UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______to________
Commission file number: 000-29511
eSAFETYWORLD, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 11-3496415
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
80 Orville Dr.
Bohemia, New York 11716
(Address of principal executive offices)
(631) 244-1454
(Issuer's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 3,000,000 shares of Common Stock, as
of March 31, 2003.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
eSAFETYWORLD, Inc.
INDEX
Page Number
PART I
FINANCIAL INFORMATION:
Item 1:
Unaudited Consolidated Financial Statements:
Condensed Consolidated Balance Sheet as of March 31, 2003 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2003 and 2002 4
Condensed Consolidated Statements of Operations for the
Nine Months Ended March 31, 2003 and 2002 5
Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 2003 and 2002 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Item 2. - Management's Discussion and Analysis or Plan
of Operation 14
Item 3 - Controls and Procedures 17
PART II.
OTHER INFORMATION (Items 1-6) 18
2
eSAFETYWORLD, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2003
(Unaudited)
Current Assets:
Cash and cash equivalents $ 230,021
Prepaid expenses and other 1,877
--------
Total Current Assets 231,898
Other Assets 143,790
--------
Total Assets $ 375,688
========
Current Liabilities:
Accounts payable and accrued expenses $ 190,868
Long Term Liabilities:
Capital lease obligation 3,613
--------
Total Liabilities 194,481
--------
Stockholders' Equity:
Preferred stock, no par value, 1,000,000 shares
authorized; none issued
Common stock, $.001 par value, 20,000,000 shares
authorized; 3,000,000 shares issued and
outstanding 3,000
Additional paid-in capital 6,388,644
Accumulated deficit (6,210,437)
---------
Stockholders' Equity 181,207
--------
Total Liabilities and Stockholders' Equity $ 375,688
========
See Notes to Condensed Consolidated Financial Statements.
3
eSAFETYWORLD, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
--------- ----------
Revenues $ - $ 48,203
Cost of Revenues - 39,430
--------- ----------
Gross Profit - 8,773
--------- ----------
Expenses and Other:
Selling and administrative expenses 253,888 275,294
Other:
Amortization and impairments - 100,000
Regulatory and legal costs 4,481 80,835
Other-net (principally interest) (10,166) (14,029)
--------- ----------
Total Expenses and Other 248,203 442,100
--------- ----------
Pretax Loss from Continuing Operations (248,203) (433,327)
Income Taxes (Benefit) - (8,925)
--------- ----------
Loss From Continuing Operations (248,203) (424,402)
Discontinued Operations - net (589) (21,509)
--------- ----------
Net Loss $ (248,792) $ (445,911)
========= ==========
Basic and Diluted Loss Per Share:
Continuing operations $ (.08) $ (.14)
Discontinued operations - (.01)
--------- ----------
Total $ (.08) $ (.15)
========= ==========
Weighted average number of common
and common equivalent shares outstanding 3,000,000 3,000,000
========= =========
See Notes to Condensed Consolidated Financial Statements.
4
eSAFETYWORLD, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
--------- ----------
Revenues $ 43,823 $ 141,233
Cost of Revenues 156,478 123,769
--------- ----------
Gross Profit (Loss) (112,655) 17,464
--------- ----------
Expenses and Other:
Selling and administrative expenses 729,179 734,470
Other:
Amortization and impairments 773,216 1,681,593
Regulatory and legal costs 139,701 204,835
Other-net (principally interest) (15,864) (56,300)
--------- ----------
Total Expenses and Other 1,626232 2,564,598
--------- ----------
Pretax Loss from Continuing Operations (1,738,887) (2,547,134)
Income Taxes - 120,160
--------- ----------
Loss From Continuing Operations (1,738,887) (2,667,294)
Discontinued Operations - net (160,190) (40,220)
--------- ----------
Net Loss $(1,899,077) $(2,707,514)
========= =========
Basic and Diluted Loss Per Share:
Continuing operations $ (.58) $ (.89)
Discontinued operations (.05) (.01)
--------- ----------
Total $ (.63) $ (.90)
========= =========
Weighted average number of common
and common equivalent shares outstanding 3,000,000 3,000,000
========= =========
See Notes to Condensed Consolidated Financial Statements
5
eSAFETYWORLD, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
--------- ----------
Cash flows from operating activities:
Net loss $(1,899,077) $(2,707,514)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation, amortization and impairments 773,216 1,733,785
Deferred tax benefit - 120,160
Change in net operating assets 177,183 330,556
--------- ----------
Net cash used in operations (948,678) (523,013)
--------- ----------
Cash flows from investing activities:
Investments - (147,843)
Decrease (increase) in certificates
of deposits 749,684 (301,641)
Purchase of software, web site
development, and patent - (71,268)
--------- ----------
Net cash provided by (used in)
investing activities 749,684 (520,752)
--------- ----------
Cash flows from financing activities:
Repayment of debt (635,293) (46,459)
--------- ----------
Net cash used in financing activities (635,293) (46,459)
--------- ----------
Net decrease in cash (834,287) (1,090,224)
Cash and cash equivalents - beginning 1,064,308 2,929,807
--------- ----------
Cash and cash equivalents - ending $ 230,021 $ 1,839,583
========= ==========
See Notes to Condensed Consolidated Financial Statements
6
eSAFETYWORLD, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1--BASIS OF PRESENTATION
eSAFETYWORLD, Inc. (the "Company") was incorporated as a Nevada
corporation in July 1997 and completed an initial public offering of its common
stock in February 2000.
The accompanying unaudited condensed financial statements of the
Company have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
with the instructions to Form 10-QSB and Item 310 of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the three and nine-month
periods ended March 31, 2003 are not necessarily indicative of the results that
may be expected for the fiscal year ending June 30, 2003. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-KSB for the fiscal
year ended June 30, 2002.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 as well as the reported amount of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
In December 2002, the Company's board of directors determined to
discontinue operations as of December 31, 2002. However, the Company will
attempt to arrange to complete certain consulting projects that are currently in
process. Accordingly, all assets and liabilities in the accompanying condensed
consolidated balance sheet are recorded at their estimated net realizable
values.
The Company withdrew a previously filed Registration Statement on Form
SB-2 that was filed as part of its proposed effort to spinoff the shares of its
wholly-owned subsidiary, Blue Marble World, Inc., to its shareholders. The
operations of Blue Marble World, Inc. will also be discontinued. Blue Marble
World had filed a registration statement with the Securities and Exchange
Commission in July 2001 pursuant to a plan by the Company to distribute 81% of
Blue Marble World's stock to eSAFETYWORLD's shareholders as a dividend.
Throughout its existence, Blue Marble World functioned as a startup or
development stage company without any revenues. Blue Marble World's operations
have been reported as Discontinued Operations commencing with the initial filing
of the aforementioned registration statement. Substantially all of the losses
from discontinued operations during the three and nine-month periods ended March
31, 2003 relate to the write-off of Blue Marble World's fixed assets and
inventory.
7
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting and financial
reporting policies follows.
Basis of Presentation - In December 2002, the Company's board of directors
determined to discontinue operations effective December 31, 2002. Accordingly,
all assets and liabilities in the accompanying condensed consolidated balance
sheet are recorded at their estimated net realizable values.
Principles of Consolidation - The accompanying consolidated financial statements
include the accounts of eSAFETYWORLD, Inc. and its subsidiaries (collectively
referred to herein as the "Company"). All intercompany transactions and account
balances are eliminated in consolidation.
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 periods. Actual results could differ from these estimates. The
principal assumptions inherent in the accompanying financial statements at March
31, 2003 relate to the net realizable value of assets and the amount of
liabilities that will be incurred as a result of the decision to discontinue the
business of the Company. Substantially all assets relating to or used by
operations were written off or fully reserved at the time that the decision was
made to discontinue operations. The only costs associated with the consulting
business that were not reserved related to an engagement in which the client
filed a registration statement to register shares issuable to the Company and
such registration statement was declared effective in February 2003. Those
shares were delivered for distribution to the Company's shareholders in the form
of a dividend in April 2003.
Prior to the matters described in the preceding paragraph, the principal
assumptions related to the realizability and life of the acquired intangibles,
the value of consideration received from consulting clients and the
realizability of certain investments. In future periods, the ultimate
realizability and valuation of assets, principally the equity securities issued
to the Company by clients, received in satisfaction for consulting services will
involve assumptions and estimates.
Revenue Recognition - Revenue for product sales was recognized in the period in
which the product was shipped.
Long-term service contracts are generally agreements to provide services over a
period of time of one year or more and with respect to which the Company has no
contractual right to adjust the prices or terms at or on which its services are
supplied during the term of the contract without the consent of the customer or
client. The initial clients of the Company's consulting business opted to pay
the Company by issuing shares of their common stock. The Company decided to
distribute a significant portion of the shares to be received from its clients
to its shareholders. Because of the Company's role in the planned dividend
distributions, during the fourth quarter of fiscal 2001, it concluded that it is
likely functioning as a statutory "underwriter" within the meaning of Section
2(11) of the Securities Act of 1933 with respect to those distributions. The
Company may not be able to rely on the exemption afforded under Section 4(2) of
the Securities Act with respect to the receipt of such shares from clients. In
addition, the Company also concluded during the fiscal year ended June 30, 2002
that clearing certain other technical matters brought up during the review
8
process pertaining to the distribution process with applicable regulatory
agencies would require more time than had been anticipated. The changes in facts
and circumstances that arose during the fourth quarter of the fiscal year ended
June 30, 2001 resulted in the Company recognizing that more uncertainties
existed than were originally known or could have been known. Accordingly, in the
quarter ended June 30, 2001 and thereafter it opted to change the means by which
it estimated revenue on consulting agreements from recognizing revenue as work
is performed to recognizing revenue after the shares to be received from clients
have been registered by clients and a market value has been established. All
consulting revenue recognized prior to March 31, 2001 was written off at June
30, 2001. No consulting revenue has been recognized during the nine months ended
March 31, 2003 or 2002. One registration statement filed by a client relating to
shares due to us was declared effective in February 2003, but the Company has
not yet determined the value of the shares registered by that registration
statement. The value of these shares will be determined as the average closing
bid price per share during the first week of trading at which time revenue and
gain or loss will be recorded. For the purpose of the accompanying financial
statements, the shares received are recorded in Other Assets at cost of
$133,990.
If the Company receives shares of stock from consulting clients and
elects not to distribute those shares to its shareholders, the estimated value
of the shares will be recorded upon receipt. If no market exists for those
shares, they will initially be recorded at the cost incurred to perform the work
and such initial evaluation will be reviewed for reasonableness thereafter. If
we conclude that the issuer in which eSAFETYWORLD has an interest is or may be a
blank check company or the value is otherwise impaired, the carrying value of
such investment will be substantially reduced or written off.
Inventories - Product inventories consisted of finished goods acquired from
third parties. Such costs, were stated at the lower of cost or market. Cost was
determined based on the first-in, first-out cost flow assumption. The carrying
value of inventories was written off as a result of the Company's decision to
discontinue business in December 2002.
Advertising - The Company charged advertising costs to expense as incurred.
Costs related to CD-ROMs, promotional literature and catalogs produced by
outside vendors are charged to operations when mailed or distributed. The
carrying value of advertising and marketing materials was written off as a
result of the Company's decision to discontinue business in December 2002.
Basic and Diluted Earnings (Loss) Per Share - Basic earnings (loss) 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. The assumed exercise of options or convertible instruments
outstanding during both periods would have been antidilutive.
Fixed Assets - Fixed assets were stated at cost less accumulated depreciation
and writedowns. Depreciation was computed using the straight-line method based
upon the estimated useful life of five years. Website development costs were
capitalized in accordance with Consensus Position 00-2 of the Emerging Issues
Task Force. Expenditures for repairs and maintenance were 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.
The remaining net carrying value of all fixed assets was written off in
December 2002 as a result of the Company's decision to discontinue its business.
9
Marketable Securities - The Company's policy was to classify equity securities
received in connection with its consulting business as available-for-sale in
accordance with the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
These securities will be carried at fair market value, with unrealized gains and
losses reported in stockholders' equity as a component of other comprehensive
income (loss). Gains or losses on securities sold will be based on the specific
identification method and reported in operations in the period sold.
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 - The acquired intangible assets were being amortized on the
straight-line basis over ten years. Statement No. 141 of the Financial
Accounting Standards Board, Business Combinations, and Statement No. 142,
Goodwill and Other Intangible Assets mandate that goodwill recorded on corporate
balance sheets, arising from acquisitions completed prior to June 30, 2001
should no longer be amortized. From the date of effectiveness of these
pronouncements, all goodwill will 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. The Company had experienced a material
decline in the demand for its disposable safety products and believes that such
decline may not be short-term in nature. Accordingly, it had written off a
substantial portion of the carrying value of its goodwill at June 30, 2002. The
remaining unamortized carrying value of intangibles ($50,000) was written off in
December 2002 as a result of the Company's decision to discontinue its business.
Blue Marble Startup Costs - The costs directly associated with the startup of a
new subsidiary's business were charged to operations as incurred and are
included in Discontinued Operations in the accompanying Statements of
Operations.
Statement of Cash Flows - 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 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, 2002 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.
10
At March 31, 2003, the Company has no recorded deferred tax benefit. At
June 30, 2002, the Company has net operating loss carryforwards of approximately
$4,300,000 and has fully reserved the potential tax benefit therefrom because
realization of such benefit is not more likely than not. During the three months
ended December 31, 2001, the Company fully reserved deferred tax benefits of
$183,235 recorded in prior periods. The writedown of $183,235 is reported as a
charge to income taxes from continuing operations in the accompanying condensed
consolidated statements of operations for the nine-month period ended March 31,
2002.
Recent Accounting Pronouncements
In April 2002, the FASB issued Statement of Financial Accounting
Standards No. 145 ("SFAS 145") Rescission of FASB Statements Nos. 4, 44 and 64,
Amendment to FASB Statement No. 13 and Technical Corrections, which rescinds
FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt,
and an amendment of that Statement, FASB Statement No. 64, Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements. This Statement rescinded FASB
Nos. 4 and 64 which required that all gains and losses from the extinguishment
of debt be aggregated and, if material, be reported as an extraordinary item,
net of related income tax effects. This Statement also rescinds FASB Statement
No. 44, Accounting for Intangible Assets of Motor Carriers and amends FASB
Statement No. 13, Accounting for Leases, to eliminate an inconsistency between
the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. This Statement also amends other
existing authoritative pronouncements to make various technical corrections.
Management does not believe that the adoption of this Statement will have a
material effect on the Company's financial statements.
In July 2002, the FASB issued Statement of Financial Accounting
Standards No. 146, Accounting for Costs Associated with Exit or Disposal
Activities ("SFAS 146"). SFAS 146 addresses significant issues regarding the
recognition, measurement, and reporting of costs associated with exit and
disposal activities, including restructuring activities. SFAS 146 also addresses
recognition of certain costs related to terminating a contract that is not a
capital lease, costs to consolidate facilities or relocate employees and
termination benefits provided to employees who are involuntarily terminated
under the terms of a one-time benefit arrangement that is not an ongoing benefit
arrangement or an individual deferred compensation contract. SFAS 146 is not yet
effective and the impact of adoption on the Company's financial position or
results of operations has not been determined.
In November 2001, the Emerging Issues Task Force reached a consensus to
issue FASB Staff Announcement Topic No. D-103, which was re-characterized in
January 2002 as EITF Issue No. 01-14, Income Statement Characterization of
Reimbursement Received for Out-of-Pocket Expenses Incurred. This consensus
clarifies that reimbursements received for out-of-pocket expenses incurred
should be classified as revenue in the statement of operations. This consensus
should be applied in financial reporting periods beginning after December 15,
2001. Upon application of this consensus, comparative financial statements for
prior periods should be reclassified to comply with the guidance in this
consensus. The adoption of this consensus did not have a material effect on the
Company's results of operations.
In November 2002, the FASB Issued FASB interpretation (FIN) No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Other." FIN No. 45 requires guarantor to
recognize, at the inception of a qualified guarantee, a liability for the fair
value of the obligation undertaken in issuing or modified after December 31,
2002. Management does not expect adoption of this Interpretation to have a
material impact on the Company's financial condition or results of operations.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which provides alternative methods of
transition for a voluntary change to fair value based method of accounting for
stock-based employee compensation as prescribed in SFAS 123, "Accounting for
Stock-Based Compensation." Additionally, SFAS 148 required more prominent and
more frequent disclosures in financial statements about the effects of
stock-based compensation. The provisions of this Statement are effective for
fiscal years ending after December 15, 2002, with early application permitted in
certain circumstances. The Company has adopted the disclosure provisions in
these consolidated financial statements as disclosed under Stock Based
Compensation.
11
Reclassifications - Certain prior period amounts have been reclassified to
conform with the current presentation.
Fiscal Year - The Company's fiscal year ends on June 30.
NOTE 3 -- OTHER ASSETS
At March 31, 2003, Other Assets consisted principally of deposits.
Deposits $ 9,800
Deferred contract costs - net 133,990
--------
Total 143,790
========
Substantially all of the deferred contract costs relate to a consulting
project in which the Company received shares of the client's common stock in
consideration for services. The client's registration statement covering the
issuance of these shares due to the Company was declared effective in February
2003 and the shares received were distributed as a dividend to the Company's
shareholders in April 2003. The value of these shares will be determined as the
average closing bid price per share during the first week of trading at which
time revenue and gain or loss will be recorded. The Company has established
reserves against all other projects.
The carrying value of all remaining other assets was written off at
December 31, 2002 as a result of the Company's decision to discontinue business.
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
Consulting and Employment Agreements
The Company has consulting agreements with four consulting firms,
including three entities controlled by officers or directors, under which the
Company is obligated to pay minimum annual consulting fees of $390,000 during
the fiscal year ending June 30, 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. The Company will
attempt to negotiate settlements for these agreements with related party
entities. No accrual has been established for such potential settlements.
Accruals or settlements have been reached with independent contractors.
Rent
The Company is obligated under the terms of two short-term operating
leases for office space which call for minimum monthly payments of approximately
$1,900 through September 30, 2003. The remaining fixed amounts due under this
lease have been accrued.
Related Party Transaction
Several consulting clients were affiliated with officers and directors
of the Company. No revenue has been recognized with respect to these client
engagements.
Legal Matters
On March 7, 2002, Norwood Venture Corp. ("Norwood") commenced an action
in the Supreme Court of the State of New York, County of New York, against the
Company and various other defendants, including eSAFETYWORLD and two directors.
In this action, Norwood, a purported creditor of the now defunct Laminaire
Corporation ("Laminaire") has asserted a fraudulent conveyance claim against the
Company in connection with the Company's acquisition of certain intangible
assets from Laminaire in 1999 (the "1999 transaction"). The complaint also
asserts fraudulent conveyance and breach of fiduciary duty claims against the
two directors in connection with the 1999 transaction. In addition, the
complaint asserts fraudulent misrepresentation and negligent misrepresentation
claims against the two directors in connection with an alleged February 2000
transaction in which Norwood allegedly gave up a lien on certain Laminaire
property in exchange for a lien on Laminaire accounts receivable and inventory
and other consideration. However, it does not appear that such claims are
asserted against the two directors in their capacity as officers and/or
directors of eSAFETYWORLD.
12
After the commencement of this action, the parties entered into
negotiations to resolve the dispute. While negotiations have continued, the
parties have signed various stipulations extending defendants' time to respond
to the complaint. The Company will respond to the complaint if a satisfactory
settlement is not reached.
In December 2001, the Securities and Exchange Commission initiated an
investigation of the Company. The investigation closely followed a decision by
NASDAQ to de-list the Company's common stock. As of this date, no charges have
been brought or threatened by the SEC against the Company or any individual as a
result of the investigation.
NOTE 5 -- 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. 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:
o have equal ratable rights to dividends from funds legally available for
payment of dividends when, as and if declared by the board of
directors;
o are entitled to share ratably in all of the assets available for
distribution to holders of common stock upon liquidation, dissolution
or winding up of our affairs;
o do not have preemptive, subscription or conversion rights, or
redemption or access to any sinking fund; and
o are entitled to one non-cumulative vote per share on all matters
submitted to stockholders for a vote at any meeting of stockholders.
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 under which it
may grant incentive stock options, non-qualified options and stock appreciation
rights for up to an aggregate of 450,000 shares of 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, the Company granted 450,000 options with an exercise
price equal to the market price per share at the date of grants which was $.87
per share. All options are exercisable but none have been exercised.
Other Options Granted
The Company granted to a public relations firm options to purchase
200,000 shares of the Company's common stock at prices ranging from $3.75 to
$7.00 per share. The options will expire two years after a registration
statement covering the shares underlying the options is deemed effective. Such
registration statement has not been filed.
13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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. These include the Company's lack of historically
profitable operations, the market success of its products, its lack of
infrastructure to support popular products, dependence on key personnel, the
success of the Company's consulting services business, ability to manage
anticipated growth and other factors identified in the Company's filings with
the Securities and Exchange Commission, press releases and other public
communications.
Operations
We had no revenue generating history prior to July 1, 1999. In August
1999, we acquired intangible assets, including customer and vendor lists, from
the Distribution Product Group of Laminaire Corporation. We devoted the period
starting in July 1999 and thereafter to developing our business plan, designing
and completing an e-commerce website, establishing fulfillment systems,
developing marketing tools and catalogs and establishing infrastructure. We
adopted a cautious approach in implementing our strategies because we were aware
of the experience of other smallcap and Internet companies as well as market
conditions made it obvious that further access to the capital markets would be
extremely difficult. Therefore, we became increasingly committed to a strategy
that does not require a high level of fixed costs or require major cash outlays
to establish brand recognition. We completed an initial public offering of our
common stock in February 2000.
During the fourth calendar quarter of 2000, our evaluation of market
conditions as well as the capital markets caused us to consider augmenting our
initial business focus in order to increase the likelihood of successfully
achieving our business goals. As a result, we decided to take advantage of the
existing core skills of our management team and expand into two new areas,
personal care and nutrition products and business consulting. Neither of these
areas requires substantial capital commitments.
Safety Products Business - We marketed and distributed disposable industrial
safety, laboratory and critical environment products to companies whose
employees work in manufacturing, construction or critical environments and may
be exposed to environmental hazards. We operated a Business-to-Business
e-Commerce website over the Internet and also offered our customers ordering
solutions by making toll free numbers and catalogs available for customers who
preferred traditional ordering methods.
During the past two years, many companies that are or were based on
Internet-sales strategies have experienced significant financial problems. At
the same time, these companies have found that economic and financial market
conditions have made it nearly impossible to raise additional capital. Many of
our initial customers were using us to provide products that supplemented the
principal supply or blanket orders previously placed with large competitors.
Many of these customers were involved in the semiconductor or microprocessor
businesses. The slumps in those industries substantially reduced those
companies' needs to supplement orders placed under blanket purchase orders with
our competitors. Our order flow declined significantly during the year ended
June 30, 2002 and continued at a depressed level during the six months ended
December 31, 2002. During the quarter ended September 30, 2001, we considered
implementing a program of introducing high technology and specialty products
designed by us. Our initial product in this area was our patent pending MailSafe
Containment Chamber that was designed to allow an individual to open mail or
standard size overnight packages in a confined airtight environment. A
significant demand for MailSafe did not materialize after our marketing efforts
were seriously impeded by regulatory concerns when the product was initially
introduced. The sale of MailSafe units is not profitable at the low levels of
production that we attained. In addition, our limited resources made it
impractical to develop or introduce additional new engineered designed products.
14
Consulting Program - Our management has devoted a substantial portion of its
time and resources to the issues relating to the registration and distribution
process of the shares to be received from consulting clients. The initial
concept was to distribute shares received to the Company's shareholders in a way
that we believed had the potential to benefit both the client and our
shareholders, although the realization of benefits was never and could never be
assured. The concept required a large commitment of time and resources to clear
the regulatory process.
The uncertainties and delays that arose appeared, in our opinion, to be
related to our intent to distribute shares received from clients as dividends to
our shareholders and the fact that our business model called for us to work
multiple engagements simultaneously. Therefore, we considered several different
policies, including:
|X| limiting engagements to unrelated and established companies;
|X| modifying the nature of the services offered;
|X| performing services solely for cash; and
|X| accepting shares from clients but not distributing such shares to our
shareholders.
However, if we were to receive shares of stock from consulting clients and
opted not to distribute those shares to our shareholders, the estimated value of
the shares will be recorded as revenue upon receipt. If no market exists for
those shares, they will initially be recorded at the cost incurred to perform
the work and such initial evaluation will be reviewed for reasonableness and
impairment whenever events or changes in circumstances indicate that the related
carrying amount may not be recoverable. If required, impairment losses are and
will be recognized based on the excess of the asset's carrying value over its
fair value. We have established reserves and allowances for account balances
associated with clients whose carrying values are impaired because
client-specific issues have been raised during the registration review process.
As of March 31, 2003, we have recognized no revenues from our consulting
projects and have established reserves and allowances in connection with all
projects associated with the consulting business except those costs related to
an engagement in which the client filed a registration statement to register
shares issuable to the Company and such registration statement was declared
effective in February 2003. Those shares were delivered for distribution by us
to our shareholders in the form of a dividend in April 2003. The Company has not
yet determined the value of such shares. The value will be determined as the
average closing bid price per share during the first week of trading at which
time revenue and gain or loss will be recorded. For the purpose of the
accompanying financial statements, the asset is included in Other Assets and
recorded at cost of $133,990.
Our management has devoted a substantial portion of its time and
resources to the issues relating to the registration and dividend distribution
process of the shares to be received from consulting clients. The initial
concept was to distribute shares received from clients to the Company's
shareholders in a way that we believed had the potential to benefit both the
client and our shareholders, although the actual realization of benefits was
never and could never be assured. The concept required us to expend and devote a
large commitment of time and resources to lay the groundwork, including
establishing a base of independent advisors and consultants as well as to clear
the regulatory review process. We believe that we resolved satisfactorily many
of the significant structural issues and concerns of which we are aware. We,
together with certain remaining clients, continue to discuss client-specific
issues. However, there are no assurances that the current client-specific issues
will be resolved satisfactorily or that new issues and concerns may arise or
that issues that we believe have been resolved satisfactorily may reopen. By
December 31, 2002, a substantial portion of our clients had withdrawn their
filings with the SEC because they could no longer afford the time and resources
necessary to pursue the undertaking. We have established reserves and allowances
for all costs associated with such projects.
We have not significantly marketed our consulting services. All of our
previous engagements have come as referrals. We did not solicit or accept new
client engagements of a similar nature to those undertaken in the past because
it did not appear to make business sense to do so unless current uncertainties
were resolved.
15
Blue Marble World, Inc. - Personal Care and Nutrition - In December 2000, we
established a subsidiary, Blue Marble World, Inc., to sell personal care and
nutrition products through a direct marketing chain of independent distributors.
The independent distributors will purchase products from Blue Marble World's
website or by use of faxes or a toll-free telephone number. Blue Marble World
has developed a family of products and production techniques that we believe to
be distinctive, developed a distributor compensation plan and entered into an
agreement with a contract manufacturer and a fulfillment center. A substantial
portion of Blue Marble World's resources since inception were devoted to the
development of products, a website, software, marketing materials and the final
design of the distributor compensation plan.
In June 2001, we filed a registration statement with the Securities and
Exchange Commission for the purpose of spinning off approximately 81% of Blue
Marble World's shares to eSAFETYWORLD's shareholders as a dividend. Accordingly,
Blue Marble World was reflected as a discontinued operation in the accompanying
financial statements.
Decision to Discontinue Business
We devoted a substantial amount of our efforts to resolving the
problems described above. During the quarter ended December 31, 2002 it became
apparent that our resources would be fully depleted before the matters were
resolved, assuming resolution was possible of which there were no assurances.
Therefore, in December 2002 the Company's board of directors determined to
discontinue operations effective December 31, 2002. However, the Company will
attempt to arrange to complete certain consulting projects that are currently in
process.
The Blue Marble World registration statement was withdrawn in January
2003 as part of our decision to discontinue the Company's business activities.
Impact
Because of this decision, all assets and liabilities in the
accompanying condensed consolidated balance sheet are recorded at their net
realizable values. The writedowns and accruals amounted to $773,216 during the
nine months ended March 31, 2003, exclusive of $139,419 relating to write-downs
of Blue Marble World's inventories and fixed assets included in discontinued
operations..
Liquidity and Capital Resources
We believe that we have sufficient resources to complete the standard
wind up procedures of the business. We do not have sufficient resources to deal
effectively with significant regulatory or legal costs. We have no commitments
for financing and are unlikely to obtain such commitments if needed. Therefore,
if unexpected costs arose, we would have to explore other possibilities such as
liquidation or bankruptcy. No decision has been reached concerning any activity
beyond the period needed to complete existing projects.
Recent Accounting Pronouncements
No new pronouncement issued by the Financial Accounting Standards
Board, the American Institute of Certified Public Accountants or the Securities
and Exchange Commission is expected to have a material impact on our financial
position or reported results of operations.
On April 30, 2002, the SEC proposed a disclosure requirement for
companies to include a separately-captioned section regarding the application of
critical accounting policies in the "Management's Discussion and Analysis"
(MD&A) section of annual reports, registration statements and proxy and
information statements. The Application of Critical Accounting Policies section
would encompass both disclosure about the critical accounting estimates that are
made by the company in applying its accounting policies and disclosure
concerning the initial adoption of an accounting policy by a company.
16
The SEC's proposals define an accounting estimate recognized in the
financial statements as a "critical accounting estimate" if:
o the accounting estimate requires a company to make assumptions about
matters that are highly uncertain at the time the accounting estimate
is made; and
o different estimates that a company reasonably could have used in the
current period, or changes in the accounting estimate that are
reasonably likely to occur from period to period, would have a material
impact on the presentation of a company's financial condition, changes
in financial condition or results of operations.
The proposals would also require the following information in the MD&A section:
o A quantitative discussion of changes in line items in the financial
statements and overall financial performance if the company were to
assume that the accounting estimate were changed, either by using
reasonably possible near-term changes in certain assumption(s)
underlying the accounting estimate or by using the reasonably possible
range of the accounting estimate;
o A quantitative and qualitative discussion of any material changes made
to the accounting estimate in the past three years, the reasons for the
changes, and the effect on line items in the financial statements and
overall financial performance;
o A statement of whether or not the company's senior management has
discussed the development and selection of the accounting estimate, and
the MD&A disclosure regarding it, with the audit committee of the
company's board of directors;
o If the company operates in more than one segment, an identification of
the segments of the company's business the accounting estimate affects;
and
o A discussion of the estimate on a segment basis, mirroring the one
required on a company-wide basis, to the extent that a failure to
present that information would result in an omission that renders the
disclosure materially misleading.
The proposals also would include a requirement that companies update this part
of the required disclosure to show material changes in their quarterly reports.
The principal assumptions inherent in the accompanying financial
statements at March 31, 2003 relate to the net realizable value of assets and
the amount of liabilities that will be incurred as a result of the decision to
discontinue the business of the Company. Substantially all assets relating to or
used by operations were written off or fully reserved at the time that the
decision was made to discontinue operations. The only costs associated with the
consulting business that were not reserved relate to an engagement in which the
client filed a registration statement to register shares issuable to the Company
and such registration statement was declared effective in February 2003.
ITEM 3. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer (collectively,
the "Certifying Officers") are responsible for establishing and maintaining
disclosure controls and procedures for us. Such officers have concluded (based
upon their evaluation of these controls and procedures as of a date within 90
days of the filing of this report) that our disclosure controls and procedures
are effective to ensure that information required to be disclosed by us in this
report is accumulated and communicated to management, including our principal
executive officers as appropriate, to allow timely decisions regarding required
disclosure.
17
The Certifying Officers also have indicated that there were no
significant changes in our internal controls or other factors that could
significantly affect such controls subsequent to the date of their evaluation,
and there were no corrective actions with regard to significant deficiencies and
material weaknesses.
PART II OTHER INFORMATION
Item 1 Legal Proceedings
In December 2001, the Securities and Exchange Commission initiated an
investigation of the Company. The investigation closely followed a decision by
NASDAQ to de-list the Company's common stock. As of this date, no charges have
been brought or threatened by the SEC against the Company or any individual as a
result of the investigation.
On March 7, 2002, Norwood Venture Corp. ("Norwood") commenced an action
in the Supreme Court of the State of New York, County of New York, against the
Company and various other defendants, including eSAFETYWORLD, Edward A. Heil and
K. Ivan F. Gothner. In this action, Norwood, a purported creditor of the now
defunct Laminaire has asserted a fraudulent conveyance claim against the Company
in connection with the Company's acquisition of certain intangible assets from
Laminaire in 1999 (the "1999 transaction"). The complaint also asserts
fraudulent conveyance and breach of fiduciary duty claims against Messrs. Heil
and Gothner in connection with the 1999 transaction. In addition, the complaint
asserts fraudulent misrepresentation and negligent misrepresentation claims
against Messrs. Heil and K. Ivan F. Gothner in connection with an alleged
February 2000 transaction in which Norwood allegedly gave up a lien on certain
Laminaire property in exchange for a lien on Laminaire accounts receivable and
inventory and other consideration. However, it does not appear that such claims
are asserted against Mr. Heil or Mr. Gothner in their capacity as officers
and/or directors of eSAFETYWORLD. After the commencement of this action, the
parties entered into negotiations to resolve the dispute. While negotiations
have continued, the parties have signed various stipulations extending
defendants' time to respond to the complaint.
Item 2 Changes in Securities
None
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
We filed a Form 8-K on December 26, 2002 under "Item 5. Other Events"
disclosing the Company's decision to discontinue its operations and withdraw the
registration statement previously filed by Blue Marble World, Inc., a
wholly-owned subsidiary.
Exhibit Number Description
- -------------- -------------------------------------------------------------
99.01 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
99.02 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
18
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
-------------------
By:Edward A. Heil
President
/s/ R. Bret Jenkins
-------------------
By: R. Bret Jenkins
Chief Financial Officer
Date: May 14, 2003
19
CERTIFICATIONS
CHIEF EXECUTIVE OFFICER
I, Edward A. Heil, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
eSAFETYWORLD, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls.
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Edward A. Heil
- -------------------------
Edward A. Heil
Chief Executive Officer
20
CHIEF FINANCIAL OFFICER
I, R. Bret Jenkins, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
eSAFETYWORLD, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls.
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ R. Bret Jenkins
- -------------------
R. Bret Jenkins
Chief Financial Officer
21