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As filed with the Securities and Exchange Commission on November 22, 2000
REGISTRATION NO. 333-34612
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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ENVIRONMAX.COM, INC.
(Name of issuer in its charter)
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UTAH 541620 87-064520
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(State of incorporation) (North American Industry Classification System) (I.R.S. Employer Identification No.)
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4190 S. Highland Drive, Suite 210
Salt Lake City, Utah 84124
(801) 424-0200
(Address and telephone number of registrant's principal
executive offices
and principal place of business)
Robert F. Craig J. Gordon Hansen
Chief Executive Officer Richard D. Clayton
4190 S. Highland Drive, Suite 210 Scott R. Carpenter
Salt Lake City, Utah 84124 Parsons Behle & Latimer
(801) 424-0200 201 South Main Street, Suite 1800
(Name, Address and telephone number Salt Lake City, Utah 84111
of agent for service) (801) 532-1234
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of earlier effective registration
statement for same offering. [ ]
If this Form is a post-effective amendment file pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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SUBJECT TO COMPLETION, DATED NOVEMBER 22, 2000.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state or jurisdiction where the offer or sale is not
permitted.
UP TO 7,000,000 COMMON SHARES
[ENVIRONMAX.COM LOGO]
$[ ] PER SHARE
================================================================================
Environmax.com, Inc. is offering up to 7,000,000 common shares. This is our
initial public offering and no public market currently exists for our shares.
The method of distribution being used in this offering differs from that
traditionally employed in firm commitment underwriter public offerings. The
public offering price and allocation of shares will be determined before the
registration statement for this offering is declared effective by the Securities
and Exchange Commission, primarily by a Dutch auction process. We anticipate
that the auction will result in a public offering price of $14.00 to $17.00 per
share. A more detailed description of the auction process is included in the
section entitled "Plan of Distribution."
We are offering our shares on a best-efforts basis and without the assistance of
any underwriter or other securities dealer. As a result, we may sell fewer than
the full 7 million shares we are offering.
We have applied to have our common shares listed on the American Stock Exchange
under the symbol "EVX."
Investing in our common shares involves risks. See "Risk Factors" beginning on
page 6.
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OFFERING PROCEEDS AT $14.00 PER SHARE OFFERING PROCEEDS AT $17.00 PER SHARE
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PER SHARE TOTAL PER SHARE TOTAL
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Public Offering Price $ 14.00 $ 98,000,000 $ 17.00 $119,000,000
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Estimated Offering Expenses $ .11 $ 800,000 $ .11 $ 800,000
=============================================================================================================
Our Net Proceeds $ 13.89 $ 97,200,000 $ 16.89 $118,200,000
=============================================================================================================
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is November , 2000
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[INSIDE FRONT COVER]
[GRAPHICS DEPICTING THE COMPANY'S PRODUCTS.]
WE INTEND TO DISTRIBUTE TO SHAREHOLDERS ANNUAL REPORTS CONTAINING
AUDITED FINANCIAL STATEMENTS EXAMINED BY AN INDEPENDENT PUBLIC ACCOUNTING FIRM
AND QUARTERLY REPORTS FOR THE FIRST THREE QUARTERS OF EACH CALENDAR YEAR
CONTAINING UNAUDITED FINANCIAL INFORMATION.
As used in this prospectus, the terms "we," "our," "us,"
"EnvironMax.com," and "the Company" refer to EnvironMax.com, Inc. We have filed
trademark and servicemark applications for the "EnvironMax.com," and
"EnvironMax" names and logo. All other trademarks or tradenames referred to in
this prospectus are the property of their respective owners. We are not related
to or affiliated with Enmax Corporation, located in Alberta, Canada.
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY..................................................................................... 2
RISK FACTORS........................................................................................... 5
[SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS].................................................... 16
USE OF PROCEEDS........................................................................................ 18
CAPITALIZATION......................................................................................... 20
DILUTION .............................................................................................. 20
SELECTED FINANCIAL DATA................................................................................ 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................. 23
RESULTS OF OPERATIONS.................................................................................. 24
BUSINESS .............................................................................................. 28
LEGAL PROCEEDINGS...................................................................................... 35
MANAGEMENT EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES............................................. 35
RELATED PARTY TRANSACTIONS............................................................................. 39
PRINCIPAL SHAREHOLDERS................................................................................. 40
PLAN OF DISTRIBUTION................................................................................... 42
DESCRIPTION OF SECURITIES.............................................................................. 42
SHARES ELIGIBLE FOR FUTURE SALE........................................................................ 47
STOCK TRANSFER AND LISTING............................................................................. 47
LEGAL MATTERS.......................................................................................... 48
EXPERTS ............................................................................................... 48
WHERE YOU CAN FIND ADDITIONAL INFORMATION.............................................................. 48
INDEX TO FINANCIAL STATEMENTS.......................................................................... F-1
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PROSPECTUS SUMMARY
This summary highlights information contained in other parts of this prospectus.
You should read this summary information with the more detailed information in
this prospectus, including the risk factors and the financial statements and
notes to those statements appearing elsewhere in this prospectus.
OUR BUSINESS
We provide environmental and waste tracking and reporting management solutions
to governmental and commercial entities. Our computer software and hardware
systems allow our clients to comply with Environmental Protection Agency, or
EPA, regulations and reduce their hazardous materials and waste stream costs by
closely tracking the movement and use of hazardous materials from purchase
through disposal.
As a subcontractor to our parent, Enmax Corporation, we provide development,
support and maintenance services related to the Hazardous Material Management
System, or HMMS, a client-server based software system that is used by
governmental agencies to monitor and track hazardous material and waste. Our
support services include the development of upgrades to HMMS software, system
support and maintenance. We currently provide our HMMS services to twenty-five
Department of Defense facilities, including Warner-Robins Air Logistics Center,
Tobyhanna Army Depot, and the Marine Corps Logistics Base in Albany, Georgia and
the Naval base at Cherry Point.
In addition, we are developing EnvironMax Millenial Edition, or EnvironMax ME, a
web-based software application that is designed to replace HMMS and better meet
commercial reporting and tracking requirements. We are currently testing
EnvironMax ME. We expect EnvironMax ME to replace HMMS and be the primary focus
of our operations. Much like HMMS, the EnvironMax ME system will use a
combination of computer software and hardware and business processes to manage
and monitor the procurement, use and disposal of hazardous materials and waste.
We expect to make the EnvironMax ME system available to commercial and
governmental entities in early 2001. We anticipate that some of our initial
EnvironMax ME clients will be our existing HMMS governmental customers.
OUR MARKET OPPORTUNITIES
We believe there is a significant and growing market need for an easy-to-use,
effective, web-based system for tracking and reporting the acquisition,
production, handling, storage and disposal of environmentally hazardous
materials and waste. In 1994, governmental agencies and commercial enterprises
in the United States spent approximately $100 billion on pollution abatement and
control. We believe that approximately $5 billion of this amount was allocated
directly to hazardous materials and waste reporting and tracking. According to
the EPA, there are approximately 350,000 active commercial and governmental
entities in the United States that are required to report on environmental
issues. Of these, more than 100,000 are required to report on environmental
issues for which the EnvironMax ME could provide reporting and tracking
management solutions. We believe the world-wide market for the Environmax ME is
in excess of $40 billion. If, as we anticipate, we upgrade the capabilities of
the Environmax ME to also address air, water and soil reporting and tracking
requirements, we believe the domestic market for the Environmax ME would be
approximately $17.5 billion, and that the world-wide market could be
approximately $140 billion.
Historically, business and governmental agencies reported and tracked their
hazardous materials and waste using either internally developed hand-entry
systems or stand-alone, client-server based computer systems. These systems were
generally difficult to use, inefficient and relatively expensive, particularly
in the case of systems that used stand-alone computers and servers.
The Internet has accelerated the introduction of processes for more effectively
and efficiently managing information and providing services. It also has changed
the way software applications are developed and deployed. We believe one of the
fundamental changes in software development and deployment the Internet has
accelerated is the use of software applications. Software applications accessed
in such a manner are less expensive and more efficient to obtain and use than
traditional
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internally installed software systems. The Gartner Group has estimated that, by
2003, hosting applications will be the dominant application medium for small and
medium-sized businesses. It also forecasts that the market for application
service providers - firms that host and rent clients software applications using
the Internet as the delivery platform instead of installing those applications
internally -- will exceed $25 billion by 2004, up from $1.1 billion in 1999. We
intend to take advantage of the growth in the use of web-based applications by
enabling our EnvironMax ME software to be web-based and delivered via the
Internet using an application service provider, or ASP.
Our EnvironMax ME software will operate separately or as an integrated part of
an enterprise-wide software solution and provide a comprehensive suite of
interoperable tools for the management of hazardous materials and waste.
OUR STRATEGY
Our goal is to become a leading provider of environmental and waste tracking and
reporting management solutions for commercial and governmental enterprises. The
elements of our strategy to achieve this goal are to:
- service our current HMMS customers;
- develop awareness of our HMMS and EnvironMax ME systems among potential
customers;continue our research and development of environmental reporting
and tracking applications in the areas of air, water and soil pollution
prevention;
- integrate our products with major company-wide enterprise resource planning,
or ERP, products such as Oracle, SAP and PeopleSoft; and
- expand our operations internationally.
CORPORATE INFORMATION
Enmax formed our company as a separate entity in February 2000, for the purposes
of supporting HMMS and developing, supporting and marketing the EnvironMax ME
System. Our principal executive offices are located at 4190 S. Highland Drive
Suite 210, Salt Lake City, Utah 84124 and our telephone number is (801)
424-0200. Our Internet address is www.environmax.com. Information contained in
our web-sites is not part of this prospectus.
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THE OFFERING
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Maximum number of Shares Offered...................................... 7,000,000 shares
Common Shares to be outstanding after this offering................... 20,910,710 shares
Use of proceeds....................................................... To fund continued development of our products, to
fund marketing and sales, to advance our
infrastructure and operations, to repay debt to Enmax
and to fund general corporate purposes.
Proposed American Stock Exchange Symbol............................... EVX
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The outstanding share information above is based on the sale of all 7 million
shares we are offering and the 13,910,710 shares that were outstanding as of
September 30, 2000. The information excludes 1,075,650 common shares issuable
upon the exercise of options outstanding as of September 30, 2000 with a
weighted average exercise price of $10 per share and an additional 1,134,350
common shares reserved for future issuance under the terms of our equity
incentive plan as of September 30, 2000.
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SUMMARY FINANCIAL DATA
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EIGHT MONTHS ENDED
SEPTEMBER 30, 2000
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(unaudited)
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STATEMENT OF OPERATIONS DATA:
Revenues from parent ........................ $ 2,055,096
Cost of revenues ............................ 1,171,663
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Gross profit ................................ 883,433
Operating costs and expenses:
Selling, general and administrative ..... 1,266,936
Compensation expense-founders
stock .................................. 694,080
Research and development ................ 527,084
Interest expense, net ....................... (26,585)
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Loss before income taxes ................... (1,631,252)
Income taxes ................................ --
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Net loss .................................... $(1,631,252)
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Net loss per share - basic and diluted ...... $(.0.12)
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SEPTEMBER 30,2000
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ACTUAL PRO FORMA
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BALANCE SHEET DATA:
Cash and cash equivalents ............................. $ 1,866 $107,701,866
Total assets .......................................... 481,929 108,181,929
Long-term obligations, including current portion ...... 151,146 151,146
Stockholders' equity (deficit) ........................ (827,719) 106,872,281
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The information above summarizes our financial data since our date of inception
on February 1, 2000. Because we did not exist prior to that date, we have not
disclosed in this summary the financial data related to our "carve-out"
operations based on the actual operations of Enmax, our predecessor. The
financial statements prior to February 1, 2000 included in this prospectus do
not reflect separate business activities and are based on certain assumptions by
our management that may not have been applicable if we had operated separately
and the financial statements are not necessarily indicative of what would have
actually occurred had we existed as a separate legal entity. Historical results
are not necessarily indicative of results that may be expected for any future
period. The summary of financial data set forth below should be read in
conjunction with our financial statements and the related notes included
elsewhere in this prospectus and in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this prospectus.
For purposes of presenting our financial statements, we have segregated or
"carved-out" our operations related to our servicing of the HMMS product from
the historical financial statements of Enmax for the period September 1, 1998
(date operations commenced) to December 31, 1998, for the year ended December
31, 1999, for the nine months ended September 30, 1999, and for the one month
ended January 31, 2000 (included in the successor information for the nine
months ended September 30, 2000). Accordingly, our financial statements in this
prospectus and the selected financial data are intended to present our financial
condition and results of operations as if we had existed as a separate legal
entity for all periods presented.
The statement of operations data for the eight months ended September 30, 2000
and the balance sheet data as of September 30, 2000 are derived from unaudited
financial information.
The pro forma balance sheet data reflects the sale of 7 million common shares in
this offering at an assumed initial public offering price of $15.50 per share,
after deducting our estimated offering expenses.
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RISK FACTORS
You should carefully consider the following information about these risk
factors, together with our financial statements and related notes and the other
information contained in this prospectus, before you decide to invest in our
shares.
OUR OPERATING HISTORY IS LIMITED AND IT DOES NOT REFLECT THE INTRODUCTION OF OUR
ENVIRONMAX ME SYSTEM, SO IT WILL BE DIFFICULT FOR YOU TO EVALUATE AN INVESTMENT
IN OUR SHARES.
We were formed in February 2000, so we have only a limited relevant operating
history for you to evaluate in making an investment in our shares. Further, our
operations to date have primarily been related to providing services HMMS
support under governmental contracts. Our operations have not included the sale
or marketing of our EnvironMax ME system, which we are currently developing and
which we expect to be released in early 2001. The EnvironMax ME system is
designed to replace HMMS, and we will focus our marketing and sales efforts on
the EnvironMax ME system once it is introduced into the marketplace. As a
result, our operations to date do not reflect our business operations in the
future and our operating results to date may not be indicative of those of our
future.
OUR FINANCIAL STATEMENTS MAY NOT REFLECT THE RESULTS WE WOULD HAVE ACHIEVED IF
WE HAD BEEN A STAND-ALONE COMPANY.
The financial statements included elsewhere in this prospectus are based, in
part, on the audited financial statements of our parent corporation, Enmax, and
the results of the operations we believe we would have had if we had conducted
our operations separately during the periods indicated. These financial
statements are not historical with respect to our operations and, therefore, may
not reflect what our actual operating results would have been had we operated on
a separate basis. They may also not accurately predict what our future
performance will be or be useful for purposes of making a quarter-by-quarter
comparison of our operating results.
WE HAVE A HISTORY OF LOSSES AND NEGATIVE CASH FLOWS FROM OPERATING ACTIVITIES,
AND WE EXPECT OUR OPERATING EXPENSES TO CONTINUE TO INCREASE.
We incurred net losses of $1,631,252 for the period from our inception in
February 2000 through September 30, 2000. We incurred negative cash flows of
$921,607 from operating activities during that same period. These losses and
negative cash flows resulted primarily from expenses we incurred while we were
developing our initial product, EnvironMax ME, and establishing an
infrastructure to support our business. We have not achieved profitability, and
we may incur net losses and negative cash flows in the future. The size of our
losses and whether or not we achieve profitability will depend in part on the
rate of growth in our sales.
We intend to increase our operating expenses as we continue, among other things,
to:
- develop and improve our current products and services;
- research and develop new products and services;
- increase sales and marketing activities;
- undertake quality assurance and improvement initiatives;
- increase our brand recognition; and
- increase our general and administrative functions to support
our growing operations.
With increased expenses, we will need to generate additional revenues to achieve
profitability. Consequently, it is possible that we will not achieve
profitability, and even if we do, we may not sustain or increase our
profitability on a quarterly or annual basis in the future.
WE ARE OFFERING THE SHARES USING A PLAN OF DISTRIBUTION THAT IS SIGNIFICANTLY
DIFFERENT FROM TRADITIONAL PLANS AND WHICH HAS SEVERAL RISKS.
We plan to market our shares directly over the Internet as the primary method of
distributing our shares. We will primarily use a Dutch auction to
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determine the public offering price before the SEC declares this prospectus
effective. Once we determine the offering price and we are declared effective,
we will sell the shares on a "best efforts" basis through our officers and
employees, and not through the efforts of any underwriter or broker on a "firm
commitment" or other basis. The actual method of selling and distributing the
shares in this offering is described in the section entitled "Plan of
Distribution." Our method of distribution has several inherent risks, including
the following:
- We can not assure you that we will sell a sufficient number of
shares to carry out our business plan. We intend to sell up to 7
million of our common shares. We anticipate that we will ask the SEC
to declare the registration statement for this offering effective
once we have received conditional offers to purchase an adequate
number of shares for a price not lower than $14 per share. Some of
the persons who make conditional offers on the shares may not
actually acquire shares in the offering, so we may end up selling
fewer than 7 million shares even if we receive conditional offers
for that many shares. Unlike a traditional offering, no underwriter
has committed to purchase any particular number of shares from us.
As a result, the actual number of shares we sell in the offering,
the number of shares outstanding after the offering, the proceeds
that we receive in the offering, the dilution you suffer as a result
of purchasing shares in the offering and, as described below, the
number of shares that you actually acquire in the offering, could
vary significantly.
- Our officers and employees will sell the shares on a best-efforts
basis, but they do not have any experience in selling securities.
Those persons will not be separately compensated for their services,
but will be required to comply with certain requirements promulgated
under the Securities Exchange Act of 1934 and state securities laws.
Those persons have not engaged in the sale of securities in the
past, and there is no guarantee that they will be able to perform
the services required of them to place the shares in this offering.
- We will not be using the services of any underwriters in this
offering, and will not retain any brokers to offer our shares, so we
will not receive any of the services normally provided by those
types of entities, including an independent due diligence or other
review of the statements and descriptions contained in this
prospectus, any network of selling agents or persons who otherwise
have experience in the sale of securities, or any independent review
as to whether our shares are suitable investments for particular
investors.
- We will have broad discretion in determining the number of shares we
will actually sell in the offering, the public offering price for
those shares and a number of other key matters relating to the
offering, including, if we find it necessary to avoid exceeding our
7 million share maximum, allocating fewer shares to potential
investors. We also reserve the right to reject offers we deem to be
manipulative or disruptive and, in exceptional circumstances, to
alter our method of allocation in any manner we deem necessary to
insure the orderly distribution of the shares in the offering. As a
result, you may not receive the number of shares for which you made
your conditional offer, and you may not have to pay the price that
you bid for the shares that you do acquire, although if you are a
successful bidder and if there is any difference between the public
offering price and the amount that you bid for the shares you
acquire, you will pay the lower of those two prices.
- We will not be able to determine if the persons who place
conditional offers will purchase our shares in this offering. After
we determine the price for the shares and the offering has been
declared effective, we will re-circulate the prospectus and ask
those placing conditional offers to reconfirm their conditional
offers, at which time we may accept their offers to purchase the
requested shares. There can be no assurance that those placing
conditional offers will reconfirm and
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purchase shares, after this offering is declared effective by
the SEC.
THE DISTRIBUTION OF OUR SHARES WITHOUT AN UNDERWRITER COULD RESULT IN A POOR
AFTER-MARKET FOR OUR SHARES.
Because we are not using a traditional underwriter for this offering, there may
be a greater risk that our shares will not receive adequate support from
securities firms in the after market, through market-making, specialist and
other activities. If this should occur, the market price for our shares may
decline. We anticipate that our shares will be listed for trading on the
American Stock Exchange, but we cannot assure you that they will be listed on
that exchange or that the listing will result in any significant degree of
liquidity for our shares.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE AND IT MAY NOT BE AVAILABLE TO US
ON ACCEPTABLE TERMS, OR AT ALL.
We expect the proceeds of this offering, together with the cash that is
generated from our operations to meet our working capital and capital
expenditure requirements for at least the next twelve months. However, after
that time, we may need to raise additional funds to conduct our operations, to
finance the development, launch and marketing of our products and for other
business operations. Any such additional financing may not be available on terms
favorable to us, or at all. If we are not able to obtain adequate funds when we
require them, or on acceptable terms, our business and financial results could
suffer, perhaps materially.
WE EXPECT OUR FINANCIAL RESULTS TO FLUCTUATE SIGNIFICANTLY, WHICH MAY CAUSE OUR
SHARE PRICE TO DECLINE.
Our operating results have fluctuated in the past and are likely to fluctuate
significantly in the future, particularly after we shift our business focus from
servicing the existing HMMS contract to marketing our EnvironMax ME system to
commercial and governmental customers. These fluctuations could cause our share
price to fluctuate significantly or decline. Factors that have caused
fluctuations in our operating results in the past, and may do so in the future,
include the following:
- development activities;
- compensation expense relating to the issuance of shares or options
to our employees and to Enmax employees; and
- increase in sales and marketing activities.
Factors that have not significantly affected our operating results in the past,
but may do so in the future, include the following:
- changes in the timing of our product sales, particularly significant
orders;
- changes in our product or customer mix, such as the changes
resulting from our planned move from providing HMMS support services
to governmental entities to marketing the EnvironMax ME system to
commercial and governmental customers.
- the demand for and market acceptance of our products and services;
- competitive pressures resulting in lower selling prices or
significant promotional costs;
- unanticipated delays or problems in our introduction of our new
products or services, including the EnvironMax ME system;
- if we inaccurately forecast revenues;
- if our competitors announce or introduce new products or services;
and
- high levels of returns and service costs.
To respond to these and other factors, we may need to make business decisions
that could adversely affect our operating results. Most of our expenses are
relatively fixed in the short term. Moreover, our expense levels are based, in
part, on our expectations regarding future revenue levels. As a result, if our
sales for a particular period fall below our expectations, we may not be able to
proportionately reduce our operating expenses for that period. Any revenue
shortfall would have a disproportionately negative effect on our operating
results for the period.
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Due to these and other factors, we believe that quarter-to-quarter comparisons
of our operating results may not be meaningful. You should not rely on our
operating results for any one quarter as an indication of our future performance
particularly, in light of the risk factor entitled "Our financial statements may
not reflect the results we would have achieved if we had been a stand-alone
company." In future quarters, our operating results may be below the
expectations of market analysts or our investors. If this occurs, the market
price of our shares would likely decrease.
OUR STRATEGY TO PROVIDE SOLUTIONS FOR HAZARDOUS MATERIALS AND WASTE MANAGEMENT
REPORTING AND TRACKING DEPENDS ON OUR ABILITY TO SUCCESSFULLY INTRODUCE PRODUCTS
TAILORED FOR THOSE BUSINESSES.
For our business strategy to be successful, we must provide products that meet
the hazardous materials and waste management reporting and tracking needs of our
current as well as potential customers and their businesses. We currently
provide services for the HMMS system, which is server-based, and we are
developing our web-delivered EnvironMax ME for this purpose. The EnvironMax ME,
which will be our primary environmental material and waste management product,
may not be adopted by potential customers for any number of reasons, including
lack of customer awareness of our company and its products, or its failure to
meet the needs of hazardous material and waste producers and handlers. Further,
since our products (both HMMS and the EnvironMax ME) do not currently address
environmental reporting and issues (such as water, soil and air environmental
concerns), some potential customers may perceive our products as being too
limited in scope to address their reporting and tracking concerns.
Further, software programs such as those incorporated into EnvironMax ME
frequently contain errors or defects, especially when they are first introduced
into the market. Our EnvironMax ME product is under development and, even though
we are currently beta-testing it, we cannot assure you that it will be ready for
commercial release in early 2001, or that when and if it is released
commercially our clients will not find errors in it. Those same risks will apply
to any versions or upgrades that we may develop for the EnvironMax ME system or
any other products we develop in the future. We intend to test our products
before we release them, but the fact that some of the components of our software
products are developed by independent parties over whom we exercise no
supervision or control may make it particularly difficult to identify and remedy
operational errors or defects in advance. If our products contain errors, those
errors could cause us to lose revenues, delay our wide-spread market
introduction of our products or our customers' acceptance of them, require us to
divert development resources from our other development projects, result in
downtime for our customers, damage our reputation and brand name and increase
our service costs.
WE DEPEND ON ANTICIPATED REVENUE FROM CONTRACTS WE HAVE NOT YET SECURED.
Our anticipated revenue includes revenues from contracts we have not yet
acquired. If we are unable to secure these anticipated contracts, our revenues
will be lower than we anticipate, perhaps significantly lower. Because a high
percentage of our expenses will be relatively fixed in the short term, if our
revenue falls below our expectations, our operating results are likely to be
materially and adversely affected.
IF WE LOSE A LARGE CUSTOMER OR A LARGE CUSTOMER CANCELS OR DELAYS A SIGNIFICANT
PURCHASE OF OUR PRODUCTS OR SERVICES, THAT COULD SIGNIFICANTLY REDUCE OUR SALES
AND HARM OUR OPERATING RESULTS.
We have entered into only a limited number of contracts to date for the purchase
of our services and for the delivery of HMMS and no contracts for the deliver of
EnvironMax ME. Contracts for HMMS are with the United States government and
currently account for all of our sales. We anticipate that we will enter into
additional large contracts with other commercial and governmental entities,
although we can give you no assurances that we will be able to do so.
The loss of any of these current and anticipated large customers, or a
significant reduction in sales to these customers, would materially reduce our
net sales and have a negative effect on our operating results. For example our
service contract with the United States Government through our parent company,
Enmax, accounts for approximately $2 million, or nearly all, of our current
sales, and approximately $900,000, or nearly all, of our sales in the third
quarter of 2000. Although the federal government is contractually committed to
approximately $1.52 million under the HMMS
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<PAGE> 13
contracts, if it were to terminate those contracts (which it is entitled to do
at any time), our sales would decline substantially, and we may not be able to
recover the lost revenue through other means. We anticipate that our operating
results in any given period will continue to depend to a significant extent upon
revenues from a small number of large customers.
WE COMPETE IN A RAPIDLY CHANGING INDUSTRY AND WE CANNOT ASSURE YOU WE CAN KEEP
UP WITH THOSE CHANGES.
The market for hazardous materials and waste management software and services is
subject to rapid technological advancements, changes in customer requirements,
new laws, frequent new product introductions and enhancements and changing
industry standards. It is difficult for us to estimate what the life cycles of
our products will be, and our market position could be undermined by such
changes.
To be successful, we must develop new products and be a leader in the
commercialization of new technology in our markets. Technological innovation is
expensive and unpredictable and we may need to hire expert personnel, who are
difficult to find and attract, to maintain our leadership in technological
innovation in the environmental and waste management and reporting industries.
If we do not timely introduce new products or upgrades of our products, our
existing products are likely to become technologically obsolete over time, which
would harm our business. The success of our new products and upgrades will
depend on several factors, including our ability to:
- identify consumer needs and design solutions to address those needs;
- price our products attractively;
- innovate and develop competitive products in a timely manner;
- successfully market and sell new products, upgrades and services;
and
- differentiate our products from our competitors' products and
services.
We may not have the technical capabilities or financial resources necessary to
develop technologically innovative products. In addition, any enhancements to or
new generations of our products, even if we successfully develop them, may not
generate revenue equal to or in excess of the costs of that development. Our
products may be rendered obsolete by changing customer needs or by products
introduced by our competitors that embody new technologies or features.
WE CANNOT PREDICT OUR SUCCESS BECAUSE OUR BUSINESS AND PRICING MODELS ARE
UNPROVEN.
Our success depends on our ability to generate revenues by providing services
and web-based products to entities that are required to comply with
environmental reporting and tracking laws or that deal in waste management. To
be successful, we must develop and market products and services that achieve
broad market acceptance by our client base. The viability and profitability of
our business model are unproven. We anticipate that the contracts for our
EnvironMax ME system will typically require customers to guarantee minimum
service periods and provide for minimum monthly service payments per user and
pay certain set up and customization fees. This pricing model may not be
successful and it may not achieve or maintain revenue growth in the future. If
either our business model or our pricing model fails, that failure would have a
material adverse affect on our business and financial results.
OUR FIRST PRODUCT, ENVIRONMAX ME, MAY NOT MEET THE REPORTING AND COMPLIANCE
STANDARDS FOR ALL OF THE JURISDICTIONS WHERE WE WANT TO SELL IT.
Entities that deal with environmental waste must comply with both federal and
applicable state laws. We designed the EnvironMax ME system to comply with the
reporting standards set by the Environmental Protection Agency, which is a
federal agency. Although we believe the system complies with the hazardous waste
and materials reporting requirements of each of the 50 United States, or can be
modified to comply with the reporting requirements of those states without undue
effort or expense, we have not verified that it does comply with all state
requirements. If EnvironMax ME does not comply with the environmental reporting
requirements of a particular state, our ability to market it in that state will
be materially and aversely affected, which could materially and adversely affect
our operations.
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<PAGE> 14
Our business plans include developing the EnvironMax ME product to address other
environmental reporting and tracking issues, such as for air, water and soil,
and to develop it in languages other than English to market the system in
foreign countries. If the product does not meet the reporting requirements of
these foreign countries, our ability to market it in that country will be
materially and adversely affected, which could materially and adversely affect
our operations.
Further, environmental reporting and compliance standards change frequently, and
we can not assure you we will be able to modify or upgrade the EnvironMax ME
system to meet those changing requirements or our business plans on a timely
basis, if at all. If we are unable to adapt our current and future products to
reflect any changes in the applicable environmental and waste materials
reporting, tracking and management rules and regulations, or to address
additional environmental issue or develop non-United States products, our
business and operations could be materially and adversely affected.
WE MUST ACHIEVE RAPID MARKET PENETRATION TO COMPETE SUCCESSFULLY, AND THAT WILL
BE DIFFICULT AND EXPENSIVE TO DO.
The use of sophisticated web-based computer programs for hazardous material,
waste and environmental management reporting and tracking is new, and we believe
companies that are early in providing such products and solutions will have an
advantage over companies that enter the market at a later time. We intend to
market our products, including the EnvironMax ME, on a wide-scale basis to
achieve rapid market penetration. If, however, we are unable to demonstrate the
viability of our products through rapid growth:
- we will be unable to achieve economies of scale;
- we will be less able to negotiate favorable terms with customers and
other partners; and
- our clients will be less likely to devote resources to purchasing
and implementing our products if they are not seen as an industry
standard.
We may lack the economic and managerial resources necessary to promote this
growth. Also, the fact that we intend initially to rely almost entirely on the
success of a principal initial product, EnvironMax ME, will affect our ability
to penetrate diversified markets. While we believe our web-delivered software
will be a superior product, it may take longer to develop and market products
and new product releases of it than if it were server-based. These delays could
affect our ability to take advantage of market opportunities on a timely basis.
OUR BRAND MAY NOT ACHIEVE WIDE-SPREAD RECOGNITION.
We believe our success will depend in part on how well clients and potential
clients recognize our brand and whether they believe our products and services
have value and meet their needs. We intend to build brand recognition through
substantial advertising and public relations efforts. Those efforts will
significantly increase our expenses. Although we anticipate we will devote a
significant portion of the proceeds from this offering to building and
maintaining brand awareness, we cannot be certain our brand enhancement strategy
will deliver the brand recognition and favorable perception that we seek. If our
strategy is unsuccessful, we may never recover these expenses and we may be
unable to increase our revenues. Even if we achieve greater brand recognition,
competitors with greater resources or a more recognizable brand could reduce our
market share of the emerging hazardous material and waste management market.
THE ENVIRONMENTAL HAZARDOUS MATERIAL AND WASTE MANAGEMENT INDUSTRY IS INTENSELY
COMPETITIVE AND WE MAY BE UNABLE TO COMPETE EFFECTIVELY.
HMMS faces direct competition from a number of companies that provide technical
support and other professional services to users of various hazardous material
management systems, including the Hazardous Substances Management System, or
HSMS, another governmentally-developed hazardous materials and waste reporting
system. Providers of governmentally-developed competitor systems may have larger
and more experienced service organizations than we do, have greater revenues and
financial resources and more extensive marketing and distribution capabilities.
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<PAGE> 15
In addition, EnvironMax ME will face competition from a number of large,
well-established and well-financed public sector companies, including TRW, Inc.,
Science Application International Corporation, and Radian International, LLC. We
believe our products have competitive advantages over the products those
companies offer, but many of those companies have significantly greater
financial resources, more extensive marketing and distribution capabilities,
larger development staffs and more widely recognized brands and products than we
do.
OUR NETWORK INFRASTRUCTURE AND COMPUTER SYSTEMS MAY FAIL.
The continuing and uninterrupted performance of our network infrastructure and
the computer systems we use to provide our web-based services is critical to our
success. If we experience system failures that cause interruptions in our
ability to provide services to our customers, or if Internet connectivity of
web-delivered applications fails or is interrupted that interruption could
reduce customer satisfaction and, if sustained or repeated, would reduce,
perhaps significantly, the attractiveness of our technology and services. An
increase in the number of customers online through our servers could strain the
capacity of our software or hardware, which could lead to slower response times
or system failures. Based on our present and anticipated use patterns, we
believe that our current servers can support our customer needs for the
foreseeable future. We periodically test our user capacity by simulating load
capacity based on our estimated maximum client demand. To the extent we do not
successfully address any capacity constraints, those constraints would have a
material adverse effect on our business and financial results.
OUR CONTRACTUAL LIMITATIONS ON LIABILITY AND DISCLAIMERS MAY NOT SUFFICIENTLY
PROTECT US AGAINST CLAIMS.
Our contracts will contain language designed to limit and disclaim our liability
for violations by our customers of environmental regulations, but that language
may not shield us from liability. As a result, we may be held liable if our
products, or a product that uses or incorporates any of our technologies, causes
injury or is found otherwise unsuitable. The complications that occur could
include damages arising from the improper use, tracking or reporting of
environmental or hazardous waste, or improper storage, disposal or handling of
environmental or waste materials. We have not experienced any product liability
issues to date, but product liability is an inherent risk in the production and
sale of products similar to the products we will be offering.
We have not obtained product liability insurance to cover us for risks of this
type, but we intend to pursue that possibility in the near future. That type of
insurance may be prohibitively expensive to obtain, or may not fully cover our
potential liabilities. If we decide to obtain such insurance, but are unable to
obtain sufficient coverage at an acceptable cost or otherwise protect against
potential liability claims, that could prevent us or inhibit us from
commercializing our products. Further, if we are sued for an injury caused by
our products, the liability could result in significant expense, which would
harm our operating results.
OUR NETWORK MAY BE VULNERABLE TO SECURITY RISKS.
Our success depends on our ability to provide superior network security
protection for our web-enabled products and the confidence of our customers in
that ability. Our security systems are designed to prevent unauthorized access
from the Internet and, to date, our operations have not been affected by
security breaks; nevertheless, in the future we may not be able to prevent
unauthorized disruptions of our Internet operations, whether caused
unintentionally or by computer "viruses" or "hackers." Due to the sensitive
nature of the information our web-based products will generate, such as a
client's non-compliance with environmental reporting, storage or tracking
requirements, our websites may be targeted by hackers. If security breaches
occur, those breaches could harm our customers, and if we fail to prevent such
disruptions, that would have a material adverse effect on our business and
operations.
OUR MANAGEMENT TEAM LACKS EXPERIENCE IN SOME AREAS, IS NOT COMPLETE, AND HAS
SEVERAL NEW MEMBERS.
The success of our business depends in part on our ability to hire and retain a
qualified and experienced management team and on its ability to work together
effectively. Several members of our management team lack significant experience
in the industries we service. This may hinder our ability to compete. Also, a
number of the members of our
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<PAGE> 16
management team have not previously worked together as a team and have had only
limited experience managing a rapidly growing company on either a public or
private basis. If we fail to find qualified individuals to serve in management
positions, or if our management team fails to work together effectively, that
could affect our ability to make operational, financial, and administrative
decisions and could impact our product development, sales and marketing efforts.
Any of those effects would negatively impact our operating results.
IF WE LOSE ANY OF OUR KEY MANAGEMENT PERSONNEL, OUR BUSINESS AND OPERATIONS
WOULD SUFFER.
The loss or departure of any of our officers or key employees could harm our
ability to implement our business plan and could lower our revenues. Our future
success depends to a significant extent on the continued service and
coordination of our management team.
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN SUFFICIENT QUALIFIED PROFESSIONALS TO
PROVIDE OUR SERVICES, DEVELOP OUR PRODUCTS OR SERVICE OUR CLIENTS.
We believe we will need to hire significant numbers of professionals to develop
and market our products and provide technical support, education and training
and other services to our clients. The competition for qualified professionals
in the software and environmental reporting industries is intense, and we may be
unable to recruit and retain sufficient numbers of qualified professionals for
those purposes. We have long-term employment contracts with only two of our key
personnel. We also must attract qualified engineers and support staff in order
to continue to develop innovative products. Although we believe we offer
competitive salaries and benefits, we have been and may be required to increase
spending to retain such personnel.
THE GROWTH OF OUR BUSINESS WILL BE DIMINISHED IF WEB-BASED SOFTWARE IS NOT
ACCEPTED AS A MEDIUM FOR COMMERCE AND BUSINESS NETWORKING APPLICATIONS.
EnvironMax ME is a web-based software application which is designed to run on
open-system architecture platforms using Oracle and RISC databases. If the
Internet is not accepted as a medium for hosting and delivering applications our
ability to license software will be materially adversely affected. A number of
factors may inhibit Internet use, including:
- inadequate network infrastructure;
- lack of knowledge and training on Internet use and benefits;
- consumer concerns for Internet privacy and security;
- lack of availability of cost-effective, high-speed service;
- changes in government regulation relating to the Internet; and
- Internet taxation.
If the use of the Internet grows, the infrastructure may not continue to support
the demands placed on it by that growth and its performance and reliability may
decline. Web sites have experienced interruptions as a result of delays or
outages throughout the Internet infrastructure. If these interruptions continue,
businesses may no longer view the Internet as an effective forum on which to
conduct business, and Internet use could decline. Any decline in the use of the
Internet could result in a material and adverse change in our business and
operations.
IT MAY BE DIFFICULT FOR US TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS.
Our intellectual property and our proprietary technological rights include our
rights under our license agreement with Enmax for the web-enabling framework
concepts we are using to develop EnvironMax ME, the copyrights we obtained from
Enmax for HMMS and for our basic EnvironMax ME system, the proprietary know-how
and trade secrets we use in providing our HMMS services, some of which Enmax
licensed to us and some of which we developed internally, and various rights in
trade names, product names, trademarks and service marks. A significant portion
of our intellectual property relates to the software that comprises a part of
the EnvironMax ME system.
Our success depends, in part, on our ability to protect our proprietary rights
and technology. We rely on a combination of copyright, trademark and
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<PAGE> 17
trade secret laws, and employee and third-party nondisclosure agreements to
protect our proprietary intellectual property rights. We have not sought patents
for any of our proprietary technology, but we may do so in the future in the
United States or in foreign jurisdictions.
Despite our efforts to protect our rights, unauthorized parties may duplicate or
copy aspects of our services or software, or obtain and use information that we
regard as proprietary. Policing unauthorized use of the software underlying our
products and services is difficult, and while we are unable to determine the
extent to which piracy of our software exists or may exist, software piracy in
general will likely be a persistent problem. In addition, the laws of many
countries do not protect our proprietary rights to as great an extent as do the
laws of the United States. As a consequence, effective trademark, service mark,
copyright, trade secret, know how and patent protection may not be available in
every country in which we make our products and services available online. Our
proprietary rights and technology may not be adequate, and our competitors could
independently develop similar rights and technology. If we fail to meaningfully
protect our intellectual property, that could have a material adverse effect on
our business and financial results. Additionally, we can give you no assurances
that the persons who have executed confidentiality agreements with us will
comply with the terms of their agreements and we may be unable to adequately
enforce our rights against those people if they use or disclose our trade
secrets or know how.
If we rely on patents to protect our intellectual property, the scope of that
protection will be based on a number of matters, both legal and factual. The
patent positions of technology firms such as EnvironMax.com are sometimes
uncertain, and the scope of the claims that a patent application covers can be
significantly modified during prosecution before the patent is issued.
Consequently, we will not be able to determine whether any pending patent
applications that we may file will result in issuance of patents or, if any
patents are issued, whether they will provide us with significant proprietary
protection or will be circumvented or invalidated. Moreover, we may have to
participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine priority of invention, which could result in
substantial costs, even if the eventual outcome is favorable to us. We cannot
assure you that any patent applications we file, if issued, would be held valid,
and third parties could assert infringement or other intellectual property
claims against us based on their patents or other intellectual property rights.
We may, from time to time, encounter disputes over rights and obligations
concerning our intellectual property. Although we believe our intellectual
property rights are sufficient to allow us to market our existing services and
products, including the EnvironMax ME system, without incurring liability to
third parties, and although we are not aware of any disputes with third parties
relating to competing intellectual property rights, we might not prevail in such
disputes. If we do not prevail in one or more such disputes, that could impair
our right to market our products and services, which, in turn, could have a
material adverse effect on our business and financial results.
To date, we have not been notified that our HMMS services or the EnvironMax ME
infringes the rights of third parties, but there can be no assurance that third
parties will not claim that our current or future products or services are
infringing their rights.
IF WE LOSE ANY OF OUR KEY MANAGEMENT PERSONNEL, OUR BUSINESS AND OPERATIONS
WOULD SUFFER.
The loss or departure of any of our officers or key employees could harm our
ability to implement our business plan and could lower our revenues. Our future
success depends to a significant extent on the continued service and
coordination of our management team, particularly Robert F. Craig, our Chief
Executive Officer. Mr. Craig is the only member of our management team for whom
we maintain key person insurance. Our success also depends on our ability to
attract, motivate and retain highly-skilled key employees in our managerial,
sales and marketing, customer service and support and technology operations. The
competition for such personnel in our industry is intense, and we may not be
able to retain our current key employees or attract, motivate and retain
additional key employees in those positions in the future. Failing to retain
these key employees, could have a material adverse affect on our business and
financial results.
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WE MAY NOT BE ABLE TO RECRUIT AND RETAIN SUFFICIENT QUALIFIED PROFESSIONALS TO
PROVIDE OUR SERVICES, DEVELOP OUR PRODUCTS OR SERVICE OUR CLIENTS.
We believe we will need to hire significant numbers of professionals to develop
and market our products and provide technical support, education and training
and other services to our clients. The competition for qualified professionals
in the software and environmental reporting industries is intense, and we may be
unable to recruit and retain sufficient numbers of qualified professionals for
those purposes. We have long-term employment contracts with only two of our key
personnel. We also must attract qualified engineers and support staff in order
to continue to develop innovative products. Although we believe we offer
competitive salaries and benefits, we have been and may be required to increase
spending to retain such personnel.
OUR SUCCESS DEPENDS ON OUR UNPROVEN ABILITY TO MANAGE GROWTH.
To execute our business plan, we must grow significantly. We have 64 employees
and we anticipate that the number will increase significantly in the near
future. We also anticipate that we will significantly increase the number of
clients we serve. If we do not expand our operations in an efficient manner, our
expenses could grow disproportionately to revenues or our revenues could decline
or grow more slowly than we expect, either of which could negatively affect the
value of your investment. Our current and anticipated future growth, combined
with the requirements we will face as a public company, will place a significant
strain on our management, systems and resources. Our key personnel have limited
experience managing this type of growth. We also need to improve our financial
and managerial controls and reporting systems and procedures and to continue to
expand and maintain close coordination among our technical, accounting, finance
and sales and marketing organizations. If we do not succeed in these efforts,
our revenues and the value of your investment would decrease.
YOU WILL INCUR SUBSTANTIAL AND IMMEDIATE DILUTION.
You will incur substantial and immediate dilution in the proforma net tangible
book value of $10.39 per share, assuming an initial public offering price of
$15.50 per share and the sale of all 7 million shares in this offering. Net
tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the number of common shares then outstanding.
To the extent that currently outstanding options are exercised or converted,
there will be further dilution in your shares. See "Dilution."
WE MAY SPEND THE NET PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH YOU MAY NOT
AGREE.
Our management will have broad discretion to spend the net proceeds of this
offering between and within the categories described in the section entitled
"Use of Proceeds." They do so in ways with which our investors may not agree.
Our management's failure to apply these funds effectively could result in
unfavorable returns, which could cause the price of our common shares to
decline.
THERE HAS BEEN NO PRIOR MARKET FOR OUR SHARES AND THERE MAY BE EXTREME PRICE AND
VOLUME FLUCTUATION IN ANY MARKET THAT DEVELOPS, WHICH COULD HAVE AN ADVERSE
EFFECT ON THE PRICE OF OUR SHARES.
Prior to this offering, investors could not buy or sell our shares in the public
markets, and an active public market for our shares may not develop or be
sustained after the offering. As a result, the market price of our shares may
decline below the initial public offering price after this offering. Further, we
will set the public offering price in the initial public offering for our shares
immediately before this offering is declared effective by the SEC. This initial
price may not be indicative of prices that will prevail in the trading market.
Fluctuations in market price and volume are particularly common among securities
of Internet-related and other technology companies. You should understand that
the market price of our shares may fluctuate significantly in response to the
following factors, among others:
- variations in our quarterly operating results;
- changes in market valuations of Internet-related and other
technology companies;
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- our competitors' announcements of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- our failure to successfully market our products and services;
- additions or departures of key personnel;
- future sales of common shares; and
- changes in financial estimates by securities analysts.
In the past, purchasers of securities have instituted securities class action
litigation against companies following periods of volatility in the market price
of their outstanding securities. Although recent changes in securities law limit
those types of suits, we may be the target of that type of litigation. That
could result in substantial costs and divert our management's attention and
resources from our business operations.
A SINGLE SHAREHOLDER WILL BE ABLE TO EXERT SIGNIFICANT CONTROL OVER OUR
OPERATIONS.
Assuming the sale of 7 million shares in this offering, Robert F. Craig will
retain indirect ownership of approximately 66% of our outstanding shares. As a
result, Mr. Craig will be able to exert a significant degree of influence over
our management and affairs and over matters requiring shareholder approval,
including the election of directors and approval of significant corporate
transactions. In addition, this concentration of ownership may delay or prevent
a change in control and might affect the market price of our common shares, even
when a change may be in the best interest of all shareholders. Further, Mr.
Craig's interest may not always coincide with our interests or the interests of
our other shareholders, and accordingly, Mr. Craig could cause us to enter into
transactions or agreements that we would not otherwise consider.
THERE MAY BE SALES OF A SUBSTANTIAL AMOUNT OF OUR SHARES AFTER THIS OFFERING BY
OUR EXISTING SHAREHOLDERS, AND THESE SALES COULD CAUSE OUR SHARE PRICE TO FALL.
The market price of our shares could decline as a result of sales of a large
number of our shares in the market following the offering, or the perception
that such sales could occur. Following this offering, we will have a large
number of common shares outstanding and available for resale beginning in early
2001. These sales also might make it more difficult for us to sell equity
securities in the future at a time and at a price that we deem appropriate.
The holders of these shares are not subject to any "lock up" or offer
contractual restriction (other than the federal securities laws) or the sale of
their shares, and any such sales could cause our share prices to fall.
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FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus constitute forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. You can generally identify forward-looking
statements by our use of terms such as "may," "might," "could," "will,"
"should," "expect," "plan," "intend," "forecast," "anticipate," "believe,"
"estimate," "predict," "foreseeable," "potential," "continue" or the negative of
these terms or other comparable terminology. Forward-looking statements
represent our management's judgment regarding future events. The forward-looking
statements contained in this prospectus involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's actual
results, level of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these statements. These factors include,
among others, those listed under the other factors and risks in this section and
elsewhere in this prospectus. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. You should not
place undue reliance on these forward-looking statements. All subsequent written
and oral forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by applicable cautionary
statements. We have no plans to update these forward-looking statements.
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USE OF PROCEEDS
We estimate that we will receive net proceeds of $107,700,000 from the sale of 7
million common shares offered as the maximum amount of shares in this offering
assuming an initial public offering price of $15.50 per share, and after
deducting estimated offering expenses.
We intend to use the net proceeds of this offering for the following purposes
and in the following order of priority:
<TABLE>
<CAPTION>
PERCENTAGE OF
AREA OF USE ESTIMATED AMOUNT NET PROCEEDS
-------------------------- ---------------- ------------
<S> <C> <C>
Working Capital $ 43,000,000 40%
Capital Equipment 32,350,000 30%
General Corporate Purposes 32,350,000 30%
------------ ------------
Total $107,700,000 100%
</TABLE>
We intend to direct the working capital proceeds toward such needs as:
- the completion of the development and testing of the EnvironMax ME
system;
- the development of air, waste and soil systems; and
- the development of our products in languages other than English.
We also plan to direct substantial working capital towards marketing activities
to create brand awareness of our company and its products, as well as to create
demand for our products in the marketplace. We will also use the working capital
for sales programs and administrative needs. We intend to use funds for the
purchase of capital equipment to set up our hosting capabilities in the United
States as well as in international locations. We will also use the funds for
leasehold improvements and equipment for our operations. We may use a portion of
the general corporate proceeds for strategic acquisitions that would enhance our
marketing capabilities or our product offerings. Although we evaluate potential
acquisitions from time to time, we are not currently negotiating any
acquisitions, nor do we have any specific written plans, agreements or
commitments to enter into or consummate any such transaction.
The amounts we actually expend for any of these purposes may vary significantly
depending upon a number of factors, including:
- the number of shares we sell and the public offering price
for those shares;
- the progress and scope of our development activities,
particularly for our EnvironMax ME system and any
modifications or additions we develop relating to waste
management or air, water or soil reporting and management
uses;
- competing technological and market developments;
- the costs we incur in developing our marketing system;
- the costs we incur in obtaining and enforcing our
proprietary rights;
- future revenue growth, if any;
- the amounts of cash we generate from operations; and
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- the progress of our product development efforts.
These and other factors may result in our decision to make changes in the
allocation of the net proceeds from this offering. As a result, we will retain
broad discretion in allocating the net proceeds of this offering. However, we
believe the net proceeds will enable us to focus on our business strategies and
respond to competitive measures. Pending the uses described above, we will
invest the net proceeds in short-term, interest-bearing, investment grade
securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital shares and do
not anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain any future earnings for the expansion and operation of our
business.
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CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2000:
- on an actual basis
- on a pro forma basis to reflect the sale of all 7 million shares in
this offering at an assumed public offering price of $15.50 per
share, after deducting estimated offering expenses.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
-----------------------------------
ACTUAL PRO FORMA
------------- -------------
<S> <C> <C>
Capital lease obligations, current portion ...................... $ 56,774 $ 56,774
Capital lease obligations, long term portion .................... 94,372 94,372
Stockholders' Equity (deficit):
Preferred shares, 20,000,000 shares authorized, $0.001
par value, no shares outstanding: Common shares,
100,000,000 shares authorized, $0.001 par value,
13,910,710 shares outstanding (actual)
20,910,710 shares outstanding (pro forma) ............ 13,911 20,911
Additional paid-in capital ........................... 1,101,635 108,794,635
Deferred compensation ................................ (312,013) (312,013)
Accumulated deficit .................................. (1,631,252) (1,631,252)
------------- -------------
Total stockholders' equity (deficit) ................. (827,719) 106,872,281
------------- -------------
Total capitalization ................................. $ (676,573) $ 107,023,427
============= =============
</TABLE>
The outstanding share information above is based on the assumed sale of all 7
million shares and the 13,910,710 shares that were outstanding as of September
30, 2000. The information excludes 1,075,650 common shares issuable upon the
exercise of options outstanding as of September 30, 2000 with a weighted average
exercise price of $10 per share, and 1,134,350 common shares reserved for future
issuance under the terms of our equity incentive plan as of September 30, 2000.
DILUTION
Our net tangible book value as of September 30, 2000 was $(827,719), or
approximately $(0.06) per share. Net tangible book value per share is equal to
tangible assets, less total liabilities, divided by the number of common shares
outstanding. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares in this
offering and the pro forma net tangible book value per share of our outstanding
shares immediately after the completion of this offering.
After giving effect to the assumed issuance and sale of the 7 million shares in
the offering at an assumed initial public offering price of $15.50 per share,
and after deducting our estimated offering expenses, and the application of the
estimated net proceeds from this offering assuming the sale of all 7 million
shares, our pro forma net tangible book value as of September 30, 2000 would
have been $106.9 million, or $5.11 per share. This amount represents an
immediate increase in net tangible book value to our existing shareholders of
$5.17 per share and an immediate dilution to purchasers in this offering of
$10.39 per share. If the public offering price is higher or lower, the dilution
to purchasers in this offering will be greater or less, respectively. The
dilution will also be affected by the actual number of shares that we sell in
this offering.
20
<PAGE> 24
The following table illustrates the per share dilution based on the assumed sale
of 7 million shares at $15.50 per share:
<TABLE>
<S> <C> <C>
Assumed public offering price per share ........................................ $15.50
Net tangible book value per share at September 30, 2000 ...................... $ (.06)
Increase in net tangible book value per share attributable to this offering .. 5.17
------
Pro forma net tangible book value per share after this offering ................ 5.11
------
Dilution per share to new investors ............................................ $10.39
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30, 2000,
the differences between the number of common shares purchased from us, the
aggregate effective cash consideration paid to us and the average price per
share paid by existing shareholders and new investors purchasing common shares
in this offering. The calculation below is based on an assumed initial public
offering price of $15.50 per share, before deducting estimated offering expenses
payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------------- -------------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Existing shareholders ... 13,910,710 66.5% $ 102,007 0.1% $ 0.01
New investors ........... 7,000,000 33.5% 108,500,000 99.9% 15.50
------------ ------------ ------------ ------------ ------------
Total ................... 20,910,710 100.0% $108,602,007 100.0%
============ ============ ============ ============
</TABLE>
This discussion and the tables above assume no exercise of any stock options
outstanding as of September 30, 2000. As of that date, we had options
outstanding to purchase a total of 1,075,650 shares at a weighted average
exercise price of $10.00 per share. We have also reserved an additional
1,134,350 shares for issuance under our equity incentive plan. To the extent
that any of these options are exercised, there will be further dilution to new
investors. Please see "Capitalization."
SELECTED FINANCIAL DATA
The tables that follow present portions of our financial statements and are not
complete. You should read the selected financial data set forth below in
conjunction with our financial statements and the related notes included
elsewhere in this prospectus and in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus. The selected statements of income data for the period September 1,
1998 (date operations commenced) to December 31, 1998 and for the year ended
December 31, 1999 and the selected balance sheet data as of December 31, 1999
are derived from, and are qualified by reference to, the audited financial
statements and related notes appearing elsewhere in this prospectus. The
selected statements of operations data for the nine months ended September 30,
1999, the one month period ended January 31, 2000, and the eight months ended
September 30, 2000 and the balance sheet data as of September 30, 2000 are
derived from unaudited financial information.
We began our operations on September 1, 1998 as a component of Enmax. Enmax
provides information technology solutions to the government and commercial
enterprises, as well as prime contracts and subcontractors who provide high-tech
systems and services to the government. On September 1, 1998 (date operations
commenced), Enmax was awarded a $1.7 million contract from a government agency
to provide maintenance and technical support on HMMS. The operations relating to
the HMMS contract represented our separate operating component. In 1999, Enmax
obtained two additional contracts totaling $1.5 million to provide additional
HMMS support services to various government locations using HMMS software. On
February 1, 2000, we were incorporated as a wholly-owned subsidiary of Enmax.
21
<PAGE> 25
SUMMARY FINANCIAL DATA
ENVIRONMAX.COM, INC.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
--------------------------------------------------------- ------------
NINE MONTHS ONE MONTH EIGHT MONTHS
PERIOD SEPT. 1, ENDED ENDED ENDED
1998 (OPERATIONS SEPT. 30, JANUARY 31, SEPTEMBER 30,
COMMENCED) YEAR ENDED 1999 2000 2000
DEC. TO 31, 1998 DEC. 31, 1999 (UNAUDITED) (UNAUDITED) (UNAUDITED)
---------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues .......................................... $ 745,980 $ 2,432,192 $ 2,158,697 $ 114,305
Revenues from parent .............................. -- -- -- -- $ 2,055,096
Cost of revenues .................................. 452,195 1,525,630 1,291,234 68,583 1,171,663
----------- ----------- ----------- ----------- -----------
Gross profit .................................. 293,785 906,562 867,463 45,722 883,433
Operating costs and expenses:
Selling, general and administrative ........... 259,650 808,002 597,900 47,130 1,266,936
Compensation expense-founders shares .......... -- -- -- -- 694,080
Research and development ...................... -- 75,417 -- 21,446 527,084
Interest expense, net ......................... 856 4,671 3,503 361 26,585
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes ................. 33,279 18,472 266,060 (23,215) (1,631,252)
Income taxes ...................................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) ................................. 33,279 18,472 266,060 (23,215) $(1,631,252)
===========
Pro forma income tax (expense) benefit ............ (13,312) (7,389) (106,424) 9,286
----------- ----------- ----------- -----------
Pro forma net income (loss) ....................... $ 19,967 $ 11,083 $ 159,636 $ (13,929)
=========== =========== =========== ===========
Net loss per share - basic and diluted ............ $ (0.12)
===========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
---------------------------------
ACTUAL PRO FORMA
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............................. $ 1,866 $107,701,866
Total assets .......................................... 481,929 108,181,929
Long-term obligations, including current portion ...... 151,146 151,146
Stockholders' equity (deficit) ........................ (827,719) 106,872,281
</TABLE>
The information in the first column of the statement of operations data
represents the carved-out portion of Enmax's operations related to HMMS.
Financial information prior to September 1, 1998 is not presented as there were
no HMMS operations by Enmax prior to this date. All other operations of Enmax
were not related to HMMS and were excluded from the carved-out financial
information.
Pro forma income tax expense (benefit) represents the estimated tax expense
(benefit) based on a 40% effective tax rate that we believe would have been
incurred had Enmax not been an "S" corporation for income tax purposes.
Pro forma balance sheet data amounts reflect the sale of the 7 million common
shares in this offering at an assumed initial public offering price of $15.50
per share, after deducting estimated offering expenses.
22
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and notes, included elsewhere in this prospectus.
OVERVIEW
We develop, maintain, service and market environmental tracking and reporting
management solutions designed to assist commercial and governmental enterprises
in complying with environmental regulations. We design our systems to help
reduce purchase and disposal expenditures, decrease personnel exposure, and help
eliminate such environmental abuses as improper disposal. We currently provide
support services related to the client-server based HMMS for twenty-five
Department of Defense facilities. In addition, we are developing and marketing
our web-enabled EnvironMax ME system. The EnvironMax ME system is designed to
replace the HMMS and will be able to function both as a stand-alone solution or
as an integrated part of an enterprise-wide ERP solutions package such as ERP.
We are completing the development and testing of the EnvironMax ME system and we
believe it will be available for delivery in early 2001.
HISTORICAL BACKGROUND
HMMS was developed for the Department of Defense. Over the past few years, Enmax
has continued to develop and improve upon HMMS software. In addition, Enmax used
this background and experience to begin the development of the web-based
EnvironMax ME system. In February 2000, Enmax incorporated our company and
transferred certain technologies and tangible assets to us, including computer
software and hardware, office equipment, and other tangible assets. Enmax also
transferred to us a license to support, develop and improve upon HMMS, a license
to the framework upon which a web-delivered software system could be developed,
and its rights to the web-delivered EnvironMax ME system as developed to that
point. In exchange, we issued 13,700,000 common shares to Enmax. We currently
service, develop and support HMMS while we are developing the EnvironMax ME
system.
Historically, Enmax derived a substantial part of its revenues from the support
and maintenance of HMMS under successive government contracts. Although all of
our historical revenue has been derived from the maintenance and support of HMMS
under these contracts, we expect that in the foreseeable future most of our
revenues will be derived from the licensing of the web-based EnvironMax ME
system, and its associated training, customer support, and consulting services.
We began to incur research and development costs in the fourth quarter of 1999
and have invested heavily in the expansion of our sales, marketing and
professional services organizations to support our long-term growth strategy. As
a result of research and development investments, we anticipate that our
operating expenses will increase substantially for the foreseeable future as we
increase the number of our people and programs in sales and marketing, product
development and professional services. Accordingly, we expect to incur net
losses in the first year of operation.
Revenues have consisted of the amounts we receive for the HMMS support services
related to the support of HMMS Revenues from parent consist of our service
related to the support of HMMS under our teaming agreement with Enmax. Costs of
revenues primarily consist of our costs for maintaining and providing technical
support for HMMS and are largely labor costs.
Research and development expenses consist of payroll and related costs for
software engineers, technical writers, quality assurance and research and
development management personnel and the costs of materials used by these
employees in the development of new or enhanced product offerings. Also included
in research and development are the costs associated with assisting the research
and development team.
23
<PAGE> 27
General and administrative expenses are composed of professional fees, salaries
and related costs for accounting, administrative, finance, human resources,
information systems and legal personnel, as well as costs associated with
implementing and expanding our internal information and management reporting
systems.
We plan to significantly increase our expenditures for sales and marketing,
research and development and general and administrative expenses in 2001. The
majority of these expenses will be focused on the continued development,
implementation and marketing of the EnvironMax ME system.
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations data as the
percentage of total revenues for the periods indicated that are attributable to
HMMS and EnvironMax ME:
<TABLE>
<CAPTION>
PREDECESSOR
----------------------------------------------------- SUCCESSOR
NINE MONTHS ------------
ENDED NINE MONTHS
PERIOD SEPT. 1, 1998 SEPTEMBER ENDED
(DATE OPERATIONS YEAR ENDED 30, SEPTEMBER
COMMENCED) TO DEC. 31, 1999 30, 2000
DEC. 31, 1998 1999 (UNAUDITED) (UNAUDITED)
-------------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues ............................. 100.0% 100.0% 100.0% 5.3%
Revenues from parent ................. -- -- -- 94.7
Cost of revenues ..................... 60.6 62.7 59.8 57.2
----- ----- ----- -----
Gross profit ......................... 39.4 37.3 40.2 42.8
Selling, general and administrative .. 34.8 33.2 27.7 60.6
Compensation expense - founders
shares ............................. -- -- -- 32.0
Research and development ............. -- 3.1 -- 25.3
----- ----- ----- -----
Operating income (loss) .............. 4.6 1.0 12.5 (75.1)
Interest expense, net ................ 0.1 0.2 0.2 1.2
----- ----- ----- -----
Income (loss) before income taxes .... 4.5 0.8 12.3 (76.3)
Income taxes ......................... -- -- -- --
----- ----- ----- -----
Net income (loss) .................... 4.5 0.8 12.3 (76.3)
Pro forma income tax (expense)
benefit ............................ (1.8) (0.3) (4.9) 0.4
----- ----- ----- -----
Pro forma net income (loss) .......... 2.7% 0.5% 7.4% (75.9%)
===== ===== ===== =====
</TABLE>
For purposes of presenting our financial statements, we have segregated or
"carved-out" the operations relating to HMMS and our products from the
historical financial statements of Enmax for the period September 1, 1998 (date
operations commenced) to December 31, 1998, for the year ended December 31,
1999, for the nine months ended September 30, 1999 and for the one month ended
January 31, 2000 (included in successor operations for the nine months ended
September 30, 2000). Accordingly, the results of operations, and related
analyses for the predecessor periods are presented as if we had existed as a
separate legal entity for all the information presented. The carved-out
historical information results are not necessarily indicative of what our
operating results would have been had we existed as a separate legal entity and
any historical results are not necessarily indicative of the results of our
future operations.
For purposes of the management's discussion and analysis of financial condition
and results of operations as discussed below, we have summarized the results of
the predecessor operations for the one month ended January 31, 2000 and the
successor operations for the eight months ended September 30, 2000, because we
believe the information will be more useful and comparable to the nine months
ended September 30, 1999 information. There were no material fluctuations
resulting from the predecessor one month period.
24
<PAGE> 28
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2000:
Revenues -- Our revenues remained relatively unchanged at $2.2 million for the
nine months ended September 30, 1999 and 2000. During 1999, the revenues were
generated by the predecessor operations servicing the HMMS contract. During
2000, we generated revenues from our parent under the teaming agreement to
service the HMMS contract.
Cost of Revenues -- Our cost of revenues was $1.3 million for the nine months
ended September 30, 1999 and $1.2 million for the nine months ended September
30, 2000, representing a $51,000 or 3.9% decrease. As a percentage of revenues,
cost of revenues was 59.8% in 1999 and 57.2% in 2000. The decrease in the cost
of revenues percentage from 1999 to 2000 primarily resulted from the improved
gross margin for the 2000 contract with the United States Department of Defense.
The improved gross margin was a result of a reduction of the labor cost required
to service the HMMS contract in 2000.
Selling, General, and Administrative -- Selling, general, and administrative
expenses were $598,000 for the nine months ended September 30, 1999 and $1.3
million for the nine months ended September 30, 2000, representing an increase
of $716,000, or 119.8%, from 1999 to 2000. Selling, general, and administrative
expenses represented 27.7% of our total revenues in 1999 and 60.6% of our total
revenues in 2000. The increase in amounts expended from 1999 to 2000 and the
increase in selling, general, and administrative expenses as a percentage of
revenues from 1999 to 2000 was a result of increased costs to prepare for future
revenue growth. Such costs primarily included the hiring of additional employees
and executives to support and market the new product and costs of our formation.
Compensation Expense - Founders Shares -- As a result of grants of founder
shares to our employees during 2000, we recognized deferred compensation of
approximately $1.0 million. During the nine months ended September 30, 2000, we
amortized $694,000 of this deferred compensation. During the nine-month period
ended September 30, 1999, there was no amortization of deferred compensation
because no shares had been granted to employees.
Research and Development -- Research and development expenses were $549,000
during the nine months ended September 30, 2000 and represent the costs we
incurred in the development of the Environmax ME system and its web-based
business-to-business application. Although we expended resources on the
development of the HMMS product from the beginning of our operations, all HMMS
development activities were performed under our fee-for-service contract with
the Department of Defense and all costs associated with these activities are
included as cost of revenues. There were no research and development expenses in
the first nine months of 1999 because we did not begin the development of the
new web-based software until after September 30, 1999.
Interest Expenses Net -- Interest expense, net consists primarily of interest
expense on capital lease obligations, net of interest earned on cash balances,
plus interest expense at the prime rate on the cash Enmax advanced to us for
operations. The increase in interest expense was a result of the interest
increase paid on the due to parent amount of $835,000.
Pro Forma Income Taxes -- Pro forma income taxes are based on a 40% effective
tax rate that we believe would have been incurred had Enmax not been an S
corporation.
Income Taxes -- We did not record a tax benefit for losses generated from our
date of incorporation because our use of such losses in future periods was
deemed uncertain. The expected income tax benefit derived by applying the
statutory income tax rate has been eliminated as a result of a deferred income
tax asset valuation allowance.
25
<PAGE> 29
PERIOD SEPTEMBER 1, 1998 (DATE OPERATIONS DEEMED COMMENCED) TO DECEMBER 31, 1998
AND YEAR ENDED DECEMBER 31, 1999
Revenues -- Our revenues were $746,000 for the period September 1, 1998 to
December 31, 1998 and $2.4 million for the year ended December 31, 1999. From
September 1, 1998, the date we started operations, we have generated revenues
from subcontract work on maintenance contracts for our parent company, Enmax,
with the United States government. The increase in revenues for the year ended
December 31, 1999 as compared to the period September 1, 1998 to December 31,
1998 was due to the significant government contract only being in place for four
months in 1998 compared to a full year in 1999, as well as an increase in the
number of government contract site awards Enmax received in 1999.
Cost of Revenues -- Our cost of revenues was $452,000 for the period September
1, 1998 to December 31, 1998 and $1.5 million for the year ended December 31,
1999, representing a $1.1 million, or 237%, increase. As a percentage of
revenues, cost of revenues was 60.6% in 1998 and 62.7% in 1999. The increase in
the cost of revenues percentage from 1998 to 1999 primarily resulted from an
increase in labor costs incurred under the government contracts we service for
Enmax.
Selling, General and Administrative -- Selling, general and administrative
expenses were $260,000 for the period September 1, 1998 to December 31, 1998 and
$808,000 for the year ended December 31, 1999, representing an increase of
$548,000, or 211.2%, from 1998 to 1999. Selling, general, and administrative
expenses represented 34.8% of our total revenues in 1998 and 33.2% of our total
revenues in 1999. The increase in amounts expended from 1998 to 1999 was due to
the increased revenues and increased depreciation expense in 1999 due to
purchases of furniture and equipment. The decrease in selling, general, and
administrative expenses as a percentage of revenues from 1998 to 1999 was a
result of a higher revenue base without a corresponding dollar-for-dollar
increase in certain fixed costs.
Research and Development -- Research and development expenses were $75,000 in
1999 and represent the costs incurred in the development of the EnvironMax ME
system and its web-based business-to-business application. All of these
development expenses were incurred in the fourth quarter of 1999.
Interest Expense -- Interest expense consists of interest expense on capital
lease obligations. The leases were executed in late 1998 resulting in lower
interest expense as compared to 1999.
Pro Forma Income Taxes -- Pro forma income taxes are based on a 40% effective
tax rate that we believe would have been incurred had Enmax not been an S
corporation.
LIQUIDITY AND CAPITAL RESOURCES
Since our formation, we have funded our operations primarily through revenues
generated from the subcontract services we provide Enmax on its United States
government contracts and loans (which we use primarily for research and
development) from Enmax. As of September 30, 2000, we had a working capital
deficit of $911,574. Net cash provided by operating activities was $74,000 for
the year ended December 31, 1999 and net cash used in operations was $801,000
for the nine months ended September 30, 2000. Cash provided by operating
activities was primarily attributed to net income and changes in working capital
for the year ended December 31, 1999 and the cash used in operations in 2000 was
primarily attributable to a net loss of $1.7 million offset by $694,000 of
amortization of deferred compensation. Cash used in investing activities of
$29,000 during the year ended December 31, 1999 was a result of purchases of
property and equipment. Cash used in financing activities for the year ended
December 31, 1999 was $44,000 and cash provided by financing activities for the
nine months ended September 30, 2000 was $803,000. The cash used in financing
activities for the year ended December 31, 1999 was a result of the decrease in
net investment to Enmax. Cash provided by financing activities for the nine
months ended September 30, 2000 was primarily a result of an increase in amounts
due to Enmax of $835,000 to fund operations, largely research and development
expenses. The amounts we borrow from Enmax are unsecured, bear interest at the
prime rate and are due on demand.
26
<PAGE> 30
Our purchases and leases of capital property and equipment totaled $29,000 and
$134,000 during the year ended December 31, 1999 and the nine months ended
September 30, 2000, respectively. We anticipate that we will experience an
increase in our capital expenditures and lease commitments consistent with our
anticipated growth in operations, infrastructure, and personnel.
We currently lease three facilities related to our primary operations that are
all classified as operating leases. Our Layton, Utah lease is $4,107 per month
and expires in October 2001. Our Clearfield, Utah lease is $1,319 per month and
expires in December 2000. These two facilities are sublet from our parent
company, Enmax. Additionally, we share a facility with Enmax in Salt Lake City,
Utah. We sublease a portion of the space in that facility from Enmax for $3,185
per month.
As of September 30, we believe our current cash on hand, together with the
proceeds from this offering, assuming the sale of all 7 million shares in the
offering, and the cash generated from our operations will be sufficient to meet
our capital expenditures and working capital requirements for at least twelve
months. However, our actual needs will depend on numerous factors, especially
with respect to the development and marketing costs of our products, including
EnvironMax ME.
If we sell fewer than 7 million shares in the offering, there is a chance we
will not obtain enough cash from this offering to pursue our business strategy
or that the net proceeds from this offering, together with our other cash
sources, will not be sufficient to finance our operations for the next 12
months. If we do not sell all of the shares in this offering, or if we need to
raise additional funds to support more rapid business strategy, respond to
competitive pressures, acquire complementary businesses or technologies, or
respond to unanticipated requirements, we cannot assure you that additional
funding will be available to us in amounts or on terms acceptable to us, or at
all. If sufficient funds are not available or are not available on acceptable
terms, our ability to fund our business strategy, take advantage of acquisition
opportunities, develop or enhance our services or products, or otherwise respond
to competitive pressures, would be significantly limited.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which established accounting and reporting
standards for derivative instrument and hedging activities. Generally, it
requires that an entity recognize all derivatives as either an asset or
liability and measure those instruments at fair value, as well as identify the
conditions for which a derivative may be specifically designed as a hedge. SFAS
No. 133, as amended, is effective for fiscal years beginning after June 15,
2000. We do not currently engage or plan to engage in any derivative or hedging
activities. The adoption of SFAS No. 133 is not expected to have an material
impact on our operating results.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements", or SAB 101.
SAB 101 establishes accounting and reporting standards for the recognition of
revenue. It states that revenue generally is realized or realizable and earned
when all of the following criteria are met: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services have been rendered;
(3) the seller's price to the buyer is fixed or determinable; (4) collectibility
is reasonably assured. SAB 101 is effective no later than the fourth quarter of
fiscal years beginning after December 15, 1999. The SEC recently released a
series of interpretive questions and answers for SAB 101, which we are currently
evaluating. The Company's financial statements comply with the provisions of SAB
101.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency. Our products and services are primarily developed in the
United States. We currently do not have an international marketing presence. As
a result, our financial results are not generally affected by changes in foreign
currency exchange rates or weak economic conditions in foreign markets.
27
<PAGE> 31
Interest Rate Risk. Our primary objectives in managing our investment portfolio
are to preserve principal, maintain proper liquidity to meet operating needs and
maximize yields. The securities we hold in our investment portfolio are subject
to interest rate risk. We have established policies and procedures to manage
exposure to fluctuations in interest rates. We place our investments with high
quality issuers and limit the amount of credit exposure to any one issuer and do
not use derivative financial instruments in our investment portfolio. We
maintain an investment portfolio of various issuers, types and maturities, which
consist mainly of fixed-rate financial instruments. These securities are
classified as available-for-sale and, consequently, are recorded on the balance
sheet at fair value with unrealized gains or losses reported as accumulated
other comprehensive income as a separate component in stockholders' equity. At
any time, sharp changes in interest rates can affect the fair value of the
investment portfolio and its interest earnings. Currently, we do not hedge these
interest rate exposures. After a review of our marketable investment securities,
we believe that in the event of a hypothetical 10% increase in interest rates,
the resulting decrease in fair market value of our marketable investment
securities would be insignificant to the financial statements.
BUSINESS
OVERVIEW
We develop, maintain, service and market environmental hazardous materials and
waste reporting and tracking management solutions that are designed to assist
commercial and governmental enterprises in complying with environmental
regulations. We designed our computer software, hardware and business processes
systems to help reduce purchase and disposal expenditures, decrease personnel
exposure, and help eliminate such environmental abuses as improper disposal. We
currently provide support services related to the client-server based HMMS for
twenty-five Department of Defense facilities. In addition, we are developing and
testing our EnvironMax ME system. EnvironMax ME is designed to replace HMMS, and
will be able to function both as a stand-alone solution, or as an integrated
part of an enterprise-wide solution, such as an ERP. We are currently testing
the EnvironMax ME system and we believe it will be available for delivery in
early 2001.
MARKET OPPORTUNITY
We believe there is a significant and growing market need for an easy-to-use,
effective reporting and tracking management system for the acquisition,
production, handling, storage and disposal of environmentally hazardous
materials and waste. We also believe a significant market need exists for other
environmental reporting and trading requirements related to air, water and soil
pollution. In 1994, U.S. governmental agencies and commercial enterprises spent
approximately $100 billion on pollution abatement and control.
According to the EPA, there are currently approximately 350,000 active
commercial and governmental entities in the United States that are required to
report on environmental issues of some type. There are in excess of 100,000
commercial and governmental entities in the United States that are subject to
environmental reporting requirements related to hazardous materials waste
generation. We believe the potential annual domestic market for reporting and
tracking systems for hazardous material and waste is approximately $5 billion,
and that the world-wide market for those types of system is in excess of $40
billion. If, as described below, we upgrade the Environmax ME's capabilities to
include air, water and soil reporting and tracking requirements, we believe our
domestic market would be approximately $17.5 billion and that the world-wide
market would be approximately $140 billion.
Historically, business and governmental agencies reported and tracked their
hazardous materials and waste using either internally developed hand-entry
systems or stand-alone, client-server based computer systems. These systems were
generally difficult to use, inefficient and relatively expensive, particularly
in the case of systems that used stand-alone computers and servers.
The Internet has accelerated the introduction of processes for more effectively
and efficiently managing information and providing services. It also has changed
the way software applications are developed and deployed. We believe that one of
the fundamental changes in software development and deployment the Internet
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has accelerated is the use of Internet-accessed, rather than internally
installed, software applications provided by ASPs. Software applications
accessed in such a manner are less expensive to obtain, use and maintain than
traditional installed software systems The Gartner Group has estimated that, by
2003, hosting and rending software applications will be the dominant application
medium for small and medium-sized businesses, and forecasts that the market for
ASPs will exceed $25 billion by 2004, up from $1.1 billion in 1999. We intend to
take advantage of the growth in the use of web-delivered applications by
enabling our EnvironMax ME software to be web-based and accessed via the
Internet using an ASP model.
Our EnvironMax ME software will operate separately or as an integrated part of
an enterprise-wide software solution and provide a comprehensive suite of
interoperable tools for the management of hazardous materials and waste.
OUR SOLUTION
We provide software-based hazardous material and waste reporting and tracking
management solutions that facilitate compliance with environmental rules and
regulations. We currently provide services relating to HMMS. HMMS is a tracking
and reporting software and hardware system by the Department of Defense for the
management of its procurement, use, and disposal of hazardous materials and
waste. We have improved the capabilities of HMMS in the EnvironMax ME system,
which we intend to begin selling as soon as we finalize its development. We
expect that to occur in early 2001. We believe our EnvironMax ME system will
provide the same basic services as HMMS, but will have the added capability of
being web-enabled and have other technological enhancements.
Our goal is to become the leading provider of environmental tracking and
reporting solutions for commercial and governmental enterprises throughout the
world. The key elements of our strategy to achieve our goal include:
- Provide a Comprehensive Product Offering -- We believe our systems provide
efficient and effective solutions for businesses and governmental agencies that
need to comply with hazardous material and waste management and tracking
requirements. We intend our systems to serve as a foundation upon which we will
build multiple products that perform different tasks. Our systems provide a
complete system for reporting and tracking hazardous material and waste from
procurement through disposal. We believe the following are central to our
providing a comprehensive product offering:
Service HMMS -- We currently provide HMMS support services to 25
Department of Defense facilities. We will continue to service the users
of HMMS for any of our current customers that may not choose to convert
to the EnvironMax ME system once it is available commercially. We
believe that, with the implementation of the EnvironMax ME system, HMMS
support services will not constitute a primary source of our revenue.
Deliver the EnvironMax ME system. -- We are developing and
implementing a focused web-enabled hazardous material reporting and
tracking management system that simplifies and facilitates the effective
management of hazardous material and waste from procurement through
disposal. The EnvironMax ME system includes all of the functionalities
of HMMS, but with significant improvements such as expanded data
warehousing capabilities and new modules that improve efficiency and
cost effectiveness. The EnvironMax ME is also web-enabled and easier to
modify than HMMS to meet specific client requirements.
- Remain Committed to Research and Development - Currently, our products
provide tracking and reporting management solutions only for environmental
hazardous materials and waste. We are committed to continuing our research and
development efforts to enhance our products so that they are efficient and
effective platforms for delivering other environmental tracking and reporting
solutions. Our future research and development efforts will focus on the
development of water, air and soil pollution tracking systems.
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- Expand Internationally - We plan to market our products and services
internationally. We have begun the development of our products in various
languages other than English, and we anticipate that we will begin marketing our
products in Europe in late 2001.
PRODUCTS AND SERVICES
We currently market HMMS and are developing the EnvironMax ME system. These
systems track and manage hazardous material and waste and are designed to
facilitate compliance with the EPA's and the Occupational Safety and Health
Administration's rules and regulations. Similar to the approach used by
pharmacies in their management of prescription drugs, our systems track
hazardous material and waste through all stages of use:
- Pre-Acquisition--Our systems send hazardous material requests to
the persons who are responsible for authorizing the procurement of
hazardous materials. These requests can be automatically sent to
multiple workgroups. For example, requests for authorization can be
directed towards fire, environmental, and safety personnel. Once
the material is authorized, the order can be placed.
- Storage--Upon arrival, the hazardous material is entered into the
system as new inventory and transferred to a hazardous material
distribution supply center where it can be assigned a location,
shelf, or bin and then barcode-labeled for tracking purposes. Our
systems associate the hazardous material with that location.
- Disbursement--As the materials are received and broken down into
job-specific quantities, each container is assigned a unique serial
number and bar code that is linked with its original parent
container. As the materials are distributed, they are weighed and
scanned against the user's assigned number, so that the
responsibility for the material as well as the amount used can be
tracked. Our systems ensure that the employee using the material
has the proper training and equipment and that the material is
being used in an approved location. We facilitate this by issuing
Material Safety Data Sheets, or (MSDS, to provide users with
critical information in a simple and reliable manner. We use
extensible mark-up language, which allows the system to provide the
user with the most current MSDS version available.
- Reuse and Waste--When an employee has completed a job, remaining
materials are again weighed, scanned, and placed back into
inventory or are disposed of. Material that becomes waste is
assigned to a waste container. The label on each waste container
specifies its waste profile, which correlates with its disposal
instructions.
We provide accompanying support services, including:
- Project Management: We provide support in system program management
and centralized planning services for each of the sites where we
provide HMMS services. These services include planning and
surveying new sites, research, and application and integration of
new system technologies.
- System Technical Support and Development: We provide on-going
support to maintain and improve the functional processes within the
system's software. We also support the enhancement of new software
releases in operating systems and support software.
- System Analysis, Design and Programming: We design and provide
iterate releases of the software incorporating various
modifications and improvements.
- Web Server Maintenance Support: We maintain and operate system
webservers to provide access to current project information,
newsletters, baseline change requests, and technical support for
the system.
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The Hazardous Material Management System.
Until the successful development, implementation and market acceptance of the
web-enabled EnvironMax ME system, we anticipate that our revenues will be
derived solely from our support and service of HMMS. HMMS is a government
developed client-server based automated hazardous material and waste tracking
tool. According to a report compiled by the Program Office of the Department of
Defense, the deployment of HMMS has resulted in savings of over $62 million to
the Department of Defense.
In 1998, the contract to develop and service HMMS was awarded to Enmax, at which
time the United States government transferred to Enmax from the previous
contractor all the government furnished equipment software and rights to develop
HMMS. Enmax then continued to support and develop HMMS. In 1999, Enmax applied
for and was granted a copyright registration for the HMMS software. While the
HMMS software itself may not be resold to the government, it may be sold to
commercial enterprises, and services for the support of HMMS may be sold to both
the government and commercial enterprises. The supporter of HMMS has a great
degree of discretion in making improvements to the technology and software. In
addition, the supporter has discretion to innovate in the areas of contract
administration, project management and technical research and development. While
servicing HMMS for the government, Enmax made modifications and improvements to
the HMMS software.
In February 2000, Enmax licensed the right to commercialize HMMS to us. The
license includes the right to provide development, maintenance and support
services under Enmax's current HMMS contracts.
The revenues we derive from HMMS are service related. HMMS software is not sold
to the end user. Rather, it is installed and maintained by our personnel, and we
receive revenues from those support and maintenance related services. We
currently provide HMMS related services to 25 Department of Defense facilities
using HMMS.
EnvironMax ME.
We anticipate that we will complete the development of the EnvironMax ME system
in early 2001. The EnvironMax ME system will function in a manner similar to
HMMS, but will feature functionalities, technologies and components not found in
HMMS. The improved functions of EnvironMax ME include:
- Web-Enabled Application - EnvironMax ME will function as an
Oracle-based ASP, which will allow it to effectively operate with
an array of networks and operating systems. We will be able to
offer efficient and direct access to EnvironMax ME over the
Internet, reducing the up-front costs traditionally associated with
the purchase or license of software. By offering EnvironMax ME as
an ASP, we hope to customize software and products specifically to
the needs of the user. We also plan to offer online customer
support and instant updates of our products through the Internet.
- XML - EnvironMax ME has been built using extensible markup
language, or XML. XML is becoming a standard format for structured
documents and data on the web.
- Enterprise-Wide Software - Many businesses have replaced or are
replacing their older legacy software systems with new integrated
enterprise systems. The EnvironMax ME software is being designed to
be part of an enterprise-wide software solution that will be
compatible with most industrial information technology systems
currently in use. In addition, the EnvironMax ME system is fully
scalable and is designed to be capable of serving the needs of both
large and small entities.
- Ancillary Hardware - As part of our development of the EnvironMax
ME system, we developed an improved suite of hardware and other
system tools to facilitate its use. These include handheld
computers, improved barcode scanning devices and an advanced
serialization system.
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OUR CUSTOMERS
Under the current contract between Enmax and the Department of Defense we
provide services related to HMMS to 25 installations and depots. The Department
of Defense entities participating in the contracts include the Marine Corps, the
Air Force, the Army and the Navy and include sites such as:
- Warner-Robins Air Logistics Center, Macon, GA;
- Tobyhanna Army Depot, Allentown, PA;
- Cherry Point Naval Aviation Depot, Cherry Point, NC; and
- Marine Corps Logistic Base, Albany, GA.
We are marketing HMMS services to other governmental entities. Currently,
service on HMMS is contracted through the Federal Systems Integration and
Management, or FEDSIM, organization under the U.S. Government General Services
Administration, or GSA. We are the GSA and FEDSM designated provider of
maintenance, development and support services for HMMS. A majority of the
Department of Defense sites have indicated their intention to convert to the
EnvironMax ME system when it becomes available.
We also plan to market the EnvironMax ME product to commercial enterprises that
have a need for effective reporting and tracking tools for hazardous materials
and waste. We believe we will be able to effectively do this by leveraging our
governmental contract experience and by offering a web-accessable software and
enterprise solution that features comprehensive tracking and reporting functions
for all stages of hazardous material and waste management.
OUR MATERIAL CONTRACTS
We are a party to the following material contracts, licenses and other
agreements:
FEDSIM contracts. We are a subcontractor to Enmax on an 8(a) set-aside FEDSIM
contract. This contract was awarded to Enmax in August 1998. It was extended in
June 2000 and is now scheduled through May 31, 2001. Under the terms of this
contract, we provide development and support services for HMMS to 25 Department
of Defense sites. These types of contracts traditionally become available on an
annual basis, and are generally in the amount of $100,000 per site. We have
entered into a subcontracting agreement with Enmax, whereby we agreed to perform
its obligations under its current contract. The services we provide include
program management, technical management, planning, software maintenance and
development, technology refreshment, customer technical support, system
administration support, customer hotline, and data preparation. This arrangement
is permitted without the consent of the Department of Defense as long as we do
not perform more than 49 % of the government contract, based upon labor costs.
The government may terminate the Enmax contract at any time. Since this
agreement was executed, we have been performing all of the obligations of Enmax
under the FEDSIM HMMS contract, and Enmax has limited its activity to a
supervisory role. We anticipate we will arrive at the 49 % labor cost limit on
the contract in February 2001, at which time we will no longer provide services
under this contract and the arrangement we have with Enmax will be terminated.
GSA Schedule 899. The GSA serves as a contracting agency and "buyer" of services
and supplies for the federal government. In this capacity it often awards
"schedule" contracts with pre-established prices from which government buyers
can order goods and services. The schedules are given number designations to
indicate the type of goods and services they offer. Schedule 899, for example,
provides Environmental Services, including training, software, and consulting of
various types. We have been awarded a GSA Schedule 899 contract, effective
November 1, 2000. We believe the Schedule 899 designation will allow us to
secure government contracts, since federal buyers may now be referred to us by
the GSA to effect direct purchase of our goods
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and/or services. GSA typically charges a one percent fee for this service. The
awarding of a GSA schedule reduces the paperwork, time and effort associated
with federal contracting. To date, we have not received any revenues from any
GSA schedule contract.
GSA Millennia Lite Contract. The government may award large, multiple award,
indefinite delivery, indefinite quantity, or IDIQ, contracts to designated
preferred vendors of goods and services. Unlike a GSA schedule designation,
IDIQs specify the essential goods and services and the method of delivery. They
also carry a higher contracting fee. In July 2000, we were selected as a
subcontractor on the Averstar, Inc., team for the Millennia Lite IDIQ Contract.
The Millennia Lite Contract allows the primary contractor, and subcontractors
such as our company, to obtain governmental contracts on an expedited basis and
approved contractor or subcontractor. To date, we have not received any revenues
under this contract designation.
Section 8(A) Contracts. Section 8(a) regulations are intended to promote
minority owned businesses by "reserving" certain portions of federal contracts
for award without competition, or for competition among 8(a) businesses
exclusively. The program allows minority-owned businesses to obtain government
contracts without the need to compete with large, established commercial
entities. The HMMS contract has been awarded under the 8(a) program since its
inception in 1993, and was first awarded to Enmax in August 1998. The contract
was renewed in June 1999, and again in May 2000. It now is set to terminate in
May 2001. The current cap on the contract is $6 million. Enmax performed 100
percent of the work on this contract from its inception until March 2000, when
it subcontracted it to us. Under 8(a) rules, the prime contractor, in this case
Enmax, must perform over 50% of the direct labor on the contract. We anticipate
we will reach the 49% cap on authorized labor costs for our subcontracting
services in February 2001. At that point, we expect the government to contract
directly with us for HMMS services under our GSA Schedule 899 designation.
We anticipate that, in the future, we will provide services to governmental
agencies based on our status as a GSA preferred provider. That will allow us to
provide services to governmental agencies completely independent of Enmax and
its 8(a) program status.
HMMS License. In March 2000, Enmax granted us a license to service, support and
develop HMMS. This license is perpetual, fully paid up and royalty free and is
not limited in scope.
Licenses to Web-Enabling Software In March 2000, Enmax licensed to us the
web-enabling software development platform upon which EnvironMax ME has been
built. This license is limited in use to the development of the EnvironMax ME
and related systems.
SALES, MARKETING AND DISTRIBUTION
We intend to sell our products and services domestically to both governmental
and commercial entities. Once we develop international versions of our products,
we intend to begin marketing to foreign governmental and commercial entities.
We plan to target three segments within the government. First, will be the
current Department of Defense users of the HMMS system. Second, we will target
those sites and facilities with mandated hazardous material reporting
requirements that currently use systems other than HMMS or have no reporting and
tracking system. Finally, we will target all other government agencies.
Within the commercial segment, we intend to first target those enterprises that
are the largest and best-known polluters within the United States. These
companies have a high exposure to heavy fines, and other liability issues that
we believe will make them receptive to our products. The target customers in
this segment are companies that are currently paying fines for non-compliance,
those whose current processes require significant expenditures to comply with
environmental regulations and those who would benefit economically from using
the EnvironMax ME system. We then intend to target companies that are currently
not paying fines but have environmental compliance issues.
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We intend to use a combination of sales techniques and arrangements to market
our products domestically and internationally, including in-house sales persons,
joint venture or partnering arrangements with third parties that have a
significant presence in the environmental industry, or third party arrangements
with established marketing and consulting companies. We intend to use a
combination of branding techniques, including targeted advertising and trade
show participation, and marketing techniques such as direct mail, email and
seminars, to create demand for our products.
COMPETITION
The market for hazardous materials and waste reporting and tracking management
solutions is evolving rapidly, is intensely competitive, and is characterized by
frequently changing technology and standards. Although the industry is not new,
it has only recently matured in its ability to integrate automated techniques.
We expect competition to increase both from existing competitors and new market
entrants. We face direct competition in the area of hazardous material
management software. We also face competition from more traditional non-software
solutions to waste management.
HMMS faces competition from several Government Off the Shelf Systems or GOTS,
the TRW/BDM Environmental Health Information System, or EHIS, the Air Force
Environmental Management Information System, or EMIS, and the Navy sponsored
HSMS. We believe the EHIS system is very limited in its capability due to its
sole focus on the collection and reporting of air emissions and health and
safety. We believe EMIS is limited by its single-user system architecture, which
is based on Microsoft SQL for stand-alone desktop computers. The Logistics
Management Institute provided the Army with an independent assessment of the
capabilities of HSMS and HMMS to determine whether the Army policy needed to be
modified relative to the fielding of HSMS. In the assessment, HMMS was found to
be superior to HSMS in its overall functional design and performance. The
Logistics Management Institute recommended that all installations using HSMS
replace it with HMMS if supported by a business practice and cost/benefit
analysis.
In the commercial marketplace, there are several providers of environmental
reporting and tracking systems. Companies currently offering hazardous material
management systems for commercial enterprises include TRW, Inc., Science
Application International Corporation, Radian International, ESS, and many
others. Many of these competitors are large, well-established companies with
significantly greater financial resources, more extensive marketing and
distribution capabilities, larger development staffs and more widely recognized
brands and products. We believe our products are superior to those offered by
our competitors because of our products' web architecture, ASP functionality,
and the on-line and direct on-site help support we will provide. We expect our
competition to increase, both from existing competitors and new market entrants.
Our ability to successfully compete will depend, in part, on our ability to:
- develop systems that are technologically superior to other products
in the market;
- successfully brand and market our systems; and
- identify new markets in which our products may be sold and be the
first to market those areas.
INTELLECTUAL PROPERTY
Our ability to protect our software, business processes and other proprietary
technology is important to our success. To accomplish this, we rely primarily on
trade secrets. We require our employees and consultants to sign confidentiality
and nondisclosure agreements. We also generally regulate access to and
distribution of our software source code documentation and other proprietary
information.
We have applied for trademark protection for our tradenames and service marks.
We may apply for copyright registration for EnvironMax ME and may seek patent
protection for all or a part of the EnvironMax ME system.
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We do not believe our products, service marks or trademarks infringe the
intellectual property or other rights of third parties. However, our products
are comprised of many distinct software components, some of which are developed
by independent parties, and therefore third parties may assert infringement
claims against us that may result in costly litigation or require us to obtain a
license to third-party intellectual rights. There can be no assurance that such
licenses will be available at reasonable terms or at all, which could have a
negative effect on our business, operating results and financial condition.
EMPLOYEES
In March 2000 46 employees transferred to us from Enmax to assist us in
servicing the HMMS contract and developing and marketing the EnvironMax ME
system. As of September 30, 2000, we had a total of 64 employees. Of that total,
24 were in development, 6 were in sales and marketing, 25 were in customer
service and technical support, 5 were in operations and 4 were in finance and
administration. We have employees at 15 of the sites for which we provide HMMS
services. The Company incurs only minimal overhead expenses related to these
employees as facilities and equipment expenses are incurred and paid for by the
Department of Defense. Our employees are not represented by any labor union and
are not subject to a collective bargaining agreement, and we have never
experienced a work stoppage. We believe our relations with our employees are
good.
We have entered into a group benefit agreement with Workforce Solutions Inc.
under which Workforce provides benefits, payroll and other administrative
services for us. We "lease" all of our employees from Workforce.
FACILITIES
Our business headquarters are located in Salt Lake City, Utah. Enmax has a lease
with a third party for approximately 5600 square feet of office space currently
housing our Salt Lake City office. The current rent is $6,629 per month. This
lease expires in November 2001. We sublease 2800 square feet of this space from
Enmax for $3,185 per month.
A majority of our operational activities take place in Layton, Utah. In October
1998, Enmax entered into a lease with a third party for 5,124 square feet. The
term of this lease is three years and it expires in October 2001. We have
subleased all of this property for $4,107 per month from Enmax.
We also have an office space lease in Clearfield, Utah for approximately 1800
square feet of office space for a monthly cost of $1,319, expiring in June,
2001. This property is also subleased from Enmax.
We are currently negotiating with several third parties for additional
development and administrative office space. We believe we will be able to
secure any such space on commercially reasonable terms.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table presents information regarding our executive officers,
directors and key employees as of September 30, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert F. Craig................................. 53 Chief Executive Officer, Chairman of the Board
Fred Nichols.................................... 51 President and General Manager, Director
Dean Hutchings.................................. 39 Chief Financial Officer, Director
</TABLE>
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<TABLE>
<S> <C> <C>
George D. Torian, Jr............................ 50 Vice President, Sales and Marketing, Director
Ron DeMass...................................... 32 Vice President, Systems
Judi Bergslien.................................. 48 Vice President, Support
Roxanne Mashburn................................ 41 Vice President, Management Information Services
Genowefa Z. Craig............................... 48 Director
Charles M. Meredith............................. 70 Director
Lynn B. Barney.................................. 52 Director
Douglas Borba................................... 59 Director
</TABLE>
ROBERT F. CRAIG, CHIEF EXECUTIVE OFFICER, CHAIRMAN -- Mr. Craig serves as our
Chief Executive Officer and as Chairman of our Board of Directors. Mr. Craig
also has served as Chairman of the Board, President and Chief Executive Officer
of Enmax Corporation since its incorporation in 1994. Mr. Craig currently
devotes approximately half of his time to Enmax's operations and half to our
operations. He formed Enmax as a proprietorship in 1989, five years prior to its
incorporation. In 1999, the U.S. Small Business Administration named Mr. Craig
as the 8(a) Contractor of the Year.
FRED NICHOLS, PRESIDENT, GENERAL MANAGER AND DIRECTOR -- Mr. Nichols serves as
our President and General Manager. Before joining us, Mr. Nichols served as Vice
President of Operations and Marketing for Enmax Corporation from February 1998
to February 2000. Prior to that date, Mr. Nichols was with NCI Information
Systems, Inc. from 1992 until 1998, as the Field Office Director, Director of
Operations, and Program Manager. Prior to joining NCI, Mr. Nichols served in the
U.S. Army from 1971 until 1992, where much of his experience involved program
management and/or project management for telecommunications and software
engineering projects. Mr. Nichols has an MS in Systems Management from the
University of Southern California, a BS in Business Management from Southwest
Missouri State University, and has completed many additional courses in Program
Management, Telecommunications Systems/Management, and Software Development.
DEAN HUTCHINGS, CHIEF FINANCIAL OFFICER - Mr. Hutchings joined us in March 2000
as our Chief Financial Officer. Mr. Hutchings was most recently with Novell,
where he served as Marketing Controller from 1998 to March 2000. Prior to that,
Mr. Hutchings was the Chief Financial Officer for Ion Laser Technology, Inc.
from 1993 until 1998, a Senior Accountant for Deloitte and Touche LLP from 1988
until 1993, and an Accounting Systems Consultant for PCS Business Solutions from
1986 to 1988. Mr. Hutchings has a BA in Business Administration from California
State University, Fullerton and is a CPA.
GEORGE D. TORIAN, JR., VICE PRESIDENT, MARKETING AND SALES - Since 1973, Mr.
Torian worked for IBM, most recently as a Strategic Alliance Manager responsible
for developing and implementing IBM's worldwide strategy for leveraging
strategic alliances to create marketing opportunities and grow IBM's Global
Service revenue. Mr. Torian earned a BS in Business Administration from Morgan
State University in 1973.
RON DEMASS, VICE PRESIDENT, SYSTEMS - Mr. DeMass serves as our Vice President of
Systems. Between September 1998 and February 2000, Mr. DeMass served as Director
and Program Manager for the Hazardous Material Management System project for
Enmax Corporation. Prior to that, Mr. DeMass was a Systems Analyst Principle for
NCI Information Systems, Inc., a Programmer/Analyst for West Coast Information
Systems, Inc., and a Programmer for Alta Health Strategies. Mr. DeMass has a BS
in Computer Science from Westminster College of Salt Lake City.
JUDI BERGSLIEN, VICE PRESIDENT, SUPPORT - Ms. Bergslien has been our Vice
President of Support since our inception in February 2000. Before that, Ms.
Bergslien served as Director of Contracts for Enmax Corporation. Before August
1998, Ms. Bergslien was with NCI Information Systems, Inc., most recently as the
Acting Director/Utah Regional Office. Ms. Bergslien has a BS in General
Management and Accounting from Purdue University.
ROXANNE MASHBURN,VICE PRESIDENT, MANAGEMENT INFORMATION SYSTEMS - Ms. Mashburn
serves as our Vice President of Information Systems. Ms. Mashburn was the
Director of Systems Management at the Salt Lake
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Organizing Committee for the Olympic Winter Games of 2002 from August 1997 until
April 2000. She served as Director of Information Technology at the Eccles
Institute of Genetics from April 1995 until August 1997, where she managed the
computing resources for a consortium of leading-edge research facilities. Ms.
Mashburn has a B.S. in Computer Science from Weber State University.
GENOWEFA Z. CRAIG, DIRECTOR - Ms. Craig has been the Office Administrator and is
Secretary/Treasurer to the Board for Enmax Corporation since April 1994. Ms.
Craig is the spouse of Robert F. Craig.
CHARLES M. MEREDITH, DIRECTOR - Mr. Meredith has been the Executive Vice
President of Enmax Corporation since 1995, where he directs all areas of the
Enmax corporate business activities, including performance activities for all
existing contracts and business development. Prior to joining Enmax, Mr.
Meredith was President of The Meredith Group from 1982 until 1995. Mr. Meredith
has a MS in Electrical Engineering from the University of Southern California.
LYNN B. BARNEY, DIRECTOR - Mr. Barney has been the principal of Siena
Investments since January 2000. Prior to that, Mr. Barney was a Director of
Strategic Planning for Alta Technology Corporation from 1998 to 1999. Between
1987 and 1998, Mr. Barney was Director and CEO of Ion Laser Technology, Inc.. He
also was the founder, president and CEO of Cottonwood Security Bank from 1978
until 1987. Mr. Barney has a BA in Management from the University of Utah and an
MBA from the University of Utah.
DOUGLAS C. BORBA, DIRECTOR - Mr. Borba is a partner in Borba & Associates, an
international marketing and advertising consulting firm, and serves as the
Executive Director of the Department of Commerce for the State of Utah. Prior to
starting Borba & Associates in February 1995, Mr. Borba served as Foreign Area
Officer with the Army Reserves, and as both a Battalion and Brigade Commander in
the Utah Army National Guard from August 1987 until February 1999. He served as
Deputy Chief of Staff for the Army Intelligence and Security Command, and as
Director of Plans and Operations for Latin America for the Army Security and
Assistance Command. Mr. Borba has served in various marketing positions with
Bonneville Communications, including as its Director, International Media from
1978 until 1994. Mr. Borba holds a BA in Language and Communications from the
University of Utah, an MA from the Army War College and an MS in Management from
Salve Regina University.
COMPOSITION OF THE BOARD
We currently have eight directors. Our directors are elected by our shareholders
at each annual meeting of shareholders to serve until the next annual meeting or
until a director's earlier death, resignation, or removal.
DIRECTOR COMPENSATION
Our directors do not receive cash compensation for their services as directors,
although members are reimbursed for expenses in connection with their attendance
at board meetings. Some of our directors who also are employees have received
stock options under our 2000 Equity Incentive Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We do not currently have a compensation committee, however our bylaws do empower
the board of directors to create one or more committees and appoint members of
the board of directors to serve on them. Our Chairman and Chief Executive
Officer participated in board deliberations regarding the compensation of all
executive officers, including himself.
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EXECUTIVE COMPENSATION
Our chief executive officer did not a receive a salary in 1999 for his services
relating to our operations, and none of the other persons named as our executive
officers was paid in excess of $100,000 in 1999 for services related to our
operations. Our chief executive officer is entitled to receive a salary of
$250,000 in 2000 for his services to us.
OPTION GRANTS IN LAST YEAR
The following table presents the grants of stock options under our 2000 Equity
Incentive Plan during fiscal 2000 to each of our executive officers named in the
Summary Compensation Table.
All option grants under the 2000 Equity Incentive Plan are either "incentive
stock options," (as defined in the Internal Revenue Code of 1986, as amended, or
nonqualified stock options. Options generally expire on the earlier of the 10
year anniversary of the grant or upon the termination of the optionee's
employment. The exercise price of each option that has been granted is equal to
the fair market value of the optioned securities on the date of grant, as
required by the incentive stock option rules.
We have granted stock options under the 2000 Equity Incentive Plan to our
employees to purchase a total of 1,075,650 common shares. Potential realizable
values are computed by:
- Multiplying the number of common shares subject to a given option
by the exercise price per share,
- Assuming a public offering price of $15.50 per share, and that the
aggregate public offering price derived from that calculation
compounds at the annual 5% or 10% rates shown in the table for the
entire 10 year term of the option, and
- Subtracting from that result the aggregate option exercise price.
The 5% and 10% assumed annual rates of stock price appreciation are
required by the rules of the Securities and Exchange Commission and
do not represent our estimate or projection of future common share
prices.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL
SECURITIES TOTAL OPTIONS RATES OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE PRICE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRE SHARE EXPIRATION --------------------------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 0% 5% 10%
------------------ ----------- ------------- -------------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert F. Craig(1) 369,450 34.3% 10.00 20-Mar-10 $ 2,031,975 $ 5,633,324 $11,158,501
Fred Nichols 45,000 4.2% 10.00 20-Mar-10 247,500 686,154 1,359,135
George D. Torian 50,000 4.6% 10.00 15-Mar-10 275,000 762,393 1,510,150
Dean Hutchings 30,000 2.8% 10.00 15-Mar-10 165,000 457,436 906,090
Ron DeMass(2) 72,000 6.7% 10.00 20-Mar-10 396,000 1,097,846 2,174,617
</TABLE>
(1) Includes 180,000 shares granted to his spouse, for which Mr. Craig does not
disclaim beneficial ownership.
(2) Includes 27,000 shares granted to his spouse, for which Mr. DeMass does not
disclaim beneficial ownership.
The following table presents the number of common shares subject to vested and
unvested stock options held at September 30, 2000 by each of certain of our
executive officers. Also, presented are values of "in-the-money" options, which
represent the positive difference between the exercise price of each outstanding
stock option and the assumed initial public offering price of $15.50 per share.
38
<PAGE> 42
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT SEPTEMBER 30, 2000 AT SEPTEMBER 30, 2000(3)
NAME VESTED UNVESTED VESTED UNVESTED
---------------- ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C>
Robert F. Craig 0 369,450(1) 0 $2,031,975
Fred Nichols 0 45,000 0 247,500
George D. Torian 0 50,000 0 275,000
Dean Hutchings 0 30,000 0 165,000
Ron DeMass 0 72,000(2) 0 396,000
</TABLE>
(1) Includes 180,000 shares granted to his spouse, for which Mr. Craig does not
disclaim beneficial ownership.
(2) Includes 27,000 shares granted to his spouse, for which Mr. DeMass does not
disclaim beneficial ownership.
2000 EQUITY INCENTIVE PLAN
Our 2000 Equity Incentive Plan was adopted by our board of directors on March
15, 2000. The plan became effective upon its adoption by the board. The board
authorized 2,210,000 common shares for issuance under the plan. Under the 2000
Equity Incentive Plan eligible individuals in our employ or service (including
officers, non-employee board members and consultants) can be granted options to
purchase common shares, as well as other types of incentive compensation. The
plan is administered by our board of directors. The exercise price for the
options may be paid in cash or in common shares valued at fair market value on
the exercise date. Each option assumed by any successor corporation will be
adjusted to apply to the number and class of securities which would have been
issuable to the option holder had the option been exercised immediately prior to
the merger or asset sale. Following any such merger or asset sale, appropriate
adjustments will also be made to the number and class of securities available
for issuance under the plan and the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same. The board may amend or modify the plan at any
time, subject to any required shareholder approval. The plan will terminate no
later than March 1, 2010.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Dean Hutchings and George D.
Torian. Under the terms of Mr. Hutchings' agreement, he will receive a base
salary of $115,000 per year and options to acquire 30,000 of our common shares.
Mr. Hutchings' agreement is for a period of two years. Mr. Torian will receive a
base yearly salary of $165,000 and options to purchase 50,000 of our common
shares. Mr. Torian's agreement is also for two years Both Mr. Hutchings and Mr.
Torian have entered into covenants not to compete for a period of one year
following the termination of their employment.
39
<PAGE> 43
RELATED PARTY TRANSACTIONS
RELATIONSHIP WITH ENMAX CORPORATION
Robert F. Craig owns 100% of the outstanding shares of Enmax. Enmax owns
13,841,050 shares, or approximately 99.5%, of our shares. In addition to its
transfer of certain intellectual property to us in exchange for those shares,
Enmax transferred certain equipment, inventory, contracts and intangibles to us.
See "Management's Discussion and Analysis of Financial Conditional Results of
Operations - Historical Background." Mr. Craig is employed as the chief
executive officer of both Enmax and our company, and devotes approximately 50%
of his time to each company. Assuming the sale of all 7 million shares in this
offering, Enmax will own approximately 65.3% of our company.
We currently rely on Enmax to maintain the Department of Defense government
contract under which we provide the HMMS services. Enmax provides a diverse
portfolio of software development, network engineering and simulation and
modeling support services to both governmental and commercial entities,
including services not relating to our current and proposed business operations.
Additionally, in August 2000, Enmax received an award from the Utah 100 for
being the ninth fastest growing company in the state. Under the terms of our
arrangements with Enmax, we act as a subcontractor to Enmax and perform services
related to HMMS as contemplated by the terms of Enmax's agreement with the
Department of Defense. Since we began servicing the contract in March 2000,
Enmax has served as a supervisor and has performed administrative functions for
which it has received approximately 2% of the contract fees. During the eight
months ended September 30, 2000, we recognized approximately $2,055,000 in
revenue from Enmax under the arrangement. With our listing on the GSA schedule,
we are now able to secure government contracts independent of Enmax, and believe
we will no longer be reliant on those arrangements. We will attempt to secure
and service environmental management contracts, while Enmax will continue to
service non-environmental contracts by providing network training and support
services to government and commercial entities. Enmax has to us agreed to
refrain from competing with us for three years.
In addition to our shared responsibilities under the subcontractor arrangements,
there are other areas of overlap in our business and Enmax's business. We
currently are sharing facilities and certain equipment with Enmax. We sublease
our corporate headquarters and other operational centers from Enmax. We are also
jointly using, and pay for, administrative staff. We believe each of these
arrangements is on commercially reasonable terms consistent with what we would
pay third parties. In addition, the web-enabling framework, portions of which
Enmax contributed to the web-enablement of the EnvironMax ME software, is owned
by Enmax. We also have a limited license from Enmax to certain software
development framework concepts for the purpose of developing and using our
environmental products. See "Management's Discussion and Analysis of Financial
Conditional Results of Operations - Historical Background."
Through September 30, 2000, we borrowed approximately $835,000 from Enmax to
fund our working capital requirements. The loans bear interest at prime and
currently act as a revolving line of credit. The loans are due on demand. We
intend to repay the Enmax loans from the proceeds of this offering.
We will set aside up to 5% of the 7 million shares being offered in this
offering for sale to employees, their families and friends under a "Friends and
Family" program. Under this arrangement any employee or his designee may
purchase shares by prescribing either a number of shares he would like to
purchase or a dollar amount that he would like to spend on the offering. The
amount or number of shares prescribed by the the purchaser will be filled at the
public offering price.
40
<PAGE> 44
PRINCIPAL SHAREHOLDERS
The following table presents information as to the beneficial ownership of our
common shares as of September 30, 2000 by:
- each shareholder known by us to be the beneficial owner of more
than 5% of our common shares;
- each of our directors;
- each executive officer listed in our summary compensation table;
and
- all directors and executive officers as a group.
Beneficial ownership is determined under the rules of the SEC and generally
includes voting or investment power with respect to securities. Unless indicated
below, to our knowledge, the persons and entities named in the table have sole
voting and sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable. Common shares subject to
options that are currently exercisable or exercisable within 60 days of
September 30, 2000 are deemed to be outstanding and to be beneficially owned by
the person holding the options for the purpose of computing the percentage
ownership of that person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person. Unless otherwise noted,
the principal address of each shareholder is our principal corporate office at
4190 South Highland Drive, #210, Salt Lake City, Utah 84124.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OUTSTANDING
---------------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
-------------------------------------------------- ------------------ ---------- ----------
<S> <C> <C> <C>
Robert F. Craig 13,824,050(1) 99.5% 66.2%
Fred Nichols 5,000(2) * *
George D. Torian, Jr 5,000 * *
Dean Hutchings 1,500 * *
Ron DeMass 5,000(3) * *
Judi Bergslien 3,000(4) * *
Genowefa Z. Craig 20,000(5) * *
Charles M. Meredith 5,000 * *
Roxanne Mashburn -0- * *
Douglas Borba -0- * *
All directors and officers as a group (11 persons) 13,868,550 99.7% 66.3%
</TABLE>
* Represents beneficial ownership of less than 1%.
(1) Includes beneficial ownership of 13,800,000 shares owned by Enmax
Corporation but excludes 20,000 shares owned by Genowefa Z. Craig. Mr. Craig
does not disclaim beneficial ownership of the shares held by Enmax. 1,435 of
the shares indicated are subject to repurchase by us if Mrs. Craig
terminates his employment with us. Our repurchase right expires on the
earlier of one year from the date of grant or the date this offering is
declared effective by the SEC.
(2) 3,500 of the shares indicated are subject to repurchase by us if Mr. Nichols
terminates his employment with us. Our repurchase right expires on the
earlier of one year from the date of grant or the date this offering is
declared effective by the SEC.
(3) Excludes 3,000 shares beneficially owned by Judi Bergslien, Mr. DeMass'
spouse, for which Mr. DeMass disclaims beneficial ownership. 3,500 of the
shares indicated are subject to repurchase by us if Mr. DeMass
41
<PAGE> 45
terminates his employment with us. Our repurchase right expires on the
earlier of one year from the date of grant or the date this offering is
declared effective by the SEC.
(4) Excludes 5,000 shares beneficially owned by Ron DeMass, Ms. Bergslien's
spouse, for which she disclaims beneficial ownership.
(5) Excludes beneficial ownership of 13,800,000 shares owned by Enmax
Corporation and 21,050 shares owned by Robert F. Craig, for which Ms. Craig
disclaims beneficial ownership.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our Articles of Incorporation limit the personal liability of our directors and
officers for monetary damages to the maximum extent permitted by Utah law. Under
Utah law, those limitations include monetary damages for any action taken or
failed to be taken as an officer or director except for (i) amounts representing
a financial benefit to which the person is not entitled, (ii) liability for
intentional infliction of harm on the corporation, or its shareholders, (iii)
unlawful distributions, or (iv) an intentional violation of criminal law. Our
Articles of Incorporation also provide that we will indemnify our directors and
officers against any damages arising from their actions as our agents, and that
we may similarly indemnify our other employees and agents. We are also empowered
under our Articles of Incorporation to enter into indemnification agreements
with our directors and officers.
At present, there is no pending litigation or proceeding involving any of our
directors, officers, employees or agents where our indemnification would be
required or permitted. We are not aware of any threatened litigation or
proceeding which would result in a claim for such indemnification.
PLAN OF DISTRIBUTION
We propose to offer directly to the general public a maximum of 7 million of our
common shares at a price that we estimate will fall within the offering price
range of $14 to $17 set forth on the cover page of this prospectus. We will
offer and sell the shares on a best efforts basis through several of our
officers and employees who will not be separately compensated for these
services. Such officers and employees will comply with the applicable conditions
of Rule 3a 4-1 promulgated by the Securities and Exchange Commission, or
Commission, under the Securities Exchange Act of 1934 and fall within the safe
harbor provisions of that Rule. No underwriters are involved in this offering,
and we do not intend to retain brokers to offer our common shares.
We will determine the actual offering price in accordance with the Dutch auction
process described below. Because the offering is made on a best efforts basis,
there is no assurance of the number of shares we will sell or the number of
dollars we will raise. There is no provision to refund any proceeds from the
sale of our shares and no assurance that a viable public market for our shares
will develop. Therefore, an investment in our shares may not become liquid for
some time, if at all.
The process will proceed as follows:
- Prior to the effectiveness of the registration statement relating
to this offering, we will solicit conditional offers to purchase
our shares from potential investors through the Internet. A copy of
our preliminary prospectus for the offering in electronic format,
referred to as the electronic prospectus, is available on a
separate and special offering website located at
www.environmaxipo.com. The electronic prospectus has the same
content as a paper copy of the preliminary prospectus prepared for
the offering.
- We may solicit prospective investors by publicizing the offering
through tombstone advertisements and otherwise as permitted by Rule
134 promulgated by the Commission under the Securities Act of 1933.
Such tombstone advertisements may be placed on our general website
and on other third-party websites. These publications will invite
persons interested in the offering to view a copy of the electronic
prospectus or to obtain a paper copy of our preliminary prospectus
by contacting us. We may reach additional potential investors by
direct mail solicitation using the same materials.
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<PAGE> 46
- Potential investors may at any time expressly request that all, or
any specific, communications between them and us be made by a
particular means of communication, such as telephone or facsimile.
Otherwise, all communications will be by E-Mail, and references in
this prospectus to communications by E-Mail may include
communications by other means that are specifically requested by a
potential investor.
- No conditional offers to purchase the shares offered by this
prospectus can be accepted, and no part of the purchase price can
be paid or received, prior to the time that our registration
statement becomes effective. We anticipate that this will occur
within 45 days following the date of this prospectus, immediately
after the close of the Dutch auction. The date on which the auction
closes will be based in part upon the rate at which we receive
conditional offers and the price range of such offers. Once the
auction closes, and the public offering price is set, we intend to
request the Commission to permit the registration statement to
become effective as soon as possible. At that time we may accept
conditional offers from those potential investors who reconfirm
their submitted conditional offers at or above the public offering
price.
- A conditional offer involves no obligation or commitment of any
kind prior to the effective date of the registration statement and
the potential investor's acceptance of the offering price.
- Soon after the time the registration statement is declared
effective, potential investors who have submitted conditional
offers to us will be contacted by E-Mail and advised that the
registration statement has become effective and that a final
prospectus with the public offering price has been posted on our
special offering website. The final prospectus may contain
additional information not included in the preliminary prospectus,
including the price at which the shares are offered. Such potential
investors will be requested to affirmatively acknowledge the
receipt of the final prospectus and reconfirm their conditional
offers by submitting an Acceptance E-Mail pursuant to instructions
included on our special offering website. All conditional offers
that are not reconfirmed before the time specified by us will be
deemed withdrawn and will not be allocated any shares.
- Once a potential investor reconfirms its previous conditional offer
by Acceptance E-Mail, that reconfirmation will constitute a binding
agreement to purchase the number of common shares as stated in the
Acceptance E-Mail.
- A potential investor may be requested to reconfirm its conditional
offer more than one time for various reasons, such as if there is a
re-pricing of the offering or recirculation of the prospectus. If
such a situation occurs, we will send additional E-Mails requesting
potential investors to reconfirm their conditional offers once
again. We will not accept these conditional offers until the
potential investors again reconfirm their conditional offers,
regardless of the price of the potential investors' previous
conditional offers.
DETERMINATION OF PUBLIC OFFERING PRICE
We will ultimately determine the public offering price for this offering by
reference to the Dutch auction. The principal factor in establishing the public
offering price will be the clearing price, which is the highest price at or
above $14 per share at which a satisfactory number of valid conditional offers
are received. We will determine the actual public offering price soon after the
auction is completed and immediately before this offering becomes effective. The
public offering price may be the same as, or lower than, the clearing price, but
may not be higher than the clearing price. We intend to accept all valid
conditional offers that are made at prices at or above the public offering
price, except that the number of shares allocated to potential investors may be
reduced, on a pro rata basis, as is necessary to remain within our 7 million
share maximum.
Valid offers to purchase are conditional offers that meet our requirements,
including eligibility and size, that are not withdrawn and are reconfirmed by
Acceptance E-Mails as required by this prospectus. Conditional offers for fewer
than 50 shares will not be accepted. All offers must be made in U.S. dollars in
even or one-half dollar
43
<PAGE> 47
amounts, and any offers not in even or one-half dollar amounts will be rounded
to the lower half dollar, i.e., an offer for $15.60 will be rounded to $15.50.
To facilitate the orderly completion of the offering, we may reject offers we
deem to be manipulative or disruptive and, in exceptional circumstances, alter
our method of allocation as we deem necessary to insure an orderly distribution
of the shares. For example, large orders may be reduced to insure a broader
public distribution.
If sufficient conditional offers are not received or confirmed at a price that
is equal to or greater than $14 per share, or if the public offering price is
outside the range set forth on the cover page of this prospectus, we will either
cancel the offering or amend the registration statement. If we decide to do so,
we will notify all potential investors of this fact and re-circulate our
prospectus. In addition, we may decide to re-circulate the prospectus if we
believe that recirculation is necessary to insure that the prospectus does not
contain an untrue or misleading statement of a material fact.
If there is a re-circulation for any reason, we will send another E-Mail, a
Re-circulation E-Mail, to notify potential investors that the preliminary
prospectus for the offering has been amended. The Re-circulation E-Mail will
also:
- Identify the material changes made to the prospectus;
- State that the amended prospectus is available at our special
offering website;
- Explain that in order to participate in the offering, the potential
investor must reconfirm its previously transmitted conditional
offer in response to the Re-circulation E-Mail;
- Suggest to the potential investor that it may wish to review the
amended preliminary prospectus to determine whether it wishes to
confirm the previously transmitted conditional offer.
Finally, as explained above, this offering will be priced immediately before the
registration statement becomes effective. This means each potential investor
will have the opportunity to learn the exact per share price it will pay for the
shares by viewing the final prospectus posted on our special website.
To illustrate how the auction process works, recall that we intend to sell a
maximum of 7 million shares. We anticipate we will receive conditional offers at
various prices, and we will first organize the offers from highest price offered
to lowest price offered. In our first example below, the prices offered range
from $19 per share to $14 per share; offers at $16 per share and above total 7
million shares. This means the clearing price would be $16 per share. It also
means that all potential investors would purchase shares at $16 per share, even
potential investors who submitted offers at higher prices, unless we decide to
sell the shares at a discount to the clearing price. We cannot accept an offer
for more than the clearing price, and only those prospective investors
submitting offers at, or above, the public offering price will purchase shares
in the offering.
The following table illustrates the example described above. It assumes that the
clearing price and public offering price are both $16 per share. The table also
assumes that the conditional offers are valid offers, and that they reflect any
modifications that have been made to reflect prior changes to the filing range
and avoids the issuance of the fractional shares.
INITIAL PUBLIC OFFERING OF COMPANY - $16 PUBLIC OFFERING PRICE
<TABLE>
<CAPTION>
INFORMATION AUCTION RESULTS
--------------------------------------------------------------- -------------------------------------------------
Percentage of
Shares Cumulative Shares Shares Requested Shares Offering $ Amount
Requested Requested Bid Price Allocated Allocated Price Raised
------------ ----------------- ------------ ------------ ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1,000,000 1,000,000 $ 19 1,000,000 100 16 16,000,000
900,000 1,900,000 $ 18 900,000 100 16 14,400,000
</TABLE>
44
<PAGE> 48
<TABLE>
<CAPTION>
INFORMATION AUCTION RESULTS
--------------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2,100,000 4,000,000 $ 17 2,100,000 100 16 33,600,000
3,000,000 7,000,000 $ 16 3,000,000 100 16 48,000,000
1,500,000 8,500,000 $ 15 -0- -0- N/A -0-
1,000,000 9,500,000 $ 14 -0- -0- N/A -0-
TOTALS 7,000,000 112,000,000
</TABLE>
The next table illustrates the same situation where the clearing price is also
$16 per share but the public offering price is $14 per share:
INITIAL PUBLIC OFFERING OF COMPANY - $14 PUBLIC OFFERING PRICE, $16 CLEARING
PRICE
<TABLE>
<CAPTION>
INFORMATION AUCTION RESULTS
----------------------------------------------------------- ----------------------------------------------
Percentage of
Shares Cumulative Shares Shares Requested Shares Offering $ Amount
Requested Requested Bid Price Allocated Allocated Price Raised
----------- ----------------- ----------- ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1,000,000 1,000,000 $ 19 921,000 92.1 14 12,894,000
900,000 1,900,000 $ 18 828,900 92.1 14 11,610,000
2,000,000 3,900,000 $ 17 1,842,000 92.1 14 25,788,000
1,700,000 5,600,000 $ 16 1,565,700 92.1 14 21,920,000
1,000,000 6,600,000 $ 15 921,000 92.1 14 12,894,000
1,000,000 7,600,000 $ 14 921,000 92.1 14 12,894,000
TOTALS 7,000,000 $98,000,000
</TABLE>
If we decide the public offering price is $14 per share and the maximum number
of shares we will sell is 7,000,000 shares, we will confirm 92.1% of the
conditional offers that were made at or above $14 per share. We will not accept
any offers made at a price of less than $14 per share. Other potential investors
will not receive any shares. If potential investors who have made valid
conditional offers fail to complete their share purchases, we are likely to sell
fewer shares and receive less funds than shown above.
We will have outside independent third parties perform certain procedures on the
Plan of Distribution as outlined in this prospectus. We will not receive any
funds until we have received these procedures.
Prior to the offering, there has been no public market for our shares. Neither
the clearing price nor the public offering price for the shares determined by
the auction process will necessarily bear any direct relationship to our assets,
earnings, book value, or to other established criteria of value, although we
considered these factors in establishing the public offering price range. Other
factors we considered in determining the public offering price range include:
- market conditions;
- the demand for similar services of comparable companies;
- the industry in which we operate;
- an assessment of our management;
- our initial operating results;
- potential shareholder dilution; and
- our business potential.
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<PAGE> 49
Changes, if any, in the public offering price range will be based primarily on
reconfirmed conditional offers received.
THE EFFECTIVENESS OF THE REGISTRATION STATEMENT AND THE SALE OF OUR SHARES
To complete a purchase of shares, each potential investor should notify us by
responding to the Acceptance E-Mail through our special offering website at
www.environmaxipo.com. Such potential investor must also pay the purchase price
of the shares subscribed for by wire transfer from banks and other institutions,
or by check. All checks should be payable to EnvironMax.com, Inc. The purchase
agreement is attached as an exhibit at the end of this prospectus and is
available on our special offering website. We cannot accept any funds until
after the registration statement is effective and the Acceptance E-Mail is sent.
We reserve the right to reject any subscription in its entirety or to allocate
shares among potential investors, as noted above.
Promptly upon our receipt of funds from the purchase of shares, we will provide
our transfer agency, Computershare, with a list of the conditional offers we
have accepted, the investors that submitted the Acceptance E-Mails, and the
number of shares we have agreed to sell to such investors. We intend to
participate in a direct registration system that allows our shareholders to have
their securities registered in book-entry form directly on the books of
Computershare. Computershare will promptly send to each purchasing investor a
statement of ownership in lieu of a stock certificate.
We have filed an application for the shares to be listed on the American Stock
Exchange, subject to notice of issuance, under the symbol "EVX." In order to
meet the requirements for listing on that exchange, we have undertaken to sell
an adequate number of shares to a minimum number of beneficial owners to comply
with the rules of that exchange.
DESCRIPTION OF SECURITIES
We are authorized to issue 100,000,000 common shares, par value $0.001 per
share, of which 13,910,710 shares are currently issued and outstanding and held
of record by 63 shareholders. As of September 30, 2000 we had outstanding
options to purchase 1,075,650 of our common shares. There currently is no public
market for our common shares.
COMMON SHARES
Each common shareholder is entitled to one vote for each common share held on
all matters submitted to a vote of shareholders. Cumulative voting for the
election of directors is not provided for in our articles of incorporation,
which means that the holders of a majority of the shares voted can elect all of
the directors then standing for election.
Upon our liquidation, dissolution, or winding up, the assets legally available
for distribution to our shareholders, after payment of claims of creditors, are
distributable ratably among the holders of our common shares and any
participating preferred shares outstanding at that time after payment of
liquidation preferences, if any, on any outstanding preferred shares. Each
outstanding common share is, and all common shares to be outstanding upon
completion of this offering will be, fully paid and non-assessable.
Dividends may be paid on the outstanding common shares, if and when declared by
the board of directors, out of legally available funds.
Holders of our common shares are not entitled to preemptive rights, and our
common shares are not subject to conversion or redemption.
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<PAGE> 50
PREFERRED SHARES
Our board of directors is authorized, without further shareholder approval, to
issue from time to time up to an aggregate of 20,000,000 preferred shares in one
or more series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, including sinking fund provisions,
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designation of series. We have no present plans to
issue any preferred shares.
SHARES ELIGIBLE FOR FUTURE SALE
In general, under Rule 144 as currently in effect, beginning 90 days after the
date of this prospectus, a person who has beneficially owned common shares for
at least one year would be entitled to sell within any three month period a
number of shares that does not exceed the greater of 1% of the common shares
then outstanding (which will equal between 169,000 and 209,000 shares
immediately after this offering) or the average weekly trading volume of the
common shares on the American Stock Exchange or any other national market on
which the shares are traded during the four calendar weeks preceding the filing
of a notice on form 144 for the sale. Sales under rule 144 are also subject to
manner of sale provisions and notice requirements and to the availability of
current public information about us. Shares that are subject to Rule 144 will
not be available for sale on the open market until the later of one year
following the purchase of the shares by the shareholder or 90 days after the
effective date of the offering, unless an additional registration statement
becomes effective subsequent to the effective date of this registration
statement.
Under Rule 144(k), a person who has not been an affiliate, as that term is
defined in rule 144, at anytime during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of rule 144. Therefore,
unless otherwise restricted, shares that have been held by a non-affiliate for
at least two years may be sold in the open market immediately after the lock up
agreements expire. None of our shares are currently subject to Rule 144(k).
Any of our employees, officers, directors, or consultants who purchase shares
under a written compensatory plan or contract may be entitled to sell his shares
in reliance on Rule 701. Rule 701 permits affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements of
Rule 144. Rule 701 further provides that non-affiliates may sell these shares in
reliance on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling those shares. 100,540 shares of our common shares, in
the form of stock options or employee held stock will be available for sale 90
days subsequent to the effective date of this registration statement under rule
701 of the act.
STOCK OPTIONS
We may file a Form S-8 registration statement under the Securities Act on or
immediately after the date of this prospectus to register all common shares
covered by outstanding options or reserved for future issuance under our 2000
Equity Incentive Plan. Such registration statement will automatically become
effective upon filing. Accordingly, shares covered by that registration
statement will thereupon be eligible for sale in the public markets, unless such
options are subject to vesting restrictions or the contractual restrictions
described above.
STOCK TRANSFER AND LISTING
STOCK TRANSFER AGENT
The planned stock transfer agent for our common shares is Computershare Trust
Company, Inc.
47
<PAGE> 51
SHAREHOLDER REPORTS
We will furnish our shareholders with annual reports containing audited
financial statements and may furnish our shareholders with quarterly reports
containing unaudited financial information.
LISTING
We have applied for quotation on the American Stock Exchange under the symbol
"EVX".
LEGAL MATTERS
The validity of the common shares offered hereby will be passed upon for us by
Parsons Behle & Latimer, a Professional Law Corporation, Salt Lake City, Utah.
EXPERTS
The financial statements of EnvironMax.com, Inc. included in this prospectus as
of February 1, 2000 and EnvironMax.com, Inc. (an operating component of Enmax
Corporation) included in this prospectus as of December 31, 1998 and 1999 and
for the period September 1, 1998 (date operations commenced) to December 31,
1998 and for the year ended December 31, 1999, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein,
and are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits, schedules and amendments filed with
the registration statement, under the Securities Act with respect to the common
shares to be sold in this offering. This prospectus does not contain all of the
information set forth in this registration statement. For further information
about us and the common shares to be sold in the offering, please refer to this
registration statement. For additional information, please refer to the exhibits
that have been filed with our registration statement on Form S-1. You may read
and copy all or any portion of the registration statement or any other
information we file at the Securities and Exchange Commission's public reference
room at 450 Fifth Street, N.W., Washington, D.C., 20549. You can request copies
of these documents upon payment of a duplicating fee, by writing to the
Securities and Exchange Commission. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information about the public reference
rooms. Our Securities and Exchange Commission filings, including the
registration statement, will also be available to you on the Securities and
Exchange Commission's web site (http://www.sec.gov). We intend to furnish our
shareholders with annual reports containing audited financial statements by an
independent public accounting firm and quarterly reports containing unaudited
financial information for the first three quarters of each year. Neither our
website nor any other information available publicly about us, including any
press releases, tombstone announcements, management interviews or other
statements regarding our operations, are part of this prospectus, and no such
information should be relied upon by any purchasers of the shares hereunder in
making their investment decision regarding the shares.
48
<PAGE> 52
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
ENVIRONMAX.COM, INC.
Independent Auditors' Report .................................................................... F-2
Balance Sheets as of December 31, 1998 and 1999 and September 30, 2000 (unaudited) .............. F-3
Statements of Operations for the period September 1, 1998 (date operations
commenced) to December 31, 1998, for the year ended December 31, 1999, for the
nine months ended September 30, 1999 (unaudited), for the one month ended
January 31, 2000 (unaudited), and for the eight months ended September 30, 2000
(unaudited) ..................................................................................... F-4
Statements of stockholders' deficit and net investment for the period September
1, 1998 (date operations commenced) to December 31, 1998, for the year ended
December 31, 1999, for the one month ended January 31, 2000 (unaudited), and for
the eight months ended September 30, 2000
(unaudited) ..................................................................................... F-5
Statements of Cash Flows for the period September 1, 1998 (date operations,
commenced) to December 31, 1998, for the year ended December 31, 1999 for the
nine months ended September 30, 1999 (unaudited), for the one month ended
January 31, 2000 (unaudited), and for the eight months ended September 30, 2000
(unaudited) ..................................................................................... F-6
Notes to Financial Statements ................................................................... F-7
ENVIRONMAX.COM, INC
Independent Auditors' Report .................................................................... F-16
Balance Sheet as of February 1, 2000 ............................................................ F-17
Notes to Balance Sheet .......................................................................... F-18
</TABLE>
F-1
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Environmax.com, Inc.:
We have audited the accompanying balance sheets of Environmax.com, Inc.,
an operating component of Enmax Corporation (the "Company"), as of December 31,
1998 and 1999 and the related statements of operations, stockholders' deficit
and net investment and cash flows for the period September 1, 1998 (date
operations commenced) to December 31, 1998 and for the year ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1998
and 1999, and the results of its operations and its cash flows for the period
September 1, 1998 (date operations commenced) to December 31, 1998 and for the
year ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
-----------------------------------
Salt Lake City, Utah
March 1, 2000
F-2
<PAGE> 54
ENVIRONMAX.COM, INC.
BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUCCESSOR
----------------
ENVIRONMAX.COM,
PREDECESSOR INC. (A WHOLLY
---------------------------- OWNED SUBSIDIARY
ENVIRONMAX.COM, INC. OF ENMAX
(AN OPERATING COMPONENT CORPORATION)
OF ENMAX CORPORATION) ----------------
DECEMBER 31, SEPTEMBER 30,
---------------------------- 2000
1998 1999 (UNAUDITED)
----------- ----------- ----------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 300 $ 439 $ 1,866
Receivables - trade 436,401 446,793
Receivables from parent 258,689
Prepaids and other current assets 43,147
----------- ----------- -----------
Total current assets 436,701 447,232 303,702
----------- ----------- -----------
FURNITURE AND EQUIPMENT, at cost:
Furniture and equipment - capital lease 43,989 73,358 207,420
Less accumulated depreciation (3,142) (13,426) (33,550)
----------- ----------- -----------
Furniture and equipment - net 40,847 59,932 173,870
----------- ----------- -----------
OTHER ASSETS 4,357 4,357 4,357
----------- ----------- -----------
TOTAL ASSETS $ 481,905 $ 511,521 $ 481,929
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT AND NET INVESTMENT
CURRENT LIABILITIES:
Trade accounts payable $ 70 $ 15,689 $ 106,154
Accrued payroll 46,415 60,177 133,383
Accrued liabilities 16,818 42,939 84,320
Due to parent 834,645
Capital lease obligations, current portion 6,869 7,720 56,774
----------- ----------- -----------
Total current liabilities 70,172 126,525 1,215,276
CAPITAL LEASE OBLIGATIONS, long-term portion 37,120 29,400 94,372
----------- ----------- -----------
Total liabilities 107,292 155,925 1,309,648
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 1, 2, 3, and 5)
STOCKHOLDERS' DEFICIT AND NET INVESTMENT:
Net investment 374,613 355,596
Preferred stock, $0.001 par value, 20,000,000 shares
authorized; no shares outstanding
Common stock, $0.001 par value; 100,000,000 shares
authorized; 13,910,710 shares outstanding at September 30, 2000 13,911
Additional paid-in capital 1,101,635
Deferred compensation (312,013)
Accumulated deficit (1,631,252)
----------- ----------- -----------
Total stockholders' deficit and net investment 374,613 355,596 (827,719)
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT AND NET INVESTMENT $ 481,905 $ 511,521 $ 481,929
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 55
ENVIRONMAX.COM, INC.
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR ---------------
--------------------------------------------------------------- ENVIRONMAX.COM,
ENVIRONMAX.COM, INC. INC. (A WHOLLY
(AN OPERATING COMPONENT OF ENMAX CORPORATION) OWNED
--------------------------------------------------------------- SUBSIDIARY
PERIOD OF ENMAX
SEPTEMBER 1, CORPORATION)
1998 (DATE ---------------
OPERATIONS NINE MONTHS ONE MONTH EIGHT MONTHS
COMMENCED) YEAR ENDED ENDED ENDED
TO ENDED SEPTEMBER JANUARY 31, SEPTEMBER
DECEMBER DECEMBER 30, 1999 2000 30, 2000
31, 1998 31, 1999 (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 745,980 $ 2,432,192 $ 2,158,697 $ 114,305
REVENUES FROM PARENT $ 2,055,096
COST OF REVENUES 452,195 1,525,630 1,291,234 68,583 1,171,663
------------ ------------ ------------ ------------ ------------
GROSS PROFIT 293,785 906,562 867,463 45,722 883,433
------------ ------------ ------------ ------------ ------------
EXPENSES:
Selling, general, and administrative 259,650 808,002 597,900 47,130 1,266,936
Compensation expense - founders stock 694,080
Research and development 75,417 21,446 527,084
------------ ------------ ------------ ------------ ------------
Total expenses 259,650 883,419 597,900 68,576 2,488,100
------------ ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 34,135 23,143 269,563 (22,854) (1,604,667)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (856) (4,671) (3,503) (361) (28,028)
Interest income 1,443
------------ ------------ ------------ ------------ ------------
Total other income (expense), net (856) (4,671) (3,503) (361) (26,585)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE
INCOME TAXES 33,279 18,472 266,060 (23,215) (1,631,252)
INCOME TAXES None None None None None
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 33,279 $ 18,472 $ 266,060 $ (23,215) $ (1,631,252)
============ ============ ============ ============ ============
PRO FORMA NET INCOME (LOSS)
DATA (UNAUDITED):
Net income (loss) as reported $ 33,279 $ 18,472 $ 266,060 $ (23,215)
Pro forma income tax provision (benefit) 13,312 7,389 106,424 (9,286)
------------ ------------ ------------ ------------
PRO FORMA NET INCOME (LOSS) $ 19,967 $ 11,083 $ 159,636 $ (13,929)
============ ============ ============ ============
NET LOSS PER SHARE - Basic and diluted $ (0.12)
============
WEIGHTED AVERAGE SHARES USED
IN COMPUTATION 13,836,542
============
</TABLE>
See notes to financial statements.
F-4
<PAGE> 56
ENVIRONMAX.COM, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT AND NET INVESTMENT
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
NET --------------------------- PAID-IN
INVESTMENT SHARES AMOUNT CAPITAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ENVIRONMAX.COM, INC. (AN OPERATING
COMPONENT OF ENMAX CORPORATION)
BALANCE, SEPTEMBER 1, 1998
(date operations commenced) None
Net working capital funding to operating component of Enmax Corporation $ 341,334
Net income applicable to operating component of Enmax Corporation 33,279
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 374,613
Net working capital funding to operating component of Enmax Corporation (37,489)
Net income applicable to operating component of Enmax Corporation 18,472
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1999 355,596
Net working capital funding to operating component of Enmax Corporation
(unaudited) (113,891)
Net loss applicable to operating component of Enmax Corporation
(unaudited) (23,215)
------------ ------------ ------------ ------------
BALANCE, JANUARY 31, 2000 (UNAUDITED) $ 218,490
============
ENVIRONMAX.COM, INC. (A WHOLLY OWNED
SUBSIDIARY OF ENMAX CORPORATION)
Incorporation of Environmax.com, Inc. (unaudited) 100,000 $ 100 $ 900
Issuance of common stock in exchange for contribution of
net assets by Enmax Corporation (unaudited) 13,700,000 7,446
Issuance of common stock to founding shareholders (unaudited) 100,710 101 1,006,999
Issuance of common stock (unaudited) 10,000 10 99,990
Recapitalization of par value (unaudited) 6,254 (6,254)
Amortization of deferred compensation (unaudited)
Net loss (unaudited)
------------ ------------ ------------
BALANCE, SEPTEMBER 30, 2000 (Unaudited) 13,910,710 $ 13,911 $ 1,101,635
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DEFERRED ACCUMULATED
COMPENSATION DEFICIT TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
ENVIRONMAX.COM, INC. (AN OPERATING
COMPONENT OF ENMAX CORPORATION)
BALANCE, SEPTEMBER 1, 1998
(date operations commenced)None
Net working capital funding to operating component of Enmax Corporation $ 341,334
Net income applicable to operating component of Enmax Corporation 33,279
------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 374,613
Net working capital funding to operating component of Enmax Corporation (37,489)
Net income applicable to operating component of Enmax Corporation 18,472
------------ ------------ ------------
BALANCE, DECEMBER 31, 1999 355,596
Net working capital funding to operating component of Enmax Corporation
(unaudited) (113,891)
Net loss applicable to operating component of Enmax Corporation
(unaudited) (23,215)
------------ ------------ ------------
BALANCE, JANUARY 31, 2000 (UNAUDITED) $ 218,490
============
ENVIRONMAX.COM, INC. (A WHOLLY OWNED
SUBSIDIARY OF ENMAX CORPORATION)
Incorporation of Environmax.com, Inc. (unaudited) $ 1,000
Issuance of common stock in exchange for contribution of 7,446
net assets by Enmax Corporation (unaudited)
Issuance of common stock to founding shareholders (unaudited) $ (1,006,093) 1,007
Issuance of common stock (unaudited) 100,000
Recapitalization of par value (unaudited)
Amortization of deferred compensation (unaudited) 694,080 694,080
Net loss (unaudited) $ (1,631,252) (1,631,252)
------------ ------------ ------------
BALANCE, SEPTEMBER 30, 2000 (Unaudited) $ (312,013) $ (1,631,252) $ (827,719)
============ ============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE> 57
ENVIRONMAX.COM, INC.
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR ---------------
---------------------------------------------------------- ENVIRONMAX.COM,
ENVIRONMAX.COM, INC. INC. (A WHOLLY
(AN OPERATING COMPONENT OF ENMAX CORPORATION) OWNED
---------------------------------------------------------- SUBSIDIARY
PERIOD OF ENMAX
SEPTEMBER 1, CORPORATION)
1998 (DATE ------------
OPERATIONS NINE MONTHS ONE MONTH EIGHT MONTHS
COMMENCED) YEAR ENDED ENDED ENDED
TO ENDED SEPTEMBER JANUARY 31, SEPTEMBER
DECEMBER DECEMBER 30, 1999 2000 30, 2000
31, 1998 31, 1999 (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 33,279 $ 18,472 $ 266,060 $ (23,215) $(1,631,252)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 3,142 10,284 5,239 524 15,124
Amortization of deferred compensation 694,080
Changes in operating assets and liabilities:
Receivables - trade (436,401) (10,392) (68,391) 35,442
Receivables from parent (258,689)
Prepaids and other current assets (43,147)
Other assets (4,357)
Trade accounts payable 70 15,619 16,593 107,560 106,154
Accrued payroll 46,415 13,762 41,883 42,937 111,803
Accrued liabilities 16,818 26,121 (16,818) (42,939) 84,320
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities (341,034) 73,866 244,566 120,309 (921,607)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of furniture and equipment (29,369)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (6,869) (6,212) (6,170) (13,866)
Increase (decrease) in net investment 341,334 (37,489) (238,294) (113,891)
Increase in due to parent 834,645
Issuance of common stock 102,007
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 341,334 (44,358) (244,506) (120,061) 922,786
----------- ----------- ----------- ----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 300 139 60 248 1,179
CASH AND CASH EQUIVALENTS,
Beginning of period None 300 300 439 687
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, End of period $ 300 $ 439 $ 360 $ 687 $ 1,866
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for interest $ 856 $ 4,671 $ 3,503 $ 361 $ 5,000
=========== =========== =========== =========== ===========
SUPPLEMENTAL NONCASH FINANCING AND
INVESTING ACTIVITIES:
Property and equipment purchased under
capital leases $ 43,989 None None None $ 134,062
=========== =========== =========== =========== ===========
Contribution of net assets for common stock None None None None $ 7,446
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 58
ENVIRONMAX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD SEPTEMBER 1, 1998 (DATE OPERATIONS COMMENCED) TO DECEMBER 31,
1998 AND FOR THE YEAR ENDED DECEMBER 31, 1999 (THE INFORMATION AS OF SEPTEMBER
30, 2000, AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999, THE ONE MONTH ENDED
JANUARY 31, 2000, AND THE EIGHT MONTHS ENDED SEPTEMBER 30, 2000 IS UNAUDITED)
--------------------------------------------------------------------------------
1. DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF COMPANY - Enmax Corporation ("Enmax") is a certified
small disadvantaged and minority-owned 8(a) business, providing
information technology solutions to the government as well as prime
contracts and subcontractors who provide high-tech systems and services
to the government. Effective September 1, 1998 (date operations
commenced), Enmax was awarded a $1.7 million contract from a United
States government agency to provide maintenance and technical support on
a hazardous material management system ("HMMS") software program
utilized by various government sites. The operations relating to the
HMMS contract represent a separate operating component of Enmax,
hereinafter referred to as Environmax.com, Inc. ("Environmax" or the
"Company"). In 1999, Enmax obtained two additional contracts totaling
$1.5 million to provide additional HMMS support services to the various
government locations utilizing the HMMS software. All revenues in the
accompanying financial statements represent services provided under
these HMMS contracts. Prior to September 1, 1998, there were no material
resources dedicated to the awarding of the HMMS contract. The Company
operates in one segment.
The accompanying financial statements as of December 31, 1998 and 1999
and for the period September 1, 1998 to December 31, 1998 and for the
year ended December 31, 1999 represent the "carve-out" of the Environmax
operations (all of which relate to the HMMS software) from the
historical financial statements of Enmax. In this context, no direct
ownership relationship existed in the component comprising Environmax.
Accordingly, a net investment in Environmax is shown in lieu of
stockholders' equity in the accompanying financial statements for the
audited periods presented. The statements of operations exclude the
other operations of Enmax that represent different operations than those
of Environmax. Revenues and cost of revenues relating to HMMS services
were tracked separately within Enmax. Allocations of general and
administrative expenses have been made primarily based on personnel,
revenue, space, direct costs of related activities, or estimates of time
spent to provide services. These allocations include amounts for
facilities, marketing, general management, professional services,
information management, and other miscellaneous services. Management
believes that the foregoing allocations were made on a reasonable basis
and include those costs that would be indicative of the costs that would
have been incurred on a stand-alone basis. Enmax's accounting systems
were not designed to track cash receipts and payments and liabilities on
a component-specific basis. Accordingly, all cash related transactions
are included as part of the net investment.
In the fourth quarter of 1999 and continuing into 2000, the Company
dedicated research and development resources to the development of a
web-based hazardous material management and tracking system software
utilizing their understanding and knowledge of the HMMS software. The
new software is a web-based, business-to-business internet application
service provider (IASP) software that has the functionality of the
existing HMMS software that is accessible through the internet.
Effective February 1, 2000, Environmax.com, Inc., a wholly owned
subsidiary of Enmax, was incorporated as a C corporation in the State of
Utah to further develop and market the new web-based software product to
government and commercial entities with environmental compliance and
reporting requirements.
F-7
<PAGE> 59
BASIS OF PRESENTATION - As discussed above, the accompanying financial
statements in 1998 and 1999 present, on a historical cost basis, the
assets, liabilities, revenues, and expenses related to Environmax, an
operating component of Enmax.
UNAUDITED INTERIM FINANCIAL STATEMENTS - The unaudited interim financial
statements as of September 30, 2000 and for the nine months ended
September 30, 1999, one month ended January 31, 2000, and the eight
months ended September 30, 2000 have been prepared on the same basis as
the audited financial statements and, in the opinion of management,
reflect all normal recurring adjustments necessary to present fairly the
financial information set forth therein in accordance with accounting
principles generally accepted in the United States of America. Operating
results for the eight months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for any
future periods. All financial statement disclosures related to the
interim financial statements are unaudited.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
effect 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 period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
instruments purchased with maturities of three or fewer months to be
cash equivalents. Cash equivalents primarily consist of investments in
money market mutual funds.
FURNITURE AND EQUIPMENT - Furniture and equipment are recorded at cost.
Depreciation is provided on the straight-line method over the estimated
useful lives of the related assets (3 to 10 years). Equipment leased
under capital leases is amortized over the lesser of its useful life or
the lease term.
OTHER ASSETS - Other assets consist of a deposit made on a capital lease
entered into by the Company.
DUE TO PARENT - Due to parent represents advances made to Environmax to
fund working capital requirements. The due to parent amounts bear
interest at prime and have no stated maturity. Interest expense
generated from the due to parent amount approximated $23,000 during the
eight months ended September 30, 2000.
REVENUE RECOGNITION - For the predecessor periods presented, maintenance
and technical support revenues under the HMMS contracts are recognized
as the services are performed based on hours incurred.
Revenues from parent represents amounts paid to the Company by Enmax
under the teaming agreement as discussed in Note 6 and is recognized as
the services are performed based on hours incurred.
Upon completion and sales of the new HMMS software being developed, the
Company will recognize revenue in accordance with the provisions of
Statement of Position (SOP) 97-2, "Software Revenue Recognition" ("SOP
97-2"), as amended by SOP 98-9 and Emerging Issues Task Force Issue
("EITF") No. 00-3, "Application of AICPA Statement of Position 97-2 to
Arrangements that Include the Right to Use Software Stored on Another
Entity's Hardware." SOP 97-2 generally requires revenue earned on
software arrangements involving multiple elements such as software
products, upgrades, enhancements, post-contract customer support,
installation, and training to be allocated to each element based on the
relative fair values of the elements. The fair value of the elements
must be based on evidence that is specific to the vendor. If a vendor
does not have evidence of the fair value for all elements in a
multiple-element arrangement, all revenue from the arrangement is
deferred until such evidence exists or until all elements are delivered.
The Company will record estimates for product returns and warranty costs
at the time of sale.
Service revenues will represent revenues from post-contract customer
support services which are recognized ratably over the term of the
support period. Revenues from hosting arrangements where the Company's
software is resident on a Company server will be recognized ratably over
the hosting period. Under hosting
F-8
<PAGE> 60
arrangements, customers do not have the contractual right to take
possession of the software during the hosting period. Therefore, in
accordance with EITF 00-3, these arrangements are service contracts and
recognition over the service period is appropriate.
Licensing revenues will represent revenues recorded relating to
perpetual and time-based licenses for software delivered to customers
for in-house applications. Revenues form perpetual software license
agreements will be recognized upon shipment of the software when all of
the following criteria have been met: persuasive evidence of an
arrangement exists; delivery has occurred; the fee is fixed or
determinable; collectibility is probable; and vendor-specific objective
evidence is available of the fair value of all undelivered elements. The
Company will establish sufficient vendor-specific objective evidence to
ascribe a value to standard post-contract customer support and
consulting services based on the price charged when these elements are
sold separately. Accordingly, license revenues will be recorded under
the residual method described in SOP 98-9 for arrangements in which
licenses are sold with consulting services, standard post-contract
customer support will be deferred and recognized ratably over the term
of the contract. Time-based licenses will be recognized ratably over the
license period.
RESEARCH AND DEVELOPMENT - Research and development costs are expensed
as incurred.
INCOME TAXES - For the period September 1, 1998 (date operations
commenced) to December 31, 1998, the year ended December 31, 1999, and
the one month ended January 31, 2000, the Company was not subject to
income tax as Enmax is an S corporation and taxes are paid by the
respective stockholder. Accordingly, no provision for federal and state
income taxes is recorded in the accompanying financial statements. The
pro forma income tax provision is based on a 40% effective tax rate that
the Company believes would have been incurred had Enmax not been an S
corporation for income tax purposes. The effective rate is comprised of
a 34 percent federal statutory rate plus an effective state tax rate net
of federal benefit of six percent.
From the date of incorporation, the Company utilizes the liability
method of accounting for income taxes. Under the liability method,
deferred taxes are determined based on the difference between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are
expected to reverse. Recognition of deferred tax assets is limited to
amounts considered by management to be more likely than not of
realization in future periods.
EARNINGS PER SHARE - Earnings per share have been omitted from the
accompanying statements of operations for the period September 1, 1998
(date operations commenced) to December 31, 1998, for the nine and
twelve months ended December 31, 1999, and for the one month ended
January 31, 2000 as there is no direct ownership relationship in the
carved-out operating component of Environmax as there was no separate
legal entity or capital structure and such information is not meaningful
as it would not be indicative of the successor's capital structure or
earnings per share information. For the eight months ended September 30,
2000, the Company computed net loss per share in accordance with
Statement of Financial Accounting Standards (SFAS) 128, "Earnings Per
Share."
STOCK-BASED COMPENSATION - The Company grants stock options for a fixed
number of shares to certain employees with an exercise price equal to or
greater than the fair value of the shares at the date of grant. The
Company accounts for stock option grants to employees in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25"), and, accordingly, recognizes no compensation
expense for the stock option grants.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS - In accordance with Financial
Accounting Standards Board ("FASB") SFAS No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed",
development costs incurred in the research and development of new
software products to be sold, leased, or otherwise marketed are expensed
as incurred until technological feasibility in the form of a working
model has been established. The capitalized costs are then amortized on
a straight-line basis over the estimated product life, or on the ratio
of current revenues to total projected product revenues, whichever is
greater. Internally generated capitalizable software development costs
have not been material for the periods
F-9
<PAGE> 61
presented. The Company has charged its software development costs prior
to technological feasibility to research and development expense in the
accompanying statements of operations.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company evaluates the carrying
value of long-term assets based upon current and anticipated
undiscounted cash flows, and recognizes an impairment when such
estimated cash flows will be less than the carrying value of the asset.
Measurement of the amount of impairment, if any, is based upon the
difference between carrying value and fair value.
RISKS AND CONCENTRATION - For the period September 1, 1998 (date
operations commenced) to December 31, 1998 and the year ended December
31, 1999, the Company's revenue was derived from United States
government contracts. At December 31, 1999, the Company has one
significant contract outstanding with the United States government for
approximately $2,205,000 in fees which expires in May 2000. Unearned
amounts under the contract at December 31, 1999 are approximately
$935,000. At September 30, 2000, the government contract was renewed and
expires in May 2001. Unearned amounts under the renewed contract are
approximately $1,500,000. The Company is financially dependent on the
significant government contract and there can be no assurance that a new
HMMS maintenance contract will be extended to the Company by the
government upon its expiration. Receivables due at December 31, 1998 and
1999 of $436,401 and $446,793, respectively, are due from the United
States government.
Financial instruments that potentially subject the Company to a
concentration of credit risk, consist principally of trade accounts
receivable due from the United States Government and receivables from
the Company's parent. Historically, the Company has not experienced
significant losses related to such receivables.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Financial instruments held or used
by the Company include accounts receivable, accounts payable, and
capital lease obligations. The fair values of these instruments, which
could change if market conditions change, are based on management's
estimates. Management believes that the carrying value of these
instruments approximates their fair values.
OTHER COMPREHENSIVE INCOME - The only component of comprehensive income
is net income (loss).
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS - In June 1998, the FASB
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for
derivative instruments and hedging activities. Generally, it requires
that an entity recognize all derivatives as either an asset or liability
and measure those instruments at fair value, as well as identify the
conditions for which a derivative may be specifically designed as a
hedge. SFAS No. 133, as amended, is effective for fiscal years beginning
after June 15, 2000. The Company does not currently engage or plan to
engage in any derivative or hedging activities. The adoption of SFAS No.
133 is not expected to have a material impact on the Company.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101 , "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 establishes accounting and reporting
standards for the recognition of revenue. It states that revenue
generally is realized or realizable and earned when all of the following
criteria are met: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred or services have been rendered; (3) the seller's
price to the buyer is fixed or determinable; (4) collectibility is
reasonably assured. The Company's financial statements comply with the
provisions of SAB 101.
12. LINE OF CREDIT
Enmax has a $2 million revolving line of credit (increased to $5 million
subsequent to December 31, 1999) with a bank to fund working capital
needs, which also includes the working capital needs of the Environmax
component. Because the Enmax accounting systems does not track cash
receipts and payments on a component operations-specific basis, no debt
or related interest expense was allocated to the Environmax operations.
F-10
<PAGE> 62
3. STOCKHOLDERS' DEFICIT AND NET INVESTMENT
Prior to incorporation, Enmax funded the working capital requirements of
the Company based upon a centralized cash management system. The net
investment at December 31, 1998 and 1999 includes accumulated equity as
well as any working capital funding requirements to/from Enmax.
Upon incorporation, the Company issued to Enmax 100,000 common shares
for $1,000. On March 7, 2000, the Company issued 100,710 of its common
shares to certain employees for $0.01 per share. Between 70% and 100% of
the shares granted to employees are subject to repurchase by the Company
should any employee terminate or not execute employee and other
ancillary agreements. The Company's rights of repurchase expire on the
earlier of one year from the date of grant or the date of a public
offering of the Company's securities. The difference between the fair
value of the stock at the grant date and the exercise price of the
options subject to repurchase will be recognized as compensation expense
in the Company's statements of operations over the period that the
repurchase rights expire. At September 30, 2000, there were
approximately 30,000 common shares subject to repurchase. The difference
between the fair value of the stock at the grant date and the exercise
price of the options vested upon grant was immediately expensed in the
Company's statements of operations. The amount of compensation expense
that may be recorded for the stock grants still subject to repurchase is
approximately $312,000 at September 30, 2000. Fair value at the grant
date was deemed to be $10 per share based on an actual cash transaction
with an unrelated party as described in the following paragraph.
On March 15, 2000, certain net assets consisting of property and
equipment, software and licenses related to the predecessor operations
of the Company were also transferred to the Company by its parent at
historical cost ($7,446) for 13,700,000 of the Company's common shares.
On March 15, 2000, the Company issued 10,000 of its common shares at
$10.00 per share to an unrelated outside party.
On March 15, 2000, the Environmax.com, Inc. 2000 Incentive Plan ("Plan")
was adopted by the Company's board of directors. The Plan has authorized
the grant of options up to 2,210,000 shares to selected officers,
directors, or employees of the Company and selected non-employee agents,
advisors, and independent contractors with an exercise price equal to
fair market value at date of grant. The Plan allows for the grant of
incentive and nonqualified stock options, common stock, stock
appreciation rights, and cash bonuses.
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below,
the alternative fair value accounting provided for under SFAS No. 123,
"Accounting for Stock-Based Compensation," requires use of option
valuation models. Under APB 25, because the exercise price of the
Company's employee stock options equals or exceeds the fair value of the
underlying stock on the date of grant, no compensation expense was
recognized.
Disclosure of pro forma information regarding net income (loss) is
required by SFAS 123. The fair value of these options was estimated at
the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 2000; risk-free interest rate
of 6.5 percent; a dividend yield of -0- percent; volatility factors of
the expected market price of the Company's common shares of .01; and a
weighted-average expected life of the option of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single measure
of the fair value of its employee stock options.
F-11
<PAGE> 63
For purpose of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows for the eight months ended
September 30, 2000 (unaudited):
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED
SEPTEMBER 30,
2000
-------------
(UNAUDITED)
<S> <C>
Net loss, as reported $1,631,252
Pro forma compensation expense for stock options 354,000
----------
Pro forma net loss $1,985,252
==========
Pro forma net loss per share $ 0.14
==========
</TABLE>
Information regarding activity for stock options outstanding under the
Plans are as follows for the eight months ended September 30, 2000
(unaudited):
<TABLE>
<CAPTION>
Outstanding Options
===============================
SHARES
AVAILABLE WEIGHTED-AVERAGE
FOR OPTIONS SHARES EXERCISE PRICE
----------- ---------- ----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Outstanding at None
February 1, 2000
Authorized 2,210,000
Exercised (1,128,150) 1,128,150 $10.00
Forfeited (canceled) 52,500 (52,500) 10.00
---------- ---------- ------
Outstanding at
September 30, 2000 1,134,350 1,075,650 $10.00
========== ========== ======
Options exercisable at None
September 30, 2000
</TABLE>
----------------
The weighted-average contractual life for options outstanding at
September 30, 2000 is approximately 4.5 years. The weighted-average fair
value of options granted during 2000 was approximately $2.80.
F-12
<PAGE> 64
4. INCOME TAXES
Income tax expense consisted of the following for the eight months ended
September 30, 2000 (unaudited):
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED
SEPTEMBER 30,
2000
-------------
(UNAUDITED)
<S> <C>
Federal:
Current None
Deferred $(319,000)
---------
(319,000)
---------
State:
Current None
Deferred (56,000)
---------
(56,000)
---------
Valuation allowance 375,000
=========
Total None
=========
</TABLE>
The Company's effective income tax rate differs from the federal
statutory rate for the following reasons:
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED
SEPTEMBER 30,
2000
-------------
(UNAUDITED)
<S> <C>
Income tax benefit at federal statutory rate $(555,000)
State taxes, net of federal benefit (56,000)
Increase in valuation allowance 375,000
Other, net (principally deferred compensation) 236,000
---------
Total None
=========
</TABLE>
F-13
<PAGE> 65
The income tax effects of temporary differences that give rise to
significant portions of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000
-------------
(UNAUDITED)
<S> <C>
Deferred tax assets:
Benefit accruals $ 37,000
Net operating loss carryforwards 341,000
---------
Total deferred tax assets 378,000
Deferred tax liabilities - depreciation on property and equipment (3,000)
Valuation allowance (375,000)
---------
Net deferred tax assets None
=========
</TABLE>
During the eight months ended September 30, 2000, the valuation
allowance increased $375,000. At September 30, 2000, the Company has a
net operating loss carryforward of approximately $850,000 which begins
to expire for federal purposes in 2020 and for the state purposes in
2005.
5. LEASES
The Company leases certain furniture and equipment under capital leases.
It also leases its office facilities from Enmax under long-term
operating leases. Rent expense under long-term operating leases for the
period September 1, 1998 (date operations commenced) to December 31,
1998, the year ended December 31, 1999, the nine months ended September
30, 1999, the one month ended January 31, 2000, and the eight months
ended September 30, 2000 was approximately $22,000, $52,000, $49,000,
$5,000, and $44,000, respectively. The net book value of furniture and
equipment under capital leases totaled $40,847, $34,563, and $181,950 as
of December 31, 1998 and 1999 and September 30, 2000, respectively.
Future minimum lease payments under these lease agreements are as
follows as of December 31, 1999:
<TABLE>
<CAPTION>
CAPITAL OPERATING
-------- ---------
<S> <C> <C>
Year ending December 31:
2000 $ 11,676 $ 53,199
2001 11,676 41,271
2002 11,676 2,058
2003 11,676 1,200
-------- --------
Total 46,704 $ 97,728
========
Less amount representing interest (9,584)
Less current portion (7,720)
--------
Obligations under capital leases, long-term portion $ 29,400
========
</TABLE>
F-14
<PAGE> 66
6. TEAMING AGREEMENT
Effective February 2000, Enmax and Environmax entered into a teaming
agreement whereby Environmax will provide the services under the HMMS
contracts executed with Enmax. Enmax will pay the Company amounts as
established in the HMMS contracts through purchase orders. During the
eight months ended September 30, 2000, the Company recognized
approximately $2,055,000 in revenue for Enmax. At September 30, 2000,
approximately $259,000 was due from Enmax for services provided under
the teaming agreement.
******
F-15
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of EnvironMax.com, Inc.:
We have audited the accompanying balance sheet of EnvironMax.com, Inc.
(the "Company") (a wholly owned subsidiary of Enmax Corporation) as of February
1, 2000 (date of incorporation). This financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of the Company as of February 1, 2000 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ DELOITTE & TOUCHE LLP
-------------------------
Salt Lake City, Utah
April 4, 2000
F-16
<PAGE> 68
ENVIRONMAX.COM, INC.
(A WHOLLY OWNED SUBSIDIARY OF ENMAX CORPORATION)
BALANCE SHEET
FEBRUARY 1, 2000 (DATE OF INCORPORATION)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CASH $1,000
======
COMMITMENTS AND CONTINGENCIES (Note 3) $1,000
======
STOCKHOLDER'S EQUITY
COMMON STOCK - $0.001 par value; 100,000,000 shares authorized;
1000,000 shares issued and outstanding $ 100
PREFERRED STOCK - $0.001 par value; 20,000,000 shares authorized;
no shares issued and outstanding --
ADDITIONAL PAID-IN CAPITAL 900
------
TOTAL STOCKHOLDER'S EQUITY $1,000
======
</TABLE>
See notes to balance sheet.
F-17
<PAGE> 69
ENVIRONMAX.COM, INC.
(A WHOLLY OWNED SUBSIDIARY OF ENMAX CORPORATION)
NOTES TO BALANCE SHEET
AS OF FEBRUARY 1, 2000 (DATE OF INCORPORATION)
1. BACKGROUND AND COMPANY DESCRIPTION
BACKGROUND - Enmax Corporation ("Enmax") is a certified small
disadvantaged and minority-owned 8(a) business, providing information
technology solutions to the government as well as prime contracts and
subcontractors who provide high-tech systems and services to the
government. Effective September 1, 1998 (date operations commenced),
Enmax was awarded a $1.7 million contract from a United States
government agency to provide maintenance and technical support on a
hazardous material management system ("HMMS") software program utilized
by various government sites. The operations relating to HMMS contract
represent a separate operating component of Enmax. In 1999, the Company
obtained two additional contracts totaling $1.5 million to provide
additional HMMS support services to the various government locations
utilizing HMMS software.
In 1999, Enmax dedicated research and development resources to the
development of a web-based hazardous material management and tracking
system software utilizing their understanding and knowledge of HMMS
software. The new software is a web-based, business-to-business internet
application service provider (IASP) software that has the functionality
of the existing HMMS software that is accessible through the internet.
Effective February 1, 2000, EnvironMax.com, Inc. ("EnvironMax.com"), a
wholly owned subsidiary of Enmax, was incorporated as a C corporation in
the State of Utah to further develop and market the new web-based
software product.
DESCRIPTION OF COMPANY - The accompanying balance sheet includes the
accounts of EnvironMax.com (the "Company"), a wholly owned subsidiary of
Enmax. EnvironMax.com is a developer and distributor of web-based,
business-to-business information technology services and products to
government and commercial enterprises that have environmental compliance
and reporting requirements. The Company also manages certain hazardous
material management system (HMMS) software program contracts of the
United States government on behalf of Enmax under a Teaming arrangement.
The Company was initially funded on February 1, 2000.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS - The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. SUBSEQUENT EVENTS
Effective March 1, 2000, all employees of Enmax, which provided services
on the government HMMS contracts and research on the new web-based HMMS
software, were transferred to the Company. As the contracts are not
assignable, the Company will continue to team with Enmax to provide
services under these contracts. Enmax will pay the Company an
established rate, under an agreed-upon fee schedule, for services
performed on the existing HMMS contracts.
On March 7, 2000, the Company issued 97,840 shares of its common stock
to certain employees for $0.01 per share. Between 70% and 100% of the
shares granted to employees are subject to repurchase by the Company
should any employee terminate or not execute employee and other
ancillary agreements. The
F-18
<PAGE> 70
Company's rights of repurchase expire on the earlier of one year from
the date of grant or the date of a public offering of the Company's
securities. The difference between the fair value of the stock at the
grant date and the exercise price of the options subject to repurchase
will be recognized as compensation expense in the Company's statements
of operations over the period that the repurchase rights expire. The
difference between the fair value of the stock at the grant date and the
exercise price of the options vested upon grant was immediately expensed
in the Company's statements of operations. Fair value at the grant date
was deemed to be $10 per share based on actual cash transactions with
unrelated parties.
On March 15, 2000, certain net assets consisting of property and
equipment, software and licenses related to the predecessor operations
of the Company were also transferred to the Company at historical cost
for 13,700,000 shares of the Company's common stock. In addition, on
March 15, 2000 the Company issued to an unrelated third party 10,000
shares of common stock for cash at $10.00 per share.
On March 15, 2000, the EnvironMax.com, Inc. 2000 Incentive Plan ("Plan")
was adopted by the Company's board of directors. The Plan has authorized
the grant of options up to 2,210,000 shares to selected officers,
directors, or employees of the Company and selected non-employee agents,
advisors, and independent contractors. The Plan allows for the grant of
incentive and nonqualified stock options, common stock, stock
appreciation rights, and cash bonuses. The Company granted 889,100
options to employees of the Company on March 20, 2000 with an exercise
price of $10.00 per share. An additional 98,000 options were granted to
employees of the Company from March 21, 2000 through April 1, 2000 at
$10.00 per share.
******
F-19
<PAGE> 71
--------------------------------------------------------------------------------
[COMPANY LOGO]
ENVIRONMAX.COM, INC.
UP TO 7,000,000 SHARES
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
NOVEMBER , 2000
--------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
<PAGE> 72
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale of
the Common Shares being registered. All the amounts shown are estimates except
for the registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission
Registration Fee $ 38,808
Amex Filing Fee 12,000
Printing and Engraving and Expenses 50,000
Legal Fees and Expenses 250,000
Accounting Fees and Expenses 100,000
Transfer Agent and Registrar Fees and Expenses 35,000
Web Site Licensing Fee 100,000
Web Site Promotional Fees 200,000
Miscellaneous 26,192
--------
TOTAL $800,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation limit the personal liability of
directors and officers for monetary damages to the maximum extent permitted by
Utah law. Under Utah law, such limitations include monetary damages for any
action taken or failed to be taken as an officer or director except for (i)
amounts representing a financial benefit to which the person is not entitled,
(ii) liability for intentional infliction of harm on the Corporation or its
shareholders, (iii) unlawful distributions, or (iv) an intentional violation of
criminal law. The Articles of Incorporation also provide that the Company will
indemnify its directors and officers against any damages arising from their
actions as agents of the Company, and that the Company may similarly indemnify
its other employees and agents. The Company is also empowered under its Articles
of Incorporation to enter into indemnification agreements with its directors and
officers.
The Company's Bylaws provide that, to the full extent permitted by the
Company's Articles of Incorporation and the Utah Revised Business Corporation
Act, the Company will indemnify (and advance expenses to) the Company's
officers, directors and employees in connection with any action, suit or
proceeding (civil or criminal) to which those persons are made party by reason
of their being a director, officer or employee). Any such indemnification will
be in addition to the advancement of expenses.
The terms of the Company's Equity Incentive Plan provide that, to the
fullest extent permitted by the Company's Articles of Incorporation and Bylaws
and by Utah law, no member of the committee which administers the plan will be
liable for any action or omission taken with respect to the plan or any options
issued thereunder. The Plan also provides that no member of the Board of
Directors will be liable for any action or determination made in good faith with
respect to the Plan or any option granted thereunder.
There is no pending litigation or proceeding involving a director,
officer, employee or other agent of the Company as to which indemnification is
being sought, nor is the Company aware of any pending or threatened litigation
that may result in claims for indemnification by any director, officer, employee
or other agent.
II-1
<PAGE> 73
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(i) On February 1, 2000, we issued to Enmax Corporation 100,000 common
shares in exchange for $1,000.
(ii) On March 7, 2000, we issued to employees of EnvironMax.com, Inc.
and Enmax Corporation 100,710 common shares in exchange for $978.40.
(iii) On March 15, 2000, we issued to Enmax Corporation 13,700,000
common shares in exchange for property and intellectual property rights.
(iv) On March 15, 1999, we issued and sold 10,000 common shares to Rand
& Jones at a purchase price of $10.00 per share.
(v) From March 20, 2000 through June 30, 2000, we granted options to
purchase an aggregate of 1,075,650 common shares under our 2000 Equity Incentive
Plan with a weighted average exercise price of $10.00.
No underwriters were involved in the foregoing sales of securities.
Except as noted such sales were deemed to be exempt under the Securities Act in
reliance upon Section 4(2) thereof relative to sales by an issuer not involving
any public offering, or, in the case of options to purchase common shares, Rule
701 under the Securities Act. All of the foregoing securities are deemed
restricted securities for purposes of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
(a) Exhibits
3.1** (i) Articles of Incorporation of EnvironMax.com, Inc.
(ii) By-laws of EnvironMax.com, Inc.
4.1** Shareholders Equity Incentive Plan, dated
5.1* Opinion regarding legality of the offering
10.1 USAF Cooperative Research and Development Agreement Between
Logistics Information Division and EnvironMax.com, Inc.
10.2** Assignment Agreement
10.3** License Agreement
10.4 Bill of Sale
10.5** Teaming arrangement
10.6 Website Development Contract with Inetz Media Group, Inc.
10.7 HMMS License
10.8(a) Purchase Order Agreements between EnvironMax and Enmax
10.8(b) Purchase Order Agreements between EnvironMax and Enmax
10.8(c) Purchase Order Agreements between EnvironMax and Enmax
</TABLE>
II-2
<PAGE> 74
<TABLE>
<S> <C>
10.9 General Service Administration Schedule 899 Listing
10.10 General Service Administration Mellenia Lite Contract
10.11 Professional Services Agreement with Three Marketeers
10.12 Sublease for Corporate Headquarters
10.13 Sublease to Layton Facilities
10.14 Sublease for Clearfield facilities
10.15 Tombstone Advertising Agreement with Double Click
10.16 Trademark and Ancillary Rights Agreement
10.17 Employment Agreement Doug Torian
10.18 Employment Agreement with Dean Hutchings
23.1 Independent auditors' consent
23.2 Consent of counsel
27 Financial data schedule
</TABLE>
-----------
* To be filed by amendment
** Previously filed
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(1) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(3) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and
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<PAGE> 75
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Salt Lake City, State
of Utah on the 22nd day of November, 2000.
ENVIRONMAX.COM, INC.
By: /s/ Robert F. Craig
----------------------------------
Robert F. Craig
Chairman and Chief Executive Officer
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<PAGE> 76
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert F. Craig and Dean E. Hutchings,
and each of them, his attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully as to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
/s/ Robert F. Craig November 22, 2000
-----------------------------------------
Robert F. Craig
Chairman and Chief Executive Officer
/s/ Fred Nichols November 22, 2000
-----------------------------------------
Fred Nichols
President and Director
/s/ Dean Hutchings November 22, 2000
-----------------------------------------
Dean Hutchings
Chief Financial Officer
/s/ Charles M. Meredith November 22, 2000
-----------------------------------------
Charles M. Meredith
Director
/s/ Douglas Borba November 22, 2000
-----------------------------------------
Douglas Borba
Director
/s/ Genowefa Z. Craig November 22, 2000
-----------------------------------------
Genowefa Z. Craig
Director
/s/ George D. Torian, Jr. November 22, 2000
-----------------------------------------
George D. Torian, Jr.
Director
/s/ Lynn B. Barney November 22, 2000
-----------------------------------------
Lynn B. Barney
Director
</TABLE>
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<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
<S> <C>
3.1** (i) Articles of Incorporation of EnvironMax.com, Inc.
(ii) By-laws of EnvironMax.com, Inc.
4.1** Shareholders Equity Incentive Plan, dated March 15, 2000
5.1* Opinion regarding legality of the offering
10.1 USAF Cooperative Research and Development Agreement Between
Logistics Information Division and EnvironMax.com, Inc.
10.2** Assignment Agreement
10.3** License Agreement
10.4 Bill of Sale, together with asset list
10.5** Teaming arrangement
10.6 Website Development Contract with Inetz Media Group, Inc.
10.7 HMMS License
10.8(a) Purchase Order Agreements between EnvironMax and Enmax
10.8(b) Purchase Order Agreements between EnvironMax and Enmax
10.8(c) Purchase Order Agreements between EnvironMax and Enmax
10.9 General Service Administration Schedule 899 Listing
10.10 General Service Administration Mellenia Lite Contract
10.11 Professional Services Agreement with Three Marketeers
10.12 Sublease for Corporate Headquarters
10.13 Sublease to Layton Facilities
10.14 Sublease for Clearfield facilities
10.15 Tombstone Advertising Agreement with Double Click
10.16 Trademark and Ancillary Rights Agreement
10.17 Employment Agreement Doug Torian
10.18 Employment Agreement with Dean Hutchings
23.1 Independent auditors' consent
23.2 Consent of counsel
27 Financial data schedule
</TABLE>
------------------------
* To be filed by amendment
** Previously filed
