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, 1997 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. $ 687.00
As of March 31, 1998, the aggregate market value of voting stock held by
non-affiliates was $103,500.
The number of shares outstanding of the Issuer's common stock at December 31,
1997: 1,103,500
<PAGE>
PART I
Item 1. Description of Business
(a) Business Development.
Durwood, Inc. (the "Company") was 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 offered 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 was completed in April, 1997, with $51,750
in gross proceeds received, for which the Company issued 103,500 shares of
common stock. Upon completion of the offering, the Company began to use the
net proceeds from this offering to provide the working capital necessary to
commence business operations.
The Company only recently commenced business operations and is
considered a development stage company.
(b) Business of Company.
Business of the Company
The 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 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 has 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 purchased 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 the amount and intricacy of 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 continues to be employed at EO's Society Billiards and
Cafe, and the Company rents space at that location where Mr. Heiselt keeps 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 desirable 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 additional equipment
and tools acquired with the funding provided by the offering, the Company will
be able 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 began to 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 until April, 1997, and the
Common Stock of the Company did not begin trading in the over-the-counter
market until July of 1997. The stock is quoted on the NASD Electronic
Bulletin Board under the symbol "DWOD". The following table sets forth the
high and low bid price quotations for each calendar quarter since quotations
became available. Such prices represent interdealer quotations, without
retail markup, markdown or commission, and may not represent actual
transactions.
Quarter Ended High Bid Low Bid
September 30, 1997 $1.00 $1.00
December 31, 1997 $1.00 $1.00
(b) Holders.
As of March 31, 1998, there were approximately 43 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 significant 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, close of the
offering and initial commencement of operations. The Company received $51,750
in gross proceeds from the offering. This funding is being used to provide
working capital for the Company's operations. The Company has no other
significant assets.
Management's plan of operation for the next twelve months is to 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
business. 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 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 significant amount of products yet, and there is
absolutely no assurance that the business will succeed and that the Company
will be able, with the proceeds of the 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 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 business venture.
However, upon completion of this offering, the Company used
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 are
available to the Company. The President believes, but there is no assurance,
that acquisition of the additional equipment which the Company purchased using
proceeds of the 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
will 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, 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 Billiard
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 outside 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.
At this time, no assurances can be given with respect to the length of
time after commencement of operations 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 management 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, 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 Matthews). 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.
Compensation. 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
Name and Address Class Beneficial Ownership of Class
Darren Heiselt Common 200,000 shares 18%
4871 S. 4055 W.
Kearns, UT 84118
Cowbell, Inc. Common 400,000 shares 36%
1173 A 2nd Ave.
N.Y., N.Y. 10021
Elvena, Inc. Common 400,000 shares 36%
666 Fifth Ave. #159
N.Y., N.Y. 10103
All officers and
directors as a group Common 200,000 shares 18%
(1 person)
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 uses 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. The
Company is being 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, 1997.<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: March 31, 1998
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: March 31, 1998
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, 1997
<PAGE>
C O N T E N T S
Independent Auditors' Report 3
Balance Sheet 4
Statements of Operations 5
Statements of Stockholders' Equity 6
Statements 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, 1997 and the related statements of
operations, stockholders' equity, and cash flows for the year ending December
31, 1997 and from inception on July 12, 1996 through December 31, 1996 and
1997. 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, 1997 and the results of its operations and
its cash flows from inception on July 12, 1996 through December 31, 1996 and
1997 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.
Jones, Jensen & Company
March 20, 1998
<PAGE>
DURWOOD, INC.
(A Development Stage Company)
Balance Sheet
ASSETS
December 31,
1997
-----------
CURRENT ASSETS
Cash $ 18,068
Inventory 1,000
-----------
Total Current Assets 19,068
-----------
PROPERTY AND EQUIPMENT (Note 3) 4,986
-----------
TOTAL ASSETS $ 24,054
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ -
-----------
Total Current Liabilities -
-----------
TOTAL LIABILITIES -
-----------
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, 1,103,500 shares issued and outstanding 1,104
Additional paid-in capital 48,534
Deficit accumulated during the development stage (25,584)
-----------
Total Stockholders' Equity 24,054
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,054
===========
The accompanying notes are an integral part of these financial statements
<PAGE>
DURWOOD, INC.
(A Development Stage Company)
Statements of Operations
From From
For Inception on Inception on
The Year July 12, July 12,
Ended 1996 Through 1996 Through
December 31, December 31, December 31,
1997 1996 1997
---------- ---------- ----------
REVENUES $ 687 $ - $ 687
EXPENSES 19,270 7,001 26,271
---------- ---------- ----------
NET LOSS $ (18,583) $ (7,001) $ (25,584)
========== ========== ==========
NET LOSS PER SHARE OF
COMMON STOCK $ (0.00) $ (0.00) $ (0.00)
========== ========== ==========
The accompanying notes are an integral part of these financial statements
<PAGE>
DURWOOD, INC.
(A Development Stage Company)
Statements of Stockholders' Equity
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
--------- ------- ------- --------
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 -
Net loss for the five months
ended December 31, 1996 - - - (7,001)
--------- ------- ------- --------
Balance, December 31, 1996 1,000,000 1,000 9,000 (7,001)
Common stock issued for cash at
$0.50 per share on April 21, 1997 103,500 104 51,646 -
Stock issuance costs - - (12,112) -
Net loss for the year ending
December 31, 1997 - - - (18,583)
--------- ------- ------- --------
Balance, December 31, 1997 1,103,500 $ 1,104 $ 48,534 $ (25,584)
========= ======= ======= ========
The accompanying notes are an integral part of these financial statements
<PAGE>
DURWOOD, INC.
(A Development Stage Company)
Statements of Cash Flows
From From
For Inception on Inception on
The Year July 12, July 12,
Ended 1996 Through 1996 Through
December 31, December 31, December 31,
1997 1996 1997
--------- --------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from operations $ (18,583) $ (7,001) $ (25,584)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 453 - 453
Changes in operating assets
and liabilities:
Increase (decrease) in accounts
payable (251) 251 -
Increase in inventory (1,000) - (1,000)
--------- --------- ----------
Net Cash Provided (Used)
by Operating Activities (19,381) (6,750) (26,131)
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase)in equipment (5,439) - (5,439)
--------- --------- ----------
Net Cash Provided by Investing
Activities (5,439) - (5,439)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock offering costs (12,112) - (12,112)
Common stock issued for cash 51,750 10,000 61,750
--------- --------- ----------
Net Cash Provided By Financing
Activities 39,638 10,000 49,638
--------- --------- ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 14,818 3,250 18,068
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 3,250 - -
--------- --------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 18,068 $ 3,250 $ 18,068
========= ========= ==========
Cash Paid For:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
The accompanying notes are an integral part of these financial statements
<PAGE>
DURWOOD, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1997
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 commenced minimal
business operations and is considered a development stage company. The
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.
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. Loss Per Share
The computations of loss 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, 1997, the Company has a loss carryover of
approximately $25,000 which expires in 2012. 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.
g. Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market value.
<PAGE>
DURWOOD, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1997
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 is summarized as follows:
Accumulated Net book
Cost Depreciation Value
Equipment $ 5,439 $ 453 $ 4,986
Total $ 5,439 $ 453 $ 4,986
Depreciation expense for 1997 was $453 and is computed using the straight line
method over a 5 year life.
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. It is the
intent of the Company's management to expand sales and marketing of its pool
cues.
NOTE 4 - PUBLIC OFFERING
The Company offered to the public, 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 was terminated on April 21, 1997 when the Company
received $51,750 and issued 103,500 shares of common stock. The Company
incurred costs of $12,112 which were offset against the proceeds of the
offering.
<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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 18,068
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,000
<CURRENT-ASSETS> 19,068
<PP&E> 4,986
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,054
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1,104
<OTHER-SE> 22,950
<TOTAL-LIABILITY-AND-EQUITY> 24,054
<SALES> 687
<TOTAL-REVENUES> 687
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19,270
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (18,583)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,583)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,583)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
