UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission File No. 0-26569
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from______to_________
SALEOUTLET.COM, INC.
--------------------
(Exact name of registrant in its charter)
Nevada 88-0399260
- ------------------------------ ------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
132 West 21st Street
New York, NY 10011
- ------------------------------ ---------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (212) 691-0288
Securities registered under Section 12(b) of the Exchange Act: None Securities
registered under Section 12(g) of the Exchange Act:
Common Stock, $ 0.001 par value per share
-----------------------------------------
(Title of Class)
<PAGE>
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [X] NO
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of the registrant's knowledge, in definite proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year. $ 160,319
The aggregate market value of the voting Common Stock held by non-affiliates of
the Registrant as of April 20, 2000: $6,876,407.
As of April 20, 2000 the Registrant had 9,094,271 shares of Common Stock
outstanding.
<PAGE>
PART 1
Item 1. Description of Business
(a) General Business Development
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History
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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, Inc. and in May 1999 the Company launched its new Internet-based
business.
On July 1, 1999, the Company filed a Form 10-SB registration statement
with Securities and Exchange Commission ("SEC") which became effective in August
1999. Since such time, the Company has been subject to the reporting
requirements of the Securities Exchange Act of 1934.
(b) Business of the Company
-----------------------
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 web site 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 web site 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 over 100 clients at a time on its saleoutlet.com web site. It is
anticipated that this number will increase two fold over the next 12 months. A
search for a particular product can be conducted by item, store, category or
price. The search engine searches the entire database of all clients' products
and then displays the matches for the viewer. This allows
<PAGE>
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 shipping and handling charges and posts all totals. For the quarter
ended December 31, 1999, three clients, Lanac Sales, Inc., ZurichUS Insurance,
and Whatever Works, accounted for approximately 28 %, 17%, and 12%,
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 began 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 the first quarter of
2000, the Company began charging each new client an initial
site fee for its participation in and selling its products
through the Company's web site. The Company also currently
charges its clients 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 commencing
in the third quarter of 2000. 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. Management expects that this will
represent a material source of the Company's revenue in the
future.
4) Web Site Creation. The Company has generated 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 industry standard hourly labor rates.
5) Catalog Design and Marketing. Management's prior experience
was in the design and production of mail order catalogs for
their clients. The Company produces traditional retail design
work but, only if the finished product is also a part of the
Company's web site. Customarily, fees for these services are
per page for creative design, per day for photography and per
hour for film separations and retouching. These prices are
based on industry standards.
<PAGE>
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. This is expected to
begin in the third quarter of 2000. Such advertising will be
sold to clients and others for a fee, which fee 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
and the Company does not recognize barter revenues.
The Company began to recognize revenue from operations in June 1999,
approximately one month after the initial launch of its web site. These revenues
were 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. The Company also immediately recognized revenue from the initial site fees
it began charging new clients commencing in 2000.
Marketing and Distribution
--------------------------
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 owns the domain name "saleoutlet.com".
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. The Company has also utilized a
radio campaign on "WCBS" in New York.
There are approximately 15,000 catalogs in the marketplace 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 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
typically results 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
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
<PAGE>
continual basis waiting for items to go on sale. Management believes that the
Company has thereby created a sale search engine for the Internet.
In addition to Internet sales on the Company's web site, 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 web site 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.
The Company is currently leveraging its established assets to launch a
business-to-business (B2B) turnkey e-tail solution for content sites and/or
commerce sites limited by their inventory and/or infrastructure. This
third-party exchange model allows the Company to sell products and marketing
services without an inventory risk and minimal branding to the consumer market.
The Company is currently offering this to solution for "winfreestuff.com" and
"mediamags.com."
Web sites can use the Company's turnkey e-tail solution to: merchandise
products within their own site environment, in a private label retail store
deriving retail revenue from each transaction gathering, and using all
transaction, sales and customer data, allowing a closer long-term customer
relationship. The Company enables content sites to sell a wide range of vendor
backed products including consumer electronics, computers, crystal, books,
video, audio, games, and software without the need to establish the fulfillment/
distributor/manufacturer relationships to acquire them or incurring the many
burdens of commerce development and maintenance. A value added for this e-tail
solution is that the Company does permit the content provider to sell its own
vendors into the e-tailing solution or become a vendor themselves, providing a
flexible product that is able to satisfy a variety of company/client business
models.
Competition
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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 three year-old
company that sells all items, which appear in a vendor's catalog thereby
duplicating the catalog and the vendor's web site,
<PAGE>
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 four 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 collective 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.
Dependence on Major Customers
-----------------------------
While the Company does not anticipate a dependence on any one
particular client in the future, during its early development stage, it received
a majority of revenue from three different clients: Lanac Sales, Inc., ZurichUS
Insurance, and Whatever Works, which in the aggregate accounted for 53% of
revenues in fiscal 1999. 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 marketplace.
Patents and Proprietary Rights
------------------------------
The technology used to power the Company's web site is a designed, web
based e-commerce 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.com", and its logo. It does not have any software or other
license agreements
<PAGE>
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.
Governmental Approvals and Regulations
--------------------------------------
At this point in time, there is no need for government approval of the
Company's principal products or services. 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 is 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.
<PAGE>
The Company anticipates that it will have no material costs associated
with compliance with either federal, state or local environmental law.
Research and Development Costs
------------------------------
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, 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 1999 fiscal year, Saleoutlet did not incur significant costs in
connection with research and development. Such costs approximated $65,000 in the
period between mid-March and early May 1999. The Company currently uses Bit x
Bit, a New York City based interactive web development company specializing in
web based e-commerce management solutions, to improve and update its web site
technology.
Employees
---------
As of December 31, 1999, Saleoutlet had six (6) full-time employees and
one (1) part-time employee. The Company also employs independent contractors and
other temporary employees. None of the Company's employees are 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. The areas of growth are anticipated to be in sales, vendor
account services, technical support and customer service. This will result from
the anticipated increase in vendors on the web site, which, in turn, will
require additional customer and vendor support. 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.
Item 2. Properties.
The Company's executive offices are located in, and substantially all
of its operating activities are conducted from, leased office space located at
132 West 21st Street, New York, New York. The Company sublets its office space
from Z. Michaels, Inc., a company owned by the president of the Company and its
chief operating officer, at a per square foot rental rate that management
believes is significantly lower than the price it would pay for comparable space
in the same geographic location. The subleased space is comprised of
approximately 5,000 square feet and the monthly rental fee is $4,500 per month
which is the same rate being paid by Z. Michaels, Inc. There are approximately
18 months remaining under the terms of the lease between Z. Michaels, Inc. and
the unaffiliated, third party landlord. 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 is not in the
business of investing in real estate or real estate mortgages and does not own
any real estate.
<PAGE>
Item 3. Legal Proceedings
The Company is not involved in any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to the vote of security holders during the year
ended December 31, 1999.
Part II
Item 5. Market for Common Equity and Related Stockholde Matters.
The Company's Common Stock is quoted on the NASD Electronic Bulletin
Board (OTC: BB) under the trading symbol "SLET". 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 in
January 1999, 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.
High Bid Low Bid
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Fiscal 1999
- -----------
First Quarter * *
Second Quarter $ 4.875 $ 0
Third Quarter $ 3.625 $ 1.375
Fourth Quarter $ 5.00 $ 0.6875
Fiscal 2000
- -----------
First Quarter $ 4.12 $ 2.12
April 1-20 $ 2.75 $ 1.1875
- -----------------------------
* No quotations are available for this period.
The Company presently is authorized to issue 50,000,000 shares of
Common Stock, of which 9,094,271 shares were outstanding as of April 20, 2000.
Holders
- -------
There were approximately 71 holders of record of the Company's Common
Stock as of April 20, 2000.
<PAGE>
Dividends
- ---------
The Company has not declared or paid cash dividends on its Common Stock
since its inception and does not anticipate paying such dividends in the
foreseeable future. The Company plans to retain any future earnings for use in
the Company's business.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
Year Ended December 31, 1999 Compared to December 31, 1998.
The Company commenced its business of selling clients' merchandise on
its web site during the second quarter of the 1999 fiscal year which generated
commissions for that quarter of $15,000. During the year ended December 31,
1999, the Company had revenues from sales generated from catalog design,
photography, and commissions of approximately $160,000 compared to $0 revenue
during the same period in 1998 when the Company had no business or operations.
General and administrative expenses also increased in the same period of 1999 to
approximately $880,000 from $0 in the comparable period in 1998. This increase
is directly related to the commencement of the Company's business operations in
the second quarter of the 1999 fiscal year and is attributable to officer and
employee salaries, rent and additional overhead and operating expenses of the
business.
The Company currently has six (6) full time employees and one (1) part time
employee. Management expects to hire approximately ten 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 web site, and one will be directly related to
general and administrative. The anticipated future cost associated with this
planned increase in employees is $500,000. 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.
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.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1999 the Company's cash balance was $338,143, as
compared to $0 at December 31, 1998. The Company had a positive cash flow for
the year ended December 31, 1999. The Company believes that the current cash
balance plus the additional contemplated raise of up to $350,000 through the
sale of its securities will be sufficient to finance its operations for the next
twelve months.
Financing activities through the sale of convertible debt and Common
Stock generated cash in the aggregate amount of $1,037,000.
Impact of Inflation
-------------------
Although the Company has not attempted to calculate the effect of
inflation, management does not believe inflation has had or will have a material
effect on its results of operations.
Forward-Looking Statements
- --------------------------
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995(the "Reform Act"), the Company is providing
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in
forward-looking statements made herein. Any statements that express, or involve
discussions as to, expectations, beliefs, plans, objectives, assumptions of
future events or performance are not statements of historical facts and may be
forward-looking. These forward-looking statements are based largely on the
Company's expectations and are subject to a number of risks and uncertainties,
including but not limited to, economic, competitive, regulatory, growth
strategies, available financing and other factors discussed elsewhere in this
report and in documents filed by the Company with the SEC. Many of these factors
are beyond the Company's control. Actual results could differ materially from
the forward-looking statements made. In light of these risks and uncertainties,
there can be no assurance that the results anticipated in the forward-looking
information contained in this report will, in fact, occur. Any forward-looking
statement speaks only as of the date on which such statement is made, and the
Company undertakes no obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time and it is not possible for management to
predict all of such factors, nor can it assess the impact of each such factor on
the business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statements.
Item 7. Financial Statements
The financial statements of the Company required by Regulation S-B are
attached to this Report. Reference is made to Item 13 below for an index to the
financial statements and financial statements schedules.
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.
Management is not aware, and has not been advised by any predecessor
accountants, of any disagreement on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope and procedure.
As disclosed in the Company's Form 10-SB, effective August, 1999, the
Company changed auditors but not as a result of any disagreements with its
former auditors. The Company's current auditor is Richard A. Eisner & Company,
LLP.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons
(a) Identification of Directors and Executive Officers
--------------------------------------------------
As of April 20, 2000, 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:
Period Served
Name Age Position As Director*
- ---- --- -------- -----------
Michael Aronowitz 36 President, CEO and Director March 1999 to
present
Jefferson Barr 37 Vice President, Secretary March 1999 to
and Director present
Lawrence Brown 54 Director April 1999 to
present
- ---------------------------------
* 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.
Michael Aronowitz, age 36, has been president, chief executive officer
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 designed and produced catalogs for specific target
markets. Z Michaels has wound down its operations and will cease all business
operations by May 2000. 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.
<PAGE>
Jefferson Barr, age 37, 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 Avirex 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 54, 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.
(b) Directorships
-------------
None of the Company's executive officers or directors is a director of
any company with a class of equity securities registered pursuant to section 12
of the Exchange Act or subject to the requirements of Section 15(d) of the
exchange Act or any company registered as an investment company under the
Investment Company Act of 1940.
(c) Identification of Certain Significant Employees
-----------------------------------------------
In addition to Messrs. Aronowitz and Barr, the Company employs two key
individuals:
Christopher Stys, age 37, was the Company's part-time creative director
from March 1999 to December 1999 and became the full-time Director of Creative
Design in January 2000. From 1995 to January 2000, Mr. Stys was secretary and
treasurer of Z. Michaels NY, Inc. From 1992 to 1995, he was vice-president of
Mod Graphics, Inc. and from 1990 to 1992, he was the art director for Avirex
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
<PAGE>
communications from Boston University and her Master of Professional Studies,
Interactive Telecommunications Program, from New York University.
(d) 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.
Item 10. Executive Compensation
The Company did not compensate prior management in the years ended
December 31, 1998, 1997 and 1996 since it was inactive during those years. The
Company commenced compensating Messrs. Aronowitz, Barr and Brown 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,
1999, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
--------------------------------
Annual Compensation Awards Payouts
------------------------------------------- ------ -------
Name and Annual Restricted Under- Other
Principal Compen- Stock lying LTIP Comp-
Position Year Salary Bonus sation Awards Options Payouts ensation
- -------- ---- ------ ----- ------ ------ ------- ------- --------
(1)(3) (2)(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Aronowitz, 1999 $52,135 None $52,135 1,560,000 550,000 None None
President, and
Director
1998 None None None None None None None
Jefferson Barr, Vice 1999 $52,135 None $52,135 1,470,000 550,000 None None
President, Secretary
and Director
1998 None None None None None None None
Lawrence Brown, 1999 $2,000 None $2,000 10,000 40,000 None None
Director
</TABLE>
- -------------------------
(1) Messrs. Aronowitz and Barr received 1,560,000 and 1,470,000 shares,
respectively, of the Company's Common Stock upon being appointed to the
Company's Board of Directors and as executive officers of the Company.
(2) Messrs. Aronowitz's and Barr's August 1999 employment agreements each
provide for the issuance of options to purchase 200,000 shares of Common Stock
at an exercise price of $1.25 per share based upon the fair market value of a
share of Common Stock as of August 11, 1999, the effective date of the
employment agreements, which are exercisable for the term of their respective
employment with the
<PAGE>
Company but no longer than ten years from the date of grant. In addition, on
December 10, 1999, the Board of Directors granted each of them options to
purchase 350,000 shares of the Company's Common Stock at an exercise price of
$1.34 per share which was the fair market value per share of the Company's
Common Stock on the date of grant. Such options are exercisable upon the earlier
to occur of (i) exercise of the options in full (ii) 90 days after termination
of employment with the Company, or (iii) ten years from the date of grant.
(3) Mr. Brown received 10,000 shares of the Company's Common Stock in connection
with his appointment to the Board of Directors in June 1999 and will receive
10,000 shares for each year he serves in such capacity. In November 1999, he was
granted an option, ratified by the Board of Directors on December 10, 1999, to
purchase 40,000 shares of the Company's Common Stock at an exercise price of
$1.25 per share which was the fair market value per share of Common Stock on the
date of grant. The option is exercisable upon the earlier to occur of (i)
exercise in full of the option, or (ii) ten years from the date of grant.
Compliance With Section 16(a) of the Exchange Act
- -------------------------------------------------
All reports required by Section 16(a) of the Exchange Act were not
filed on a timely basis by all directors, officers and beneficial owners of more
than ten percent (10%) of any class of equity securities of the Company
registered pursuant to Section 12 of the Act. The Initial Statements of
Beneficial Ownership on Form 3 for Messrs. Aronowitz, Barr, Stys and Brown were
filed in December 1999.
Option Grants in 1999
---------------------
Pursuant to the terms of their respective employment agreements with
the Company, Messrs. Aronowitz and Barr were each granted options to purchase
200,000 shares of Common Stock at an exercise price of $1.25 per share based
upon the fair market value of a share of Common Stock on August 11, 1999 which
was the effective date of their respective employment agreements. The options
are exercisable, in whole or in part, during the term of their employment with
the Company but no longer than ten years from the date of grant. On December 10,
1999, the Board of Directors granted each of Mr. Aronowitz and Barr options to
purchase 350,000 shares of the Company's Common Stock at an exercise price of
$1.34 per share which was the fair market value per share of the Company's
Common Stock on the date of grant. Such options are exercisable, in whole or in
part, upon the earlier to occur of (i) exercise of the options in full (ii) 90
days after termination of employment with the Company, or (iii) ten years from
the date of grant.
In November 1999, Mr. Brown was granted an option, ratified by the
Board of Directors on December 10, 1999, to purchase 40,000 shares of the
Company's Common Stock at an exercise price of $1.25 per share which was the
fair market value per share on the date of grant. The option is exercisable, in
whole or in part, upon the earlier to occur of (i) the exercise of the option in
full, or (ii) ten years from the date of grant.
<PAGE>
Aggregated Option/SAR Exercises and Fiscal Year End Options/SAR Value
---------------------------------------------------------------------
Table
-----
None
Long Term Incentive Plan ("LTIP") Awards Table
None
Compensation of Directors
--------------------------
Non-employee directors receive 10,000 shares of the Company's Common
Stock for each year they serve on the Board of Directors. In addition, they each
receive $400 for each meeting of the Board of Directors that they attend.
Employment Contracts and Termination of Employment
--------------------------------------------------
and Change in Control Arrangements
----------------------------------
The Company 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, effective August 11,
1999. 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. The Company's Board of Directors may increase
the salary as it deems appropriate. Pursuant to the terms of their respective
employment agreements, they were each granted options to purchase an aggregate
of 200,000 shares of the Company's 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 effective date of the employment agreements. On December
10, 1999, the Board of Directors granted each of Mr. Aronowitz and Barr options
to purchase an aggregate of 350,000 shares of the Company's Common Stock at an
exercise price of $1.34 per share based upon the fair market value per share of
the Common Stock on the date of grant.
The options are exercisable at any time, in whole or in part, during
the term of their respective employment with the Company but no longer than ten
years from the date of grant. The options are in addition to the 1,560,000
shares and 1,470,000 shares, respectively, Messrs. Aronowitz and Barr 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.
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
<PAGE>
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.
Report on Repricing of Options/SARS
None
Item 11. Security Ownership of Certain Beneficial owners
and Management
(a) Security Ownership of Certain Beneficial Owners
-----------------------------------------------
The following table sets forth as of April 20, 2000 the ownership of
Common Stock by persons known to the Company to own beneficially more than 5% of
the outstanding shares of the Company's Common Stock:
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent
Title of Class of Beneficial Owner of Beneficial Ownership (1) of Class (2)
- -------------- ------------------- --------------------------- ------------
<S> <C> <C> <C>
Common Michael Aronowitz 1,560,000 21.9%
Stock 132 West 21st Street
- ----- New York, NY 10011
Common Jefferson Barr 1,470,000 20.9%
Stock 132 West 21st Street
- ----- New York, NY 10011
Common Christopher Stys 1,470,000 19.3%
Stock 132 West 21st Street
- ----- New York, NY 10011
Common Roger Tichenor 500,000 5.5%
Stock 605 Crescent Executive Ct.
- ----- Suite 300
Lake Mary, FL 32746
</TABLE>
- -----------------------------
(1) All shares are owned directly by all listed persons. These amount do not
include presently exercisable options of 550,000 shares for each of Messrs.
Aronowitz and Barr and 350,000 shares for Mr. Stys.
<PAGE>
(2) Percentages are calculated to include all presently exercisable options of
550,000 shares for each of Messrs. Aronowitz and Barr exercisable at $1.25 for
200,000 shares and $1.34 for 350,000 shares, and 350,000 shares for Mr. Stys
exercisable at $1.34 per share, all calculated in accordance with Rule 13(d)(1).
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent
Title of Class of Beneficial Owner of Beneficial Ownership(1)(2) of Class (3)
- -------------- ------------------- --------------------------- ------------
<S> <C> <C> <C>
Common Stock Michael Aronowitz 1,560,000 17.2%
132 West 21st Street
New York, NY 10011
Common Stock Jefferson Barr 1,470,000 16.3%
132 West 21st Street
New York, NY 10011
Common Stock Lawrence Brown 10,000 *
27 Wolver Hollow Road
Old Brookville, NY 11545
All officers and
directors as a
group (3 persons) 3,040,000 33.5%
</TABLE>
- ------------------------------
* Less than 1%
(1) All shares are owned directly by the listed individuals.
(2) Does not include presently exercisable options for 550,000, 550,000 and
40,000 shares of Common Stock, respectively, for Messrs. Aronowitz, Barr
and Brown.
(3) Percentages are calculated to include all presently exercisable options of
550,000 shares for each of Messrs. Aronowitz and Barr exercisable at $1.25
per share for 200,000 shares and $1.34 for 350,000 shares, and 40,000
shares for Mr. Brown exercisable at $1.25 per share, all calculated in
accordance with Rule 13(d)(1).
(c) Changes in Control
There is no arrangement which may result in a change of control.
<PAGE>
Item 12. 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 Item 2. Properties, Item 10. Executive Compensation and the
following paragraphs:
During the year ended December 31, 1999, the Company hired Z. Michaels,
Inc., a company controlled by the officers of the Company for various
promotional material related expenses. Such expenses amounted to approximately
$76,000 for the year.
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 was
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 13. Exhibits, Financial Statements and Reports on Form 8-K.
(a) Documents filed as part of this Report:
---------------------------------------
See Index to Financial Statements attached, which are included as
an integral part of this Report.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K have been filed by the Company.
<PAGE>
(c) Exhibits
--------
(2) Articles of Incorporation, as amended, filed as an exhibit and
incorporated by reference to the Company's Form 10-SB filed on
July 1, 1999.
(3) Bylaws filed as an exhibit and incorporated by reference to
the Company's Form 10- SB filed on July 1, 1999.
(10) Employment Agreement between Michael Aronowitz and the Company
effective as of August 11, 1999.
(10)(i) Employment Agreement between Jefferson Barr and the Company
effective as of August 11, 1999.
(16) Letter on change in certifying accountant filed as an exhibit
and incorporated by reference to the Company's Form 10-SB
filed on July 1, 1999.
(16)(i) Letter on change in certifying accountant filed as an exhibit
and incorporated by reference to the Company's Amendment
Number 1 to Form 10-SB filed on August 13, 1999.
(23)(i) Consent of Kurt D. Saliger C.P.A. dated March 31, 2000.
(27) Financial Data Schedule.
(99) Report of Kurt D. Saliger dated April 20, 1999, filed as an
exhibit and incorporated by reference to the Company's
Form 10-SB filed on July 1, 1999.
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SALEOUTLET.COM, INC.
Date: April 25, 2000 By: /s/ Michael Aronowitz
-----------------------
Michael Aronowitz
President, CEO and Principal
Financial Officer
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Name Title Date
---- ------- -----
/s/ Michael Aronowitz Chairman & Director April 25, 2000
- -------------------------
Michael Aronowitz
/s/ Jefferson Barr Vice President, Secretary April 25, 2000
- ------------------------- and Director
Jefferson Barr
/s/ Lawrence Brown Director April 25, 2000
- -------------------------
Lawrence Brown
<PAGE>
SALEOUTLET.COM, INC.
(a development stage company)
FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
<TABLE>
<CAPTION>
SALEOUTLET.COM, INC.
(a development stage company)
Contents
Page
----
<S> <C>
Financial Statements
Independent auditors' report F-2
Balance sheet as of December 31, 1999 F-3
Statement of operations for the year ended December 31, 1999 and for the period
September 1, 1995 (inception) through December 31, 1999 F-4
Statement of changes in stockholders' equity for the period September 1, 1995
(inception) through December 31, 1999 F-5
Statement of cash flows for the year ended December 31, 1999 and for the period
September 1, 1995 (inception) through December 31, 1999 F-6
Notes to financial statements F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
SALEOUTLET.COM, Inc.
New York, New York
We have audited the accompanying balance sheet of SALEOUTLET.COM, Inc. (a
development stage company) as of December 31, 1999 and the related statements of
operations, changes in stockholders' equity and cash flows for the years then
ended December 31, 1999 and the amounts for the year ended December 31, 1999
included in the cumulative amounts for the period from September 1, 1995
(inception) through December 31, 1999. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of SALEOUTLET.COM, Inc., as of
December 31, 1999, and the results of its operations and its cash flows for the
year then ended and the amounts for the year ended December 31, 1999 included in
the cumulative amounts for the period from September 1, 1995 (inception) through
December 31, 1999 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A, the Company
has incurred a net loss and has experienced a cash outflow from operating
activities for the year ended December 31, 1999. These factors raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note A. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Richard A. Eisner & Company, LLP
New York, New York
April 11, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
SALEOUTLET.COM, INC.
(a development stage company)
Balance Sheet
December 31, 1999
<S> <C>
ASSETS
Current assets:
Cash and equivalents $ 338,143
Accounts receivable 48,727
Due from affiliate 12,495
Prepaid expenses 222,917
----------------
Total current assets 622,282
Fixed assets , net 67,462
----------------
$ 689,744
================
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 181,313
Capital leases - current portion 8,322
----------------
189,635
----------------
Capital leases - less current portion 7,442
----------------
Commitments (Note E)
STOCKHOLDERS' EQUITY
Common stock - $.001 par value; 50,000,000 shares authorized;
8,934,271 shares issued and 108,016 shares issuable 9,042
Additional paid-in capital 2,047,259
Deficit accumulated during the development stage (1,563,634)
----------------
492,667
----------------
$ 689,744
================
</TABLE>
See notes to financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
SALEOUTLET.COM, INC.
(a development stage company)
Statement of Operations
September 1,
1995
Year (Inception)
Ended to
December 31, December 31,
1999 1999
---- ----
<S> <C> <C>
Revenue:
Catalog design and photography $ 158,738 $ 158,738
Commission 1,581 1,581
--------------- ---------------
160,319 160,319
--------------- ---------------
Expenses:
Cost of service 68,656 68,656
Sales, marketing and public relations 563,488 563,488
Research and development 65,000 65,000
General and administrative 880,437 886,502
Interest expense (including $155,000 of equity related charges in 1999) 157,335 157,335
--------------- ----------------
1,734,916 1,740,981
--------------- ----------------
Loss from operations before other income (1,574,597) (1,580,662)
--------------- ----------------
Other:
Interest income 17,028 17,028
--------------- ----------------
Net loss $ (1,557,569) $ (1,563,634)
=============== ================
Net loss per common share - basic and diluted $(.22)
=====
Weighted average common shares outstanding 7,103,830
=========
</TABLE>
See notes to financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
SALEOUTLET.COM, INC.
(a development stage company)
Statement of Changes in Stockholders' Equity
Additional
Common Stock Paid-in
Shares Amount Capital
------ ------ -------
<S> <C> <C> <C>
Balance - September 1, 1995 (inception) - - -
Issuance of stock 6,000,000 $ 6,000
Net loss period ended December 31, 1995
------------- -----------
Balance - December 31, 1995 6,000,000 6,000
Net loss year ended December 31, 1996
------------- -----------
Balance - December 31, 1996 6,000,000 6,000
Net loss year ended December 31, 1997
------------- -----------
Balance - December 31, 1997 6,000,000 6,000
Net loss year ended December 31, 1998
------------- -----------
Balance - December 31, 1998 6,000,000 6,000
Return and cancellation of outstanding common stock on recapitalization (3,000,000) (3,000) $ 3,000
Issuance of common stock at $.01 per share to new management - April 1999 4,500,000 4,500 40,500
Sale of convertible debt instruments with common stock issuable at
$1.50 per share 103,333 103 154,897
Issuance of common stock at $1.00 per share on conversions of
convertible debt instrument 155,000 155 154,845
Issuance of common stock to consultant at $1.00 per share - April 1999 500,000 500 499,500
Sale of common stock issued and issuable at $1.50 per share - June 1999 587,954 588 881,338
Issuance of common stock to a director at $1.50 per share - June 1999 10,000 10 14,990
Issuance of common stock to consultants at $1.50 per share - June 1999 150,000 150 224,850
Issuance of common stock to consultants at $1.50 per
share - October 1999 25,000 25 37,475
Issuance of common stock to consultants at $1.50 per
share - December 1999 11,000 11 16,489
Issuance of 15,500 stock options to consultants at $1.25 per option 19,375
Net loss year ended December 31, 1999
------------- ----------- --------------
Balance - December 31, 1999 9,042,287 $ 9,042 $ 2,047,259
============= =========== ==============
(RESTUBBED TABLE)
Deficit
Accumulated
During the
Development
Stage Total
----- -----
Balance - September 1, 1995 (inception) - -
Issuance of stock $ 6,000
Net loss period ended December 31, 1995 (5,664) (5,664)
---------------- ---------------
Balance - December 31, 1995 (5,664) 336
Net loss year ended December 31, 1996 (157) (157)
---------------- ---------------
Balance - December 31, 1996 (5,821) 179
Net loss year ended December 31, 1997 (72) (72)
---------------- ---------------
Balance - December 31, 1997 (5,893) 107
Net loss year ended December 31, 1998 (172) (172)
---------------- ---------------
Balance - December 31, 1998 (6,065) (65)
Return and cancellation of outstanding common stock on recapitalization 0
Issuance of common stock at $.01 per share to new management - April 1999 45,000
Sale of convertible debt instruments with common stock issuable at
$1.50 per share 155,000
Issuance of common stock at $1.00 per share on conversions of
convertible debt instrument 155,000
Issuance of common stock to consultant at $1.00 per share - April 1999 500,000
Sale of common stock issued and issuable at $1.50 per share - June 1999 881,926
Issuance of common stock to a director at $1.50 per share - June 1999 15,000
Issuance of common stock to consultants at $1.50 per share - June 1999 225,000
Issuance of common stock to consultants at $1.50 per
share - October 1999 37,500
Issuance of common stock to consultants at $1.50 per
share - December 1999 16,500
Issuance of 15,500 stock options to consultants at $1.25 per option 19,375
Net loss year ended December 31, 1999 (1,557,569) (1,557,569)
---------------- ---------------
Balance - December 31, 1999 $(1,563,634) $ 492,667
================ ===============
</TABLE>
See notes to financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
SALEOUTLET.COM, INC.
(a development stage company)
Statement of Cash Flows
September 1,
1995
Year (Inception)
Ended to
December 31, December 31,
1999 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,557,569) $ (1,563,634)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 4,951 5,016
Amortization of discount on debt 155,000 155,000
Stock-based compensation and fees 810,875 810,875
Option based fees 19,375 19,375
Changes in:
Receivables (48,727) (48,727)
Due from related party (12,495) (12,495)
Prepaid expenses (222,917) (222,917)
Accounts payable and accrued expenses 181,313 181,313
------------- -------------
Net cash used in operating activities (670,194) (676,194)
------------- -------------
Cash flows from investing activities:
Purchase of equipment (25,257) (25,257)
------------- -------------
Cash flows from financing activities:
Net proceeds on sale of convertible debt instrument with common stock 155,000 155,000
Payment of capital lease (3,332) (3,332)
Proceeds from sale of stock, net of related costs 881,926 887,926
------------- -------------
Net cash provided by financing activities 1,033,594 1,039,594
------------- -------------
Net increase in cash 338,143 338,143
Cash and cash equivalents - at beginning of year 0 0
------------- -------------
Cash and cash equivalents - at end of year $ 338,143 $ 338,143
============= =============
Supplemental disclosures of cash flow information:
Interest $ 2,335 $ 2,335
Supplemental disclosure of noncash investing and financing activities:
Common stock issuable on the sale of convertible debt instrument with common stock $ 155,000 $ 155,000
Conversion of convertible promissory notes to common stock $ 155,000 $ 155,000
Purchase of equipment with capital lease obligations $ 19,096 $ 19,096
Stock-based compensation for employees and directors $ 834,000 $ 834,000
Issuance of stock options for consulting services $ 116,005 $ 116,005
Common stock issued for website development $ 28,125 $ 28,125
</TABLE>
See notes to financial statements
F-6
<PAGE>
SALEOUTLET.COM, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE A - THE COMPANY
Saleoutlet.com, Inc. ("Saleoutlet" or the "Company") was incorporated in
September 1995 in the state of Nevada. The Company changed its name from Austin
Underground, Inc. to Saleoutlet in February 1999. The company had no operations
from inception through March 1999. The Company has commenced its principal
operations but there has been no significant revenue for the year and therefore
is still considered a development stage company.
In March 1999, the Company was reorganized. New management was established and
opened its virtual doors on the Web in May 1999. Saleoutlet offers its clients
their own "sale site" for a fee.
The Company is subject to those general risks associated with development stage
companies, as well as special risks unique to emerging E-commerce companies
which, along with a new strategic focus to create new markets for their products
and services. As shown in the accompanying financial statements, the Company has
incurred a substantial net loss and the Company has generated minimal revenues
related to the Company's planned operations. Further, the Company's business
concept and business model are unproven and, accordingly, the Company's
viability is uncertain. In order to finance its continued development the
Company is presently attempting to raise additional financing through additional
private placements. However, there is no assurance that the Company will be
successful in that effort, nor that it will ever attain profitable operations
and operating cash flow. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The Company's continuation as
a going concern is dependent upon its ability to obtain additional financing and
ultimately to attain profitability. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classifications of liabilities that might be
necessary should the Company be unable to continue as a going concern for a
reasonable period of time.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
[1] Cash and equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. From time to time, the Company's
cash balances with any single financial institution exceed Federal
Deposit Insurance Corporation ("FDIC") and Securities Investor Protection
Corporation ("SIPC") limits. At December 31, 1999 cash equivalents
amounted to approximately $329,000 and consist of one investment in a
money market fund.
[2] Fixed assets, net:
Fixed assets are stated at cost less accumulated depreciation and
amortization. Fixed assets are depreciated on a straight-line basis over
the estimated useful lives of the assets.
[3] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from these
estimates.
F-7
<PAGE>
SALEOUTLET.COM, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[4] Stock-based compensation:
The Company has elected to follow the intrinsic value method set forth in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" in accounting for its stock option incentive plan
applicable to employees. As such, deferred compensation expense is
recorded on the date of grant of employee options if the current market
price of the underlying stock exceeds the exercise price of the option,
and such deferral is amortized and charged to operations over the vesting
period of the options. Options or stock awards issued to nonemployees are
valued using the fair value method and expensed over the period services
are provided, in accordance with the applicable provisions of Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation."
[5] Impairment of long-lived assets:
The Company evaluates the recoverability of its intangibles and other
long-lived assets in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of."
SFAS No. 121 requires recognition of impairment of long-lived assets in
the event the net book value of these assets exceeds the estimated future
undiscounted cash flows attributable to these assets. The Company
assesses potential impairment to its long-lived assets when there is
evidence that events or changes in circumstances have made recovery of
the asset's carrying value unlikely. Should an impairment exist, the
impairment loss would be measured based on the excess of the carrying
value of the asset over the asset's fair value or discounted estimates of
future cash flows.
[6] Revenue recognition:
The Company recognizes revenue (commission income) when a client sells a
product through the Company's website. Site and change fees are
recognized as the service is rendered. Rental of E-mail database
information will be recognized when such information is provided to the
client. Web site creation income will be recognized when they are fully
operational. Catalog design and marketing will be recognized upon its
completion. Advertising revenue, which consists of advertising space on
the Company web-site, is recorded during the period in which the
advertising services are provided
[7] Advertising:
Advertising expense is comprised of print and internet related marketing
expenses. Advertising expenses are charged to operations during the
period incurred, except for expenses related to the development of major
commercial or media campaigns which are charged to operations during the
period in which the advertising campaign is first presented by the media.
Advertising and marketing expenses charged to operations totaled $363,061
and $0 for the years ended December 31, 1999 and 1998. Included in
prepaid expenses at December 31, 1999 were $93,750 related to prepaid
advertising and marketing resulting from the issuance of stock in
connection with an agreement (see Note G).
[8] Net loss per share:
Basic and diluted net loss per share was computed by dividing the net
loss for the period by the weighted average number of common shares
outstanding during the period plus shares issuable.
F-8
<PAGE>
SALEOUTLET.COM, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[9] Comprehensive income:
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net
assets) during a period from non-owner sources. Comprehensive loss for
the period consists of the net loss.
[10] Segment information:
The Company adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS 131 requires
public companies to report financial and descriptive information about
their reportable operating segments. The Company identifies its operating
segments based on how management internally evaluates separate financial
information, business activities and management responsibility. The
Company believes that its operations, as they are presently developing,
constitute a single, reportable segment
[11] Financial instruments:
The carrying amounts of the Company's financial instruments approximate
fair value due to their short term nature or their underlying terms.
[12] Website development costs:
The Company capitalized the direct costs for outside consultants to
create the program code for its website.
NOTE C - FIXED ASSETS, NET
Fixed assets, at cost, at December 31, 1999 consisted of the following :
<TABLE>
<CAPTION>
Estimated
Useful
Life
----
<S> <C> <C>
Website development $ 28,125 1 year
Equipment 21,839 2 - 3 years
Furniture and fixtures 2,062 2 - 3 years
Capital lease equipment 19,096 3 years
Leasehold Improvements 1,358 Term of lease
---------------
72,480
Less accumulated depreciation and amortization 5,018
---------------
$ 67,462
===============
</TABLE>
F-9
<PAGE>
SALEOUTLET.COM, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE D - INCOME TAXES
As of December 31, 1999, the Company has an estimated net operating loss
carryforward of approximately $1,670,000 which expires in 2019. As of December
31, 1999. The Company has a net deferred tax asset of $668,000, resulting from
operating loss carry-forwards. Such net amount is fully offset by a valuation
allowance as the Company has not determined that it is more likely than not that
the available net operating loss carryforwards will be utilized.
The reconciliation of income tax benefit computed at the federal statutory tax
rate to the income tax benefit in the consolidated statement of operations is as
follows:
Federal (34)%
State and local, net of federal benefit (6)%
Increase in valuation allowance 40 %
-----
Income tax benefit 0 %
=====
The Company has recorded state and local franchise taxes based on capital in the
amount of $1,500 which is included under the caption general and administrative
expenses on the statement of operations.
NOTE E - COMMITMENTS
[1] Lease commitments:
The Company sub-leases its office space from an entity fully controlled
by its officers under an operating lease, on a month-to-month basis. Such
a lease provides for monthly payments as agreed by both companies.
Rent expense for the period ended December 31, 1999 approximated $30,000.
[2] Significant customer:
The Company has three customers that account for approximately $93,000 or
53% of net sales and one customer that accounts for $45,110 or 93% of
accounts receivables at December 31, 1999.
[3] Employment contracts:
During August 1999, the Company entered into two separate but similar
five-year employment contracts with its president and its chief operating
officer for annual salaries of $75,000 each with annual escalations of 10
percent. Upon expiration of the employment contract, the term shall be
automatically renewed for two years unless the employer gives written
notice prior to sixty days before the expiration date. Each of the
employees were granted options to purchase 200,000 shares of common stock
at an exercise price of $1.25 per share equal to the fair value.
[4] Capital lease obligations:
The Company entered into various computer capital leases with interest
rates ranging from 8% to 13%. Monthly installments due in fiscal 2000 and
2001 approximate $934 including approximate interest of $9,240.
F-10
<PAGE>
SALEOUTLET.COM, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE F - STOCKHOLDERS' EQUITY
In June 1999, the Company sold in a private placement an aggregate of 587,954
shares of common stock at a price of $1.50 per share, for proceeds of $881,338.
Principal amounts due in 2000 and 2001 total $8,322 and $7,442, respectively.
NOTE G - GRANTS AND AWARDS
[1] Options:
In December 1999, the Company granted options to purchase 93,000 shares
of common stock at $1.34 per share as compensation to individuals other
than employees for investment related services. The options are
exercisable at the rate of 15,500 per month for six months and expire on
December 20, 2009. The estimated fair value of the options which amounted
to $19,375 was charged to operations during the year 1999.
During the year 1999, the Company granted options to employees to
purchase 325,000 shares of common stock at exercise price ranging from
$1.34 to $2.25. The options are immediately exercisable with expiration
dates ranging from June 2009 to December 2009.
During the year ended 1999, the Company granted options to officers to
purchase 1,450,000 shares of common stock including 400,000 options
referred to in Note E[3] at exercise price ranging from $1.25 to $1.34.
These options are immediately exercisable with expiration dates ranging
from August 2009 to December 2009.
During November 1999, the Company granted options to purchase 40,000
shares of common stock to a director at exercise price of $1.25. The
options are immediately exercisable and expire in November 2009.
[2] Other equity issuances:
During the year ended December 31, 1999, the Company issued common stock
as follows:
(a) In April 1999, 4,500,000 shares were issued to three new
officers as an incentive to join the Company and develop an
operating business. These shares were valued at $.01 per share
which the Company estimated to be fair value. The estimated
fair value of $45,000 was charged to operations in 1999.
(b) In April 1999, 500,000 shares were issued to a consultant for
services to be rendered through April 2000. These shares were
valued at $1.00 per share totaling $500,000. At December 31,
1999, $375,000 was charged to operations and the balance
amounting to $125,000 was included in prepaid expenses.
(c) In June 1999, 150,000 shares were issued for advertising
services to be rendered through May 2000. These shares were
valued at $1.50 per share totaling $225,000. At December 31,
1999, $131,250 was charged to operations and the balance of
$93,750 was included in prepaid expenses.
(d) In June 1999, 10,000 shares were issued to a director for
services rendered through June 2000. These shares were valued
at $1.00 per share amounting to $10,000. At December 31, 1999,
$5,833 was charged to operations and the balance of $4,167 was
included in prepaid expenses.
F-11
<PAGE>
SALEOUTLET.COM, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE G - GRANTS AND AWARDS (CONTINUED)
[2] Other equity issuances: (continued)
(e) The Company issued 155,000 shares of stock valued at $1.00 per
share upon the sale of 155,000 units, consisting of one 12%
convertible cumulative promissory note and one share of the
Company's restricted common stock for each $1.00 of principal
amount of the note. Pursuant to the conversion feature, the
convertible promissory note was converted to 103,333 shares at
$1.50 per share. The total shares of 258,333 were valued at
$310,000 and a $155,000 charge to interest expense has been
reflected.
(f) During 1999, the Company issued 36,000 shares of stock valued
at $1.50 per share were issued for services provided by two
separate companies. At December 31, 1999, $25,875 was charged
to operations for such services, and $28,125 was capitalized
for website development costs to be amortized over 12 months
(the expected useful life).
Information with respect to 1999 stock option activities are as follows:
<TABLE>
<CAPTION>
1999
--------------------------------
Weighted Average
Shares Exercise in Price
------ -----------------
<S> <C> <C>
Outstanding at beginning of year 0
Options granted 1,830,500 $1.37
Options cancelled 0
Options exercised 0
------------
Outstanding at end of year 1,830,500 $1.37
============
Options exercisable at end of year 1,830,500
============
</TABLE>
The following table presents information relating to stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Exercise Exercise Life in Exercise
Price Shares Price Years Shares Price
----- ------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
$ 1.25 440,000 9.7 440,000
$ 1.34 1,290,500 9.9 1,290,500
$ 2.25 100,000 9.5 100,000
------------ ------------
1,830,500 $ 1.37 1,830,500 $ 1.37
============ ============
</TABLE>
F-12
<PAGE>
SALEOUTLET.COM, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1999
NOTE G - GRANTS AND AWARDS (CONTINUED)
The effect of applying SFAS No.123 to the Company's December 31, 1999 net loss
as stated below is not necessarily representative of the effects on reported net
loss for future years due to, among other things, the vesting period of the
stock options and the fair value of additional stock options in future years.
The weighted average fair value of the options granted during the period ended
December 31, 1999, has been estimated at $ per share on the date of grant using
the Black-Scholes option-pricing model with the following assumptions: no
dividend yield, volatility of 141%, a risk-free interest rate range of 5.8-6.2%
and an expected life of six years from date of grant. Had compensation cost to
employees and directors for the Company's stock option plan been determined
based upon the fair value of the options at the grant date for awards under the
plan consistent with the methodology prescribed under SFAS No.123, the Company's
net loss and net loss per share would have been as follows:
Net loss - as reported $1,557,569
- pro forma $3,868,858
Net loss per share - as reported $(.22)
- pro forma $(.55)
NOTE H - RELATED PARTY TRANSACTIONS
[1] During the year ended December 31, 1999, the Company hired an entity
controlled by the officers of the Company for various promotional
material related expenses. Such expenses amounted to approximately
$76,000 for the year.
The Company had a receivable of $12,495 from the aforementioned entity
(H[1]) at December 31, 1999.
[2] The Company had revenues of approximately $20,000 from a related company,
a principal of which, is a director of the Company.
During the year, the Company hired a family member of an officer for
graphic design services. Such expenses amounted to $500 for the year.
NOTE I - SUBSEQUENT EVENTS
During 2000, the Company sold in a private placement an aggregate of 60,000
shares of common stock at a price of $1.00 per share for proceeds of $60,000.
In addition, the Company has proposed to sell securities (units) aggregating to
$350,000 consisting of an 8% convertible cumulative promissory note and a
warrant to purchase one share of restricted common stock for each dollar of
principal amount of the note.
F-13
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Description
- ------- -----------
(2) Articles of Incorporation, as amended, filed as an exhibit and
incorporated by reference to the Company's Form 10-SB filed on
July 1, 1999.
(3) Bylaws filed as an exhibit and incorporated by reference to
the Company's Form 10-SB filed on July 1, 1999.
(10) Employment Agreement between Michael Aronowitz and the Company
effective as of August 11, 1999.*
(10)(i) Employment Agreement between Jefferson Barr and the Company
effective as of August 11, 1999.*
(16) Letter on change in certifying accountant filed as an exhibit
and incorporated by reference to the Company's Form 10-SB
filed on July 1, 1999.
(16)(i) Letter on change in certifying accountant filed as an exhibit
and incorporated by reference to the Company's Amendment
Number 1 to Form 10-SB filed on August 13, 1999.
(23)(i) Consent of Kurt D. Saliger C.P.A. dated March 31, 2000.*
(27) Financial Data Schedule.*
(99) Report of Kurt D. Saliger dated April 20, 1999, filed as an
exhibit and incorporated by reference to the Company's
Form 10-SB filed on July 1, 1999.
* Filed herewith
EMPLOYMENT AGREEMENT
--------------------
This Agreement effective this 11th of August, 1999, by and between
Michael Aronowitz, hereinafter called the "Employee", and Saleoutlet.Com, Inc.,
a Nevada corporation, hereinafter called the "Employer";
WITNESSETH:
WHEREAS, the Employer is a Nevada corporation engaged in the sale of
consumer goods over the Internet; and
WHEREAS, the Employee has substantial business experience and contacts,
and related business skills which can be utilized in Employer's business; and
WHEREAS, Employer desires to employ Employee and Employee desires to be
employed by the Employer, upon such terms and conditions as set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises herein contained, the parties covenant and agree as follows:
1. TERM OF EMPLOYMENT
The term of this Agreement shall be for five (5) years from the date
hereof (the "Term") and shall be automatically renewable for additional terms of
two (2) years without any action on the part of the Employer or Employee,
except, however, that Employer may terminate this Agreement (i) upon not less
than sixty (60) days written notice to Employee and/or (ii) as provided in
Paragraph 5 herein. The Term and any renewals or extensions thereof will
hereafter be collectively referred to as the "Term".
2. COMPENSATION.
During the Term, the Employer agrees to pay the Employee, as
compensation for the services of the Employee, as set forth herein, as follows:
(a) Annual Salary. For all services rendered by the Employee during the
term of this Agreement, Employer shall pay Employee as salary or compensation,
the sum of $75,000 per annum payable bi-weekly or on such basis as Employer
shall pay other executives of the Employer, and continuing until termination of
Employer's employment as set forth herein. Said annual salary shall be increased
by 10% on each one year anniversary of the date of this Agreement. Additional
salary increases, if any, shall be in the discretion of the Employer's Board of
Directors.
1
<PAGE>
(b) Employee will be reimbursed for all business expenses he reasonably
incurs on behalf and in furtherance of the Employer's business in accordance
with such rules, regulations and procedures as Employer may establish from time
to time.
(c) The Employer may make appropriate deductions from the payments
described in "(a)", "(e)" and "(f)" in this Section 2 to Employee to comply with
all governmental withholding requirements.
(d) Upon execution of this Agreement, Employee shall be granted an
option to purchase 200,000 shares of the Employer's common stock at an exercise
price equal to the fair market value per share of the common stock on the date
of this Agreement. Said option shall be exercisable in whole or in part at any
time by Employee during the Term and any extensions or renewals thereof but only
as long as Employee is employed by Employer. Notwithstanding the foregoing, the
exercise period shall expire ten years from the date of this Agreement.
(e) Bonus. Employee may receive such incentive or performance based
bonus compensation, if any, as the Employer shall deem appropriate.
(f) Fringe Benefits. Employee shall provide Employer with normal fringe
benefits provided to its management personnel including health insurance,
automobile expenses and such other fringe benefits as Employer may determine
from time to time.
(g) Vacation. During the Term, Employee shall be entitled to four (4)
weeks of annual vacation.
3. DUTIES
(a) The Employee accepts employment with the Employer on the terms and
conditions herein set forth and agrees that during the Term, he will devote his
full business time and attention to the rendition of services on behalf of the
Employer and to the furtherance of the Employer's best interests. During said
Term, Employee shall use his best efforts, skills and abilities in the
performance of his services hereunder and to promote the interests of the
Employer. Employee shall not, during the Term hereof, be engaged in any other
business activity, whether such business activity is pursued for gain, profit or
other pecuniary advantage, but this shall not be construed as preventing
Employee from investing his assets in such form or manner as will not require
any services on the part of the Employee in the operation of the affairs of the
companies in which such investments are made, except as may be provided for
herein. Employer acknowledges, however, that Employee is winding down his former
company, Z Michaels, Inc. and agrees that Employee will be permitted to continue
his duties with Z Michaels, Inc. until such time Z Michaels ceases its business.
2
<PAGE>
(b) The Employee agrees that in the rendition of his such services
under this Agreement, and in all aspects of his employment, he will comply with
such reasonable policies, standards and regulations of the Employer as are from
time to time established.
4. FEES AND INVENTIONS
All fees, compensation, monies and other things of value received or
realized as a result of the rendition of services by the Employee shall belong
to or be paid and delivered to the Employer. Employee agrees that any
inventions, patents, or copyrights related to the Employer's business which are
conceptualized, realized, or otherwise developed by Employee during the Term
shall be deemed to be the property of the Employer and the Employee shall
deliver and otherwise turn over such property to the Employer.
5. TERMINATION OF EMPLOYMENT
(a) This Agreement may be terminated by the Employer at any time
without prior notice for cause upon the occurrence of one or more of the
following events:
(i) In the event the Employee shall be adjudicated guilty of
fraud, dishonesty or other acts of misconduct in the rendering of services on
behalf of the Employer by a court of competent jurisdiction;
(ii) In the event the Employee shall fail or refuse to
faithfully or diligently perform the provisions of this Agreement or the usual
and customary duties of his employment;
(iii) In the event the Employer determines to sell or reduce
to cash substantially all of the assets of Employer, or to distribute the
Employer's assets to its stockholders in liquidation, or to discontinue the
business of the Employer;
(iv) In the event the Employee accepts (without having
obtained the prior written consent of Employer) employment with any other
company;
(v) In the event the Employee shall become (without having
obtained the prior written consent of the Employer) a holder of five (5%) of the
issued and outstanding voting securities of a competitor of the Employer, a
director of a competitor of Employer, or an officer, agent or employee of
another company;
(vi) In the event the Employee fails to render the services
and perform his duties as provided hereunder;
(vii) In the event of any wilful or repeated failure to comply
with any of the rules and policies established by Employer;
3
<PAGE>
(b) In the event of illness or other incapacity which such illness or
other incapacity shall continue for a period of more than one hundred eighty
(180) days, the Employer shall have the right, on forty five (45) days notice to
Employee, to terminate this Agreement. In such event, the Employer shall be
obligated to pay to Employee his compensation up to the date of termination.
However, if prior to the date specified in such notice, Employee's illness or
incapacity shall have terminated, and he shall have taken up and performed his
duties as required hereunder, Employee shall be entitled to resume his
employment hereunder as though such notice had not been given.
(c) In the event Employer does exercise its right of termination, other
than for cause, all obligations of the parties to this Agreement shall cease,
except for Employer's obligation to pay to Employee the lesser of (i) his
current 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 current base
salary plus the cash value if any benefits during the remaining Term, exclusive
of any renewal or extension. In the event of termination for cause, Employer
shall pay Employee any unpaid portion of his annual salary for the period up to
the date of termination and any accrued benefits up to the date of termination.
In the event of any termination of this Agreement for any reason, Employee's
obligations set forth in Sections 7, 8 and 9 herein shall survive such
termination.
6. COVENANT NOT TO COMPETE DURING EMPLOYMENT
During the Term thereafter, while acting as an officer,
director, employee or consultant of the Employer, the Employee shall not,
directly or indirectly, own, manage, operate, join, control or participate in
the ownership management, operation or control of, or be connected as an
officer, employee, partner, licensor, shareholder or in any capacity whatsoever,
with any business under any name similar to the Employer's name or the name of
any other operation which is a parent or subsidiary of or is affiliated with the
Employer.
7. COVENANT NOT TO SOLICIT
(a) During the Term and for one (1) year thereafter, the Employer shall
not, directly or indirectly, induce, influence, combine or conspire with, or
attempt to induce, influence, combine or conspire with any of the officers,
directors or employees of the Employer to terminate their employment with or
compete against (i) the Employer, or (ii) any of its present or future
subsidiaries or affiliates, (iii) or any of the customers of the Employer to
terminate their relationship with Employer, or (iv) any of its present or future
subsidiaries or affiliates. During the Term and at all times thereafter, the
Employee shall not, directly or indirectly, divert or attempt to divert any or
all of such customers' business with the Employer or with any of its present or
future subsidiaries or affiliates from the Employer or from any of its present
or future subsidiaries or affiliates.
4
<PAGE>
(b) The term "employees" of the Employer as used in this Agreement
shall include any full time or part time employee of the Employer, its
subsidiaries or affiliates.
(c) The term "customers" of the Employer as used in this Agreement
shall be defined and construed to mean any and all persons, firms, corporations,
partnerships, associations or other entities with which the Employer has dealt
in the usual course of its business, notwithstanding that such persons, firms,
corporations, partnerships, associations or other entities may have been induced
to become customers and give their patronage to the Employer by the efforts and
solicitations of Employee, or someone on his behalf, either during the usual
hours of employment of Employee or otherwise.
8. COVENANT NOT TO COMPETE FOLLOWING EMPLOYMENT
The Employee acknowledges that the Employer is in a
competitive business with a national and international market, and that the
public perception of Employee's continued and exclusive association with the
Employer under this Agreement is of a high degree of importance to the Employer.
Therefore, during the Term and for a period of one (1) year immediately after
the termination hereof for any reason whatsoever, the Employee shall not,
directly or indirectly, either for himself or for any other person, firm,
corporation, partnership, association or other entity or in any other capacity
whatsoever, engage in or become interested in or become interested in or have
any connection with any business which is competitive with any of the business
activities of the Employer or any of its present or future subsidiaries or
affiliates, and which is located or doing business anywhere within the United
States of America.
9. CONFIDENTIALITY
(a) In the course of his employment, the Employer may disclose or make
known to Employee, and Employee may be given access to or become acquainted
with, certain information, trade secrets or both, including but not limited to
procedures, formulations, methods, systems, documentation, facilities, policies,
marketing, pricing, customer lists and leads, and other information and
know-how, all relating to, or useful in, the Employer's business and which
Employer considers proprietary and maintains confidential (collectively
"Confidential Information).
(b) During the Term and at all times thereafter, Employee shall not in
any manner, either directly or indirectly, divulge, disclose or use, except in
the course of performing his obligations to Employer under this Agreement, any
Confidential Information or proprietary data of the Employer which Employee
becomes aware of in the course of performing his obligations under this
Agreement without the prior written consent of Employer. Any breach of the terms
of this Section 9 is a material breach of this Agreement.
5
<PAGE>
(c) All equipment, documents, memoranda, reports, records, files,
materials, samples, books, correspondence, hard drives, disks, lists, other
written and graphic records, and the like (collectively, the "Materials",
affecting or relating to the business of the Employer or its subsidiaries and/or
affiliates, which Employee shall prepare, use, construct, observe, possess or
control shall be and remain the Employer's sole property or in the Employer's
exclusive custody and must not be removed from the premises of the Employer
except as directed by the Employer's Board of Directors in writing. Promptly
upon termination of employment for any reason whatsoever or otherwise upon
request of any officer of Employer, the Materials and all copies thereof in the
custody or control of Employee shall be immediately delivered to the Employer.
10. ENFORCEABILITY OF RESTRICTIVE COVENANTS
The parties intend that the covenants contained in Sections 7,
8, and 9 shall be construed as a series of identical (other than as to
geography) separate covenants as to each state, possession and territory of the
United States of America. If, in any judicial proceedings, a court shall refuse
to enforce any of the other separate covenants deemed included in that
paragraph, then such unenforceable covenant shall be amended to relate such
lesser period or geographical area as shall be enforceable or, if deemed
appropriate by such court, deemed eliminated from these provisions for the
purpose of those proceedings to the extent necessary to permit the remaining
separate covenants to be enforced. In the event Employer should bring any legal
action or other proceeding against Employee for enforcement of Sections 7, 8 or
9, the calculation of the one (1) year period shall not include the period of
time commencing with the filing of legal action or other proceeding to enforce
Sections 7, 8 or 9 through the date of final judgment or final resolution,
including all appeals, if any, or such legal action or other proceedings.
11. INJUNCTION
It is recognized and hereby acknowledged by the parties hereto that a
breach by the Employee of any of the covenants contained in Section 6,7,8 and 9
of this Agreement may cause irreparable harm and damage to the Employer, the
monetary amount of which may be virtually impossible to ascertain. As a result,
the Employee recognizes and hereby acknowledges that the Employer may be
entitled to an injunction from any court of competent jurisdiction enjoining and
restraining any violation of any or all of the covenants contained in Sections
6,7,8 and 9 of this Agreement by the Employee, his employees, associates,
partners or agents, either directly or indirectly, and that such right to
injunction may be cumulative and in addition to whatever other remedies the
Employer may possess.
6
<PAGE>
12. DAMAGES
Nothing contained herein shall be construed to prevent the Employer or
the Employee from seeking and recovering from the other damages sustained by
either or both of them as a result of its or his breach or violation of any term
or provision of this Agreement. In the event that either party hereto brings
suit for the collection of any damages resulting from, or the injunction of any
action constituting a breach or violation of any of the terms or provisions of
this Agreement, then the party found to have caused damage to the other shall
pay all reasonable court costs and attorneys' fees of the damaged party.
13. DEATH OF EMPLOYEE
In the event of Employee's death during the term of this Agreement,
this Agreement shall terminate immediately and Employee's legal representative
shall be entitled to receive the compensation due Employee, if any through the
last day of the two calendar months in which is death shall have occurred.
14. NOTICE
Unless otherwise specifically provided herein, notice required or
permitted to be given under this Agreement shall be sufficient if in writing and
if sent by certified mail, return receipt requested, to the residence of the
Employee, or if sent to the principal place of business of the Employer, as the
case may be and as the circumstances may require.
15. SUBSIDIARIES AND AFFILIATES
All references herein to the Employer shall include the Company's
subsidiaries and affiliates.
16. SURVIVAL
Notwithstanding anything to the contrary herein, the provisions of
Sections 4, 5, 6, 7, 8, 9, 10, 11, 12, 15, 16 and 17 shall survive and remain in
effect in accordance with their respective terms in the event this Agreement or
any portion hereof is terminated.
17. WAIVERS
The failure or delay of the Employer at any time to require performance
by the Employee of any provision of this Agreement, even if known, shall not
affect the right of the Employer to require performance of that provision or to
exercise any right, power or remedy hereunder, and any waiver by the Employer of
any breach of any provision of this Agreement should not be construed as a
waiver of any continuing or succeeding breach of such right, power or remedy
under this Agreement. No notice to or demand on the Employee in any case,
7
<PAGE>
shall, of itself, entitle such party to any other or further notice or demand in
similar or other circumstances.
18. SPECIFIC PERFORMANCE
The Employee acknowledges that damages at law would be an inadequate
remedy for any breach or threatened breach of this Agreement by the Employee or
any provision of this Agreement. Accordingly, the Employer shall be entitled, in
addition to all other rights or remedies, to injunctions restraining such
breach, without being required to show any actual damage or to post any bond or
other security.
19. REMEDIES CUMULATIVE
No remedy herein conferred upon any party is intended to be exclusive
of any other remedy, and each and every such remedy shall be cumulative and
shall be in addition to every other remedy given hereunder or now or hereafter
existing at law in equity or by statute or otherwise. No single or partial
exercise by any party of any right, power or remedy hereunder shall preclude any
other or further exercise hereof.
20. MISCELLANEOUS PROVISIONS
(a) Governing Law and Venue. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of New
York. Venue of all proceedings in connection with this Agreement shall be in the
state and federal courts in New York County, New York.
(b) Headings. The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
(c) Binding Effect. This Agreement shall be binding upon and
shall operate for the benefit of the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns.
(d) Attorney's Fees. Should it become necessary for any party
to institute legal action to enforce the terms and conditions of this Agreement,
the prevailing party shall be awarded a reasonable attorneys' fee, which shall
include a reasonable attorneys' fee for any appellate proceedings, expenses,
including any accounting expenses, and costs, from the other party hereto if
such party was an adverse party to such litigation.
8
<PAGE>
(e) Severability. The invalidity or unenforceability, in whole
or in part, of any covenant, promise or undertaking, or any section, subsection,
paragraph, sentence, clause, phrase or word of any provisions of this Agreement
shall not affect the validity or enforceability of the remaining portions
thereof.
(f) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year set forth in the first paragraph of this Agreement above.
WITNESSES: THE EMPLOYER:
Saleoutlet. Com,
________________________ a Nevada corporation
By: /s/ Jefferson Barr
----------------------------
Jefferson Barr
THE EMPLOYEE:
/s/ Michael Aronowitz
- ------------------------ ----------------------------
Michael Aronowitz
9
EMPLOYMENT AGREEMENT
--------------------
This Agreement effective this 11th of August, 1999, by and between
Jefferson Barr, hereinafter called the "Employee", and Saleoutlet.Com, Inc. a
Nevada corporation, hereinafter called the "Employer";
WITNESSETH:
WHEREAS, the Employer is a Nevada corporation engaged in the sale of
consumer goods over the Internet; and
WHEREAS, the Employee has substantial business experience and contacts,
and related business skills which can be utilized in Employer's business; and
WHEREAS, Employer desires to employ Employee and Employee desires to be
employed by the Employer, upon such terms and conditions as set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises herein contained, the parties covenant and agree as follows:
1. TERM OF EMPLOYMENT
The term of this Agreement shall be for five (5) years from the date
hereof (the "Term") and shall be automatically renewable for additional terms of
two (2) years without any action on the part of the Employer or Employee,
except, however, that Employer may terminate this Agreement (i) upon not less
than sixty (60) days written notice to Employee and/or (ii) as provided in
Paragraph 5 herein. The Term and any renewals or extensions thereof will
hereafter be collectively referred to as the "Term".
2. COMPENSATION.
During the Term, the Employer agrees to pay the Employee, as
compensation for the services of the Employee, as set forth herein, as follows:
(a) Annual Salary. For all services rendered by the Employee during the
term of this Agreement, Employer shall pay Employee as salary or compensation,
the sum of $75,000 per annum payable bi-weekly or on such basis as Employer
shall pay other executives of the Employer, and continuing until termination of
Employer's employment as set forth herein. Said annual salary shall be increased
by 10% on each one year anniversary of the date of this Agreement. Additional
salary increases, if any, shall be in the discretion of the Employer's Board of
Directors.
1
<PAGE>
(b) Employee will be reimbursed for all business expenses he reasonably
incurs on behalf and in furtherance of the Employer's business in accordance
with such rules, regulations and procedures as Employer may establish from time
to time.
(c) The Employer may make appropriate deductions from the payments
described in "(a)", "(e)" and "(f)" in this Section 2 to Employee to comply with
all governmental withholding requirements.
(d) Upon execution of this Agreement, Employee shall be granted an
option to purchase 200,000 shares of the Employer's common stock at an exercise
price equal to the fair market value per share of the common stock on the date
of this Agreement. Said option shall be exercisable in whole or in part at any
time by Employee during the Term and any extensions or renewals thereof but only
as long as Employee is employed by Employer. Notwithstanding the foregoing, the
exercise period shall expire ten years from the date of this Agreement.
(e) Bonus. Employee may receive such incentive or performance based
bonus compensation, if any, as the Employer shall deem appropriate.
(f) Fringe Benefits. Employee shall provide Employer with normal fringe
benefits provided to its management personnel including health insurance,
automobile expenses and such other fringe benefits as Employer may determine
from time to time.
(g) Vacation. During the Term, Employee shall be entitled to four (4)
weeks of annual vacation.
3. DUTIES
(a) The Employee accepts employment with the Employer on the terms and
conditions herein set forth and agrees that during the Term, he will devote his
full business time and attention to the rendition of services on behalf of the
Employer and to the furtherance of the Employer's best interests. During said
Term, Employee shall use his best efforts, skills and abilities in the
performance of his services hereunder and to promote the interests of the
Employer. Employee shall not, during the Term hereof, be engaged in any other
business activity, whether such business activity is pursued for gain, profit or
other pecuniary advantage, but this shall not be construed as preventing
Employee from investing his assets in such form or manner as will not require
any services on the part of the Employee in the operation of the affairs of the
companies in which such investments are made, except as may be provided for
herein. Employer acknowledges, however, that Employee is winding down his former
company, Z Michaels, Inc. and agrees that Employee will be permitted to continue
his duties with Z Michaels, Inc. until such time Z Michaels ceases its business.
2
<PAGE>
(b) The Employee agrees that in the rendition of his such services
under this Agreement, and in all aspects of his employment, he will comply with
such reasonable policies, standards and regulations of the Employer as are from
time to time established.
4. FEES AND INVENTIONS
All fees, compensation, monies and other things of value received or
realized as a result of the rendition of services by the Employee shall belong
to or be paid and delivered to the Employer. Employee agrees that any
inventions, patents, or copyrights related to the Employer's business which are
conceptualized, realized, or otherwise developed by Employee during the Term
shall be deemed to be the property of the Employer and the Employee shall
deliver and otherwise turn over such property to the Employer.
5. TERMINATION OF EMPLOYMENT
(a) This Agreement may be terminated by the Employer at any time
without prior notice for cause upon the occurrence of one or more of the
following events:
(i) In the event the Employee shall be adjudicated guilty of
fraud, dishonesty or other acts of misconduct in the rendering of services on
behalf of the Employer by a court of competent jurisdiction;
(ii) In the event the Employee shall fail or refuse to
faithfully or diligently perform the provisions of this Agreement or the usual
and customary duties of his employment;
(iii) In the event the Employer determines to sell or reduce
to cash substantially all of the assets of Employer, or to distribute the
Employer's assets to its stockholders in liquidation, or to discontinue the
business of the Employer;
(iv) In the event the Employee accepts (without having
obtained the prior written consent of Employer) employment with any other
company;
(v) In the event the Employee shall become (without having
obtained the prior written consent of the Employer) a holder of five (5%) of the
issued and outstanding voting securities of a competitor of the Employer, a
director of a competitor of Employer, or an officer, agent or employee of
another company;
(vi) In the event the Employee fails to render the services
and perform his duties as provided hereunder;
(vii) In the event of any wilful or repeated failure to comply
with any of the rules and policies established by Employer;
3
<PAGE>
(b) In the event of illness or other incapacity which such illness or
other incapacity shall continue for a period of more than one hundred eighty
(180) days, the Employer shall have the right, on forty five (45) days notice to
Employee, to terminate this Agreement. In such event, the Employer shall be
obligated to pay to Employee his compensation up to the date of termination.
However, if prior to the date specified in such notice, Employee's illness or
incapacity shall have terminated, and he shall have taken up and performed his
duties as required hereunder, Employee shall be entitled to resume his
employment hereunder as though such notice had not been given.
(c) In the event Employer does exercise its right of termination, other
than for cause, all obligations of the parties to this Agreement shall cease,
except for Employer's obligation to pay to Employee the lesser of (i) his
current 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 current base
salary plus the cash value if any benefits during the remaining Term, exclusive
of any renewal or extension. In the event of termination for cause, Employer
shall pay Employee any unpaid portion of his annual salary for the period up to
the date of termination and any accrued benefits up to the date of termination.
In the event of any termination of this Agreement for any reason, Employee's
obligations set forth in Sections 7, 8 and 9 herein shall survive such
termination.
6. COVENANT NOT TO COMPETE DURING EMPLOYMENT
During the Term thereafter, while acting as an officer,
director, employee or consultant of the Employer, the Employee shall not,
directly or indirectly, own, manage, operate, join, control or participate in
the ownership management, operation or control of, or be connected as an
officer, employee, partner, licensor, shareholder or in any capacity whatsoever,
with any business under any name similar to the Employer's name or the name of
any other operation which is a parent or subsidiary of or is affiliated with the
Employer.
7. COVENANT NOT TO SOLICIT
(a) During the Term and for one (1) year thereafter, the Employer shall
not, directly or indirectly, induce, influence, combine or conspire with, or
attempt to induce, influence, combine or conspire with any of the officers,
directors or employees of the Employer to terminate their employment with or
compete against (i) the Employer, or (ii) any of its present or future
subsidiaries or affiliates, (iii) or any of the customers of the Employer to
terminate their relationship with Employer, or (iv) any of its present or future
subsidiaries or affiliates. During the Term and at all times thereafter, the
Employee shall not, directly or indirectly, divert or attempt to divert any or
all of such customers' business with the Employer or with any of its present or
future subsidiaries or affiliates from the Employer or from any of its present
or future subsidiaries or affiliates.
4
<PAGE>
(b) The term "employees" of the Employer as used in this Agreement
shall include any full time or part time employee of the Employer, its
subsidiaries or affiliates.
(c) The term "customers" of the Employer as used in this Agreement
shall be defined and construed to mean any and all persons, firms, corporations,
partnerships, associations or other entities with which the Employer has dealt
in the usual course of its business, notwithstanding that such persons, firms,
corporations, partnerships, associations or other entities may have been induced
to become customers and give their patronage to the Employer by the efforts and
solicitations of Employee, or someone on his behalf, either during the usual
hours of employment of Employee or otherwise.
8. COVENANT NOT TO COMPETE FOLLOWING EMPLOYMENT
The Employee acknowledges that the Employer is in a
competitive business with a national and international market, and that the
public perception of Employee's continued and exclusive association with the
Employer under this Agreement is of a high degree of importance to the Employer.
Therefore, during the Term and for a period of one (1) year immediately after
the termination hereof for any reason whatsoever, the Employee shall not,
directly or indirectly, either for himself or for any other person, firm,
corporation, partnership, association or other entity or in any other capacity
whatsoever, engage in or become interested in or become interested in or have
any connection with any business which is competitive with any of the business
activities of the Employer or any of its present or future subsidiaries or
affiliates, and which is located or doing business anywhere within the United
States of America.
9. CONFIDENTIALITY
(a) In the course of his employment, the Employer may disclose or make
known to Employee, and Employee may be given access to or become acquainted
with, certain information, trade secrets or both, including but not limited to
procedures, formulations, methods, systems, documentation, facilities, policies,
marketing, pricing, customer lists and leads, and other information and
know-how, all relating to, or useful in, the Employer's business and which
Employer considers proprietary and maintains confidential (collectively
"Confidential Information).
(b) During the Term and at all times thereafter, Employee shall not in
any manner, either directly or indirectly, divulge, disclose or use, except in
the course of performing his obligations to Employer under this Agreement, any
Confidential Information or proprietary data of the Employer which Employee
becomes aware of in the course of performing his obligations under this
Agreement without the prior written consent of Employer. Any breach of the terms
of this Section 9 is a material breach of this Agreement.
5
<PAGE>
(c) All equipment, documents, memoranda, reports, records, files,
materials, samples, books, correspondence, hard drives, disks, lists, other
written and graphic records, and the like (collectively, the "Materials",
affecting or relating to the business of the Employer or its subsidiaries and/or
affiliates, which Employee shall prepare, use, construct, observe, possess or
control shall be and remain the Employer's sole property or in the Employer's
exclusive custody and must not be removed from the premises of the Employer
except as directed by the Employer's Board of Directors in writing. Promptly
upon termination of employment for any reason whatsoever or otherwise upon
request of any officer of Employer, the Materials and all copies thereof in the
custody or control of Employee shall be immediately delivered to the Employer.
10. ENFORCEABILITY OF RESTRICTIVE COVENANTS
The parties intend that the covenants contained in Sections 7,
8, and 9 shall be construed as a series of identical (other than as to
geography) separate covenants as to each state, possession and territory of the
United States of America. If, in any judicial proceedings, a court shall refuse
to enforce any of the other separate covenants deemed included in that
paragraph, then such unenforceable covenant shall be amended to relate such
lesser period or geographical area as shall be enforceable or, if deemed
appropriate by such court, deemed eliminated from these provisions for the
purpose of those proceedings to the extent necessary to permit the remaining
separate covenants to be enforced. In the event Employer should bring any legal
action or other proceeding against Employee for enforcement of Sections 7, 8 or
9, the calculation of the one (1) year period shall not include the period of
time commencing with the filing of legal action or other proceeding to enforce
Sections 7, 8 or 9 through the date of final judgment or final resolution,
including all appeals, if any, or such legal action or other proceedings.
11. INJUNCTION
It is recognized and hereby acknowledged by the parties hereto that a
breach by the Employee of any of the covenants contained in Section 6,7,8 and 9
of this Agreement may cause irreparable harm and damage to the Employer, the
monetary amount of which may be virtually impossible to ascertain. As a result,
the Employee recognizes and hereby acknowledges that the Employer may be
entitled to an injunction from any court of competent jurisdiction enjoining and
restraining any violation of any or all of the covenants contained in Sections
6,7,8 and 9 of this Agreement by the Employee, his employees, associates,
partners or agents, either directly or indirectly, and that such right to
injunction may be cumulative and in addition to whatever other remedies the
Employer may possess.
6
<PAGE>
12. DAMAGES
Nothing contained herein shall be construed to prevent the Employer or
the Employee from seeking and recovering from the other damages sustained by
either or both of them as a result of its or his breach or violation of any term
or provision of this Agreement. In the event that either party hereto brings
suit for the collection of any damages resulting from, or the injunction of any
action constituting a breach or violation of any of the terms or provisions of
this Agreement, then the party found to have caused damage to the other shall
pay all reasonable court costs and attorneys' fees of the damaged party.
13. DEATH OF EMPLOYEE
In the event of Employee's death during the term of this Agreement,
this Agreement shall terminate immediately and Employee's legal representative
shall be entitled to receive the compensation due Employee, if any through the
last day of the two calendar months in which is death shall have occurred.
14. NOTICE
Unless otherwise specifically provided herein, notice required or
permitted to be given under this Agreement shall be sufficient if in writing and
if sent by certified mail, return receipt requested, to the residence of the
Employee, or if sent to the principal place of business of the Employer, as the
case may be and as the circumstances may require.
15. SUBSIDIARIES AND AFFILIATES
All references herein to the Employer shall include the Company's
subsidiaries and affiliates.
16. SURVIVAL
Notwithstanding anything to the contrary herein, the provisions of
Sections 4, 5, 6, 7, 8, 9, 10, 11, 12, 15, 16 and 17 shall survive and remain in
effect in accordance with their respective terms in the event this Agreement or
any portion hereof is terminated.
17. WAIVERS
The failure or delay of the Employer at any time to require performance
by the Employee of any provision of this Agreement, even if known, shall not
affect the right of the Employer to require performance of that provision or to
exercise any right, power or remedy hereunder, and any waiver by the Employer of
any breach of any provision of this Agreement should not be construed as a
waiver of any continuing or succeeding breach of such right, power or remedy
under this Agreement. No notice to or demand on the Employee in any case,
7
<PAGE>
shall, of itself, entitle such party to any other or further notice or demand in
similar or other circumstances.
18. SPECIFIC PERFORMANCE
The Employee acknowledges that damages at law would be an inadequate
remedy for any breach or threatened breach of this Agreement by the Employee or
any provision of this Agreement. Accordingly, the Employer shall be entitled, in
addition to all other rights or remedies, to injunctions restraining such
breach, without being required to show any actual damage or to post any bond or
other security.
19. REMEDIES CUMULATIVE
No remedy herein conferred upon any party is intended to be exclusive
of any other remedy, and each and every such remedy shall be cumulative and
shall be in addition to every other remedy given hereunder or now or hereafter
existing at law in equity or by statute or otherwise. No single or partial
exercise by any party of any right, power or remedy hereunder shall preclude any
other or further exercise hereof.
20. MISCELLANEOUS PROVISIONS
(a) Governing Law and Venue. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of New
York. Venue of all proceedings in connection with this Agreement shall be in the
state and federal courts in New York County, New York.
(b) Headings. The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
(c) Binding Effect. This Agreement shall be binding upon and
shall operate for the benefit of the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns.
(d) Attorney's Fees. Should it become necessary for any party
to institute legal action to enforce the terms and conditions of this Agreement,
the prevailing party shall be awarded a reasonable attorneys' fee, which shall
include a reasonable attorneys' fee for any appellate proceedings, expenses,
including any accounting expenses, and costs, from the other party hereto if
such party was an adverse party to such litigation.
(e) Severability. The invalidity or unenforceability, in whole
or in part, of any covenant, promise or undertaking, or any section, subsection,
paragraph, sentence, clause, phrase or word of any provisions of this Agreement
shall not affect the validity or enforceability of the remaining portions
thereof.
8
<PAGE>
(f) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year set forth in the first paragraph of this Agreement above.
WITNESSES: THE EMPLOYER:
Saleoutlet. Com,
________________________ a Nevada corporation
By: /s/ Michael Aronowitz
----------------------------
Michael Aronowitz
THE EMPLOYEE:
/s/ Jefferson Barr
- ------------------------ ----------------------------
Jefferson Barr
9
KURT D. SALIGER, C.P.A.
Certified Public Accountant
March 31, 2000
Board of Directors
Saleoutlet.Com, Inc.
132 West 21st street
New York, NY 10011
Gentlemen:
We hereby consent to the use of our Independent Auditors' Report dated
April 20, 1999 and the accompanying financial statements for Saleoutlet.Com,
Inc. (formerly Austin Underground, Inc.) as of and for the year ended December
31, 1998 and March 31, 1999 for inclusion as an exhibit to the Form 10-KSB to be
filed with the Securities and Exchange Commission.
Very truly yours,
/s/ Kurt D. Saliger
---------------------
Kurt D. Saliger
Certified Public Account
5000 W. Oakey, Suite A-4, Las Vegas, Nevada 89146
Phone: (702) 367-1988 Fax: (702) 870-8388
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Saleoutlet.Com, Inc. (formerly Austin Underground, Inc.) December 31,
1999 financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0001085819
<NAME> Saleoutlet.Com, Inc.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 338,143
<SECURITIES> 0
<RECEIVABLES> 48,727
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 622,282
<PP&E> 72,480
<DEPRECIATION> 5,018
<TOTAL-ASSETS> 689,744
<CURRENT-LIABILITIES> 189,635
<BONDS> 0
0
0
<COMMON> 9,042
<OTHER-SE> 2,047,259
<TOTAL-LIABILITY-AND-EQUITY> 689,744
<SALES> 158,738
<TOTAL-REVENUES> 160,319
<CGS> 0
<TOTAL-COSTS> 1,734,916
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,557,569)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,557,569)
<EPS-BASIC> 7,103,830
<EPS-DILUTED> 7,103,830
</TABLE>
