AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY ___, 2003
REGISTRATION NO. 333-97279
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
1ST STEP, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Delaware 7900 04-3618764
- --------------------------------- ------------------- ---------------------
(STATE OR OTHER JURISDICTION (PRIMARY IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) STANDARD INDUSTRIAL IDENTIFICATION NUMBER
CLASSIFICATION CODE NUMBER)
14759 OXNARD STREET
VAN NUYS, CALIFORNIA 91411
(818) 904-9029
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CORBIN BERNSEN
14759 OXNARD STREET
VAN NUYS, CALIFORNIA 91411
(818) 904-9029
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER OF
AGENT FOR SERVICE OF PROCESS)
Copies to:
NIMISH PATEL, ESQ.
RICHARDSON & PATEL LLP
10900 WILSHIRE BLVD., SUITE 500
LOS ANGELES, CALIFORNIA 90024
(310) 208-1182
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to 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 pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
i
If this Form is a post-effective amendment filed pursuant to 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------- ----------------- ---------------------- ------------------------ ----------------------
MAXIMUM
TITLE OF EACH CLASS AMOUNT TO AGGREGATE
OF SECURITIES TO BE BE OFFERING MAXIMUM AGGREGATE AMOUNT OF
REGISTERED REGISTERED PRICE PER SHARE(1) OFFERING PRICE REGISTRATION FEE
- --------------------------- ----------------- ---------------------- ------------------------ ----------------------
Common Stock, par value 3,930,000 $.05 $196,500 $18.08
$0.001
- --------------------------- ----------------- ---------------------- ------------------------ ----------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) and (o) to the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHARE 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.
ii
SUBJECT TO COMPLETION, DATED MAY _____, 2003
PROSPECTUS
[1ST STEP LOGO HERE]
3,930,000 SHARES OF COMMON STOCK
We are registering 3,930,000 shares of our common stock on behalf of our selling
shareholders. The offering is being conducted on a best efforts, no minimum
basis, for a maximum aggregate offering price of $196,500. There is no public
market for these shares prior to this offering. The offering price is $0.05 per
share and there is no minimum number of shares that the selling shareholders
must sell, and no minimum number of shares that any investor must purchase. The
selling shareholders have not received and will not receive any discount or
commission related to this offering. There will be no escrow account. We will
not receive any proceeds from this offering. This offering will terminate on
_________ ___, 2003.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD INVEST
IN OUR COMMON STOCK ONLY IF YOU CAN AFFORD TO LOSE YOUR ENTIRE INVESTMENT. SEE
"RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-----------
- --------------------------------------------------------------------------------
The information in this prospectus is not complete and may be amended. Our
selling shareholders 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.
- --------------------------------------------------------------------------------
1ST STEP, INC.
TABLE OF CONTENTS
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as to
the date of this prospectus, regardless of the time of delivery of the
prospectus or of any sale of the common stock.
PAGE
----
PROSPECTUS SUMMARY...........................................................2
SUMMARY FINANCIAL INFORMATION................................................3
RISK FACTORS.................................................................4
SELLING SECURITYHOLDERS......................................................9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION...................14
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS................25
EXECUTIVE COMPENSATION......................................................26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............29
DESCRIPTION OF SECURITIES...................................................30
PLAN OF DISTRIBUTION........................................................31
DETERMINATION OF OFFERING PRICE.............................................32
INTEREST OF NAMED EXPERTS AND COUNSEL.......................................32
INDEX TO FINANCIAL STATEMENTS...............................................34
PROSPECTUS SUMMARY
This summary highlights selected information in this prospectus, but it
may not contain all of the information that is important to you. To better
understand this offering, and for a more complete description of the offering,
you should read this entire prospectus carefully, including the "Risk Factors"
section and the financial statements and the notes to those statements, which
are included elsewhere in this prospectus.
1ST STEP, INC.
We are a full service professional introduction agency, which provides
entertainers and developers of new entertainment technology with every aspect of
management, including career management and guidance, project development,
public relations, contract negotiations and marketing. We intend to serve as an
introduction service, using our industry connections and contacts to permit
promising actors, writers, directors, musicians, and entertainment-related
technology entrepreneurs in contract negotiations with our various entertainment
industry professional contacts, including television networks, film studios,
production companies, record companies, web portals and technology companies.
Additionally, we intend to promote our clients through our own network to
generate awareness of both specific projects and our clientele overall.
We intend to generate revenue from two basic sources: (i) consulting
fees derived from representation of our clients in the negotiation of contracts
and general career consultation; and (ii) participation in the sales and profits
of projects, such as scripts and entertainment technology, submitted to
entertainment industry professionals generated by our clientele. Our consulting
fees will generally be between 5% to 10% of the value of any contract we
negotiate on behalf of our clientele, or an hourly rate of $200 per hour for
general career advice. We may offer monthly rates for general career services
and advice, if there is sufficient client demand for it. We will have various
percentages of participation for specific projects, based primarily on the
extent of our involvement in the project, the extent of our client's involvement
in the project, the amount of financing we have contributed, if any, and
projected revenue for the project itself.
2
HOW TO CONTACT US
Our executive office is located at 14759 Oxnard Street, Van Nuys,
California 91411. Our telephone number is (818) 780-8241. Our website is located
at: www.firststepinc.com.
THE OFFERING
Total shares outstanding........................ 9,930,000
Maximum shares being offered by Selling
Shareholders.................................... 3,930,000
Price per share offered to the public........... $0.05
Termination of the offering..................... The offering will terminate
on _________ ___, 2003.
Use of proceeds from the sale of the shares..... We will not be receiving
any proceeds from this
offering.
SUMMARY FINANCIAL INFORMATION
The information set forth below from the date of inception, February 8,
2002, to December 31, 2002 is derived from the financial statements included
elsewhere in this prospectus. The information below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto
included elsewhere in this prospectus.
DECEMBER
31, 2002
STATEMENT OF OPERATIONS DATA: ----------
Total Assets................................................. $ 40,614
Total Liabilities............................................ $ 100,332
Stock Deficit................................................ $ (59,718)
Revenues..................................................... $ 0
Other Income................................................. $ 43,538
Operating Expenses........................................... $ 268,956
Basic and Dilution per share................................. $ (0.03)
3
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
DISCUSSION OF THE MATERIAL RISK FACTORS RELATING TO THIS COMPANY AND THIS
OFFERING SHOULD BE CONSIDERED CAREFULLY IN EVALUATING 1ST STEP, INC. AND ITS
BUSINESS. ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN AS THEY ARE
BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS CONCERNING FUTURE EVENTS OR FUTURE
PERFORMANCE OF 1ST STEP, INC.
WE HAVE EXPERIENCED OPERATING LOSSES SINCE OUR INCEPTION AND OUR AUDITORS HAVE
INDICATED UNCERTAINTY CONCERNING OUR ABILITY TO CONTINUE OPERATIONS AS A GOING
CONCERN.
We have earned very little revenue since our inception and have
incurred a net loss of $226,218 through December 31, 2002. Losses are expected
to continue for the immediate future. Our independent certified public
accountants have noted that we have an accumulated deficit and negative working
capital, so our ability to continue as a going concern is dependent upon
obtaining additional financing for our planned operations. If we fail to
generate enough working capital from our operations or future equity sales, our
ability to expand and complete our business plan will be materially affected,
and you may lose all or substantially all of your investment.
WE ARE A DEVELOPMENT STAGE CONSULTING COMPANY WITH NO EXPERIENCE IN THE MARKET,
AND FAILURE TO SUCCESSFULLY COMPENSATE FOR THIS INEXPERIENCE MAY ADVERSELY
IMPACT OUR OPERATIONS AND FINANCIAL POSITION.
We were incorporated on February 8, 2002 and operate as a consulting
company with no substantial tangible assets in a highly competitive industry.
Our management has no significant experience in managing a consulting business.
We have little operating history, client base or revenue to date. This makes it
difficult to evaluate our future performance and prospects. Our prospects must
be considered in light of the risks, expenses, delays and difficulties
frequently encountered in establishing a new business in an emerging and
evolving industry characterized by intense competition, including:
o our business model and strategy are still evolving and are
continually being reviewed and revised;
o we may not be able to raise the capital required to commence
operations and develop our initial client base and reputation;
o we may not be able to successfully implement our business model
and strategy; and
o our management has not worked together for very long.
We cannot be sure that we will be successful in meeting these challenges and
addressing these risks and uncertainties. If we are unable to do so, our
business will not be successful and the value of your investment in our company
will decline.
IF WE ARE NOT SUCCESSFUL IN PROMOTING OUR CLIENTS, WE WILL BE UNABLE TO
SUCCESSFULLY GENERATE REVENUES.
Our revenues are primarily derived from a specified percentage of the
income generated by our clients so, to operate successfully, we must attract
and retain highly qualified artists as clients. We face intense competition for
qualified personnel in the entertainment representation and entertainment
technology industries, and our clients will face intense competition in
achieving success and steady income generation in these industries. If we are
unable to successfully promote our clients, we will not generate revenues, and
our financial position and results of operations will be adversely impacted.
WE WILL BE PAID ONLY WHEN OUR CLIENTS ARE PAID, WHICH MAY CAUSE OUR REVENUES
AND PROFITS TO FLUCTUATE.
We expect the majority of our client agreements to provide that we are
not compensated for our introduction service until the client is paid by the
industry professional to whom we have introduced him. Similarly, we expect our
clients to enter into transactions in which they will be compensated only on a
contingency basis for the purchase or use of the client's product or talent. For
example, a client who is an actor may contract to be paid when a production
commences rather than at the time of contracting, or a technology client may be
paid upon completion of testing and integration, rather than upon introduction.
As a result, our revenues and profitability, if any, are expected to fluctuate
significantly from quarter to quarter, and in some cases, our fees may not be
collectible if the specified contingency does not occur. This uncertain and
uneven revenue stream could negatively affect our financial condition,
specifically our results of operations and cash flow.
4
This uncertainty may also make us unable to meet the predictions of
market analysts and investors. Both our inability to meet forecasted predictions
and the tendency of investors to trade based on predicted revenue stream may
adversely affect our common stock trading price as well as our results of
operations and cash flow. You should not rely on the results of any one quarter
as an indication of our future performance. If in some future quarter our
results of operations were to fall below the expectations of securities analysts
and investors, the trading price of our common stock would likely decline.
WE WILL NEED ADDITIONAL FINANCING TO FULLY IMPLEMENT OUR BUSINESS PLAN, AND IF
WE FAIL TO OBTAIN ADDITIONAL FUNDING WE MAY NOT BE ABLE TO CONTINUE OUR
OPERATIONS.
We will need to raise additional capital to implement fully our
business plan and establish adequate operations. We cannot assure you that we
will be able to obtain additional public or private financing, including debt or
equity financing, as needed, or, if available, on terms favorable to us.
Furthermore, debt financing, if available, will require payment of interest and
may involve restrictive covenants that could impose limitations on our operating
flexibility. Our failure to successfully obtain additional future funding may
jeopardize our ability to continue our business and operations.
5
OUR SUCCESS DEPENDS IN LARGE PART ON OUR CURRENT KEY PERSONNEL AND OUR ABILITY
TO ATTRACT AND RETAIN ADDITIONAL KEY PERSONNEL, WHICH WE MAY OR MAY NOT BE ABLE
TO DO.
Our success depends largely on the skills, experience and reputation of
our president, Corbin Bernsen, and our director, Shaun Edwardes. Additionally,
we hope to attract additional key personnel who can contribute to our success in
various ways. The loss or unavailability of either Mr. Edwardes or Mr. Bernsen
for any significant period of time, and/or our inability to attract additional
key personnel could have a material adverse effect on our business, prospects,
financial condition and results of operations. We do not have any employment
agreements with any of our officers, directors or employees.
WE FACE INTENSE COMPETITION IN THE ENTERTAINMENT INDUSTRY, AND IF OTHER
COMPANIES WITH GREATER RESOURCES DECIDE TO COMPETE IN OUR MARKET NICHE, IT MAY
HAVE A MATERIAL ADVERSE IMPACT ON OUR OPERATIONS AND FINANCIAL POSITION.
The entertainment industry is intensely competitive. Although no
current companies offer the type of introduction service we intend to provide,
we will compete with numerous individuals and companies who provide general
talent representation services, including many major production companies and
agencies, which have substantially greater technical, financial, and operational
resources, as well as greater brand name recognition, all of which they may use
to their advantages to capture significant market share. These include ICM,
William Morris and CAA. There is also a high degree of competition for desirable
projects, artists, and authored works, as well as for access to funds. Should
these companies choose to compete directly with us, or if we are unable to
successfully gain a competitive position, we may experience significant price
erosion, reduced revenue, lower margins or loss of market share, any of which
would significantly harm our business and our financial condition. See our
discussion in "Business - Competition."
6
SINCE OUR COMMON STOCK HAS NEVER BEEN TRADED, PRICES FOR THE COMMON STOCK MAY
DECLINE AFTER THE OFFERING.
There is no public market for our common stock and we cannot assure you
that a market will develop or that any shareholder will be able to liquidate his
investment without considerable delay, if at all. Neither we nor our selling
shareholders have engaged an underwriter for this offering, and we cannot assure
you that any brokerage firm will act as a market maker of our securities. If a
market should develop, the price may be highly volatile. In addition, an active
trading market for our common stock may not develop or be sustained.
IF OUR RIGHT TO USE OUR COMPANY NAME IS DISPUTED, RESOLUTION OF THE ISSUE COULD
BE TIME CONSUMING AND COSTLY, WHICH MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR
OPERATIONS AND FINANCIAL POSITION.
We cannot be certain that our use of "1st Step, Inc." as our company
name does not infringe upon the intellectual property rights of others. Priority
and enforceability of intellectual property rights can be difficult to verify.
If we violate third-party proprietary rights, we cannot assure you that we would
be able to arrange licensing agreements or other satisfactory resolutions on
commercially reasonable terms, if at all. Any claims, made either by us or
against us, relating to the infringement of third-party propriety rights could
result in the expenditure of significant financial and managerial resources
and/or injunctions preventing us from providing services. Such claims could
severely harm our operations and ability to compete, particularly if our name
becomes recognizable in the entertainment industry, as well as harm our
financial position.
DISPUTES OVER INTELLECTUAL PROPERTY OF OUR CLIENTS COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR OPERATIONS AND FINANCIAL POSITION.
Our planned operations include marketing and selling the intellectual
property of our clients, some of which may not have adequate legal protections
or which may be subject to claims that we, our clients, or the property in
question infringe on the intellectual property rights of others, or are being
infringed upon by a third party. Although we intend to enter into
indemnification agreements with all clients to ensure that their project,
technology or other intellectual property is not infringing on the intellectual
property rights of others, we may be subject to legal proceedings and claims
from time to time in the ordinary course of our business. As a result, we may be
forced into costly litigation that could result in the expenditure of
significant financial and managerial resources. If we are not successful in such
litigation, we may be required to pay substantial damages and/or be enjoined
from using the intellectual property in question. This expenditure of resources
may harm our operations and ability to compete, and may result in a material
adverse effect on our operations and financial position.
7
WE DO NOT INTEND TO PAY DIVIDENDS TO OUR STOCKHOLDERS, SO YOU WILL NOT RECEIVE
ANY RETURN ON YOUR INVESTMENT IN OUR COMPANY PRIOR TO SELLING YOUR INTEREST IN
1ST STEP.
We have never paid any dividends to our stockholders. We currently
intend to retain any future earnings for funding growth and, therefore, do not
expect to pay any dividends in the foreseeable future. If we determine that we
will pay dividends to the holders of our common stock, we cannot assure that
such dividends will be paid on a timely basis. As a result, you will not receive
any return on your investment prior to selling your shares in 1st Step.
APPLICABILITY OF "PENNY STOCK RULES" TO BROKER-DEALER SALES OF OUR COMMON STOCK
COULD HAVE A NEGATIVE EFFECT ON THE LIQUIDITY AND MARKET PRICE OF OUR COMMON
STOCK.
Our common stock is not listed on any trading system, nor is it quoted
on any exchange or on NASDAQ, and no other exemptions to SEC "penny stock" rules
currently apply. Therefore, the SEC "penny stock" rules govern the trading in
our common stock. These rules require, among other things, that any broker
engaging in a transaction in our securities provide its customers with the
following:
o a risk disclosure document,
o disclosure of market quotations, if any,
o disclosure of the compensation of the broker and its salespersons
in the transaction, and
o monthly account statements showing the market values of our
securities held in the customer's accounts.
Broker-dealers trading in these securities must provide the bid and
offer quotations and compensation information in the customer's confirmation
before effecting the transaction, provide a written determination that the penny
stock is a suitable investment for the purchaser, and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have the
effect of reducing the trading activity in the secondary market for a stock that
is subject to the penny stock rules. Holders of shares of our common stock may
have difficulty selling their shares because our common stock will likely be
subject to the penny stock rules. In addition, we do not prepare the information
supplied by the broker-dealer to its customer. The broker prepares the
information provided to the broker's customer. As a result, we cannot assure you
that such information is accurate, complete or current.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks
and uncertainties. We use words such as "anticipates", "believes", "plans",
"expects", "future", "intends" and similar expressions to identify these
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks described in
"Risk Factors" and elsewhere in this prospectus. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.
8
SELLING SHAREHOLDERS
The following table provides certain information with respect to the
selling shareholders' beneficial ownership of common stock as of December 31,
2002 and as adjusted to give effect to the sale of all of the shares in the
offering. None of the selling shareholders currently is an affiliate of 1st Step
and none has had a material relationship with 1st Step during the past three
years. See "Plan of Distribution." The selling shareholders possess sole voting
and investment power with respect to the securities shown.
NUMBER OF SHARES
BENEFICIALLY OWNED AFTER
NUMBER OF SHARES OFFERING(1)
BENEFICIALLY -------------------------------
OWNED BEFORE NUMBER OF SHARES NUMBER OF
NAME OFFERING BEING OFFERED SHARES PERCENTAGE
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Christopher Ian Hui 100,000 100,000 0 *
Flat B, 8/F Tower 5, Island
Harbourview, Kowloon, Hong Kong
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Holly M. Gord 100,000 100,000 0 *
925 Montgomery Dr.
Hermosa Beach, CA 90254
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Min Liu 100,000 100,000 0 *
1835 Coachwood Ct.
Hacienda Heights, CA 91745
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Habib Rawjee Trust 100,000 100,000 0 *
825 S. Beverly Glen Blvd.
Los Angeles, CA 90024
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Saima Khan Ali (2) 250,000 (2) 250,000 (2) 0 *
1233 San Vicente Blvd.
Santa Monica, CA 90402
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Mei-Ling Wang 200,000 200,000 0 *
2432 Palm Dr.
Hermosa Beach, CA 90254
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Noreen Khan (2) 250,000 (2) 250,000 (2) 0 *
1233 San Vicente Blvd.
Santa Monica, CA 90402
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Alia S. Khan (2) 250,000 (2) 250,000 (2) 0 *
1233 San Vicente Blvd.
Santa Monica, CA 90402
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
9
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Jiun-Shyan Chen & Hway Jung Young 200,000 200,000 0 *
3650 Foxana Drive
Iowa City, IA 52246
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Alexander Zaks 300,000 300,000 0 *
15656 Crownridge Place
Sherman Oaks, CA 91403
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Dr. Sana Khan cf Sameer Khan Ugma (3) 560,000 (3) 560,000 (3) 0 *
4944 E. Crescent Dr.
Anaheim, CA 92807
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Dr. Sana Khan cf Saman Khan Ugma (3) 560,000 (3) 560,000 (3) 0 *
4944 E. Crescent Dr.
Anaheim, CA 92807
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Safura Khan (3) 560,000 (3) 560,000 (3) 0 *
4944 E. Crescent Dr.
Anaheim, CA 92807
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Ghazala Ahmed 40,000 40,000 0 *
8295 E. Brookdale Ln.
Anaheim, CA 92807
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Dr. Sana Khan (3) 560,000 (3) 560,000 (3) 0 *
4944 E. Crescent Dr.
Anaheim, CA 928
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Harlan Chang 100,000 100,000 0 *
1346 Oxford Road
San Marino, CA 91108
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Johnny T. Lui 100,000 100,000 0 *
2421 El Capitan Ave.
Arcadia, CA 91006-5114
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Bruce Combe 200,000 200,000 0 *
1739 W. Kiowa Ave.
Mesa, AZ 85202
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Mark D. Jordan 100,000 100,000 0 *
4801 Lido Sands Dr.
Newport Beach, CA 92663
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
10
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Frank Lin 100,000 100,000 0 *
655 W. Lemon Ave.
Arcadia, CA 91007
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Salman Ebrahim (4) 180,000 (4) 180,000 (4) 0 *
26 Victoria Crest
Brawpton, Ontario
Canada L6T IE5
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Maryam Ebrahim (4) 180,000 (4) 180,000 (4) 0 *
26 Victoria Crest
Brawpton, Ontario
Canada L6T IE5
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Ali Ebrahim (4) 180,000 (4) 180,000 (4) 0 *
26 Victoria Crest
Brawpton, Ontario
Canada L6T IE5
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Vicki Matshshita 100,000 100,000 0 *
3267 N. Knoll Dr.
Los Angeles, CA 90068
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Tina Cheng 100,000 100,000 0 *
1370 E. Orange Blvd. Apt. 14
Pasadena, CA 91104
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Tina Chiu 100,000 100,000 0 *
1864 South Pine Street
San Gabriel, CA 91176
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Ping Che Tang 100,000 100,000 0 *
D41 Saiwan Terrace
King's Road, Hong Kong
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Hay Yuk-Hau (5) 1,600,000 1,600,000 1,400,000 14.1%
2876 Shakespeare Dr.
San Marino, CA 91108
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Nizar Jiwa 100,000 100,000 0 *
7215 Tessa Lakes Court
Sugar Land, Texas 77478
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Dr. Arman A. Jafar 100,000 100,000 0 *
15200 S.W. Freeway Suite 300
Sugar Land, Texas 77478
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
11
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Celina Charania 100,000 100,000 0 *
3222 Deer Creek Dr.
Sugar Land, TX 77478
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Abid Bhimani 100,000 100,000 0 *
2525 Old Farm Road #2318
Houston, TX 77063
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Shuaib Bombaywala 100,000 100,000 0 *
11 Swan Lane
Sugar Land, TX 77479
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
Nazim Thawer 100,000 100,000 0 *
3615 Rio Oaks Ave.
Houston, TX 77068
- -------------------------------------- ----------------------- ----------------------- --------------- ---------------
TOTAL 3,930,000 3,930,000
- -------------------------------------- ----------------------- -----------------------
- ---------
(1) Assumes that all shares being offered pursuant to this prospectus will
be resold by the selling shareholders and none will be held by the
selling shareholders for their own accounts.
(2) All members of the same immediate family, and each may be deemed the
beneficial owner of shares held in the name of the others. 160,000
shares are held in the name of Saima Khan Ali, 60,000 shares are held
in the name of Noreen Khan, and 30,000 shares are held in the name of
Alia S. Khan.
(3) All members of the same immediate family, and each may be deemed the
beneficial owner of shares held in the name of the other. 140,000
shares are held in the name of Dr. Sana Khan cf Sameer Khan Ugma,
140,000 shares are held in the name of Dr. Sana Khan cf Saman Khan
Ugma, 140,000 shares are held in the name of Safura Khan, and 140,000
shares are held in the name of Dr. Sana Khan.
(4) All members of the same immediate family, and each may be deemed the
beneficial owner of shares held in the name of the other. 40,000
shares are held in the name of Salman Ebrahim, 40,000 shares are held
in the name of Maryam Ebrahim, and 100,000 shares are held in the name
of Ali Ebrahim.
(5) Ms. Yuk-Hau is an immediate family member of our director, Mr. Cheung,
and is the beneficial owner of 1,400,000 shares held by Sinlex Finance
Ltd., as well as 200,000 shares held in her own name. The shares held
in the name of Sinlex Finance Ltd. are not being registered or sold
pursuant to this registration statement.
* - Indicates less than 1% held.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock.
We currently intend to retain future earnings, if any, to finance the expansion
of our business, and we do not expect to pay any cash dividends in the
foreseeable future.
12
DILUTION
Dilution per share to new investors represents the difference between
the amount per share paid by purchasers of our common stock in this offering and
the pro forma net tangible book value per share of common stock immediately
after completion of this offering.
Our net tangible book value before taking this offering into
consideration at December 31, 2002, was ($59,718) or ($.006) per share of common
stock. The "net tangible book value" represents the amount of the total tangible
assets less the total liabilities of 1st Step as of December 31, 2002. Our net
tangible book value per share represents the net tangible book value of 1st Step
divided by the total number of shares of common stock outstanding as of December
31, 2002.
As we are not receiving any proceeds of this offering, and none of the
shares offered in this prospectus are being offered at a price higher than the
value paid by the selling shareholders at the time of purchase, we do not
anticipate any dilutive effect in connection with this offering.
Dilution may occur in the future due to any contracts we may enter into
with third party entities for consulting or other services. Should any
additional common stock shares be issued for consulting or other services, you
may, after the closing of this offering, experience dilution to your investment
in 1st Step, Inc.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
You should read the following discussion and analysis of our financial
condition and results of operations together with our financial statements and
related notes appearing elsewhere in this prospectus. This discussion and
analysis contains forward-looking statements that involve risks, uncertainties,
and assumptions. The actual results may differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including,
but not limited to, those presented under "Risk Factors" on page 4 and elsewhere
in this prospectus.
PLAN OF OPERATION
During the course of the next twelve months, we plan to focus on
acquiring clients and developing our brand name within the entertainment
industry. We anticipate the following expenditures over the next year: $1000 per
month on maintaining our business, including rent and general administrative
costs; $500 per month on client development, which includes entertainment and
travel; and $25,000 on options and acquisitions of scripts and entertainment
technology, which includes $25,100 already expended in this fiscal year to
purchase an option on five scripts owned by Mr. Bernsen. This option entitles us
to seek financing for each and all of the scripts by selling the script or
scripts to independent producers or studios. At present, four of the scripts are
under review with potential producers and/or directors, and the other is being
rewritten. If we successfully place a script, we will exercise the option for
that script and acquire all rights to the script from Mr. Bernsen. The exercise
price for each option is 2.5% of the pre-shooting budget (as determined by the
producer) for the production. We will pay Mr. Bernsen this amount upon receipt
from the producer. Our revenue from the project will be determined by the terms
of the agreement we negotiate with the producer or studio. Our option, as
extended, expires August 14, 2003. For further discussion of our standard option
agreements and material terms, please refer to our discussion in "Description of
Business - Representation of Entertainers - Options."
We anticipate spending $10,000 to prepare and market our existing
clients. This may entail creating an electronic presentation of our clients'
project or marketed talent (typically on CD or on-line), distributing these
presentations to the appropriate industry parties, introducing our clients to
related industry decision-makers, and making personal presentations on behalf of
our clients to prospective interested parties. We do not anticipate any other
material costs for the next twelve months, and we do not anticipate any material
costs related to marketing our company, as this will be conducted almost
exclusively through telemarketing and word-of-mouth.
We currently have enough cash to satisfy our financial requirements
until June 2003, and have generated income of $ 43,538 since our inception
from operations. If we are unable to generate enough capital through our
operations and/ or other financing transactions to fully fund our plan of
operations, we intend to fund our business maintenance first ($1000), and all
remaining funding will be allocated to preparing and marketing our existing
clients ($10,000). Any new funds will be allocated to client development. If we
determine that we need additional funding for the remainder of the next twelve
months, and our revenues are not sufficient to satisfy our funding requirements
after June 2003, we intend to meet our funding needs by conducting either
public or private offerings of equity securities.
During the first eighteen months, we intend to focus our efforts on
creating an awareness within the entertainment industry of our business. We
intend to market our business by conducting an aggressive telemarketing
strategy, drawing on our extensive relationships in the entertainment industry
and generally making those in the entertainment industry aware of the services
we provide. We also intend to build upon our database through referrals from our
existing contacts. After our initial marketing campaign, we anticipate that
further marketing of our company will be conducted almost exclusively through
word-of-mouth. During the ninth to twelfth months of our first year, we also
intend to start identifying some key "anchor" clients, which we define as
individuals and companies that show promise but require our services to move
further, and clients that we determine are likely to generate recurring revenues
for at least two years. We intend to derive our anchor clients from our pool of
industry referrals and relationships. Following that, we anticipate using our
anchor clients to generate sufficient revenue to maintain our operating
expenses, and pursue an additional business strategy of direct equity investment
in entertainment technology and scripts. These clients will only generate a
portion of our future business plan, and will have a higher level of risk
associated with them as they require successful development for us to generate
revenue.
14
We are also developing a proprietary web based resume service for the
entertainment community, from which we intend to derive our initial source of
income, and will remain a staple of our business thereafter. This will be called
ECV kit. (Electronic Curriculum Vitae Kit), and is further described in our
"Business-In House Multi-Media-ECV Kit" discussion.
Our specific plan of operations for our first fiscal year is based
primarily on the aggregation of clients and intellectual properties, and
developing a network of industry contacts for our client base. We also intend to
position and market our company and our clientele through our officers' and
directors' personal networks. Finally, we anticipate entering into agreements
with clients, and co-marketing agreements. We have generated some revenue and
anticipate generating additional revenue on or about August 2003. Our plan until
that date is to use our current funds in the following manner:
NOVEMBER 2002: Conceptually developed ECV kit. Met with key industry
potential users to define product and needs of users. Developed revenue
model, and technical roadmap and timeline.
DECEMBER 2002: Designed ECV kit's customer interface, working alongside
key industry clients.
JANUARY - JULY 2003: Beta test interface with key industry users and
implement back end for ECV kit, to include database engine and
streaming capabilities. This will entail identifying best streaming and
hosting partner. Complete and beta test ECV kit. Populate database with
talent. This will initially entail giving the service away for free and
then move into a subscription based model. Agents and managers will be
approached to use the resource, and market the product. Begin
representation of clients to industry, and place optioned properties
with studios and networks, revenues expected.
JULY 2003: Subscription revenue model will be implemented for ECV.
Begin generating revenues from ECV.
AUGUST-DECEMBER 2003: Market clients and proprietary industry database
(ECV). License ECV to other industries where it may be appropriate, and
consider sale of platform to an entity that has capital resources to
scale the service on a mass basis. Begin producing revenues from
optioned scripts, including four of those from Mr. Bernsen.
Beginning August 2003, we will be marketing our clients and our
proprietary industry database (ECV). We also intend to license ECV to other
industries where it may be appropriate, and even consider the sale of the
platform to an entity that has the capital resources to scale the service on a
mass basis. We anticipate that our optioned scripts and screenplays will be in a
revenue generating position due to successful placement with a studio or
network. If we are unsuccessful in marketing our ECV to the entertainment and/or
other industries, we may have insufficient revenues to operate our business
model, and may be forced to cease all operations and/or declare bankruptcy.
We may consider hiring a full-time administrative assistant during the
next year, should we determine this is necessary. However, no additional
employees are required at this time to implement our plan of operations.
15
RESULTS OF OPERATIONS
As we have not yet completed a full fiscal year, and have no recurring
revenues, we cannot make any comparisons regarding past performance.
FEBRUARY 8, 2002 TO DECEMBER 31, 2002
--------------------------------------
The following table presents, certain selected financial data for the
period February 8, 2002 (inception) to December 31, 2002:
Net Revenue $ 0
Operating expense $ 268,956
Other income $ 43,538
Loss before income tax $(225,418)
Provision for income tax $ 800
-----------------------------------------------------------------------
Net loss $(226,218)
NET REVENUE
-----------
We are a development stage company. We have generated little revenue
from inception through December 31, 2002 due to the fact that we have not yet
established more than 1 client among our target clientele. The Company earned
$40,000 in consulting revenues from a related party, Van Nuys Studios, Inc. (so
deemed because 10 of our shareholders own, in the aggregate, 5% or more of each
company; there is no other relationship between the two entities), and $3,538 as
other consulting income, for multimedia work, from non-related entities as of
December 31, 2002.
OPERATING EXPENSES
------------------
Operating expenses from inception through December 31, 2002, comprised
of professional fees (including accounting and legal fess) of $104,490, script
option rights purchased from Mr. Bernsen for $25,000, business development
expenses of $40,000, consulting expenses of $85,428 (for the services of Mr.
Edwardes), and miscellaneous charges of $14,038.
LOSS BEFORE INCOME TAX
----------------------
We had a loss before income tax for the period from inception through
December 31, 2002, of $225,418.
NET LOSS AFTER INCOME TAX
-------------------------
We had a net loss after tax in the period from inception through
December 31, 2002 of $226,218 or $0.03 a share of common stock, after recording
of income tax of $800.
LIQUIDITY AND CAPITAL RESOURCES
We are not engaged in a capital-intensive business. Our costs are
primarily incurred by the consultant fees and business development costs, travel
and entertainment related to our business operations, and business overhead
normal to a service business. We have generated a net amount of $166,500 as of
December 31, 2002 through the private sales of restricted common stock to 32
accredited investors. Our revenues include $40,000 in revenue for introduction
services from Van Nuys Studios, Inc., a related entity (so deemed because 10 of
our shareholders own, in the aggregate, 5% or more of each company; there is no
other relationship between us and Van Nuys Studios, Inc.), and $3,538 as other
consulting income, for multimedia work, from non-related entities as of December
2002. Our shareholders who are also shareholders of Van Nuys Studios, Inc. are:
Holly M. Gord; Saima Khan Ali; Habib Rawjee Trust; Alia S. Khan; Alexander Zaks;
Ali Ebrahim; Dr. Arman A Jafar; Celina Charania; Abid Bhimani; and Nazim Thawer.
Together these 10 selling shareholders beneficially own 13.4% of the Company.
16
We have advanced $29,699 to EssTec, Inc., a related party through
common major shareholders, through December 31, 2002. These advances are
interest free, due on demand and unsecured.
We believe that our current funding will be adequate to cover our costs
and expenses through June 2003. We have not incurred any debt outside of the
$50,000 cost of this offering, and do not anticipate incurring any in the
foreseeable future. Additional funding needs will be generated by future equity
sales, both public and private.
TRENDS AND UNCERTAINTIES
------------------------
As discussed in our risk factors, we are engaged in a highly
competitive environment. A continued slowness in the economy, as a result of
terrorist attacks, market decline, the war in Iraq, or a combination thereof
appears to have resulted in a general reduction in production in the film
industry, primarily as a result of a reluctance to produce features abroad,
which has increased production costs. Additionally, difficulties in the large
media companies, including AOL-Time Warner and Vivendi, have resulted in general
cut-backs in the entertainment divisions. Both of these factors have contributed
to a reduction in the number of artists these companies and record labels have
been willing to invest in, and lower budgets for the artists they have invested
in. As a result, the agents and producers to whom we market our clientele may be
unwilling to risk investing in new talent.
New technology, such as the ability of individuals to burn their own
CD's, rather than purchase new CD's, has reduced the amount of revenue artists
receive for their work. This may affect our revenue stream in projects in which
we receive a percentage of the artist's revenue.
With respect to our entertainment technology, the current climate for
investment in technology is not very conducive to rapid sales. Although we will
only work with clients who have actual "hard" technology, rather than the
service and advertisement-based web pages that typified the majority of the "dot
com" industry, we may experience some residual effect of the current investment
climate.
DESCRIPTION OF BUSINESS
We were incorporated in the State of Delaware on February 8, 2002. We
are a full service professional representation agency which provides
entertainers and creators of new entertainment technology with every aspect of
management, including career management and guidance, project development,
public relations, contract negotiations, marketing and endorsements, and
financing as required. We are currently doing business as 1st Step Media in
California to prevent confusion with another company operating as 1st Step in
that state. Although we have not yet trademarked our name, we may consider
applying for a trademark for the "1st Step" and /or "1st Step Media" trade names
to prevent claims of intellectual property infringement.
BUSINESS STRATEGY
The vast majority of project development in any aspect of the
entertainment industry, including acting, recording and writing, is generated
exclusively by introduction to "insiders" within the industry. Most individuals
entering the entertainment industry have no knowledge of who the "insiders" are,
or how to generate any level of contact with these individuals.
Entertainment-related technology is also subject to "insider" contacts within
the industry, and is generally only developed and submitted for broad or mass
public use once industry "insiders" are both made aware of the technology, and
presented information regarding the technology in a favorable or acceptable
manner.
17
We have generally created a structure in which we allow talented
entertainers and entertainment technology developers to exchange information
with insiders in the entertainment industry. Should such information result in a
contract between these individuals, we earn a fee. We may also generate
additional fees from our participation in projects resulting from these
contracts, and any fees generated from financing we have supplied by introducing
our clients to third-party investors.
Although we do not intend or anticipate directing an offering of our
services through the Internet, we do intend to use our website to accurately
reflect our business and describe the services we offer. The website will also
contain information to contact us in order to discuss our services further. We
do not intend or anticipate conducting any offering of our securities through
the Internet, including our website, in the foreseeable future.
REPRESENTATION OF ENTERTAINERS
In the entertainment industry, the vast majority of work is obtained by
knowing the insiders who represent quality casting projects and productions.
Most "lay" people do not have access to these projects and productions,
primarily because they do not know who actually does have access to these
projects, and, if they do know who has access, they cannot gain access
themselves to those key individuals. One of our company's founders, Mr. Corbin
Bernsen, is a well-known industry insider. Mr. Bernsen has had a long and
established career in the entertainment industry, including starring as the
flamboyant attorney Arnie Becker in the hit TV series, LA LAW, and Roger Dorn in
the MAJOR LEAGUE movies. We intend to use the vast industry contacts held by Mr.
Bernsen to introduce entertainers, including actors, vocalists, musicians, and
scriptwriters, to the individuals who can develop the careers of our clientele.
These individuals include top ranking agents and casting directors, as well as
music industry professionals and studios. Mr. Shaun Edwardes, a director and
co-founder of 1st Step, also has extensive experience with artist development
and maintains various contacts throughout the industry. He has represented
artists with major record labels, such as Universal and Sony, and has managed
major-label recording artists and projects, such as David Lynch's Grammy
(TM)-winning soundtrack to TWIN PEAKS and Julee Cruise.
We do not intend to represent our clientele as agents directly, nor do
we intend to manage their careers. We intend to act solely as an introduction
service, selecting talent we view as promising and noteworthy, and introducing
them to the industry insiders, including agents and managers. While these agents
and managers do not take unsolicited meetings or clientele, we will meet with
such prospective talent. When we determine that a prospective client is a
promising talent, we will take on that individual as a client, and use our
contacts throughout the entertainment industry, both in Los Angeles and in New
York, to aggressively "shop" the entertainer or technology to appropriate
industry professionals. Our recommendation will provide the necessary
introduction to this select group of professionals, making it possible for our
clientele to advance in the industry. In exchange for our introduction, we will
receive a negotiated percentage from our client's future earnings for a
specified number of years, and will generally not exceed five years. We intend
to offer our services primarily in Los Angeles, and intend to maintain only the
LA office for the foreseeable future. We may, however, draw clients from
anywhere in the country or abroad, as the marketing of our business has been and
will be conducted primarily through word-of-mouth and referrals.
18
We also intend to introduce clients who have written scripts to
individuals who can assist them with producing the script. We will help clients
revise scripts in order to make it presentable and "promotable." We may also
assist clients by introducing them to relevant agents and studios with whom we
have relationships. If a third party expresses interest in financing the script,
we may assist the client by introducing the client to the third party, allowing
the third party to invest capital in the script, which would be used to further
develop the script, get commitments from other potential actors and directors to
the script, create story boards, and possibly create a short video presentation.
In exchange for its capital investment, an investor would be entitled to a
portion of the sale price when the script is sold, or an option to purchase the
script outright.
We intend to generate revenue through consulting fees derived from
representation of our clients in the negotiation of contracts, as well as
general career consultation. Our consulting fees will generally be between 5% to
10% of the value of any contract with talent agencies we negotiate on behalf of
our clientele. We also intend to provide general career advice and consultation
for an hourly rate of $200. We may also offer monthly rates for general career
services and advice, if there is sufficient client demand for it. Our
representation contracts will grant us rights to "shop" our talent to various
talent agencies exclusively for a minimum period of six months. Our career
advice services will be paid for individually, or on a monthly basis, depending
on the type and extent of counseling our clients require. All agreements will
include a retainer ranging from 5%, for individual talent representation, to
25%, for the development of projects, such as scripts and television shows.
OPTIONS
We intend to generate revenue based on our purchase of options in
scripts or screenplays, which will have terms based on the industry standard
option agreement. Standard industry terms generally provide for us, as optioner,
to pay a certain amount of money to the script writer or owner, the optionee, in
exchange for which we are granted a limited period of time, generally a year, in
which to sell the script or project to an independent producer or studio. Upon
such sale, we then exercise the option, which requires a payment of 2.5% of the
pre-shooting film budget to be paid to the optionee, which we take into
consideration in our sale negotiations. All rights and ownership in the script
then pass to us, and we are paid a separately negotiated fee by the producer or
studio for whatever rights we choose to transfer. We have limited the amount we
will pay for any option to no more than $5,000.
On February 15, 2002, we purchased an option from Mr. Bernsen for
$25,000, for which we were granted a 12-month option to purchase five
screenplays that he owns. On January 13, 2003, we purchased a 180-day extension
on those options for $100. Currently, four of the five scripts are being
reviewed for interest by various producers and/or studios. The fifth script is
currently undergoing a rewrite by Mr. Bernsen.
REPRESENTATION OF ENTERTAINMENT TECHNOLOGY DEVELOPERS
The entertainment technology industry is slightly different from the
entertainment talent industry. Technology solutions are being considered and
adopted by every kind of new media companies. The entertainment industry is
dominated by large entertainment conglomerates, such as Vivendi/Universal, Sony
and Disney, who specialize in entertainment content. Although they have
previously experimented with development technology to distribute this content,
the low success rate and high expense of this venture has been widely reported
throughout the industry. We believe these companies are now actively seeking
outside technology developers with greater competency to deliver their content,
leaving these companies to focus on their core businesses.
19
We intend to represent these niche technology developers. The
entertainment technology industry does not rely directly on agent
representation, but does require significant industry contacts. As with the
entertainment industry, entertainment technology industry professionals rarely
accept unsolicited interviews or meetings. Mr. Edwardes has extensive contacts
in the entertainment/media industry, and will draw on current relationships and
develop additional associations to provide introductions for current clients and
to secure clients who are seeking introductions for their technologies into the
large media companies. Mr. Edwardes's experience includes arranging content for
broadcast.com (now owned by Yahoo!), a company developed to stream live events
over the Internet. He also has significant experience with technology companies
such as Voxsurf Ltd., a wireless technology company, and has extensive contacts
within the software industry. As we will not own the technology developed by our
clients, we will not take any action to protect the intellectual property rights
or value of our clients' products.
We intend to focus on digital distribution and digital entertainment
management, which we believe is the future of the entertainment technology
industry. We will review both solicited and unsolicited software and
technologies, and, once we determine a particular software program or technology
is both viable and promising, we will use our contacts to introduce our
clientele to the appropriate industry professional.
We intend to generate revenue through participation in the sales and
profits of projects submitted to entertainment industry professionals generated
by our clientele. If the technology is sold directly to the industry, we intend
to take a percentage of the sale price, generally between 5% and 10%. Although
we do not intend to assist in financing or representing technology requiring
additional research and development expenses, some projects may require
additional financing in order to prepare the technology for sale. If additional
investment is required, and our business evaluation of the technology suggests
that the project is worth such investment, we may introduce the original
developer to potential third party investors for a finder's fee of no more than
10% of the financing negotiated and procured by the original developer as a
result of our introduction. In any event, our primary purpose is to introduce
our projects to individuals with capital in exchange for a fixed fee or for a
portion of the sale price, but not to finance the project ourselves.
We may also determine that a particular technology is best marketed
directly to the public, rather than to the entertainment industry. In these
circumstances, we will generate revenue by taking a direct percentage, ranging
from 5% to 10%, of the revenue generated by the technology. This fee will be in
addition to any finder's fee resulting from our introduction service. Our
revenue term will vary based on the type of technology and the speed with which
the particular type of technology is generally considered to become obsolete,
but will generally range between one and three years.
We intend to derive the majority of our technology-based revenue on
non-financed technology sold directly to the entertainment industry.
IN-HOUSE MULTI-MEDIA
We are also developing an in-house multi-media division to create
publicity packages for our clients for submission to prospective agents,
managers and technology professionals, which will assist with "packaging" our
clients in order to best present them to industry professionals. This will
enable us to present our client's technology in the most professional format
possible, to increase the likelihood of acceptance by the relevant industry
professional. This division may also provide ongoing revenue, as we may also use
it to provide our corporate packaging services to outside industries.
20
ECV KIT
-------
We are also developing an open-source web based resume service for the
entertainment community, from which we intend to derive our initial source of
income, and will remain a staple of our business thereafter. This will be called
ECV kit. (Electronic Curriculum Vitae Kit). We do not intend to apply for
intellectual property protection for the ECV kit at this time, but may do so in
the future.
The current manner in which talent represents themselves to the
production community has not changed in years. An 8.x 11 photograph with a
typed resume stapled to the back is presented to casting executives and if there
is further interest, a show reel is requested. We believe that this is an
archaic manner in which to present talent in this digital age, along with being
time consuming and an expensive method that requires reliance on traditional
shipping/postage, large storage of video cassettes and filing systems of photos.
Our plan is to develop, with the assistance of some industry experts
from the casting, agency and photography communities, an easy to use digital
platform. This will incorporate a CD Rom product that is linked to a web based
subscription service. It will allow talent to upload show reels, photographs and
resume in an updateable format, giving them an inexpensive way of keeping their
personal presentation current and relevant. It will provide the casting agents
with a searchable web based database of talent, without having to requests
latest photos and show reels. The CD versions will act as a calling card much
like the current photos, and will be presented in a DVD package with a headshot
on the front. The show reel and photos will be burnt into the CD along with
resume and contact information. The web-based service (www.ecvkit.com) will
provide streaming and downloadable versions of the reel, and will link to any
other relevant information the talent or representatives deem necessary.
The biggest hurdle to the project is the adoption of such a service.
Hollywood is very traditional in its methods, but we feel that with the support
of key management, agent and casting personnel, we will be able to promote
adoption and use of this unique service. The product will be introduced into the
U.S. market at the end of the second quarter of 2003, and revenues will be
Generated by subscription and ancillary services, along with licenses to other
industries that require such representation, including the overseas markets of
India (whose significant film industry has become known as Bollywood), and
Dubai. We expect to engage the services of Knightrider Investments, a related
entity in which John King, one of our shareholders, owns a Controlling interest,
in entering overseas markets.
MARKETING
Marketing involves the establishment of contractual relationships
between 1st Step, the entertainers and technology developers we represent, and
industry professionals within the entertainment and entertainment technology
industries. As we are not marketing our clientele to the general public, and
marketing to industry professionals is based primarily on relationships and
networking, we expect to have minimal marketing expenses. Apart from press kits,
photos, business plans, and phone calls, we will have very little marketing
expense.
21
Mr. Edwardes initially purchased the rights to the www.firststepinc.com
web address, which he is in the process of transferring to us for no additional
consideration. Mr. Bernsen initially purchased the rights to the web address
www.ecvkit.com, which he is in the process of transferring to us for no
additional consideration.
COMPETITION
Although we do not have any direct competitors who represent the
industry niche we intend to serve, there are numerous larger, significant,
competing entities and companies in the entertainment industry who represent
entertainers, as well as larger, significant competing entities and companies
who represent entertainment technology developers, both of which operate
locally, nationally and internationally. We anticipate that these companies will
be our clients, and not our competitors, as we intend to serve as the initial
"screener" for prospective clients that they, in turn, will actually represent.
As discussed previously, these companies rarely retain clients who do not have
some previous connection with a manager or agent, or a client of a manager or
agent. We will serve as the intermediary for talented individuals without prior
connections, and introduce these individuals to the managers and agents they
would not be able to interact with, much less engage, on their own.
There are also numerous other management and marketing companies
operating in the entertainment industry and entertainment related industries
that have the resources to compete with us should they decide to do so.
Additionally, there are numerous individual licensed agents conducting
business in the entertainment industry. We will compete in the marketplace based
on the ability to offer greater opportunities to entertainers and entertainment
technology developers, service, quality of representation, negotiating skills,
and personal relationships between management, the entertainers and technology
developers, and the entertainment industry professionals and "insiders." We
believe we can be successful in the entertainment industry because of the
services we can provide entertainers and technology entrepreneurs, particularly
professional contacts with decision makers and marketing services. We cannot
guarantee that we are or will remain competitive or successful in the future.
Moreover, we cannot guarantee that ICM, William Morris or CAA, or other larger
competing entertainment management and marketing companies, will not expand
their businesses in the entertainment or entertainment technology development
industries. The expansion of any of these larger competing management and
marketing companies could have a material adverse effect on our business.
If we are unsuccessful in procuring clientele, or in successfully
placing clients once they have contracted with us, we may revise our business
plan to focus on post-production work for artists and studios in the film and
recording industries, as well as assisting entertainers in utilizing "new
media," such as putting streaming video on the Internet or creating electronic
resumes and curricula vitae (CV's). In this event, we would draw on the
relationships of Messrs. Bernsen and Mr. Edwardes to both the recording and film
industries to generate business and revenue.
22
EMPLOYEES
Creating and maintaining personal relationships between our management
and prospective new talent, other industry agents, marketing and public
relations firms and key insider industry professionals is critical to
implementing and maintaining our business strategy. The intensely high level of
competition within the industry requires us to obtain and retain management and
employees who maintain and develop relationships with high numbers of
well-connected individuals throughout the entertainment industry. We currently
have two individuals who meet these criteria: Mr. Bernsen and Mr. Edwardes. We
intend to hire two additional individuals who also meet these criteria in the
next fiscal year, and are actively seeking these new individuals for hiring when
we are financially capable and have the business demand. Although we do not
anticipate needing such individuals for at least one year, individuals meeting
both the contact criteria we require and the desire to focus on the industry
niche in which we intend to operate are uncommon, even within the entertainment
industry, and we believe that we will need to identify these individuals as far
in advance as possible.
Mr. Bernsen will spend 100% of his time not spent on acting projects
working on our business, including client development. Mr. Edwardes will spend
approximately 90% of his time working on our business, and will focus primarily
on arranging introductions and client meetings for our clients. Both Messrs.
Bernsen and Edwardes anticipate maintaining their current commitment of 40 hours
per week dedicated to the operations of 1st Step.
However, as discussed previously in our "Management's Discussion and
Analysis" section, we may consider the hiring of a full-time administrative
assistant within the next year, should we determine this is necessary. No
additional employees are required to implement our business plan at this time.
As of December 31, 2002, we had no full-time or part-time employees.
None of our employees is represented by a labor union and we have not
experienced any work stoppages. We consider our employee relations to be good.
We do not have employment agreements with any of our employees.
GOVERNMENT REGULATION
The entertainment industry is currently structured with talent being
represented by their manager, agent and attorneys. The manager and agent
traditionally take 10% of the gross earnings, and the attorney is either paid on
an hourly basis or a percentage up to 5%. California state law currently
restricts agents from taking more than 10% and prevents agents from investing
in, or being owned by, advertising agencies or studios. This law is currently
under review and negotiations between agents and the Screen Actors Guild. Any
changes will have no impact on our business model. As we are not a
representation or management company, but merely an introduction company, we are
not governed by any government regulations or restrictions.
CLIENTS
We do not yet have any clients who represent more than 10% of our
revenues, and do not have any material contracts with either industry
professionals or clients as of the date of this prospectus.
LEGAL PROCEEDINGS
We are not a party to any legal proceeding or litigation, and none of
our property is the subject of a pending legal proceeding. Further, the officers
and directors know of no legal proceedings against us or our property
contemplated by any person, entity or government authority.
23
DESCRIPTION OF PROPERTY
PRINCIPAL OFFICE
We rent property and office space from Chandler Associates for a
monthly rent of $900. The address of the property is located at 14759 Oxnard
Street, Van Nuys, California 91411. We rent this property under an oral lease on
a month to month basis.
24
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors, executive officers and significant personnel of 1st
Step, Inc. and their ages are as follows:
Name Age Position
---- --- --------
Corbin Bernsen 47 Chief Executive Officer, Secretary,
Chairman of the Board of Directors
Bill Cheung 31 Chief Financial Officer, Director
Shaun D.C. Edwardes 39 Director
CORBIN BERNSEN: Mr. Bernsen has been President, Chief Executive
Officer, Secretary and a director to 1st Step since its inception on February 8,
2002. He has been a successful actor and writer for the past twenty years
earning Golden Globe nominations for television acting and being a current
member in good standing with the Writer's Guild of America. Since February 2002
he has been acting on television projects including "Return to LA Law" and
"Celebrity Mole Hawaii." He has also been the President and CEO, of Public Media
Works, Inc., an interactive film production company, since May 2001. Prior to
that period he focused entirely on his acting career. He received a Masters
degree from the University of California of Los Angeles in Playwriting in 1979.
BILL CHEUNG: Mr. Cheung has been a director and Chief Financial Officer
to 1st Step since inception on February 8, 2002. Mr. Cheung has served as a
director to EssTec, Inc., a software platform development company, since
December 2001. From 1997 to 2001, Mr. Cheung served as Marketing and Sales
Partner with Golden Horizon Plastic Corp. From 1994 to 1997, Mr. Cheung served
as Sales Manager to National Plastics Color. Mr. Cheung is a graduate from Drake
University with honors in Mathematics and Computer Science.
SHAUN D.C. EDWARDES: Mr. Edwardes has been a director and consultant to
1st Step since its inception on February 8, 2002. Mr. Edwardes served as Chief
Executive Officer of EssTec, Inc., a software platform development company that
also provides technology consulting services, from March 2002 to September 6,
2002. Prior to that, Mr. Edwardes served as Executive Vice President - Business
Development to EssTec, Inc. from January 2002 until March 2002. Mr. Edwardes
served as Chief of Operations for Public Media Works, Inc., an interactive film
production company, from 2000 to 2001. From 1999 to 2000, Mr. Edwardes served as
Vice President of Business Development for Voxsurf Software, Ltd., specializing
in voice and WAP (wireless application protocol) software development. In 1999
Mr. Edwardes also served as Principal for DC Management, a development and
management company for recording artists. From 1996 to 1998, Mr. Edwardes served
as General Manager for operations of Last Beat, Inc.
25
Although none of our directors or officers have previous business
experience with an introductory service company, Mr. Bernsen has had 30 years
and Mr. Edwardes has had 17 years of experience within the entertainment
industry. Mr. Edwardes has had five years and Mr. Cheung has had two years of
experience within the technology industry, and Mr. Edwardes has had five years
of experience with technology specifically directed toward the entertainment
industry.
None of our officers or directors believe a conflict of interest will
develop between their obligations to our company and clientele and any other
professional activities they engage in. However, if such conflicts do develop,
we anticipate effecting a formal conflict of interest policy at that time.
All directors hold office until the next annual meeting of shareholders
and the election and qualification of their successors. Officers are elected
annually by, and serve at the discretion of, the Board of Directors. Board
members are not presently compensated, but are reimbursed for their expenses
associated with attending Board meetings.
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table sets forth the total compensation earned by or paid to our
Chief Executive Officer and our other most highly compensated executive officers
earning over $100,000 since our inception in February 2002.
=====================================================================================================================
ANNUAL COMPENSATION LONG TERM COMPENSATION
- ---------------------------------------------------------------------------------------------------------------------
Awards Payouts
- ---------------------------------------------------------------------------------------------------------------------
Other All
Annual Restricted Securities LTIP Other
Bonus Compen- Stock Underlying Payouts Compen-
Year Salary ($) ($) sation Awards ($) Options/SARs ($) sation
($) (#) ($)
- ---------------------------------------------------------------------------------------------------------------------
Corbin Bernsen, 2002 $ 0.00 $ 0.00 $ 0.00 $25,000 (1) 0 $ 0.00 $ 0.00
President, Chief
Executive Officer,
Secretary and
Director
=====================================================================================================================
26
(1) Consists of 500,000 shares of restricted stock
=====================================================================================================================
OPTIONS/SAR GRANTS IN THE FISCAL YEAR 2001
- ---------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Option/SARs Employees in Exercise or Base Expiration
Name Year Granted (#) Fiscal Year Price ($/Share) Date
- ---------------------------------------------------------------------------------------------------------------------
Corbin Bernsen, CEO 2002 0 0.00%
=====================================================================================================================
We have made no provisions for cash compensation to our officers and
directors, Bill Cheung, Shaun D.C. Edwardes and Corbin Bernsen for their
services as officers or directors. Our management received 100,000, 1,000,000
and 500,000 restricted shares, respectively, as founders' shares and as
compensation for the services they are providing as officers and/or directors
for a period of 12 months. No salaries are being paid at the present time, and
will not be paid unless and until there is available cash flow from operations
to pay salaries. There were no grants of options or SAR grants given to our
executive officers during the last fiscal year.
EMPLOYMENT AND CONSULTING AGREEMENTS
We have a consulting agreement with Mr. Edwardes, described in our
discussion titled "Certain Relationships and Related Party Transactions."
Other than the agreement with Mr. Edwardes, we do not have any written
employment or consulting agreements with our executive officers and directors,
and have no other compensation arrangements or agreements with our executive
officers and directors outside of the share issuance described above.
COMPENSATION OF DIRECTORS
Members of the Board of Directors are not compensated for serving as
directors of 1st Step, Inc., however expenses may be reimbursed. $______ in
expenses related to the business of 1st Step have been reimbursed to Mr.
Edwardes. None of the directors will be compensated for any expenses incurred as
of the date of this prospectus.
2002 EQUITY INCENTIVE PLAN
On March 31, 2002, our shareholders and Board of Directors adopted the
2002 Equity Incentive Plan. The purpose of this stock option plan is to advance
our company's interests by encouraging and enabling acquisition of a financial
interest in us by our directors, officers and other key individuals who are in a
position to contribute materially to the prosperity of 1st Step. The stock
option plan is intended to aid us in attracting and retaining key employees, to
stimulate the efforts of such individuals and to strengthen their desire to
remain with us. The plan provides for the issuance of both incentive stock
options and non-qualified stock options. Incentive options are issued to
employees, and non-qualified options are may be issued to both employees and
non-employees. A maximum of 1,000,000 shares of our common stock are available
to be issued under the stock option plan. As of the date of this prospectus, we
have not granted any options under our stock option plan.
27
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our promoters, as defined in Rule 405 of the Securities Act, consist of
the following individuals: Messrs. Edwardes, Bernsen and Cheung; and the
following companies: Knightrider Investment Ltd., in which one of our
shareholders, John King, owns a controlling interest, and Sinlex Finance Ltd., a
Hong Kong entity in which Mr. Cheung's mother owns a controlling interest.
We have a consulting agreement with Mr. Edwardes, which commenced from
February 18, 2002 for a period of one year, and requires Mr. Edwardes to provide
consulting services to expand and enhance our network within the entertainment
and entertainment technology industries, and to informally market our company to
the entertainment community, including generating referrals and representing our
company to the entertainment industry. The agreement can be terminated by either
party, with or without cause, upon fifteen days' notice. In exchange for his
services, Mr. Edwardes will receive $7,000 per month, beginning March 1, 2002.
We have paid $ 70,000 to Mr. Edwardes for the consulting expenses through
December 31, 2002. In addition, we paid $14,000 to Mr. Edwardes towards other
consulting work, preceding the signing of the consulting agreement. Mr. Edwardes
has also received 1,000,000 restricted shares, as discussed in our "Executive
Compensation" section.
We paid $25,100 to our Chief Executive Officer, Corbin Bernsen for
script option rights that expire on August 14, 2003. Mr. Bernsen was paid
$10,000 on March 8, 2002 and $15,000 on March 20, 2002 for a twelve-month option
to purchase five screenplays for the purpose of being produced as feature films.
Mr. Bernsen was paid $100 in January 2003 to extend the option on the five
scripts by 180 days. Mr. Bernsen wrote the scripts, so did not have a purchase
price. Mr. Bernsen also received 500,000 restricted shares, as discussed in our
"Executive Compensation" section.
On April 5, 2002, we entered into a consulting agreement with EssTec,
Inc., to which Mr. Cheung is a director and Mr. Edwardes served as Chief
Executive Officer until September 6, 2002. The agreement provides that EssTec
will develop our website, our logo and our stationery, for the purposes of
establishing and developing our corporate identity and brand. We intend to
market our logo and brand to develop brand recognition, which will assist us in
both establishing our clientele, as well as our ability to serve our clients by
widening our contacts within the entertainment industry. We paid EssTec $40,000
for these services, which was determined in accordance with fair market value
for similar services at that time. We have also provided cash advances of
$29,699 to EssTec. These advances are interest free, due on demand and
unsecured. Mr. Cheung also received 100,000 restricted shares, as discussed in
our "Executive Compensation" section.
Mr. Cheung's mother, Ms. Yuk-Hau, is the beneficial owner of Sinlex
Finance Ltd., which owns 1,400,000 restricted shares of common stock. John King,
the beneficial owner of Knightrider Investments, Ltd., owns 3,000,000 restricted
shares. Both Sinlex and Knightrider were issued these shares in return for an
agreement to assist us in expanding into overseas markets and to provide access
to financial partners for the clientele of our company. Ms. Yuk-Hau, Mr.
Cheung's mother, is also one of our selling shareholders.
Messrs. Edwardes and Bernsen are both owners of Public Media Works,
Inc., a Delaware corporation, which is engaged in interactive film production.
Mr. Edwardes serves as the Chief Operating Officer of Public Media Works, Inc.
from 2000-2001. Mr. Bernsen has been the President and Chief Executive Officer
of Public Media Works, Inc. since May 2001.
Several of our selling shareholders, who own in 13.4% of the Company's
common stock, also own, in the aggregate, more than 5% of Van Nuys Studios,
Inc., a company that has paid the Company $40,000 for consulting services.
Our common stock is not listed on any recognized exchange or quoted on
any quotation medium. We cannot assure you that our common stock will ever
develop a market.
28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the beneficial
ownership of our shares as of June 30, 2002, for (i) each current director and
each nominee for director (ii) each officer of 1st Step, Inc., (iii) all persons
known by us to beneficially own more than 5% of the outstanding shares of 1st
Step, Inc. shares, and (iv) all officers and directors of 1st Step, Inc. as a
group. There were 9,930,000 shares issued and outstanding as of July 15, 2002.
Unless otherwise noted, we believe that all shares are beneficially
owned and that all persons named in the table or family members have sole voting
and investment power with respect to all shares owned by them. A person is
deemed to be the beneficial owner of securities that can be acquired by such
person within 60 days from the date hereof upon the exercise of warrants or
options. Each beneficial owner's percentage of ownership is determined by
assuming that options or warrants that are held by such person (but not those
held by any other person) and which are exercisable within 60 days from the date
hereof have been exercised. As of the date of this Registration Statement, no
options, warrants or rights to acquire shares have been granted.
- -------------------- ------------------------------ ------------------- ---------------------
TITLE OF CLASS NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF TOTAL
BENEFICIALLY OWNED SHARES OUTSTANDING (1)
- -------------------- ------------------------------ ------------------- ---------------------
Common Shaun D. C. Edwardes 1,000,000 10.1%
14759 Oxnard Street
Van Nuys, CA
- -------------------- ------------------------------ ------------------- ---------------------
Common Corbin Bernsen 500,000 5.0%
14759 Oxnard Street
Van Nuys, CA
- -------------------- ------------------------------ ------------------- ---------------------
Common Bill Cheung (2) 1,700,000 17.1%
14759 Oxnard Street
Van Nuys, CA
- -------------------- ------------------------------ ------------------- ---------------------
Total number of shares 3,200,000 32.2%
beneficially held by all
officers and directors as a
group (3 individuals)
- -------------------- ------------------------------ ------------------- ---------------------
Common John King (3) 3,000,000 30.2%
Charlotte House
Nassau, Bahamas
- -------------------- ------------------------------ ------------------- ---------------------
Common Dr. Sana Khan cf Sameer Khan Ugma (4) 560,000 5.6%
4944 E. Crescent Drive
Anaheim, CA 92807
- -------------------- ------------------------------ ------------------- ---------------------
Common Dr. Sana Khan cf Sameer Khan Ugma (4) 560,000 5.6%
4944 E. Crescent Drive
Anaheim, CA 92807
- -------------------- ------------------------------ ------------------- ---------------------
Common Safura Khan (4) 560,000 5.6%
4944 E. Crescent Drive
Anaheim, CA 92807
- -------------------- ------------------------------ ------------------- ---------------------
Common Dr. Sana Khan (4) 560,000 5.6%
4944 E. Crescent Drive
Anaheim, CA 92807
- -------------------- ------------------------------ ------------------- ---------------------
(1) Assumes all shares being offered by this prospectus are sold in
this offering.
(2) Includes 1,400,000 shares held by Sinlex Finance Ltd., P.O. Box
3136, Road Town, Tortola, British Virgin Islands, which is owned
by a family member of Mr. Cheung. Also includes 200,000 shares
beneficially owned by Ms. Yuk-Hau, Mr. Cheung's mother and a
selling shareholder.
(3) All shares are held indirectly by Mr. King through Knightrider
Investments, Ltd, Charlotte House, Nassau, Bahamas.
(4) Includes shares beneficially owned by family members. The four
members of the family and the number of shares held in such
person's name are: (1) Dr. Sana Khan cf Sameer Khan Ugma (140,000
shares); (2) Dr. Sana Khan cf Saman Khan Ugma (140,000 shares);
Safura Khan (140,000 shares); and (4) Dr. Sana Khan (140,000
shares).
29
DESCRIPTION OF SECURITIES
GENERAL
Our authorized capital stock consists of 50,000,000 shares of common
stock, par value $.0001, of which 9,930,000 are issued and outstanding as of
December 31, 2002.
COMMON STOCK
All of our authorized voting common shares are of the same class and,
once issued, rank equally as to dividends, voting powers and participation in
assets. Holders of common shares are entitled to one vote for each share held of
record on all matters to be acted upon by the shareholders. Holders of common
shares are entitled to receive such dividends as may be declared from time to
time by the Board of Directors, in its discretion, out of funds legally
available therefrom. No shares have been issued subject to call or assessment.
There are no preemptive or conversion rights and no provisions for redemption or
purchase for cancellation, surrender, or sinking or purchase funds, nor any
cumulative voting rights. Our directors may from time to time declare and
authorize payment of dividends, as they deem advisable. Subject to the rights of
members, all dividends on shares shall be declared and paid according to the
number of shares held. No dividends have been declared since incorporation.
DELAWARE ANTI-TAKEOVER LAW PROVISIONS
As a Delaware corporation, we are subject to Section 203 of the General
Corporation Law. In general, Section 203 prevents an "interested stockholder"
(defined generally as a person owing 15% or more of a Delaware corporation's
outstanding voting stock) from engaging in a "business combination" (as defined)
with such Delaware corporation for three years following the date such person
became an interested stockholder unless (i) before such person became an
interested stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested stockholder
or approved the business combination, (ii) upon consummation of the transaction
that resulted in the interested stockholder's becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
stock held by the directors who are also officers of the corporation and by
certain employee stock plans), or (iii) following the transaction in which such
person became an interested stockholder, the business combination is approved by
the board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, the restrictions described above also do not
apply to certain business combinations proposed by an interested stockholder
following the public announcement or notification of one of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of the corporation's board of directors
and if such business combination is approved by a majority of the board members
who were directors prior to any person becoming an interested stockholder. The
provisions of Section 203 requiring a super-majority vote to approve certain
corporate transactions could have the effect of discouraging, delaying or
preventing hostile takeovers, including those that might result in the payment
of a premium over market price or changes in control or management of 1st Step.
30
TRANSFER AGENT AND REGISTRAR
The Transfer Agent for the shares of common stock is PublicEase at
3663 E. Sunset Road, Suite 104, Las Vegas, Nevada 89120.
REPORTS TO SHAREHOLDERS
We intend to furnish annual reports to shareholders, which will include
certified financial statements reported on by our certified public accountants.
In addition, we will issue unaudited quarterly or other interim reports to
shareholders pursuant to the federal securities laws.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of common stock in the public
market could adversely affect the market price of our common stock. Of the
9,930,000 shares of common stock outstanding at the time of this offering,
6,000,000 are held as "restricted securities." There are 40 individual
shareholders of our common stock as of the date of this prospectus, without
aggregating family or related party units.
All of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act. If shares are
purchased by our "affiliates" as that term is defined in Rule 144 under the
Securities Act, their sales of shares would be subject to the limitations and
restrictions that are described below.
All of our currently outstanding shares are "restricted securities"
and, in the future, may be sold upon compliance with Rule 144. Adopted under the
Securities Act of 1933, as amended, Rule 144 provides, in essence, that a person
holding "restricted securities" for a period of one year may sell only an amount
every three months equal to the greater of (a) one percent of our issued and
outstanding shares, or (b) the average weekly volume of sales during the four
calendar weeks preceding the sale. The amount of "restricted securities" which a
person who is not an affiliate of 1st Step may sell is not so limited, since
non-affiliates may sell without volume limitation.
PLAN OF DISTRIBUTION
OFFERING BY SELLING SECURITYHOLDERS:
The selling shareholders may sell their shares directly to purchasers
or to or through broker-dealers, which may act as agents or principals. These
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling shareholders. They may also receive compensation
from the purchasers of common shares for whom such broker-dealers may act as
agents or to whom they sell as principal, or both.
The current offering price is $0.05 per share; however, once our common
stock is listed on the OTC Bulletin Board and there is an established market for
the shares, the selling shareholders who may wish to sell their shares in the
open market at prevailing market prices or in privately negotiated transactions.
31
It is our understanding that the shareholders do not intend to escrow
any of the proceeds of this offering. Accordingly, they will have use of any
proceeds received once a purchase order is received and funds have cleared. The
proceeds shall be non-refundable except as may be required by applicable law.
DETERMINATION OF OFFERING PRICE
There is no established public market for the common stock being
offered under this prospectus. We are not currently registered on the
Over-the-Counter Bulletin Board system or any national exchange. We intend to
trade on the OTC Bulletin Board system. However, we are unable to determine the
price at which the stock will trade if and when we become eligible on the OTCBB.
We determined the offering price of the common stock based on several
factors: (1) potential investor interest, (2) the ability of our management, (3)
our current capital needs, (4) the present state of our development and our
current financial position, and (5) our ability to pay future dividends,
although no dividends are contemplated at this time. The offering price should
not be considered to bear any relationship to our assets, book value or net
worth and should not be considered to be an indication of our value.
INTEREST OF NAMED EXPERTS AND COUNSEL
The legality of the securities offered hereby has been passed upon by
Richardson & Patel LLP, Los Angeles, California. Certain of the financial
statements of 1st Step included in these prospectuses and elsewhere in the
registration statement, to the extent and for the periods indicated in their
reports, have been audited by Kabani Company, independent certified public
accountants, whose reports thereon appear elsewhere herein and in the
registration statement.
INDEMNIFICATION
Our certificate of incorporation and by-laws provide that a director of
1st Step will not be personally liable to 1st Step or our stockholders for
monetary damages for breach of the fiduciary duty of care as a director,
including breaches which constitute gross negligence. By its terms and in
accordance with the Delaware General Corporation Law, however, this provision
does not eliminate or limit the liability of a director of our company (i) for
breach of the director's duty of loyalty to 1st Step or our stockholders, (ii)
for acts or omissions not in good faith or which involve international
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, (relating to unlawful payments or dividends or
unlawful stock repurchases or redemptions), (iv) for any improper benefit or (v)
for breaches of a director's responsibilities under the Federal securities laws.
Our certificate of incorporation also provides for indemnification to
the fullest extent provided by Section 145 of the Delaware Corporation Laws.
32
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 pursuant to the foregoing provisions, or
otherwise, the small business issuer 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.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act for the shares of common stock
in this offering. This prospectus does not contain all of the information in the
registration statement and the exhibits and schedule that were filed with the
registration statement. For further information with respect to our common stock
and us, we refer you to the registration statement and the exhibits and schedule
that were filed with the registration statement. Statements contained in this
prospectus about the contents of any contract or any other document that is
filed as an exhibit to the registration statement are not necessarily complete,
and we refer you to the full text of the contract or other document filed as an
exhibit to the registration statement. A copy of the registration statement and
the exhibits and schedules that were filed with the registration statement may
be inspected without charge at the public reference facilities maintained by the
Securities and Exchange Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part of the registration
statement may be obtained from the SEC upon payment of the prescribed fee.
Information regarding the operation of the Public Reference Room may be obtained
by calling the Commission at 1(800) SEC-0330. The Securities and Exchange
Commission maintains a Web site that contains reports, proxy and information
statements, and other information regarding registrants that file electronically
with the Securities and Exchange Commission. The address of the site is
http://www.sec.gov.
We are not required to deliver annual reports to shareholders, and we
do not intend to voluntarily send annual reports with audited financial
statements to shareholders. However, upon completion of this offering, we will
become subject to the information and periodic reporting requirements of the
Securities Exchange Act and, in accordance with the requirements of the
Securities Exchange Act will file periodic reports, proxy statements, and other
information with the Securities and Exchange Commission. These periodic reports,
proxy statements, and other information will be available for inspection and
copying at the regional offices, public reference facilities and Web site of the
Securities and Exchange Commission referred to above. We have not filed any
reports or statements with the Securities and Exchange Commission prior to
filing this registration statement and prospectus.
33
INDEX TO FINANCIAL STATEMENTS
1ST STEP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report..................................................35
Balance Sheet as of December 31, 2001.........................................36
Statement of Operations For the period of February 8, 2002
(inception) to December 31, 2002............................................37
Statement of Changes in Stockholders' Equity through March 31, 2002...........38
Statements of Cash Flows For the period of February 8, 2002
(inception) to December 31, 2002............................................39
Notes to Financial Statements..............................................40-44
34
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders and Board of Directors
1st Step, Inc.
We have audited the accompanying balance sheet of 1st Step, Inc. (a development
stage company) as of December 31, 2002 and the related statements of operations,
stockholders' equity and cash flows for the period then ended and for the period
from February 8, 2002 (inception), to December 31, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 1st Step, Inc. as of December
31, 2002 and the results of its operations and its cash flows for the period
then ended and from February 8, 2002 (inception), to December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America.
The Company's financial statements are prepared using the generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company's has not earned any revenue since its inception and has
incurred a net loss of $226,218 through December 31, 2002. As of December 31,
2002, the Company's total liabilities exceeded its total assets by $59,718.
These factors as discussed in Note 3 to the financial statements, raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KABANI & COMPANY, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Fountain Valley, California
April 26, 2002
35
1ST STEP, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 2002
ASSETS
------
CURRENT ASSESTS:
Cash & cash equivalents $ 1,360
Accounts receivable-related parties 8,925
Loans to related party 29,699
Other assets 630
---------
$ 40,614
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
------------------------------------
CURRENT LIABILITIES
Accrued expenses $100,332
COMMITMENTS
STOCKHOLDERS' DEFICIT
Common stock, $.001 par value;
Authorized shares 50,000,000;
Issued and outstanding shares 9,930,000
At December 31, 2002 9,930
Additional paid in capital 156,570
Deficit accumulated during the development stage $(226,218)
----------
Total stockholders' equity $ (59,718)
----------
$ 40,614
==========
The accompanying notes are an integral part of these financial statements.
36
1ST STEP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE PERIOD OF FEBRUARY 8, 2002 (INCEPTION) TO DECEMBER 31, 2002
NET REVENUE $ --
OPERATING EXPENSES
Professional fees 104,490
Consulting fees 85,428
Business development expenses 40,000
Script option rights 25,000
Miscellaneous charges 14,038
------------
Total operating expenses 268,956
------------
OPERATING LOSS (268,956)
OTHER INCOME
Consulting income 43,548
------------
LOSS BEFORE INCOME TAX (225,418)
Provision for income tax 800
------------
NET LOSS $ (226,218)
============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.03)
============
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 8,401,468
============
The accompanying notes are an integral part of these financial statements.
37
1ST STEP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FEBRUARY 8, 2002 (INCEPTION) TO DECEMBER 31, 2002
COMMON STOCK DEFICIT
-------------------------- ADDITIONAL ACCUMULATED TOTAL
NUMBER OF PAID IN DURING DEVELOP- STOCKHOLDERS'
SHARES AMOUNT CAPITAL MENT STAGE EQUITY
---------- ---------- ---------- ---------- ----------
BALANCE AT FEBRUARY 8, 2002 (INCEPTION) -- -- -- -- --
Issuance of common stock- founders' shares 6,000,000 6,000 (6,000) -- --
Issuance of common stock for cash, net of
offering cost of $30,000 3,930,000 3,930 162,570 -- 166,500
Net loss for the period February 8, 2002
(inception) through December 31, 2002 -- -- -- (226,218) (226,218)
---------- ---------- ---------- ----------- -----------
BALANCE AT DECEMBER 31, 2002 9,930,000 $ 9,930 $ 156,570 $ (226,218) $ (59,718)
========== ========== ========== =========== ===========
The accompanying notes are an integral part of these financial statements.
38
1ST STEP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FEBRUARY 8, 2002 (INCEPTION) TO DECMEBER 31, 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (226,218)
Adjustments to reconcile net loss to net cash used
in operating activities:
Increase in current assets and current liabilities:
Accounts receivable (8,925)
Other assets (630)
Accrued expense 100,332
-----------
Net cash used in operating activities (135,441)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan to related party (29,699)
Issuance of shares for cash, net of offering cost 196,500
Offering cost on issuance of shares (30,000)
-----------
Net cash provided by operating activities 136,801
-----------
NET INCREASE IN CASH & CASH EQUIVALENTS 1,360
CASH & CASH EQUIVALENTS, BEGINNING BALANCE --
-----------
CASH & CASH EQUIVALENTS, ENDING BALANCE $ 1,360
===========
The accompanying notes are an integral part of these financial statements.
39
1ST STEP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
1st Step, Inc. ("the Company"), is a development stage enterprise incorporated
in the State of Delaware on February 8, 2002. The Company has had no significant
operations since its inception. The Company's only activities have been
organizational, directed at acquiring its principle assets, raising its initial
capital and developing its business plan. The Company's objective is to act as a
full service professional representation agency which provides entertainers and
creators of new entertainment technology with every aspect of management,
including career management and guidance, project development, public relations,
contract negotiations, marketing and endorsements, and financing as required.
The accounting policies of the Company are in accordance with generally accepted
accounting principles and conform to the standards applicable to development
stage companies. The Company's fiscal year ends on December 31, 2002.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with a maturity of three months or
less from the date of purchase that are readily convertible into cash to be cash
equivalents.
ACCOUNTS RECEIVABLE
The Company has receivables from related parties, related through common major
shareholders, for consulting work and engagement fee on a consulting engagement
(note8).
Accounts receivables are stated net of allowance for doubtful accounts. The
allowance for doubtful accounts is maintained at an amount management deems
adequate to cover estimated losses from bad debts. However, no allowance was
recorded at December 31, 2002 since the accounts receivable were determined to
be collectible.
ACCRUED EXPENSES
Accrued expenses at December 31, 2002 amounted to $100,332, which comprised of
$81,000 for legal fees, $11,185 for other professional fees, $7,000 for
consulting fees and $1,147 for miscellaneous expenses.
REVENUE RECOGNITION
The Company's revenue recognition policies are in compliance with Staff
accounting bulletin (SAB) 101. Revenue will be recognized when services are
rendered. Generally, the Company will extend credit to its customers/clients and
would not require collateral. The Company will perform ongoing credit
evaluations of its customers/clients. The company did not earn any revenue
through March 31, 2002.
INCOME TAXES
Deferred income tax assets and liabilities are computed annually for differences
between the financial statements and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted laws
and rates applicable to the periods in which the differences are expected to
affect taxable income (loss). Valuation allowance is established when necessary
to reduce deferred tax assets to the amount expected to be realized.
START-UP COSTS
Start-up costs include legal and professional fees. In accordance with Statement
of Position 98-5, "Costs of Start-Up Activities," these costs have been expensed
as incurred.
ISSUANCE OF SHARES FOR SERVICE
The Company accounts for the issuance of equity instruments to acquire goods and
services based on the fair value of the goods and services or the fair value of
the equity instrument at the time of issuance, whichever is more reliably
measurable. Through December 31, 2002, the Company has not issued any shares for
goods or services.
40
1ST STEP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
BASIC AND DILUTED NET LOSS PER SHARE
Net loss per share is calculated in accordance with the Statement of financial
accounting standards No. 128 (SFAS No. 128), "Earnings per share". Basic net
loss per share is based upon the weighted average number of common shares
outstanding. Diluted net loss per share is based on the assumption that all
dilutive convertible shares and stock options were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the period.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of financial accounting standard No. 107, Disclosures about fair value
of financial instruments, requires that the Company disclose estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.
REPORTING SEGMENTS
Statement of financial accounting standards No. 131, Disclosures about segments
of an enterprise and related information (SFAS No. 131), which superceded
statement of financial accounting standards No. 14, Financial reporting for
segments of a business enterprise, establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performances. The Company
allocates resources and assesses the performance of its sales activities as one
segment.
DEVELOPMENT STAGE ENTERPRISE
The Company is a development stage enterprise, as defined in Financial
Accounting Standards Board No. 7. The Company's planned principal operations
have not commenced, and, accordingly, no revenue has been derived during this
period.
41
1ST STEP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
ACCOUNTING DEVELOPMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset
Retirement Obligations". SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. This Statement is effective for financial
statements issued for fiscal years beginning after June 15, 2002. Management
does not expect this pronouncement will materially impact the Company's
financial position or results of operations.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
was issued in August 2001. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001, and addresses financial accounting and reporting for
the impairment or disposal of long-lived assets. This statement supersedes SFAS
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," for the disposal of a segment of a business.
Adoption of SFAS No. 144 does not have a material impact on the Company's
financial statements.
In May 2002, the Board issued SFAS No. 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS
145"). SFAS 145 rescinds the automatic treatment of gains or losses from
extinguishments of debt as extraordinary unless they meet the criteria for
extraordinary items as outlined in APB Opinion No. 30, Reporting the Results of
Operations, Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS
145 also requires sale-leaseback accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions and makes
various technical corrections to existing pronouncements. The provisions of SFAS
145 related to the rescission of FASB Statement 4 are effective for fiscal years
beginning after May 15, 2002, with early adoption encouraged. All other
provisions of SFAS 145 are effective for transactions occurring after May 15,
2002, with early adoption encouraged. The Company does not anticipate that
adoption of SFAS 145 will have a material effect on its earnings or financial
position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." This statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF Issue 94-3, a
liability for an exit cost, as defined, was recognized at the date of an
entity's commitment to an exit plan. The provisions of this statement are
effective for exit or disposal activities that are initiated after December 31,
2002 with earlier application encouraged. The Company does not expect adoption
of SFAS No. 146 to have a material impact, if any, on its financial position or
results of operations.
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions." SFAS No. 147 removes the requirement in SFAS No. 72 and
Interpretation 9 thereto, to recognize and amortize any excess of the fair value
of liabilities assumed over the fair value of tangible and identifiable
intangible assets acquired as an unidentifiable intangible asset. This statement
requires that those transactions be accounted for in accordance with SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." In addition, this statement amends SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," to include certain financial
institution-related intangible assets. The Company does not expect adoption of
SFAS No. 147 would have a material impact, if any, on its financial position,
results of operations or cash flows.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of FIN45 is not expected to have a material effect on the
Company's financial position, results of operations, or cash flows.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock Based
Compensation-Transition and Disclosure". SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock- based employee compensation and the effect of the method used, on
reported results. The Statement is effective for the Companies' interim
reporting period ending January 31, 2003. The Companies do not expect the
adoption of SFAS No. 148 would have a material impact on its financial position
or results of operations or cash flows.
3. GOING CONCERN
As of December 31, 2002, the Company has a limited operating history under its
current structure, which raises substantial doubt about the Company's ability to
continue as a going concern. The Company has not earned any revenue since its
inception and has incurred a net loss of $226,218 through December 31, 2002. As
of December 31, 2002, the Company's total liabilities exceeded its total assets
by $59,718. Losses are expected to continue for the immediate future. The
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
Management has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue as a going concern. Management devoted considerable effort
from inception through the fiscal year ended December 31, 2002, towards
obtaining additional equity. In this regard, the Company has raised equity of
$166,500, net of offering costs of $30,000, under a private placement, through
December 31, 2002 (note 5).
4. INCOME TAXES
No provision was made for Federal income tax. The provision for income taxes
consists of the state minimum tax imposed on corporations. Through December 31,
2002, the Company incurred net operating losses for income tax purposes of
approximately $225,000. Differences between financial statement and tax losses
were immaterial at December 31, 2002. The net operating loss carryforwards may
be used to reduce taxable income through the year 2017. Net operating loss
carryforwards for the State of California are generally available to reduce
taxable income through the year 2007. The net deferred tax asset balance, due to
net operating loss carryforward, as of December 31, 2002 was approximately
$90,000. A 100% valuation allowance has been established against the deferred
tax asset, as the utilization of the loss carryforward cannot reasonably be
assured.
5. SHAREHOLDERS' EQUITY
On the formation of the Company, the Company issued 6,000,000 shares to its
founders representing the initial capitalization of the Company. The shares were
recorded at par value, as there were no significant proprietary or other assets
in the Company at that time.
42
1ST STEP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
On February 18, 2002, the Board of Directors of the Company passed a resolution
authorizing the management of the Company to initiate steps to make a private
placement of the Company's securities in order to raise capital. In conjunction
with the offering under the Securities and Exchange Commission Rule 501 of
Regulation D of the Securities Act of 1933, as amended and presently in effect,
the Company offered to sell total of 4,000,000 shares of common stock at $.05
per share. Through March 31, 2002, the Company has issued 2,730,000 shares of
its common stock, and received net proceeds of $106,500. The offering costs were
$30,000. The Offering concluded on April 25, 2002 and the Company sold 1,200,000
shares of common stock for an additional amount of $60,000. Offering costs of
$30,000 for legal fees, accounting and other related expenses incurred, were
charged to the equity through December 31, 2002. The Company intends to file the
Form SB-2 registration statement under the Securities Act of 1933, to register
3,930,000 shares of issued common stock, in the year 2002.
2002 EQUITY INCENTIVE PLAN On March 31, 2002, the shareholders and Board of
Directors of the Company adopted the 2002 Equity Incentive Plan. The equity
incentive plan is intended to aid the Company in attracting and retaining key
employees, to stimulate the efforts of such individuals and to strengthen their
desire to remain with the Company. The plan provides for the issuance of both
incentive stock options and non-qualified stock options. Incentive options may
be issued to employees, and non-qualified options may be issued to both
employees and non-employees. A maximum of 1,000,000 shares of the Company's
common stock are available to be issued under the plan. As of December 31, 2002,
the Company has not issued any share or granted any option under the equity
incentive plan.
6. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The Company prepares its statements of cash flows using the indirect method as
defined under the Financial Accounting Standard No. 95.
The Company has paid $800 for income tax and none for interest since its
inception through December 31, 2002.
7. COMMITMENT
The Company sub-leases office space in Los Angeles, California for a monthly
rental of $900. The Sub-lease agreement is on month-to-month. The Company
sub-leases a portion of its space to an entity, related through common major
shareholders for a monthly rental of $1,000. Through December 31, 2002, the
Company has received $10,000 from the related entity for the rentals. The rental
expense and income from sublease has been reflected in miscellaneous charges in
the accompanying financial statements.
8. RELATED PARTY TRANSACTIONS:
The Company has a consulting agreement with a shareholder/Director of the
Company, which commenced from February 18, 2002, for a period of one year from
its commencement. The agreement can be terminated by either party, with or
without cause, at any time upon fifteen (15) days' prior written notice to the
other party. The services to be rendered are varied and primarily are to help
the Company in its development stage. The agreement calls for compensation of
$7,000 per month during the term of the agreement, beginning March 1, 2002. The
Company has paid $70,000 to the shareholder/Director for the consulting expense
during the year ended December 31, 2002. In addition, the Company paid $14,000
to the director towards other consulting work, preceding the signing of the
consulting agreement. The agreement expired in 2003.
In March 2002, the Company paid $25,000 to the President of the Company for
script option rights for a twelve-month term to purchase four screenplays for
the purpose of being produced as feature films. The options expired in February
2003.
On April 5, 2002, the Company entered into a consulting agreement with an
entity, related through common major shareholders, whereby, the consultant
agreed to provide services in development of Corporate Identity and Brand via
Web Site development, Logo and Stationary Development. The services were to be
provided over a six-week period beginning April 5, 2002. The Company paid
$40,000 to the consultant in April 2002, for the services performed under the
agreement.
On July 25, 2002, the Company entered into a consulting agreement with an
entity, related through common major shareholders, whereby, the Company agreed
to provide marketing services to the related entity. This Agreement is effective
for a term of one year with a right to either party to terminate the agreement
effective immediately by written notice delivered to the other party. The
Company was awarded upon execution of the agreement, a one time non-refundable
engagement fee of $40,000 Through December 31, 2002, the Company has received
$31,500 for the engagement fee. The Company is also entitled to receive
commissions equal to ten percent (10%) of the net sales price of the services
sold to customers during the term of this agreement. The Company has recorded
the engagement fee from the related party as other consulting income in the
financial statements.
During the period from inception through December 31, 2002, the Company advanced
a total amount of $29,699 to an entity, related through common major
shareholders. The advances are interest free, due on demand and unsecured.
No person is authorized to give any -----------------------------------
information or to make any representation
other than those contained in this
prospectus, and if made such information
or representation must not be relied upon
as having been given or authorized. This
prospectus does not constitute an offer
to sell or a solicitation of an offer to
buy any securities other than the
securities offered by this prospectus
or an offer to sell or a solicitation
of an offer to buy the securities in any 3,930,000 SHARES OF COMMON STOCK
jurisdiction to any person to whom it
is unlawful to make such offer or
solicitation in such jurisdiction.
The delivery of this prospectus shall
not, under any circumstances, create [1st STEP LOGO HERE]
any implication that there have been
no changes in the affairs of 1st
Step, Inc. since the date of this
prospectus. However, in the event of
a material change, this prospectus will
be amended or supplemented accordingly.
TABLE OF CONTENTS
PROSPECTUS SUMMARY.........................
SUMMARY FINANCIAL DATA.....................
RISK FACTORS...............................
USE OF PROCEEDS............................
DIVIDEND POLICY............................
CAPITALIZATION.............................
DILUTION...................................
MANAGEMENT'S DISCUSSION AND ANALYSIS....... -----------------------------------
BUSINESS................................... PROSPECTUS
MANAGEMENT................................. -----------------------------------
EXECUTIVE COMPENSATION.....................
PRINCIPAL STOCKHOLDERS.....................
CERTAIN RELATIONSHIPS......................
DESCRIPTION OF CAPITAL STOCK...............
TRANSFER AGENT AND REGISTRAR...............
LISTING....................................
INDEMNIFICATION OF DIRECTORS AND OFFICERS..
SHARES ELIGIBLE FOR FUTURE SALE............
UNDERWRITING...............................
LEGAL MATTERS.............................. _____, 2003
EXPERTS....................................
WHERE YOU CAN FIND MORE INFORMATION........
UNTIL ________ ___, 2003, 90 DAYS AFTER
THE COMMENCEMENT OF THE OFFERING, ALL
DEALERS THAT BUY, SELL OR TRADE SHARES,
WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS REQUIREMENT IS IN
ADDITION TO THE DEALER'S OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
-----------------------------------
45
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
--------------------------------------
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware Corporation Laws and certain provisions of 1st Step,
Inc.'s Articles of Incorporation and Bylaws under certain circumstances provide
for indemnification of our officers, directors and controlling persons against
liabilities that they may incur in such capacities. A summary of the
circumstances in which such indemnification is provided for is contained herein,
but this description is qualified in its entirety by reference to our Articles
and Bylaws and to the statutory provisions.
The specific statute, charter provision, bylaw, contract, or other
arrangement which any controlling person, director or officers of the Registrant
is insured or indemnified in any manner against any liability which he or she
may incur in their capacity as such, is as follows:
a. Section 145 of the Delaware General Corporation Law (the
"GCL") empowers a corporation to indemnify its directors and
officers and to purchase insurance with respect to liability
arising out of the performance of their duties as directors
and officers. The GCL provides further that the
indemnification permitted thereunder shall not be deemed
exclusive of any other rights to which the directors and
officers may be entitled under the corporation's by-laws, any
agreement, vote of stockholders or otherwise.
b. Article Eight of our Certificate of Incorporation provides,
in part:
"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 (whether or not by or in the
right of the Corporation) by reason of the fact that he or
she is or was a director, officer, incorporator, employee, or
agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, incorporator,
employee, partner, trustee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise
(including an employee benefit plan), may, at the option of
the Board of Directors, be indemnified by the Corporation to
the fullest extent then permitted by Section 145 of the
General Corporate Law of the State of Delaware, as the same
may be amended and supplemented from time to time, against
expenses (including counsel fees and disbursements),
judgments, fines (including excise taxes assessed on a person
with respect to an employee benefit plan), and amounts paid
in settlement incurred by him or her in connection with such
action, suit, or proceeding. Such right of indemnification
shall inure whether or not the claim asserted is based on
matters that antedate the adoption of this Article EIGHTH.
Such right of indemnification, if any, shall continue as to a
person who has ceased to be a director, officer,
incorporator, employee, partner, trustee, or agent and shall
inure to the benefit of the heirs and personal
representatives of such a person."
46
c. Section 6.1 of our By-laws provide:
"The Corporation shall 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,
including all appeals (other than an action, suit or
proceeding by or in the right of the Corporation) by reason
of the fact that he or she is or was a director or officer of
the Corporation (and the Corporation, in the discretion of
the Board of Directors, may so indemnify a person by reason
of the fact that he or she is or was an employee or agent of
the Corporation or is or was serving at the request of the
Corporation in any other capacity for or on behalf of the
Corporation), against expenses (including attorneys' fees),
judgments, decrees, fines, penalties, and amounts paid in
settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she
acted in good faith and in a manner which he or she
reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful; provided, however,
the Corporation shall be required to indemnify an officer or
director in connection with an action, suit or proceeding
initiated by such person only if such action, suit or
proceeding was authorized by the Board of Directors. The
termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of NOLO
CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith or in a
manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation and, with
respect to any criminal action or proceeding, had reasonable
cause to believe that his or her conduct was unlawful."
The effect of the foregoing is to require 1st Step, to the extent
permitted by law, to indemnify the officers and directors of our company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
1st Step pursuant to the foregoing provisions, we have been informed that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by us in connection with the
registration of the Shares is as follows:
SEC Registration................................................ $20
Accounting Fees and Expenses.................................... $5,000
Transfer Agents Fees............................................ $500
Legal Fees and Expenses, including Blue Sky Fees and Expenses... $40,000
Printing Costs.................................................. $1,000
Total...................................................... $46,520
47
RECENT SALES OF UNREGISTERED SECURITIES
As of July 15, 2002, there were 9,930,000 shares of common stock issued
and outstanding. There are no issued and outstanding debt or equity securities
of any type or class other than the common stock. None of the common stock
issued have any convertible or other unique features, and contain all and only
those characteristics identified in our discussion entitled "Description of
Securities - Common Stock." There are 40 individual shareholders of our common
stock, without aggregating family or related party units.
In connection with our organization on February 8, 2002, 6,000,000
restricted shares of our common stock were issued to five accredited investors,
who are officers and/or directors of the Company and persons and/or entities
affiliated or otherwise associated with officers and/or directors, as
founders' shares. These shares were issued to the following individuals and
companies, in the following respective amounts: 500,000 to Mr. Bernsen,
1,000,000 to Mr. Edwardes, 100,000 to Mr. Cheung, 1,400,000 to Sinlex Finance
Ltd. (owned by a family member of Mr. Cheung), and 3,000,000 to Knightrider
Investments, Ltd., which is controlled by Mr. John King, who is not affiliated
with the company. The shares to Messrs. Bernsen, Edwardes and Cheung were issued
in exchange for services provided in relation to the founding of the company,
and in lieu of cash compensation for the services that they are providing as
officers and/or directors for a period of 12 months. The shares to Knightrider
were issued in return for an agreement to assist the Company in expanding into
overseas markets and to provide access to financial partners for the clientele
of the Company. Each and all of these individuals are either officers and/or
directors of the company, or affiliated or otherwise associated with officers
and/or directors, and had superior access to all corporate and financial
information. No general solicitation, offering or sale was conducted in
connection with the issuance of shares.
Between February 2002 and March 2002, we issued 3,930,000 shares of
restricted common stock to 32 investors pursuant to a private placement
offering. This transaction was conducted as a private placement under Section
4(2) and Rule 506 of Regulation D of the Securities Act of 1933, as amended. All
investors were accredited investors, and the transaction was conducted in full
compliance with the requirements of Regulation D. The restricted shares issued
were valued at $0.05 per share, for total proceeds of $196,500. All investors
are currently identified as the selling shareholders in this prospectus. No
general solicitation, offering or sale was conducted in connection with the
issuance of shares. No finders or broker-dealers were used in connection with
this offering, and all investors were friends and/or family of the founders. All
investors had access to information about the company, and all were
sophisticated investors or had access to advisors as necessary. The company
ensured that all investors were aware that the securities acquired in the
transaction were restricted, and cannot be resold without registration under the
Securities Act of 1933, as amended, or an exemption therefrom. The company
exercised reasonable inquiry to determine that the investor was acquiring the
securities for himself or for other persons, executed written subscription
agreements prior to sale notifying each investor that the securities have not
been registered under the Act and, therefore, cannot be resold unless they are
registered under the Act or unless an exemption from registration is available,
and ensured that a legend was placed on the certificate or other document that
evidences the securities stating that the securities have not been registered
under the Act and setting forth or referring to the restrictions on
transferability and sale of the securities. The decision to register the
securities and create a public trading market was made by the company, not the
investors, and was not an inducement in the purchase of the securities.
48
ITEM 27. EXHIBITS
Exhibits
- --------
3.1 Articles of Incorporation (*)
3.2 Bylaws (*)
5.1 Opinion of Richardson & Patel, LLP (*)
10.1 2002 Equity Incentive Plan (*)
10.2 Script Option Contract with Corbin Bernsen (*)
10.3 Consulting Agreement with Shaun D.C. Edwardes (*)
10.4 Agreement between EssTec, Inc. and 1st Step (*)
10.5 Form of Stock Purchase Agreement (*)
23.1 Consent of Richardson & Patel, LLP (1)
23.2 Consent of Kabani & Company (2)
- --------------------------------------------------------------------------------
(*) Previously filed with this registration statement.
(1) Included with opinion in Exhibit 5.1.
(2) Filed herewith.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement, and notwithstanding the
forgoing, 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
49
end of the estimated maximum offering range may be reflected in
the form of prospects filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in the volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
3) To remove from registration by means of post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
4) 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 pursuant to the foregoing provisions,
or otherwise, the small business issuer 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.
50
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 for filing on Form SB-2 and authorized this Amendment No. 3
to this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Los Angeles, State of California, on
May 14, 2003.
1st Step, Inc.
/s/ Corbin Bernsen
----------------------------
By: Corbin Bernsen
Its: Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 3 to SB-2 registration statement has been signed by the following
persons in the capacities and on the dates stated.
SIGNATURE TITLE DATE
/s/ Corbin Bernsen Chief Executive Officer, Secretary, May 14, 2003
- --------------------------- Chairman of the Board
Corbin Bernsen
/s/ Bill Cheung Chief Financial Officer, Director May 14, 2003
- --------------------------- and principal accounting officer
Bill Cheung
/s/ Shaun D.C. Edwardes Director May 14, 2003
- ---------------------------
Shaun D.C. Edwardes
51