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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to _______________
Commission file number 0-28407
NETMAXIMIZER.COM, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0907899
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
4400 North Federal Highway, Suite 307, Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 447-9330
Securities registered under Section 12(b) of the Exchange Act:
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Title of each class: Name of each exchange on which registered:
Common Stock, par value $.001 per share None.
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Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant (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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference to Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of March 22, 2000, was $448,457,360 (assuming solely for the
purpose of this calculation that the directors and officers of the registrant
are "affiliates").
The number of shares outstanding of the registrant's common stock, par value
$.001 per share, as of March 22, 2000, was 39,153,006.
Documents Incorporated By Reference: None.
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NETMAXIMIZER.COM, INC.
FORM 10-K
INDEX
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PART I......................................................................................................................3
ITEM 1. BUSINESS..................................................................................................3
ITEM 2. PROPERTIES...............................................................................................23
ITEM 3. LEGAL PROCEEDINGS........................................................................................23
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................................23
PART II....................................................................................................................24
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS....................................24
ITEM 6. SELECTED FINANCIAL DATA..................................................................................26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS............................................................................................26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK................................................30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............................................................30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.....................................................................................30
PART III...................................................................................................................30
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................................................30
ITEM 11. EXECUTIVE COMPENSATION...................................................................................32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...........................................34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........................................................34
PART IV....................................................................................................................35
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..........................................35
SIGNATURES.................................................................................................................37
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FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Annual Report contains various forward-looking statements and information,
including (but not limited to) under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations," that are based on
management's beliefs as well as assumptions made by and information currently
available to management, including statements regarding future economic
performance and financial condition, liquidity and capital resources and
management's plans and objectives. When used in this document, the words
"expect," "anticipate," "estimate," "believe," and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
various risks and uncertainties which could cause actual results to vary
materially from those stated. Should one or more of these risks or uncertainties
materialize or should underlying assumptions prove incorrect actual results may
vary materially from those anticipated, estimated, expected or projected. Some
important factors that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking statements include, but
are not limited to the following: our limited operating history; history of
losses; competition; our ability to manage growth and integration; risks of
technological change; competition for customers; pricing and transportation of
products; our dependence on key personnel; marketing relationships with third
party suppliers; our ability to protect our intellectual property rights;
government regulation of Internet commerce; economic and political factors;
dependence on continued growth in use of the Internet; risk of technological
change; capacity and systems disruptions; liability for Internet content;
uncertainty regarding infringing intellectual property rights of others;
security risks; any unanticipated impact of the year 2000; and the other risks
and uncertainties described under "Certain Factors That May Affect Future
Operations" in this Annual Report. All such factors are difficult to predict,
contain uncertainties which may materially affect actual results, and are beyond
our control.
PART I
ITEM 1. BUSINESS
Introduction
History of Our Company - Netmaximizer.com, Inc.
We were incorporated in the State of Florida on June 29, 1995 under the name
"RLN Realty Associates, Inc." with an authorized share capital of 7,500 shares
of common stock with a $1.00 par value per share. The founder of RLN Realty
Associates is no longer affiliated in any way with the Company, and we have no
idea why he selected that name or what, if any, business he conducted under that
name. To the best of our knowledge:
o RLN Realty Associates was an inactive company until March, 1999,
o never conducted any business other than annual meetings of the Board
of Directors, and
o no shares of common stock were transferred after March 31, 1996 until
March, 1999.
On June 9, 1998, RLN Realty Associates filed Articles of Amendment to amend its
Articles of Incorporation to increase authorized share capital to 50,000,000
shares of common stock with a $.001 par value per share. In addition to
increasing the authorized capital, RLN Realty Associates authorized a split of
its 5,000 outstanding shares of common stock on a 200-for-one basis effective on
June 9, 1998. On June 12, 1998, RLN Realty Associates filed an application on
Form 211 for its common stock to be quoted on the OTC Bulletin Board, which was
approved on June 18, 1998. We can find no evidence that the stock was actually
quoted until March, 1999.
On February 26, 1999, David Saltrelli replaced the sole board member and became
our President. On March 1, 1999, we amended our Articles of Incorporation to
change our name to "Netmaximizer.com, Inc." to reflect our new e-commerce focus,
and Peter Schuster joined the board and became our Secretary and Treasurer.
March 1, 1999 also marks the beginning of the development of our new business
plan. On March 8, 1999, David Saltrelli and Peter Schuster each purchased
2,430,000 shares of our common stock for cash at a purchase price of $.001 per
share (a total of $2,430 each) as part of the private placement of 12,000,000
shares of our common stock. The remainder of
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the 12,000,000 shares offered during this placement were sold for cash at the
same purchase price of $.001 per share to accredited investors not affiliated
with Netmaximizer.com, Inc. (see "Recent Sales of Unregistered Securities").
On October 19, 1999, we authorized a split of our 13,049,170 then-outstanding
shares of common stock on a 3-for-1 basis effective as of November 1, 1999. To
avoid confusion, unless otherwise indicated, we have referred throughout this
Annual Report to numbers of shares giving effect to the split, whether or not
the transaction occurred prior to the split. In other words, unless otherwise
indicated, the effect of the split is given retroactively.
On April 10, 2000 we filed an amendment to our Articles of Incorporation
increasing the total number of shares that we may issue to 77,000,000,
consisting of 75,000,000 shares of common stock, par value $.001 per share and
2,000,000 shares of "blank check" preferred stock, par value $.001 per share.
We have not been subject to any bankruptcy, receivership or other similar
proceeding.
Netmaximizer.com Overview
We are a development-stage company. When we launch our full-scale operation, we
will provide an e-commerce department store (the "Store") that will sell a wide
variety of consumer goods to members of affinity groups, paying a commission on
those sales to the affinity groups. An "affinity group" is a group of people who
are members of an entity or organization based upon a common interest or goal.
Churches, schools, fraternities, and unions are examples of affinity groups.
Our initial, public operation began in September 1999, when we started
soliciting and enrolling affinity groups. When we launch our full-scale
operations during July, 2000, we will establish a portal for each affinity group
to the Store through which the group's members may purchase merchandise in the
Store. If our current developmental efforts are successful, not only will the
portal have a look and feel unique to the affinity group, but the entire store
will appear to the visitor to be unique to that affinity group.
Affinity groups will not pay any fee to us to establish their custom portal to
the Store (or to establish their unique store). Each affinity group will receive
a fifteen percent (15%) commission on every product which is purchased by its
members or by people referred to the Store by its members. Because the agreement
from the affinity group was obtained by one of our outside, independent sales
people, we will pay a six and one-half per cent commission to that salesperson
(or sales organization) based on purchases made by members of the affinity
group.
Our Store technically opened to public view beginning on November 4, 1999. We
had interim warehousing and fulfillment operations on line to accommodate casual
shoppers, although our plan was (and is) to initiate no marketing efforts to
encourage purchasing at our Store until we are fully prepared. During April,
2000, we have begun our own warehousing and fulfillment operations and, as we
consummate planned financing (if such financing is available on terms acceptable
to us), we will establish inventory stock levels and hire warehousing and
fulfillment personnel. We have developed a catalogue we plan to begin to send to
affinity groups during June, 2000 to commence active marketing for the Store,
which we expect to open to full operation during July. All of these dates and
plans are subject to change and the other risks and uncertainties described
under "Certain Factors That May Affect Future Operations."
The Store is presently housed by Yahoo! Yahoo is a computer service that
provides space and an Internet provider address on its computer servers for the
Netmaximizer.com web site, which comprises the Store. A virtual "shopping cart"
is included with the service, which allows the company to conduct Internet
commerce by enabling site visitors to click on a product to purchase it from the
Store, adding it to the shopping cart (see the discussion following "A
Transaction with MAAX - What the member of the affinity group sees"). Yahoo!
processes the financial transaction involved when a customer purchases a product
from the Store and then Yahoo! delivers the information relating to that
transaction to Charter Pacific Bank (see "Processing a Financial Transaction").
In addition, this service enables worldwide access to the web site. "Housed" is
simply a term for the collective services currently provided by Yahoo. As part
of our business plan, we have developed and begun testing our own "housing"
services, which will permit us to provide greater affinity branding. By affinity
branding, we mean the Store will appear to visitors to be
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unique to the affinity group, with logos and verbiage present on each page
related to the affinity group. We can offer no assurance that we will replace
Yahoo! with our own "housing" services, however, as that functionality remains
under testing.
Currently, the Store has fifteen departments which mirror the departments found
in a traditional brick and mortar department store. Additional departments will
be added over time. After we complete the enhancements to allow affinity
branding, the departments will remain consistent across all of the unique,
affinity stores. The Store offers the following services and benefits to its
customers:
o free incentives with each purchase;
o a reminder service which electronically reminds customers of important
dates; and
o a newsletter which updates members on new department grand openings,
new product lines, special promotions and discounts.
As of November 4, 1999, when the Store nominally opened, we had enrolled 171,490
families who are members of fifteen affinity groups to be our potential
shoppers. As of May 1, 2000, we have enrolled 739 affinity groups. Those
affinity groups inform us that they have a total of 4,838,203 families who are
members. To accommodate that population in full scale operations will require
continued execution of our planned preparation.
Development of the Business
Since February 1999, we have taken the following steps to implement our business
plan:
o Retained David Saltrelli and Peter Schuster who both possess extensive
business, marketing, sales, and operations backgrounds and will manage
our day-to-day business activities.
o Developed our website (Store) with the support of Network 2001, Inc.
("Network"). Network is a corporation wholly-owned by Mr. Steven
Howell, one of our shareholders.
- Effective March 31, 1999, we entered into an agreement with
Network for the design and development of the first phase. As
payment for the services rendered to us, we agreed to pay to
Network $62,000 in cash and to issue to Network eighteen
thousand, eight hundred and eighty-five (18,885) shares of our
common stock. Following the stock split on November 1, 1999, the
number of shares which they hold as a result of providing these
services is fifty-six thousand, six hundred and fifty-five
(56,655). As of November 4, 1999, the web site was substantially
complete and the Store nominally available for shopping. As of
November 27, 1999, those shares have been issued and the cash has
been paid.
- During January, 2000, we began the development of the second
phase of our web site, which includes our own "housing" services.
Although we have no written agreement for development of this
phase, Network began work during February on enhancements to our
Store. Once implemented, these enhancements will make it appear
to visitors that they are in a store unique to their affinity
group, with the affinity group name, picture and tag line on each
page. The enhancements will also include our own shopping cart,
improved billing procedures and related improvements. Our
agreement with Network calls for total payments of $330,000 to
accomplish all of the enhancements. As of February 15, 2000, we
have paid to Network $230,000 for this phase, with another
$50,000 due upon completion of development and $50,000 upon
completion of beta testing.
- We anticipate that future technological advances and system
improvements will prompt further enhancements to our website. No
further specific developmental phases are presently planned.
o Selected Yahoo! to house our web site initially, until our own,
proprietary development is completed.
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o Established a relationship with American Sales Industries, Inc.
- Initially as our interim product fulfillment provider, ASI was
paid $2,000 per month for fulfillment services plus a fee per
item for merchandise that we purchased through ASI (at ASI's
cost) equal to: $0.50 per item costing under $5.00, $0.75 per
item costing $5.00 to $9.99 and $1.00 per item costing $10.00 or
more.
- Starting February 1, 2000, we leased 9,000 square feet of
warehouse space from ASI at a monthly rental of $5,000 and
commenced the set up of our own fulfillment center, while ASI
continued to provide complete warehousing and fulfillment
services as before at the same fixed fee plus fee per item basis.
- Commencing in mid-April, 2000, we began maintaining our own
warehouse and fulfillment center in the leased space and stopped
using ASI for that purpose.
- We have a written agreement with ASI under which they will
function as our purchasing agent on a non-exclusive basis, and
their compensation for those services will be the "fee-per-item
based on product cost" described above.
o Executed a Merchant Bankcard Services and Security Agreement with
Charter Pacific Bank.
o Executed lease agreements for executive, administrative, purchasing
and customer service office space in Boca Raton, Florida.
o On November 4, 1999, nominally opened the web site Store to fifteen
affinity groups which had a total of 171,490 families as members. As
of May 1, 2000, we have enrolled 739 affinity groups that tell us they
have 4,838,203 families that are members of those groups.
o On February 8, 2000, we obtained $1.3+ Million in a financing
transaction with Monavia, Limited. Monavia received our
non-negotiable, 9% promissory note due February 7, 2003 plus a
three-year warrant to purchase 681,987 shares of our common stock at
an exercise price of $15.00 per share (the market price on the date of
the warrant).
o Designed and proofed a four-color, sixteen page catalogue, which is
ready for printing and distribution as soon as our store is
functionally ready to be fully operational.
o Executed agreements with independent representatives who explain our
business concept to affinity groups and enroll their participation in
the program.
o Establish a core staff for our customer service, purchasing,
warehousing and fulfillment operations.
We intend to take the following steps to continue to implement our business
plan:
o Obtain requisite financing and create an inventory of merchandise for
our Store;
o Complete the staffing of our warehousing and fulfillment operation;
o Distribute our catalogue and commence aggressive marketing on a
phase-in basis to our present pool of 739 affinity groups with
established (but yet-to-be-opened) custom portals or stores;
o Increase our marketing activities to new affinity groups by expanding
the number of independent representatives;
o Expand our core Customer Service Department to support full
operations;
o Open at least fifteen new affinity group portals or, if development of
our site permits, affinity group stores during each of the next twelve
months of operation ("Portal", as it is used in this Annual Report,
refers to the web page that has hyperlinks to the Netmaximizer.com web
site. Usually a portal
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web page is customized with images and verbiage that relate to the
individual affinity group and acts as a doorway for the members of
that affinity group into the Netmaximizer.com store. In current
development are site enhancements that will apply those images and
verbiage unique to the affinity group throughout the site, so that an
affinity group member will see a unique, branded store, instead of
merely a unique portal. We cannot assure you, however, that these
enhancements will be successfully implemented); and
o Hire necessary key consultants and personnel with Internet e-commerce
experience to further implement our business strategy.
Marketing Strategy
The lynchpin of our marketing strategy is to utilize and potentially enhance the
affinity groups' internal methods of communication to their members to grow our
market share. We have enrolled and continue to enroll affinity groups through
the use of commission-only, outside sales representatives. The representatives
use our on-line description of our Store and the affinity group program to
demonstrate to affinity groups how their members will be able to use the Store,
the accuracy of our transaction tracking system and the potential profitability
for the affinity group as its members make the purchases from the Store that
they would otherwise make elsewhere. The affinity group completes an on-line
application. Since the affinity group receives a fifteen percent (15%)
commission on every purchase its members make, the leaders of that affinity
group are incentivized to use the group's internal communications methods (such
as the pulpit, a newsletter, a payroll insert, or a flier brought home from
school) to market our Store.
Both the sales representative that recruits an affinity group and the affinity
group itself are paid commissions only if and when product sales to members of
that affinity group are completed, thereby substantially eliminating the up
front marketing and advertising costs typically found in the retail sales
industry. The sales representative (or the group of which the sales
representative is a part) receives a total commission of 6.5% of sales to
members of affinity groups which such sales representative enrolled and the
affinity group is paid a 15% commission on such sales made to its members.
We have developed and proofed a four-color, sixteen-page catalogue that we will
make available to affinity groups for distribution to their members. We expect
to begin distributing the catalogue to the affinity groups during June, 2000.
During July, following the distribution of that catalogue, we will commence full
scale operations.
A Transaction with MAAX
What the member of the affinity group sees:
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o An affinity group member visits the affinity group web site and clicks
through that portal to our Store.
o If a member is a first time visitor, the member may click on the
"First Time Visitor" button and receive a virtual guided tour through
the site, conducted by "MAAX," our virtual 800-pound gorilla
storekeeper. During testing, we found that this feature dramatically
increases customer awareness and satisfaction.
o Alternatively, the member may select from one or more of the fifteen
departments available (e.g., "The Fragrance Counter", "As Seen on TV",
"Jewelry", and "Gifts"). The design criteria for each department was
to keep it colorful, simple and easy to navigate with the fewest
number of mouse clicks needed to transport the viewer to the buying
decision.
o If they would prefer, the member may click on a "Search" button to
search the entire Store quickly and efficiently. Products are sorted
by recipient ("For Her," "For Him," "For Mom," etc.), by department
and by price. In addition, the viewer may simply type in their request
and ask MAAX to find it for them.
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o A member arrives at the front page of a particular department where
the products are presented in a sorted fashion that allows the
customer to go directly to the product in which the customer is
interested, in the shortest amount of time.
o When a member clicks on a product, the member then sees a uniform
template that enables him or her to view (a) the picture of a product,
(b) "MAAX Facts," which are summarized information regarding the
product, (c) product availability, (d) shipping time, (e) the cost of
shipping and handling, and (f) the price of the product.
o When the member elects to purchase a product, a mouse click will add
that product to the member's virtual "shopping cart," powered by
Yahoo. The shopping cart can process over 5,000 orders per hour. The
customer simply clicks on "Add to Cart" and the product is placed in
the respective shopping cart. The customer continues to shop (similar
to placing an item in a shopping cart at a brick and mortar store) by
adding more and more products to the shopping cart. The customer may
view the shopping cart at any time by simply clicking on "View Cart".
Additional items or item quantities may be added or deleted at any
time. The shopping cart totals everything so one simple mouse click
shows how much the order totals. When they are finished shopping, they
simply "Check Out" and the Yahoo shopping cart shows them how to
complete their purchase.
o For every order placed, a member will also receive an incentive (a
variety of which are available, for example a two-piece ginsu knife
set).
o When the member has concluded shopping, the member enters menu-driven
personal data, including their name, address, the address to which to
ship the product(s) purchased, e-mail address (for confirmations) and
credit card number. Members can select from a variety of delivery
options, including overnight and various shipping options, as well as
gift-wrapping services. Shipping and handling are added and sales tax
is computed (Florida residents only).
o Yahoo! processes the credit card immediately and generates the
approval or notifies the member of the need to present another credit
card to complete the transaction. Simultaneously, our software is
running additional algorithms to verify the propriety of the credit
card transaction. When the transaction is approved by the credit card
company, funds are reserved for application to the purchase, but the
card is not charged.
o A receipt is created for the transaction which may be printed and
which is stored at a locatable web site. An email confirmation of the
order summarizing the transaction is immediately sent to the member.
o Because they have seen the MAAX Facts, the member knows (a) whether
the item is in stock, (b) all relevant pricing and cost of shipping
data, (c) whether sales tax applies, and (d) approximate shipping
delays. Nonetheless, if a member has a question, the member may query
customer service and receive an autoresponder reply by e-mail to a
variety of commonly asked questions. Those electronic replies are also
monitored by Customer Care Representatives, who ensure the query is
properly and completely answered, e.g., by sending a personalized
e-mail response to the member. Finally, a member may use our toll free
number to discuss the question with a Customer Care Representative.
Our goal and intent is to achieve 100% customer satisfaction.
o The products will be received by the member along with a
distinctively-colored form permitting the return of the product for
full credit. Unless a product has been personalized in some manner, we
offer a no question, money back guaranty. In this regard, we may
experience significant and unpredictable losses due to our return
policy. Because we will not offer items where customer satisfaction is
dependent upon color or size, we do not believe returns will be
excessive.
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The foregoing functionality is presently available. If the enhancements to our
site are successfully completed, the affinity group member's experience will be
essentially the same, except the member will see the group's logo, artwork and
verbiage throughout the store and the Yahoo! functionality will be replaced by
our own, proprietary functionality. Additionally, certain reports will be
affinity branded and there will be an enhanced referral capability.
What the member does not see:
- -----------------------------
* As the order is confirmed to the member, our computer generates a
purchase order which is delivered electronically to our fulfillment
and warehouse operation in Riviera Beach, Florida.
* Each order is taken down one by one electronically, a packing invoice
is created, a shipping label, a pick slip, a return authorization,
gift card (if ordered) and a quality control sheet are all generated
automatically by computer. Our fulfillment employees "pick" the order
into the correct box, double check the contents to the order, fill the
box with packing materials, and place the invoice, thank you letter,
return authorization, free gifts and a flier on specials into the box.
They seal the box, affix a tracking number provided by the United
States Post Office, and scan the tracking number into the computer.
The package is weighed, postage is affixed, all information is entered
into the computer, and the package is placed in the respective bin
(priority or express) awaiting pick up by the Postal Service.
* The information is transferred to our customer service computer. We
then send an email to each customer which informs them that their
purchase has been packaged (and provides the tracking number).
* Our computer also tracks usage data and inventory stock levels to
ensure maximum product availability while minimizing inventory
carrying cost. When our stock level indicates a product reorder point
has been reached, our computer automatically generates a bulk purchase
order. Depending upon the product being reordered and current market
conditions, either we order the bulk shipment ourselves, or we place
an order with American Sales Industries, Inc., which electronically
issues the corresponding purchase orders directly to the respective
supplier.
* The suppliers receive the orders and then pick the products and ship
them directly to our warehouse facility. Each of our suppliers will
ship to us FOB (our warehouse).
* When the products arrive at our warehouse, they are counted, scanned
into the computer, and electronically matched against the respective
bulk purchase order. Information is uploaded to our computers where
everything is cross-checked.
Processing Financial Transactions
Yahoo! processes the financial transaction involved when a customer purchases a
product from the Store and then Yahoo! delivers the information relating to that
transaction to Charter Pacific Bank. We have entered into an agreement with
Charter to complete the processing of the financial transactions. Charter has
significant experience in processing credit card transactions and offers a
real-time payment processing system. Charter has been in the business of
processing and administering financial transactions for several years and we
believe Charter will offer the benefits of reliable, secure payment processing
functionality. We hope to benefit from Charter's low incidence of customer
charge-backs and credit card fraud. A further benefit to us is that we will not
have to bear the cost of developing and maintaining complex systems,
infrastructure, and overhead to process credit card transactions.
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We believe the benefits of Charter's service are:
o secure communication lines between us and Charter;
o the customer payment information is encrypted to prevent alteration or
tampering; and
o the messages are authenticated to verify the identity of the parties
sending and receiving the payment processing request.
Access to Charter's servers is secure, monitored and controlled 24 hours a day,
seven days a week.
Upon the successful implementation of our enhanced site capabilities, the Yahoo!
functionality will be replaced with our own processing system, still relying on
Charter and its processing and administering these financial transactions.
Domain Name
We have registered our domain name "Netmaximizer.com" with Network Solutions,
Inc. ("NSI"). NSI acts as a clearinghouse for web site domain names under
license from the United States government.
Intellectual Property
We intend to rely on a combination of patent, copyright, trademark and trade
secret laws and restrictions on disclosure to protect our intellectual property
rights. As of the date of this annual report, we do not own or otherwise control
any registered patents, copyrights or trademarks, nor have we submitted any
applications for trademark registration.
Our current logo consists of a gorilla and a tag line including the words
"Netmaximizer.com", colored blue and red. Although we have a license to use it,
we were advised that the present design of our mark may not be sufficiently
unique to be protected as a trademark. We are currently having our logo and
other related scripts and images custom designed so that there will be no
conflict with existing caricatures and type styles. We intend to file to have
that intellectual property trademark protected. If we determine that our
business plan or any individual aspect of the way we are doing business is an
asset whose value can be protected as intellectual property, we will attempt to
protect that proprietary asset by applying for a patent, copyright or trademark.
We cannot assure you that our patents, once applied for, will be issued, that
our trademark registrations will be approved or that our patents or trademarks
will not be successfully challenged by others or invalidated. If our trademark
registrations are not approved because third parties own these trademarks, our
use of these trademarks would be restricted unless we entered into arrangements
with the third-party owners, which might not be possible on reasonable terms.
Despite any efforts we may make in the future to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
technology or business model. Monitoring unauthorized use of our technology and
business model is difficult and we cannot be certain that the steps we will take
will prevent unauthorized use of our technology and business model.
In addition, our business activities may infringe upon the proprietary rights of
others, and, from time to time, we may receive, claims of infringement against
us. Litigation may be necessary to enforce our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. Any litigation could subject us to significant
liability for damages and invalidation of our proprietary rights. These
lawsuits, regardless of their success, would likely be time consuming and
expensive to resolve and would divert management's time and attention away from
our business. Any potential intellectual property litigation could also force us
to do one or more of the following:
o make significant changes to the structure and operation of our
business;
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o attempt to design around a third party's patent; or
o license alternative technology from another party.
Implementation of any of these alternatives could be costly and time consuming,
and may not be possible. Accordingly, an adverse determination in any litigation
that we are a party to would have a material adverse effect on our business,
results of operations and financial condition.
In addition, we will endeavor to rely on trade secret laws and non-disclosure
and confidentiality agreements with our employees and consultants who have
access to our proprietary technology. We strictly control access to and
distribution of our technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or use
our solutions or technologies.
We cannot assure you that the steps we have taken will prevent misappropriation
of our solutions or technologies, particularly in foreign countries where laws
or law enforcement practices may not protect our proprietary rights as fully as
in the United States.
Industry Overview - The Internet
The Internet is an increasingly significant global interactive medium for
communications, content and commerce. Growth in Internet usage has been fueled
by a number of factors, including:
o the large and growing base of personal computers in the workplace and
home;
o advances in the performance of personal computers and modems;
o improvements in network systems and infrastructure;
o readily available and lower cost access to the Internet;
o increased awareness of the Internet among businesses and consumers;
o increased volume of information and services offered on the Web; and
o reduced security risks in conducting transactions online.
International Data Corporation estimates that the number of Internet users
worldwide exceeded 97 million in 1998 and will grow to approximately 320 million
by the end of 2002. International Data Corporation also estimates that worldwide
commerce over the Internet will reach approximately $426 billion by the end of
2002, up from approximately $32 billion in 1998.
The availability of a broad range of content and the acceptance of electronic
commerce has driven rapid Internet adoption by businesses and consumers alike,
which has in turn stimulated the proliferation of additional content and
electronic commerce.
We believe that the growing adoption of the Internet represents an enormous
opportunity for businesses to conduct commerce electronically without borders
over the Internet.
E-commerce
The term "e-commerce" encompasses business to consumer transactions conducted
over the Internet and the World Wide Web. As interest in the Web exploded during
the mid-1990's and, as the number of consumers with access to the Internet at
work or at home grew, companies that originally had established Web sites for
marketing purposes
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(to promote their corporate or brand identity or to provide information about
their products) soon became interested in using those sites for sales purposes.
Businesses identified the Internet as a means to shorten the sales cycle.
The information that is presented on a Web site is delivered in a focused manner
to targets who are intentionally looking for that specific information. The
Internet can reduce costs and level the playing field for small and large
businesses, allowing them to extend their reach globally. As well, the
availability of sophisticated Internet and Web technology, stronger security
mechanisms, and the increasing acceptance of the new communications medium are
fueling the use of e-commerce by businesses and consumers.
We believe that consumers' trust will increase with the number of successfully
completed transactions. Studies are demonstrating that the consumers' attitudes
are rapidly changing and that they are rapidly gaining confidence with
transacting business over the Internet.
We believe that the way in which products and services will be directly or
indirectly sold in the future will increasingly shift toward the Internet.
Leading businesses throughout the world are developing their Web strategies to
take advantage of this shift in the way consumers will receive product and
service related information, and purchase goods and services.
Competition
The online commerce market, particularly over the Web, is new, rapidly evolving
and intensely competitive. Our current or potential competitors include:
o online vendors of the types of products we currently offer in the
Store or intend to offer in the future;
o a number of indirect competitors, including Web portals and Web search
engines such as Yahoo! and America OnLine, that are involved in online
commerce either directly or in collaboration with other retailers;
o traditional brick and mortar distributors and retail vendors of the
products we currently offer in the Store or intend to offer in the
future, many of which possess significant brand awareness, sales
volume and customer bases;
o catalogue vendors; and
o conventional retail outlets who currently sell, or who may sell,
products or services through the Internet.
We believe that the principal competitive factors in the online, affinity-group
centered, retailing market are:
o breadth and depth of product selection and services;
o number of affinity group members and the quality and frequency of the
groups' contacts with their members;
o size of groups' membership base;
o accessibility to, and ease of use of, site;
o quality of editorial and other site content;
o quality of search tools and transaction speed and security;
o quality of service and personalized service;
o technical expertise;
o convenience and price; and
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o reliability and speed of fulfillment.
We expect competition to increase due to the lack of significant barriers to
entry for online business generally, and for online direct marketing programs.
Some of our current and potential competitors, such as Amazon.com, eToys.com,
Outpost.com, ValueAmerica.com and Buy.com, have longer operating histories,
greater brand recognition, larger client and member bases, and significantly
greater financial, technical and marketing resources than we do.
These advantages may enable them to respond more quickly to new or emerging
technologies and changes in customer preferences. These advantages may also
allow them to engage in more extensive research and development, undertake
extensive and far-reaching marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to potential employees, strategic
partners and advertisers. As a result, it is possible that our existing
competitors or new competitors may rapidly acquire significant market share.
Increased competition may result in price reductions, reduced gross margin and
loss of market share. We may not be able to compete successfully, and
competitive pressures may affect our business, results of operations and
financial condition.
Governmental Regulation
We are subject to general business regulations and laws regarding taxation and
access to online commerce. In addition, the Internet is subject to government
obscenity and decency standards. Like all companies, we are subject to consumer
protection laws and we are governed by the Federal Trade Commission.
Employees
On November 1, 1999, we had five full-time employees or consultants. As of May
1, 2000, we have fifteen full-time employees. We anticipate that number to
expand rapidly during the next two months as we commence our warehouse and
fulfillment operations, expand our customer service operations and begin our
aggressive marketing campaign. From time to time, we may also retain consultants
and consulting firms to provide us with special expertise in developing
marketing, software and telecommunications technologies. The sales people who
recruit affinity groups are not employees of the Company, but are independent
contractors.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
We Have Only a Limited Operating History that Investors May Use to
Assess Our Future Prospects
We have only a limited operating history. We have not and may never generate
sufficient revenues to achieve profitability. We have limited experience
addressing challenges frequently encountered by early-stage companies in the
electronic commerce and direct marketing industries. You should evaluate our
business in light of the risks and difficulties frequently encountered by early
stage companies engaged in Internet commerce. For us, these risks include:
o our significant dependence on selling products through the Internet,
which thus far has only limited market acceptance;
o our ability to develop and upgrade our infrastructure, including
internal controls, transaction processing capacity, data storage and
retrieval systems and Web site;
o our need to manage changing operations as the number of our products
and purchasers increase;
o our reliance upon strategic relationships, such as:
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a. Yahoo Housing Agreement: If Yahoo were to discontinue providing
this service then we would have to change our Store front and
Department templates and relocate (house) the Store on another
Internet Service Provider.
b. American Sales Industry Lease and Purchasing Agreements: If
American Sales Industries were to discontinue providing
purchasing services we might not be able to buy our goods as
cheaply. If we were to lose our lease, then we would have to move
our warehousing and fulfillment functions to another location or
find a qualified provider of these services.
c. Network 2001: If Network were to abandon developmental efforts,
we would have to obtain an alternative contractor to develop the
planned enhancements to our site, thereby causing delay in
implementation.
d. Affinity Groups' Participation: If the current Affinity Groups
were to stop promoting their members' purchasing through our
Store, then we would have to find replacement Affinity Groups to
maintain the same level of business.
o regulatory risks associated with our business, particularly with
regard to the possibility of our having to determine and collect state
taxes for sales conducted over the Internet; and
o our dependence upon and need to hire key personnel, for example a
Chief Operating Officer, a Director of Customer Service, a Director of
Purchasing, a Director of Shipping & Fulfillment and a Director of
Computer Operations.
We may not be successful in addressing these risks, and our business strategy
may not be successful. Our revenue and income potential is unproven and our
business model is still emerging. We cannot assure you that we will continue to
attract affinity group participants or achieve significant revenues or operating
margins in future periods. In addition, we have never operated during a general
economic downturn in the United States, which typically adversely affects retail
sales. Accordingly, our limited operating history does not provide investors
with a meaningful basis for evaluating our business, our prospects or an
investment in our common stock.
We Have a History of Losses and these Losses May Continue Until August 31, 2000
We have never operated profitably and, given our planned level of operating
expenses, we expect to continue to incur losses for the foreseeable future.
Although we project revenue growth to begin shortly, such growth may not be
achieved or if it is achieved, such growth may not be sustainable at a rate
sufficient to achieve and maintain profitability. We plan to increase our
operating expenses as we continue to build infrastructure and inventory to
support the expansion of our business. We anticipate needing $1,500,000 to
sustain our operations for the next year, not including the lines of credit and
other capitalization which we intend to employ to fund our inventory. Our losses
may increase in the future, and even if we achieve our revenue targets, we may
not be able to sustain or increase profitability on a quarterly or annual basis.
If our revenues grow more slowly than we anticipate, or if our operating
expenses exceed our expectations and cannot be adjusted accordingly, our
business, results of operations and financial condition will be materially and
adversely affected.
Our Prospects for Obtaining Additional Financing Are Uncertain and Failure to
Obtain Needed Financing Could Affect Our Ability to Pursue Future Growth
We will need to raise additional funds to develop or enhance our services, to
fund expansion, to respond to competitive pressures or to acquire complementary
products, businesses or technologies. We intend to finance our expanded
inventory using lines of credit from financial institutions, secured by that
inventory, as well as through other capitalization. We cannot assure you that
additional financing will be available on terms favorable to us, or at all. If
additional funds are raised through the issuance of equity or convertible debt
securities, the percentage ownership of our stockholders would be reduced and
these securities might have rights, preferences or privileges senior to those of
our current stockholders. If adequate funds are not available on acceptable
terms, our ability to fund our expansion, take advantage of unanticipated
opportunities, develop or enhance services or products, or otherwise respond to
competitive pressures would be significantly limited. Our business, results of
operations and financial condition could be materially adversely affected by
this limitation.
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Permanent Injunction Against Our President
In June 1993, following the filing of a complaint by the Federal Trade
Commission, David Saltrelli, our President and director, (and other individuals
and entities not affiliated with Netmaximizer.com, Inc.) entered into a
Stipulated Permanent Injunction and Final Judgment with the FTC. The Injunction
was entered by the United States District Court for the Middle District of
Florida, Orlando Division. In the proceedings leading up to the Injunction,
allegations were made that (a) consumers acquired travel-related services and
products (both as incentives and as direct purchases) from telemarketing
entities either controlled by or affiliated with Mr. Saltrelli; (b) that the
descriptions of and disclosures regarding these travel-related products or
services were inadequate; (c) that consumers were at times required to pay
undisclosed fees or increased costs with regard to the travel-related products
to services; and (d) that on occasion the travel-related products or services
were not available at the times or on the terms advertised. Mr. Saltrelli denied
all material allegations contained in the FTC's complaint. He agreed to the
injunction, without trial or adjudication of any issue of law or fact, to
resolve all matters in dispute between him and the FTC. See "Item 5. Directors
and Executive Officers - Other Information - FTC Injunction."
The Injunction enjoins Mr. Saltrelli, as well those acting with him or
participating in his activities, from supplying travel-related services and
products for use in telemarketing and from assisting in the telemarketing of any
travel-related product or service. The Injunction also states that, in
connection with the advertising, promotion, marketing, distribution, offering
for sale or sale of travel-related products or services (including premiums and
incentives), Mr. Saltrelli and the related parties are permanently enjoined
from, among other things, failing to disclose or misrepresenting in any manner
any restriction, limitation or condition on any consumer's use of a
travel-related product or service, or failing to provide to each consumer who
obtains such travel-related product or service the exact trip, product or
service as was represented to the consumer.
Netmaximizer.com, Inc. has beginning on November 4, 1999 and prior to March 1,
2000, provided travel-related premiums and incentives to affinity group members
to promote the sale of products, albeit never in a telemarketing context. As of
March 1, 2000, we eliminated all use of travel-related incentives, as we
determined that our affinity group members relate better to a more tangible,
name-product incentive. Nonetheless, if the FTC were to determine that Mr.
Saltrelli, as our President, or Netmaximizer.com itself had violated the terms
of the Injunction between November 4, 1999 and March 1, 2000, by engaging in
prohibited conduct, it may seek to enforce the Injunction directly against us.
Should this or any other regulatory action lead to civil or criminal charges
against Netmaximizer.com, Inc., we may be subject to negative publicity, the
costs of litigation, the diversion of management time and other negative
effects, even if we ultimately prevail.
Our Quarterly Operating Results May Be Subject to Fluctuations, which Could
Affect Our Stock Price
We hope to grow rapidly and our revenue and operating results may vary
significantly from quarter to quarter due to a number of factors, some of which
are outside of our control. As a result, our operating results may be below the
expectations of public market analysts and investors. In this event, the price
of our common stock may fall.
The factors most likely to produce varied results include:
o changes in marketing and advertising costs that we incur to attract
and retain affinity groups and their members;
o our rate of acquiring affinity groups and the level of activity of new
and existing members of groups;
o changes in the prices we pay for the goods we sell or the availability
of such goods in the quantity and variety we require to retain our
members;
o the introduction of new products and services by us or by our
competitors;
o changes in the costs of warehousing or delivering our goods;
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o changes in our pricing policies, the pricing policies of our
competitors or the pricing policies for Internet retail sales
generally;
o unexpected costs and delays relating to the expansion of our
operations; and
o the occurrence of technical difficulties or unscheduled system
downtime.
Due to these factors, revenues and operating results are difficult to forecast
and investors should not rely on period to period comparisons of results of
operations as an indication of our future performance. Any significant shortfall
in revenues in relation to our expenses would have a material adverse effect on
our business, results of operations and financial condition.
Our Operating Results May Be Subject to Seasonal Fluctuations that Could Impact
Our Growth and Affect Our Stock Price
We believe that our revenues will be subject to seasonal fluctuations as a
result of general patterns of retail buying, which are typically higher during
the fourth calendar quarter. In addition, expenditures by consumers tend to be
cyclical, reflecting general economic conditions, holidays, vacation periods and
the beginning and end of school. The extent of these seasonal fluctuations in
any period may be difficult to predict and, if the fluctuations are higher than
our expectations, they could have a material adverse effect on our business,
results of operations and financial condition. A downturn in the general economy
or a shift in consumer buying patterns could harm our results of operations.
We Hope to Grow Rapidly, and the Failure to Manage Our Growth Could Adversely
Affect Our Business
As we continue to increase the scope of our operations, we may not have an
effective planning and management process in place to implement our business
plan successfully. We have grown from two employees in March of 1999 to fifteen
employees on May 1, 2000. We are continuing to integrate these individuals into
our organization. We plan to expand our warehousing and fulfillment and our
customer service operations very rapidly. We plan to continue the expansion of
our sales, marketing and administrative functions. We received our first
application from an affinity group in September 1999. As of May 1, 2000, we had
accepted a total of 739 applications. We have accepted them in increments over
time and intend to continue to do so. This growth may strain our management
systems and resources. We anticipate the need to continue to improve our
financial and managerial controls and our reporting systems. In addition, we
will need to expand, train and manage our growing work force. Our business,
results of operations and financial condition will be materially and adversely
affected if we are unable to manage our expanding operations effectively.
Our Success Depends On Our Ability to Maintain and Expand an Active
Membership Base
Our success largely depends on our ability to maintain and expand an active
membership base. Although we initially accepted applications for participation
by 15 affinity groups representing approximately 171,490 members and have
subsequently expanded our membership base to 739 affinity groups with 4,838,203
families that are members, this industry typically has generated the majority of
its revenues from a small percentage of its members, and we cannot assure you
that the percentage of active members will increase in our case. In addition, we
cannot be certain that our membership growth will continue at current rates or
increase in the future.
Our Business Will Suffer If the Acceptance of Online Purchasing
Does Not Continue
Our future success will depend substantially upon continued growth in the use of
the Internet and in the acceptance and volume of commerce transactions on the
Internet. Our potential customers will likely accept and adopt the Internet as a
medium to conduct business only if the Internet provides them with greater
efficiencies, lower prices and avoided costs, all in a secure environment.
However, the number of Internet users may not continue to grow, and commerce
over the Internet may not become more accepted or widespread.
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As this is a new and rapidly evolving industry, the ultimate demand and market
acceptance for Internet-related services is subject to a high level of
uncertainty. The Internet may not prove to be a viable commercial marketplace
for a number of reasons, including:
o lack of acceptable security technologies,
o lack of access and ease of use,
o congestion of traffic, whether created in due course by regular market
activity or artificially by computer "hackers",
o inconsistent quality of service,
o lack of availability of cost-effective, high-speed service,
o potentially inadequate development of the necessary infrastructure,
o excessive governmental regulation,
o uncertainty regarding intellectual property ownership or timely
development, and
o commercialization of performance improvements, including high speed
modems.
A necessity of online commerce and communications is the secure transmission of
confidential information over public networks. Our security measures may not
prevent security breaches. Any failure to prevent security breaches could harm
our business. We rely on encryption and authentication technology licensed from
third parties to provide the security and authentication technology to effect
secure transmission of confidential information, including customer credit card
numbers. Advances in computer capabilities, new discoveries in the field of
cryptography, or other developments may result in a compromise or breach of the
technology used by us to protect customer transaction data. Any compromise of
our security could harm our reputation and, therefore, our business.
We Are Assuming Merchandising, Inventory Management and Fulfillment
Responsibilities
We recently started the phase-in to handling our own merchandising, inventory
management and order fulfillment. Our failure to perform these functions
efficiently and in a timely manner could result in the disruption of our
operations, including shipment delays. In addition, changing trends in consumer
tastes in the products we offer subject us to inventory risks. It is important
to our success that we accurately identify and predict these trends and do not
overstock unpopular products. The demand for specific products can change
between the time the products are ordered and the date of receipt. If products
do not achieve sufficient consumer acceptance, we may be required to take
inventory markdowns, which could reduce our sales and gross margins. We believe
that this risk will increase as we open new departments or enter new product
categories due to our lack of experience in purchasing products for these
categories. In addition, to the extent that demand for our products increases
over time, we may be forced to increase inventory levels.
Our Business Will Suffer If Affinity Group Marketing Does Not Succeed
The success of our business model will depend on our ability to attract and
retain affinity groups and their members. We cannot assure you that our
marketing efforts and the quality of each member's experience, including the
number and availability of the products we provide, will generate sufficient
satisfied members. To the extent that our products, prices and incentives
programs do not achieve market acceptance among groups and their members, our
business would be materially and adversely affected.
Any member of an affinity group who is dissatisfied with the quality of an
experience with our company for reasons within or outside of our control could
damage our reputation and/or cause the termination of participation by the
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entire affinity group. Any damage to our reputation and/or termination of
participation by an entire affinity group could have a material adverse effect
on our business, results of operations and financial condition.
If Our Affinity Groups Fail to Effectively Promote Their Sites, Our Revenues
Could Suffer
Our business model is substantially dependent upon the promotional efforts of
our affinity groups. For example, if our groups do not prominently display the
availability of their sites to make sales or do not work with us to create
promotional offers that are attractive and understandable to the members of the
affinity groups, their promotions may not be successful, and as a result, we may
not be successful. We cannot assure present or potential investors that our
affinity groups will allocate sufficient technical resources and promotional
budgets and efforts to make regular sales through their sites and other
promotions successful. If our groups' sales programs are not successful, our
revenues could suffer.
Credit Card Fraud Could Cause Us Losses in the Future
Under current credit card practices, a merchant is liable for fraudulent credit
card transactions when that merchant does not obtain a cardholder's signature,
as is the case with the transactions we process. We may not be able to
adequately control fraudulent credit card transactions.
We Face Intense Competition, and the Failure to Compete Effectively Could
Adversely Affect Our Market Share and Results of Operations
We face intense competition from both traditional and online retailing
businesses. We expect competition to increase due to the lack of significant
barriers to entry for online business generally. As we expand the scope of our
product and service offerings, we may compete with a greater number of companies
across a wide range of retailing services. Our ability to generate significant
revenue from sales will depend on our ability to differentiate ourselves through
the goods and prices we provide and the revenues we generate for affinity
groups. The attractiveness of our program to current and potential members and
affinity groups depends in part on the attractiveness of the incentives or
rewards that we offer. Currently, several companies offer competitive online
products or services, including MyPoints.com, CyberGold and Netcentives. We also
expect to face competition from established online portals and community web
sites that engage in direct marketing and loyalty point programs, as well as
from traditional advertising agencies and direct marketing companies that may
seek to offer online products or services.
Many of our current competitors and potential new competitors (for example,
Amazon.com; eToys.com; Outpost.com; ValueAmerica.com and Buy.com) have longer
operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
These advantages may allow them to respond more quickly to new or emerging
technologies and changes in customer requirements. It may also allow them to
engage in more extensive research and development, undertake more far-reaching
marketing campaigns, adopt more aggressive pricing policies, and make more
attractive offers to potential employees, strategic partners and advertisers.
In addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products or services to address the needs of our prospective
customers. As a result, it is possible that new competitors may emerge and
rapidly acquire significant market share. Increased competition may result in
price reductions, reduced gross margins and loss of our market share. We may not
be able to compete successfully, and competitive pressures may materially and
adversely affect our business, results of operations and financial condition.
See "Business -- Competition."
We Depend On the Services of Our Executive Officers to Manage Our Growth, and
There Is No Assurance We Can Retain Their Services
Our future success depends on the continued service of our key senior
management, David Saltrelli, our President and Chief Executive Officer, and
Peter Schuster, our Secretary and Treasurer. The loss of either of these persons
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could have a material adverse effect on our business. We do not have either
employment contracts with or key-person insurance on any of our employees.
Our success depends on our ability to attract, retain and motivate highly
skilled employees. Competition for employees in our industry is intense. We may
be unable to retain our key employees or to attract, assimilate and retain other
highly qualified employees in the future. We anticipate difficulty from time to
time in attracting the personnel necessary to support the growth of our business
in the future.
We Depend Upon Third Party Software
We presently depend on third-party software to track performance and to invoice
customers. We will have to continue to depend on thirty-party software in the
future, unless we are successful in developing our own, proprietary software as
discussed. We will be obligated to integrate any third-party technology we
license in the future into our technology and services. Although we believe that
alternative sources for comparable software are available, any failure to obtain
and maintain the rights to use such software would have a material adverse
effective on our operations.
We also are dependent upon third parties to provide maintenance to our Internet
site and to others to provide us with the necessary access to the Internet with
sufficient capacity and bandwidth so that our Store can properly function and
remain "online." Any restrictions or interruption in our connection to the
Internet may cause significant revenue loss.
We Are Vulnerable To System Failures Which Could Cause Interruptions or
Disruptions In Our Service
Our success depends on the capacity, reliability and security of our networking
hardware, software and telecommunications infrastructure. The hardware
infrastructure on which the NetMaximizer Store operates is presently housed at
Yahoo!. We maintain our own hardware for warehousing, purchasing and
administrative functions and also rely on Network 2001, Inc. for hardware
support. Despite precautions taken by us and the host of our Web site, our
system is susceptible to natural and man-made disasters such as earthquakes,
fires, floods, power loss and vandalism. Telecommunications failures, computer
viruses, electronic break-ins or other similar disruptive problems could
adversely affect the operation of our systems. Any such technical failure or
security problems could harm our business, financial condition and results of
operations. Our insurance policies may not adequately compensate us for any
losses that may occur due to any damages or interruptions in our systems. We
could be required to make capital expenditures in the event of damage.
Periodically, we may experience unscheduled system downtime that may result in
our web site being inaccessible to members, or we may experience slow response
times that may result in decreased traffic to our web site. If these problems
arise, it could materially and adversely affect our business, results of
operations and financial condition.
Our Business Will Suffer If We Are Unable To Keep Pace With Rapid Technological
Changes In Our Industry
Our market is characterized by rapidly changing technologies, frequent new
product and service introductions, short development cycles and evolving
industry standards. The recent growth of the Internet and intense competition in
our industry exacerbate these market characteristics. The introduction of
products and services embodying new technologies, the emergence of new industry
standards and changing consumer needs and preferences could render our existing
services obsolete and unmarketable. Our future success will depend in part on
our ability to respond effectively to rapidly changing technologies, industry
standards and customer requirements by adapting and improving the performance
features and reliability of our services. We may experience technical
difficulties that could delay or prevent the successful development,
introduction or marketing of new products and services. In addition, any new
enhancements to our products and services must meet the requirements of our
current and prospective users. We may experience technical difficulties that
could delay or prevent the successful development, introduction or marketing of
new products and services. We could incur substantial costs to modify our
services or infrastructure to adapt to rapid technological change.
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Continued Development and Use of the Internet Infrastructure Is Critical To Our
Ability To Offer Our Services
Our affinity groups and their members depend on Internet service providers for
access to our web site. Internet service providers and web sites have
experienced significant outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to our systems.
If outages or delays occur frequently in the future, Internet usage, as well as
electronic commerce and the usage of our products and services, could grow more
slowly or decline, and this could have an adverse effect on our business.
A number of factors may inhibit Internet usage, including inadequate network
infrastructure, security concerns, inconsistent quality of service, and lack of
availability of cost-effective, high-speed service. If Internet usage grows, the
Internet infrastructure may not be able to support the demands placed on it by
this growth and its performance and reliability may decline.
Future Regulation of the Internet Could Affect Our Operations
Laws and regulations that apply to the Internet may become more prevalent in the
future. The laws governing the Internet and email services remain largely
unsettled. There is no single governmental body overseeing our industry, and
many state laws that have been enacted in recent years have different and
sometimes inconsistent application to our business.
The governments of foreign countries may also attempt to regulate electronic
commerce. New laws could dampen the growth in use of the Internet generally and
decrease the acceptance of the Internet as a commercial medium. In addition,
existing laws such as those governing intellectual property and privacy may be
interpreted to apply to the Internet. In the event that foreign governments, the
federal government, state governments or other governmental authorities adopt or
modify laws or regulations relating to the Internet, our business, results of
operations and financial condition could be materially and adversely affected.
Some States May Impose a New Sales Tax On Our Business
A 1992 Supreme Court decision confirmed that the commerce clause of the United
States Constitution prevents a state from requiring the collection of its sales
and use tax by a mail-order company unless such company has a physical presence
in the state. However there continues to be uncertainty due to inconsistent
application of the Supreme Court decision by state and federal courts. While
there is no case law on the issue, we believe that this analysis could also
apply to our online business.
We attempt to conduct our operations consistent with our interpretation of the
applicable legal standard, but there can be no assurance that such compliance
will not be challenged. In recent challenges, various states have sought to
require companies to begin collection of sale and use taxes and/or pay taxes
from previous sales. As of the date of this Annual Report, we have not received
assessments from any state. We currently collect and forward sales tax on all
shipments to Florida.
The Supreme Court decision also established that Congress has the power to enact
legislation which would permit states to require collection of sales and use
taxes by mail-order companies. Congress has from time to time considered
proposals for such legislation. We anticipate that any legislative change, if
adopted, would be applied on a prospective basis.
Recently, several states and local jurisdictions have expressed an interest in
taxing e-commerce companies who do not have any contacts with their
jurisdictions other than selling products online to customers in such
jurisdictions. The Internet Tax Freedom Act imposed a moratorium on new taxes or
levies on e-commerce for a three-year period due to expire in October 2001.
However, there is a possibility that Congress may not renew this legislation.
Any such taxes could have an adverse effect on online commerce, including our
business.
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<PAGE>
We Face Risks Associated With Third Party Claims and Protection of Our
Intellectual Property Rights, and Any Litigation Relating To Intellectual
Property Rights Could Harm Our Business
Our business activities may infringe upon the proprietary rights of others, and
other parties may assert infringement claims against us. An adverse
determination in any litigation of this type could require us to make
significant changes to the structure and operation of our affinity sales or
online rewards program, attempt to design around a third party's patent, or
license alternative technology from another party. Implementation of any of
these alternatives could be costly and time consuming, and might not be
possible. Accordingly, an adverse determination in any litigation that might
ensue between a third party and us could have a material adverse effect on our
business, results of operations and financial condition. In addition, any
intellectual property litigation, even if successfully defended, would result in
substantial costs and diversion of resources and management attention and could
therefore have a material adverse effect on our business, results of operations
and financial condition.
Our success and ability to compete depends on our internally developed
technologies and trademarks, which we will seek to protect through a combination
of patent, copyright, trade secret and trademark laws. Despite actions we take
to protect our proprietary rights, it may be possible for third parties to copy
or otherwise obtain and use our proprietary information without authorization or
to develop similar technology independently. In addition, legal standards
relating to the validity, enforceability and scope of protection of proprietary
rights in Internet-related businesses are uncertain and still evolving. We
cannot give any assurance regarding the future viability or value of any of our
proprietary rights. In addition, we cannot give any assurance that the steps
taken by us will prevent misappropriation or infringement of our proprietary
information. Any infringement or misappropriation, should it occur, could have a
material adverse effect on our business, results of operations and financial
condition. See "Business -- Intellectual Property."
Failures Related To Year 2000 Which Could Adversely Affect Our Business
The costs we have incurred related to Year 2000 compliance have not been
material to our business, results of operations or financial condition. We have
experienced no Year 2000 problems. In the event that we do encounter such
problems (either within our own systems or with regard to a prolonged data
communication, telecommunications or electrical failure), we could be required
to expend additional resources or lose revenues.
Substantial Control Will Remain With Our Management and Major Stockholders and
This Could Delay or Prevent a Change of Control
As of May 1, 2000, our executive officers, directors and 5% stockholders
together beneficially owned approximately 50.86% of our outstanding common
stock. These stockholders, if they vote together, will retain substantial
control over matters requiring approval by our stockholders, such as the
election of directors and approval of significant corporate transactions. This
concentration of ownership might also have the effect of delaying or preventing
a change in control. See "Security Ownership of Certain Beneficial Owners and
Management."
Future Sales of Our Common Stock Could Cause the Price of Our Shares To Decline
As of May 1, 2000, we have 39,153,006 shares of common stock outstanding. Of
these shares, 19,884,000 are transferable without restriction or registration
under the Securities Act of 1933, or pursuant to the volume and other
limitations of Rule 144 promulgated under the Securities Act. An offering of a
substantial number of shares of our common stock into the public market could
cause its price to decline. This is particularly the case because a substantial
portion of our outstanding shares of common stock are held by persons who
purchased their shares at prices significantly below the current market price.
As of May 1, 2000, 105,006 shares of common stock are subject to lock-up
agreements between the holders of those shares and us. Under those agreements,
the holders have agreed not to offer, sell, contract to sell, grant any option
to purchase or otherwise dispose of their common stock until a managing
underwriter of a public offering releases the holders from the lockup
agreements. Following the release, those shares subject to the lock-up
agreements will
21
<PAGE>
become available for immediate resale in the public market subject, in some
instances, to the volume and other limitations of Rule 144.
As of May 1, 2000, we had outstanding options to purchase an aggregate of
7,809,600 shares of common stock which were granted under our stock option plan.
Holders of such options, once those options are vested, are likely to exercise
them when, in all likelihood, we could obtain additional capital on terms more
favorable than those provided by the options. Further, while options are
outstanding, our ability to obtain additional financing on favorable terms may
be adversely affected.
We Must Comply with the OTC Bulletin Board Eligibility Rule
In January of 1999, the SEC granted approval to the NASD OTC Bulletin Board
Eligibility Rule 6530 which requires a company listed on the OTC Bulletin Board
to be a reporting company and current in its reports filed with the SEC. As a
result of this rule change, we filed a Registration Statement on Form 10 in
order to become a full reporting company. That Registration Statement became
effective on February 7, 2000. We received comments from the SEC staff dated
February 8, 2000 to which we have responded, filing a First Amendment to Form
10. We received further comments from the staff on May 11, 2000 and will file a
Second Amendment to Form 10 in response to those comments.
The current phase-in schedule for the new eligibility requirements provides that
we must clear all comments of the SEC staff on or before March 24, 2000. Because
we were unable to meet the requirements in the prescribed time, NASD appended an
"E" to our ticker symbol for the month our shares were quoted on the OTCBB after
March 24, 2000. Currently our shares are quoted only on the "pink sheets," and
our stock symbol again is simply "MAAX." Once we have cleared all comments by
the SEC staff and are current in our filed reports with the SEC, we anticipate
that our shares will again be quoted as "MAAX" on the OTCBB.
The SEC reporting requirements will add additional expenses to our operations.
There Is No Assurance That a Public Market For Our Common Stock Will Continue
To Develop
There has only been a limited public market for our common stock. We cannot
predict the extent to which investor interest in our common stock will lead to
the development of a trading market or how liquid that market might become,
either because of the delay in our clearing comments by the SEC staff or because
we trade only on the "pink sheets."
Our Stock Price Could Be Volatile
The stock market has experienced significant price and volume fluctuations, and
the market prices of technology companies, particularly Internet-related
companies, have been highly volatile. Investors may not be able to resell their
shares at or above the current, OTCBB price either as a result of our symbol's
having been appended with an "E" or because we trade only on the "pink sheets."
In addition, our results of operations during future fiscal periods might fail
to meet the expectations of stock market analysts and investors. This failure
could lead the market price of our common stock to decline and cause us to
become the subject of securities class action lawsuits.
We Do Not Intend To Pay Future Cash Dividends
We currently do not anticipate paying cash dividends on our common stock at any
time in the near future. Any decision to pay dividends will depend upon our
profitability at the time, cash available and other factors. We may never pay
cash dividends or distributions on our common stock.
22
<PAGE>
ITEM 2. PROPERTIES
We currently lease our principal business office at 4400 North Federal Highway,
Boca Raton, Florida pursuant to a series of leases, each of which is
approximately one year in duration. The total monthly rent payments under the
leases are approximately $7,600, plus tax. We also pay for a pro rata share of
common area expenses such as insurance, cleaning services, and maintenance
related to the space we rent. Our pro rata share of the common area expenses is
currently approximately $4,350 per month.
As of February 1, 2000, we began leasing approximately 9,000 square feet of
warehouse space at 3560 Investment Lane, Suite 201, Riviera Beach, Florida,
pursuant to a lease that expires on January 31, 2001. The monthly rental
payments for the lease are $5,000. We have an option to renew that lease for an
additional one-year term at a monthly rental of $5,500. We pay all of our own
utilities, maintenance and cleaning for the warehouse space we lease, but pay no
share of expenses for any other or common areas.
Other than described above, we do not presently own or lease any other real
property.
ITEM 3. LEGAL PROCEEDINGS
Except for the Injunction and tax liens disclosed under Item 10 "Directors and
Executive Officers - Other Information," to the best of our knowledge,
Netmaximizer.com, Inc. is not subject to any active or pending legal proceedings
or claims against us or any of our properties. However, from time to time, we
may become subject to claims and litigation generally associated with any
business venture.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Effective October 30, 1999, by affirmative vote of the holders of a majority of
the outstanding shares of the Company, a Written Consent in Lieu of Special
Meeting was adopted which ratified actions by the Board of Directors to:
o Adopt Bylaws for the Company;
o Appoint American Stock Transfer Agent and Trust Company of New York,
NY as the Company's Registrar and Transfer Agent;
o Approve the Company's 1999 Employee Stock Option Plan;
o Approve the Company's Non-Employee Director Stock Option Plan; and
o Grant options to individuals entitled thereto.
A Notice of this action without a meeting dated November 8, 1999, was provided
to each shareholder of record as of the effective date of the action.
Effective April 6, 2000, by affirmative vote of the holders of a majority of the
outstanding shares of the Company, a Written Consent in Lieu of Special Meeting
was adopted which amended the Articles of Incorporation, increasing our capital
to 77,000,000 shares, consisting of (a) 75,000,000 shares of common stock and
(b) 2,000,000 shares of "blank check" preferred stock. A Notice of this action
without a meeting dated April 6, 2000, was provided to each shareholder of
record as of the effective date of the action.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On June 18, 1998, our common stock was approved for trading on the OTCBB under
the symbol "RLNR" (reflecting our former name, RLN Realty Associates, Inc.). On
March 1, 1999, we changed our name to "Netmaximizer.com, Inc.", and our OTCBB
symbol was changed to "MAAX". The following table sets forth, for the periods
indicated, the range of the high and low bid quotations (as reported by NASD).
There were no trades of our securities on the OTCBB prior to March 11, 1999.
The bid quotations set forth below, reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions:
OTCBB
1999 High Low
1st Quarter $12.00 $1.0625
2nd Quarter $13.50 $6.00
3rd Quarter $15.62 $7.00
4th Quarter $19.00 $10.75
As of May 1, 2000, there were 20 holders of record of our common stock.
In January of 1999, the SEC granted approval to the NASD OTC Bulletin Board
Eligibility Rule 6530 which requires a company listed on the OTC Bulletin Board
to be a reporting company and current in its reports filed with the SEC. As a
result of this rule change, we filed a Registration Statement on Form 10 in
order to become a full reporting company. That Registration Statement became
effective on February 7, 2000. We received comments from the SEC staff dated
February 8, 2000 to which we have responded, filing a First Amendment to Form
10. We received further comments from the staff on May 11, 2000 and will file a
Second Amendment to Form 10 in response to those comments.
The current phase-in schedule for the new eligibility requirements provides that
we must clear all comments of the SEC staff on or before March 24, 2000. Because
we were unable to meet the requirements in the prescribed time, NASD appended an
"E" to our ticker symbol for the month our shares were quoted on the OTCBB after
March 24, 2000. Currently our shares are quoted only on the "pink sheets," and
our stock symbol again is simply "MAAX." Once we have cleared all comments by
the SEC staff and are current in our filed reports with the SEC, we anticipate
that our shares will again be quoted as "MAAX" on the OTCBB.
We have not declared or paid any cash dividends on our common stock since our
inception, and our Board of Directors currently intends to retain all earnings
for use in the business for the foreseeable future. Any future payment of
dividends will depend upon our results of operations, financial condition, cash
requirements and other factors deemed relevant by our Board of Directors.
Recent Sales of Unregistered Securities
In March of 1996, RLN Realty Associates initially issued 5,000 shares of common
stock, $1.00 par value per share out of an authorized share capital of 7,500
shares of common stock. On June 9, 1998, RLN Realty Associates increased its
authorized share capital from 7,500 to 50,000,000 shares of common stock with a
$.001 par value per share. Pursuant to the resolution authorizing the increase
in authorized share capital, the RLN Realty Associates board of directors
authorized a forward stock split that increased the number of original shares on
a 200-for-1 basis, resulting in 1,000,000 outstanding common shares. The
issuance of original shares was exempt from registration under the provisions of
Section 4(2) of the Securities Act of 1933, as amended. The issuance of the
original shares did not involve a public offering.
On March 8, 1999, after our name was changed to Netmaximizer.com, Inc., but
before our shares were being quoted on the OTCBB, we sold 12,000,000 (pre-split)
shares of our common stock for $0.001 per share to raise $12,000 in cash. This
private placement was made to ten investors, including David Saltrelli and Peter
Schuster, and was fully subscribed. The placement was not underwritten, but was
conducted with the advice of the Venture Law
24
<PAGE>
Corporation. This sale was exempt from registration in reliance upon Rule 504
under Regulation D promulgated under the Securities Act. The aggregate offering
price did not exceed $1,000,000, and the offering was otherwise in compliance
with Rules 501 and 502 promulgated under the Securities Act.
On March 23, 1999, we sold 16,000 (pre-split) shares of our common stock for
$3.125 per share to raise $50,000 in cash. Our shares had begun to be quoted at
this point, but the price was very volatile, ranging between $1.06 and $12.00
during the month of March 1999 for no apparent reason. As there were no trades
on March 23, 1999, this offering was made to one non-affiliated subscriber at
the negotiated and agreed "fair value" of $3.125 per share. The offering was not
underwritten. This sale was exempt from registration in reliance upon Rule 504
under Regulation D promulgated under the Securities Act. The aggregate offering
price did not exceed $1,000,000, and the offering was otherwise in compliance
with Rules 501 and 502 promulgated under the Securities Act.
On September 27, 1999, we issued 1,170 (pre-split) shares of our common stock
for $14.531 per share to raise $17,000 in cash. On September 30, 1999, we issued
13,115 (pre-split) shares of our common stock for $15.250 per share to raise
$200,000 in cash. On October 20, 1999, we issued 1,832 (pre-split) shares of our
common stock for $16.375 per share to raise $30,000 in cash. These sales were
made to one, non-affiliated purchaser, Monavia, Ltd. The price paid by Monavia
on each of those dates was equal to the closing bid price on the date of sale of
the shares to Monavia. These offerings were not underwritten and were exempt
from registration in reliance upon Section 4(2) of the Securities Act because
they did not involve a public offering.
The Company accounted for the sales of restricted stock issued in both March and
September of 1999 by recording common stock and additional paid in capital for
the total of the proceeds received.
On February 8, 2000, we issued a non-negotiable, 9% promissory note due February
7, 2003 plus a three-year warrant to purchase 681,987 shares of our common stock
at an exercise price of $15.00 per share (the market price on the date of the
warrant). This sale was made to Monavia. Ltd. This offering was not
underwritten. The sale was exempt from registration in reliance upon Section
4(2) of the Securities Act since it did not involve a public offering.
The following chart summarizes the recent sales of our securities:
<TABLE>
<CAPTION>
Date To Whom Sold # Shares Sales Price per Fair Value on issue
share date
<S> <C> <C> <C> <C>
March 8, 1999 David Saltrelli 2,430,000 $.001 $.001
March 8, 1999 Peter Schuster 2,430,000 $.001 $.001
March 8, 1999 Tillman C. Howell 628,000 $.001 $.001
March 8, 1999 Specter Equity Limited 865,000 $.001 $.001
March 8, 1999 Exeter Mgnt & Trading 1,250,000 $.001 $.001
March 8, 1999 Denali Foundation 955,000 $.001 $.001
March 8, 1999 Culrain Limited 625,000 $.001 $.001
March 8, 1999 Martin Leigh 750,000 $.001 $.001
March 8, 1999 Shadow Financial, Inc. 1,250,000 $.001 $.001
March 8, 1999 Paladin Investments 802,000 $.001 $.001
March 23, 1999 Ulrich Grunenwald 16,000 $3.125 $3.125*
September 27, 1999 Monavia, Ltd. 1,170 $14.531 $14.531**
September 30, 1999 Monavia, Ltd. 13,115 $15.250 $15.25**
October 1, 1999 Network 2001, Inc. 18,885 $15.250 $15.25**
October 20, 1999 Monavia, Ltd. 1,832 $16.375 $16.375**
</TABLE>
* Share prices fluctuated between $1.0625 and $12.00 during the period March 11
and March 31,1999. There were no shares traded on March 23, 1999. $3.125 was
the agreed purchase price between the Company and Mr. Grunenwald.
** Closing market price on date of transaction.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data regarding our
consolidated operating results and financial position. The data has been derived
from our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
("US GAAP"). See "Management's Discussion and Analysis of Financial Condition
and Results of Operation." The following selected financial data is qualified in
its entirety by, and should be read in conjunction with, the consolidated
financial statements and notes thereto included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
Year Ended
December 31,
1999 1998 1997 1996 1995
$ $ $ $ $
<S> <C> <C> <C> <C> <C>
Net Revenue 15,002 nil nil nil nil
General & Administrative Expenses 488,025 900 nil nil nil
Non-cash Compensation
Officer & Employee 150,000 nil nil nil nil
Stock Options 5,503,321 nil nil 5,000 nil
Net Income (Loss) (6,135,904) (900) nil (5,000) nil
Net Income (Loss) per Share (.16) nil nil nil nil
December 31,
1999 1998 1997 1996 1995
$ $ $ $ $
Total Assets 415,127 nil nil nil nil
Total Liabilities 301,610 900 nil nil nil
Shareholders' Equity (Deficiency) 113,517 (900) nil nil nil
Long-Term Obligations 150,000 nil nil nil nil
Cash Dividends nil nil nil nil nil
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the Company's consolidated results of
operations and consolidated financial position should be read in conjunction
with the Selected Consolidated Financial Data and the Company's consolidated
financial statements, including the notes thereto, appearing elsewhere in this
Annual Report.
Overview
We were incorporated in the State of Florida on June 29, 1995 under the name
"RLN Realty Associates, Inc." with an authorized share capital of 7,500 shares
of common stock with a $1.00 par value per share. On June 9, 1998, we filed
Articles of Amendment to amend our Articles of Incorporation to increase our
authorized share capital to 50,000,000 shares of common stock with a $.001 par
value per share. In addition to increasing our authorized capital, we authorized
a split of our 5,000 outstanding shares of common stock on a 200-for-one basis
effective on June 9, 1998.
On February 26, 1999, David Saltrelli replaced the sole board member and became
our President. On March 1, 1999, we amended our Articles of Incorporation to
change our name to "Netmaximizer.com, Inc." to reflect our new e-commerce focus,
and Peter Schuster joined the board and became our Secretary and Treasurer.
March 1, 1999
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<PAGE>
also marks the beginning of the development of our new business plan. On March
8, 1999, David Saltrelli and Peter Schuster each purchased 2,430,000 shares of
our common stock for cash at a purchase price of $.001 per share (a total of
$2,430 each) as part of the private placement of 12,000,000 shares of our common
stock. The remainder of the 12,000,000 shares offered during this placement were
sold for cash at the same purchase price of $.001 per share to accredited
investors not affiliated with Netmaximizer.com, Inc. (see "Recent Sales of
Unregistered Securities").
On October 19, 1999, we authorized a split of our 13,049,170 then-outstanding
shares of common stock on a 3-for-1 basis effective as of November 1, 1999.
On April 10, 2000 we filed an amendment to our Articles of Incorporation
increasing the total number of shares that we may issue to 77,000,000,
consisting of 75,000,000 shares of common stock, par value $.001 per share and
2,000,000 shares of "blank check" preferred stock, par value $.001 per share.
Our primary objective will be to provide an Internet e-commerce store available
to affinity groups which will provide products at reduced prices coupled with
incentives, paying a commission to the affinity group for each purchase made by
one of its members.
During the next twelve months, we intend to increase the number of affinity
groups which become members of our Store.
Results of Operations
We are a development stage company. As of December 31, 1999, the Company was
primarily involved in organizational activities, developing a strategic plan and
raising capital. Full operations, as defined by our strategic plan, have not
commenced. Prior to March 1999, RLN Realty Associates, Inc. had no active
business operations and therefore, no material or substantive transactions or
results of operations. As a result, no meaningful comparison can be made between
our present operations and our operations during the years ended December 31,
1994 to December 31, 1998.
Year Ended December 31, 1999 Compared to December 31, 1998
Our total assets were approximately $415,000 at December 31, 1999 (nil at
December 31, 1998). The increase was due primarily to our investment of
approximately $34,000 primarily in office equipment and computer servers, and
our $350,000 investment (paid $62,000 in cash remitted on our behalf by certain
subscribing shareholders and the balance by our issuance of 18,885 shares of our
common stock) in the first phase of development of our web site with Network
2001. Our cash and short-term investments were approximately $39,000 at December
31, 1999 (nil at December 31, 1998). Our current liabilities were approximately
$152,000 at December 31, 1999 compared to approximately $900 at December 31,
1998. This increase was principally the result of fees for professional services
and other operating costs.
For the year ended December 31, 1999, we had revenue from operations of $15,002.
For the same period ended December 31, 1999, our general and administrative
expenses increased to approximately $6,141,346 from $900 at December 31, 1998.
This increase was primarily due to the expense recorded as a result of our grant
to non-employees of options to purchase 4,073,304 shares of our common stock1,
which resulted in compensation of $5,503, 321 during the year ended December 31,
1999 and deferred compensation of an additional $964,972. These grants were
compensation for consultant services rendered in connection with the web site
design, sales platform design, affinity group program design, and other similar
services. We paid cash salaries of $30,920 to our President and $24,379 to our
Secretary during 1999. We intend to pay a monthly salary to our President of
$15,000 and to our Secretary of $12,000 going forward.
- -------------
1 The methodology employed to calculate the expense associated with issuance of
these options is discussed below in the Notes to Financial Statements beginning
at page F-13.
27
<PAGE>
During the year ended December 31, 1998, we had no active business operations.
As a result, we had no material transactions or results of operations that
require a comparison to our operations during the year ended December 31, 1999.
Liquidity and Capital Resources
Since we began implementing our current business plan in March 1999 through
December 31, 1999, we have raised an aggregate of $459,000 in cash through
private placements, $62,000 of which was remitted on the Company's behalf by
stockholders to the consultant for web site design. We received approximately
$15,000 in cash from our operations during this period. During this period, we
have used net cash of approximately $358,000, primarily for professional fees,
consulting fees, salaries, rent and expenses, and overhead.
As of December 31, 1999, we had $39,055 in cash. As of February 8, 2000, we
obtained $1.3+ Million in a financing transaction with Monavia, Limited. Monavia
received our non-negotiable, 9% promissory note due February 7, 2003 plus a
three-year warrant to purchase 681,987 shares of our common stock at an exercise
price of $15.00 per share (the market price on the date of the warrant).
Although that cash will be sufficient to sustain our current operations for the
remainder of calendar year 2000, we will need to raise additional financing to
fund our inventory expansion. We intend to raise additional capital through
additional sales of unregistered shares of our common stock conducted under
exemptions provided by the Securities Act or by the rules of the SEC. There can
be no assurance that we will be able to raise additional capital as needed and
in the time required. If we are unable to meet our capital requirements, our
implementation plans could be severely and adversely impacted, and it is
questionable whether we could continue as a going concern.
During the year ended December 31, 1999, we committed approximately $34,000 for
office equipment and computer servers and had no material cash flows from
investing activities.
We anticipate that our cash requirements will increase to approximately $120,000
to $160,000 per month during calendar year 2000 as a result of salaries,
professional fees and related expenses associated with the anticipated expansion
of our operations. There can be no assurance that our actual expenditures for
such periods will not exceed our estimated operating budget. Actual expenditures
will depend upon a number of factors, some of which are beyond our control,
including, among other things, timing of clearance of all comments from the SEC
staff regarding our registration statement, reliability of the assumptions of
management in estimating cost and timing, and the time expended by professionals
and consultants and fee associated therewith.
Recent Financing
Our business activities and operations have been partially funded to date
through issuance of shares of our common stock. The following transactions had
been completed as of December 31, 1999:
<TABLE>
<CAPTION>
Number of Total Price of
Summary of Transactions2 Issue Date Shares Shares($)
- ------------------------ ---------- ------ ---------
<S> <C> <C> <C>
Balance of Netmaximizer.com at December 31, 1998 3,000,000 $ 5,000
Issued to 10 investors for cash at $.001 per share March 8, 1999 36,000,000 12,000
Issued to 1 investor for cash at $1.04 per share March 23, 1999 48,000 50,000
Issued to 1 investor for cash at $4.84 per share August 27, 1999 3,510 17,000
Issued to 1 investor for cash at $5.08 per share August 30, 1999 39,345 200,000
- -------------
2 The shares issued for cash at $.001 were all issued on March 8, 1999, when the
Company became active and before the stock began trading under the symbol
"MAAX." The remainder of the shares were acquired at the trading price as of the
date acquired. Both the number of shares and the acquisition price have been
adjusted to reflect the stock split retroactively. The variance in price, given
the development stage and lack of public activity of the Company, is attributed
to unknown market forces.
28
<PAGE>
Issued to 1 investor for cash at $5.46 per share October 1, 1999 5,496 30,000
Issued to 1 investor for services at $5.08 per share October 20, 1999 56,655 288,000
TOTAL 39,153,006
</TABLE>
On February 8, 2000, we obtained $1.3+ Million in a financing transaction with
Monavia, Limited, a corporation organized and legally existing under the laws of
the Isle of Man. Monavia received our non-negotiable, 9% promissory note due
February 7, 2003 plus a three-year warrant to purchase 681,987 shares of our
common stock at an exercise price of $15.00 per share (the market price on the
date of the warrant).
Year 2000 Compliance
The Year 2000 issue arose with the change in century and the potential inability
of information systems to correctly "rollover" dates to the new century. To save
on computer storage space, many systems were programmed with a two-digit century
(i.e. December 31, 1999 would appear as 12/31/99) assuming that all years would
be part of the 20th century. On January 1, 2000, systems with this programming
will default to 01/01/1900 instead of 01/01/2000, and calculations using or
reporting the date will not be correct and errors will arise (the "Year 2000
Issue"). To prevent this from occurring, information systems had to be updated
to ensure they recognized dates during and after the Year 2000.
We were exposed to a risk that certain aspects of our business would fail or be
impaired as a result of internally operated or externally contracted hardware or
software systems and services not being able to correctly "rollover" dates to
the new century. The risk stemmed from our reliance on certain hardware,
software and services to carry out the daily operation of our business. As of
April 1, 2000, we had experienced no adverse consequences as the result of the
Year 2000 issue. We do not anticipate any disruption in our operations as the
result of the Year 2000 issue. We do not have any information concerning the
Year 2000-compliance status of our suppliers and customers that would adversely
affect our operations. We cannot assure you, however, that there will be no
failure of our material systems, our vendors' material systems or the Internet
related to the Year 2000 issue that will emerge in the months to come.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of the gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. On June 30, 1999 the FASB issued SFAS No. l 137
"Accounting for Derivative Instruments and Hedging Activities Deferred as of the
Effective Date of FASB Statement No. 133." SFAS No. 133, as amended by SFAS 137,
is effective for all fiscal quarters of fiscal years beginning after June 15,
2000. Historically, the Company has not entered into derivatives contracts to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of the new standard on January 1, 2000 to affect its
financial statements.
In March 1998, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." SOP 98-1 requires all costs related to the
development of internal used software other than those incurred during the
application development stage to be expensed as incurred. Costs incurred during
the application development stage are
29
<PAGE>
required to be capitalized and amortized over the estimated useful life of the
software. SOP 98-1 was adopted by the Company on January 1, 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data to be provided pursuant to this
Item 8 are included under Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
We retained Rachlin Cohen & Holtz as our independent accountants to audit our
financial statements effective as of October 7, 1999.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Officers
Both of our directors are elected annually by the shareholders and hold office
until the next annual general meeting of shareholders or until their successors
are duly elected and qualified, unless they sooner resign or cease to be
directors in accordance with our Articles and Bylaws. Our executive officers are
appointed by and serve at the pleasure of our Board of Directors.
As of May 1, 2000, the following persons were our directors and/or executive
officers:
<TABLE>
<CAPTION>
Name and present office held Director and Officer
since
<S> <C>
David Saltrelli, President, Director March 1999
Peter Schuster, Secretary, Treasurer, Director March 1999
</TABLE>
The following is a brief biographical information on each of the officers and
directors of listed:
DAVID SALTRELLI. Age 51. David Saltrelli holds a Masters in Business
Administration (MBA) from the Simon School of Business at the University of
Rochester where he majored in Finance & Economics. After completing four years
in the United States Navy, David went on to become a leading stock and commodity
broker for the Investment Firms of Merrill Lynch and Prudential Bache where he
pioneered computerized commodity trading. He went into the Real Estate
Development business in 1981 when he became President of Pantra Investments and
quickly became one of the largest Developers of Vacation Timeshare Property in
the United States with sales totaling over $50,000,000. Realizing the need for
up to the minute marketing and sales techniques David went on to build a very
successful direct mail and premium incentive company that serviced many of the
Fortune 500 companies. David's companies employed over 200 full time employees
that concentrated in traffic building for over 1,000 companies nationwide. His
newest endeavors have been focused on delivering downloadable online premiums
and incentives that can be used to generate large amounts of traffic (hits) to
web sites on the Internet. He
30
<PAGE>
brings his over 30 years of direct marketing to Netmaximizer.com, Inc. and he
concentrates his efforts in building vast amounts of online traffic for the
company and linking webmasters as well.
PETER SCHUSTER. Age 53. Peter Schuster, subsequent to completing undergraduate
and graduate degrees in Rochester, New York, began a career in the
telecommunications industry during which he held numerous managerial positions
at the largest independent operating telco including Customer Service Manager,
Operations Manager, and finally Personnel Manager during which he was
responsible for all corporate employment, human resource planning, management
training, and organization development. As a business leader, Schuster served as
a director of the Monroe County Industrial Development Council where he was
responsible for the approval of all bank submitted proposals for commercial
development in Monroe County (Rochester, N.Y.) applying for tax exempt revenue
bonds. As an independent real estate developer, completing several commercial
and residential rehab projects, Schuster received the "Best Rehab Conversion"
award for historical preservation properties, and subsequently developed
numerous commercial properties within the Interval Ownership industry. He brings
years of corporate organizational and human resource skills along with
entrepreneurial development and marketing background to Netmaximizer.com, Inc.
and focuses principally on building and managing the human resource
infrastructure.
Other Information
The Board of Directors is elected by our shareholders. Currently, both of our
Directors review significant developments affecting our company and act on
matters requiring Board approval. Although the Board of Directors may delegate
many matters to others, it reserves certain powers and functions to itself.
Our directors do not receive any salary for their services as directors or as
members of committees of the Board of Directors. Directors may also serve our
company in other capacities as an officer, agent or otherwise, and may receive
compensation for their services in such other capacity.
Neither of our directors or executive officers is a party to any arrangement or
understanding with any other person pursuant to which he was elected as a
director or officer.
Neither of our directors or executive officers has any family relationship with
the other officer or director.
We intend to seek admission to The Nasdaq SmallCap market, although there is no
assurance that we will be able to do so. A condition to our admission to trading
on The Nasdaq SmallCap market is changing our corporate governance to include
two independent directors. We presently have no agreements with anyone to serve
as an independent director and can offer no assurance that we will obtain the
agreement of any individual to serve as an independent director.
Injunction
In June 1993, following the filing of a complaint by the Federal Trade
Commission, David Saltrelli, our President and director, (and other individuals
and entities not affiliated with Netmaximizer.com, Inc.) entered into a
Stipulated Permanent Injunction and Final Judgment with the FTC. The Injunction
was entered by the United States District Court for the Middle District of
Florida, Orlando Division. In the proceedings leading up to the Injunction,
allegations were made that (a) consumers acquired travel-related services and
products (both as incentives and as direct purchases) from telemarketing
entities either controlled by or affiliated with Mr. Saltrelli; (b) that the
descriptions of and disclosures regarding these travel-related products or
services were inadequate; (c) that consumers were at times required to pay
undisclosed fees or increased costs with regard to the travel-related products
to services; and (d) that at times the travel-related products or services were
not available at the times or on the terms advertised. Mr. Saltrelli denied all
material allegations contained in the FTC's complaint. He agreed to the
injunction, without trial or adjudication of any issue of law or fact, to
resolve all matters in dispute between him and the FTC.
31
<PAGE>
The Injunction enjoins Mr. Saltrelli, as well those acting with him or
participating in his activities, from supplying travel-related services and
products for use in telemarketing and from assisting in the telemarketing of any
travel-related product or service. The Injunction also states that, in
connection with the advertising, promotion, marketing, distribution, offering
for sale or sale of travel-related products or services (including premiums and
incentives), Mr. Saltrelli and the related parties are permanently enjoined
from, among other things, failing to disclose or misrepresenting in any manner
any restriction, limitation or condition on any consumer's use of a
travel-related product or service, or failing to provide to each consumer who
obtains such travel-related product or service the exact trip, product or
service as was represented to the consumer.
Netmaximizer.com, Inc. has beginning on November 4, 1999 and prior to March 1,
2000, provided travel-related premiums and incentives to affinity group members
to promote the sale of products, albeit never in a telemarketing context. As of
March 1, 2000, we eliminated the use of travel-related incentives, as we
determined that our affinity group members relate better to a more tangible,
name-product incentive. Nonetheless, if the FTC were to determine that Mr.
Saltrelli, as our President, or Netmaximizer.com itself had violated the terms
of the Injunction between November 4, 1999 and March 1, 2000, by engaging in
prohibited conduct, it may seek to enforce the Injunction directly against us.
The Injunction gives the FTC the right to access during normal business hours
the premises of any businesses which Mr. Saltrelli is involved in, including the
offices of Netmaximizer.com, Inc. Until June of 2000, Mr. Saltrelli is required
to disclose the existence and contents of the Injunction to any of his
employees, agents, independent contractors, distributors or sales persons
engaged in the marketing, distribution or sale of any travel-related products or
services or premiums or incentives.
IRS Tax Liens
The Internal Revenue Service has filed several federal tax liens against David
Saltrelli relating to unpaid federal income taxes. One lien covers the periods
beginning with the tax year ending 12/31/79 and continuing through the tax year
ending 12/31/82 in the aggregate amount of $902,889.20. The second covers tax
years 1993, 1994 and 1995 in the aggregate amount of $36,721.98. These tax liens
should have no effect on Netmaximizer.com, Inc.
Except for the foregoing, neither of our officers or directors have been
involved in the past five years in any of the following: (1) bankruptcy
proceedings; (2) subject to criminal proceedings or convicted of a criminal act;
(3) subject to any order, judgment or decree entered by any court limiting in
any way his or her involvement in any type of business, securities or banking
activities; or (4) subject to any order for violation of federal or state
securities laws or commodities laws.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors and persons who own more than 10% of
the Company's Common Stock (collectively, the "Reporting Persons") to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and to furnish the Company with copies of these reports. These
reports are also filed with the NASDAQ. These ownership obligations arose when
the Company's Registration Statement on Form 10 became automatically effective
on February 7, 2000. David Saltrelli, Peter Schuster and Steven Howell
constituted all of the Reporting Persons as of February 7, 2000 and they did not
file Forms 3 on February 7, 2000. At the time of filing this Annual Report,
however, the Forms 3 have been filed.
ITEM 11. EXECUTIVE COMPENSATION
Our President received total cash compensation from us of $30,920 for 1999. Our
Secretary received total cash compensation from us of $24,379 for 1999. No cash
compensation was paid to either our President or Secretary
32
<PAGE>
prior to September 30, 1999. Our intent going forward is to pay to our President
a monthly salary of $15,000 and to our Secretary a monthly salary of $12,000.
The following table contains information concerning the grant of stock options
to our two executive officers, Peter Schuster and David Saltrelli, on April 5,
1999. No grants of stock options to executive officers and directors were made
prior to April 5, 1999.
Stock Options
We reserved 7,809,600 shares of common stock for issuance pursuant to the 1999
Employee Stock Option Plan. On April 5, 1999, we granted stock options for
7,809,600 shares of common stock to our officers, employees and consultants. No
grants of stock options were made prior to April 5, 1999 and no stock
appreciation rights were granted to these individuals. The grants to consultants
were compensation for services rendered in connection with the web site design,
sales platform design, affinity group program design, and other similar
services.
We intend to register our plan under the Securities Act of 1933 after we clear
all comments from the SEC staff with regard to our Registration Statement on
Form 10.
Pursuant to the Plan, the following stock options were issued on April 5, 1999
to our executive officers. The table shows the hypothetical gains or "option
spreads" that would exist for the respective options. These gains are based on
assumed rates of annual compound stock price appreciation of five percent (5%)
and ten percent (10%) from the date the options were granted over the full term
of the options.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED ANNUAL
SECURITIES PERCENT OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS OPTIONS GRANTED EXERCISE EXPIRATION APPRECIATION FOR
GRANTED T0 EMPLOYEES PRICE DATE OPTION TERM(4)
---- --------------
NAME (#)(1) (2) ($/SH)(3) 5% 10%
---- ------ --- --------- -- ---
<S> <C> <C> <C> <C> <C> <C>
David A. Saltrelli.. 1,815,648 48.6% 2.00 04/05/04 $4,634,556 $7,310,298
Peter G. Schuster... 1,815,648 48.6% 2.00 04/05/04 $4,634,556 $7,310,298
--------- ---- ---------- ----------
TOTAL 3,631,296 97.2% $9,269,112 $14,620,596
========= ===== ========== ===========
</TABLE>
(1) Each of the options listed in the table is currently exercisable. The
initial grant was for options to purchase 605,216 shares. The number
indicated in the chart reflects the effect of our stock split. Each of the
options has a five-year term.
(2) Options were issued to purchase a total of 7,809,600 shares of our common
stock under our 1999 Employee Stock Option Plan. Of that, 4,073,304 were
issued to consultants.
(3) The exercise price is equal to the OTCBB closing price for shares of our
stock on April 4, 1999 ($6.00), adjusted for the stock split. The exercise
price may be paid in cash or by check or through a cashless exercise
procedure.
(4) The dollar amounts under these columns represent the potential tangible
value, before income taxes, of each option assuming that the market price of
the common stock appreciates in value from fair market value at the date of
grant to the end of the option term at five percent (5%) and ten percent
(10%) annual rates and therefore are not intended to forecast possible
future appreciation, if any, of the price of the common stock.
33
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the number of
shares of our common stock owned beneficially as of May 1, 2000 by: (i) each
person (including any group) known to us to own more than five percent (5%) of
any class of our voting securities, (ii) each of our directors and officers, and
(iii) officers and directors as a group. Unless otherwise indicated, the
shareholders listed possess sole voting and investment power with respect to the
shares shown.
<TABLE>
<CAPTION>
Title of Class Name and Address of Amount and Nature of
-------------- Beneficial Owner Beneficial Ownership Percentage of Class (1)
---------------- -------------------- -------------------
<S> <C> <C> <C>
Common Stock David Saltrelli 9,105,648(2) 22.23%
4400 N. Federal Highway, Suite 307
Boca Raton, FL 33431
Common Stock Peter Schuster 9,105,648(2) 22.23%
4400 N. Federal Highway, Suite 307
Boca Raton, FL 33431
Common Stock Steven Howell 4,371,303(3) 10.72%
437 West Bockman Way
Sparta, TN 38583
Common Stock Officers and Directors as a Group 18,211,296 42.57%
</TABLE>
(1) Based on an aggregate 39,153,006 shares outstanding as of May 1, 2000.
(2) Includes 1,815,648 shares of common stock for Mr. Saltrelli and 1,815,648
shares of common stock for Mr. Schuster that may be purchased pursuant to
the exercise of vested stock options within 60 days.
(3) Includes 56,655 shares of common stock owned by Network 2001, Inc., a
corporation solely owned by Steven Howell. Also includes 1,614,648 shares
of common stock that may be purchased by Mr. Howell pursuant to the
exercise of vested stock options.
Changes in Control
We are not aware of any arrangement that might result in a change in control in
the future.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective March 31, 1999, we entered into an agreement with Network 2001, Inc.
("Network") for the design and development of the first phase of the web site.
Network is a corporation wholly-owned by Mr. Steven Howell, one of our
shareholders who owns more than 5% of our outstanding shares of common stock. As
payment for the services rendered to us, we agreed to pay to Network $62,000 in
cash and to issue to Network eighteen thousand, eight hundred and eighty-five
(18,885) shares of our common stock. Following the stock split on November 1,
1999, the number of shares which they hold as a result of providing these
services is fifty-six thousand, six hundred and fifty-five (56,655). As of
November 4, 1999, the web site was substantially complete and the Store
nominally available for shopping. As of November 27, 1999, those shares have
been issued and the cash has been paid. We have continued that relationship
without the formalities of a written agreement, promising to pay a total of
$330,000 to Network for developing and implementing certain enhancements to our
site. As of May 1, 2000, we have paid $230,000 of that amount. The balance will
be due upon full site development and completion of beta testing.
34
<PAGE>
Except for the ownership of our securities and the development of our web site
that we have disclosed above, none of our directors, executive officers, holders
of five percent (5%) of our outstanding shares of common stock, or any associate
or affiliate of such person, have, to our knowledge, had a material interest,
direct or indirect, during the three fiscal years ended December 31, 1997, 1998
and 1999 in any proposed transaction which may materially affect us.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this Report.
(1) Financial Statements:
Report of Independent Certified Public Accountants...................... F-2
Balance Sheets.......................................................... F-3
Statements of Operations................................................ F-4
Statements of Stockholders' Equity (Deficiency)......................... F-5
Statements of Cash Flows F-6
Notes to Financial Statements........................................... F-7
(3) Exhibits filed as part of this Report:
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C> <C>
* 3.1 Articles of Incorporation of RLN Realty Associates, Inc. effective June 29, 1995.
* 3.2 Articles of Amendment to RLN Realty Associates, Inc. filed on June 9, 1998.
* 3.3 Articles of Amendment to RLN Realty Associates, Inc. filed on March 1, 1999.
* 3.4 Bylaws of Netmaximizer.com, Inc.
* 10.1 Form of Private Placement Subscription Agreement dated March 1, 1999.
* 10.2 Form of Agreement with Affinity Group
10.2A Form of Agreement with Outside Salesperson
* 10.3 Lease Agreement by and between Netmaximizer.com, Inc. and Sanctuary of Boca, Inc. dated
September 22, 1999.
** 10.3A Lease Agreement by and between Netmaximizer.com, Inc. and Sanctuary of Boca, Inc. dated
January 3, 2000.
** 10.3B Lease Agreement by and between Netmaximizer.com, Inc. and Sanctuary of Boca, Inc. dated
January 20, 2000.
** 10.3C Lease Agreement by and between Netmaximizer.com, Inc. and Sanctuary of Boca, Inc. dated
March 3, 2000.
* 10.4 Agreement between Kim International Manufacturing, Inc. and Netmaximizer.com, Inc. dated
September 10, 1999.
* 10.5 Merchant Bankcard Service and Security Agreement by and between Netmaximizer.com,
Inc. and Charter Pacific Bank dated April 22, 1999.
* 10.6 Netmaximizer.com, Inc. Employee Stock Option Plan 1999
* 10.7 Yahoo! Store Merchant Service Agreement
* 10.8 Stipulated Permanent Injunction and Final Judgment re: Federal Trade Commission v.
David Saltrelli, et al; Civil No. 92-275-CIV-ORL-22
** 10.9 Warehouse Lease Agreement by and between Netmaximizer.com, Inc. and American Sales
Industries dated February 1, 2000.
** 10.10 Purchasing Agreement by and between Netmaximizer.com, Inc. and American Sales
Industries dated March 14, 2000.
35
<PAGE>
** 10.11 Non-negotiable 9% Promissory Note from Netmaximizer.com, Inc. to Monavia, Limited,
dated as of February 8, 2000.
** 10.12 Monavia, Limited, Warrant to Purchase 681,987 Shares of Common Stock of
dated as of February 8, 2000.
** 10.13 Master Equipment Lease Agreement between Mitel Capital and Netmaximizer.com, Inc.,
dated October 8, 1999.
11.1 Statement re: Computation of Net Income per Common Share
23.1 Consent of Independent Certified Public Accountants
27.1 Financial Data Schedules
27.2 Financial Data Schedules
* Previously filed as an exhibit to the Company's Registration Statement on Form 10,
dated December 7, 1999 and incorporated by reference.
** Previously filed as an exhibit to the Company's Amendment No. 1 to Registration
Statement on Form 10 , dated April 6, 2000 and incorporated by reference.
</TABLE>
(b) The following reports on Form 8-K have been filed by the Company during the
last quarter of the period covered by this report: None
(c) The Financial Statements and Schedules to this Form 10-K begin on page F-1
of this Form 10-K.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Netmaximizer.com, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: May 16, 2000 NETMAXIMIZER.COM, INC.
(Registrant)
By: /s/ David A. Saltrelli
-----------------------
David A. Saltrelli, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ David A. Saltrelli President and Director May 16, 2000
- ------------------------------------------ (Principal Executive Officer)
David A. Saltrelli
/s/ Peter G. Schuster Secretary, Treasurer and Director May 16, 2000
- ------------------------------------------ (Principal Financial Officer)
Peter G. Schuster
</TABLE>
37
<PAGE>
NETMAXIMIZER.COM, INC.
(A Development Stage Enterprise)
INDEX TO FINANCIAL STATEMENTS
-----------------------------
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
Balance Sheets F-3
Statements of Operations F-4
Statements of Stockholders' Equity (Deficiency) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7 - F-18
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors and Stockholders
Netmaximizer.com, Inc.
Boca Raton, Florida
We have audited the accompanying balance sheets of Netmaximizer.com, Inc. (a
development stage enterprise) as of December 31, 1999 and 1998, and the related
statements of operations, stockholders' equity (deficiency) and cash flows for
each of the three years in the period ended December 31, 1999, and cumulative
from inception. 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 Netmaximizer.com, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 and cumulative
from inception, 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 described in Note 2 to the
financial statements, the Company is subject to certain risks and uncertainties,
which conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans with regard to these matters are also
described in Note 2 to the financial statements. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
February 29, 2000 except for the last paragraph of Note 8,
as to which the date is March 14, 2000
See notes to financial statements.
F-2
<PAGE>
NETMAXIMIZER.COM, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ ---- ----
<S> <C> <C>
Current Assets:
Cash, including restricted cash of $683 $ 39,055 $ --
Inventories 29,886 --
----------- -----------
Total current assets 68,941 --
Property and Equipment 28,843 --
Web Site Design, Net of Amortization of $50,000 300,000
Other Assets 17,343 --
----------- -----------
Total assets $ 415,127 $ --
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
Current Liabilities:
Accounts payable $ 123,790 $ 900
Due to officer/stockholder 27,820 --
----------- -----------
Total current liabilities 151,610 900
----------- -----------
Long-Term Debt:
Note payable, stockholder 150,000 --
----------- -----------
Commitments, Contingencies and Subsequent Events -- --
Stockholders' Equity (Deficiency):
Common stock, $.001 par value; 50,000,000 shares authorized;
39,153,006 and 3,000,000 shares issued and outstanding,
respectively 39,153 3,000
Additional paid-in capital 7,181,140 2,000
Deficit accumulated during the development stage (6,141,804) (5,900)
Deferred compensation (964,972) --
----------- -----------
Total stockholders' equity (deficiency) 113,517 (900)
----------- -----------
Total liabilities and stockholders' equity (deficiency) $ 415,127 $ --
=========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
NETMAXIMIZER.COM, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, Cumulative
----------------------- from
1999 1998 1997 Inception
---- ---- ---- ---------
<S> <C> <C> <C> <C>
Revenue $ 15,002 $ -- $ -- $ 15,002
Direct Costs 9,560 -- -- 9,560
------------ ------------ --------- ------------
Gross Margin 5,442 -- -- 5,442
------------ ------------ --------- ------------
General and Administrative Expenses:
Stock options issued for services 5,503,321 -- -- 5,503,321
Officer compensation 205,299 -- -- 205,299
Other 432,726 900 -- 438,626
------------ ------------ --------- ------------
6,141,346 900 -- 6,147,246
------------ ------------ --------- ------------
Net Loss $ (6,135,904) $ (900) $ -- $ (6,141,804)
============ ============ ========= ============
Net Loss Per Share - Basic and Diluted $ (0.16) $ -- $ --
============ ============ =========
Weighted Average Shares Outstanding 39,066,446 3,000,000 3,000,000
============ ============ =========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
NETMAXIMIZER.COM, INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Common Stock
------------ Additional
Paid-In
Shares Amount Capital
------ ------ -------
<S> <C> <C> <C>
Inception (June 29, 1995) to December 31, 1995 -- $ -- $ --
----------- ----------- -----------
Balance, December 31, 1995 -- -- --
Year Ended December 31, 1996:
Stock issued for services ($.0017 per share) 3,000,000 3,000 2,000
Net loss -- -- --
----------- ----------- -----------
Balance, December 31, 1996 3,000,000 3,000 2,000
Year Ended December 31, 1997:
Net loss -- -- --
----------- ----------- -----------
Balance, December 31, 1997 3,000,000 3,000 2,000
Year Ended December 31, 1998:
Net loss -- -- --
----------- ----------- -----------
Balance, December 31, 1998 3,000,000 3,000 2,000
Year Ended December 31, 1999:
Sale of common stock, proceeds of which were
remitted directly to web site developer:
Issuance of common stock ($.001 per share) 36,000,000 36,000 (24,000)
Issuance of common stock ($1.04 per share) 48,000 48 49,952
Sale of common stock for cash:
Issuance of common stock ($4.84 per share) 3,510 3 16,997
Issuance of common stock ($5.08 per share) 39,345 39 199,961
Issuance of common stock ($5.46 per share) 5,496 6 29,994
Issuance of common stock for web site 56,655 57 287,943
development services ($5.08 per share)
Options granted for services -- -- 6,468,293
Officer compensation forgone -- -- 150,000
Net loss -- -- --
----------- ----------- -----------
Balance, December 31, 1999 39,153,006 $ 39,153 $ 7,181,140
=========== =========== ===========
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Development Deferred
Stage Compensation Total
----- ------------ -----
<S> <C> <C> <C>
Inception (June 29, 1995) to December 31, 1995 $ -- $ -- $ --
----------- ----------- -----------
Balance, December 31, 1995 -- -- --
Year Ended December 31, 1996:
Stock issued for services ($.0017 per share) -- -- 5,000
Net loss (5,000) -- (5,000)
----------- ----------- -----------
Balance, December 31, 1996 (5,000) -- --
Year Ended December 31, 1997:
Net loss -- -- --
----------- ----------- -----------
Balance, December 31, 1997 (5,000) -- --
Year Ended December 31, 1998:
Net loss (900) -- (900)
----------- ----------- -----------
Balance, December 31, 1998 (5,900) -- (900)
Year Ended December 31, 1999:
Sale of common stock, proceeds of which were
remitted directly to web site developer:
Issuance of common stock ($.001 per share) -- -- 12,000
Issuance of common stock ($1.04 per share) -- -- 50,000
Sale of common stock for cash:
Issuance of common stock ($4.84 per share) -- -- 17,000
Issuance of common stock ($5.08 per share) -- -- 200,000
Issuance of common stock ($5.46 per share) -- 30,000
Issuance of common stock for web site -- -- 288,000
development services ($5.08 per share)
Options granted for services -- (964,972) 5,503,321
Officer compensation forgone -- -- 150,000
Net loss (6,135,904) -- (6,135,904)
----------- ----------- -----------
Balance, December 31, 1999 $(6,141,804) $ (964,972) $ 113,517
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
NETMAXIMIZER.COM, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, Cumulative
----------------------- from
1999 1998 1997 Inception
---- ---- ---- ---------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $(6,135,904) $ (900) $ -- $(6,141,804)
Adjustments to reconcile net loss to net cash
used in operating activities:
Options granted for services 5,503,321 -- -- 5,503,321
Common stock issued for services -- -- -- 5,000
Officer compensation 150,000 -- -- 150,000
Depreciation and amortization 54,755 -- -- 54,755
Changes in operating assets and liabilities:
Inventories (29,886) (29,886)
Other assets (11,542) (11,542)
Accounts payable 122,890 900 -- 123,790
----------- ----------- --------- -----------
Net cash used in operating activities (346,366) -- -- (346,366)
----------- ----------- --------- -----------
Cash Flows from Investing Activities:
Expenditures for property and equipment (9,739) -- -- (9,739)
Other (1,840) -- -- (1,840)
----------- ----------- --------- -----------
Net cash used in investing activities (11,579) -- -- (11,579)
----------- ----------- --------- -----------
Cash Flows from Financing Activities:
Proceeds from long-term debt, related party 150,000 -- -- 150,000
Proceeds from sales of common stock 247,000 -- -- 247,000
----------- ----------- --------- -----------
Net cash provided by financing activities 397,000 -- -- 397,000
----------- ----------- --------- -----------
Net Increase in Cash 39,055 -- -- 39,055
Cash, Beginning -- -- -- --
----------- ----------- --------- -----------
Cash, Ending $ 39,055 $ -- $ -- $ 39,055
=========== =========== ========= ===========
Non-Cash Investing and Financing Transactions:
Officer compensation converted to contributed capital $ 150,000
===========
Common shares issued for web site development services $ 288,000
===========
Proceeds from sales of common stock remitted directly to
web site developer $ 62,000
===========
Equipment purchased from officer in exchange for debt $ 23,859
===========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
NETMAXIMIZER.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
The Company was incorporated under the laws of the state of Florida
on June 29, 1995 under the name RLN Realty Associates, Inc.
Initially the Board authorized 7,500 shares of $1.00 par value
common stock of which 5,000 shares were issued in exchange for
services in 1996. On June 9, 1998, the Company filed amended
Articles of Incorporation to change the par value to $.001 and
increase the authorized number of shares of common stock to
50,000,000 shares. On June 9, 1998, the Board of Directors
authorized a 200 for 1 stock split, which increased the issued and
outstanding shares to 1,000,000.
On March 1, 1999, the Articles of Incorporation were amended to
reflect the change in corporate name to "Netmaximizer.com, Inc."
On October 19, 1999, the Board of Directors authorized a 3 for 1
stock split, effective November 1, 1999, which increased the then
issued and outstanding shares to 39,153,006.
The effect of all these actions has been reflected retroactively in
the accompanying financial statements.
Business
The Company is an Internet marketing and merchandising company that
sells an array of products via an e-commerce site. The Company
provides access to an e-commerce department stores primarily to
members of affinity groups such as churches, schools and unions.
Development Stage Enterprise
As described above, the Company was incorporated on June 29, 1995,
and, since that time, has been primarily involved in organizational
activities, developing a strategic plan for the marketing of its
products, and raising capital. Planned operations, as described
above, have not commenced to any significant extent. Accordingly,
the Company is considered to be in the development stage, and the
accompanying financial statements represent those of a development
stage enterprise.
Use of Estimates
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amount of assets
and liabilities as of the date of the balance sheet and operations
for the period. Although these estimates are based on management's
knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
F-7
<PAGE>
NETMAXIMIZER.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash. The
Company maintains its cash, which consists primarily of demand
deposits, with high quality financial institutions, which the
Company believes limits risk.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash,
accounts payable, and long-term debt with a related party. The
carrying amounts of such financial instruments, as reflected in the
balance sheet, approximate their estimated fair value as of
December 31, 1999. The estimated fair value is not necessarily
indicative of the amounts the Company could realize in a current
market exchange or of future earnings or cash flows.
Inventories
Inventories, comprised primarily of consumer products held for
sale, are stated at the lower of cost or market. Cost is determined
on the first in-first out basis.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of
the assets. Gain or loss on disposition of assets is recognized
currently. Repairs and maintenance which do not extend the lives of
the respective assets are charged to expense as incurred. Major
replacements or betterments are capitalized and depreciated over
the remaining useful lives of the assets.
Web Site Design
Web site design includes costs incurred by the Company to develop
the Company's web site. Pursuant to Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," the Company has capitalized the costs
incurred to develop the web site and is amortizing such costs over
the estimated life of the web site, fourteen months (see Note 9).
F-8
<PAGE>
NETMAXIMIZER.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company accounts for its income taxes using Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes, which requires recognition of deferred tax
liabilities and assets for expected future tax consequences of
events that have been included in the financial statements or tax
returns. Under this method, deferred tax liabilities and assets are
determined based on the differences between the financial statement
and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse.
Revenue Recognition
The Company recognizes revenue, including shipping and handling
fees, when the merchandise is shipped to customers. Allowances for
estimated returns are provided when sales are recorded.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs
incurred for 1999, 1998, and 1997 were not material.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
No. 25"), and related interpretations, in accounting for its
employee stock options rather than the alternative fair value
accounting allowed by SFAS No. 123, "Accounting for Stock-Based
Compensation." APB No. 25 provides that the compensation expense
relative to the Company's employee stock options is measured based
on the intrinsic value of the stock option. SFAS No. 123 requires
companies that continue to follow APB No. 25 to provide a pro-forma
disclosure of the impact of applying the fair value method of SFAS
No. 123.
The Company follows SFAS No. 123 in accounting for stock options
issued to non-employees.
Net Loss Per Common Share
The Company computes earnings (loss) per share in accordance with
SFAS No. 128, "Earnings Per Share", which was adopted in 1997. This
standard requires dual presentation of basic and diluted earnings
per share on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the
numerator and denominator of the diluted earnings per share
computation.
Net loss per common share (basic and diluted) is based on the net
loss divided by the weighted average number of common shares
outstanding during the year.
F-9
<PAGE>
NETMAXIMIZER.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net Loss Per Common Share (Continued)
The Company's potentially issuable shares of common stock pursuant
to outstanding stock options are excluded from the Company's
diluted computation as their effect would be anti-dilutive.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income" and No. 131, "Disclosures
About Segments of an Enterprise and Related Information". SFAS No.
130 establishes standards for reporting and displaying
comprehensive income, its components and accumulated balances. SFAS
No. 131 establishes standards for the way that public companies
report information about operating segments in annual financial
statements and requires reporting of selected information about
operating segments in interim financial statements issued to the
public. Both SFAS No. 130 and SFAS No. 131 are effective for
periods beginning after December 15, 1997. The Company adopted
these new accounting standards in 1998, and their adoption had no
effect on the Company's financial statements and disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as
a hedge, the objective of which is to match the timing of the gain
or loss recognition on the hedging derivative with the recognition
of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the
earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss
is recognized in income in the period of change. On June 30, 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133." SFAS No. 133 as amended by SFAS No. 137
is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000.
Historically, the Company has not entered into derivatives
contracts to hedge existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of the new
standard on January 1, 2000 to affect its financial statements.
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1
requires all costs related to the development of internal used
software other than those incurred during the application
development stage to be expensed as incurred. Costs incurred during
the application development stage are required to be capitalized
and amortized over the estimated useful life of the software. SOP
98-1 was adopted by the Company on January 1, 1999.
F-10
<PAGE>
NETMAXIMIZER.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 2. SUMMARY OF CERTAIN RISKS AND UNCERTAINTIES
Governmental Regulation and Injunction
The activities of the Company are governed by the Federal Trade
Commission ("FTC"). In 1993, the FTC secured a permanent injunction
against the Company's president (who is also a director and major
stockholder), and other entities not related to the Company,
enjoining them, directly or indirectly, from supplying
travel-related services and products for use in telemarketing and
from assisting in the telemarketing of any travel-related product
or service.
The injunction also states that, in connection with the
advertising, promotion, marketing, distribution, offering for sale
or sale of travel-related products or services, all named parties
are permanently enjoined from participating in or assisting others
that participate in (a) misrepresenting in any manner, any
restriction, limitation or condition on any consumer's use of a
travel-related product or service; (b) failing to disclose in
writing any material fact regarding any such restriction; (c)
misrepresenting the total cost any consumer must pay to use such
travel-related product or service; and (d) misrepresenting the
consumer's right to any refund. The injunction also restricts
activities in connection with the use of travel-related products or
services, whether as a premium or incentive or otherwise. Beginning
November 4, 1999 and continuing to March 1, 2000, the Company
offered airchecks and hotel vouchers as a premium or incentive to
customers to promote the sale of products and, therefore, certain
aspects of the Company's business could fall within the scope of
the activities addressed in the injunction. As of March 1, 2000,
the Company eliminated the use of travel-related incentives.
The injunction gives the FTC the right to access during normal
business hours the premises of any businesses which the Company's
president is involved in, including the business of the Company.
Until June 2000, the Company's president is required to disclose
the existence and contents of the injunction to any of his
employees, agents, independent contractors, distributors or sales
persons engaged in the marketing, distribution or sale of any
travel-related products or services or premiums or incentives.
As a result of the injunction, it may be possible for the FTC to
enforce the injunction against the Company if the FTC determined
that the Company had violated the terms of the injunction by
engaging in prohibited conduct.
Going Concern Considerations
The accompanying financial statements have been presented in
accordance with generally accepted accounting principles, which
assume the continuity of the Company as a going concern. However,
as discussed above, the Company is in the development stage and,
therefore has generated virtually no revenue to date and has
incurred a substantial net loss in 1999, primarily as the result of
the issuance of certain stock options. Additionally, the Company is
subject to the impacts, if any, of the injunction put in place by
the FTC against the Company's president, as described above. These
conditions raise substantial doubt as to the ability of the Company
to continue as a going concern.
F-11
<PAGE>
NETMAXIMIZER.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 2. SUMMARY OF CERTAIN RISKS AND UNCERTAINTIES (Continued)
Going Concern Considerations (Continued)
Management's plans with regard to these matters include the
adoption of a business plan intended to address the Company's
strategy for growth and expansion of the affinity group membership
base, together with raising additional capital and/or debt
financing (see Note 5).
The eventual success of management's plans cannot be ascertained
with any degree of certainty.
Summary
The accompanying financial statements do not include any
adjustments that might result from the outcome of the risks and
uncertainties described above.
NOTE 3. WEB SITE DESIGN
These costs consist of fees for a total of $350,000 paid to a
consultant, which is owned or controlled by a major stockholder, as
follows: $62,000 in cash and 56,655 shares of Company common stock
valued at the market value of such stock on the date of issuance ($5.08
per share) or $288,000 (see Note 9). The web site was available for use
on November 4, 1999, and the Company commenced amortizing the cost over
the estimated useful life of fourteen months as of that date.
NOTE 4. PROPERTY AND EQUIPMENT
Estimated
Useful Lives 1999
------------ ----
Furniture and Equipment 5 - 7 years $33,598
Less accumulated depreciation 4,755
$28,843
NOTE 5. RELATED PARTY TRANSACTIONS
Long-Term Debt, Related Party
The Company issued a promissory note in the amount of $1,363,975 on
February 8, 2000 to a stockholder in exchange for cash. This note
bears interest at 9%, payable quarterly, with principal due
February 7, 2003.
F-12
<PAGE>
NETMAXIMIZER.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 5. RELATED PARTY TRANSACTIONS (Continued)
Long-Term Debt, Related Party (Continued)
In connection with the promissory note, the Company issued warrants
to purchase 681,987 shares of common stock at $15.00 per share, the
market price of the Company's common stock on the date of issuance
of the warrant. These warrants can be exercised at any time before
February 7, 2003.
As of December 31, 1999, the Company had received an advance of
$150,000 against the total funds to be received in consideration
for the promissory note. The balance of $1,213,975 proceeds of the
note payable was received by February 8, 2000.
Officer/Employee Compensation
The officer/employees received no compensation for the period
March-August 1999 other than stock options issued (see Note 7).
Compensation expense was recorded in the amount of $150,000 for
this period with a corresponding increase in additional paid-in
capital. During the period September-December 1999, these
officer/employees received $55,229 of cash compensation.
NOTE 6. INCOME TAXES
The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes. SFAS No. 109 is an asset and liability approach for computing
deferred income taxes.
A reconciliation of income tax computed at the statutory federal rate
to income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Tax provision at the statutory rate of 34% $ (2,035,000) $(300) $ -
State income taxes, net of federal income tax (180,000) -- -
Change in valuation allowance 19,105,000 300 -
Stock options not exercised (16,890,000) -- -
------------ ----- ------
$ -- $ -- $ -
============ ===== ======
The net tax effects of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes are reflected in deferred
income taxes. Significant components of the Company's deferred tax
assets are as follows:
December 31,
1999 1998
---- ----
Benefit of net operating loss carryforwards $ 181,000 $ 2,000
Stock options issued for services 18,924,000 --
Less valuation allowance (19,105,000) (2,000)
------------- -------
Net deferred tax asset $ -- $ --
============= =======
</TABLE>
F-13
<PAGE>
NETMAXIMIZER.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 6. INCOME TAXES (Continued)
At December 31, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $488,000, which are
available to offset future federal taxable income, if any, through
2019.
As of December 31, 1999 and 1998, sufficient uncertainty exists
regarding the realizability of these deferred tax assets and,
accordingly, a 100% valuation allowance has been established.
In accordance with certain provisions of the Tax Reform Act of 1986, a
change in ownership of greater than 50% of a corporation within a three
year period will place an annual limitation on the corporation's
ability to utilize its existing tax benefit carryforwards. Such a
change in ownership occurred in 1999. However, based upon the amount of
the taxable loss incurred to March 19, 1999 (approximately $6,000), the
Company estimates that no annual limitation will apply to the net
operating loss carryforward existing as of that date.
NOTE 7. STOCK OPTION PLAN
In April 1999, the Board of Directors of the Company (the "Board")
authorized the 1999 Employee Stock Option Plan (the "Stock Option
Plan") for those employees, consultants, and advisors (the
"Participants") of the Company who, in the judgment of the
Administrator (defined below) are or will become responsible for the
direction and financial success of the Company. The adoption of the
Stock Option Plan was ratified by the stockholders on September 30,
1999. The purpose of the Stock Option Plan is to provide the
Participants with an increased incentive to make significant
contributions to the long-term performance and growth of the Company.
Under the Stock Option Plan, the Participants may only receive awards
of non-qualified stock options. A maximum of 2,603,200 shares of common
stock are subject to the Stock Option Plan.
The Stock Option Plan may be administered by the Board, or in the
Board's sole discretion, by the Compensation Committee of the Board
(the "Committee," and with the Board, the "Administrator") or such
other committee as may be specified by the Board to perform the
functions and duties of the Committee under the Stock Option Plan.
The Participants in the Stock Option Plan may include officers and
directors who are also employees of the Company.
The exercise period for stock options and stock appreciation rights
will be determined by the Administrator, but no stock option or stock
appreciation right may be exercisable prior to the expiration of six
months from the date of grant or after 10 years from the date of grant,
subject to certain conditions and limitations.
The Stock Option Plan may be abandoned or terminated at any time by the
Board. Unless sooner terminated, the Stock Option Plan will terminate
on the date ten years after its adoption by the Board. The termination
of the Stock Option Plan will not affect the validity of any stock
option, stock appreciation right, or restricted stock outstanding on
the date of termination.
F-14
<PAGE>
NETMAXIMIZER.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 7. STOCK OPTION PLAN (Continued)
The Company has issued options to purchase a total of 7,809,600 shares
of common stock (3,631,296 to employees and 4,178,304 to consultants)
out of the shares of common stock provided for in the Stock Option
Plan, at an exercise price of $2.00 per share, the price at which the
stock was trading as of the day of the grant of the options (giving
effect to the stock splits described in Note 1). These options are for
a term of five years and contain an anti-dilution provision. The
options issued to employees were, among other things, in lieu of
compensation for services provided during this organizational stage
when no salary was paid to officer/employees prior to September 30,
1999 (see Note 5).
Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation", requires the Company to
provide pro forma information regarding net income and earnings per
share as if compensation cost for the Company's employee stock options
has been determined in accordance with the fair value based method
prescribed in SFAS 123.
The fair value of the options granted to consultants in 1999 has been
recorded as a charge to operations in the accompanying financial
statements over the period in which they vest. As of December 31, 1999,
$964,972 has been reflected as deferred compensation, representing the
unamortized portion of the options which vest in October 2000, and is
presented as a reduction of stockholders' equity.
The Company estimates the fair value of each stock option at the grant
date by using the Black-Sholes option-pricing model with the following
weighted-average assumptions used for grants in 1999 (no options were
granted prior to 1999); no dividend yield; an expected life of five
years; 100% expected volatility, and 6.00% risk free interest rate.
The option valuation model was developed for use in estimating the fair
value of traded options which have no vesting restrictions and are
fully transferable. In addition, valuation models require the input of
highly subjective assumptions including the expected price volatility.
Since the Company's stock options have characteristics significantly
different from those of traded options, and since variations in the
subjective input assumptions can materially affect the fair value
estimate, the actual results can vary significantly from estimated
results.
Under the accounting provisions of SFAS 123, the Company's net loss and
loss per share would have been adjusted in connection with options
issued to employees to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net loss:
As reported $ (6,135,904) $(900) $ --
Pro forma (11,607,000) $(900) --
Loss per share - basic and diluted:
As reported $(.16) $ -- $ --
Pro forma $(.30) $ -- $ --
</TABLE>
F-15
<PAGE>
NETMAXIMIZER.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 7. STOCK OPTION PLAN (Continued)
A summary of the status of options under this plan and additional
options, granted outside of the plan (if any), as of December 31, 1999
and changes during the year ended on that date are presented below:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
------ -----
<S> <C> <C> <C>
Balance, January 1, 1999 0 $0.00
Options granted 7,809,600 2.00
Options exercised 0 0.00
Options expired 0 0.00
--------- -----
Balance, December 31, 1999 7,809,600 $2.00
========= =====
Options granted during the period at exercise prices which equal
market price of stock at date of grant:
Weighted average exercise price 7,809,600 $2.00
Weighted average fair value 7,809,600 $2.00
========= =====
</TABLE>
Note: No options were granted prior to 1999.
The following table summarizes information about options under the plan
which are outstanding at December 31, 1999 after giving effect to the
November 1, 1999 stock split:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
Range of at Remaining Average at Average
Exercise December 31, Contractual Exercise December 31, Exercise
Prices 1999 Life Price 1999 Price
------ ---- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C>
$2.00 7,809,600 4.5 $2.00 7,061,592 $2.00
</TABLE>
7,061,592 options vested on October 1, 1999; the remainder vest October
1, 2000.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases operating facilities under one year operating
leases expiring September 2000 through February 2001. Monthly rent
expense, including cost reimbursements, aggregates approximately
$12,000 per month.
F-16
<PAGE>
NETMAXIMIZER.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued)
The Company leases equipment under an operating lease which expires
December 2000. Monthly payments are approximately $1,200.
Beginning February 2000, the Company leased warehouse space from
the entity which serves as the purchasing agent for the Company.
The lease expires January 31, 2001, but may be extended for an
additional twelve months. The monthly rent is $5,000.
The future minimum lease payments pursuant to these leases are as
follows:
Year ending December 31:
2000 $186,000
2001 14,000
--------
$200,000
========
Merchant Service Agreement
In connection with the hosting of its interactive on-line store,
the Company entered into a Yahoo! Store Merchant Service Agreement
("YSMA"). In exchange for a monthly fee, Yahoo! grants the Company
a non-exclusive license to use its Yahoo! store software which
enables the Company to process its on-line e-commerce transactions.
The YSMA, among other things, is for a term of ninety days,
automatically renews, and may be terminated by either party with
thirty days notice.
Fulfillment Provider
In the ordinary course of business, the Company has established an
arrangement with a fulfillment and warehouse provider. This
provider maintains custody of the products purchased by the Company
and ships the products to the ultimate consumer once they are
ordered. No written contract exists between the Company and this
fulfillment provider for these services. The Company pays $2,000
per month plus a per product fee ranging from $.50 to $1.00 for
these services. Effective March, 2000, the Company ceased using
this provider and began doing fulfillment in-house.
Affinity Group Agreements
The Company has entered into agreements with certain affinity
groups such as churches, schools and unions whereby the Company has
agreed to pay a commission to the group of 15% of the purchase
price of products purchased as defined. In addition, the Company
agreed to pay $.30 per free product, as defined. Each agreement is
cancelable without notice by either party.
F-17
<PAGE>
NETMAXIMIZER.COM, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
DECEMBER 31, 1999, 1998 AND 1997
NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued)
Merchant Banking Agreement
In April, 1999, the Company entered into an agreement with a
banking institution for the processing and collection of credit
card transactions. The agreement defines, among other things,
various fees and chargebacks, which may be applicable to the
Company, and requires that a merchant reserve account be
established to cover potential chargebacks or other loss resulting
from transactions deposited into the merchant account. As of
December 31, 1999, the Company had established a reserve account of
$683. The agreement may be terminated by either party with thirty
days notice.
Non-Exclusive Purchasing Agent Agreement
The Company has entered into an agreement, commencing March 14,
2000, with an unrelated party to act as the Company's purchasing
agent. The purchasing agent will receive a fee per unit purchased
ranging from $.50 to $1.00 determined by the cost of the units
purchased. The agreement may be canceled by either party.
NOTE 9. COMMON STOCK
During March 1999, the Company raised capital through two private
placements of equity securities. The private placements of equity
securities were exempt from registration in reliance on Rule 504 under
Regulation D promulgated under the Securities Act of 1933. The common
stock was offered by the Company without the services of a placement
agent.
These sales of common stock resulted in the following: 36,000,000
shares were issued at $.001 per share for proceeds of $12,000; and
48,000 shares were issued at $1.08 per share for proceeds of $50,000.
The combined proceeds of $62,000 were remitted directly to the
consultant for web site design by the investors.
On September 27, 1999, the Company issued 3,510 shares of common stock
for proceeds of $17,000.
On September 30, 1999, the Company issued 39,345 shares of common stock
for proceeds of $200,000.
On September 30, 1999, the Company issued 56,655 shares of common stock
pursuant to an agreement with the web site design consultant in payment
for web site development services of $288,000.
On October 20, 1999, the Company issued 5,496 shares of common stock
for proceeds of $30,000.
F-18
NETMAXIMIZER.COM, INC.
STATEMENT RE: COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Basic:
Net loss $ (6,135,904) $ (900) $ --
============ =========== ============
Total Weighted Average Number of Common Shares
Basic and Diluted 39,066,446 3,000,000 3,000,000
Net Loss Per Share:
Basic and Diluted $ (.16) $ (.00) $ --
============ =========== ============
</TABLE>
Schedule 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference of our report dated February
29, 2000, which contained an emphasis paragraph regarding going concern,
relating to the financial statements of Netmaximizer.com, Inc. appearing in such
company's Annual Report on Form 10-K for the year ended December 31, 1999.
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
May 16, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 900
<BONDS> 0
<COMMON> 1,000
0
0
<OTHER-SE> (1,900)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (900)
<INCOME-TAX> 0
<INCOME-CONTINUING> (900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (900)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 39,055
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 29,886
<CURRENT-ASSETS> 68,941
<PP&E> 33,598
<DEPRECIATION> 4,755
<TOTAL-ASSETS> 415,127
<CURRENT-LIABILITIES> 151,610
<BONDS> 0
<COMMON> 39,153
0
0
<OTHER-SE> 74,364
<TOTAL-LIABILITY-AND-EQUITY> 415,127
<SALES> 15,002
<TOTAL-REVENUES> 15,002
<CGS> 9,560
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,141,346
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,135,904)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,135,904)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,135,904)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
