U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1996 Commission File No. 333-9809
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
Durwood, Inc.
(Name of small business issuer in its charter)
Delaware 87-0561426
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
4085 West 4715 South, Kearns, Utah 84118
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: (801) 967-0777
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Act: None
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Issuer was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of the Issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The Issuer's revenues for its most recent fiscal year. $ 0.00
As of April 15, 1997, the aggregate market value of voting stock held by
non-affiliates was not determinable because of the lack of published market
quotations. (See Item 5 herein).
The number of shares outstanding of the Issuer's common stock at December 31,
1996: 1,000,000<PAGE>
PART I
Item 1. Description of Business
(a) Business Development.
Durwood, Inc. (the "Company") was recently incorporated under the laws of the
State of Delaware on July 12, 1996. In connection with the organization of
the Company, the founding shareholders of the Company contributed an aggregate
of $10,000 cash to capitalize the Company in exchange for 1,000,000 shares of
Common Stock.
The Company then registered a public offering of its securities to raise funds
with which to commence business operations. The Company filed with the
Securities and Exchange Commission a registration statement on Form SB-2,
Commission File No. 33-14477, which became effective December 12, 1996.
Pursuant thereto the Company is offering to sell, on a "best efforts - minimum
100,000 shares - maximum 200,000 shares" basis, shares of its common stock to
the public at $.50 per share in an attempt to raise gross proceeds of between
$50,000 to $100,000. The offering has not been completed as of the date of
filing this report. Proceeds are being escrowed pending receipt of the
minimum offering amount within the stated offering period, which continues for
up to 150 days from the effective date. Upon completion of the offering, the
Company intends to use the net proceeds from this offering to provide the
working capital necessary to commence business operations.
The Company has not commenced business operations and is considered a
development stage company. To date, activities have been limited to
organizational matters and the preparation and filing of the registration
statement. The Company has no significant assets, and is totally dependent
upon the successful completion of the offering and receipt of the proceeds
therefrom, of which there is no assurance, for the ability to commence its
proposed business operations.
(b) Business of Company.
Proposed Business of the Company
The proposed business and purpose of the Company's formation is to engage in
the business of manufacturing or otherwise acquiring and marketing custom pool
cues. The Company's business plan is to take advantage of what management
believes is an escalating market in the cue-as-art industry, as well as build
quality custom pool cues for pool and billiards players. There is no
assurance that the proposed business of the Company will be successful, and
the Company presently has no plans, commitments or arrangements with respect
to any other potential business venture.
The President of the Company, Darren Heiselt, who will have operational and
production management of the Company, has been making custom pool cues for the
past several years. Mr. Heiselt has been employed since 1991 at EO's Society
Billiards and Cafe, first as Assistant Manager and currently as Manager.
During and prior to that time, because of his interest in the game, he has
developed as a sideline custom cuemaking and has acquired certain knowledge,
skills and experience related to cuemaking, which includes having produced and
sold approximately twenty handmade, custom pool cues for prices ranging from
approximately $300 up to $1,100. Mr. Heiselt's cuemaking skills have
developed to the point that he has an existing backlog of approximately 18
orders for handmade custom pool cues which, at current rates of production,
would take him in excess of six months to fill. Mr. Heiselt believes that
acquisition of the additional equipment which the Company intends to purchase
using proceeds of this offering, will enable him to significantly increase the
number of cues in process that he can work on at the same time, and thus
substantially increase the number of cues he can produce within a given period
of time, while at the same time also improving the quality of the finished
product. Also, he would be able to increase both the amount and intricacy of
both the woodwork and inlay work to produce custom cues in higher price
ranges, where profit margins would typically (but not necessarily) be greater.
(Different cues made by the same person will most likely have the same hit and
quality of construction, but the difference between a $300 cue and a $3,000
cue might be rarer or more exotic woods, more inlays, more intricate inlays
and more exotic materials.)
Mr. Heiselt will continue to be employed at EO's Society Billiards and Cafe,
and the Company will rent space at that location where Mr. Heiselt can keep
the equipment and materials to set up shop. This arrangement is intended to
make it more convenient for him to be able to devote several (approximately 8-
20) hours per week of spare time to the production of cues. In addition to
facilitating Mr. Heiselt's ability to devote time to the business of the
Company, it is believed that this arrangement will enable his work and work
product to be on display in a setting frequented by pool and billiard's
players and others potentially interested in buying and collecting custom pool
cues.
Historical Background of Billiards, Cuemaking and the Cue Art Industry
The various forms of the basic game of billiards are of unknown origin, but
the game billiards is known to have been played as early as the 16th-century
in England. The word billiards is derived from the Old French billart,
meaning "curved stick." All billiards games are played on a rectangular,
slate-topped table twice as long as it is wide and covered with a felt cloth.
The playing area is surrounded by rubber cushions, or rails. Two basic types
of billiards exist today: pocket billiards, which is also called pool, is
played on a table with six pockets, and carom billiards, is usually played on
a table with no pockets. The game of pocket billiards, or pool, is played
with a white cue ball, and in the form played in the United States, 15 object
balls numbered 1-15 (1-8, solid; 9-15, striped). Pocket billiards also
requires the use of cue sticks, and as such, is the form of the game of
billiards that has given rise to an industry centered around the making of
finely crafted, custom cue sticks or pool cues.
The cue stick developed from the common habit of using the thin shaft of the
Mace (a curved mallet evidently borrowed from the lawn games from which
billiards developed) to strike the balls lying near the cushion. It evolved
as a separate instrument during the period from 1680 to 1780. Today, the cue
stick is a straight, tapered instrument used for striking the cue ball, which
is usually made principally of wood and is approximately 57 inches long. Cue
sticks have been made of a wide variety of woods including Ash, Maple,
Cocobolo, and other materials such as aluminum and graphite. The principal
parts of a modern day cuestick consist of the tip, the ferrule, the shaft, the
joint and the butt or handle.
The tip was unknown in the eighteenth century and, for this reason, only good
players were allowed to use the cue out of fear that lesser players would tear
the cloth. The first tip was cut out of a leather harness, and is said to
have been invented sometime between 1807 and 1823. The tip is a rounded patch
of material, usually leather, affixed to the narrow end of a cue stick. The
tip is needed to prevent the cue from slopping off the ball as it is being
struck. It increases the friction between the two surfaces and, because it is
compressible, increases the amount of time the stick and the ball are in
contact, which permits more English, or spin, to be applied to the ball.
Application of chalk further increases the friction.
The ferrule is the segment of a cue stick below the tip, fastened to the shaft
on a projection known as the tennon. The ferrule forms a flat base for
attaching the tip and prevents the shaft from splintering. The shaft is the
thinner section of a cue stick extending from the joint to the tip, away from
the butt end. The shaft is generally made from Maple.
The joint is the fitting at which a two piece cue or jointed cue can be broken
down. (The piece that joins the butt and the shaft.) The jointed cue or two
piece cue appeared in 1829 and became popular in the late nineteenth century
for convenience in carrying and storage. Joints may be "piloted" or "flat
faced," referring to the manner in which the butt and the shaft are placed in
contact. A flat joint is formed by mounting a screw in the butt end, leaving
exposed wood surrounding the screw so that wood meets wood when the cue is
screwed together. A piloted joint is one in which a metal fitting is inserted
into the shaft and a screw protrudes from the butt and in which metal meets
metal when the cue is assembled for play.
In addition to the woods previously mentioned, butts are often made using
Walnut, Ebony or Rosewood. The butt of a cue is often spliced because it is
not desireable to make a cue out of a single type of wood. A cue made
entirely of Maple (a good shaft material) would be too light, one made
entirely of Rosewood or Ebony would be too heavy. The splice is made by
fitting together two positions composed of long, thin triangles known as
points or prongs. A wrap is sometimes placed on a cue, it is a covering for
that portion of the butt of a cue stick that is grasped by the player. The
function of the wrap is to improve the players hold on the cue and, in the
case of cloth and cork wraps, to absorb perspiration.
The question whether metal-to-metal or wood-to-wood joint is superior is not
yet settled. Debate also rages over such things as whether or not the prongs
at the butt play a role in shock absorption, whether a cue with a flexible
shaft or a stiff shaft is preferable, and so forth.
The popularity and longevity of the game has resulted in an interest among
aficionados of the game in buying, selling, and collecting custom pool cues
that are finely crafted, not only in the sense of their playability, or
suitability for playing the game, but also in the sense of being intricately
and ornately handcrafted, highly decorative art objects that collectors are
holding for investment. An immense amount of creativity goes into decorating
cues with complex inlays of wood, Ivory, or mother-of-pearl. Inlays are a
method of decorating the butt of a cue stick by setting material into a groove
cut in the wood.
According to an article in the Wall Street Journal dated January 3, 1996, for
about a decade now, the cue-as-art market for custom pool cues has been
escalating. According to the article, ornately crafted pool cues
painstakingly turned out by a small clique of American artisans are taking the
symbol of the billiard hustler to new levels. Indeed, the article itself was
occasioned by, and highlighted a convention or gathering held the preceding
month at the Biltmore Hotel in Los Angeles, which was billed as the Showcase
of American Cue Art, and reportedly had the largest group of collectible art
cues ever assembled and presented to the public in one place at one time.
In addition to the traditional interest of pool and billiards players,
collectors whose primary interest is investment are now taking an interest in
high quality, custom pool cues, according to the article. It is not unusual
to find a cue that is more expensive than the table on which it is being used.
Custom cues now begin at prices ranging from around $300 to $500; collectors
have forced the price of cues made by the finest cue-makers to over $3000. A
surprising number of cues have sold for just under $10,000 in the United
States, and there are stories of cues with inlaid jewels and precious metals
that have sold in the Orient for five times that amount. Yet it is precisely
because custom pool cues - some intricately adorned with inlays of ivory,
gold, and even gemstones - have become so artistic and such hot investments
that customers are reluctant to bang up their sticks by actually playing with
them.
There is also much lore associated with cue manufacture; sticks from certain
makers such as Herman Rambow and George Balabushka are of legendary quality
and price. Cuemakers can spend hours, days, or weeks producing a single cue
as they combine handicraft with high tech. A cue maker carefully chooses and
seasons different types of exotic woods, before tapering and sanding down on a
lathe. Industrial sized jigsaws are used to carve out inlay pieces from dyed
wood, ivory and shell. The pieces are, in turn, inlaid by hand and then
buffed and varnished. There is always interest in cues made by such famed
craftsmen as Rambow, Balabushka, Martin, Bill Stroud, and Szamboti. These
instruments are felt to have properties such as the hit or feel of the stick
as it strokes the ball, and quality of construction, that are not readily
duplicated.
The President of the Company, Mr. Heiselt, is not well known as a cuemaker
outside the patrons of the billiards establishment where he works, and his
reputation is not well established; therefore, it is not anticipated that the
custom pool cues to be sold by the Company will have any intrinsic value or
worth from the fact that they will be made by Mr. Heiselt. Rather, it is
anticipated that the value of the pool cues will depend on the perceived
quality of construction and playability, as well as the types of woods and
other materials used and the amount and intricacy of the inlay work and
woodwork done. Using the knowledge, skills and experience of its President,
the Company will attempt to produce and sell handmade, custom cuesticks or
pool cues that will be in demand for playing because of their quality, and
also for their artistic value because of the amount and intricacy of the inlay
work and woodwork. The President believes that with the funding provided by
this offering, the Company will be able to acquire additional equipment and
tools that will enable him to produce more cues of higher quality and value,
to take advantage of what is believed to be a developing market for such
cuesticks. However, there is absolutely no assurance that the Company will be
successful in this effort and will be able to compete with other, more well
known cuemakers.
Competition
The Company will operate in a highly competitive environment. Many, if not
most competitors have substantially greater financial resources, technical
expertise, management resources and capabilities than the Company. Major
competitors known to management of the Company include Joss Cues, Ltd.,
McDermott Cue Manufacturing, Inc., Viking Cue Manufacturing, Inc., Heubler
Industries, Inc., Karella Corp., Dufferin, Inc., Mali & Co., Inc., Meucci
Originals and Cuetec. The market for custom pool cues of collectible quality
is very specialized and limited and is composed of a relatively small number
of cuemakers, private collectors, pool players, and other buyers. There is no
assurance the Company will be able to produce custom pool cues of sufficient
quality to be of interest to private collectors, pool and billiards players or
the general public.
Advertising and Marketing Strategy
The Company will attempt to create a high end line of cues that will be
advertised in selected billiards publications (Billiards Digest, Billiard
Exchange, Breaking News). The Company will also mail flyers to numerous
billiard rooms and billiard accessory retailers in an attempt to market its
products. Also, the Company's workshop and production facilities will be
located in a pool and billiards establishment where the finished pool cues and
also the work in process will be on display among the patrons of such
establishment, which averages in excess of a hundred customers per day.
Management believes this ongoing exposure to pool and billiards players will
generate interest among the patrons of this establishment in the Company's
products and business, and that they will become potential customers.
Employees
The Company presently has no employees, and does not presently anticipate the
need to hire employees (other than Mr. Heiselt) upon completion of the
offering. It is presently anticipated that Mr. Heiselt will initially work
for the Company on a commission or piecework basis, under which he will
receive a set amount or percentage of the sales price of each custom pool cue
produced and sold, but will not receive a regular salary or wage. The exact
amount or percentage will depend on the amount of work and time spent on each
stick, the cost of materials and whether sale is made on a retail or wholesale
basis, but will generally range from 15-25% of the sales price.
Item 2. Properties
General.
The Company presently has no office facilities but upon completion of the
offering will rent space on a month to month basis for $500 per month at EO's
Society Billiards and Cafe in Kearns, Utah, where Mr. Darren Heiselt, the
Company's President, is presently employed. The Company will use these
facilities as its principal place of business for the time being, and does not
intend to seek other office arrangements unless and until the Company's
business requires more extensive facilities, which is not anticipated in the
foreseeable future.
Item 3. Legal Proceedings.
The Company is not a party to any material pending legal proceedings and, to
the best of its knowledge, no action has been threatened by or against the
Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders through the solicitation
of proxies or otherwise during the fourth quarter of the fiscal year covered
by this report.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
(a) Market information.
The Company's public offering was not closed as of the date hereof and there
is no assurance that upon completion of the offering the Common Stock of the
Company will not be eligible for trading in the over-the-counter market.
(b) Holders.
As of March 31, 1997, (prior to close of the public offering) there were only
3 record holders of the Company's Common Stock.
(c) Dividends.
The Company has not previously paid any cash dividends on common stock and
does not anticipate or contemplate paying dividends on common stock in the
foreseeable future. It is the present intention of management to utilize all
available funds for the development of the Company's business. The only
restrictions that limit the ability to pay dividends on common equity or that
are likely to do so in the future, are those restrictions imposed by law.
Under Delaware corporate law, no dividends or other distributions may be made
which would render the Company insolvent or reduce assets to less than the sum
of its liabilities plus the amount needed to satisfy any outstanding
liquidation preferences.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The Company was incorporated on July 12, 1996. The Company has not yet
generated any revenues from operations and is considered a development stage
company. To date, activities have been limited to organizational matters, the
preparation and filing of the registration statement to register a public
offering of its securities. The Company has no significant assets.
Management's plan of operation for the next twelve months is first to raise
funds from this offering, and if the offering is successful, to commence
operations. The Company will use the net proceeds to purchase various items
of equipment needed to turn out and finish the custom pool cues, as well as
initial supplies of wood and other raw materials from which to make the cues.
The remaining portion of the proceeds will be used to pay rent and other
operating expenses of the Company and otherwise provide initial working
capital for the operation of the Company's proposed business. The net
proceeds from this offering are the sole anticipated source of funds other
than any revenues generated from operations, of which there is no assurance,
and the Company is totally dependent upon the successful completion of this
offering and receipt of the proceeds therefrom, of which there is also no
assurance, for the ability to commence its intended business operations. The
Company was formed to engage in the business of manufacturing or otherwise
acquiring custom pool cues of collectible quality, as well as quality custom
pool cues for pool and billiards players. The Company intends to market such
pool cues to private collectors and the general public. The Company has not
engaged in any operations nor conducted any research and development
activities to date, but will use the knowledge, skills and experience of its
President, who has been making custom pool cues for the past several years, to
attempt to produce high quality custom pool cues and market them to pool and
billiards players, collectors and investors. Although the President has
produced and sold approximately twenty handmade, custom pool cues in the past,
the Company has not produced or sold any products yet, and there is absolutely
no assurance that the proposed business will succeed and that the Company will
be able, with the proceeds of this offering, to make and acquire custom pool
cues of the type that will be considered collectible or that pool and
billiards players desire to acquire. In the event the proposed business is
unsuccessful, there is no assurance the Company could successfully become
involved in any other business venture. The Company presently has no plans,
commitments or arrangements with respect to any other proposed business
venture.
However, upon completion of this offering, if successful, the Company's plan
of operation for the next 12 months is to use approximately $5,000 of the net
proceeds from the offering to acquire various items of equipment necessary to
manufacture the pool cues, including inlay machines, cue smiths, cutting bits,
spindle bores and chucks, drill presses, belt sander, scroll saw, work
benches, etc. This is in addition to the tools, supplies and machine
equipment already owned by the President, which will be made available to the
Company. The President believes, but there is no assurance, that acquisition
of the additional equipment which the Company intends to purchase using
proceeds of this offering, will enable him to significantly increase the
number of cues in process that he can work on at the same time, and thus
substantially increase the number of cues he can produce within a given period
of time, while at the same time also improving the quality of the finished
product. Also, the President believes, but there is no assurance, that he
would be able to increase both the amount and intricacy of both the woodwork
and inlay work to produce custom cues in higher price ranges, where profit
margins would typically (but not necessarily) be greater. It is presently
anticipated that the Company will begin producing custom cues that will sell
for a few hundred dollars, but as the knowledge, skills and experience of the
President increases over time, it is hoped that the Company will be able to
attract as buyers of its products persons interested in spending several
hundred or even more than a thousand dollars for a high quality, custom
cuestick. The difference in price of cuesticks relates primarily to the
amount and intricacy of the inlay work and woodwork, as well as the materials
used and the quality of construction. The Company also intends to use at
least approximately $4,000 of net proceeds from the offering, and more if more
than the minimum offering amount is raised, to purchase supplies of wood and
other raw materials inventory to use in the production of finished cues. In
addition, the Company has allocated between $10-15,000 of the proceeds of the
offering for marketing costs. It is presently anticipated that this money
will be expended for advertising in such magazines as Billard News and
Billiard Digest and for traveling to shows, conventions and other gatherings
of pool players and pool cue makers and collectors where the Company's cues
can be displayed or advertised to become more well known. The President's
reputation as a cuemaker is not well known outsided the patrons of the
billiards establishment where he works and the Company will be operating in a
highly competitive industry that is very specialized and limited. Many, if
not most of the Company's competitors have substantially greater financial
resources, technical expertise, management resources and capabilities than the
Company.
Management intends to commence operations as soon as possible after the
offering is completed and the proceeds therefrom received by the Company. At
this time, no assurances can be given with respect to the exact timing of
commencement of operations or the length of time after commencement that it
will be necessary to fund operations from proceeds of this offering.
Management believes that the proceeds of this offering will be sufficient to
cover the operating expenses of the Company for six months to a year after
commencement of operations, during which time managment is hopeful that the
company will begin generating sufficient revenues from sales and operations to
thereafter cover ongoing expenses. However, there is absolutely no assurance
of this, especially if only the minimum amount of the offering is raised, and
if the Company is unable to generate sufficient revenues from operations to
cover expenses within such time frame, it may have to seek additional debt or
equity financing for which it has no commitments. In the event such funding
is not available on acceptable terms, the Company may have to reduce
operations.
Item 7. Financial Statements.
See attached Financial Statements and Schedules.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
There are not and have not been any disagreements between the Company and
their accountants on any matter of accounting principles or practices or
financial statement disclosure.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
(a) Identify Directors and Executive Officers.
The following table sets forth the sole director and executive officer of the
Company, his age, and all offices and positions with the Company. A director
is elected for a period of one year and thereafter serves until his successor
is duly elected by the stockholders and qualifies. Officers and other
employees serve at the will of the Board of Directors.
Term Served As Positions
Name of Director Age Director/Officer With Company
Darren Heiselt 30 Since inception President & Secretary/Treasurer
This individual will serve as management of the Company. A brief description
of his background and business experience is as follows:
Darren Heiselt will serve as President, Secretary/Treasurer and Director of
the Company. Mr. Heiselt attended Kearns High School from which he graduated
in 1983. Following graduation, he worked for various contractors in the
construction industry becoming a supervising Foreman for Jacobsen Construction
Company, (a Salt Lake City based contractor), from 1985 to 1987. From 1988 to
1991 Mr. Heiselt worked for Gregory & Cook as a supervisory Foreman.
Beginning in 1991 to the present Mr. Heiselt has worked for Maxim Management
Corp. as Assistant Manager and now Manager for EO's Society Billiards and
Cafe, where he has assisted in putting on clinics and tournaments, and
arranging special events for the company, including booking top name players
to appear at EO's (former world champions Buddy Hall and Grady Mathews). In
1992 Mr. Heiselt created his own pro shop where he did cue repair and
manufacture of custom cues. Due to his involvement in the billiard industry,
Mr. Heiselt was exposed to numerous cuemakers where he learned the art of the
trade, and began to develop his own designs. Mr. Heiselt was one of the first
to offer these services in Salt Lake City. He has been invited to set up on a
temporary basis to do cue repair at regional tournaments, which has helped
establish his name and reputation in the intermountain area.
The director holds no directorships in any other company subject to the
reporting requirements of the Securities Exchange Act of 1934.
(b) Identify Significant Employees.
None other than the person previously identified.
(c) Family Relationships.
None
(d) Involvement in Certain Legal Proceedings.
Except as described hereinabove, no present officer or director of the
Company; 1) has had any petition filed, within the past five years, in Federal
Bankruptcy or state insolvency proceedings on such person's behalf or on
behalf of any entity of which such person was an officer or general partner
within two years of filing; or 2) has been convicted in a criminal proceeding
within the past five years or is currently a named subject of a pending
criminal proceeding; or 3) has been the subject, within the past five years,
of any order, judgment, decree or finding (not subsequently reversed,
suspended or vacated) of any court or regulatory authority involving violation
of securities or commodities laws, or barring, suspending, enjoining or
limiting any activity relating to securities, commodities or other business
practice.
Compliance with Section 16(a) of the Exchange Act
The Issuer is not subject to the provisions of Section 16(a).
Item 10. Executive Compensation.
The Company was only recently incorporated, has not yet commenced planned
operations and has not paid any compensation to its executive officers or
director to date.
Proposed Compensation. Upon the completion of the offering, the sole
officer/director will be entitled to reimbursement of any out of pocket
expenses reasonably and actually incurred on behalf of the Company.
Initially, it is anticipated that the officer will only devote a portion of
his time to the affairs of the Company. He will not be employed full time and
will not receive a regular salary or wage for his time, unless and until the
Company's business operations develop to the point where a full time or other
extensive time commitment is required. In lieu thereof, Mr. Heiselt will
initially work for the Company on a commission or piecework basis, under which
he will receive a set amount or percentage of the sales price of each custom
pool cue produced and sold. The exact amount or percentage will depend on the
amount of work and time spent on each stick, the cost of materials and whether
sale is made on a retail or wholesale basis, but will generally range from 15-
25% of the sales price. The Company presently has no formal written
employment agreements or other arrangements or understandings with the officer
regarding the commitment of time or the payment of salaries or other
compensation, and there is no assurance that the presently contemplated
arrangements will continue for any specified length of time in the future, nor
any assurance with respect to the continued availability to the Company of Mr.
Heiselt's services. However, Mr. Heiselt presently is prepared to devote such
time as may be necessary to the development of the Company's business,
including full time, if that becomes necessary.
Compensation of Directors
None
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
The Company has not entered into any contracts or arrangements with any named
executive officer which would provide such individual with a form of
compensation resulting from such individual's resignation, retirement or any
other termination of such executive officer's employment with the Company or
its subsidiary, or from a change-in-control of the Company or a change in the
named executive officer's responsibilities following a change-in-control.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information with respect to the
beneficial ownership of the Company's common stock with respect to each
director of the Company, each person known to the Company to be the beneficial
owner of more than five percent (5%) of said securities, and all directors and
executive officers of the Company as a group:
Title of Amount and Nature of Percent % After
Name and Address Class Beneficial Ownership of Class Offering
Darren Heiselt Common 200,000 shares 20% 16.7%
4871 S. 4055 W.
Kearns, UT 84118
Cowbell, Inc. Common 400,000 shares 40% 33.3%
1173 A 2nd Ave.
N.Y., N.Y. 10021
Elvena, Inc. Common 400,000 shares 40% 33.3%
666 Fifth Ave #159
N.Y., N.Y. 10103
All officers and Common 200,000 shares 20% 16.7%
directors as a
group (1 person)
After offering percentages are calculated assuming sale of the maximum
offering amount. Prior to the sale of any Shares in the offering, these are
the only shareholders of the Company. Cowbell, Inc. and Elvena, Inc. are
private investment corporations solely owned by Eslie Barlow and Lynn Dixon,
respectively, who may be deemed to be promoters with respect to the Company.
See "Certain Transactions."
Item 12. Certain Relationships and Related Transactions.
The Company has entered into certain transactions with officers, directors or
affiliates of the Company which include the following:
In connection with the organization of the Company, its founding shareholders
paid an aggregate of $10,000 cash to purchase 1,000,000 shares of Common Stock
of the Company at a price of $.01 per share. See "Principal Shareholders."
It is contemplated that the Company may enter into certain transactions with
officers, directors or affiliates of the Company which, even though they may
involve conflicts of interest in that they are not arms' length transactions,
are believed to be fair and equitable transactions in the best interest of the
Company. The Company's policy is that all transactions between the Company
and any affiliates be on terms no less favorable to the Company than could be
obtained from unaffiliated parties. These transactions include the following:
The Company presently has no office facilities but upon completion of the
offering the Company will use as its principal place of business certain
facilities located at the address of the Company as set forth herein. This is
also the business address of EO's Society Billiards and Cafe, a pool and
billiards establishment owned and operated by Maxim Management Corp., an
entity with which Mr. Eslie Barlow, a principal shareholder of the Company, is
affiliated as President. Darren Heiselt, the President of the Company, is
presently employed there and will also provide certain equipment used in the
making of pool cues. These facilities will be available to the Company for
the time being, until such time as the business operations of the Company may
require more extensive facilities and the Company has the financial ability to
pay for more extensive facilities. It is presently contemplated that the
Company will be charged $500 per month for the use of such facilities,
including phone and other utilities, on a month to month basis. There is
presently no formal written agreement for the use of such facilities, and no
assurance that such facilities will be available to the Company on such a
basis for any specific length of time. Mr. Heiselt anticipates initially
devoting up to approximately 20% of his time to the affairs of the Company.
If and when the business operations of the Company increase and a more
extensive time commitment is needed, Mr. Heiselt is prepared to devote more
time to the Company, in the event that becomes necessary.
The Company has no formal written employment agreement or other contracts with
its President, and there is no assurance that the services and facilities to
be provided by Mr. Heiselt will be available for any specific length of time
in the future. The amounts of compensation and other terms of any full time
employment arrangements with Mr. Heiselt would be determined if and when such
arrangements become necessary.
Conflicts of Interest
Other than as described herein the Company is not expected to have significant
further dealings with affiliates. However, if there are such dealings the
parties will attempt to deal on terms competitive in the market and on the
same terms that either party would deal with an unrelated third person.
Presently no officer or director of the Company has any transactions which
they contemplate entering into with the Company, aside from the matters
described herein.
Management will attempt to resolve any conflicts of interest that may arise in
favor of the Company. Failure to do so could result in fiduciary liability to
management.
Indemnification and Limitation of Liability
The general corporation law of Delaware permits provisions in the articles,
by-laws or resolutions approved by shareholders which limit liability of
directors and officers for breach of fiduciary duty to certain specified
circumstances, namely, breaches of their duties of loyalty, acts or omissions
not in good faith or which involve intentional misconduct or knowing violation
of law, acts involving unlawful payment of dividends or unlawful stock
purchases or redemptions, or any transaction from which a director or officer
derives an improper personal benefit. The Company's by-laws indemnify its
officers and directors to the full extent permitted by Delaware law. The by-
laws with these exceptions eliminate any personal liability of an officer or
director to the Company or its shareholders for monetary damages for the
breach of fiduciary duty and therefore an officer or director cannot be held
liable for damages to the Company or its shareholders for gross negligence or
lack of due care in carrying out his or her fiduciary duties. The Company's
Articles provide for indemnification to the full extent permitted under law
which includes all liability, damages and costs or expenses arising from or in
connection with service for, employment by, or other affiliation with the
Company to the maximum extent and under all circumstances permitted by law.
Delaware law permits indemnification if a director or officer acts in good
faith in a manner reasonably believed to be in, or not opposed to, the best
interests of the corporation. A director or officer must be indemnified as to
any matter in which he or she successfully defends himself or herself.
Indemnification is prohibited as to any matter in which the director or
officer is adjudged liable to the corporation. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers, and controlling persons of the Company pursuant to the foregoing
provisions or otherwise, the Company has been advised 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.
Except as disclosed in this item, in notes to the financial statements or
elsewhere in this report, the Company is not aware of any indebtedness or
other transaction in which the amount involved exceeds $60,000 between the
Company and any officer, director, nominee for director, or 5% or greater
beneficial owner of the Company or an immediate family member of such person;
nor is the Company aware of any relationship in which a director or nominee
for director of the Company was also an officer, director, nominee for
director, greater than 10% equity owner, partner, or member of any firm or
other entity which received from or paid the Company, for property or
services, amounts exceeding 5% of the gross annual revenues or total assets of
the Company or such other firm or entity.
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits to this report are all documents previously filed which are
incorporated herein as exhibits to this report by reference to registration
statements and other reports previously filed by the Company pursuant to the
Securities Act of 1933 and the Securities Exchange Act of 1934.
(b) Reports on Form 8-K have not been filed during the last quarter of the
fiscal year ended December 31, 1996.<PAGE>
SIGNATURES
In accordance with Section 12 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DURWOOD, INC.
By: /s/ Darren Heiselt Date: April 15, 1997
Darren Heiselt, President, Treasurer and sole Director
Chief Executive Officer and
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and the
dates indicated.
By: /s/ Darren Heiselt Date: April 15, 1997
Darren Heiselt, President, Treasurer and sole Director
Chief Executive Officer and
Chief Financial Officer
<PAGE>
Supplemental Information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Exchange Act by Non Reporting Issuers
No annual report or proxy statement has been sent to security holders.
<PAGE>
DURWOOD, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
December 31, 1996
<PAGE>
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . 3
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . 4
Statement of Operations . . . . . . . . . . . . . . . . . . 5
Statement of Stockholders' Equity . . . . . . . . . . . . . 6
Statement of Cash Flows . . . . . . . . . . . . . . . . . . 7
Notes to the Financial Statements . . . . . . . . . . . . . 8
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Durwood, Inc.
Salt Lake City, Utah
We have audited the accompanying balance sheet of Durwood, Inc. (a development
stage company) as of December 31, 1996 and the related statements of
operations, stockholders' equity, and cash flows from inception on July 12,
1996 through December 31, 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion the financial statements referred to above present fairly, in
all material respects, the financial position of Durwood, Inc. (a development
stage company) as of December 31, 1996 and the results of its operations and
its cash flows from inception on July 12, 1996 through December 31, 1996 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company is a development stage company with no
significant operating revenues to date, which raises substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 3. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
April 8, 1997
3
<PAGE>
DURWOOD, INC.
(A Development Stage Company)
Balance Sheet
ASSETS
December 31,
1996
CURRENT ASSETS
Cash $ 3,250
Total Current Assets 3,250
TOTAL ASSETS $ 3,250
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 131
Tax payable 120
Total Current Liabilities 251
TOTAL LIABILITIES 251
STOCKHOLDERS' EQUITY
Preferred stock: 500,000 shares authorized of $0.001
par value but unissued -
Common stock: 50,000,000 shares authorized of $0.001
par value, 1,000,000 shares issued and outstanding 1,000
Additional paid-in capital 9,000
Deficit accumulated during the development stage (7,001)
Total Stockholders' Equity 2,999
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,250
The accompanying notes are an integral part of these financial statements
4
<PAGE>
DURWOOD, INC.
(A Development Stage Company)
Statement of Operations
From
Inception on
July 12,
1996 Through
December 31,
1996
REVENUES $ -
EXPENSES 7,001
NET INCOME (LOSS) $ (7,001)
NET EARNINGS (LOSS) PER SHARE OF COMMON STOCK $ (0.00)
The accompanying notes are an integral part of these financial statements
5
<PAGE>
DURWOOD, INC.
(A Development Stage Company)
Statement of Stockholders' Equity
Additional
Common Stock Paid-in
Shares Amount Capital Total
Balance, July 12, 1996 - $ - $ - $ -
Common stock issued for cash at
$0.01 per share on July 15, 1996 1,000,000 1,000 9,000 10,000
Net loss for the five months
ended December 31, 1996 - - - (7,001)
Balance, December 31, 1996 1,000,000 $1,000 $9,000 $ 2,999
The accompanying notes are an integral part of these financial statements
6
<PAGE>
DURWOOD, INC.
(A Development Stage Company)
Statement of Cash Flows
From
Inception on
July 12,
1996 Through
December 31,
1996
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from operations $ (7,001)
Adjustments to reconcile
Net income to net cash provided by operating activities:
Increase in accounts payable 120
Increase in tax payable 131
Net Cash Provided (Used) by Operating Activities (6,750)
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued for cash 10,000
Net Cash Provided By Financing Activities 10,000
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,250
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,250
Cash Paid For:
Interest $ -
Income taxes $ -
The accompanying notes are an integral part of these financial statements
7
<PAGE>
DURWOOD, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1996
NOTE 1 - ORGANIZATION AND HISTORY
a. Organization
Durwood, Inc. (the "Company") was recently incorporated under the laws
of the State of Delaware on July 12, 1996. The Company has not commenced
active business operations and is considered a development stage company. The
proposed business and purpose of the Company's formation is to engage in the
business of making and selling custom pool cues as collectors items as well as
for playing pool and billiards; and to engage in and perform any and all acts
and activities customary in connection therewith, or incident thereto. The
Company intends to use the proceeds of its proposed public offering, if
successful, to purchase equipment for manufacturing custom pool cues and also
wood and other raw materials for manufacture into finished goods inventory,
and for initial working capital to begin active business operations upon
completion of this offering.
b. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31, year end.
c. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with
maturities of three months or less at the time of acquisition.
d. Earnings (Loss) Per Share
The computations of earnings per share of common stock are based on the
weighted average number of shares outstanding at the date of the financial
statements.
e. Income Taxes
The Company provides for income taxes based on income reported for
financial reporting purposes. At December 31, 1996, the Company has a loss
carryover of $7,001 which expires in 2011. The potential benefit of the tax
loss carryover has been offset by a valuation allowance.
f. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
8
<PAGE>
DURWOOD, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1996
NOTE 2 - PROPOSED PUBLIC OFFERING
The Company is offering, on a "best efforts, minimum - maximum" basis up
to 200,000 shares of its common stock to the public at $0.50 per share. The
offering will terminate 120 days from the effective date thereof (or 150 days
if extended by the Company) unless a minimum of $50,000 of subscriptions have
been received.
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has not established revenues sufficient to cover its
operating costs and allow it to continue as a going concern. The Company is
seeking additional capital through its proposed public offering (see Note 2).
In the interim, management is committed to covering all operating and other
costs.
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DURWOOD, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,250
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,250
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,250
<CURRENT-LIABILITIES> 251
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 1,999
<TOTAL-LIABILITY-AND-EQUITY> 3,250
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,001
<LOSS-PROVISION> 7,001
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,001)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,001)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,001)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
