were
in addition to the compensation to be paid to the Underwriter for its services
in the sale of this Offering. Each of the shareholders and Warrantholders
(including the Underwriter) were granted certain registration rights and are
included in this Registration Statement as selling securityholders.
The Company is presently in default of both the Pre-Bridge Notes and the
Bridge Notes in the total principal amount of $500,000 plus accumulated
interest. A substantial portion of the proceeds from this Offering will be
used to pay the Pre-Bridge and the Bridge Notes which will have the effect of
reducing the amount of proceeds available for the Company's growth and other
purposes. Also the issuance of the Common Stock issuable upon the exercise of
the Pre-Bridge Warrants and the Bridge Warrants ^^^ will have a dilutive
effect on this Offering. See "Certain Transactions," "Dilution" and "Risk
Factor 16."
Liabilities
Period From September 30, 1997 to June 30, 1998
From September 30, 1997 to June 30, 1998 total liabilities decreased by $32,191
(approximately 1%). Accounts payable increased by $366,469 and accrued
expenses increased by $25,045 while the amount borrowed on the Company's line
of credit decreased by $479,292, reflecting the most significant changes in
liabilities during the period. The decrease in the amount borrowed on the line
of credit during the period occurs because of increased profits for the period
plus the decrease in inventory while the increase in payables reflects the
increase in current monthly purchases.
Years ended September 30, 1997, 1996 and 1995
Liabilities for 1997 reflect an increase of $1,142,767 when compared to
1996, was incurred because of the increase in business which the Company did
during the 1997 fiscal year and to cover other costs as indicated above and
reductions in cash and liquidity during 1997. The Company's total credit line
at September 30, 1997 was $2,000,000 (one million dollars in cash and one
million dollars in banker's acceptances and letters of credit) and is primarily
for working capital and purchases of inventory. In addition, one of the
Company's subsidiaries, Universal Medical Distribution, Inc. ("Universal"), has
a credit line of approximately $50,000. The Company had available
approximately $560,112 (less amounts due on letters of credit) in its credit
line at September 30, 1997, taking into account the $50,000 availability of
Universal.
Similarly, reflecting the additional operating activity during the period,
accounts payable increased during 1997 by approximately $522,573 compared to
1996.
The "Loans Payable" account reflects the Company's recent borrowing to
meet increased cash needs in anticipation of this Offering. It is expected
that these loans will be repaid from the proceeds of the Offering. See "Use of
Proceeds."
Total liabilities of $4,056,823 in 1997 compares with $3,000,056 at
September 30, 1996 which management feels is consistent with the Company's
growth in the period and the acquisition of two companies during 1996. It
should also be remembered that total liabilities for 1997 and 1996 include
$162,038 and $248,038 respectively due to the former shareholders (i.e. the
shareholders prior to the acquisition of APO by the Company) which represents
undistributed income due to them as a result of APO's operations as a
Subchapter S corporation.
While there were changes in the components of assets and liabilities for
fiscal 1997 when compared with 1996 and 1995 as indicated above, management
believes that all of those changes are consistent with the Company's activity,
growth and performance in 1997.
See "Results of Operations" for additional information. For information
regarding liquidity, see Subparagraph (b) "Liquidity" below. For additional
information relating to the financial condition of the Company, also see
"Inflation" and "Trends Affecting Liquidity, Capital Resources and Operations."
(b) Liquidity
Working capital at June 30, 1998 was $237,808, an improvement of $359,202 from
September 30, 1997. The increase in working capital reflects the net income
for the period plus depreciation and amortization and amortization less the
increase in security deposits.
Although working capital at September 30, 1997 was a negative $121,394
(compared with working capital of $10,816 at September 30, 1996), the Company
had sufficient liquid assets to meet its obligations at the end of fiscal 1997.
Principal sources of working capital in 1997 were cash, accounts receivable
(i.e. $2,533,090,) and inventory ($1,001,219) and, it should be remembered,
that the Company still has other adequate alternative credit resources in its
bank credit line to meet any additional foreseeable requirements for current
payments.
Management believes that the decline in liquidity is consistent with its
expansion during 1997, the repayment of debt during the period, underwriting
costs and the cost of operating at a higher level in that year. In prior years
(particularly 1996) the decline was partially reduced and offset by bridge
loans made during the period. As previously stated, at September 30, 1997, the
Company had notes to individuals and others with an outstanding balance of
$500,000 at interest rates from 8% to 10%. These funds were used to acquire
Universal, additional inventory, interim working capital and to commence a
commercial program which is still in negotiation. The Company is in default of
such loans which are intended to be paid from the proceeds of this Offering.
See "Application of Proceeds."
The principal source of funds for the Company's operations during fiscal
1997 has been from the Company's credit line.
As of September 30, 1997, the Company also had a $2,000,000 credit
facility with a financial institution to be used for working capital and
purchase of inventory.
Considering the increased business of the Company during 1997 and the fact
that the decline in working capital was partially affected by non-recurring
items, management believes that once the assimilation of its different
operations are made, the Company will have adequate liquidity in fiscal 1998.
The Company will have a net loss carry forward of approximately $446,000.
In combination, management believes that the Company will have adequate
working capital and sufficient credit alternatives to fund the Company's
operations during the next fiscal year, including support for any planned
expansion of sales.
Results of Operations.
Nine months ended June 30, 1998 compared to nine months ended June 30, 1997
Revenue for the nine months ended June 30, 1998 was $24,693,703 compared to
$16,302,519 for the nine months ended June 30, 1997, an increase of $8,391,184
or 51%. The primary reason for this increase was the additional volume in the
Company's wholesale business.
The cost of revenue as a percentage of net revenues increased to 90.2% from 89%
for the nine months ended June 30, 1998 compared to the nine months ended ended
June 30, 1997. This reduced the gross profit margin from 11% to 9.8%. The
decrease in gross profit margin is due entirely to the increase in wholesale or
bulk sales of products which traditionally have a lower profit margin than
retail sales which the Company has made. Therefore, as the trend to greater
wholesale transactions increases, the volume of sales will be greater, but the
Company's profit margins will be smaller.
Total operating expenses for the nine months ended June 30, 1998 increased by
$341,869 from June 30, 1997 but as a percentage of sales decreased to 7.8%
versus 9.7%. Selling expenses were 3.6% for the nine months ended June 30,
1997. Included in the increase of $173,269 in selling expenses is the amount
of $200,000 in bonuses to the Company's two principal officers based on
revenues and as set forth in their employment agreements. Without these
bonuses selling expenses would have been 2.8% of sales.
General and administrative expenses decreased to 4.2% of sales for the nine
months ended June 30, 1998 from 5.3% for the nine months ended June 30, 1997.
Even though actual costs increased by $168,600 or 19.3% this was far less than
the 51% increase in sales. The reduction in operating costs reflects a greater
utilization of both personnel and facilities. Interest expenses for the nine
months ended June 30, 1998 was %125,219, a decrease of $55,901 for the nine
months ended June 30, 30, 1998. This is the result of a reduction in
outstanding credit lines including the line of credit and banker's acceptances.
Years ended September 30, 1997, 1996 and 1995
The Company's revenues include revenue from the distribution of medical,
dental and veterinary supplies. In fiscal 1997 the Company had net revenues of
$23,500,981, a substantial increase of $8,885,217 (or 61%) compared to
revenues of $14,615,764 for the year ended September 30, 1996.
While there were slight increases in prices for certain of the Company's
products during the year, which in management's opinion did not materially
account for the increase in revenues in 1997, the principal reason for this
increase results from a substantial increase in wholesale business during the
fiscal year ended September 30, 1997 and the Company's offering of additional
new products consistent with its plans to become a full-line supplier to the
industries served by the Company and, because of its acquisition of a new
subsidiary during 1996 whose results of operations are included in 1997 and
1996. Wholesale transactions tend to be larger than individual sales; however,
such sales also tend to increase the cost of sales. During the fiscal year
ended September 30, 1997, sales shifted in this mix to become predominantly
wholesale transactions.
The cost of revenues in 1997 was approximately 89.5% of total revenues
while at September 30, 1996, the cost of revenues was approximately 86.2% of
total revenues. This change is substantially due to the change in the type of
sale made. As has been said, it has been the Company's experience that the
type of sale made affects the cost of revenues. For instance, wholesale or
bulk sales result in higher costs than smaller or individual sales. Therefore,
in periods where the Company has more bulk sales than individual sales, a
higher cost of revenues would be expected.
Gross profit for 1997 was approximately 10.5% of revenues while gross
profit for 1996 was approximately 13.8% of revenues. This decrease is a result
of the higher cost of revenues resulting from the difference in product mix.
The income from operations for 1997 was approximately 0.9% of revenues (i.e.
$211,625) compared with a loss from operations in 1996 of $(133,107).
General and administrative costs decreased in 1997 as a percentage of
revenues . This occurred because the increase in sales was proportionately
greater than the increase in general and administrative costs. These costs
have generally leveled out since 1995; although, there have been slight
increases in management's compensation in January, 1997.
Other costs of operations either remained essentially the same or declined in
the period ended September 30, 1997 when compared with 1996.
However, selling expenses in 1997 were reduced to approximately 4.5% of
total revenues compared with 6.2% in 1996, due to more efficient operation of
the Company's sales force.
Total operating expenses decreased to approximately 10% in 1997 from
approximately 15% in 1996.
For information with respect to the possible effect of future trends on
operations, see the discussion under the caption "Trends Affecting Liquidity,
Capital Resources and Operations."
Capital Resources.
Property and equipment remained essentially the same at September 30, 1997
when compared with September 30, 1996 except for a slight increase of
approximately $33,500 in new acquisitions of computers and fixtures in 1997.
The Company also incurred approximately $49,500 in additional registration
costs. Additional costs are expected to be incurred in connection with the
Company's proposed registration statement. See "Plan of Distribution."
The Company has written off approximately $342,126 in registration costs
for prior years.
There were no material commitments for capital expenditures at the end of
fiscal 1997 and management does not foresee any increases in these requirements
during the next fiscal year.
Since the Company is not in the business of manufacturing the products it
sells, The Company does not presently anticipate the allocation of significant
resources for machinery and equipment purchases or plant acquisition. Any such
commitments in the future will be dependent on product demand, additional
inventory acquisition and the necessity for further control of delivery of
products under new or increased orders. If any change in capital purchase
requirements occur in the near future, the Company is likely to arrange
financing for such acquisitions from sources which will not require a
substantial outlay of cash and will be in proportion to its expansion program.
Inflation.
Management anticipates that inflation will not have a material effect on
the Company's operations in the future. This is principally due to two
factors. First, if orders increase due to inflation the Company will have
adequate capacity to support not only its present level of operations but, with
the addition of personnel, use of its credit line or the successful completion
of this financing, it will be able to support an increase in operating levels.
Second, although product pricing would be affected by inflation due to higher
costs, management believes that public health and safety concerns would
outweigh any negative impact of price increases and such increases would not
adversely affect the Company's projected sales. Additionally, the
pharmaceutical, hospital and health care markets have historically been best
able to pass on increased costs which are typically paid by insurance coverage.
Trends Affecting Liquidity, Capital Resources and Operations.
A number of factors are expected to impact upon the Company's liquidity,
capital resources and future operations. Included among these are (i)
environmental concerns; (ii) economic factors generally affecting the health
care industry; (iii) governmental regulation of the Company's products and (iv)
the growing concern in many industries about controlling the spread of
infectious disease.
Some products offered by the Company are made from plastic-based materials
which have raised concern among environmental groups over their proper
disposal. Although management believes that such concerns are, in many cases,
valid, it is also believed that these concerns must be balanced with safety
provided by these products against infectious diseases such as AIDS, hepatitis
and others. This belief has recently been reinforced by the comprehensive
safety regulations issued by the Occupational Safety and Health Administration
(OSHA) which require extensive new measures to combat the spread of infection
and disease in many industries which had not previously required such measures.
Most importantly, from the point of view of the Company, are the requirements
for protective apparel such as that distributed by the Company. Management
also believes that the regulations, which are now fully implemented, will
increase demand for the Company's products and significantly expand the
Company's markets. Based upon recent increased orders, management believes
that most significant among these new markets for its products will be the
industry looking to comply with the new OSHA regulations.
Nevertheless, the requirements relating to proper disposal of
plastic-based garments are still in question and the Company cannot predict the
outcome of any future regulations relating to these matters. Any changes in
manufacturing or disposal requirements could result in higher manufacturing
costs and less profitability for the Company or, perhaps, complete elimination,
which could have a substantially negative impact on liquidity and capital
resources in the future.
Management also believes that the most significant adverse impact upon its
liquidity, capital resources and future operations may result from economic
pressures to keep the costs of its products low. Spearheaded by health care
insurers and now the federal government, the entire health care industry in the
United States has come under increasing pressure and scrutiny to reduce
unnecessary and wasteful costs. To meet the criticism in recent years over the
higher cost of disposable products, the industry has introduced new lines of
limited reusable products. These products are designed to be washed and reused
from between 25 and 100 times before being replaced. Management believes that
such products will not only address the economic concerns but also the
environmental issues by reducing the amount of products which are being
discarded. However, as already mentioned, in situations where there is a high
risk of spreading infection, management believes that the disposable products
will continue to have strong appeal and demand in the marketplace.
Also, as new Company products are introduced, management believes that
sales revenues will increase and, over the long term, will result in higher
profit margins for the Company. In addition, the existence of the Occupational
Safety and Health Administration (OSHA) regulations are expected to have a
positive influence on the demand for the Company's products.
In short, the above factors may each have a significant impact upon the
Company's future operations. At present, management believes that safety
concerns over the spread of infectious diseases such as AIDS and hepatitis
will, at least for the foreseeable future, outweigh economic and environmental
concerns. Consequently, management does not anticipate any adverse impact upon
its future operations for the foreseeable future. Apart from these factors,
management knows of no trends or demands that would adversely affect the
financial condition of the Company.
BUSINESS OF THE COMPANY
General
The Company is a multi-faceted distributor of medical, dental and
veterinary supplies which are manufactured by others. These products include
protective garments such as disposable isolation gowns, face masks and gauzes
as well as other medical disposable items such as latex gloves, needles,
syringes and health and beauty aids. Products are marketed and sold primarily
(i) on a wholesale basis to other distributors (approximately 79% of total
revenues); (ii) directly to doctors, dentists and veterinarians (approximately
18% of total revenues) (iii) to others including to consumers and through
export to foreign countries (approximately 3% of total revenues).
Recently, the Company expanded its product lines in two important ways:
(i) Through the introduction of proprietary products designed and
produced according to the Company's specifications; and
(ii) Through expanded sales of additional third party products
marketed via tele-marketing and other methods of direct sales
to physicians, veterinarians, dentists and other wholesalers.
Significant Developments and the Company's Markets.
Perhaps the single most significant event affecting the disposable medical
apparel/products industry (i.e. materials which are designed for single use
only) occurred on December 6, 1991 when The Department of Labor, Occupational
Safety and Health Administration (OSHA), reported the passing of 29 CFR PART
1910.1030, "Occupational Exposure to Blood borne Pathogens; Final Rule." The
mandatory regulations have significantly expanded the requirements for
protective apparel not only in the traditional medical/dental fields but also
in many industries and organizations where there exists a risk of spreading of
infectious diseases such as AIDS and Hepatitis. Management believes that these
regulations have had a positive impact upon the Company's sales and earnings
and will continue to do so for the foreseeable future because the Company
offers products which comply with OSHA's requirements.
Management believes that since the inception of Xetal, Inc., competitive
pricing has been achieved due to opportunistic inventory purchases and a strong
sense of anticipating market demands by management. Management believes
further that the Company has the marketing strength necessary to increase its
sales internally, provided it has an increased availability of funds required
to support this growth. The Company's banking lines have grown consistently
since its inception; however, these lines are limited and no longer provide the
Company with the needed availability of funds to accommodate its potential
demand. Management also believes that the new OSHA regulations, which were
fully implemented as of May, 1992, will continue to increase demand for the
Company's products and expand the Company's potential new markets. Based upon
the most recent inquiries received by the Company, management is of the opinion
that most significant among these new markets for its products will be
hospitals, doctors' and dentists' offices, the emergency service industries,
including police, fire, ambulance services and mortician services, which
routinely are exposed to unusually high risk of infectious diseases. In
addition, its newly acquired veterinary division is expected to increase sales.
Business Strategy
The Company's primary business strategy is to attain a share of the
medical, dental and veterinary supply business for its merchandise while also
developing a new proprietary line of products which it will be able to produce
at a low cost. The Company seeks to implement its business strategy as follows:
Expand Product Distribution. Many of the Company's existing customers
purchase only a portion of its full line of products. Management seeks to
increase the number of its products sold to existing customers both by
displacing competitors and by encouraging the adoption by retailers of
additional product lines offered by the Company through increased solicitation
for related product sales. The Company attempts to offer retailers the cost
savings and ease of administration which results from dealing with one supplier
for many diverse products and believes that this approach enhances its
relationship with retailers by minimizing their costs. Additionally, the
Company seeks to expand its level of contract manufacturing for new proprietary
products, thereby providing management a greater level of control over pricing
of its products.
Introduction of New Products. The Company seeks to develop new
proprietary products which will either be comparable to newly introduced
nationally advertised "brand-name" products or which will be completely new to
the market. Management also plans to attempt to secure distribution rights to
new products introduced by other manufacturers. During fiscal 1995 the Company
introduced several new products including GobbleTM (an organic cleaner);
FloamTM (an APF fluoride treatment) and ZAP, a topical anaesthetic. Following
the acquisition of Dental Alternatives, Inc. from Dr. Stahl in July 1996 (see,
"Certain Transactions"), management has formulated plans to introduce during
the fourth quarter of fiscal 1997, two new proprietary products, the "DOC
Emergency Dental Kit" and "Dr. Stahl's Dental First Aid Center."
Pursue Strategic Acquisitions. Management believes that the medical,
dental and veterinary products distribution market, which is presently typified
by a large number of small distributors, suppliers and manufacturers, will
undergo additional consolidation as these companies are required to grow in
order to meet the demands of the marketplace for flexible manufacturing and
sales support services to what is already a consolidating retail market. Based
upon this belief, the Company seeks to acquire companies which can strengthen
its market share of existing products or which can add private label product
lines compatible with the Company's present distribution channels. One such
strategic acquisition was the Company's recent acquisition of Universal Medical
Distributors, Inc. which was completed in April, 1996. Management continues to
evaluate other potential acquisition candidates, although as of the date of
this Prospectus no additional viable acquisition candidates have been
identified by management. While a portion of the proceeds from this Offering
has been allocated as a future reserve for this purpose, management believes
that for the most part it will be able to utilize its own securities to make
acquisitions, either in whole or in part, in the future thereby preserving cash
for the expansion of its operations. There are no present plans, proposals,
arrangements or understandings to make any further acquisitions. At present
there are also no plans, controls or policies with respect to future
transactions with related parties and no such transactions are in
contemplation. See "Risk Factor Number 14" and "Certain Transactions."
The Company expects to remain in the same or similar type of business and
will primarily consider acquiring similar types of products and related
business operations in its planned expansion.
Emphasize Customer Service. The Company seeks to build and maintain
strong relationships with its customers by providing improved product pricing,
consistently high quality control and an improved responsiveness to customer
needs through the reliable, timely processing and shipment of orders. In
today's highly competitive market, customers demand quality products with
dependable and expeditious service at the lowest possible price. A portion of
the proceeds from this Offering has been allocated to the expansion of the
Company's inventory, including both existing products and new, proprietary
products. Management believes that by increasing inventories, it will be
better able to meet two key factors in satisfying customer demands in the
future. First, by being able to buy in quantity management believes it will be
able to take advantage of volume discounts from its suppliers thereby allowing
it to pass on a part of the savings in the form of lower prices to customers.
Second, by expanding inventories of fast moving items, management believes it
can improve shipping and delivery time by reducing, or possibly eliminating,
those occasions when popular items are out of stock and customers are forced to
endure delays while product stocks are replenished.
Ensure Product Quality. Management considers its commitment to quality
to be one of the most important factors in acquiring and maintaining customers.
For this reason management seeks to distribute products manufactured by
reliable and quality conscious manufacturers with proven safety and quality
control records. Furthermore, with respect to its own private label products,
management plans to establish a quality control and testing procedure utilizing
both internal controls and outside testing by independent laboratories in an
attempt to meet quality levels of nationally recognized products.
Products
Currently, the Company distributes approximately 3,000 different products
within the medical, dental and veterinary markets. Several of the principal
products are described below:
Dental: The Company markets and distributes protective gloves, needles,
prophy angles, barrier protection products, gowns, face masks, gauze products,
topical anesthetics and infection control chemicals to the dental industry.
Included among such products are the following proprietary products:
FloamTM: This product is a topical fluoride treatment in a foam format which
is offered in four flavors and is marketed as a dental hygiene product for
direct consumer use.
Prophy Jet Powder: This product, marketed and distributed to the dental
industry, is used primarily to prevent clogging and insure even flow through
prophy jet units.
GobbleTM: This product, also marketed and distributed to the dental industry,
is a bacterial product which forms a potent biofilm that adheres to evacuation
in dental equipment which causes organic waste to be reduced to carbon dioxide
and water.
Medical: The Company markets and distributes protective gloves, tapes,
syringes, needles, protective barrier gowns and gauze products to the medical
and health care industry.
Veterinarian: The Company markets and distributes protective gloves, needles,
gowns, tapes, and a full line of veterinary products to the veterinary
industry.
Dr. Stahl's Dental First Aid Center: This is a new proprietary product which
the Company plans to market and distribute for direct consumer use. This kit
is designed to allow the consumer to perform limited emergency dental functions
such as replacing lost fillings and repairing broken dentures.
In addition to the foregoing, which represent the most popular product
lines, the Company distributes a wide range of other medical, dental and
veterinary supplies and products. The Company obtains its products from third
party manufacturers and suppliers. At the present time, the Company does not
have any contractual arrangements with any of its suppliers or manufacturers.
Although the Company does not have any such contractual arrangements, the
Company believes that there are adequate alternative manufacturers which would
be able to provide adequate manufacturing capabilities in the event its present
manufacturers were unable, or unwilling, to continue to provide the Company
with manufacturing services.
Sales and Marketing.
The Company's products are sold directly by Company employees, through
mail order and by outside, independent sales representatives. The Company's
sales organization presently consists of two persons, including Dr. Stahl, the
Company's Chief Executive Officer, who oversees a combination of direct
salespersons and independent sales representatives. Typically, independent
sales representatives who have undertaken to sell the Company's products will
agree not to sell similar or competitive products during the time when they
represent the Company.
The Company has recently modified its marketing approach by attempting to
capitalize on its wide array of product lines in order to offer mass
merchandisers, buying consortiums, drug store and supermarket chains a
"package" approach to its private label program. This not only provides
customers with attractive and competitive pricing but, in management's opinion,
provides the Company with a competitive advantage by offering its customers the
ease of administration and cost savings which come with using a single supplier
for many of their product needs.
Although the Company has not yet finalized its long term marketing plans,
management generally plans to (i) investigate the feasibility of expanding its
use of independent sales marketing representatives and to promote its product
lines, particularly its proprietary products, to new markets, other than the
traditional hospital and health care markets, through the use of a combination
of advertisements in specialized trade magazines, attendance at trade shows and
a direct mail program to potential end-users; (ii) expand its use of print
advertising (including the expansion of current advertising in trade
publications); (iii) develop, print and distribute product brochures and
literature, particularly for the Company's proprietary products; and (iv)
establish a tele-marketing network to achieve greater market penetration. A
portion of the proceeds of this Offering has been allocated to meet the costs
of the Company's expanded sales and marketing program during the coming fiscal
year.
Government Regulation.
Approval from the Food and Drug Administration (the "FDA") is not required
for marketing or distribution of most of the Company's products. However,
certain of the products marketed or being developed and manufactured by the
Company are, or will be, subject to regulation as medical devices by the FDA,
which has comprehensive authority to regulate the development, production,
distribution and promotion of medical devices. Various states and foreign
countries in which the Company's products are, or in the future may be sold,
may also impose certain additional regulatory requirements. The Company is
registered with the FDA as a distributor of various medical devices.
Pursuant to the federal Food, Drug and Cosmetic Act, and the regulation
promulgated thereunder, a medical device is ultimately classified by the FDA as
either a Class I, Class II or Class III device. Class I devices are subject to
general controls which are applicable to all devices. Such controls include
regulations regarding FDA inspection of facilities, "Good Manufacturing
Practices," labeling, maintenance of records and filings with the FDA. Class
II devices must meet general performance standards established by the FDA
before they can be marketed and must adhere to such standards once on the
market. Each manufacturer of medical devices is required to register with the
FDA and also to file a "510(k) Notification" before initially marketing a new
device intended for humans. The manufacturer may not market such new device
until 90 days following the filing of such Notification unless the FDA permits
an early marketing date. The FDA, prior to the expiration of the 90-day
period, may notify the manufacturer that it objects to the marketing of the
proposed device and thereby may delay or preclude the manufacturer's ability to
market that device. The FDA may also require further data from, or testing by,
the manufacturer. The FDA permits the marketing of some medical devices,
subject to the general controls under the Act, if the devices are
"substantially equivalent" to devices marketed in interstate commerce before
May 28, 1976 (the effective date of the Medical Device Amendment to the Act).
Manufacturing and Distribution.
The Company does not manufacture any of the products it distributes. All
of the products distributed by the Company are either purchased from various
third-party manufacturers or suppliers as finished products, or are
manufactured for the Company according to its specifications directly by
various contract manufacturers.
Previously, the Company relied upon one major supplier, Johnson & Johnson
with whom the Company had a purchasing agreement. This agreement has since
been terminated and the Company now has several suppliers, the largest of which
are K & K, Inc.,, Alora Medical, Inc. Global Marketing, Inc. and Ultra Medics,
Inc. The Company believes that its sources of inventory, supplies and
materials are plentiful and it is not dependent on any one supplier for access
to the goods it sells and that the Company would be in a position to acquire
products from various other sources if any of the previously named suppliers
were not able to or would refuse to provide the Company with its required
inventory.
The Company stores its inventory of products at its own warehouse facility
in Oceanside New York and subsequently distributes them to its customers in
fulfillment of customer orders. The Company has no written contracts with any
of its manufacturers or suppliers.
Manufacturers are selected by the Company on the basis of price,
availability of payment terms, quality, reliability and the ability of a
particular manufacturer to meet the production and delivery requirements of the
Company. The utilization of third party manufacturers enables the Company to
avoid incurring fixed manufacturing costs and substantial capital expenditures
in order to establish in-house manufacturing facilities. However, such use of
third party manufacturers does reduce the Company's ability to control the
timing and quality of the manufacturing process. Delays in shipments to the
Company or defects in products shipped could result in a loss of sales, which
could have a materially adverse effect upon the Company's operating results.
Manufacturing services performed overseas are typically paid for by letter of
credit, with payment being made only upon the proper fulfillment of the express
terms of the letter of credit as established by the Company and proper
documentation relating thereto. To date, the Company has not experienced any
material delays in the delivery of its products or any material quality defect
in the products manufactured for it by third party manufacturers.
The Company's present facility provides the Company with adequate
warehousing and storage capacity for the foreseeable future. Although several
of the Company's customers take delivery of their products at the Company's
facility, typically, the Company will ship its products nationwide using either
independent contract carriers or common carriers.
As the Company continues to develop new proprietary products, management
expects that its reliance upon third party contract manufacturers may increase
substantially. However, to date the Company has not experienced any
difficulties in finding suitable contract manufacturers to meet its needs and
management does not expect to have any such difficulty in the future, even
considering its potentially increased needs.
Competition.
The hospital supply and medical products business is intensely
competitive. At present, the Company estimates that there are over 20
disposable product companies whose products compete with the Company's present
and proposed products. These companies range from major multinational
companies to enterprises which are smaller in size and financial strength than
the Company. The Company's present and prospective competitors also include
the numerous manufacturers and suppliers of reusable medical products. Many of
the Company's competitors have far greater financial resources, larger staffs,
and more established market recognition in both the domestic and international
markets than the Company.
The consumer health and personal care products markets are also highly
competitive. Competition in these markets is based principally on price,
quality of products and customer service. Although the Company believes that
it currently competes favorably as to these factors, due to the high costs
associated with quality control and customer service, and the low profit
margins typical for these products, no assurance can be given that the Company
will be able to sustain its competitive position in these markets.
Several of the consumer markets in which the Company competes are
dominated by nationally advertised brand name products marketed by established
consumer packaged goods companies. The Company seeks to provide private label
products with quality equivalent to nationally advertised brand name products
at substantial cost savings to consumers and increased profit potential to
retailers. The Company believes that it presently offers one of the broadest
lines of such private label products available when compared to its private
label competitors. In the opinion of management, this breadth of product line
provides the Company with a competitive advantage by offering the Company's
customers the ease of administration resulting from a single supplier for many
of their product needs.
The Company's primary competition in consumer retail products is generally
product specific. Although some crossover does exist, the Company faces a
different set of primary competitors in each product line it offers. The
Company's position in the industry is insignificant and it competes based
primarily on the basis of service and price.
Trademarks, Patents and Licenses.
At present, the Company does not rely upon any patent protection for any
of its products and such protection is not believed to be essential by
management because of the character of its products. Further, there is little
likelihood that the Company will develop patentable products or processes in
the foreseeable future. In the absence of such protection, the Company will
primarily rely upon trade secrets and proprietary techniques to attain or
maintain any commercial advantage. There is no assurance that competitors will
not independently develop and market, or obtain patent protection for products
similar to those designed or produced by the Company, and thus negate any
advantage of the Company with respect to any such products. Even if patent
protection should become available to the Company in the future, there is no
assurance that such protection will be commercially beneficial to the Company
because of the nature of the industry.
In connection with the Company's recent acquisition of Dental
Alternatives, Inc. from Dr. Jan Stahl, the Company's Chief Executive Officer,
the Company also acquired the exclusive right to use the registered trademark
"EDKTM" in connection with the marketing of its planned emergency dental kit.
See, "Certain Transactions."
Credit Line.
APO Health, one of the Company's wholly owned subsidiaries, has secured
an inventory and accounts receivable credit line from Marine Midland Bank which
allows it to borrow up to $2 Million, subject to bank approval. Borrowings are
repayable at "prime plus 1 1/2%" on a revolving basis. The bank may terminate
the credit line at any time and may refuse to authorize additional borrowing at
its discretion. The line of credit is secured by personal guarantees of Dr.
Jan Stahl and Peter Steil, officers and directors of the Company. Additionally,
the Company has granted Marine Midland Bank a first priority security interest
in all of its accounts receivable and inventory.
Customer Base.
The Company current has approximately 7,000 customers nationwide. Two
customers represent approximately 15% of the Company's gross sales. Management
does not believe that the loss of any particular customer would have any
measurable impact upon the Company's overall revenues or profits from
operations.
Employees
The Company, including its two subsidiaries APO Health and Universal,
currently employs a total of 13 persons, of which four (4) persons are
executive personnel; two (2) persons are sales persons; four (4) persons are
clerical/administrative and three (3) persons are warehousemen. The Company
believes its relations with its employees are excellent. None of its employees
are members of a labor union.
Facilities
The Company's offices are located at 3590 Oceanside Avenue, Oceanside New
York. The premises contain approximately 9800 square feet under a five year
lease (the "Lease") which expires in December 31, 1999 (the "Lease Term").
These premises are occupied under a Lease between the landlord, who is an
unaffiliated third party, and an affiliated company PJS Trading Inc., a New
York corporation ("PJS") owned by Dr. Stahl and Mr. Steil, which was originally
formed by them for the express purpose of entering into this Lease agreement.
The Company occupies these premises under an oral agreement with PJS and Dr.
Stahl and Mr. Steil whereby the Company has agreed to discharge all of the
Lease obligations with the landlord. Management believe that the terms and
provisions of this lease agreement, including the rental payments due, are fair
and reasonable for similar lease agreements within the same geographic area for
similar space. The annual lease payment was approximately $45,080 for the
period ended May 1997 and approximately $51,450 per year thereafter. Neither
PJS nor Dr. Stahl nor Mr. Steil derive any profit from the Lease nor will they
during the balance of the Lease Term and, if extended, for a period of three
years thereafter. Management of the Company believes the current facility is
adequate for its current operations.
MANAGEMENT
The officers and directors of the Company, and further information
concerning them, are as follows:
Name Age Position
Dr. Jan Stahl 50 Chairman, Chief Executive Officer,
Secretary, Director
Peter Steil 50 President, Chief Financial Officer,
Director
Kenneth Levanthal 43 Director
Dr. Stahl and Mr. Steil may be deemed to be "Parents" and organizers of the
Company, as that term is defined in the Securities Act of 1933. There are no
committees of the Board of Directors. The Board of Directors meets once each
year following its shareholder's meeting and at other times at the call of the
President. Each of the Directors has been present at all of the Company's
meetings during the past year.
Profile of Officers and Directors:
DR. JAN STAHL is a New York State licensed dentist. Dr. Stahl founded APO
Health, the Company's wholly owned subsidiary, in 1987 and has been its
Chairman, Chief Executive Officer, Secretary and a Director since such time.
Dr. Stahl's primary responsibilities for the Company are in the area of sales
and marketing. Prior to founding the Company, Dr. Stahl was a practicing
dentist in the state of New York. Dr. Stahl received his DDS Degree from New
York University in 1974.
PETER STEIL co-founded the Company along with Dr. Stahl in 1987 and has
been its President and Chief Financial Officer since such time. From 1981 to
1987 Mr. Steil was President of LBS Interdent, Inc. a company engaged in dental
product sales. From 1974 to 1981 Mr. Steil was employed as Director of
International Technical Support and Sales by Degussa, a European based
manufacturer and distributor of dental and medical supplies. Subsequently (from
1984 to 1986) he was employed by Orbident International, the international
sales division of Darby Drugs. Mr. Steil's training is in mechanical
engineering having received his Technical Degree from Tuebingen University,
Germany, in 1974.
KENNETH LEVANTHAL founded Universal Medical Distributors, Inc.
("Universal"), in 1985 and has served as its president since such time.
Universal is a recently acquired subsidiary of the Company. Prior to founding
Universal, Mr. Levanthal had been employed as Executive Vice President of
Medarco Corp., a division of Omnicare, Inc., having been employed by Medarco
Corp. since 1977, prior to and following its acquisition by W.R. Grace & Co.
(the parent company of Omnicare Inc.). Omnicare consisted of various health
care companies, with Medarco specializing in the sale of veterinary products as
part of its Veratex Group which sold medical products to physicians, dentists
and veterinarians. Mr. Levanthal graduated from Boston University in 1977
receiving his Bachelors Degree.
EXECUTIVE COMPENSATION
The following table sets forth information relating to remuneration
received by officers and directors as of September 30, 1997, the end of the
Company's most recent fiscal year compared with the previous year, as well as
indicating the compensation agreements made for each of them.
Annual Compensation(1) Long Term Compensation
Name and Principal Restricted All Other
Position Year Salary Bonus Stock Awards Compensation
Jan Stahl, CEO(1)(2) 1997 $125,000 $6,375 (4) -0- -0-
(5) 1996 $96,200 Waived -0- -0-
1995 $90,700 Waived -0- -0-
Peter Steil,
President(1)(2)(5) 1997 $100,000 $6,375(4) -0- -0-
1996 $70,200 Waived -0- -0-
1995 $70,200 Waived -0- -0-
Kenneth
Levanthal(2)(3)(5) 1997 $78,000 n/a -0- -0-
1996 $45,000 n/a -0- -0-
- -----------------------------------------------------------
(1) The Company has written compensation arrangements with each of Dr. Stahl
and Mr. Steil as more particularly described below. It should be noted that
the figures listed as "salary" include both base salary and earned commissions,
but do not included annual bonus amounts, if any, which are listed separately
under the "bonus" column.
(2) Dr. Stahl's compensation was increased to $125,000 on January 1, 1997 and
Mr. Steil's compensation was increased to $100,000 on January 1, 1997. Kenneth
Levanthal's salary was also increased to $78,000 on January 1, 1997.
(3) Mr. Levanthal was not employed by the Company prior to fiscal 1996.
(4) Any balance for bonus compensation above the $6,375 amount was waived by
Dr. Stahl and Mr. Steil for 1997. The entire bonus compensation for 1996 was
waived.
(5) For the nine months ended June 30, 1998, Dr. Stahl received $104,650 in
salary and Mr. Steil was paid $89,150 in salary. In August of 1998, Dr. Stahl
and Mr. Steil received a total of $200,000 in bonus compensation for the year
ended September 30, 1998. Both Dr. Stahl and Mr. Steil have agreed to waive
any bonus in excess of $200,000 to which they may be entitled for 1998. Mr.
Levanthal received $58,500 in salary for the period and no bonus compensation.
(6) None of the foregoing named persons received any restricted stock awards or
other compensation for 1998.
In January, 1996, the Company entered into employment agreements with Dr.
Stahl and Mr. Steil. The agreements provide that each will be employed by the
Company for a three-year term expiring December 31, 1998. Each shall receive
an annual base salary of $125,000, subject to increases tied to changes in the
consumer price index, and car lease and expense allowances totaling $600 per
month and health and medical benefits. In addition, under the terms of the
employment agreements, each of Dr. Stahl and Mr. Steil will receive a bonus
equivalent to 1% of gross revenues of the Company in excess of $11,000,000 in
any given fiscal year period. As previously stated above, Dr. Stahl and Mr.
Steil have waived any additional compensation regarding salary or bonuses for
the year ended September 30, 1996 and have partially waived bonus income for
the years ended September 30, 1997 and 1998.
Except as herein above described, the Company has no other employment
contracts, or any retirement, pension, profit sharing or insurance plan
covering its officers or directors.
CERTAIN TRANSACTIONS
1. In September, 1994, the Company entered into an agreement with Xetal,
Inc. a New York corporation operating under the name "APO Health" pursuant to
which the Company acquired all of the capital stock of APO Health in a
stock-for-stock exchange. As a result, APO Health became a subsidiary of the
Company and management of APO Health became principal shareholders of the
Company. In connection with the transaction, the Company changed its name from
"Insurance Kingdom Agency, Inc." to its present name. Thereafter, APO Health
formally changed its name to APO Health, Inc. Prior to its acquisition, APO
Health was a privately owned company all of whose capital stock was owned by
Dr. Jan Stahl and Peter Steil. In consideration for their shares of APO
Health, the Company issued to each of Dr. Stahl and Mr. Steil 50,000 shares of
its Common Stock (or a total of 100,000 shares), as adjusted for the Company's
two reverse stock splits. Dr. Stahl and Mr. Steil then became officers and
directors of the Company.
2. In January, 1996 the Company issued an aggregate of $250,000 principal
amount of promissory notes (the "Pre-Bridge Notes') to certain investors (the
"Pre-Bridge Lenders") who provided interim financing (the "Pre-Bridge
Financing") for the Company and who are selling security holders in this
Offering. The net proceeds of the Pre-Bridge financing, after deducting
commissions, legal and miscellaneous expenses (including legal, accounting and
printing expenses) of the Pre-Bridge Financing were $190,000, all of which was
used for working capital. The Pre-Bridge Notes bear interest at 10% per annum
and are due and payable, upon the earlier of (i) December 15, 1996 or (ii) the
consummation of this Offering. Interest on the Pre-Bridge Notes is payable
semi-annually on June 15,1996 and December 15, 1996. Payment of the principal
amount of the Pre-Bridge Notes and accrued interest for the December 15, 1996
semi-annual period are presently in default. From the proceeds of this
Offering, $250,000 plus accrued interest thereon will be used to repay the
Pre-Bridge Notes. Additionally, the Pre-Bridge Lenders received warrants (the
"Pre-Bridge Lenders Warrants") to purchase an aggregate of 12,500 shares (as
adjusted for two reverse stock splits) of Common Stock of the Company at an
adjusted exercise price of $5.00 per share. The Pre-Bridge Lenders Warrants
are exercisable for a period of seven (7) years ending January 3, 2003. The
Company also granted the Pre-Bridge Lenders certain demand and "piggy-back"
registration rights with respect to the shares of Common Stock underlying the
Pre-Bridge Lenders Warrants. Under the terms of the Pre-Bridge Lenders
Warrants, the underlying shares of Common Stock are deemed to be part of the
same class of securities as the Shares offered in this Offering.
3. In connection with the Pre-Bridge financing, the Company issued to
Janssen-Meyers Associates, L.P. ("Janssen-Meyers"), for its services as
placement agent in the Pre-Bridge financing, warrants to purchase 6,250 shares
of Common Stock (as adjusted for two reverse stock splits), also at an adjusted
exercise price of $5.00 per share. The warrants are exercisable for a period
of seven (7) years ending January 3, 2003. The Company also granted
Janssen-Meyers certain demand and "piggy-back" registration rights similar to
those granted to the Pre-Bridge Lenders with respect to the shares of common
Stock underlying the Warrants.
4. In October, 1996 the Company, through the Underwriter herein, offered
an aggregate of $250,000 principal amount of promissory notes (the "Bridge
Notes') to certain investors (the "Bridge Lenders") who, through the purchase
of such securities provided interim financing (the "Bridge Financing") for the
Company and who are selling security holders in this Offering. The net
proceeds of the Bridge Financing, after deducting commissions and miscellaneous
expenses (including legal, accounting and printing expenses) of the Bridge
Financing were $207,500, all of which was used for working capital. The Bridge
Notes bear interest at 8% per annum and are due and payable, upon the earlier
of (i) twelve months from the date of their issuance or (ii) the consummation
of this Offering. Interest on the Bridge Notes is payable monthly commencing
one month from the date of their issuance. From the proceeds of this Offering,
$250,000 will be used to repay the Bridge Notes, plus accrued interest thereon.
Additionally the Bridge Lenders received (a) a total of 100,000 Shares of
Common Stock plus (b) warrants (the "Bridge Lenders Warrants") to purchase an
aggregate of 1,125,000 Shares of Common Stock at an exercise price of $5.00 per
share (after adjustment for all reverse splits). The Bridge Lenders Warrants
are exercisable for a period of four (4) years commencing one year from the
date of their issuance. The Company also granted the Bridge Lenders certain
demand and "piggy-back" registration rights with respect to the Shares, the
Bridge Lenders Warrants and the Shares underlying the Bridge Lenders Warrants.
Under the terms of the Bridge Lenders Warrants, the Bridge Lender's Warrants
and the underlying shares of Common Stock are deemed to be part of the same
class of securities as the Shares offered in this Offering. In connection with
the sale of the Bridge Notes, the Underwriter received a commission with
respect thereto equal to ten (10%) percent of the total amount raised, or
$25,000. In addition, the Underwriter also received an unaccountable expense
allowance equal to three (3%) per cent of the total amount raised, or $7,500.
Also, in connection with the Bridge Financing, the Company issued to Morgan
Grant Capital Corp. (the " Underwriter") for its services as placement agent in
the Bridge Financing, warrants (the "Underwriter's Bridge Warrants") to
purchase 125,000 shares of Common Stock (after adjustment) at a price of $5.00
per share. The Underwriter's Bridge Warrants are exercisable for a period of
four (4) years commencing one year from the date of their issuance. The
Company also granted to the Underwriter certain demand and "piggy-back"
registration rights with respect to the Underwriter's Bridge Warrants and
Shares underlying the Underwriter's Bridge Warrants. Subsequently, by mutual
agreement between the Company and the Underwriter, the Underwriter's Bridge
Warrants were cancelled.
5. In July 1996, the Company entered into an agreement with Dental
Alternatives, Inc., a New York corporation wholly owned by Dr. Stahl and Mr.
Steil, pursuant to which the Company acquired all of the capital stock of
Dental Alternatives, Inc. in a stock for stock exchange. As a result, Dental
Alternatives Inc. became a subsidiary of the Company. In consideration for
their shares of Dental Alternatives, Inc., the Company issued to Dr. Stahl and
Mr. Steil 200,000 Shares (100,000 Shares each), as adjusted for both of the
Company's reverse stock splits.
6. In March 1994 the Company entered into a Consulting Agreement (the
"Agreement") with Ameristar Group Incorporated ("Ameristar") whereby Ameristar
was engaged to assist the Company and its management in finding and evaluating
potential business projects and generally to assist in the implementation of
its business and financial plan. This Agreement has been ongoing and subject
to termination upon 30 days prior notice by either party. In addition to
monthly fees payable to Ameristar for its services, by an amendment to the
Agreement dated September 23, 1994 Ameristar was issued 10,000 shares of Common
Stock, as adjusted for both of the Company's reverse stock splits. Ameristar
was also granted certain "piggy-back" and demand registration rights with
respect to these shares and, by reason thereof, Ameristar's shares have been
included herein and Ameristar is a Selling Shareholder as listed in this
Prospectus. The principals of Ameristar are Joseph Messina and Martin
Saposnic, neither of whom are affiliates of the Company.
7. The Company has agreed to issue a total of 450,000 shares of Common
Stock to Dr. Stahl (225,000 Shares) and Mr. Steil (225,000 Shares) in
consideration of their agreement to release the Company from a debt to them of
$162,038. The debt represents the accumulated profits from operations of one
of the Company's predecessors which was earned when it was a Subchapter S
corporation and prior to the time that the Company acquired it as a subsidiary,
reversing the Subchapter S. status of that Company. The accumulated profits
were not previously paid to Dr. Stahl and Mr. Steil at the time the Subchapter
S status was changed. The price range during the time of the issuance of the
shares was between a high bid of $0.625 per share and a low bid of $0.53125.
per share.
The number of shares issuable in Items 1, 3, 5, 6 and 7 above were
determined arbitrarily and were influenced by management's best determination
of the value of the property being acquired or the services rendered.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Shares of the Company's common stock commenced trading on February 28,
1995. The principal market on which the Company's securities are traded is the
over-the-counter market on the OTC Electronic "Bulletin Board" and is currently
traded under the symbol "XETX." Since trading commenced, the Shares "bid"
price has ranged from a low bid price of $ 0.53125 to a high bid price of $1.5
as reflected in the following table which indicates the range of high and low
bid quotations for the Company's Common Stock which were listed for the
Company's Common Stock for the periods indicated:
High Bid Low Bid
1997
First Quarter 1.5 1.25
Second Quarter 1.5 0.75
Third Quarter 0.75 0.75
Fourth Quarter 0.75 0.75
1998
First Quarter 0.75 0.625
Second Quarter 0.625 0.53125
Third Quarter 0.625 0.53125
- ---------------
There were no inside quotes on the OTC Bulletin Board prior to the first
quarter of 1997.
The above quotations, reported by the National Quotation Bureau, represent
prices between dealers and do not include retail mark-ups, mark-downs or
commissions. such quotations do not necessarily represent actual transactions.
Prior to this Offering there has been only a limited public market for the
Common Shares. Quotations for the Common Shares have been by dealers appearing
as market makers on the OTC Bulletin Board, and such quotations have generally
been by inquiry. Furthermore, trading of the Common Shares has been sporadic
and in relatively small volumes and, as a result, purchases or sales of
relatively small amounts of Common Shares can significantly impact quoted
prices. The Company believe that the actual Bulletin Board quotations as set
forth above are not reflective of an established market for the shares of the
Company's Common Stock in which such shares of Common Stock trade freely.
On -----------,1998 the reported bid price for the shares of the
Company's Common Stock was $------ per share; there were ----- record holders
of the Company's common Stock; and there were -------- (--) market makers for
the Company's securities.
PRINCIPAL STOCKHOLDERS
The following table sets forth as of the date of this Prospectus certain
information regarding the beneficial ownership of the Company's Common Stock by
(i) each person who is known by the Company to own beneficially 10% of the
Company's outstanding Common Stock; (ii) each of the Company's officers and
directors; and (iii) all directors and officers of the Company as a group.
Number Percent Percent
of Shares Owned Before Owned After
Owned Offering Offering(1)(2)(3)
Name (1)(2)(3) Minimum Maximum
Dr. Jan Stahl
3141 Ann Street
Baldwin, NY 11510 375,000 41% 30.9% 25.8%
Peter Steil
430 East Olive
Long Beach, NY 1156 362,500 39,6% 29.9% 24.9%
Kenneth Levanthal
24 Meadowbrook Road
Huntington Station
New York 11725 5,000 0.6% 0.4% 0.3%
All Directors and
Officers as a Group
(3 Persons) 742,500 81.2% 61.2% 51.9%
(1) Based upon 914,131 Shares being issued and outstanding as of the date of
this Prospectus as adjusted for the Company's 1-for-10 reverse split and its
recent 1-for-2 reverse split. The number of shares shown in this table
includes 450,000 shares of Common Stock recently authorized by the Board of
Directors for Dr. Stahl (225,000 shares of Common Stock) and Mr. Steil (225,000
shares) in consideration of their release of an indebtedness to them of
$162,038 from the Company.
(2) Does not give effect to the possible exercise of any of the Warrants
included in the Securities offered hereby.
(3) Does not give effect to the possible exercise of any of the Underwriter's
Warrants or the Pre-Bridge and Bridge Warrants.
See "Certain Transactions" for additional information with respect to the
holdings of selling security holders.
SELLING SHAREHOLDERS AND PLAN OF DISTRIBUTION
In addition to the Securities being sold by the Company hereunder, 110,000
shares of Common Stock will also be sold by the Selling Shareholders set forth
below ("Selling Shareholders"). Also being registered hereby are 1,250,000
Bridge Warrants and 1,250,000 shares of Common Stock issuable upon the exercise
of the Bridge Shares underlying the Bridge Warrants and 12,500 Warrants and
12,500 of Common Stock issuable upon the exercise of the Pre-Bridge Warrants.
The Securities being sold by the Selling Shareholders are not part of the
offering by the Company and the Company will not receive any proceeds from the
sale of the Securities by the Selling Shareholders. These Securities were
originally issued by the Company in transactions not involving any public
offering. All purchasers of the ^^^Bridge and Pre-Bridge Lenders' Warrants
and/or Common Stock were accredited investors as that term is defined in
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Act"). The Company has agreed to register these Securities under the Act
concurrently with this Offering and to pay the expenses in connection therewith
(exclusive of commissions and the fees and expenses of counsel for Selling
Shareholders). The Bridge Lenders' and Pre-Bridge Lenders' Warrants and shares
of Common Stock underlying the Warrants to be offered by the Selling
Shareholders are identical to the shares of Common Stock and Warrants offered
herein by the Company and have been included in the Registration Statement of
which this Prospectus forms a part. None of the Selling Shareholders (or
Warrantholders) have any material relationship with the Company. Certain of the
holders of the Bridge Shares and Bridge Warrants previously entered into a
lock-up agreement whereby each of them agreed not to sell, assign or transfer
their Bridge Shares or Bridge Warrants for a period of twenty-four months from
the date of issuance. Each of the lock-up agreements expired on September 30,
1998 and will have no further effect.
Approximate Percentage(2)
Shares Warrants Before After Offering
Name and Address Owned(1) Owned(1) Offering Minimum Maximum
Glen Nortman
88 Foxwood Drive
Jericho, NY 11753 5,000 63,750(3) 3.10% 2.72% 2.48%
Gary Lyle Brustein
201 Brookville Road
Brookville, NY 11545 10,000 126,250(3) 6.19% 5.44% 4.96%
Ameristar Group
Incorporated
Suite 1710
444 Madison Avenue
New York, NY 10022 10,000 - 0.46% 0.40% 0.37%
Capital Planning
Holding Corp.
3 Asccot Ridge
Great Neck, NY 11021 5,000 62,500 3.10% 2.72% 2.48%
Jano and Jano Builders,
Ltd.
155 Westwood Drive
Westbury, NY 11590 10,000 125,000 6.19% 5.44% 4.96%
Jay G. Goldman
745 Fifth Avenue
New York, NY 10151 5,000 62,500 3.10% 2.72% 2.48%
Jay Goldman,
Master Limited
Partnership
745 Fifth Avenue
New York, NY 10151 5,000 62,500 3.10% 2.72% 2.48%
Christopher Mackie
50 Pummick Street
Bluepoint, NY 11715 5,000 62,500 3.10% 2.72% 2.48%
Wainscott Capital, Ltd
Seaton House
Suite 2
17-19 Seaton Place,
St. Healier, Jersey
Channel Islands 20,000 250,000 12.38% 10.89% 9.92%
Neil Jeffrey Weissman
3 Piper Drive
Searington, NY 11507 15,000 187,500 9.26% 8.14% 7.43%
Harry Zarin
73-79 Park Drive
EastFlushing, NY 11367 10,000 125,000 6.19% 5.44% 4.96%
Robert Zarin
9 Stewart Lane
Kings Point, NY 11024 10,000 125,000 6.19% 5.44% 4.96%
Joseph Perri
10 Whalewell Place
Staten Island, NY 10304 - 5,000 0.22% 0.20% 0.18%
Ernest Milchman
25 Rockledge Avenue
White Plains, NY 10601 - 2,500 0.11% 0.10% 0.09%
Jeffrey Nortman
72 Eagle Chase
Woodbury, NY 11797 - 1,250 0.06% 0.05% 0.05%
Daniel Horowitz
12 Rodeo Circle
Syosset, NY 11791 - 1,250 0.06% 0.05% 0.05%
Janssen-Meyers
Associates, L.P.
17 State Street
New York, NY 10004 - 6,250 0.28% 0.25% 0.23%
- --------------------------------------
(1) Represents the total number of shares of Common Stock and Warrants owned
by the Selling Shareholders which are being registered hereunder for sale to
the public. Except for Ameristar Group, Incorporated and Janssen-Meyers, L.P.,
the Selling Shareholders are the Bridge Lenders and Pre-Bridge Lenders. See
"Certain Transactions."
(2) In determining the percentages represented by the holding of each Selling
Shareholder, it has been assumed that all warrants listed in the above table
have been exercised, but that none of the Warrants which are being offered
hereby, or any of the Underwriter's Warrants, have been exercised.
Consequently, the above stated percentages are based upon a total assumed
capitalization equal to 914,131 Shares presently issued and outstanding, plus
1,262,500 Shares to be issued upon exercise of the Bridge Warrants and
Pre-Bridge Warrants and 6,250 Shares to be issued upon the exercise of the
Warrants issued to Janssen-Meyers. Consequently, it is assumed for purposes of
the above table that the number of Shares outstanding prior to this Offering
was 2,182,881; the number of Shares to be outstanding following the minimum
Offering herein will be 2,482,631; and the number of Shares to be outstanding
following the maximum Offering herein will be 2,722,881.
(3) Includes 1,250 Pre-Bridge Warrants. In the event that any of the Selling
Shareholders are released from their lock-up agreements, the NASD has required
that any NASD member acquiring released shares from the Selling Stockholders
must notify the NASD of the lock-up release and disclose the purchase price and
other material terms of the sale of such released shares. The Selling
Shareholders may be deemed to be "underwriters" under the federal securities
laws and may also be subject to certain restrictions imposed by Regulation M
which prohibits selling shareholders from bidding for, purchasing or attempting
to bid for or purchase a covered security during an applicable restricted
period, unless an exemption permits the activity, among other things.
The sale of Common Stock by the Selling Shareholders at the same time as
the Offering by the Company could have adverse effects on the sale of stock by
the Company which could result in a delay of the Offering, postponement or
abandonment. See "Risk Factor 26."
It should be noted that upon registration, provided a prospectus is
delivered, the Selling Shareholders will be free to sell their shares by
offering them through the Underwriter or, if desired, through other
broker/dealers of their own choice or otherwise in off market, private
transactions. In any event, the Selling Shareholders are free to sell their
shares independently from the Company and in competition with the Offering
proposed by this Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, which is filed as an exhibit to this Registration Statement, the
Company is offering a minimum of 300,000 shares of Common Stock and 300,000
Warrants for a total Offering price of $1,530,000 (the "Minimum Offering), and
a maximum of 540,000 shares of Common Stock and 540,000 Warrants for a total
Offering price of $2,754,000 (the "Maximum Offering), at a purchase price of
$5.00 per share of Common Stock and $0.10 per Warrant. Each Warrant entitles
the holder to purchase one share of Common Stock at an exercise price of $5.00
per share and is exercisable for a period of four years commencing one year
from the date of this Prospectus. The Company has agreed to pay Morgan Grant
Capital Corp. (the "Underwriter") a commission of ten (10%) per cent of the
gross sale price of all Securities sold in this Offering ($153,000 if only the
Minimum Offering is sold and $275,400 if the Maximum Offering is sold). The
Underwriter has made no commitment to sell any of the Securities offered hereby
and no assurance is given that any of the Securities will be sold. The
Underwriter has agreed to use its "best efforts" to sell the Securities.
The Underwriter has the option to engage other broker-dealers who are
members of the National Association of Securities Dealers, Inc. (the "Selected
Participating Dealers") to assist in the sale of these Securities. At the
date hereof, the Underwriter has not reached any agreement with any Selected
Participating Dealers to conduct selling efforts with respect to the Company's
Securities offered hereby. In the event that any agreement is reached between
the Underwriter and any Selected Participating Dealers, the Underwriter intends
to reallow to such participating broker-dealers up to ---% of the full 10%
underwriting commission.
The proceeds from the sale of the Securities offered hereby will be held
in an escrow account at the Chase Manhattan Bank, New York, New York (the
"Escrow Account"), until a minimum of 300,000 shares of Common Stock and
300,000 Warrants have been sold and $1,530,000 is deposited in the Escrow
Account. If at least 300,000 shares of Common Stock and 300,000 Warrants are
not sold by 60 days from the date of this Prospectus, which date may be
extended for an additional period of 30 days by the Company and the
Underwriter, the proceeds received from investors will be promptly refunded to
the investors in full without interest thereon and or deduction of any kind
therefrom. There is no minimum sale required for the Warrants offered hereby.
Until the proceeds from the sale of at least 300,000 shares of Common Stock and
300,000 Warrants are deposited in escrow, investors will not be securities
holders nor able to demand the return of their subscription proceeds.
All purchasers' checks should be made payable to "Xetal, Inc. Escrow
Account." Certificates evidencing the Shares and Warrants will be issued to
purchasers only if the proceeds from the sale of at least 300,000 shares of
Common Stock and 300,000 Warrants are actually deposited in the Escrow Account
and released to the Company pursuant to the Escrow Agreement. Until such time
as the proceeds are actually received by the Company and the certificates
delivered to the purchasers thereof, such purchasers will be deemed subscribers
and not security holders of the Company. During the selling period, purchasers
will have no right to demand the return of their subscription proceeds and no
interest will be paid on amounts on deposit. If the minimum proceeds are
successfully obtained, the Offering will continue until completed, until the
maximum period of the Offering has elapsed or until the Offering is terminated
by the Company and the Underwriter, whichever occurs first.
The Company has also agreed to sell to the Underwriter warrants (the
"Underwriter's Warrants) at a purchase price of $0.0001 per Underwriter's
Warrant to acquire an aggregate of 54,000 shares of Common Stock exercisable
for a period of four years commencing one year from the date of this
Prospectus, at an exercise price equal to 165% of the price of the Common Stock
to the public in this Offering (or $8.25 per share), subject to adjustment in
amount pro rata in the event all of the Common Stock and/or Warrants are not
sold in this Offering. The Underwriter's Warrants grant to the holder thereof
certain demand and "piggy-back" registration rights for a period of five years
from the date of this Prospectus with respect to the registration under the Act
of the securities issuable upon the exercise of the Underwriter's Warrants.
See, "Description of Securities - Underwriter's Warrants."
In accordance with the Underwriting Agreement, the Underwriter has been
granted the option of designating an individual to serve on the Company's Board
of Directors for a period of at least three years after completion of this
Offering. The Underwriter has not advised the Company whether it will exercise
such Option, or, if so, who it will designate.
The Underwriting Agreement also provides that the Company will pay a
non-accountable expense allowance equal to two percent (2%) of the gross
proceeds of this Offering to the Underwriter ($30,600 if only the Minimum
Offering is sold or $55,080 if the Maximum Offering is sold) of which $25,000
has been paid as of the date of this Prospectus. The Company has also agreed
to pay all expenses in connection with qualifying the Securities offered hereby
for sale under the laws of such states as the Underwriter may designate,
including fees and expenses of counsel retained for such purposes, certain
costs of investigatory searches of the Company's executive officers and other
expenses in connection with the Offering.
The Underwriter has informed the Company that it does not intend to
confirm sales to any accounts over which it exercises discretionary authority.
All of the Company's officers and directors, constituting in the aggregate
742,500 shares of Common Stock in the aggregate), have agreed not to sell their
shares without the consent of the Underwriter for a period of 24 months from
the date of this Prospectus. The Underwriting Agreement provides that the
Company will not offer any shares of Common Stock, preferred stock, options to
purchase Common Stock, warrants or any other securities convertible into shares
of Common Stock within three years after the date this Prospectus without the
consent of Underwriter, except that the Company may issue up to 100,000 shares
of Common Stock in connection with an employee stock option plan. The
Underwriting Agreement provides that the Underwriter will have a right of first
refusal for any sale of securities to be made by the Company for a period of
five years after the date of this Prospectus.
The Underwriter proposes to negotiate with the Selling Shareholders with
respect to the sale of their Shares; however, as of the date hereof, no such
agreements, plans or understandings have been agreed to for the Sale of the
Selling Stockholder's Shares. Previously the Bridge noteholders were subject
to lock-up agreements with respect to the sale of their Shares but such
agreements ^^have expired ^^at September 30, 1998.
In the event that any of the Selling Shareholders are released from their
lock-up agreements, the NASD has required that any NASD member acquiring
released shares from the Selling Shareholders must notify the NASD of the
lock-up release and disclose the purchase price and other material terms of the
sale of such released shares.
The Underwriting Agreement provides that the Company will neither solicit
the exercise of the Warrants being offered hereby, nor authorize any dealer to
engage in such solicitation without the consent of the Underwriter. Upon the
exercise of the Warrants, the Company has agreed to pay to the Underwriter a
commission equal to seven (7%) per cent of the aggregate exercise price. The
commission will be payable only if (i) the Warrant is exercised at least 12
months after the date of this Prospectus; (ii) the market price of the Common
Stock on the date that the Warrant is exercised is greater than the exercise
price of the Warrants; (iii) the exercise of the Warrant was solicited by a
member of the National Association of Securities Dealers, Inc.; (iv) the
Warrant is not held in a discretionary account; (v) disclosure of the
compensation arrangement is made at the time of the exercise of the Warrant;
(vi) the holder of the Warrant has stated in writing that the exercise was
solicited and designated in writing the soliciting broker/dealer; and (vii)
solicitation and exercise of the Warrant was not in violation of Regulation M
promulgated under the Exchange Act. However, no fee will be payable to the
Underwriter in connection with the Warrants voluntarily exercised without
solicitation by the Underwriter.
The Underwriting Agreement also provides for reciprocal indemnification
between the Company and the Underwriter against certain liabilities in
connection with the Registration Statement, including liabilities under the
Act. To the extent that the Underwriting Agreement may purport to provide
exculpation from possible liabilities arising under the federal securities
laws, it is the opinion of the Commission that such indemnification is contrary
to public policy and unenforceable.
The Underwriter may elect not to proceed with the Offering at anytime
without penalty if, in its sole discretion and acting in good faith, it
believes that no favorable public market exists for the sale of the Securities.
The Underwriting Agreement may also be terminated by the Underwriter if, among
other things, at any time prior to the closing of this Offering, there shall
have occurred a material adverse change in the conditions or obligations of the
Company or which change, in the sole judgement of the Underwriter, will have
adversely affected the marketability of the securities offered hereby and will
have made it impracticable or inadvisable to proceed with this Offering.
The foregoing does not purport to be a complete statement of the terms and
conditions of the amended Underwriting Agreement, copies of which are on file
at the offices of the Underwriter and the Company and which are filed as an
exhibit to the Registration Statement. See "Additional Information."
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 20,000,000 shares of Common Stock,
$.001 par value per share, of which 914,131 shares are presently issued and
outstanding (after adjustments), including 100,000 shares of Common Stock in
the aggregate issued to the Bridge Lenders. Each outstanding share of Common
Stock is entitled to one vote, either in person or by proxy, on all matters
that may be voted upon by the owners thereof at meetings of the stockholders.
The holders of Common Stock (i) have equal ratable rights to dividends
from funds legally available therefore, when, and if declared by the Board of
Directors of the Company; (ii) are entitled to share ratably in all of the
assets of the Company available for distribution to holders of Common Stock
upon liquidation, dissolution or winding up of the affairs of the Company;
(iii) do not have preemptive, subscription or conversion rights, or redemption
or sinking fund provisions applicable thereto; and (iv) are entitled to one
non-cumulative vote per share on all matters on which stockholders may vote at
all meetings of stockholders.
All Shares which are the subject of this Offering, when issued, will be
fully paid for and non-assessable, with no personal liability attaching to the
ownership thereof. The holders of shares of Common Stock of the Company do not
have cumulative voting rights, which means that the holders of more than 50% of
such outstanding shares, voting for the election of directors, can elect all
directors of the Company if they so choose and, in such event, the holders of
the remaining shares will not be able to elect any of the Company's directors.
Even if all Shares offered are subscribed for, present management will continue
to own over 50% of the Company's issued and outstanding shares and will,
therefore, be able to elect all of the Company's Directors, appoint all of its
officers and control its operations.
Common Stock Purchase Warrants
The Common Stock Purchase Warrants ("Warrants") will be issued in
registered form under and subject to the terms of a warrant agreement dated as
of the date of this Prospectus (the "Warrant Agreement"). The following
statements are a brief summary of certain provisions of the warrant agreement
and are subject to the detailed provisions thereof, to which reference is made
for a complete statement of such provisions. Copies of the Warrant Agreement
may be obtained from the Company and have been filed with the Securities and
Exchange Commission as an Exhibit to the Registration Statement of which this
Prospectus is a part.
The Warrants are offered separately and each Warrant entitles the holder
thereof to purchase one additional share of Common Stock during the four (4)
year period commencing one year after the date of this Prospectus, as herein
defined, at a price of $5.00. The initial Offering price of the Warrants will
be $0.10 per Warrant. See "General Terms Applicable to Warrants, Pre-Bridge
Warrants and Bridge Warrants" for additional information.
Pre-Bridge and Bridge Warrants
There are issued and outstanding an aggregate of 1,250,000 Bridge Lenders'
Warrants and 12,500 Pre-Bridge Warrants (after adjustment) entitling the
holders thereof to purchase an aggregate of 1,262,500 shares of Common Stock.
In addition, 6,500 Warrants were issued to Janssen-Meyers which acted as
selling agent for the Warrants. In the event that this Offering is not
consummated at $5.00 per Share, then the Bridge Lenders' Warrant exercise price
will be 100% of whatever the public Offering price of the Common Stock is in
this Offering. The Pre-Bridge Lender's Warrants will also be exercisable at an
a price of $5.00 per share. Pursuant to the terms of the Bridge Lenders' and
Pre-Bridge Lender's Warrants, the holders thereof were granted certain demand
and "piggy-back" registration rights with respect to the Shares underlying the
Warrants. Consequently, all of the Warrants held by the Bridge and Pre-Bridge
lenders and the underlying Common Stock have been included in the Registration
Statement of which this Prospectus forms a part and, following the closing date
of this Offering, may be sold publicly, subject to the conditions set forth in
this Prospectus and subject to an agreement whereby the Bridge Lenders agreed
not to sell, assign or transfer the Common Stock, Bridge Lenders' Warrants or
Common Stock underlying the Bridge Lenders' Warrants without the prior consent
of the Underwriter for a period of 24 months from the date of their issuance or
18 months from the effective date of the Registration Statement of which this
Prospectus is a part, whichever is earlier. See "General Terms Applicable to
Warrants, Pre-Bridge Warrants and Bridge Warrants" for additional information.
General Terms Applicable to Warrants, Pre-Bridge Warrants and Bridge Warrants
Holders of the Warrants and Bridge Lenders' Warrants will not have any
rights, privileges or liabilities as Stockholders of the company prior to the
exercise thereof. The Warrants and Bridge Lenders' Warrants contain certain
provisions that protect the holders thereof against dilution. The exercise
price of, and the number of Shares issuable upon exercise of the Warrants and
Bridge Lenders' Warrants will be subject to adjustment in certain circumstances
including, but not limited to, stock dividends, stock splits, mergers,
acquisitions and re-capitalization. Upon such an adjustment, the Company shall
cause to be promptly mailed by first class mail, postage prepaid to each
Warrant and Bridge Lenders' Warrant Holder notice of such adjustment.
The Warrants and Bridge Lenders' Warrants may be exercised upon the
surrender of the warrant certificate on or prior to the expiration date at the
office of the Company, with the exercise form on the reverse side of the
warrant certificate completed and executed as indicated, accompanied by full
payment of the exercise price (by check payable to the Company) for the number
of warrants being exercised.
The Warrants and Bridge Lenders' Warrants are redeemable by the Company at
any time after two years after the date of this Prospectus and prior to their
expiration at a price of $0.05 per Warrant, upon 30 days prior written notice,
provided that the closing sale price of the Common Stock on the Bulletin Board
shall have been at least 150% of the initial Offering price of the Shares
herein on each of the 20 consecutive trading days ending on the tenth day prior
to the day on which the notice of redemption is given. The Warrants and Bridge
Lenders' Warrants may be exercised during the 30 day redemption notice. In
determining whether to redeem either of the warrants, management of the Company
will take into consideration the market price of the Shares and the Company's
ability to raise capital other than through the exercise of the warrants. The
Company may elect to redeem either the Warrants or Bridge Warrants or both in
its sole discretion.
Noone of the Warrants will be exercised unless at the time of exercise the
Company has filed with the Securities and Exchange Commission a current
prospectus covering the Shares issuable upon exercise of such warrants and such
Shares have been registered or qualified or deemed to be exempt under the
securities laws of the state of residence of the holder of such warrants. The
Company will use its best efforts to have all warrants so registered or
qualified on or before the exercise date and to maintain a current prospectus
relating thereto until expiration of the warrants. Further, a current
prospectus covering the Shares issuable upon exercise of the warrants must be
in effect before the Company may accept warrant exercises. There can be no
assurance that the Company will be able to have a prospectus in effect when
this Prospectus is no longer current, notwithstanding the Company's commitment
to use its best efforts to do so.
No fractional Shares will be issued upon exercise of the Warrants or
Bridge Lenders' Warrants. However, if a warrant holder exercises all warrants
then owned of record by him, in lieu of the issuance of any fractional Share
which is otherwise issuable, an amount in cash based upon the market value of
the Shares on the last trading day prior to the exercise date.
Warrants are generally more speculative than shares of Common Stock which
are purchased upon the exercise thereof. Historically, the percentage increase
or decrease in the market price of a warrant has tended to be greater than the
percentage increase or decrease in the market price of the underlying common
stock. A warrant may become valueless, or of reduced value, if the market
price o the common stock decreases, or increases only modestly, over the term
of the warrant.
Underwriter's Warrants
Upon the completion of this Offering, the Company has agreed to sell to
the Underwriter for a nominal consideration, Underwriter's Warrants to acquire
54,000 shares of Common Stock (after adjustment) identical to the Common Stock
being offered hereby, on the basis of one Warrant for each ten (10) shares of
Common Stock sold in this Offering. The Underwriter's Warrants are exercisable
at a price of $8.25 per share for a period of four years commencing one year
from the date of this Prospectus.
The Underwriter's Warrants may not be sold, hypothecated, exercised,
assigned, or transferred, except to individuals who are officers of partners of
the members of the Underwriter or participating selected dealers who are
members of the National Association of Securities Dealers, Inc., or pursuant to
the laws of descent and distribution, for a period of twelve months from the
effective date of this Prospectus, and, in no event will such Underwriter's
Warrants (or the underlying securities issuable upon exercise thereof) be
offered or sold except in compliance with the Act. Any profits realized by the
Underwriter upon the sale of the Underwriter's Warrants or the underlying
securities may be deemed to be additional compensation.
The Company has agreed that it will, upon request of the Underwriter or
its specific duly authorized designee, or at the request of the holders of not
less than 50% of the Underwriter's Warrants and/or underlying securities, with
the consent of the Underwriter or its duly authorized designee, within the
period commencing one year from the effective date of this Offering, and for a
period of four years thereafter, on one occasion at the sole expense of the
Company cause the Underwriter's Warrants and/or underlying securities issuable
upon exercise of the Underwriter's Warrants to be the subject of a post
effective amendment or a new registration statement so as to enable the
Underwriter and its assigns to offer publicly the Underwriter's Warrants and/or
underlying securities. In addition if during the five year period commencing
one year from the effective date of this Offering, the Company shall register
any of its securities for sale pursuant to a registration statement under the
Act, the Company shall be required to offer the holders of the Underwriter's
Warrant and/or underlying securities the opportunity to register such
underlying securities, without cost to the holders thereof. The registration
requirement shall not apply to Registration Statements filed by the Company
pursuant to Form S-8 or Form S-4 or similar forms.
The Underwriter's Warrants contain anti-dilution provisions regarding
certain events, including but not limited to stock dividends, split-ups, and
reclassification. Holders of the Underwriter's Warrants will have no voting
power and will not be entitled to any dividends. In the event of any
dissolution or winding up of the Company, the holders of the Underwriter's
Warrants will not be entitled to participate in a distribution of the Company's
assets.
For the life of the Underwriter's Warrants, the Underwriter is given, at a
nominal cost, the opportunity to profit from a resulting dilution in the
interest of existing security holders. The terms upon which the Company could
obtain additional capital during that period may be adversely affected. The
Underwriter might be expected to exercise the Underwriter's Warrants at a time
when the Company would, in all likelihood, be able to obtain any needed capital
by a new offering of securities on terms more favorable than those provided for
by the Underwriter's Warrants.
Dividend Policy
The Company has not paid any dividends and there are presently no plans to
pay any such dividends in the foreseeable future. The declaration and payment
of dividends in the future will be determined by the Board of Directors in
light of conditions then existing, including earning, financial condition,
capital requirements and other factors. There are no contractual restrictions
on the Company's present or future ability to pay dividends. Further, there are
no restrictions on any of the Company's subsidiaries which would, in the
future, adversely affect the Company's ability to pay dividends to its
shareholders.
Transfer Agent
The Transfer Agent for the Company's Common Stock is American Stock
Transfer & Trust Co., 40 Wall Street, New York, New York 10005.
LEGAL PROCEEDINGS
Neither the Company nor any of its officers or directors, in their
capacity as such, are presently a party to any litigation. To the knowledge of
management and the Company there is no litigation threatened against the
Company which may materially affect its assets or business operations. However,
as mentioned above, the Company is currently in default with respect to its
obligation to pay the principal and accrued interest pursuant to the terms of
the Pre-Bridge Notes. Such default could, at the option of the Pre-Bridge Note
holders result in litigation against the Company. No agreement has been
reached with the Pre-Bridge Note holders to extend the time of payment thereof
or to otherwise refrain from instituting litigation against the Company in
connection therewith.
LEGAL MATTERS
The validity of the Shares and Warrants offered hereby as part of the
Units will be passed upon for the Company by B. Bruce Freitag, Esq., 39
Sackerman Avenue, North Haledon, New Jersey 07508. Certain legal matters in
connection with this Offering will be passed upon for the Underwriter by Doros
& Brescia, P.C.
EXPERTS
The financial statements of the Company as of September 30, 1997 and for
the years ended September 30, 1997 and 1996 included in this Prospectus, have
been audited by Linder & Linder, Certified Public Accountants, Dix Hills, New
York 11746, as stated in their opinion and upon the authority of that firm as
experts in accounting and auditing.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders
Xetal, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Xetal, Inc.
and Subsidiaries as of September 30, 1997 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
the years ended September 30, 1997 and 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstate- ment. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Xetal, Inc.
and Subsidiaries at September 30, 1997 and the results of their operations and
their cash flows for the years ended September 30, 1997 and 1996 in conformity
with generally accepted accounting principles.
Linder & Linder
Certified Public Accountants
Dix Hills, New York
December 12, 1997
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30,
1997
ASSETS
Current Assets
Cash $ 1,163
Cash - accrued salaries 51,172
Accounts receivable, less allowance
for doubtful accounts of $57,820 2,533,090
Inventory 1,001,219
Advances to joint venture, less allowance
for doubtful accounts of $84,140 23,800
Due from officers 97,948
Prepaid and other receivables 64,999
--------
Total Current Assets 3,773,391
Property and Equipment - at cost,
less accumulated depreciation of
$66,014 96,323
Other Assets
Goodwill, less accumulated amortization
of $18,201 165,138
Registration costs 49,523
Security deposits 4,957
Total Other Assets 219,618
---------
Total Assets $ 4,089,332
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Cash overdraft $ 46,194
Line of credit - bank 964,292
Note payable, current portion 1,042
Bankers acceptances 475,596
Accounts payable 1,587,164
Accrued expenses 320,497
Loans payable 500,000
---------
Total Current Liabilities 3,894,785
Loans Payable - former shareholders 162,038
Stockholders' Equity
Preferred stock, $.01 par value,
2,000,000 shares authorized,
-0- shares issued -
Common stock, $.001 par value,
20,000,000 shares authorized,
928,263 and 728,363 issued and
outstanding 928
Additional paid in capital 614,012
Retained earnings (deficit) (582,431)
Total Stockholders' Equity 32,509
Total Liabilities and ---------
Stockholders' Equity $ 4,089,332
=========
See accompanying auditors' report and notes to financial statements.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
September 30,
1997 1996
Revenues $ 23,500,981 $ 14,615,764
Cost of Revenues 21,027,226 12,595,353
---------- ----------
Gross Profit 2,473,755 2,020,411
Operating Expenses
Selling expenses 1,049,201 911,336
General and administrative expenses 1,212,929 855,056
Consulting and business acquisition costs - 387,126
Total Operating Expenses 2,262,130 2,153,518
------- -------
Income (Loss) from Operations 211,625 (133,107)
Other Expenses
Interest expense - net 227,290 175,283
Net Loss $ (15,665)$ (308,390)
Earnings Per Common Share $(0.03) $(1.56)
Weighted Average Number of
Shares Outstanding 456,815 197,400
Pro Forma Earnings Per Common Share
Giving Effect to Shares Issuable
in Satisfaction of Former
Shareholders' Obligation $(0.02) $(0.48)
Pro Forma Weighed Average Number
of Shares Outstanding 906,815 647,400
See accompanying auditors' report and notes to financial statements.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
Additional
Common Stock Paid In Retained
Shares Amount Capital Earnings
Balance, September 30, 1995 318,263 $ 318 $ 585,522 $(258,376)
Acquisition of Universal
Medical Distributors, Inc. 10,000 10 90 -
Acquisition of Dental
Alternatives, Inc. 400,000 400 3,600 -
Net loss - year ended - - - (308,390)
Balance, September 30, 1996 728,263 728 589,212 (566,766)
Issuance of stock in
conjunction with bridge
loan 200,000 200 24,800 -
Net loss - year ended - - - (15,665)
Balance, September 30, 1997 928,263 $ 928 $ 614,012 $ (582,431)
See accompanying auditors' report and notes to financial statements.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
September 30,
1997 1996
Cash Flows From Operating Activities
Net loss $ (15,665) $ (308,390)
Adjustment to reconcile net loss to net
cash flows from operating activities
Depreciation 15,284 11,661
Amortization 12,123 8,141
Bad debts 16,820 84,140
Adjustment to registration fees - 278,386
Common stock issued with notes payable 25,000 -
Write-off of joint venture 3,047 -
Changes in operating assets and liabilities
(Increase) decrease in assets
Accounts receivable (1,387,208) 194,512
Inventories 287,059 (515,556)
Prepaids 23,579 (58,318)
Increase (decrease) in liabilities
Accounts payable 522,573 138,203
Accrued expenses 11,041 115,816
Cash Flows Used By Operating
Activities (486,347) (51,405)
Cash Flows From Investing Activities
Payments from joint venture 1,200 145,185
Acquisition of property (33,529) (12,863)
Acquisition of goodwill - (156,300)
Acquisition of registration costs (49,523) -
Due from officers (31,869) (52,579)
Cash Flows Used By Investing
Activities (113,721) (76,557)
Cash Flows From Financing Activities
Accrued Salaries - net of cash 7,678 -
Bank overdraft 46,194 -
Borrowings under line of credit - net (85,371) 234,663
Borrowings from acceptances payable - net 350,938 (447,807)
Payment of note payable (11,458) (50,000)
Payment of loan payable - former shareholders (86,000) -
Registration costs - 10,000
Loans payable 250,000 262,500
Cash Flows Provided By
Financing Activities 471,981 9,356
Net (Decrease) Increase In Cash (128,087) (118,606)
Cash, Beginning 129,250 247,856
Cash, Ending $ 1,163 $ 129,250
Supplemental Disclosure:
Cash paid during the year for:
Interest $155,405 $155,954
Taxes - -
Non-cash investing and financing transactions
Acquisition and registration costs
accrued as current liabilities - 71,010
Issuance of common stock to acquire
subsidiaries - 4,100
See accompanying auditors' report and notes to financial statements.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 - Summary of Significant Accounting Policies
Nature of Business
Insurance Kingdom Agency, Inc. ("IKA"), an inactive company, was organized
under the laws of the State of Utah. Effective September, 1994, IKA acquired
Xetal, Inc. ("APO Health"), an operating company. IKA changed its name to
Xetal, Inc., a Utah Corporation, (collectively the "Company"). APO Health is a
wholesale distributor of medical supplies and sells predominantly to medical
distributors, dentists and doctors throughout the United States. Approximately
80% of the Company's sales are to distributors of medical supplies.
The acquisition has been accounted for by the purchase method under
business combinations and treated as a reverse acquisition. Such transaction
treats the acquisition as if APO Health acquired IKA and reflects the fair
market value of IKA's net assets on the date of acquisition.
Effective to the acquisition, previously taxed profits, amounting to
$248,038, due to the former shareholders of APO Health, and included in
retained earnings, were transferred to loans payable to former shareholders.
The loans are non- interest bearing and are without terms for repayment. During
fiscal 1997, the former shareholders of APO Health were repaid $106,000.
Effective January 1, 1995, Xetal, Inc., the operating company, changed its
name to APO Health, Inc. In addition, APO Health changed its year end to
September 30th.
The accompanying consolidated financial statements include the accounts of
the Company and all of its wholly owned subsidiaries. Intercompany
transactions and balances have been eliminated in consolidation.
Inventory
Merchandise inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided for on
the straight-line method over the estimated useful life.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results may differ from those estimates.
Income Taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
The Company and its subsidiaries file consolidated tax returns.
Intangibles
Customer lists acquired were amortized over a three year period and have
been fully amortized. Registration costs are deferred and are offset against
the proceeds received from successful public offerings. Registration costs for
unsuccessful offerings are charged as period costs. Costs associated with the
companies acquired are capitalized and included in the purchase price of such
acquisition. Costs associated with unsuccessful acquisitions are expensed.
Goodwill represents the excess of the cost of companies acquired over the fair
value of their net assets at the date of acquisition and is being amortized on
the straight line method over 15 years.
Earnings Per Share
Earnings per share amounts are based on the weighted average number of
shares outstanding. The assumed conversion of warrants do not result in
material dilution.
Reclassification
Certain items in the 1996 statement of operations have been reclassified
to conform with the 1997 presentation.
NOTE 2 - Advances to Joint Venture
APO Health advanced Trans Medical International Corporation, ("Trans
Medical"), cash and merchandise to be distributed by Trans Medical to South
America. As collateral for this advance, APO Health received 25% of Trans
Medical's common stock. The advance is recorded at cost and during the year
ended September 30, 1996, APO Health has provided an allowance of $84,140 on
such advance. In January 1997, APO Health received a judgement in settlement
of their claims in the amount of $25,000.
NOTE 3 - Business Combinations
Universal Medical Distributors, Inc.
On March 31, 1996, IKA acquired Universal Medical Distributors, Inc.,
("Universal"), in a business combination accounted for as a purchase. Universal
is primarily engaged in the business of distributing veterinary supplies. The
results of operations of Universal is included in the accompanying financial
statements since the date of acquisition. The total cost of the acquisition,
which included cash of $65,000, issuance of 10,000 post stock split shares of
the Company's common stock and the assumption of the net liabilities of
Universal exceeded the fair value of the net asset of Universal by $179,339.
Dental Alternatives, Inc.
During July, 1996, IKA acquired Dental Alternatives, Inc.,
("Alternatives"), an inactive company owned by a major shareholder of IKA. The
acquisition was accounted for in a business combination of entities under
common control which has been accounted for in a manner similar to a pooling of
interests. IKA acquired trademarks and marketing rights of products developed
by Alternatives through the exchange of 400,000 post stock shares of the
Company's common stock for all of the outstanding stock of Alternatives.
NOTE 4 - Loans Payable
In conjunction with financing a private placement or public offering, APO
Health borrowed $50,000 from two individuals. Such borrowing is non-interest
bearing and will be repaid from the proceeds of the placement or offering.
In January, 1996, IKA issued an aggregate of $250,000 principal amount of
promissory notes to certain investors to provide interim working capital to the
Company and repaid $50,000 borrowed from the two individuals. The notes bear
interest at 10% per annum and are due and payable, upon the earlier of (i)
December 15, 1996 or (ii) the consummation of an offering. IKA has not repaid
the promissory notes and is currently negotiating with the investors to extend
the maturity date of the notes. Interest on the notes has been accrued since
inception.
In connection with the financing, IKA retained the services of an
underwriter to obtain additional financing through a public offering. Effective
May 10, 1996, IKA and the underwriter terminated their agreement. As part of
the termination agreement, the underwriter was issued warrants to purchase an
aggregate of 12,500 post split shares of common stock at a price of $7.50
exercisable through January 3, 2003.
The financial statements for the year ended September 30, 1996, have been
restated to give effect for registration costs associated with the public
offering which were originally deferred. Costs in the amount of $342,126 have
been expensed and are included in consulting and business acquisition costs.
In June, 1996, IKA retained the services of a new underwriter to
facilitate the public offering to provide the Company with working capital.
During the period from November, 1996 through January 1997, IKA issued an
aggregate of $250,000 principal amount of 8% promissory notes to certain
investors to provide the Company with interim working capital. The promissory
notes mature upon the earlier of (i) 12 months from the date of issuance or
(ii) the consummation of an offering. Interest payable monthly commences one
month from the date of the issuance of the notes and has been accrued since
inception. In addition, the investors received 20,000 shares of common stock
and a warrant for each $25,000 unit acquired. Each warrant entitles the
investor to purchase up to 250,000 shares of the IKA's common stock at a price
equal to 100% of the public offering price or $5.00 per share if the offering
is not consummated.
NOTE 5 - Credit Facility
In July 1997, APO Health renegotiated its credit facility with the
financial institution. The facility is for working capital and the purchase of
inventory. The credit facility provides for a $2,000,000 secured working
capital facility for letters of credit and bankers acceptances with a sub-
limit of $1,000,000 for own note borrowings. Interest is payable monthly, at
the bank's prime rate plus 1 and 1/2%.
The credit facility is scheduled to mature on March 31, 1998. At such
time, the bank will review the credit basis of APO Health to determine whether
to extend the facility. The facility is secured by substantially all of the
Company's assets and personally guaranteed by its stockholders. In addition,
the obligation due to the former shareholders in the amount of $162,000 is
subordinated to the bank's borrowing.
Universal has a line of credit with a bank in the amount of $50,000.
Borrowings against this line bear interest, at the prime rate plus 2.75% and
are collateralized by a lien on substantially all assets and are guaranteed by
the stockholders.
As of September 30, 1997, the Company has lines of credit outstanding of
$964,292.
NOTE 6 - Income Taxes
Deferred income taxes arise from temporary differences resulting from
income and expense items reported for financial accounting and tax purposes in
different periods. The primary sources of temporary differences are the use of
the allowance method for bad debts for financial accounting and direct
write-off method for tax purposes and the availability of net operating loss
carryovers.
The components of deferred taxes as of September 30, 1997 are as follows:
1997
Allowance for doubtful accounts $ 55,000
Net operating loss carryover 173,000
228,000
Valuation allowance (228,000)
Net deferred assets $ -
For the years ended September 30, 1997 and 1996, the provision for income taxes
(benefits) consist of the following:
1997 1996
Current $ - $ 14,000
Utilization of a net operating
loss carryover - (14,000)
Valuation allowance 5,000 125,000
Deferred (5,000) (125,000)
Provision for taxes $ - $ -
The Company has provided for a valuation allowance amounting to the
deferred tax asset since it can not be determined whether it can more likely
than not be utilized. The Company has a net operating loss carryover of
approximately $446,000 that can be used to offset future taxable income through
the year 2011.
NOTE 7 - Common Stock
During fiscal 1997, the Company issued 200,000 shares of its common stock
to certain investors, pursuant to the bridge financing. (See Note 4)
On August 5, 1996, the Board of Directors authorized an 1- for-10 stock
split of the Company's $0.001 par value common stock. As a result of the
split, existing shares outstanding was reduced by 6,544,067, and additional
paid in capital was increased by $6,544. All references in the accompanying
financial statements to the number of common shares and per-share amounts for
1995 have been restated to reflect the reverse stock split.
In July 1996, the Company issued 400,000 post stock split shares of common
stock to acquire Alternatives, an inactive company. (Note 3). The transaction
was recorded at the legal capitalization of the shares issued.
On March 31, 1996, the Company issued 10,000 post stock split shares of
common stock to acquire Universal. (Note 3). The transaction was recorded at
the legal capitalization of the shares issued.
On August 4, 1995, the Company issued 58,200 post stock split shares of
the Company's common stock for the forgiveness of services rendered in the
amount of $654,189. The transaction was recorded at the value of the services
rendered.
NOTE 8 - Commitments and Contingency
Defined Contribution Pension Plan
January, 1993, APO Health established a profit sharing plan. All full time
employees, as defined in the plan, are eligible. Contributions to the plan are
discretionary. Pension expense for the years ended September 30, 1997 and 1996
were $-0-.
Leases
Effective November 15, 1994, an affiliated company, whose shareholders are
the officers of the Company, entered into a 5 year agreement to lease a 9800
square foot facility to house its operations. Under the terms of the new
lease, the Company will pay for all real estate tax increases and any repairs
to the property. The Company has a month to month lease with similar terms
with this affiliate.
Future minimum rental payments are as follows:
Year Ending
September 30,
1998 $51,450
1999 51,450
For the years ended September 30, 1997 and 1995, rent expense was $50,212 and
$45,392, respectively.
Concentration of Credit Risk
APO Health maintains bank accounts in several financial institutions. Each
financial institution is insured up to $100,000 by the Federal Depository
Insurance Corporation.
Employment Agreements
The Company has entered into employment agreements with its principal
officers through December 31, 1998. The agree- ments will automatically be
renewed and extended for up to five consecutive one year periods. The terms
provide for a minimum annual salary of $125,000 with adjustments for cost-
of-living changes and incentives based on gross revenues and development of new
products. In addition, the agreement provides for warrants to be issued based
on the incentives. At September 30, 1997 and 1996, the officers waived certain
terms of their agreement for additional compensation based on salary and
incentives.
Letters of Credit
The Company has letters of credit outstanding of $158,142 for purchases to
be delivered after September 30, 1997.
NOTE 9 - Subsequent Events - Unaudited
In August 1998, the Board of Directors authorized a 1 for 2 stock split of
the Company's $.001 par value common stock, reducing the number of outstanding
shares of common stock to 464,131. Earnings per share computation has been
retro- actively restated to give effect to this change.
In August 1998, loans payable to former shareholders, in the amount of
$162,038, was converted into 450,000 shares of post 1 for 2 stock split shares
of the Company's $.001 par value stock, increasing the number of post-split
shares to 914,131. The issuance of these shares and cancellation of the debt
is subject to the sale of the minimum shares in the Company's public stock
offering. The Company has presented pro forma earnings per share to reflect
this event. There is no effect on the Company's net earnings since the
obligation to the shareholders was non-interest bearing.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
June 30, September 30,
1998 1997
Current Assets:
Cash $ 109,899 $ 52,335
Accounts receivable,
less allowance for
doubtful accounts
of $57,820 and $57,820 3,161,831 2,533,090
Inventory 754,071 1,001,219
Advances to joint venture - 23,800
Due from Officers - 97,948
Prepaid and other receivables 74,601 64,999
--------- ---------
Total Current Assets 4,100,402 3,773,391
Property and Equipment - at cost,
less accumulated depreciation
of $78,617 and $66,014 83,720 96,323
Other Assets:
Goodwill, less accumulated
Amortization of $24,309
and $18,201 155,976 165,138
Registration Costs 49,523 49,523
Security Deposits 24,957 4,957
------- -------
Total Other Assets 230,456 219,618
--------- ---------
Total Assets $ 4,414,578 $ 4,089,332
========= =========
The accompanying notes are an integral part of these Financial Statements.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, September 30,
1998 __1997
(Unaudited)
Current Liabilities:
Cash Overdraft $ 118,596 $ 46,194
Line of Credit - Bank 485,000 964,292
Note Payable, Current Portion - 1,042
Bankers Acceptances 459,823 475,596
Accounts Payable 1,953,633 1,587,164
Accrued Expenses 345,542 320,497
Loans Payable 500,000 500,000
--------- ---------
Total Current Liabilities 3,862,594 3,894,785
Loans Payable - Former Shareholders 162,038 162,038
Stockholders' Equity:
Preferred stock, $.01 par value
2,000,000 shares authorized
- 0 - shares issued - -
Common stock, $.001 par value
20,000,000 shares authorized
928,263 issued and outstanding 928 928
Additional Paid-in Capital 614,012 614,012
Retained Earnings (Deficit) (224,994) (582,431)
------- -------
Total Stockholders' Equity 389,946 32,509
Total Liabilities and --------- ---------
Stockholders' Equity $ 4,414,578 $ 4,089,332
========= =========
The accompanying notes are an integral part of these Financial Statements.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
June 30, June 30,
1998 1997
(Unaudited) (Unaudited)
Revenue $24,693,703 $16,302,519
Cost of Revenue 22,280,389 14,509,242
---------- ---------
Gross Profit 2,413,314 1,793,277
Operating Expenses:
Selling Expenses 891,158 717,889
General and Administrative Expenses 1,039,700 871,100
Total Operating Expenses 1,930,858 1,588,989
Income from Operations 482,456 204,288
Other Expenses - Interest 125,219 181,120
------- -------
Net Income $ 357,237 $ 23,168
Earning Per Common Share $ .77 $ .06
Weighted Average Number of
Shares Outstanding 464,131 430,878
Proforma Earnings Per Common Share $ .39 $ .03
Proforma Weighted Average Number
of Shares Outstanding 914,131 880,798
The accompanying notes are an integral part of these Financial Statements.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30,1998 AND 1997
June 30, June 30,
1998 1997
(Unaudited) (Unaudited)
Cash Flows from Operating Activities:
Net Income (Loss) $ 357,237 $ 23,168
Adjustment to reconcile net income
(loss) to net cash flows from
operating activities
Depreciation 12,603 10,750
Amortization 9,162 28,217
Allowance for doubtful accounts 23,800 32,067
Changes in operating assets and
liabilities:
Accounts Receivable (628,741) (654,750)
Inventory 247,148 (65,697)
Security Deposits (20,000) -
Prepaid Expenses (9,602) 5,805
Accounts Payable 366,469 455,075
Accrued Expenses 25,245 (91,781)
Net Cash Flow from
Operating Activities 383,321 (257,146)
Cash Flows from Investing Activities:
Acquisition of Property - (19,228)
Due from Officers 97,948 (1,668)
Net Cash Flow from
Investing Activities 97,948 (20,896)
Cash Flow from Financing Activities:
Cash-Overdraft 72,402 30,699
Borrowing under line of credit - net (479,292) (160,000)
Borrowing from acceptances payable -
net (15,773) 254,842
Payment of Note Payable (1,042) (9,375)
Registration Cost - (24,523)
Loans Payable - 250,000
Prepayment Loans - Former Shareholders - (50,000)
Net Cash Flow from Financing
Activities (423,705) 291,643
Net Increase (decrease) in Cash 57,564 13,601
Cash, Beginning 52,335 129,250
Cash, Ending $ 109,899 $ 142,851
Supplemental Information:
Cash Payments for Interest $ 91,469 $ 152,995
The accompanying notes are an integral part of these Financial Statements.
XETAL, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
Note 1 - Summary of Significant Accounting Policies
Presentation
These interim Financial Statements are unaudited, but include all
adjustments (consisting of normal recurring adjustments) which the management
of the Company considers necessary for a fair presentation of the results of
operations for the periods indicated. The results of operations for the nine
months ended June 30, 1998, are not necessarily indicative of the results to be
expected for the entire fiscal year ending September 30, 1998.
Nature of Business
Insurance Kingdom Agency, Inc. ("IKA), an inactive company, was organized
under the laws of the State of Utah. Effective September, 1994, IKA acquired
Xetal, Inc. ("APO Health"), an operating company. IKA changed its name to
Xetal, Inc., a Utah Corporation, (collectively the "Company"). APO Health is a
wholesale distributor of medical supplies and sells predominantly to medical
distributors, dentists and doctors throughout the United States. Approximately
80% of the Company's sales are to distributors of medical supplies.
The accompanying consolidated financial statements include the accounts of
the Company and all of its wholly owned subsidiaries. Intercompany transactions
and balances have been eliminated in consolidation.
Inventory
Merchandise inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided for on
the straight-line method over the estimated useful life.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results may differ from those estimates.
Income Taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rats applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
The Company and its subsidiaries file consolidated tax returns.
Intangibles
Registration costs are deferred and are offset against the proceeds
received from successful public offerings. Registration costs for unsuccessful
offerings are charged as period costs. Costs associated with the companies
acquired are capitalized and included in the purchase price of such
acquisition. Costs associated with unsuccessful acquisitions are expensed.
Goodwill represents the excess of the cost of companies acquired over the fair
value of their net assets at the date of acquisition and is being amortized on
the straight line method over 15 years.
Earnings Per Share
Earnings per share amounts are based on the weighted average number of
shares outstanding. The assumed conversion of warrants do not result in
material dilution.
Note 2 - Advances to Joint Venture
APO Health advanced Trans Medical International Corporation, ("Trans
Medical"), cash and merchandise to be distributed by Trans Medical to South
America. As collateral for this advance, APO Health received 25% of Trans
Medical's common stock. The advance was recorded at cost. In January, 1997, the
Company received a judgment in settlement of their claims in the amount of
$25,000. In December, 1997, after receiving three payments of $1,200, the
Company set up a reserve of $23,800 for the remaining balance.
Note 3 - Loans Payable
In January, 1996, the Company issued an aggregate of $250,000 principal
amount of promissory notes to certain investors to provide interim working
capital to the Company and repaid $50,000 borrowed from the two individuals.
The notes bear interest at 10% per annum and are due and payable, upon the
earlier of (a) December 15, 1996, or (b) the consummation of an offering. The
Company has not repaid the promissory notes and is currently negotiating with
the investors to extend the maturity date of the notes. Interest on the notes
has been accrued since inception.
In connection with the financing, the Company retained the services of an
underwriter to obtain additional financing through a public offering. Effective
May 10, 1996, the Company and the underwriter terminated their agreement. As
part of the termination agreement, the underwriter was issued warrants to
purchase an aggregate of 12,500 post split shares of common stock at a price of
$7.50 exercisable through January 3, 2003.
In June, 1996, the Company retained the services of a new underwriter to
facilitate the public offering to provide the Company with working capital.
During the period from November, 1996, through January, 1997, the Company
issued an aggregate of $250,000 principal amount of 8% promissory notes to
certain investors to provide the Company with interim working capital. The
promissory notes mature upon the earlier of ( a ) 12 months from the date of
issuance, or ( b ) the consummation of an offering. Interest payable monthly
commences one month from the date of the issuance of the notes, and has been
accrued since inception. In addition, the investors received 20,000 shares of
common stock and a warrant for each $25,000 unit acquired. Each warrant
entitles the investor to purchase up to 250,000 shares of the Company's common
stock at a price equal to 100% of the public offering price or $5.00 per share
if the offering is not consummated.
Note 4 - Credit Facility
In June, 1998, APO Health renegotiated its credit facility with the
financial institution. The facility is for working capital and the purchase of
inventory. The credit facility provides for a $2,000,000 secured working
capital facility for letters of credit and bankers acceptances with a sub-limit
of $1,000,000 for own note borrowings. Interest is payable monthly, at the
bank's prime rate plus 1 and 1/2%. The credit facility is scheduled to mature
on March 31, 1999. At such time, the bank will review the credit basis of APO
Health to determine whether to extend the facility. The facility is secured by
substantially all of the Company's assets and personally guaranteed by its
stockholders. In addition, the obligation due to the former shareholders in the
amount of $162,000 is subordinated to the bank's borrowing.
As of June 30, 1998, the Company has lines of credit outstanding of
$485,000 and bankers acceptances of $459,823.
Note 5 - Income Taxes
Deferred income taxes arise from temporary differences resulting from
income and expense items reported for financial accounting and tax purposes in
different periods. The primary sources of temporary differences are the use of
the allowance method for bad debts for financial accounting and direct
write-off method for tax purposes and the availability of net operating loss
carryovers.
The components of deferred taxes as of June 30, 1998, are as follows:
1998 1997
Allowance for doubtful accounts $ 32,000 $ 23,000
Net operating loss carryover 8,000 140,000
----- -------
40,000 163,000
Valuation allowance (40,000) (163,000)
Net deferred assets $ - $ -
For the nine months ended June 30, 1998 and 1997, the provision for income
taxes (benefits) consists of the following:
1998 1997
Current $ 140,000 $ 7,500
Utilization of a net
Operating loss carryover (140,000) (7,500)
Valuation allowance (40,000) (7,500)
Deferred 40,000 7,500
Provision for taxes $ - $ -
The Company has provided for a valuation allowance amounting to the
deferred tax asset since it can not be determined whether it can more likely
than not be utilized. The Company has a net operating loss carryover of
approximately $120,000 that can be used to offset future taxable income
through the year 2012.
Note 6 - Common Stock
During November and December 1996, the Company issued 200,000 shares of
its common stock to certain investors, pursuant to the bridge financing. (See
Note 3.)
Note 7 - Commitments and Contingency
Defined Contribution Pension Plan January, 1993, APO Health established a
profit sharing plan. All full time employees, as defined in the plan, are
eligible. Contributions to the plan are discretionary. Pension expense for the
periods ended June 30, 1998, and 1997, were $-0-.
Leases
Effective November 15, 1994, an affiliated company, whose shareholders are
the officers of the Company, entered into a 5 year agreement to lease a 9800
square foot facility to house its operations. Under the terms of the new lease,
the Company will pay for all real estate tax increases and any repairs to the
property. The Company has a month to month lease with similar terms with this
affiliate.
Future minimum rental payments are as follows:
Period Ending September 30,
1998 1999
$12,863 51,450
For the nine months ended June 30, 1998, and 1997, rent expense was
$46,860 and $44,300.
Employment Agreements
The Company has entered into employment agreements with its principal
officers through December 31, 1998. The agreements will automatically be
renewed and extended for up to five consecutive one year periods. The terms
provide for a minimum annual salary of $125,000 with adjustments for
cost-of-living changes and incentives based on gross revenues and development
of new products. In addition, the agreement provides for warrants to be issued
based on the incentives. At June 30, 1997, the officers waived certain terms of
their agreement for additional compensation based on salary and incentives.
Letters of Credit
The Company has letters of credit outstanding of $5,270, for purchases to
be delivered after June 30, 1998.
Note 8 - Subsequent Events
In August, 1998, the Board of Directors authorized a 1 for 2 stock split
of the Company's $.001 par value common stock, reducing the number of
outstanding shares of common stock to 464,131.
In August, 1998, Loans Payable - Former Shareholders, in the amount of
$162,038, was converted into 450,000 shares of post 1 for 2 stock split shares
of the Company's $.001 par value common stock, increasing the number of
post-split shares to 914,131. The issuance of these shares and cancellation of
the debt is subject to the sale of the minimum shares in the Company's public
stock offering.
Earnings per share of common stock has been restated to reflect the 1 for
2 stock split and Proforma earnings per share has been shown to reflect the
earnings per share as if the 450,000 shares of common stock issued for the
cancellation of debt had been done at the beginning of each of the periods in
the financial statements.
Table of Contents
Available Information......
Summary....................
Risk Factors ..............
Dilution...................
Use of Proceeds............
Capitalization.............
Management's Discussion
And Analysis of Finan-
Cial Condition and
Results of Operations.....
Business of the Company....
Management.................
Market for Common Stock....
Principal Stockholders.....
Selling Shareholders.......
Underwriting...............
Description of Securities..
Legal Proceedings..........
Legal Matters..............
Experts....................
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Registrant has no provisions in its Articles of Incorporation or By-Laws
providing for indemnification of its officers and directors except for the
general provisions of the laws of the State of Utah. Additionally, management
is investigating the possibility of officers and directors liability insurance,
and anticipates that a policy of insurance covering the acts of officers and
directors in their capacity as such will be acquired shortly after the
conclusion of this Offering provided adequate funds are available.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the " Act") may be permitted to directors, officers or
persons controlling the registrant, the registrant has been informed that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 25. Other Expenses of Issuance and Distribution.
Estimated expenses payable by Registrant, other than underwriting commissions
payable to the Underwriter, in connection with the registration and
distribution of the Common Stock and Warrants registered hereby are as follows:
Registration Fee: $ 9,402
NASD Filing Fees: 770
Cost of Printing 10,000*
Accountants' Services and Expenses 12,500*
Legal Services and Expenses 75,000*
Blue Sky Fees and Expenses 30,000*
Miscellaneous 12,328*
Total Expenses $ 150,000*
* Estimated.
Item 26. Recent Sales of Unregistered Securities.
No securities of the registrant under the Securities Act of 1933 have been
issued or sold by the registrant during the past three years except as follows:
a) Sales of Common Stock in which no underwriter participated:
(i) Common Stock of Registrant Issued in Exchange for Common Stock of Universal
Medical Distributors, Inc.:
Name Of Purchaser Number Of Shares Consideration
Kenneth Levanthal 5,000 Exchange of Universal Shares
(ii) Common Stock of Registrant Issued in July, 1996 in Exchange for
Common Stock of Dental Alternatives Inc.:
Name Of Purchaser Number Of Shares Consideration
Dr. Jan Stahl 100,000 Exchange of Dental
Richard Steil 100,000 Alternative Shares
(iii) Common Stock Issued For Past Services and Services Rendered Pursuant
to Private Placement of Registrants Securities on August, 1995:
Name Of Purchaser Number Of Shares Consideration
Jeff R. Pearlman 2,850 Services valued at $64,125
Sachs Mortgage Group, Inc. 3,500 Services valued at $84,375
Wilmont Holding Corp. 4,375 Services valued at $98,437
Remsen Group Ltd. 4,375 Services valued at $98,437
Neal Weissman 5,625 Services valued at $126,562
Susan Ferro 5,625 Services valued at $126,562
Vincent J. Fallica 1,250 Services valued at $28,125
Steve Thomas 1,250 Services valued at $28,125
(iv) In September, 1998 the Company agreed to issue to Dr. Jan Stahl, its
Chairman, and Mr. Peter Steil, its President, 225,000 shares of Common Stock
each (or a total of 450,000 shares of Common Stock) in consideration of their
release to the Company of a debt to them of $162,038 which was due to them for
accumulated profits by a subsidiary at a time when the subsidiary was a
Subchapter S corporation. The release of the indebtedness and the issuance of
the stock is conditioned upon the completion of this Offering. The Common
Stock of the Company was trading between a low bid of $0.53 and a high bid of
$0.625 during the third quarter of 1998.
(b) Sales of Securities in which Underwriters Participated:
(i) Notes and Warrants Issued to Pre-Bridge Lenders by Registrant in
January, 1996:
Name Of Purchaser Securities Purchased Consideration
Ernest Milchman $50,000 of Notes and $ 50,000
Warrants to purchase
2,500 shares of Common
Stock
Glen Nortman* $25,000 of Notes and $ 25,000
Warrants to purchase
1,250 shares of Common
Stock
Jeffrey Nortman $25,000 of Notes and $ 25,000
Warrants to purchase
1,250 shares of Common
Stock
Daniel Horowitz $25,000 of Notes and $ 25,000
Warrants to purchase
1,250 shares of Common
Stock
Joseph Perri $100,000 of Notes and $100,000
Warrants to purchase
5,000 shares of Common
Stock
Gary Brustein* $25,000 of Notes and $ 25,000
Warrants to purchase
1,250 shares of Common
Stock
All of the Warrants described above entitle the holder to purchase one share
of Common Stock at an exercise price of $5.00 per share and have been adjusted
to reflect the Registrant's two reverse stock splits.
The purchasers and the transactions described above were introduced to the
Registrant through Janssen-Meyers Associates, L.P., New York, New York which
received compensation by the issuance to Janssen-Meyers of Warrants to purchase
a total of 6,250 shares of Common Stock at an exercise price of $5.00 per
share.
(ii) Common Stock, Notes and Warrants Issued to Bridge Lenders by Registrant in
October, 1996:
Name Of Purchaser Amount of Securities Consideration
Gary Brustein* $25,000 of Notes, $ 25,000
Warrants to purchase
125,000 shares of Common
Stock and 10,000 shares
Of Common Stock
Capital Planning
Holding Corp. $12,500 of Notes, $ 12,500
Warrants to purchase
62,500 shares of Common
Stock and 5,000 shares
Of Common Stock
Elull Development $25,000 of Notes, $ 25,000
Warrants to purchase
125,000 shares of Common
Stock and 10,000 shares
Of Common Stock
Abbey S. Freiberg $25,000 of Notes, $ 25,000
Warrants to purchase
125,000 shares of Common
Stock and 10,000 shares
Of Common Stock
Jay G. Goldman $12,500 of Notes, $ 12,500
Warrants to purchase
62,500 shares of Common
Stock and 5,000 shares
of Common Stock
Jay Goldman,
Master Limited
Partnership $12,500 of Notes, $ 12,500
Warrants to purchase
62,500 shares of Common
Stock and 5,000 shares
of Common Stock
Glen Nortman* $12,500 of Notes, $ 12,500
Warrants to purchase
62.500 shares of Common
Stock and 5,000 shares
of Common Stock
Christopher Machie $12,500 of Notes, $ 12,500
Warrants to purchase
62,500 shares of Common
Stock and 5,000 shares
of Common Stock
Wainscott Capital, Ltd. $50,000 of Notes, $ 50,000
Warrants to purchase
250,000 shares of Common
Stock and 20,000 shares
of Common Stock
Neil Jeffrey Weissman $12,500 of Notes, $ 12,500
Warrants to purchase
62,500 Shares of Common
Stock and 5,000 shares
of Common stock
Harry Zarin $25,000 of Notes, $ 25,000
Warrants to purchase
125,000 Shares of Common
Stock and 10,000 shares
of Common Stock
Robert Zarin $25,000 of Notes, $ 25,000
Warrants to purchase
125,000 shares of Common
Stock and 10,000 shares
of Common stock
- -------------------------------
* Denotes same Purchaser named in more than one transaction.
All of the above Warrants and Shares have been adjusted for the two reverse
stock splits of the Registrant. Each of the Warrants entitle the holder to
purchase one share of Common Stock at an exercise price of $5.00 per share.
The Registrant's present underwriter, Morgan Grant Capital Corp., Inc.
participated in the introduction of the investors described above and received
compensation in the form of Warrants to purchase a total of 125,000 shares of
Common Stock at a purchase price of $5.00 per share. Subsequently, by mutual
agreement the Warrants were cancelled and are not in effect presently.
All of the above transactions were exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended (the "Act") and Rule 504 and 505
of Regulation D promulgated under the Act, as amended. All of the securities
sold by Registrant sold was acquired for investment only and not with a view to
distribution, and the sale thereof did not constitute a public offering. Each
of the purchasers were sophisticated investors or were otherwise represented by
purchaser representatives who were capable of understanding the nature of the
offering. See, Prospectus- "CERTAIN TRANSACTIONS."
Item 27. Financial Statements and Exhibits.
(a) Financial Statements included in the Prospectus:
1. Auditors Report of Linder & Linder dated December 11, 1997 together with;
2. Consolidated Balance Sheet as at September 30, 1997 and at June 30, 1998;
3. Consolidated Statement of Operations for the Periods Ended September 30,
1997, September 30, 1996 and for the nine months ended June 30, 1998;
4. Consolidated Statement of Changes in Stockholders' Equity for the Periods
Ended September 30, 1997, September 30, 1996 and June 30, 1998;
5. Consolidated Statement of Cash Flows for the Periods Ended September 30,
1997, September 30, 1996 and June 30, 1998;
6. Notes to Consolidated Financial Statements.
(b) Exhibits:
1(i). Form of Underwriting Agreement;
1(ii). Form of Selected Dealer Agreement;
1(iii). Form of Underwriter's Warrant;
1(iv). Form of Amended Underwriting Agreement
1(v). Form of Underwriter's Warrant Agreement and Amended Underwriter's
Warrrant Certificate
1(vi) Escrow Agreement with the Chase Manhattan Bank
3. Certificate of Incorporation and By-Laws,
with all Amendments thereto.
4(i). (a) Specimen Certificate of Common Stock;
(b) Specimen Certificate of Warrant. See Item 10(vi)
and 10(viii).
5. Opinion of B. Bruce Freitag, Esq.
10(i) Acquisition Agreement between Insurance Kingdom Agency, Inc. and
Xetal, Inc. dated April 27, 1994;
10(ii) Agreement and Plan of Reorganization between Xetal, Inc. and
Universal Medical Distributors, Inc. dated April 1, 1996;
10(iii) Agreement and Plan of Reorganization between Xetal, Inc. and Dental
Alternatives, Inc. dated July 26, 1996;
10(iv) Employment Agreement between Xetal, Inc. and Dr. Jan Stahl dated as
of January 1, 1996;
10(v) Employment Agreement between Xetal, Inc. and Mr. Peter Steil dated as
of January 1, 1996;
10(vi) Warrant Agreement between the Company and American Stock Transfer and
Trust Company as Warrant Agent;
10(vii) Consulting Agreement between the Company and Worthington Capital
Group, Inc.
10(viii) Form of Amended Warrant Agreement and Warrant Certificate
10(ix) Agreement canceling Underwriter's Bridge Warrants
10(x) Agreement canceling Underwriter's Consulting Agreement
23(1) Consent of B. Bruce Freitag, Esq. (included in the opinion to be
filed);
23(ii) Consent of Linder & Linder, Certified Public Accountants. **
* To be filed.
** Filed with this Amendment
Item 27. Undertakings.
Subject to the terms and conditions of Section 15(d) of the Securities Act of
1934, the undersigned Registrant hereby undertakes to file with the Securities
and Exchange Commission (the Commission) such supplemental and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission hereto, or hereafter duly adopted pursuant to
authority conferred in that section. The undersigned Registrant hereby
undertakes to provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
Purchaser.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers of sales are being made, a
post-effective amendment to this Registration Statement:
I. To include any prospectus required by Section 10(a)(3) of the Act;
ii. To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
iii. To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
2. That, for the purpose of determining any liability under the Act, each such
post-effective amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of
the securities registered which remain unsold at the termination of the
offering.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Oceanside and State of New York, on the 10th day of
November, 1998.
XETAL, INC.
By /s/Dr. Jan Stahl
Dr. Jan Stahl;
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacity and
on the date stated:
/s/Dr. Jan Stahl Chief Executive Officer,
Dr. Jan Stahl Director
November 10, 1998
/s/Peter Steil President, Director
Peter Steil Chief Financial Officer
November 10, 1998
/s/Kenneth Levanthal Director
Kenneth Levanthal
November 10, 1998
EXHIBIT 23(iii)
CONSENT OF INDEPENDENT AUDITOR
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors
and Stockholders
Xetal, Inc. and Subsidiaries
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated December 12, 1997 with respect to the consolidated
financial statements of Xetal, Inc. and subsidiaries included in the Prospectus
of Xetal, Inc. that is made a part of the Registration Statement (Form SB-2).
Linder & Linder
Certified Public Accountants
Dix Hills, New York
November 10, 1998
EXHIBIT 4(1)(a)
SPECIMEN CERTIFICATE OF COMMON STOCK
SPECIMEN FORM OF STOCK CERTIFICATE
--------------------------------------------
Number
Shares
-----------
CUSIP NO 983933 20 1
XETAL, INC.
20,000,000 Authorized Shares
Par Value $.001 Per Share
THIS CERTIFIES THAT ------------------------------------
Is the holder of -------------------------------------
Shares of Xetal, Inc. Common Stock Transferable on the books of the
Corporation in person or by duly authorized attorney upo Surrender of this
Certificate properly endorsed. This Certificate is not valid until
countersigned By the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
---------------------- SEAL
Secretary President
PO Box 1795 Salt Lake City, UT 84110
By ---------------
Authorized Signature
BACK OF CERTIFICATE
Notice: Signature must be guaranteed by a firm which is which is a member
of a registered national stock exchange, or by a bank (other than a savings
bank), or a trust company. The following abbreviations, when used in the
inscription on the face of this Certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:
Ten Com - As tenants in common Unif Gift Min Act ---------------- Custodian
Ten Ent - As tenants by the entireties -Under the Uniform Gift to Minors Act
Jt Ten - As Joint tenants with the right of survivorship State
and not as tenants in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED hereby sell, assign and transfer unto
[Please insert social security or other
identifying number of Assignee
--------------------------]
----------------------------------
(Please print or typewrite name and address including zip code)
----------------------------------
----------------------------
------ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constiitute
and appoint
- -------------------------------------------------------- attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises..
Date:
-----------------------------
Notice: Signature to this Assignment must correspond with the name as written
upon the face of this Certificate in every particular without alteration or
enlargement or any change whatever.
