SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Six Months Ended Commission File Number
December 31, 2000 333-34646
ESAFETYWORLD, INC.
80 Orville Dr.
Bohemia, NY 11716
Tel: 631-244-1454
Nevada 11-3496415
(State of Incorporation) (I.R.S.
Employer Identification No.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
At January 31, 2001, the latest practicable date, there were 3,000,000 shares
of Common Stock outstanding, $.001 par value.
ESAFETYWORLD, INC.
INDEX
PAGE
PART I.
FINANCIAL INFORMATION
Item 1.
Unaudited Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
as of December 31, 2000 and June 30, 2000 3-4
Condensed Statements of Consolidated
Operations for the Six 5
Months Ended December 31, 2000 and 1999
Condensed Statements of Consolidated
Operations for the 6
Three Months Ended December 31, 2000 and 1999
Consolidated Statements of Cash Flows
for the Six Months 7
Ended December 31, 2000 and 1999
Condensed Consolidated Statement of
Stockholders' Equity 8
for the Six Months Ended December 31,
2000
Notes to Condensed Consolidated Financial Statements9-14
Item 2.
Management's Discussion and Analysis of
15-20
Financial Condition and Results of Operations
PART II.
OTHER INFORMATION 21
EXHIBITS none
ESAFETYWORLD, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, 2000June 30, 2000
(unaudited)
Current Assets:
Cash and cash equivalents $2,630,184 $3,017,852
Certificate of deposit (maturity 2,000,000 2,000,000
date of March 2, 2001)
Accounts receivable, less allowance 461,326 97,109
of $3,000
Other current receivables 26,520 16,907
Prepaid expenses and other 288,876 246,156
Total Current Assets 5,406,906 5,378,024
Property and Equipment, less
accumulated depreciation
of $10,866 and $171
181,353 101,117
Acquired Intangibles, less
accumulated amortization of
$138,227 and $82,662
986,414 1,021,979
Other Assets 12,000 8,000
Total Assets $6,586,673 $6,509,120
See Notes to Condensed Consolidated Financial Statements.
ESAFETYWORLD, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, 2000June 30, 2000
(unaudited)
Current Liabilities:
Accounts payable and accrued expenses $80,147 $45,801
Stockholders' Equity:
Common stock, $.001 par value,
20,000,000 shares 3,000 3,000
authorized; 3,000,000 shares issued
and outstanding
Additional paid-in capital 6,428,644 6,428,644
Retained earnings 74,882 31,675
Stockholders' Equity 6,506,526 6,463,319
Total Liabilities and Stockholders' Equity$6,586,673 $6,509,120
See Notes to Condensed Consolidated Financial Statements.
ESAFETYWORLD, INC.
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999
(UNAUDITED)
2000 1999
Sales $486,040 $ 431,969
Cost of Sales 313,463 269,010
Gross Profit 172,577 162,959
Expenses and Other:
Selling and administrative expenses138,97329,904
Amortization of intangibles 55,565 40,625
Other-net (principally interest)(128,893) 2,096
Blue Marble startup 42,825 0
Total Expenses and Other 108,470 72,625
Pretax Income 64,107 90,334
Income Taxes 20,900 19,591
Net Income $43,207 $70,743
Basic Income per Share $.01 $.04
Weighted average number of
common and 3,000,000 1,966,667
Common equivalent shares outstanding
See Notes to Condensed Consolidated Financial Statements.
ESAFETYWORLD, INC.
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999
(UNAUDITED)
2000 1999
Sales $236,619 $218,388
Cost of Sales 134,216 141,144
Gross Profit 102,404 77,244
Expenses and Other:
Selling and administrative expenses71,700 9,535
Amortization of intangibles 27,949 15,665
Other-net (principally interest)(64,300) 0
Blue Marble startup 42,825 0
Total Expenses and Other 78,174 25,200
Pretax Income 24,230 52,044
Income Taxes 8,100 16,000
Net Income $16,130 $36,044
Basic Income per Share $ .01 $.02
Weighted average number of
common and 3,000,000 2,000,000
Common equivalent shares outstanding
See Notes to Condensed Consolidated Financial Statements.
ESAFETYWORLD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999
(UNAUDITED)
2000 1999
Cash flows from operating activities:
Net income $43,207 $70,743
Adjustments to reconcile net earnings
to net cash provided
by operating activities:
Depreciation and amortization 66,260 40,625
Increase in net operating assets (386,204) (176,368)
Net cash provided by operations (276,737) (65,000)
Cash flows from investing activities:
Purchase of software, equipment and intangibles(110,931)0
Cash flows from financing activities:
Borrowings 375,000
Deferred offering costs (192,000)
Net cash provided by financing activities0 183,000
Net increase (decrease) in cash (387,668) 118,000
Cash and cash equivalents 3,017,852 0
Cash and cash equivalents - ending $118,000
$2,630,184
See Notes to Condensed Consolidated Financial Statements.
ESAFETYWORLD, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 2000
(UNAUDITED)
Common Common AdditionalPaid-inRetained
Stock Stock Capital Earnings Total
Shares Amount
Balance, June 30, 20003,000,000$3,000 $6,428,644$31,675 $6,463,319
Net income 43,207 43,207
Balance, December 3,000,000 $3,000 $6,428,644$74,882 $6,506,526
31, 2000
Eichler Begsman & Co., LLP
Certified Public Accountants
404 Park Avenue South
New York, New York 10016
Tel 212-447-9001 Fax 212-447-9006
ACCOUNTANTS REVIEW REPORT
To The Stockholders of
eSAFETYWORLD, INC.
We have reviewed the accompanying balance sheet of eSAFETYWORLD, INC. as of
December 31, 2000 and the related statements of operations and cash flows,
and stockholders' equity for the six months ended, in acordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information included
in these financial statements is the represenation of the management
of eSFATEYWORLD,INC.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantialy less in scope than
an audit inaccordance with generally accepted auditing standards, the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements in order for them
to be in conformity with generally accepted accounting principles.
/s/
New York, New York
February 14, 2001
See Notes to Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
ESAFETYWORLD, Inc. was established as a Nevada corporation in July
1997 as The SL Group, Inc. and changed its name to eSAFETYWORLD, Inc. in
August 1999. It completed an initial public offering of its common stock in
February 2000.
The Company is engaged in the sale and distribution of industrial safety,
cleanroom, laboratory supply and first aid products on the world wide web and
through conventional use of catalogs and toll free telephone numbers. In
September 2000, it announced that it had commenced providing consulting
services to other companies. In December 2000 it established a subsidiary,
Blue Marble World, Inc., to sell personal care, personal first aid, and
nutrition products to independent distributors commencing in March 2001.
The accompanying interim condensed financial statements for the three and six
month periods ended December 31, 2000 and 1999 are unaudited and include all
adjustments considered necessary by Management for a fair presentation. The
results of operations realized during an interim period are not necessarily
indicative of results to be expected for a full year. These condensed
financial statements should be read in conjunction with the information filed
as part of the Company's Annual Report on Form 10-KSB.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting and financial reporting
policies follows:
Principles of Consolidation -up activities.
Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods, The principal
assumptions inherent in the accompanying financial statements relate to the
realizability and life of the acquired intangibles included in the financial
statements.
Revenue Recognition -- Revenue for product sales is recognized in the
period in which the product is shipped.
Revenue for consulting services is recognized on projects for which agreements
exist and service has been performed. Costs associated with consulting
projects-in-progress are deferred to the extent that such costs exceed
billings or are incurred prior to billing. Anticipated losses on consulting
projects will be recorded in the period in which the loss becomes known.
Advertising -- The Company charges advertising costs to expense as incurred.
Costs related to CD- ROMs, promotional literature and catalogs are charged to
operations when mailed or distributed.
Basic Income Per Share -- Basic income per common and common equivalent
share are calculated by dividing net income by the weighted average number
of common and common equivalent shares outstanding during each period. There
were no options or convertible instruments outstanding during either
period, except for warrants the assumed exercise of which would have
been antidilutive.
Fixed Assets Fixed assets consist of the following at December 31, 2000:
Website development costs $145,207
Software 14,052
Database 22,148
Equipment 10,812
Total 192,219
Less 10,866
Net $181,353
Fixed assets are stated at cost less accumulated depreciation. Depreciation is
computed using the straight-line method based upon the estimated useful life
of five years.
Expenditures for repairs and maintenance are charged to expense as incurred.
Upon retirement, sale or other disposition of property and equipment, the cost
and accumulated depreciation are eliminated from the accounts and gain or loss
is included in operations.
Long-lived Assets -- Long lived assets, including intangibles, to be held and
used are reviewed for impairment whenever events or changes in circumstances
indicate that the related carrying amount may not be recoverable. If
required, impairment losses on assets to be held and used are recognized
based on the excess of the asset's carrying value over its fair value.
Long-lived assets to be sold are reported at the lower of carrying amount or
fair value reduced by estimated disposal costs.
Intangibles -line basis over ten years.
Blue Marble Startup Costs -- For the purposes of this statement, investments
and time deposits having an initial term of 90 days or less are considered to
be cash equivalents.
The Company has a $2,000,000 certificate of deposit that bears interest
at the rate of 5.7 percent per annum and matures on March 2, 2001;
accordingly, such amount is considered to be a cash equivalent.
The Company maintains substantially all of its cash and certificates of
deposit with one bank. The aggregate cash balances maintained at that bank
exceed the balance insured by the Federal Deposit Insurance Corporation. The
cost of all monetary investments at December 31, 2000 approximates their
market value.
Income Taxes -- The Company complies with Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under SFAS
109, the liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse.
At December 31, 2000, the Company has recorded a deferred tax benefit of
$9,000 relating to the difference in the amortization period used to amortize
the acquired intangibles for financial reporting purposes (ten years) and for
income tax purposes (14 years).
Fiscal Year
NOTE 3
The Company completed an initial public offering on February 23, 2000 in
which it sold 1,000,000 shares of its common stock for gross proceeds
of $7,000,000 (and a net proceeds after all expenses of $5,721,644). As part
of the Offering, it paid the Underwriter a fee equivalent to 13% of total
proceeds as commission and an expense allowance and also paid $92,000
as a consulting fee. The Company also sold a warrant covering an
aggregate of up to 100,000 shares of common stock exercisable at a price
of $10.50 per share to the underwriter, for its own accounts,. The
underwriter paid a price of $100 for the warrant. The underwriter is entitled
to receive 100,000 shares if it exercises the warrant, commencing on the
first anniversary of the date of this offering until the fifth
anniversary of the date of this offering. The terms of the warrant
require the Company to register the common stock for which the warrant is
exercisable within one year from the date of the prospectus. This underwriter's
warrant is not transferable by the warrant holders other than to officers
and partners of the underwriter. The exercise price of the
underwriter's warrant and the number of shares of common stock for which
the warrant is exercisable are subject to adjustment to protect the warrant
holders against dilution in specific events.
NOTE 4 On August 11, 1999, the Company entered into an agreement under which
it acquired certain intangible assets and rights of the distribution
business of Laminaire Corporation in exchange for 100,000 shares of its
common stock, notes in the principal amount of $500,000 and the assumption of
accounts payables relating to certain professional services in an amount up
to $125,000. The terms of the acquisition were modified and reduced in March
2000 such that the principal amount of notes was reduced to $400,000, and
the Company did not assume any of Laminaire's accounts payable. The
acquisition agreement provided that the Company obtained the customer and
vendor base and lists, a toll free number and certain pricing information but
acquired no tangible assets, including inventory or accounts receivable,
as part of the transaction. The Distribution Division of Laminaire sold
disposable products used in cleanrooms to a variety of commercial customers.
The Company had the right to offset the principal amount of a $102,000
demand note that it made to Laminaire, in whole or in part, against any
payment due by it to Laminaire under these note agreements. In
September 1999, the Company also guaranteed the payment of Laminaire's
trade obligations to three of Laminaire's vendors. In addition, the Company
had the right to offset the amounts paid under these guarantees or any other
amounts that it paid or pays to satisfy amounts due by Laminaire to its
vendors against any amount due by the Company to Laminaire under the note
agreements.
The notes payable bore interest at eight percent per annum and were payable in
12 quarterly installments. The first installments under the note agreements
were payable at the earlier of our completion of the Company's public offering
or March 31, 2000. As of March 31, 2000, the Company had made sufficient
payments to Laminaire and its vendors to satisfy fully the notes payable
issued to Laminaire.
The total purchase price of $1,150,000 (which valued the 100,000 shares of the
Company's common stock that were issued at the public offering price) was
ascribed to "Acquired Intangibles" on the accompanying Balance Sheet.
The Company's President was also a Director of Laminaire Corporation. He
did not participate in Laminaire's deliberations on the transaction described
above. All of the Company's Directors voted affirmatively for the
resolution authorizing the acquisition.
NOTE 5 Consulting Agreements
The Company has consulting agreements with four entities controlled by
officers or directors under which the Company will pay annual consulting
fees of $397,000, $427,000, and $457,000 in each of the three years in the
period ended March 31, 2003. None of these officers or directors receives
any other cash compensation from the Company for their services but receive
reimbursement for expenses including healthcare. Each of these officers has
devoted an average of more than 40 hours per week to the Company during the
six months ended December 30, 2000.
Employment Agreement
The Company's has a three-year employment agreement with a vice president that
calls for an annual salary of $80,000, $100,000 and $120,000 in each of the
three years in the period ended June 30, 2003, as well as reimbursement
of business expenses. The vice president is a certified public accountant and
the daughter of the Company's president.
Agreements with Apex Interactive and Continental Capital & Equity Corporation
In March 2000, the Company entered into a three-year renewable agreement
with Apex Interactive ("Apex") under which Apex agreed to host the Company's
e-commerce website, provide Internet marketing services and support
the Company's databases used by its website for $10,000 per month,
subject to adjustment. The Company and Apex agreed to terminate this
agreement in January 2001 at which time the Company acquired certain
proprietary technology from Apex as well as its own servers and commenced the
process of migrating its website. The process is expected to be completed in
March 2001.
In July 2000, the Company entered into a one-year agreement with
Continental Capital & Equity Corporation ("CCEC") under which CCEC agreed
to perform public relations and investor relations services for a fee of
$50,000 (included in "Prepaid Expenses" in the accompanying Balance
Sheet) and warrants to purchase 200,000 shares of common stock as follows -
50,000 shares each at prices ranging from $3 to $5 per share.
In October 2000, the Company terminated substantially all of the terms of the
agreement with CCEC and cancelled the warrants.
Rent
The Company is obligated under the terms of three short-term operating
leases for office space which call for minimum monthly rentals of
approximately $2,250.
Litigation
The Company is a defendant in an action brought by a creditor of Laminaire
asserting, among other things, that eSAFETYWORLD is a successor to Laminaire
and seeking repayment of $200,000 allegedly due to him by Laminaire. Based
on discussion with counsel, the Company believes that this case is
substantially without merit and will not result in a material adverse impact
on its financial condition.
The plaintiff withdrew the case with prejudice in February 2001.
Guarantee
The Company guarantees a loan in the principal amount of $400,000 for an
unrelated business associate. The loan is scheduled to be repaid prior to
September 30, 2001.
NOTE 6 - STOCKHOLDERS' EQUITY
The Company was incorporated in the state of Nevada and is authorized to
issue up to 20,000,000 shares of common stock having a par value of $.001 per
share and 1,000,000 shares of preferred stock. Neither the certificate of
incorporation nor the by-laws contain any provision that would delay, defer or
prevent a change in control.
There are 3,000,000 shares of common stock issued and outstanding. Each
share of common stock entitles the holder to one vote on each matter submitted
to the stockholders. The holders of common stock:
have equal ratable rights to dividends from funds legally available
for payment of dividends when, as and if declared by the board of
directors;
are entitled to share ratably in all of the assets available for
distributionto holders of common stock upon liquidation, dissolution
or winding up of our affairs;
do not have preemptive, subscription or conversion rights, or
redemption or access to anysinking fund; and
are entitled to one non-cumulative vote per share on all matters
submitted to stockholders for a vote at any meeting of stockholders.
The Company's certificate of incorporation authorizes the issuance of
1,000,000 shares of preferred stock with designations, rights and preferences
determined from time to time by its board of directors. Its board of directors
is empowered, without stockholder approval, to issue shares of preferred
stock with voting, liquidation, conversion, or other rights that could
adversely affect the rights of the holders of the common stock. It has no
present intention to issue any shares of preferred stock. There can be no
assurance that it will not do so in the future. No preferred stock may be issued
without the underwriter's consent for 12 months following the effective date
of the Company's public offering.
The Company has not paid any dividends on its common stock to date.
Stock Option Plan
The Company has a stock option plan that expires in 2009 and enables it to
grant incentive stock options, non-qualified options and stock
appreciation rights for up to an aggregate of 450,000 shares of our common
stock. Incentive stock options granted under the plan must conform to
applicable federal income tax regulations and have an exercise price not
less than the fair market value of shares at the date of grant or 110% of
fair market value for ten percent or more stockholders. Other options and
stock appreciation rights may be granted on terms determined by the compensation
committee of the board of directors.
In October 2000, 450,000 options were granted with an exercise
price equal to the market price per share at the date of grant.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Information set forth herein contains "forward-looking statements" which
can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "should" or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or by
discussions of strategy. No assurance can be given that the future results
covered by the forward-looking statements will be achieved. The Company
cautions readers that important factors may affect the Company's
actual results and could cause such results to differ materially from
forward-looking statements made by or on behalf of the Company. Such factors
include, but are not limited to, changing market conditions, the impact of
competitive products, pricing, acceptance of the Company's products in
development and other risks detailed herein and in other filings that the
Company makes with the Securities and Exchange Commission.
Operations
The Company had no revenue generating history prior to July 1, 1999. In
August 1999, it acquired intangible assets consisting of customer and vendor
lists from the Distribution Product Group of Laminaire Corporation. The
Company's business strategy for the twelve months following the
completion of its public offering was designed to have it identified as a
leading distributor of industrial safety, disposable cleanroom, ancillary
cleanroom equipment, laboratory supplies and first aid products for its market
niches. This strategy is to:
update its e-commerce website to incorporate the more than 30,000
products thatit offers andincorporate real time customer service
components into the website,
develop an effective Internet marketing campaign,
prepare and distribute a CD-ROM covering product offerings,
prepare and distribute printed catalogues, advertising and promotional
material,
visit or otherwise contact directly targeted customers and vendors,
Develop an effective telemarketing effort,
Develop a network of traditional independent sales representatives to
distribute printed materials and increase its name recognition, and
attend targeted trade shows.
The Company has been very cautious in implementing its strategies because
market conditions and the experience of other smallcap companies made it
obvious that additional access to the capital markets would be extremely
difficult. The Company also modified its focus to concentrate on medium
sized businesses and academic institutions. These targeted customers have more
flexible purchasing policies and systems and existing suppliers are less
likely to reduce prices to retain business.
The Company devoted a significant portion of its resources to these
infrastructure efforts during the period from the completion of its public
offering through December 31, 2000. By June 30, 2000 it had completed a
catalogue and CD-ROM covering 15,000 industrial safety products and had the
initial database included on its website. During the period subsequent to
June 30, 2000 it continued its infrastructure efforts, including:
Establishing a real time customer service component to its website,
Started the initial Internet marketing campaign.
Started developing the database for printed catalogues for laboratory
supply, cleanroom supply and various other newly-added products,
Started developing a database for the newly-added products to be added to
the website through the first quarter of calendar year 2001, and
Established a program to outsource the telemarketing and many customer
service efforts so as to increase such efforts without adding
additional employees.
During this period, the Company added more than 15,000 products to its product
offering. It will take until late in the first quarter or sometime during the
second quarter of calendar 2001 before the database is updated for these
products and catalogues are printed to include them. From a practical
perspective, the Company's sales efforts are seriously limited until those
tasks are completed because many of the new product groups are the ones being
requested by potential customers. The Company's use of a sophisticated call
center operated by an independent third party provider in Salt Lake City,
Utah commenced in February 2001. This call center will handle a substantial
amount of the telemarketing and customer service activities.
The Company will also move its website away from Apex Interactive to its own
servers housed in Bohemia, New York with complete backup capabilities in St.
George, Utah in order to be able to:
Have access to a proprietary database that can be used for the website,
catalogues and CD- ROMs, and
Be able to make timely changes and additions to the database without
incurring significantincremental costs.
The website changes are necessary in view of:
The new initiative into personal care and nutritional products will expand
the need for a flexible database,
The rate at which products are being added to the core product lines
require a cost effective way to make changes to the database, and
The ongoing importance of catalogues and CD-ROMs to the core business
makes it importantto be able to use a single database for all purposes.
Supply Programs - In December 1999, the Company entered into a supply
agreement with a traditional wholesaler of industrial safety products.
The agreement provides the Company with the ability to sell more than 15,000
different products. Since then the Company has continually added new
products and product groups. In all cases, the Company has arranged for
vendors to drop ship products directly to customers.
During the six months ended December 31, 2000, the Company also announced two
other initiatives:
Consulting Program -month period ended December 31, 2000, the Company entered
into seven agreements for consulting services. These services are carried out or
supervised by officers of the Company and do not detract from any of the
Company's other core activities.
Personal Care and Nutrition -free telephone number. The Company has developed
several unique products and production, developed an attractive distributor
compensation plan and entered into an agreement with a contract manufacturer
and a fulfillment center. Current plans call for a website and other necessary
software to be completed by March 15, 2001 with initial sales to commence
shortly thereafter.
In January 2001, Blue Marble World, Inc. entered into a consulting
agreement with Freedom Marketing Group, Inc., an unrelated company based in
Dallas, Texas, under which Freedom Marketing agreed to assist Blue Marble
World to introduce and sell its products in Japan and South Korea.
Freedom Marketing holds preferred shares of Blue Marble World which are
convertible into up to 250,000 shares of the common stock of Blue Marble
World based on reaching certain sales levels. There are currently 4,750,000
shares of Blue Marble World common stock outstanding, all of which are owned
by the Company.
The Company will distribute its products through a system of direct or network
marketing. Under most network marketing systems, independent distributors
purchase products for retail sale or personal consumption. Direct marketing
involves the sale of products through a network of independent distributors
who enter into contract agreements or licenses with the direct marketer.
Pursuant to Blue Marble World's compensation plan, products will be sold
exclusively to or through independent distributors who are not employees of
Blue Marble World. This approach is consistent with the Company's overall
policy of maintaining low fixed overheads and using independent contractors
wherever possible.
Many products sold by direct marketers are characterized as having high
margins. Typically, distributor incentives and commissions represent the
highest cost for a direct marketer.
Network marketing is an effective vehicle to distribute Blue Marble World's
products because (i) a consumer can be educated about a product in person by a
distributor, which is more direct than the use of television and print
advertisements; (ii) direct sales allow for actual product testing by a
potential consumer; (iii) the impact of distributor and consumer testimonials
is enhanced; and (iv) as compared to other distribution methods, distributors
can give customers higher levels of service and attention, by, among other
things, delivering products to a consumer's home and following up on sales
to ensure proper product usage, customer satisfaction, and to encourage repeat
purchases.
Under most network marketing systems, independent distributors purchase
products either for resale or for personal consumption. Purchasing by the
independent distributor will take place through Blue Marble World's website or
through faxes. In most cases, products will be paid for by credit card prior
to shipment. Each independent distributor will be able to review the level of
earned commissions by reference to Blue Marble World's website.
International direct selling as a distribution channel has been enhanced in
the past decade because of advances in communications, including
telecommunications, and the proliferation of the use of the Internet, email
and fax machines. Direct selling companies can now produce or purchase high
quality videos for use in product education, demonstrations, and sponsoring
sessions that project a desired image for the company and product line. Blue
Marble World's strategy will be to utilize fully current and future
technological advances to enhance the effectiveness of its direct selling
program.
Operating Considerations - The operating results for the period ended
September 30, 2000 do not reflect any significant contribution from these
infrastructure and operational initiatives, and the operating results for the
two quarters following December 31, 2000 are not likely to benefit
significantly from these efforts. The costs associated with those
undertakings, combined with the amortization requirements for acquired
intangible costs, make it unlikely that the quarter ended March 31, 2001
will be profitable.
Operations
The operations during the periods ended December 31, 2000 and 1999
are not comparable. All activities in the 1999 period involved delivering
products to former Laminaire customers relating to orders that were generally
very delinquent because of Laminaire's inability to get products from its
vendors. Substantially all shipments in the 1999 period related to orders
received by Laminaire over a period of time that Laminaire could not deliver.
Most of these orders were nonrecurring. After the delivery of these products,
the Company was unable to retain most of the customers involved because
of their dissatisfaction with Laminaire. In addition. Laminaire accepted
orders for very small and partial shipments. The Company shipped those orders
in 1999 but concluded that such orders did not fit into the Company's business
model going forward because such shipments require the maintenance of
substantial levels of inventory. . The Company had no fulltime employees
during the 1999 period and used the cash proceeds from sales to reduce its
obligations to Laminaire.
Operating results for the six months ended December 31, 2000 are as follows:
Revenues $486,040
Cost of revenues 313,463
Gross profits 172,577
Selling and other 138,973
Profit before items set forth below33,604
Amortization of intangibles 55,565
Other Income (128,893)
Blue Marble startup costs 42,825
Pretax income $64,107
As indicated above, the Company devoted a substantial portion of its resources
during the period ended December 31, 2000 on developing infrastructure and
marketing initiatives. All of the sales in 1999 involved items associated with
the acquired customer lists. Many of these items related to customers who
were very dissatisfied with Laminaire and who, accordingly, had placed new
blanket orders with other vendors. The Company was unable to retain many of
these customers.
The Company realized a higher than anticipated gross margin on sales
(approximately 36%) because of the initial impact of providing consulting
services.
Amortization consists entirely of expenses relating to the
acquired intangibles.
The Blue Marble startup costs represent the costs directly associated
with starting the operations of Blue Marble World, Inc., the Company's new
subsidiary that will sell personal care products.
Other- net consists principally of interest income.
Liquidity and Capital Resources
The Company believes that the net proceeds of its initial public
offering are sufficient to satisfy its working capital and business
development requirements for at least 12 months. In addition, its emphasis
on outsourcing means that its level of fixed costs is relatively low, less
than $100,000 per month, and it has no material obligations or requirements
for capital expenditures. At December 31, 2000, it had cash and certificates
of deposit of approximately $4,630,184.
The Company has no commitments for financing. It would seek sources
of financing if it had the opportunity of completing an acquisition. No
specific acquisition opportunity has been identified at this time or is being
actively sought.
Seasonality
The demand for many of the Company's products is seasonal. Its customers have
a reduced demand for products in the summer and during December because many
of its customers' employees take vacation, plants are often closed during a
portion of that period and there is a general reduction of business activity
in those months.
New Accounting Pronouncements
No new pronouncement issued by the Financial Accounting Standards Board,
the American Institute of Certified Public Accountants, the Emerging Issues
Task Force or the Securities and Exchange Commission is expected to have a
material impact on the Company's financial position or reported results of
operations.
The Financial Accounting Standards Board has tentatively decided that
goodwill recorded on corporate balance sheets, arising from acquisitions
completed prior to the date that the FASB issues its final statement on the
subject, should no longer be amortized. From the date of issuance, all goodwill
would be accounted for using an impairment approach which means that it will
be written down only in periods in which the recorded value of goodwill
exceeds its fair value. If this proposal is adopted, it will impact the
Company's future reported results of operations in a positive way.
PART II OTHER INFORMATION
Item 1 Legal Proceedings
eSAFETYWORLD is a defendant in an action brought by a creditor of Laminaire
asserting, among other things, that eSAFETYWORLD is a successor to Laminaire
and seeking repayment of $200,000 allegedly due to him by Laminaire. Based
on discussion with counsel, eSAFETYWORLD believes that this case is
substantially without merit and will not result in a material adverse impact on
our financial condition.
The plaintiff withdrew the case with prejudice in February 2001.
Item 2 Changes in Securities
See Condensed Consolidated Financial Statements
Item 3 Defaults on Senior Securities
None
Item 4 Submission of Matters to a Vote of Shareholders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
There were no Reports on Form 8-K.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
eSAFETYWORLD, Inc.
(Registrant)
_/s/_Edward A, Heil
Edward A. Heil
President
_/s/ R. Bret Jenkins
R. Bret Jenkins
Chief Financial Officer
Date: February 13, 2001