U.S. Securities and Exchange Commission
WASHINGTON, D.C. 20549
AMENDMENT #2 TO FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
FIRST AID DIRECT, INC.
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(Name of Small Business Issuer in its charter)
FLORIDA 59-1796257
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(State of incorporation) (I.R.S. Employer Identification No.)
10211 NORTHEAST 53RD STREET,
SUNRISE, FLORIDA 33351
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(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number (954) 749-9926
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Securities to be registered pursuant to 12(b) of the Act: NONE
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Securities to be registered pursuant to 12(g) of the Act:
COMMON STOCK $.001 PAR VALUE
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(Title of Class)
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ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
First Aid Direct, Inc. ("First Aid" or the "Company") was organized in
July 1977 in the State of Florida under the name of Rehabilitation Institute of
South Florida, Inc. It remained dormant until it began active operations in
September 1997. First Aid is a national distribution business that wholesales
first aid products to first aid distributors across the nation. Most of the
distributors operate mobile first aid van services that sell and service the
industrial first aid kits, mandated by OSHA regulations. These kits are placed
in many different types of businesses and industrial locations such as
factories, distribution warehouses, offices, auto repair shops and dealerships,
hotels and retail stores. The Company currently has approximately 140
distributors located in 42 states throughout the United States. These states
include Alabama, Arkansas, Arizona, California, Colorado, Connecticut, Delaware,
Florida, Georgia, Iowa, Illinois, Indiana, Kansas, Kentucky, Louisiana,
Massachusetts, Michigan, Minnesota, Missouri, Mississippi, Montana, North
Carolina, North Dakota, Nevada, New Jersey, New Mexico, Nevada, New York, Ohio,
Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas,
Utah, Virginia, Washington, Wisconsin, West Virginia, and Wyoming.
A distributor typically operates a number of routes. Each route
consists of several hundred locations that are visited by the route
driver/salesman at least once a month. The driver/salesman will typically visit
some 20 locations each day. The driver/salesman operates a van stocked with
first aid supplies and uses the inventory to refill the kits that are placed in
each location. The kits contain a mix of first aid products designed and
packaged for industrial use, including bandages, tapes, gauze, antiseptics,
ointments and over-the-counter medications such as aspirin, cough medications,
etc. First Aid has specialized packaging that lends itself to the workplace. All
items are packed in multilingual boxes that wherever possible are dispenser
packs that offer each individual product in a sanitary sealed package as part of
a tear off strip.
In addition, First Aid provides a direct to business program called
"Direct Ship". This program involves direct shipments to businesses. These
companies typically are not our distributor types of customers because their
usage is too limited for a driver/salesman to service monthly or they need
centralized billing, control and pricing. First Aid offers these customers a
direct order system using phone, fax or the First Aid Internet web site.
Approximately seven percent (7%) of our business is based upon the "Direct Ship"
program and approximately 93% percent of our business is based upon independent
distributorships.
INDUSTRY BACKGROUND
The first aid business is comprised of many independent distributors of
first aid and safety products to the workplace via mobile van services. Products
and services include first aid cabinets, over-the-counter medications and
general first aid supplies. Certain distributors also offer safety products and
a variety of related training programs.
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These independent distributors purchase their products through
value-added wholesale distribution companies. There are approximately 12 such
companies operating in the United States. Typically, a wholesale company will
recruit distributors within the industry to distribute products under the
wholesaler's names. The typical business relationship between wholesaler and
distributor features restrictions such as limited territories, non-compete
agreements and agreements to use the wholesale company's name as the
distributor's product line.
Today, the market for these distributors is virtually any business. The
reason is that the Federal Occupational Safety & Health Administration (OSHA)
has a regulation (29 CFR 1910.151(b)) that requires that First Aid supplies be
readily available in the workplace. It is more convenient for the business
operator to use the services of the first aid distributor to supply the correct
product mix of required first aid supplies that are not only designed for use in
the workplace, but are refilled and kept current each month.
A consolidation has taken place in the first aid distribution business.
Zee Medical, a subsidiary of wholesale distributor McKesson Corp., currently is
one of the oldest and also has a large market share. Cintas Corp. decided to
penetrate this market quickly, and therefore adopted an acquisition strategy.
The first acquisition was in February 1997, and that was followed by three
additional acquisitions, another in 1997 and two in 1998. Both of these major
organizations place broad restrictions on their distributors, including
geographical restraints on distribution.
Our major competition includes Zee Medical and Cintas Corp., two
consolidated companies which place broad restrictions on their distributors,
including geographical restraints on distribution. As a result of the
consolidation of some of the major distributors in the first aid supply business
such as Zee Medical and Cintas Corp., distributors working within the same
territory that previously bought from competing companies are now being supplied
by the same parent company. First Aid believes that many of these distributors
desire more independence and choice than the new combined entities can offer. We
believe these market conditions provide an opportunity for First Aid to emerge
and compete for the business of the first aid distributors dissatisfied with the
new corporate structure brought on by the consolidation in the industry.
COMPANY BACKGROUND
The Company began active operations in September 1997 in Fort
Lauderdale, Florida as a national distribution company to wholesale first aid
products to distributors across the nation. On August 12, 1997, prior to
conducting active operations, the Company issued 2,100,000 shares to Mr. Scott
Siegel in exchange for equipment, vans, inventory and customer lists. In
addition, liabilities were assumed which were approximately equal to the assets
conveyed. This increased the total issued and outstanding shares to 2,500,000
shares, and the Company changed its name to First Aid Select, Inc. in October
1997. The assets contributed by Mr. Siegel in 1997, including vans and
inventory, comprised a portion of the assets sold by the Company to Van
Dyne-Crotty, Inc., a Company shareholder, on December 16, 1999.
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Mr. Siegel had owned and operated an eight-van first aid company as a
distributor for Affirmed Medical, a national supplier of first aid products.
During 1997 and 1998, Affirmed Medical along with other national suppliers were
purchased by Cintas.
The Cintas roll-up brought previously competing regional first aid
distributors under the same umbrella organization. As a South Florida regional
"operator" or manager of a distributorship, First Aid recognized that this new
organization might not be welcomed by all operators. The roll-up had the effect
of constricting the geographic markets for distributors servicing the same area.
Limited by territory agreements that prevented them from competing with other
operators in their buying group, the Cintas consolidation was viewed by many
distributors as another limitation on their future expansion and a form of
compelled cooperation with operators which had formerly been direct competitors.
In response to certain distributor dissatisfaction with this
consolidation, management founded First Aid Select, Inc. The intent of the new
venture was to offer existing distributors displeased with consolidation an
alternative source of supply while offering new entries into the first aid
business a national brand of products and support. First Aid places no
territorial restrictions on its distributors, giving existing operators,
dissatisfied with their territorial restriction agreements with the majors, the
opportunity to expand regionally. To the best of the Company's knowledge, there
were no acquisitions by Zee Medical in the Company's area of service, South
Florida. We are aware of only one acquisition of an operator by Cintas in South
Florida.
VAN DYNE-CROTTY TRANSACTIONS
On December 16, 1999, Scott Siegel and Robert Sussman entered into a
Share Purchase Agreement with Van Dyne-Crotty, Inc. under which Van Dyne-Crotty
acquired 1,000,000 shares of First Aid's common stock from Mr. Siegel and
400,000 shares of First Aid's common stock from Mr. Sussman. The purchase price
for all of these shares was $2,100,000 or $1.50 per share. At the time of the
agreement, the closing sales price of First Aid's common stock on the OTC
Bulletin Board ranged from $1.75 to $2.25 between December 1, 1999 and December
16, 1999. The transaction was completed on January 3, 2000. Scott Siegel
retained 300,000 shares of common stock in First Aid and Robert Sussman retained
100,000 shares. In addition, in connection with the transfer of First Aid's
assets representing its van business to Van Dyne-Crotty (discussed below), Mr.
Siegel temporarily discontinued his relationship with First Aid and became
employed with Van Dyne-Crotty's newly formed first aid supply distribution
business unit, which operates under the name of First Aid Select. Mr. Sussman
received at this time an option for 150,000 shares exercisable at $1.50 per
share as part of a new employment agreement with First Aid.
In conjunction with the share purchase agreement, Van Dyne-Crotty and
First Aid Select entered into an Asset Purchase Agreement. On December 20, 1999,
First Aid transferred all of the assets represented by its van distribution
business to Van Dyne-Crotty, consisting of motor vehicles, accounts receivable,
inventory, and various permits. The purchase price for these assets was $350,000
which was paid in cash and Van Dyne-Crotty also assumed debt of approximately
$60,000
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associated with the mobile van distribution business. The parties also
simultaneously entered into a Supply Agreement under which Van Dyne-Crotty
agreed to purchase all of its requirements for first aid products and supplies
from First Aid for a five-year term, unless First Aid were sold to a competitor
of Van Dyne-Crotty. Under the terms of this supply agreement, First Aid is
required to sell the products at the lowest of the prevailing market price for
the best grade for each type of item covered. First Aid may alter the price of
any item upon notice, but Van Dyne-Crotty may discontinue purchasing its total
requirements of any item if the price is not comparable or the quality of the
item is not competitive with similar types of products. The determination of
whether our pricing is not competitive is made by price comparison with other
wholesalers of first aid products.
For the six months ended June 30, 2000, Van Dyne-Crotty accounted for
19% of the Company's revenues.
First Aid received a valuation fairness opinion relative to the sale of
its van division from Stenton Leigh Capital Corp., a non-affiliated third party
which has been engaged in providing business evaluations since 1989. We paid
$15,000 for the opinion. This opinion concluded, based on First Aid's lack of
historical profitability, and only recent limited profitability, limited cash
resources and continued need for funding, along with potential benefits from the
ongoing relationship with Van Dyne-Crotty, that the transaction was fair to
First Aid's shareholders. First Aid retained Stenton Leigh based upon its
qualifications, experience and expertise. As part of its business, Stenton Leigh
is continuously engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, divestitures, public offerings,
private placements and valuations for corporate, estate and other purposes.
Prior to entering into the agreement with Van Dyne-Crotty, Inc., the
Company solicited interest from three other parties regarding a sale of the van
division and engaged in preliminary negotiations with these parties. Van
Dyne-Crotty was the only party to make a bid for the van division assets.
The van assets and inventory had been acquired in 1997 from Mr. Siegel
as a part of the intended business purpose of the Company at the time to operate
a mobile van distributor business as well as to develop a wholesale product line
for independent first aid and safety equipment retail distributors. The assets
of the Company-owned retail van distributor business were sold to Van
Dyne-Crotty after consideration of the growth options of the Company. As the
industry was being consolidated by Zee Medical and Cintas, First Aid determined
that an alliance with a larger organization with experience in van business to
business services was in its best interests. As indicated, several companies
expressed some interest in the Company, but Van Dyne-Crotty was the only company
to make an offer.
First Aid determined that it was better suited to focus its efforts on
developing the line of first aid products, as well as its wholesale distribution
channels and sell the van distribution assets to Van Dyne-Crotty. Van
Dyne-Crotty had a customer base in several states in the eastern United States
that could provide a significant growth opportunity for the van service. The
Company would not
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at the time have been capable of reaching these markets due to limitations of
management and capital.
The cost of the assets acquired in 1997 that were sold in 1999 to Van
Dyne-Crotty was $172,000 plus the debt assumed by Van Dyne-Crotty of $60,000.
On the basis of the factors described above, including the receipt of
the valuation fairness opinion for the van division assets, management of both
First Aid and Van Dyne-Crotty believe that the Asset Purchase and Supply
Agreements were fair to the Company, in the best interest of First Aid's
shareholders and, in all probability, were as fair as would have been
accomplished with another unaffiliated party given the absence of any real
interest by other parties who were solicited by the Company.
Following the December 16, 1999 Asset Purchase Agreement, we changed
our name from First Aid Select, Inc. to First Aid Direct, Inc. Van Dyne-Crotty's
newly formed first aid supply van division began operating under the name First
Aid Select.
On March 18, 2000, First Aid entered into an Asset Purchase Agreement
to buy certain assets from Van Dyne-Crotty. Earlier on March 18, 2000, Van
Dyne-Crotty had acquired Roehampton Supply, Inc. Included in the total assets
received by Van Dyne-Crotty were accounts receivable, inventory and the customer
list related to certain products associated with Roehampton Supply's line of
first aid products which were more aligned with First Aid's products and
customers than those of Van Dyne-Crotty. First Aid acquired the accounts
receivable, inventory and the customer listings from Van Dyne-Crotty at Van
Dyne-Crotty's cost at the time of the Roehampton transaction. The purchase price
was $200,000 to be paid in cash. As of September 30, 2000, $150,000 has been
paid and the remaining $50,000 is due on demand. Management of First Aid
believes that given these circumstances and the review by its management at that
time, that the transfer of the assets to First Aid of Roehampton Supply, Inc.
initially acquired by Van Dyne-Crotty was as fair as could have been made with
an unaffiliated party.
On March 20, 2000, First Aid entered into a non-competition agreement
and a consulting agreement with the original owner of the assets purchased
above. The former asset owner's covenant not to compete with First Aid is for a
five-year term and provides for First Aid's payment of $25,000 each year, for a
term of three years, to be paid in thirty-six equal installments totaling
$75,000. The consulting agreement is for a three-year term and provides for
First Aid's payment of $75,000 to consultant in thirty-six equal installments.
First Aid did not hire a financial advisor and nor did Van Dyne-Crotty
obtain a valuation fairness opinion since the assets conveyed to First Aid were
transferred at Van Dyne-Crotty's cost in its acquisition of Roehampton Supply.
In addition, any such fairness evaluation opinion would have involved
incremental costs comparable to that involved with the prior fairness evaluation
opinion. Neither the Company nor Van Dyne-Crotty believed there would be a
significant benefit to the shareholders of First Aid in view of the transfer by
Van Dyne-Crotty of the Roehampton Supply assets at its cost.
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STRATEGY
Our strategy is to offer existing distributors which are dissatisfied
with consolidation an alternative source of supply. By seeking federal trademark
protection of our brand names and innovating the package design for our
products, our goal is to offer new entries into the first aid business a
national brand of products and support. First Aid places no territorial
restrictions on its distributors, giving existing operators the opportunity to
expand regionally. Without territory agreements and based upon our "Direct Ship"
program, we anticipate that First Aid will be able to offer large national
companies a centralized and uniform direct buying program.
First Aid Direct was one of the early innovators in the industry
introducing retail quality packaging, eliminating territorial restrictions, and
providing direct e-commerce ordering and "Direct Ship" programs. However, at the
present time, most of First Aid's competitors have developed e-commerce
capability.
PRODUCTS AND SERVICES
Our product line and services includes the following type of items and
services:
O CABINETS AND FIST AID KITS: Lightweight and durable, wall
mounted cabinets come in a variety of sizes to fit company or
individual needs. Each kit is dust-proof and designed to be
installed in a visible and accessible location.
O FIRST AID TREATMENTS: Bandages, tapes, wraps and dressings -
all designed to keep minor scraps, wounds and abrasions -
clean, covered, and secure. Individually packaged antiseptics,
burn treatments and eye-care products, designed to minimize
injuries, speed up recovery and reduce lost time in the
workplace.
O FIRST AID TABLETS: Over the counter medications that are
sealed in tamper-resistant unit dosage packets for fast, safe
and effective relief from on-the-job illness and pain.
O SAFETY EQUIPMENT: Signage, protective eyewear, ergonomic
items, hearing protection respiratory protection, biohazard
safety, oxygen, and protective clothing.
O TRAINING AND COMPLIANCE: OSHA compliance and safety training
videos. These programs are designed to be used in a classroom
setting, or by individuals, to instruct and inform about
safety and compliance issues in the workplace. These are
available in Spanish and English.
O DISTRIBUTOR SERVICES: We are committed to helping our
distributors grow their businesses by offering a variety of
classroom and field training sessions in the
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national training center at our corporate offices. The
National Training Center is a 250 square foot learning
facility complete with latest A/V and facilitator equipment.
The typical training session is a four day training session
for our distributors. The session is divided into two days of
interactive classroom presentations and two days of field
training. The typical size of a training session consists of
three to eight persons. Our instructors draw on their 20 plus
collective years of industry knowledge to guide and educate
our distributors through all aspects of starting, managing,
and maintaining a successful operation.
SUPPLIERS
First Aid works with approximately 70 suppliers and manufacturers at
any given time for its product line. At the present time, three of our suppliers
account for approximately 40% of our supplies. However, other suppliers are
available in the event any of these suppliers were not able to fulfill our
requirements at any time. Our supplies are provided through normal purchase
orders, and we have no term contracts with any of our suppliers.
ASSEMBLY OF PRODUCTS
First Aid assembles approximately 20% of its products at its own
facility. We outsource the balance of assembly of our products to a local
workshop. This workshop "ARC Broward Incorporated" is a Florida State run
facility that employs disabled citizens which assembles and packs for many
companies on contract bases. This facility is located in the immediate area.
PRODUCT LIABILITY
We maintain product liability insurance in the amount of $5,000,000.
Our suppliers also maintain product liability insurance. Our purchase orders
with our suppliers do not limit or allocate liability between the parties.
MARKETING AND SALES
Our sales team, which consists of one sales director and one salesman,
are responsible for developing new business. They solicit distributor and direct
ship customers by telephone and in- person sales calls. We also participate in a
number of national trade shows and associations to develop new customers and to
meet with existing ones.
Operating from corporate headquarters in Sunrise, Florida, our
salespersons handle the identification and qualification of prospected
customers. Once qualified, catalog and samples are sent by mail.
Management believes that three criteria drive the purchase of first aid
products. They are price, quality and service. We believe we are offering
pricing and quality comparable to our
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competitors. First Aid has established a number of services like a fully
interactive web site allowing for direct purchases online for both distributor
and direct ship customers. In addition, we work with our distributors through
virtually every aspect of starting, managing and maintaining a productive
operation, offering a variety of classroom and field training sessions.
COMPETITION
Zee Medical, a substantial competitor in the industry, pioneered the
market about 30 years ago and management believes commands large market share
with approximately 90 distributors. Zee is owned by wholesale drug distribution
giant, McKesson Corporation. Previously, Zee's key competitors, American First
Aid, Life & Safety Products, Respond Industries and Affirmed, Inc., each had an
estimated 10% market share with about 400 to 500 distributors combined. Most of
the distributors for the four companies were smaller in size and scope than
Zee's distributors. The remaining 600 or more distributors sell first aid and
safety products in addition to their primary business, which ranges from fire
extinguishers, coffee services, industrial supplies, etc.
Recently, Cintas, a $2 billion uniform company, evaluated the market
and determined to enter the market through an aggressive acquisition program. As
a result of their study, Cintas proceeded to buy Affirmed Inc., American First
Aid, Life & Safety Products and Respond Industries, thereby effectively
capturing a large position in the market through acquisitions.
Because of the recent consolidations, two companies, Zee and Cintas,
control the market. There are many independent distributors who view this
consolidation as detrimental to their business. We believe they will prefer to
do business with independently owned and operated wholesale companies.
TRADEMARKS
The United States Patent and Trademark Office have approved the
following trademark applications for registration:
Trademark Serial No. The Mark
-------------------- --------
75/580,502 For The Global Workplace
75/552,491 COLDCRUSHER
75/522,489 IBUPLUS
75/552,494 ACIDSPOILER
75/552,940 PAINCRUSHER
75/558,499 COLDCRUNCHER
75/522,490 SINUPLUS
We also own the Internet domain name "firstaiddirect.com."
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GOVERNMENT REGULATION
The Federal Occupational Safety & Health administration (OSHA) has a
regulation 29 CFR 1910.151(b) that requires first aid supplies be readily
available in the workplace.
Appendix A to Section 1910.151(b) further requires that a generic first
aid kit contain certain minimal contents pursuant to the American National
Standard (ANSI) Z308.1-1978 "Minimum Requirements for Industrial Unit-Type
First-aid Kits." The contents of the kit listed in the ANSI standard should be
adequate for small worksites. When larger operations or multiple operations are
being conducted at the same location, employers should determine the need for
additional first aid kits at the worksite, additional types of first aid
equipment and supplies and additional quantities and types of supplies and
equipment in the first aid kits.
Appendix A further provides that employers who have unique or changing
first-aid needs in their workplace may need to enhance their first-aid kits. The
employer can use the OSHA 200 log, OSHA 101's or other reports to identify these
unique problems. Consultation from the local fire/rescue department, appropriate
medical professional, or local emergency room may be helpful to employers in
these circumstances. By assessing the specific needs of their workplace,
employers can ensure that reasonably anticipated supplies are available.
Employers should assess the specific needs of their worksite periodically and
augment the first aid kit appropriately.
The Appendix also provides that if it is reasonably anticipated that
employees will be exposed to blood or other potentially infectious materials
while using first aid supplies, employers are required to provide appropriate
personal protective equipment (PPE) in compliance with the provisions of the
Occupational Exposure to Blood Borne Pathogens standard, ss. 1910.1030(d)(3) (56
FR 64175). This standard lists appropriate personal protective PPE for this type
of exposure, such as gloves, gowns, face shields, masks and eye protection.
A license to manufacture distribute, import, or export a List I
chemicals has been granted to us by the United States Department of Justice,
Drug Enforcement Administration (DEA) We distribute three over-the-counter
medications that contain Pseudoephedrine HCL, a List I chemical. Our products
are manufactured by an outside third party, packaged in tamper resistant unit
dosage packets for us, then shipped to our Florida distribution warehouse for
final boxing and shipping. We do not manufacture any of the chemicals or
products which we distribute. Our annual license, DEA registration number
002099FDY, expires September 30, 2000. We do not anticipate any difficulties in
renewing this license.
EMPLOYEES
First Aid currently employs nine persons, six of whom are full-time
employees, in the following capacities: one administrator, two in sales and
marketing, two in office staff and four in warehouse and assembly. The Company's
employees are not represented by a collective bargaining agreement, and the
Company considers its relations with its employees to be good.
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ITEM 2. DESCRIPTION OF PROPERTY.
First Aid Direct's corporate headquarters and distribution center is
located at 10211 NW 53rd Street, Sunrise, Florida, 33351. The business has been
at this location for two years. We do approximately 20% of packaging at our own
facility. The operation is located in a modern warehouse complex and currently
occupies 7,200 square feet of fully air conditioned space consisting of 1,500
square feet of office space, a 250 square foot assembly area and 5,450 square
feet of warehouse. We lease the facility through July 31, 2004 from Mr. Robert
Sussman, formerly our director and Chief Executive Officer, at a $53,000 annual
rental, in a multiple tenant facility. The terms of the lease are comparable
with that provided to non-related tenants.
ITEM 3. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
PROMOTERS AND CONTROL PERSONS.
The following table sets forth the names, positions and ages of the
executive officers and directors of the Company. Directors will be elected at
the Company's annual meeting of shareholders and serve for one year or until
their successors are elected and qualify. Officers are elected by the Board and
their terms of office are, except to the extent governed by employment contract,
at the discretion of the Board.
Name Age Position
---- --------
Scott Siegel 46 Interim Acting Chief Executive
Officer
Kevin M. Crotty 44 Director
Stephen D. Smiley 47 Director
SCOTT SIEGEL - Mr. Siegel assumed the office of interim acting Chief
Executive Officer, of the Company on August 22, 2000, following the resignation
of Robert Sussman. From August 1997 to December 1999, Mr. Siegel served as
Chairman and Secretary of the Company. From December 1999 to the present, Mr.
Siegel has served as a Group Manager at First Aid Select, a business division of
Van Dyne-Crotty, Inc. From 1991 to 1997, Mr. Siegel was President of Affirmed
Medical of Florida, Inc., a first aid van service distributorship with revenues
of approximately $600,000 during its last full year of operations in 1996 and
generally employed between 6 to 7 full time employees.
KEVIN M. CROTTY - Mr. Crotty has served as a director of First Aid
since January 2000. Mr. Crotty currently serves as Executive Vice President of
Van Dyne-Crotty, Inc. a company engaged in uniform distribution and textile
services and headquartered in Dayton, Ohio. Van Dyne- Crotty, Inc. is a
privately-owned company that currently has annual revenues of approximately $100
million and approximately 1,200 employees. Mr. Crotty has been employed by Van
Dyne-Crotty
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for 24 years and has served in a range of capacities involving service,
distribution, production and sales. Mr. Crotty is a member of the Board of
Directors of Van Dyne-Crotty.
STEVEN D. SMILEY - Mr. Smiley has served as a director of First Aid
following since January 2000. Since 1996, Mr. Smiley has served as Vice
President of Administration for Van Dyne-Crotty, Inc. Mr. Smiley has been
employed with Van Dyne-Crotty for the past 20 years, acting in various
capacities including District and General Management, Manager and Regional
Manager for several of the company's textile rental district operations. Van
Dyne-Crotty, Inc. is a privately owned company which currently has annual
revenues of approximately $100 million and approximately 1,200 employees.
ITEM 4. REMUNERATION OF DIRECTORS AND OFFICERS.
SUMMARY COMPENSATION TABLE
The following table sets forth information relating to the compensation
paid by FAS in each of the last three fiscal years to: (i) its Chief Executive
Officer; and (ii) each of its executive officers whose annual compensation
exceeded $100,000 during this period.
<TABLE>
<CAPTION>
Fiscal Other Annual LTIP All Other
Name and Principal Position Year Salary Bonus Compensation Options/ (#) Payouts Compensation
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Scott Siegel 1999 81,500 0 0 0 0 0
Acting Chief Executive Officer 1998 81,500 0 0 0 0 0
1997 15,000 0 0 0 0 0
Robert Sussman, CEO 1999 80,000 0 0 150,000 0 0
1998 0 0 0 0 0 0
1997 0 0 0 1,050,000 0 0
Jeff Godels 1999 67,000 0 62,500 0 0 0
===========================================================================================================================
President 1998 80,000 0 75,000 0 0 0
===========================================================================================================================
1997 13,000 0 12,500 0 0 0
===========================================================================================================================
</TABLE>
Mr. Sussman resigned his positions on August 22, 2000. Mr. Sussman
first joined First Aid in January 1998 as Chief Executive Officer, Director and
Secretary. Following the transaction with Van Dyne-Crotty, Mr. Sussman also took
on the roles of President and Treasurer. Mr. Sussman was experienced in product
development, introduction and distribution through his prior experience in a
family-owned company and as an independent consultant. Between 1994 and January
1998, Mr. Sussman served as an independent consultant for various companies
including A.J. Sirus, Inc., and managed his own investments. Between 1978 and
1987, Mr. Sussman and other members of his family organized Pretty Neat
Industries, Inc., a sales, manufacturing and distribution company for injection
molded cosmetic bath and office organizers.
Robert Sussman received options to purchase 1,050,000 shares
exercisable at $.01 per share in November 1997. These options were exercisable
over a five year period provided certain profit
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performance criteria were met. Immediately prior to year end, the Company and
Mr. Sussman revised the options. The number of options were reduced to 500,000
with 550,000 options being cancelled. In consideration for this reduction, the
remaining options were accelerated and the performance criteria were eliminated.
Mr. Sussman then exercised 75,00 options prior to the end of 1997 at $.01 per
share Thereafter, he exercised options for 325,000 shares during 1998 and for
100,000 shares during 1999 at $.01 per share.
Mr. Godels served as President of the Company between November 1997 and
September 1999. Prior to this, he was an executive officer with Affirmed
Medical, Inc. , Dallas, Texas beginning in 1990. The amounts included under
"other annual compensation" represent the value of common stock issued to him.
OPTION GRANTS IN LAST FISCAL YEAR
Percent of
Number of Total Options/
Securities Granted
Underlying To Employees Exercise
Options/SARs In Fiscal Price
Name Granted (#) Year ($/Sh) Expiration Date
--------------------------------------------------------------------------------
Robert Sussman 150,000 100% 1.50 1/20/10
Scott Siegel -- -- -- --
The termination of Mr. Sussman's employment agreement, effective August 16,
2000, canceled his option to purchase 150,000 shares of common stock which would
have vested over a five-year period beginning December 20, 2000.
EMPLOYMENT AGREEMENTS
In connection with an employment agreement between First Aid and Robert
Sussman, Mr. Sussman was granted options to purchase 150,000 shares exercisable
at $1.50 per share. The options vest over the following term:
DATE NO OF SHARES
---- ------------
12/20/00 15,000
12/20/01 30,000
12/20/02 30,000
12/20/03 37,500
12/20/04 37,500
In conjunction with a transaction with Van Dyne-Crotty, First Aid
entered into a five-year employment agreement with Mr. Sussman at December 20,
1999. The base compensation under this
13
<PAGE>
agreement was $100,000 per year with the possibility of bonuses as determined by
independent members of the Board of Directors not employed by First Aid. Mr.
Sussman was also to receive an increase of his base salary in the year following
First Aid having net income of in excess of $250,000. The agreement also
provided for the grant of options to purchase 150,000 shares of First Aid as
described above.
Effective August 16, 2000, Mr. Sussman's employment agreement was
canceled following his mutual agreement with First Aid to terminate his
relationship with the Company. Mr. Sussman delivered to the Company his
resignation from the Board of Directors and the offices of Chief Executive
Officer, President, Secretary and Treasurer on August 22, 2000. A severance
agreement was entered into between First Aid and Mr. Sussman on August 16, 2000
which provided for the Company's payment of $50,000 to Mr. Sussman in
consideration for the termination of Mr. Sussman's employment agreement and his
relinquishment of all claims against the Company arising out of his employment
or the termination of his employment. The termination of Mr. Sussman's
employment agreement canceled his option to purchase 150,000 shares of common
stock which would have vested over a five-year period beginning December 20,
2000.
ITEM 5. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND CERTAIN SECURITY HOLDERS.
As of September 30, 2000, there were 3,905,000 shares of common stock
issued and outstanding. The following table sets forth, as of September 30,
2000, information with respect to the beneficial ownership of the Company's
common stock by (i) persons known by First Aid to beneficially own more than 5%
of the outstanding shares of common stock, (ii) each director and officer of
First Aid and (iii) all directors and officers and Van Dyne-Crotty as a group.
COMMON STOCK BENEFICIALLY OWNED
-------------------------------
Name Shares Percent
Scott Siegel 300,000 7.70%
10211 Northeast 53rd Street
Sunrise, Florida 33351
Kevin M. Crotty 1,000 0.02%
3233 Newmark Drive
Miamisburg, OH 45342
14
<PAGE>
Daniel W. Crotty 2,000,000 51.21%
3233 Newmark Drive
Miamisburg, OH 45342
Stephen D. Smiley 7,200 0.18%
3233 Newmark Drive
Miamisburg, OH 45342
Van Dyne-Crotty, Inc. 1,631,000 41.80%
3233 Newmark Drive
Miamisburg, OH 45342
All officers, directors and
Van Dyne-Crotty as a group 1,932,000 49.50%
Scott Siegel is the former Chairman of the Board of First Aid and now
is an executive with First Aid Select, which is a division of Van Dyne-Crotty.
Effective August 16, 2000, Mr. Siegel is acting Chief Executive Officer of First
Aid following Mr. Sussman's resignation which was accepted by the Board of
Directors on August 22, 2000.
Kevin Crotty and Stephen D. Smiley are directors of First Aid and also
executive officers and members of management of Van Dyne-Crotty. Van Dyne-Crotty
acquired an additional 200,000 shares at $1.50 per share from a non-affiliate of
First Aid at the time of its transaction with First Aid and 31,000 shares in
April 2000 from Robert Sussman. The principal shareholders of Van Dyne-Crotty
are L. William Crotty, Dan Crotty, Kevin Crotty, Robert Crotty, Brian Crotty and
Shane Crotty. These individuals in their management capacity have the right to
voting and dispositive power for the Van Dyne-Crotty holdings.
Daniel Crotty is voting trustee under a voting trust agreement executed
in connection with the Van Dyne-Crotty transaction. He has the right to vote Mr.
Siegel's shares and the shares acquired by members of Van Dyne-Crotty's
management.
15
<PAGE>
As indicated above, Scott Siegel and certain of his relatives, Robert
Sussman and Van Dyne-Crotty entered into a voting trust agreement with Daniel W.
Crotty serving as voting trustee where 1,800,000 shares were transferred to Mr.
Crotty, pursuant to the Voting Trust Agreement dated December 16, 1999. The
voting trust agreement has a term of 10 years. The voting trust covers all
existing securities as well as any shares of common stock received upon exercise
of stock options or warrants. The agreement also provides that the parties to
the voting trust agreement other than Van Dyne-Crotty may not transfer their
shares over a five-year period without giving Van Dyne-Crotty an opportunity to
purchase the shares at the same price that the shares could be sold to the third
party included in the notice of the transaction.
ITEM 6. INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN
TRANSACTIONS.
The Company leases office and warehouse space for its corporate
facility from Robert Sussman, its Chief Executive Officer under a five year
operating lease expiring July 31, 2004. Annual rent is approximately $53,000.
Rent expense for 1999 was $45,000 and for 1998, was $28,000.
On December 20, 1999, Van Dyne-Crotty acquired 1,000,000 shares of
common stock of First Aid from Scott Siegel and 400,000 shares of common stock
of First Aid from Robert Sussman for a total purchase price of $2,100,000 or
$1.50 per share. Mr. Siegel was the Chairman of the Board of First Aid at the
time of the transaction and Mr. Sussman was Chief Executive Officer at the time
of the transaction and continues in that position. The market price of the
common stock of First Aid at the time of the transaction was $1.75 to $2.25. At
the same time, Van Dyne-Crotty entered into an Asset Purchase Agreement with
First Aid under which we sold our retail van and distribution business and
related assets for $350,000 plus the assumption of $60,000 in debt. This
division accounted for approximately $668,211 in revenues during the fiscal year
ended December 31, 1999 and net income of $27,286 from this division.
In connection with the Asset Purchase Agreement, Van Dyne-Crotty and
First Aid also entered into a Supply Agreement. In the Supply Agreement, Van
Dyne-Crotty agreed to purchase its total requirements for first aid products for
a period of five years. However, the supply agreement will terminate in the
event First Aid's shares are sold to a competitor of Van Dyne-Crotty in the same
business. The agreement further provides that the prices for the products to be
sold will be no higher than the lowest of the prevailing market prices for the
best grade of comparable products in the marketplace. This is determined by
comparison to our lowest available distributor pricing. First Aid may revise the
price on written notice for supplied items under the same condition that they
represent the lowest of the prevailing market for the best grade of these
products. During the first six months of the 2000 fiscal year, Van Dyne-Crotty
purchased $258,169 of our products which represented approximately 19% of our
total revenues for the first six months of the 2000 fiscal year.
16
<PAGE>
In April 2000, Van Dyne-Crotty and members of its management acquired
100,000 shares of First Aid from Robert Sussman for a purchase price of $69,000
or $0.69 per share.
On March 18, 2000, First Aid entered into an asset purchase agreement
to buy certain assets from Van Dyne-Crotty, Inc. The Company purchased accounts
receivable, inventory and customer lists for the Roehampton Supply, Inc. line of
first aid products. As of June 30, 2000, $150,000 has been paid and the
remaining $50,000 is due on demand. On March 20, 2000, First Aid entered into a
non-competition agreement and a consulting agreement with the original owner of
the assets purchased above. The former asset owner's covenant not to compete
with First Aid is for a five-year term and provides for First Aid's payment of
$25,000 each year, for a term of three years, to be paid in thirty-six equal
installments totaling $75,000. The consulting agreement is for a three-year term
and provides for First Aid's payment of $75,000 to consultant in thirty-six
equal installments.
ITEM 7. DESCRIPTION OF SECURITIES.
COMMON STOCK
First Aid is authorized to issue 50,000,000 shares of common stock, par
value $.001 of which 3,905,000 are issued and outstanding as of the date of this
report.
Holders of shares of common stock are entitled to share, on a ratable
basis, such dividends as may be declared by the board of directors out of funds
legally available therefor. Upon liquidation, dissolution or winding up, after
payment to creditors, First Aid's assets will be divided pro rata on a per share
basis among the holders of the common stock.
Each share of common stock entitles its holders to one vote. Holders of
common stock do not have cumulative voting rights, which means that the holders
of more than 50% of the shares voting for the election of directors can elect
all of the directors if they choose. In this event, the holders of the remaining
shares will not be able to elect any directors. First Aid's by-laws require that
only a majority of our issued and outstanding shares need be represented to
constitute a quorum and to transact business at a shareholders' meeting. First
Aid's common stock has no preemptive, subscription or conversion rights and is
not redeemable by us.
PREFERRED STOCK
First Aid is not authorized to issue shares of preferred stock.
CERTAIN FLORIDA LEGISLATION
Florida has enacted legislation that may deter or frustrate takeovers
of Florida corporations. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless such voting rights are approved by a majority
17
<PAGE>
of a corporation's disinterested shareholders. The Florida Affiliated
Transactions Act generally requires supermajority approval by disinterested
shareholders of certain specified transactions between a public corporation and
holders of more than 10% of the outstanding voting shares of the corporation (or
their affiliates). Florida law and First Aid's Articles and Bylaws also
authorize First Aid to indemnify our directors, officers, employees and agents.
In addition, our Articles and Florida law presently limit the personal liability
of corporate directors for monetary damages, except where the directors (i)
breach their fiduciary duties; and (ii) such breach constitutes or includes
certain violations of criminal law, a transaction from which the directors
derived an improper personal benefit, certain unlawful distributions or certain
other reckless, wanton or willful acts or misconduct.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS
Certain provisions of First Aid's Articles and By-laws may be
considered to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt, including attempts that might result in a
premium being paid over the market price for the shares held by shareholders.
Despite the belief of First Aid as to the benefits to shareholders of these
provisions of our Articles of Incorporation, these provisions may also have the
effect of discouraging a future takeover attempt which would not be approved by
First Aid's Board, but pursuant to which the shareholders may receive a
substantial premium for their shares over then current market prices. As a
result, shareholders who might desire to participate in such a transaction may
not have any opportunity to do so. These provisions will also make the removal
of our board of directors and management more difficult and may tend to
stabilize our stock price, thus limiting gains which might otherwise be
reflected in price increases due to a potential merger or acquisition. The board
of directors, however, believes that the potential benefits of these provisions
outweigh the possible disadvantages. Pursuant to applicable regulations, at any
annual or special meeting of its shareholders, we may adopt additional
provisions regarding the acquisition of its equity securities that would be
permitted to a Florida corporation.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS.
There is currently limited public trading of First Aid's common stock
on the NASD pink sheets under the symbol "FASL". As of September 30, 2000 there
were 63 shareholders of record of our common stock. Our common stock traded on
the Over-The-Counter Bulletin Board under the symbol "FASL" from May 1998 to
November 1999. On November 18, 1999, our common stock was de-listed from the
Over-the-Counter Bulletin Board of the National Association of Securities
Dealers, Inc. for failure to comply with the phase-in provisions of the OTC
Bulletin Board Eligibility Rule which required all companies whose securities
are quoted on the OTC Bulletin Board to become reporting companies with the
Securities and Exchange Commission. The following table sets forth the high and
low sales prices for the common stock for the periods indicated. These
18
<PAGE>
quotations reflect prices between dealers, do not include retail mark-ups,
mark-downs, and commissions and may not necessarily represent actual
transactions.
PERIOD HIGH LOW
------ ---- ---
Quarter ended 09/30/98 $ 1.25 $ 0.625
Quarter ended 12/31/98 $ 0.75 $ 0.28125
Quarter ended 03/31/99 $ 1.125 $ 0.34375
Quarter ended 06/30/99 $ 1.0625 $ 0.4375
Quarter ended 09/30/99 $ 2.25 $ 0.5625
Quarter ended 12/31/99 $ 2.25 $ 0.20
Quarter ended 03/31/00 $ 1.00 $ 0.21
Quarter ended 06/30/00 $ 1.01 $ 0.40
Quarter ended 09/30/00 $ 1.06 $ 0.30
================================================================================
Our transfer agent is Florida Atlantic Stock Transfer, Inc., 7130 Nob
Hill Road, Tamarac, Florida 33321.
We have never paid cash dividends on our common stock. We presently
intend to retain future earnings, if any, to finance the expansion of our
business and we do not anticipate that any cash dividends will be paid in the
foreseeable future. The future dividend policy will depend on our earnings,
capital requirements, expansion plans, financial condition and other relevant
factors. Declaration and payment of future dividends, if any, will be at the
sole discretion of the board of directors.
PENNY STOCK
Until our shares qualify for inclusion in the Nasdaq system, the
trading of its securities will continue to be in the over-the-counter markets,
commonly referred to as the pink sheets or on the OTC Bulletin Board. As a
result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the price of the securities offered.
Effective August 11, 1993, the Securities and Exchange Commission
adopted Rule 15g-9, which established the definition of a penny stock, for
purposes relevant to us, as any equity security that has a market price of less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require: (i) that a broker or dealer approve a person's
account for transactions in penny stocks; and (ii) the broker or dealer receive
from the investor a written agreement regarding the transaction, setting forth
the identity and quantity of the penny stock to be purchased. In order to
approve a person's account for transactions in penny stocks, the broker or
dealer must (i) obtain financial information and investment experience, and
objectives of the person; and (ii) make a reasonable
19
<PAGE>
determination that the transactions in penny stocks are suitable for that person
and that person has sufficient knowledge and experience in financial matters to
be capable of evaluating the risks of transactions in penny stocks. The broker
or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prepared by the Commission relating to the penny stock
market, which, in highlight form, (i) sets forth the basis on which the broker
or dealer made the suitability determination; and (ii) that the broker or dealer
received a signed, written agreement from the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny stock in
both public offerings and in secondary trading, and about commissions payable to
both the broker-dealer and the registered representative, current quotations for
the securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
The NASD has recently made changes in the criteria for continued Nasdaq
eligibility. In order to continue to be included on Nasdaq, a company must
maintain $2,000,000 in net tangible assets or $35,000,000 in market
capitalization or $500,000 net income in latest fiscal year or two of the last
three fiscal years, a $1,000,000 market value of its publicly-traded securities
and 500,000 shares in public float. In addition, continued inclusion requires
two market-makers and a minimum bid price of $1.00 per share.
ITEM 2. LEGAL PROCEEDINGS.
We are not a party to any material legal proceeding, nor is any
officer, director or affiliate a part adverse to us in any legal proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not Applicable.
ITEMS 4. RECENT SALES OF UNREGISTERED SECURITIES.
In November 1997, First Aid issued 2,100,000 shares of common stock to
Scott Siegel, its former Chairman of the Board and principal shareholder, for
various first aid products, equipment and supplies prior to beginning active
operations. Mr. Siegel was a sophisticated business person who had access to
relevant information and had sufficient financial and other resources to
undertake the transaction. Accordingly, the transaction was exempt under Section
4(2) of the Securities Act.
Between September 1997 and March 1999, First Aid issued a total of
1,000,000 shares of its common stock to 59 investors for a total purchase price
of $1,000,000 or $1.00 per share. This financing was completed under Rule 504 of
Regulation D of the Securities Act.
20
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act permits the indemnification of
directors, employees, officers and agents of Florida corporations. First Aid's
Articles of Incorporation and Bylaws provide that we shall indemnify our
directors and officers to the fullest extent permitted by the Corporation Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the First Aid
pursuant to the foregoing provisions, First Aid has been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
PART III
ITEM 1. INDEX TO EXHIBITS:
Exhibit Description of Documents
------- ------------------------
2.1* Asset Purchase Agreement between, dated December 16, 1999,
between Van Dyne-Crotty, Inc. as Purchaser and First Aid
Select, Inc. as Seller.
2.2* Asset Purchase Agreement, dated March 18, 2000, between Van
Dyne- Crotty, Inc. as Seller and First Aid Direct, Inc. as
Purchaser.
3.1* Articles of Incorporation, as amended.
3.2* By-Laws.
9.1* Voting Trust Agreement.
10.1* Employment contract with Robert Sussman.
10.2* Share Purchase Agreement between Van Dyne-Crotty, Inc., Scott
Siegel and Robert Sussman.
10.3* Supply Agreement between Van Dyne-Crotty, Inc. and First Aid
Select, Inc.
10.4* Lease Agreement between First Aid Select and Robert Sussman.
17.1* Letter of Resignation, dated August 22, 2000, from Robert
Sussman (incorporated by reference to the Company's Form 8-K
filed with the SEC on August 30, 2000).
17.2* Severance Agreement, dated August 16, 2000, by and between
First Aid Direct, Inc. and Robert Sussman (incorporated by
reference to the Company's Form 8-K filed with the SEC on
August 30, 2000).
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
*Previously filed.
21
<PAGE>
PART F/S
Following are our audited financial statements for the years ended
December 31, 1999 and 1998, including the independent auditor's report, the
balance sheets as of December 31, 1999 and 1998 and the related statements of
operations in shareholders' equity and cash flows for the years then ended, and
unaudited balance sheet as of June 30, 2000, with the related consolidated
statements of operations, stockholders' deficiency, and cash flows for the three
months ended June 30, 2000 and 1999.
22
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
First Aid Direct, Inc. has caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST AID DIRECT, INC.
By: /s/ Scott Siegel
-----------------------------------
Scott Siegel, Chief Executive
Officer
Date: November 13, 2000
23
<PAGE>
================================================================================
FIRST AID DIRECT, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
<PAGE>
FIRST AID DIRECT, INC.
INDEX TO FINANCIAL STATEMENTS
-----------------------------
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
FINANCIAL STATEMENTS
Balance Sheets F-2
Statements of Operations F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
First Aid Direct, Inc.
Sunrise, Florida
We have audited the accompanying balance sheet of First Aid Direct, Inc. as of
December 31, 1999 and the related statements of operations, stockholders' equity
and cash flows for the two years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Aid Direct, Inc. as of
December 31, 1999, and the results of its operations and its cash flows for the
two years then ended in conformity with generally accepted accounting
principles.
The accompanying balance sheet of First Aid Direct, Inc. as of June 30, 2000,
and the related consolidated statements of operations, stockholders' deficiency,
and cash flows for the six months ended June 30, 2000 and 1999 were not audited
by us, and, accordingly, we do not express an opinion or any other form of
assurance on them.
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
January 26, 2000
F-1
<PAGE>
FIRST AID DIRECT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
------ ------------ ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 25,942 $ 270,839
Accounts receivable, net of allowance for doubtful
accounts of $20,000 413,809 312,593
Inventories 462,146 305,813
------------ ------------
Total current assets 901,897 889,245
Property and Equipment, Net 75,959 86,284
Customer Lists 129,559 --
Other Assets 34,361 28,196
------------ ------------
$ 1,141,776 $ 1,003,725
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 204,453 $ 162,665
Accrued liabilities 20,683 36,335
Due to stockholder 50,000 --
Income taxes payable -- 6,500
-- ------------
Total current liabilities 275,136 205,500
------------ ------------
Commitments, Contingencies and Other Matters -- --
Stockholders' Equity:
Common stock, $.001 par value; 50,000,000 shares authorized;
3,905,000 shares issued and outstanding 3,905 3,905
Additional paid-in capital 1,596,207 1,596,207
Deficit (728,472) (796,887)
------------ ------------
871,640 803,225
Less stock subscription receivable 5,000 5,000
------------ -----------
866,640 798,225
$ 1,141,776 $ 1,003,725
============ ============
</TABLE>
See notes to financial statements
F-2
<PAGE>
FIRST AID DIRECT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended June 30, December 31,
------------------------- -------------------------
2000 1999 1999 1998
----------- --------- ----------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Net Sales $ 1,328,904 $ 851,458 $ 1,999,361 $ 637,951
Cost of Sales 937,954 612,709 1,424,025 503,547
----------- --------- ----------- ---------
Gross Margin 390,950 238,749 575,336 134,404
General and Administrative Expenses 322,535 247,047 700,757 465,697
----------- --------- ----------- ---------
Income (Loss) From Continuing Operations Before Income Taxes 68,415 (8,298) (125,421) (331,293)
Income Taxes Benefit -- (22,000) (85,500) (3,500)
----------- --------- ----------- ---------
Income (Loss) From Continuing Operations 68,415 13,702 (39,921) (327,793)
----------- --------- ----------- ---------
Discontinued Operations:
Income (loss) from discontinued operations, less applicable
income taxes of $0, $22,000, $4,000 and $3,500 -- (1,128) 23,193 19,817
Gain on disposal of discontinued operations, less
applicable income taxes of $88,000 in 1999 -- -- 150,097 --
----------- --------- ----------- ---------
Total discontinued operations -- (1,128) 173,290 19,817
----------- --------- ----------- --------
Net Income (Loss) $ 68,415 $ 12,574 $ 133,369 $(307,976)
=========== ========= =========== =========
Net Income (Loss) Per Common Share -
Basic and Diluted:
Continuing operations $ .02 $ -- $ (.01) $ (.10)
Discontinued operations -- -- .04 .01
----------- --------- ---------- ---------
Net income (loss) $ .02 $ -- $ .03 $ (.09)
=========== ========= ========== ==========
</TABLE>
See notes to financial statements
F-3
<PAGE>
FIRST AID DIRECT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-in
Shares Amount Capital Deficit
------ ------ ------- -------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 2,900,000 $ 2,900 $ 1,043,402 $ (622,280)
Year Ended December 31, 1998:
Sale of common stock 488,000 488 487,512 --
Issuance of common stock for services -- -- 1,560 --
Options exercised 405,000 405 10,845 --
Deferred compensation amortization -- -- -- --
Net loss -- -- -- (307,976)
--------- --------- --------- ---------
Balance, December 31, 1998 3,793,000 3,793 1,543,319 (930,256)
Year Ended December 31, 1999:
Sale of common stock 112,000 112 111,888 --
Acquisition of treasury stock -- -- -- --
Issuance of common stock for services -- -- -- --
Options exercised -- -- (59,000) (100,000)
Deferred compensation amortization -- -- -- --
Net income -- -- -- 133,369
--------- --------- --------- ---------
Balance, December 31, 1999 3,905,000 3,905 1,596,207 (796,887)
Six months ended June 30, 2000 (Unaudited):
Net income -- -- -- 68,415
--------- --------- --------- ---------
Balance, June 30, 2000 (Unaudited) 3,905,000 $ 3,905 $ 1,596,207 $ (728,472)
========= ========= ========= =========
</TABLE>
[RESTUBBED]
<TABLE>
<CAPTION>
Treasury Stock Stock
-------------- Subscription Deferred
Shares Amount Receivable Compensation Total
------ ------ ---------- ------------ -----
<S> <C> <C> <C> <C>
Balance, December 31, 1997 -- $ -- $ (750) $ (212,500) $ 210,772
Year Ended December 31, 1998:
Sale of common stock -- -- -- -- 488,000
Issuance of common stock for services -- -- -- -- 1,560
Options exercised -- -- (3,250) -- 8,000
Deferred compensation amortization -- -- -- 75,000 75,000
Net loss -- -- -- -- (307,976)
--------- --------- --------- --------- --------
Balance, December 31, 1998 -- -- (4,000) (137,500) 475,356
Year Ended December 31, 1999:
Sale of common stock -- -- -- -- 112,000
Acquisition of treasury stock 125,000 (75,000) -- 75,000 --
Issuance of common stock for services (25,000) 15,000 -- -- 15,000
Options exercised (100,000) 60,000 (1,000) -- --
Deferred compensation amortization -- -- -- 62,500 62,500
Net income -- -- -- -- 133,369
--------- --------- --------- --------- --------
Balance, December 31, 1999 -- -- (5,000) -- 798,225
Six months ended June 30, 2000 (Unaudited):
Net income -- -- -- -- 68,415
--------- --------- --------- --------- --------
Balance, June 30, 2000 (Unaudited) -- $ -- $ (5,000) $ -- $ 866,640
========= ========= ========= ========= ========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
FIRST AID DIRECT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------
2000 1999 Year Ended December 31,
--------- --------- ----------------------
(Unaudited) 1999 1998
--------- ---------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 68,415 $ 12,574 $ 133,369 $(307,976)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 14,803 14,000 15,289 8,681
Provision for doubtful accounts -- -- 22,973 12,332
Gain on sale of discontinued operations -- -- (238,250) --
Change in net assets and liabilities of discontinued operations -- 69,813 (31,249) --
Stock issued for compensation -- -- 15,000 1,560
Deferred compensation amortization -- 37,500 62,500 75,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (75,952) (167,023) (177,809) (160,228)
Inventories (114,959) (11,394) 3,790 (125,874)
Other assets (6,165) -- (24,046) 1,363
Increase in:
Accounts payable and accrued liabilities 26,136 4,533 84,991 64,703
Income taxes payable (6,500) -- 6,500 --
--------- --------- --------- ---------
Net cash used in operating activities (94,222) (39,997) (126,942) (430,439)
--------- --------- --------- ---------
Cash Flows from Investing Activities:
Purchase of equipment (675) (5,182) (59,767) (45,606)
Proceeds from sale of discontinued operations -- -- 350,000 --
--------- --------- --------- ---------
Net cash provided by (used in) investing activities (675) (5,182) 290,233 (45,606)
--------- --------- --------- ---------
Cash Flows from Financing Activities:
Payment of stockholder loans (150,000) -- -- --
Repayments on notes payable -- -- (25,000) (16,685)
Proceeds from sale of common stock -- 112,000 112,000 496,000
--------- --------- --------- ---------
Net cash provided by financing activities (150,000) 112,000 87,000 479,315
--------- --------- --------- ---------
Net Increase in Cash and Cash Equivalents (244,897) 66,821 250,291 3,270
Cash and Cash Equivalents, Beginning 270,839 20,548 20,548 17,278
--------- --------- --------- ---------
Cash and Cash Equivalents, Ending $ 25,942 $ 87,369 $ 270,839 $ 20,548
========= ========= ========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ -- $ -- $ 584 $ 5,299
========= ========= ========= =========
Non-cash Investing and Financing Activities:
Assets acquired in exchange for debt $ 200,000 $ 63,000
========= =========
Debt assigned in sale of assets $ 60,000
=========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
FIRST AID DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999 AND 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CAPITALIZATION
First Aid Direct, Inc. (the Company) was incorporated in the State
of Florida in July 1977 as Rehabilitation Institute of South
Florida, Inc. The Articles of Incorporation, as amended on August
5, 1997, authorize the Company to issue and have outstanding at any
one time 50,000,000 shares of common stock with a par value of
$.001. A second amendment to the Articles of Incorporation on
December 22, 1999 ratified the name change from First Aid Select,
Inc. to First Aid Direct, Inc.
BUSINESS
The Company distributes nationally wholesale first aid products to
first aid distributors and also to nationwide companies on a direct
order system as end users. The Company operated a regional retail
van distribution business which was sold on December 20, 1999 and
is presented as discontinued operations in the accompanying
financial statements (see Note 9).
UNAUDITED FINANCIAL INFORMATION
The accompanying financial statements as of June 30, 2000 and for
the six months ended June 30, 2000 and 1999 are unaudited. However,
in the opinion of management, such financial statements contain all
adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of financial position, results of
operations and cash flows for such periods. Results of interim
periods are not necessarily indicative of results to be expected
for an entire year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories, which are comprised of first aid products held for
sale, are stated at the lower of cost or market. Cost is determined
on the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of
the assets. Gain or loss on disposition of assets is recognized
currently. Repairs and maintenance which do not extend the lives of
the respective assets are charged to expense as incurred. Major
replacements or betterments are capitalized and depreciated over
the remaining useful lives of the assets.
F-6
<PAGE>
FIRST AID DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CUSTOMER LISTS
The Company purchased customer lists from a stockholder (see Note
9), which will be amortized using the straight-line method over an
estimated useful life of ten years.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk are cash and accounts receivable.
CASH
The Company maintains deposit balances at financial institutions
that, from time to time during the year, may exceed federally
insured limits. At December 31, 1999 and June 30, 2000, the Company
had deposits of approximately $24,000 and $0 (unaudited),
respectively, in excess of federally insured limits. The Company
maintains its cash with a high quality financial institution which
the Company believes limits these risks.
ACCOUNTS RECEIVABLE
The Company generally sells product to a wide variety of customers
without requiring collateral. The Company monitors exposure to
credit losses and maintains allowances for anticipated losses
considered necessary under the circumstances.
INCOME TAXES
The Company accounts for its income taxes using Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes, which requires the recognition of deferred tax
liabilities and assets for expected future tax consequences of
events that have been included in the financial statements or tax
returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse.
REVENUE RECOGNITION
The Company recognizes revenue, (including shipping and handling
fees) when the merchandise is shipped to customers. Allowances for
estimated returns are provided when sales are recorded. All costs
relating to shipping and handling are included in cost of sales.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs
incurred for the years ended December 31, 1999 and 1998 and the six
months ended June 30, 2000 were approximately $23,000, $9,000 and
$6,800 (unaudited), respectively.
F-7
<PAGE>
FIRST AID DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NON-COMPETITION AGREEMENT
The Company is amortizing the payments made pursuant to a
non-competition agreement (see Note 9) over the five-year term of
the agreement.
START-UP COSTS
Start-up costs are expensed as incurred. Start-up costs incurred
for the year ended December 31, 1998 was approximately $56,000.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
No. 25"), and related interpretations, in accounting for its
employee stock options rather than the alternative fair value
accounting allowed by SFAS No. 123, "Accounting for Stock-Based
Compensation." APB No. 25 provides that the compensation expense
relative to the Company's employee stock options is measured based
on the intrinsic value of the stock option. SFAS No. 123 requires
companies that continue to follow APB No. 25 to provide a pro-forma
disclosure of the impact of applying the fair value method of SFAS
No. 123.
The Company follows SFAS No. 123 in accounting for stock options
issued to non-employees.
NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share has been computed using
the net income (loss) from continuing operations divided by the
weighted average shares outstanding. Diluted income per common
share assumes exercising options granted.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying disclosures. Although
these estimates are based on management's knowledge of current
events and actions it may undertake in the future, they may
ultimately differ from actual results.
F-8
<PAGE>
FIRST AID DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "REPORTING COMPREHENSIVE INCOME" and No. 131, "DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION". SFAS No.
130 establishes standards for reporting and displaying
comprehensive income, its components and accumulated balances. SFAS
No. 131 establishes standards for the way that public companies
report information about operating segments in annual financial
statements and requires reporting of selected information about
operating segments in interim financial statements issued to the
public. Both SFAS No. 130 and SFAS No. 131 are effective for
periods beginning after December 15, 1997. The Company adopted
these new accounting standards in 1998, and their adoption had no
effect on the Company's financial statements and disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES". SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as
a hedge, the objective of which is to match the timing of the gain
or loss recognition on the hedging derivative with the recognition
of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the
earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss
is recognized in income in the period of change. On June 30, 1999,
the FASB issued SFAS No. 137, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE
OF FASB STATEMENT NO. 133." SFAS No. 133 as amended by SFAS No. 137
is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. In June, 2000, the FASB issued SFAS No. 138,
"ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING
ACTIVITIES." SFAS No. 133 as amended by SFAS No. 137 and 138 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 2000.
Historically, the Company has not entered into derivatives
contracts to hedge existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of this standard
on January 1, 2001 to affect its financial statements.
NOTE 2. PROPERTY AND EQUIPMENT
Estimated June 30, December 31,
Useful Lives 2000 1999
------------ ---- ----
(Unaudited)
Furniture and equipment 5 years $ 87,405 $ 86,730
Leasehold improvements 5 years 20,584 20,584
--------- ---------
107,989 107,314
Less accumulated depreciation 32,030 21,030
--------- ---------
$ 75,959 $ 86,284
========= =========
F-9
<PAGE>
FIRST AID DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. RELATED PARTY TRANSACTIONS
LEASES
The Company leases office space for its corporate facility from a
related party under a five year operating lease expiring July 31,
2004. Annual rent is approximately $53,000. Rent expense was
approximately $45,000 and $28,000 for 1999 and 1998, respectively,
and $27,000 (unaudited) for the six months ended June 30, 2000.
STOCK ISSUED FOR SERVICES
During 1998, a then major stockholder of the Company transferred
2,600 shares of common stock to certain employees in exchange for
services. These shares have been accounted for as compensation
expense at the estimated fair value of the shares issued, with a
corresponding credit to additional in paid-in capital.
EMPLOYMENT AGREEMENTS
During 1997, the then President of the Company entered into a
three-year employment agreement with the Company providing for an
annual salary of $80,000. The agreement also provided for the
employee to receive 375,000 shares of Company common stock to be
earned over a three-year period. Upon termination, any shares not
yet earned were to be returned to the Company. The 375,000 shares
were valued at $225,000, the market value of the Company common
shares on the date of the agreement adjusted to reflect market
conditions. The compensation was deferred and recognized over the
life of the agreement. In the fourth quarter of 1999, the agreement
was terminated and 125,000 shares were returned to the Company.
(See Treasury Stock Note below).
The CEO of the Company entered into a five-year employment
agreement with the Company effective December 20, 1999. The base
compensation is approximately $100,000, with bonus increases
provided that certain performance requirements are met. The
employment agreement also provides for 150,000 stock options to be
granted January 1, 2000, exercisable over a five-year vesting
period. The option exercise price is $1.50, which approximates
market value on the date of grant (see Note 10).
TREASURY STOCK
During 1999, a former employee was required to forfeit 125,000
shares, which were returned to the Company, due to non-performance
of his employment contract (see employment agreements above). These
shares have been accounted for in the accompanying financial
statements as treasury stock at a cost of $75,000. Of these shares
held in treasury, 25,000 shares were reissued to the CEO and other
consultants, and accounted for as compensation, at the estimated
fair value of these shares, and 100,000 shares were reissued upon
the exercise of certain stock options (see Note 8). No treasury
shares remained as of December 31, 1999.
SALES TO STOCKHOLDER (UNAUDITED)
During the six months ended June 30, 2000, 19% or approximately
$252,000 of revenue was derived from sales to the stockholder which
acquired the retail operations on December 16, 1999. (See Note 8).
F-10
<PAGE>
FIRST AID DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. INCOME TAXES
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes. SFAS No. 109 is an asset and liability
approach for computing deferred income taxes.
A reconciliation of income tax computed at the statutory federal
rate to income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999 1999 1998
--------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Tax provision at the statutory rate of 34% $ 23,000 $ 17,000 $ 68,800 $(79,000)
State income taxes, net of federal income tax 2,000 1,500 1,500 (7,000)
Benefit of net operating loss carryforward (25,000) (18,500) (37,700) --
Exercised stock options -- -- (39,400) --
Change in valuation allowance -- -- -- 98,000
Other -- -- 13,300 (12,000)
--------- -------- -------- --------
$ -- $ -- $ 6,500 $ --
========= ======== ======== ========
</TABLE>
The components of current tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999 1999 1998
--------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Continuing operations $ -- $(22,000) $(85,500) $ (3,500)
Discontinued operations:
Operations -- 22,000 4,000 3,500
Disposal -- -- 88,000 --
---------- -------- -------- --------
Income tax expense $ -- $ -- $ 6,500 $ --
========== ======== ======== ========
</TABLE>
The net tax effects of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes are reflected in deferred
income taxes. Significant components of the Company's deferred tax
assets as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Net operating loss carryforward $ 123,000 $ 186,000
Stock and stock options issued for compensation 39,000 39,000
Start-up costs 40,000 60,000
Less valuation allowance (202,000) (285,000)
--------- ---------
Net deferred tax asset $ -- $ --
========= =========
</TABLE>
F-11
<PAGE>
FIRST AID DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. INCOME TAXES (Continued)
As of December 31, 1999 and June 30, 2000, sufficient uncertainty
exists regarding the realizability of these deferred tax assets and,
accordingly, a 100% valuation allowance has been established.
At December 31, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $400,000, which are
available to offset future federal taxable income, if any, through
2018.
In accordance with certain provisions of the Tax Reform Act of 1986, a
change in ownership of greater than 50% of a corporation within a three
year period will place an annual limitation on the corporation's
ability to utilize its existing tax benefit carryforwards. Such a
change in ownership occurred in 1997. As a result, based upon the
amount of the taxable loss incurred to December 31, 1997, the Company
estimates that an annual limitation will apply to the net operating
loss carry forward existing as of that date in the amount of $155,000
annually. The Company's utilization of its tax benefit carryforwards
may be further restricted in the event of subsequent changes in the
ownership of the Company.
NOTE 5. NET INCOME (LOSS) PER COMMON SHARE
The Company follows Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share" which requires the presentation of both
basic and diluted net income (loss) per share.
Basic net income (loss) per common share has been computed based upon
the weighted average number of shares of common stock outstanding
during the period. The number of shares used in the computation was
3,887,000 and 3,237,000 for the years ended 1999 and 1998,
respectively, and 3,905,000 and 3,831,578 (unaudited) for the six
months ended June 30, 2000 and 1999, respectively. Diluted income
(loss) per common share approximates basic in all periods. The number
of shares used in the diluted computation was 3,961,563 for the year
ended December 31, 1999. Diluted income (loss) per common share has not
been presented for 1998, since the effect of common share equivalents
would be anti-dilutive. The number of shares used in the diluted
computation was 3,979,667 (unaudited) and 4,005,578 (unaudited) for the
six months ended June 30, 2000 and 1999, respectively.
NOTE 6. PRIVATE PLACEMENT OF SECURITIES
During the period from September 1997 through December 31, 1999, the
Company has raised substantially all of its capital through the private
placement of its equity securities. The sales of these securities
resulted in the issuance of an aggregate of 1,000,000 shares of its
common stock and the receipt of $1,000,000 of total proceeds as of
December 31, 1999.
F-12
<PAGE>
FIRST AID DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7. STOCK OPTIONS
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). As permitted by SFAS No. 123, the Company
continues to apply the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). The differences between the
recognition and measurement provisions of SFAS No. 123 and APB 25 had
no material effect on the Company's results of operations for 1999 and
1998.
The Company estimates the fair value of each stock option at the grant
date by using the Black-Sholes option-pricing model with the following
weighted-average assumptions used for grants in 1997; no dividend
yield; an expected life of five years; 50% expected volatility, and
6.00% risk free interest rate. No options were granted in 1998 or 1999.
The Company granted 150,000 options during the six months ended June
30, 2000 (unaudited), pursuant to an employment agreement (see Note 3).
The 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, valuation models require the input of
highly subjective assumptions including the expected price volatility.
Since the Company's stock options have characteristics significantly
different from those of traded options, and since variations in the
subjective input assumptions can materially affect the fair value
estimate, the actual results can vary significantly from estimated
results.
A summary of the status of options and changes during the periods ended
on those dates are presented below:
<TABLE>
<CAPTION>
Range of
Exercise
Options Price
--------- -------------
<S> <C> <C>
Summary of Activities in Stock Options:
Balance, December 31, 1997 585,000 $.01 to $.10
Year Ended December 31, 1998:
Granted --
Exercised (405,000) $.01 to $.10
---------
Balance, December 31, 1998 180,000 $.01 to $.10
Year Ended December 31, 1999:
Granted --
Exercised (100,000) $.01
---------
Balance, December 31, 1999 80,000 $.10
Six Months Ended June 30, 2000 (Unaudited):
Granted 150,000 $1.50
Exercised --
---------
Balance, June 30, 2000 (Unaudited) 230,000 $.10 to $1.50
=========
</TABLE>
F-13
<PAGE>
FIRST AID DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7. STOCK OPTIONS (Continued)
The following table summarizes information about outstanding options at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- ----------------------------------------------------
Number Number Weighted Number Number
Outstanding Outstanding Average Weighted Exercisable Exercisable Weighted
Range of at at Remaining Average at at Average
Exercise December 31, June 30, Contractual Exercise December 31, June 30, Exercise
Prices 1999 2000 Life Price 1999 2000 Price
------ ---- ---- ---- ----- ---- ---- -----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
$.10 to $1.50 80,000 -- 2.5 $.10 to $1.50 80,000 -- $.10
============ ====== ========== ===== ============= ====== ========== ====
</TABLE>
Subsequent to December 31, 1999, 150,000 options were granted to an
employee pursuant to an employment agreement (see Notes 3 and 10).
NOTE 8. SALE OF RETAIL OPERATIONS
On December 16, 1999, the Company entered into an asset purchase
agreement to sell the regional retail van distribution business and all
related assets to a stockholder for $350,000, to be paid in cash. The
results of operations of the van distribution business for the
respective periods are presented as discontinued operations in the
accompanying statements of operations. Additionally, the gain
recognized on the sale is presented separately as a component of
discontinued operations.
The following table represents the summarized results of operations of
the discontinued division.
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Revenue $ 668,211 $ 547,248
Expenses 641,018 523,931
--------- ---------
Income from discontinued operations before income taxes 27,193 23,317
Income tax expense (4,000) (3,500)
--------- ---------
Income from discontinued operations $ 23,193 $ 19,817
========= =========
</TABLE>
The Company had various equipment installment notes (approximately
$7,000 in 1998, which increased to $70,000 in 1999), payable to a bank,
collateralized by certain vans. These loans were assigned to the
purchaser as part of the sale of the retail division and were,
therefore, removed from the accounting books and records as part of the
sale transaction. The outstanding principal balance of such obligations
at December 20, 1999, the effective date of the transaction, was
approximately $60,000. The Company remains the maker of record and
legally liable for such obligations, should the assignee fail to repay
the debt.
F-14
<PAGE>
FIRST AID DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9. ACQUISITION OF ASSETS
PURCHASE
On March 16, 2000, the Company entered into an asset purchase
agreement to buy certain assets from a Company stockholder. The
Company purchased accounts receivable, inventory and customer lists
for $200,000, as noted below, to be paid in cash. The $200,000
represents cost as reflected in the accounting books and records of
the stockholder. As of June 30, 2000, $150,000 has been paid; the
remaining $50,000 is due on demand.
Accounts receivable $ 25,264
Inventories 41,374
Customer listings 133,362
---------
$ 200,000
COMMITMENTS
The Company entered into a non-competition agreement and a
consulting agreement with the original owner of the assets
purchased above. The covenant not to compete is for a five-year
term and provides for payments of $25,000 each year, for a term of
three years, to be paid in thirty-six equal installments totaling
$75,000. The consulting agreement is for a three-year term and
provides for thirty-six equal installments totaling $75,000.
NOTE 10. SUBSEQUENT EVENT (UNAUDITED)
On August 22, 2000, the Company and the CEO mutually terminated his
employment agreement and entered into a severance agreement. This
agreement provides, among other things, for the payment of $50,000 as
full settlement of all obligations the Company had pursuant to the
employment agreement (see Note 3), including the surrender of his right
to receive 150,000 options to purchase Company common stock, which were
to vest over five years. The CEO also held the office of President,
Treasurer and Secretary and served as a director of the Company.
F-15
