U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One) [ ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 -
[Fee Required]
[X] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
[No Fee Required]
For the transition period from January 1, 1996 to May 31, 1996
Commission file number 33-76634
ENERGY CONSERVATION INTERNATIONAL, INC.
(Name of small business issuer in its charter)
Florida
59-3223766
(State or other jurisdiction of incorporation (IRS Employer ID No.)
or organization)
503 Barnes Drive
Brandon, Florida 33511
(Address of principal executive offices)
Issuer's telephone number (813) 689 1041
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on
which registered
None
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Check if disclosure of delinquent filers in response to Item 405 od Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuers' revenues for its most recent fiscal year: $0.00
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within the past 60 days. As of August 15, 1996 -
$4,093,998
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of August 15, 1996 - 2,540,834
shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
Item 1. Description of Business.
Vision Marketing Group, Incorporated ("VMG") closed out its escrow on June 7,
1996, with the sale of 35,001 shares of its common stock at $6.00 per share
pursuant to the Offering and Prospectus dated June 7, 1995. The shares were
purchased by Energy Conservation Systems, Inc. ("ECS"), a Florida corporation. A
principal of the purchaser is Mr. Jose A. Alvarez, the Principal Accounting
Officer and Chief Financial Officer of VMG. At the same time, ECS also acquired
by purchase from Mr. William E. Baker, Jr., and Dottie S. Baker, his wife,
1,438,500 shares of their 1,948,500 issued and outstanding shares in the Company
in an exempt transaction for an undisclosed sum. Thereafter, Mr. and Mrs. Baker
transferred an additional 285,000 shares to different, unrelated parties in an
exempt transaction for an undisclosed sum. Mr. and Mrs. Baker retain ownership
of 225,000 shares of the Company's stock. Prior to these transactions, Mr.
Alvarez individually owned 100,000 shares of the Company stock. As a result of
these transactions Mr. Alvarez and ECS control a total of 1,573,501 shares of
stock in the Company or 61.93% of the 2,540,834 total issued and outstanding
shares.
On June 11, 1996, Mr. and Mrs. Baker resigned as officers and directors of the
Company and terminated any and all employment relationships effective
immediately. New Board members, led by Chairman Daniel S. Pena, Sr., and
President and CEO Jose A. Alvarez were duly elected. (A summary profile of the
new Board members is included in Item 10). Mr. Pena has substantial experience
in acquiring and building companies, operating them publicly, and profitably. He
also has an extensive financial background in national and international
markets. Mr. Alvarez, a CPA, has substantial experience operating an accounting
firm and consulting and helping clients with their businesses.
Based on the change in personnel and ownership in the Company, the management
evaluated the existing business strategy and, with the approval of the Board of
Directors, decided to embark on a change in business direction for the Company.
The Company elected to change the name of the corporation to Energy Conservation
International, Inc., which was approved by the State of Florida on July 11,
1996. The change in name was based upon a decision to explore the energy
conservation field, and at the same time to evaluate the existing on-going
business of the Company. The management was presented with an opportunity to
transact business in the energy conservation field and concluded that the name
change was appropriate under those circumstances. In addition, the Company
elected to change its fiscal year end to May 31, which was approved by the
Internal Revenue Service.
The Company continues to have exclusive rights on a patent for a variety of
automotive products, including a gasoline consumption-saving oil additive. The
management will evaluate the feasibility of marketing these products in the
future.
On June 12, 1996, the Board of Directors authorized the proceeds of the offering
to be utilized to pursue the previously mentioned change in business direction
to the energy conservation field. On this date also the State of Florida
approved the Articles of Incorporation for Mor-Lite of North America, Inc.
("MLNA") a wholly-owned subsidiary of the Company, and on June 13, 1996, the
Company acquired certain assets and U.S. governmental part numbers from a
well-established company in the business of energy-efficient lighting products
and elected to form this wholly-owned subsidiary to facilitate the acquisition
and to transact this business on behalf of the Company.
On June 13, 1996, also, MLNA contracted the services of Mr. Elton R. Guffey
under a five (5) year written employment agreement to manage and administer the
day-to-day business affairs of MLNA and to provide for the marketing and sale of
MLNA products and services. MLNA will operate with the same directors as the
parent (Energy Conservation International, Inc.). Mr. Guffey and the top
management of MLNA have many years of industry experience in the energy
conservation field, as well as extensive knowledge of dealing with U.S.
Government contracts.
The management of the Company intends to pursue other potential mergers and
acquisitions in the energy conservation field. This will enable the Company to
increase in size and revenues and thus become a more dominant player in this
dynamic filed.
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A meeting of the shareholders is being scheduled for October 16, 1996, to ratify
the actions of the Board of Directors outlined herein.
A detailed analysis of the proposed business activity of the subsidiary follows.
INDUSTRY BACKGROUND
Energy management is an attractive new industry which has emerged primarily in
response to the increased need of both businesses and government to reduce
operating costs and to an ever increasing awareness of the environmental impact
of energy consumption. Energy efficient lighting provides benefits both in terms
of cost reduction as well as energy conservation. It has been estimated that
lighting accounts for approximately 20-25% of electricity used annually in the
United States. Lighting for industry, businesses, offices, and warehouses
represents 80-90% of total United States lighting electricity usage. Generating
electricity typically involves the burning of fossil fuels which has a
detrimental impact on the environment. By reducing the amount of electricity
used, costs are reduced as well as the amount of fuel necessary to operate a
power plant. According to the Environmental Protection Agency ("EPA"), a
reduction in the use of electricity results in a reduction in the burning of
fossil fuels, which in turn reduces air pollution. The by-products of
electricity generation have been associated with global warming, acid rain, and
smog.
The savings resulting from energy conservation are particularly important to
large commercial operations such as office buildings, grocery stores,
restaurants, department stores, and other retail facilities.
Due to budgetary and environmental concerns, the Federal Government has mandated
energy conservation measures in all government agencies. Industry analysts
estimate that the government market segment of the industry will account for two
to three billion dollars ($2,000,000,000.00 to $3,000,000,000.00) in government
commitments by the year 2000 in order to meet the requirements of federal law.
The current need for energy-conserving fixtures and equipment includes over
7,700 Federal buildings under the management of the General Services
Administration. The average age of these Federal buildings is twenty five years,
and management believes most are presently using outdated inefficient lighting.
An additional benefit of the energy management industry is its direct effect on
air pollution. Electric generating plants emit carbon dioxide and other noxious
gases which pollute the atmosphere. The EPA estimates that an effective program
of retrofitting lighting throughout America would reduce air pollution by a
factor equivalent to removing 40 million automobiles from the nation's highways.
MLNA will design and fabricate a line of energy efficient fluorescent lighting
products using reflective lighting technology. MLNA's product line will include
energy efficient lamps, ballasts, specular aluminum reflectors, specular silver
reflectors, fixtures, and accessories. MLNA 's products are used in new
construction, renovations, and the retrofitting of existing lighting fixtures.
MLNA will provide both custom designed fixtures, which are made to order
pursuant to individual contract specifications, as well as prepackaged lighting
fixtures.
MLNA's ability to compete depends upon its ability to manage numerous factors
successfully, including: product cost, quality and performance, successful new
product development, continued access to reflective and other energy-efficient
materials, changes in technology, the number and nature of its competitors and
general economic conditions. MLNA will experience direct competition from a
number of companies possessing substantially greater financial, marketing,
personnel, and other resources than MLNA. The major competitors for MLNA's
energy management business include Parke Industries, Inc., Silverlight,
Reflect-A-Light, American Illuminetics, MetalOptics, and Harris Lighting. These
direct competitors use materials not manufactured by 3M. In addition to the
competitors listed, there are seven other competitors manufacturing and
marketing energy management lighting fixtures and equipment using 3M's
Silverlux-TM reflective material. In 1995, these companies accounted for
approximately 75% of Silverlux-TM reflective film sold by 3M.
A typical recessed fluorescent lighting fixture used in an office measures two
feet by four feet and consumes 192 watts of electricity per hour. Conventional
fluorescent lighting fixtures typically contain four 40 watt lamps and
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two magnetic ballasts, (or one ballast for every two lamps). Fluorescent lamps
are round and emit the same number of lumens, or illumination, in all three
hundred sixty degrees. The lower one third of the lamp (the part of the lamp
that a person can see by looking up at it) illuminates the work area. A large
portion of the light emitted by the other two thirds of the lamp is trapped
within the light fixture. MLNA's energy efficient lighting which uses 3M's
Silverlux-TM reflector permits most of the previously trapped light to be
reflected onto the work area. The replacement of the typical four 40 watt
fluorescent lamps and two magnetic ballasts with MLNA's reflectors, two 32 watt
lamps and one electronic ballast achieves a 69% reduction in electricity per
hour with a reduction of approximately 5% in the total illumination of the work
area. In addition, a reduction in the number of lamps used in a lighting fixture
has the effect of reducing the heat generated, thus providing additional savings
in air conditioning costs.
The reflectors offered by MLNA are used to increase efficiency since with each
reflection of a light beam, some light is absorbed. The key to efficiency is to
have maximum specular reflectivity and a minimum number of reflections. MLNA's
Silverlux-TM reflectors (silver and aluminum) are more efficient than anodized
aluminum reflectors.
MLNA will produce or distribute a wide array of energy efficient lamps, lighting
fixtures, and other lighting fixtures, as specified below.
MOR-LUX-TM Fluorescent Fixtures. MLNA's highest quality lighting fixture
initially will be the MOR-LUX Fluorescent Fixture. This lighting fixture
features MLNA's highest quality lamps with a 3M Silverlux-TM Specular Reflector
which increases the fixtures' energy efficiency to approximately 80% versus
approximately 45% for a standard lighting fixture. The use of this lighting
fixture can reduce associated operating costs to as low as one watt per square
foot as opposed to approximately 2.5 watts per square foot for a standard
lighting fixture. MOR-LUX-TM fixtures feature the 3M Silverlux-TM. Specular
materials manufactured by ALCOA and Material Sciences Corporation and are also
available to meet a wide range of customer needs.
Specular Reflectors. MLNA will fabricate both specular silver reflectors and
specular aluminum reflectors in lighting fixtures produced at its facilities.
The majority of reflectors used in MLNA's fabrication process use 3M silver
laminated reflector material. The reflectors are to be fabricated by MLNA in a
process using 3M reflective film which is laminated to a specified, pre-tested
metal base. This lamination process forms a permanent bond with the base. These
reflectors use a clear, non-yellowing acrylic coating (patented by 3M) to
prevent oxidation and corrosion, and protect the reflector from degradation due
to ultraviolet light. The effects of oxidation, corrosion, and ultraviolet light
reduce the reflectivity and, consequently, the illumination and the efficiency
of the lighting fixture. MLNA will use either aluminum reflective film or silver
reflective film in the bonding process. Using computer technology MLNA will then
size and shape reflectors for its fixtures, as needed.
Packaged Kits. MLNA will offer a pre-packaged retrofit kit complete with
specular reflector, electronic ballast, efficient T8 lamps, lampholders,
brackets and mounting hardware to convert standard 2x4 and 2x2 recessed troffer
fixtures to state-of-the-art energy-efficient standards. This "all-in-one" kit
eliminates the task of searching all the component parts necessary to retrofit a
fixture. The packaged kits will be marketed to electrical contractors and
distributors, as well as the Home Center market.
Strip-T's Retrokits. MLNA will offer a product known as Strip-T's Retrokits
which are prewired, preassembled lighting fixtures that have ballasts
premounted, and are ready for installation. These fixtures are sold prepackaged
through independent distributors, and are marketed as an easy-to-install
retrofit product for open channel or strip type fixtures. Strip-T's Retrokits
are available with either silver or aluminum reflectors.
Lamps and Ballasts. MLNA will offer a line of energy efficient fluorescent lamps
and ballasts which it will obtain from Osram/Sylvania, Phillips N.V., General
Electric Co., Motorola, Inc. and Magnatek, Inc. A ballast is an electrical
device that acts as a control unit inside a fluorescent light fixture. These
products are offered as integral parts of a retrofit project or sold separately
if so ordered by a customer. The manufacture of Cool White (T-12) bulbs used in
a majority of administrative areas in the past has been prohibited by Federal
law since March 1996.
Custom Designed Parts and Accessories. MLNA will custom design parts and
accessories when retrofitting
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lighting fixtures. This ability to custom design parts and accessories to
duplicate original parts reduces installation time.
GOVERNMENT MARKET
Management believes that MLNA is well positioned to compete in the government
market. MLNA expects to utilize retired military officers who are acquainted
with both government and military procurement contract and acquisition systems.
Initially management intends to bid for contracts for various military
installations operated by the armed services of the United States.
The government market is comprised of three separate components: the General
Services Administration ("GSA"), Budgeted Federal Projects ("BFP"), and Shared
Energy Savings (SES). These three government market components are discusses
briefly below.
The General Services Administration. The GSA is authorized under federal law to
purchase energy management products, without competitive bidding, up to a
maximum of $300,000 per order. Prior to 1994, GSA was limited to awarding energy
management contracts or purchasing energy management products at a maximum of
$100,000 per order. MLNA currently offers 18 products under GSA Contract
#GS-07F-7164B and four others in the Defense General Supply Center ("DGSC")
catalog.
GSA operates an energy management program in over 7,700 federal government
buildings, training centers, child care centers, laboratories, and even the
White House. In 1993, GSA awarded approximately $30 million for 249 energy
retrofit projects, and as a result of these and other energy conservation
projects, GSA received approximately $5.7 million in utility rebates in 1993,
such rebates being used to fund additional projects. In 1994, GSA invested at
least $37 million for energy retrofit projects and the figure for 1995, certain
to be higher, will be published in September 1996.
Budgeted Federal Projects. Various energy management projects are budgeted by
federal agencies and are funded out of their budgets as allocated by Congress.
These projects are advertised in a construction industry publication and are
subject to competitive bidding.
Shared Energy Savings. Federal legislation, most recently in the Energy Policy
Act of 1992, authorizes government agencies to contract for the installation of
the energy efficient products without having to seek Congressional
appropriations or utilize current budget allocations. Financing is provided by
private capital, with the contractor (known as an "Energy Savings Company" or
"ESCO") receiving a share of the savings directly resulting from the energy
savings measures. The purpose of SES contracts is to offer the advantages of
performance based, turnkey energy project implementation. SES contracts utilize
the Energy Savings Company innovation, financing, and profit motivation to
sustain reduced energy consumption and cost throughout the contract term.
MLNA's primary focus for SES contract is the DOD. The DOD annually consumes
approximately $3 billion in energy to operate facilities at military
installations worldwide, representing approximately 80% of utility operating
expense for all federal facilities. The National Renewable Energy Laboratory has
estimated that, to implement the federally mandated reduction in energy
consumption by the year 2000, energy efficiency improvement investments between
$2 and $3 billion will be required. The United States Navy, a segment of the
DOD, operates and maintains a worldwide inventory of energy consuming buildings
in excess of 550 million square feet. As far back as fiscal 1991, the Navy spent
more than $850 million for purchased utilities and fuel, 70% of which was for
electricity.
Financing for SES contracts may be available either through a bank or other
lending institution or through a leasing company that will finance against the
income stream to be received. The federal government has agreed to guarantee the
payments to the lender over the period of the loan. Federal law permits
financing over a period of up to 24 years; however, ten years is typical for
such loans.
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PRIVATE SECTOR MARKET
Management is of the opinion that MLNA can also expand into the private sector
market. Management intends to enhance its assistance to its independent sales
representatives, recruit and train in-house sales representatives, and expand
its independent distributors' market.
Independent Sales Representatives. MLNA will initially generate commercial sales
through a group of approximately sixty nationwide independent sales
representatives ("Sales Representatives"). These Sales Representatives include
energy contractors and electrical contractors who order energy management
products from MLNA and typically install such products in their customers'
facilities. These Sales Representatives provide products for both new
construction as well as retrofit lighting projects. In situations where a sales
representative is also a contractor who performs the installation of the
products, such sales representative would be compensated separately by the
customer for such contracting and installation services.
The In-House Sales Representatives receive a sales commission on products sold,
working closely with the utility company representative responsible for a given
area to maximize the potential in that area. In addition to the utility company,
the MLNA representative will develop close relationships with two or more of the
leading electrical contractors operating in the same area, making calls with the
contractor to key customers to make recommendations and provide energy-efficient
products.
To date, MLNA has not been able to provide a unified approach to solicit and
develop large private sector customers through its Sales Representatives. MLNA's
strategy is to raise additional funds to assist its Sales Representatives in
targeting large entities such as hospitals, universities, food distributors,
office complexes, retail, as well as industrial customers. To implement this
strategy, management plans to provide product training for new sales
representative, develop new visual presentation marketing documents --
supplemented by targeted national advertising in periodicals -- and participate
in national construction industry trade shows. MLNA expects to develop sales in
the textile industry market and based upon its experience in that market it will
target other specialty industries with the goal of achieving similar market
penetration.
Independent Distributors. MLNA will also sell its energy management products to
independent distributors ("Distributors") who resell such products for
installation by third parties. The purchaser of the product in such a situation
is the Distributor, as opposed to sales made by a sales representative, where
the sale is made directly to the end user. MLNA discounts the price of its
products by the amount of a typical sales commission and sells the products
directly to the Distributor who may use or resell the products. Relationships
with Distributors are more informal than with Sales Representatives, and
Distributors are not expected initially to carry an inventory of Company
products, but order products for the fulfillment of particular offers. MLNA will
not be involved in any billing or collecting from end users when sales are made
to Distributors. It is MLNA's strategy to expand the Distributors' market, and
to induce Distributors to carry an inventory of MLNA's energy efficient
products.
Another important aspect of MLNA's strategy has been to establish business
arrangements with companies involved in energy conservation programs such as
retrofit HVAC, building envelope improvements (such as insulation), and
incandescent and other non-fluorescent lighting. Management believes that
government energy managers will seek to extend SES contracts which provide for
comprehensive retrofitting of additional energy consuming equipment, in addition
to lighting. MLNA believes that its existing arrangements with HVAC, motor, and
other retrofitters to perform energy conservation related retrofitting other
than lighting will benefit MLNA both in term so fits ability to compete
effectively for contracts, and because the other energy conservation
retrofitting companies will pay MLNA a referral fee for securing SES contracts
although there can be no assurance that this will be accomplished.
SUMMARY
MLNA will fabricate, market, and install a line of energy efficient fluorescent
lighting products using reflective lighting technology. MLNA's product line
includes energy efficient lamps, ballasts, specular (mirror-like) aluminum
reflectors, specular silver reflectors, custom designed parts and accessories.
Most of MLNA's products incorporate an
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aluminum or silver reflective film manufacture by the 3M company, ALCOA and
Materials Sciences Corporation, which are designed to enhance illumination with
fewer lamps and, consequently, requires less energy than conventional
fluorescent fixtures.
MLNA's two primary markets are the governmental and private sectors. The private
sector market for MLNA's products will be national and regional customers such
as restaurants and retail stores. MLNA believes that it will be positioned to
compete in the government market because certain of MLNA's new management will
be retired military officers and are acquainted with both government and
military procurement procedures.
Recent federal legislation has mandated that federal government facilities,
including military installations, must make provisions for the conversion of
lighting, HVAC, motors and other energy consuming equipment and materials, to
meet new energy conservation standards by the year 2000. The Energy Policy Act
of 1992 mandates a 20% reduction of energy consumption from 1985 energy use, and
an Executive order issued by President Clinton in 1994 raises the requirement to
a 30% reduction of energy consumption by the year 2005. Such criteria provide
MLNA an opportunity to initiate unsolicited proposals, as set forth under the
rules promulgated in the Federal Acquisition Regulations.
Certain federal legislation authorizes government agencies to contract for the
installation of energy efficient products without having to seek Congressional
appropriations or utilize current budget allocations. It is contemplated that
financing will be provided by private capital with the contractor (known as an
"Energy Savings Company" or "ESCO") receiving a share of the savings received
from the implementation of the energy savings measures under tn agreement
between the contractor and the government ("Shared Energy Savings" or "SES"
contracts also referred to in the industry as "Energy Savings Performance"
contracts). MLNA's primary focus for SES contracts is the United States
Department of Defense ("DOD"). The DOD annually consumes approximately $3
billion in energy costs to operate facilities at military installations
worldwide, representing approximately 80% of utility operating expense for all
federal facilities.
MLNA's principal executive offices are located in Largo, Florida, where it
leases approximately 1200 square feet of office space and 9600 square feet of
fabrication space on a 3 year lease commencing July 1, 1996, at prevailing
market rates. MLNA will also operate sales, marketing, research and development
operations, as well as actual fabrication at its Largo, Florida facilities. MLNA
will market its products all over the United States through a limited number of
independent sales representative, as well as independent distributors.
Management plans to expand its marketing efforts by adding new in-house sales
representative and also through national advertising of its products.
Due to the nature of Shared Energy Savings contracts and, assuming MLNA is able
to secure any such contract, MLNA will incur substantial initial costs during
the first year of each government customer's installation. Also, the return on
the contracts will vary due to the fact that such returns are based on a sharing
of the energy cost savings obtained by the customer over the life of the
contract. MLNA will need to acquire capital in order to obtain the raw
materials, conduct the initial fabrication and pay for the initial installation
costs. MLNA anticipates that additional funding from the sale of securities and
bank financing will be sufficient to finance its operations temporarily.
Thereafter, MLNA may require additional sources of financing which may include
bank financing guaranteed by the federal government and secured by the SES
contracts. MLNA's actual capital needs will depend upon numerous factors,
including the cost of increasing MLNA's sales and marketing activities and the
amount of revenue generated from operations, none of which can be predicted with
certainty.
MLNA's prospects are dependent upon existing and future federal government
regulations related to the energy management industry. In particular, the Energy
Policy Act of 1992 and its related regulations mandate that government
buildings, offices and military bases install energy and water reduction
measures by the year 2000. In addition to available appropriations, the agencies
have been instructed to utilize innovative financing and contractual mechanisms
including Shared Energy Savings contracts under which private firms that perform
energy audits, install efficiency measures, provide capital financing, and
manage energy systems are reimbursed from a share of the resulting savings on
energy costs. Any modifications to existing federal regulations mandating energy
conservation could have a material adverse effect on MLNA. Such federal
regulations could also be extended, delayed or eliminated which could reduce or
eliminate the mandate for federal buildings and installations to install energy
management fixtures and equipment.
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MLNA believes that the technology employed by it is currently in compliance with
applicable federal regulations.
The energy management industry is highly competitive. MLNA's ability to compete
depends upon its ability to manage numerous factors successfully including
product cost, quality and performance; successful new product development;
continued access to reflective and other energy efficient materials; changes in
technology; the number and nature of its competitors; and general economic
conditions. MLNA will experience direct competition from a number of companies
possessing substantially greater financial, marketing, personnel, and other
resources than MLNA. The major competitors for MLNA's energy management business
include Parke Industries Inc., Silverlight, Reflect-A- Light, ML Systems, Harris
Lighting, and Parrish Lighting. These direct competitors use materials not
manufactured by 3M. In addition to the competitors listed above, there are seven
other competitors manufacturing and marketing energy management lighting
fixtures and equipment using 3M's Silverlux-tm reflective material. During
the first half of 1994, these seven companies accounted for approximately
76% of Silverlux-tm reflective film sold by 3M.
Item 2. Description of Property.
The Company and its operating subsidiary does not own any real property. Its
leases are described in Item 1.
Item 3. Legal Proceedings.
The Company is not a party to any pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company did not submit any matters to a vote of security holders during the
fourth quarter.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
There is currently no public trading market for the Company's common stock.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
The Company changed its fiscal year to May 31. For the five month fiscal year
ended, May 31, 1996 revenue was non- existent as the Company had not been able
to complete its public offering and was lacking funds to market its products.
The Company's operations were basically inactive as the principal had to seek
alternative employment to meet his personal needs.
The only expenses for the five month fiscal year were for bank service charges,
and the bank accounts closed. The president did not receive any salaries due to
lack of funds and revenue. The president has waived all rights to compensation
for the five month fiscal year ended, May 31, 1996.
Plan of Operations
The Company was seeking private companies with operations to complete a merger
or acquisition. Towards the end of May, an investment holding corporation headed
by the Chief Financial Officer, Jose A. Alvarez expressed an interest to invest
and complete the public offering expiring, June 7, 1996, and obtain control of
the Company by obtaining the majority of the shares from Mr. & Mrs. Ed Baker,
the principal of the Company. This was completed subsequently on June 7, 1996.
The plan approved by the majority of the shareholders in June, 1996 was to
obtain assets from an energy
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efficient lighting company and pursue operations in the industry.
Liquidity and Capital Resources
The Company's lack of revenue has failed to provide necessary funds to operate.
The Company had no cash and no liquidity. The Company has certain payables and a
bank loan that is owed. The Company's current only sources of capital are the
proceeds from the sale of the common stock and if it can generate operating
revenues.
Item 7. Financial Statements.
Attached as Exhibit 1.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors and Executive Officers of the Registrant.
FORMER DIRECTORS AND OFFICERS - January 1, 1996, until June 11, 1996.
William E. Baker, Jr. - President, CEO and Chairman
Charles R. Nixon - Vice President and Director
Jose A. Alvarez, CPA - CFO
Dottie S. Baker - Secretary and Director
Harry W. Brooks, Jr. - Director
Edward Church - Director
CURRENT DIRECTORS AND OFFICERS - June 11, 1996 to present.
DANIEL S. PENA, SR. - CHAIRMAN OF THE BOARD
Daniel S. Pena, Sr.,51, is the founder, former Chairman, President and CEO of
Great Western Resources, Inc., a Houston-based natural resources company with
interests in coal, oil and gas exploration and production, drilling and
construction pipeline in the US, the Gulf of Mexico, the U.K., and South
America. in an 8-year period, starting with only $820. During Mr. Pena's tenure,
Great Western Resources grew to a public market capitalization of over $400
million, while energy prices collapsed and oil dropped from $40 to less than $8
a barrel; he remains the largest individual shareholder in that company.
Prior to founding Great Western, Mr. Pena was a vice-president of Bear Stearns &
Co., where he advised U.S. and international clients. He previously was Director
of Financial Planning and television media spokesperson at Paine Webber, Jackson
& Curtis. Thereafter he served as Chairman of J.P.K. Industries, Inc. - a
vertically integrated company in the petroleum industry, involved in oil and gas
drilling, operating, production, crude oil refining and marketing. Since leaving
Wall Street and while building his own companies, Pena has successfully
negotiated transactions with numerous multinational corporations (e.g., Bredit
Hyonnais, British Petroleum, Chemical Bank, Shell Oil, Midatlantic Bank, Chevron
and many others), as well as several governments and both the Church and Bank of
England.
Mr. Pena is an active public speaker, addressing audiences of up to 7,000 in
number. His Quantum Leap Advantage business success seminars are conducted all
over the U.S., Canada, and the U.K. He was the speaker featured at "Success"
magazine's first annual conference on entrepreneurism. He is a member of the
National Speakers Association and the International Platform Association. He is
listed both in "Who's Who in Professional Speaking" and "Who's Who in America,"
was a nominee for "INC." magazine's Entrepreneur of the Year in 1989, and is a
member of several advisory panels; he was appointed to the U.S. Presidential
Roundtable Senatorial Commission in 1991.
9
<PAGE>
Daniel Pena served on the Alumni Association Board of California State
University/Northbridge (B.S. in Business Administration, 1971); he is also a
1972 graduate of the New York Institute of Finance. Featured in many U.S.
publications, he has received numerous awards, including the Latin Business
Association Outstanding Business Owner award (1981) and the John Regan Award for
Excellence by the Center for Entrepreneurial Management (1994). Pena had a
distinguished career with the U.S. Army, graduating from O.C.S. and serving as
Military Police Intelligence Officer and Security Officer at NATO headquarters
in the late "60"'s. He is an active sportsman and family man. He, his wife of 23
years and their three children live in Rolling Hills, California and spend their
summers and holidays at their 15th century storybook castle in Scotland.
JOSE A. ALVAREZ, C.P.A. - CHIEF EXECUTIVE OFFICER, PRESIDENT, CHIEF FINANCIAL
OFFICER and DIRECTOR
Jose A. Alvarez, CPA, age 47, is the President and CEO/CFO of Energy
Conservation International, Inc. (ECI), formerly known as Vision Marketing
Group, Inc. He is also CEO/CFO of Mor-Lite of North America, Inc., a wholly
owned subsidiary of ECI, and is a Board member of various other companies. Since
1995 Mr. Alvarez has been a consultant throughout the nation, helping companies
with mergers and acquisitions, financing and positioning them to go public. He
is associated in these ventures with Mr. Daniel S. Pena, Sr.
Mr. Alvarez founded his own accounting firm in 1975, serving as managing
Director of his firm to run a growing business while working with his own
clients. He dealt with capital and financing, growth, employees, acquiring
properties and other firms, marketing and customer service; he met the same
challenges as his entrepreneur clients. consulting and helping them with their
business growth, financial, tax and management advice. He also evaluated and
consulted in fields related to mergers, sales and acquisitions, as well as
estate and gift tax considerations. He has served as an expert witness in
determining company market values. He sold this practice in 1996.
Mr. Alvarez was graduated from the University of South Florida in 1971 with a
B.A. in Accounting. While growing his practice he also served as an assistant
college Accounting Professor, specializing in Federal Taxes, Cost Managerial and
Principles of Accounting. As a CPA, he is a member of the American Institute of
CPA's and served as an Accounting and Auditing Peer Reviewer of other CPA firms.
He is a member of several other accounting and professional associations. Mr.
Alvarez has been a speaker at various conferences and seminars, as well as on
various TV and radio programs. He has received numerous awards and is on the
roster of various publications, including "Who's Who in American Accounting."
"Who's Who in Finance and Industry," and "Who's Who in America," among others.
Mr. Alvarez is very involved in his community and with youth. He has coached
youth teams for over 20 years and has served various terms as President and
Board Member of both the Brandon Area Youth Soccer League and the Regional
Soccer Association. He has also chaired the Greater Brandon Chamber of Commerce
Sports and Recreation Committee. He founded and was Charter President of the
Kiwanis Club of Ybor City, and is the Kiwanis Division Treasurer, having been
named a distinguished president of Kiwanis International and receiving the
"Outstanding Young Men of America" award, along with many other civic and
athletic recognitions, and nomination for Brandon's "Businessperson of the Year"
award. Mr. Alvarez and his wife of 26 years live in Brandon, Florida with the
youngest of their three sons; the two older ones have successful careers.
STEVEN M. ALVAREZ - SECRETARY
Steven M. Alvarez, 24, is Secretary of Energy Conservation International, Inc.
(ECI). He holds and Accounting degree from St. Leo College, where he was a
Trustee Scholarship winner, Captain of the soccer team, and selected as Student
of the Month. Mr. Alvarez is an accounting administrator for the New York
Yankees baseball team, and is the son of Jose A. Alvarez.
LUCINDA A. BURKE - DIRECTOR
Lucinda A. Burke, 25, is the founder, President and CEO of Annicott Worldwide
Enterprises, Inc., an
10
<PAGE>
expanding corporation owning and operating various manufactured housing
communities throughout the United States. She is a graduate of Cornell
University and is fluent in French, having lived in France and traveled
extensively around Europe.
Ms. Burke is also an owner and Vice President of CLMM Corporation, which owns
and manages investment real estate. She has increased cash flow and assets of
investment properties by as much as 30% within a single year. She worked for
B.C. Development, an investment real estate where she became the company's #1
leasing agent and Executive Director for leasing commercial real estate. She was
in charge of leasing large commercial buildings and luxury office suites, with
major international clients.
Ms. Burke co-founded and was Vice President of Polish & Burke Marketing
Corporation, specializing in direct response marketing; within one year, it
became a leading business in its niche industry. She also owned her own
consulting practice, Lucinda Burke & Associates. She is one of 700 young
business men and women worldwide who were accepted into Operation Enterprises,
an organization formed by the American Management Association.
DAVID A. REECHER - DIRECTOR
David A. Reecher, 37, is the founder, President and CEO of Great Wisdom
Publishing, Inc., and emerging and trend-setting California company established
to acquire and consolidate Book-publishing enterprises, which also wholly owns a
subsidiary for book distribution services in Michigan. He was previously Vice
President and co-owner of TOWERS Club Press, Inc., a 20-year-old publishing and
advertising agency, where he discovered and then published a rare manuscript
written by the great advertiser and originator of the Book-of-the-Month Club,
Maxwell Sackheim; since its publication a year ago this book has received rave
reviews.
Mr. Reecher has also advertised and marketed a variety of businesses and is an
established joint venture partner of the National Mail Order Association. He is
founder and Chairman of Little Mountain Promotions, an advertising distribution
service for hundreds of east coast businesses, co-founder and former president
of Aviation Surplus Sales, Inc. an aircraft parts company with an average ROI of
over 450%.
After serving for 6 years in the Pennsylvania Air National Guard, where he was
awarded the Pennsylvania Accommodation medal for outstanding leadership
qualities, Mr. Reecher has led large organizations for over a decade, including
the Powerplant Programs for both Presidential and Discovery Airways, where he
managed assets of $150 million and $200 million, respectively. He also ran the
production facility for Aerotest, Inc., a large aircraft repair facility with
more than 800 employees, representing over one million billable manhours per
year. Mr. Reecher is a member of several publishing and marketing associations.
Item 10. Management Remuneration and Transactions.
No remuneration for any management members was paid during the transition
period.
Vision Marketing Group, Incorporated ("VMG") closed out its escrow on June 7,
1996, with the sale of 35,001 shares of its common stock at $6.00 per share
pursuant to the Offering and Prospectus dated June 7, 1995. The shares were
purchased by Energy Conservation Systems, Inc. ("ECS"), a Florida corporation. A
principal of the purchaser is Mr. Jose A. Alvarez, the Principal Accounting
Officer and Chief Financial Officer of VMG. At the same time, ECS also acquired
by purchase from Mr. William E. Baker, Jr., and Dottie S. Baker, his wife,
1,438,500 shares of their 1,948,500 issued and outstanding shares in the Company
in an exempt transaction for an undisclosed sum. Thereafter, Mr. and Mrs. Baker
transferred an additional 285,000 shares to different, unrelated parties in an
exempt transaction for an undisclosed sum. Mr. and Mrs. Baker retain ownership
of 225,000 shares of the Company's stock. Prior to these transactions, Mr.
Alvarez individually owned 100,000 shares of the Company stock. As a result of
these transactions Mr. Alvarez and ECS control a total of 1,573,501 shares of
stock in the Company or 61.93% of the 2,540,834 total issued and outstanding
shares.
11
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
FORMER DIRECTORS AND OFFICERS:
William E. and Dottie S. Baker Formerly held 2,051,833 shares, now beneficially
controls 328,333 shares
Charles R. and Helena Nixon Formerly held 60,000 shares, now own 60,000 shares
CURRENT DIRECTORS AND OFFICERS:
Jose A. Alvarez, CPA Formerly held 100,000 shares, now beneficially controls
1,573,501 shares
Item 12. Management Transactions.
Vision Marketing Group, Incorporated ("VMG") closed out its escrow on June 7,
1996, with the sale of 35,001 shares of its common stock at $6.00 per share
pursuant to the Offering and Prospectus dated June 7, 1995. The shares were
purchased by Energy Conservation Systems, Inc. ("ECS"), a Florida corporation. A
principal of the purchaser is Mr. Jose A. Alvarez, the Principal Accounting
Officer and Chief Financial Officer of VMG. At the same time, ECS also acquired
by purchase from Mr. William E. Baker, Jr., and Dottie S. Baker, his wife,
1,438,500 shares of their 1,948,500 issued and outstanding shares in the Company
in an exempt transaction for an undisclosed sum. Thereafter, Mr. and Mrs. Baker
transferred an additional 285,000 shares to different, unrelated parties in an
exempt transaction for an undisclosed sum. Mr. and Mrs. Baker retain ownership
of 225,000 shares of the Company's stock. Prior to these transactions, Mr.
Alvarez individually owned 100,000 shares of the Company stock. As a result of
these transactions Mr. Alvarez and ECS control a total of 1,573,501 shares of
stock in the Company or 61.93% of the 2,540,834 total issued and outstanding
shares.
PART IV
Item 13. Exhibits and Reports on Form 8-K and 8-K/A. During the last two months
of fiscal year ended May 31, 1996, the Company did not file any reports on Form
8-K.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amended registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 29, 1996
ENERGY CONSERVATION INTERNATIONAL, INC.
a Florida Corporation
By: /s/ Daniel S. Pena, Sr.
Daniel S. Pena, Sr.
Chairman of the Board
By: /s/ Jose A. Alvarez, CPA
Jose A. Alvarez, CPA
President, Chief Executive Officer, Chief
Financial Officer
By: /s/ Steven M. Alvarez
Steven M. Alvarez
Secretary
By: /s/ Lucinda A. Burke
Lucinda A. Burke
Director
By: /s/ David A. Reecher
David A. Reecher
Director
13
<PAGE>
EXHIBIT 1
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountant ................... F-2
Balance Sheets....................................................... F-3
Statements of Operations............................................ F-4
Statements of Stockholders' Equity.................................. F-5
Statements of Cash Flows............................................ F-6
Notes to Financial Statements....................................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To: The Board of Directors
Energy Conservation International, Inc.
Brandon, Florida
We have audited the accompanying balance sheets of Energy Conservation
International, Inc., (the "Company") as of May 31, 1996 and December 31, 1995
and the related statements of operations, stockholders' equity and cash flows
for the five months and one year 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 Energy Conservation
International, Inc. at May 31, 1996 and December 31, 1995 and the results of its
operations and its cash flows for the five months and one year then ended May
31, 1996 and December 31, 1995 in conformity with generally accepted accounting
principles.
Durland & Company, CPAs, PA
Palm Beach, Florida
August 13, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
Energy Conservation International, Inc.
(f/k/a Vision Marketing Group, Inc.)
Balance Sheets
<S> <C> <C>
May 31, December 31,
1996 1995
ASSETS
CURRENT ASSETS
Cash ....................................................... $ 0 (55)
Accounts receivable ........................................ 0 0
--------- ---------
Total Current Assets .................................... 0 (55)
--------- ---------
PROPERTY AND EQUIPMENT (note 1b)
Vehicles ................................................... 16,000 16,000
Less - Accumulated depreciation ............................ (15,846) (15,078)
--------- ---------
Total Property and Equipment ........................... 154 922
--------- ---------
OTHER ASSETS
Note receivable from stockholder (note 7) .................. 10,795 11,523
Intangible assets, net of amortization (note 1c) ........... 2,947 3,025
--------- ---------
Total Other Assets ...................................... 13,742 14,548
--------- ---------
Total Assets ................................................... $ 13,896 15,415
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ........................................... $ 13,225 13,225
Accrued interest and expenses .............................. 847 523
Payroll taxes payable ...................................... 1,938 1,842
Income and intangible taxes payable ........................ 2,672 2,642
--------- ---------
Total Current Liabilities ............................... 18,682 18,232
--------- ---------
LONG-TERM LIABILITIES
Note payable ............................................... 15,049 15,249
--------- ---------
Total Long-Term Liabilities ............................. 15,049 15,249
--------- ---------
Total Liabilities .............................................. 33,731 33,481
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; Authorized 50,000,000 shares;
issued and issued and outstanding 2,505,833 (note 2) ............ 25,058 25,058
Preferred stock, no par value; Authorized 10,000,000 shares;
issued and outstanding 0 (none) (note 2) ....................... 0 0
Additional paid in capital ................................. 57,563 57,563
Retained earnings (deficit) ................................ (102,456) (100,687)
--------- ---------
Total Stockholders' Equity ..................................... (19,835) (18,066)
--------- ---------
Total Liabilities and Stockholders' Equity ..................... $ 13,896 (15,415)
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
Energy Conservation International, Inc.
(f/k/a Vision Marketing Group, Inc.)
Statements of Operations
May 31 December 31,
1996 1995
<S> <C> <C>
REVENUES
Product sales .............................. $ 0 2,000
Commissions ................................ 0 500
Other ...................................... 0 5
----------- -----------
Total Revenue ........................... 0 2,505
----------- -----------
Cost of goods sold ......................... 0 650
----------- -----------
Gross profit ............................... 0 1,855
----------- -----------
EXPENSES
Advertising ................................ 0 0
Amortization ............................... 78 187
Automotive ................................. 0 4,514
Bad debt (note 5) .......................... 0 0
Bank charges ............................... 51 356
Commissions ................................ 0 150
Contributions .............................. 0 0
Depreciation ............................... 768 1,843
Initial public offering costs .............. 0 4,450
Interest and loan expenses ................. 747 771
Insurance .................................. 0 620
Office supplies and expenses ............... 0 2,490
Professional fees .......................... 0 12,070
Rent ....................................... 0 910
Salaries ................................... 0 0
Payroll taxes, penalties, interest, licenses 125 2,495
Samples .................................... 0 57
Travel and entertainment ................... 0 3,627
Telephone .................................. 0 4,664
Utilities .................................. 0 810
Miscellaneous .............................. 0 7,897
----------- -----------
Total expenses .......................... 1,769 47,911
----------- -----------
Net income (loss) before taxes ............. (1,769) (46,056)
----------- -----------
Provision for income tax expense (benefit) . 0 0
----------- -----------
Net income (loss) .......................... $ (1,769) (46,056)
=========== ===========
Net income per share ....................... $ (0.01) (0.02)
=========== ===========
Shares outstanding ......................... 2,505,833 2,505,833
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Energy Conservation International, Inc.
(f/k/a Vision Marketing Group, Inc.)
Statements of Stockholders' Equity
Additional Retained Total
Common Preferred Paid-In Earnings Stockholders'
Stock Stock Capital (Deficit) Equity
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 25,058 0 57,563 (100,687) (18,066)
Net loss ................. 0 0 0 (1,769) (1,769)
-------- -------- -------- -------- --------
BALANCE, May 31, 1996 .... $ 25,058 0 57,563 (102,456) (19,835)
(unaudited)
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Energy Conservation International, Inc.
(f/k/a Vision Marketing Group, Inc.)
Statements of Cash Flows
<S> <C> <C>
May 31 December 31
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/loss ....................................................................... $(1,769) (46,056)
Adjustments to reconcile net loss to
net cash used for operating activities:
Amortization ........................................................................ 78 187
Depreciation ........................................................................ 768 1,843
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable .......................................... 0 0
Increase in accounts payable ........................................................ 0 12,734
Increase (decrease) in accrued interest and expenses ................................ 324 523
Increase (decrease) in payroll taxes payable ........................................ 96 (4,591)
Increase in income taxes payable .................................................... 30 522
------- -------
Net cash (used) provided by operating activities ...................................... (473) (34,838)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
None
CASH FLOWS FROM FINANCING ACTIVITIES:
Stockholder advance repayment ....................................................... 728 21,966
Funds advanced to stockholder ....................................................... 0 (13,229)
Payments on third party debt ........................................................ (200) 0
Funds advanced on third party debt .................................................. 0 15,249
------- -------
Net cash provided (used) by financing activities ...................................... 528 23,986
------- -------
Net increase (decrease) in cash ....................................................... 55 (10,852)
------- -------
CASH, beginning of period ............................................................. (55) 10,797
------- -------
CASH, end of period ................................................................... $ 0 (55)
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid in cash ................................................................. $ 423 393
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
Energy Conservation International, Inc.
(f/k/a Vision Marketing Group, Inc.)
Notes to Financial Statements
(1) Summary of Significant Accounting Principles
The Company Energy Conservation International, Inc. ("the Company") was
chartered by the State of Florida on December 9, 1992 and conducts business from
its headquarters in Brandon, Florida. Some of the Company's national accounts
are Home Shopping Network, QVC network, Fingerhut, Comb Liquidators and Damark.
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the dates of the statements of
financial condition and revenues and expenses for the years then ended. Actual
results could differ significantly from those estimates. The following summarize
the more significant accounting and reporting policies and practices of the
Company:
a) Revenue recognition The Company had two revenue streams, which were:
1) Commission sales - The Company acts in the capacity of a manufacturers
representative by receiving orders for products supplied by the companies it
represents and receives commissions for these sales. The Company normally
receives a commission percentage of approximately 5% on sales of products sold
on a recurring basis. A higher percentage is received, approximately 8% to 10%
on one time sales, such as closeouts. The Company normally accrues commission
income at the time the customer accepts a shipment, as the customer reserves the
right to modify or cancel the order prior to acceptance of the shipment. Net
commission sales for the year ended December 31, 1995 was approximately $500 and
$0 for the transition period ended May 31, 1996.
2) Product sales - The Company recognizes the revenue on these sales when the
sales were invoiced, which was at delivery of goods to the purchasers. As these
sales were final with no right of return, no reserves were established. Current
sales of goods are FOB shipper dock and are invoiced at time of notification to
the Company of shipment by the manufacturer.
b) Fixed assets Fixed assets are stated at cost. Depreciation is computed by the
straight line method over the estimated useful lives of the assets, generally
five and seven years. Expenditures for maintenance and repairs are charged to
operations as incurred. Depreciation was $768 and $1,843 for May 31, 1996 and
December 31, 1995 respectively.
c) Intangible assets Intangible assets are composed of the rights to
commercialize US Patent 5,081,171 issued January 14, 1992. The Company purchased
these rights in February 1993 for 90,000 shares of stock valued at $3,586. These
rights are being amortized over their remaining 16 year life using the
straight-line method. Amortization amounted to $78 and $187 for May 31, 1996 and
December 31, 1995 respectively.
(2) Stockholders' equity The Company has authorized 50,000,000 shares of $0.01
par value common stock, and 10,000,000 of no par value preferred stock. On
November 10, 1992 the founder of the Company entered into an agreement to issue
200,000 shares of the then future company's common stock in exchange for certain
legal services related to the founding of the Company and the patent rights
negotiations. The founder valued these services at $200. On December 9, 1992 the
Company entered into an agreement with the owner of the Predecessor to exchange
55%, (2,200,000 shares), of the authorized shares of its common stock to the
owner to effect a tax-free reorganization from a sole proprietorship to a
corporation under the Internal Revenue Code
F-7
<PAGE>
Energy Conservation International, Inc.
(f/k/a Vision Marketing Group, Inc.)
Notes to Financial Statements, Continued
(2) Stockholders' equity, continued Section 368(a)(1)(F). This transaction was
effected at close of business December 31, 1992, with a valuation of $43,835.
In February, 1993 the Company entered into two agreements to exchange 90,000
shares of the Company's common stock for the rights to commercialize US Patent
5,081,171, and for the recipient of the shares to terminate a then existing
joint-venture formed for the purpose of commercializing said patent. The rights
received by the Company were valued by the Board of Directors and the individual
at $3,586.
In March, 1993 the Company sold 3,333 shares of its' common stock for cash at a
price of $3.00 per share, for a total of $10,000. In September, 1993 the Company
sold 12,500 shares of its' common stock for cash at a price of $2.00 per share,
for a total of $25,000.
(3) Common stock public offering On November 10, 1992 the Board of Directors
authorized the Company to sell up to 400,000 shares of the Company's common
stock in a "self-underwritten" public offering pursuant to a Registration
Statement on Form SB-2 under the Securities Act of 1933. On December 16, 1993
the Board of Directors voted to increase the number of shares offered hereby to
700,000. This offering is being made with a 35,000 share minimum, and is
effective for one year from the effective date of the registration (June 7,
1995). The stock included in this offering is priced at $6.00 per share. This
offering price was determined in a completely arbitrary manner and bears no
relation to any recognized standard of value. The minimum required to be sold by
the Company before it has access to the funds is $210,000 at the offering price,
with a net to the Company of $182,700 after sales commissions and
unaccountables, assuming all 35,000 shares are sold through a NASD
broker/dealer. (No sales commissions and unaccountables will be paid to any
officer or director). The maximum proceeds of this offering are $4,200,000, or
$3,654,000 net of sales commissions and unaccountables, assuming all shares are
sold through NASD broker/dealers.
In September 1994 the Company entered into a Letter of Intent with Donnellan
Haylett & Co., Inc. of Sarasota, FL to be the Underwriter on a "best efforts"
basis for this offering. The terms of this Letter call for the Underwriter to
receive commissions of 10% and a non-accountable expense allowance of 3% for
each share sold. The Company also agreed to sell a warrant to the Underwriter,
for $70, which allows the Underwriter to purchase one share for every ten shares
sold by the Underwriter or certain dealers. The exercise price of the warrant is
$7.20 per share, and is exercisable until 5 PM, EST, September 1, 1999. In July
1994 the Company terminated an agreement with another company which provided for
marketing and related services related the Company's self-underwriting of its
offering. This agreement was canceled due to the negotiations with Donnellan
Haylett, which resulted in the Letter of Intent.
In January 1995 as a result of the merger between Donnellan Haylett & Co., Inc.
and Executive Securities, Inc. in which Donnellan Haylett became a wholly owned
subsidiary of Executive, a new underwriting agreement was executed between the
Company and Executive Securities. This agreement bears exactly the same terms
and conditions as the previous agreement with Donnellan Haylett.
(4) Commitments In February, 1993 the Company entered into a sales agreement
with Pro-Tech Laboratories, Inc. of Reddington Beach, California for the sale of
various products based on US Patent 5,081,171. This agreement includes
provisions requiring minimum annual purchases, as well as limiting the market
available to Pro-Tech for such sales. In February, 1993 the Company entered into
an agreement with the owner of US, as described in note (2). Further, this
agreement includes payment of licensing royalties to said owner under Patent
5,081,171 the following schedule: for patented products - 9% of the first
$500,000 of sales, 6% of the next $1,500,000 of sales, 5% of the next $3,000,000
of sales and 4% of sales exceeding $5,000,000; for unpatented products the
percentages are 5%, 4%, 3% and 2% with exactly the same levels of sales. The
Company is also granted the right of first refusal for any other patents granted
to the inventor.
F-8
<PAGE>
Energy Conservation International, Inc.
(f/k/a Vision Marketing Group, Inc.)
Notes to Financial Statements, Continued
(4) Commitments, continued In July, 1993 the Company entered into a
manufacturing agreement with European Research Laboratories of Pompano Beach,
Florida for the production of a line of cosmetic, skin and hair care products
exclusively using the product label "Andre Collard". This agreement has no
minimum purchase requirements.
(5) Industry Segment Information The Company had three distinct industry
segments, of which two made up Product sales, and the third was the sole segment
within the Commissions revenue stream. The Company sold household products
strictly on commission for third-party manufacturers.
<TABLE>
<CAPTION>
Household Products Automotive Products Cosmetics
Fiscal periods: 1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Revenue ............ $ 0 500 0 2,000 0 0
Profitability ...... $ 0 350 0 1,350 0 0
Identifiable assets $ 0 0 3,586 3,586 0 0
Depreciation ....... $ 256 614 256 614 256 614
Capital expenditures $ 0 0 0 0 0 0
</TABLE>
(6) Note receivable from stockholder The Company has loaned the principal
stockholder, Mr. Baker, $10,795 at May 31, 1996. This loan has been made without
the benefit of collateral, nor does it carry a stated interest rate or maturity
date.
(7) Income taxes The Company had a deferred income tax asset of $40,400 at May
31, 1995 and $39,700 at December 31, 1995 resulting from net operating loss
carryforwards totaling $102,456. The deferred tax asset is composed of $34,800
for federal and $5,600 for state. These loss carryforwards expire $100,687 in
2010 and $1,769 in 2011. As the Company has had limited profitability, it has
established a valuation allowance of $40,400.
(8) Subsequent events Vision Marketing Group, Incorporated ("VMG") closed out
its escrow on June 7, 1996, with the sale of 35,001 shares of its common stock
at $6.00 per share pursuant to the Offering and Prospectus dated June 7, 1995.
The shares were purchased by Energy Conservation Systems, Inc. ("ECS"), a
Florida corporation. A principal of the purchaser is Mr. Jose A. Alvarez, the
Principal Accounting Officer and Chief Financial Officer of VMG. At the same
time, ECS also acquired by purchase from Mr. William E. Baker, Jr., and Dottie
S. Baker, his wife, 1,438,500 shares of their 1,948,500 issued and outstanding
shares in the Company in an exempt transaction for an undisclosed sum.
Thereafter, Mr. and Mrs. Baker transferred an additional 285,000 shares to
different, unrelated parties in an exempt transaction for an undisclosed sum.
Mr. and Mrs. Baker retain ownership of 225,000 shares of the Company's stock.
Prior to these transactions, Mr. Alvarez individually owned 100,000 shares of
the Company stock. As a result of these transactions Mr. Alvarez and ECS control
a total of 1,573,501 shares of stock in the Company or 61.93% of the 2,540,834
total issued and outstanding shares.
The Company elected to change the name of the corporation to Energy Conservation
International, Inc., which was approved by the State of Florida on July 11,
1996. In addition, the Company elected to change its fiscal year end to May 31,
which was approved by the Internal Revenue Service.
F-9
