SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to _______
Commission file number 33-80961-NY
eSAFETYWORLD, Inc.
(Exact name of small business in its charter)
Nevada 22-2312917
(State or of incorporation) (I.R.S. Employer Identification No.)
80 Orville Drive, Bohemia, NY
(Address of principal executive offices)
11716
(Zip Code)
Issuer's telephone number, including area code: 631-244-1454
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001;
Redeemable Warrants
Check whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form and will
not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $723,968.
The aggregate market value of common voting stock held by non-affiliates
of the Issuer was approximately $3,168,750 computed by reference to the
last sale price at which the stock was sold on September 26, 2000 as
reported by NASDAQ. As of June 30, 2000, 3,000,000 shares of common
stock were outstanding.
PART I
BUSINESS
INTRODUCTION
eSAFETYWORLD was established as a Nevada corporation in July 1997 as The
SL Group, Inc. and changed our name to eSAFETYWORLD, Inc. in August 1999. We
completed a public offering of 1,000,000 shares of our common stock in
February 2000 resulting in net proceeds of approximately $5,721,644. In
April 2000 we moved to 80 Orville drive, Bohemia, NY 11716. Our telephone
number is 631-244-1454.
Our purpose is to sell disposable garments, industrial safety equipment and
cleanroom equipment and supplies to companies involved in production or other
activities that must be done in controlled environments or whose employees are
exposed to environmental hazards or otherwise require protective garments or
equipment. We have developed a 360 degree distribution and selling system,
incorporating elements of a traditional distribution business using catalogs,
independent sales representatives andtelemarketing with a business-to-business
e-commerce site on the world wide web. Our business model is based on the
following assumptions:
The business-to-business market available to Internet sellers is
growing rapidly based on many publicly available articles and studies,
including one published by the United States Department of Commerce in 1998
entitled The Emerging Digital Economy that projected that business-to-business
e-commerce revenues will increase from $8 billion in 1997 to $326 billion in
2002.
The targeted industry segment is large and being serviced by a
significant number of entrants. The annual United States market for
industrial safety products that we sell is estimated to be in excess of $10
billion by R.K. Miller, P.C. Walker and C.E. Purcell in their book,
Occupational Safety and Industrial Hygiene Market, published in 1998.
Based upon our conversations with industry participants, a significant
part of the selling effort in these segments takes place through the
distribution of catalogs and brochures. Our principal premise is that sales
and orders placed through the Internet offer an ideal replacement for
traditional catalogs.
The timeframe for a transition from traditional purchasing methods to
the use of the Internet will vary from company to company. Therefore, it is
prudent for us to offer a complete buying solution that meets the needs of
all potential customers.
Our business model is designed to take advantage of the Internet as a
selling medium. We believe that the Internet offers significant opportunities
in the areas of e- commerce, including the ability to reach a large potential
market without the need forsubstantial advertising expenditures. The ability
to reach a worldwide market means that even a small degree of penetration can
result in a high level of sales revenue. The keys needed to succeed in
e-commerce include:
Having user friendly software;
Using a business model that does not require significant amounts of
development costs or working capital; and
Developing a methodology for encouraging potential customers to
visit the website without incurring unreasonable advertising and marketing
costs.
Our strategic plan is to:
Become a meaningful factor in the marketplace by becoming the Internet
seller for a wide array of available products. We want to become the one-stop
Internetindependent sales representative for the industries that we serve and
will serve;
and
Utilize and modify existing technology in an effective, user friendly
way.
Our goal has been and will continue to be to use well-developed Internet
technology and not incur significant expenditures for technological research and
development. We seek and will continue to seek ways to use this technology
profitably, like targeting market niches, and will allow others to assume the
technological risk of new development. In addition, we have introduced
catalog and CD-ROMs that are distributed free of charge.
Our website is located at www.esafetyworld.com and became initially
operational in November 1999. The site was redesigned during the period March
through June 2000 and opened in its current form in June 2000. The website
currently has more than 15,000 SKUs and is being further expanded to add
an additional 7,000 SKUs. Customers who do not use the website can continue to
order via toll free telephone numbers or by fax.
We believe that industrial safety and cleanroom products that are sold through
traditional printed catalogues and brochures are uniquely suited for sale on
the Internet. The reasons for this include:
Products bought through catalogues are purchased by people who do not
need to "touch" or "feel" the product prior to purchase;
E-commerce can make purchasing easier and quicker than filling out
forms in a catalogue or brochure or calling a toll-free telephone number; and
E-commerce can provide more information and update information more
quickly than can distributors of catalogues.
We also believe that fixed costs must be kept to a minimum in order to
increaseoperating leverage. The principal advantage of using the Internet as a
selling vehicleis theability to avoid incurring significant fixed costs. The
key element of this strategy is to:
minimize or eliminate inventory holding and shipping costs;
minimize the need for expensive advertising campaigns by selecting
market niches that can be reached through trade shows and less expensive forms
of advertising; and
outsource services wherever possible.
Keeping fixed costs to a minimum is achievable if fulfillment supply
contracts are negotiated with vendors to perform all or most fulfillment
functions. We have entered into written or oral agreements with key vendors
that give it access to more than 20,000 products. These vendors arrange for
shipment and generally accommodate small or limited orders. In some instances,
we pay premiums for products, particularly if order quantities are small. We
do not include products on our site if the associated vendors will not
perform fulfillment functions. We believe that this strategy may result in
some lost sales. However, we also believe that the strategy offers the best
means of achieving the potential high degree of operating leverage afforded
by Internet commerce.
Risks associated with our strategy include:
an evolving business model based on using existing Internet and
software technologies to establish e-commerce businesses in specific market
niches;
ability to maintain and expand a customer base;
ability to manage working capital and product return risks;
the need to manage growth and changing operations;
the need to continue to develop and upgrade our website, transaction-
processing systems and infrastructure;
ability to scale its systems and fulfillment capabilities to
accommodate growth;
ability to access and obtain additional capital when or if
required; and
dependence on the reliability and growing use of the Internet for
commerce and communication and on general economic conditions.
We may incur operating losses and negative cash flow during the next
fiscal year because of costs and expenses related to online operations and:
marketing and other promotional activities;
the expansion of financial, management and order fulfillment
infrastructure;
the development of the website, transaction-processing systems and
management infrastructure;
the expansion of product offerings and website content;
strategic relationship development with members of the industrial
safety products industry; and
amortization of acquired intangibles.
Background
We conducted no material operations in our between July 1997 and August
1999, other than to develop a business plan and strategy. The SL Group was
formed for the purpose of receiving shares of an investment in an unrelated
business. The proposed investment in the unrelated business, which did not
take place. It was to be operated by Mr. Jenkins, a director and our chief
financial officer. The SL Group had no operations but was used by our
founders to establish the business of eSAFETYWORLD.
Our officers and directors decided to develop an e-commerce business to
sell disposable safety and cleanroom garments and equipment. In August 1999,
we acquired the customer and vendor lists from the distribution division of
Laminaire Corporation. The adjusted purchase price was 100,000 shares of our
common stock, notes payable in the aggregate principal amount of $400,000.
The notes payable bore interest at eight percent per annum and were payable
in quarterly installments. We had the right to offset the principal amount of
a $102,000 demand note that it made to Laminaire, in whole or in part,
against any obligation due by us to Laminaire under these note agreements. In
addition, we had the right to offset any amounts paid by us to vendors or
others on behalf of Laminaire. The notes payable to Laminaire were fully
satisfied by March 31, 2000.
Edward A. Heil, our chairman, is a director of Laminaire. Steven W.
Schuster, one of our directors, is a member of the law firm that formerly
served as Laminaire's corporate counsel, and Mr. Schuster formerly was
Laminaire's corporate secretary. The negotiations for the acquisition were
conducted on an arms length basis. Mr. Schuster did not act as counsel for
Laminaire, and Mr. Heil did not participate in the Laminaire board meeting
that approved the transaction.
Ms. Owens, one of our directors, was employed by Laminaire as special
assistant to the board of directors but severed all relationships with
Laminaire upon completion of our intial public offering. Ms. Owens performs
marketing and investor relations functions for ESW through EDK Associates,
LLC, which is controlled by Ms. Owens. Ms. Owens did not participate in any
of the negotiations relating to the purchase transaction. At the
conclusion of the offering, Mr. Heil is the only individual who will be
affiliated with both us and with Laminaire.
Laminaire's Distribution Division had been in operation for more than 20
years prior to the sale of its intangible assets to us. The acquisition of the
customer and vendor lists from that Division provided us with an entree to
the vendors and customers of a targeted industry niche and to
approximately 500 products. The principal vendors included The Texwipe
Company, Alma, Inc. and Kimberly-Clark Corporation. In October 1999, we
guaranteed the amounts due by Laminaire to these vendors, among other things,
to ensure ongoing deliveries and to establish positive relationships with
these vendors. Laminaire had become increasingly delinquent in its payments
to these vendors which resulted in seriously deteriorating relationships and
interruption of shipments.
During the period August 1999 through March 2000, we operated the business
related to the acquired customer lists substantially the same way as Laminaire
did except that we arranged for our vendors to ship products directly to our
customers. We paid administrative fees of $48,000 to Laminaire during that
period. Thereafter, we had no further arrangements with Laminaire and none are
anticipated in the future.
During the period March through June 2000, we designed and completed our
principal catalogue and CD-ROM as well as redesigned our website. Most of our
resources were devoted to those efforts during that period.
Nature of the Internet
The Internet is an increasingly significant medium for communication,
information and commerce. The September 16, 1999 edition of The Wall Street
Journal Interactive Edition reported a research study conducted by Goldman
Sachs that concluded that the value of business-to-business e-commerce
conducted in the United States will increase from approximately $114 billion
in 1999 to an estimated $1.5 trillion by 2004.
We believe that growth in Internet usage and online commerce is being
fueled by a number of factors including:
a large and growing installed base of personal computers in the
workplace and home;
advances in the performance and speed of personal computers and modems;
improvements in network security, infrastructure and bandwidth;
easier and cheaper access to the Internet; and
the rapidly expanding availability of commerce sites.
The Internet provides several advantages for online distributors. Online
distributors are able to "display" a larger number of products than
traditional store-based or catalog distributors at a lower cost. In
addition, online distributors are able to frequently adjusttheir featured
selections, editorial content, shopping interfaces and pricing, thus
providing significant merchandising flexibility. The minimal cost to publish
on the web, the abilityto reach and serve a large and global group of
customers electronically from a central location, and the potential for
personalized low-cost customer interaction provide additional economic
benefits for online distributors. Unlike traditional distribution channels,
online distributors do not have the burdensome costs of managing and
maintaining a retail store infrastructure or the significant printing and
mailing costs of catalogs. Online distributors can also easily obtain
demographic and behavioral data about customers, increasing opportunities
for direct marketing and personalized services.
We have further expanded the benefits of online selling by using a
distribution model that requires little or no inventory on hand and by
utilizing software that can be modified or updated easily and cheaply.
A key element of our strategy is to generate a high volume of traffic on,
and use of, our website. Our revenues depend on the number of customers who
use our website to purchase safety and cleanroom products and supplies. Our
website, transaction processing systems and network infrastructure
performance, reliability and availability are critical to our operating
results. These factors also are critical to our reputation and
our ability to attract and retain customers and maintain adequate customer
service levels. The volume of goods that we sell and the attractiveness of our
product and service offerings will decrease if there are any systems
interruptions that affect the availability of our website or our ability to
fulfill orders.
The business-to-business sector for industrial safety products is largely
served by individual company sites selling that particular company's products.
In many cases, these sites are viewed as a supplement to a company's
traditional selling efforts.
Our success depends in part on continued growth in, and the use of, the
Internet, particularly for business-to-business commerce. The issues
concerning the commercial use of the Internet that we expect to affect the
development of the market for our services include:
security;
reliability;
cost;
ease of access;
quality of service; and
increases in bandwidth availability.
In addition, many companies' internal financial systems are based on the
issuance of traditional "paper" purchase and sales orders. These systems
need to be updated in order for purchasing agents from these companies to
be able to maximize the utilization of E- Commerce.
If the Internet develops more slowly as a commercial or business medium
than predicted, it will adversely affect our business. In addition, companies
that control access to Internet transactions through network access or web
browsers could promote competitors or charge a substantial fee to us for
inclusion in their product or service offerings. Either of these developments
could adversely affect our business.
We must continue to enhance and improve the functionality and features of
our online site. The Internet and the online commerce industry are rapidly
changing. If competitors introduce new products and services embodying new
technologies, or if new industry standards and practices emerge, our websites
and systems may become obsolete. Our future success will depend on our
ability to:
license or internally develop leading technologies useful in our
business;
develop new services and obtain technologies that address the
increasingly sophisticated and varied needs of our prospective customers; and
respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
In recognition of the time factors involved and the natural reluctance
of some people and companies to accept and adopt changing technologies, it is
also important for us to provide and continue to provide a full 360 degree
range of purchasing options, including:
distribution of catalogs and CD-ROMs,
ability to order by fax;
toll free telephone numbers, and
actual visits by sales representatives.
Market Niches and Background
The market for industrial safety products has increased substantially in
the past twenty-five years. In 1970, Congress enacted the Occupational Safety
and Health Act or "OSHA," which requires employers to supply protective
clothing in some work environments. At about the same time, Dupont developed
Tyvek(TM) which, for the first time, allowed for the economical production of
lightweight, disposable protective clothing. The attraction of disposable
garments grew in the late 1970's with the increases in both labor and material
costs of producing cloth garments and the expansion of federal, state and
local regulations requiring that employees wear protective clothing to protect
against exposure to particular contaminants, including asbestos and
hydro-carbons known as "PCBs."
The use of disposable garments avoids the continuing costs of laundering
and decontaminating woven cloth work garments and reduces the overhead costs
associated with handling, transporting and replacing these garments. As
manufacturers have become aware of the advantages of disposable clothing, the
demand for disposable garments has increased. This has allowed for greater
production volume and, in turn, has reduced the cost of manufacturing
disposable industrial garments.
We believe that this market will grow because of:
Government legislation which mandates the clean up of toxic waste
sites and the elimination of hazardous materials from the environment as
required under various Congressional Super Fund Acts. The Environmental
Protection Agency designated OSHA to be responsible for the health and safety
of workers in and around areas of hazardous materials and contaminated waste,
as well as regulations requiring that employees wear protective clothing to
protect against exposure to particular contaminants.
Lower cost of disposable/limited use garments compared to reusable
woven and cloth garments because of the elimination of costs associated with
laundering, decontaminating, handling, transporting and replacing reusable
woven or cloth garments.
Increasing workers' compensation claims and large class action
liability suits instituted by both present and prior employees for failure to
be protected against hazardous agents found in the workplace.
Ongoing expansion in the semiconductor, microelectronics, medical
device and pharmaceutical industries, all of which require manufacturing in a
cleanroom environment.
We have identified two initial market niches:
Industrial safety and hazardous worksites--We sell products to "end
users," that are involved in manufacturing and construction. We will expand
into serving service businesses, public utilities, fisheries, pharmaceutical
plants, the transportation industry and companies whose employees are exposed
to hazardous materials. Use of these products has in a large part resulted
from the adoption of OSHA and other governmental safety standards and the
awareness of industry and the general public for the need to provide worker
protection against hazardous materials contained in industrial facilities,
schools and buildings.
These products include coveralls, shirts, pants, headwear, hoods, aprons,
smocks, lab coats, hazardous material handler suits, examination gowns,
sleeves, shoe covers and related items, as well as industrial first aid kits
and products.
Research laboratories and controlled environment facilities--Clean rooms
are one of the most effective approaches to achieving a contamination controlled
environment. A clean room is a specially designed room in which particulate
presence and environmental conditions are carefully maintained. Clean rooms
are used for product manufacture and assembly, testing, research and
development, packaging, aseptic processing and to perform medical/surgical
procedures. Clean rooms are operated and maintained under strict procedures to
minimize the risk of introducing foreign particles. The greatest demand for
clean room products and services has been and continues to be in the
manufacture and assembly of products based on modern technology. The
semiconductor market is the largest market for clean rooms and other
contamination control products, as integrated circuits can be rendered
ineffective by a minute particle, undetectable to thehuman eye, and must
be discarded.
Most colleges and universities, as well as many companies maintain research
laboratories. These facilities require some of the same products as do
cleanroom as well as many supply items needed to conduct experiments and
other tests.
We have also designed a series of workstations, work benches, air showers
and other accessories used in cleanrooms. These items are manufactured to our
specifications by third party contractors.
eSAFETYWORLD sells a large variety of disposable items, including hats,
coats, boots and gloves, that are used in laboratories and cleanroom
facilities. In addition, weintroduced a new glassware and laboratory supply
product line in September 2000 consisting of more than 7,000 items which will
be added to our website by January 2001. Disposable items are ideal products
for a distributor because they must be reordered on a regular basis.
Future market niches--We have identified several additional market niches
for future expansion, all of which appear to have the same attributes as
eSAFETYWORLD's initial market niches. The identified niches include products
serving the laboratory supply, hospital, plumbing supply, construction and
commercial heating and air conditioning industries.
Our identified product areas include disposable/limited use protective
industrial garments, specialty safety and industrial work gloves, reusable
woven industrial and medical apparel, fire and heat protective clothing,
along with protective systems for personnel, and suits for use by toxic waste
clean up teams.
Protective garments, including boots, goggles, aprons and overalls, are
used primarily for:
Safety and hazard protection, to protect the wearer from contaminants
or irritants including chemicals, pesticides, fertilizers, paint, grease, and
dust and from limited exposures to hazardous waste and toxic chemicals
including acids, asbestos, lead, and PCB's;
Clean room environments, for the prevention of human contamination of
manufacturing or research processes in clean room environments;
Physical protection, to protect a wearer from laceration, splinters,
eye injuries, heat and chemical irritants without sacrificing manual
dexterity or comfort;
Heat and fire protection, to protect municipal fire fighters, military,
airport and industrial fire fighting teams and for maintenance of "hot"
equipment including ovens, kilns, glass furnaces, refinery installations, and
smelting plants;
Protection from viral and bacterial microbiologicals, to protect the
wearer from contagious diseases including AIDS and hepatitis, at hospitals,
clinics and emergency rescue sites; and
Protection from highly concentrated and chemical and biological
toxins, to protect the wearer from toxic waste at Super Fund sites, accidental
toxic chemical spills or biological discharges, the handling of chemical or
biological warfare weapons and the cleaning and maintenance of chemical,
petrochemical and nuclear facilities.
Other ancillary products used in cleanroom and laboratory environments,
include:
Packaging materials,
Monitor devices,
Flooring and mats,
Electrostatic devices,
Glassware,
Filters,
Furnishings, and
Wipes and swabs.
Disposable/limited use industrial garments are used in a wide variety of
industries and applications. Typical industry users are chemical plants,
petrochemicalrefineries and related installations, automotive manufacturers,
pharmaceutical companies, coal and oil power generation utilities and
telephone utility companies. There are many smaller industries that use these
garments for specific safety applications unique to their situation.
Business Plan
Our business plan was designed to offer customers a complete 360 degree buying
and customer service solution. Many of our efforts commenced following the
completion of our initial public offering. Specifically, we provide an
ordering a sales and ordering methodology that fits the needs and preferences
of every customer or potential customer. In addition, each selling effort is
designed to encourage customers to use or become familiar with our e-commerce
site and our related sales and customer service capabilities.
Catalogues and CD-ROMs -ROMS that contain the same information as our
catalogue and includes a hot link to our website. Currently, our catalogue
concentrates on industrial safety products, but we are designing a catalogue
that will be directed towards the cleanroom market. We completed our current
catalogue and CD-ROM in June 2000. A substantial portion of our personnel
resources were devoted to this project during the period March through June
2000. Printed catalogues remain an effective means of making initial contact
with customers as well as increasing our name recognition among
prospective customers. All catalogues and printed material set forth our
website address as well as our toll free telephone number.
Telemarketing -ROMs. Our experience during the period following the
completion of our initial public offering, convinced us that telemarketing
efforts should be expanded. In September 2000 we entered into an agreement
with Equitable Financial Group, Inc., a call center based in Salt Lake City,
Utah to conduct a significant portion of our telemarketing efforts. The call
center will place calls to prospective customers having targeted standard
industry codes and zip codes.
Tradeshows - We attend targeted trade shows or conventions to exhibit our
site and capabilities. We distribute our printed materials and CD-ROMs as well
as collect the business cards and email addresses of attendees. We follow-up
with attendees via telephone, fax and email.
Email and Fax Notices
Independent Sales Representatives -ROMs and increase our overall name
recognition. These independent sales representatives receive compensation
only if they introduce actual customers.
Software and Computer Resources
Our strategy has been and is to license or otherwise obtain commercially
available technology and outsource services whenever possible rather than seek
internally developed solutions. With this objective in mind, in March 2000, we
enteredinto an agreement with Apex Interactive Inc to provide us with
database, web design and hosting and Internet marketing services. Apex also
provides web security and other consulting services for us. We pay a monthly
fee of $10,000 for these services.
Apex' systems are and will continue to be designed based on industry
standard architectures and are designed to reduce downtime in the event of
outages or catastrophic occurrences. These systems provide 24-hour-a-day,
seven-day-a-week availability. The system hardware is operated by Apex in
Milwaukee, Wisconsin, and provide redundant communications lines and emergency
power backup.
Our Internet marketing services include:
Apex Ascend Program - Search engines are still the number one
resource people use to find information on the Internet. Apex Ascend Program
is designed to place a user in the forefront of search engine listings. This
service includes registration to over 150 search engines and Internet
directories, as well as a marketing strategy and site optimization to best fit
the criteria of ten leading search engines. The Ascend program includes
customized META tags, search engine registration, plus quarterly, bi-monthly,
or monthly search engine optimization and reports.
Lead Generation and Tracking Email and fax blasts
Other
During the period March through July 2000, most of our efforts with Apex
nvolved revising and updating our Website. We started using the marketing
tools for the first time in September 2000. We are currently working on
expanding our current databases to incorporate an additional 14,000 products.
We anticipate completing that project early in 2001.
Customer Service
We believe that a high level of customer service and support is critical
to retaining and expanding its customer base and encouraging repeat purchases.
A customer service representative is available five days a week, to provide
customer assistance via e-mail or telephone. Customer service representatives
handle questions about orders, assist customers in finding desired products
and register customers' credit cardinformation over the telephone and
respond to questions on our real time messaging system on our website.
Customer service representatives are expected to be a valuable source of
feedback regarding user satisfaction.
Order Fulfillment and Vendors
A significant element of our strategic plan involves entering into
agreements with vendors under which the vendors will drop ship products
directly to our customers. Drop shipment eliminates our requirements to
maintain and store inventory. Our understanding with all of our principal
vendors calls for these vendors to drop ship products directly to
our customers with customary payment terms and without any advance payment by
us. Products are purchased using purchase orders or verbal agreements. No
long-term supply agreements, including obligations to purchase inventory,
exist. There can be no assurances that we will continue to be successful in
negotiating these arrangements with the vendors.
We anticipate that our principal vendor for many industrial safety products
will be Ideal Sales Inc., a wholesaler of industrial safety products. Under our
agreement, we offer products available from Ideal, which currently number
approximately 15,000. The agreement does not limit our ability to distribute
substantially similar products sold by other manufacturers. The prices for
the products are subject to negotiation.
Our success depends on our ability to have access to products in sufficient
quantities at competitive prices. Vendors may offer exclusive allocations of
product to distributors for limited periods of time. Some potential vendors
have their own online commerce efforts, which may eliminate or reduce our
ability to get sufficient product allocations from these vendors. Competitors
may also be able to secure products from vendors on more favorable terms,
fulfill customer orders more efficiently and adopt more aggressive pricing or
inventory availability policies than us. Our business will be adversely
affected if we are not able to offer our customers sufficient quantities of
products in a timely manner or have access to products at acceptable prices
and terms.
Competition
We believe that there are hundreds of competitors selling products that
are similar to those sold by us based on listings in industry catalogs,
including the Thomas Register. The National Safety Council, a trade
organization of manufacturers and distributors, has over 15,000 members. The
most significant national competitor is Grainger Inc., a distributor of
industrial safety products, which distributes through stores, catalogues and a
website. There are also significant competitors in each other product niche in
which we participate. Many of our other competitors are regional companies
selling through catalogs and independent sales representatives. Increasing
numbers of these competitors are also establishing websites and e-commerce
sites. Almost all of these companies compete by:
distributing catalogs in the mail,
attending trade shows,
engaging independent sales representatives and
telemarketing.
In addition, increasing numbers of competitors are developing in-house
websites and relying on aggressive pricing.
We believe that our e-commerce site and our business strategy provide us
with a competitive advantage because:
Our e-commerce site is user-friendly with significant amounts of
graphics.
Our strategy requires low levels of working capital and no
inventory holding costs.
Our strategy permits us to serve as a manufacturer's Internet
independent sales representative and does not put us in direct competition
with other sales efforts.
We offer a 360 degree purchasing solution, extensive customer
support and are very flexible in our willingness to meet customer demands.
However, we can give no assurances that our approach will not be duplicated
or improved upon by others. If we face increased competition, our operating
results may be adversely affected.
Security
We use the secure socket layer or "SSL" transaction protocol to protect
sensitive information transferred to and from our servers. SSL is currently
used for most web-based e-commerce projects to protect credit card and other
processing. The servers used by us may be vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions. Our business may be
adversely affected by customers' perceptions of Internet security or if our
security measures do not prevent security breaches.
Regulation
Although there are few laws and regulations directly applicable to the
Internet, it is likely that new laws and regulations will be adopted in the
United States and elsewhere covering issues like unsolicited bulk e-mailing,
license fees, copyrights, privacy, pricing, sales taxes and characteristics
and quality of Internet services. The adoption of restrictive laws or
regulations could slow Internet growth or expose us to significant liabilities
associated with content available on its websites or Internet marketing
methods. The application of existing laws and regulations governing Internet
issues including property ownership, libel and personal privacy is also very
uncertain. There can be no assurance that current or new government laws and
regulations, or the application of existing laws and regulations will not
expose us to significant liabilities, significantly slow Internet
growth or otherwise cause a material adverse effect on our business, results
of operations or financial condition.
We do not collect sales or other taxes with respect to the sale of
services or products in states and countries where we believe that it is not
required to do so. One or more states or countries have sought to impose
sales or other tax obligations on companies that engage in online commerce
within their jurisdictions. A successful assertion by one or more states or
countries that we should collect sales or other taxes on products and
services, or remit payment of sales or other taxes for prior periods, could
have a material adverse effect on our business, results of operations and
financial condition.
The Communications Decency Act of 1996, known as "CDA", was enacted in
1996. Although those sections of the CDA that, among other things, proposed
to impose criminal penalties on anyone distributing "indecent" material to
minors over the Internet were held to be unconstitutional by the U.S. Supreme
Court, there can be no assurance that similar laws will not be proposed and
adopted. Although we do not currently distribute the types of materials that
the CDA may have deemed illegal, the nature of similar legislation and the
manner in which it may be interpreted and enforced cannot be fully determined,
and legislation similar to the CDA could subject us to potential liability,
which in turn could have an adverse effect on our business, financial
condition and results of operations. These laws could also damage the
growth of the Internet generally and decrease the demand for our products
and services, which could adversely affect our business, results of
operations and financial condition.
As a distributor of Internet content, we face potential liability for
negligence, copyright, patent, trademark, defamation, indecency and other
claims based on the nature and content of the materials that we broadcast.
These types of claims have been brought, and sometimes successfully pressed,
against Internet content distributors. In addition, we could be exposed to
liability with respect to the content or unauthorized duplication or
broadcast of content. Although we will maintain general liability insurance,
our insurance may not cover potential claims of this type or may not be
adequate to indemnify us for all liability that may be imposed. In addition,
although we will generally require our content providers to indemnify us
for this liability, the indemnification may be inadequate. Any
imposition of liability that is not covered by insurance, is in excess of
insurance coverage or is not covered by an indemnification by a content
provider could have a material adverse effect on our business, results of
operations and financial condition.
We hold the WWW.ESAFETYWORLD.COM domain name, although we believe
that in the future we will hold additional various web domain names and
trademarks. The acquisition and maintenance of domain names generally is
regulated by governmental agencies and their designees. For example, in the
United States, the National Science Foundation has appointed Network
Solutions, Inc. as a registrar for the ".com",".net" and ".org" generic
top-level domains. The regulation of domain names in the United States
and in foreign countries could change in the near future. These changes in the
United States are expected to include a transition from the current system to
a system that is controlled by a non-profit corporation and the creation
of additional top-level domains. Governing bodies may establish additional
top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, we may be unable to
acquire or maintain relevant domain names in all countries in which it
may conduct business.
The relationship between regulations governing domain names and laws
protecting trademarks and similar proprietary rights is unclear. Therefore, we
may be unable to prevent third parties from acquiring domain names that are
similar to, infringe upon or otherwise decrease the value of our trademarks
and other proprietary rights.
We are not regulated by the FDA, OSHA or the EPA. We do not presently
intend to sell products that require government approval. However, our
customers are subject to federal and state regulation related to
industrial safety. Changes in these laws and regulations could materially
affect demand for industrial safety products.
New Business Opportunity
In September 2000 we announced that we would leverage the financial
experience and contacts of our officers, particularly Messrs. Heil and
Jenkins, to provide consulting and incubator-like services to promising
companies. In most cases, we expect to receive equity positions in these
companies. We do not intend to make cash investments in these
companies or structure any investment in a way that will result in us being
classified as an investment company under the Investment Company Act of
1940. We may distribute some portion of these equity participations in the
form of dividends to our shareholders.
`This new business initiative will be undertaken as an addition to our core
business. These efforts will not, in any way, detract from our commitment to
our core business plan.
Personnel
We have five full-time employees and officers. Our strategic plan is to use
dedicated consultants and to outsource as many functions as possible. Growth
is not expected to result in significant increases in personnel.
Our success will depend upon continued services of Edward A. Heil, R. Bret
Jenkins and our directors and consultants. Mr. Heil has formulated our
business plan, established our goals, and worked with consultants on our
software development. Messrs, Heil and Jenkins have extensive contacts in
the financial community. Mr. Brownfiel has extensive product experience
and knowledge. Our consultants have extensive experience dealing with
vendors and customers in our target markets. The loss of one or more of our
other key personnel or consultants, or our inability to attract qualified
personnel, could have a material adverse effect on our business, financial
condition and results of operations.
Item 2 -- Properties
We operate out of rented office space located at 80 Orville Drive,
Bohemia, NY 11716. The lease, which expires in September 2001 calls for
monthly payments of approximately $1,500. The monthly rental also covers
certain clerical and administrative services.
Item 3 -- Legal Proceedings
eSAFETYWORLD is a defendant in an action brought by a creditor of Laminaire
asserting, among other things, that eSAFETYWORLD is a successor to Laminaire and
seeking repayment of $200,000 allegedly due to him by Laminaire. Based on
discussion with counsel, eSAFETYWORLD believes that this case is substantially
without merit and will not result in a material adverse impact on our
financial condition.
Item 4 -- Submission of Matters to a Vote of Security Holders
None
PART II
Item 5 -- Market for Our Common Equity and Related Stockholder Matters
We completed our initial public offering in February 2000. Our common stock is
quoted on the NASDAQ SmallCap Market under the symbol "SFTY." The table below
sets forth the high and low sale prices for our common stock since the
completion of our public offering.
<TABLE>
<S> <C> <C>
Quarter ended: High Low
March 31, 200 $9 1/2 $6 1/2
June 30, 2000 6 1/2 2 1/8
Through September 152 15/161 1/4
</TABLE>
There are approximately 900 stockholders of record of our common stock.
Our stock is not considered to be a "penny stock." However, no assurances
can be given that our stock will not become a penny stock in the future. Rule
15g-9 establishes the definition of a "penny stock," for purposes relevant to
us, as any equity security that has a market price of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to a
limited number of exceptions such as being listed on a national exchange.
For any transaction involving a penny stock, unless exempt, the penny stock
rules require that:
a broker or dealer approve a person's account for transactions in
penny stocks;
and
the broker or dealer receive from the investor a written agreement
to the transaction setting forth the identity and quantity of the penny stock
to be purchased.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:
obtain financial information and investment experience and objectives
of the person; and
make a reasonable determination that the transactions in penny stocks
are suitable for that person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prepared by the Commission relating to the
penny stock market, which, in highlight form sets forth:
the basis on which the broker or dealer made the suitability
determination; and
that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Disclosure also has to be made about:
the risks of investing in penny stock in both public offering and in
secondary trading, and
commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and the rights and
remedies available to an investor in cases of fraud in penny stock
transactions.
Finally, monthly statements have to be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks.
In order to continue to be included on NASDAQ, a company must maintain:
$2,000,000 in net tangible assets, or
$35,000,000 in market capitalization, or
$500,000 of net income in latest fiscal year or two of the last
three fiscal years, a $1,000,000 market value of its publicly-traded
securities and 500,000 shares in public float.
Continued inclusion requires two market-makers and a minimum bid price of
$1.00 per share.
Item 6 -- Management's Discussion and Analysis of Results of Operations and
Financial Condition
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995
Information set forth herein contains "forward-looking statements" which
can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "should" or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or by
discussions of strategy. No assurance can be given that the future results
covered by the forward-looking statements will be achieved. We caution
readers that important factors may affect our actual results and could cause
such results to differ materially from forward-looking statements made by or
on our behalf. Such factors include, but are not limited to, changing
market conditions, the impact of competitive products, pricing, acceptance
of our products and other risks detailed herein and in other filings
that we make with the Securities and Exchange Commission.
Operations
We had no revenue generating history prior to July 1, 1999. In August
1999, we acquired the customer and vendor lists of the Distribution
Product Group of Laminaire Corporation. Our business strategy for
the twelve months following the completion of our public offering is
designed to have us identified as the Internet independent sales
representative of industrial safety, disposable cleanroom, ancillary
cleanroom equipment, laboratory supplies and first aid products for our
market niches. This strategy is to:
update our e-commerce website to incorporate all 25,000 products
that we offer and incorporate real time customer service components,
work with Apex Interactive and others to implement a
state-of-the-art Internet marketing campaign,
prepare and distribute a CD-ROM covering our products,
prepare and distribute printed catalogues, advertising and promotional
material,
visit or otherwise contact directly targeted customers and vendors,
Develop an effective telemarketing effort,
Develop a network of traditional independent sales representatives
to distribute printed materials and increase our name recognition, and
attend and present at trade shows.
We devoted a significant portion of our resources to these infrastructure
efforts during the period from the completion of our public offering through
June 30, 2000. By June 30, 2000 we had completed our principal catalogue and
CD-ROM and had the initial database covering approximately 15,000 industrial
safety products included on our website. During the period subsequent to
June 30, 2000 we continued our infrastructure efforts, including:
Establishing a real time customer service component to our website,
Started our initial Internet marketing campaign with Apex.
Started developing printed catalogues for laboratory supply, cleanroom
supply and various other newly-added products,
Started developing a database for the newly-added products to be added
to our website through the first quarter of calendar year 2001, and
Established a program to outsource our telemarketing efforts so as
to increase such efforts without adding additional employees.
The operating results for the year ended June 30, 2000 do not reflect any
significant contribution from these infrastructure initiatives, and the
operating results for the two quarters following June 30, 2000 are not
likely to benefit significantly from these efforts. However, the programs
should be substantially completed by December 31, 2000 so that subsequent
quarters should start realizing benefits from our efforts. The costs
associated with those undertakings, combined with the amortization
requirements for acquired intangible costs, make it unlikely that the quarter
ended September 30, 2000 will be profitable.
Supply Programs - In December 1999, we entered into a supply agreement with a
traditional wholesaler of industrial safety products. The agreement
provides us with the ability to sell more than 15,000 different products.
Since then we have continually added new products and product groups. In all
cases, we have arranged vendors to drop ship on our behalf.
Other Developments Operations
We included the results of sales to the customers of the former Distribution
Product Group in our results commencing with August 22, 1999, the date on
which we acquired the related customer and vendor lists. As discussed below,
our marketing and web initiatives took place during the period following
the completion of our public offering and, therefore, were not in place to
impact our operations during the period reported.
Operating results for the period are as follows:
<TABLE>
<S> <C> <C>
Sales $723,968
Cost of sales 477,995
Gross profits 245,973
Selling and other 205,046
Profit before items
set forth below 40,927
Amortization of intangibles 82,662
Other 80,610
Pretax income 38,875
</TABLE>
Our results for the period were adversely affected by:
the need to overcome vendor issues involving past due payments
from Laminaire. We experienced difficulties obtaining shipments while we
established its own relationships with vendors whose payments were delayed
by Laminaire. Throughout the period, various vendors delayed or refused
shipments because they were dissatisfied with Laminaire's payment history. It
took us several months to rectify matters and convince vendors that Laminaire
was in no way affiliated with us.
the loss of many Laminaire customers who were dissatisfied with
Laminaire's delivery delays and who, therefore, did not renew blanket
orders that were scheduled to expire in 1999 or who did not give us the
opportunity to bid for their business.
the lack of cooperation on the part of certain Laminaire employees
during the transition period.
At the same time, substantially all of the Company's human resources
were devoted to the offering and then to updating the e-commerce website and
other infrastructure activities, as well as modifying the Laminaire acquisition
agreement. We ceased all contacts with Laminaire in March 2000. By June
2000, we had expanded our business and vendors to the point that the former
Laminaire vendor and customer issues were no longer significant to our
ongoing prospects.
During the period following the completion of our public offering, it also
became apparent to us that many larger prospective users of our products had
rigid purchasing systems that require a vendor to go through an approval
process. We are systematically undertaking the steps necessary to be approved
as a vendor by larger companies.
We realized a higher gross margin on sales (approximately 34%) than was
anticipated (approximately 25%) because many of the sales were for higher
margin items or were orders that needed to be fulfilled quickly or
required some customization. Overall, despite the problems and the need to
concentrate on web development and completion of the initial public offering,
earnings before interest and amortization amounted to $40,927 largely because
we kept overhead costs to a minimum.
During this period, our efforts principally were directed towards:
Increasing or product offerings;
Overcoming vendor and other issues inherited from the Laminaire
purchase;
Developing and refining our overall strategy; and
Planning the offering.
A substantial portion of these issues will be completed by September
30, 2000 allowing us to devote full time to marketing and sales.
Other operating costs consist principally of personnel and
consulting costs, including $48,000 paid to Laminaire for services
received through February 2000.
Amortization consists entirely of expenses relating to the
Laminaire transactions.
Liquidity and Capital Resources
We believe that the net proceeds of our initial public offering are
sufficient to satisfy our working capital requirements for at least 12
months because most of our expenditures relate to marketing, and we
have discretion over the timing and amount of these expenditures. In
addition, our emphasis on outsourcing means that our level of fixed costs
is relatively low, less than $100,000 per month, and it have no material
obligations or requirements for capital expenditures. At June 30, 2000, we had
cash and certificates of deposit of approximately $5,017,000.
We have no commitments for debt financing. We would seek sources of
financing if we have the opportunity of completing an acquisition. No specific
acquisition opportunity has been identified at this time.
Seasonality
The demand for our products is somewhat seasonal. Our customers have a
reduced demand for products in the summer because many of our customers'
employees take vacation, plants are often closed during a portion of the
summer months, and there is a general reduction of business activity in
those months.
New Accounting Pronouncements
No new pronouncement issued by the Financial Accounting Standards Board,
the American Institute of Certified Public Accountants, the Emerging Issues
Taskforce or the Securities and Exchange Commission is expected to have a
material impact on our financial position or reported results of operations.
Item 7 -- FINANCIAL STATEMENTS
The financial statements are filed as part of this Annual Report on
Form 10-KSB.
Item 8 -- CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None. We have not had any disagreements with our independent auditors
regarding the presentation of its financial statements or the application of
any Generally Accepted Accounting Principles.
PART III
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF
1934
Our executive officers and directors are as follows:
<TABLE>
<S> <C> <C>
Edward A. Heil 49 Chairman, president and chief
executive officer
R. Bret Jenkins 42 Director, secretary, and chief
financial officer
James Brownfiel 28 Director and chief operating officer
Claire A. Heil 29 Director and chief administrative officer
Bridget C. Owens 43 Director
Steven W. Schuster 46 Director
</TABLE>
Edward A. Heil is a founder of eSAFETYWORLD and has been president and a
director since 1997. He is a certified public accountant and a managing
director, since January 1992, in Independent Network Group, Inc., a
financial consulting firm. During that same period, he has been a principal
of EH Associates, LLC, a financial consulting firm. From 1984 through
December 1991 he was a partner in the accounting firm, Deloitte & Touche,
LLP. From 1973 to 1984 he was employed in various professional
capacities by Deloitte & Touche, LLP. Mr. Heil holds Bachelor of Arts and
Master of Business Administration degrees from New York University. Mr. Heil,
who will devote from 75 to 90 percent of his time to eSAFETYWORLD, is also
a director of Laminaire Corporation. EH Associates, LLC has a consulting
contract to provide us with management and financial services.
R. Bret Jenkins has been a director since 1997 and became chief financial
officer in October 1999. He has been in the private practice of securities
and general business law for the past 15 years. Mr. Jenkins holds Bachelor
of Arts and Juris Doctorate degrees from the University of Utah. JPJ, Inc.,
a consulting firm controlled by Mr.Jenkins, has a contract to provide us
with business services.
James Brownfiel has been an officer since August 1999 and became Chief
Operating Officer in March 2000. He became a director in September 2000.
From 1996 to1999, he was a general manager for Deshler Mechanical Corp.
From 1995 to 1996, he was a District Manager for Ferguson Enterprises. From
1994 to 1995, he was a project manager for Porter Brothers Inc. He is a
graduate of the University of Notre Dame. Mr. Brownfiel is Mr. Heil's
son-in-law.
Claire A. Heil is a certified public accountant and became a Director and
Chief Administrative Officer in September 2000. Prior to that, she held
professional accounting positions at PriceWaterhouseCoopers, LLP, Wright
Griffin Davis & Co. and the University of Michigan. She is a graduate of the
University of Notre Dame and is Mr. Heil's daughter.
Bridget C. Owens has been a director since June 1999. She served as special
assistant to the board of directors of Laminaire Corporation from 1995 to
February 2000. Prior to that she was director of marketing for Independent
Network Group, Inc in 1994 and for Primac Inc., a privately-held
transportation company from 1992-1993. Prior to Primac, Ms. Owens owned and
operated a trucking and transportation company. Ms. Owens currently operates
a consulting business.
Steven W. Schuster has been a director since August 1999. He has been a
member of McLaughlin & Stern, LLP since 1995. From 1997 through 1999, he was
secretary of Laminaire. Mr. Schuster has practiced corporate and securities
law for thepast 20 years. He received a Bachelor of Arts degree from
Harvard University and a Juris Doctorate from New York University. Mr.
Schuster is also a director of ACTV, Inc., an interactive television company.
Board of Directors
All directors hold office until the completion of their term of office,
which is not longer than three years, or until their successors have been
elected. We have a staggered board of directors. All officers are appointed
annually by the board of directors and, subject to existing employment
agreements, serve at the discretion of the board.
The board of directors has an audit committee and compensation committee.
The audit committee reviews the results and scope of the audit and other
services provided by our independent auditors, review and evaluate our
system of internal controls. The compensation committee will manage our stock
option plan and review and recommend compensation arrangements for our
officers.
All directors are reimbursed by us for any expenses incurred in attending
directors' meetings. We also have officers and directors liability insurance.
Stock Option Plan
We have a stock option plan that expires in 2009 and enables us to grant
incentive stock options, non-qualified options and stock appreciation rights
for up to an aggregate of 450,000 shares of our common stock. Incentive
stock options granted under the plan must conform to applicable federal
income tax regulations and have an exercise price not less than the fair
market value of shares at the date of grant or 110% of fair market value
for ten percent or more stockholders. Other options and stock appreciation
rights may be granted on terms determined by the compensation committee of
the board of directors.
No options were outstanding at June 30, 2000.
Item 10 -- Executive Compensation
No officer, director or employee has received compensation of $100,000,
and no director, officer or employee has a contract or commitment to receive
annual compensation in excess of $100,000 except as described below:
Mr. Brownfiel has a three-year employment agreement that becomes effective
at the effective date of the offering and calls for an annual salary of $80,000
in Year 1, $120,000 in Year 2 and $125,000 in Year 3, as well as
reimbursement of business expenses, including a car allowance. In September
2000, Mr. Brownfiel's employment agreement was cancelled, and we entered into
an agreement with KMB Associates, LLC, an entity controlled by Mr. Brownfiel,
under which we will pay KMB Associates, LLC the same amounts that would have
been paid to Mr. Brownfiel under the cancelled contract.
Ms. Heil has a three-year employment agreement that becomes effective at
the effective date of the offering and calls for an annual salary of
$75,000 in Year 1, $110,000 in Year 2 and $120,000 in Year 3, as well as
reimbursement of business expenses, including a car allowance
We have an agreement with JPJ, Inc., an entity associated with Mr.
Jenkins, under which we have agreed to pay minimum annual fees of $120,000
in each of the three years in the period ended March 31, 2003 for legal,
financial and other business services.. Mr. Jenkins will receive no
compensation from us beyond the payments to JPJ, Inc. The contract
automatically rolls over unless terminated. Mr. Jenkins currently devotes
an average of 35 hours per week to us.
We have an agreement with EH Associates, LLC, an entity associated with Mr.
Heil, under which we will pay annual consulting fees for general management
services of $140,000, $145,000 and $150,000 in each of the three years in
the period ended March 31, 2003. Mr. Heil will receive no compensation from us
beyond the payments to EH Associates, LLC. The contract automatically rolls
over unless terminated. Mr. Heil currently devotes an average of 35 hours per
week to us.
We have an agreement with EDK Associates, LLC under which we have agreed to
pay annual fees of $58,000, $65,000 and $75,000 in each of the three years in
the period ended July 31, 2003 for administrative, marketing and investor
relations services. Ms. Owens, a director, is the managing member and sole
owner of EDK Associates, LLC.
The following table summarizes the salaries and benefits paid to our
president.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Long Term
Compensation Awards Payouts
</TABLE>
Annual Compensation (1)
Name and
Principal Position Year Salary(a) Bonus Other Annual
Compensation Restricted
Stock
Awards ($) Options
SARs
Edward A. Heil 2000 $28,717 $3,000
1999 0
1998 0
(a) Represents amounts paid to EH Associates, LLC. The other compensation
relates to the estimated cost of health care benefits.
Indemnification of Officers and Directors
Our bylaws provide that we shall indemnify its officers, directors,
employees and other agents to the fullest extent permitted by Nevada law. In
addition, our certificate of incorporation provides that, to the fullest
extent permitted by Nevada law, our directors will not be liable for
monetary damages for breach of the directors' fiduciary duty of care to us
or our shareholders. This provision in the certificate of incorporation does
not eliminate the directors' duty of care, and in appropriate circumstances
equitable remedies including as an injunction or other forms of non-monetary
relief would remain available under Nevada law. Each director will continue to
be liable for breach of the director's duty of loyalty to us or our
shareholders, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for any transaction
from which the director derived an improper personal benefit and for improper
distributions toshareholders. In addition, this provision does not affect a
director's responsibilities under any other laws, including federal
securities laws or state or federal environmental laws.
We have been advised that in the opinion of the SEC, this type of
indemnificationis against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against these types of liabilities, other than the payment
by us of expenses incurred or paid by a director, officer or controlling
person in the successful defense of any action, suitor proceeding, is
asserted by a director, officer or controlling person in connection with the
securities being registered, we will submit the question of whether
indemnification by us is against public policy to an appropriate court and
will be governed by the final adjudication of the case.
SECURITY OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information known to us regarding beneficial
ownership of our common stock as of September 15, 2000 by:
each person known or believed by us to own, directly or beneficially,
more than 5% of our common stock,
each of our directors, and
all of our officers and directors as a group.
Except as otherwise indicated, we believe that the beneficial owners of the
common stock listed below, based on information furnished by the owners, have
sole investment and voting power over to the shares.
<TABLE>
<CAPTION>
Name of beneficial Number of shares owned Percent of
owner (1) shares owned (3)
<S> <C><C> <C>
Edward A. Heil 443,000 14.77
R. Bret Jenkins (2) 375,000 11.66
James Brownfiel 50,000 1.67
Claire A. Heil 50,000 1.67
Steven W. Schuster 100,000 3.34
Bridget C. Owens 50,000 1.67
Directors and 1,050,000 34.78
Officers As a Group (6people)
</TABLE>
1. The address for all other officers and directors, except Mr.
Schuster, is 80 Orville Drive, Bohemia, NY 11716. Mr. Schuster's address is
260 Madison Avenue, New York, NY 10016.
2. JPJ, Inc. owns 225,000 shares. It is an entity controlled by Mr.
Jenkins. Shares held by it are beneficially owned and controlled by Mr.
Jenkins.
3. The calculations for shares and percentages outstanding after the
offering do notive effect to:
200,000 shares of common stock reserved for issuance in connection
with warrants granted to Continental Capital & Equity Corporation in July 2000.
100,000 shares of common stock reserved for issuance upon the
exercise of the underwriter's warrant
The lock-up agreements executed by our officers, directors and holders of a
minimum of five percent of our common stock prohibit the transfer of the
shares without the consent of Kashner Davidson Securities Corp., the
underwriter of our initial public offering, for 18 months after the
completion of our initial public offering.
Item 12 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transaction involving Laminaire - In August 1999, we acquired the customer
and vendor lists and base of the distribution division of Laminaire
Corporation and incorporated the business. This division distributes
disposable products used in cleanrooms to a wide variety of commercial
customers. The purchase price, as adjusted in March 2000, consisted of 100,000
shares of our common stock, notes payable to the seller in the principal
amount of $400,000. This transaction was accounted for as a purchase in
conformity with Opinion No. 16 of the Accounting Principles Board.
The transaction was approved by two of our disinterested directors.
Edward A. Heil, our chairman, is a director of Laminaire. Steven W. Schuster,
one of our directors, was Laminaire's corporate secretary. Bridget Owens,
one of our directors, was employed as special assistant to the board of
directors of Laminaire.
In August 1999, eSAFETYWORLD made a demand loan to Laminaire
Corporation in the principal amount of $102,000. The loan bears interest at
the rate of 9% per annum. The note was convertible into common stock of
Laminaire at a conversion price of $.08 per share, which was the bid price per
share of Laminaire's common stock on the date of the loan. The loan was made
to provide Laminaire with additional working capital and to lower the amount
ultimately due from Laminaire under the notes issued in connection with the
acquisition of the customer and vendor lists of the Distribution Division.
This loan was offset against amounts due to Laminaire in March 2000.
In September 1999, we signed agreements with Kimberly-Clark Corporation,
The Texwipe Company LLC and Alma, Inc., which were suppliers to the
Distribution Division of Laminaire. Under the agreement with Kimberly-Clark,
we agreed to guarantee payment for all goods and services sold by Kimberly-
Clark to Laminaire. The amount of the guarantees was approximately $220,000.
Under the agreements with the vendors, any unpaid amounts as of the closing of
our offering was to be paid from the proceeds of the offering. Under the
terms of the promissory notes in the principal amount of $400,000 payable to
Laminaire Corporation, any amounts paid to the vendors of Laminaire could be
deducted from the amounts owed Laminaire. We paid the amounts due to these
vendors in March 2000 and offset the amounts paid against the notes due to
Laminaire.
All amounts due to Laminaire were fully satisfied by March 2000.
Other Transactions and Agreements
EH Associates, LLC has a contract with us for consultation for
financial and management services. Mr. Heil is the controlling shareholder of
EH Associates, LLC
JPJ Inc. has a contract with us for consultation for financial and
management services. Mr. Jenkins is the controlling shareholder of JPJ Inc.
EDK Associates, LLC has a contract with us for administrative,
marketing and investor relations services. Ms. Owens is the managing member
and sole owner of EDK Associates, LLC.
Mr. Schuster, one of our directors, is a member of McLaughlin & Stern,
LLP, a law firm that serves as our general counsel. Mr. Schuster owns 100,000
shares of common stock, which constitute approximately three percent of our
issued and outstanding stock. The board of directors believes that Mr.
Schuster qualifies asan independent director as he owns less than five percent
of our common stock after the offering and the fees paid to McLaughlin & Stern
for services rendered to us constitute less than five percent of the firm's
annual revenues.
We have engaged in transactions with certain entities which members of
management or 5% or greater shareholders are affiliated. While such
arrangements could possibly lead to conflicts of interests between us and
such persons, all future material affiliated transactions and future loans
and loan guarantees with our officers, directors, 5% shareholders, or their
respective affiliates, will be on terms that are as favorable to us
as those generally available from unaffiliated third parties.
Additionally, we have and will maintain at least two independent directors
on our board of directors. All future significant transactions and loans with
affiliates shall be approved or ratified by a majority of our independent
directors who do not have an interest in the transactions and who will have
access, at our expense, to our counsel or independent legal counsel.
PART IV
Exhibits and Reports on Form 8-K
a. Exhibits
INDEX TO EXHIBITS
<TABLE>
<S> <C>
Number Description
1.1 Form of Underwriting Agreement*
3.1 Registrant's Articles of Incorporation dated July
21, 1997*
3.2 Registrant's Amendment to Articles of
Incorporation dated August 23,
1999*
3.3 Registrant's Certificate of Correction to Articles
of Incorporation dated
November 19, 1999*
3.4 Registrant's By-laws*
4.1 Form of common stock certificate*
4.2 1999 stock option plan*
10.1 Asset Purchase Agreement with Laminaire Corp.*
10.2 Agreement with EH Associates, LLC*
10.3 Agreement with JPJ,Inc.*
10.4 Agreement with EDK, LLC*
10.6 Employment Agreement with James Brownfiel*
10.7 Form of Advisory Investment Banking Agreement
between Registrant and
Kashner Davidson Securities Corp.*
10.9 Promissory Note in favor of the Registrant from
Laminaire Corporation in
the principal amount of $102,000 dated August 11, 1999*
10.10 Promissory Note in favor of Laminaire Corporation
in the principal amount
of $200,000 dated August 11, 1999*
10.11 Promissory Note in favor of Laminaire Corporation
in the principal amount
of $300,000 dated August 11, 1999*
10.12 Agreement with Kimberly-Clark Corporation dated
September 29, 1999*
10.13 Agreement with The Texwipe Company, LLC dated
September 29, 1999*
10.14 Agreement with Alma, Inc. dated September 29, 1999*
10.15 Agreement with Ideal Sales, Inc. dated December 8, 1999*
10.16 Promissory Note in favor of the Arcadia Mutual
Fund, Ltd. dated July 15,
1999*
10.17 Promissory Note in favor of the Chamberlain Fund
dated August 6, 1999*
10.18 Amendment to Asset Purchase Agreement*
10.19 Letter Agreement Modifying Asset Purchase Agreement**
10.20 Amended Consulting Agreement with JPJ, Inc.**
10.21 Amended Employment Agreement with James Brownfiel**
10.22 Amended Agreement with EH Associates, LLC.***
10.23 Employment Agreement with Claire A. Heil***
10.24 Amended Agreement with EDK, LLC***
10.25 Agreement with KMB, LLC.***
27 Financial Data Schedule
</TABLE>
* Filed with the Registrant's Registration Statement on Form SB-2.
** Filed with the Registrant's Report on Form 10-QSB for the Three Months
Ended March 31, 2000
*** Filed with this Annual Report on Form 10-KSB.
b. Report on Form 8-K
NONE
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
/s/ Edward A. Heil
EDWARD A. HEIL
Title: President
Date: 9/25/00
_/s/ R. Bret Jenkins___
R. BRET JENKINS
Title: Chief Financial Officer
Date: 9/25/00
Directors
_/s/ James Brownfiel
JAMES BROWNFIEL
Stephen B. Schneer
Title: Director
Date: 9/25/00
/s/ Claire A. Heil
CLAIRE A. HEIL
Title: Director
Date: 9/25/00
/S/ Bridget C. Owens
BRIDGET C. OWENS
Title: Director
Date: 9/25/00
/S/ Steven W. Schuster
STEVEN W. SCHUSTER
Title: Director
Date: 9/25/00
TABLE OF CONTENTS
Page
<TABLE>
<S> <C> <C>
INDEPENDENT AUDITORS' REPORT 36
FINANCIAL STATEMENTS:
Balance Sheet at June 30, 2000 37-38
Statements of Operations for the Years Ended 39
June 30, 2000 and 1999
Statements of Cash Flows for the Years Ended 40
June 30, 2000 and 1999
Statements of Stockholders' Equity for the 41
Years Ended June 30, 2000 and 1999
Notes to Financial Statements 42-47
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
eSAFETYWORLD, Inc.:
We have audited the accompanying balance sheet of eSAFETYWORLD, Inc. as of
June 30, 2000, and the related statements of operations, stockholders' equity
and cash flows for each of the two years in the period then ended. These
financial statements are the responsibility of eSAFETYWORLD's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of eSAFETYWORLD, Inc. as of
June 30, 2000, and the results of its operations and its cash flows for the
years ended June 30, 2000 and 1999 in conformity with generally accepted
accounting principles.
/s/ EICHLER BERGSMAN & CO., LLP
New York, New York
September 8, 2000
eSAFETYWORLD
BALANCE SHEET
June 30, 2000
Current Assets:
Cash and cash equivalents $3,017,852
Certificate of deposit (maturity date of March 2, 2001) 2,000,000
Accounts receivable, less allowance of $3,000 97,109
Other current receivables 16,907
Prepaid expenses and other 246,156
Total Current Assets 5,378,024
Fixed Assets, less accumulated depreciation of $171 101,117
Acquired Intagibles, net of accumulated amortization
of $82,662 1,021,979
Deferred Income Tax Benefit 5,000
Other Assets 3,000
Total Assets $6,509,120
eSAFETWORLD,Inc.
BALANCE SHEET
June 30, 2000
Current Liabilities
Acccounts payable and accrued expenses 45,801
Commitments and Contingencies
Stockholders' Equity:
Common stock $.001 par value, 20,000,000
Shares authorized: 3,000,000 shares issued
and outstanding 3,000
Additional paid-in capital 6,428,644
Retained earnings 31,675
Stockholders' Equity 6,463,319
Total Liabilites and Stockholders Equity $6,509,120
eSAFETYWORLD, Inc.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
2000 1999
Sales $723,968
Costs of Sales 477,995
Gross Profit 245,973
Expenses
Selling and adminsitrative expenses 205,046
Amortization of intangibles 82,662
Total expenses 287,708
Results from Operations (41,735)
Interest Income 80,610
Pretax Income 38,875
Income Taxes 7,200
Net Income 31,675 $-
Basic Income per Share $0.01 $-
Weughted Average number of Common
and Common Equivalant Shares
Outstanding 2,349,863 1,900,000
eSAFETWORLD, Inc.
STATEMENTS OF CASHFLOWS
For the Years Ended June 30, 2000 and 1999
2000 1999
Cash Flows from operating activities
Net Income $31,675
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 82,833
Increase in accounts receivable (97,109)
Increase in other current receivables (16,907)
Increasr in prepaid expenses and other (246,156)
Increase in accounts payable 40,801
Net cash used by operations (204,863)
Cash Flows from investing activities:
Purchase of software, equipment and intangibles (498,929)
Investment in certificate of deposit (2,000,000)
Net cash used by investing activiities (2,498,929)
Cash flows from financing activities:
Borrowings 485,000
Repayment of debt (485,000)
Issuance of securities 5,721,644
Net cash provided by financing activies 5,721,644
Net increase in cash 3,017,852 $-
Cash and cash equivalants-begining -- $-
Cash and cash equivalnts - ending $3,017,852 $-
eSAFETYWORLD, Inc.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Two Years Ended June 30, 2000 and 1999
Common Stock Additional
Paid-in Retained
Shares Amount Capital Earnings Total
Balance July 1, 1998 1,900,000 $1,900 $8,100 $10,000
Activity - - -- -
Balance June 30, 1999 1,900,000 1,900 8,100 10,000
Issuance of equity securotes as
part of asset purchase 100,000 100 699,900 700,000
Sale of equity securities 1,000,000 1,000 5,720,644 5,721,644
Net income 31,675 31,675
Balance, June 30, 2000 3,000,000 3,000 6,428,644 31,675 6,463,319
NOTES TO FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
eSAFETYWORLD was established as a Nevada corporation in July 1997 as
The SL Group, Inc. and changed its name to eSAFETYWORLD, Inc. in August
1999 and completed an initial public offering of its common stock in
February 2000.Its purpose is to operate a business-to-business E-Commerce
site on the world wide web selling industrial safety, cleanroom, laboratory
supply and first aid products. In September 2000, it announced that it will
also provide consulting services to other companies.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's principal accounting and financial
reporting policies is as follows:
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods, The
principal assumptions inherent in the accompanying financial statements
relate to the realizability and life of the acquired intangibles included
in the financial statements.
Revenue Recognition -- Revenue for product sales is recognized in the
period in which the product is shipped. Revenue for consulting services will
be recognized as the service is performed.
Advertising -- eSAFETYWORLD charges advertising costs to expense as
incurred. Costs related to CD-ROMs, promotional literature and catalogs are
charged to operations when mailed or distributed.
Basic Income Per Share -- Basic income per common and common equivalent
share are calculated by dividing net income by the weighted average number
of common and common equivalent shares outstanding during each period.
There were no options or convertible instruments outstanding during either
period, except for warrants the assumed exercise of which would have been
antidilutive.
Fixed Assets Fixed assets consist of the following at June 30, 2000:
<TABLE>
<S> <C> <C>
Website development costs $8,370
Software 87,760
Equipment 5,158
Total 101,288
Less 171
Net $101,117
</TABLE>
Fixed assets are stated at cost less accumulated depreciation. Depreciation
s computed using the straight-line method based upon the estimated useful life
of five years.
Expenditures for repairs and maintenance are charged to expense as incurred.
Upon retirement, sale or other disposition of property and equipment, the cost
and accumulated depreciation are eliminated from the accounts and gain or loss
is included in operations.
Long-lived Assets -- Long lived assets, including intangibles, to be held
and used are reviewed for impairment whenever events or changes in
circumstances indicate that the related carrying amount may not be
recoverable. If required, impairment losses on assets to be held and used
are recognized based on the excess of the asset's carrying value over its
fair value. Long-lived assets to be sold are reported at the lower of
carrying amount or fair value reduced by estimated disposal costs.
Intangibles -line basis over ten years.
Statement of Cash Flows -- For the purposes of this statement, investments
and time deposits having an initial term of 90 days or less are considered
to be cash equivalents.
The Company has a $2,000,000 certificate of deposit that bears interest at
the rate of 5.7 percent per annum and matures on March 2, 2001. eSAFETYWORLD
maintains substantially all of its cash and certificates of deposit with one
bank. The aggregate cash balances exceed the balance insured by the Federal
Deposit Insurance Corporation.
All cash and short-term investments are considered as available for sale.
The cost of such investments at June 30, 2000 approximates their market value.
Income Taxes -- The Company complies with Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under SFAS
109, the liability method is used in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on the
differences between inancial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse.
At June 30, 2000, the Company has recorded a deferred tax benefit of $5,000
relating to the difference in the amortization period used to amortize the
acquired intangibles for financial reporting purposes (ten years) and for
income tax purposes (14 years).
Fiscal Year -- eSAFETYWORLD's fiscal year ends on June 30.
NOTE 3 -- COMPLETION OF INITIAL PUBLIC OFFERING
The Company completed an initial public offering on February 23, 2000 in
which it sold 1,000,000 shares of its common stock for gross proceeds
of $7,000,000 (and a net proceeds after all expenses of $5,721,644). As part
of the Offering, it paid the Underwriter a fee equivalent to 13% of total
proceeds as commission and an expense allowance and also paid $92,000 as
a consulting fee. The Company also sold a warrant covering an
aggregate of up to 100,000 shares of common stock exercisable at a price of
$10.50 per share to the underwriter, for its own accounts,. The underwriter
paid a price of $100 for the warrant. The underwriter will receive 100,000
shares if it exercises the warrant, commencing on the first anniversary
of the date of this offering until the fifth anniversary of the date of
this offering. The terms of the warrant require the Company to register
the common stock for which the warrant is exercisable within one year from the
date of the prospectus. This underwriter's warrant is not transferable
by the warrant holders other than to officers and partners of the
underwriter. The exercise price of the underwriter's warrant and
the number of shares of common stock for which the warrant is exercisable
are subject to adjustment to protect the warrant holders against dilution in
specific events.
NOTE 4 - ACQUISITION OF CERTAIN INTANGIBLE ASSETS FROM LAMINAIRE
CORPORATION
On August 11, 1999, eSAFETYWORLD entered into an agreement under
which it acquired certain intangible assets and rights of the distribution
business of Laminaire Corporation in exchange for 100,000 shares of its
common stock, notes in the principal amount of $500,000 and the assumption of
accounts payables relating to professional services in an amount up to
$125,000. The terms of the acquisition were modified and reduced in March
2000 such that the principal amount of notes was reduced to $400,000 and
the Company did not assume any of Laminaire's accounts payable. The
acquisition agreement provided that the Company obtained the customer and vendor
base and lists, a toll free number and certain pricing information but
acquired no tangible assets including inventory or accounts receivable
as part of the transaction. The acquired business distributes
disposable products used in cleanrooms to a wide variety of commercial
customers.
The Company had the right to offset the principal amount of a $102,000
demand note that it made to Laminaire, in whole or in part, against any
payment due by it to Laminaire under these note agreements. In
September 1999, eSAFETYWORLD also guaranteed the payment of Laminaire's
trade obligations to three of Laminaire's vendors. In addition, the Company
could offset the amounts paid under these guarantees or any amounts that
it paid or pays to satisfy amounts due by Laminaire to its vendors
against any amount due by the Company to Laminaire under the note agreements.
The notes payable bore interest at eight percent per annum and were payable
in 12 quarterly instalments. The first instalments under the note agreements
were payable at the earlier of our completion of the Company's public
offering or March 31, 2000. As of March 31, 2000, the Company had
made sufficient payments to Laminaire and its vendors to satisfy fully the
notes payable to Laminaire.
The total purchase price of $1,100,000 (which valued the 100,000 shares of
the Company's common stock that were issued at the public offering price) was
accounted for as a purchase in conformity with Opinion No. 16 of the
Accounting Principles Board. The entire balance was ascribed to "Acquired
Intangibles" on the accompanying Balance Sheet.
The Company's President is also a Director of Laminaire Corporation. He did
not participate in Laminaire's deliberations on the transaction described
above. All of the Company's Directors voted affirmatively for the
resolution authorizing the acquisition.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Consulting Agreements
eSAFETYWORLD has an agreement with EH Associates, LLC, an entity controlled by
its president under which eSAFETYWORLD will pay annual consulting fees o
$140,000, $145,000, and $150,000 in each of the three years in the period
ended March 31, 2003. The president receives reimbursement for
expenses including healthcare, but receives no other cash compensation from
eSAFETYWORLD.
JPJ Inc., an entity controlled by the Company's chief financial officer has a
contract with eSAFETYWORLD under which eSAFETYWORLD has agreed to pay
minimum annual fees of $120,000 in each of the three years in the period ended
March 31, 2003 for legal, financial and other business services. The
chief financial officer receives reimbursement for expenses, but
receives no other cash compensation from eSAFETYWORLD.
EDK Associates, LLC, an entity controlled by a director has a contract with
eSAFETYWORLD under which eSAFETYWORLD has agreed to pay annual fees of
$58,000, $65,000 and $75,000 in each of the three years in the period ended
May 31, 2003 for administrative, marketing and investor
relationsservices. The director receives reimbursement for expenses
including healthcare, but receives no other cash compensation from
eSAFETYWORLD.
Employment Agreement
The Company's chief operating officer has a three-year employment agreement
that calls for an annual salary of $85,000, $100,000 and $120,000 in each of
the three years in the period ended March 31, 2003, as well as
reimbursement of business expenses, including a car allowance. The chief
operating officer is the son-in-law of the Company's president.
Agreements with Apex Interactive and Continental Capital & Equity Corporation
In March 2000, the Company entered into a three-year renewable agreement
with Apex Interactive ("Apex") under which Apex agreed to host the
Company's e- commerce website, provide Internet marketing services
and support the Company's databases used by its website for $10,000 per
month, subject to adjustment.
In July 2000, the Company entered into a one-year agreement with
Continental Capital & Equity Corporation ("CCEC") under which CCEC agreed t
perform public relations and investor relations services for a fee of
$50,000 (included in "Prepaid Expenses" in the accompanying Balance Sheet)
and warrants to purchase 200,000 shares of common stock as follows - 50,000
shares each at prices ranging from $3 to $5 per share.
Rent
eSAFETYWORLD is obligated under the terms of a short-term
operating lease, expiring in September 2001, for office space which call for
minimum monthly rentals of approximately $1,600.
Litigation
eSAFETYWORLD is a defendant in an action brought by a creditor of Laminaire
asserting, among other things, that eSAFETYWORLD is a successor to Laminaire.
Based on discussion with counsel, eSAFETYWORLD believes that this case is
without merit and will not result in a material adverse impact on its
financial condition.
Guarantee
The Company guarantees a loan in the principal amount of $400,000 for an
unrelated business associate. The loan is scheduled to be repaid prior to
June 30, 2001.
NOTE 6 - STOCKHOLDERS' EQUITY
The Company was incorporated in the state of Nevada and is authorized to
issue up to 20,000,000 shares of common stock having a par value of $.001 per
share and 1,000,000 shares of preferred stock. Neither the certificate of
incorporation nor the by- laws contain any provision that would delay, defer
or prevent a change in control.
There are 3,000,000 shares of common stock issued and outstanding. Each
share of common stock entitles the holder to one vote on each matter
submitted to the stockholders. The holders of common stock:
have equal ratable rights to dividends from funds legally available
for payment of dividends when, as and if declared by the board of directors;
are entitled to share ratably in all of the assets available for
distribution to holders of common stock upon liquidation, dissolution or
winding up of our affairs;
do not have preemptive, subscription or conversion rights, or
redemption or access to any sinking fund; and
are entitled to one non-cumulative vote per share on all matters
submitted to stockholders for a vote at any meeting of stockholders.
The Company's certificate of incorporation authorizes the issuance of
1,000,000 shares of preferred stock with designations, rights and
preferences determined from timeto time by its board of directors. Its board
of directors is empowered, without stockholder approval, to issue shares of
preferred stock with voting, liquidation, conversion, or other rights that
could adversely affect the rights of the holders of the common stock. It has
no present intention to issue any shares of preferred stock. There can be no
assurance that it will not do so in the future. No preferred stock may be
issued without the underwriter's consent for 12 months following the effective
date of the Company's public offering.
The Company has not paid any dividends on its common stock to date.
Stock Option Plan
The Company has a stock option plan that expires in 2009 and enables it to
grant incentive stock options, non-qualified options and stock appreciation
rights for up to an aggregate of 450,000 shares of our common stock.
Incentive stock options granted under the plan must conform to applicable
federal income tax regulations and have an exercise price not less than
the fair market value of shares at the date ofgrant or 110% of fair market
value for ten percent or more stockholders. Other options and stock
appreciation rights may be granted on terms determined by the compensation
committee of the board of directors.
No options or other awards were outstanding at June 30, 2000.
