UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g)
of the Securities Exchange Act of 1934
SALEOUTLET.COM, INC.
--------------------
(Name of Small Business Issuer in its Charter)
Nevada 88-0399260
------ ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
132 West 21st Street
New York, NY 10011
------------ -----
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number:
(212) 691-0288
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
---------------------------------------
(Title of Class)
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PART 1
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
SaleOutlet.Com, Inc. ("SaleOutlet" or the "Company"), was incorporated
in Nevada on September 1, 1995. The Company was formed specifically to seek
viable businesses or enterprises to acquire but had not located such a
candidate. From inception until March 1, 1999, the Company had no operations and
conducted no business.
In March, 1999, then current management of the Company successfully
negotiated with a small group of individuals who had many years of marketing
experience and were poised to introduce an Internet based consumer driven
business. As a result, former management resigned and a new Board of Directors
and management team was installed. The Company changed its name to
SaleOutlet.Com and in May, 1999, the Company launched its new Internet based
business.
(b) Business of the Issuer
(1) Principal Products and Services and their Markets
The Company offers its clients their own "sale site" where, for a flat
fee, each client can offer 20 items for sale at a time. The client maintains the
sale site for a limited period of time, based on renewals and/or terms. The
client is able to update prices, copy or products for a flat per-item charge
after the first 20 items, and for a yearly maintenance fee, can make unlimited
changes. The site allows the Company's clients to sell off overstocks without
having to sell these overstocks to a jobber at pennies on the dollar. It allows
the client to set its own price for an item provided it is at a discounted price
within the parameters established by the Company. The low cost of posting
merchandise on the Company website provides a client with the potential for a
significant return on its investment in a relatively short period of time. It
also allows for a client to maintain its public image by not selling its
overstocks to a wholesaler.
The items available for sale on the website range from jewelry to
crystal to golf bags at discounts of 10% to 50% off regular retail prices and
are available 24 hours a day, seven days a week. Currently, the Company offers
items from 25 to 100 clients at a time on its saleoutlet.com web site. It is
anticipated that this number will increase significantly over the next 12
months. A search for a particular product can be conducted by item name,
category or price. The search engine searches the entire database of all
clients' products and then displays the matches for the viewer. This allows a
customer to shop all stores of all clients from one search engine. A description
and picture of the item listed for sale are also provided. A customer need only
fill one shopping basket for all items to be purchased regardless of how many
stores he purchases from in one shopping trip. As a result, only one checkout is
required. The Company's software calculates all taxes and
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shipping and handling charges and posts all totals. For the quarter ended June
30, 1999, two clients, Mod Graphics, Inc., and Perfect Fit, Inc., accounted for
approximately 70 % and 25%, respectively, of the Company's revenues.
The Company derives its revenue from six sources:
1) Commissions. The Company receives a 10% commission
of the sale price on each item sold through its web site, net
of any shipping, handling or other charges assessed by the
client. The Company will begin invoicing clients for
commissions on all merchandise sold commencing in August, 1999
and on a monthly basis thereafter. Management expects that
this will be a material source of the Company's revenue.
2) Site and Change Fees. Commencing in 2000, the
Company will charge each new client an initial site fee of
$5,000 for its participation in and selling its products
through the Company's web site. The Company currently charges
its clients a fee of $40.00 for each product change after the
first 20 products listed for sale and will continue to do so.
A client may also choose to pay a flat fee which will allow
for unlimited product changes over a certain time period.
3) E-Mail Database Rental. The Company intends to
rent its e-mail name and address database to third parties.
This is information that it collects through its
saleoutlet.com web site. The industry rate for this
information can vary greatly, from $.05 per name and address
to as much as $10.00 or more for a single name and address
based upon specific demographics such as age, gender, income,
interests, etc. Based upon the rate at which the Company has
collected names and addresses on a monthly basis since early
July 1999, the Company expects to have a database of
approximately 10,000 names and addresses by December, 1999 and
anticipates that it will commence renting this database in the
first quarter of 2000.
4) Web Site Creation. The Company expects that it
will generate revenue by charging fees for the creation,
design and building of web sites for its clients which will
effectively be an enhancement of the "mini" sites it designs
and builds for clients for use in conjunction with the
saleoutlet.com web site. The fees are based upon hourly labor
rates of $125.00 per hour.
5) Catalog Design and Marketing. Management's prior
experience was in the design and production of mail order
catalogs for their clients. It is anticipated that this
traditional business will also be continued by the Company for
its current clients and for new clients in the future.
Customarily, fees for these services are $400 - $500 per page
for creative design, $2,500 per day for photography and
approximately $500 per page for film separation.
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6) Web Site Advertising. The Company's web site will
include what is referred to as "banner advertising" which is
expected to be a significant source of revenue. Such
advertising will be sold to clients and others for a fee which
will be based on several factors such as time and space.
Banner advertising fees on web sites customarily average
approximately $10 to $50 for each click per user (CPU).
Management does not anticipate that it will participate in a
barter program for banner ads in the forseeable future.
The Company began to recognize revenue from operations in June, 1999,
approximately one month after the initial launch of its web site. These revenues
are primarily attributable to fees charged to clients for web site design in
connection with their inclusion of products for sale through the Company's web
site. Management intends to immediately recognize revenue from the initial site
fees it will charge new clients commencing in 2000.
The Company is taking advantage of the growing number of consumers
who purchase merchandise via the Internet by creating a one-stop shopping type
of experience while at the same time providing the benefits of an outlet mall
shopping experience because of the variety of goods available at discounted
prices. To increase client awareness of its web site, the Company purchases
space advertising in trade publications, including "Catalog Age" and "Direct
Magazine", and management attends trade shows throughout the United States. In
addition, the Company also utilizes direct mail and e-mail to reach potential
clients. The Company employs a banner ad program on several different Internet
search engines to advertise its web site. The Company owns the domain name
"saleoutlet.com". By contract for a fee, the Company owns the words "sale" and
"outlet" on the Go2Net.com search engine. Although these words may be used on
other Internet search engines, when the word "sale" and\or "outlet" is entered
on the Go2Net.com search engine, the Company's banner ad is immediately
displayed at the top and bottom of the page. Its web site is also listed first
on the line list. In addition, the following language is displayed: "Meta
crawler suggests saleoutlet.com". By clicking the mouse on the banner ad, the
Company's name on the first line of the line list or the Meta crawler language,
the Company's name on the first line of the line list or the Meta Crawler
language, the Company's web site is accessed. Management intends to renew the
contract with Go2Net.com when it expires in December 1999.
The Company also rents e-mail lists from third parties and is a
member of link share. Link share is a consortium of approximately 700 companies,
each of which provides free advertising on its web site for all other members.
At the present time, the Company is only using computer based advertising to
reach potential customers although it does solicit potential clients over the
phone using targeted industry lists of companies.
There are approximately 15,000 catalogs in the market place today.
Many of the companies that publish catalogs are seeking ways to take advantage
of the low overhead benefits of the Internet and sell their merchandise on-line.
Management believes that there are thousands of clients and potential clients
that will avail themselves of the Company's services because the Company
provides such potential clients with a cost effective manner to sell their
overstocked merchandise and realize profits other than selling to a liquidator
which would result in a return of pennies on the dollar. In addition to
liquidating their overstocks, a client also acquires a new buyer and name. Since
the overall cost attributable to name acquisition in the mail order industry
averages approximately $10 to $12 per name, this is a significant benefit to a
client. The Company also offers a hyperlink to the client's web site thereby
directing consumer traffic to them. The Company has created a web site where
customers find items which are already discounted rather than going from site to
site on a continual basis waiting for items to go on sale. Management believes
that the Company has thereby created a sale search engine for the Internet.
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(2) Distribution Methods
In addition to Internet sales on the Company's website, the Company is
enhancing the customer's shopping experience and convenience by offering an
event reminder and bargain registry. The bargain registry allows a customer to
register search parameters for particular items. When the system locates a match
in its database the customer is automatically e-mailed an alert with a hot link
to take him directly to that item. The event reminder allows a customer to enter
specific dates for which he will receive an e-mail reminder at a predetermined
date prior to those dates. The customer can then use the website and the bargain
registry to shop for gifts for these events.
The Company does not maintain an inventory nor stock any merchandise.
It relies upon its clients to provide the listings of the merchandise for sale
and its consumer goods' contacts and its internal marketing expertise to locate
the requested merchandise. The vendor is responsible for delivering the
merchandise ordered directly to the customer.
(3) Status of Publicly Announced New Products or Services
The Company has no new publicly announced products or services.
(4) Competitive Business Conditions
The sale of consumer goods over the Internet has exploded in the last
two years. It is anticipated that by the year 2003 consumers will purchase over
$108 billion in products online according to a Forrester Research Report. In
addition, 6.3 million online shoppers will be added to the current number for
each of the next five years representing more than 60 million U.S. households
expected to be purchasing products online. As a result, competition for the
attention of these online consumers and their dollars is expected to increase
dramatically. There may be companies that are initially better financed and may
have greater name recognition.
One of the Company's competitors is "Catalog City," a four year old
company which sells all items which appear in a vendor's catalog thereby
duplicating the catalog and the vendor's web site, if any. In contrast, the
Company only sells 20 of a client's items, none of which appear on its clients'
web site. Since a client's items for sale on the saleoutlet.com web site are
constantly changing, customers will always find new items. This creates an
incentive to return to the site again and again. Other competitors include
"Skymall" which began its Internet based business operations approximately two
years ago and "Blue Fly"which commenced operations in 1998. Unlike vendors who
sell products through "Skymall", the Company's clients only sell overstocks and
sale items. "Blue Fly" is an on-line purchaser of merchandise overstocks from a
manufacturer at a significantly reduced fixed cost which is usually $0.11 on the
dollar. Management believes that their years of experience in the catalog
marketing business prior to joining the Company will provide the Company with
the creative and marketing edge necessary to compete effectively and
successfully in the market place. Management further believes that its unique
selling approach of using direct e-mail to the Company's database of customers,
the ability of its clients to potentially achieve a significant return on its
investment in a relatively short time period and the ease of use for customers
differentiates it from other competitors and will create a positive environment
for clients and customers.
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(5) Dependence on Major Customers
The Company is not currently dependent on one or more major customers.
The Internet has changed the way people shop providing convenience and the
ability to comparison shop without leaving their home or office. Customers will
log on to several sites searching for particular items and may periodically
check other web sites to determine if a particular item is now on sale but will
look to the Company's web site for sale items knowing that all merchandise is
always priced at a discount from retail price. Management expects that once its
web site becomes more popular, it will be included in a "favorites" list of
consumers who shop on-line.
Retailers have become very aware of the change in consumer shopping
habits and have come to the realization that they must keep pace with these
changes to stay competitive. Due to the ability of consumers to compare price,
product, manufacturer and other factors on-line by the click of a mouse,
retailers know that if they limit themselves to just one Internet address they
run the risk of losing sales. Accordingly, they must include their products for
sale on additional web sites to avail themselves of the greatest exposure to
consumers on the Internet and to continually sell their merchandise. Further,
retailers will also seek a competitive edge by selling merchandise at or near
the same physical location of a competitor. Management believes that these
factors will attract new clients to its web site, including those who compete in
the traditional market place.
(6) Intellectual Property
The technology used to power the Company's web site is a state of the
art custom solution. Using the latest available technology, it is specifically
designed to offer a user-friendly shopping interface together with an extremely
powerful management system. The Company does not currently own any patents or
copyrights but does own a federally registered trademark for its name,
SaleOutlet. It does not have any software or other license agreements at the
present time. The Company regards its trade secrets and similar intellectual
property as valuable to its business, and will rely on trademark law, trade
secret protection and confidentiality agreements now and copyright law, and/or
license agreements possibly in the future, with its employees, partners and
others to protect its proprietary rights. The Company currently requires that
each employee execute a confidentiality agreement. There can be no assurance
however that the steps taken by the Company will be adequate to prevent
misappropriation or infringement of its intellectual property.
(7) Governmental Approval
At this point in time, there is no need for government approval of the
Company's principal products or services.
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(8) Governmental Approval, Regulation and Environmental Compliance
The Company will be subject, both directly and indirectly, to various
laws and regulations relating to its business, although there are few laws or
regulations directly applicable to access to the Internet. However, due to the
increasing popularity and use of the Internet, it is possible that a number of
laws and regulations may be adopted with respect to the Internet. Such laws and
regulations may cover issues such as user privacy, pricing, content, copyrights,
distribution, sales and other use taxes and characteristics and quality of
products and services. Furthermore, the growth and development of the market for
online commerce may prompt calls for more stringent consumer protection laws
that may impose additional burdens on those companies conducting business
online.
The enactment of any additional laws or regulations may impede the
growth of the Internet which could, in turn, decrease the demand for the
business, or otherwise have an adverse effect on the Company. The applicability
to the Internet of existing laws in various jurisdictions governing issues such
as property ownership, sales and other taxes, contests and sweepstakes, libel,
personal privacy, rights or publicity, language requirements and content
restrictions, is uncertain and could expose the Company to substantial
liability.
In addition, several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission (the "FCC") in the same manner as other telecommunications services.
For example, America's Carriers Telecommunications Association has filed a
petition with the FCC for this purpose. In addition, because the growing
popularity and use of the Internet has burdened the existing telecommunications
infrastructure and many areas with high Internet use have begun to experience
interruptions in phone service, local telephone carriers, such as Pacific Bell,
have petitioned the FCC to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and to
impose access fees on such providers. If either of these petitions are granted,
or the relief sought therein is otherwise granted, the costs of communicating on
the Internet could increase substantially, potentially slowing the growth in use
of the Internet.
Any such new legislation or regulation or application or interpretation
of existing laws could have an adverse effect on the Company's business, results
of operations and financial condition. U.S. and foreign laws regulate certain
uses of customer information and development and sale of mailing lists. The
company believes that it is in material compliance with such laws, but new
restrictions may arise in this area that could have an adverse affect on the
Company.
The Company anticipates that it will have no material costs associated
with compliance with either federal, state or local environmental law.
(9) Research and Development
The Company intends to establish a small research and development team,
composed of both core and rotating engineering and marketing personnel, who will
develop and adopt new products,
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services, equipment, software and tools. The company believes that the results
of this work will allow the Company to enhance its services as well as its
ability to provide those services effectively. During the last two years,
SaleOutlet has not incurred significant costs in connection with research and
development, with such costs approximating $65,000 in the period between
mid-March and early May, 1999.
(10) Employees and Facilities
As of August 24, 1999, SaleOutlet had four (4) full-time and three (3)
part-time employees. The Company also employs independent contractors and other
temporary employees. None of the Company's employees is represented by a labor
union, and the Company considers its employee relations to be good. The Company
expects the number of employees to grow significantly over the next twelve
months. Competition for qualified personnel in certain areas of the Company's
industry is intense, particularly among software development and other technical
staff. The Company believes that its future success will depend in part on its
continued ability to attract, hire and retain qualified personnel.
The Company's executive offices are located in, and substantially all
of its operating activities are conducted from, leased office space located in
New York City. The Company believes that additional space will be required as
its business expands and believes that it will be able to obtain suitable space
as needed. The Company does not own any real estate.
(c) Reports to Security Holders
Prior to filing this Form 10-SB, the Company has not been required to
deliver annual reports. To the extent that the Company is required to deliver
annual reports to security holders through its status as a reporting company,
the Company shall deliver annual reports. Also, to the extent the Company is
required to deliver annual reports by the rules or regulations of any exchange
upon which the Company's shares are traded, the Company shall deliver annual
reports. If the Company is not required to deliver annual reports, the Company
will not go to the expense of producing and delivering such reports. If the
Company is required to deliver annual reports, they will contain audited
financial statements as required.
Prior to the filing of this Form 10-SB, the Company has not filed
reports with the Securities and Exchange commission. Once the Company becomes a
reporting company, management anticipates that Forms 3, 4, 5, 10-KSB, 10-QSB,
8-K and Schedules 13D along with appropriate proxy materials will have to be
filed as they come due. If the Company issues additional shares, the Company may
file additional registration statements for those shares.
The public may read and copy materials the Company files with the
Securities and Exchange Commission at the Commission's Public Reference Room at
450 Fifth Street, N.W., Washington,
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D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. The Commission
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the Commission. The Internet address of the Commission's site is
(http://www.sec.gov).
(d) Year 2000 Disclosure
The Company does not anticipate any problem in dealing with computer
entries in the year 2000 or thereafter, with any computers currently used at any
of their facilities. All of the Company's computer systems are new and have been
Year 2000 compliant since their acquisition. The Company keeps current with all
updates and revisions with all software the Company currently uses. It is
anticipated that the software updates reflect required revisions to accommodate
transactions in the Year 2000 and thereafter. Though it is not anticipated that
the Company will have a problem at the turn of the century, the Company intends
to coordinate the resolution of any Year 2000 problems with the vendors of the
software the Company utilizes. Nonetheless, the Company recognizes the problems
which may arise in connection with the Year 2000 issue.
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among others, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. The Company does not believe that it has material exposure
to the Year 2000 issue with respect to its own information systems since its
existing systems correctly define the year 2000. The Company intends to survey
its major clients to determine the extent to which their computer systems
(insofar as they relate to the Company's business) are Year 2000 compliant. The
Company is currently unable to predict the extent to which the Year 2000 issue
will affect its clients, or the extent to which it would be vulnerable to the
client's failure to remediate any Year 2000 issues on a timely basis. The
failure of a major client subject to the Year 2000 to convert its systems on a
timely basis or a conversion that is incompatible with the Company's systems
could have an adverse effect on the Company. In addition, most of the purchases
on the Company's web site are expected to be made with credit cards, and the
Company's operations may be adversely affected to the extent its customers are
unable to use their credit cards due to any Year 2000 issues that are not
rectified by their credit card vendors. In a worst case scenario, if the
Company's clients' computer systems or that of such clients' vendors do not
contain the necessary software updates to be Year 2000 compliant, a multitude of
problems could occur which may include, among others, lost orders, merchandise
not shipped or shipped to incorrect addresses and credit card purchases
incorrectly credited or debited. As a result, the Company could lose customers,
clients, and credibility which could have a material adverse effect on its
business and its financial condition
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OR PLAN OF OPERATION
Plan of Operation
During the 12 month period following the filing of this Form 10-SB, the
Company intends to use the funds it received from the private sale of its debt
and equity securities in March, 1999 and May and June, 1999, respectively, to
develop its operations and most importantly, for marketing and advertising of
its Internet based business. The Company has allocated approximately $600,000
specifically for marketing and advertising. The Company raised approximately
$1,100,000 through the sale of its securities, the balance of which has been
used for website development ($125,000), equipment ($30,000), and the balance
for working capital requirements. For the period ended July 31, 1999, the
Company had revenues of $23,400 from web site design and production. Management
anticipates that it will experience increased revenues in the third and fourth
quarters of 1999 from holiday sales through its web site. It is also
expected that revenues from initial site fees, maintenance fees and web site
design and creation will increase as the Company adds new clients. Management
anticipates that the funds received from the private placement and cash flow
from revenues will be sufficient to finance the Company's working capital
requirements for the next 12 months. If, however, there is a need for additional
capital, such funding will likely come from the sale of the Company's debt
and/or equity securities, the successful sale of which, if any, cannot be
assured.
From time to time the Company may evaluate potential acquisitions
involving complementary businesses, content, products or technologies. The
Company has no present agreements or understanding with respect to any such
acquisition. The Company's future capital requirements will depend on many
factors, including the entrance into strategic alliances, increases in
advertising, marketing and promotions, growth of the Company's customer base,
economic conditions and other factors including the results of future
operations.
The Company currently has four full time employees. Management expects
to hire approximately four additional people in the next 12 months. It is
anticipated that two will be directly related to sales and customer service, one
will be directly related to the design, development and technical support of the
Company's website, and one will be directly related to general and
administrative. The anticipated future cost associated with this planned
increase in employees is $150,000. The number of employees actually hired will
be based upon the Company's ability to support the increased cost through cash
flow generated by its business.
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ITEM 3. DESCRIPTION OF PROPERTY
The Company's executive offices are located in, and substantially all
of its operating activities are conducted from, its leased office space located
at 132 West 21st Street, New York, New York. The Company believes that it will
be able to obtain suitable space as needed and has the physical ability to
acquire additional office space at its current location. The Company leases its
office space and does not own any real estate. The Company is not in the
business of investing in real estate or real estate mortgages.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
(a) 5% Shareholders.
The following information sets forth certain information as of August
24, 1999 about each person who is known to the Company to be the beneficial
owner of more than 5% of the Company's Common Stock:
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent
Title of Class of Beneficial Owner of Beneficial Ownership of Class
- -------------- ------------------- ----------------------- --------
<S> <C> <C>
Common Christopher Stys 1,470,000 16.3%
132 West 21st Street
New York, NY 10011
Roger Tichenor 500,000 5.5%
605 Crescent Executive Ct.
Suite 300
Lake Mary, FL 32746
</TABLE>
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(b) Security Ownership of Management:
<TABLE>
<CAPTION>
Title of Name and Address Amount and Nature Percent
Class of Beneficial Owner of Beneficial Ownership of Class (1)
- ----- ------------------- ----------------------- ------------
<S> <C> <C> <C>
Common Michael Aronowitz 1,560,000 17.2%
132 West 21st Street
New York, NY 10011
Jefferson Barr 1,470,000 16.3%
132 West 21st Street
New York, NY 10011
Lawrence Brown 10,000 *
27 Wolver Hollow Road
Old Brookville, NY 11545
</TABLE>
- ----------------
* Less than 1%
(1) All percentages are calculated based upon 9,048,271 shares issued and
outstanding as of the date of filing this Form 10-SB.
(c) Changes in Control:
There is no arrangement which may result in a change of control.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS
(a) Directors and Executive Officers
As of August 24, 1999, the directors and executive officers of the
Company, their ages, positions in the Company, the dates of their initial
election or appointment as director or executive officer, and the expiration of
the terms as directors are as follows:
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<TABLE>
<CAPTION>
Period Served
Name Age Position As Director*
- ---- --- -------- ------------
<S> <C> <C>
Michael Aronowitz 36 President and Director March 1999 to
present
Jefferson Barr 36 Vice President, Secretary March 1999 to
and Director present
Lawrence Brown 53 Director April 1999 to
present
</TABLE>
- ----------------------
(b) Business Experience:
Michael Aronowitz, age 36, has been president and a director of the
Company since March, 1999. From 1991 to March, 1999, he was President of Z
Michaels NY, Inc., a full service direct mail agency which he founded in 1991.
Z. Michaels designs and produces catalogs for specific target markets. Z
Michaels is currently winding down its operations and expects to cease all
business operations on or before December 31, 1999. From 1984 to 1991, Mr.
Aronowitz was employed as sales manager for Concepts in Color, a catalog design
and marketing company located in New York.
Jefferson Barr, age 36, has been vice-president, secretary and a
director of the Company since March, 1999. From 1995 to March, 1999, he was
vice-president of Z Michaels NY, Inc. From 1992 until 1995, Mr. Barr was
president of Mod Graphics, Inc., a company which specialized in the creation,
production and marketing of direct mail advertising and mail order catalogs.
From 1989 to 1992, he was the creative director for Averix USA and The Cockpit
Catalog, a wholesale manufacturer and retail catalog of sportswear apparel and
authentic aviation clothing and accessories. Mr. Barr received his Bachelor of
Fine Arts degree in illustration and communication from the Parsons School of
Design.
Lawrence Brown, age 53, has been a director of the Company since April,
1999. Since 1981, Mr. Brown has been a partner in Professional Product Research,
a closely-held company, and has responsibility for new product sales to over 100
domestic and foreign catalogs. For the past 25 years, Mr. Brown has been
involved in the direct mail industry with experience in catalogs, lead
generation, merchandising and creative development. He has assisted in the
development of catalogs in Canada and South America and managed the "Dr.
Leonard" catalog from concept to its position as the largest health care catalog
in the world.
- ---------------
* The Company's directors are elected at the annual meeting of stockholders and
hold office until their successors are elected and qualified. The Company's
officers are appointed by the Board of Directors and serve at the pleasure of
the Board and subject to employment agreements, if any, approved and ratified by
the Board.
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c) Directors of Other Reporting Companies:
None of the Company's executive officers or directors is a director of
any company that files reports with the Securities and Exchange Commission.
(d) Employees:
In addition to Messrs. Aronowitz and Barr, the Company employs two key
individuals:
Christopher Stys, age 36, has been the Company's part-time creative
director since March, 1999. Since 1995, Mr. Stys has been secretary and
treasurer of Z Michaels NY, Inc. It is anticipated that Mr. Stys will become the
Company's full-time creative director by the end of the current fiscal year.
From 1992 to 1995 , he was vice-president of Mod Graphics, Inc. and from 1990 to
1992, he was the art director for Averix USA. Mr. Stys received his Bachelor of
Fine Arts degree from Edinboro University.
Amy Gottenberg, age 31, has been vice-president of marketing and
business development for the Company since June, 1999 From 1997 to June, 1999,
she was a consultant to Meisel, Inc., a software distribution company, and
Veritel Corporation, a voice recognition company, on matters relating to sales
and business development. From 1996 to 1997, she was manager of electronic
financial services for Donnelley Financial, a R.R. Donnelley & Sons company.
From 1995 to 1996, Ms. Gottenberg was director of media products and services
for Jupiter Communications. From 1994 to 1995, she was a new media and emerging
technologies analyst for Simon & Schuster. From 1991 to 1994, Ms. Gottenberg was
a consultant to AT&T, The Voyager Company and Futurevision Entertainment. She is
a member of New York New Media and Venice Interactive Community, two online
trade associations. Ms. Gottenberg received her Bachelor of Science degree in
mass communications from Boston University and her Master of Professional
Studies, Interactive Telecommunications Program, from New York University.
(e) Family Relationships:
There are no family relationships between the directors, executive
officers or any other person who may be selected as a director or executive
officer of the Company.
14
<PAGE>
(f) Involvement in Certain Legal Proceedings:
None of the officers, directors, promoters or control persons of the
Company have been involved in the past five (5) years in any of the following:
(1) Any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer
either at the time of the bankruptcy or within two years prior
to that time;
(2) Any conviction in a criminal proceedings or being subject to a
pending criminal proceeding (excluding traffic violations and
other minor offenses);
(3) Being subject to any order, judgment or decree, not
subsequently reversed, suspended or vacated, or any Court of
competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in
any type of business, securities or banking activities; or
(4) Being found by a court of competent jurisdiction (in a civil
action), the Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities laws
or commodities law, and the judgment has not been reversed,
suspended, or vacated.
ITEM 6. EXECUTIVE COMPENSATION
The Company did not compensate prior management in the years ended
December 31, 1998, 1997 and 1996 since it did not engage in business during
those years. The Company has commenced compensating Messrs. Aronowitz and Barr
since they were appointed to their respective positions in March 1999. None of
the Company's executive officers earned more than $100,000 during the years
ended December 31, 1998, 1997 and 1996.
15
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Annual Restricted Under- Other
Name and Compen- Stock lying LTIP Comp-
Principal Position Year Salary Bonus sation Awards Options Payouts ensation
- ------------------ ---- ------ ----- ------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Aronowitz President
and Director 1998 None None None None None None None
1997 None None None None None None None
1996 None None None None None None None
Jefferson Barr, Vice President,
Secretary and Director 1998 None None None None None None None
1997 None None None None None None None
1996 None None None None None None None
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two (2) years, the Company has not entered into a
transaction with a value in excess of $60,000 with a director, officer or
beneficial owner of 5% or more of the Company's Common Stock, except as
disclosed in the following paragraphs:
The Company has entered into five (5) years employment agreements
with Michael Aronowitz, President of the Company and a director, and Jefferson
Barr, vice president and secretary of the Company and a director. Pursuant to
these employments agreements, Mr. Aronowitz and Mr. Barr are being compensated
for their services at the rate of $75,000 per year in the first year and shall
receive a 10% salary increase on each one year anniversary of their employment
agreements. In addition, they have each been granted options to purchase an
aggregate of 200,000 shares of the Company's restricted Common Stock at an
exercise price of $ 1.25 per share based upon the fair market value per share of
the Common Stock on August 11, 1999, the date of the employment agreements. The
options are exercisable at any time in whole or in part during the term of their
respective employment. The option is in addition to the 1,560,000 shares and
1,470,000 shares, respectively, each received after being appointed as officers
and directors of the Company in March, 1999. These shares were issued as an
incentive bonus to join the Company and develop an operating business and were
valued at $.01 per share which was believed by then current management to be the
fair value for the services to be received. The shares were issued at a time
when there was no market for the Company's stock and before the Company began
selling any shares of stock.
16
<PAGE>
The employment agreements provide that if Messrs. Aronowitz and Barr
are terminated by the Company without cause (as defined in the employment
agreements), each will be entitled to receive the lesser of (i) his base salary
for one year from the date of termination plus the cash value of any accrued
benefits, or (ii) the aggregate amount of his base salary plus the cash value of
any benefits during the balance of the term of the agreements.
The employment agreements also provide that Messrs. Aronowitz and Barr
will not, during the term of the agreements or thereafter, disclose any
confidential information of the Company without the prior written approval of
the Company. Further, they will not during the term of the agreements and for a
period of one (1) year thereafter, participate in any business or other
enterprise that competes with the Company or solicit any of the Company's
employees or customers or otherwise interfere with the Company's relationships
and business.
In June, 1999, Lawrence Brown received 10,000 shares of the Company's
Common Stock upon appointment to the Board of Directors and will receive 10,000
additional shares for each year he serves as a member of the Board of Directors.
The Company valued these shares at $1.00 per share which management believed is
the fair value for the services to be received. Every non-employee director
shall also receive 10,000 shares for each year of service on the Board and $400
for each meeting of the Board of Directors attended.
On March 10, 1999, the Company entered into a Consulting Agreement
with Roger Tichenor to provide services to the Company. Such services include
consultation with respect to business structure and corporate development, new
projects and growth strategies, identifying possible mergers, acquisitions and
joint ventures and strategic planning. As compensation for these services, Mr.
Tichenor received 500,000 shares of Common Stock. The Company valued these
shares at $1.00 per share which management believed to be the fair value for the
services to be received over the term of the Consulting Agreement. The shares
were issued before the Company began selling stock at $1.50 per share. The
shares issued to Mr. Tichenor were issued in reliance on an exemption from
registration contained in Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act"), and the certificate representing such shares bears a
restrictive legend reflecting the limitations on future transfer of the shares.
The Company was organized in September, 1995 by Andrew W. Berney,
Douglas Ansell and Bruce N. Barton who served as President, Secretary and
Treasurer, respectively, of the Company and as directors from September, 1995
until March, 1999. Each of Messrs. Berney, Ansell and Barton purchased 1,000,000
shares of the Company's common stock at $.001 per share in September, 1995.
ITEM 8. DESCRIPTION OF SECURITIES
The Company's Articles of Incorporation authorizes the issuance of
50,000,000 shares of Common Stock, $.001 par value per share. There is no
preferred stock authorized. Holders of shares of Common Stock are entitled to
one vote for each share on all matters to be voted on by the stockholders.
Holders of shares of Common Stock are entitled to share ratably in dividends, if
any, as may be declared from time to time by the Board of Directors in its
discretion from funds legally available therefor. In the event of a liquidation,
dissolution or winding up of the Company, the holders of shares of Common Stock
are entitled to share pro rata all assets remaining after payment
17
<PAGE>
in full of all liabilities. Holders of Common Stock have no preemptive or other
subscription rights, and there are no conversion rights or redemption or sinking
fund provisions with respect to such shares. All of the shares of Common Stock
issued and outstanding are fully paid and nonassessable.
PART II.
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON
EQUITY AND RELATED SHAREHOLDER MATTERS
Market Information:
The Company's Common Stock currently trades on the Over-The-Counter
Bulletin Board (OTC:BB) under the trading symbol "SLET". From September, 1998,
when the Company's Common Stock was listed for trading on the OTC:BB, until on
or about May, 1999, there was no trading market for the Company's Common Stock.
Since such time there has been a limited trading market for the Company's Common
Stock
The following table sets forth the highest and lowest bid prices for
the Common Stock for each calendar quarter and subsequent interim period since
the Common Stock commenced actual trading, as reported by the National Quotation
Bureau, and represent interdealer quotations, without retail markup, markdown or
commission and may not be reflective of actual transactions:
<TABLE>
<CAPTION>
Fiscal 1999 High Bid Low Bid
- ----------- -------- -------
<S> <C> <C>
First Quarter 4 15/16 3 3/4
Second Quarter
through August 23, 1999 3 7/8 1 1/16
</TABLE>
There can be no assurance that an active public market for the Common
Stock will develop or be sustained. In addition, the shares of Common Stock are
subject to various governmental or regulatory body rules which affect the
liquidity of the shares.
Holders:
There were approximately 51 holders of record of the Company's Common
Stock as of August 24, 1999.
18
<PAGE>
Dividends:
The Company has never paid cash dividends on its Common Stock and does
not intend to do so in the foreseeable future. The Company currently intends to
retain its earnings for the operation and expansion of its business. The
Company's continued need to retain earnings for operations and expansion are
likely to limit the Company's ability to pay dividends in the future.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to, and none of the Company's property is
subject to any pending or threatened legal, governmental, administrative or
judicial proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no disagreements with either of the Company's previous
independent auditors. The Company has; however, changed auditors but not as a
result of any disagreements.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On March 31, 1999, the Company issued an aggregate of $155,000
principal amount Series A 12% Convertible Cumulative Promissory Notes which, in
accordance with their terms, were converted as of June 30, 1999 into an
aggregate of 103,333 shares of Common Stock to the following:
Stephen Guarino 50,000 shares
James Arch 33,333 shares
Douglas Nagel 20,000 shares
In addition, each note holder received one share of Common Stock for each dollar
of principal. Accordingly, Messrs. Guarino, Arch and Nagel received 75,000,
50,000 and 30,000 shares of Common Stock. All of these shares were issued in
accordance with an exemption from registration provided by Section 4(2) of the
Securities Act.
In April, 1999, the Company issued a total of 4,480,000 shares of its
Common Stock to Michael Aronowitz (1,560,000 shares), Jefferson Barr (1,470,000
shares) and Christopher Stys (1,470,000 shares) in consideration for them
agreeing to become officers, directors and employees of the Company. These
shares were issued in accordance with an exemption from registration
provided by Section 4(2) of the Securities Act.
19
<PAGE>
In April, 1999, the Company issued 500,000 shares of Common Stock to
Roger Tichenor pursuant to the terms of a Consulting Agreement between the
Company and Mr. Tichenor dated March 10, 1999. These shares were issued in
accordance with an exemption from registration provided by Section 4(2) of the
Securities Act.
On or about June 7, 1999, the Company issued an aggregate of 587,984
shares of its Common Stock to the following in accordance with an exemption
provided by Rule 506 of Regulation D promulgated under the Securities Act:
Todd Havemeister 20,000
Michael A. Garcia 16,667
Roberto Veitia 15,166
Virginia Beasely 5,700
Steven and Kimberly Bronson JTWROS 15,000
Tentrino-Val S.A. 16,668
Select Media Ltd. 71,333
James Skalko 66,667
Physicians Radiology Profit Sharing 6,667
Frederick A. Lenz 6,667
Peter Berney 70,000
Ronnie L. Williams, Sr. 6,667
Kimberly Dowda 16,666
Edwards Capital Corporation 16,666
Expectation Company of Central Florida 33,334
Stephen Guarino 83,334
Matthew Carley 23,334
Douglas L. Carley 23,334
Steven G. Weismann 16,667
Robert D. Hall 20,000
Seajay Capital Corporation 14,000
Lee Meier 16,750
Charles DeVine 6,667
On or about June 7, 1999, the Company issued 150,000 shares of its
Common Stock to Noble House of Boston, Inc. pursuant to the terms of an
agreement between the Company and Noble House of Boston dated May 7, 1999 for
Noble House to provide the Company with public relations, advertising and
promotional services.
On or about June 7, 1999, the Company issued 10,000 shares of its
Common Stock to Lawrence Brown for serving on the Company's Board of Directors.
All certificates representing all of the foregoing shares issued by the
Company bear a restrictive legend restricting transferability under the
Securities Act.
20
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.751 of the Nevada General Corporation Law allows the Company
to indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, except an action by or
in the right of the Company, by reason of the fact that such person is or was a
director, officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses including attorneys fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
the action, suit or proceeding if such person acted in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendre or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best interest
of the Company and that, with respect to any criminal action or proceeding, such
person had reasonable cause to believe that his conduct was unlawful.
Section 78.751 of the Nevada General Corporation Law also allows the
Company to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the Company to procure a judgment in the Company's favor by reason of
the fact that such person is or was a director, officer, employee or agent of
the Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses including amounts paid in settlement
and attorneys fees actually and reasonably incurred by such person in connection
with the defense or settlement of the action or suit if such person acted in
good faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Company. Indemnification may not be made
for any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction determining, after exhaustion of all appeals
therefrom, to be liable to the Company or for amount paid in settlement to the
Company, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
Section 78.751 of the Nevada General Corporation Law also provides that
to the extent that a director, officer, employee or agent of the Company has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in paragraphs above, or in defense of any claim, issue or
matter therein, the Company shall indemnify him against expenses, including
attorneys fees, actually and reasonably incurred by such person in connection
with the defense.
21
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
The Company's Articles of Incorporation provide that no director or
officer of the Company shall be personally liable to the Company or any of its
stockholders for damages for breach of fiduciary duty as a director or officer
involving any act or omission of any such director or officer; provided,
however, that the liability of a director or officer shall not be eliminated or
limited for acts or omissions which involve intentional misconduct, fraud or
knowing violation of law, or the payment of dividends in violation of Section
78.300 of the Nevada Revised Statutes. The Articles of Incorporation further
provide that any repeal or modification of the applicable Article shall be
prospective only, and shall not adversely affect any limitation on the personal
liability of a director or officer of the Company for any acts or omissions
prior to such repeal or modification.
PART F/S
Financial Statements
PART III.
ITEM 1. Index to Exhibits
The following exhibits are filed with this Form 10-SB:
Assigned Number Description
- --------------- -----------
(2) Articles of Incorporation, as amended*
(3)(ii) By-laws*
(16) Letter on change of certifying accountant*
(16) (i) Letter on change of certifying accountant**
(27) Financial Data Schedule**
- ----------------------
* Filed as an exhibit to Form 10-SB on July 1, 1999
** Filed as an exhibit to Amendment Number 1 on August 13, 1999
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Amendment Number 2 to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: August 24, 1999.
SALEOUTLET.COM, INC.
By:/S/ Michael Aronowitz
-----------------
Michael Aronowitz
President
23
<PAGE>
<TABLE>
<CAPTION>
SALEOUTLET.COM
(A Development Stage Company)
BALANCE SHEETS
June 30, March 31, December 31,
1999 1999 1998
(Unaudited) (Unaudited) (Audited)
----------- ----------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 815,947 $ 89,661 $ 0
Accounts receivable 14,615 0 0
Prepaid expenses 590,417 0 0
----------------- ----------------- ------------------
TOTAL CURRENT ASSETS 1,420,979 89,661 0
----------------- ----------------- ------------------
OTHER ASSETS
Organization costs, net 84 102 120
----------------- ----------------- ------------------
$ 1,421,063 $ 89,763 $ 120
================= ================= ==================
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 20,107 $ 4,862 $ 0
Officer advances 0 185 185
Convertible promissory notes 0 155,000 0
Credit cards payable 490 5,544 0
----------------- ----------------- ------------------
TOTAL CURRENT LIABILITIES 20,597 165,591 185
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 par value
Authorized 50,000,000 shares
Issued 9,156,287 shares (6,000,000 in 1998 and 3/99) 9,156 6,000 6,000
Additional paid-in capital 1,951,207 0 0
Deficit accumulated during development stage (559,897) (81,828) (6,065)
----------------- ----------------- ------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 1,400,466 (75,828) (65)
----------------- ----------------- ------------------
$ 1,421,063 $ 89,763 $ 120
================= ================= ==================
</TABLE>
F - 1
<PAGE>
<TABLE>
<CAPTION>
SALEOUTLET.COM
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
9/1/95
Three months ended Six months ended (Date of
June 30, June 30, inception) to
1999 1998 1999 1998 6/30/99
------------- -------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
INCOME
Revenue $ 15,000 $ 0 $ 15,000 $ 0 $ 15,000
------------- -------------- ------------- ------------- ------------------
TOTAL INCOME 15,000 0 15,000 0 15,000
EXPENSES
General and administrative 497,152 100 507,897 100 513,722
Amortization 18 18 36 36 276
Research and development 0 0 65,000 0 65,000
------------- -------------- ------------- ------------- ------------------
497,170 118 572,933 136 578,998
------------- -------------- ------------- ------------- ------------------
TOTAL OPERATING LOSS (482,170) (118) (557,933) (136) (563,998)
OTHER INCOME
Interest 4,101 0 4,101 0 4,101
------------- -------------- ------------- ------------- ------------------
Net loss before income taxes (478,069) (118) (553,832) (136) (559,897)
------------- -------------- ------------- ------------- ------------------
Income tax expense 0 0 0 0 0
------------- -------------- ------------- ------------- ------------------
NET LOSS $ (478,069) $ (118) $ (553,832) $ (136) $ (559,897)
============= ============== ============= ============= ==================
Loss per weighted average share $ (.06) $ (.00) $ (.10) $ (.00)
============= ============== ============= =============
Weighted average number of shares
outstanding 8,250,180 6,000,000 5,700,090 6,000,000
============= ============== ============= =============
</TABLE>
F - 2
<PAGE>
<TABLE>
<CAPTION>
SALEOUTLET.COM
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
9/1/95
Six months ended (Date of
June 30, inception) to
1999 1998 6/30/99
------------- ------------- ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) $ (553,832) $ (136) $ (559,897)
Adjustments to reconcile net (loss) to cash used
by operating activities:
Amortization 36 36 276
Stock issued for expenses 344,583 0 344,583
Changes in assets and liabilities:
Accounts receivable (14,615) 0 (14,615)
Accounts payable and accrued expenses 20,597 0 20,597
Officer advances (185) 100 0
------------- ------------- ------------------
NET CASH USED BY OPERATING ACTIVITIES (203,416) 0 (209,056)
INVESTING ACTIVITIES
Organization costs 0 0 (360)
------------- ------------- ------------------
NET CASH USED BY INVESTING ACTIVITIES 0 0 (360)
FINANCING ACTIVITIES
Issue convertible promissory notes 155,000 0 155,000
Sale of common stock 864,363 0 870,363
------------- ------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,019,363 0 1,025,363
------------- ------------- ------------------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 815,947 0 815,947
Cash and cash equivalents at beginning of period 0 0 0
------------- ------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 815,947 $ 0 $ 815,947
============= ============= ==================
</TABLE>
SUPPLEMENTAL INFORMATION
Effective June 30, 1999 the Company issued 103,333 shares of its restricted
common stock to retire $155,000 of convertible promissory notes and 155,000
shares for interest associated with the notes.
F - 3
<PAGE>
SALEOUTLET.COM
(A Development Stage Company)
SELECTED NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 1999
NOTE 1: CHANGE IN CONTROL
On March 1, 1999, the then current Board of Directors of Austin
Underground, Inc. appointed Michael Aronowitz and Jefferson Barr
to the Board of Directors and as President and Vice President,
respectively of the Company. Immediately thereafter, the then
current management and its previous Board of Directors resigned.
Thereafter, in April 1999, Messrs. Aronowitz and Barr received
1,560,000 and 1,470,000 shares of the Company's common stock,
respectively, and an additional 1,470,000 shares were issued to a
key employee of the Company. Also, in April, 1999, prior officers
returned an aggregate of 3,000,000 shares of common stock to the
Company for cancellation. There was no reverse split of the common
stock prior to the sale of 4,500,000 shares in April, 1999.
NOTE 2: REVENUE RECOGNITION POLICY
The Company recognizes commission income when a client sells a
product through the Company's website.
Revenue from site and change fees will be recognized at the point
the service is rendered.
Revenue from the rental of e-mail database information will be
recognized when the information is provided to the client.
Revenue from web site creation will be recognized when the web
site is operational for the client.
Revenue from catalog design and marketing will be recognized upon
completion of the project.
Revenue from web site advertising will be recognized over the
period of the contract.
NOTE 3: ISSUANCE OF COMMON STOCK FOR SERVICES
During the six months ended June 30, 1999 the Company issued
common stock for services. An aggregate of 4,500,000 shares were
issued to three individuals as an incentive to join the Company
and develop an operating business. These shares were valued at
$.01 per share which then current management believed to be the
fair value of the services to be provided. 500,000 shares were
issued to a consultant and valued at $1.00 per share, which was
believed by management to be the fair value of the services to be
received. The shares were issued when there was no market for the
Company's stock and before the Company began selling stock for
$1.50 per share. The Company issued 150,000 shares of stock for
advertising services. The shares were valued at $1.50 per share
which the Company believes is fair value for the services to be
received. The Company also issued 10,000 shares to a director and
valued the shares at $1.00 per share which the Company believes is
fair value for the services to be provided by the director. At
June 30, 1999 an amount of $590,417 has been recorded as a prepaid
expense and $144,583 is reflected in general and administrative
expenses. The Company also issued 155,000 shares of stock valued
at $1.00 per share as a premium to encourage three holders of
convertible promissory notes to convert their notes to shares of
common stock at $1.50 per share. The $155,000 has been treated as
interest expense and is reflected in general and administrative
expenses.
F - 4
<PAGE>
NOTE 4: COSTS OF DOING BUSINESS
The financial statements include all costs of doing business.
Officers are being compensated on a monthly basis at a rate which
is reasonable in the industry and have not performed services for
which they have not been compensated. All costs of doing business
are reflected in the financial statements. The financial
statements are prepared on the accrual basis of accounting to
properly record revenue and expenses.
F - 5
