August 23, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON. D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
THE AUXER GROUP, INC.
(Name of Small Business Issuer in its charter)
Delaware 22-3537927
(State or other Jurisdiction I.R.S. Employer
of incorporation or organization) Identification No.
30 Galsei Drive
Wayne, New Jersey 07470
(Address of principal executive offices) (Zip code)
Issuer's telephone number, 973-890-1331
Securities to be registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is be to registered
Common Stock, $.001 Par Value OTC:BB
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Common Stock, $.001 Par Value
<PAGE>
Item 1. Description of Business
BUSINESS DEVELOPMENT
The Auxer Group, Inc. (the "Company") was incorporated in Idaho on June 24, 1920
under the name "The Auxer Gold Mines, Inc." The Company's original business was
mining. (Apredecessor Company@)a mining corporation. Shortly thereafter, the
Company sold shares to the public and was traded on the over-the-counter (OTC)
bulletin board.
The Company was predominately dormant from the late 1970s to the 1990s.
In 1994, the remaining assets in the Corporation were removed from the
corporation and CT Industries, Inc. ("CT") was reverse merged into Auxer
Industries, Inc. CT's assets included the distribution rights to an oil
treatment formulation. The Company moved its offices to Ridgewood, NJ. In 1994
and 1995, the Company continued to develop the engine treatment and test
marketed the product through infomercials and by sponsoring regional races.
In 1996, the Company established Wayne, New Jersey as its headquarters of record
and made two acquisitions. Firstly, it acquired Universal Filtration Industries,
Inc. ("Universal Filtration") - a company that made products for dry-cleaners,
and secondly, the Company acquired Harvey Westbury Corporation, Inc.("Harvey
Westbury") a light manufacturer and wholesaler of aftermarket automotive
products.
In early 1997, the Company attempted to broaden its development through a series
of strategic investments in software companies located in the United Kingdom.
Auxer=s investments in the UK software group were developed in conjunction with
two key individuals, Robert Smith, former President of Burroughs, London England
and ITT Caribbean Manufacturing, Puerto Rico and Danny Chapchal, currently
Managing Director of Cambridge Display Technology, Cambridge, England. The
Software Group was organized to create a spectrum of software applications
geared to the expanding asset care and management markets. The software group
attempted to compete globally within the asset care market and the enterprise
resource market. Auxer sold its interest in the software business in late 1997.
On August 7, 1997 THE AUXER GROUP, Inc., was incorporated in the state of
Delaware and the Company was authorized to issue 25,000,000 shares at $.001 par
value. Of those shares, 20,000,000 shares were for common stock, while the
remaining 5,000,000 shares were for preferred stock. Subsequently, the articles
of incorporation were amended twice. The first amendment took place on September
22, 1997 where the FOURTH Article was struck out and substituted with a new
FOURTH article that increased the number of shares the Company had authority to
issue to 75,000,000 at a par value of each such shares of $.001. Of those
shares, 50,000,000 shares were to be common stock, while the remaining
25,000,000 shares would be preferred stock. The second amendment occurred on the
19th of March, 1999. This amendment changed the Fourth Article by further
increasing the number of shares the Company had authority to issue to
175,000,000 shares at a par value of $.001 par value per share. Of such shares,
150,000,000 were to be common stock, while the remaining 25,000,000 shares would
be preferred stock.
Auxer Industries, Inc. the Idaho corporation merged in August of 1997 into The
Auxer Group, Inc., a Delaware Corporation. The Company trades publicly on the
NASD OTC Bulletin Board. In September of 1997, shareholders of Auxer Industries
voted to exchange their shares on a one for one basis for shares in The Auxer
Group, Inc., the new Delaware corporation.
In 1999 The Auxer Group, Inc. acquired 100% of the assets of Mr. Ernest DeSaye's
business, Hardyston Distributors, a small automotive distributor in Northwest
New Jersey, and put the assets and business of the corporation into Hardyston
Distributors, Inc., a wholly owned Nevada Corporation.
Neither the Company nor any of its subsidiaries is under any petition for
Bankruptcy, has not filed for Bankruptcy and is not aware of any actions related
to bankruptcy currently taking place. Furthermore, there are no known personnel
of the Company who currently have any petitions filed under the Bankruptcy Act
or under any state insolvency laws.
BUSINESS OF ISSUER
The Company ("AGI") is a publicly held company and its stock trades on the OTC
Bulletin Board under the symbol AXGI. AGI is a holding company which currently
owns four (4) subsidiaries: The Harvey Westbury Corporation Inc. (HW), CT
Industries, Inc. (CT), Hardyston Distributors (HD) and Universal Filtration
Industries, Inc. (UFI) which is currently dominant. These companies primarily
manufacturer, assemble, distribute and market accessories, chemicals, and parts
primarily to the Automotive Aftermarket & Parts, Marine, Aviation and Hardware
industries. The subsidiaries own several patents and trademarks that include
Easy Test7, Garry's Royal SatinJ, Garry's Royal Satin MarineJ, Garry's ITJ,
Formula 2000UltimateJ, and The Next Generation in Engine TreatmentJ. The Company
intends to continue these operations in the future.
In 1998, management continued development and sales of the Garry=s Marine Care
Products line and completed testing of Formula 2000 Ultimate. The first
production run of Ultimate 2000 was completed. Sales for the marine line, which
completed its new marine packaging , were successful in the Company's opinion,
however the Company believes that Easy Test sales suffered from a warm winter
across the US. The beginning of 1998 proved to be a difficult period for the
company in the software investment as well. Unfortunately, the person expected
to be the Company's primary financier, Robert Smith, unexpectedly passed away in
January of 1998, and as a result, management was forced to divest of the
software program. With the loss of our financing, Auxer opted to accept an offer
by a Mr. Chapchal to purchase the software operations from Auxer rather than
further drain the company's cash flow position and risk further delay of the
advancement of the new automotive products. Auxer and Mr. Chapchal completed
arrangements to turn over the software division in June 1998 while structuring
the sale in such a manner that Auxer could recoup its investment. However, the
cash flow drain on Auxer proved to be a burden the remainder of the year as
Auxer was forced to direct a majority of the arranged financing for the
automotive companies to the software investment.
Additionally, the Company completed development of the marine product line and
began trying to reduce the costs of IT silicone spray. With the cash flow strain
Harvey Westbury=s sales and marketing plans were crippled and the company saw
much of the planned sales deteriorate due to inability to deliver timely as
maintaining adequate inventory was not possible. Additionally, layoffs in
operations and sales were required. The reduced sales group tried to focus on
marketing and selling of the Garry=s Marine products line and the Easy Test line
as well as launch Formula 20000 during the Fall =98 buying season. The group's
focus turned from development to sales and marketing during this period but the
impact was limited due to funding.
REVIEW OF PRODUCTS:
Garry=s Royal Satin7 Automotive Product Line:
Overview:
The company offers what it believes to be a complete line of car care products
under the Garry=s and Royal Satin trademarks. To complement the cleaner/wax and
polishes, management has been testing interior care products for price points
and attractive packaging concepts.
Royal Satin Cream Paste Cleaner/Wax and Polish:
This cleaner/wax formula has been in existences for over 50 years. This product
has a blend of carnauba wax and cleaners intended to remove light oxidation and
provide a long lasting , high-gloss shine. The company believes that the product
is excellent for One-Step detailing and believes that it is excellent for
oxidized paint surfaces including lacquer or enamel as well as metal, and
fiberglass surfaces. The texture is intended to allow for easy on and off
application without hard rubbing. The product is offered in cream paste and
liquid.
King=s Ransom Premium Cleaner/Wax and Polish:
This cleaner/wax was introduced in the late 1980s and is formulated for
clear-coat paint finishes. It maintains the creamy texture that the company
believes Royal Satin is noted for and offers what the company perceives to be a
long lasting shine with No silicones.
Royal Satin Supreme:
This product is an upgrade version of King=s Ransom that the company intends to
make available to the market in 1999. The product was designed with the intent
to provide an even longer lasting shine and better durability than King's
Ransom. The company intends for the product to take advantage of the Royal Satin
trademark, which the company believes is well recognised, in certain regions.
Garry=s Interior Car Care Products:
The company's products in this category are a carpet cleaner, waterproofing
spray, leather cleaner and plastic and fiberglass cleaner. The products are
currently packaged in spraytops, however new packaging options are being
reviewed.
Garry=s Royal Satin Marine Products:
Overview:
Harvey Westbury has enjoyed what the company believes to be a strong and
respectable brand name recognition within the boating and marine industry in the
SE and NE regions of the United States. The company believes that the product is
generally the top selling brand or 2nd top selling brand in the stores where it
is carried. The Royal Satin Marine line consists of a boat wash, heavy duty
compound, a finishing polish and its flagship cleaner/wax. The line also offers
care products covered in the automotive line.
Cream Paste Cleaner Wax:
The product is the flagship cleaner/wax that that the company believes has
become very popular among detailing professionals. Its unique blend of waxes and
cleaner offers what the company believes to be a tremendous one-step cleaning
and waxing option or can be applied after a compound in detailing practices.
Heavy Duty Rubbing Compound:
The compound was recently added to the line of products. This product is
intended to complement to the company's flagship cleaner/wax for difficult
oxidation problems that are too difficult for normal oxidation.
Finishing Polish:
The product was added recently to the line to offer the detailer an extra layer
of protection that is intended to get them through an entire season.
Cleaner/waxes on the market typically fall short of performing more than 4
months. This polish and protector is intended to give the boating enthusiast an
extra couple months of added shine and protection from oxidation.
Boat Wash:
This was added to round a complete detailing package to take a professional
through the whole cleaning cycle. In this product the company has attempted to
specially formulate a product to clean and prep a boat for the deoxidization
process. The company believes this product is biodegradable and safe for a
finishes.
It Silicone and T-Bolt Rust Penetrant:
Overview:
Harvey Westbury markets a silicone and multipurpose lubricant under the brand
name It and T-Bolt. The products have been around since the 1940=s and had what
the company believes to be national recognition up through the 1980s. It has
what the company believes is a particularly strong following in the Northeast
United States.
Formula 2000 Ultimate Product Line:
Overview:
CT Industries maintains formulations for a synthetic lubrication product
designed for engines and transmission lubrication enhancement.
EasyTest7 Product Line:
Overview:
The Easy Test product series is a 25 year old line that Harvey Westbury founded.
The products consist of three (3) types of antifreeze and battery testers, a
carbon monoxide tester, and drain plug series. Additionally, the air
conditioning line is trademarked under Easy Test as well as the Hatchback solar
powered rechargeable light and other accessory products.
Antifreeze & Battery Testers:
Product Overview:
The Harvey Westbury tester products are manufactured at the company's facilities
in Farmingdale, NY. The main products are anti-freeze and battery testers, which
come in three different sizes. The first type is a five-ball tester that
consists of a four-inch glass catheter, assembled together with a vinyl squeeze
bulb and dispensing tail. The working components in these items are five
specific gravity balls that float at different concentrated levels of the
solution being tested. The solution for the anti-freeze test involves a water to
anti-freeze mix, while the battery test involves a water to acid mix. These
gravity balls are constructed from a chemical blend which primarily gives the
company what it believes to be domestic exclusivity. Once the items are
manufactured and assembled, they are then packaged for retail distribution using
Harvey Westbury's in-house machinery and equipment. The same concept applies to
the other two size types, which are much larger and resemble a French horn and
turkey-baster in their respective shapes. Most items are sold under their
registered trademark Easy-Test7, however, the company also maintains several
private label contracts within the industry.
Mobile Air Conditioning Accessories:
Product Overview:
Harvey Westbury markets all of its air-conditioning accessory items under the
brand name Easy-TestJ. The product line is mainly comprised of retrofit kits,
recharge kits, charging hose, fittings, manifold gauges, leak detector kits,
thermometers, and protective goggles. Additionally, the accessory items are
designed to service all R-12 (CFC-12 or Freon) and R134a (HFC-134a) automotive
systems.
Crankcase Drain Plug Series (CDPs & EDPs):
Product Overview:
Two series of crank case drain plugs are currently packaged by the company. The
group actively markets the CDP series which is a strong rubber plug complete
with an inserting tool. The product is marketed to the do it yourself market and
the quick oil change chains. The product is purchased in single or six pack
blister pack options.
The second series is a metal screw in product. The product is self tapping the
company believes it to be and an excellent product. The company is currently in
discussions to private label this for a group looking to market this as an OEM
product.
Fleet Drain Plug Series (RDPs):
Product Overview:
The Fleet drain plug series is an imported product. The product is generally
designed for large construction and farm equipment as well as RVs. The product
comes as a kit and maintains what the company believes are excellent margins.
The product allows the user to insert a drain tube by screwing onto a permanent
attachment to vehicles
Carbon Monoxide Testers:
Product Overview:
The CO items that Harvey Westbury manufactures are devices that alert the
consumer to the presence of carbon monoxide by changing color. This small
indicator is roughly 2@ in diameter and is comprised of a proprietary blend of
chemicals, which react to carbon monoxide. The pill indicator is affixed to an
adhesive backed plastic applicator that allows the item to be placed almost
anywhere. In addition, the pill indicator changes back to its original color
after the carbon monoxide is removed which makes the item reusable. Depending on
the surrounding climate, these detectors can last up to a full year. Harvey
Westbury offers two types of testers based on their levels of detection
sensitivity. Since carbon monoxide is measured in Part Per Millions (PPM), one
tester will react to carbon monoxide dosages of 50ppm and the other will react
at 100ppm. Typically, these items are sold in the retail market between $3.99
and $5.99.
Miscellaneous Products:
Overview:
Harvey Westbury assembles pneumatic hoses and distributes handles for a certain
luggage company which the company believes helps to maintain solid margins and
fill voids in low labor cycles.
Additionally, the company continues to maintain several miscellaneous items in
the Easy Test line such as windshield wiper cleaners, hatchback lights, and
hacksaw blades. Management intends to continue to offer these as part of the
line until the inventory is diminished.
MARKETING:
The company is engaged in business in several markets. The company believes it
is conducting business with approximately 25% of the top 100 automotive major
retailers and distributors as well as about 5% of the major marine retailers and
distributors. However the company's revenues do not exceed 20% with any
individual customer. While the company is not engaged in any formal contracts
with identified volumes, the company has arrangements to private label for
Warren Distribution for Polar Bear7 products, Carquest Inc. for Carquest7
products, and Allison Corp. for Allison7 products. The company's products are
packaged under several other unknown brand names since the products are sold in
bulk and packaged by other companies.
The company is currently employing the strategies outlined below:
Garry=s Royal Satin7 Automotive Product Line:
12 Month Strategy & Marketing Plan:
The company believes that Royal Satin enjoys strong brand name recognition in
the NE and SE United States and in Puerto Rico, and that the product also has
strong recognition in the aviation sector markets. In 1998, the company added
clear-coats into the Royal Satin line under Kings Ransom. The distribution have
channels received this product with less enthusiasm. The Kings Ransom trademark
didn=t have the recognition that Royal Satin enjoys. Therefore, in 1999, the
company is introducing an improved clear-coat in Royal Satin Supreme. The
distribution channels are more excited and expect stronger results.
Additionally, the company=s market analysis showed over 75% of automotive
polishes sold are in a liquid form, so Royal Satin will reintroduce a liquid
polish as well. After the remaining inventory in King=s Ransom is depleted the
company currently intends to retire the product.
The company intends to promote the product through TV and magazine ads
regionally in the areas where the company enjoys recognition. The company has
programmed what it believes to be a solid promotion campaign in the key regions.
The second phase planned for the product line in the Fall of 1999 will include
moving the product to plastic containers with screw on tops as an added feature
and uniqueness. Management believes this new attractive packaging will allow the
company gain some market share.
The last phase planned will include introducing a detailing clay to the line in
1999. This is a relatively new product in the United States, however the product
sells well in the Pacific Rim countries as part of the "do it yourself" market.
The company believes it is well positioned to offered this new item in the line.
Garry=s Royal Satin Marine Products:
12 Month Strategy & Marketing Plan:
The company believes that Harvey Westbury could easily grow this market with a
solid program. The company believes that the products do very well in all of the
markets they are in and that the formulation for marine use is very attractive.
The margins are more appealing in the marine industry because company products
tend to be 10% lower than 3M and Meguires lines, which seem to be the
predominant competition on a national scale.
The company intends to focus on maintaining it strong market share in the NE and
resurrect the SE region of the United States in 1999. Additionally, these
products have received interest in LA and SC through grass roots development.
Management also feels that Puerto Rico could do well in the marine end with such
strong brand name awareness.
TV advertising doesn=t seem to drive this section of the market, although spot
ads prior to the season may help. Discounts and grass roots sample programs
appear to pay the biggest dividends. The company intends to utilize this
strategy to enter new markets and then work with the local distribution
companies, respectively.
It Silicone and T-Bolt Rust Penetrant:
12 Month Strategy & Marketing Plan:
The company has received strong interest in the Northeast to offer a program for
IT and the company is currently putting together a program for several hardware
store chains in an attempt to attract co-op and TV ad campaigns.
The company is also seeking to reintroduce the product to many of it old
followers in the Southeast.
Formula 2000 Ultimate Product Line:
12 Month Strategy & Marketing Plan:
The company introduced Formula 2000 Ultimate to the market in 1998. Management
believes that a TV ad campaign will be necessary to pull the product through the
distribution system. The group has contacted several interested distributors
with a solid promotion and advertising campaign to grow the distribution.
Additionally, the company's research demonstrates that the product will need to
be identifiably unique in order to differentiate between other products.
Management has conceived a theme to take advantage of the product's unique
features. The company believes that Formula 2000 will demonstrate increased
mileage as proof of reduced friction. As a result, the group is seeking to
initiate in 1999 the Formula 2000 mileage challenge. By incentivising the user
to track his mileage through promotions and contests for completing mileage
tracking forms, the company intends to accumulate data, force the client to
focus on the product, and develop a unique following of resale clients.
To cap the strategy, the company intends to offer attractive distribution
pricing and strong co-op advertising programs to promote the challenge.
Additionally, the company intends to introduce the gas treatment into the line
in the Fall 1999.
EasyTest7 Product Line:
12 Month Strategy & Marketing Plan:
Antifreeze & Battery Testers:
The company has analyzed Joni and Harvey Westbury=s cost on the 501 tester
series and determined them to be similar. Currently Joni is the sole significant
supplier of the 701 and 901 series testers. The only other significant
manufacturer is Chaslyn which only makes 501s.
Management is in discussions with Chaslyn to acquire the business at the end of
the season. This would be strategic in terms of regaining some of the lost
clients who prefer American Made products for the 501 series.
In 1999, the company plans to maintain an aggressive pricing format for this
commodity item and to continue to offer discounts to old clients for returning.
Additionally, management is seeking other options overseas with more competitive
pricing on the 701 and 901 series.
The company believes that there are two strategies in which this segment
provides opportunity for growth. The first is to compete with the overseas
exporters= pricing which would entice further domestic purchasing. The second
opportunity is to introduce these items on clip strips, which would make it a
better impulse item. This would give retailers more incentive to try the
company's products. Harvey Westbury believes it has been able to cut raw
material costs as well as reduce labor inefficiencies during its production
processes. This should allow the company several advantages over the foreign
manufacturers. The first advantage would be to enable distributors to put Made
in USA on their packaging, which ensures quality. The second advantage would be
to give companies= faster delivery times, which should make corporate planning
easier. Also, companies should be able to save on warehouse space since they
should not be required to order high volume quantities in order to get
discounted freight pricing. Also, Harvey Westbury has a complete packaging
facility, which enables them to offer private labeling for clients. Being able
to offer all these benefits at equal or better pricing should put Harvey
Westbury in a potentially profitable position. By converting several large
distributors from import to domestic purchasing, the company does not believe it
is an unreasonable goal for the company to obtain 25% of the market share in
this industry.
Mobile Air Conditioning Accessories:
12 Month Strategy & Marketing Plan:
In the early 1990s, this line was one the top two revenue producing lines for
the company. The company made strides to re-enter the market in 1998, however
cashflow limitations wouldn=t allow the company to make the initial inventory.
The company feels that distribution channels embraced Harvey Westbury=s
re-entrance since competition is currently limited. The product requires this to
be made in volume in order to compete in this market.
Although the company believes limited marketing is required, $80,000 in startup
costs is required, and it will take 18 months to break even on the product. With
the recent requirements changing to R134a, the company believes Harvey Westbury
is well positioned to take advantage of a strong market.
Crankcase Drain Plug Series (CDPs & EDPs):
12 Month Strategy & Marketing Plan:
The company is currently pursuing avenues to combat the cost issue to gain a
competitive edge. The product can be made overseas for a third of our current
cost and Harvey Westbury has an option to buy the molds after the exclusive
contract is completed reportedly in 1999.
Carbon Monoxide Testers:
12 Month Strategy & Marketing Plan:
Currently the company believes that, this market is saturated, but the Easy Test
CO Tester maintains a solid little niche for inexpensive CO testers under $5 for
vehicles and selected safety use. Management will continue to pursue current
areas of success.
The company's strategy for 1999 is to maintain the current client base and to
identify new clients with similar profiles. The increase in sales is expected to
come from aviation clients. Harvey Westbury currently has what it believes to be
a strong client base in the aviation industry who purchase the Royal Satin
Cleaner/Wax. The group will focus on cross selling these products.
Fleet Drain Plug Series (RDPs):
12 Month Strategy & Marketing Plan:
The company intends to reintroduce the product to the client base as well as
identify similar profile prospects through mailing campaigns.
Other Industries:
The company markets and distributes their products in other industries to
Aviation, Farm Aftermarket, Hardware, and Medical.
Aviation:
Harvey Westbury=s third strongest market is in small aircraft aviation. The
company markets the Royal Satin Cleaner/Wax and Easy Test CO Tester series to
this market. IT Silicone also sells in small quantities. The company intends to
introduce the entire line and will attempt to cross sell these clients in 1999.
Farm Aftermarket:
The company markets its antifreeze and batter testers in this market. It is a
small percentage of sales, however management believes that Formula 2000 could
perform well in this arena.
Hardware:
The company=s principle product in this market is the IT Silicone spray. This
market has deteriorated in the mid-1990s, however management has received strong
interest in beginning distribution on more significant levels in 1999. Harvey
Westbury will also continue to market the CO Tester in this market as well. The
company has planned a 10% co-op marketing program for the upcoming year in the
Northeast.
Medical:
Harvey Westbury does very little currently in this market, however the margins
are excellent. Management believes potential exists within this market to make
specific gravity balls for medical testing. The product is very similar to the
testing balls used in the antifreeze and battery tester 501 series.
No particular strategies are planned in these industries for 1999 other than
maintaining the current revenue.
COMPETITION AND RELATED MATTER:
Garry=s Royal Satin7 Product Line for Automotive, Marine & Aviation:
Market & Competition:
The Wax and Polish market is mainly comprised of waxes, polishes, and
Protectants. According to the Automotive Parts & Accessories Association=s
(APAA) Automotive Weekly, the Automotive Wax / Polish Industry produced retail
revenues totaling 470 million dollars in 1995. This figure was confirmed by the
Aftermarket Business journal=s (AB) 23rd Annual Car Care study which, in
addition, showed an estimated figure of 498 million dollars in retail sales for
1996. The forecasted growth for 1997 is four percent. Although seemingly
stagnant, the company believes that the reduced growth patterns since 1992 still
provide a fair amount of room for new developers. The company believes this
industry market is clearly dominated in the southern and Midwest regions of the
country.
The company believes that the care products industry is comprised of multiple
types of products and brand names. Any area or component of one vehicle has a
particular product made to clean and/or protect it. The products, mechanically,
generally come in either aerosol cans or plastic spray bottles with a typical
range to include lubricants, cleaners, sealants, adhesives, and protectants.
According to the 23rd Annual report conducted by the Aftermarket Business
Magazine (AB), the Glass Cleaner and All-purpose Cleaner markets each
respectively estimated retail sales to be $63 and $92 million, with an expected
growth rate of 3% to 11%. The company believes there are at least twenty-five
different categories of product that carry very similar sales statistics. The
company believes that the size of this industry demonstrates the opportunity
potential for new competitors.
In addition to the Automotive Industry, the company believes that the Marine
Waxes and Polishes industry provides significant opportunity. According to the
National Marine Manufacturers Association (NMMA), this market generates yearly
revenues of $125 million.
The wax market primarily consists of what the company terms Do It Yourselfer
("DIYer") client base. The company believes that the distribution chain from
manufacturer to end-user (consumer) generally follows a traditional route. The
company believes that it's a three level process that starts with the
manufacturer/wholesaler who sells to the distributor who, in turn, sells product
to the Jobber and/or retailer. The consumer can then purchase from the retailer
to complete the chain. According to AB=s 23rd Annual Car Care study, the leading
retail distribution sources are the major Discount Chain stores such as Wal-Mart
and Kmart, as well as the major Automotive Retail groups like Pep Boys and
Western Auto. These two groups command a 45% and 41% market share, respectively.
Other retail outlet sources include Department Stores (9%) such as Sears, and
Non-Automotive chains (5%) such as grocery & convenience stores.
The company believes that Recent years have shown that major retailers command a
larger influence in the industry by being their own distributors. The company
believes that this push has started to shift the distribution chain towards a
two step process, which entails the wholesaler selling direct to the retailer.
Under this method the company believes that since the retailer can now handle
more volume than the distributor, in most cases, they are able to demand lower
purchase levels. The company believes that this puts tremendous strain on the
distributors and can probably account for what the company perceives to be a
decrease in growth. Electronic Data Inquiry (EDI) systems are also becoming more
accepted by major retailers. These systems make it easier to order directly from
the manufacturer.
Harvey Westbury Corp. falls into the first level of distribution. They are a
manufacturer/distributor of Garry=s7, which is their own line of car care
products to include waxes, pastes, cleaners & Protectants.
There are three primary strategies from which the company intends for this
segment of its business to provide opportunity for growth. The first of which is
better and more appealing packaging. Few product lines offer attractive, screw
top containers. The second is the one-step application process. According to the
AB=s 23rd Annual study, one popular industry trend set by the baby boomer
generation is the notion of a quick and easy product. Consumers are constantly
looking for less time consuming methods of cleaning their vehicles. Finally,
sales support can play a big factor. Market penetration exists for those
manufacturers who supply assistance with sales support. Harvey Westbury has just
introduced a new packaging scheme for it=s Royal Satin WaxJ Garry=s line which
involves a new twist off plastic container for convenience along with a new
color and label design. Also, the cream paste and liquid products offered by the
wax line allow what the company believes to be easy-on application. Finally, the
1998 marketing program provides for customer sales support.
The company believes that competition in this industry mainly exists between the
long time, well-recognized brand name organizations such as First Brands, 3M and
Turtle Wax and the recently popular younger groups like Star Brite and Mother=s.
It is important to recognize that each major competitor has nationally
advertised promotions and also plays an active role in the Marine industry.
The following is an overview of the competition:
FIRST BRANDS B located in Danbury, CT
This public company (NYSE/FBR) had reported sales for 1996 of over one billion
dollars. One hundred thirteen million dollars of these sales represent car care
products consisting of waxes and polishes (30-50% of the market). Their
principle brand name is STP7, which plays an active role in the automotive
additive industry. The brand name for which they market their wax is known as
SimonizJ, which is classified as an inexpensive, quality product that is
currently distributed through traditional routes and supported with strong
representation in most chains and outlets. The product has been in existence
since the mid 1900=s and is traditionally packaged in a yellow metal container
to include various sizes. The company believes the first brand's strength is its
brand name recognition, and it's weakness is their packing and delivering
reliability.
TURTLE WAX, INC. B located in Chicago, IL
This private company has several branches located all over the nation. Over the
years this company has developed several car care trademarks and brand name
subsidiaries such as Lubricating 2001J, Finish 2001J, Formula 2001J, and CD-2J.
Its most recognized national brand name Turtle WaxJ, alone, had an estimated 20
million in sales for 1996 (10-20% of the market) according to the American
Business Directory. Their green and white packaging is unmistakable to the
consumer. This low-end product is priced between 1.99 and 5.99, which gives it
the benefit of being affordable. The Company believes that Turtle Wax's strength
is its well-recognized brand name. Turtle Wax also maintains excellent product
development and is characteristically one of the pioneers for setting the tones
in the industry. A few years ago, Turtle Wax set a trend when they introduced
the convenient hand applicator affixed to the top of their containers. This year
at the 1997 APAA show in Las Vegas, the company introduced a new polish, which
involves a spray-on application that just wipes off with no buffing required.
Again, this coincides with what the company believes to be recent trends of
easy-on mode. Turtle Wax, Inc. has strong distributor, and major retailer
penetration with large marketing and advertising capital to help support their
products.
Minnesota, Mining and Manufacturing (3M) B located in St. Paul, MN
This public company (NYSE/MMM) is a major leader in several industries to
include Automotive and Marine. Their 1996 10K reported net sales of over 14
billion-dollars. 3M's strength is clearly its brand name recognition. The
company believes that 3M's weakness lies in the fact that its name (3M7) is more
widely recognized for its adhesives. The company believes that this gives
indication of inferior wax products.
Other Competition:
Other major competitors in the wax and polish industry include BLUE CORAL, who
was recently acquired by Quaker State and StarBrite Distributors, Inc. located
out of Florida. Another popular brand name called MOTHER=S located in Huntington
Beach, CA has recently made a push into the national market and has rapidly
introduced a complete car care product line to compliment their wax items.
It Silicone and T-Bolt Rust Penetrant:
Market & Competition:
While dozens of competitors market a silicone spray, most notably Gunk and
Prestone. Others market a multipurpose lubricator such as WD-40 and Liquid
Wrench. the company believes that the real issue to competitiveness is cost to
make and brand name awareness. The company believes that is has recently been
able to solve the cost issues and believes it can compete in the marketplace.
The market is projected at over $100 Million.
Formula 2000 Ultimate Product Line:
Market & Competition:
The Engine Treatment and Oil Additive market is part of what the company
perceives to be the lucrative Automotive Aftermarket Parts & Accessories
Industry and the company categorizes within the chemical products group.
According to The 23rd Annual Car Care study sponsored by the Aftermarket
Business journal (AB), the Aftermarket chemical product group represented nearly
$3 Billion in retail revenue in 1996. Additionally, the FAIR estimated the
additive market, which includes gas, oil, radiator, and windshield additives to
be approximately $690 Million in retail sales (in 1996) of which 39% was
attributed to engine treatments and oil additives.
Additionally, AB=s 23rd Car Care study, establishes a market size of $272
Million in 1996 with 9% growth in 1997 or $296.5 Million in total retail sales
of engine treatments. Approximately 72% of the engine treatment is sold through
retail chains and automotive stores. The APAA estimates 6% growth for 1998 in
retail chains and stores. The company believes that since $213.5 Million in
sales is generated from the retail chains according to the APAA, the remaining
18% or $83 Million is generated from regional and small local automotive stores,
convenient stores, service stations, and miscellaneous outlets.
Engine Treatments are also distributed through another growing industry,
lubrication service centers. In 1997, the Automotive Oil Change Association
(AOCA) estimated that over 8000 centers were currently in service. Company
estimates using information fromthe American Business Information=s database
indicates that approximately 8500 centers are registered representing
approximately $2.0 to $2.5 Billion in revenue generation for 1997. According to
that study, the average establishment produces approximately $350,000 to
$400,000 in revenue, annually. The typical lubrication service center will
perform approximately 40 oil changes per day, ( in the Northeast and West Coast,
the average is approximately 75 to 100 per day). The company's research
indicates that approximately 5 to 10% of the servicing performed will include
the use of engine treatments or oil additives. Making what the company believes
to be conservative assumptions, an approximately $50 to $100 Million in engine
treatment sales exist within the lubrication servicing business.
The company has been unable to find much statistical data on the international
market for engine treatments. Today the company believes, Europe, Canada, the
Pacific Rim and Central America represent the best market opportunities. Some of
the major brands maintain distributors and representation in these regions.
However the company believes that this market is currently not well established.
The company believes that a significant market exists for engine treatment
outside the United States of equal size or larger if it is approached with the
correct marketing emphasis.
Currently, the distribution of engine treatment follows the traditional
paths within the Aftermarket industry to include traditional
wholesale/distribution to automotive retail chains (classical 3 tier), major
retail chains (two tier) and direct telemarketing and infomercial settings.
About two-thirds to three-quarters ($213.5 Million-est.) of the
approximately $350 to $400 Million engine treatment products are presently
distributed through major retail chains in the United States. Within the retail
chain market, engine treatment is distributed as follows:
49%- through Automotive Chains ($104.6 Million-est.)
46%-through Discount Chains ($98.2 Million-est.)
4%-through Non Automotive Chains (8.5 Million-est.)
1%-through Department Store Chains (2.1 Million-est.)
The small non-chain automotive retailers, convenient stores and service stations
account for approximately $83 Million in sales. These outlets tend to utilize
large buying groups and/or regional feeders/distributors.
The company estimates that the Lubrication Service Center market isbetween $50
to $100 Million, is fairly diverse. According to the American Business
Information=s database, this market is segmented as follows:
28% (est.)- Chain Centers such as Jiffy, Quick Lube, & Qlube 15% (est.)- Car
Dealerships and Service Centers 57% (est.)- Local Service Stations and
independent lube centers
The average retail gross margins maintain 31% and turn their inventory 4.3 turns
per year according to AB 23rd Car Care Study.
The company believes that the engine treatment market has developed into three
distinct marketing categories of high-end brand names, mid-range non-brand names
and private label, and low end products.
The high-end brand names, where Formula 2000 UltimateJ intends to be associated,
are products such as Slick 50J, DuralubeJ, MotorUpJ, and ProlongJ which dominate
the retail shelves. These products usually range in price from $16.99 to $29.99
in automotive retail stores and $11.99 to $19.99 in discount stores.
The mid-range products consist of non-brand name products and private label such
as TM8J, Tech2000J (Wal-Mart), Lubricator2001J (TurtlewaxJ) ranging in price
from $8.99 to $16.99 in retail stores and $6.99 to $12.99 in discount stores.
Typically, these products include PTFE and low end oil additives packages
The low-end products consist of additional private label brands and STP=s brand
of oil additives. Typically, these products consist only of low end packages
which include cleaners and low grade oil alternatives. These products are
retailed for as low as $1.25 in discount stores and up to $6.99 in retail stores
Within the engine treatment market, the company believes that several
opportunities exist. The market is projected to grow 6% in 1998 and the APAA
emphasizes key growth areas will be non-automotive chains such as grocery
stores, convenient stores, and hardware areas. Additionally, penetration
opportunities exist within the lubrication service centers and service station
outlets.
The company believes that most trade journals are communicating the same idea.
Namely that to successfully move engine treatment products, the consumer must be
educated with quality point of sale material and well informed salespeople at
the retail level. The company believes that this can be achieved by quality
fieldwork from manufacturer reps and quality field training for distributors.
The company believes that the main competition within the marketplace comes from
well-known names from the automotive industry to include First Brands and Blue
Coral, a wholly owned subsidiary of Quaker State.
First Brands: This company has what the company believes is the most recognized
name in oil additives and engine treatments with their brand name, STPJ. While
the company is a multi-billion dollar company, the Company estimates First
Brands to have generated approximately $70 Million to $100 Million in oil
additives (17% to 25% market share) during 1997, STP=s product line is
positioned as a low-end product line with multiple product additives. The
products are typically a quality motor oil mixed with old, well known, low-end
additive packages. The company competes relatively on low gross margins with
high volume concepts. STPJ offers a full line of additive products.
The company believes First Brands relies heavily on the long-standing
recognition of STPJ within the additive market as they have done for many years
after creating the oil additive business in the 1940s. STPJ continues to stay
the course and dominate the inexpensive oil additive arena.
Quaker State: Is a multibillion-dollar public company which is well recognized
for it=s line of motor oil products, however the company is well diversified and
owns the well recognized car care products company, Blue Coral. Blue Coral
acquired the Slick50J in 1994 for approximately $60 Million and the assumption
of approximately $13 Million in debt.
The company believes Slick50=s line of engine treatments and additives is the
most recognized brand name within United States for high-end products. The
company estimates that Slick50 contributes approximate $50 to $70 Million in
annual revenue (12% to 20% market share) to the Blue Coral group of Quaker
State.
Slick50=s initial engine treatment product was primarily a quality motor oil and
PTFE, sometimes better recognized as DuPont=s Teflon7. In recent years, Slick50J
has adjusted it=s formula to include some of today=s more popular additive
packages. Additionally, Blue Coral has introduced a full line of additives and
gas treatments as well as semi-synthetic and full synthetic engine treatments.
The synthetic versions are expected to be PAO technology. Clearly, the strengths
of this product are its brand name recognition and strong complete line of
products.
Blue Coral's marketing approaches include the recent 2 for 1-engine treatment
and gas treatment packages and the $19.99 oil change (handy carrying case and
four quarts of oil). The company believes Blue Coral's weakness to be mediocre
technology. However, Blue Coral seems to be very profitable as the products are
very inexpensive to make and receive the highest retail prices. The product is
rarely found for less than $17.99 and more often is fixed at $19.99. The
original Slick50 has recently dropped in retail price to as low as $16.99, while
the newer synthetic formulas rarely show discounts.
ProlongJ: This company is private and estimated at approximately $20 to $30
Million in annual sales (5%-8% market share). The company is located in
California and the company believes it is recognized as one of the top four or
five recognized high-end brand names. The company believes Prolong has its
strongest following in the West region of the United States and can be found in
many of the prominent retailers. Prolonghas been registered with the American
Business Information=s database for 7 years and is noted for an usually
psychedelic bottle. The company has not changed its format from a single
showcase product, although the company has a full line of additive products.
Prolong is arguably the company which started the infomercial blitzes in the
1990s in which all of the market leaders followed suit.
The company believes that Prolong maintains relatively strong brand name
recognition; however, the company believes that the technology behind the
product is not strong and that it is only a Asupped-up@ additive package. The
product typically retails for $12.99 to $19.99 and usually shares shelf space
with Slick50J. ProlongJ and Dura LubeJ are typically not offered together; but
either ProlongJ or Dura LubeJ are sold with Slick50J.
Dura LubeJ: This company is private and is estimated at approximately $10 to $20
Million in annual sales (2%-5% market share). Dura Lube is located in Eden, New
York and is recognized as one of the top four or five high-end brand names in
the marketplace. The company believes that Dura Lube is most noted for
introduction of the chlorine-based treatments which have recently fallen out of
favor with lubrication and tribology experts. Dura Lube contends its product is
no longer chlorine-based. The company believes Dura Lube has strong brand name
awareness, however the company believes that the technology of the product is
questionable.
Dura LubeJ offers a full line of additives and treatments, however the company
has not introduced any synthetic formulas to date. Dura Lube pursued a heavy
infomercial marketing basis in the early 1990s as did many companies. Lately,
the company believes Dura Lube has changed its strategy to offer their engine
treatment within different packages and looks; for example, Dura LubeJ has
offered the $19.99 oil change (oil free with a triangular drain pan) and is
currently offering a 2 for 1 treatment program for $19.99 (complete with engine
and gas treatment). The product also shares retail shelf space next to the brand
name leader, Slick50 in most major retailers where it is typically retailed
between $12.99 to $18.99 as a sole product (usually $2 to $4 less than Slick50).
MotorUpJ: MotorUp is private and the company estimates it to have approximately
$5 to $10 Million in annual sales. While representing a small share of the
market (1% to 3%), this company has achieved what the company believes is a
strong brand name awareness in only two years. MotorUp is located in
Philadelphia and entered the marketplace approximately three years ago. The
company believes that MotorUp has made a strong impact from a marketing
standpoint. The President of the company has what the company believes is a
strong marketing background and took the 1996 Automotive Show by storm with a
multimillion infomercial marketing blitz prior to the show and focused heavily
on the Southeast region of the United States in 1996. By 1997, this company
showed staying power through its infomercials. Additionally, this company
popularized the 15oz bottle, satisfaction guaranteed and ANo Oil Change@
product.
MotorUpJ introduced a full line of additives at the 1997 automotive tradeshow,
however the product line did not include a semi-synthetic or synthetic product.
MotorUpJ maintains a high-end brand name product. The company believes MotorUp's
strength is its marketing appeal, however, the technology is simple quality oil
mixed with a strong additive package. Currently, MotorUpJ is moving away from
infomercials and establishing distributors and retailers. The product is
starting to show up on some of the retail shelves, however the company believes
it has not unseated the shelf space of Slick 50, Dura Lube and Prolong. The
product can be found in some of the less prominent retailers on special isle
shelving and is retailed between $19.99 to $29.99 with a lubrication manual and
is recently marketing a gas treatment 2 for 1 package.
Other Competition:
The company believes that the remaining 39% to 63% of the engine treatment
market is comprised of dozens of mid-tier companies that offer engine treatments
as part of their additive product lines or private label vendors. The company
believes that most of these companies average $5 to $25 Million in total annual
sales. Several mid-tier products tend to have some brand name recognition and
include Lubricator 2001J (Tuttlewax product), TM8J, Tech2000J (Wal-Mart Private
Label), R-2000J (Bilstein), Marvel Mystery OilJ, and TufoilJ just to name a few.
The company believes another indirect competitor to the engine treatment market
is the recently growing synthetic motor oils. Mobile introduced the Mobile OneJ
technology, (initially PAO technology) and has recently introduced TMP
technology. This technology is still developing and Mobile is clearly leading
the way as is the recognized technology leader within the lubrication industry.
Today, Mobile synthetic motor oil technology nearly parallels Formula 2000=s
synthetic technology. In recent years, most lubricating oil packages have
introduced some form of synthetic technology, primarily PAO based. Synthetic
motor oils are more costly and compare in price to Formula 2000, however, they
are retailed for $4 to $6 per quart. While the technology basis is similar, the
market for synthetic oils is completely separate in today=s marketplace.
EasyTest7 Product Line:
Antifreeze & Battery Testers:
Market & Competition:
According the APAA=s marketing studies, the automotive accessories industry is a
$12.80 billion industry. However, only a fraction of this figure represents the
tester market, which is an estimated two million dollars. The company views
Tester products as Apenny@ items, which, over the past several years have been
clearly dominated by the overseas regions; particularly Taiwan and China. Since
inexpensive labor and raw materials can offer lower pricing, many distributors
simply import these small items with minimal concerns.
The company believes that the tester market primarily consists of a DIY (do it
yourselfer) client base. The company believes that the distribution chain from
manufacturer to end-user (consumer) generally follows a traditional route. It=s
a three level process that starts with the manufacturer/wholesaler who sells to
the distributor who, in turn, sells product to the Jobber and/or retailer. The
consumer can then purchase from the retailer to complete the chain. The typical
third level outlets are made up of automotive retailers, service stations,
convenience stores, grocery stores, etc.
The company believes that Harvey Westbury Corp. is one of the leading
manufacturers in the United States of these tester items. Since the Easy-Test
line offers several other products, the company also acts as its own
distributor.
The following is an overview of the competition: JONI ENTERPRISES, LTD.- located
in Taiwan, R.O.C.
This company has been competing with Harvey Westbury for over twenty years and
currently leads the market as the primary manufacturer. As much as 50% of the
market is imported from JONI. The company believes that most of their revenue is
based on these specific items, however, Joni also carrys a small automotive
windshield accessory line, which accounts for some income. Joni's strength is
their niche of large clients that they have created over the years. Their
weakness is their obvious location. Any domestic company willing to manufacture
these items could cause a serious threat to the overseas distribution line.
THEXTON MFG., CO. B located in Minneapolis, MN.
This estimated ten million dollar company only makes the larger, professional
type testers, which, furthermore, represents less than twenty percent of their
entire revenue. The company primarily specializes in automobile repairs and
service equipment. The strength of this company is that they manufacture in the
United States and they also have a niche. Their weakness is that they only
specialize in the high-end testers, which limit them to the Jobber market and
not the Retail arena.
WILMAR CORPORATION B located in Seattle, WA.
This estimated five million-dollar company that has spent the last nine years
specializing in the manufacturing of plastic products. They are currently
importing several items to increase their catalog selection and act as a
distributor to several major retail chains. They now have a large assortment of
items to offer which gives them strong leverage with the major retailers since
these buyers primarily look for well developed product lines that are easily
identifiable to consumers.
CUSTOM ACCESSORIES, INC. B located in Niles, IL
This private company has specialized for seven years as an automotive parts and
supplies manufacturer and is classified under the American Business Directory as
a 20 to 50 million-dollar company. The company believes for the past two years,
Custom has imported several items in bulk form and simply packaged them
domestically with their brand name CustomJ. Their strength is their established
client base and wide range of accessory items.
Other major competitors in this market are VICTOR AUTOMOTIVE, INC., PRESTONE,
CHASLYN CO., and ALLISON CORP. The company believes that all of these companies
have a large distribution base with large product selections.
Again, they all import overseas from Taiwan and China and package domestically.
Mobile Air Conditioning Accessories:
Market & Competition:
According to the Automotive Parts & Accessories Association (APAA), the Heating
and Cooling replacement parts industry which includes automotive
air-conditioning is over $2.2 billion. This vast market can be further broken
down, however, into several specialized categories such as compressors, hoses,
valves, refrigerants, refrigerant recovery, retrofit servicing, and accessories.
The Accessories category is estimated to be a $400 million market. The majority
of manufacturers reside in the southern, hot regions of the country such as
Texas and Florida.
The automotive air-condition accessories market primarily consists of Jobbers
and Do It Yourselfers (DIY). The company believes that the jobbers= clientele
out numbers the DIY by two to one. This is primarily due to the recent EPA
regulations which limit the sale of certain items to certified automotive
air-conditioning technicians only. The company believes that the distribution
chain from manufacturer to end-user (consumer) generally follows a traditional
route. It=s a three level process that starts with the manufacturer/wholesaler
who sells to the distributor who, in turn, sells product to the Jobber and/or
retailer. The consumer can then purchase from the retailer to complete the
chain. The typical third level outlets are made up of automotive stores like
CarQuest and NAPPA, and discount retailers such as Pep Boys and Western Auto.
Due to the belief that chlorofluorocarbons (CFC=s) deplete the ozone layer, 150
countries signed a treaty called the Montreal Protocol which was created to
protect the earth=s ozone. The United States Clean Air Act, phased out the
production of the automotive air-conditioning refrigerant known as Freon (R-12
or CFC-12) by December 31, 1995. Currently, Freon can only be purchased by
certified technicians and will be officially illegal to distribute by 2003. The
most feasible substitute for Freon, at the time was considered to be R-134a,
which possessed similar R-12 characteristics and called for minimal system
adjustments. The automotive manufacturers then began to convert their systems to
adhere to the new refrigerant specifications. A recent Motor Trend article
indicated that there are over 140 million cars requiring retrofits. As the R-12
distribution deadline approaches, more and more consumers are looking towards
the retrofit. The company believes this creates tremendous opportunity for those
who offer these accessories. Harvey Westbury=s A/C line is primarily focused on
supplying these items. The company believes that most of the public is unclear
about the steps involved in this conversion process and will therefore look to
reputable companies for solutions. Harvey Westbury has been in the
air-conditioning business for over thirty years, which the company believes
gives it a competitive edge towards reputation.
The following is an overview of the competition:
AEROQUIP CORP. B located in Maumee, OH
This private company has been registered with the American Business Directory
(ABI) for over ten years and is an estimated one billion-dollar company with
branches all across the mid-west and southern regions of the United States; the
headquarters being in Ohio. The company specializes in a variety of markets
including Hose, Fittings, and Coupling manufacturing; Heating and Cooling parts
& Accessories manufacturing; Automotive and Aviation parts manufacturing;
Plastic Products and Plastic Extruders manufacturing; and Mold Making. The ABI
indicates that in 1996, this company had an estimated sales in the
air-conditioning accessories market of $100 million (20% to 30% of the market).
It is also important to note that the products sold from this company mainly
support the Jobber clientele.
WATSCO COMPONENTS, INC. B located in Hialeah, FL.
This public company (NYSE/WSO) whose 1996 10K indicated net sales to be $330
million. Retrofit refrigerant access valves, vacuum pumps, refrigerant recovery
machines & filters manufacturing briefly describes their Air-conditioning
involvement to the industry. The ABI indicates an estimated $100 million sales
in the accessories market (20% to 30%). This company is also a Jobber based
wholesaler.
INTERDYNAMICS, INC. B located in Brooklyn, NY.
This private company has been registered with ABI for over ten years and is
categorized as a $100 million organization. They specialize in automobile parts,
equipment, and supplies manufacturing. Their share of the A/C accessories market
includes A/C testing and charging accessories, refrigerants, and electronic
climate control systems. The company believes that Interdynamics is one of the
largest retail based manufacturer/distributor in the industry (15% to 25% of the
market). Their items can conveniently be found in the major discount chains such
as Pep Boys, Western Auto, and R&S Strauss.
Other Competition:
Another significant competitor in the accessories industry would be
SCHRADER-BRIDGEPORT located in Altavista, VA. They contribute to a large portion
of the retrofit adapter fittings found in the market today, which all contain
their patented Schrader-Valve as the main internal working component. Also,
CASTROL INDUSTRIAL North America, INC. located in Downers Grove, IL manufactures
a large share of the Retrofit Kits found in the market to include their own
brand name CASTROL7, as well as other significant private label contracts such
as EVERCOJ.
Crankcase Drain Plug Series (CDPs & EDPs):
Market & Competition:
The market appears to be a nice niche of approximately 20,000 units sold per
month in the domestic United States. There is only one currently known
manufacture with the molds for this product and it has exclusive arrangements
with Difco, Inc. and Cargo, Inc.
The current arrangements place Harvey Westbury in a difficult situation where we
are 20% higher than these individuals.
Fleet Drain Plug Series (RDPs):
Market & Competition:
The market for this product are companies with maintenance sections who perform
regular maintenance requirements on fleet operations. Also, major trucking
outlets and repair centers are strong customers. The Recreational Vehicle market
tends to move these items as well. The market does have a limit, however, the
margins are strong and the company has a unique kit with drain system and
packaging concept.
There is only one other known distributor, IAS, in the United States. The
company primarily focuses on the RV market. The company used to sell to Harvey
Westbury until we identified the source and have since gone direct.
Carbon Monoxide Testers:
Market & Competition:
The Carbon Monoxide (CO) market is a fairly young industry, with the first CO
gas detectors being introduced in 1993. The company believes the industry boomed
in 1994 when tennis star Vitas Gerulaitis was overtaken by the poisonous gas in
his living room and died. The company believesthat the market has now grown to
over 200 million dollars. Carbon Monoxide is a colorless, odorless, poisonous
gas byproduct of burning oils and other fuels. It can be quickly absorbed by the
body and cause such symptoms as headache, dizziness, irritability, and nausea.
Higher concentrations of the gas are lethal. It is this fear that has caused the
market to grow as it has. The market is clearly dominated in the northern
regions where colder climates exist. Since home furnaces, space heaters, or
other fuel-burning appliances are used more frequently, there is a large demand
for these products. The distribution chain from manufacturer to end-user
(consumer) generally follows a traditional route. It=s a three level process
that starts with the manufacturer/wholesaler who sells to the distributor who,
in turn, sells the product to the Jobber and/or retailer. The consumer can then
purchase from the retailer to complete the chain. The common retail sources for
these particular items are the major Discount Chains such as Kmart and Home
Depot. Harvey Westbury maintains a manufacturer status with its CO detector
products.
Since the CO industry is fairly young, the company believes that it offers
several opportunities for growth. The four major areas that the company believes
indicate growth are mandatory rulings, marketing, technology, and private
labeling. The company believes that this type of ruling would certainly solidify
the existence of a CO detector market. Also, these detectors have been
traditionally targeted for household use. Harvey Westbury currently directs its
marketing efforts towards the aviation and automotive safety arena. Several
state and local municipalities mandate these detectors for their department
vehicles, as well as regulated flight school facilities. With over 200 million
cars, trucks, and buses in operation today, the company believes positive growth
potential for these items. The third aspect of growth is in technology. There is
plenty of room for improvement at each device tier. The company believes that
Harvey Westbury is one of the few organizations that distribute the chemically
treated indicator disk, which currently acts as the main component in
battery-powered models. Harvey Westbury=s packaging facility offers it the
ability to private label their card indicators if the demand for these items
increases.
The competition within this industry mainly exists between the companies that
specialize in these gas detector items such as smoke detectors.
FIRST ALERT, INC. B located in Aurora, IL
This is a public company whose 1996 10K showed a reported sales of over $205
million. The company believes First Alert was the pioneering organization that
introduced the CO detector to the market in 1993. When First Alert CO detector
sales rose from $9 million to $92 million in one year, it soon became apparent
that a market existed for this type of product. The company=s primary source of
revenue is from smoke detectors. The company believes First Alert is clearly the
leader in this new industry, their sales represent 40% to 60% of the market.
First Alert, Inc. products are retailed under the brand name First AlertJ that
offers a complete line of gas detectors.
QUANTUM GROUP, INC. B located in San Diego, CA
This private company has registered with American Business Directory for over
ten years and is categorically listed as a 10 to 20 million-dollar company.
Quantum specialize in safety equipment and measuring device manufacturing. The
company believes Quantum Group, Inc.'s R&D Department holds the lead in the
chemically treated indicator disk, which is the primary component to all the
battery-powered and card detector CO products. The 1996 10K for First Alert
references Quantum Group as their sole supplier for this component. The
company=s full line of products is marketed under two brand names, COSTARJ, and
QuantumJ.
Other Competition:
Several other brand name companies exist in the market, of which all fall
between the sales categories of 2.5 million to 10 million dollars. Such
competitive brand names are NighthawkJ, LifesaverJ, S-TechJ, American SensorsJ,
Air-ZoneJ, EmersonJ, MacurcoJ, and Safety1stJ.
POINTS OF OPERATION:
Auxer, CT Industries, Harvey Westbury and Hardyston all maintain their
headquarters and administrative operations in Wayne, New Jersey. Additionally,
Harvey Westbury's maintains its main sales office in Wayne, New Jersey. Harvey
Westbury leases a light manufacturing and warehousing facility in Farmingdale,
New York were the Easy Test product components primarily manufactured by various
vendors throughout the United States and Internationally and assembled/packaged
at the Farmingdale location. Garry's waxes, polishes, and chemicals, as well as
Formula 2000 Engine Treatment are manufactured and private labeled by several
vendors throughout the United States and warehoused at the Farmingdale location.
Hardyston Distributor's has an additional location in Franklin, New Jersey.
Hardyston distributes automotive parts and accessories to the surrounding area
automotive stores and service stations. Hardyston warehouses parts inventory and
a small distribution staff at the Franklin location. The company currently
employs 5 employess at Hardyston and 5 employees at Harvey Westbury.
GOVERNMENT REGULATION:
While numerous government regulations are developed directed at the automotive
and marine industries on an on-going basis; the company does not believe that
there are any significant government regulations pending that would impact the
current product categories that the Company is currently marketing and selling.
INTELLECTUAL PROPERTY:
The Company does not own any significant Intellectual property rights and is not
dependent on any property rights key to the operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
Management's Discussion and Analyis of Financial Condition and esults of
Operations for the Years December 31, 1997 and 1998 and for the Nine Months
Ended June 30, 1999.
The Company is an investment holding company that is comprised of three
subsidiaries: the Harvey-Westbury Corporation, CT Industries, and Universal
Filtration Industries. The Company is a manufacturer, wholesaler, and
distributor with a line of automotive, marine, and aviation aftermarket and
hardware products. In from April 18, 1995 to December 31, 1998, the Company was
in a development stage since it has generated moderate recovery from the sales
of its various product lines.
The financial statements for the years ended December 31, 1997 and 1998
have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
The Company incurred net losses of $2,244,500 for period from April 18, 1995 to
December 31, 1998. These factors indicate that the Company's continuation, as a
going concern is dependent upon its ability to obtain adequate financing.
The Company is anticipating that with the completion of proposed private
placements of its securities, the Company will have sufficient funding to
increase sales of its products to the public. The Company will require
substantial additional funds to finance its business activities on an ongoing
basis and will have a continuing long-term need to obtain additional financing.
The Company's future capital requirements will depend on numerous factors
including, but not limited to, continued progress developing additional
products, improve manufacturing efficiency and build an inventory to meet
fulfillment requirements for the Company's various automotive products and
filters for the cleaning industry and the completion of planned acquisitions.
The Company plans to engage in such ongoing financing efforts on a continuing
basis.
During 1997, the Company formed Auxer UK Ltd., a wholly owned foreign
corporation based in the United Kingdom. This company invests in software
technologies in the United Kingdom. This company is treated as an investment as
of December 31, 1997 and was subsequently sold on June 20, 1998. The Company has
a note receivable of $353,000 from the sale at an interest rate of 8%.
The financial statements for the six months ended June 30, 1999 have also
been prepared on a going concern basis. The Company incurred net losses of
$281,135 including a gain on the forgiveness of debt of $99,780.
On April 22, 1999, the Company issued 836,700 shares of common stock at
$.1075 per share plus $15,000 for the purchase of assets of Ernest DeSaye, Jr.
doing business as Hardyston Distributors.
ITEM 3. DESCRIPTION OF PROPERTY
The Company leases all properties it currently conducts business on.
The Auxer Group, Inc and its subsidiaries maintain headquarters and
administrative offices at 30 Galesi Drive, Wayne, New Jersey, 07470.
Additionally, Harvey Westbury houses it's main sales offices at the same
location. The property is an office complex area off of a major local highway
(State Hwy 46).
The Harvey Westbury Corp. maintains light manufacturing and warehousing
facilities at 18 Heisser Court, Farmingdale, New York 10015. The property is a
warehouse and light manufacturing complex off of a major local highway (State
Hwy 109).
Hardyston Distributors, Inc. maintains a distribution center and warehouse
facility at 22-B Lasinski Road, Franklin, New Jersey, 07416. The property is a
warehouse complex in Franklin New Jersey.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information with respect to the share ownership,
both before and after the prospective closing of the offering made hereby, of
the Company's common stock by its officers and directors, both individually and
as a group, and by the present record and/or beneficial owners of more than 5%
of the outstanding amount of such stock:
<TABLE>
<CAPTION>
Ownership Interest of Principal Stockholders
Name Class of Ave Price No. of Shares Now % of Total
Shares Per Share
<S> <C> <C> <C> <C>
Eugene Chiaramonte, Common Stock $0.001 2,173,886 4.53%
Jr. 12 White Birch
Court
Branchville, NJ 07826
Preferred $0.005 1,500,000 convert 22.11%
Stock to 15,000,000 of
common
Ronald Shaver Common Stock $0.001 600,000 1.25%
18 Caraway Court
Princeton, NJ 08540
Preferred $0.005 1,250,000 convert 16.87%
Stock to 12,500,000
Ownership Interest of Officers and Directors
Name Class of Ave Price No. of Shares Now % of Total
Shares Per Share Shares
Eugene Chiaramonte, Common Stock $0.001 2,173,886 4.44%
Jr.
12 White Birch Court
Branchville, NJ 07826
Preferred $0.005 1,500,000 convert to 21.83%
Stock 15,000,000 of common
</TABLE>
Notes: *The shares of preferred stock issued to Mr. Eugene Chiaramonte, Jr.
and Mr. Ronald Shaver were issued in conjunction with satisfying portions of the
reimbursement of expenses incurred during the development stage.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Name Age Positions Held With The Corporation
Eugene
Chiaramonte Jr. 54 President & CEO, Acting Secretary,
and Director
Ronald M. Shaver 32 Consultant, Operations & Finance
Ernest R.
Desaye, Jr. 35 Vice President of Hardyston
Distributors
Eugene Chiaramonte Jr., Age 54, is a Director of the Corporation. His terms of
office expires at the next annual meeting, or such later date that his Successor
is elected. He has served as a Director since 1994.
Ronald M. Shaver, 32 years old, is currently a consultant in operations and
finance and is acting in the capacity of President of the Harvey Westbury
Corporation and Hardyston Distributors and has been acting in that capacity
since 1996. His terms of office expires at the next annual meeting, or such
later date that his Successor is elected.
ITEM 6. EXECUTIVE COMPENSATION
Management Compensation
Officer, Director, Key Person CASH OTHER, STOCK
Eugene Chiaramonte, Jr. $0 $0
Ronald Shaver $40,000 $0
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
N/A
ITEM 8. LEGAL PROCEEDINGS
The Company has following pending or threatening litigation:
Ross & Craig Solicitors v. Auxer, Passaic County Superior Court of New Jersey,
Index No. L1598-98. This is a case brought by an English firm against Auxer. In
reality, this case should have been brought in England against on of Auxer's
subsidiary or affiliate corporations and perhaps against certain management of
Auxer individually. To date there has been a complaint and an answer. We have a
pending motion to extend discovery. The Company plans to contest the case
vigorously. To date we cannot estimate the likelihood of success of the defense
because discovery has not yet begun. We estimate the maximum potential loss to
be $75,000.
Eileen m. Huff v. Harvey Westbury (and Auxer) Suffolk County Supreme Court of
New York, Index No.29090-97 and Suffolk County District First District Civil
Court of New York, Index No. CEC67098; and Lorraine Duff v. Harvey Westbury (and
Auxer) and Suffolk County District First District Civil Court of New York, Index
No.CEC67-98. These cases all involved Auxer's purchase of Harvey Westbury. They
are about the "wrongful termination" of one employee, and the alleged
non-payment of insurance premiums for another. To date the company has filed an
answer. The Company plans to defend its position vigorously in this case, and
has investigated retaining local counsel should these claimants continue to
pursue their claims. Although discovery has not yet started, from the
documentation which has been presented to our office, it seems that there is a
substantial likelihood that Auxer will win this case on the merits.
The Company is not currently aware of any other pending, past or present
litigation that would be considered to have a material effect on the company.
The Company considers that any litigation under 10% of its net assets is not
material. There are no known bankruptcy or receivership issues outstanding and
has no known securities law violations. Additionally, the Company has no known
legal proceedings in which certain corporate insiders or affiliates of the
issuer in position that is adverse to the issuer.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information.
The Company is currently traded on the public market as a (OTC,) Bulletin Board
stock. The symbol of the Company is (AXGI) and as of August 11 the stock traded
at $.06 a share. As of June 30, 1999 150,000,000 shares of Capital stock (at par
value $.001) have been issued and 48,836,797 remained outstanding. Preferred
stock authorized by that date was 25,000,000 shares while 2,750,000 remained
outstanding.
Holders
The Corporation has approximately 3,000 holders of its common stock.
Dividend Policy
The Corporation has never declared or paid cash dividends on its common stock,
and may elect to retain its net income in the future to increase its capital
base. The Corporation does not currently anticipate paying cash dividends on its
common stock in the foreseeable future. The Company have not paid any dividends,
made distributions, or redeemed any securities within the last five years.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/9/96 CATHERINE ANN SMITH NY RULE 505 $ 0.0500 $ 60,000 Y 7 60,01,UFI,SALE AI-535 - 545
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
8/9/96 RONALD MICHAEL SHAVER NJ RULE 505 $ 0.0500 $ 15,000 Y 7 15,000UFI0SALE0 AI-546 - 550
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
9/4/96 CREATIVE CAPITAL WEST INDIRULE 504 $ 0.5000 $ 45,000 1Y 45,00INVESTMENT0 AI-557
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
9/4/96 SANDRA DOEL (Creative Cap.KS RULE 504 $ 0.5000 $ 5,000 1Y 5,0INVESTMENT0 AI-558
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/31/96 JOEL PENSLEY NY RULE 505 $ 0.1000 $ 25,000 1Y 25,000 LEGAL00 AI-604 - 608
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/31/96 BETH FRAIKORN NY RULE 505 $ 0.5000 $ 1,250 1Y 1,2ACQUISITION0 AI-609 - 614
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/31/96 DAVID HARVEY NY RULE 505 $ 0.5000 $ 1,250 1Y 1,2ACQUISITION0 AI-609 - 614
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/31/96 DOROTHY & GERALD HARVEY NY RULE 505 $ 0.5000 $ 75,000 1Y 75,00ACQUISITION AI-609 - 614
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/31/96 EILEEN & ELLIOT HUFF NY RULE 505 $ 0.5000 $ 5,000 1Y 5,0ACQUISITION AI-609 - 614
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/31/96 KAREN HARVEY NY RULE 505 $ 0.5000 $ 1,250 1Y 1,2ACQUISITION0 AI-609 - 614
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/31/96 MARCIE & CHARLES WITTEN NY RULE 505 $ 0.5000 $ 1,250 1Y 1,2ACQUISITION0 AI-609 - 614
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
11/1/96 CREATIVE CAPITAL WEST INDIRULE 504 $ 0.4000 $ 100,000 Y 9 100,000 INVESTMENT AI-615 - 619
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
11/26/96 ELLEN SHUMBRIS NY RULE 505 $ 0.0500 $ 500 1Y 5AGREEMENT0 AI-639
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
11/26/96 JANICE D'AIUTO NJ RULE 505 $ 0.0500 $ 12,500 1Y 12,50CONSULTING AI-637
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
11/26/96 JEAN RANSOM NJ RULE 505 $ 0.0500 $ 5,000 1Y 5,00AGREEMENT AI-638
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
11/26/96 LEWIS RANSOM NJ RULE 505 $ 0.0500 $ 14,500 1Y 14,500AGREEMENT AI-640
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
11/26/96 DOMENICA MORANO NY RULE 505 $ 1.0000 $ 5,000 1Y 5,0INVESTMENT00 AI-635
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
11/26/96 MIRZA DELJKIC NY RULE 505 $ 1.0000 $ 5,000 1Y 5,0INVESTMENT00 AI-636
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/4/96 Anthony Towell NY RULE 505 $ 0.5000 $ 25,000 1Y 50,00000INVESTMENT AI-674
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/18/96 JOEL PENSLEY NY RULE 504 $ 0.5000 $ 30,000 1Y 60,00000INVESTMENT AI-675-698
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/18/96 JOEL PENSLEY NY RULE 504 $ 0.5000 $ 20,000 1Y 40,00000INVESTMENT AI-699-714
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/31/97 CATHERINE SMITH NY RULE 505 $ 0.9140 $ (603,468) 2Y 603,468) (6RETURN)CERTS.
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/1/97 MICHAEL M. ELLIS FL RULE 505 $ 0.4000 $ 40,000 Y 8 40,00ENGINEERING AI-756
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/1/97 NICHOLAS SCHIANO NJ RULE 505 $ 0.4000 $ 800 Y 8 8SERVICES000 AI-758
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/1/97 THOMAS TROBIANO NJ RULE 505 $ 0.5000 $ 25,000 Y 8 25,000SERVICES00 AI-757
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Issued for 1996 $ 31,582 * 3,435,000
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Cumulative and Outstanding $ 936,582 * ok 9,764,929 ok
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
1/29/97 JOEL PENSLEY NY RULE 504 $ 0.5000 $ 20,000 4Y 20,000 LEGAL000 AI-739 - 754
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/17/97 CREATIVE CAPITAL WEST INDIRULE 504 $ 0.4000 $ 92,000 2Y 92,00INVESTMENT AI-767
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/17/97 SHERMAN SQUARE LTD. NY RULE 504 $ 0.4000 $ 4,000 4Y 4,000DESIGN000 AI-766
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/17/97 EDWARD COWLE NY RULE 505 $ 0.4000 $ 20,000 4Y 20,00CONSULTING0 AI-769
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/17/97 H. DEWORTH WILLIAMS UT RULE 505 $ 0.4000 $ 20,000 4Y 20,00CONSULTING0 AI-768
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
3/6/97 JAMES STEDMAN NJ RULE 504 $ 0.5000 $ 5,000 3Y 5,0INVESTMENT0 AI-784
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
3/28/97 THE MARKETING CO. LA RULE 504 $ 0.5000 $ 15,000 3Y 15,00INVESTMENT0 AI-797 - 816
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
4/4/97 Jonathan Benefiel NJ RULE 504 $ 0.7500 $ 1,500 3Y 1,5INVESTMENT00 AI-841
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
4/21/97 EDWARD SCODAK NJ RULE 504 $ 0.5000 $ 2,500 3Y 2,5INVESTMENT00 AI-843 - 848
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
4/21/97 JOEL PENSLEY CT RULE 504 $ 0.4500 $ 17,550 3Y 17,55INVESTMENT0 AI-843 - 848
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
4/21/97 ROBERT CARROL NJ RULE 504 $ 0.5000 $ 2,500 3Y 2,5INVESTMENT00 AI-843 - 848
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
5/15/97 SHERMAN SQUARE LTD. NY RULE 504 $ 0.4000 $ 4,000 4Y 4,000DESIGN000 AI-902
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
5/15/97 JOEL PENSLEY NY RULE 504 $ 0.5000 $ 12,000 3Y 12,00INVESTMENT0 AI-901
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
5/20/97 THOMAS KERNAGHAN CANADA RULE 504 $ 1.0000 $ 50,000 3Y 50,00INVESTMENT0 AI-911
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
5/22/97 WADE MCCASKIE CA RULE 504 $ 0.5000 $ 5,000 3Y 5,0INVESTMENT0 AI-912
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
5/22/97 MICHAEL M. ELLIS FL RULE 505 $ 0.5000 $ 100,000 4Y 100,000 ENGINEERING AI-913
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/6/97 GRAIL IVES CONSULTANTS, CANADA RULE 504 $ 0.5000 $ 20,000 3Y 20,00INVESTMENT0 AI-947
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/18/97 THOMAS KERNAGHAN CANADA RULE 504 $ 0.5000 $ 10,000 3Y 10,00INVESTMENT0 AI-972
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/23/97 INT'L CORPORATE DEV. KY RULE 504 $ 0.2500 $ 17,500 4Y 17,50INVESTMENT0 AI-990
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/23/97 JAMES TILTON KY RULE 504 $ 0.2500 $ 3,750 4Y 3,7INVESTMENT0 AI-989
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/23/97 JAMES STEDMAN NJ RULE 504 $ 0.5000 $ 10,000 3Y 10,00INVESTMENT0 AI-991
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/23/97 KURT VEZNER KY RULE 504 $ 0.5000 $ 10,000 3Y 10,00INVESTMENT0 AI-988
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
7/8/97 JAMES TILTON KY RULE 504 $ 0.3000 $ 7,500 2Y 7,5INVESTMENT0 AI-1001
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
7/21/97 WILLIAM F. PALLA/Salem NY RULE 504 $ 0.2500 $ 2,500 4Y 2,5INVESTMENT0 AI-1016
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
7/21/97 JAMES TILTON KY RULE 504 $ 0.2800 $ 16,800 2Y 16,80INVESTMENT0 AI-1017
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
7/21/97 ANDY DYER SC RULE 504 $ 0.3000 $ 5,100 2Y 5,1INVESTMENT0 AI-1018
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
7/22/97 INT'L CORPORATE DEV. KY RULE 504 $ 0.2500 $ 17,500 4Y 17,50INVESTMENT0 AI-1021
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
7/22/97 MICHAEL M. ELLIS FL RULE 505 $ 0.5000 $ 15,000 4Y 15,00ENGINEERING AI-1020
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
7/28/97 JAMES TILTON KY RULE 504 $ 0.2800 $ 20,000 2Y 20,00INVESTMENT0 AI-1029
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
7/28/97 ANDY DYER SC RULE 504 $ 0.4000 $ 5,000 3Y 5,0INVESTMENT0 AI-1028
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
8/11/97 JAMES TILTON KY RULE 504 $ 0.3300 $ 32,500 3Y 32,50INVESTMENT AI-1055
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
8/11/97 MARKET SURVEYS INT'L INC. NY RULE 504 $ 0.3300 $ 25,000 4Y 25,000SERVICES00 AI-1056
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
8/11/97 ANDY DYER SC RULE 504 $ 0.4000 $ 10,000 3Y 10,00INVESTMENT0 AI-1054
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
8/13/97 JOEL PENSLEY NY RULE 504 $ 0.2000 $ 6,000 4Y 6,000 LEGAL000 AI-1064
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
8/13/97 STEVE GUTSTEIN NY RULE 504 $ 0.2000 $ 4,000 4Y 4,000 LEGAL000 AI-1063
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
8/19/97 ANDY DYER SC RULE 504 $ 0.2800 $ 5,000 2Y 5,0INVESTMENT7 AI-1070
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
8/19/97 JAMES TILTON KY RULE 504 $ 0.2800 $ 15,000 2Y 15,00INVESTMENT1 AI-1071
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
8/27/97 DANNY CHAPCHAL UK RULE 505 $ 0.2500 $ 12,500 4Y 12,50CONSULTING0 AI-1073
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
8/29/97 FT TRADING UK RULE 504 $ 0.3700 $ 25,160 3Y 25,16INVESTMENT0 AI-1077
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
9/12/97 JAMES TILTON KY RULE 504 $ 0.2300 $ 36,562 26,4Y 36,562 INVESTMENT AI-1087
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
9/12/97 MARKET SURVEYS INT'L INC. NY RULE 504 $ 0.5000 $ 50,000 4Y 50,000SERVICES0 AI-1088
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
9/19/97 ANTHONY TOWELL NY RULE 505 $ 0.0500 $ 2,000 3Y 2,0CONSULTING0 AI-1093
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
9/29/97 FT TRADING UK RULE 504 $ 0.3100 $ 30,000 3Y 30,0CONVERTED5NOTEAI-1097
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/2/97 FT TRADING UK RULE 504 $ 0.3400 $ 20,000 3Y 20,0CONVERTED0NOTEAI-1109
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/9/97 JAMES TILTON KY RULE 504 $ 0.2500 $ 25,000 2Y 25,00INVESTMENT AI-1110
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/9/97 MICHAEL M. ELLIS FL RULE 504 $ 0.2500 $ 7,500 4Y 7,5ENGINEERING AI-1111
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/13/97 JOS COAD UK RULE 505 $ 0.0500 $ 1,500 3Y 1,5CONSULTING0 AI-1114
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/13/97 MICHAEL M. ELLIS FL RULE 505 $ 0.2500 $ 7,650 4Y 7,6ENGINEERING AI-1113
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/13/97 PETER ANTILL UK RULE 505 $ 0.2500 $ 20,000 4Y 20,0SFTWR.8INVEST AI-1115
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/31/97 JAMES TILTON KY RULE 504 $ 0.2000 $ 25,000 2Y 25,00INVESTMENT A-1
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/31/97 ROBERT SMITH NY RULE 505 $ 0.2500 $ 5,000 4Y 5,0ACQUISITION A-2
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/31/97 M&M NJ RULE 504 $ 0.5000 $ 49,000 4Y 49,00ADVERTISING A-3-12
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/31/97 RONALD MICHAEL SHAVER NJ RULE 505 $ 0.0500 $ 15,000 3Y 15,0UFI CONTRACT A-13
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
11/13/97 JAMES TILTON KY RULE 504 $ 0.1500 $ 15,000 2Y 15,00INVESTMENT A-132
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
11/21/97 FT TRADING UK RULE 504 $ 0.2000 $ 20,000 2Y 20,0CONVERTED2NOTEA-177
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
11/21/97 THOMAS KERNAGHAN CANADA RULE 504 $ 0.4000 $ 35,000 3Y 35,00INVESTMENT0 A-176
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/5/97 FT TRADING UK RULE 504 $ 0.3000 $ 10,000 2Y 10,0CONVERTED9NOTEA-196
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/10/97 JAMES TILTON KY RULE 504 $ 0.2000 $ 20,000 25,4Y 20,000 INVESTMENT A-201
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/10/97 STEVE GUTSTEIN NY RULE 504 $ 0.2000 $ 10,000 4Y 10,000 LEGAL000 A-202
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/10/97 FT TRADING UK RULE 504 $ 0.2500 $ 10,000 2Y 10,0CONVERTED3NOTEA-203
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/18/97 MICHAEL M. ELLIS FL RULE 504 $ 0.2000 $ 10,000 4Y 10,0TERMINATION0AGA-211
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/31/97 CATHERINE SMITH NY RULE 505 $ 0.0500 $ (20,000) 5Y (20,000)(4RETURN)CERTS.
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/31/97 JAMES TILTON KY RULE 504 $ 0.0900 $ 10,000 2Y 10,00INVESTMENT A-229
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Issued for 1997 $ 1,081,072 81,072 3,231,316
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Cumulative and Outstanding $ 2,017,654 12,996,245
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
1/6/98 FT TRADING UK RULE 504 $ 0.1500 $ 20,000 n/a Y020,000 CONVERTED1NOTEA-230
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
1/15/98 FT TRADING UK RULE 504 $ 0.2000 $ 20,000 n/a Y020,000 CONVERTED7NOTEA-234
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
1/27/98 FT TRADING UK RULE 504 $ 0.1700 $ 10,000 n/a Y010,000 CONVERTED2NOTEA-249
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/3/98 JAMES TILTON KY RULE 504 $ 0.1000 $ 20,000 n/a Y020,000 INVESTMENT A-262
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/3/98 JERRY SCHWARTZ NJ RULE 504 $ 0.1000 $ 2,500 n/a Y,2,500 INVESTMENT0 A-261
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/3/98 STEWART SCHWARTZ NJ RULE 504 $ 0.1000 $ 2,500 n/a Y,2,500 INVESTMENT0 A-260
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/7/98 AUGUSTINE FUND, LTD. NY RULE 504 $ 0.1500 $ 10,000 n/a Y010,000 CONVERTED0NOTEA-273
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/23/98 AUGUSTINE FUND, LTD. NY RULE 504 $ 0.1700 $ 10,000 n/a Y010,000 CONVERTED0NOTEA-278
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/24/98 AUGUSTINE FUND, LTD. NY RULE 504 $ 0.1700 $ 10,000 n/a Y010,00058,072 CONVERTED NOTEA-279
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/26/98 JAMES TILTON KY RULE 504 $ 0.1000 $ 25,000 n/a Y525,000 INVESTMENT A-283
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
3/4/98 JERRY SCHWARTZ NJ RULE 504 $ 0.1000 $ 2,050 n/a Y,2,050 INVESTMENT0 A-289
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
3/4/98 STEWART SCHWARTZ NJ RULE 504 $ 0.1000 $ 2,050 n/a Y,2,050 INVESTMENT0 A-288
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
3/4/98 AUGUSTINE FUND, LTD. NY RULE 504 $ 0.1500 $ 10,000 n/a Y010,000 CONVERTED6NOTEA-287
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
3/5/98 AUGUSTINE FUND, LTD. NY RULE 504 $ 0.1500 $ 20,000 n/a Y020,000 CONVERTED5NOTEA-290
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
3/18/98 JAMES TILTON KY RULE 504 $ 0.1000 $ 20,000 n/a Y020,000 INVESTMENT A-300
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
3/18/98 ELITE PUBLIC RELATIONS CORNY RULE 504 $ 0.0500 $ 20,000 n/a Y020,000 CONSULTING A-302 - 305
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
3/31/98 JAMES TILTON KY RULE 504 $ 0.0800 $ 15,000 n/a Y515,000 INVESTMENT A-312
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
4/14/98 JAMES TILTON KY RULE 504 $ 0.0800 $ 7,500 n/a Y,7,500 INVESTMENT 0 A-324
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
4/14/98 EDWARD SCODAK NJ RULE 504 $ 0.1000 $ 3,000 n/a Y,3,000 INVESTMENT0 A-236
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
4/14/98 FRANK PALMARI (M &M) NJ RULE 504 $ 0.1000 $ 5,000 n/a Y,5,000 ADVERTISING A-320
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
4/14/98 JAN TALAMO (M & M) NJ RULE 504 $ 0.1000 $ 5,000 n/a Y,5,000 ADVERTISING A-321
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
4/14/98 JERRY & STEWART SCHWARTZ NJ RULE 504 $ 0.1000 $ 15,000 n/a Y515,000 INVESTMENT A-322 - 323
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
4/14/98 LOUIS SZILEZY NJ RULE 504 $ 0.1000 $ 10,000 n/a Y010,000 CONSULTING A-325
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
4/14/98 AUGUSTINE FUND, LTD. NY RULE 504 $ 0.1500 $ 10,000 n/a Y010,000 CONVERTED3NOTEA-319
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
4/27/98 JAMES TILTON KY RULE 504 $ 0.0800 $ 10,125 n/a Y010,125 INVESTMENT A-331
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
4/27/98 JERRY & STEWART SCHWARTZ NJ RULE 504 $ 0.0800 $ 3,000 n/a Y,3,000 INVESTMENT0 A-333 - 334
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
4/27/98 AUGUSTINE FUND, LTD. NY RULE 504 $ 0.1200 $ 20,000 n/a Y020,000 CONVERTED8NOTEA-332
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
5/11/98 ANDY DYER SC RULE 504 $ 0.0500 $ 5,000 n/a Y,5,000 INVESTMENT 0 A-355
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
5/11/98 JAMES TILTON KY RULE 504 $ 0.0500 $ 7,000 n/a Y,7,000 INVESTMENT 0 A-356
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
5/11/98 JAMES TILTON KY RULE 504 $ 0.0800 $ 3,000 n/a Y,3,000 INVESTMENT0 A-353
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
5/11/98 JERRY SCHWARTZ NJ RULE 504 $ 0.0800 $ 10,000 n/a Y010,000 INVESTMENT A-354
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
5/21/98 JERRY & STEWART SCHWARTZ NJ RULE 504 $ 0.0500 $ 7,000 n/a Y,7,000 INVESTMENT 0 A-365 - 366
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
5/28/98 JAMES TILTON KY RULE 504 $ 0.0500 $ 9,625 n/a Y,9,625 INVESTMENT 5 A-370
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
5/28/98 LAURIE HARVEY KY RULE 504 $ 0.0500 $ 375 n/a Y7375 INVESTMENT00 A-369
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
5/28/98 AUGUSTINE FUND, LTD. NY RULE 504 $ 0.1200 $ 10,000 n/a Y010,000 CONVERTED6NOTEA-368
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/8/98 FRANK PALMARI (M &M) NJ RULE 504 $ 0.0200 $ 2,500 n/a Y,2,500 ADVERTISING0 A-382
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/8/98 JAN TALAMO (M & M) NJ RULE 504 $ 0.0200 $ 2,500 n/a Y,2,500 ADVERTISING0 A-383
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/8/98 JERRY & STEWART SCHWARTZ NJ RULE 504 $ 0.0400 $ 5,000 n/a Y,5,000 INVESTMENT 0 A-380 - 381
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/8/98 DONALD CARMAN (TRIPP&CO) NY RULE 504 $ 0.0500 $ 12,500 n/a Y212,500 CONSULTING A-384
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/15/98 JAMES TILTON KY RULE 504 $ 0.0500 $ 10,000 n/a Y010,000 INVESTMENT A-396
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/15/98 ACEBARN LTD. UK RULE 505 $ 0.0500 $ 7,000 n/a Y,7,000 LEGAL4SETTLEMEA-392
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/15/98 ALEXANDRA COAD UK RULE 505 $ 0.0500 $ 1,250 n/a Y,1,250 CONSULTING0 A-389
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/15/98 DANNY CHAPCHAL UK RULE 505 $ 0.0500 $ 2,500 n/a Y,2,500 CONSULTING0 A-388
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/15/98 DAVID & PATRICIA JOLLY UK RULE 505 $ 0.0500 $ 2,500 n/a Y,2,500 RELEASE0RIGHTSA-393
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/15/98 DAVID & PATRICIA JOLLY UK RULE 505 $ 0.0500 $ 5,000 n/a Y,5,000 RELEASE,RIGHTSA-394
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/15/98 IVOR LEWIS UK RULE 505 $ 0.0500 $ 1,000 n/a Y,1,000 CONSULTING0 A-390
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/15/98 ROMANDE LTD. UK RULE 505 $ 0.0500 $ 1,500 n/a Y,1,500 LEGAL SETTLEMEA-391
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/24/98 JERRY & STEWART SCHWARTZ NJ RULE 504 $ 0.0400 $ 8,000 n/a Y,8,000 INVESTMENT 0 A-402
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/24/98 JERRY & STEWART SCHWARTZ NJ RULE 504 $ 0.0400 $ 8,000 n/a Y,8,000 INVESTMENT 0 A-403
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/24/98 JIM TILTON KY RULE 504 $ 0.0500 $ 5,000 n/a Y,5,000 INVESTMENT 0 A-404
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
7/3/98 AUGUSTINE FUND, LTD. NY RULE 504 $ 0.0600 $ 10,000 n/a Y010,000 CONVERTED8NOTEA-412
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
7/9/98 INVESTMENT 101 LTD. IL RULE 504 $ 0.0300 $ 2,250 n/a Y,2,250 CONSULTING0 A-420
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
7/9/98 JAMES TILTON KY RULE 504 $ 0.0300 $ 7,500 n/a Y,7,500 INVESTMENT 0 A-416
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
7/9/98 RAPID RELEASE RESEARCH TX RULE 504 $ 0.0300 $ 22,500 n/a Y222,500 CONSULTING A-417
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
7/9/98 CAPITAL INVESTMENT RESOURCFL RULE 504 $ 0.0500 $ 10,000 n/a Y010,000 CONSULTING A-415
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
7/9/98 JERRY & STEWART SCHWARTZ NJ RULE 504 $ 0.0500 $ 14,000 n/a Y414,000 INVESTMENT A-418 - 419
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
7/9/98 AUGUSTINE FUND, LTD. NY RULE 504 $ 0.0600 $ 10,000 n/a Y010,172117 CONVERTED NOTE
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
8/3/98 JAMES TILTON KY RULE 504 $ 0.0500 $ 27,040 n/a Y727,040 INVESTMENT A-435
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
8/3/98 KURT VEZNER (JIM TILTON) KY RULE 504 $ 0.0500 $ 2,960 n/a Y,2,960 INVESTMENT0 A-436
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
8/4/98 JERRY & STEWART SCHWARTZ NJ RULE 504 $ 0.0500 $ 10,000 n/a Y010,000 INVESTMENT AI-438-439
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
8/4/98 Creditor Financial Trust TX RULE 504 $ 0.1000 $ 50,000 n/a Y050,000 INVESTMENT AI-440
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
8/4/98 Roger Fidler NJ RULE 504 $ 0.1600 $ 5,600 n/a Y,5,600 LEGAL000 AI-437
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
8/24/98 JIM TILTON KY RULE 504 $ 0.0300 $ 5,000 n/a Y,5,000 INVESTMENT 0
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
9/11/98 FRANK PALMARI & JAN TALAMONJM&M)RULE 504 $ 0.0300 $ 7,500 n/a Y,7,500 ADVERTISING0 A-460 - 461
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
9/11/98 JERRY & STEWART SCHWARTZ NJ RULE 504 $ 0.0300 $ 10,000 n/a Y010,000 INVESTMENT A-462 - 463
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
9/16/98 AUGUSTINE FUND, LTD. NY RULE 504 $ 0.0400 $ 10,000 n/a Y010,000 CONVERTED3NOTEA-464
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
9/23/98 SANDRA LAM TX RULE 504 $ 0.0400 $ 50,000 n/a Y050,000 1INVESTMENT0 A-471
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/6/98 JERRY SCHWARTZ NJ RULE 504 $ 0.0200 $ 2,000 n/a Y,2,000 INVESTMENT 0 A-477
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/6/98 STEWART SCHWARTZ NJ RULE 504 $ 0.0200 $ 2,000 n/a Y,2,000 INVESTMENT 0 A-478
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/10/98 JAMES STEDMAN NJ RULE 504 $ 0.0500 $ 10,000 n/a Y010,000 INVESTMENT A-479
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/14/98 WALL STREET CONCEPTS FL RULE 504 $ 0.0100 $ 1,000 n/a Y,1,000 SERVICES0 0 A-480
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/18/98 COASTAL INTERNATIONAL FL RULE 504 $ 0.0100 $ 6,250 n/a Y,6,250 INVESTMENT 0 A-482
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/18/98 JEFF APPLEBAUM FL RULE 504 $ 0.0100 $ 6,250 n/a Y,6,250 INVESTMENT 0 A-483
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/20/98 EMERALD GROUP MANAGEMENT FL RULE 504 $ 0.0100 $ 12,500 n/a Y212,500 1INVESTMENT0 A-485
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/20/98 OLYMPIA PARTNERS, LLC NY RULE 504 $ 0.0100 $ 15,000 n/a Y515,000 1INVESTMENT0 A-484
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
10/22/98 WALL STREET CONCEPTS FL RULE 504 $ 0.0100 $ 5,000 n/a Y,5,000 INVESTMENT 0 A-486 - 587
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
11/3/98 OLYMPIA PARTNERS, LLC NY RULE 504 $ 0.0100 $ 7,500 n/a Y,7,500 INVESTMENT 0 A-500
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/1/98 CORAL COVE PARTNERS FL RULE 504 $ 0.0100 $ 8,750 n/a Y,8,750 1INVESTMENT50 A-509
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/8/98 AUGUSTINE FUND, LTD. NY RULE 504 $ 0.0100 $ 10,000 n/a Y010,000 CONVERTED NOTEA-513
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/8/98 NISMIC SALES CORP. NY RULE 504 $ 0.0100 $ 8,750 n/a Y,8,750 1INVESTMENT50 A-512
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/14/98 OLYMPIA PARTNERS, LLC NY RULE 504 $ 0.0100 $ 10,000 n/a Y010,000 INVESTMENT A-514
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/17/98 JERRY & STEWART SCHWARTZ NJ RULE 504 $ 0.0100 $ 8,500 n/a Y,8,500 1INVESTMENT00 A-523 - 524
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/17/98 ASHBOURNE ASSOCIATES FL RULE 504 $ 0.0100 $ 8,000 n/a Y,8,000 INVESTMENT 0 A-521
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/17/98 J. PRINCE, INC. FL RULE 504 $ 0.0100 $ 8,000 n/a Y,8,000 INVESTMENT 0 A-522
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/28/98 AUGUSTINE FUND, LTD. NY RULE 504 $ 0.0100 $ 10,000 n/a Y010,000 CONVERTED NOTEA-537
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
12/31/98 WALL STREET CONCEPTS FL RULE 504 $ 0.0100 $ (4,000) n/a Y4(4,000) RETURN,CERTS. A-488-495
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Issued for 1998 $ 823,825 823,823,364,852
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Cumulative and Outstanding $ 2,841,479 36,361,097
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
1/6/99 J. PRINCE, INC. FL RULE 504 $ 0.0100 $ 20,000 n/a Y020,000 2INVESTMENT0 A-538
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
1/12/99 PATRICK ROST CA RULE 504 $ 0.0400 $ 40,000 n/a Y040,000 1INVESTMENT0 A-547
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
1/14/99 AUGUSTINE FUND, LTD. NY RULE 504 $ 0.0100 $ 10,000 n/a Y010,000 CONVERTED NOTEA-558
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
1/21/99 JAMES TILTON KY RULE 504 $ 0.0300 $ 30,000 n/a Y030,000 1INVESTMENT0 A-567
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
1/21/99 PATRICK ROST CA RULE 504 $ 0.0400 $ 40,000 n/a Y040,000 1INVESTMENT0 A-568
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/1/99 PATRICK ROST CA RULE 504 $ 0.0400 $ 40,000 n/a Y040,000 1INVESTMENT0 A-585
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/3/99 PATRICK ROST CA RULE 504 $ 0.0400 $ 40,000 n/a Y040,1,000,000 0INVESTMENT A-593
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/3/99 MYD DISTRIBUTED INC. FL RULE 504 $ 0.0800 $ 36,130 n/a Y636,130 LEGAL5SETTLEMEA-594
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/16/99 MYD DISTRIBUTED INC. FL RULE 504 $ 0.0800 $ 3,110 n/a Y,3,110 LEGAL SETTLEMEA-612
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
2/23/99 PATRICK ROST CA RULE 504 $ 0.0400 $ 40,000 n/a Y040,000 1INVESTMENT0 A-615
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
3/25/99 JAMES TILTON KY RULE 504 $ 0.0500 $ 25,000 n/a Y525,000 INVESTMENT A-646
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
3/29/99 JAMES TILTON KY RULE 504 $ 0.0500 $ 25,000 n/a Y525,000 INVESTMENT A-656
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
4/1/99 ANDY DYER SC RULE 504 $ 0.0700 $ 10,000 n/a Y010,000 INVESTMENT A-658
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
4/9/99 JAMES TILTON KY RULE 504 $ 0.0500 $ 50,000 n/a Y050,000 1INVESTMENT0 A-669
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
6/3/99 ERNEST DESAYE JR NJ RULE 505 $ 0.1000 $ 89,945 n/a Y989,945 INVESTMENT A-711
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 11. DESCRIPTION OF SECURITIES
Common Stock
The authorized capital stock of the Company consists of 150,000,000 shares of
Common Stock with one mil ($.001) par value per share and 25,000,000 shares of
Preferred Stock with one mil ($.001) par value per share. The Company's issued
and outstanding number of common shares as of June 30, 1999 was 48,836,797. The
holders of Common Stock have equal ratable rights to dividends from funds
legally available therefor, when, as and if declared by the Board of Directors
of the Company; are entitled to share ratably in all of the assets of the
Company available for distribution to holders of Common stock upon liquidation,
dissolution or winding up of the affairs of the Company; do not have preemptive,
subscription or conversion rights and there are no redemption or sinking fund
provisions applicable thereto. Such shares are entitled to one vote per share on
all matters which stockholders may vote on at all meetings of shareholders. All
shares of Common Stock now outstanding are fully paid and nonassessable and all
shares of Common Stock which are the subject of this offering, when issued, will
be fully paid and nonassessable.
Non-Cumulative Voting
The holders of shares of Common Stock of the Company do not have cumulative
voting rights. Thus, the holders of more than 50% of such outstanding shares,
voting for the election of directors, can elect all of the directors to be
elected, and in such event, the holders of the remaining shares will not be able
to elect any of the Company's directors.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation includes provisions to
eliminate, to the full extent permitted by Delaware General Corporation Law as
in effect from time to time, the personal liability of directors of the Company
for monetary damages arising from a breach of their fiduciary duties as
directors. The Certificate of Incorporation also includes provisions to the
effect that the Company shall, to the maximum extent permitted from time to time
under the law of the State of Delaware, indemnify any director or officer. In
addition, the Company's By-laws require the Company to indemnify, to the fullest
extent permitted by law, any director, officer, employee or agent of the Company
for acts which such person reasonably believes are not in violation of the
Company's corporate purposes as set forth in the Certificate of Incorporation.
<PAGE>
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements for the fiscal years ending December 31, 1998
and for six months ended June 30, 1999 are attached hereto and appear
sequentially before the exhibits of this Registration Statement:
1. Independent Auditor Report dated July 14, 1999
2. Balance Sheet;
3. Statements of Operations;
4. Statements of Cash Flows;
5. Statement of Stockholders Equity; and
6. Notes to the Financial Statements.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During the Corporation's last two fiscal years and the subsequent interim
period, no independent accountant who was previously engaged as the principal
accountant to audit the Corporation's financial statements, resigned or was
dismissed.
The firm of Edelman and Kalosieh, Certified Public Accountants, has been the
Corporation's auditor for the last two years.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements:
The financial statements provided pursuant to Item 13 begin on the following
page.
Index of Exhibits:
(3) (i) Articles of Incorporation*
(ii) By-Laws*
(4) Form of Common Stock* (22) Subsidiaries
* - to be filed by amendment
<PAGE>
September 21, 1995
G:\telecom\10SB
SIGNATURES:
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this Registration Statement to be signed on
its behalf by this undersigned, thereunto duly authorized.
The Auxer Group, Inc.
a Delaware Corporation
Date: August _23_, 1999 BY: /s/Eugene Chiaramonte
----------------------------------
Eugene J. Chiarmonte, Jr.
President
Director
<PAGE>
Edelman & Kalosieh, CPAs P.A.
Certified Public Accountants
15-01 Broadway
Fair Lawn, New Jersey 07410
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
The undersigned, Edelman and Kalosieh, CPAs P.A., hereby consent to the use
of their Accountant's report dated July 14, 1999and the audited financial
statement dated July 14, 1999, submitted herewith in the registration statement
upon Form 10SB of The Auxer Group, Inc., and the references made thereto in said
registration statement.
Date: August 23, 1999
/s/Edelman & Kalosieh
Edelman & Kalosieh
<PAGE>
To the Board of Directors and Shareholders
Of The Auxer Group, Inc.
We have compiled the accompanying balance sheet of The Auxer Group,
Inc. as of June 30, 1999, and the related statements of income, stockholders'
equity, and cash flows for the six months then ended, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A compilation is limited to representing in the form of financial
statements information that is the representation of management. We have not
audited or reviewed the accompanying financial statements and, accordingly, do
not express an opinion or any other form of assurance on them.
Management has elected to omit substantially all of the disclosures
required by generally accepted accounting principles. If the omitted disclosures
were included in the financial statements, they might influence the user's
conclusions about the company's financial position, results of operations, and
its cash flows. Accordingly, these financial statements are not designed for
those who are not informed about such matters.
The financial statements for the year ended December 31, 1998 were
audited by us and in our report dated July 13, 1999, included a going concern
explanatory paragraph described in Note 2 to the financial statements.
EDELMAN & KALOSIEH, CPAs PA
July 14, 1999
1
<PAGE>
<TABLE>
<CAPTION>
THE AUXER GROUP, INC.
BALANCE SHEET
JUNE 30, 1999
Assets
Current assets:
<S> <C>
Cash $ 44,838
Accounts receivable
(net of allowances of $7,988) 158,030
Inventory 263,970
Prepaid expenses 1,592
Subscriptions receivable 29,625
Other receivables 38,862
Total current assets 536,917
Property and Equipment:
Vehicles 7,700
Furniture and fixtures 8,549
Machinery and equipment 37,806
Leasehold improvements 5,757
59,812
Less: accumulated depreciation (24,741)
Property and equipment (Net) 35,071
Other assets:
Note Receivable - Auxer UK 353,000
Film productions costs
(net of accumulated amortization of $79,221) 62,887
Organization costs
(net of accumulated amortization of $12,000) 18,000
Security deposit 8,516
Engineering and product marketing costs
(net of accumulated amortization of $104,684) 55,332
License and trade name costs
(net of accumulated amortization of $57,643) 144,108
Excess of cost over book value 59,885
Total other assets 701,728
Total assets $1,273,716
</TABLE>
See accountants' report and accompanying notes to consolidated financial
statements.
2
<PAGE>
<TABLE>
<CAPTION>
THE AUXER GROUP, INC.
BALANCE SHEET
JUNE 30, 1999
Liabilities and Stockholders' Equity
Current liabilities
<S> <C>
Accounts payable and accrued expenses $147,304
Credit Line 74,091
Notes payable 207,333
Total current liabilities 428,728
Long term liabilities 2,459
Stockholders equity Capital stock-authorized 150,000,000 shares, $.001
par value per share, 48,836,797 shares outstanding at June 30, 1999
Preferred stock-authorized 25,000,000 shares, $.01 par value per
share, 2,750,000 shares outstanding at June 30, 1999
Additional paid in capital 3,291,827
Accumulated deficit (2,525,635)
Total stockholders' equity 842,529
Total liabilities and stockholders' equity $1,273,716
</TABLE>
See accountants' report and accompanying notes to consolidated financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
THE AUXER GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<S> <C>
Income $383,933
Less cost of goods sold 283,775
Gross profit 100,158
Operations:
General and administrative 407,441
Depreciation 4,886
Amortization 61,059
Interest expense 6,303
Research and development 2,015
Total expense 481,704
Income (loss) from operations (381,546)
Other income and expenses
Interest income 631
Income (loss) before extraordinary item (380,915)
Extraordinary item - gain on forgiveness of debt 99,780
Net income (loss) (281,135)
Accumulated deficit at beginning (2,244,500)
Accumulated deficit at end $(2,525,635)
Net income (loss) per common share $ (0.006)
Net income (loss) per common share - assuming dilution $(0.004)
</TABLE>
See accountants' report and accompanying notes to consolidated financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
THE AUXER GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
Preferred Common Capital in
Stock Stock Excess of Accumulated
(A) (B) Par Value Deficit
<S> <C> <C> <C> <C>
Balances at January 1, 1999 $ -0 - $ 36,361 $ 2,805,118 $(2,244,500)
Stock issued 27,500 12,476 486,709 (281,135)
Balances at June 30, 1999 $27,500 $48,837 $ 3,291,827 $(2,525,635)
(A) Preferred stock, par value $.01, convertible to 10 shares of common
stock, 25,000,000 shares authorized, 2,750,000 shares issued and
outstanding.
(B) Common stock, par value $.001, 150,000,000 shares authorized, 48,836,797 shares issued
and outstanding.
</TABLE>
See accountants' report and accompanying notes to consolidated financial
statements.
5
<PAGE>
<TABLE>
<CAPTION>
THE AUXER GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<S> <C>
CASH FLOWS FORM OPERATING ACTIVITIES
Net income (loss) $(281,135)
Amortization and depreciation 65,945
Extraordinary gain on forgiveness of debt (99,780)
(314,970)
(Increase) decrease:
Accounts receivable (124,507)
Inventory (99,668)
Prepaid expenses (1,592)
Subscriptions receivable (14,500)
Other receivables (15,579)
Increase (decrease):
Accounts payable and accrued expenses (55,328)
TOTAL CASH FLOWS FROM OPERATIONS (311,174)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase property and equipment 200
Investment - affiliate (4,967)
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES (4,767)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings/payments under line of credit agreement (net) 48,298
Borrowings/payments on short term debt 119,572
Shareholder loan payable (21,893)
Sale of common stock 499,185
Sale of preferred stock 27,500
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 672,662
NET DECREASE IN CASH 41,751
CASH BALANCE BEGINNING OF PERIOD 3,087
CASH BALANCE END OF PERIOD $44,838
</TABLE>
See accountants' report and accompanying notes to consolidated financial
statements.
6
<PAGE>
THE AUXER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
Note 1 - Organization of Company
a. Creation of the Company
Auxer Industries, Inc. (the "Company") was formed on June 20, 1920 under
the laws of the State of Idaho as The Auxer Gold Mines with an initial
capitalization of 500,000 shares of common stock, $1.00 par value each and a
life of 50 years. On August 22, 1960, its certificate of incorporation was
amended to change the number of authorized shares to issue to 10,000,000 common
shares $.50 par value each. On May 2, 1995, the certificate of incorporation was
amended to change the name of the Company to Auxer Industries, Inc. and to
change the number of authorized shares to 50,000,000 shares of common stock,
$.001 par value each.
On August 11, 1997 the Company incorporated in the State of Delaware
under the name The Auxer Group, Inc. In September 1997 the shareholders of the
company voted to exchange their shares on a one for one basis for shares in the
new company, The Auxer Group, Inc. The new corporate name became effective
January 1, 1998 for accounting and tax purposes. On March 17, 1999 the
Certificate of Incorporation was amended to change the number of authorized
shares to issue from 50,000,000 to 150,000,000 of common stock, $.001 par value
each.
b. Description of the Company
The Company is an investment holding company that is comprised of four
subsidiaries: the Harvey-Westbury Corporation, CT Industries, Universal
Filtration Industries and Hardyston Distributors, Inc.. The Company is a
manufacturer, wholesaler, and distributor with a line of automotive, marine, and
aviation aftermarket and hardware products. In prior years, the Company was in a
development stage since it has generated moderate recovery from the sales of its
various product lines.
On April 18, 1995, the Company acquired CT Industries, Inc. ("CT"), a
New Jersey corporation based in Wayne, New Jersey. CT is a distributor of
various automotive products.
On February 8, 1996, the Company acquired Universal Filtration
Industries, Inc. ("Universal Filtration") a New York corporation. Based in
Farmingdale, New York, Universal Filtration has developed the "Fiona Micro
Screen Filter", a replacement upgrade to a component of machinery used by the
dry cleaning industry.
On October 25, 1996, the Company acquired Harvey-Westbury Corp.
("Harvey-Westbury"), a New York Corporation. Based in Farmingdale, New York,
Harvey-Westbury is a manufacturer and wholesaler of various automotive, marine
and aviation products. 7
<PAGE>
THE AUXER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
On April 22, 1999, the Company purchased the assets of Hardyston
Distributors. Based in northern New Jersey, Hardyston Distributors is an
automotive parts distributor.
Note 2 - Summary of Significant Accounting Policies
a. Basis of Financial Statement Presentation
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company incurred net losses
of $2,625,415 for period from April 18, 1995 to June 30, 1999. These factors
indicate that the Company's continuation as a going concern is dependent upon
its ability to obtain adequate financing.
The Company is anticipating that with the completion of proposed
private placements of its securities, the Company will have sufficient funding
to increase sales of its products to the public. The Company will require
substantial additional funds to finance its business activities on an ongoing
basis and will have a continuing long-term need to obtain additional financing.
The Company's future capital requirements will depend on numerous factors
including, but not limited to, continued progress developing additional
products, improve manufacturing efficiency and build an inventory to meet
fulfillment requirements for the Company's various automotive products and
filters for the cleaning industry and the completion of planned acquisitions.
The Company plans to engage in such ongoing financing efforts on a continuing
basis.
The consolidated financial statements presented consist of the Company
and its wholly owned subsidiaries CT, Universal Filtration and Harvey-Westbury
and Hardyston Distributors, Inc., all of which are under common control.
Material inter-company transactions and balances have been eliminated in the
consolidation.
b. Earnings per share
Earnings per share have been computed on the basis of the total number
of shares of common stock outstanding as of June 30, 1999 of 48,836,797.
Earnings per share - assuming dilution, have been computed on the basis
of the number of shares of common stock outstanding as of June 30, 1999 of
76,336,797 assuming the dilution effect of the convertible preferred stock
issued and outstanding. Each preferred share is convertible to 10 shares of the
Company's common stock.
8
<PAGE>
THE AUXER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
c. Receivables
Allowances against receivables are provided equal to the estimated
collection losses that will be incurred in collection of all receivables and a
reserve for returns and discounts traditionally taken. Estimated allowances are
based on historical collection experience coupled with review of current status
of the existing receivables and amounted to $158,030 at June 30, 1999.
d. Property and Equipment
Property and equipment are recorded at cost and are depreciated under
the straight-line methods over the estimated useful lives of the related assets.
Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.
e. Revenue recognition
Revenue is recognized when products are shipped or services are
rendered or maintenance contracts are signed.
f. Note Receivable
During 1997, the Company formed Auxer UK Ltd., a wholly-owned
foreign corporation based in the United Kingdom. This company invests in
software technologies in the United Kingdom. This company is treated as an
investment as of December 31, 1997 and was subsequently sold on June 20, 1998.
The Company has a note receivable of $353,000 from the sale at an interest rate
of 8%.
g. Research and development expenses
Research and development costs are charged to operations when
incurred.
h. Patents, Trademarks and License Agreements
Certain costs incurred to acquire exclusive licenses of patentable
technology are capitalized and amortized over a five year period or the term of
the license, whichever is shorter. The portion of these amounts determined to be
attributable to patents is amortized over their remaining lives and the
remainder is amortized over the estimated period of benefits but not more than
40 years.
9
<PAGE>
THE AUXER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
i. Organization Costs
The cost of organizing the Company is being amortized over 60
months. Amortization expense charged to operations for the six months ended June
30, 1999 was $3,000.
j. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Accordingly, actual results could differ from those estimates.
Note 3 - Acquisitions
a. Acquisition of CT Industries, Inc.
On April 18, 1995, the Company acquired all the capital stock CT, owned
equally by Eugene Chiaramonte, Jr. and Howard Tapen, for 4,000,000 shares of
common stock.
b. Acquisition of Universal Filtration Industries, Inc.
On February 10, 1996, the Company entered into a memorandum of
understanding which was formalized on August 7, 1996, for the acquisition of all
of the common shares of Universal Filtration for 1,500,000 shares of common
stock. Under this agreement, the Company delivered stock certificates
representing 1,000,000 shares. Certificates representing 500,000 shares of
common stock were issued but not delivered, as their delivery was premised on
the results of operations as set forth in audited financial statements.
As of December 20, 1996, the acquisition agreement was modified as
follows because certain economic representations of Universal were not met:
Of the 500,000 shares of common stock issued, the delivery which was
contingent on Universal Filtration meeting various performance objectives,
400,000 shares were rescinded.
c. Acquisition of Harvey-Westbury Corp.
On October 25, 1996, the Company issued 170,000 share of common stock
for acquisition of Harvey-Westbury at $.50 per share.
10
<PAGE>
THE AUXER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
d. Acquisition of Hardyston Distributors
On April 22, 1999, the Company issued 836,700 shares of common
stock at $.01075 per share plus $15,000 for the purchase of Hardyston
Distributors assets.
Note 4 - Inventory
Inventory consists of raw materials, work in process and finished goods
and is valued at the lower cost or market.
Note 5 - Debt
a. Security Agreement
The Company has entered into a security agreement with Finova Growth
Finance to borrow money secured by the receivables evidenced by invoices of
Harvey-Westbury Corp. The Company has provided guarantees of the repayment of
loans. United agreed to lend an amount equal to 75% of the net value of all
Harvey-Westbury's accounts
b. Notes Payable
The following is a summary of short-term debt at June 30, 1999:
Convertible Notes Payable to Augustine Fund in the amount of $99,780,
dated November 21, 1998 payable on demand plus interest at a rate of 8%, was
forgiven on March 25, 1999.
Notes Payable to Creative Capital in the amount of $80,000 payable on
demand plus interest at a rate of 8%.
Notes Payable to James Tilton in the amount of $125,000 payable on
demand plus interest at a rate of 8%.
Note Payable to Hudson United Bank in the amount of $4,792 at a rate of
8% payable in 24 monthly installments of $238.84. Long term portion at June 30,
1999 is $2,459.
11
<PAGE>
THE AUXER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
Note 6 - Related Party Transactions
Issuance of Common Shares
On April 18,1995, the Company acquired all the capital CT, owned
equally by Eugene Chiaramonte, Jr. and Howard Tapen, for 4,000,000 shares of
common stock.
Issuance of Preferred Shares
On January 2, 1999, the Company issued 1,500,000 shares of preferred
stock to its president, Eugene Chiaramonte, Jr., for the sum of $15,000 in
repayment of loans. Each preferred share is convertible to 10 shares of the
Company's common stock.
Note 7 - Income Taxes
The Company provides for the tax effects of transactions reported in
the financial statement. The provision, if any, consists of taxes currently due
plus deferred taxes related primarily to differences between the basis of assets
and liabilities for financial and income tax reporting. The deferred tax assets
and liabilities, if any, represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of June 30, 1999, the Company had no
material current tax liability, deferred tax assets, or liabilities to impact on
the Company's financial position because the deferred tax asset related to the
Company's net operating loss carry forward and was fully offset by a valuation
allowance.
At June 30, 1999, the Company has net operating loss carry forwards for
income tax purposes of $(2,625,415). These carry forward losses are available to
offset future taxable income, if any, and expires starting in the year 2011. The
Company's utilization of this carry forward against future taxable income may
become subject to an annual limitation due to a cumulative change in ownership
of the company of more than 50 percent.
The components of the net deferred tax asset as of June 30, 1999 are as
follows:
Deferred tax asset:
Net operating loss carry forward $ 892,641
Valuation allowance $(892,641)
---------
Net deferred tax asset $ -0-
=============
12
<PAGE>
THE AUXER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
The Company recognized no income tax benefit for the loss generated for
the six months ended June 30, 1999.
SFAS No. 109 requires that a valuation allowance be provided if it is
more likely than not that some portion or all of a deferred tax asset will not
be realized. The Company's ability to realize benefit of its deferred tax asset
will depend on the generation of future taxable income. Because the Company has
yet to recognize significant revenue from the sale of its products, the Company
believes that a full valuation allowance should be provided.
Note 8 - Business and Credit Concentrations
The amount reported in the financial statements for cash, trade
accounts receivable and investments approximates fair market value. Because the
difference between cost and the lower of cost or market is immaterial, no
adjustment has been recognized and investments are recorded at cost.
Financial instruments that potentially subject the company to credit
risk consist principally of trade receivables. Collateral is generally not
required.
13
<PAGE>
To the Board of Directors and Shareholders
Of The Auxer Group, Inc.
We have audited the accompanying balance of The Auxer Group, Inc. as of
December 31, 1998 and the related statements of income, cash flows and
shareholders' equity for the year ended December 31, 1998. 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 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 referred to above represent
fairly, in all material respects, the financial position of The Auxer Group,
Inc. as of December 31, 1998 and the results of its operations, shareholders
equity and cash flows for the year ended December 31, 1998 in conformity with
generally accepted accounting principles.
1
<PAGE>
The accompanying financial statements have been prepared assuming that
The Auxer Group, Inc. will continue as a going concern. As more fully described
in Note 2, the Company has incurred operating losses since inception and
requires additional capital to continue operations. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans as to these matters are described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
EDELMAN & KALOSIEH, CPAs PA
July 13, 1999
2
<PAGE>
<TABLE>
<CAPTION>
THE AUXER GROUP, INC.
BALANCE SHEET
DECEMBER 31, 1998
<S> <C>
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $202,632
Credit Line 25,793
Notes payable 190,000
Notes payable-officers 21,893
Total current liabilities 440,318
Capital stock
Capital stock-authorized 50,000,000 shares,
$.001 par value per share,
36,361,097 shares outstanding at December 31, 1998
Additional paid in capital 2,805,118
Accumulated deficit (2,244,500)
Total stockholders' equity 596,979
Total liabilities and stockholders' equity $1,037,297
</TABLE>
See accountants' report and accompanying notes to consolidated financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
THE AUXER GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGSFOR THE YEAR ENDED DECEMER 31, 1998
<S> <C>
Income $287,456
Less cost of goods sold 237,952
Gross profit 49,504
Operations:
General and administrative 717,752
Depreciation 12,928
Amortization 136,663
Interest expense 20,790
Research and development 1,106
Total expense 889,239
Net income (loss) (839,735)
Accumulated deficit at beginning (1,404,765)
Accumulated deficit at end ($2,244,500)
Net income (loss) per common share ($0.02)
</TABLE>
See accountants' report and accompanying notes to consolidated
financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
THE AUXER GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
Common Stock Common Stock Capital in
Par Value $.001 Par Value $.001 Excess of Accumulated
Shares Amount Par Value Deficit
<S> <C> <C> <C> <C>
Balances at January 1, 1998 12,996,245 $12,996 $2,004,658 ($1,404,765)
Stock issued 23,364,852 23,365 800,460 (839,735)
Balances at December 31, 1998 36,361,097 $36,361 $2,805,118 ($2,244,500)
See accountants' report and accompanying notes to consolidated
financial statements.
6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE AUXER GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
CASH FLOWS FORM OPERATING ACTIVITIES
<S> <C>
Net profit (loss) ($839,735)
Amortization and depreciation 149,591
(Increase) decrease: (690,144)
Accounts receivable 20,918
Inventory 58,362
Prepaid expenses 4,276
Subscriptions receivable (15,125)
Increase (decrease):
Accounts payable and accrued expenses 13,269
TOTAL CASH FLOWS FROM OPERATIONS (608,444)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase property and equipment (2,735)
Investment - affiliate (135,000)
TOTAL CASH FLOWS FROM INVESTING ACTIVITIES (137,735)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings/payments under line of
credit agreement (net) (28,759)
Payments on short term debt (40,000)
Shareholder loan payable (36,801)
Sale of common stock 823,825
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 718,265
NET DECREASE IN CASH (27,914)
CASH BALANCE BEGINNING OF PERIOD 31,001
CASH BALANCE END OF PERIOD $3,087
See accountants' report and accompanying notes to consolidated
financial statements.
7
</TABLE>
<PAGE>
THE AUXER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
Note 1 - Organization of Company
a. Creation of the Company
Auxer Industries, Inc. (the "Company") was formed on June 20, 1920 under
the laws of the State of Idaho as The Auxer Gold Mines with an initial
capitalization of 500,000 shares of common stock, $1.00 par value each and a
life of 50 years. On August 22, 1960, its certificate of incorporation was
amended to change the number of authorized shares to issue to 10,000,000 common
shares $.50 par value each. On May 2, 1995, the certificate of incorporation was
amended to change the name of the Company to Auxer Industries, Inc. and to
change the number of authorized shares to 50,000,000 shares of common stock,
$.001 par value each.
On August 11, 1997 the Company incorporated in the State of Delaware
under the name The Auxer Group, Inc. In September 1997 the shareholders of the
company voted to exchange their shares on a one for one basis for shares in the
new company, The Auxer Group, Inc. The new corporate name will be effective
January 1, 1998 for accounting and tax purposes.
b. Description of the Company
The Company is an investment holding company that is comprised of three
subsidiaries: the Harvey-Westbury Corporation, CT Industries, and Universal
Filtration Industries. The Company is a manufacturer, wholesaler, and
distributor with a line of automotive, marine, and aviation aftermarket and
hardware products. In prior years, the Company was in a development stage since
it has generated moderate recovery from the sales of its various product lines.
On April 18, 1995, the Company acquired CT Industries, Inc. ("CT"), a
New Jersey corporation based in Wayne, New Jersey. CT is a distributor of
various automotive products.
On February 8, 1996, the Company acquired Universal Filtration
Industries, Inc. ("Universal Filtration") a New York corporation. Based in
Farmingdale, New York, Universal Filtration has developed the "Fiona Micro
Screen Filter", a replacement upgrade to a component of machinery used by the
dry cleaning industry.
On October 25, 1996, the Company acquired Harvey-Westbury Corp.
("Harvey-Westbury"), a New York Corporation. Based in Farmingdale, New York,
Harvey-Westbury is a manufacturer and wholesaler of various automotive, marine
and aviation products.
8
<PAGE>
THE AUXER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
Note 2 - Summary of Significant Accounting Policies
a. Basis of Financial Statement Presentation
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company incurred net losses
of $2,244,500 for period from April 18, 1995 to December 31, 1998. These factors
indicate that the Company's continuation as a going concern is dependent upon
its ability to obtain adequate financing.
The Company is anticipating that with the completion of proposed
private placements of its securities, the Company will have sufficient funding
to increase sales of its products to the public. The Company will require
substantial additional funds to finance its business activities on an ongoing
basis and will have a continuing long-term need to obtain additional financing.
The Company's future capital requirements will depend on numerous factors
including, but not limited to, continued progress developing additional
products, improve manufacturing efficiency and build an inventory to meet
fulfillment requirements for the Company's various automotive products and
filters for the cleaning industry and the completion of planned acquisitions.
The Company plans to engage in such ongoing financing efforts on a continuing
basis.
The consolidated financial statements presented consist of the Company
and its wholly owned subsidiaries CT, Universal Filtration and Harvey-Westbury,
all of which are under common control. Material inter-company transactions and
balances have been eliminated in the consolidation.
b. Earnings per share
Earnings per share have been computed on the basis of the total number
of shares of common stock outstanding as of December 31, 1998 of 36,361,097
c. Receivables
Allowances against receivables are provided equal to the estimated
collection losses that will be incurred in collection of all receivables and a
reserve for returns and discounts traditionally taken. Estimated allowances are
based on historical collection experience coupled with review of current status
of the existing receivables and amounted to $33,523 at December 31, 1998.
9
<PAGE>
THE AUXER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
d. Property and Equipment
Property and equipment are recorded at cost and are depreciated under
the straight-line methods over the estimated useful lives of the related assets.
Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.
<TABLE>
<CAPTION>
Accumulated Depreciation
Cost at 12/31/98 12/31/98
<S> <C> <C>
Machinery and equipment $41,751 $17,780
Office furniture and fixtures 7,749 2,423
Leasehold improvements 5,757 2,233
</TABLE>
e. Revenue recognition
Revenue is recognized when products are shipped or services are
rendered or maintenance contracts are signed.
f. Note Receivable
During 1997, the Company formed Auxer UK Ltd., a wholly-owned
foreign corporation based in the United Kingdom. This company invests in
software technologies in the United Kingdom. This company is treated as an
investment as of December 31, 1997 and was subsequently sold on June 20, 1998.
The Company has a note receivable of $353,000 from the sale at an interest rate
of 8%.
g. Research and development expenses
Research and development costs are charged to operations when
incurred.
h. Patents, Trademarks and License Agreements
Certain costs incurred to acquire exclusive licenses of patentable
technology are capitalized and amortized over a five year period or the term of
the license, whichever is shorter. The portion of these amounts determined to be
attributable to patents is amortized over their remaining lives and the
remainder is amortized over the estimated period of benefits but not more than
40 years.
10
<PAGE>
THE AUXER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
i. Organization Costs
The cost of organizing the Company is being amortized over 60
months. Amortization expense charged to operations for the period ended December
31, 1998 was $6,000.
j. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Accordingly, actual results could differ from those estimates.
Note 3 - Acquisitions
a. Acquisition of CT Industries, Inc.
On April 18, 1995, the Company acquired all the capital stock CT, owned
equally by Eugene Chiaramonte, Jr. and Howard Tapen, for 4,000,000 shares of
common stock.
b. Acquisition of Universal Filtration Industries, Inc.
On February 10, 1996, the Company entered into a memorandum of
understanding which was formalized on August 7, 1996, for the acquisition of all
of the common shares of Universal Filtration for 1,500,000 shares of common
stock. Under this agreement, the Company delivered stock certificates
representing 1,000,000 shares. Certificates representing 500,000 shares of
common stock were issued but not delivered, as their delivery was premised on
the results of operations as set forth in audited financial statements.
As of December 20, 1996, the acquisition agreement was modified as
follows because certain economic representations of Universal were not met:
Of the 500,000 shares of common stock issued, the delivery which was
contingent on Universal Filtration meeting various performance objectives,
400,000 shares were rescinded.
c. Acquisition of Harvey-Westbury Corp.
On October 25, 1996, the Company issued 170,000 share of common stock
for acquisition of Harvey-Westbury at $.50 per share.
11
<PAGE>
THE AUXER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
Note 4 - Inventory
Inventory consists of raw materials, work in process and finished goods
and is valued at the lower cost or market.
Note 5 - Debt
a. Security Agreement
The Company has entered into a security agreement with Finova Growth
Finance to borrow money secured by the receivables evidenced by invoices of
Harvey-Westbury Corp. The Company has provided guarantees of the repayment of
loans. United agreed to lend an amount equal to 75% of the net value of all
Harvey-Westbury's accounts
b. Notes Payable
The following is a summary of short-term debt at December 31, 1998:
Convertible Notes Payable to Augustine Fund in the amount of $110,000,
dated November 21, 1998 payable on demand plus interest at a rate of 8%, payable
semi-annually on March 1 and August 1 with shares of the Company's common stock
Notes Payable to Creative Capital in the amount of $80,000 payable on
demand plus interest at a rate of 8%.
Note 6 - Related Party Transactions
Issuance of Common Shares
On April 18,1995, the Company acquired all the capital CT, owned
equally by Eugene Chiaramonte, Jr. and Howard Tapen, for 4,000,000 share of
common stock.
12
<PAGE>
THE AUXER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
Note 7 - Income Taxes
The Company provides for the tax effects of transactions reported in
the financial statement. The provision, if any, consists of taxes currently due
plus deferred taxes related primarily to differences between the basis of assets
and liabilities for financial and income tax reporting. The deferred tax assets
and liabilities, if any, represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of December 31, 1998, the Company had
no material current tax liability, deferred tax assets, or liabilities to impact
on the Company's financial position because the deferred tax asset related to
the Company's net operating loss carry forward and was fully offset by a
valuation allowance.
At December 31, 1998, the Company has net operating loss carry forwards
for income tax purposes of $(2,244,500). These carry forward losses are
available to offset future taxable income, if any, and expires starting in the
year 2011. The Company's utilization of this carry forward against future
taxable income may become subject to an annual limitation due to a cumulative
change in ownership of the company of more than 50 percent.
The components of the net deferred tax asset as of December 31, 1998
are as follows:
Deferred tax asset:
Net operating loss carry forward $ 763,130
Valuation allowance $(763,130)
---------
Net deferred tax asset $ -0-
=============
The Company recognized no income tax benefit for the loss generated for
the year ended December 31, 1998.
SFAS No. 109 requires that a valuation allowance be provided if it is
more likely than not that some portion or all of a deferred tax asset will not
be realized. The Company's ability to realize benefit of its deferred tax asset
will depend on the generation of future taxable income. Because the Company has
yet to recognize significant revenue from the sale of its products, the Company
believes that a full valuation allowance should be provided.
13
<PAGE>
THE AUXER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
Note 8 - Business and Credit Concentrations
The amount reported in the financial statements for cash, trade
accounts receivable and investments approximates fair market value. Because the
difference between cost and the lower of cost or market is immaterial, no
adjustment has been recognized and investments are recorded at cost.
Financial instruments that potentially subject the company to credit
risk consist principally of trade receivables. Collateral is generally not
required.
Note 9 - Commitments and Contingencies
a. Lease agreement for office space
The Company entered into a three-year lease agreement with a
nonaffiliated party beginning on November 1, 1996 at 30 Galesi Drive, Wayne, New
Jersey for office space. An $1,800 security deposit was required with minimum
monthly rental payments to be paid as follows:
Period Annual Rent Monthly Rent
------ ----------- ------------
December 1, 1997 to November 30, 1998 $21,948.00 $1,829.00
December 1, 1998 to November 30, 1999 $23,777.04 $1,981.42
In consideration for the Company taking the space in an "as is"
condition, the Landlord abated the monthly base rent for a period of 4 months.
Payment of rent began on April 1, 1997.
The Company has the right to terminate this lease after the first year
upon 90 days notice. If the Company elected to terminate the lease, the Company
agrees to pay a termination fee equal to four months rent.
14
<PAGE>
THE AUXER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
b. Lease Agreement for Industrial Facility
The Company entered into a three-year lease agreement with a non
affiliated party beginning on April 1, 1995 and expiring on April 30, 1998, at
15 Heisser Court, Farmingdale, New York, for the Harvey-Westbury operations. On
February 23, 1998, the lease was extended to expire on April 30, 1999. A $5,770
security deposit was required with minimum monthly rental payments to be paid as
follows:
Period Annual Rent Monthly Rent
------ ----------- ------------
May 1, 1997 to April 30, 1998 $33,744.00 $2,812.00
May 1, 1998 to April 30, 1999 $35,604.00 $2,967.00
c. Purchase of Filter Marketing Rights
In October 1995, Universal Filtration entered into an agreement with
William Hayday for the purchase of the worldwide non-transferable rights to
market the Fiona Button Trap Filter and the rights to make any future
modification to the design.
The term of the agreement was October 1, 1995 until September 30, 1999.
15
<PAGE>
THE AUXER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
Note 11 - Segment Information
The Company's consolidated balance sheet consists of the following
subsidiary components as of December 31, 1998:
<TABLE>
<CAPTION>
Universal Harvey- Auxer
Auxer CT Filtration Westbury Industries, Inc.
Industries, Inc. Industries Industries, Inc. Corp. Consolidated Balance
Sheet
<S> <C> <C> <C> <C> <C>
Current assets $19,153 $19,348 $280 $200,539 $239,320
Fixed assets 13,029 107 4,076 15,609 32,821
Other assets 2,091,568 (251,987) (317,216) (757,209 765,156
Total assets $2,123,750 $(232,532) $(312,860) $(541,061) $1,037,297
Liabilities and Stockholders Equity
Current Liabilities $220,863 $42,142 $37,580 $139,733 $440,318
Long term liabilities -0- -0- -0- -0- -0-
Stockholders equity 1,902,887 (274,674) (350,440) (680,794) 596,979
Total liabilities and $2,123,750 $(232,532) $(312,860) $(541,061) $1,037,297
stockholders equity
The Company's consolidated statement of operations for the year ended December 31, 1998:
Statement of operations
Revenues $ -0- $1,168 $ 2,750 $283,538 $287,456
Costs of goods sold -0- 38,934 400 198,618 237,952
Gross profit -0- (37,766) 2,350 84,920 49,504
Operating expenses (347,745) (21,351 (16,880) (333,410) (889,239)
Net income (loss) $(347,745) $(59,117) $(14,530) $(418,330) $(839,722)
</TABLE>
16
<PAGE>
Exhibit 22
Subsidiaries
Harvey Westbury Corporation, Incorporated in New York on May 23, 1967
o The company is a wholly owned subsidiary of The Auxer Group with
main offices in Wayne, NJ and a manufacturing, packaging, and
wareshousing facility in Farmingdale, NY where it assembles
automotive accessory products and warehouses waxes and chemicals.
Hardyston Distributors, Inc., Incorporated in Nevada on April 22, 1999
o The company is a wholly owned subsidiary of The Auxer Group with
main offices in Wayne, NJ and a warehouse and distribution center
in Franklin, NJ where it warehouses and distributes automotive
parts to local automotive dealers.
CT Industries, Inc., Incorporated in Nevada on June 27, 1994
o The company is a wholly owned subsidiary of The Auxer Group with main offices
in Wayne, NJ. o The company is a fulfillment entity for products of Auxer's
other subisidiaries as well as a holding
company for various trademarks and formulations.
Universal Filtration Industries., Incorporated in New York on June 22,
1994
o The company is a wholly owned subsidiary of The Auxer Group which
is no actively conducting business and is in a dormant state.
o The company has no property.
o The company is not actively marketing any products.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
financial statements for the three month period ended May 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001088734
<NAME> THE AUXER GROUP, INC.
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Apr-01-1999
<PERIOD-END> Jun-30-1999
<EXCHANGE-RATE> 1
<CASH> 44,838
<SECURITIES> 0
<RECEIVABLES> 236,097
<ALLOWANCES> (7,988)
<INVENTORY> 263,970
<CURRENT-ASSETS> 536,917
<PP&E> 761,540
<DEPRECIATION> (24,741)
<TOTAL-ASSETS> 1,273,716
<CURRENT-LIABILITIES> 428,728
<BONDS> 0
2,459
27,500
<COMMON> 48,837
<OTHER-SE> 766,192
<TOTAL-LIABILITY-AND-EQUITY> 1,273,716
<SALES> 384,564
<TOTAL-REVENUES> 383,933
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<INCOME-CONTINUING> (380,915)
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<NET-INCOME> (281,135)
<EPS-BASIC> (.006)
<EPS-DILUTED> (.004)
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