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As Filed With The Securities and Exchange Commission on November 3, 1999
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 1
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
eSAFETYWORLD, Inc.
----------------------------------------------
(Name of Small Business Issuer in Its Charter)
Nevada 44290 11-3496415
- ---------------------------- ------------------------- -------------------
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification No.)
Organization) Code Number)
(Address and Telephone Number of Executive Offices)
Edward A. Heil
100-31 South Jersey Avenue
Setauket, New York 11733
516-244-1454
Facsimile - (212) 208-3082
(Name, Address and Telephone Number of Agent for Service)
COPIES TO:
Steven W. Schuster, Esq. Gregory Sichenzia, Esq.
McLaughlin & Stern, LLP Sichenzia, Ross & Friedman LLP
260 Madison Avenue 135 West 50th Street, 20th Floor
New York, NY 10016 New York, New York 10020
Telephone - 212-448-1100 Telephone - (212) 664-1200
Facsimile - 212-448-0066 Facsimile - (212) 664-7329
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this registration statement.
If this Form is filed to register additional securities for an offering
under rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. | |
If this Form is a post-effective amendment filed under rule 462(c)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. | |
If this Form is a post-effective amendment filed under rule 462(d)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. | |
If the delivery of the prospectus is expected to be made under rule
434, please check the following box. | |
CALCULATION OF REGISTRATION FEE
Title of Each Class of Amount to Be Proposed offering Proposed Aggregate Amount of
Securities to Be Registered Registered Price per Share (1) offering Price (1) Registration Fee
- --------------------------- ---------- ------------------- ------------------ ----------------
shares of common stock, $.001 1,150,000 $ 7.00 $8,050,000 2,237.90
par value ("common stock") (2)
underwriter's Warrant (3) 1 $ .001 $ 100 .28
shares of common stock 100,000 $10.50 $1,050,000 291.90
underlying underwriter's Warrant
Total Registration Fee 2,530.08(4)
(1) Estimated solely for the purpose of determining the registration fee under
rule 457 under the Securities Act of 1933.
(2) Includes 150,000 shares of common stock that may be purchased by the
underwriter to cover over-allotments, if any.
(3) Represents warrant granted to the underwriter to acquire an aggregate of
100,000 shares of common stock at an exercise price equal to 150% of the
price to the public in this offering.
(4) Previously Paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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1
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any State where the offer or sale is not permitted.
Subject to Completion
Preliminary prospectus dated November 3, 1999.
PROSPECTUS
eSAFETYWORLD, INC.
1,000,000 shares of common stock
$7.00 per share
eSAFETYWORLD, Inc.: The offering:
o eSAFETYWORLD, 100-31 S. Jersey o eSAFETYWORLD is offering 1,000,000
Avenue, Setauket, New York 11733; shares of common stock through
(516) 244-1454 Kashner Davidson Securities Corp.
o Proposed Nasdaq SmallCap Market o The underwriter has an option to
symbol: SFTY purchase an additional 150,000
shares from eSAFETYWORLD to cover
o Proposed Boston Stock Exchange any over-allotments.
symbol: SFT
o This is a firm commitment offering.
Per Share Total
--------- -----
Public offering price $7.00 $7,000,000
Underwriting discounts and commissions $0.70 $ 700,000
Proceeds, before expenses, to eSAFETYWORLD $6.30 $6,300,000
The investment involves risk. See "Risk Factors" beginning on page 6.
Neither the SEC nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense. The information in
this prospectus is not complete and may be changed. We may not sell these
securities until the registration statement filed with the SEC is effective.
This prospectus is not an offer to sell these securities and we are not
soliciting offers to buy these securities in any state where the offer or sale
is not permitted.
KASHNER DAVIDSON SECURITIES CORP.
The date of this Prospectus is , 1999.
1
PROSPECTUS SUMMARY
eSAFETYWORLD
Our business
eSAFETYWORLD, Inc. sells disposable garments and equipment to companies
involved in production or other activities that must be done in a controlled
environment or whose employees are exposed to environmental hazards. Our goal is
to develop and operate a business-to-business e-commerce site on the world wide
web as the principal means of selling our products to the industrial safety
market. We believe that the Internet offers significant opportunities in the
areas of e-commerce, including the ability to reach a large potential market
without the need for significant advertising expenditures.
Our market
We have identified an industry with annual sales in the United States
of greater than $10 billion. We focus on the sale of disposable items used in
the industrial safety and controlled environmental markets because these types
of products must be reordered regularly by customers.
Products are also generally sold to distributors and "end users,"
including manufacturing companies and service businesses, public utilities,
pharmaceutical plants, the transportation industry and companies whose employees
are exposed to hazardous materials. These products include coveralls, shirts,
pants, headwear, hoods, aprons, smocks, lab costs, hazardous material handler
suits, examination gowns, sleeves, shoe covers and related items. Many of these
products are disposable and, therefore, offer the same benefits as do disposable
cleanroom products.
Our growth strategy
Our business model is designed to take advantage of the Internet as a
selling medium.
We have identified several ancillary market niches for future
expansion, all of which appear to have the same attributes as eSAFETYWORLD's
initial market niches. The identified niches include products serving the
hospital, plumbing supply, construction and heating, ventilation and air
conditioning industries.
Our market opportunity
Our strategic plan is to become the Internet independent sales
representative for a wide array of available industrial safety and environmental
products. The principal advantage of our use of the Internet as a selling
vehicle is the ability to do so without incurring significant levels of fixed
costs or maintaining inventory.
Our history
We were incorporated under the laws of Nevada in February 1997 under
the name The SL Group, Inc. In August 1999, we changed our name to eSAFETYWORLD,
Inc.
In August 1999, we acquired from the distribution division of Laminaire
Corporation its business and intangible assets, including customer lists and
vendor lists.
The offering
Securities offered 1,000,000 shares
Common stock outstanding
prior to the offering 2,000,000 shares
Common stock to be outstanding
after the offering 3,000,000 shares
2
Use of proceeds The net proceeds from the sale of the shares are
estimated to be approximately $5,890,000 deducting
commissions and expenses of the offering, which are
estimated at $1,110,000. We intend to use the net
proceeds of this offering for
o marketing,
o capital expenditures
o website development
o repayment of indebtedness
o equipment, and
o working capital and general corporate purposes
3
Summary financial information
The selected financial data set forth below at June 30, 1999 is derived
from and should be read together with eSAFETYWORLD's financial statements
footnotes appearing elsewhere in this prospectus.
The selected financial data for the Cleanroom Distribution Product
Group of Laminaire Corporation for the years ended December 31, 1998 and 1997 is
derived from and should be read together with the Product Group's financial
statements and footnotes appearing elsewhere in this prospectus. The summary
financial data for the Product Group set forth below for the interim periods
ended June 30, 1999 and 1998 has been prepared from the Product Group's books
and records and reflects, in our opinion, all adjustments necessary for a fair
presentation of the results of operations of the Product Group for the periods
shown. Results for interim periods are not necessarily indicative of results
that can be expected for the entire year.
eSAFETYWORLD:
eSAFETYWORLD had no revenues during the period ended June 30, 1999. In
August 1999, it acquired the Cleanroom Distribution Product Group in an
acquisition accounted for as a purchase. Therefore, the operating results of the
acquired business will be included in eSAFETYWORLD's results commencing with the
date of acquisition.
6/30/99 6/30/99 6/30/99
------- ------- -------
(as adjusted) (as further adjusted)
------------- ---------------------
Current assets ------- $ 273,000 $5,950,000
Total assets $10,000 1,735,000 7,300,000
Stockholders' equity 10,000 710,000 6,610,000
The "as adjusted" column assumes:
o the acquisition of the Cleanroom Products Division that took place in
August 1999;
o the receipt of $375,000 in debt financing that occurred in August 1999; and
o the $102,000 loan made to Laminaire by us in September 1999.
The "as further adjusted column" assumes:
o the completion of the offering;
o the acquisition of the Cleanroom Products Division that took place in
August 1999; and
o the receipt of $375,000 in debt financing that occurred in August 1999.
Cleanroom Distribution Product Group(1):
Years ended Six months
December 31,(5) ended June 30,(5)
1998 1997 1999 1998
---- ---- ---- ----
Revenues $2,267,846 $1,506,607 $746,325 $867,700
Operating profit 54,067 204,106 95,984 142,164
Pro forma net income(4) 35,144 132,669 62,390 92,40711
Pro forma net income was calculated assuming an effective income tax
rate of 35% for the purposes of calculation.
4
The Cleanroom Distribution Product Group was manages as a division by
Laminaire Corporation during this period. Its assets and liabilities were
commingled with the assets and liabilities of Laminaire, and its operating
results were included in Laminaire's overall results.
eSAFETYWORLD acquired the business, customer and vendor lists of this
Product Group and is not acquiring any tangible assets of the Product Group.
The pro forma data does not give effect to proceeds, if any, from the
exercise of the underwriter's over allotment option.
5
Risk factors
You should carefully consider each of the following risks and all of
the other information set forth in this prospectus before deciding to invest in
shares of our common stock. Some of the following risks relate principally to
our business in general and the industry in which we operate. Other risks relate
principally to the securities markets and ownership of our stock.
If any of the following risks and uncertainties develop into actual
events, our business, financial condition or results of operations could be
materially adversely affected. In that case, the trading price of our common
stock could decline, and you may lose all or part of your investment.
Our business is subject to the following risks, which include risks
relating to the industry in which we operate.
Because our operating history is limited from the period since June 1999, we may
not be able to successfully manage our business or achieve profitability.
eSAFETYWORLD had no revenues during the period ended June 30, 1999 and
no operating history prior to this date upon which an evaluation of our future
performance and prospects can be made. Our prospects must be considered in light
of the risks, expenses, delays, problems and difficulties frequently encountered
in the establishment of a new business. An investor in our common stock must
consider the risks and difficulties frequently encountered by early stage
companies operating in new and rapidly evolving markets. These risks include:
o an evolving business model based on using existing
Internet and software technologies to establish e-commerce
businesses in market niches currently being served in a
fragmented or disjointed manner;
o ability to maintain and expand a customer base;
o ability to manage working capital and product return
risks;
o the need to manage growth and changing operations;
o the need to continue to develop and upgrade our websites,
transaction-processing systems and infrastructure;
o ability to scale our systems and fulfillment capabilities
to accommodate the growth of our business;
o ability to access and obtain additional capital when
required;
o dependence on the reliability and growing use of the
Internet for commerce and communication and on general
economic conditions.
We expect to incur operating losses and negative cash flow because of costs and
expenses related to online operations.
Operating losses are expected to continue because of expenses related
to:
o marketing and other promotional activities;
o the expansion of financial, management and order
fulfillment infrastructure;
o the development of our website, transaction-processing
systems and management infrastructure;
o the expansion of product offerings and website content;
6
o strategic relationship development; and
o amortization of goodwill and other intangibles.
We may need additional financing if our marketing expenditures increase.
We believe that our success is particularly dependent on marketing our
services and additional funds may be required to increase our marketing program
in the event that our operating results are poor. There can be no assurance that
additional financing will be available. If we are unable to obtain additional
financing, our ability to meet our obligations and plans for expansion will be
materially adversely affected.
Our growth will be dependent on strategic business alliances with vendors and
establishing effective fulfillment systems.
In order for eSAFETYWORLD to grow, we will be required to enter into
strategic business alliances for the purposes of:
o increasing traffic through our websites; and
o establishing effective fulfillment systems using vendors
to provide fulfillment for us.
We may not be able to enter into any business alliance, or the
strategic business alliances we do enter into may not result in additional
customers, sales and/or profits. Any strategic business alliance may involve a
number of risks, which may adversely affect our operating results and require
management's attention.
Because we only have a single location for our computer equipment and no
secondary systems, any disruption to our computer system could adversely affect
our business.
Substantially all of our computer hardware operations are conducted in
East Northport, New York. The system is vulnerable to damage from:
o fire,
o flood,
o power loss,
o telecommunications failures, and
o break-ins and similar events.
We do not have any secondary systems. We believe that a total system
failure would not result in interruption of our business for more than two
weeks. However, any significant failure in our services could cause significant
harm to our customer relations.
Future public sales of outstanding restricted common stock could adversely
affect or depress our stock price because of the significant amount of stock
available for resale.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. If sales by our current stockholders cause the price of our stock to
fall below our offering price, we may be unable to complete the offering of our
common stock, which would reduce the proceeds to eSAFETYWORLD. Upon completion
of this offering, we will have outstanding 3,000,000 shares of common stock or
3,150,000 shares if the underwriter's over-allotment option is exercised in
full. Of these shares, 1,900,000 will be freely tradeable, subject to lock-up
agreements with the underwriter and volume restrictions imposed by rule 144.
7
The ability of our officers and principal shareholders to control our business
may limit minority shareholders' ability to influence corporate affairs.
Upon the completion of this offering, our existing shareholders will
collectively beneficially own approximately 67% of the our outstanding common
stock or 63% if the underwriter's over-allotment option is exercised in full.
Because of their beneficial stock ownership, these stockholders will be in a
position to continue to elect a majority of the board of directors, decide
matters requiring stockholder approval and determine our policies.
We need to hire qualified full time employees in order to service any growth in
operations.
We presently have two full time employees, our chief operating officer
and a salesman. We will need to hire full-time marketing and administrative
employees in order to service our business. There can be no assurance that such
employees will be available or available on terms acceptable to us.
Any restriction on our available credit terms from our key vendors or the loss
of our key vendors could adversely affect our business.
We rely on three vendors for approximately 80% of the products we
currently sell to the clean room market. We anticipate reducing our reliance on
these vendors as we develop our website and expand the products we distribute.
Until we reduce our reliance on these vendors, of which there can be no
assurance, any restrictions imposed on their willingness to ship products
without requiring any advance payment or the loss of these vendors would
adversely affect our business.
8
Use of Proceeds
Our net proceeds from the sale of the shares being offered at an
assumed public offering price of $7.00 per share are estimated to be $5,890,000,
after deducting the underwriting discount and estimated offering expenses
payable by us and assuming that the underwriter's over allotment option is not
exercised. If the underwriter's over allotment option is exercised in full, our
net proceeds are estimated to be $1,110,000.
We intend to use the net proceeds as described in the following table:
Marketing $4,247,921 72%
Repayment of promissory notes 375,000 6
Capital expenditures, including
equipment 350,000 6
Website development 250,000 4
Payment of obligations to vendors 219,579 4
General working capital 547,500 8
---------- ---
Total $5,890,000 100%
========== ===
The marketing costs will consist of:
o advertising.
o general promotional activities,
o creation and distribution of CD-ROMs,
o attendance at trade shows and conventions, and
o follow-up with prospective vendors and customers.
The proceeds will be used to repay promissory notes executed in August
1999 in the aggregate principal amount of $375,000. The principal amount of the
promissory notes has been used for general working capital and to pay for
expenses incurred in connection with the acquisition of the division from
Laminaire and expenses related to this offering.
We anticipate paying $219,579 to Kimberly-Clark Corporation, The
Texwipe Company LLC and Alma, Inc., our three principal suppliers, pursuant to
our guarantees of the obligations of Laminaire Corporation in connection with
sales to the Distribution Division of Laminaire. We have the right to deduct any
amounts paid under the guarantees from the amounts owed Laminaire under the
promissory notes in the aggregate principal amount of $500,000 issued when we
purchased the Distribution Division of Laminaire.
Website development will include ongoing enhancements to our site as
well as assisting vendors and other strategic partners in developing material
for our site. The general working capital will be used for payroll, rent and
other general and administrative expenses.
Working capital will include salaries, rent and administrative
expenses, and inventory financing, as well as satisfying obligations assumed in
the purchase of a product group from Laminaire..
This allocation is only an estimate and we may adjust it as necessary
to address our operational needs in the future. For instance, we may also use a
portion of the net proceeds to acquire complementary technologies or businesses.
However, we currently have no commitments or agreements and are not involved in
any negotiations with respect to any such transactions.
9
We reserve the right to reallocate proceeds to different uses including
ways which differ from the specific proposed uses described in this prospectus
if, in management's view, the needs of the business so require. In addition, a
large portion of the proceeds is allocated to discretionary purposes. Investors
may not agree with any such allocation or reallocation. Based on our operating
plan, we believe that the net proceeds of this offering, together with available
funds on hand and cash flow from future operations, will be sufficient to
satisfy our working capital requirements for at least 12 months following this
offering. Our belief is based upon assumptions, including assumptions as to our
contemplated operations and business plan and economic and industry conditions.
If we were able to make significant acquisitions for cash consideration, we
would require additional capital. In addition, contingencies may arise that may
require us to obtain additional capital.
We cannot be sure that we will be able to obtain such capital on
favorable terms or at all. Pending use of the net proceeds of this offering, we
intend to invest the net proceeds in short-term, interest-bearing, investment
grade securities or similar quality investments.
10
Dilution
Our net tangible book value as of June 30, 1999 was deminimis, or $0
per share. Net tangible book value per share represents the amount of our total
tangible assets reduced by the amount of our total liabilities and divided by
the total number of shares of common stock outstanding. Dilution in net tangible
book value per share represents the difference between the amount per share paid
by purchasers of shares of common stock in this offering and the net tangible
book value per share of common stock immediately after the completion of this
offering. After giving effect to the sale of the 1,000,000 shares of common
stock offered by us at an assumed initial public offering price of $7.00 per
share, and after deducting the underwriting discount and estimated offering
expenses payable by us, our net tangible book value at June 30, 1999 would have
been approximately $5,900,000 or $1.97 per share of common stock. This
represents an immediate increase in net tangible book value of $1.97 per share
to existing stockholders and an immediate dilution of $5.03 per share to new
investors of common stock. The following table illustrates this dilution on a
per share basis:
Assumed initial public offering price per share $7.00
Net tangible book value per share before the offering $0.00
Increase per share attributable to new investors 1.97
-----
Pro forma net tangible book value per share after the 1.97
offering ----
Dilution per share to new investors $5.03
=====
The following table summarizes on an as adjusted basis after giving
effect to the offering, as of June 30, 1999, the differences between the
existing stockholders and new investors with respect to the number of shares of
common stock purchased from us, the total consideration paid to us and the
average price per share paid:
Shares Owned Consideration Average
------------------ ------------------ Price per Share
Number Percent Amount Percent ---------------
------ ------- ------ -------
Present shareholders 2,000,000 67% $10,000 .1 $.001
New investors 1,000,000 33% 7,000,000 99.9 7.00
--------- --- ---------- ------
Total 3,000,000 100% $7,010,000 100.00
========= ==== ========== ======
o -150,000 additional shares of common stock that are issuable upon
the exercise of the underwriter's over-allotment option; and
o 100,000 shares of common stock reserved for issuance upon the
exercise of the underwriter's warrants.
11
Capitalization
The following table states our capitalization as of August 31, 1999 and
as adjusted to reflect the sale of the 1,000,000 shares and the application of
the estimated net proceeds. This table should be together with our financial
statements included elsewhere in this prospectus.
Actual (As Adjusted)
-------- -------------
Debt $875,000 $500,000
Stockholders' equity; 2,000 3,000
common stock, par value of $.001 per share;
20,000,000 authorized; 2,000,000 shares
outstanding; 3,000,000 shares outstanding
as adjusted
Additional paid-in capital 707,900 6,607,000
Retained earnings -- --
---------- --------
Total stockholders' equity 709,900 6,610,000
---------- ---------
Total capitalization $1,584,900 $7,110,000
========== ==========
Our calculation of common shares outstanding as adjusted for the offering
does not give effect to:
o 150,000 additional shares of common stock that are issuable upon
the exercise of the underwriter's over-allotment option; and
o 100,000 shares of common stock reserved for issuance upon the
exercise of the underwriter's warrants.
The "As Adjusted" column treats the $100,000 fee for a 24-month consulting
agreement with the underwriter as a prepaid asset. The acquisition of the
Cleanroom Distribution Product Group was completed in August 1999 and is
included in the actual numbers for August.
12
Management's Discussion and Analysis of Results of Operations
and Financial Condition
The following discussion should be read together with the financial
statements and notes included elsewhere in this prospectus.
Results of operations
General - We had no operating history prior to June 30, 1999. In August
1999 we acquired the business of the Distribution Product Group of Laminaire
Corporation. Our business plan for the year following the completion of the
offering is designed to have us identified as the Internet independent sales
representative for the mid and small sized companies in our market niches. This
plan calls for us to:
o attend and present at trade shows,
o host receptions for potential customers and vendors,
o work with Wincorp to implement a state-of-the-art Internet
marketing campaign,
o prepare and distribute CD-Rom,
o prepare and distribute printed material, and
o visit targeted customers and vendors.
Distribution division - During the periods discussed below, the
division operated as a product group of Laminaire Corporation. Laminaire lacked
the financial resources and credit terms from its suppliers to develop the
division's business fully. The principal fluctuations resulted from the changes
in Laminaire's ability to commit resources during the period. Also, Laminaire
used cash generated by the division to help it meet its overall obligations.
Therefore, past operating results are not necessarily indicative of future
performance.
We have met with and entered into letter agreements with the three
principal vendors of the Product Group under which we have arranged for ongoing
shipments of product. Those agreements provide that we will pay open balances
due by Laminaire to the vendors as of the closing date of the offering. All
payments made by us for these purposes will be offset against the notes due by
us to Laminaire. At September 30, 1999, the aggregate amount owed by Laminaire
to these vendors was $_____.
Comparison of the six months ended June 30, 1999 and 1998
A summary of sales and cost of sales by product type follows:
Sales by product 6/30/98 6/30/99
- ---------------- ------- -------
Gloves $130,400 17.5% $148,311 17.1%
Wipers 227,890 30.5% 264,594 30.5%
Accessories 111,325 14.9% 154,786 17.8%
Mats 111,177 14.9% 91,893 10.6%
Disposable garments 117,469 15.7% 97,125 11.2%
Cleanroom furniture 5,476 0.7% 41,053 4.7%
Chairs 8,587 1.2% 10,988 1.3%
Fabric garments 11,142 1.5% 12,713 1.5%
13
Sales by product 6/30/98 6/30/99
- ---------------- ------- -------
Vacuum products 14,592 2.0% 35,602 4.1%
Foam wipers 7,402 1.0% 7,873 0.9%
Static products 865 0.1% 2,832 0.3%
Total $746,325 100.0% $867,770 100.0%
Cost of sales 6/30/98 6/30/99
- ------------- ------- -------
Gloves $ 94,143 12.6% $121,240 14.0%
Wipers 172,651 23.1% 211,140 24.3%
Accessories 78,433 10.5% 121,946 14.1%
Mats 89,062 11.9% 68,836 7.9%
Disposable garments 99,142 13.3% 72,456 8.4%
Cleanroom furniture 3,918 0.5% 28,937 3.3%
Chairs 6,386 0.9% 6,768 0.8%
Fabric garments 6,191 0.8% 8,569 1.0%
Vacuum products 11,997 1.6% 7,689 0.9%
Foam wipers 2,724 0.4% 2,830 0.3%
Static products 686 0.1% 2,327 0.3%
Total $565,333 75.7% $652,738 75.2%
The division did not emphasize particular products during any period.
Therefore, the fluctuations are a result of orders received in the normal course
of business and not of any concerted marketing efforts.
Comparison of the years ended December 31, 1998 and 1997
1998 % 1997 % Difference
---- - ---- - ----------
Revenues $2,267,846 $1,506,607 $761,239
Cost of revenues 2,070,174 1,117,464 952,710
Gross profits 197,672 8.72% 389,143 25.83% -191,471
Selling 98,148 4.33% 154,905 10.28% -56,757
General and administrative 45,357 2.00% 30,132 2.00% 15,225
Operating profits 54,167 2.39% 204,106 13.55% -149,939
In 1998, the division had a significant amount of low margin sales that
required minor sales efforts. Also in 1998, the division had one fewer full-time
employee resulting in a reduction of selling expenses.
14
The composition of sales and cost of sales was as follows:
Sales by product type 12/31/98 12/31/97
- --------------------- -------- --------
Gloves $328,478 14.5% $340,731 22.6%
Wipers 652,221 28.8% 313,362 20.8%
Accessories 348,738 15.4% 272,093 18.1%
Mats 265,795 11.7% 261,631 17.4%
Disposable garments 456,453 20.1% 163,815 10.9%
Cleanroom furniture 65,238 2.9% 69,175 4.6%
Chairs 89,128 3.9% 23,482 1.6%
Fabric garments 18,992 0.8% 22,877 1.5%
Vacuum products 15,985 0.7% 17,737 1.2%
Foam wipers 14,307 0.6% 15,131 1.0%
Static products 12,511 0.6% 6,573 0.4%
Total $2,267,846 100.0% $1,506,607 100.0%
Cost of sales 12/31/98 12/31/97
- ------------- -------- --------
Gloves $ 228,379 10.1% $ 236,030 15.7%
Wipers 647,253 28.5% 240,072 15.9%
Accessories 260,488 11.5% 196,244 13.0%
Mats 194,526 8.6% 180,714 12.0%
Disposable garments 360,238 15.9% 113,566 7.5%
Cleanroom furniture 45,975 2.0% 45,133 3.0%
Chairs 80,249 3.5% 15,028 1.0%
Fabric garments 12,311 0.5% 15,048 1.0%
Vacuum products 11,356 0.5% 12,371 0.8%
Foam wipers 6,415 0.3% 5,142 0.3%
Static products 4,190 0.2% 6,143 0.4%
Total $1,851,380 81.6% $1,065,491 70.7%
15
Liquidity and capital resources
We entered into two promissory notes in August 1999 in the aggregate
principal amount of $375,000. The principal amount of the promissory notes has
been used for general working capital and to pay for expenses incurred in
connection with the acquisition of the division from Laminaire and expenses
related to this offering. In addition, we loaned $102,000 to Laminaire
Corporation. The notes will be repaid from the proceeds of this offering.
We believe that the net proceeds of this offering will be sufficient to
satisfy our working capital requirements for at least 12 months following this
offering because most of our expenditures relate to marketing. We have
discretion over the timing and amount of these expenditures. In addition, our
emphasis on outsourcing means that our level of fixed costs is relatively low,
less than $100,000 per month, and we have no material obligations or
requirements for capital expenditures. Our principal commitments in the year
2000 relate to obligations under employment agreements in the aggregate amount
of $200,000.
We have no commitments for financing. If the offering is not completed,
we would seek to obtain sources o financing or to refinance existing notes
payable although no assurances can be given that we will be successful. We would
seek to obtain financing through expanding our lines of credit with vendors or
though the sale of equity or debt securities. We will seek to obtain financing
through expanding our lines of credit with vendors or through the sale of equity
or debt securities.
Seasonality
The demand for our products is somewhat seasonal. Our customers have a
reduced demand for our products in the summer due to the fact that many of our
customer's employees take vacation, plants are often closed during a portion of
the summer months and there is a general reduction of activity in those months .
New accounting pronouncements
No new pronouncement issued by the Financial Accounting Standards
board, the American Institute of Certified Public Accountants or the Securities
and Exchange Commission is expected to have a material impact on our financial
position or reported results of operations.
Year 2000 issues
Management has initiated a company-wide program and has developed a
formal plan of implementation to prepare us for the year 2000. This includes
taking actions designed to ensure that our information technology systems,
products and infrastructure are year 2000 compliant and that our customers,
suppliers and service providers have taken similar action. We are in the process
of evaluating our internal issues - all of our IT systems, products, equipment
and other facilities systems. At this time, management believes that we do not
have any internal problem other than to upgrade some of its software to
available new releases that are year 2000 compliant. With respect to its
external issues - customers, suppliers and service providers, we are surveying
them primarily through written and oral correspondence and communication. Spider
has advised us that its servers and systems are year 2000 compliant Despite the
efforts to survey customers, suppliers and service providers, we cannot be
certain as to the actual year 2000 readiness of these third parties. To the
extent any of our suppliers or service providers are not year 2000 ready, we
believe that we will be able to obtain other suppliers or service providers
without a significant interruption to our business. We are not aware of any
material service provider or vendor not being Year 2000 compliant and do not
believe that we need a specific contingency plan.
We believe that the costs related to our compliance with the year 2000
issue should not have a material adverse effect on our financial position,
results of operations or cash flows.
16
Forward looking information
This prospectus contains forward-looking statements that involve risks
and uncertainties. These statements relate to:
o our future plans;
o objectives;
o expectations and intentions; and
o the assumptions underlying or relating to any of these statements.
We use words like as "expects," "anticipates," "intends," "plans" and
similar expressions to identify forward-looking statements.
17
Business
eSAFETYWORLD was established as a Nevada corporation in July 1997 as
The SL Group, Inc. We changed our name to eSAFETYWORLD, Inc. in August 1999. Our
purpose is to sell disposable garments and industrial safety equipment to
companies involved in production or other activities that must be done in
controlled environments or whose employees are exposed to environmental hazards.
We intend to expand our traditional distribution business through the
development and operation of a business-to-business e-commerce site on the world
wide web. Our business model is based on the following assumptions.
o the business-to-business market available to Internet sellers is
much greater than the business-to-consumer market based on many
publicly available articles and studies.
o businesses, as a group, are generally further along in accepting
e-commerce and electronic data interchange than is the consumer
market.
o The targeted industry segment is large and being serviced in a very
fragmented way by the current entrants.
o A significant part of the selling effort now done in these segments
is done through the distribution of catalogs and brochures. Our
principal premise is that sales and orders placed through the
Internet offers an ideal replacement for traditional catalogs.
o The identified market niches are currently served by a number of
small companies. We believe that our state-of-the-art e-commerce
site will provide a competitive advantage as more customers use the
Internet.
Our business model is designed to take advantage of the Internet as a
selling medium. eSAFETYWORLD believes that the Internet offers significant
opportunities in the areas of e-commerce, including the ability to reach a large
potential market without the need for substantial advertising expenditures. The
ability to reach a worldwide market means that even a small degree of
penetration can result in a high level of sales revenue. The keys needed to
succeed in e-commerce include:
o Having user friendly software;
o Using a business model that does not require significant amounts of
development costs or working capital; and
o Developing a methodology for encouraging visitors to visit the
website and advertising at a reasonable cost.
Our strategic plan is to:
o Become a significant factor in the marketplace by becoming the
Internet seller for a wide array of available products. We want to
become the Internet independent sales representative for the
industries that we serves and will serve; and
o Utilize and modify existing technology in an effective, user
friendly way.
eSAFETYWORLD's goal is to use well-developed Internet technology and
therefore not incur significant expenditures for technological research and
development. We will seek ways to use this technology profitably, like targeting
market niches, and will allow others to assume the technological risk of new
development.
The annual United States market for industrial safety products that we
intend to sell is estimated to be in excess of $10 billion by R.K. Miller, P.C.
Walker and C.E. Purcell in their book, "Occupational Safety and Industrial
Hygiene Market" published in 1998. The United States Department of Commerce in
The Emerging Digital Economy published in 1998 has projected that
business-to-business e-commerce revenues will increase from $8 billion in 1997
to $326 billion in 2002.
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We believe that industrial safety products that are sold through
traditional printed catalogs are uniquely suited for sale on the Internet. The
reasons for this include:
o Products bought through catalogs are purchased by people who do not
need to "touch" or "feel" the product prior to purchase;
o E-commerce can make purchasing easier and quicker than filling out
forms in a catalog or calling a toll-free telephone number; and
o E-commerce can provide more information and update such information
more quickly than can distributors of catalogs.
We also believe that fixed costs must be kept to a minimum in order to
increase operating leverage. The principal advantage of using the Internet as a
selling vehicle is the ability to not incur significant fixed costs. The key
element of this strategy is to:
o minimize or eliminate inventory holding and shipping costs;
o minimize the need for expensive advertising campaigns by selecting
market niches that can be reached through trade shows and less
expensive forms of advertising; and
o out source services wherever possible.
Keeping fixed cost to a minimum is achievable if fulfillment contracts
are negotiated with vendors to perform all or most fulfillment functions. Based
on our preliminary discussions with vendors, we believe that many of our current
and potential vendors will agree to such terms although we may have to pay
premiums for products, particularly if order quantities are small. We will
eliminate products from our site if the associated vendors will not perform
fulfillment functions. We believe that this strategy may result in some lost
sales. However, we also believe that the strategy offers the best means of
achieving the potential high degree of operating leverage afforded by Internet
commerce.
We conducted no material operations in our organization between July
1997 and August 1999. In August 1999, after negotiating the terms of sale, we
acquired the distribution division of Laminaire Corporation, including its
customer lists and vendor lists. The purchase price consisted of 100,000 shares
of common stock, notes payable to the seller in the aggregate principal amount
of $500,000 and the assumption of accounts payable and accrued expenses of
$125,000. The notes payable bear interest at eight percent per annum. One of the
notes in the principal amount of $200,000 is payable in 12 equal quarterly
instalments, and the other note in the principal amount of $300,000 is payable
in 20 equal quarterly instalments. We have the right to offset the principal
amount of a $102,000 demand note that we made to Laminaire, in whole or in part,
against any payment due by us to Laminaire under these note agreements. In
addition, we can offset any amounts that we pay to satisfy amounts due by
Laminaire to its vendors against any amount due by us to Laminaire under the
note agreements. The first instalments due under the note agreements are payable
at the earlier of our completion of the offering or March 31, 2000.
Prior to purchasing the division, the officers and directors of
eSAFETYWORLD decided to establish a company for the development of an e-commerce
business which would focus on selling disposable garments and equipment. After
studying Laminaire we concluded that, although it was more narrowly focused,
acquiring its business, including its vendors and customer lists, would be
particularly useful to eSAFETYWORLD's business.
Laminaire's division, which has been in operation for more than twenty
years, provides us with an important entree to the vendors and customers of a
targeted industry niche. The division sells disposable/limited use apparel,
hoods, gloves, packaging and flooring material, monitoring devices,
electrostatic devices, furnishings, wipers, and swabs as a distributor to a wide
variety of midsized and small companies. Its principal vendors include Tekswipe,
Alma and Kimberly Clark. Its website is linked to a variety of other sites,
including Thomas Register. The Thomas Register is an industry catalogue which
lists thousands of companies in the industrial safety parts and equipment field.
Laminaire also markets its products through telemarketing and distribution of
print catalogs and materials. We have included the products distributed by the
division on our website. The product sold by the
19
company are sold by a wide variety of vendors and therefore we believe that the
loss of any one vendor will have no material impact on our business or on
product availability.
Edward A. Heil, our chairman, is a director of Laminaire. Steven W.
Schuster, one of our directors, is a member of the law firm that serves as
Laminaire's corporate counsel. The negotiations for the acquisition were
conducted on an arms length basis. Mr. Schuster did not act as counsel for
Laminaire, and Mr. Heil did not participate in the Laminaire board meeting that
approved the transaction. We believe that the acquisition is attractive for us
because it permits us to benefit from Laminaire's contacts the cleanroom
industry niche and provides us with introductions to key vendors and customers.
Our website is located at www.esafetyworld.com and will be fully
operational in November 1999. All of the frontend design work has been
completed. The proceeds of the offering are not necessary to complete
development of the website. We will, however, rely on the proceeds of the
offering and funds from operations to continue to operate and expand the website
to include additional products offered by vendors. Our growth and expansion into
new product areas is dependent on operation of the website. We intend to phase
our distribution of our printed catalogue, which will be replaced with CD-ROMs
to be distributed free of charge. Customers who do not use our website can
continue to order via toll free telephone numbers.
Nature of the Internet
The Internet is an increasingly significant medium for communication,
information and commerce. The September 16, 1999 edition of The Wall Street
Journal Interactive Edition reported a research study conducted by Goldman Sachs
that concluded that the value of business-to-business E-Commerce conducted in
the United States will increase from approximately $114 billion in 1999 to an
estimated $1.5 trillion by 2004.
We believe that growth in Internet usage and online commerce is being
fueled by a number of factors including:
o a large and growing installed base of personal computers in the
workplace and home;
o advances in the performance and speed of personal computers and
modems;
o improvements in network security, infrastructure and bandwidth;
o easier and cheaper access to the Internet; and
o the rapidly expanding availability of commerce sites.
The Internet provides several advantages for online distributors.
Online distributors are able to "display" a larger number of products than
traditional store-based or catalog distributors at a lower cost. In addition,
online distributors are able to frequently adjust their featured selections,
editorial content, shopping interfaces and pricing, thus providing significant
merchandising flexibility. The minimal cost to publish on the web, the ability
to reach and serve a large and global group of customers electronically from a
central location, and the potential for personalized low-cost customer
interaction provide additional economic benefits for online distributors. Unlike
traditional distribution channels, online distributors do not have the
burdensome costs of managing and maintaining a retail store infrastructure or
the significant printing and mailing costs of catalogs. Online distributors can
also easily obtain demographic and behavioral data about customers, increasing
opportunities for direct marketing and personalized services.
We will further expanded the benefits of online selling by devising a
distribution model that requires us to maintain little or no inventory and by
utilizing state-of-the-art software that can be modified or updated easily and
cheaply.
A key element of our strategy is to generate a high volume of traffic
on, and use of, our website. Our revenues depend on the number of customers who
use our website to purchase safety equipment. Accordingly, our website,
transaction processing systems and network infrastructure performance,
reliability and availability are critical to our operating results. These
factors also are critical to our reputation and our ability to attract and
retain customers and maintain adequate customer service levels. The volume of
goods we sell and the attractiveness of
20
our product and service offerings will decrease if there are any systems
interruptions that affect the availability of our website or our ability to
fulfill orders.
The business-to-business sector of Internet commerce is, in many ways,
more mature than the business-to-consumer sector. However, it is largely served
by individual company sites selling that particular company's products. In many
cases, these sites are looked at as a minor adjunct to a company's traditional
selling efforts.
Our success will depend in large part on continued growth in, and the
use of, the Internet, particularly for business-to-business commerce. The issues
concerning the commercial use of the Internet that we expect to affect the
development of the market for our services include:
o security;
o reliability;
o cost;
o ease of access;
o quality of service; and
o increases in bandwidth availability.
If the Internet develops more slowly as a commercial or business medium
than predicted, it will adversely affect our business. In addition, companies
that control access to Internet transactions through network access or web
browsers could promote competitors or charge a substantial fee to us for
inclusion in their product or service offerings. Either of these developments
could adversely affect our business.
We must continue to enhance and improve the functionality and features
of our online site. The Internet and the online commerce industry are rapidly
changing. If competitors introduce new products and services embodying new
technologies, or if new industry standards and practices emerge, our websites
and systems may become obsolete. Our future success will depend on our ability
to:
o license or internally develop leading technologies useful in our
business;
o develop new services and obtain technologies that address the
increasingly sophisticated and varied needs of our prospective
customers; and
o respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
Market niches and background
The market for disposable industrial garments and equipment has
increased substantially in the past twenty-five years. In 1970, Congress enacted
the Occupational Safety and Health Act ("or OSHA"), which requires employers to
supply protective clothing in certain work environments. At about the same time,
Dupont developed Tyvek(TM) which, for the first time, allowed for the economical
production of lightweight, disposable protective clothing. The attraction of
disposable garments grew in the late 1970's with the increases in both labor and
material costs of producing cloth garments and the expansion of federal, state
and local regulations requiring that employees wear protective clothing to
protect against exposure to particular contaminants, including asbestos and
hydro-carbons known as"PCBs".
The use of disposable garments avoids the continuing costs of
laundering and decontaminating woven cloth work garments and reduces the
overhead costs associated with handling, transporting and replacing such
garments. As manufacturers have become aware of the advantages of disposable
clothing, the demand for such garments has increased. This has allowed for
greater production volume and, in turn, has reduced the cost of manufacturing
disposable industrial garments.
We believe that this market will grow because of:
Government legislation which mandates the clean up of toxic waste sites
and the elimination of hazardous materials from the environment as promulgated
under various Congressional Super Fund Acts. The Environmental
21
Protection Agency designated OSHA to be responsible for the health and safety of
workers in and around areas of hazardous materials and contaminated waste, as
well as regulations requiring that employees wear protective clothing to protect
against exposure to particular contaminants.
Lower cost of disposable/limited use garments compared to reusable
woven and cloth garments because of the elimination of costs associated with
laundering, decontaminating, handling, transporting and replacing reusable woven
or cloth garments.
Increasing workers' compensation claims and large class action
liability suits instituted by both present and prior employees for failure to be
protected against hazardous agents found in the workplace.
Ongoing expansion in the semiconductor, microelectronics, medical
device and pharmaceutical industries, all of which require manufacturing in a
cleanroom environment.
We have identified two initial market niches:
Controlled environment facilities - Clean rooms are one of the most
effective approaches to achieving a contamination controlled environment. A
clean room is a specially designed room in which particulate presence and
environmental conditions are carefully maintained. Clean rooms are used for
product manufacture and assembly, testing, research and development, packaging,
aseptic processing and to perform medical/surgical procedures. Clean rooms are
operated and maintained under strict procedures to minimize the risk of
introducing foreign particles. The greatest demand for clean room products and
services has been and continues to be in the manufacture and assembly of
products based on modern technology. The semiconductor market is the largest
market for clean rooms and other contamination control products, as integrated
circuits can be rendered ineffective by a minute particle, undetectable to the
human eye, and must be discarded.
eSAFETYWORLD sells a large variety of disposable items, including such
as hats, coats, boots and gloves, that are used in cleanroom facilities.
Disposable items are ideal products for a distributor because they must be
reordered on a regular basis.
Industrial safety and hazardous worksites - This product group will
sell products to "end users," including manufacturing companies and service
businesses, public utilities, fisheries, pharmaceutical plants, the
transportation industry and companies whose employees are exposed to hazardous
materials. Use of these products has in a large part resulted from the adoption
of OSHA and other governmental safety standards and the awareness of industry
and the general public for the need to provide worker protection against
hazardous materials contained in industrial facilities, schools and buildings.
These products include coveralls, shirts, pants, headwear, hoods, aprons,
smocks, lab coats, hazardous material handler suits, examination gowns, sleeves,
shoe covers and related items. Many of these products are disposable and,
therefore, offer the same benefits as do disposable cleanroom products. We
expect to introduce a large variety of industrial first aid products during the
first quarter of 2000.
Future market niches - We have identified several additional market
niches for future expansion, all of which appear to have the same attributes as
eSAFETYWORLD's initial market niches. The identified niches include products
serving the hospital, plumbing supply, construction and commercial heating and
air conditioning industries.
The identified product areas include disposable/limited use protective
industrial garments, specialty safety and industrial work gloves, reusable woven
industrial and medical apparel, fire and heat protective clothing, along with
protective systems for personnel, and suits for use by toxic waste clean up
teams.
Protective garments, including boots, goggles, aprons and overalls, are
used primarily for:
o Safety and hazard protection, to protect the wearer from
contaminants or irritants, such as, chemicals, pesticides,
fertilizers, paint, grease, and dust and from limited exposures to
hazardous waste and toxic chemicals including acids, asbestos,
lead, and PCB's;
o Clean room environments, for the prevention of human contamination
of manufacturing processes in clean room environments;
22
o Physical protection, to protect a wearer from laceration,
splinters, eye injuries, heat and chemical irritants without
sacrificing manual dexterity or comfort;
o Heat and fire protection, to protect municipal fire fighters,
military, airport and industrial fire fighting teams and for
maintenance of "hot" equipment, such as ovens, kilns, glass
furnaces, refinery installations, and smelting plants;
o Protection from viral and bacterial microbiologicals, to protect
the wearer from contagious diseases, such as AIDS and hepatitis, at
hospitals, clinics and emergency rescue sites; and
o Protection from highly concentrated and chemical and biological
toxins, to protect the wearer from toxic waste at Super Fund sites,
accidental toxic chemical spills or biological discharges, the
handling of chemical or biological warfare weapons and the cleaning
and maintenance of chemical, petrochemical and nuclear facilities.
Other ancillary products, all of which are used in cleanroom and
laboratory environments, include:
o Packaging materials,
o Monitor devices,
o Flooring and mats;
o Electrostatic devices;
o Furnishings, and
o Wipers and swabs.
Disposable/limited use industrial garments are used in a wide variety
of industries and applications. Typical industry users are chemical plants,
petrochemical refineries and related installations, automotive manufacturers,
pharmaceutical companies, coal and oil power generation utilities and telephone
utility companies. There are many smaller industries that use these garments for
specific safety applications unique to their situation.
Other - In addition, eSAFETYWORLD sells customized work stations used
in cleanrooms and laboratories, all of which are manufactured by others. These
products will be included on our website during the first quarter of 2000.
Implementation of Business Plan
o We intend to attend at least two trade shows or conventions per
month. At each show, we will arrange to exhibit our site and
capabilities. We will rent auditoriums to or exhibit rooms for this
purpose. We will also collect the business cards and email
addresses of attendees. These efforts will be targeted at both
prospective vendors and customers. We will work with prospective
vendors to convince them that we will help bring them additional
sales rather than be a competitor. Our message to customers will be
that we are a convenient one stop shopping source.
o We intend to engage marketing employees and selected consultants to
follow-up with and visit attendees of our presentations. In
addition, we will send regular email to all persons on our email
lists.
o Within a month of the completion date of this offering, we intend
to start massive mailings of printed flyers.
23
o Within two months of the completion of the offering, we intend to
start distributing CD-ROMs free of charge both at shows and in the
mail. The CD-ROMs will contain the information currently contained
in our catalogue, which will be expanded as we distribute more
products.
o We intend to start a full-time telemarketing campaign.
o We intend to work with trade groups to be their website of choice
and will negotiate agreements to have links from their website to
our website.
During the first six months following the offering, we intend to enhance our
website to include:
o training programs sponsored by others;
o message boards; and
o improvements suggested by users and customers.
Our staff, management and known consultants can perform the initial phase of our
program if they are augmented by several marketing employees, telemarketers and
customer service representatives. Our goal is to have these people in place
within 60 days after the offering is completed.
Software
Our strategy has been and is to license commercially available
technology whenever possible rather than seek internally developed solutions.
With this objective in mind, we have entered into an agreement with an
electronic commerce software company, Spider, Inc., and its affiliate, World
Internet Marketing Corporation. World Internet Marketing Corporation is referred
to in this prospectus as "Wincorp." Through these agreements, we will have
access to state-of-the-art, end-to-end electronic commerce software, use of
Spider's primary and backup servers and access to Wincorp's E-Commerce
advertising and marketing programs. We believe that our software solution is
equal to or better than any comparable systems currently in use because it is
user friendly and easy to administer.
The Spider Web Commercial 2000 System is designed to be a total
end-to-end electronic commerce solution for stand alone interactive e-commerce
enabled business-to-business websites. Each virtual store is an electronic
commerce-enabled website designed to sell products over the Internet.
Because of our software technology, the maintenance of the website is
performed easily and requires fewer operating personnel. The Spider Web
Commercial 2000 software can be maintained by employees having skill levels
equal to order entry employees or store checkout employees. This feature is
advantageous because it enables us to maintain our own websites, as well as
scaling up employees to setup and build e-commerce websites commensurate with
the growth of the Internet. Entry level employees can easily, quickly and
efficiently add, delete or modify products within the website. These changes,
including prices, are simultaneously updated, in real time, in our
business-to-business site. Product displays may be enhanced with image animation
that can be added by the same level of employees. Spider's unique technology was
designed so that each business-to-business site may have an unlimited number of
departments and unlimited number of products under each department or
sub-department. The website is easily navigable by the consumer, who may move
fluidly among departments, sub-departments and products.
eSAFETYWORLD will use, on a nonexclusive basis, a new e-commerce
method, developed with Spider and World Internet Marketing Corporation,
"E-Branding (TM)," which permits our virtual store to be linked seamlessly with
the websites of manufacturers and distributors. The method was developed by
Spider and licensed to eSAFETYWORLD. Once inside the virtual store, a customer
can immediately view all of a manufacturer's or distributor's products including
those which are not available in the retailer's "brick and mortar" store. A
customer can then order the desired product from an "E-Branded(TM)" website.
We are continually working with Spider to enhance and expand our
technology and transaction processing systems, and other technologies, to
accommodate a substantial increase in the volume of traffic on our website.
Spider designs and upgrades our software and website and provides us with
servers, Internet marketing and support
24
services for $10,000 per month pursuant to a written agreement. The first
payment is due following completion of this offering. Under the agreement,
Spider and Wincorp will also conduct an Internet marketing campaign on our
behalf. The agreement is terminable by either us or Spider after December 31,
2010. We rely on Spider to maintain our website. We may be unable to accurately
project the rate or timing of increases in the use of our website. We may fail
to timely expand and upgrade our systems and infrastructure to accommodate these
increases. In addition, our failure to achieve or maintain high capacity data
transmission could significantly reduce consumer demand for our services.
Our systems are and will continue to be designed based on industry
standard architectures and will be designed to reduce downtime in the event of
outages or catastrophic occurrences. These systems will provide 24-hour-a-day,
seven-day-a-week availability. The system hardware are hosted by Spider in East
Northport, New York, and will provide redundant communications lines and
emergency power backup.
Marketing
Our goal is to become the independent Internet sales representative for
and Internet portal to the industrial safety market. Historically, the division
purchased from Laminaire relied on catalogues distributed to customer to
generate orders. We intend to phase out use of the paper catalogue and use a
portion of the proceeds of the offering to convert the catalogue to CD-ROMS's to
distribute to customers. This phaseout period will take place over a long period
of time so that we lose as few customers as possible. We will work with the
purchasing departments of all significant customers, both individually and at
trade shows, to familiarize them with our Internet ordering system. Most such
customers are medium sized enterprises that use computer applications
extensively in their businesses. We do not anticipate any material adverse
impact of existing customers not wishing to use the Internet to place orders
because we can currently accommodate orders placed by phone or fax.
Our standard arrangement is:
o Split the profit on all items sold based on negotiated arrangements
with each "vendor."
o Arrange, wherever possible, for the manufacturer to distribute
products directly to end customers.
We will expand our product offerings by:
o Marketing our services and availability at trade shows; and
o Contacting potential users directly.
We will market our availability to customers by:
o Being active in all significant industry trade shows;
o Advertising in catalogs such as the Thomas Register;
o Implementing aggressive e-mailing and brochure campaigns; and
o Making direct sales calls on targeted companies by independent
representatives.
These efforts will be coordinated with a full scale Internet marketing
campaign that we will conduct together with World Internet Marketing
Corporation, an entity engaged solely in that area. World Internet Marketing
Corporation has developed proprietary techniques to facilitate high ranking of
clients' websites on search engines. Our efforts will include:
o Distributing a specially designed CD-ROM for trade shows that uses
a patent pending software technology and several Internet marketing
opportunities. The multimedia interactive trade show CD-ROM
interactively displays our products in a manner that functions
seamlessly with our Internet e-commerce website. We will distribute
CD-ROMS at trade shows and also by mail to existing and prospective
customers.
25
o Obtaining e-mail addresses of targeted groups. Wincorp's marketing
staff can identify all newsgroups and chat rooms on the Internet
that discuss a specific topic and extract applicable e-mail
addresses or addresses from local or regional geographic locations.
All such addresses will receive information by e-mail including
selected "sales" and promotions. The e-mail includes a hotlink to
our website.
o Searching the entire Internet for all websites that display
targeted keywords to locate and extract target market e-mail
addresses. Once all targeted e-mail addresses are extracted, a
customized e-mail message, including text and/or banner
advertisement with a website hotlink, is sent to each e-mail
address included on the list.
The identified industry niches offer an advantage in that many vendors
participate in several trade shows each year. Therefore, we can meet with and
have access to these companies without incurring significant advertising
expenditures. We will attend these shows and:
o Distribute our CD-ROM
o Make actual presentations showing that use of our service may add
incremental sales without incurring incremental costs prior to the
sale
o Collect the e-mail and mailing addresses of participants for
follow-up.
We will also engage in traditional mailing and telemarketing efforts.
In most cases, we will perform all billing and collection functions,
even if vendors drop ship products directly to customers.
Competition
We believe that there are hundreds of competitors selling products that
are similar to those sold by us based on listings in industry catalogs,
including the Thomas Register. The National Safety Council, a trade organization
of manufacturers and distributors, has over 15,000 members. The most significant
national competitor is Grainger Inc., a distributor of industrial safety
products, who distributes through stores, catalogues and a website. Many of our
competitors are regional companies selling through catalogs and independent
sales representatives. Increasing numbers of these competitors are also
establishing websites and e-commerce sites. Almost all of these companies
compete by:
o distributing catalogs in the mail,
o attending trade shows,
o engaging independent sales representatives and
o telemarketing.
In addition, increasing numbers of competitors are developing in-house websites
and relying on aggressive pricing.
We believe that our e-commerce site and our business strategy provide
us with a competitive advantage because:
o Our e-commerce site is user-friendly with significant amounts of
graphics.
o Our strategy requires low levels of working capital and few
inventory holding costs.
o Our strategy permits us to serve as a manufacturer's Internet
independent sales representative and does not put us in direct
competition with other sales efforts.
However, we can give no assurances that our approach will not be duplicated or
improved upon by others. If we face increased competition, our operating results
may be adversely affected.
26
Customer service
We believe that a high level of customer service and support is
critical to retaining and expanding its customer base and encouraging repeat
purchases. A customer service representative will be available from 8:00 a.m. to
8:00 p.m. Eastern Time, five days a week, to provide assistance via e-mail or
telephone. We will strive to answer all customer inquiries within 24 hours.
Customer service representatives handle questions about orders, assist customers
in finding desired products and register customers' credit card information over
the telephone. Customer service representatives are expected to be a valuable
source of feedback regarding user satisfaction.
Order fulfillment and vendors
Our principal current vendors are Kimberly Clark, Alma and Texwipe with
respect to products, such as gloves and wipes, used principally in clean rooms
and laboratories. Until completion of offering, which will enable us to market
the website as a portal to the general industrial safety products industry, we
anticipate that these three companies will continue to be our principal vendors
and the clean room and laboratory markets will continue to be our principal
markets. They currently supply products accounting for approximately 80% of our
sales. These vendors drop ship directly to our customers with customary payment
terms and without any advance payment by us. Products are purchased using
purchase orders or verbal agreements. No long term supply agreements, including
obligations to purchase inventory, exist. As our business grows and we service
other markets and provide a wider array of products, we anticipate that we will
rely less on these vendors.
A significant element of our strategic plan involves entering into
agreements with vendors under which the vendors will drop ship products directly
to our customers. Drop shipment substantially reduces our requirements to
maintain and store inventory. There can be no assurances that we will continue
to be successful in negotiating these arrangements with the vendors.
Our success depends on our ability to have access to products in
sufficient quantities at competitive prices. Vendors may offer exclusive
allocations of product to distributors for limited periods of time. Some
potential vendors have their own online commerce efforts, which may eliminate or
reduce our ability to get sufficient product allocations from these vendors.
Competitors may also be able to secure products from vendors on more favorable
terms, fulfill customer orders more efficiently and adopt more aggressive
pricing or inventory availability policies than us. Our business will be
adversely affected if we are not able to offer our customers sufficient
quantities of products in a timely manner or have access to products at
acceptable prices and terms.
Security
We use the secure socket layer or "SSL" transaction protocol to protect
sensitive information transferred to and from our servers. SSL is currently used
for most web-based e-commerce projects to protect credit card and other
processing. The servers used by us may be vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions. Our business may be
adversely affected by customers' perceptions of Internet security or if our
security measures do not prevent security breaches.
Regulation
Although there are few laws and regulations directly applicable to the
Internet, it is likely that new laws and regulations will be adopted in the
United States and elsewhere covering issues like unsolicited bulk e-mailing,
license fees, copyrights, privacy, pricing, sales taxes and characteristics and
quality of Internet services. The adoption of restrictive laws or regulations
could slow Internet growth or expose us to significant liabilities associated
with content available on its websites or Internet marketing methods. The
application of existing laws and regulations governing Internet issues including
property ownership, libel and personal privacy is also very uncertain. There can
be no assurance that current or new government laws and regulations, or the
application of existing laws and regulations will not expose us to significant
liabilities, significantly slow Internet growth or otherwise cause a material
adverse effect on our business, results of operations or financial condition.
We do not collect sales or other taxes with respect to the sale of
services or products in states and countries where we believe that it is not
required to do so. One or more states or countries have sought to impose sales
or other tax obligations on companies that engage in online commerce within
their jurisdictions. A successful assertion
27
by one or more states or countries that we should collect sales or other taxes
on products and services, or remit payment of sales or other taxes for prior
periods, could have a material adverse effect on our business, results of
operations and financial condition.
The Communications Decency Act of 1996, known as "CDA",was enacted in
1996. Although those sections of the CDA that, among other things, proposed to
impose criminal penalties on anyone distributing "indecent" material to minors
over the Internet were held to be unconstitutional by the U.S. Supreme Court,
there can be no assurance that similar laws will not be proposed and adopted.
Although we do not currently distribute the types of materials that the CDA may
have deemed illegal, the nature of similar legislation and the manner in which
it may be interpreted and enforced cannot be fully determined, and legislation
similar to the CDA could subject us to potential liability, which in turn could
have an adverse effect on our business, financial condition and results of
operations. such laws could also damage the growth of the Internet generally and
decrease the demand for our products and services, which could adversely affect
our business, results of operations and financial condition.
As a distributor of Internet content, we face potential liability for
negligence, copyright, patent, trademark, defamation, indecency and other claims
based on the nature and content of the materials that it broadcasts. These
claims have been brought, and sometimes successfully pressed, against Internet
content distributors. In addition, we could be exposed to liability with respect
to the content or unauthorized duplication or broadcast of content. Although we
will maintain general liability insurance, our insurance may not cover potential
claims of this type or may not be adequate to indemnify us for all liability
that may be imposed. In addition, although we will generally require our content
providers to indemnify us for this liability, the indemnification may be
inadequate. Any imposition of liability that is not covered by insurance, is in
excess of insurance coverage or is not covered by an indemnification by a
content provider could have a material adverse effect on our business, results
of operations and financial condition.
We hold the www.esafetyworld.com domain name, although we believe that
in the future we will hold additional various web domain names and trademarks.
The acquisition and maintenance of domain names generally is regulated by
governmental agencies and their designees. For example, in the United States,
the National Science Foundation has appointed Network Solutions, Inc. as the
current exclusive registrar for the ".com",".net" and ".org" generic top-level
domains . The regulation of domain names in the United States and in foreign
countries could change in the near future. These changes in the United States
are expected to include a transition from the current system to a system that is
controlled by a non-profit corporation and the creation of additional top-level
domains. Governing bodies may establish additional top-level domains, appoint
additional domain name registrars or modify the requirements for holding domain
names. As a result, we may be unable to acquire or maintain relevant domain
names in all countries in which it may conduct business. Furthermore, the
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. Therefore, we may be
unable to prevent third parties from acquiring domain names that are similar to,
infringe upon or otherwise decrease the value of our trademarks and other
proprietary rights.
While we a re not regulated by the FDA, OSHA or the EPA, our customers
are subject to such federal regulation as well as state regulation related to
industrial safety. Changes in such laws and regulations could materially affect
demand for industrial safety products.
Intellectual property
We regard the technology we use in connection with the operation of our
website as proprietary, but have no existing or pending patent or copyright
protection. We rely on the following to protect our software and other propriety
technology:
o confidentiality and license agreements with third parties,
o trade secret and trademark laws, and
o common law copyright.
Properties
We will operate out of rented 1,200 square feet of office space located
at 100-3 South Jersey Avenue, East Setauket, New York 11733. The month-to-month
verbal lease calls for monthly payments of $1,000. We plan to
28
lease a slightly larger amount of office space in New Jersey to accommodate
newly-hired sales people as well as employees and consultants who reside in New
Jersey.
Legal proceedings
We are not a party to any legal proceedings.
Personnel
We have two full-time employees, as well as officers who devote various
amounts of time to our business as set forth under "Management". At the
completion of the offering we expect to have fewer than ten full-time employees.
Our strategic plan is to use dedicated consultants and to outsource as many
functions as possible. Therefore, growth is not expected to result in
significant increases in personnel.
Our success will depend in part on our ability to attract and retain
qualified personnel to manage our future development and growth. There can be no
assurance that we will be successful in attracting and retaining such personnel.
The failure to recruit additional key personnel could have a material adverse
effect on our business, financial condition and results of operations.
Our success will be materially dependent upon continued services and
contributions of Edward A. Heil and our directors and consultants. Mr. Heil has
formulated our business plan, established our goals, worked with Mr. White and
other consultants on our software development and has extensive contacts in the
financial community. Our consultants have extensive experience dealing with
vendors and customers in our target markets. The loss of one or more of our
other key personnel or consultants, or our inability to attract qualified
personnel, could have a material adverse effect on our business, financial
condition and results of operations. We are also dependent on Spider, Inc and
its affiliate, World Internet Marketing Corporation, for the development of our
websites. The loss of Spider as a vendor and consultant could have a material
adverse impact on us and our operations.
29
Management
Our management consists of:
Edward A. Heil 48 Chairman, President and Chief executive officer
David McClelland 39 Chief operating officer
John C. Dello-Iacono 50 Director
R. Bret Jenkins 41 Director, secretary, and chief financial officer
Bridget C. Owens 42 Director
Steven W. Schuster 44 Director
James Brownfiel 28 Vice president
Paul White 41 Chief technology officer
Edward A. Heil is the founder of eSAFETYWORLD and has been President
and a director since 1997. He is a certified public accountant and a managing
director, since January 1992, in Independent Network Group, Inc., a financial
consulting firm. During that same period, he has been a principal of EH
Associates, LLC, a financial consulting firm. From 1984 through December 1991 he
was a partner in the accounting firm, Deloitte & Touche, LLP. From 1973 to 1984
he was employed in various professional capacities by Deloitte & Touche, LLP.
Mr. Heil holds Bachelor of Arts and Master of business Administration degrees
from New York University. Mr. Heil, who will devote from 50 to 60 percent of his
time to eSAFETYWORLD, is also a director of Laminaire Corporation and Worldwide
Financial Holdings, Inc. EH Associates, LLC has a consulting contract to provide
us with management and financial service.
David McClelland has been an officer since October 1999. He has held
executive positions with Laminaire Corporation, a manufacturer and distributor
of cleanroom products, since 1980. Mr. McClelland, who served as division
manager of the cleanroom distribution and manufacturing divisions of Laminaire
prior to October 1999. He is a graduate of New Jersey Institute of Technology.
John C. Dello-Iacono has been a director since 1999. He has been a
managing director of Independent Network Group, Inc., a financial consulting
firm since 1994. During this period he assisted companies and individuals in
obtaining and structuring financing. He holds a Bachelors degree from St. John's
University.
R. Bret Jenkins has been a director since 1997 and became chief
financial officer in October 1999. He has been in the private practice of
securities and general business law for the past 15 years. Mr. Jenkins, who is
also a director of Worldwide Financial Holdings, Inc., holds Bachelor of Arts
and Juris Doctorate degrees from the University of Utah. JP, Inc., a consulting
firm controlled by Mr. Jenkins, has a contract to provide us with business
services.
Bridget C. Owens has been a director since June 1999. She has served as
special assistant to the board of directors of Laminaire Corporation since 1995.
Prior to that she was director of marketing for Independent Network Group, Inc
in 1994 and for Primac Inc., a privately-held transportation company from
1992-1993. Prior to Primac, Ms. Owens owned and operated a trucking and
transportation company.
Steven W. Schuster has been a director since August 1999. He is a
member of McLaughlin & Stern, LLP, eSAFETYWORLD's counsel. Mr. Schuster has
practiced corporate and securities law for the past 20 years. He received a
Bachelor of Arts degree from Harvard University and a Juris Doctorate from New
York University. Mr. Schuster is also a director of ACTV, Inc., an interactive
television company.
James Brownfiel has been an officer since August 1999. He has been a
project manager and general manager engaged in the installation of commercial
heating and air conditioning units since 1994. Since 1996, he has been a general
manager for Deshler Mechanical Corp. From 1995 to 1996, he was a District
Manager for Ferguson Enterprises. From 1994 to 1995, he was a project manager
for Porter Brothers Inc. He is a graduate of the University of Notre Dame. Mr.
Brownfiel is Mr. Heil's son-in-law.
Paul White has been chief technology officer since January 1999. He
founded and is chief executive officer of Spider and World Internet Marketing
Corporation where he has worked since 1995. He has passed the Patent Bar and
writes software patents, trademarks and copyrights. From 1994 to 1995, he
invented and managed
30
the development of medical laboratory billing software at a medical laboratory
software firm. From 1982 to 1994, Mr. White owned and operated a chain of retail
stores, The Wind & Surf Shop.
Board of directors
All directors hold office until the completion of their term of office,
which is not longer than three years, or until their successors have been
elected. We have a staggered board of directors. All officers are appointed
annually by the board of directors and, subject to existing employment
agreements, serve at the discretion of the board.
The board of directors will have an audit committee, finance, operating
and compensation committee. The audit committee will review the results and
scope of the audit and other services provided by our independent auditors,
review and evaluate our system of internal controls. The finance committee will
oversee our treasury function. The operating committee will review and establish
our strategies, goals and direction. The compensation committee will manage our
stock option plan and review and recommend compensation arrangements for our
officers. All committees will commence operations concurrent with the completion
of the offering.
Directors shall receive $4,000 per year and $350 per meeting as
compensation for serving on the board of directors. All directors are reimbursed
by us for any expenses incurred in attending directors' meetings. We also intend
to obtain officers and directors liability insurance, although no assurance can
be given that it will be able to do so.
We intend to apply for director and officer liability insurance and
also keyman life insurance on the life of Mr. Heil.
Stock option plan
We have a stock option plan that expires in 2009 and enables us to
grant incentive stock options, non-qualified options and stock appreciation
rights for up to an aggregate of 500,000 shares of our common stock. Incentive
stock options granted under the plan must conform to applicable federal income
tax regulations and have an exercise price not less than the fair market value
of shares at the date of grant or 110% of fair market value for ten percent or
more stockholders. Other options and stock appreciation rights may be granted on
terms determined by the compensation committee of the board of directors.
Executive compensation
No officer, director or employee has received compensation of $100,000,
and no director, officer or employee has a contract or commitment to receive
annual compensation in excess of $100,000 except as described below:
We intend to enter into a three-year employment agreement with Mr.
McClelland that will be effective January 1, 2000 and will call for an annual
salary of $125,000 and reimbursement of business expenses, including a car
allowance.
Mr. Brownfiel has a three-year employment agreement that becomes
effective January 1, 2000 and calls for an annual salary of $75,000 in 2000,
$85,000 in 2001 and $100,000 in 2002, as well as reimbursement of business
expenses, including a car allowance.
We have an agreement with EH Associates, LLC, an entity associated with
Mr. Heil, under which we will pay annual consulting fees of $125,000, $140,000
and $150,000 in each of the three years in the period ended December 31, 2002.
Mr. Heil will receive no compensation from us beyond the payments to EH
Associates, LLC.
We have an agreement with EDK Associates, LLC under which we have
agreed to pay annual fees of $58,000, $65,000 and $75,000 in each of the three
years in the period ended December 31, 2002 for administrative, marketing and
investor relations services. Ms. Owens, a Director, is the managing member and
sole owner of EDK Associates, LLC. It is anticipated that Ms. Owens will devote
30 to 35 hours per week to eSAFETYWORLD and will perform investor relations,
employee benefits and personnel administration. She will receive reimbursement
for expenses but no other compensation from us.
31
We have an agreement with JP Inc., an entity controlled by Mr. Jenkins,
under which we have agreed to pay annual fees of $50,000 in each of the three
years in the period ended December 31, 2002 for consultation on financial
services. Mr. Jenkins will devote 40 to 50 hours per month to eSAFETYWORLD. He
will receive no salary as chief financial officer during the period that JP,
Inc. is acting as a consultant. Mr. Jenkins will receive reimbursement for
expenses.
32
Certain Relationships and Related Transactions
In August 1999, we acquired the business, customer and vendor lists and
base of the Distribution Division of Laminaire Corporation and incorporated the
business on our website. This division distributes disposable products used in
Cleanrooms to a wide variety of commercial customers. The purchase price
consisted of 100,000 shares of our common stock, notes payable to the seller in
the principal amount of $500,000 and the assumption of debt of $125,000. This
transaction was accounted for as a purchase in conformity with Opinion No. 16 of
the Accounting Principles Board. Edward A. Heil, our chairman, is a director of
Laminaire. Steven W. Schuster, one of our directors, is Laminaire's corporate
secretary.
In August 1999, eSAFETYWORLD made a demand loan to Laminaire
Corporation in the principal amount of $102,000. The loan bears interest at the
rate of 9% per annum. The loan was made to provide Laminaire with additional
working capital and to lower the amount ultimately due from Laminaire under the
notes issued in connection with the acquisition of the business of the
Distribution Division.
In September 1999, we signed agreements with Kimberly-Clark
Corporation, The Texwipe Company LLC and Alma, Inc., our three principal
suppliers, who were also suppliers to the Distribution Division of Laminaire.
Under the agreement with Kimberly-Clark, we agreed to guarantee payment for all
goods and services sold by Kimberly-Clark to Laminaire, which amount was
$85,449.90 as of September 30, 1999. Under the agreement with Texwipe, we agreed
to guarantee payment for $56,284 in goods and services sold by Texwipe to
Laminaire as of September 29, 1999. Under the agreement with Alma, we agreed to
guarantee payment for $77,845 in goods and services sold by Alma to Laminaire as
of September 29, 1999. Alma agreed to extend a line of credit to eSAFETYWORLD of
up to $40,000. Under the agreements with the vendors, any unpaid amounts as of
the closing of this offering will be paid from the proceeds of this offering.
Under the terms of the promissory notes in the principal amount of $500,000
payable to Laminaire Corporation for the Distribution Division, any amounts paid
to the vendors will be deducted from the amounts owed Laminaire.
Paul White is president and chief executive officer of Spider, Inc. and
chief executive officer of World Internet Marketing Corporation. Our business
depends heavily on its licensing and marketing agreements with Spider and
Wincorp under which Spider designs and upgrades our software and website and
provides us with servers, Internet marketing and support services for $10,000
per month.
Mr. Heil owns 10% of the common stock of World Internet Marketing
Corporation. Spider, Inc. has engaged World Internet Marketing Corporation to
perform Internet marketing services for us.
We have an agreement with EH Associates, LLC. Mr. Heil is president of
this company and members of his immediate family own 100% of EH Associates, LLC.
Under the terms of this agreement Mr. Heil will consult on financial and general
management. We will pay EH Associates, LLC annual consulting fees of $125,000,
$140,000 and $150,000 in each of the three years in the period ended December
31, 2002. Mr. Heil receives reimbursement for expenses, but receives no other
compensation from us.
EDK Associates, LLC has a contract with us under which we have agreed
to pay annual fees of $58,000, $65,000 and $75,000 in each of the three years in
the period ended December 31, 2002 for administrative, marketing and investor
relations services. Ms. Owens is the managing member and sole owner of EDK
Associates, LLC. It is anticipated that Ms. Owens will devote 30 to 35 hours per
week to eSAFETYWORLD and will perform investor relations, employee benefits and
personnel administration. She will receive reimbursement for expenses but no
other compensation from us.
JP Inc., an entity controlled by Mr. Jenkins, has a contract with us
under which we have agreed to pay annual fees of $50,000 in each of the three
years in the period ended December 31, 2002 for consultation on financial
services. Mr. Jenkins will devote 40 to 50 hours per month to eSAFETYWORLD. He
will receive no salary as chief financial officer during the period that JP,
Inc. is acting as a consultant. Mr. Jenkins will receive reimbursement for
expenses.
Mr. Schuster, one of our directors, is a member of McLaughlin & Stern,
LLP, a law firm that serves as our general counsel.
We have and will maintain at least two independent directors on our
board of directors. All future material
33
affiliated transactions and future loans and loan guarantees with our officers,
directors, 5% shareholders, or their respective affiliates, will be on terms
that are as favorable to us as those generally available from unaffiliated third
parties; and all such future transactions and loans, and any forgiveness of such
loans, shall be approved or ratified by a majority of our independent directors
who do not have an interest in the transactions and who will have access, at our
expense, to our counsel or independent legal counsel. Further, we do not intend
to make any future loans to or guarantee loans on behalf of our officers,
directors and employees, other than: (i) advances for travel, business expense,
and similar ordinary operating expenditures; (ii) loans or loan guarantees made
for the purchase of our securities, and (iii) loans for relocation.
34
Principal Shareholders
The following table sets forth information known to us regarding
beneficial ownership of our common stock at the date of this prospectus by
o each person known by us to own, directly or beneficially, more than
5% of our common stock,
o each of our directors, and
o all of our officers and directors as a group.
Except as otherwise indicated, we believe that the beneficial owners of
the common stock listed below, based on information furnished by the owners,
such sole investment and voting power with respect to the shares. The table
showing the shares of common stock owned after the offering assumes that the
officers and directors do not buy any shares in the offering.
Names and Address of Number of Percent of Shares Percent of Shares
Beneficial Owner Shares Owned Owned Before Offering Owned After Offering
- ------------------------ ------------ --------------------- --------------------
Edward A. Heil 443,000 22.15% 14.77%
J.P. Inc. 225,000 12.75% 8.33%
972 North 1430 West
Orem, Utah 84057
Donald Arbisi 147,000 7.35% 4.90%
P. O. Box 151
Dalzell, Illinois
Shannon White 145,000 7.25% 4.83%
1101 Shadowbrook Drive
North Lakeland, FL
33813
Windsor Fund 145,000 7.25% 4.83%
55 Frederick Street
Nassau, Bahamas
Raymond Burghard 100,000 5.00% 3.33%
120 Broadway, 28th
Floor
New York, NY 10271
Ben Hoskins 100,000 5.00% 3.33%
972 North 1430 West
Orem, Utah 84057
Bret Jenkins 100,000 5.00% 3.33%
972 North 1430 West
Orem, Utah 84057
Laminaire Corp. 100,000 5.00% 3.33%
Steven W. Schuster 100,000 5.00% 3.33%
McLaughlin & Stern LLP
260 Madison Avenue
New York, NY 10016
John C. Dello-Iacono 50,000 2.50% 1.67%
35
Names and Address of Number of Percent of Shares Percent of Shares
Beneficial Owner Shares Owned Owned Before Offering Owned After Offering
- ------------------------ ------------ --------------------- --------------------
Bridget C. Owens 50,000 2.50% 1.67%
David McClelland 20,000 1.00% 0.67%
Directors and Officers 1,018,000 50.90% 33.93%
as a Group (8 persons)
The address for all other officers, directors and 5% shareholders not specified
in the table is 100-31 South Jersey Avenue, Setauket, New York 11733.
JP, Inc. is an entity controlled by Mr. Jenkins. Shares held by it are
beneficially owned and controlled by Mr. Jenkins.
Mr. Heil is a Director of Laminaire Corporation., but disclaims beneficial
ownership of the shares of common stock owned by Laminaire Corporation.
The Windsor Fund is managed by Ethyl Schwartz.
Ms. Shannon White is not related to Paul White, our chief technology officer.
The calculations for shares and percentages outstanding after the offering do
not give effect to:
o 150,000 additional shares of common stock reserved for the
underwriter's over-allotment option; and
o 100,000 shares of common stock reserved for issuance upon the
exercise of the underwriter's warrants
36
Description of Our Securities
We are incorporated in the State of Nevada and are authorized to issue
up to 20,000,000 shares of common stock having a par value of $.001 per share
and 1,000,000 shares of blank check preferred stock. Neither the certificate of
incorporation nor the by-laws contain any provision that would delay, defer or
prevent a change in control.
Common stock
2,000,000 shares of common stock are issued and outstanding. Each share
of common stock entitles the holder to one vote on each matter submitted to the
stockholders. The holders of common stock:
o have equal ratable rights to dividends from funds legally available
for payment of dividends when, as and if declared by the board of
directors;
o are entitled to share ratably in all of the assets available for
distribution to holders of common stock upon liquidation,
dissolution or winding up of our affairs.
o do not have preemptive, subscription or conversion rights, or
redemption or access to any sinking fund; and
o are entitled to one non-cumulative vote per share on all matters
submitted to stockholders for a vote at any meeting of
stockholders. We have not paid any dividends on its common stock to
date. eSAFETYWORLD anticipates that, for the foreseeable future, it
will retain earnings, if any, to finance the continuing operations
of its business. The payment of dividends will depend upon, among
other things, capital requirements and the operating and financial
conditions of eSAFETYWORLD.
Shareholders do not have any preemptive rights to subscribe for or
purchase any stock, warrants or other securities of eSAFETYWORLD. The common
stock is not convertible or redeemable. Neither the certificate of incorporation
nor its by-laws provide for preemptive rights.
Our proposed trading symbols does not imply that a liquid and active
market will be developed or sustained for the securities upon completion of this
offering.
Our calculation that 3,000,000 shares of common stock will be
outstanding after this offering is based on the 2,000,000 shares of common stock
outstanding prior to the offering and 1,000,000 shares of common stock being
sold by us in this offering. Our calculation of the shares of common stock to be
outstanding after this offering excludes:
o 150,000 shares of common stock subject to the underwriter's
over-allotment option.
o 100,000 shares of common stock issuable upon the exercise of the
underwriter's warrants.
o 500,000 shares of common stock reserved for issuance under our
stock option plan.
Preferred stock
Our certificate of incorporation authorizes the issuance of 1,000,000
shares of preferred stock with designations, rights and preferences determined
from time to time by its board of directors. Accordingly, our board of directors
is empowered, without stockholder approval, to issue shares of preferred stock
with voting, liquidation, conversion, or other rights that could adversely
affect the rights of the holders of the common stock. Although we have no
present intention to issue any shares of preferred stock, there can be no
assurance that we will not do so in the future. No preferred stock may be issued
by us without the underwriter's consent for a period of 12 months following the
effective date.
37
Transfer agent
Standard Registrar & Transfer Company, Inc. has been appointed as the
transfer agent and registrar for our common stock. The transfer agent's address
is 12528 South 1840 East, Draper, Utah 84020, its telephone number is (801)
571-8844.
Indemnification of Officers and Directors
Our bylaws provide that we shall indemnify its officers, directors,
employees and other agents to the fullest extent permitted by Nevada law. In
addition, our certificate of incorporation provides that, to the fullest extent
permitted by Nevada law, our directors will not be liable for monetary damages
for breach of the directors' fiduciary duty of care to us or our shareholders.
This provision in the certificate of incorporation does not eliminate the
directors' duty of care, and in appropriate circumstances equitable remedies
including as an injunction or other forms of non-monetary relief would remain
available under Nevada law. Each director will continue to be liable for breach
of the director's duty of loyalty to us or our shareholders, for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit and for improper distributions to shareholders. In
addition, this provision does not affect a director's responsibilities under any
other laws, including federal securities laws or state or federal environmental
laws.
We have been advised that in the opinion of the SEC, this type of
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against these types of liabilities, other than the payment by us
of expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suitor proceeding, is asserted by a director,
officer or controlling person in connection with the securities being
registered, we will submit the question of whether indemnification by us is
against public policy to an appropriate court and will be governed by the final
adjudication of the case.
There is no pending litigation or proceeding involving a director or
officer as to which indemnification is or may be sought.
Underwriting
Under the terms and subject to the conditions contained in an
underwriting agreement dated the date of this prospectus, we have agreed to sell
to the underwriters named below, for whom Kashner Davidson Securities Corp. is
acting as representative, the following respective numbers of shares of common
stock.
Number of
Underwriters Shares
- ------------ ------
Kashner Davidson Securities Corp.
Total 1,000,000
The underwriting agreement provides that the underwriters are obligated
to purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
Upon the completion of this offering and for a period of twelve (12)
months, officers, directors and stockholders who will own more than 5% of our
issued and outstanding common stock after the offering are not permitted,
without the prior consent of the underwriter, to publicly sell, offer or
contract to sell or grant any option to purchase, transfer, assign or pledge, or
otherwise encumber or dispose of any shares of our stock. In the event that our
stock is assigned or transferred in a private sale, the assignee or transfer is
also bound by the agreement.
38
We will grant to Kashner Davidson Securities Corp. a three (3) year
right of first refusal to have Kashner Davidson Securities Corp. sell securities
under future public and private offerings of any non-bank debt or equity
securities or our subsidiaries, by us, our subsidiaries and/or our affiliates,
except for issuances or sales to employees pursuant to our stock option plan.
In addition, for a 12 month period we will not sell our securities in a
private placement or file a registration statement on Form S-8 (except for the
500,000 shares issuable under our stock option plan) without Kashner Davidson
Securities Corp.'s consent.
We and Kashner Davidson Securities Corp. will enter into a financial
consulting agreement providing for Kashner Davidson Securities Corp. to act as
management and financial consultant to us for a two year period for a fee of
$96,000 payable at the closing of this offering.
We have granted Kashner Davidson Securities Corp., for a period of not
less than three years after the closing of the offering, the right to have
Kashner Davidson Securities Corp.'s designee present at meetings of the Board of
Directors and each of its committees subject to our right to exclude such
designee under certain circumstances. The designee will be entitled to the same
notices and communications sent by us as we give to our directors and will
attend directors' and committees' meetings, but will not be entitled to vote
thereat. Such designee will also be entitled to receive the same compensation
payable to directors as members of the Board of Directors and its committees and
all reasonable expenses in attending such meetings. As of the date of this
prospectus no designee has been selected.
The underwriting agreement provides that the obligations of the
underwriter are dependent on the occurrence of some conditions.
Public offering price and dealers concession
The underwriter proposes initially to offer the shares of common stock
offered by this prospectus to the public at the public offering price per share
set forth on the cover page of this prospectus and to some dealers, who are
members of the National Association of Securities Dealers, Inc., at that price
less a concession not in excess of $ per share. The underwriter may allow,
and these dealers may reallow, a discount not in excess of $ per share on
sales to particular NASD member dealers.
Over-allotment option
We have granted the underwriter an option, which may be exercised
within 45 days after the date of this prospectus, to purchase up to 150,000
additional shares of common stock to cover over-allotments, if any, at the
initial public offering price, less the underwriting discount set forth on the
cover page of this prospectus. If the underwriter exercise its over-allotment
option to purchase any of these additional 150,000 shares of common stock, these
additional shares will be sold by the underwriter on the same terms as those on
which the shares offered by this prospectus are being sold. We will be
obligated, under the terms of to the over-allotment option, to sell shares to
the underwriter if the underwriter exercises their over-allotment option. The
underwriter may exercise its over-allotment option only to cover over-allotments
made in connection with the sale of the shares of common stock offered by this
prospectus.
Non-accountable expense allowance
We have agreed to pay the underwriter a non-accountable expense
allowance of 3% of the gross proceeds derived from the sale of the shares of
common stock underwritten, including the sale of any shares of common stock that
the underwriter may sell to cover over-allotments, if any, of which $50,000 has
been paid as of the date of this prospectus. We have also agreed to pay all
expenses in connection with qualifying the common stock offered hereby for sale
under the laws of the states as eSAFETYWORLD and the underwriter may designate
and registering the offering with the NASD, including filing fees and fees and
expenses of counsel retained for these purposes.
Underwriting compensation
The following table summarizes the compensation to be paid to the
underwriter by us:
39
With
Per share overallotment
--------- -------------
Underwriting discounts paid by us
Indemnification of underwriter
We have agreed to indemnify the underwriter against certain civil
liabilities, including liabilities under the Securities Act.
Underwriter's warrants
Upon completion of this offering, we will sell to the underwriter, for
its own accounts, warrants covering an aggregate of up to 100,000 shares of
common stock exercisable at a price of $10.50 per share. The underwriter will
pay a price of $0.001 per warrant. The underwriter will receive 100,000 shares
if it exercises the warrant, commencing on the first anniversary of the date of
this offering until the fifth anniversary of the date of this offering. The
terms of these warrants require us to register the common stock for which these
warrants are exercisable within one year from the date of the prospectus. These
underwriter's warrants are not transferable by the warrant holders other than to
officers and partners of the underwriter. The exercise price of these
underwriter's warrants and the number of shares of common stock for which these
warrants are exercisable are subject to adjustment to protect the warrant
holders against dilution in certain events.
Stabilization and other transactions
In connection with this offering, the underwriter may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the common stock. These transactions effected in accordance with rule 104 of
Regulation M under the Securities Exchange Act of 1934, which permits an
underwriter to bid for, or purchase, common stock for the purpose of stabilizing
the market price. The underwriter also may create a short position by selling
more common stock in connection with this offering than they are committed to
purchase from us, and in such case may purchase common stock in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the price of the common stock at a level above that which might
otherwise prevail in the open market. None of the transactions described in the
paragraph is required, and, if they are undertaken, they may be discontinued at
any time.
Discretionary accounts
The underwriter has informed us that it does not intend to confirm
sales to any account over which it exercises discretionary authority.
Determination of offering price
Prior to this offering, there has been no market for our common stock.
Accordingly, the initial public offering price for the common stock was
determined by negotiation between us and the underwriter. Among the factors
considered in determining the initial public offering price were
o our results of operations,
o our current financial condition,
o our future prospects,
o the state of the markets for our services,
o the experience of our management,
40
o the economics of the E-Commerce industry in general,
o the general condition of the equity securities market, and
o the demand for similar securities of companies considered
comparable to us.
Legal Matters
Certain legal matters in connection with the offering will be passed
upon for us by McLaughlin & Stern, LLP, 260 Madison Avenue, New York, New York.
Mr. Steven Schuster, a partner of McLaughlin & Stern, LLP, is a director of
eSAFETYWORLD. Certain legal matters in connection with the offering will be
passed upon for the underwriter by its counsel, Sichenzia, Ross & Friedman LLP,
135 West 50th Street, 20th Floor, New York, New York.
Experts
The financial statements of eSAFETYWORLD, Inc. at June 30, 1999 and for
each of the three fiscal periods in the period then ended and the financial
statements of the Cleanroom Distribution Product Group of Laminaire Corporation
as of December 31, 1998 and for each of the two years in the period ended
December 31, 1998 appearing in this prospectus and registration statement have
been audited by Eichler, Bergsman & Co., LLP, Certified Public Accountants, as
set forth in their reports which appear elsewhere in this prospectus and in the
registration statement, and are included in reliance upon the reports given upon
its authority as experts in accounting and auditing.
Additional information
eSAFETYWORLD will file reports, proxy statements and other information
with the SEC. Those reports, proxy statements and other information may be
obtained:
o At the public reference room of the SEC, Room 1024 - Judiciary
Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549;
o At the public reference facilities at the SEC's regional offices
located at Seven World Trade Center, 13th Floor, New York, NY 10048
or Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661;
o By writing to the SEC, Public Reference Section, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549;
o At the offices of the Nasdaq Stock Market, Reports Section, 1735 K
Street, N.W., Washington, D.C. 20549
o From the Internet site maintained by the SEC at http://www.sec.gov,
which contains reports, proxy information statements and other
information regarding issuers that file electronically with the
SEC.
eSAFETYWORLD has filed with the SEC a registration statement under the
Securities Act of 1933, for the common stock offered in this prospectus. This
prospectus, which is a part of the registration statement, does not contain all
the information set forth, or annexed as exhibits to, the registration
statement, some portions of which have been omitted under the rules and
regulations of the SEC. For further information with respect to eSAFETYWORLD and
the common stock, reference is made to such registration statement, including
exhibits, copies of which may be inspected and copied at the facilities of the
SEC. Copies of the registration statement, including exhibits, may be obtained
from the Public Reference Section of the SEC at the aforementioned address upon
payment of the fee prescribed by the SEC. Information regarding the operation of
the SEC's public reference facilities may be obtained by calling the SEC at
1-800-SEC-0330.
41
eSAFETYWORLD intends to distribute to its stockholders annual reports
containing financial statements audited and reported upon by its independent
public accountants after the close of each fiscal year, and will make such other
periodic reports as we determine to be appropriate or as may be required by law.
eSAFETYWORLD's fiscal year ends December 31 each year.
42
Financial Statements
Table of Contents
Page number
-----------
eSAFETYWORLD, Inc.:
Independent auditors' report F-2
Balance sheet, June 30, 1999 F-3
Statements of operations for the period July 17, 1997 (inception) to F-4
December 31, 1997, the year ended December 31, 1998 and the six
months ended June 30, 1999.
Statements of cash flows for the period July 17, 1997 (inception) to F-5
December 31, 1997, the year ended December 31, 1998 and the six
months ended June 30, 1999.
Notes to financial statements F-6
Cleanroom Distribution Product Group of Laminaire
Corporation:
Independent auditors' report F-9
Balance sheet, December 31, 1998 F-10
Statements of operations for the years ended December 31, 1998 and F-11
1997
Statements of cash flows for the years ended December 31, 1998 F-12
and 1997
Notes to financial statements F-13
Condensed balance sheet, June 30, 1999 F-15
Condensed statements of operations for the six months ended June F-16
30, 1999 and 1998 (unaudited)
Condensed statements of cash flows for the six months ended June F-17
30, 1999 and 1998
Notes to condensed financial statements for the six months ended F-18
June 30, 1999 and 1998 (unaudited)
F-1
Independent Auditors' Report
To the Stockholders of
eSAFETYWORLD, Inc.
We have audited the accompanying balance sheet of eSAFETYWORLD, Inc. as of June
30, 1999, and the related statements of income and cash flows for the period
ended December 31, 1997, for the year ended December 31, 1998 and for the six
months ended June 30, 1999. This financial statement is the responsibility of
eSAFETYWORLD's management. Our responsibility is to express an opinion on this
financial statement 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 balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly, in
all material respects, the financial position of eSafetyworld, Inc. as of June
30, 1999, and the results of its operations and its cash flows for the period
ended December 31, 1997, for the year ended December 31, 1998 and for the six
months ended June 30, 1999 in conformity with generally accepted accounting
principles.
/s/Eichler Bergsman & Co., LLP
New York, New York
August 25, 1999
F-2
eSAFETYWORLD, Inc.
Balance Sheet
June 30, 1999
Assets: Pro forma (unaudited
6/30/99 Note 4)
Current - Cash -- $ 273,000
----------
Note receivable - Laminaire 102,000
Customer and vendor lists
-- 1,350,000
Deferred offering costs $10,000 10,000
------- ----------
Total $10,000 $1,735,000
======= ==========
Liabilities and stockholders' equity:
Notes payable $ -- $ 575,000
Accrued expenses -- 150,000
----------
Total current liabilities -- 725,000
Long-term debt 300,000
Stockholders' equity:
Preferred stock; 1,000,000 shares authorized, -- --
none issued
common stock, par value $.001; 20,000,000 1,900 2,000
authorized; 1,900,000 issued (2,000,000 pro
forma)
Paid-in capital 8,100 708,000
------- ----------
Total stockholders' equity 10,000 710,000
------- ----------
Total liabilities and stockholders' equity $10,000 $1,735,000
======= ==========
See notes to financial statements.
F-3
eSAFETYWORLD, Inc.
Statements of Operations
For the Period July 17, 1997 (inception) to December 31, 1997,
the Year Ended December 31, 1998 and the Six Months Ended
June 30, 1999
Six months ended Year ended July 17, 1997 to
June 30, 1999 December 31, 1998 December 31, 1997
---------------- ----------------- -----------------
Revenues $ -- 0 -- $ -- 0 -- $ -- 0 --
Costs -- 0 -- -- 0 -- -- 0 --
---------- ---------- ----------
Results of operations $ -- 0 -- $ -- 0 -- $ -- 0 --
========== ========== ==========
Primary earnings
per share $ -- 0 -- $ -- 0 -- $ -- 0 --
========== ========== ==========
See notes to financial statements.
F-4
eSAFETYWORLD, Inc.
Statements of Cash Flows
For the Period July 17, 1997 (inception) to December 31, 1997,
the Year Ended December 31, 1998 and the Six Months Ended
June 30, 1999
Six months ended Year ended July 17, 1997 to
June 30, 1999 December 31, 1998 December 31, 1997
---------------- ----------------- -----------------
Cash from operating
activities $ -- 0 -- $ -- 0 -- $ -- 0 --
---------- ---------- ----------
Cash from financing
activities
Capital contribution 10,000 --- ---
Deferred offering
costs (10,000) --- ---
---------- ---------- ---------
Cash end of period $ -- 0 -- $ -- 0 -- $ -- 0 --
========== ========== ==========
See notes to financial statements.
F-5
eSAFETYWORLD, Inc.
Notes to Financial Statements
June 30, 1999
1. Organization
eSAFETYWORLD was established as a Nevada corporation in July 1997 as
The SL Group, Inc. and changed its name to eSAFETYWORLD, Inc. in August 1999.
Its purpose is to develop and operate a business-to-business E-Commerce site on
the world wide web.
2. Accounting and reporting policies
A summary of eSAFETYWORLD's principal accounting and financial
reporting policies is as follows:
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods, The principal assumptions
inherent in the accompanying financial statements relate to the allocation of
expenses included in the financial statements.
Revenue Recognition - Revenue for product sales will be recognized in
the period in which the product is shipped.
Advertising - eSAFETYWORLD will charge advertising costs to expense as
incurred. Costs related to CD-ROMs, promotional literature and catalogs will be
charged to operations when mailed or distributed.
Long-lived assets - Long lived assets, including intangibles, to be
held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the related carrying amount may not be recoverable.
If required, impairment losses on assets to be held and used are recognized
based on the excess of the asset's carrying value over its fair value.
Long-lived assets to be sold are reported at the lower of carrying amount or
fair value reduced by estimated disposal costs.
3. Stockholders' equity
eSAFETYWORLD's certificate of incorporation provides that its
authorized capital stock consists of one million shares of blank check preferred
stock and 20 million shares of common stock, par value $.001 per share. The
holders of the common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Holders of common
stock are entitled to receive ratably the dividends as may be declared by the
board of directors out of funds legally available to pay dividends. The board of
directors, without shareholder approval, could issue shares of common stock upon
the terms as it determines to whomever it pleases, including persons who or
entities that would help present management maintain control.
eSAFETYWORLD has a stock option plan that expires in 2009 and enables
it to grant incentive stock options, non-qualified options and stock
appreciation rights for up to an aggregate of 500,000 shares of its common
stock. Incentive stock options granted under the plan must conform to applicable
federal income tax regulations and have an exercise price not less than the fair
market value of shares at the date of grant or 110% of fair market value for ten
percent or more stockholders. Other options and stock appreciation rights may be
granted on terms determined by the compensation committee of the board of
directors. No options are outstanding at September 30, 1999.
4. Subsequent events (Unaudited)
In August 1999, eSAFETYWORLD entered into an agreement under which it
acquired the distribution business of Laminaire Corporation in exchange for
100,000 shares of its common stock, notes in the principal amount of $500,000
and the assumption of accounts payables in ;the amount up to $125,000. The total
purchase price of $1,325,000 was accounted for as a purchase in conformity with
Opinion No. 25 of the Accounting
F-6
Principles board. All intangibles acquired, including goodwill, will be
amortized on a straight line basis over five years.
The notes payable bear interest at eight percent per annum. One of the
notes in the principal amount of $200,000 is payable in 12 equal quarterly
instalments, and the other note in the principal amount of $300,000 is payable
in 20 equal quarterly instalments. We have the right to offset the principal
amount of a $102,000 demand note that we made to Laminaire (see Note 4), in
whole or in part against any payment due by us to Laminaire under these note
agreements. In addition, we can offset any amounts that we pay to satisfy
amounts due by Laminaire to its vendors against any amount due by us to
Laminaire under the note agreements. The first instalments under the note
agreements are payable at the earlier of our completion of the offering or March
31, 2000.
eSAFETYWORLD also acquired the customer and vendor base and lists but
acquired no tangible assets including inventory or accounts receivable as part
of the transaction. The acquired business distributes disposable products used
in Cleanrooms to a wide variety of commercial customers. The transaction was
accounted for as a purchase in conformity with Opinion No. 16 of the Accounting
Principles Board.
In July and August 1999, eSAFETYWORLD received one year loans in the
principal amounts of $250,000 and $125,000, respectively. Both loans bear
interest at the rate of 8% per annum, are repayable one year from the date of
issue and are prepayable upon the completion of a public offering or private
placement of equity securities.
The unaudited pro forma financial information set forth on the balance
sheet was prepared assuming that the following events had occurred on June 30,
1999:
o the acquisition described in Note 1 and
o the loans described in the first paragraph of this note.
For the purposes of preparing the pro forma information, the shares of common
stock issued were valued at the estimated public offering price. The acquired
business, which functioned as a product group of Laminaire Corporation, reported
the following results in 1998 and 1997:
1998 1997
---- ----
Revenues $2,267,846 $1,506,607
Cost of revenues 2,070,174 1,117,464
Gross profit 197,672 389,143
Operating profit 54,067 204,106
In August 1999, eSAFETYWORLD made a demand loan to Laminaire
Corporation in the principal amount of $102,000. The loan bears interest at the
rate of 9% per annum and is convertible, at the holder's option, into shares of
Laminaire's common stock.
5. Related party transactions
eSAFETYWORLD has an agreement with EH Associates, LLC, an entity controlled by
its president, Mr. Heil, under which eSAFETYWORLD will pay annual consulting
fees of $125,000, $140,000 and $150,000 in each of the three years in the period
ended December 31, 2002. Mr. Heil receives reimbursement for expenses, but
receives no other cash compensation from eSAFETYWORLD.
EDK Associates, LLC, an entity controlled by a director, Ms. Owens, has
a contract with eSAFETYWORLD under which eSAFETYWORLD has agreed to pay annual
fees of $58,000, $65,000 and $75,000 in each of the three years in the period
ended December 31, 2002 for administrative, marketing and investor relations
services. Ms. Owens, who will devote 30 to 35 hours per week to eSAFETYWORLD,
receives reimbursement for expenses, but receives no other cash compensation
from eSAFETYWORLD.
JP Inc., an entity controlled by a director, Mr. Jenkins, has a
contract with eSAFETYWORLD under
F-7
which eSAFETYWORLD has agreed to pay minimum annual fees of $50,000 in each of
the three years in the period ended December 31, 2002 for legal, marketing and
other business services. Mr. Jenkins, who will devote 40 to 50 hours per month
to eSAFETYWORLD, receives reimbursement for expenses, but receives no other cash
compensation from eSAFETYWORLD.
ESAFETYWORLD also has an agreement with World Internet Marketing
Corporation, an entity in which Mr. Heil has a 10% equity interest, under which
eSAFETYWORLD will receive E-Commerce marketing services for approximately $3,000
per month.
6. Commitments
eSAFETYWORLD is obligated under the terms of a verbal month-to-month
operating lease for office space which calls for monthly rentals of $1,000.
eSAFETYWORLD is obligated under the terms of employment agreements to
pay salaries of $200,000 in 2000, $210,000 in 2001 and $225,000 in 2002.
F-8
Independent auditors' report
Board of Directors and Stockholders
Cleanroom Distribution Product Group
We have audited the accompanying balance sheet of Cleanroom Distribution Product
Group as of December 31, 1998 and the related statements of income and cash
flows for the years ended December 31, 1998 and 1997. These financial statements
are the responsibility of eSAFETYWORLD'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.
These 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 Cleanroom Distribution Product
Group as of December 31, 1998 and the results of its operations and its cash
flows for the two years ended December 31, 1998 and 1997 in conformity with
generally accepted accounting principles.
/s/Eichler, Bergsman & Co., LLP
New York, New York
August 12, 1999
F-9
Cleanroom Distribution Product Group
Balance Sheet
December 31, 1998
Assets:
Accounts receivable $213,935
Inventory 75,174
--------
Total $289,109
--------
Liabilities and other:
Accounts payable $318,899
Deficit (30,790)
--------
Total $289,109
========
See notes to financial statements.
F-10
Cleanroom Distribution Product Group
Statements of Operations
Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Revenues $2,267,846 $1,506,607
Cost of revenues 2,070,174 1,117,464
---------- ----------
Gross profit 197,672 389,143
Selling 98,148 154,905
General and administrative 45,357 30,132
---------- ----------
Operating profit 54,067 204,106
Transferred to Laminaire Corporation
(54,067) (204,106)
---------- ----------
Division equity, end of year
$ -0- $ -0-
========== ==========
See notes to financial statements
F-11
Cleanroom Distribution Product Group
Statements of Cash Flows
Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Cash from operations $54,067 $204,106
Cash transferred to Laminaire
(54,067) (204,106)
------- --------
Cash, end of year $ -0- $ -0-
======= ========
See Notes to Financial Statements.
F-12
Cleanroom Distribution Product Group
Notes to Financial Statements
Years Ended December 31, 1998 and 1997
1. Operations and organization
The Cleanroom Distribution Product Group is a division of Laminaire
Corporation and is engaged in the sale and distribution of disposable safety
garments and equipment. In August 1999, Laminaire entered into an agreement
under which its distribution business was sold to The SL Group, Inc. in exchange
for common shares of The SL Group, Inc., notes and the assumption of certain
payables.
2 Accounting and Reporting Policies
A summary of the Division's principal accounting and financial
reporting policies is as follows:
Assets and liabilities
The operating assets and liabilities used by Laminaire are commingled.
The accompanying balance sheet reflects the direct assets and liabilities of the
Cleanroom Product Distribution Group of Laminaire Corporation. All earnings
prior to December 31, 1998 were retained by Laminaire. The cash associated with
such earnings was commingled with other Laminaire cash and was not necessarily
used to satisfy the Group's trade obligations. The deficit represents the extent
to which cash generated by the Group was used for other Laminaire purposes. No
such assets or liabilities were included in the sale to The SL Group, Inc.
The inventories included in the accompanying balance sheet are recorded
at the lower of cost (determined on a FIFO basis) or market.
Revenue recognition
Revenue for product sales is recognized in the period in which the
product is shipped.
Expenses
The operations of the Division were conducted in Laminaire's facility
during 1998 and 1997. Accordingly, such operations utilized Laminaire's building
and administrative staff. Cost of sales in the accompanying Statement of
Operations consists of direct product costs. Payroll costs represent the payroll
costs of people directly associated with the Division's operations. All other
expenses represent an allocation of corporate and joint expenses. Joint costs
were allocated on a percentage basis. Management believes that the allocated
costs allocated on that basis reflects a reasonable amount for the services
performed for a privately owned distribution business. The Division believes
that the cost of obtaining the services represented by the allocated costs and
expenses from outside sources would not be materially higher than the amount
allocated.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. The principal assumptions inherent in the
accompanying financial statements relate to the allocation of expenses included
in such financial statements.
Advertising
The Division charges advertising costs to expense as incurred. Costs
related to mail order catalogs and promotional materials are charged to
operations when mailed or distributed.
F-13
Income taxes
The operating results of the Division were included in the consolidated
income tax returns of Laminaire Corporation. If the Division filed its own
returns pro forma income taxes would have been approximately $18,923 in 1998 and
$71,437 in 1997.
F-14
Cleanroom Distribution Product Group
Balance Sheet
June 30, 1999
(unaudited)
Assets:
Accounts receivable $156,403
Inventory 70,680
--------
Total $227,083
========
Liabilities and other:
Accounts payable $325,859
Deficit (98,776)
--------
Total $227,083
========
See notes to condensed financial statements.
F-15
Cleanroom Distribution Product Group
Condensed Statements of Operations
Six Months Ended June 30, 1999 and 1998
(Unaudited)
1999 1998
---- ----
Revenues $746,325 $867,770
Cost of revenues 565,333 652,738
-------- --------
Gross profit 180,992 215,032
Selling 70,081 55,513
General and administrative 14,927 17,355
-------- --------
Operating profit 95,984 142,164
Transferred to Laminaire Corporation (95,984) (142,164)
-------- --------
Division equity, end of period $ -0- $ -0-
======== ========
See notes to condensed financial statements.
F-16
Cleanroom Distribution Product Group
Condensed Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998
(unaudited)
1999 1998
---- ----
Cash from operations $95,984 $142,164
Cash transferred to Laminaire (95,984) (142,164)
------- --------
Cash, end of period $ -0- $ -0-
======= ========
See notes to condensed financial statements.
F-17
Cleanroom Distribution Product Group
Notes to Statements of Operations
Six Months Ended June 30, 1999 and 1998
(Unaudited)
1--Basis of presentation
The accompanying interim condensed statements of for the six-month
periods ended June 30, 1999 and 1998 are unaudited and include all adjustments
considered necessary by management for a fair presentation. The results of
operations realized during an interim period are not necessarily indicative of
results to be expected for a full year.
F-18
- ----------------------------------------------------------------------------------------------------------------------
We have not authorized anyone to give any
information different from that contained in this prospectus.
You must not rely on any unauthorized information. We are
offering to sell, and seeking offers to buy, shares of common
stock only in states where offers and sales are permitted. The 1,000,000 Shares
information in this prospectus is accurate only as of the date of Common Stock
of this prospectus.
------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary ...........................................2
Risk Factors..................................................6
Use of Proceeds...............................................9
Dilution.....................................................11
Capitalization.............................................. 12
Management's Discussion and Analysis of
Results of Operation and Financial Condition.................13
Business.....................................................18
Management...................................................30 eSAFETYWORLD, INC.
Certain Relationships and
Related Transactions....................................32
Principal Shareholders.......................................35
Description of Securities....................................37
Indemnification of Officers and Directors....................38
Underwriting.................................................38
Legal Matters................................................41
Experts......................................................41
Additional Information.......................................41 ---------------------
Financial Statements....................................... F-1 PROSPECTUS
---------------------
------------------
Until , 1999, 25 days after the date of this
prospectus, all dealers effecting transactions in the securities
offered hereby, whether or not participating in the distribution, KASHNER DAVIDSON
may be required to deliver a prospectus. This is in addition to SECURITIES CORP.
the obligation of dealers to deliver a prospectus when acting
as underwriters and with regard to their unsold allotments
or subscription.
, 1999
- ----------------------------------------------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN prospectus
Item 24. Indemnification of Officers and Directors
Subsection 1 of Section 78.7302 of Chapter 78 of the Nevada General Corporation
Law ("NGCL") empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (except in an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe his action was unlawful.
Subsection 2 of Section 78.7502 of the NGCL empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
acted in any of the capacities set forth above, against expenses, including
amounts paid in settlement and attorneys' fees, actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if he
acted in accordance with the standard set forth above, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged by a court of competent jurisdiction after
exhaustion of all appeals therefrom to be liable to the corporation or for
amounts paid in settlement to the corporation unless and only to the extent that
the court in which such action or suit was brought or other court of competent
jurisdiction determines that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court deems proper.
Section 78.751 of the NGCL provides that unless indemnification is ordered by a
court, the determination to provide indemnification must be made by the
stockholders, by a majority vote of a quorum of the board of directors who were
not parties to the action, suit or proceeding, or in specified circumstances by
independent legal counsel in a written opinion. In addition, the articles of
incorporation, bylaws or an agreement made by the corporation may provide for
the payment of the expenses of a director or officer of the expenses of
defending an action as incurred upon receipt of an undertaking to repay the
amount if it is ultimately determined by a court of competent jurisdiction that
the person is not entitled to indemnification. Section 78.751 of the NGCL
further provides that, to the extent a director or officer of a corporation has
been successful on the merits or otherwise in the defense of any action, suit or
proceeding referred to in subsection (1) and (2) , or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification provided for by Section 78.751 of the
NGCL shall not be deemed exclusive of any other rights to which the indemnified
party may be entitled and that the scope of indemnification shall continue as to
directors, officers, employees or agents who have ceased to hold such positions,
and to their heirs, executors and administrators.
Finally, Section 78.752 of the NGCL empowers the corporation to purchase and
maintain insurance on behalf of a director, officer, employee or agent of the
corporation against any liability asserted against him or incurred by him in any
such capacity or arising out of his status as such whether or not the
corporation would have the authority to indemnify him against such liabilities
and expenses.
The Registrant's bylaws provide for indemnification of officer, directors and
others to the fullest extent permitted by the laws of the State of Nevada.
Item 25. Other Expenses of Issuance and Distribution
The expenses payable by registrant in connection with the issuance and
distribution of the securities being registered are estimated as follows:
II-1
Securities and Exchange Commission Fees..............................................................$ 2,530
Accounting Fees and Expenses......................................................................... 15,000
Blue Sky Fees and Expenses (including NASDAQ and Boston Exchange filing fees of $11,500)............. 35,000
Printing Expenses (including Securities)............................................................. 50,000
Legal Fees........................................................................................... 85,000
Miscellaneous........................................................................................ 12,470
--------
Total........................................................................................$200,000
========
Item 26. Recent Sales of Unregistered Securities
All issuances were under Section 4(2) unless otherwise indicated. The issuances
under 4(2) were to officers, directors or accredited investors.
On July 17, 1997, the Company issued common stock at a price of $.001
to the following persons:
Number of
Beneficial Owner Shares
---------------- ---------
Edward A. Heil 443,000
J.P. Inc. 225,000
Donald Arbisi 147,000
Shannon White 145,000
Windsor Fund 145,000
Raymond Burghard 100,000
Ben Hoskins 100,000
Bret Jenkins 100,000
Laminaire Corp. 100,000
Steven W. Schuster 100,000
John C. Dello-Iacono 50,000
Bridget C. Owens 50,000
David McClelland 20,000
Item 27. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number Description
- ------- -----------
1.1 -- Form of Underwriting Agreement (1)
3.1 -- Registrant's Articles of Incorporation dated July 21, 1997(1)
3.2 -- Registrant's Amendment to Articles of Incorporation dated August 19, 1999(1)
3.3 -- Registrant's By-laws(1)
4.1 -- Form of common stock certificate(2)
4.2 -- 1999 stock option plan(1)
4.3 -- Form of underwriter's Warrant Agreement
5.1 -- Opinion of McLaughlin & Stern, LLP(2)
10.1 -- Asset Purchase Agreement with Laminaire Corp.(1)
10.2 -- Agreement with EH Associates, LLC(1)
10.3 -- Agreement with JP, Inc.(1)
10.4 -- Agreement with EDK Associates, LLC(1)
10.5 -- Form of Employment Agreement with David McClelland
II-2
10.6 -- Employment Agreement with James Brownfiel
10.7 -- Form of Advisory Investment Banking Agreement between Registrant and
Kashner Davidson Securities Corp.(1)
10.8 -- Agreement with Spider, Inc. dated August 11, 1999
10.9 -- Promissory Note in favor of the Registrant from Laminaire Corporation in the principal amount of
$102,000 dated August 25, 1999
10.10 -- Promissory Note in favor of Laminaire Corporation in the principal amount of $200,000 dated August
25, 1999
10.11 -- Promissory Note in favor of Laminaire Corporation in the principal amount of $300,000 dated August
25, 1999
23.1 -- Consent of Eichler Bergsman & Co., LLP
23.2 -- Consent of McLaughlin & Stern, LLP (included in Exhibit 5.1).(2)
24 -- Power of Attorney (contained on signature page).
27 -- Financial Data Schedule. (1)
(1) Filed with the Registration Statement on September 2, 1999.
(2) To be filed by amendment.
Schedules other than those listed above have been omitted since they are either
not required, are not applicable or the required information is shown in the
financial statements or related notes.
Item 28. Undertaking
The undersigned Registrant hereby undertakes to:
(a) (1) File, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a) (3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of a prospectus
filed with the Commission under rule 424(b) if, in the
aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement;
(iii) Include any additional or changed material information
on the plan of distribution;
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement for the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering;
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering; and
(b) Provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer under the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable.
II-3
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon rule 430A and contained in a form of prospectus filed by the
Registrant under rule 424(b) (1) or (4) or 497 (h) under the Securities
Act shall be deemed to be part of this registration as of the time it
was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering.
II-4
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this amendment of the
registration statement to be signed on its behalf by the undersigned, in the
Town of Setauket, State of New York, on November 2, 1999.
eSAFETYWORLD, Inc.
By: /s/ Edward A. Heil
-----------------------------------------------
Edward A. Heil
By:/s/ R. Bret Jenkins, Chief Financial Officer
-----------------------------------------------
R. Bret Jenkins, Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Edward A. Heil and Peter Daniele and each of them
his true and lawful attorney-in-fact and agent with power of substitution and
resubstitution, for him or her, and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post effective
amendments) to this registration statement on Form SB-2, and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done to comply with the provisions of the
Securities Act and all requirements of the Commission, hereby ratifying and
confirming all that said attorneys-in-fact or either of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Name Title Date
---- ----- ----
By:/s/ Edward A. Heil Director November 2, 1999
- --------------------------------------
Edward A. Heil
By:/s/ * Director November 2, 1999
- --------------------------------------
Steven W. Schuster
By:/s/ * Director November 2, 1999
- --------------------------------------
Bridget C. Owens
By:/s/ * Director November 2, 1999
- --------------------------------------
John C. Dello-Iacono
By:/s/ R. Bret Jenkins Director November 2, 1999
- --------------------------------------
R. Bret Jenkins
* Under Power-of-Attorney
/s/Edward A. Heil
*
- -------------------------
Edward A. Heil
II-5
EXHIBIT INDEX
AMENDMENT NO. 1
4.3 -- Form of underwriter's Warrant Agreement
10.5 -- Form of Employment Agreement with David McClelland
10.6 -- Employment Agreement with James Brownfiel
10.8 -- Agreement with Spider, Inc. dated August 11, 1999
10.9 -- Promissory Note in favor of the Registrant from Laminaire Corporation
in the principal amount of $102,000 dated August 25, 1999
10.10 -- Promissory Note in favor of Laminaire Corporation in the principal
amount of $200,000 dated August 25, 1999
10.11 -- Promissory Note in favor of Laminaire Corporation in the principal
amount of $300,000 dated August 25, 1999
23.1 -- Consent of Eichler Bergsman & Co., LLP