-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OgorYyST7OMWN8eh5Ibgk/RNn5n2L3/RzdM9OsylMhMgZ/LyHRJJOw8+IIPiGhZC xAY7GUt3seVVC0LJMcBZ3w== 0000912057-99-003655.txt : 19991108 0000912057-99-003655.hdr.sgml : 19991108 ACCESSION NUMBER: 0000912057-99-003655 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19991105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CROPKING INC CENTRAL INDEX KEY: 0001058216 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 341368977 STATE OF INCORPORATION: DC FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-48433 FILM NUMBER: 99741993 BUSINESS ADDRESS: STREET 1: 0 STREET 2: 5050 GREENWICH RD CITY: SEVILLE STATE: OH ZIP: 44273 BUSINESS PHONE: 2022969400 MAIL ADDRESS: STREET 2: 1919 PENN AVE NW SUITE 800 CITY: WASHINGTON STATE: DC ZIP: 20006 SB-2/A 1 SB-2/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1999. REGISTRATION NO. 333-48433 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ AMENDMENT NO. 5 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------ CROPKING.COM, INCORPORATED (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) DELAWARE 1711 34-1368977 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
5050 GREENWICH ROAD SEVILLE, OHIO 44273 (330) 769-2002 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) 5050 GREENWICH ROAD SEVILLE, OHIO 44273 (330) 769-2002 (ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS) DANIEL J. BRENTLINGER, CHAIRMAN AND CHIEF EXECUTIVE OFFICER 5050 GREENWICH ROAD SEVILLE, OHIO 44273 (330) 769-2002 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------------ COPIES TO: THOMAS T. PROUSALIS, JR., ESQ. DAVID A. CARTER, P.A. 1919 Pennsylvania Avenue, N.W. 2300 Glades Road Suite 200 Suite 210W Washington, D.C. 20006 Boca Raton, FL 33431 (202) 296-9400 (561) 750-6999 (202) 296-9403 Fax (561) 367-0960 Fax COUNSEL TO ISSUER COUNSEL TO UNDERWRITER
------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE. ------------------------------ IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434, CHECK THE FOLLOWING BOX. /X/ CALCULATION OF REGISTRATION FEE PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED BE REGISTERED PER SECURITY OFFERING PRICE REGISTRATION FEE Common Stock, $.01 Par Value............ 1,000,000 $ 7.00 $7,000,000 $2,414 Underwriter's Common Stock Warrants(1)............................ 100,000 -- -- -- Common Stock Underlying Underwriter's Common Stock Warrants(2)............... 100,000 $ 8.40 $ 840.000 $ 290 Total Registration and Fee(3)......... $7,840,000 $2,703
(1) To be issued to the Underwriter or persons related to the Underwriter. Pursuant to Rule 416 under the Securities Act, such additional number of Underwriter's common stock warrants (the "Underwriter's Common Stock Warrants") are also being registered to cover any adjustment resulting from the operation of the anti-dilution provisions relating to the Underwriter's Common Stock Warrants. (2) Reserved for issuance upon exercise of the Underwriter's Common Stock Warrants. Pursuant to Rule 416 under the Securities Act, such additional number of shares of Common Stock subject to the Underwriter's Common Stock Warrants are also being registered to cover any adjustment resulting from the operation of the anti-dilution provisions relating to the Underwriter's Common Stock Warrants. (3) The requisite fee has been paid in connection with this Registration Statement. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CROPKING.COM, INCORPORATED CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM SB-2
REGISTRATION STATEMENT ITEM CAPTION IN PROSPECTUS - ---------------------------- --------------------------------------------- 1. Front of Registration Statement and Outside Front Cover of Prospectus... Facing Page; Cross-Reference Sheet; Prospectus Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus... Prospectus Cover Page; Prospectus Back Cover Page 3. Summary Information and Risk Factors... Prospectus Summary; The Company; Risk Factors 4. Use of Proceeds... Use of Proceeds 5. Determination of Offering Price... Risk Factors; Underwriting 6. Dilution... Dilution and Other Comparative Data 7. Selling Security-holders....... Description of Securities 8. Plan of Distribution....... Prospectus Cover Page; Underwriting 9. Legal Proceedings....... Legal Proceedings 10. Directors, Executive Officers, Promoters and Control Persons... Management; Principal Shareholders 11. Security Ownership of Certain Beneficial Owners and Management... Principal Shareholders 12. Description of Securities... Description of Securities 13. Interest of Named Experts and Counsel... Legal Matters; Experts 14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.. Certain Transactions 15. Organization Within Five Years... Prospectus Summary; Business 16. Description of Business... Business 17. Management's Discussion and Analysis or Plan of Operation... Management's Discussion and Analysis or Plan of Operation 18. Description of Property... Business 19. Certain Relations and Related Transactions....... Certain Transactions 20. Market for Common Equity and Related Stockholder Matters... Description of Securities 21. Executive Compensation....... Management 22. Financial Statements... Financial Statements 23. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure... Not applicable
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED NOVEMBER 3, 1999 PROSPECTUS 1,000,000 SHARES [LOGO] CropKing.com, Incorporated ("Company" or "CropKing.com") is offering the shares of common stock ("Common Stock") through its Underwriter on a "best efforts, all-or-none" basis for the first 300,000 shares and on a "best efforts" basis for the remaining 700,000 shares during an offering period of 90 days, which may be extended for an additional 30 days. The Company reserves the right to close the offering upon the sale of the minimum number of shares offered hereby. All proceeds of the offering will be deposited in an escrow account and promptly returned to the subscribers in full, without interest or deduction, unless at least 300,000 shares offered hereby are sold and paid for during the offering period. Subscribers will have no right to the return of their funds during the term of the escrow. See "Description of Securities" and "Underwriting." Prior to this offering, there has been no public market for the Company's Common Stock. The initial public offering price of the Common Stock has been determined through negotiations between the Company and the Underwriter and is not necessarily related to the Company's assets, book value, financial condition or any other recognized criteria of value. Although the Company intends to apply for the inclusion of the Common Stock on the Nasdaq SmallCap Market ("Nasdaq") under the symbol "CROP," there can be no assurances that such securities will be accepted for inclusion or that an active trading market in the Company's securities will develop or be sustained. Otherwise, the Common Stock will trade on the Electronic Bulletin Board as maintained by the National Quotation Bureau, Inc. AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION FROM THE PUBLIC OFFERING PRICE OF THE COMMON STOCK AND SHOULD BE CONSIDERED ONLY BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" ON PAGES 6-12 AND "DILUTION." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROCEEDS TO THE PRICE TO PUBLIC UNDERWRITING DISCOUNTS(1) COMPANY(2) Per Share....................................... $7.00 $.70 $6.30 Total Minimum................................... $2,100,000 $210,000 $1,890,000 Total Maximum................................... $7,000,000 $700,000 $6,300,000
(SEE "NOTES," NEXT PAGE) The shares of Common Stock are being offered by the Underwriter subject to prior sale, when, as and if delivered to and accepted by the Underwriter, and subject to approval of certain legal matters by counsel and to certain other conditions. It is expected that delivery of the certificates representing the Common Stock will be made against payment therefor at the offices of the Underwriter at 7700 West Camino Real, Boca Raton, Florida 33433, upon the closing of the offering. ------------------------ [LOGO] The date of this Prospectus is , 1999. PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND MUST BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF THE UNDERWRITER'S COMMON STOCK WARRANTS; AND (II) ASSUMES A PUBLIC OFFERING PRICE OF $7.00 PER SHARE OF COMMON STOCK. THE COMPANY CropKing.com, Incorporated ("Company") designs, develops, manufactures, markets and sells proprietary, commercial hydroponic products and systems, and related technology, equipment and supplies, to customers in the United States and abroad for the commercial year-round production of high value, specialty, disease and pesticide-free plant and floral crops, such as tomatoes, lettuce, peppers, herbs, strawberries and roses. The Company's hydroponic products and systems are offered to its prospective commercial and individual customers in standard and custom-designed configurations, providing versatile commercial structures, products and systems, including related technology, equipment and supplies, on a turn-key basis. The Company's hydroponic products and systems are offered through direct marketing and sales, dealers and distributors and by mail order. The Company annually distributes approximately 100,000 mail order catalogs and other marketing materials to its customers and prospective customers worldwide. See "Business." More recently, since September 1998, the Company has further designed and developed its World Wide Web site (www.cropking.com) in order to more efficiently offer, market and sell the Company's proprietary , commercial hydroponic products and systems, and related technology, equipment and supplies to its customers in the United States and abroad. Included in the Company's Internet Web site is the Company's two mail order catalogues, comprising approximately 1,250 pages of hydroponic products and systems, and related technology, equipment and supplies. The Company believes that emerging and rapidly developing e-commerce on the Internet represents a significant business opportunity for the Company. For the years ending July 31, 1998 and 1999, the Company's Internet Web site accounted for approximately three percent and six percent, respectively, of the Company's sales. The Company intends to principally use the proceeds of this offering for operating costs and working capital, including business development, capital equipment, marketing and sales and mergers and acquisitions of complementary companies in an effort to significantly expand its business and operations. The Company also intends to use approximately $250,000 of the proceeds of this offering to further design and develop its Internet Web site into a state-of-the-art, enhanced and fully interactive Web site to manage the Company's emerging e-commerce on the Internet. The Company believes that its state-of-the-art, enhanced and fully interactive Web site will be implemented and fully operational within approximately six months following the closing of this offering. The Company can make no assurances that the proceeds of this offering will enable it to expand its business and operations in any manner. See "Use of Proceeds" and "Financial Statements." The Company was incorporated in the State of Ohio in June 1982 and reincorporated in the State of Delaware in August 1997. The Company (formerly, CropKing, Incorporated) changed its name to CropKing.com, Incorporated in November 1998. The principal executive offices of the Company are located at 5050 Greenwich Road, Seville, Ohio 44273, and its telephone number is (330) 769-2002. The Company's Internet Web site address is www.cropking.com. Unless the context otherwise indicates, the terms "Company" and "CropKing" as used in this Prospectus refer to CropKing.com, Incorporated. SEE ALSO "RISK FACTORS," "MANAGEMENT" AND "CERTAIN TRANSACTIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS. 3 THE OFFERING Common Stock Offered: Minimum.................................... 300,000 Shares Maximum.................................... 1,000,000 Shares Common Stock Outstanding: Before the Offering........................ 2,000,000 Shares After the Offering: Minimum.................................. 2,300,000 Shares Maximum.................................. 3,000,000 Shares Estimated Net Proceeds(1): Minimum.................................... $1,590,500 Maximum.................................... $5,853,500 Use of Proceeds.............................. Operating costs and working capital, including business development, capital equipment, marketing and sales, and mergers and acquisitions. Proposed Nasdaq Symbol(2): Common Stock............................... CROP Internet Web Site Address.................... www.cropking.com Risk Factors(3).............................. An investment in the Common Stock offered hereby is speculative and involves a high degree of risk. Investors should carefully consider the risk factors described herein before investing in the Common Stock. See "Risk Factors" and "Dilution."
- ------------------------ (1) After deducting the underwriting discounts and commissions and estimated offering expenses of $299,500 if the minimum offering is sold and $446,500 if the maximum offering is sold payable by the Company. See "Underwriting." (2) Although the Company intends to apply for the inclusion of the Common Stock on the Nasdaq SmallCap Market under this symbol, there can be no assurances that such security will be accepted for inclusion or that an active trading market in the security will develop or be sustained. See "Risk Factors--Possible Failure to Qualify for Nasdaq SmallCap Market Listing." (3) See "Risk Factors--Regulations May Impose Certain Restrictions on Marketability of Low-priced Securities." 4 SELECTED FINANCIAL DATA
YEARS ENDED JULY 31, --------------------------- 1998 1999 ---------- ---------- Statement of Earnings Data: Net sales................................................. $5,036,000 $4,899,000 Operating (loss).......................................... $ (108,000) $ (144,000) (Loss) before income taxes................................ $ (197,000) $ (475,000) Net (loss)................................................ $ (218,000) $ (369,000) (Loss) per share.......................................... $ (.11) $ (.18) Weighted average shares outstanding....................... 1,969,795 (1) 2,000,000 (1)
JULY 31, 199AS ADJUSTED (2) ----------------------- ----------------------- HISTORICAL MINIMUM MAXIMUM ---------- ---------- ---------- Balance Sheet Data: Working capital........................................ $ 181,000 $1,774,000 $6,037,000 Total assets........................................... $2,389,000 $3,780,000 $8,043,000 Total liabilities...................................... $1,969,000 $1,969,000 $1,969,000 Stockholders' equity................................... $ 420,000 $1,811,000 $6,074,000
- ------------------------ (1) Includes 525,000 shares issued to six persons in consideration of cash and notes receivable in August 1997. See Note F to the accompanying "Financial Statements." (2) Adjusted to reflect the sale of the securities offered hereby, less underwriting discounts and commissions and the payment by the Company of expenses of this offering estimated at $299,500 if the minimum offering is sold and $446,500 if the maximum offering is sold. See "Use of Proceeds." 5 RISK FACTORS THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. ONLY THOSE PERSONS ABLE TO LOSE THEIR ENTIRE INVESTMENT SHOULD PURCHASE THESE SECURITIES. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT DECISION, SHOULD CAREFULLY READ THIS PROSPECTUS AND CONSIDER, ALONG WITH OTHER MATTERS REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS: LIMITED OPERATING HISTORY The Company was incorporated in Ohio in June 1982 and reincorporated in Delaware in August 1997, and as such has a limited operating history. The Company (formerly, CropKing, Incorporated) changed its name to CropKing.com, Incorporated in November 1998. The Company faces the risks and problems associated with new businesses and has a limited operating history in the hydroponics industry upon which to base an evaluation of its future prospects. Such prospects should be considered in light of the risks, expenses and difficulties frequently encountered in the expansion of a new business in an industry characterized by a significant number of market entrants and intense competition. The market for the Company's hydroponic products, systems and services is relatively new, intensely competitive, rapidly evolving and subject to rapid change. The Company expects competition to persist, intensify and increase in the future, from start-up companies to major agribusinesses. Many of the Company's current and potential competitors have larger operating histories, greater name recognition, larger installed customer bases and significantly greater financial, technical and marketing resources than the Company. Competition in the hydroponics business will continue to be intense in the foreseeable future as the environment continues to deteriorate and demand for crop foods intensifies as the population expands, and there can be no assurance that the Company will be able to compete successfully against current or future competitors, or that this significant competition will not adversely affect the Company's business, operating results or financial condition. See "Business." NO ASSURANCE OF FUTURE PROFITABILITY OR PAYMENT OF DIVIDENDS The Company can make no assurances that the future operations of the Company will result in additional revenues or will be profitable. Should the operations of the Company be profitable, it is likely that the Company would retain much or all of its earnings in order to finance future growth and expansion. Therefore, the Company does not presently intend to pay dividends, and it is not likely that any dividends will be paid in the foreseeable future. See "Dividend Policy." IMMEDIATE AND SUBSTANTIAL DILUTION As of July 31, 1999 the Company had a net tangible book value of $217,000 or $.11 per share, derived from the Company's balance sheet as of July 31, 1999. Net tangible book value means the tangible assets of the Company, less all liabilities, divided by the number of shares of Common Stock outstanding. After giving effect to the sale of the minimum and maximum number of shares offered hereby at an assumed price of $7.00 per share after deducting underwriting discounts and estimated offering expenses, pro forma net tangible book value of July 31, 1999 would have been $1,811,000 and $6,074,000 or $.79 per share and $2.02 per share, respectively. The result would be an immediate increase in net tangible book value per share of $.68 and $1.91 per share, respectively, and an immediate dilution to new investors of $6.21 and $4.98 per share, respectively. As a result, public investors will bear most of the risk of loss since their shares are being purchased at a cost substantially above the price that existing shareholders acquired their shares. See "Dilution." POSSIBLE NEED FOR ADDITIONAL FINANCING The Company intends to fund its operations and other capital needs for the next 12 months substantially from the proceeds of this offering, but there can be no assurance that such funds will be sufficient for these purposes. The Company may require substantial amounts of the proceeds of this offering for its future expansion, operating costs and working capital. The Company has made no 6 arrangements to obtain future additional financing, if required, and there can be no assurance that such financing will be available, or that it will be available on acceptable terms. See "Use of Proceeds." DEPENDENCE ON MANAGEMENT The Company's success is principally dependent on its current management personnel for the operation of its business. In particular, Daniel J. Brentlinger, the Company's founder, president and chief executive officer, has played a substantial role in the organization, development and management of the Company, although there is no assurance that additional managerial assistance will not be required. The analysis of new business opportunities will be undertaken by or under the supervision of the management of the Company. The Company has recently entered into an employment agreement with Mr. Brentlinger. However, if the employment by the Company of Mr. Brentlinger terminates, or he is unable to perform his duties, the Company may be substantially affected. The agreement also contains non-compete provisions but are limited in geographical scope. The Company has agreed to purchase key-man life insurance on Mr. Brentlinger in the amount of $1 million upon the closing of this offering. The Company will be the owner and beneficiary of the term insurance policy. See "Use of Proceeds," "Business" and "Management." DEPENDENCE ON QUALIFIED TECHNICAL PERSONNEL The Company believes that its future success will depend in large part upon its continued ability to recruit and retain qualified technical personnel. Competition for qualified technical personnel is significant, particularly in the geographic area in which the Company's operations are located. No assurances can be made that the Company's relationship with its employees will remain good. See "Management." UNCERTAINTY OF PROPOSED MERGERS AND ACQUISITIONS CAMPAIGN Following the closing of this offering, the Company intends to engage in a mergers and acquisitions campaign in order to merge with or acquire companies engaged in a similar business. The Company has not entered into any negotiations to merge with or acquire any such target companies, but the Company has identified several such companies engaged in a complementary business. The Company can make no assurances that it will be able to merge with or acquire any companies. Although the Company intends to utilize approximately $250,000 of the net proceeds of this offering in its mergers and acquisitions activities during the 12 months following the date of this Prospectus, no assurances can be made that such funds will enable the Company to expand its base or realize profitable consolidated operations. In addition, the Company's stockholders may not have the opportunity to review the financial statements of any of the companies that may be acquired or have the opportunity to vote on any proposed acquisitions since Delaware law does not require such review and approval. The stockholders of the Company will therefore be dependent on the judgment of the management of the Company in their selection of merger and acquisition candidates. Should such funds not be utilized in its mergers and acquisitions activities, the Company intends to utilize the funds in equal amounts in working capital, capital equipment and marketing and sales. See "Use of Proceeds." MANAGEMENT'S BROAD DISCRETION IN APPLICATION OF NET PROCEEDS The management of the Company has broad discretion to adjust the application and allocation of the net proceeds of this offering, including funds received upon exercise of the Warrants, of which there is no assurance, in order to address changed circumstances and opportunities. As a result of the foregoing, the success of the Company will be substantially dependent upon the discretion and judgment of the management of the Company with respect to the application and allocation of the net proceeds hereof. Pending use of such proceeds, the net proceeds of this offering will be invested by the Company in temporary, short-term interest-bearing obligations. See "Use of Proceeds." DEPENDENCE ON TECHNOLOGY; YEAR 2000 (Y2K) ISSUE The Company's business is dependent upon a number of different information and telecommunications technologies to access and manage information, including handling a high volume of telephone calls 7 on a daily basis. Rapid and evolving changes in these technologies may require greater than anticipated capital expenditures to improve or upgrade a high level of customer service. A failure of the Company's management of its information and telecommunications technologies may have a material adverse effect on the business, financial condition and results of operations of the Company. The Company's dependence upon information and telecommunications technology makes the Company relevant to Year 2000 issues. Because the Company receives product orders in advance of actual shipment, the Company must be able to identify and correct Year 2000 issues on a more expedited basis than companies in other industries who are not as dependent on information and telecommunications technologies. The Company believes that its information and telecommunications technologies are Year 2000 compliant. However, because the Company and its customers are dependent on certain vendors and suppliers who may not necessarily be Year 2000 compliant, such lack of compliance may have a material adverse effect on the business, financial condition and results of operations of the Company. POSSIBLE DEPENDENCE ON CONTINUED GROWTH OF ONLINE COMMERCE. The Company's future revenues and any future profits may become dependent upon the widespread acceptance and use of the Internet and commercial online services as an effective medium of commerce by consumers. For the Company to be successful, these consumers must accept and utilize novel ways of conducting business and exchanging information. Convincing consumers to purchase products online may be particularly difficult, as such consumers have traditionally relied on catalogue purchases and are accustomed to a certain degree of human interaction in purchasing products. Rapid growth in the use of and interest in the Web, the Internet and commercial online services is a recent phenomenon, and there can be no assurance that acceptance and use will continue to develop or that a sufficiently broad base of consumers will adopt, and continue to use, the Internet and commercial online services as a medium of commerce, particularly for purchases of the Company's products. Demand for recently introduced services and products over the Internet and commercial online services is subject to a high level of uncertainty and there exist few proven services and products. The development of the Internet and commercial online services as a viable commercial marketplace is subject to a number of factors, including continued growth in the number of users of such services, concerns about transaction security, continued development of the necessary technological infrastructure and the development of complementary services and products. If the Internet and commercial online services do not become a viable commercial marketplace, the Company's business, operating results and financial condition may be materially adversely affected. RAPID TECHNOLOGICAL CHANGE. The Internet and the online commerce industry are characterized by rapid technological change, changes in user and customer requirements and preferences, frequent new product and service introductions embodying new technologies and the emergence of new industry standards and practices that could render the Company's existing online sites and proprietary technology and systems obsolete. The emerging nature of these products and services and their rapid evolution will require that the Company continually improve the performance, features and reliability of its online services, particularly in response to competitive offerings. The Company's success will depend, in part, on its ability to enhance its existing services, to develop new services and technology that address the increasingly sophisticated and varied needs of its prospective customers and to respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. The development of online sites and other proprietary technology entails significant technical and business risks and requires substantial expenditures and lead time. There can be no assurance that the Company will successfully use new technologies effectively or adapt its online sites, proprietary technology and transaction-processing systems to customer requirements or emerging industry standards. If the Company is unable, for technical, legal, financial or other reasons, to adapt in a timely manner in response to changing market conditions or customer requirements, its business, operating results and financial condition may be materially adversely affected. 8 ONLINE COMMERCE AND DATABASE SECURITY RISKS. A fundamental requirement for online commerce and communications is the secure transmission of confidential information over public networks. The Company relies on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure transmission of confidential information, such as customer credit card numbers. In addition, the Company maintains an extensive confidential database of customer profiles and transaction information. There can be no assurance that advances in computer capabilities, new discoveries in the field of cryptography or other events or developments will not result in a compromise or breach of the algorithms used by the Company to protect customer transaction and personal data contained in the Company's customer database. If any such compromise of the Company's security were to occur, it may have a material adverse effect on the Company's reputation, business, operating results and financial condition. A party who is able to circumvent the Company's security measures could misappropriate proprietary information or cause interruptions in the Company's operations. The Company may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. Concerns over the security of transactions conducted on the Internet and commercial online services and the privacy of users may also inhibit the growth of the Internet and commercial online services, especially as a means of conducting commercial transactions. To the extent that activities of the Company or third-party contractors involve the storage and transmission of proprietary information, such as credit card numbers or other personal information, security breaches may expose the Company to a risk of loss or litigation and possible liability. There can be no assurance that the Company's security measures will prevent security breaches or that failure to prevent such security breaches will not have a material adverse effect on the Company's business, operating results and financial condition. UNCERTAIN PROTECTION OF PATENT, TRADEMARK, COPYRIGHT AND PROPRIETARY RIGHTS The Company may file patent, trademark and/or copyright applications relating to certain of the Company's hydroponic products and systems. If patent, trademarks or copyrights were to be issued, there can be no assurance as to the extent of the protection that will be granted to the Company as a result of having such patents, trademarks or copyrights or that the Company will be able to afford the expenses of any complex litigation which may be necessary to enforce its proprietary rights. Failure of the Company's patents, trademark and copyright applications may have a material adverse impact on the Company's business. Except as may be required by the filing of patent, trademark and copyright applications, the Company will attempt to keep all other proprietary information secret and to take such actions as may be necessary to insure the result of its development activities are not disclosed and are protected under the common law concerning trade secrets. Such steps will include the execution of nondisclosure agreement by key Company personnel and may also include the imposition of restrictive agreements on purchasers of the Company's products and services. There is no assurance that the execution of such agreements will be effective to protect the Company, that the Company will be able to enforce the provisions of such nondisclosure agreements or that technology and other information acquired by the Company pursuant to its development activities will be deemed to constitute trade secrets by any court of competent jurisdiction. SUBSTANTIAL COMPETITION Businesses in the United States and abroad that are engaged in the hydroponic industry and related products and services are significant in number and highly competitive. Many of the companies with which the Company intends to compete are substantially larger and have substantially greater resources than the Company. It is also likely that other competitors will emerge in the future. The Company will compete with companies that have greater market recognition, greater resources and broader capabilities than the Company. As a consequence, there is no assurance that the Company will be able to successfully compete in its industry. See "Business." LIABILITY AND INSURANCE The Company provides training and related services to its customers in connection with its hydroponic products and systems. The Company therefore may be exposed to the risk of liability for personal injury. 9 The Company maintains quality control programs in an attempt to reduce the risk of potential damage to persons and any associated potential liability. The Company maintains $1,000,000 per loss event/$6,000,000 policy aggregate of liability insurance covering damages resulting from negligent acts, errors, mistakes or omissions in rendering or failing to render its services. The Company is not a party to any legal proceedings and, to the best of its information, knowledge and belief, none is contemplated or has been threatened. See "Legal Proceedings." LIMITATION ON DIRECTOR LIABILITY As permitted by the Delaware General Corporation Law, the Company's Certificate of Incorporation limits the liability of directors to the Company or its stockholders for monetary damages for breach of a director's fiduciary duty except for liability in four specific instances. These are for (i) any breach of the director's duty of loyalty to the Company or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, (iii) unlawful payments of dividends or unlawful stock purchases or redemptions as provided in Section 174 of the Delaware General Corporation Law, or (iv) any transaction from which the director derived an improper personal benefit. As a result of the Company's charter provision and Delaware law, stockholders may have more limited rights to recover against directors for breach of fiduciary duty. See "Management -- Limitation on Liability of Directors." GOVERNMENT REGULATION The Company is not currently subject to direct regulation by any state or federal government agency other than regulations applicable to businesses generally, and there are currently few laws or regulations directly applicable to access to or to commerce on the Internet, a new electronic marketing medium for the Company. However, due to the increasing popularity and use of the Internet for electronic commerce, it is possible that a number of laws and regulations may be adopted with respect to the Internet, conveying issues such as user privacy, credit card use and the pricing of commercial products offered for sale. The adoption of any such laws or regulations may stifle electronic commerce on the Internet, which may in turn decrease the demand for the Company's products and systems and increase the Company's cost of doing business or otherwise have an adverse impact on the Company's business, operating results or financial condition. ARBITRARY OFFERING PRICE There has been no prior public market for the Company's securities. The price to the public of the shares offered hereby has been arbitrarily determined by negotiations between the Company and the Representative and bears no relationship to the Company's earnings, book value or any other recognized criteria of value. The offering price of $7.00 per share is substantially in excess of the net tangible book value of $.11 per share, derived from the Company's balance sheet as of July 31, 1999, and in excess of the price received by the Company for shares sold in prior transactions. See "Prospectus Summary -- Selected Financial Data," "Underwriting," "Dilution and Other Comparative Data" and "Certain Transactions." LACK OF PRIOR MARKET FOR SECURITIES OF THE COMPANY No prior market exists for the securities being offered hereby and no assurance can be given that a market will develop subsequent to this offering. The Underwriter may make a market in the securities of the Company upon the closing of this offering, but there is no assurance that it will do so, or if a market develops that it will be sustained. See "Description of Securities" and "Underwriting." EXERCISE OF UNDERWRITER'S COMMON STOCK WARRANTS MAY HAVE DILUTIVE EFFECT ON MARKET The Company will also issue to the Underwriter and/or persons related to the Underwriter, for nominal consideration, warrants to purchase up to 100,000 shares of Common Stock. The Underwriter's Common Stock Warrants will be exercisable for a five year period commencing from the effective date of the offering at an exercise price of 120% of the price at which the Common Stock is sold to the public subject to adjustment. The warrants may have certain dilutive effects because the holders thereof will be 10 given the opportunity to profit from a rise in the market price of the underlying shares with a resulting dilution in the interest of the Company's other shareholders. The terms on which the Company may obtain additional capital during the life of the warrants may be adversely affected because the holders of the warrants might be expected to exercise them at a time when the Company would otherwise be able to obtain comparable additional capital in a new offering of securities at a price per share greater than the exercise price of the warrants. The Company has agreed that, at the request of the holders thereof under certain circumstances, it will register under federal and state securities laws the Underwriter's warrants and/or the securities issuable thereunder. Exercise of these registration rights may involve substantial expense to the Company at a time when it could not afford cash expenditures and may adversely affect the terms upon which the Company may obtain additional funding and may adversely affect the price of the Common Stock. See "Underwriting." NASDAQ SMALLCAP MARKET ELIGIBILITY AND MAINTENANCE Under the current rules relating to the listing of securities on the Nasdaq SmallCap Market a company must have (a) at least $4,000,000 in net tangible assets, or $750,000 in net income in two of the last three years, or a market capitalization of at least $50,000,000, (b) public float of at least 1,000,000 shares, (c) market value of public float of at least $5,000,000, and (d) a minimum bid price of $4.00 per share, among other requirements. For a continued listing, a company must maintain (a) at least $2,000,000 in net tangible assets, or $500,000 in net income in two of the last three years, or a market capitalization of at least $35,000,000, (b) public float of at least 500,000 shares, (c) market value of public float of at least $1,000,000 and (d) a minimum bid price of $1.00 per share; among other requirements. The Common Stock is expected to be eligible for initial listing on the Nasdaq SmallCap Market under the current rules upon the closing of the maximum offering. If at any time after issuance the Common Stock is not listed on the Nasdaq SmallCap Market, and no other exclusion from the definition of a "penny stock" under the Exchange Act were available, transactions in the securities would become subject to the penny stock regulations which impose additional sales practice requirements on broker-dealers who offer and sell such securities. If the Company should experience losses from operations, it may be unable to maintain the standards for continued listing and the securities may be subject to delisting from the Nasdaq SmallCap Market. Trading, if any, in the securities would thereafter be conducted in the over-the-counter market on an electronic bulletin board established for securities that do not meet the Nasdaq SmallCap Market listing requirements or in what are commonly referred to as the "pink sheets." As a result, an investor may find it more difficult to dispose of or to obtain accurate quotations as to the price of the securities. REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY OF LOW-PRICED SECURITIES The Securities and Exchange Commission ("Commission") has adopted regulations which generally define "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share, subject to certain exceptions. Upon authorization of the securities offered hereby for quotation, such securities will initially be exempt from the definition of "penny stock." If the securities offered hereby fall within the definition of a "penny stock" following the effective date, the Company's securities may become subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker- dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control 11 over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the "penny stock" rules may restrict the ability of broker-dealers to sell the Company's securities and may affect the ability of purchasers in this offering to sell the Company's securities in the secondary market. See "Description of Securities." SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET All of the Company's currently outstanding shares of Common Stock are "restricted securities" and, in the future, may be sold upon compliance with Rule 144, adopted under the Securities Act of 1933, as amended. Rule 144 provides, in essence, that a person holding "restricted securities" for a period of one year may sell only an amount every three months equal to the greater of (a) one percent of the Company's issued and outstanding shares, or (b) the average weekly volume of sales during the four calendar weeks preceding the sale. The amount of "restricted securities" which a person who is not an affiliate of the Company may sell is not so limited, since nonaffiliates may sell without volume limitation their shares held for two years if there is adequate current public information available concerning the Company. Upon the sale of the maximum number of securities, the Company will have 3,000,000 shares of its common stock issued and outstanding, of which 2,000,000 shares will be "restricted securities." Therefore, during each three month period, a holder of restricted securities who has held them for at least the one year period may sell under Rule 144 a number of shares up to 30,000 shares. Non-affiliated persons who hold for the two-year period described above may sell unlimited shares once their holding period is met. However, pursuant to the terms of the Underwriting Agreement, the stockholders of the Company have agreed not to sell, transfer, assign or otherwise dispose of any securities of the Company for a period of 24 months following the date of this Prospectus. See "Dilution," "Principal Stockholders," "Certain Transactions," "Description of Securities" and "Underwriting." Prospective investors should be aware that the possibility of sales may, in the future, have a depressive effect on the price of the Company's Common Stock in any market which may develop and, therefore, the ability of any investor to market his shares may be dependent directly upon the number of shares that are offered and sold. Affiliates of the Company may sell their shares during a favorable movement in the market price of the Company's Common Stock which may have a depressive effect on its price per share. See "Description of Securities." 12 USE OF PROCEEDS After deducting the underwriting discounts and commissions and estimated offering expenses of this offering, the Company will receive net proceeds from this offering of approximately $1,590,500 if the minimum offering is sold and $5,853,500 if the maximum offering is sold. These proceeds will be utilized in order of priority by the Company as listed below for approximately 12 months substantially as follows:
APPROXIMATE AMOUNT OF NET PROCEEDS --------------------------------------------------------- MINIMUM OFFERING % MAXIMUM OFFERING % ---------------- -------- ---------------- -------- OPERATING COSTS AND WORKING CAPITAL Business Development(1).................. $ 500,000 31.44 $2,350,000 40.15 Capital Equipment(2)..................... 300,000 18.86 1,250,000 21.35 Marketing and Sales(3)................... 300,000 18.86 750,000 12.81 Mergers and Acquisitions(4).............. 250,000 15.72 250,000 4.27 Working Capital(5)....................... 240,500 15.12 1,253,500 21.42 ---------- ------ ---------- ------ TOTAL................................ $1,590,500 100.00 $5,853,500 100.00 ========== ====== ========== ======
- ------------------------ (1) Includes hydroponic products and systems development, annual salaries for technical and services support and training personnel. The Company also intends to use approximately $250,000 of the proceeds of this offering to further design and develop its Internet Web site into a state-of-the-art, enhanced and fully interactive Web site to manage the Company's emerging e-commerce on the Internet. The Company believes that its state-of-the-art, enhanced and fully interactive Web site will be implemented and fully operational within approximately six months following the closing of this offering. The officers and employees of the Company also intend to receive remuneration as part of an overall group insurance plan providing health, life and disability insurance benefits for employees of the Company. Includes annual general and administrative employee salaries, exclusive of management salaries, associated benefits, related office rent and miscellaneous office expenses. The salaries of the officers of the Company will be paid from the Company's cash flow and not from the proceeds of this offering. See "Management--Remuneration." (2) The Company intends to purchase and/or lease certain additional capital equipment and product inventory including, but not limited to, hydroponic hardware equipment and systems, computer hardware/software and systems, telephone and facsimile systems, security systems and office equipment and furniture. (3) The amount allocated by the Company for marketing and sales includes marketing materials, advertising, business travel and a significant expansion of its marketing and sales staff. (4) Following the closing of this offering, the Company intends to engage in a mergers and acquisitions campaign in order to merge with or acquire complementary companies in the $10 million to $25 million revenue range. The Company has not entered into any negotiations, agreements, arrangements or understandings with respect to the merger with or acquisition of any such target companies, or has any such agreement or understandings with any brokers or finders regarding same. The Company can make no assurances that it will be able to merge with or acquire any companies. Although the Company intends to utilize not more than $250,000 in its mergers and acquisitions activities during the 12 months following the date of this Prospectus, no assurances can be made that such funds will enable the Company to expand its base or realize profitable consolidated operations. Whenever possible, the Company intends to issue its securities rather than use such cash funds to consummate a merger or acquisition. The ability of the Company to engage in a mergers and acquisitions campaign in view of the Company's resources is uncertain. Should such funds not be 13 utilized in its mergers and acquisitions activities, the Company intends to utilize the funds in equal amounts in capital equipment and marketing and sales. (5) Working capital will be utilized by the Company to enhance and, otherwise, stabilize cash flow during the initial 12 months of operations following the closing of this offering, such that any shortfalls between cash generated by operating revenues and costs will be covered by working capital. Although the Company prefers to retain its working capital in reserve, the Company may be required to expend part or all of these proceeds as financial demands dictate. The Company is unable to predict the precise period for which this offering will provide financing, although management believes that the Company should have sufficient working capital to meet its cash requirements for the 12 months period following the date of this offering. Accordingly, the Company may need to seek additional funds through loans or other financing arrangements during this period of time. No such arrangements exist or are currently contemplated and there can be no assurance that they may be obtained in the future should the need arise. Pending utilization, management intends to make temporary investment of the proceeds in bank certificates of deposit, interest-bearing savings accounts, prime commercial paper or federal government securities. 14 DILUTION As of July 31, 1999 the Company had a net tangible book value of $217,000 or $.11 per share, derived from the Company's balance sheet as of July 31, 1999. Net tangible book value means the tangible assets of the Company, less all liabilities, divided by the number of shares of Common Stock outstanding. After giving effect to the sale of the minimum and maximum number of shares offered hereby at an assumed price of $7.00 per share after deducting underwriting discounts and estimated offering expenses, pro forma net tangible book value as of July 31, 1999 would have been $1,811,000 and $6,074,000 or $.79 per share and $2.02 per share, respectively. The result would be an immediate increase in net tangible book value per share of $.68 and $1.91 per share, respectively, and an immediate dilution to new investors of $6.21 and $4.98 per share, respectively. As a result, public investors will bear most of the risk of loss since their shares are being purchased at a cost substantially above the price that existing shareholders acquired their shares. "Dilution" is determined by subtracting net tangible book value per share after the offering from the offering price to investors. The following table illustrates this dilution:
MINIMUM MAXIMUM OFFERING OFFERING ------------- ------------- Public offering price per share of the Common Stock offered hereby......................................... $7.00 $7.00 Net tangible book value per share, before the offering............................................ $ .11 $ .11 Increase per share attributable to the sale by the Company of the shares offered hereby................ $ .68 $1.91 ----- ----- Pro forma net tangible book value per share, after the offering............................................... $ .79 $2.02 ----- ----- Dilution per share to new investors..................... $6.21 $4.98 ===== =====
The above table assumes no exercise of the Underwriter's Common Stock Warrants. See "Description of Securities." The following table summarizes the investments of all existing stockholders and new investors after giving effect to the sale of the maximum number of shares offered hereby assuming no exercise of the Underwriter's Common Stock Warrants:
PERCENTAGE PERCENT OF AVERAGE SHARES OF TOTAL AGGREGATE TOTAL PRICE PER MAXIMUM OFFERING PURCHASED SHARES CONSIDERATION INVESTED SHARE - ---------------- --------- ---------- ------------- ---------- --------- Present Stockholders..................... 2,000,000 66.67% $ 3,999 .05% $-- ===== Public Stockholders...................... 1,000,000 33.33% $7,000,000 99.95% $7.00 --------- ------ ---------- ------ ===== Total................................ 3,000,000 100.00% $7,003,999 100.00% $2.33 ========= ====== ========== ====== ===== MIMIMUM OFFERING - ----------------------------------------- Present Stockholders..................... 2,000,000 86.96% $ 3,999 .19% $ -- ===== Public Stockholders...................... 300,000 13.04% $2,100,000 99.81% $7.00 --------- ------ ---------- ------ ===== 2,300,000 100.00% $2,103,999 100.00% $ .91 ========= ========== ====== =====
15 CAPITALIZATION The following table sets forth the capitalization of the Company, as of July 31, 1999 and as adjusted to reflect the sale of the securities offered hereby. The table should be read in conjunction with the Financial Statements, and the notes thereto.
AS ADJUSTED JULY 31, ----------------------- 1999 MINIMUM(1) MAXIMUM(1) ---------- ---------- ---------- Long-term debt (2)....................................... $1,250,000 $1,250,000 $1,250,000 ---------- ---------- ---------- Stockholders' equity Common Stock, $.01 par value, 25,000,000 shares authorized, 2,000,000 shares outstanding; 3,000,000 shares and 2,300,000 shares outstanding as adjusted maximum and minimum, respectively.................... 20,000 23,000 30,000 Additional paid-in capital............................. 1,045,000 2,433,000 6,689,000 Notes receivable stockholders.......................... (525,000) (525,000) (525,000) Accumulated deficit.................................... (120,000) (120,000) (120,000) ---------- ---------- ---------- Total stockholders' equity........................... 420,000 1,811,000 6,074,000 ---------- ---------- ---------- Total capitalization................................. $1,670,000 $3,061,000 $7,324,000 ========== ========== ==========
- ------------------------ (1) As adjusted to reflect the net proceeds of this offering. Assumes no exercise of the Underwriter's Common Stock Warrants to purchase up to 100,000 shares of Common Stock. See "Description of Securities" and "Underwriting." (2) Long-term debt consists primarily of capital lease obligations from related and non-related parties. See Note C to the accompanying "Financial Statements." DIVIDEND POLICY Holders of the Company's Common Stock are entitled to dividends when, as and if declared by the Board of Directors out of funds legally available therefor. The Company does not anticipate the declaration or payment of any dividends in the foreseeable future. The Company intends to retain earnings, if any, to finance the development and expansion of its business. Future dividend policy will be subject to the discretion of the Board of Directors and will be contingent upon future earnings, if any, the Company's financial condition, capital requirements, general business conditions and other factors. Therefore, there can be no assurance that any dividends of any kind will ever be paid by the Company. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION PLAN OF OPERATION CropKing.com, Incorporated ("Company") designs, develops, manufactures, markets and sells proprietary, commercial hydroponic products and systems, and related technology, equipment and supplies to customers in the United States and abroad for the commercial year-round production of high value, specialty, disease and pesticide-free plant and floral crops, such as tomatoes, lettuce, peppers, herbs, strawberries and roses. The Company's hydroponic products and systems are offered to its prospective commercial and individual customers in standard and custom-designed configurations, providing versatile commercial structures, products and systems, including related technology, equipment and supplies, on a turn-key basis. The Company's hydroponic products and systems are offered through direct marketing and sales, dealers and distributors and by mail order. More recently, since September 1998, the Company has further designed and developed its World Wide Web site (www.cropking.com) in order to more efficiently offer, market and sell the Company's proprietary, commercial hydroponic products and systems, and related technology, equipment and supplies to its customers in the United States and abroad. Included in the Company's Internet Web site is the Company's two mail order catalogues, comprising approximately 1,250 pages of hydroponic products and systems, and related technology, equipment and supplies. The Company believes that emerging and rapidly developing e-commerce on the Internet represents a significant business opportunity for the Company. For the years ending July 31, 1998 and 1999, the Company's Internet Web site accounted for approximately three percent and six percent respectively, of the Company's sales. The Company intends to principally use the proceeds of this offering for operating costs and working capital, including business development, capital equipment, marketing and sales and mergers and acquisitions of complementary companies in an effort to significantly expand its business and operations. The Company also intends to use approximately $250,000 of the proceeds of this offering to further design and develop its Internet Web site into a state-of-the-art, enhanced fully interactive Web site to manage the Company's emerging e-commerce on the Internet. The Company believes that its state-of-the-art, enhanced and fully interactive Web site will be implemented and fully operational within the approximately six months following the closing of this offering. The Company can make no assurances that the proceeds of this offering will enable it to expand its business and operations in any manner. Unlike the generic greenhouses and equipment sold by other suppliers, the Company offers a controlled environment hydroponic products and systems design for the commercial year round production of high value, specialty, disease and pesticide-free plant and floral crops. A significant advance over conventional glass hothouses of the past, the Company's advanced greenhouse design utilizes energy efficient clear double covers constructed with the most advanced polymer technology available to keep energy costs to a minimum. The Company's proprietary design allows it to withstand high winds and heavy snow anywhere in the U.S. and still maintain ideal growing conditions inside. A complete hydroponics system, which is offered in standard and custom-designed configurations, includes heating, cooling and ventilation equipment, as well as dehumidification, optional floor heating, computerized environmental controller and monitor and an automated nutrient injection system. The Company does all the work for its customers on a turn key basis in sourcing and configuring its hydroponic products and systems from reputable and dependable suppliers, so that all of the parts to a system will work in harmony together. Also, the Company's technicians analyze a customer's water source to develop an appropriate nutrient program.The Company's technical staff conducts periodic and subsequent analyses to keep the customer's nutrients optimized for its target crops. The Company's marketing, distribution and sales strategy targets commercial and independent growers, dealers and distributors, mail order customers and Internet (address: www.cropking.com) customers. At year end July 31, 1999, commercial and independent growers represented approximately 67 percent of sales, dealers and distributors represented approximately 23 percent of sales, and mail order customers and Internet customers represented approximately ten percent of sales. The Company believes that its mail 17 order and Internet customers will gain a larger percentage of its sales in the future due to stronger marketing efforts by the Company and a general trend in the market towards the electronic marketplace. The Company also uses direct marketing of its hydroponic products, systems and services, and intends to use a variety of other marketing programs to stimulate demand for its products, systems and services. These programs are focused on the target markets mentioned above and are designed to leverage the Company's mail order list (approximately 100,000 current and prospective customers) and the Internet, and both are powerful marketing vehicles. In addition, the Company intends to develop co-marketing programs with strategic corporate partners designed to take advantage of complementary marketing capabilities, E.G., agribusiness companies with mail order catalogues and other marketing and distribution channels for the Company's hydroponic products and systems. The Company also markets and distributes its products in the U.S. and abroad in part by disseminating its products and systems through multiple national and international distribution channels. The Company heretofore has had limited resources to market and distribute its products and systems. The Company can make no assurances as to the future success of its marketing and distribution strategy. Furthermore, the Company has limited resources to achieve the distribution of its products and systems and no assurances can be made that the Company will not require additional financing, which may not be available, to achieve such objective. The Company has designed its marketing and distribution strategy to address the particular requirements of its commercial and independent growers, and individual customers. Therefore, the Company's marketing and distribution efforts consists of a direct sales force of four persons, dealers and distributors, telesales, mail order catalogue and the Internet. Following the closing of this offering, the Company intends to increase its direct sales force by three persons, all of whom will work on a base salary plus a sales commission. There can be no assurance that such internal expansion will be successfully completed, that the cost of such expansion will not exceed the revenues generated; or that the Company's marketing and distribution organization will be able to successfully compete against the significantly more extensive and well-funded marketing and distribution operations of many of the Company's current or potential competitors. The Company's inability to effectively manage its internal expansion may have a material adverse effect on the Company's business, operating results or financial condition. RESULTS OF OPERATIONS YEAR ENDED JULY 31, 1999, COMPARED TO JULY 31, 1998. For the year ended July 31, 1999, the Company reported revenue of $4,899,000 from the sale of its hydroponic products, systems and services, a 3% decrease compared to the same period ending July 31, 1998, where the Company reported revenue of $5,036,000 on the sale of its products, systems and services. The decrease was primarily attributable to a decrease in the sale of hydroponic systems and service revenue. The Company's gross margin on sales for the year ended July 31, 1999 of 36.8% as compared to July 31, 1998 of 38.2% decreased approximately 1.4% primarily due to a reduction in margins on hydroponic system sales and decreased service revenues. Selling, general and administrative expenses increased to $1,947,000 for the year ended July 31, 1999 from $1,708,000 for the year ended July 31, 1998. The increase was the result of expenditures primarily from wages due to additional management, administrative and sales staff needed to support operations and marketing in anticipation of the Company's initial public offering. Additionally, costs were incurred for professional fees, product development, marketing and the development of the Company's Internet Web site. During 1999, the Company incurred a $236,100 charge for expensing previously deferred public offering costs. The costs expensed relate to previously filed registration statements that do not have any on-going value (see note A in the accompanying notes to the financial statements). 18 Interest and financing charges of $124,000 for the year ended July 31, 1999 remained approximately the same as compared to the year ended July 31, 1998. LIQUIDITY AND CAPITAL RESOURCES The Company's operations to date have concentrated on continuing development of its hydroponic products and systems, establishing acceptance of its products and systems in its industry, providing technical service to its existing customer base and expansion of its business. The Company has, historically financed these activities through internally generated cash flows from operations and financing through long-term obligations (see Note C to the Company's Financial Statements). Management of the Company believes that the cash flow provided from operations and the minimum proceeds of this offering will be sufficient to sustain operations for the remainder of fiscal 2000 and fiscal 2001 and through fiscal 2002 if the maximum proceeds of this offering are received. Additional financing may be necessary to provide for continued product development and operations in fiscal 2002 if the minimum proceeds of this offering are received and in fiscal 2003 if the maximum proceeds of this offering are received. The Company also has available under a line of credit $750,000 which can be used for additional financing. There were no borrowings against the line at July 31, 1999. The Company has an income tax refund of approximately $100,000 that it expects to receive in fiscal 2000. This refund is the result of the Company's net operating loss for fiscal 1999 and the corresponding tax loss carryback. In January 1998, the Company entered into a letter of intent with the Underwriter for this initial public offering of the Company's securities. The net proceeds of this offering should provide adequate working capital for the Company to enhance and, otherwise, stabilize cash flow during at least the 12 months of operations following the closing of this offering, such that any shortfalls between cash generated by operating revenues and costs will be covered by working capital. Although the Company prefers to retain its working capital in reserve, the Company may be required to expend part or all of these proceeds as financial demands dictate. The Company is unable to predict the precise period for which this offering will provide financing, although management believes that the Company should have sufficient working capital to meet its cash requirements for the 12 months period following the date of this offering. Accordingly, the Company may need to seek additional funds through loans or other financing arrangements during this period of time. No such arrangements exist other than the Company's line of credit mentioned above or are currently contemplated and there can be no assurance that they may be obtained in the future should the need arise. Pending utilization, management of the Company intends to make temporary investment of the proceeds in bank certificates of deposit, interest-bearing savings accounts, prime commercial paper or federal government securities. IMPACT OF INFLATION The Company does not believe that inflation has had a material adverse effect on income since its inception. Increases in supplies or other operating costs may adversely affect the Company's operations; however, the Company believes it may increase prices of its hydroponic products, systems and services to offset increases in operating costs. SEASONALITY Based on its experience to date, the Company believes that its future operating results will not be subject to seasonal changes. Such effects, should they occur, may be apparent in the Company's operating results during a period of expansion. However, the Company can make no assurance that its business can be significantly expanded. 19 BUSINESS OVERVIEW CropKing.com, Incorporated ("Company") designs, develops, manufactures, markets and sells proprietary, commercial hydroponic products and systems, and related technology, equipment and supplies, to customers in the United States and abroad for the commercial year-round production of high value, specialty, disease and pesticide-free plant and floral crops, such as tomatoes, lettuce, peppers, herbs, strawberries and roses. The Company's hydroponic products and systems are offered to its prospective commercial and individual customers in standard and custom-designed configurations, providing versatile commercial structures, products and systems, including related technology, equipment and supplies, on a turn-key basis. The Company's hydroponic products and systems are offered through direct marketing and sales, dealers and distributors and by mail order. The Company annually distributes more than 100,000 mail order catalogs and other marketing materials to its customers and prospective customers worldwide. More recently, since September 1998, the Company has further designed and developed its World Wide Web site (www.cropking.com) in order to more efficiently offer, market and sell the Company's proprietary, commercial hydroponic products and systems, and related technology, equipment and supplies to its customers in the United States and abroad. Included in the Company's Internet Web site is the Company's two mail order catalogues, comprising approximately 1,250 pages of hydroponic products and systems, and related technology, equipment and supplies. The Company believes that emerging and rapidly developing e-commerce on the Internet represents a significant business opportunity for the Company. For the years ending July 31, 1998 and 1999, the Company's Internet Web site accounted for approximately three percent and six percent, respectively, of the Company's sales. The Company intends to principally use the proceeds of this offering for operating costs and working capital, including business development, capital equipment, marketing and sales and mergers and acquisitions of complementary companies in an effort to significantly expand its business and operations. The Company also intends to use approximately $250,000 of the proceeds of this offering to further design and develop its Internet Web site into a state-of-the-art, enhanced and fully interactive Web site to manage the Company's emerging e-commerce on the Internet. The company believes that its state-of-the-art, enhanced and fully interactive Web site will be implemented and fully operational within approximately six months following the closing of this offering. The Company can make no assurances that the proceeds of this offering will enable it to expand its business and operations in any manner. See "Use of Proceeds" and "Financial Statements." The Company was incorporated in the State of Ohio in June 1982 and reincorporated in the State of Delaware in August 1997. The Company (formerly, CropKing, Incorporated) changed its name to CropKing.com, Incorporated in November 1998. The principal executive offices of the Company are located at 5050 Greenwich Road, Seville, Ohio 44273, and its telephone number is (330) 769-2002. The Company's Internet Web site address is www.cropking.com. Unless the context otherwise indicates, the terms "Company" and "CropKing" as used in this Prospectus refer to CropKing.com, Incorporated. WORLD WIDE WEB SITE STRATEGY WWW.CROPKING.COM The Company believes that its recent emphasis on its World Wide Web site will enable it to realize significant savings in future operating expenses and other efficiencies. The Company believes that the proceeds of this offering combined with the design and development of a state-of-the-art, enhanced and fully interactive Web site to manage the Company's emerging e-commerce on the Internet will allow the Company to more efficiently compete with its competitors by (i) providing competitive prices and product inventory availability, (ii) enhancing and simplifying access to the Company's products and information and (iii) enabling more efficient and rapid delivery of products and information to its customers. 20 The Internet and commercial online services are emerging as significant global communications media enabling millions of people to share information and conduct business electronically. A number of factors have contributed to the growth in the Internet and commercial online services usage, including the large and growing installed base of advanced personal computers in the home and workplace, improvements in network infrastructure, easier, faster and cheaper access to the Internet and commercial online services, the introduction of alternative Internet access devices and increased awareness of the Internet and commercial online services among consumer and business users. International Data Corporation ("IDC") estimates that the number of World Wide Web users will grow from approximately 50 million in 1998 to approximately 129 million worldwide by 2000. The functionality and accessibility of the Internet and commercial online services have made them an increasingly attractive commercial medium by providing features that historically have been unavailable through traditional channels. For example, the Internet and commercial online services provide users with convenient access to large volumes of dynamic data to support their purchase and other decisions. Online retailers like CropKing.com are able to communicate more effectively with customers by providing frequent updates of featured selections, content, pricing and visual presentations and provide tailored services by capturing valuable data on customer tastes, preferences, shopping and buying patterns. Unlike most traditional distribution channels, online retailers do not have the burden of managing and maintaining numerous local facilities to provide their services on a global scale. In contrast, online retailers benefit from the relatively low cost of reaching and electronically serving customers worldwide from a central location. Because of these advantages, an increasingly broad base of products and services are being sold online, including books, brokerage services, computers and music as well as hydroponic products and related technology. IDC estimates that the total value of services and products purchased over the Web grew from $296 million in 1995 to approximately $5.5 billion 1997, and will increase to approximately $123 billion by 2000. Moreover, as the number of online content, commerce and service providers has expanded, strong brand recognition has become important to the success of such companies. Brand development is especially important for online retailers due to the need to establish trust and loyalty among consumers in the absence of face-to-face interaction. In addition, some online retailers have begun to establish long-term strategic partnerships and alliances with content, commerce and service providers to rapidly build brand recognition and trust, enhance their service offerings, stimulate traffic, build repeat business, take advantage of cross-marketing opportunities and create barriers to entry. The Company believes that it enjoys outstanding brand recognition and loyalty among its customers. More recently, since September 1998, the Company has further designed and developed its World Wide Web site (www.cropking.com) in order to more efficiently offer, market and sell the Company's proprietary, commercial hydroponic products and systems, and related technology, equipment and supplies to its customers in the United States and abroad. Included in the Company's Internet Web site is the Company's two mail order catalogues, comprising approximately 1,250 pages of hydroponic products and systems, and related technology, equipment and supplies. The Company believes that emerging and rapidly developing e-commerce on the Internet represents a significant business opportunity for the Company. For the years ending July 31, 1998 and 1999, the Company's Internet Web site accounted for approximately three percent and six percent, respectively, of the Company's sales. The Company also intends to use approximately $250,000 of the proceeds of this offering to further design and develop its Internet Web site into a state-of-the-art, enhanced and fully interactive Web site to manage the Company's emerging e-commerce on the Internet. The company believes that its state-of-the-art, enhanced and fully interactive Web site will be implemented and fully operational within approximately six months following the closing of this offering. The Company's business is dependent upon a number of different information and telecommunications technologies to access and manage information, including handling a high volume of telephone calls on a daily bases. Rapid and evolving changes in these technologies may require greater than anticipated 21 capital expenditures to improve or upgrade a high level of customer service. A failure of the Company's management of its information and telecommunications technologies may have a material adverse effect on the business, financial condition and results of operations of the Company. The Company's dependence upon information and telecommunications technology makes the Company relevant to Year 2000 issues. Because the Company receives product orders in advance of actual alignment, the Company must be able to identify and correct Year 2000 issues on a more expedited basis than companies in other industries who are not as dependent on information and telecommunications technologies. The Company believes that its information and telecommunications technologies are Year 2000 compliant. However, because the Company and its customers are dependent on certain vendors and suppliers who may not necessarily be Year 2000 compliant, such lack of compliance may have a material adverse effect on the business, financial condition and results of operations of the Company. The Company's future revenues and any future profits may become dependent upon the widespread acceptance and use of the Internet and commercial online services as an effective medium of commerce by consumers. For the Company to be successful, these consumers must accept and utilize novel ways of conducting business and exchanging information. Convincing consumers to purchase products online may be particularly difficult, as such consumers have traditionally relied on catalogue purchases and are accustomed to a certain degree of human interaction in purchasing products. Rapid growth in the use of and interest in the Web, the Internet and commercial online services is a recent phenomenon, and there can be no assurance that acceptance and use will continue to develop or that a sufficiently broad base of consumers will adopt, and continue to use, the Internet and commercial online services as a medium of commerce, particularly for purchases of the Company's products. Demand for recently introduced services and products over the Internet and commercial online services is subject to a high level of uncertainty and there exist few proven services and products. The development of the Internet and commercial online services as a viable commercial marketplace is subject to a number of factors, including continued growth in the number of users of such services, concerns about transaction security, continued development of the necessary technological infrastructure and the development of complementary services and products. If the Internet and commercial online services do not become a viable commercial marketplace, the Company's business, operating results and financial condition may be materially adversely affected. The Internet and the online commerce industry are characterized by rapid technological change, changes in user and customer requirements and preferences, frequent new product and service introductions embodying new technologies and the emergence of new industry standards and practices that could render the Company's existing online sites and proprietary technology and systems obsolete. The emerging nature of these products and services and their rapid evolution will require that the Company continually improve the performance, features and reliability of its online services, particularly in response to competitive offerings. The Company's success will depend, in part, on its ability to enhance its existing services, to develop new services and technology that address the increasingly sophisticated and varied needs of its prospective customers and to respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. The development of online sites and other proprietary technology entails significant technical and business risks and requires substantial expenditures and lead time. There can be no assurance that the Company will successfully use new technologies effectively or adapt its online sites, proprietary technology and transaction-processing systems to customer requirements or emerging industry standards. If the Company is unable, for technical, legal, financial or other reasons, to adapt in a timely manner in response to changing market conditions or customer requirements, its business, operating results and financial condition may be materially adversely affected. A fundamental requirement for online commerce and communications is the secure transmission of confidential information over public networks. The Company relies on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure transmission of confidential information, such as customer credit card numbers. In addition, the Company maintains an extensive confidential database of customer profiles and transaction information. There can be no assurance that advances in computer capabilities, new discoveries in the field of cryptography or 22 other events or developments will not result in a compromise or breach of the algorithms used by the Company to protect customer transaction and personal data contained in the Company's customer database. If any such compromise of the Company's security were to occur, it may have a material adverse effect on the Company's reputation, business, operating results and financial condition. A party who is able to circumvent the Company's security measures could misappropriate proprietary information or cause interruptions in the Company's operations. The Company may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. Concerns over the security of transactions conducted on the Internet and commercial online services and the privacy of users may also inhibit the growth of the Internet and commercial online services, especially as a means of conducting commercial transactions. To the extent that activities of the Company or third-party contractors involve the storage and transmission of proprietary information, such as credit card numbers or other personal information, security breaches may expose the Company to a risk of loss or litigation and possible liability. There can be no assurance that the Company's security measures will prevent security breaches or that failure to prevent such security breaches will not have a material adverse effect on the Company's business, operating results and financial condition. THE HYDROPONIC INDUSTRY Hydroponics may be generally defined as the science of growing disease and pesticide-free plants in soilless, insert media, to which is added a water soluble nutrient containing the essential elements needed by the plant for optimum growth and development. It is not a new scientific endeavor, with work being done by researchers as early as the 1600's. In the early 1930's W. F. Gericke of the University of California applied laboratory experiments in plant nutrition to practical and commercial use. In doing so, he termed these nutri-culture system, "hydroponics," derived from two Greek words, HYDRO and PONOS, hydro, meaning water, and ponos, meaning labor, or literally, working water. Only since the mid 1980's, has hydroponics taken a major step forward with the introduction of two particular growing media, including rockwool and perlite. The advantages of these two media have allowed hydroponics to move forward and become accepted as a practical and profitable way of growing certain crops. Gericke's application of hydroponics soon proved itself by providing food for troops stationed on non-arable islands in the Pacific in the early 1940's. In 1945, the U.S. Army Air Force solved its problem of providing its personnel with fresh vegetables by practicing hydroponics on the rocky islands normally incapable of producing such crops. With the development of plastics, hydroponics took another large step forward. Plastics freed growers from the costly construction of concrete tanks and beds previously used. Today, computerized environmental control systems, automated injector feed systems, plastic plumbing and grow bags and other technological innovations, have allowed growers to become increasingly efficient in their production of crops using hydroponics, thereby reducing both capital and operational costs. Hydroponics has become a reality for growers in all climate regions. Large hydroponic greenhouse complexes exist throughout the world including Holland, England, Germany, the Middle East, Spain and Africa. Holland has been a leader in the hydroponic industry. In this small country, no larger than the state of Connecticut, there are over ten thousand acres of greenhouses utilizing hydroponic technology. Much of the production is shipped to the United States and other countries at premium prices. England's hydroponic industry, while somewhat smaller than Holland's, still includes well over four thousand acres of hydroponic greenhouse production. Canada has over one thousand acres, but in the United States, there are currently only about one thousand acres of hydroponic greenhouse production. Why this small amount, in a country far larger geographically and in population than its European counterparts? It is primarily because U.S. demand for high quality vegetables has lagged behind that of other countries. Not until the "baby boomer" generation matured did the consumer demand the quality that only hydroponics can provide. Thus, in the late 1970's and early 1980's as the post-war generation 23 entered the market, they demanded quality produce, and exhibited a willingness to pay a premium price to obtain it. Hydroponic production techniques have significantly improved, and agriculturally inclined entrepreneurs have begun to meet that demand. The growing systems used in Holland and several other countries where hydroponic technology is advanced, include the perlite and rockwool systems and rarely is any other system considered by these up-to-date growers. The Company has "packaged" its own proprietary technology that the Company believes is the most efficient, most productive technology in its industry and offers it on a turn-key basis to its customers worldwide. Commercial hydroponics lends itself well to individual and small business operated greenhouse enterprises where with good management practices, it can be profitable supplying local markets with fresh produce on a year round basis. The Company believes that markets for hydroponically grown produce have been established and demand currently exceeds supply. The advantages of hydroponics VIS A VIS traditional field agriculture are significant, including: - Superior taste, quality, appearance, uniformity and extended shelf life of hydroponic vegetables. - No sterilization of growing media required and plant nutrition is easily and completely controlled within nutrient tanks. - No weeds, no cultivation, no soil borne diseases or insects. Allows for uniform water availability to plants. - Closer plant spacing is possible and moveable plant channels allow greater production from equal areas for some crops. - Less water is required and less fertilizer needed. Root zone heating, known to especially benefit tomatoes and cucumbers, is feasible and practical. - Use of biological controls including beneficial insects and safe methods of insect control are possible in a controlled environment system. For many of the Company's customers, tomatoes are the ideal crop to produce due to their high demand and high market value. Since tomatoes are a universal staple in the American diet, they are easily marketed, even in outlying rural areas away from major markets. This ease of marketing all that a grower can produce is an important issue to consider when choosing a hydroponic crop. Also, with a ten day shelf life, tomatoes need no refrigeration or special treatment prior to delivery to market. Consumer acceptance of hydroponically grown tomatoes has also contributed to their appeal to the large commercial grower. Most of the year consumers must depend on field grown tomatoes, usually from Mexico, Florida or California. These green picked, gas ripened tomatoes are usually of questionable quality and their taste and texture leave much to be desired. Transportation costs, unionized labor, and climatic conditions are increasing the cost to produce field vegetables, and are causing a shift of vegetable production closer to the markets, making controlled environment tomato production a particular profitable alternative for the grower who is looking to diversify. The quality of the hydroponically grown tomato is superior, with a beautiful appearance, smooth skin, little or no blemishes, a deep red color when fully ripe, a real tomato aroma, a meaty texture and an excellent taste, much like very carefully cultivated garden tomatoes. Produce buyers are anxious to find suppliers for this quality of tomato at a reasonable price. Most hydroponic growers prefer to grow a single tomato crop for the entire year, with northern growers usually planting seeds in early January, and southern growers planting in August. Some growers plant two crops per year, a spring and a fall crop, thereby eliminating the lower price received during the summer months and allowing a reduction in labor at those times. In the north, while the price is lower for a 24 month or so in the summer time, hydroponic tomatoes bring a premium price, right through the home grown season. To make a full time business, to generate sufficient wages for the owner/operator customer, and to earn a reasonable profit, the Company recommends a quarter acre, four bay greenhouse as the minimum size to begin with. Some customer growers wishing to start out on a smaller scale choose either a 30' X 128' free-standing unit, or a two bay connect unit, which can be added onto in the future. Hydroponic tomatoes can be grown in several types of soilless systems, with perlite bags being one of the most popular. Rockwool, peat bags and NFT (Nutrient Film Technique), are also used by some growers. The perlite bag system, developed by growers in Scotland, is becoming the most popular system due to the lower capital costs and ease of installation and management. Although perlite is the system included in the Company's systems, the Company is able to offer a variety of other systems, depending on the grower's requirements. STRATEGIC CONSIDERATIONS The Company believes that the hydroponic industry will be an important industry in the foreseeable future due to four overriding environmental issues that have worldwide implications and which are instrumental in the Company's business strategy: DECREASING FRESH WATER SUPPLIES AND WATER QUALITY. During this century demands for fresh water have soared worldwide. This is due to rapid industrialization and the needs of a rapidly expanding world population. Almost all of open field crops in the U.S. and many other countries draw heavily from rivers and underground aquifers. Whole agricultural regions depend on these sources, and many water sources are fast disappearing. For example, the Ogalala Aquifer, which stretches from Canada down through the Southwestern U.S., is responsible for millions of acres of bountiful croplands and grazing lands. The United States Geological Survey (USGS) reports that this aquifer, which has only been in heavy use for less than 50 years, is more than two-thirds depleted in some areas. It is estimated that much of this aquifer will be close to bone dry in 30-40 years with current usage. This aquifer may take thousands of years to replenish itself. The many fresh water wells in the Middle East are another example. Up to 30 years ago, water in these wells was always available a few meters down--even at the end of severe 7-12 years droughts that have been recorded periodically during the past 3,000 years. Now, at some of these wells, it is necessary to go down 1,000 meters and more to draw water. Moreover, as underground water table levels decline, or pockets (known as "lenses") of fresh water become smaller, water usually becomes more "brackish;" it has higher concentrations of dissolved salts. When this water is used for irrigation, and the water evaporates, it leaves a salt residue (known as "salinization"). As this salt residue builds up, it reaches a level where plants will not grow in it. Many of California's formerly productive agricultural lands no longer grow crops. They are coated by, and saturated with, salt. Something similar can be seen along the Nile in Egypt below the Aswan Dam. The annual flooding of the undamed Nile used to wash away evaporated salts from what was some of the most fertile land in the world. Now the farmland shines white with salt instead of green with crops. Another problem is increasing contamination of rivers and aquifers with the excessive use of chemical fertilizers and insecticides on farms, plus chemical pollution from urban development and industry. 250 million tons of industrial waste is generated every year, much of it released into the air. Also, heavy metals and deadly chemicals are leached by water from garbage and toxic wastes in landfills, finding their way into underground water and waterways, which are often used to irrigate crops. One of many examples is cadmium. This toxic heavy metal is readily taken up by the root system of lettuce and works its way into the leaves. Eating those lettuce leaves in salads means ingesting a toxic chemical that the body stores away. When enough cadmium accumulates, it means serious health problems. 25 Good quality fresh water can only become more scarce, more expensive and more controlled. A well managed hydroponic plant wastes no water. That is because whatever the plant does not use is recirculated instead of draining away. Excellent water utilization provides a strong competitive advantage for the hydroponic industry. INCREASING FREQUENCY OF CLIMATE RELATED PROBLEMS. In recent years, farmers in the U.S. and abroad have experienced more climate and weather related problems than ever before, severely curtailing production of many basic crops. Freezes in southern Florida and throughout southern U.S. have significantly damaged field tomato production for the past several years. Droughts, floods, wind, hail, early freezes and late frosts, have significantly upset the typical planting and harvesting schedules of farmers throughout the U.S. This year's El Nino storms have caused more areas of the country to be considered disaster areas than any other single event of this century. El Nino's heavy rains and high winds have caused substantial crop damage to tomato, lettuce, cucumber and pepper crops in California, strawberry and tomato crops in Florida, peach and apple orchards in the southeast, and will delay or prevent early plantings of many food crops in the midwest this Spring. If conditions in the 1990's are similar to two similar weather cycles of the last century (and so far they have been worse), we may expect to continue to encounter climate extremes of drought, flood and other severe and unusual weather on a worldwide basis. It is predicted that a major drought combined with current population trends may cause widespread food shortages and possibly a worldwide food crisis, persisting for several years. World political power may center around food and water, not necessarily on just oil or technology, as it does today. Witness what is currently occurring in North Korea, where alternating drought and floods have devastated the farmers' ability to feed their countrymen. There is recent evidence that our planet may have entered a period linked to weather and climate extremes, plus increased volcanic and earthquake activity. The natural forces at work may last several years. New weather patterns caused by El Nino are already shifting rainfall and its timing. Weather patterns are significantly changing the growing conditions in many parts of the world to such an extent that farmers worldwide are having a difficult time knowing when and when not to plant their crops. Many of the areas we have come to rely on as primary crop producing regions may be affected. Until a new weather pattern stabilizes, we should expect much more unpredictability and less favorable growing conditions. Further, these historic climatic concerns are likely to be magnified by the continuing erosion of the earth's ozone layer, unprecedented overpopulation that is already straining natural resources, and the depletion of fresh water supplies. This climatic environmental issue favors protected crops, controlled environment agriculture and hydroponics. With a well designed hydroponic growing system, a grower can do much to protect plants from drought and flooding, unseasonable frosts and freezes, wind and hail, and other sudden and more common changes in climate conditions. The Company believes that these are strong competitive advantages for the hydroponic grower and represents a significant business opportunity for the Company. INCREASING EROSION OF TOP SOIL AND SOIL DEGRADATION. More than three billion acres of agricultural land has sustained heavy soil damage due to human action. That is an area the size of China and India combined. The World Resources Institute reports that: - 22 million acres no longer support vegetation, - 740 million acres need extensive restoration, and - 2,300 million acres need major and costly reclamation. The cost of restoration and reclamation, or even of meeting modest regulations needed to control soil erosion and contamination, is beyond the means of most developing countries. 26 Soil erosion is among the major environmental problems facing the world today. Each year an estimated two billion tons of top soil are lost to wind or to water runoff. Agricultural output in many areas continues to decline because of erosion and soil degradation. Major causes cited by the World Resources Institute include: - Overgrazing by livestock causes 35% of soil erosion. It is widespread in Africa and Oceania. - Deforestation accounts for 30% of soil erosion. It is predominant in South America and increasing in South East Asia. - Harmful agricultural practices are responsible for 28% of soil loss and degradation. It occurs because of over-fertilization and insufficient fallow or rest periods. "Slash and burn" methods by poverty-stricken inhabitants in Africa, Asia and South America leave fields vulnerable to erosion. - Salinization, the build up of salts in soil, has been discussed above. - Soil compaction, due to commercial farming methods is another problem. In addition to water and nutrients, plant roots need easy access to oxygen for best growth. Hydroponic crops are not grown out of depleted and/or contaminated soil. Special nutrient formulas provide more than just basic elements, and often include subtle trace elements that "maximize the genetic potential" of the plant. These formulas help the plant and its fruit develop to be the best it can be. In addition, some hydroponic growing systems maximize the oxygen that reaches the plant's root system, and that is very beneficial to plant growth. INCREASING RESISTANCE OF INSECT PESTS AND PLANT DISEASES TO CHEMICAL CONTROLS. Insects play essential roles in nature. They aid bacteria and other organisms in soil formation. Many plants depend on insects for pollination. A few insects produce important commercial products--honey, silk, wax, dyes and pigments, for example. However, the United Nations Food and Agriculture Organization ("UNFAO") estimates that one-third of all cultivated crops are now lost to insect pests. That percentage is rapidly increasing according to UNFAO. Direct damage is done by feeding on leaves, stems, roots or fruit. Indirect damage occurs when insects transmits bacterial, or more frequently, viral infections to a crop. For example, in the American Southwest and Mexico, the white fly is known to transmit a virus that devastates both open field and protected crops, and for which no effective control is known. The first large scale use of pesticides in agriculture was in the 1860's. Massive use of pesticides and insecticides in the U.S. began in the 1940's--only about 60 years ago. Other countries followed our practices or accepted U.S. aid and our practices. Since the 1950's, pesticide resistant species have increased dramatically. As of 1997 at least 520 insects and mites, at least 150 plant diseases and at least 113 weeds have developed resistance to one or more pesticides meant to control them. In addition, 17 insect species are resistant to all major classes of insecticides. Several plant diseases are now immune to most fungicides used against them. Growing healthy plants and using biological controls are becoming increasingly important. The Company believes that a skilled grower can have a significant advantage in a hydroponic greenhouse. More important for customer business, significant segments of the market are willing to seek out and to pay a premium price for high grade produce that is grown without the use of dangerous pesticides, insecticides and fungicides. The Company believes that as these four environmental issues intensify, its strategy will be to define its hydroponic products and systems as a part of the solution to these important and overriding worldwide concerns. The Company's hydroponic products and systems have been designed to offer a lower risk, higher profit alternative to traditional outdoor agriculture, combining the advantages of soilless growing techniques with a technically controlled greenhouse environment for unprecedented control over the 27 quality and consistency of many high yield crops, including tomatoes, lettuce, peppers, herbs, strawberries and roses. By providing plants with the right amounts of nutrients for optimum growth, maintaining the right balance of temperature and humidity and applying proper biological methods of insect control, the Company's customers should be able to produce commercial, year-round high value, specialty, disease and pesticide-free plants and floral crops. Also, an important part of the Company's strategy is to stress the significant environmental and economic advantages of its hydroponic products and systems over traditional field agriculture.
TRADITIONAL FIELD AGRICULTURE CROPKING'S HYDROPONIC PRODUCTS AND SYSTEMS - --------------------------------------------- --------------------------------------------- Picked green and "gassed" to maturity Fresh, vine ripened, harvested at the peak of taste and appearance Shipped long distances to market Grown close to market Seasonal production, when all Grown out of season field growers have product when demand is highest Subject to weather-related problems; Controlled environment insures frost, freeze, flood, drought, wind, rain optimum growing climate Soil related problems; weeds, insects, disease No soil means no soil problems Chemical means of insect and disease control Safe, biological means of insect and disease control Poor quality--poor consumer Superior quality--good consumer acceptance acceptance
HYDROPONIC PRODUCTS AND SYSTEMS The Company designs, develops, manufactures, markets and sells proprietary, commercial hydroponic products and systems, and related technology, equipment and supplies, to customers in the United States and abroad for the commercial year-round production of high value, specialty, disease and pesticide-free plant and floral crops. The Company's hydroponic products and systems are offered to its prospective commercial and individual customers in standard and custom-designed configurations, providing versatile commercial structures, products and systems, including related technology, equipment and supplies, on a turn-key basis. Unlike the generic greenhouses and equipment sold by other suppliers, the Company offers a controlled environment hydroponic products and systems design for the commercial year round production of high value, specialty, disease and pesticide-free plant and floral crops. A significant advance over conventional glass hothouses of the past, the Company's advanced greenhouse design utilizes energy efficient clear double covers constructed with the most advanced polymer technology available to keep energy costs to a minimum. The Company's proprietary design allows it to withstand high winds and heavy snow anywhere in the U.S. and still maintain ideal growing conditions inside. A complete hydroponics system, which is offered in standard and custom-designed configurations, includes heating, cooling and ventilation equipment, as well as dehumidification, optional floor heating, computerized environmental controller and monitor and an automated nutrient injection system. The Company believes that its computerized environmental controllers and monitors do not contain software subject to year 2000 issues and concerns that would have a material adverse impact on its business, operating results or financial condition. The Company does all the work for its customers on a turn key basis in sourcing and configuring its hydroponic products and systems from reputable and dependable suppliers, so that all of the parts to a system will work in harmony together. Also, the Company's 28 technicians analyze a customer's water source to develop an appropriate nutrient program. The Company's technical staff conducts periodic and subsequent analyses to keep the customer's nutrients optimized for its target crops. A standard 30' X 128' free standing configuration of the Company's hydroponic system includes the following features: 1. HYDROPONIC GREENHOUSE STRUCTURE All of the Company's hydroponic greenhouse structures feature high strength galvanized structural steel tubing, with 50,000-55,000 PSI tensile strength. Frame, galvanized structural steel, with 4' arch spacing, with ground stakes, couplers, five purlins, wind braces, cross braces, connectors, driving head, hardware and blueprints. Also includes 2" x 4" end wall brackets for attaching endwall studs. 2. ENTRANCE DOOR Greenhouse entrance door, steel clad, insulated door with window, aluminum casing, handle and lockset. 3. U.V. RESISTANT COVER Two covers, 3 year U.V. resistant cover film with inner layer of infrared energy saving and outer layer U.V.A. clear. End cover is simple layer, 3 year U.V.A. film. NOTE: POLYCARBONATE ENDWALL COVERING IS OPTIONAL. Aluminum extruded cover lock for base and cedar fascia for end arches. Barten tape for end framing, with screws, bit and mallet. Air inflation kit with blower and mounting hardware for double wall insulated cover system. 4. COOLING SYSTEM Two 48" American Coolair exhaust fans with galvanized slope wall housing, fan guards, aluminum shutters (one 1-speed, one 2-speed). Glacier Cor evaporative pad cooling system, with water distribution system, pad retainer, aluminum water return system, pump, float valve plumbing kit. NOTE: SUMP TANK IS NOT INCLUDED AND MUST BE PURCHASED LOCALLY. 5. HEATING SYSTEM Two gas unit heaters, propeller type, with aluminized steel heat exchanger (10 year warranty), gravity vented with standing pilot and fan time delay. 80% Thermal Efficiency. Natural or LP. NOTE: GALVANIZED VENT PIPE IS NOT INCLUDED AND MUST BE PURCHASED LOCALLY. The heater hanger kits, galvanized steel, with nuts, bolts and hardware for mounting. NOTE: A HOT WATER, BOTTOM HEATING SYSTEM IS AVAILABLE AT ADDITIONAL COST, BUT CAN SAVE SIGNIFICANTLY ON ENERGY COSTS AND CAN INCREASE YIELDS. 6. AIR CIRCULATION SYSTEM One 30" fan jet system with motorized air intake shutter, housing, heat kit and hardware. Air delivery kit with 120' poly air tube, punched, with support wire and tube mounting hangers. 7. ENVIRONMENTAL CONTROLS Q-Com, "Grower's Choice," Model 1500, with on screen programming, power supply, 15 outputs, 9 LED status display indicators and manual switches, 6 pilot ready outputs, temperature and humidity sensor in radiation housing. Pre-wired to electrical panel. 8. AIR INTAKE VENT ASSEMBLY Counterbalanced cedar baffle door framing with fiberglass covering, all cables, pulleys and hardware. NOTE: AUTOMATIC POWER VENT OPTIONAL. 9. PLANT SUPPORT SYSTEM Heavy duty galvanized steel plant support system with 3" end posts and 2" intermediate posts including wire cable, eye bolts, U-bolts and turnbuckles. 29 10. ELECTRICAL PANEL Pre-wired electrical panel including interior panel box, relay box, breakers, relays, duplex receptacle, mounted on plywood board. NOTE: WIRE FROM SERVICE TO PANEL, AND PANEL TO MOTORS, HEATERS, ETC., IS NOT INCLUDED AND MUST BE PURCHASED BY GROWER. 11. PERLITE NUTRIENT FEED SYSTEM Triple Nutrient Injector System (pre-assembled, mounted and tested), three concentrate tanks, pressure gauge, solenoid valve and plumbing kit. Nutrient delivery system including main nutrient feed header, T connectors for feed lines, CNL drip emitters, plugs, stakes, feeder tubes, punch, fittings and hardware. 12. GROWER TECH SERVICE PROGRAM Includes two day Grower Workshop, Workshop on Video, Grower's Manual, Construction Manual and Blueprints, Newsletter, Annual Conference Audio Tapes and Continuing Technical Support. 13. TESTING MISC. EQUIPMENT 1 Hand held, Conductivity DS Meter.......................... $ 159.00 1 Fisher pH Test Kit with Indicator Solution............. 41.50 1 Certified Hygrometer........... 109.50 1 Nutrient Concentrate Mixing Pump NK2....................... 59.90 2 Min-Max Thermometers........... 49.90 --------- Total Testing and Misc. Equipment.................... $1,419.80 =========
14. GROWING SUPPLIES FOR APPROXIMATE ONE YEAR CROP: 290 Perlite Bags................. $ 870.00 12 Pads, Rockwool Cubes, 1 1/2"......................... 78.00 1080 Rockwool Propagation Blocks, 4"............................. 334.50 1250 Trust/Match Hybrid Tomato Seeds.......................... 263.75 1000 Tomahooks................... 110.00 4 Boxes Vine Twine............... 91.80 2 Cases Vine Clips, 3/4"......... 199.60 1 Seedling Support Mat........... 64.50 1 Greenshield, Gal............... 32.85 1 Roll, Poly Patch Tape.......... 7.95 1 White Ground Cover, 15' X 300'........................... 418.00 2 Black Vapor Barrier, 24' X 100'........................... 182.00 --------- Total Growing Supplies......... $2,652.95 =========
NOTE 1: PACKAGING SUPPLIES WILL VARY IN TYPE AND IN QUANTITIES PURCHASED DEPENDING ON CUSTOMER'S MARKET. THEREFORE, NO PACKING SUPPLIES ARE INCLUDED IN A PRICE SHEET. THEY MAY BE PURCHASED WITH THE PACKAGE, OR AT A LATER DATE, ONCE PRODUCTION BEGINS. NOTE 2: FERTILIZERS ARE NOT INCLUDED IN THE GROWING SUPPLIES ABOVE. THE AMOUNTS OF FERTILIZER REQUIRED AND PRICING CAN BE DETERMINED ONCE A WATER ANALYSIS HAS BEEN RECEIVED AND REVIEWED BY THE COMPANY'S HORTICULTURIST. 30 PRICE SUMMARY JULY 1999
ITEM NO. DESCRIPTION PRICE - --------------------- ----------- ---------- 1-8 Hydroponic Greenhouse Package.............................. $15,745.55 9 Tomato Plant Support System................................ 780.00 10 Electrical Panel........................................... 990.00 11 CropKing Nutrient Feed System.............................. 3,670.00 12 Grower Tech Service Program................................ 1,000.00 13 Testing & Misc. Equipment.................................. 419.80 14 Growing Supplies........................................... 2,652.95 ---------- Total Price of Above Package............................... $25,258,30 ==========
ADDITIONAL ORDERING INFORMATION FOR THE COMPANY'S CUSTOMERS: Additional items not provided by the Company may be necessary to complete a package. Blueprints are made available once a deposit has been received by the Company and an order has been placed. Pricing is subject to standard Terms and Conditions of Sale that is made a part of a Sales Contract when a purchase is made of the Company's hydroponic products and systems. Customers are to allow three to six weeks for shipment of a complete system. The framework and materials necessary to begin construction may be shipped sooner if desired. All items are F.O.B. Seville, Ohio, or origin of manufacture. One-third deposit required with an order, one-third when actual production of an order begins, and the remaining one-third is due prior to shipment. Specifications and prices are also subject to change without notice. Additional standard free standing configurations and the capacity of the Company's hydroponic systems are as follows:
BAY DIMENSIONS CAPACITY - --------------------------------------------- --------------------------------------------- 30'X128' Freestanding Bay 870 tomato plants 44'X128' Freestanding 2-Bay 1,440 tomato plants 66'X128' Freestanding 3-Bay 2,160 tomato plants 88'X128' Freestanding 4-Bay 2,880 tomato plants
The prices of the Company's turn-key hydroponic systems range from $25,258 to approximately $75,000, subject to the customer's final custom specifications. MARKETING, DISTRIBUTION AND SALES The Company's marketing, distribution and sales strategy targets commercial and independent growers, dealers and distributors, mail order customers and Internet (address: www.cropking.com) customers. At year end July 31, 1999, commercial and independent growers represented approximately 67 percent of sales, dealers and distributors represented approximately 23 percent of sales, mail order customers and Internet customers represented approximately ten percent of sales. The Company believes that its mail order and Internet customers will gain a larger percentage of its sales in the future due to stronger marketing efforts by the Company and a general trend in the market towards the electronic marketplace. The Company also uses direct marketing of its hydroponic products, systems and services, and intends to use a variety of other marketing programs to stimulate demand for its products, systems and services. These programs are focused on the target markets mentioned above and are designed to leverage the 31 Company's mail order list (approximately 100,000 current and prospective customers) and the Internet, and both are powerful marketing vehicles. In addition, the Company intends to develop co-marketing programs with strategic corporate partners designed to take advantage of complementary marketing capabilities, E.G., agribusiness companies with mail order catalogues and other marketing and distribution channels for the Company's hydroponic products and systems. The Company also markets and distributes its products in the U.S. and abroad in part by disseminating its products and systems through multiple national and international distribution channels. The Company heretofore has had limited resources to market and distribute its products and systems. The Company can make no assurances as to the future success of its marketing and distribution strategy. Furthermore, the Company has limited resources to achieve the distribution of its products and systems and no assurances can be made that the Company will not require additional financing, which may not be available, to achieve such objective. The Company has designed its marketing and distribution strategy to address the particular requirements of its commercial and independent growers, and individual customers. Therefore, the Company's marketing and distribution efforts consists of a direct sales force of four persons, dealers and distributors, telesales, mail order catalogue and the Internet. Following the closing of this offering, the Company intends to increase its direct sales force by three persons, all of whom will work on a base salary plus a sales commission. There can be no assurance that such internal expansion will be successfully completed, that the cost of such expansion will not exceed the revenues generated; or that the Company's marketing and distribution organization will be able to successfully compete against the significantly more extensive and well-funded marketing and distribution operations of many of the Company's current or potential competitors. The Company's inability to effectively manage its internal expansion may have a material adverse effect on the Company's business, operating results or financial condition. PATENT, TRADEMARK, COPYRIGHT AND PROPRIETARY RIGHTS The Company may file patent, trademark and/or copyright applications relating to certain of the Company's hydroponic products and systems. If patent, trademarks or copyrights were to be issued, there can be no assurance as to the extent of the protection that will be granted to the Company as a result of having such patents, trademarks or copyrights or that the Company will be able to afford the expenses of any complex litigation which may be necessary to enforce its proprietary rights. Failure of the Company's patents, trademark and copyright applications may have a material adverse impact on the Company's business. Except as may be required by the filing of patent, trademark and copyright applications, the Company will attempt to keep all other proprietary information secret and to take such actions as may be necessary to insure the result of its development activities are not disclosed and are protected under the common law concerning trade secrets. Such steps will include the execution of nondisclosure agreement by key Company personnel and may also include the imposition of restrictive agreements on purchasers of the Company's products, systems and services. There is no assurance that the execution of such agreements will be effective to protect the Company, that the Company will be able to enforce the provisions of such nondisclosure agreements or that technology and other information acquired by the Company pursuant to its development activities will be deemed to constitute trade secrets by any court of competent jurisdiction. GOVERNMENT REGULATION The Company is not currently subject to direct regulation by any state or federal government agency other than regulations applicable to businesses generally, and there are currently few laws or regulations directly applicable to access to or to commerce on the Internet, a new electronic marketing medium for the Company. However, due to the increasing popularity and use of the Internet for electronic commerce, it is possible that a number of laws and regulations may be adopted with respect to the Internet, conveying issues such as user privacy, credit card use, and the pricing of commercial products offered for sale. The adoption of any such laws or regulations may stifle electronic commerce on the Internet, which may in turn 32 decrease the demand for the Company's products and systems and increase the Company's cost of doing business or otherwise have an adverse impact on the Company's business, operating results or financial condition. COMPETITION The Company's success and ability to compete is dependent in part upon its proprietary hydroponic products and systems. While the Company intends to rely on patent, trademark, copyright and proprietary rights to protect its proprietary hydroponic products and systems, the Company believes that such factors as the technological and creative experience and skills of its personnel, new product developments, frequent product enhancements, name recognition, and reliable product and system service are more essential to establishing and maintaining a position in the marketplace. Despite the Company's efforts to protect its proprietary rights and trade secrets, unauthorized parties may attempt to copy aspects of the Company's hydroponic products and systems to "reverse engineer" the Company's proprietary designs, or to obtain and use information that the Company regards as proprietary. In addition, litigation may be necessary in the future to enforce the Company's intellectual property rights, to protect the Company's trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Such litigation may result in substantial costs and diversion of resources and may have a material adverse effect on the Company's business, operating results or financial condition. The market for the Company's hydroponic products, systems and services is relatively new, intensely competitive, rapidly evolving and subject to rapid change. The Company expects competition to persist, intensify and increase in the future, from start-up companies to major agribusinesses. Many of the Company's current and potential competitors have larger operating histories, greater name recognition, larger instilled customer bases and significantly greater financial, technical and marketing resources than the Company. Competition in the hydroponics business will continue to be intense in the foreseeable future as the environment continues to deteriorate and demand for crop foods intensifies as the population expands, and there can be no assurance that the Company will be able to compete successfully against current or future competitors, or that this significant competition will not adversely affect the Company's business, operating results or financial condition. EMPLOYEES As of the date of this prospectus, the Company has a total of 33 employees, all of whom are full time employees. Of the total number of employees, 20 are engaged in the Company's management, product development, support and services, seven are engaged in marketing and sales and six are engaged in administration and finance. Following the closing of this offering, the Company intends to hire approximately nine additional employees, including four in the Company's management, product development, support and services, three in marketing and sales and two in administration and finance. The Company's future success depends in significant part upon the continued service of its key technical and senior management personnel and its continuing ability to attract and retain qualified technical and managerial personnel. Competition for qualified technical personnel is intense and there can be no assurance that the Company will be able to retain its key technical and managerial employees or that it will be able to attract and retain additional qualified technical and managerial personnel in the future. None of the Company's employees is represented by labor union. The Company has not experienced any work stoppages and considers its relations with its employees to be good. The rapid execution necessary for the Company to fully exploit the market window for its hydroponic products and systems requires an effective planning and management process. The Company's growth has placed, and is expected to continue to place, a significant strain on the Company's managerial, operational and financial resources. To manage its growth, the Company must continue to implement and improve its operational and financial systems and to expand, train and manage its technical employee base. For 33 example, the Company is currently in the process of building its internal product development and support organization. Although the Company believes that it has made adequate allowances for the costs and risks associated with this expansion, there can be no assurance that the Company's systems, procedures or controls will be adequate to support the Company's operations or that Company management will be able to achieve the rapid execution necessary to fully exploit the market window for the Company's products and systems. If the Company is unable to manage growth effectively, the Company's business, operating results and financial condition may be materially adversely affected. FACILITIES The Company leases approximately 30,000 square feet for its principal executive offices located at 5050 Greenwich Road, Seville, Ohio 44273. Base rental for the current premises is approximately $10,000 per month. The lease requires the Company to pay certain property taxes and certain operating expenses. The Company believes that its current facilities are suitable and adequate for its current operations. 34 MANAGEMENT The officers and directors of the Company are as follows:
NAME TITLE ---- ------------------------------------- Daniel J. Brentlinger................... Chairman of the Board, President, Chief Executive Officer John Campanella......................... Vice President, Chief Operating Officer, Secretary James W. Brown.......................... Vice President, Technical Services Arthur E. Bard.......................... Vice President, Marketing and Sales Regina I. Muich......................... Vice President, Chief Financial Officer Howard M. Resh, Ph.D.................... Director Robert A. Chesney....................... Director
Each of the directors of the Company hold office for a one-year period expiring December 31, 1999. At present, the Company's By-laws provide for not less than one director nor more than nine directors. Currently, there are three directors in the Company. The By-laws permit the Board of Directors to fill any vacancy and such director may serve until the next annual meeting of shareholders or until his successor is elected and qualified. Officers serve at the discretion of the Board of Directors. There are no family relationships among any officers or directors of the Company. The officers and directors have served as promoters of the Company and the consideration received for such services has been limited to the compensation disclosed under "Remuneration." The officers of the Company devote full time to the business of the Company. See "Certain Transactions." The principal occupation and business experience for each officer and director of the Company for at least the last five years are as follows: DANIEL J. BRENTLINGER, 47, has been chairman of the board, president and chief executive officer of the Company since its organization. Mr. Brentlinger is the founder of the Company. Mr. Brentlinger has substantial senior management, technical operations and marketing and sales experience in the hydroponics and aquaculture industries. Since the founding of the Company in September 1982, Mr. Brentlinger has been instrumental in the organization, development and promotion of the Company. Mr. Brentlinger holds a B.S. degree from Southwest Missouri State University. JOHN CAMPANELLA, 51, has been a vice president, chief operating officer and secretary of the Company since 1997 and an employee of the Company since 1991. Mr. Campanella has significant management, operations and marketing and sales experience in the hydroponics industry. From 1980 to 1990, Mr. Campanella was national sales manager for Panasonic Industrial Company, a Secaucus, New Jersey based industrial products company. From 1990 to 1991, Mr. Campanella was president and chief executive officer of Northland Sport Marketing, Inc., a Cleveland, Ohio based sporting goods company. Since 1991, Mr. Campanella has been instrumental in the organization, development and promotion of the Company. Mr. Campanella holds a B.S. degree from the University of Cincinnati. JAMES W. BROWN, 56, has been vice president of technical services of the Company since 1997 and an employee of the Company since 1983. Mr. Brown has significant management, technical operations and marketing experience in the hydroponics industry. Since 1983, Mr. Brown has been responsible for the Company's training workshops for the Company's hydroponic products and systems, has coordinated the Company's annual national hydroponics conference, and has otherwise been instrumental in the organization, development and promotion of the Company. Mr. Brown holds a B.S. degree from McGill University, a M.S. degree from Cornell University and a M.D. degree (divinity) from Faith Theological Seminary. 35 ARTHUR E. BARD, 59, has been vice president of marketing and sales of the Company since 1997 and an employee of the Company since 1993. Mr. Bard has significant management, technical operations and marketing and sales experience in the hydroponics industry. From 1980 to 1993, Mr. Bard was employed with several small firms in the hydroponic industry developing and implementing hydroponic production facilities. Since 1993, Mr. Bard has also been responsible for the marketing and sales of the Company's hydroponic products and systems, and related technology, equipment and supplies, and has otherwise been instrumental in the organization, development and promotion of the Company. Mr. Bard holds B.S. and M.S. degrees from the University of Wyoming and a Ph.D. degree (candidate) from the University of Arizona. REGINA I. MUICH, 44, has been a vice president, chief financial officer and controller of the Company since November 1999. Ms. Muich has substantial financial, accounting and administrative experience in manufacturing businesses. From 1991 to 1996, Ms. Muich was a staff accountant for Johnson Bros.--West Salem, Inc., a West Salem, Ohio manufacturing company. From 1996 to 1999, Ms. Muich was controller for Wagner Machine, Inc., a Doylestown, Ohio manufacturing company. Since November 1999, Ms. Muich has been instrumental in the organization, development and promotion of the Company. Ms. Muich holds a B.S. degree from Ashland University. HOWARD M. RESH, PH.D., 59, has been a director of the Company since September 1997. Dr. Resh has substantial senior management, operations and marketing experience in the hydroponics industry. Dr. Resh is a leading international authority in the hydroponics industry and is the author of more than 32 professional publications in the hydroponics field. Since 1990, Dr. Resh has been the technical director and project manager of hydroponics systems, and related technology and products, for California Watercress, Inc., a Fillmore, California based agribusiness. Since 1997, Dr. Resh has been instrumental in the organization, development and promotion of the Company. Dr. Resh holds B.S. and Ph.D. degrees from the University of British Columbia. ROBERT A. CHESNEY, 60, has been a director of the Company since September 1997. Mr. Chesney has substantial executive management, technical operations and marketing and sales experience in the telecommunications industry. Since 1978, Mr. Chesney has been president and chief executive officer of Chesney Communications, a Newport Beach, California based communications and video production firm, which produces WINDOW ON WALL STREET, a nationally syndicated financial video program, among other financial video programs. Chesney Communications intends to provide video production for the Company at prices competitive with prices charged by other companies on an arm's length basis. Since September 1997, Mr. Chesney has been instrumental in the organization, development and promotion of the Company. Mr. Chesney attended the University of Miami. REMUNERATION EXECUTIVE COMPENSATION The following table sets forth remuneration in excess of $100,000 paid for the fiscal years ended July 31, 1999 and 1998 and proposed to be paid for the fiscal year ended July 31, 2000 to the officers and directors of the Company:
SUMMARY COMPENSATION TABLE (1)(2) --------------------------------------------- OTHER NAME OF INDIVIDUAL OR NUMBER ANNUAL OF PERSONS IN GROUP POSITION WITH COMPANY YEAR SALARY BONUS COMPENSATION - ---------------------------- -------------------------- -------- -------- -------- ------------ Daniel J. Brentlinger..... Chairman of the Board, 2000 $175,000 $87,500 -- President, Chief 1999 $175,000 -- -- Executive Officer 1998 $134,709 $ 1,067 --
- ------------------------ (1) The person named in the table immediately above reflects the only person in the management of the Company as of the date hereof earning in excess of $100,000 per annum. The Company has agreed to purchase key-man term life insurance on Mr. Brentlinger in the amount of $1 million upon the closing of this offering. The Company will be the owner and beneficiary of such life insurance policy. (2) The officers of the Company may receive remuneration as part of an overall group insurance plan providing health, life and disability insurance benefits for employees of the Company. The amount 36 allocable to each individual officer cannot be specifically ascertained, but, in any event, will not exceed $25,000 as to each individual. (3) Each outside director of the Company is entitled to receive reasonable expenses incurred in attending meetings of the Board of Directors of the Company. The members of the Board of Directors intend to meet at least quarterly during the Company's fiscal year, and at such other times duly called. The Company presently has two outside directors. EMPLOYMENT AGREEMENT The Company has entered into an employment agreement ("Agreement") with Daniel J. Brentlinger, the chairman of the board, president and chief executive officer of the Company, dated as of February 1, 1998. The Agreement will expire on January 31, 2003. The current annual salary under the Agreement is $175,000. The salary under the Agreement may be increased to reflect annual cost of living increases and may be supplemented by discretionary merit and performance increases as determined by the Board of Directors of the Company. Mr. Brentlinger is entitled to an annual bonus equal to 50 percent of the salary provided under his Agreement, which is subject to certain financial performance criteria as established by the compensation committee of the Company. The Agreement provides, among other things, for participation in an equitable manner in any profit-sharing or retirement plan for employees or executives and for participation in other employee benefits applicable to employees and executives of the Company. The Agreement provides for the use of an automobile, payment of club dues and other fringe benefits commensurate with his duties and responsibilities. The Agreement also provides for benefits in the event of disability. The Agreement also contains non-compete provisions but are limited in geographical scope to the State of Ohio. However, state courts may determine not to enforce, or only partially enforce, non-compete clauses in employment agreements. Pursuant to the Agreement, employment may be terminated by the Company with cause or by the executive with or without good reason. Termination by the Company without cause, or by the executive for good reason, would subject the Company to liability for liquidated damages in an amount equal to the terminated executive's current salary and a PRO RATA portion of their bonus for the remaining term of the Agreement, payable in a lump sum cash payment, without any set-off for compensation received from any new employment. In addition, the terminated executive would be entitled to continue to participate in and accrue benefits under all employee benefit plans and to receive supplemental retirement benefits to replace benefits under any qualified plan for the remaining term of the Agreement to the extent permitted by law. LIMITATION ON LIABILITY OF DIRECTORS As permitted by Delaware law, the Company's Certificate of Incorporation includes a provision which provides that a director of the Company shall not be personally liable to the Company or its stockholders for monetary damages for a breach of fiduciary duty as a director, except (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, which prohibits the unlawful payment of dividends or the unlawful repurchase or redemption of stock, or (iv) for any transaction from which the director derives an improper personal benefit. This provision is intended to afford directors protection against, and to limit their potential liability for monetary damages resulting from, suits alleging a breach of the duty of care by a director. As a consequence of this provision, stockholders of the Company will be unable to recover monetary damages against directors for action taken by them that may constitute negligence or gross negligence in performance of their duties unless such conduct falls within one of the foregoing exceptions. The provision, however, does not alter the applicable standards governing a director's fiduciary duty and does not eliminate or limit the right of the Company or any stockholder to obtain an injunction or any other type of nonmonetary relief in the event of a breach of fiduciary duty. Management of the Company believes this provision will assist the Company in securing and retaining qualified persons to serve as directors. The Company is unaware of any pending or threatened litigation against the Company or its directors that would result in any liability for which such director would seek indemnification or similar protection. 37 Such indemnification provisions are intended to increase the protection provided directors and, thus, increase the Company's ability to attract and retain qualified persons to serve as directors. Because directors liability insurance is only available at considerable cost and with low dollar limits of coverage and broad policy exclusions, the Company does not currently maintain a liability insurance policy for the benefit of its directors although the Company may attempt to acquire such insurance in the future. The Company believes that the substantial increase in the number of lawsuits being threatened or filed against corporations and their directors and the general unavailability of directors liability insurance to provide protection against the increased risk of personal liability resulting from such lawsuits have combined to result in a growing reluctance on the part of capable persons to serve as members of boards of directors of public companies. The Company also believes that the increased risk of personal liability without adequate insurance or other indemnity protection for its directors could result in overcautious and less effective direction and management of the Company. Although no directors have resigned or have threatened to resign as a result of the Company's failure to provide insurance or other indemnity protection from liability, it is uncertain whether the Company's directors would continue to serve in such capacities if improved protection from liability were not provided. The provisions affecting personal liability do not abrogate a director's fiduciary duty to the Company and its shareholders, but eliminate personal liability for monetary damages for breach of that duty. The provisions do not, however, eliminate or limit the liability of a director for failing to act in good faith, for engaging in intentional misconduct or knowingly violating a law, for authorizing the illegal payment of a dividend or repurchase of stock, for obtaining an improper personal benefit, for breaching a director's duty of loyalty (which is generally described as the duty not to engage in any transaction which involves a conflict between the interest of the Company and those of the director) or for violations of the federal securities laws. The provisions also limit or indemnify against liability resulting from grossly negligent decisions including grossly negligent business decisions relating to attempts to change control of the Company. The provisions regarding indemnification provide, in essence, that the Company will indemnify its directors against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or proceeding arising out of the director's status as a director of the Company, including actions brought by or on behalf of the Company (shareholder derivative actions). The provisions do not require a showing of good faith. Moreover, they do not provide indemnification for liability arising out of willful misconduct, fraud, or dishonesty, for "short-swing" profits violations under the federal securities laws, or for the receipt of illegal remuneration. The provisions also do not provide indemnification for any liability to the extent such liability is covered by insurance. One purpose of the provisions is to supplement the coverage provided by such insurance. However, as mentioned above, the Company does not currently provide such insurance to its directors, and there is no guarantee that the Company will provide such insurance to its directors in the near future although the Company may attempt to obtain such insurance. The provisions diminish the potential rights of action which might otherwise be available to shareholders by limiting the liability of officers and directors to the maximum extent allowable under Delaware law and by affording indemnification against most damages and settlement amounts paid by a director of the Company in connection with any shareholders derivative action. However, the provisions do not have the effect of limiting the right of a shareholder to enjoin a director from taking actions in breach of his fiduciary duty, or to cause the Company to rescind actions already taken, although as a practical matter courts may be unwilling to grant such equitable remedies in circumstances in which such actions have already been taken. Although the Company has procured directors liability insurance coverage, there is no assurance that it will provide coverage to the extent directors would be indemnified and, in such event, the Company may be forced to bear a portion or all of the cost of the director's claims for indemnification. If the Company is forced to bear the costs for indemnification, the value of the Company stock may be adversely affected. In the opinion of the Securities and Exchange Commission, indemnification for liabilities arising under the Securities Act of 1933 is contrary to public policy and, therefore, is unenforceable. 38 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the Company's Common Stock owned on the date of this Prospectus and, as adjusted, to reflect the sale of shares offered by this Prospectus, by (i) each person who is known by the Company to own beneficially more than five percent of the Company's Common Stock; (ii) each of the Company's officers and directors; and (iii) all officers and directors as a group:
PERCENTAGE OF SHARES NUMBER ---------------------------------------------- OF BEFORE AFTER OFFERING-- AFTER OFFERING-- NAME AND ADDRESS (1) POSITION WITH COMPANY SHARES (2) OFFERING MINIMUM MAXIMUM - -------------------- ----------------------------- ---------- -------- ---------------- ---------------- Daniel J. Brentlinger......... Chairman of the Board, 1,475,000 73.75 64.13 49.17 President, Chief Executive Officer John Campanella............... Vice President, Chief 75,000 3.75 3.26 2.50 Operating Officer, Secretary James W. Brown................ Vice President, Technical 75,000 3.75 3.26 2.50 Services Arthur E. Bard................ Vice President, Marketing and 75,000 3.75 3.26 2.50 Sales Regina I. Muich............... Vice President, Chief -- -- -- -- Financial Officer Howard M. Resh, Ph.D.......... Director 50,000 2.50 2.17 1.67 Robert A. Chesney............. Director 50,000 2.50 2.17 1.67 Thomas T. Prousalis, Jr., Stockholder 200,000 10.00 8.70 6.67 Esq.(3)..................... All Officers and Directors as a Group (7 persons)...... 1,800,000 90.00 78.26 60.00
- ------------------------ (1) c/o CropKing.com, Incorporated, 5050 Greenwich Road, Seville, Ohio 44273. (2) In June 1982, the Company issued 1,475,000 shares of common stock (which includes a 4,000:1 exchange of securities in connection with the reincorporation of the Company in Delaware) to Daniel J. Brentlinger, the chief executive officer and founder of the Company, in a private placement transaction in consideration of $4,000, consisting of cash and property, or $.003 per share. In August 1997, the Company issued 525,000 shares of common stock (which includes a 4,000:1 exchange of securities in connection with the reincorporation of the Company in Delaware) to six persons, who are officers, directors and counsel for the Company, in a private placement transaction in consideration of $525,000, consisting of cash and notes, or $1 per share. The price per share was based upon an independent, professional third party appraisal. Pursuant to the terms of the Underwriting Agreement, the stockholders of the Company have agreed not to sell, transfer, assign or otherwise dispose of any securities of the Company for a period of 24 months following the date of this Prospectus. See "Financial Statements--Note F." (3) 1919 Pennsylvania Avenue, N.W., Suite 200, Washington, D.C. 20006. See "Legal Matters." 39 CERTAIN TRANSACTIONS The Company was incorporated in the State of Ohio in June 1982 and reincorporated in Delaware in August 1997. The Company has authorized capital of 25,000,000 shares of Common Stock, $.01 par value. The Company has 2,000,000 shares of Common Stock issued and outstanding prior to this offering. See "Principal Stockholders" and "Description of Securities." In June 1982, the Company issued 1,475,000 shares of common stock (which includes a 4,000:1 exchange of securities in connection with the reincorporation of the Company in Delaware) to Daniel J. Brentlinger, the chief executive officer and founder of the Company, in a private placement transaction in consideration of $4,000, consisting of cash and property, or $.0027 per share. In August 1997, the Company issued 525,000 shares of common stock (which includes a 4,000:1 exchange of securities in connection with the reincorporation of the Company in Delaware) to six persons, who are officers, directors and counsel for the Company, in a private placement transaction in consideration of $525,000, consisting of cash and notes, or $1 per share. The price per share was based upon an independent, professional third party appraisal. Pursuant to the terms of the Underwriting Agreement, the stockholders of the Company have agreed not to sell, transfer, assign or otherwise dispose of any securities of the Company for a period of 24 months following the date of this Prospectus. See "Financial Statements--Note F." All unregistered securities issued by the Company prior to this offering are deemed "restricted securities" within the meaning of that term as defined in Rule 144 and have been issued pursuant to certain "private placement" exemptions under Section 4(2) of the Securities Act of 1933, as amended, and certain rules and regulations as promulgated by the Securities and Exchange Commission, Washington, D.C. 20549, such that the sales of the securities to sophisticated investors were transactions by an issuer not involving any public offering. Such investors had access to information on the Company necessary to make an informed investment decision. See "Description of Securities." The Company leases its office and warehouse facilities and certain equipment from the president of the Company under a capital lease. The lease term is for five years with the right by the lessee to exercise three consecutive five year options. Lease payments are due monthly in the amount of $10,000. The lessee is responsible for repair and maintenance of the property. The Company has guaranteed a debenture in the amount of $388,000 and has agreed to the assignment of its lease payments in conjunction with the president's financing arrangement with the U.S. Small Business Administration. The real estate is also collateral in conjunction with additional borrowings by the president in the amount of $683,000 and is secured by a first mortgage on the property. The Company formerly subleased a portion of these facilities to an affiliated company ("Affiliate") which is owned by the president of the Company. The Affiliate paid $2,500 per month for rent through April 30, 1998. The Company had sublease income for 1998 in the amount of $22,500. The Company no longer subleases the facilities. The Company also pays certain reimbursable expenditures for the Affiliate, which is in the business of selling produce. The expenditures are primarily for labor and personnel related costs which are being paid through the Company's payroll system. Expenditures for 1999 and 1998 were approximately $170,000 and $210,000, respectively, and have been fully reimbursed by the Affiliate to the Company, except for the amounts which are recorded as accounts receivable--affiliate on the Balance Sheet. See "Financial Statements--Note E." The Company intends to indemnify its officers and directors to the full extent permitted by Delaware law. Under Delaware law, a corporation may indemnify its agents for expenses and amounts paid in third party actions and, upon court approval in derivative actions, if the agents acted in good faith and with reasonable care. A majority vote of the Board of Directors, approval of the shareholders or court approval is required to effectuate indemnification. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to officers, directors or persons controlling the Company, the Company has been advised that, in the opinion of the Securities and Exchange Commission, Washington, D.C. 20549, such indemnification is against public policy as expressed in such Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by an officer, director or controlling person of the Company in the successful defense of any action, 40 suit or proceeding) is asserted by such officer, director or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in such Act and will be governed by the final adjudication of such issue. Any future transactions with affiliates will be on terms no less favorable than could be obtained from nonaffiliated parties and will be approved by a majority of the independent and disinterested directors, as required by a resolution of the Board of Directors. Any future loans to Company officers, directors, affiliates and/or shareholders will be approved by a majority of the independent and disinterested directors, as required by a resolution of the Board of Directors. 41 DESCRIPTION OF SECURITIES COMMON STOCK The authorized capital stock of the Company consists of 25,000,000 shares of Common Stock, $.01 par value. The Company has 2,000,000 shares of Common Stock issued and outstanding prior to this offering. Holders of the Common Stock do not have preemptive rights to purchase additional shares of Common Stock or other subscription rights. The Common Stock carries no conversion rights and is not subject to redemption or to any sinking fund provisions. All shares of Common Stock are entitled to share equally in dividends from sources legally available therefor when, as and if declared by the Board of Directors and, upon liquidation or dissolution of the Company, whether voluntary or involuntary, to share equally in the assets of the Company available for distribution to stockholders. All outstanding shares of Common Stock are validly authorized and issued, fully paid and nonassessable, and all shares to be sold and issued as contemplated hereby, will be validly authorized and issued, fully paid and nonassessable. The Board of Directors is authorized to issue additional shares of Common Stock, not to exceed the amount authorized by the Company's Certificate of Incorporation, and to issue options and warrants for the purchase of such shares, on such terms and conditions and for such consideration as the Board may deem appropriate without further stockholder action. The above description concerning the Common Stock of the Company does not purport to be complete. Reference is made to the Company's Certificate of Incorporation and By-laws which are available for inspection upon proper notice at the Company's offices, as well as to the applicable statutes of the State of Delaware for a more complete description concerning the rights and liabilities of stockholders. Prior to this offering, there has been no market for the Common Stock of the Company, and no predictions can be made of the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. Nevertheless, sales of significant amounts of the Common Stock of the Company in the public market may adversely affect prevailing market prices, and may impair the Company's ability to raise capital at that time through the sale of its equity securities. Each holder of Common Stock is entitled to one vote per share on all matters on which such stockholders are entitled to vote. Since the shares of Common Stock do not have cumulative voting rights, the holders of more than 50 percent of the shares voting for the election of directors can elect all the directors if they choose to do so and, in such event, the holders of the remaining shares will not be able to elect any person to the Board of Directors. SHARES ELIGIBLE FOR FUTURE SALE All of the Company's currently outstanding shares of Common Stock are "restricted securities" and, in the future, may be sold upon compliance with Rule 144, adopted under the Securities Act of 1933, as amended. Rule 144 provides, in essence, that a person holding "restricted securities" for a period of one year may sell only an amount every three months equal to the greater of (a) one percent of the Company's issued and outstanding shares, or (b) the average weekly volume of sales during the four calendar weeks preceding the sale. The amount of "restricted securities" which a person who is not an affiliate of the Company may sell is not so limited, since nonaffiliates may sell without volume limitation their shares held for two years if there is adequate current public information available concerning the Company. Upon the sale of the maximum number of securities, the Company will have 3,000,000 shares of its common stock issued and outstanding, of which 2,000,000 shares will be "restricted securities." Therefore, during each three month period, a holder of restricted securities who has held them for at least the one year period may sell under Rule 144 a number of shares up to 30,000 shares. Non-affiliated persons who hold for the two-year period described above may sell unlimited shares once their holding period is met. However, pursuant to the terms of the Underwriting Agreement, the stockholders of the Company have agreed not to sell, transfer, assign or otherwise dispose of any securities of the Company for a period of 24 months following the date of this Prospectus. 42 TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the securities of the Company is American Securities Transfer & Trust, Inc., 12039 W. Alameda Parkway, Lakewood, Colorado 80228. REPORTS TO SECURITY-HOLDERS The Company will furnish to holders of its securities annual reports containing audited financial statements. The Company may issue other unaudited interim reports to its security-holders as it deems appropriate. Contemporaneously, with this offering, the Company intends to register its securities with the Securities and Exchange Commission, Washington, D.C. 20549, under the provisions of Section 12(g) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance therewith, the Company will be required to comply with certain reporting, proxy solicitation and other requirements of the Exchange Act. 43 UNDERWRITING The Company, by and through its Underwriter, is offering the shares of Common Stock at $7 per share on a "best efforts, all-or-none" basis for the first 300,000 shares and on a "best efforts" basis on the remaining 700,000 shares during an offering period of 90 days, which may be extended for an additional 30 days. The Company reserves the right to close the offering upon the sale of the minimum number of shares offered hereby. All proceeds received from the purchase of the shares will be promptly deposited in an interest-bearing escrow account at Republic Security Bank, Boca Raton, Florida and promptly returned to the subscribers in full, without interest or deduction, unless at least 300,000 shares offered hereby are sold and paid for during the offering period. Should the minimum offering be reached within the offering period, the Company may immediately receive such minimum proceeds and may continue to sell the offering until the maximum offering is reached, if possible. Therefore, it is possible that purchases of the shares may have their funds in escrow for as much as 120 days before the offering is closed. Purchasers will have no right to the return of their funds during the term of the escrow. The Company has been advised by the Underwriter that the Underwriter proposes to offer the Securities to the public at the offering price set forth on the cover page of this Prospectus. The Underwriter has advised the Company that the Underwriter proposes to offer the securities through members of the National Association of Securities Dealers, Inc. ("NASD"), and may allow concessions, in its discretion, to certain selected dealers who are members of the NASD and who agree to sell the securities in conformity with the NASD's Conduct Rules. Such concessions will not exceed the amount of the underwriting discount that the Underwriter is to receive. Officers and directors of the Company may introduce the Underwriter to persons to consider this offering and to purchase securities either through the Underwriter or through participating dealers. In this connection, no securities have been reserved for those purchases and officers and directors will not receive any commissions or any other compensation. The Company has agreed to pay to the Underwriter a commission of ten percent (10%) of the gross proceeds of this offering (the "Underwriting Discount"). In addition, the Company has agreed to pay to the Underwriter the Non-Accountable Expense Allowance of three percent (3%) of the gross proceeds of this offering. The Company has paid to the Underwriter a $50,000 advance in respect of the Non- Accountable Expense Allowance. The Underwriter's expenses in excess of the Non-Accountable Expense Allowance will be paid by the Underwriter. To the extent that the expenses of the Underwriter are less than the amount of the Non-Accountable Expense Allowance received, such excess shall be deemed to be additional compensation to the Underwriter. The Underwriter has informed the Company it does not expect sales of discretionary accounts to exceed five percent (5%) of the total number of securities offered by the Company hereby. Prior to this offering, there has been no public market for the shares of Common Stock. Consequently, the initial public offering prices for the securities have been determined by negotiation between the Company and the Underwriter. Among the factors considered in determining the public offering prices were the history of, and the prospects for, the Company's business, an assessment of the Company's management, the Company's past and present operations, its development and the general condition of the securities market at the time of this offering. The initial public offering prices do not necessarily bear any relationship to the Company's assets, book value, earnings or other established criteria of value. Such prices are subject to change as a result of market conditions and other factors, and no assurance can be given that a public market for the securities will develop after the Closing, or if a public market in fact develops, that such public market will be sustained, or that the securities can be resold at any time at the offering or any other price. See "Risk Factors." 44 At the Closing, the Company will issue to the Underwriter and/or persons related to the Underwriter, for nominal consideration, the Underwriter's Common Stock Warrants to purchase up to 100,000 shares of Common Stock. The Underwriter's Common Stock Warrants are sometimes referred to in this Prospectus as the "Underwriter Warrants." The Underwriter and/or persons related to the Underwriter will receive one Underwriter Warrant for each ten shares sold in the offering. The Underwriter Warrants will be exercisable for a five-year period commencing on the Effective Date. The initial exercise price of each Underwriter Warrants shall be $8.40 per underlying share (120% of the public offering price). The Underwriter Warrants will be restricted from sale, transfer, assignment or hypothecation for a period of twelve months from the effective date by the holder, except (i) to officers of the Underwriter and members of the selling group and officers and partners thereof; (ii) by will; or (iii) by operation of law. The Underwriter Warrants contain provisions providing for appropriate adjustment in the event of any merger, consolidation, recapitalization, reclassification, stock dividend, stock split or similar transaction. The Underwriter Warrants contain net issuance provisions permitting the holders thereof to elect to exercise the Underwriter Warrants in whole or in part and instruct the Company to withhold from the securities issuable upon exercise, a number of securities, valued at the current fair market value on the date of exercise, to pay the exercise price. Such net exercise provision has the effect of requiring the Company to issue shares of Common Stock without a corresponding increase in capital. A net exercise of the Underwriter Warrants will have the same dilutive effect on the interests of the Company's shareholders as will a cash exercise. The Underwriter Warrants do not entitle the holders thereof to any rights as a shareholder of the Company until such Underwriter Warrants are exercised and shares of Common Stock are purchased thereunder. The Underwriter Warrants and the securities issuable thereunder may not be offered for sale except in compliance with the applicable provisions of the Securities Act. The Company has agreed that if it shall cause a post-effective amendment, a new registration statement, or similar offering document to be filed with the Commission, the holders shall have the right, for seven (7) years from the effective date, to include in such registration statement or offering statement the Underwriter Warrants and/or the securities issuable upon their exercise at no expense to the holders. Additionally, the Company has agreed that, upon request by the holders of 50% or more of the Underwriter Warrants during the period commencing one year from the effective date and expiring four years thereafter, the Company will, under certain circumstances, register the Underwriter Warrants and/or any of the securities issuable upon their exercise. The Company has agreed to indemnify the Underwriter against any costs or liabilities incurred by the Underwriter by reason of misstatements or omissions to state material factors in connection with the statements made in the Registration Statement filed by the Company with the Commission under the Securities Act (together with all amendments and exhibits thereto, the "Registration Statement") and this Prospectus. The Underwriter has in turn agreed to indemnify the Company against any costs or liabilities by reason of misstatements or omissions to state material facts in connection with the statements made in the Registration Statement and this Prospectus, based on information relating to the Underwriter and furnished in writing by the Underwriter. To the extent that these provisions may purport to provide exculpation from possible liabilities arising under the federal securities laws, in the opinion of the Commission, such indemnification is contrary to public policy and therefore unenforceable. The foregoing is a summary of the principal terms of the agreements described above and does not purport to be complete. Reference is made to copies of each such agreement which are filed as exhibits to the Registration Statement. See "Additional Information." 45 LEGAL PROCEEDINGS CropKing.com, Incorporated is not a party to any legal proceedings and, to the best of its information, knowledge and belief, none is contemplated or has been threatened. LEGAL MATTERS The validity of the securities being offered hereby will be passed upon for the Company by Thomas T. Prousalis, Jr., Esq., 1919 Pennsylvania Avenue, N.W., Suite 200, Washington, D.C. 20006. Mr. Prousalis is the beneficial owner of 200,000 shares of Common Stock of the Company. Certain legal matters will be passed upon for the Underwriter by David A. Carter, P.A., 2300 Glades Road, Suite 210W, Boca Raton, Florida 33431. EXPERTS The financial statements of CropKing.com, Incorporated as of July 31, 1999, and 1998 included in the Registration Statement and this Prospectus have been included herein in reliance on the report dated September 3, 1999, of Grant Thornton LLP, Independent Certified Public Accountants, and upon the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Commission the Registration Statement under the Securities Act with respect to the securities, offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and this offering, reference is made to the Registration Statement, including the exhibits filed therewith, which may be examined at the Commission's principal office, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; the Northeast Regional Office of the Commission at 7 World Trade Centre, Suite 1300, New York, New Yorkk 10048; and the Midwest Regional Office of the Commission, Citicorp Centre, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, where copies may be obtained upon payment of the fees prescribed by the Commission. Such documents may also be obtained through the Internet website maintained by the Commission at http://www.sec.gov. Descriptions contained in this Prospectus as to the contents of any contract or other document filed as an exhibit to the Registration Statement are not necessarily complete and each such description is qualified by reference to such contract or document. The Company will provide without charge to each person who receives a Prospectus, upon written or oral request of such person to the following address or telephone number, a copy of any of the information that is incorporated by reference in this Prospectus: 5050 Greenwich Road, Seville, Ohio 44273, telephone (330) 769-2002, facsimile (330) 769-2616. The Company's Internet Web site address is www.cropking.com. 46 INDEX TO FINANCIAL STATEMENTS
PAGE -------- Report of Independent Certified Public Accountants.......... F-2 Financial Statements Balance Sheets............................................ F-3 Statements of Operations.................................. F-5 Statements of Cash Flows.................................. F-6 Statements of Stockholders' Equity........................ F-7 Notes to Financial Statements............................. F-8
F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors CropKing.com, Incorporated We have audited the accompanying balance sheets of CropKing.com, Incorporated as of July 31, 1999 and 1998 and the related statements of operations, cash flows, and stockholders' equity for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CropKing.com, Incorporated as of July 31, 1999 and 1998 and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. Cleveland, Ohio September 3, 1999 (except for the last paragraph of note F as to which the date is October 5, 1999.) F-2 CROPKING.COM, INCORPORATED BALANCE SHEETS ASSETS
JULY 31, JULY 31, 1999 1998 ---------- ---------- CURRENT ASSETS Cash...................................................... $ 81,374 $ 61,748 Accounts receivable, net of allowance for doubtful accounts of $10,000..................................... 60,445 134,765 Accounts receivable--affiliate............................ 19,618 61,613 Inventory................................................. 615,330 581,468 Prepaid expenses.......................................... 7,700 7,874 Refundable taxes.......................................... 115,173 7,790 Deferred taxes............................................ -- 7,500 ---------- ---------- Total current assets.................................... 899,640 862,758 PROPERTY AND EQUIPMENT--AT COST Land...................................................... 209,280 209,280 Building.................................................. 707,140 707,140 Furniture and fixtures.................................... 250,284 218,408 Leasehold improvements.................................... 200,462 136,768 Vehicles.................................................. 25,758 25,758 Machinery and equipment................................... 354,206 310,523 ---------- ---------- 1,747,130 1,607,877 Less accumulated depreciation and amortization.......... 462,132 337,849 ---------- ---------- 1,284,998 1,270,028 OTHER ASSETS Deposits.................................................. 1,806 1,806 Deferred offering costs................................... 203,012 427,962 ---------- ---------- 204,818 429,768 ---------- ---------- $2,389,456 $2,562,554 ========== ==========
The accompanying notes are an integral part of these statements F-3 CROPKING.COM, INCORPORATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
JULY 31, JULY 31, 1999 1998 ---------- ---------- CURRENT LIABILITIES Current portion of long-term obligations.................. $ 76,916 $ 64,286 Accounts payable.......................................... 310,282 258,936 Customer deposits......................................... 298,300 289,222 Accrued liabilities....................................... 33,453 72,837 Accrued income tax........................................ -- 2,030 ---------- ---------- Total current liabilities............................... 718,951 687,311 DEFERRED INCOME TAXES....................................... -- 9,000 LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION............... 1,250,360 1,077,012 STOCKHOLDERS' EQUITY Common shares--$.01 par value, 25,000,000 shares authorized, 2,000,000 shares issued and outstanding at July 31, 1999 and 1998.................................. 20,000 20,000 Paid-in capital........................................... 1,044,750 1,044,750 Notes receivable-stockholders............................. (525,000) (525,000) Retained earnings (deficit)............................... (119,605) 249,481 ---------- ---------- 420,145 789,231 ---------- ---------- $2,389,456 $2,562,554 ========== ==========
The accompanying notes are an integral part of these statements. F-4 CROPKING.COM, INCORPORATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, ------------------------ 1999 1998 ----------- ---------- Net sales................................................... $ 4,898,824 $5,036,254 Cost of sales............................................... 3,096,037 3,110,706 ----------- ---------- Gross profit.......................................... 1,802,787 1,925,548 Selling, general and administrative expenses................ 1,947,041 1,708,171 Stock compensation expense.................................. -- 325,000 ----------- ---------- Operating (loss)...................................... (144,254) (107,623) Other income (expense) Interest income........................................... 2,202 3,932 Interest expense.......................................... (123,675) (123,616) Offering costs............................................ (236,100) -- Miscellaneous............................................. 27,241 29,836 ----------- ---------- Total other (expense)................................... (330,332) (89,848) ----------- ---------- (Loss) before income taxes............................ (474,586) (197,471) Provision (benefit) for income taxes........................ (105,500) 20,300 ----------- ---------- NET (LOSS)............................................ $ (369,086) $ (217,771) =========== ========== Basic (loss) per share...................................... $ (.18) $ (.11) =========== ========== Weighted average shares outstanding......................... 2,000,000 1,969,795 =========== ==========
The accompanying notes are an integral part of these statements. F-5 CROPKING.COM, INCORPORATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, ----------------------- 1999 1998 ----------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss)................................................ $ (369,086) $(217,771) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 125,233 103,040 Stock compensation expense.............................. -- 325,000 Offering costs.......................................... 236,100 -- Deferred taxes.......................................... (1,500) 4,500 Gain on disposal of equipment........................... (868) -- (Increase) decrease in accounts receivable.............. 116,315 (517) (Increase) decrease in inventory........................ (33,862) (963) (Increase) decrease in prepaid expenses................. 174 1,859 (Increase) decrease in refundable taxes................. (107,383) (7,790) Increase (decrease) in accounts payable................. 51,346 86,573 Increase (decrease) in accrued liabilities.............. (39,384) (44,941) Increase (decrease) in other liabilities................ 9,078 130,923 Increase (decrease) in income taxes..................... (2,030) (69,876) ----------- --------- Total adjustments..................................... 353,219 527,808 ----------- --------- Net cash provided by (used in) operating activities........................................ (15,867) 310,037 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures...................................... (141,053) (155,920) Proceeds from sale of equipment........................... 1,718 -- ----------- --------- Net cash (used in) investing activities............. (139,335) (155,920) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt.................. 392,431 76,273 Proceeds from line of credit.............................. 1,366,000 245,000 Principal payments on line of credit...................... (1,366,000) (245,000) Principal payments on long-term debt...................... (172,244) (20,743) Principal payments under capital leases................... (34,209) (30,857) Prepayment of offering costs.............................. (11,150) (227,962) ----------- --------- Net cash provided by (used in) financing activities........................................ 174,828 (203,289) ----------- --------- INCREASE (DECREASE) IN CASH................................. 19,626 (49,172) Cash at beginning of year................................... 61,748 110,920 ----------- --------- Cash at end of year......................................... $ 81,374 $ 61,748 =========== =========
The accompanying notes are an integral part of these statements. F-6 CROPKING.COM, INCORPORATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK NOTES OUTSTANDING ADDITIONAL RECEIVABLE -------------------- PAID-IN RETAINED COMMON SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL --------- -------- ---------- --------- ---------- -------- BALANCE AT AUGUST 1, 1997..... 1,475,000 $14,750 $ -- $ 467,252 $ -- $482,002 Issuance of common stock for notes..................... 525,000 5,250 519,750 -- (525,000) -- Stockholders' compensation expense................... -- -- 525,000 -- -- 525,000 (Loss) for the year ended July 31, 1998............. -- -- -- (217,771) -- (217,771) --------- ------- ---------- --------- --------- -------- BALANCE AT JULY 31, 1998...... 2,000,000 20,000 1,044,750 249,481 (525,000) 789,231 (Loss) for the year ended July 31, 1999............. -- -- -- (369,086) -- (369,086) --------- ------- ---------- --------- --------- -------- BALANCE AT JULY 31, 1999...... 2,000,000 $20,000 $1,044,750 $(119,605) $(525,000) $420,145 ========= ======= ========== ========= ========= ========
The accompanying notes are an integral part of these statements. F-7 CROPKING.COM, INCORPORATED NOTES TO FINANCIAL STATEMENTS JULY 31, 1999 AND 1998 NOTE A--SUMMARY OF ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows. NATURE OF OPERATIONS On November 30, 1998, CropKing, Incorporated changed its name to CropKing.com, Incorporated ("Company"). The Company designs, develops, manufactures, markets and sells proprietary, commercial hydroponic products and systems, and related technology, equipment and supplies to customers throughout the United States for the commercial year-round production of specialty crops. The Company's hydroponic products and systems, including related technology, equipment and supplies are offered to its prospective commercial and individual customers in standard and custom-designed configurations. The Company's hydroponic products and systems are offered through direct marketing and sales, dealers and distributors, by mail order and through its Internet Web site. REVENUE RECOGNITION The Company recognizes revenue when the product is shipped. 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 amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating the fair value of each class of financial instruments for which it is practicable to estimate fair value. For cash, receivables and payables, the carrying amounts approximate fair value because of the short maturity of these instruments. For long-term obligations, including current maturities, the fair value of the Company's long-term obligations approximates historically recorded cost since interest rates approximate market. INVENTORY Inventory consists of purchased parts and system components and is stated at the lower of cost, determined on the first-in, first-out (FIFO) basis, or market. F-8 CROPKING.COM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) JULY 31, 1999 AND 1998 NOTE A--SUMMARY OF ACCOUNTING POLICIES (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the related assets. Renewals and betterments of a nature considered to materially extend the useful life of the assets are capitalized. Depreciation for financial reporting purposes is based on the following policies: Building....................... 20 years Straight-line Furniture and fixtures......... 5--10 years Straight-line Leasehold improvements......... 20 years Straight line Vehicles....................... 3--5 years Straight line Machinery and equipment........ 3--10 years Straight line
DEFERRED OFFERING COSTS Deferred offering costs represent incremental costs directly attributable to the offering of securities which are deferred and charged against the gross proceeds of an offering. The costs include legal and accounting fees, registration and filing fees, and stock transfer fees. In July 1999, the Company expensed $236,100 of previously deferred offering costs. The costs expensed relate to previously filed registration statements that do not have any on-going value. ASSET IMPAIRMENT Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121") requires that long-lived assets, certain identifiable intangible assets and goodwill be reviewed for impairment when expected future undiscounted cash flows are less than the carrying value of the assets. No charges were recorded pursuant to this statement for the years ended July 31, 1999 and 1998. ADVERTISING EXPENSES All advertising and promotional costs incurred by the Company are expensed the first time the advertising takes place. Advertising and promotion expense was $244,800 and $240,500 for the years ended July 31, 1999 and 1998, respectively, and is included in "Selling, general and administrative expenses" in the accompanying Statements of Operations. RESEARCH AND DEVELOPMENT COSTS Research and development costs related to both present and future products are expensed as incurred. Such costs amounted to $149,100 and $141,800 for the years ended July 31, 1999 and 1998, respectively, and are classified as a component of "Selling, general and administrative expenses" in the accompanying Statements of Operations. INCOME TAXES Income taxes are recorded in accordance with Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES ("SFAS 109"). SFAS 109 utilizes the asset and liability method, under which F-9 CROPKING.COM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) JULY 31, 1999 AND 1998 NOTE A--SUMMARY OF ACCOUNTING POLICIES (CONTINUED) deferred income taxes are recognized for the tax consequences of "temporary differences" by applying currently enacted statutory rates to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. Under SFAS 109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. CASH FLOWS For purposes of the Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. During the year ended July 31, 1998, the Company issued 131.25 shares of common stock (525,000 shares after a 4,000 : 1 exchange of securities) at an aggregate purchase price of $1,050,000 in return for notes receivable and the recording of prepaid offering costs and stock compensation charges (see note F). For the years ended July 31, 1999 and 1998, the Company paid interest of $123,600 and $123,400 and paid income taxes of $3,700 and $93,500, respectively. EARNINGS PER SHARE Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE ("SFAS 128"), requires that all earnings per share amounts disclosed herein be calculated under the provisions of SFAS 128. Basic earnings per common share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the reporting period. The Company does not have any potentially dilutive securities outstanding at July 31, 1999. COMPREHENSIVE INCOME During fiscal 1999, the Company adopted SFAS 130, REPORTING COMPREHENSIVE INCOME. SFAS 130 established standards for reporting and displaying comprehensive income and its components in a full set of financial statements. During the years presented, the Company had no components of Other Comprehensive Income. Accordingly, the Company has not presented a separate Statement of Comprehensive Income. DISCLOSURE OF REPORTABLE SEGMENTS During fiscal 1999, the Company adopted SFAS 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS 131 introduced a new segment reporting model called the "management approach". The management approach is based on the manner in which management organizes segments within a company for making operating decisions and assessing performance. The management approach replaces the notion of industry and geographic segments. During the years presented, the Company operated in a single business segment. NEW ACCOUNTING PRONOUNCEMENTS The Company has not yet adopted SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS 133 requires that all derivatives, such as interest rate exchange agreements (swaps), be recognized on the balance sheet at fair value. Derivatives which are not hedges must be adjusted to fair F-10 CROPKING.COM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) JULY 31, 1999 AND 1998 NOTE A--SUMMARY OF ACCOUNTING POLICIES (CONTINUED) value through the results of operations. Derivatives determined to be hedges will be adjusted to fair value through either the results of operations or other comprehensive income, depending on the nature of the hedge. The Company is required to adopt SFAS 133, as subsequently amended by SFAS No. 137, on August 1, 2000. The impact, if any, on net income, comprehensive income and financial position will depend on the amount, timing and nature of any agreements entered into by the Company. NOTE B--NOTES PAYABLE The Company has a line of credit with a bank in the amount of $750,000. The line is evidenced by a demand note payable that bears interest at prime plus 1/4%. The line is guaranteed by the president/ stockholder and is collateralized by certain assets of the Company. There were no borrowings outstanding at July 31, 1999 or July 31, 1998. NOTE C--LONG-TERM OBLIGATIONS Long-term obligations as of July 31 consist of the following:
1999 1998 ---------- ---------- Note payable--bank, collateralized by substantially all corporate assets, monthly payments of $760 include interest of 8.5%, matures April 1, 2000................... $ -- $ 14,172 Note payable--bank, collateralized by substantially all corporate assets, monthly payments of $1,350 include interest at prime plus .5%, matures February 15, 2006..... -- 86,930 Note payable--bank, collateralized by substantially all corporate assets, monthly payments of $1,578 include interest at prime plus .25%, matures February 10, 2003.... -- 71,142 Note payable--bank, collateralized by substantially all corporate assets, monthly payments of $6,194 include interest at prime plus .25%, matures July 31, 2006........ 392,430 -- Obligations under capital leases (see Note D)............... 934,846 969,054 ---------- ---------- 1,327,276 1,141,298 Less current portion...................................... 76,916 64,286 ---------- ---------- $1,250,360 $1,077,012 ========== ==========
In July 1999, the Company entered into a new loan agreement with the bank. The proceeds received from the loan were used to pay off the three previous loans and to provide for additional borrowings. F-11 CROPKING.COM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) JULY 31, 1999 AND 1998 NOTE C--LONG-TERM OBLIGATIONS (CONTINUED) As of July 31, 1999, long-term obligations mature as follows:
FISCAL YEAR - ----------- 2000........................................................ $ 76,916 2001........................................................ 73,985 2002........................................................ 79,603 2003........................................................ 87,240 2004........................................................ 95,622 Thereafter.................................................. 913,910 ---------- $1,327,276 ==========
NOTE D--CAPITAL LEASE OBLIGATIONS Property, plant and equipment includes a building and equipment under capital leases in the amount of $1,054,402 at July 31, 1999 and 1998. Accumulated amortization on the related assets at those dates is $210,200 and $161,100, respectively. The building and certain of the equipment is being leased from a related party (see Note E). The following is a schedule of future minimum lease payments under capital leases together with the present value of the minimum lease payments as of July 31, 1999: 2000........................................................ $ 131,282 2001........................................................ 121,358 2002........................................................ 120,000 2003........................................................ 120,000 2004........................................................ 120,000 Thereafter.................................................. 1,320,000 ---------- Total minimum lease payments................................ 1,932,640 Less amount representing interest........................... 997,794 ---------- PRESENT VALUE OF MINIMUM LEASE PAYMENTS..................... $ 934,846 ==========
NOTE E--RELATED PARTY TRANSACTION The Company leases its office and warehouse facilities and certain equipment from the president and stockholder of the Company under a capital lease. The lease term is for five years with the right, by the lessee to exercise three consecutive five-year options. Lease payments are due monthly in the amount of $10,000. The lessee is responsible for repair and maintenance of the property. The Company has guaranteed a debenture in the amount of $388,000 and has agreed to the assignment of its lease payments in conjunction with the president's financing arrangement with the U.S. Small Business Administration. The real estate is also collateral in conjunction with additional borrowings by the president in the amount of $683,000 and is secured by a first mortgage on the property. Through April 30, 1998, the Company subleased a portion of these facilities to an affiliated company (Affiliate) which is owned by the president F-12 CROPKING.COM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) JULY 31, 1999 AND 1998 NOTE E--RELATED PARTY TRANSACTION (CONTINUED) of the Company. The Affiliate paid $2,500 per month for rent. The Company had sublease income for 1998 in the amount of $22,500. The Company no longer subleases the facilities. The Company also pays certain reimbursable expenditures for the Affiliate, which is in the business of selling produce. The expenditures are primarily for labor and personnel related costs which are being paid through the Company's payroll system. Expenditures for 1999 and 1998 were approximately $170,000 and $210,000, respectively, and have been fully reimbursed by the Affiliate to the Company, except for the amounts which are recorded as "Accounts receivable--affiliate" on the Balance Sheet. NOTE F--STOCKHOLDERS' EQUITY On August 22, 1997 the Company, as an Ohio corporation, issued 131.25 shares of common stock (525,000 shares after a 4,000:1 exchange of securities, see below) at an aggregate purchase price of $2.00 per share aggregating $1,050,000 to six persons, including officers, directors and counsel for the Company ("Purchasers"). The purchase price was paid by issuing $525,000 of nonrecourse promissory notes ("Notes") to the Company and of the remaining balance, $325,000 was charged to stock compensation expense and $200,000 was recorded as prepaid offering costs related to legal fees associated with the initial public offering. The Notes are due and payable with 8% simple interest within six months of the date of the company's proposed initial public offering of securities. The Company was originally incorporated as an Ohio corporation and authorized 500 shares of no par common stock. On August 29, 1997, a Delaware corporation was formed and 25,000,000 shares of common stock were authorized at a $.01 par value. The Ohio corporation was then merged into the Delaware corporation resulting in the Ohio corporation ceasing to exist. Upon the effective date of the merger, each share of common stock was exchanged for 4,000 shares of the Delaware corporation's common stock, aggregating 2,000,000 common shares issued and outstanding after the merger. All periods presented have been restated to reflect this recapitalization. In January 1998, the Company entered into a letter of intent with an underwriter for a firm commitment initial public offering of securities consisting of 1,500,000 shares of common stock and 2,000,000 common stock purchase warrants. However, in October 1999, the underwriter changed the terms of the proposed public offering such that the Company, by and through its underwriter, proposes to offer its shares of Common Stock at $7 per share on a "best efforts, all-or-none" basis for the first 300,000 shares and on a "best efforts" basis on the remaining 700,000 shares during an offering period of 90 days, which may be extended for an additional 30 days. NOTE G--PROFIT SHARING PLAN The Company has a 401(k) profit sharing plan covering substantially all full time employees. The Company has elected to match 25% of participating employees' elected contributions up to 3% of total salaries and wages. The Company's matching contribution expense was $10,900 and $11,300 for the years ended July 31, 1999 and 1998, respectively. F-13 CROPKING.COM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) JULY 31, 1999 AND 1998 NOTE G--PROFIT SHARING PLAN (CONTINUED) The plan provides for discretionary contributions by the Company of up to 15% of compensation. Discretionary contributions to the plan were $17,000 for the year ended July 31, 1998. The Company made no discretionary contributions in 1999. NOTE H--INCOME TAXES Income tax provision (benefit) consists of the following:
1999 1998 --------- -------- Federal..................................................... $(104,200) $14,500 State and local............................................. 200 1,300 --------- ------- (104,000) 15,800 Deferred.................................................... (1,500) 4,500 --------- ------- $(105,500) $20,300 ========= =======
The following is a summary of the reconciliations of the expected Federal Statutory Tax:
1999 1998 --------- -------- Expected statutory tax at a 34% rate........................ $(161,360) $(67,140) Permanent nondeductible expenditures........................ 8,590 8,385 Research and development credits............................ (14,910) (14,815) State and local income taxes................................ -- 110 Stock compensation.......................................... -- 110,500 Valuation allowance......................................... 45,300 -- Rate difference of NOL carryback............................ 16,880 -- Surtax rate difference...................................... -- (16,740) --------- -------- $(105,500) $ 20,300 ========= ========
F-14 CROPKING.COM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) JULY 31, 1999 AND 1998 NOTE H--INCOME TAXES (CONTINUED) Deferred tax assets and liabilities consist of the following:
1999 1998 -------- -------- TEMPORARY DIFFERENCES RELATED TO: Depreciation................................................ $(33,670) $(39,000) Accrued expenses and allowances............................. 6,000 7,500 Capitalized leases.......................................... 37,300 30,000 Net operating loss carryforward............................. 20,760 -- R & D credit carryforward................................... 14,910 -- -------- -------- Net deferred tax assets (liabilities) before valuation allowance............................................... 45,300 (1,500) Valuation allowance......................................... (45,300) -- -------- -------- Net deferred tax assets (liabilities)....................... $ -- $ (1,500) ======== ======== Deferred tax asset--current................................. $ -- $ 7,500 Deferred tax liabilities--noncurrent........................ -- (9,000) -------- -------- $ -- $ (1,500) ======== ========
At July 31, 1999 the Company had a net operating loss carryforward of approximately $50,000 and a research and development credit carryforward of approximately $15,000, and both of these carryforwards expire in year 2019. The Company has recorded the tax effect of these amounts as deferred tax assets and has recorded a valuation allowance to fully offset these amounts as well as other previously recorded deferred tax assets. F-15 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER WOULD BE UNLAWFUL. ANY MATERIAL MODIFICATION OF THE OFFERING WILL BE ACCOMPLISHED BY MEANS OF AN AMENDMENT TO THE REGISTRATION STATEMENT. IN ADDITION, THE RIGHT IS RESERVED BY THE COMPANY TO CANCEL ANY CONFIRMATION OF SALE PRIOR TO THE RELEASE OF FUNDS, IF, IN THE OPINION OF THE COMPANY, COMPLETION OF SUCH SALE WOULD VIOLATE FEDERAL OR STATE SECURITIES LAWS OR A RULE OR POLICY OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., WASHINGTON, D.C. 20006. ------------------------ TABLE OF CONTENTS
PAGE -------- Prospectus Summary.................... 3 Risk Factors.......................... 6 Use of Proceeds....................... 13 Dilution.............................. 15 Capitalization........................ 16 Dividend Policy....................... 16 Management's Discussion and Analysis or Plan of Operation................. 17 Business.............................. 20 Management............................ 35 Principal Stockholders................ 39 Certain Transactions.................. 40 Description of Securities............. 42 Underwriting.......................... 44 Legal Proceedings..................... 46 Legal Matters......................... 46 Experts............................... 46 Additional Information................ 46 Index to Financial Statements......... F-1 Report of Independent Certified Public Accountants................... F-2
------------------------ UNTIL , 1999 (90 DAYS AFTER THE EFFECTIVE DATE OF THIS PROSPECTUS), ALL BROKER-DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 1,000,000 SHARES [LOGO] --------------------- PROSPECTUS --------------------- [LOGO] 7700 WEST CAMINO REAL BOCA RATON, FLORIDA 33433 (877) 218-6574 BEVERLY HILLS, CALIFORNIA BOSTON, MASSACHUSETTS BROOKLYN, NEW YORK BUFFALO, NEW YORK CHICAGO, ILLINOIS CLEARWATER, FLORIDA DULUTH, GEORGIA EDISON, NEW JERSEY EUREKA SPRINGS, ARKANSAS FORT LAUDERDALE, FLORIDA HASBROOK HEIGHTS, NEW JERSEY LA JOLLA, CALIFORNIA NAPLES, FLORIDA NEW YORK, NEW YORK ORLANDO, FLORIDA SARASOTA, FLORIDA TAMPA, FLORIDA WEST BOCA RATON, FLORIDA , 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART TWO INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. As permitted by Delaware law, the Company's Certificate of Incorporation includes a provision which provides that a director of the Company shall not be personally liable to the Company or its stockholders for monetary damages for a breach of fiduciary duty as a director, except (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, which prohibits the unlawful payment of dividends or the unlawful repurchase or redemption of stock, or (iv) for any transaction from which the director derives an improper personal benefit. This provision is intended to afford directors protection against, and to limit their potential liability for monetary damages resulting from, suits alleging a breach of the duty of care by a director. As a consequence of this provision, stockholders of the Company will be unable to recover monetary damages against directors for action taken by them that may constitute negligence or gross negligence in performance of their duties unless such conduct falls within one of the foregoing exceptions. The provision, however, does not alter the applicable standards governing a director's fiduciary duty and does not eliminate or limit the right of the Company or any stockholder to obtain an injunction or any other type of nonmonetary relief in the event of a breach of fiduciary duty. Management of the Company believes this provision will assist the Company in securing and retaining qualified persons to serve as directors. The Company is unaware of any pending or threatened litigation against the Company or its directors that would result in any liability for which such director would seek indemnification or similar protection. Such indemnification provisions are intended to increase the protection provided directors and, thus, increase the Company's ability to attract and retain qualified persons to serve as directors. Because directors liability insurance is only available at considerable cost and with low dollar limits of coverage and broad policy exclusions, the Company does not currently maintain a liability insurance policy for the benefit of its directors although the Company may attempt to acquire such insurance in the future. The Company believes that the substantial increase in the number of lawsuits being threatened or filed against corporations and their directors and the general unavailability of directors liability insurance to provide protection against the increased risk of personal liability resulting from such lawsuits have combined to result in a growing reluctance on the part of capable persons to serve as members of boards of directors of public companies. The Company also believes that the increased risk of personal liability without adequate insurance or other indemnity protection for its directors could result in overcautious and less effective direction and management of the Company. Although no directors have resigned or have threatened to resign as a result of the Company's failure to provide insurance or other indemnity protection from liability, it is uncertain whether the Company's directors would continue to serve in such capacities if improved protection from liability were not provided. The provisions affecting personal liability do not abrogate a director's fiduciary duty to the Company and its shareholders, but eliminate personal liability for monetary damages for breach of that duty. The provisions do not, however, eliminate or limit the liability of a director for failing to act in good faith, for engaging in intentional misconduct or knowingly violating a law, for authorizing the illegal payment of a dividend or repurchase of stock, for obtaining an improper personal benefit, for breaching a director's duty of loyalty (which is generally described as the duty not to engage in any transaction which involves a conflict between the interest of the Company and those of the director) or for violations of the federal securities laws. The provisions also limit or indemnify against liability resulting from grossly negligent decisions including grossly negligent business decisions relating to attempts to change control of the Company. II-1 The provisions regarding indemnification provide, in essence, that the Company will indemnify its directors against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or proceeding arising out of the director's status as a director of the Company, including actions brought by or on behalf of the Company (shareholder derivative actions). The provisions do not require a showing of good faith. Moreover, they do not provide indemnification for liability arising out of willful misconduct, fraud, or dishonesty, for "short-swing" profits violations under the federal securities laws, or for the receipt of illegal remuneration. The provisions also do not provide indemnification for any liability to the extent such liability is covered by insurance. One purpose of the provisions is to supplement the coverage provided by such insurance. However, as mentioned above, the Company does not currently provide such insurance to its directors, and there is no guarantee that the Company will provide such insurance to its directors in the near future although the Company may attempt to obtain such insurance. The provisions diminish the potential rights of action which might otherwise be available to shareholders by limiting the liability of officers and directors to the maximum extent allowable under Delaware law and by affording indemnification against most damages and settlement amounts paid by a director of the Company in connection with any shareholders derivative action. However, the provisions do not have the effect of limiting the right of a shareholder to enjoin a director from taking actions in breach of his fiduciary duty, or to cause the Company to rescind actions already taken, although as a practical matter courts may be unwilling to grant such equitable remedies in circumstances in which such actions have already been taken. Also, because the Company does not presently have directors liability insurance and because there is no assurance that the Company will procure such insurance or that if such insurance is procured it will provide coverage to the extent directors would be indemnified under the provisions, the Company may be forced to bear a portion or all of the cost of the director's claims for indemnification under such provisions. If the Company is forced to bear the costs for indemnification, the value of the Company stock may be adversely affected. In the opinion of the Securities and Exchange Commission, indemnification for liabilities arising under the Securities Act of 1933 is contrary to public policy and, therefore, is unenforceable. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following is an itemization of expenses, payable by the Company from the net proceeds of this offering, incurred by the Company in connection with the issuance and distribution of the securities of the Company being offered hereby. All expenses are estimated except the SEC, NASD and Nasdaq Registration and Filing Fees. See "Use of Proceeds." SEC Registration and Filing Fee(1).......................... $ 2,800 NASD Registration and Filing Fee(1)......................... 1,312 Nasdaq Registration and Filing Fee(1)....................... 10,000 Transfer Agent Fees......................................... 1,500 Financial Printing.......................................... 60,000 Accounting Fees and Expenses................................ 50,000 Legal Fees and Expenses..................................... 175,000 Blue Sky Fees and Expenses(1)............................... 23,750 Underwriter's Nonaccountable Expense Allowance(2)........... 160,000 ---------- TOTAL(3)................................................ $ 446,500 ==========
- ------------------------ (1) Paid upon filing of this Registration Statement and related Prospectus. (2) Does not include $50,000 paid to date. Nonaccountable expense allowance will be $13,000 if the minimum offering is sold. (3) Total expenses will be $299,500 if the minimum offering is sold. II-2 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. The Company was incorporated in the State of Ohio in June 1982 and reincorporated in Delaware in August 1997. The Company has authorized capital of 25,000,000 shares of Common Stock, $.01 par value. The Company has 2,000,000 shares of Common Stock issued and outstanding prior to this offering. See "Principal Stockholders" and "Description of Securities." In June 1982, the Company issued 1,475,000 shares of common stock (which includes a 4,000:1 exchange of securities in connection with the reincorporation of the Company in Delaware) to Daniel J. Brentlinger, the chief executive officer and founder of the Company, in a private placement transaction in consideration of $4,000, consisting of cash and property, or $.0027 per share. In August 1997, the Company issued 525,000 shares of common stock (which includes a 4,000:1 exchange of securities in connection with the reincorporation of the Company in Delaware) to six persons, who are officers, directors and counsel for the Company, in a private placement transaction in consideration of $525,000, consisting of cash and notes, or $1 per share. The price per share was based upon an independent, professional third party appraisal. Pursuant to the terms of the Underwriting Agreement, the stockholders of the Company have agreed not to sell, transfer, assign or otherwise dispose of any restricted securities of the Company for a period of 24 months following the date of this Prospectus. See "Financial Statements--Note F." All unregistered securities issued by the Company prior to this offering are deemed "restricted securities" within the meaning of that term as defined in Rule 144 and have been issued pursuant to certain "private placement" exemptions under Section 4(2) of the Securities Act of 1933, as amended, and certain rules and regulations as promulgated by the Securities and Exchange Commission, Washington, D.C. 20549, such that the sales of the securities to sophisticated investors were transactions by an issuer not involving any public offering. Such investors had access to information on the Company necessary to make an informed investment decision. See "Description of Securities." Reference is also made hereby to "Dilution," "Principal Stockholders," "Certain Transactions" and "Description of Securities" in the Prospectus for more information with respect to the previous issuance and sale of the Company's securities. All of the aforesaid securities have been appropriately marked with a restricted legend and are "restricted securities," as defined in Rule 144 of the rules and regulations of the Securities and Exchange Commission, Washington, D.C. 20549. All of the aforesaid securities were issued for investment purposes only and not with a view to redistribution, absent registration. All of the aforesaid persons have been fully informed and advised concerning the Registrant, its business, financial and other matters. Transactions by the Registrant involving the sales of these securities set forth above were issued pursuant to the "private placement" exemptions under the Securities Act of 1933, as amended, as transactions by an issuer not involving any public offering. The Registrant has been informed that each person is able to bear the economic risk of his investment and is aware that the securities were not registered under the Securities Act of 1933, as amended, and cannot be re-offered or re-sold until they have been so registered or until the availability of an exemption therefrom. The transfer agent and registrar of the Registrant will be instructed to mark "stop transfer" on its ledgers to assure that these securities will not be transferred absent registration or until the availability of an exemption therefrom is determined. II-3 ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. The following is a list of Exhibits marked with an asterisk (*) filed herewith by CropKing.com, Incorporated as part of Amendment No. 5 to the SB-2 Registration Statement and related Prospectus: 1.0 Form of Underwriting Agreement.* 1.1 Selected Dealer Agreement.* 3.0 Articles of Incorporation (Ohio), dated June 1982. 3.1 Certificate of Incorporation (Delaware), dated August 1997. 3.2 By-laws, as amended. 4.0 Specimen Copy of Common Stock Certificate. 4.1 Form of Warrant Certificate. 4.2 Form of Underwriter's Warrant Agreement.* 5.0 Opinion of Thomas T. Prousalis, Jr., Esq. for Registrant. 10.0 Employment Agreement, Daniel J. Brentlinger, dated February 1998. 10.1 Key Trust Company of Ohio, N.A., Business Valuation Report, dated August 22, 1997. 10.2 Lease, Seville Properties, dated August 14, 1995. 10.3 Lease, CropKing, Inc., dated August 14, 1995. 10.4 Financial Advisory Agreement. 10.5 Merger and Acquisition Agreement. 23.0 Consent of Thomas T. Prousalis, Jr., Esq. is contained on page II-7 of the Registration Statement. 24.0 Consent of Grant Thornton LLP is contained on page II-8 of the Registration Statement. 24.1 Consent of Key Trust Company of Ohio, N.A. is contained on page II-9 of the Registration Statement. 24.2 Power of Attorney appointing Daniel J. Brentlinger is contained on page II-6 of the Registration Statement.
ITEM 28. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to participating broker-dealers, at the closing, certificates in such denominations and registered in such names as required by the participating broker-dealers, to permit prompt delivery to each purchaser. The undersigned Registrant also undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement: (iii)To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3 or Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. II-4 (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. This Registration Statement consists of the following: 1. Facing page. 2. Cross-Reference Sheet. 3. Prospectus. 4. Complete text of Items 24-28 in Part Two of Registration Statement. 5. Exhibits. 6. Signature page. 7. Consents of: Thomas T. Prousalis, Jr., Esq. Grant Thornton LLP Key Trust Company of Ohio, N.A.
II-5 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Washington, District of Columbia, on November 3, 1999. By: DANIEL J. BRENTLINGER ----------------------------------------------- Daniel J. Brentlinger Chairman of the Board
In accordance with the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- DANIEL J. BRENTLINGER --------------------------------- Chairman of the Board, President, Chief November 3, 1999 Daniel J. Brentlinger Executive Officer JOHN CAMPANELLA --------------------------------- Vice President, Chief Operating Officer, November 3, 1999 John Campanella Secretary JAMES W. BROWN --------------------------------- Vice President, Technical Services November 3, 1999 James W. Brown ARTHUR E. BARD --------------------------------- Vice President, Marketing and Sales November 3, 1999 Arthur E. Bard REGINA I. MUICH --------------------------------- Vice President, Chief Financial Officer, November 3, 1999 Regina I. Muich Controller HOWARD M. RESH, PH.D. --------------------------------- Director November 3, 1999 Howard M. Resh, Ph.D. ROBERT A. CHESNEY --------------------------------- Director November 3, 1999 Robert A. Chesney
By: DANIEL J. BRENTLINGER Daniel J. Brentlinger ATTORNEY-IN-FACT
II-6 CONSENT OF COUNSEL The consent of Thomas T. Prousalis, Jr., Esq., 1919 Pennsylvania Avenue, N.W., Suite 200, Washington, D.C. 20006, to the use of his name in this Form SB-2 Registration Statement, and related Prospectus, as amended, of CropKing.com, Incorporated is contained in his opinion filed as Exhibit 5.0 hereto. II-7 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated September 3, 1999 (except for the last paragraph of note F, as to which the date is October 5, 1999) accompanying the Financial Statements of CropKing.com, Incorporated contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts." GRANT THORNTON LLP Cleveland, Ohio November 3, 1999 II-8 CONSENT OF INDEPENDENT BUSINESS APPRAISER The consent of Key Trust Company of Ohio, N.A., 127 Public Square, Cleveland Ohio 44114, is hereby provided for the use of its name and its Business Valuation Report as exhibited in this Form SB-2 Registration Statement, and related Prospectus, as amended, of CropKing.com, Incorporated (formerly, CropKing, Incorporated). KEY TRUST COMPANY OF OHIO, N.A. Cleveland, Ohio November 3, 1999 II-9 EX-1.0 2 EXHIBIT 1.0 Exhibit 1.0 CROPKING.COM, INCORPORATED 1,000,000 Shares of Common Stock UNDERWRITING AGREEMENT Boca Raton, Florida _____________, 1999 Barron Chase Securities, Inc. 7700 West Camino Real Boca Raton, Florida 33433 Gentlemen: Cropking.com, Incorporated (the "Company"), on the basis of the representations, warranties, covenants and conditions contained herein, hereby confirms the agreement made with respect to the retention of Barron Chase Securities, Inc. (the "Underwriter" or "you") as the exclusive agent of the Company to publicly offer and sell, pursuant to the terms of this Underwriting Agreement (the "Agreement"), an aggregate of 1,000,000 Shares of Common Stock (the "Shares") on a "300,000 Share all or none minimum, 1,000,000 Share maximum best efforts" basis. If a minimum of 300,000 Shares are sold during the offering period, the remaining 700,000 Shares will be offered on a "best efforts" basis until (1) all of the Shares are sold; (2) the offering period expires (as defined below); or (3) the offering is terminated by agreement between the Company and the Underwriter, whichever first occurs. The Shares are also referred to as the "Securities". The date upon which the Securities and Exchange commission ("Commission") shall declare the Registration Statement of the Company effective shall be the "Effective Date". The Company confirms the agreements made by it with respect to the sale of the Shares by the Company, as follows: 1. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with the Underwriter as of the Effective Date (as defined above) and the Closing Date (as hereinafter defined) that: (a) A registration statement (File No. 333-48433) on Form SB- 1 2 relating to the public offering of the Securities, including a preliminary form of the prospectus, copies of which have heretofore been delivered to you, has been prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules and Regulations") of the Commission thereunder, and has been filed with the Commission under the Act. The Company has prepared in the same manner and proposes to file, prior to the Effective Date of such registration statement, an additional amendment or amendments to such registration statement, including a final form of Prospectus, copies of which shall be delivered to you. "Preliminary Prospectus" shall mean each prospectus filed pursuant to the Rules and Regulations under the Act prior to the Effective Date. The registration statement (including all financial schedules and exhibits) as amended at the time it becomes effective and the final prospectus included therein are respectively referred to as the "Registration Statement" and the "Prospectus", except that (i) if the prospectus first filed by the Company pursuant to Rule 424(b) of the Rules and Regulations shall differ from said prospectus as then amended, the term "Prospectus" shall mean the prospectus first filed pursuant to Rule 424(b), and (ii) if such registration statement or prospectus is amended or such prospectus is supplemented, after the effective date of such registration statement and prior to the Closing Date (as hereinafter defined), the terms "Registration Statement" and "Prospectus" shall include such registration statement and prospectus as so amended, and the term "Prospectus" shall include the prospectus as so supplemented, or both, as the case may be. (b) At the Effective Date and at all times subsequent thereto up to the Closing Date and during such longer period as the Prospectus may be required to be delivered in connection with sales by the Underwriter or Selected Dealers: (i) the Registration Statement and Prospectus will in all respects conform to the requirements of the Act and the Rules and Regulations; and (ii) neither the Registration Statement nor the Prospectus will include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make statements therein, in light of the circumstances under which they are made, not misleading; provided, however, that the Company makes no representations, warranty or agreements as to information contained in or omitted from the Registration Statement or Prospectus in reliance upon, and in conformity with, written information furnished to the Company by the Underwriter specifically for use in the preparation thereof. It is understood that the statements set forth in the Prospectus with respect to stabilization, under the heading "Underwriting" and regarding the identity of counsel to the Underwriter under the heading "Legal Matters" constitute the only information furnished in writing by the Underwriter for inclusion in the Registration Statement and the Prospectus. 2 (c) Each of the Company and each subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with full power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus and is duly qualified to do business as a foreign corporation and is in good standing in all other jurisdictions in which the nature of its business or the character or location of its properties requires such qualification, except where failure to so qualify will not materially affect the Company's business, properties or financial condition. (d) The authorized, issued and outstanding securities of the Company as of the date of the Prospectus is as set forth in the Prospectus under "Capitalization"; all of the issued and outstanding securities of the Company have been, or will be when issued as set forth in the Prospectus, duly authorized, validly issued and fully paid and non-assessable; the issuances and sales of all such securities complied in all material respect with, or were exempt from, applicable Federal and state securities laws; the holders thereof have no rights of rescission against the Company with respect thereto, and are not subject to personal liability by reason of being such holders; none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company; except as set forth in the Prospectus, no options, warrants or other rights to purchase, agreements or other obligations to issue, or agreements or other rights to convert any obligation into, any securities of the Company have been granted or entered into by the Company; and all of the securities of the Company, issued and to be issued as set forth in the Registration Statement, conform to all statements relating thereto contained in the Registration Statement and Prospectus. (e) The Shares are duly authorized, and when issued, delivered and paid for pursuant to this Agreement, will be duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights of any security holder of the Company. Neither the filing of the Registration Statement nor the offering or sale of the Securities as contemplated in this Agreement gives rise to any rights, other than those which have been waived or satisfied, for or relating to the registration of any securities of the Company, except as described in the Registration Statement. The Common Stock Underwriter Warrants and the shares of Common Stock issuable upon exercise of the Common Stock Underwriter Warrants (as defined in the Underwriter's Warrant Agreement described in Section 11 herein), have been duly authorized and, when issued, delivered and paid for, will be validly issued, fully paid, non-assessable, free of pre-emptive rights and no personal liability will attach to the ownership thereof, and will constitute valid and legally binding obligations of the Company enforceable in 3 accordance with their terms and entitled to the benefits provided by the Underwriter's Warrant Agreement. (f) This Agreement, the Financial Advisory Agreement, the Merger and Acquisition Agreement (the "M/A Agreement"), the Escrow Agreement referred to in Section 2(b) of this Agreement, and the Underwriter's Warrant Agreement have been duly and validly authorized, executed and delivered by the Company, and assuming due execution of this Agreement by the other party hereto, constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or other laws affecting the rights of creditors generally. The Company has full power and authority to authorize, issue and sell the Securities to be sold by it hereunder on the terms and conditions set forth herein, and no consent, approval, authorization or other order of any governmental authority is required in connection with such authorization, execution and delivery or with the authorization, issue and sale of the Securities or the securities to be issued pursuant to the Underwriter's Warrant Agreement, except such as may be required under the Act or state securities laws, or as otherwise have been obtained. (g) Except as described in the Prospectus, neither the Company nor any subsidiary is in material violation, breach of or default under, and consummation of the transactions herein contemplated and the fulfillment of the terms of this Agreement will not conflict with, or result in a breach of, or constitute a material default under, or result in the creation or imposition of any material lien, charge or encumbrance upon any property or assets of the Company or any subsidiary or any of the terms or provisions of any material indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any subsidiary is a party or by which the Company or any subsidiary may be bound or to which any of the property or assets of the Company or any subsidiary is subject, nor will such action result in any material violation of the provisions of the Articles of Incorporation or By-Laws of the Company or any subsidiary, as amended, or any statute or any order, rule or regulation applicable to the Company or subsidiary of any court or of any regulatory authority or other governmental body having jurisdiction over the Company or each subsidiary. (h) Subject to the qualifications stated in the Prospectus, the Company and each subsidiary have good and marketable title to all properties and assets described in the Prospectus as owned by each of them, free and clear of all liens, charges, encumbrances or restrictions, except such as are not material to its business, financial condition or results of operation; all of the material leases and subleases under which the Company or each subsidiary is the lessor or sublessor of properties or assets or under which the Company or each subsidiary holds properties or assets as lessee or 4 sublessee as described in the Prospectus are in full force and effect, and, except as described in the Prospectus, neither the Company nor each subsidiary is in default in any material respect with respect to any of the terms or provisions of any of such leases or subleases, and no claim has been asserted by anyone adverse to rights of the Company or any subsidiary as lessor, sublessor, lessee, or sublessee under any of the leases or subleases mentioned above, or affecting or questioning the right of the Company or any subsidiary to continued possession of the leased or subleased premises or assets under any such lease or sublease except as described or referred to in the Prospectus; and the Company and each subsidiary owns or leases all such properties described in the Prospectus as are necessary to its operations as now conducted and, except as otherwise stated in the Prospectus, as proposed to be conducted as set forth in the Prospectus. (i) Grant Thornton, LLP, who has given its report on certain financial statements filed and to be filed with the Commission as part of the Registration Statement, and which are included in the Prospectus, is with respect to the Company, independent public accountants as required by the Act and the Rules and Regulations. (j) The financial statements and schedules, together with related notes, set forth in the Prospectus and the Registration Statement present fairly the financial condition, results of operations and cash flows of the Company on the basis stated in the Registration Statement, at the respective dates and for the respective periods to which they apply. Said financial statements and related notes and schedules have been prepared in accordance with generally accepted accounting principles applied on a basis which is consistent during the periods involved. The Company's internal accounting controls and procedures are sufficient to cause the Company and each subsidiary to prepare financial statements which comply in all material respects with generally accepted accounting principles applied on a basis which is consistent during the periods involved. During the preceding five (5) year period, nothing has been brought to the attention of the Company's management that would result in any material reportable condition relating to the Company's internal accounting procedures, weaknesses or controls. (k) Subsequent to the respective dates as of which information is set forth in the Registration Statement and the Prospectus and to and including the Closing Date, except as set forth in or contemplated by the Registration Statement and the Prospectus, (i) neither the Company nor any subsidiary has incurred and will not have incurred any material liabilities or obligations, direct or contingent, and has not entered into and will not have entered into any material transactions other than in the ordinary course of business and/or as contemplated in the Registration Statement and the Prospectus; (ii) neither the Company nor any subsidiary has and will not have paid or declared any dividends or 5 have made any other distribution on its capital stock; (iii) there has not been any change in the capital stock of, or any incurrence of long-term debt by, the Company or any subsidiary; (iv) neither the Company nor any subsidiary has issued any options, warrants or other rights to purchase the capital stock of the Company or any subsidiary; and (v) there has not been and will not have been any material adverse change in the business, financial condition or results of operations of the Company or any subsidiary, or in the book value of the assets of the Company or any subsidiary, arising for any reason whatsoever. (l) Except as set forth in the Prospectus, there is not pending or, to the knowledge of the Company or any subsidiary, threatened, any material action, suit, proceeding, inquiry, arbitration or investigation against the Company or any subsidiary, or any of the officers or directors of the Company or any subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or investigation, which might result in any material adverse change in the condition (financial or other), business prospects, net worth, or properties of the Company or any subsidiary. (m) Except as disclosed in the Prospectus, each of the Company and each subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid all taxes shown as due thereon; and there is no tax deficiency which has been or to the knowledge of the Company might be asserted against the Company or any subsidiary that has not been provided for in the financial statements. (n) Except as set forth in the Prospectus, each of the Company and each subsidiary has sufficient licenses, permits and other governmental authorizations currently required for the conduct of its business or the ownership of its property as described in the Prospectus and is in all material respects in compliance therewith and owns or possesses adequate right to use all material patents, patent applications, trademarks, service marks, trade-names, trademark registrations, service mark registrations, copyrights, and licenses necessary for the conduct of such business and has not received any notice of conflict with the asserted rights of others in respect thereof. To the best of the Company's knowledge, none of the activities or business of the Company or any subsidiary are in violation of, or cause the Company or any subsidiary to violate, any law, rule, regulation or order of the United States, any state, county or locality, or of any agency or body of the United States or of any state, county or locality, the violation of which would have a material adverse impact upon the condition (financial or otherwise), business, property, prospective results of operations, or net worth of the Company and any subsidiary. (o) Neither the Company nor any subsidiary has, directly or 6 indirectly, at any time (i) made any contributions to any candidate for political office, or failed to disclose fully any such contribution, in violation of law or (ii) made any payment to any state, federal or foreign governmental officer or official, or other person charged with similar public of quasi-public duties, other than payments or contributions required or allowed by applicable law. (p) On the Closing Date (herein defined), all transfer or other taxes (including franchise, capital stock or other tax, other than income taxes, imposed by any jurisdiction) if any, which are required to be paid in connection with the sale and transfer of the Securities to the Underwriter hereunder will have been fully paid or provided for by the Company and all laws imposing such taxes will have been fully complied with. (q) All contracts and other documents which are required to be described in or filed as exhibits to the Registration Statement have been so described and/or filed. (r) Except as described in the Registration Statement and Prospectus, no holders of Common Stock or of any other securities of the Company have the right to include such Common Stock or other securities in the Registration Statement and Prospectus. (s) Except as set forth in or contemplated by the Registration Statement and the Prospectus, neither the Company nor any subsidiary has any material contingent liabilities. (t) The Company has no subsidiary corporations except as disclosed in the Registration Statement and Prospectus, nor has it any equity interest in any partnership, joint venture, association or other entity except as disclosed in the Registration Statement or Prospectus. Except as described in the Registration Statement and Prospectus, the Company owns all of the outstanding securities of each of its subsidiaries. (u) The Commission has not issued an order preventing or suspending the use of any Preliminary Prospectus with respect to the offer and sale of the Securities and each Preliminary Prospectus, as of its date, has conformed fully in all material respects with the requirements of the Act and the Rules and Regulations and did not include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading. (v) Neither the Company, nor, to the Company's knowledge, any of its officers, directors, employees or stockholders, have taken or will take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any of the securities of the Company. 7 (w) Item 26 of Part II of the Registration Statement accurately discloses all unregistered securities sold by the Company within the three year period prior to the date as of which information is presented in the Registration Statement. All of such securities were sold in transactions which were exempt from the registration provisions of the Act and not in violation of Section 5 thereof. (x) Other than as set forth in the Prospectus, the Company has not entered into any agreement pursuant to which any person is entitled, either directly or indirectly, to compensation from the Company for services as a finder in connection with the proposed offering, and the Company agrees to indemnify and hold harmless the Underwriter against any losses, claims, damages or liabilities, which shall include, but not be limited to, all costs to defend against any such claim, so long as such claim arises out of agreements made or allegedly made by the Company. (y) Based upon written representations received by the Company, no officer, director or beneficial owner of five percent (5%) or more of the securities of the Company or any subsidiary has any direct or indirect affiliation or association with any member of the National Association of Securities Dealers, Inc. ("NASD"), except as disclosed to the Underwriter in writing, and no beneficial owner of the Company's unregistered securities has any direct or indirect affiliation or association with any NASD member except as disclosed to the Underwriter in writing. The Company will advise the Underwriter and the NASD if any five percent (5%) or greater shareholder of the Company or any subsidiary is or becomes an affiliate or associated person of an NASD member participating in the distribution. (z) The Company and each subsidiary is in compliance in all material respects with all federal, state and local laws and regulations respecting the employment of its employees and employment practices, terms and conditions of employment and wages and hours relating thereto. There are no pending investigations involving the Company or any subsidiary by the U.S. Department of Labor, or any other governmental agency responsible for the enforcement of such federal, state or local laws and regulations. There is no unfair labor practice charge or complaint against the Company or any subsidiary pending before the National Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage pending or to the knowledge of the Company, threatened against or involving the Company or any subsidiary or any predecessor entity. No question concerning representation exists respecting the employees of the Company or any subsidiary and no collective bargaining agreement or modification thereof is currently being negotiated by the Company or any subsidiary. No grievance or arbitration proceeding is pending under any expired or existing collective bargaining agreements of the Company or any subsidiary, if any. 8 (aa) Except as disclosed in the Prospectus, neither the Company nor any subsidiary maintains, sponsors nor contributes to, nor is it required to contribute to, any program or arrangement that is an "employee pension benefit plan", an "employee welfare benefit plan", or a "multi-employer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans"). Except as disclosed in the Prospectus, neither the Company nor any subsidiary maintained or contributed to a defined benefit plan, as defined in Section 3(35) of ERISA. (ab) Based upon written representations received from the officers and directors of the Company and each subsidiary, except as disclosed in the Prospectus, during the past five years, none of the officers or directors of the Company or any subsidiary have been: (1) The subject of a petition under the federal bankruptcy laws or any state insolvency law filed by or against them, or by a receiver, fiscal agent or similar officer appointed by a court for their business or property, or any partnership in which any of them was a general partner at or within two years before the time of such filing, or any corporation or business association of which any of them was an executive officer at or within two years before the time of such filing; (2) Convicted in a criminal proceeding or a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) The subject of any order, judgment, or decree not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining any of them from, or otherwise limiting, any of the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with any such activity; (ii) engaging in any type of business practice; or 9 (iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities law or federal commodity laws. (4) The subject of any order, judgment or decree, not subsequently reversed, suspended or vacated of any federal or state authority barring, suspending or otherwise limiting for more than sixty (60) days their right to engage in any activity described in paragraph (3)(i) above, or be associated with persons engaged in any such activity; (5) Found by any court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any federal or state securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended or vacated; or (6) Found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated. (ac) Based upon written representations received from the officers and directors of the Company, each of the officers and directors of the Company has reviewed the sections in the Prospectus relating to their biographical data and equity ownership position in the Company, and all information contained therein is true and accurate. 2. Appointment of Agent to Sell the Shares (a) Subject to the terms and conditions of this Agreement, and based upon the representations, warranties and agreements herein contained, the Company hereby appoints the Underwriter as its exclusive agent for a period of ninety (90) days from the Effective Date, subject to an extension by the Underwriter and the Company for an additional period not to exceed thirty (30) days (and up to an additional ten (10) business days to permit clearance of the funds in escrow) to sell the Shares (the "Offering Period"), and the Underwriter, on the basis of the representations and warranties of the Company herein, accepts such appointment and agrees to use its best efforts on a "300,000 Shares or none, best efforts" basis to find purchasers for the Shares. If the minimum number of 300,000 shares is sold, the remaining 700,000 shares will be offered on a "best efforts" basis until either (i) all the shares are sold; (ii) the offering ends; or (iii) the offering is 10 terminated by mutual agreement between the Company and the Underwriter, whichever first occurs. The price at which the Underwriter shall sell the Shares to the public, as agent for the Company, shall be $7.00 per Share, and the Company shall pay a commission of $.70 per Share in respect of such Shares sold on behalf of the Company by the Underwriter. (b) It is a condition of this Agreement that the Underwriter shall use its best efforts to sell the Shares on behalf of the Company, that the Underwriter will instruct investors to make all remittance payable to the Escrow Agent, who shall be Republic Security Bank, 7400 West Camino Real, Boca Raton, Florida, and that any and all funds received from such sale, without any deduction therefrom whatsoever, including, but not limited to, any underwriting commission or any dealer concession or otherwise, shall be forthwith deposited in an escrow account with the Escrow Agent, pursuant to the terms of an Escrow Agreement entered into by and among the Company, the Underwriter and the Escrow Agent. Such funds shall be deposited in the escrow account no later than 12:00 noon of the next business day after receipt. In the event 300,000 Shares are not sold within ninety (90) days from the Effective Date (or 30 days thereafter if the offering period is extended and agreed in writing by the Company and the Underwriter, plus an additional ten (10) business days to permit clearance of the funds in escrow), all funds will be promptly refunded to the subscribers in full, without deduction therefrom or interest thereon. During the period of escrow, subscribers will not have the right to demand a refund of their subscriptions. Certificates will be issued to purchasers only if the proceeds from the sale of at least 300,000 Shares are released from escrow to the Company. Until such time as the funds have been released, such purchasers, if any, will be deemed subscribers and not stockholders. The funds in escrow will be held for the benefit of those subscribers until released to the Company and will not be subject to creditors of the Company or for the expenses of this offering. (c) Delivery of the Shares against payment therefor shall take place at the offices of Barron Chase Securities, Inc., 7700 West Camino Real, Boca Raton, Florida 33433 (or at such other place as may be designated by you) at 10:00 a.m., eastern time, on such date after the Registration Statement has become effective as the Underwriter shall designate, such time and date of payment and delivery for the Shares being herein called the "Closing Date") Such Closing Date shall be no more than one hundred (100) days after the Effective Date (or one hundred thirty (130) days if so acknowledged by the Company and the Underwriter). (d) The Company will make the certificates for the Shares to be sold hereunder available to the Underwriter for inspection at least two (2) full business days prior to the Closing Date at the offices of the Underwriter. The certificates shall be registered 11 in such names and denominations as you may request. (e) It is understood that the Underwriter proposes to offer the Shares to the public, solely as agent for the Company, upon the terms and conditions set forth in the Registration Statement. The Underwriter shall commence making such offer as agent for the Company on the Effective Date or as soon thereafter as the Underwriter deems advisable. (f) The Underwriter may offer and sell the Shares for the Company's account through selected dealers registered with the NASD, as selected by the Underwriter pursuant to a form of Selected Dealer's Agreement to be filed as an exhibit to the Registration Statement, pursuant to which the Underwriter may allow a concession (out of the underwriting commission in the event of the sale of at least 300,000 Shares) within the limits to be set forth in the Prospectus, but all such sales by Selected Dealers shall be made by the Company, acting through the Underwriter as agent, and not for the account of the Underwriter. 3. Covenants of the Company. The Company covenants and agrees with the Underwriter that: (a) The Company, upon notification from the Commission that the Registration Statement has become effective, will so advise you and will not at any time, whether before or after the Effective Date, file any amendment to the Registration Statement or supplement to the Prospectus of which you shall not previously been advised and furnished with a copy or to which you or your counsel shall have objected in writing, acting reasonably, or which is not in compliance with the Act and the Rules and Regulations. At any time prior to the later of (i) the completion by the Underwriter of the distribution of the Securities as contemplated hereby; or (ii) 25 days after the date on which the Registration Statement shall have become or been declared effective, the Company will prepare and file with the Commission, promptly upon your request, any amendments or supplements to the Registration Statement or Prospectus which may be necessary or advisable in connection with the distribution of the Securities and as mutually agreed by the Company and the Underwriter. After the Effective Date and as soon as the Company is advised thereof, the Company will advise you, and confirm the advice in writing, of the receipt of any comments of the Commission, of the effectiveness of any post-effective amendment to the Registration Statement, of the filing of any supplement to the Prospectus or any amended Prospectus, of any request made by the Commission for amendment of the Registration Statement or for supplementing of the Prospectus or for additional information with respect thereto, of the issuance by the Commission or any state or regulatory body of any stop order or other order suspending the effectiveness of the Registration Statement or any order preventing or suspending the 12 use of any Preliminary Prospectus, or of the suspension of the qualification of the Securities for offering in any jurisdiction, or of the institution of any proceedings for any of such purposes, and will use its best efforts to prevent the issuance of any such order, and, if issued, to obtain as soon as possible the lifting thereof. The Company has caused to be delivered to you copies of each Preliminary Prospectus and Definitive Prospectus, and the Company has consented and hereby consents to the use of such copies for the purposes permitted by the Act. The Company authorizes the Underwriter and Selected Dealers to use the Prospectus in connection with the sale of the Securities for such period as in the opinion of counsel to the Underwriter the use thereof is required to comply with the applicable provisions of the Act and the Rules and Regulations. In case of the happening, at any time within such period as a Prospectus is required under the Act to be delivered in connection with sales by the Underwriter or Selected Dealers, of any event of which the Company has knowledge and which in the opinion of counsel for the Company or counsel for the Underwriter should be set forth in an amendment to the Registration Statement or a supplement to the Prospectus, in order to make the statements therein not then misleading, in light of the circumstances existing at the time the Prospectus is required to be delivered to a purchaser of the Securities, or in case it shall be necessary to amend or supplement the Prospectus to comply with law or with the Act and the Rules and Regulations, the Company will notify you promptly and forthwith prepare and furnish to you copies of such amended Prospectus or of such supplement to be attached to the Prospectus, in such quantities as you may reasonably request, in order that the Prospectus, as so amended or supplemented, will not contain any untrue statement of a material fact or omit to state any material facts necessary in order to make the statements in the Prospectus, in the light of the circumstances under which they are made, not misleading. The preparation and furnishing of any such amendment or supplement to the Registration Statement or amended Prospectus or supplement to be attached to the Prospectus shall be without expense to the Underwriter. The Company will comply with the Act, the Rules and Regulations thereunder, and the provisions of the Securities Exchange Act of 1934 (the "1934 Act"), and the rules and regulations thereunder in connection with the offering and issuance of the Securities. (b) The Company will act in good faith and use its best efforts and cooperate with you and your counsel to qualify to register the Securities for sale under the securities or "blue sky" laws of such jurisdictions as the Underwriter may designate and will make such applications and furnish such information as may be required for that purpose and to comply with such laws, provided the Company shall not be required to qualify as a foreign 13 corporation or a dealer in securities or to execute a general consent to service of process in any jurisdiction in any action other than one arising out of the offering or sale of the Securities. The Company will, from time to time, prepare and file such statements and reports as are or may be required to continue such qualification in effect for so long a period as the Underwriter may reasonably request. (c) If the sale of the Securities provided for herein is not consummated, the Company shall pay all costs and expenses incident to the performance of the Company's obligations hereunder, including, but not limited to, all such expenses itemized in Section 7(a) and 7(c) hereof, and either (i) the out-of-pocket expenses of the Underwriter, not to exceed the $50,000 previously paid if the Underwriter elects to terminate the offering for any reason; or (ii) the out-of-pocket expenses of the Underwriter if the Company elects to terminate the offering for any reason. For the purposes of this sub-section, the Underwriter shall be deemed to have assumed such expenses when they are billed or incurred, regardless of whether such expenses have been paid. The Underwriter shall not be responsible for any expenses of the Company or others, or for any charges or claims relative to the proposed public offering if it is not consummated. (d) The Company will deliver to you at or before the Closing Date two signed copies of the Registration Statement, including all financial statements and exhibits filed therewith, and of each amendment or supplement thereto. The Company will deliver to or upon the order of the Underwriter, from time to time until the Effective Date of the Registration Statement, as many copies of any Preliminary Prospectus filed with the Commission prior to the Effective Date of the Registration Statement as the Underwriter may reasonably request. The Company will deliver to the Underwriter on the Effective Date of the Registration Statement and thereafter for so long as a Prospectus is required to be delivered under the Act, from time to time, as many copies of the Definitive Prospectus, or as thereafter amended or supplemented, as the Underwriter may from time to time reasonably request. (e) For so long as the Company is a reporting company under either Section 12 or 15 of the 1934 Act, the Company, at its expense, will furnish to the Underwriter during the period ending five (5) years from the Effective Date, (i) as soon as practicable after the end of each fiscal year, a balance sheet of the Company and any of its subsidiaries as at the end of such fiscal year, together with statements of income, surplus and cash flow of the Company and any subsidiaries for such fiscal year, all in reasonable detail and accompanied by a copy of the certificate or report thereon of independent accountants; (ii) as soon as they are available, a copy of all reports (financial or other) mailed to security holders; (iii) as soon as they are available, a copy of all non-confidential documents, including annual reports, periodic 14 reports and financial statements, furnished to or filed with the Commission under the Act and the 1934 Act; (iv) copies of each press release, news item and article with respect to the Company's affairs released by the Company; and (v) such other information as you may from time to time reasonably request. (f) In the event the Company has an active subsidiary or subsidiaries, such financial statements referred to in subsection (e) above will be on a consolidated basis to the extent the accounts of the Company and its subsidiary or subsidiaries are consolidated in reports furnished to its stockholders generally. (g) The Company will make generally available to its stockholders and deliver to the Underwriter as soon as it is practicable, but in no event later than the first day of the sixteenth full calendar month following the Effective Date, an earnings statement (which need not be audited) covering a period of at least twelve consecutive months beginning with the Effective Date of the Registration Statement, which shall satisfy the requirements of Section 11(a) of the Act or Rule 158 promulgated thereunder. (h) On the Closing Date, the Company shall have taken the necessary action to become a reporting company under Section 12 of the 1934 Act, and the Company will make all filings required to and will have obtained approval for the listing of the Shares on The Nasdaq SmallCap Market System or the OTC Bulletin Board, whichever is applicable, and will use its best efforts to maintain such listing for at least seven (7) years from the date of this Agreement. (i) For a period of seven (7) years following the Effective Date, the Company will hold an annual meeting of stockholders for the election of Directors within 180 days after the end of each of the Company's fiscal years and, within nine (9) months after the end of each of the Company's fiscal years will provide the Company's stockholders with the audited financial statements of the Company as of the end of the fiscal year just completed prior thereto. Such financial statements shall be those required by Rule 14a-3 under the 1934 Act and shall be included in an annual report pursuant to the requirements of such Rule. (j) The Company will apply the net proceeds from the sale of the Securities substantially in accordance with its statement under the caption "Use of Proceeds" in the Prospectus, and will file such reports with the Commission with respect to the sale of the Securities and the application of the proceeds therefrom as may be required by Sections 12, 13 and/or 15 of the 1934 Act and pursuant to Rule 463 under the Act. (k) The Company will, promptly upon your request, prepare and 15 file with the Commission any amendments or supplements to the Registration Statement, Preliminary Prospectus or Prospectus and take any other action, which in the reasonable opinion of counsel to the Underwriter and the Company may be reasonably necessary or advisable in connection with the distribution of the Securities and will use its best efforts to cause the same to become effective as promptly as possible. (l) On the Closing Date, the Company shall execute and deliver to you the Underwriter's Warrant Agreement. The Underwriter's Warrant Agreement and Warrant Certificates will be substantially in the form of the Underwriter's Warrant Agreement filed as an exhibit to the Registration Statement. (m) The Company will reserve and keep available for issuance that maximum number of its authorized but unissued securities which are issuable upon exercise of the Underwriter's Warrants outstanding from time to time. (n) All beneficial owners of the Company's securities (including warrants, options and Preferred Stock of the Company) as of the Effective Date shall agree in writing, in a form satisfactory to the Underwriter, not to sell, transfer or otherwise dispose of any of such securities (or underlying securities) of the Company for a period of twenty-four (24) months from the Effective Date or any longer period required by the NASD, Nasdaq or any State, without the written consent of the Underwriter. For a period of two (2) years following the Effective Date, all sales of the Company's securities by officers and/or directors of the Company shall be through the Underwriter. (o) The Company will obtain, upon the Closing Date, key person life insurance on the life of Daniel J. Brentlinger in an amount of not less than $1,000,000, and will use its best efforts to maintain such insurance for a period of at least five (5) years from the Effective Date. (p) Prior to the Closing Date, the Company shall, at its own expense, undertake to list the Company's securities in the appropriate recognized securities manual or manuals published by Standard & Poor's Corporation and such other manuals as the Underwriter may designate, such listings to contain the information required by such manuals and the Uniform Securities Act. The Company hereby agrees to use its best efforts to maintain such listing for a period of not less than five (5) years. The Company shall take such action as may be reasonably requested by the Underwriter to obtain a secondary market trading exemption in such states as may be reasonably requested by the Underwriter. (q) During the one (1) year period commencing on the Closing Date, the Company will not, without the prior written consent of the Underwriter, grant options or warrants to purchase the 16 Company's Common Stock at a price less than the initial per share public offering price. (r) Prior to the Closing Date, neither the Company nor any subsidiary will issue, directly or indirectly, without your prior consent, any press release or other communication or hold any press conference with respect to the Company or its activities or the offering of the Securities other than routine customary advertising of the Company's products and services, and except as required by any applicable law or the directives of any relevant regulatory authority in any relevant jurisdiction. (s) At the Closing Date, the Company will engage the Underwriter as a non-exclusive financial advisor to the Company for a period of twelve (12) months commencing on the first day of the month following the Company's receipt of the proceeds of this offering, at an aggregate fee of $108,000, all of which shall be payable to the Underwriter on the Closing Date. The financial advisory agreement will provide that the Underwriter shall, at the Company's request, provide advice and consulting services to the Company concerning potential merger and acquisition proposals and the obtaining of short or long-term financing for the Company, whether by public financing or otherwise. (t) The Company shall employ the services of a firm of independent certified public accountants in connection with the preparation of the financial statements to be included in any registration statement or similar disclosure document to be filed by the Company hereunder, or any amendment or supplement thereto. For a period of five (5) years from the Effective Date, the Company, at its expense, shall cause its regularly engaged independent certified public accountants to review (but not audit) the Company's financial statements for each of the first three (3) fiscal quarters prior to the announcement of quarterly financial information, the filing of the Company's quarterly report and the mailing of quarterly financial information to stockholders. (u) The Company shall retain American Securities Transfer & Trust, Inc. as the transfer agent for the securities of the Company, or such other transfer agent as you may agree to in writing. In addition, the Company shall direct such transfer agent to furnish the Underwriter with daily transfer sheets as to each of the Company's securities as prepared by the Company's transfer agent and copies of lists of stockholders as reasonably requested by the Underwriter, for a five (5) year period commencing from the Closing Date. (v) The Company shall cause the Depository Trust Company, and any other depository of the Company's securities, to furnish special security position reports and special DTC Tracking Reports to the Underwriter on a daily and weekly basis at the expense of the Company, for a five (5) year period from the Effective Date. 17 The DTC Tracking Reports will be furnished for the initial two (2) month period from the Effective Date, after which time the Company's obligation to furnish such tracking reports will be reviewed by the Company and the Underwriter. (w) Following the Effective Date, the Company shall, at its sole cost and expense, prepare and file such Blue Sky applications with such jurisdictions as the Underwriter shall designate and the Company may reasonably agree. (x) On the Effective Date and for a period of three (3) years thereafter, the Company's Board of Directors shall consist of a minimum of five (5) persons, two (2) of whom shall be independent and not otherwise affiliated with the Company or associated with any of the Company's affiliates. The Underwriter shall have the opportunity to invite an observer to attend Board of Directors meetings of the Company at the expense of the Company. (y) On the Closing Date, the Company shall execute and deliver to you a non-exclusive M/A Agreement with the Underwriter in a form satisfactory to the Underwriter, providing: (1) that the Underwriter will be paid a finder's fee, of from five percent (5%) of the first $1,000,000 ranging in $1,000,000 increments down to one percent (1%) of the excess, if any, over $4,000,000 of the consideration involved in any transaction introduced by the Underwriter (including mergers, acquisitions, joint ventures, and any other business for the Company introduced by the Underwriter) consummated by the Company, as an "Introduced, Consummated Transaction", by which the Underwriter introduced the other party to the Company during a period ending five (5) years from the date of the M/A Agreement; and (2) that any such finder's fee due to the Underwriter will be paid in cash or stock as mutually agreed at the closing of the particular Introduced, Consummated Transaction for which the finder's fee is due. (z) After the Closing Date, the Company shall prepare and publish "tombstone" advertisements of at least 5 x 5 inches in publications to be designated by the Underwriter at a total cost not to exceed $15,000. (aa) Until such time as the securities of the Company are listed or quoted on either the New York Stock Exchange or the American Stock Exchange, the Company shall engage the Company's legal counsel to deliver to the Underwriter a written opinion detailing those states in which the Shares of the Company may be traded in non-issuer transactions under the Blue Sky laws of the fifty states ("Secondary Market Trading Opinion"). The initial Secondary Market Trading Opinion shall be delivered to the Underwriter on the Effective Date, and the Company shall continue to update such opinion and deliver same to the Underwriter on a 18 timely basis, but in any event at the beginning of each fiscal quarter, for a five (5) year period, if required. (ab) As promptly as practicable after the Closing Date, the Company will prepare, at its own expense, hard cover "bound volumes" relating to the offering, and will distribute such volumes to the individuals designated by the Underwriter or counsel to the Underwriter. 4. Conditions of Underwriter's Obligations. The obligation of the Underwriter to act as agent for the Company is subject, as of the date hereof and as of the Closing Date, to the execution of this Agreement by the Underwriter, to the continuing accuracy of, and compliance with, the representations and warranties of the Company herein, to the accuracy of statements of officers of the Company made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder, and to the following additional conditions: (a) (i) The Registration Statement shall have become effective not later than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such later time or on such later date as you may agree to in writing; (ii) at or prior to the Closing Date, no stop order suspending the effectiveness of the Registration Statement shall have been issued by the Commission and no proceeding for that purpose shall have been initiated or pending, or shall be threatened, or to the knowledge of the Company, contemplated by the Commission; (iii) no stop order suspending the effectiveness of the qualification or registration of the Securities under the securities or "blue sky" laws of any jurisdiction (whether or not a jurisdiction which you shall have specified) shall be threatened or to the knowledge of the Company contemplated by the authorities of any such jurisdiction or shall have been issued and in effect; (iv) any request for additional information on the part of the Commission or any such authorities shall have been complied with to the satisfaction of the Commission and any such authorities, and to the satisfaction of counsel to the Underwriter; and (v) after the date hereof no amendment or supplement to the Registration Statement or the Prospectus shall have been filed unless a copy thereof was first submitted to the Underwriter and the Underwriter did not object thereto. (b) At the Closing Date, since the respective dates as of which information is presented in the Registration Statement and the Prospectus, (i) there shall not have been any material change in the capital stock or other securities of the Company or any subsidiary or any material adverse change in the long-term debt of the Company or any material subsidiary except as set forth in or contemplated by the Registration Statement, (ii) there shall not have been any material adverse change in the general affairs, business, properties, condition (financial or otherwise), management, or results of operations of the Company or any subsidiary, whether or not arising from transactions in the ordinary course of business, in each case other than as set forth 19 in or contemplated by the Registration Statement or Prospectus; (iii) neither the Company nor any subsidiary shall have sustained any material interference with its business or properties from fire, explosion, flood or other casualty, whether or not covered by insurance, or from any labor dispute or any court or legislative or other governmental action, order or decree, which is not set forth in the Registration Statement and Prospectus; and (iv) the Registration Statement and the Prospectus and any amendments or supplements thereto shall contain all statements which are required to be stated therein in accordance with the Act and the Rules and Regulations, and shall in all material respects conform to the requirements thereof, and neither the Registration Statement nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstance under which they are made, not misleading. (c) Except as set forth in the Prospectus, there is not pending or, to the knowledge of the Company or any subsidiary, threatened, any material action, suit, proceeding, inquiry, arbitration or investigation against the Company or any subsidiary, or any of the officers or directors of the Company or any subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or investigation, which might result in any material adverse change in the condition (financial or other), business prospects, net worth, or properties of the Company or any subsidiary. (d) Each of the representations and warranties of the Company contained herein shall be true and correct as of this date and at the Closing Date as if made at the Closing Date, and all covenants and agreements herein contained to be performed on the part of the Company and all conditions herein contained to be fulfilled or complied with by the Company at or prior to the Closing Date shall have been duly performed, fulfilled or complied with. (e) At the Closing Date, the Underwriter shall have received the opinion, dated as of the Closing Date, from Thomas J. Prousalis, Jr., Esq., counsel for the Company, in form and substance satisfactory to counsel for the Underwriter, which in the aggregate shall state: (i) the Company and each subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, with full corporate power and authority to own its properties and conduct its business as described in the Registration Statement and Prospectus and is duly qualified or licensed to do business as a foreign corporation and is in good standing in each other jurisdiction in which the ownership or leasing of its properties or conduct of its business requires such qualification except for jurisdictions in which the failure to so qualify would not have a material adverse effect on the 20 Company and each subsidiary as a whole; (ii) the authorized capital of the Company is as set forth under "Capitalization" in the Prospectus; all shares of the Company's outstanding stock and other securities requiring authorization for issuance by the Company's Board of Directors have been duly authorized, validly issued, are fully paid and non-assessable and conform to the description thereof contained in the Prospectus; the outstanding shares of Common Stock of the Company and other securities have not been issued in violation of the preemptive rights of any shareholder and the shareholders of the Company do not have any preemptive rights or, to such counsel's knowledge, other rights to subscribe for or to purchase securities of the Company, nor, to such counsel's knowledge, are there any restrictions upon the voting or transfer of any of the securities of the Company, except as disclosed in the Prospectus; the Common Stock, the Shares and the securities contained in the Underwriter's Warrant Agreement conform to the respective descriptions thereof contained in the Prospectus; the Common Stock, the Shares and the securities contained in the Underwriter's Warrant Agreement, have been duly authorized and, when issued, delivered and paid for, will be duly authorized, validly issued, fully paid, non-assessable, free of pre-emptive rights and no personal liability will attach to the ownership thereof; all prior sales by the Company of the Company's securities complied in all material respects with, or were exempt from, applicable federal and state securities laws; no shareholders of the Company have any rescission rights against the Company with respect to the Company's securities; a sufficient number of shares of Common Stock has been reserved for issuance upon exercise of the Underwriter Warrants, and to the best of such counsel's knowledge, neither the filing of the Registration Statement nor the offering or sale of the Securities as contemplated by this Agreement gives rise to any registration rights or other rights, other than those which have been waived or satisfied or described in the Registration Statement; (iii) this Agreement, the Underwriter's Warrant Agreement, the Financial Advisory Agreement, the Escrow Agreement and the M/A Agreement have been duly and validly authorized, executed and delivered by the Company and, assuming the due authorization, execution and delivery of this Agreement by the Underwriter, are the valid and legally binding obligations of the Company, enforceable in accordance with their terms, except (a) as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws from time to time in effect which effect creditors' rights generally; and (b) no opinion is expressed as to the enforceability of the indemnity provisions or the contribution provisions contained in this Agreement; 21 (iv) the certificates evidencing the outstanding securities of the Company and the Shares are in valid and proper legal form; (v) to the best of such counsel's knowledge, except as set forth in the Prospectus, there is not pending or threatened any material action, suit, proceeding, inquiry, arbitration or investigation against the Company or any subsidiary or any of the officers of directors of the Company or any subsidiary, nor any material action, suit, proceeding, inquiry, arbitration, or investigation, which might materially and adversely affect the condition (financial or otherwise), business prospects, net worth, or properties of the Company or any subsidiary; (vi) the execution and delivery of this Agreement, the Underwriter's Warrant Agreement, the Financial Advisory Agreement, the Escrow Agreement and the M/A Agreement, and the incurrence of the obligations herein and therein set forth and the consummation of the transactions herein or therein contemplated, will not result in a violation of, or constitute a default under (a) the Articles of Incorporation or By-Laws of the Company and each subsidiary; (b) to the best of such counsel's knowledge, any material obligations, agreement, covenant or condition contained in any bond, debenture, note or other evidence of indebtedness or in any contract, indenture, mortgage, loan agreement, lease, joint venture or other agreement or instrument to which the Company or any subsidiary is a party or by which it or any of its material properties is bound; or (c) to the best of such counsel's knowledge, any material order, rule, regulation, writ, injunction, or decree of any government, governmental instrumentality or court, domestic or foreign; (vii) the Registration Statement has become effective under the Act, and to the best of such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for that purpose have been instituted or are pending before, or threatened by, the Commission; the Registration Statement and the Prospectus (except for the financial statements and other financial data contained therein, or omitted therefrom, as to which such counsel need express no opinion) comply as to form in all material respects with the applicable requirements of the Act and the Rules and Regulations; and (viii) no authorization, approval, consent, or license of any governmental or regulatory authority or agency is necessary in connection with the authorization, issuance, transfer, sale or delivery of the Securities by the Company in connection with the execution, delivery and performance of this Agreement by the Company or in connection with the taking of any action contemplated herein, or the issuance of the Underwriter's Warrants or the Securities underlying the 22 Underwriter's Warrants, other than registrations or qualifications of the Securities under applicable state or foreign securities or Blue Sky laws and registration under the Act. Such opinion shall also cover such matters incident to the transactions contemplated hereby as the Underwriter or counsel for the Underwriter shall reasonably request. In rendering such opinion, such counsel may rely upon certificates of any officer of the Company or public officials as to matters of fact; and may rely as to all matters of law, upon opinions of counsel satisfactory to you and counsel to the Underwriter. The opinion of such counsel to the Company shall state that the opinion of any such other counsel is in form satisfactory to such counsel and that the Underwriter and they are justified in relying thereon. Such counsel shall also include a statement to the effect that such counsel has participated in the preparation of the Registration Statement and the Prospectus and nothing has come to the attention of such counsel to lead such counsel to believe that the Registration Statement or any amendment thereto at the time it became effective contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading or that the Prospectus or any supplement thereto contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make statements therein, in light of the circumstances under which they are made, not misleading (except, in the case of both the Registration Statement and any amendment thereto and the Prospectus and any supplement thereto, for the financial statements, notes thereto and other financial information and statistical data contained therein, as to which such counsel need express no opinion). (f) You shall have received on the Closing Date, a certificate dated as of the Closing Date, signed by the Chief Executive Officer and the Chief Financial Officer of the Company and such other officers of the Company as the Underwriter may reasonably request, certifying that: (i) No Order suspending the effectiveness of the Registration Statement or stop order regarding the sale of the Securities is in effect and no proceedings for such purpose are pending or are, to their knowledge, threatened by the Commission; (ii) They do not know of any litigation instituted or, to their knowledge, threatened against the Company or any subsidiary or any officer or director of the Company or any subsidiary of a character required to be disclosed in the Registration Statement which is not disclosed therein; they do not know of any contracts which are required to be summarized 23 in the Prospectus which are not so summarized; and they do not know of any material contracts required to be filed as exhibits to the Registration Statement which are not so filed; (iii) They have each carefully examined the Registration Statement and the Prospectus and, to the best of their knowledge, neither the Registration Statement nor the Prospectus nor any amendment or supplement to either of the foregoing contains an untrue statement of any material fact or omits to state any material fact required to be stated therein or necessary to make the statement therein, in light of the circumstances under which they are made, not misleading; and since the Effective Date, to the best of their knowledge, there has occurred no event required to be set forth in an amended or supplemented Prospectus which has not been so set forth; (iv) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any material adverse change in the condition of the Company or any subsidiary, financial or otherwise, or in the results of its operations, except as reflected in or contemplated by the Registration Statement and the Prospectus; (v) The representations and warranties set forth in this Agreement are true and correct in all material respects, and the Company has complied with all of its agreements herein contained; (vi) Neither the Company nor any subsidiary is delinquent in the filing of any federal, state and other tax return or the payment of any federal, state or other taxes; they know of no proposed redetermination or re-assessment of taxes, adverse to the Company or any subsidiary, and the Company and each subsidiary has paid or provided by adequate reserves for all known tax liabilities; (vii) They know of no material obligation or liability of the Company, contingent or otherwise, not disclosed in the Registration Statement and Prospectus; (viii) This Agreement, the Underwriter's Warrant Agreement, the Financial Advisory Agreement, and the M/A Agreement, the consummation of the transactions therein contemplated, and the fulfillment of the terms thereof, will not result in a breach by the Company of any terms of, or constitute a default under, the Company's Articles of Incorporation or By-Laws, any indenture, mortgage, lease, deed of trust, bank loan or credit agreement or any other material agreement or undertaking of the Company or any subsidiary including, by way of specification but not by way of limitation, any agreement or instrument to which the Company or any subsidiary is now a party or pursuant to which the 24 Company or any subsidiary has acquired any material right and/or obligations by succession or otherwise; (ix) The financial statements and schedules filed with and as part of the Registration Statement present fairly the financial position of the Company as of the dates thereof all in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved. Since the respective dates of such financial statements, there have been no material adverse change in the condition or general affairs of the Company, financial or otherwise, other than as referred to in the Prospectus; (x) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, except as may otherwise be indicated therein or contemplated thereby, neither the Company nor any subsidiary has, prior to the Closing Date, either (i) issued any securities or incurred any material liability or obligation, direct or contingent, for borrowed money, or (ii) entered into any material transaction other than in the ordinary course of business. The Company has not declared, paid or made any dividend or distribution of any kind on its capital stock; (xi) They have reviewed the sections in the Prospectus relating to their biographical data and equity ownership position in the Company, and all information contained therein is true and accurate; and (xii) Except as disclosed in the Prospectus, during the past five years, they have not been: (1) The subject of a petition under the federal bankruptcy laws or any state insolvency law filed by or against them, or by a receiver, fiscal agent or similar officer appointed by a court for their business or property, or any partnership in which any of them was a general partner at or within two years before the time of such filing, or any corporation or business association of which any of them was an executive officer at or within two years before the time of such filing; (2) Convicted in a criminal proceeding or a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) The subject of any order, judgment, or decree not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining any of them from, or otherwise limiting, any of the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, 25 commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with any such activity; (ii) engaging in any type of business practice; or (iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities law or federal commodity laws. (4) The subject of any order, judgment or decree, not subsequently reversed, suspended or vacated of any federal or state authority barring, suspending or otherwise limiting for more than sixty (60) days their right to engage in any activity described in paragraph (3)(i) above, or be associated with persons engaged in any such activity; (5) Found by any court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any federal or state securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended or vacated; or (6) Found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated. (g) The Underwriter shall have received from Grant Thornton LLP, independent auditors to the Company, certificates or letters, one dated and delivered on the Effective Date and one dated and delivered on the Closing Date, in form and substance satisfactory to the Underwriter, stating that: (i) they are independent certified public accountants with respect to the Company within the meaning of the Act and the applicable Rules and Regulations; (ii) the financial statements and the schedules included in the Registration Statement and the Prospectus were examined 26 by them and, in their opinion, comply as to form in all material respects with the applicable accounting requirements of the Act, the Rules and Regulations and instructions of the Commission with respect to Registration Statements on Form SB-2; (iii) on the basis of inquiries and procedures conducted by them (not constituting an examination in accordance with generally accepted auditing standards), including a reading of the latest available unaudited interim financial statements or other financial information of the Company (with an indication of the date of the latest available unaudited interim financial statements), inquiries of officers of the Company who have responsibility for financial and accounting matters, review of minutes of all meetings of the shareholders and the Board of Directors of the Company and other specified inquiries and procedures, nothing has come to their attention as a result of the foregoing inquiries and procedures that causes them to believe that: (a) during the period from (and including) the date of the financial statements in the Registration Statement and the Prospectus to a specified date not more than five days prior to the date of such letters, there has been any change in the Common Stock, long-term debt or other securities of the Company (except as specifically contemplated in the Registration Statement and Prospectus) or any material decreases in net current assets, net assets, shareholder's equity, working capital or in any other item appearing in the Company's financial statements as to which the Underwriter may request advice, in each case as compared with amounts shown in the balance sheet as of the date of the most recent financial statements in the Prospectus, except in each case for changes, increases or decreases which the Prospectus discloses have occurred or will occur; (b) during the period from (and including) the date of the financial statements in the Registration Statement and the Prospectus to such specified date there was any material decrease in revenues or in the total or per share amounts of income or loss before extraordinary items or net income or loss, or any other material change in such other items appearing in the Company's financial statements as to which the Underwriter may request advice, in each case as compared with the fiscal period ended as of the date of the most recent financial statements in the Prospectus, except in each case for increases, changes or decreases which the Prospectus discloses have occurred or will occur; (c) the unaudited interim financial statements of the Company appearing in the Registration Statement and the Prospectus (if any) do not comply as to form in all 27 material respects with the applicable accounting requirements of the Act and the Rules and Regulations or are not fairly presented in conformity with generally accepted accounting principles and practices on a basis substantially consistent with the audited financial statements included in the Registration Statements or the Prospectus. (iv) they have compared specific dollar amounts, numbers of shares, percentages of revenues and earnings, statements and other financial information pertaining to the Company set forth in the Prospectus in each case to the extent that such amounts, numbers, percentages, statements and information may be derived from the general accounting records, including work sheets, of the Company and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries and other appropriate procedures (which procedures do not constitute an examination in accordance with generally accepted auditing standards) set forth in the letters and found them to be in agreement; and (v) they have not during the immediately preceding five (5) year period brought to the attention of the Company's management any reportable condition related to the Company's internal accounting procedures, weaknesses and/or controls. Such letters shall also set forth such other information as may be requested by counsel for the Underwriter. Any changes, increases or decreases in the items set forth in such letters which, in the judgment of the Underwriter, are materially adverse with respect to the financial position or results of operations of the Company shall be deemed to constitute a failure of the Company to comply with the conditions of the obligations to the Underwriter hereunder. (h) No action shall have been taken by the Commission or the NASD, the effect of which would make it improper, at any time prior to the Closing Date, for members of the NASD to execute transactions (as principal or agent) in the Shares and no proceedings for the taking of such action shall have been instituted or shall be pending, or, to the knowledge of the Underwriter or the Company, shall be contemplated by the Commission or the NASD. The Company represents that at the date hereof it has no knowledge that any such action is in fact contemplated by the Commission or the NASD. The Company shall advise the Underwriter of any NASD affiliations of any of its officers, directors, or stockholders of the Company's securities or their affiliates in accordance with Section 1(y) of this Agreement. (i) At the Effective Date, you shall have received from counsel to the Company, dated as of the Effective Date, in form and substance satisfactory to counsel for the Underwriter, a written Secondary Market Trading Opinion detailing those states in which 28 the Shares may be traded in non-issuer transactions under the Blue Sky laws of the fifty (50) states after the Effective Date, in accordance with Section 3(aa) of this Agreement. (j) The authorization and issuance of the Securities and delivery thereof, the Registration Statement, the Prospectus, and all corporate proceedings incident thereto shall be satisfactory in all respects to counsel for the Underwriter, and such counsel shall be furnished with such documents, certificates and opinions as they may reasonably request to enable them to pass upon the matters referred to in this sub-section. (k) Prior to the Effective Date, the Underwriter shall have received clearance from the NASD as to the amount of compensation allowable or payable to the Underwriter, as described in the Registration Statement. (l) If any of the conditions provided for in this Section shall not have been fulfilled as of the date indicated, this Agreement and all obligations of the Underwriter under this Agreement may be canceled at, or at any time prior to, the Closing Date and/or the Closing Date by the Underwriter notifying the Company of such cancellation in writing or by facsimile at or prior to the applicable Closing Date. Any such cancellation shall be without liability of the Underwriter to the Company. 5. Indemnification. (a) The Company indemnifies and holds harmless the Underwriter and each person, if any, who controls the Underwriter within the meaning of the Act against any losses, claims, damages or liabilities, joint or several (which shall, for all purposes of this Agreement, include but not be limited to, all reasonable costs of defense and investigation and all attorneys' fees), to which the Underwriter or such controlling person may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in (i) the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, (ii) any blue sky application or other document executed by the Company specifically for that purpose or based upon written information furnished by the Company and filed in any state or other jurisdiction in order to qualify any or all of the Securities under the securities laws thereof (any such application, document or information being hereinafter called a "Blue Sky Application"), or arise out of or are based upon the omission or alleged omission to state in the Registration Statement, any Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or in any Blue Sky Application, a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any such cases to the extent, but only to the extent, that any such losses, claim, 29 damages or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by the Underwriter specifically for use in the Registration Statement or any amendment or supplement thereof or any Blue Sky Application or any Preliminary Prospectus or the Prospectus or any such amendment or supplement thereto. Notwithstanding the foregoing, the Company shall have no liability under this Section if such untrue statement or omission made in a Preliminary Prospectus is cured in the Prospectus and the Prospectus is not delivered to the person or persons alleging the liability upon which indemnification is being sought. This indemnity will be in addition to any liability which the Company may otherwise have. (b) The Underwriter indemnifies and holds harmless the Company, each of its directors, each nominee (if any) for director named in the Prospectus, each of the persons who have signed the Registration Statement, and each person, if any, who controls the Company within the meaning of the Act, against any losses, claims, damages or liabilities (which shall, for all purposes of this Agreement, include, but not be limited to, all costs of defense and investigation and all attorneys' fees) to which the Company or any such director, signer of the Registration Statement, officer or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statements or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by the Underwriter specifically for use in such Registration Statement or Prospectus. Notwithstanding the foregoing, the Underwriter shall have no liability under this section if such untrue statement or omission made in a Preliminary Prospectus is cured in the Prospectus and the Prospectus is not delivered to the person or persons alleging the liability upon which indemnification is being sought through no fault of the Underwriter. This indemnity agreement will be in addition to any liability which the Underwriter may otherwise have. (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section, promptly notify 30 in writing the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party other than indemnification under this Section. In case any such action is brought against any indemnified party, and it promptly notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, subject to the provisions herein stated, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. The indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of the action with counsel reasonably satisfactory to the indemnified party; provided that if the indemnified party is an Underwriter or a person who controls such Underwriter within the meaning of the Act, the fees and expenses of such counsel shall be at the expense of the indemnifying party if (i) the employment of such counsel has been specifically authorized in writing by the indemnifying party or (ii) the named parties to any such action (including any impleaded parties) include both the Underwriter or such controlling person and the indemnifying party and in the reasonable judgment of the Underwriter, it is advisable for the Underwriter or such Underwriter or controlling persons to be represented by separate counsel (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the Underwriter or such controlling person). No settlement of any action against an indemnified party shall be made without the prior written consent of the indemnifying party, which shall not be unreasonably withheld in light of all factors of importance to such indemnifying and indemnified parties. 6. Contribution. (a) If the indemnification provided for in this Agreement is unavailable to any indemnified party in respect to any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, will contribute to the amount paid or payable by such indemnified party, as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand, and by the Underwriter on the other hand, from the Offering, or (ii) if the allocation provided by clause (i) 31 above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above, but also the relative fault of the Company on the one hand, and of the Underwriter on the other hand, in connection with any statements or omissions which resulted in such losses, claims, damages, liabilities or expenses as well as any other relevant equitable considerations; provided, that any contribution hereunder by the Underwriter shall not exceed the amount of consideration received by the Underwriter hereunder. The relative benefits received by the Company on the one hand, and by the Underwriter on the other hand, shall be deemed to be in the same proportion as the total proceeds from the Offering (net of sales commissions, and the non-accountable expense allowance, but before deducting expenses) received by the Company, bear to the commissions and the non-accountable expense allowance received by the Underwriter. The relative fault of the Company on the one hand, and of the Underwriter on the other hand, will be determined with reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Company, and its relative intent, knowledge, access or information and opportunity to correct or prevent such statement or omission. The Company and the Underwriter agree that it would not be just and equitable if contribution pursuant to this Section were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in this paragraph. (b) Within fifteen (15) days after receipt by any party to this Agreement (or its representative) of notice of the commencement of any action, suit, or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party ("Contributing Party"), notify the Contributing Party of the commencement thereof, but the omission to so notify the Contributing Party will not relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any such action, suit or proceeding is brought against any party, and such party notifies a Contributing Party or its representative of the commencement thereof within the aforesaid fifteen (15) days, the Contributing Party will be entitled to participate therein with the notifying party and any other Contributing Party similarly notified. Any such Contributing Party shall not be liable to any party seeking contribution on account of any settlement of any claim, action or proceeding which was effected by such party seeking contribution on account of any settlement of any claim, action or proceeding effected by such party seeking contribution without the prior written consent of such Contributing Party. The contribution provisions contained in this Section are intended to supersede, to the extent permitted by law, any right to contribution under the Act, the Exchange Act or otherwise available. 32 7. Costs and Expenses. (a) Whether or not this Agreement becomes effective or the sale of the Securities to the Underwriter is consummated, the Company will pay all costs and expenses incident to the performance of this Agreement by the Company including but not limited to the fees and expenses of counsel to the Company and of the Company's accountants; the costs and expenses incident to the preparation, printing, filing and distribution under the Act of the Registration Statement (including the financial statements therein and all amendments and exhibits thereto), Preliminary Prospectus and the Prospectus, as amended or supplemented; the fee of the National Association of Securities Dealers, Inc. ("NASD") in connection with the filing required by the NASD relating to the offering of the Securities contemplated hereby; all state filing fees, expenses and disbursements and legal fees of counsel to the Underwriter in their capacity as Blue Sky counsel to the Company in connection with the filing of applications to register the Securities under the state securities or blue sky laws (which legal fee shall be payable by the Company in the sum of $30,000, of which $12,500 has been paid); the cost of printing and furnishing to the Underwriter copies of the Registration Statement, each Preliminary Prospectus, the Prospectus, this Agreement, the Selected Dealers Agreement, and the Blue Sky Memorandum; the cost of printing the certificates evidencing the securities comprising the Securities; the cost of preparing and delivering to the Underwriter and its counsel bound volumes containing copies of all documents and appropriate correspondence filed with or received from the Commission and the NASD and all closing documents; and the fees and disbursements of the transfer agent for the Company's securities. The Company shall pay any and all taxes (including any original issue, transfer, franchise, capital stock or other tax imposed by any jurisdiction) on sales to the Underwriter hereunder. The Company will also pay all costs and expenses incident to the furnishing of any amended Prospectus or of any supplement to be attached to the Prospectus. The Company shall also engage the Company's counsel to provide the Underwriter with a written Secondary Market Trading Opinion in accordance with Section 3(aa) and 4(h) of this Agreement. (b) In addition to the foregoing expenses, in the event at least 300,000 of the Shares are sold and paid for, the Company shall at the Closing Date pay to the Underwriter a non-accountable expense allowance equal to three percent (3%) of the gross proceeds received from the sale of the Securities, of which an advance of $50,000 has been paid to date. (c) Other than as disclosed in the Registration Statement, no person is entitled either directly or indirectly to compensation from the Company, from the Underwriter or from any other person for services as a finder in connection with the proposed offering, and the Company agrees to indemnify and hold harmless the Underwriter against any losses, claims, damages or liabilities, which shall, for all purposes of this Agreement, include, but not be limited to, 33 all costs of defense and investigation and all attorneys' fees, to which the Underwriter may become subject insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon the claim of any person (other than an employee of the party claiming indemnity) or entity that he or it is entitled to a finder's fee in connection with the proposed offering by reason of such person's or entity's influence or prior contact with the indemnifying party. 8. Effective Date. The Agreement shall become effective upon its execution except that you may, at your option, delay its effectiveness until 11:00 a.m., Eastern time, on the first full business day following the execution of this Agreement; or at such earlier time after the Effective Date of the Registration Statement as you in your discretion shall first commence the public offering of any of the Securities. The time of the public offering shall mean the time after the effectiveness of the Registration Statement when the Securities are first generally offered by you to the Selected Dealers and/or the public. This Agreement may be terminated by you at any time before it becomes effective as provided above, except that Sections 3(c), 5, 6, 7, 11, 12, 13, 14, 15, and 16 shall remain in effect notwithstanding such termination. 9. Termination. (a) This Agreement, except for Sections 3(c), 5, 6, 7, 11, 12, 13, 14, 15, and 16 hereof, may be terminated at any time prior to the Closing Date, by you if in your judgment it is impracticable to offer for sale or to enforce contracts made by the Underwriter by reason of: (i) the Company having sustained a material adverse loss, whether or not insured, by reason of fire, earthquake, flood, accident or other calamity, or from any labor dispute or court or government action, order or decree; (ii) trading in securities on the New York Stock Exchange or the American Stock Exchange having been suspended or limited; (iii) material governmental restrictions having been imposed on trading in securities generally (not in force and effect on the date hereof); (iv) a banking moratorium having been declared by Federal or New York or Florida state authorities; (v) an outbreak of major international hostilities or other national or international calamity having occurred; (vi) the passage by the Congress of the United States or by any state legislative body of similar impact, of any act or measure, or the adoption of any orders, rules or regulations by any governmental body or any authoritative accounting institute or board, or any governmental executive, which is likely to have a material adverse impact on the business, financial condition or financial statements of the Company or the market for the Securities offered hereby; (vii) any material adverse change in the financial or securities markets beyond normal market fluctuations having occurred since the date of this Agreement; (viii) any material adverse change having occurred, since the respective dates as of which information is given in the Registration Statement and Prospectus, in the earnings, business prospects or general condition of the Company, financial or 34 otherwise, whether or not arising in the ordinary course of business; (ix) a pending or threatened legal or governmental proceeding or action relating generally to the Company's business, or a notification having been received by the Company of the threat of any such proceeding or action, which could materially adversely affect the Company; (x) except as contemplated by the Prospectus, the Company is merged or consolidated into or acquired by another company or group or there exists a binding legal commitment for the foregoing or any other material change of ownership or control occurs; or (xi) the Company shall not have complied in all material respects with any term, condition or provisions on its part to be performed, complied with or fulfilled (including but not limited to those set forth in this Agreement) within the respective times therein provided. (b) If you elect to prevent this Agreement from becoming effective or to terminate this Agreement as provided in this Section, the Company shall be promptly notified by you, by telephone, telegram or facsimile, confirmed by letter. 10. Underwriter's Warrant Agreement. At the Closing Date, the Company will issue to the Underwriter and/or persons related to the Underwriter, for an aggregate purchase price of $10, and upon the terms and conditions set forth in the form of Underwriter's Warrant Agreement annexed as an exhibit to the Registration Statement, Underwriter Warrants to purchase up to an aggregate of 100,000 Shares, in such denominations as the Underwriter shall designate. In the event of conflict in the terms of this Agreement and the Underwriter's Warrant Agreement, the language of the form of Underwriter's Warrant Agreement shall control. 11. Representations, Warranties and Agreements to Survive Delivery. The respective indemnities, agreements, representations, warranties and other statements of the Company and its principal officers, where appropriate, and the Underwriter set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Underwriter, the Company or any of its officers or directors or any controlling person and will survive delivery of and payment for the Securities and the termination of this Agreement. 12. Notice. All communications hereunder will be in writing and, except as otherwise expressly provided herein, will be mailed, delivered or telefaxed, and confirmed: If to the Underwriter: Robert T. Kirk, President Barron Chase Securities, Inc. 7700 West Camino Real Boca Raton, Florida 33433 35 Copy to: David A. Carter, P.A. 2300 Glades Road, Suite 210W Boca Raton, Florida 33431 If to the Company: Daniel J. Brentlinger, President CropKing.com, Incorporated 5050 Greenwich Road Seville, Ohio 44273 Copy to: Thomas T. Prousalis, Jr., Esq. 1919 Pennsylvania Avenue, N.W. Suite 200 Washington, D.C. 20006 13. Parties in Interest. This Agreement herein set forth is made solely for the benefit of the Underwriter, the Company and, to the extent expressed, the holders of the Underwriter Warrants, any person controlling the Company or the Underwriter, and directors of the Company, nominees for director (if any) named in the Prospectus, each person who has signed the Registration Statement, and their respective executors, administrators, successors, assigns and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include any purchaser of the Securities, as such purchaser, from the Underwriter. 14. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida applicable to contracts made and to be performed entirely within the State of Florida. The parties agree that any action brought by any party against another party in connection with any rights or obligations arising out of this Agreement shall be instituted properly in a federal or state court of competent jurisdiction with venue only in the Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or the United States District Court for the Southern District of Florida, West Palm Beach Division. A party to this Agreement named as a Defendant in any action brought in connection with this Agreement in any court outside of the above named designated county or district shall have the right to have the venue of said action changed to the above designated county or district or, if necessary, have the case dismissed, requiring the other party to refile such action in an appropriate court in the above designated county or federal district. 15. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. 16. Entire Agreement. This Agreement and the agreements referred to within this Agreement constitute the entire agreement of the parties, and supersedes all prior agreements, 36 understandings, negotiations and discussions, whether written or oral, of the parties hereto. If the foregoing is in accordance with your understanding of our agreement, kindly sign and return this Agreement, whereupon it will become a binding Agreement between the Company and the Underwriter in accordance with its terms. Very truly yours, CROPKING.COM, INCORPORATED BY: --------------------------------------- Daniel J. Brentlinger President The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. BARRON CHASE SECURITIES, INC. BY: --------------------------------------- Robert T. Kirk, President 37 EX-1.1 3 EXHIBIT 1.1 Exhibit 1.1 CROPKING.COM, INCORPORATED 1,000,000 Shares of Common Stock SELECTED DEALER AGREEMENT Boca Raton, Florida _____________, 1999 Gentlemen: 1. Barron Chase Securities, Inc. (the "Underwriter"), as Underwriter for CropKing.com, Incorporated (the "Company") invites your participation as a Selected Dealer ("Selected Dealer") in an offering of up to 1,000,000 Shares of Common Stock (the "Shares" or the "Securities"). The Underwriter is offering the Shares, as agent for the Company, on a "300,000 shares or none minimum, 1,000,000 share maximum best efforts" basis, pursuant to a Registration Statement filed under the Securities Act of 1933, as amended (the "Act"), subject to the terms of (a) its Underwriter Agreement with the Company, (b) this Agreement, and (c) the Underwriter's instructions which may be forwarded to the Selected Dealers from time to time. This invitation is made by the Underwriter only if the Shares may be lawfully offered by dealers in your state. 2. The Securities are to be offered to the public by the Underwriter at the price per Share set forth on the cover page of the Prospectus (the "Public Offering Price"), in accordance with the terms of offering set forth in the Prospectus. 3. The Underwriter, subject to the terms and conditions hereof, is offering a portion of the Securities for sale to certain dealers who are actually engaged in the investment banking or securities business and who are either (a) members in good standing of the National Association of Securities Dealers, Inc. (the "NASD"), or (b) dealers with their principal places of business located outside the United States, its territories and its possessions and not registered as brokers or dealers under the Securities Exchange Act of 1934, as amended (the "1934 Act"), who have agreed not to make any sales within the United States, its territories or its possessions or to persons who are nationals thereof or residents therein (such dealers who shall agree to sell Securities hereunder being herein called "Selected Dealers") at the public offering price, less a selling concession (which may be changed) of not in excess of $ per Share payable as hereinafter provided, out of which concession an amount not exceeding $ per Share may be reallowed by Selected Dealers to members of the NASD or foreign dealers qualified as aforesaid. The Selected Dealers who are members of the NASD agree to comply with all of the provisions of the NASD Conduct Rules. Foreign Selected Dealers agree to comply with the provisions of Rule 2740 of the NASD Conduct Rules, and, if any such dealer is a foreign dealer and not a member of the NASD, such Selected Dealer 1 also agrees to comply with the NASD's Interpretation with Respect to Free-Riding and Withholding, and to comply, as though it were a member of the NASD, with the provisions of Rules 2730 and 2750 of the NASD Conduct Rules, and to comply with Rule 2420 thereof as that Rule applies to non-member foreign dealers. The Underwriter has agreed that, during the term of this Agreement, it will be governed by the terms and conditions hereof. 4. Barron Chase Securities, Inc. shall act as Underwriter and shall have full authority to take such action as it may deem advisable in respect to all matters pertaining to the public offering of the Securities. 5. If you desire to act as a Selected Dealer, your application should reach us promptly by facsimile or letter at the offices of Barron Chase Securities, Inc., 7700 West Camino Real, Boca Raton, Florida 33433, Attention: Robert T. Kirk. We reserve the right to reject subscriptions in whole or in part, to make allotments, and to close the subscription books at any time without notice. The Securities allotted to you will be confirmed, subject to the terms and conditions of this Selected Dealers Agreement (the "Agreement"). 6. Payment for the Shares shall accompany all confirmations and applications and shall be in clearing house funds. All checks, wires, and other orders for the payment of money shall be made payable to the escrow agent for deposit into an escrow account maintained at Republic Security Bank, 7400 West Camino Real, Boca Raton, Florida 33433 (the "Escrow Agent"). All subscriber checks are to be made payable to "Republic Security Bank - Escrow Account for the Benefit of the Subscribers to CropKing.com, Incorporated". Shares sold by the Selected Dealer will be available for delivery at the office of the Underwriter, unless other arrangements are made with the Underwriter for delivery. 7. The Selected Dealer shall promptly transmit to the Escrow Agent, no later than 12:00 noon of the day subsequent to the receipt of funds received from purchasers, such funds and a confirmation or a records of each sale which shall set forth the name, address and social security number of each individual purchaser, the number of Shares purchased, and, if there is more than one registered owner, whether the certificate or certificates evidencing the securities comprising the Shares purchased are to be issued to the purchaser in joint tenancy or otherwise. Also, each Selected Dealer shall report, in writing, to the Underwriter, the number of persons in each such state who purchase the Shares from Selected Dealers. Each sale may be rejected by the Underwriter and if rejected, the Escrow Agent will directly return funds to the rejected customer. 8. The proceeds from the sale of all of the Shares sold in the offering (the "Offering Proceeds") will be deposited in the escrow account referred to in paragraph 6 hereof. In the event that Offering Proceeds in an amount of $2,100,000 have not been deposited and cleared within ninety (90) days from the date the 2 Company's Registration Statement is declared effective (unless extended by the Underwriter with the written consent of the Company, for an additional thirty (30) days, and an additional ten (10) days to allow clearance of funds), the full amount paid will be refunded to the purchasers. No certificates evidencing the Shares will be issued unless and until Offering Proceeds in an amount of $2,100,000 have been cleared and such funds have been released and the net proceeds thereof delivered to the Company. If Offering Proceeds in an amount of $2,100,000 are cleared within the time period provided above, all amounts so deposited will be delivered to the Company, except that the Underwriter may deduct its underwriting commissions and the unpaid portion of its expense allowance and financial advisory agreement from the proceeds of the offering prior to the delivery of such proceeds to the Company. No commissions will be paid by the Company or concessions allowed by the Underwriter unless and until Offering Proceeds in the amount of $2,100,000 have been cleared and such funds have been released and the net proceeds thereof delivered to the Company. 9. Any Securities to be sold by you under the terms of this Agreement must be sold to the public in accordance with the terms of offering as set forth herein and in the Prospectus, subject to the securities or Blue Sky laws of the various states or other jurisdictions. 10. On becoming a Selected Dealer, and in offering and selling the Securities, you agree to comply with all the applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act. You confirm that you are familiar with Rule 15c2-8 under the 1934 Act relating to the distribution of preliminary and final prospectuses for securities of an issuer (whether or not the issuer is subject to the reporting requirements of Section 13 or 15(d) of the 1934 Act) and confirm that you have complied and will comply therewith. We hereby confirm that we will make available to you such number of copies of the Prospectus (as amended or supplemented) as you may reasonably request for the purposes contemplated by the 1933 Act or the 1934 Act, or the rules and regulations thereunder. 11. Upon request, you will be informed as to the states and other jurisdictions in which we have been advised that the Securities are qualified for sale under the respective securities or Blue Sky laws of such states and other jurisdictions, but we shall not assume any obligation or responsibility as to the right of any Selected Dealer to sell the Securities in any state or other jurisdiction or as to the eligibility of the Securities for sale therein. We will, if requested, file a Further State Notice in respect of the Securities pursuant to Article 23-A of the General Business Law of the State of New York. 12. No Selected Dealer is authorized to act as agent for the Underwriter, or otherwise to act on our behalf, in offering or selling the Securities to the public or otherwise or to furnish any 3 information or make any representation except as contained in the Prospectus. 13. By accepting this Agreement, the Selected Dealer has assumed full responsibility for proper training and instruction of its representatives concerning the selling methods to be used in connection with the offer and sale of the Company's Shares, giving special emphasis to the principles of suitability and full disclosure to prospective investors and prohibitions against "free-riding and withholding". 14 Nothing will constitute the Selected Dealers an association or other separate entity or partners with the Underwriter, or with each other, but you will be responsible for your share of any liability or expense based on any claim to the contrary. We shall not be under any liability for or in respect of value, validity or form of the Securities, or the delivery of the certificates for the Securities, or the performance by anyone of any agreement on its part, or the qualification of the Securities for sale under the laws of any jurisdiction, or for or in respect of any other matter relating to this Agreement, except for lack of good faith and for obligations expressly assumed by us or by the Underwriter in this Agreement and no obligation on our part shall be implied herefrom. The foregoing provisions shall not be deemed a waiver of any liability imposed under the 1933 Act. 14. Notices to us should be addressed to us at the offices of Barron Chase Securities, Inc., 7700 West Camino Real, Boca Raton, Florida 33433, Attention: Robert T. Kirk. Notices to you shall be deemed to have been duly given if telephoned, telefaxed or mailed to you at the address to which this Agreement or accompanying Selected Dealer Letter is addressed. 15. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida without giving effect to the choice of law or conflicts of law principles thereof. 16. If you desire to act as a Selected Dealer, please confirm your application by signing and returning to us your confirmation on the duplicate copy of the Selected Dealer Letter enclosed herewith, even though you may have previously advised us thereof by telephone, telefax or letter. Our signature hereon may be by facsimile. Very truly yours, BARRON CHASE SECURITIES, INC. BY: ----------------------------------- Authorized Officer 4 SELECTED DEALER LETTER Robert T. Kirk, President Barron Chase Securities, Inc. 7700 West Camino Real Boca Raton, Florida 33433 We hereby desire to act as a Selected Dealer for Shares of CropKing.com, Incorporated in accordance with the terms and conditions stated in the foregoing Selected Dealers Agreement and this Selected Dealer letter. We hereby acknowledge receipt of the Prospectus referred to in the Selected Dealers Agreement and Selected Dealer letter. We further state that in desiring to act as a Selected Dealer, we have relied upon said Prospectus and upon no other statement whatsoever, whether written or oral. We confirm that we are a dealer actually engaged in the investment banking or securities business and that we are either (i) a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); or (ii) a dealer with its principal place of business located outside the United States, its territories and its possessions and not registered as a broker or dealer under the Securities Exchange Act of 1934, as amended, who hereby agrees not to make any sales within the United States, its territories or its possessions or to persons who are nationals thereof or residents therein. As a member of the NASD, we hereby agree to comply with all of the provisions of NASD Conduct Rules. If we are a foreign Selected Dealer, we agree to comply with the provisions of Rule 2740 of the NASD Conduct Rules, and if we are a foreign dealer and not a member of the NASD, we agree to comply with the NASD's interpretation with respect to free-riding and withholding, and agree to comply, as though we were a member of the NASD, with provisions of Rules 2730 and 2750 of the NASD Conduct Rules, and to comply with Rule 2420 of the NASD Conduct Rules as that Rule applies to non-member foreign dealers. Firm: ----------------------------------- By: ----------------------------------- (Name and Position) Address: ----------------------------------- ----------------------------------- Telephone No.: ----------------------------------- Dated: ________________, 1999 5 EX-4.2 4 EXHIBIT 4.2 Exhibit 4.2 UNDERWRITER'S WARRANT AGREEMENT (the "Underwriter's Warrant Agreement" or "Agreement"), dated as of __________, 1999, between CropKing.com, Incorporated (the "Company") and Barron Chase Securities, Inc. (the "Underwriter"). W I T N E S S E T H: -------------------- WHEREAS, the Underwriter has agreed, pursuant to the underwriting agreement (the "Underwriting Agreement") dated as of the date hereof between the Company and the Underwriter, to act as the Underwriter in connection with the Company's proposed public offering of up to 1,000,000 shares of the Company's Common Stock at $7.00 per share (the "Public Offering"); and WHEREAS, the Company proposes to issue to the Underwriter and/or persons related to the Underwriter as those persons are defined in Rule 2710 of the NASD Conduct Rules (the "Holder"), up to 100,000 warrants ("Common Stock Underwriter Warrants") to purchase up to 100,000 shares of the Company's Common Stock (the "Shares"). The "Common Stock Underwriter Warrants" are also referred to as the "Warrants". The "Shares" are also referred to as the "Warrant Securities"; and WHEREAS, the Warrants to be issued pursuant to this Agreement will be issued on the Closing Date (as such term is defined in the Underwriting Agreement) by the Company to the Holders in consideration for, and as part of the compensation in connection with, the Underwriter acting as Underwriter pursuant to the Underwriting Agreement. NOW, THEREFORE, in consideration of the premises, the payment to the Company of TEN DOLLARS AND NO CENTS ($10.00), the agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Grant and Period. The above recitals are true and correct. The Public Offering has been registered under a Registration Statement on Form SB-2 (File No. 333-48433) and declared effective by the Securities and Exchange Commission (the "SEC" or "Commission") on __________, 1999 (the "Effective Date"). This Agreement, relating to the purchase of the Warrants, is entered into pursuant to the Underwriting Agreement between the Company and the Underwriter in connection with the Public Offering. Pursuant to the Warrants, the Holders are hereby granted the right to purchase from the Company, at any time during the period commencing on the Effective Date and expiring five (5) years thereafter (the "Expiration Time"), up to 100,000 Shares at an initial exercise price (subject to adjustment as provided in 1 Article 8 hereof) of $8.40 per share (120% of the public offering price) (the "Exercise Price" or "Purchase Price"), subject to the terms and conditions of this Agreement. Except as specifically otherwise provided herein, the Shares constituting the Warrant Securities shall bear the same terms and conditions as such securities described under the caption "Description of Securities" in the Registration Statement, and as designated in the Company's Articles of Incorporation and any amendments thereto, and the Holders shall have registration rights under the Securities Act of 1933, as amended (the "Act"), for the Warrants and the Shares, as more fully described in paragraph seven (7) of this Underwriter's Warrant Agreement. 2. Warrant Certificates. The warrant certificates (the "Warrant Certificate") delivered and to be delivered pursuant to this Agreement shall be in the form set forth in the form of Warrant Certificate, attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions, and other variations as required or permitted by this Agreement. 3. Exercise of Warrant. 3.1 Full Exercise. (i) The Holder may effect a cash exercise of the Common Stock Underwriter Warrants by surrendering to the Company the Warrant Certificate, together with a Subscription in the form of Exhibit "A" attached thereto, duly executed by such Holder, at any time prior to the Expiration Time, at the Company's principal office, accompanied by payment in cash or by certified or official bank check payable to the order of the Company in the amount of the aggregate purchase price (the "Aggregate Price"), subject to any adjustments provided for in this Agreement. The aggregate price hereunder for each Holder shall be equal to the exercise price as set forth in Section six (6) hereof multiplied by the number of Shares that are the subject of each Holder's Warrant (as adjusted as hereinafter provided). (ii) The Holder hereof may effect a cashless exercise of the Common Stock Underwriter Warrants by delivering the Warrant Certificate to the Company together with a Subscription in the form of Exhibit "B" attached thereto, duly executed by such Holder, in which case no payment of cash will be required. Upon such cashless exercise, the number of Shares to be purchased by each Holder hereof shall be determined by dividing: (i) the number obtained by multiplying the number of Shares that are the subject of each Holder's Warrant Certificate by the amount, if any, by which the then 2 Market Value (as hereinafter defined) exceeds the Purchase Price; by (ii) the then per share Market Value or Purchase Price, whichever is greater. In no event shall the Company be obligated to issue any fractional securities and, at the time it causes a certificate or certificates to be issued, it shall pay the Holder in lieu of any fractional securities or shares to which such Holder would otherwise be entitled, by the Company check, in an amount equal to such fraction multiplied by the Market Value. The Market Value shall be determined on a per Share basis as of the close of the business day preceding the exercise, which determination shall be made as follows: (a) if the Common Stock is listed for trading on a national or regional stock exchange or is included on the NASDAQ National Market or Small-Cap Market, the average closing sale price quoted on such exchange or the NASDAQ National Market or Small-Cap Market which is published in The Wall Street Journal for the ten (10) trading days immediately preceding the date of exercise, or if no trade of the Common Stock shall have been reported during such period, the last sale price so quoted for the next day prior thereto on which a trade in the Common Stock was so reported; or (b) if the Common Stock is not so listed, admitted to trading or included, the average of the closing highest reported bid and lowest reported ask price as quoted on the National Association of Securities Dealer's OTC Bulletin Board or in the "pink sheets" published by the National Daily Quotation Bureau for the first day immediately preceding the date of exercise on which the Common Stock is traded. 3.2 Partial Exercise. The securities referred to in paragraph 3.1 above also may be exercised from time to time in part by surrendering the Warrant Certificate in the manner specified in Section 3.1 hereof, except that with respect to a cash exercise, the Purchase Price payable shall be equal to the number of securities being purchased hereunder multiplied by the per security Purchase Price, subject to any adjustments provided for in this Agreement. Upon any such partial exercise, the Company, at its expense, will forthwith issue to the Holder hereof a new Warrant Certificate or Warrants of like tenor calling in the aggregate for the number of securities (as constituted as of the date hereof) for which the Warrant Certificate shall not have been exercised, issued in the name of the Holder hereof or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct. 4. Issuance of Certificates. Upon the exercise of the Warrants, the issuance of certificates for the shares of Common Stock and/or other securities shall be made forthwith (and in any event within three (3) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the 3 provisions of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Warrant Certificates and the certificates representing the shares of Common Stock and/or other securities shall be executed on behalf of the Company by the manual or facsimile signature of the then present Chairman or Vice Chairman of the Board of Directors or President or Vice President of the Company, attested to by the manual or facsimile signature of the then present Secretary or Assistant Secretary of the Company. Warrant Certificates shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. 5. Restriction On Transfer of Warrants. The Holder of a Warrant Certificate, by acceptance thereof, covenants and agrees that the Warrants may not be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or in part, for a period of one (1) year from the Effective Date of the Public Offering, except (a) to officers of the Underwriter or to officers and partners of the Selected Dealers participating in the Public Offering; (b) by will; or (c) by operation of law. 6. Exercise Price. 6.1 Initial and Adjusted Exercise Prices. The initial exercise price of each Common Stock Underwriter Warrant shall be $8.40 per share (120% of the public offering price). The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Section 8 hereof. 6.2 Exercise Price. The term "Exercise Price" herein shall mean the initial exercise price or the adjusted exercise price, depending upon the context. 7. Registration Rights. 7.1 Registration Under the Securities Act of 1933. The Warrants and the Warrant Securities (collectively the "Registrable Securities") have been registered under the Securities 4 Act of 1933, as amended (the "Act"). Upon exercise, in part or in whole, of the Warrants, certificates representing the Shares shall bear the following legend in the event there is no current registration statement effective with the Commission at such time as to such securities: The securities represented by this certificate may not be offered or sold except pursuant to (i) an effective registration statement under the Act, (ii) to the extent applicable, Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) an opinion of counsel, if such opinion shall be reasonably satisfactory to counsel to the issuer, that an exemption from registration under such Act and applicable state securities laws is available. 7.2 Piggyback Registration. If, at any time commencing after the Effective Date of the offering and expiring seven (7) years thereafter, the Company prepares and files a post-effective amendment to the Registration Statement, or a new Registration Statement under the Act, or files a Notification on Form 1-A or otherwise registers securities under the Act, or files a similar disclosure document with the Commission (collectively the "Registration Documents") as to any of its securities under the Act (other than under a Registration Statement pursuant to Form S-8), it will give written notice by registered mail, at least thirty (30) days prior to the filing of each such Registration Document, to the Underwriter and to all other Holders of the Registrable Securities of its intention to do so. If the Underwriter and/or other Holders of the Registrable Securities notify the Company within twenty (20) days after receipt of any such notice of its or their desire to include any such Registrable Securities in such proposed Registration Documents, the Company shall afford the Underwriter and such Holders of such Registrable Securities the opportunity to have any Registrable Securities registered under such Registration Documents or any other available Registration Document. Notwithstanding the provisions of this Section 7.2, the Company shall have the right at any time after it shall have given written notice pursuant to this Section 7.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof. 7.3 Demand Registration. (a) At any time commencing one (1) year after the Effective Date of the Public Offering, and expiring four (4) years thereafter, the Holders of Registrable Securities representing more than 50% of such securities at that time outstanding shall have the right (which right is in addition to the registration rights under 5 Section 7.2 hereof), exercisable by written notice to the Company, to have the Company prepare and file with the Commission, on one occasion, a registration statement and/or such other documents, including a prospectus, and/or any other appropriate disclosure document as may be reasonably necessary in the opinion of both counsel for the Company and counsel for the Underwriter and Holders, in order to comply with the provisions of the Act, so as to permit a public offering and sale of their respective Registrable Securities for nine (9) consecutive months (or such longer period of time as permitted by the Act) by such Holders and any other Holders of any of the Registrable Securities who notify the Company within twenty (20) days after receipt of notice by registered or certified mail from the Company of such request. A Demand Registration shall not be counted as a Demand Registration hereunder until such Demand Registration has been declared effective by the SEC and maintained continuously effective for a period of at least nine months or such shorter period when all Registrable Securities included therein have been sold in accordance with such Demand Registration, provided that a Demand Registration shall be counted as a Demand Registration hereunder if the Company ceases its efforts in respect of such Demand Registration at the request of the majority Holders making the demand for a reason other than a material and adverse change in the business, assets, prospects or condition (financial or otherwise) of the Company and its subsidiaries taken as a whole. (b) The Company covenants and agrees to give written notice by registered or certified mail of any registration request under this Section 7.3 by the majority of the Holders to all other registered Holders of any of the Registrable Securities within ten (10) days from the date of the receipt of any such registration request. (c) In addition to the registration rights under Section 7.2 and subsection (a) of this Section 7.3, at any time commencing one (1) year after the Effective Date of the offering, and expiring four (4) years thereafter, the Holders of a majority of the Registrable Securities shall have the right, exercisable by written request to the Company, to have the Company prepare and file, on one occasion, with the Commission a registration statement or any other appropriate disclosure document so as to permit a public offering and sale for nine (9) consecutive months (or such longer period of time as permitted by the Act) by any such Holder of Registrable Securities; provided, however, that the provisions of Section 7.4(b) hereof shall not apply to any such registration request and registration and all costs incident thereto shall be at the expense of the Holder or Holders participating in the offering pro-rata. (d) Any written request by the Holders made pursuant to this Section 7.3 shall: (i) specify the number of Registrable Securities which the Holders intend to offer and sell and the minimum price at which the Holders intend to offer and sell such securities; 6 (ii) state the intention of the Holders to offer such securities for sale; (iii) describe the intended method of distribution of such securities; and (iv) contain an undertaking on the part of the Holders to provide all such information and materials concerning the Holders and take all such action as may be reasonably required to permit the Company to comply with all applicable requirements of the Commission and to obtain acceleration of the effective date of the registration statement. (e) In the event the Company receives from the Holders of any Registrable Securities representing more than 50% of such securities at that time outstanding, a request that the Company effect a registration on Form S-3 with respect to the Registrable Securities and if Form S-3 is available for such offering, the Company shall, as soon as practicable, effect such registration as would permit or facilitate the sale and distribution of the Registrable Securities as are specified in the request. All expenses incurred in connection with a registration requested pursuant to this Section shall be borne by the Company. Registrations effected pursuant to this Section 7.3(e) shall not be counted as registrations pursuant to Section 7.3(a) and 7.3(c) hereof. 7.4 Covenants of the Company With Respect to Registration. In connection with the filing of any Registration Document by the Company, the Company covenants and agrees as follows: (a) The Company shall use its best efforts to file a registration statement within forty-five (45) days of receipt of any demand pursuant to Section 7.3, and shall use its best efforts to have any such registration statement declared effective at the earliest practicable time. The Company will promptly notify each seller of such Registrable Securities and confirm such advice in writing, (i) when such registration statement becomes effective, (ii) when any post-effective amendment to such registration statement becomes effective and (iii) of any request by the SEC for any amendment or supplement to such registration statement or any prospectus relating thereto or for additional information. The Company shall furnish to each seller of such Registrable Securities such number of copies of such registration statement and of each such amendment and supplement thereto (in each case including each preliminary prospectus and summary prospectus) in conformity with the requirements of the Act, and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities by such seller. (b) The Company shall pay all costs (excluding transfer taxes, if any, and fees and expenses of Holder(s)' counsel and 7 the Holder's pro-rata portion of the selling discount or commissions), fees and expenses in connection with all registration statements filed pursuant to Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's legal and accounting fees, printing expenses, blue sky fees and expenses. The Holder(s) will pay all costs, fees and expenses in connection with any registration statement filed pursuant to Section 7.3(c). If the Company shall fail to comply with the provisions of Section 7.3(a), the Company shall, in addition to any other equitable or other relief available to the Holder(s), be liable for any or all special and consequential damages sustained by the Holder(s) requesting registration of their Registrable Securities. (c) The Company shall prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be reasonably necessary to keep such registration statement effective for at least nine months (or such longer period as permitted by the Act), and to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the seller or sellers of Registrable Securities set forth in such registration statement. If at any time the SEC should institute or threaten to institute any proceedings for the purpose of issuing a stop order suspending the effectiveness of any such registration statement, the Company will promptly notify each seller of such Registrable Securities and will use all reasonable efforts to prevent the issuance of any such stop order or to obtain the withdrawal thereof as soon as possible. The Company will use its good faith reasonable efforts and take all reasonably necessary action which may be required in qualifying or registering the Registrable Securities included in a registration statement for offering and sale under the securities or blue sky laws of such states as reasonably are required by the Holder(s), provided that the Company shall not be obligated to execute or file any general consent to service of process or to qualify as a foreign corporation to do business under the laws of any such jurisdiction. The Company shall use its good faith reasonable efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities of the United States or any State thereof as may be reasonably necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities. (d) The Company shall indemnify the Holder(s) of the Registrable Securities to be sold pursuant to any registration statement and each person, if any, who controls such Holders within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, 8 arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriter as contained in the Underwriting Agreement. (e) If requested by the Company prior to the filing of any registration statement covering the Registrable Securities, each of the Holder(s) of the Registrable Securities to be sold pursuant to a registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, its officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from written information furnished by such Holder, or their successors or assigns, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in the Underwriting Agreement pursuant to which the Underwriter has agreed to indemnify the Company, except that the maximum amount which may be recovered from each Holder pursuant to this paragraph or otherwise shall be limited to the amount of net proceeds received by the Holder from the sale of the Registrable Securities. (f) Nothing contained in this Agreement shall be construed as requiring the Holder(s) to exercise their Warrants prior to the filing of any registration statement or the effectiveness thereof. (g) The Company shall not permit the inclusion of any securities other than the Registrable Securities to be included in any registration statement filed pursuant to Section 7.3 hereof without the prior written consent of the Holders of the Registrable Securities representing a majority of such securities. (h) The Company shall furnish to each Holder participating in the offering and to each underwriter, if any, a signed counterpart, addressed to such Holder or underwriter, of (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement), and (ii) a "cold comfort" letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent public accountants who have issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events 9 subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. (i) The Company shall deliver promptly to each Holder participating in the offering and to the managing underwriter copies of all correspondence between the Commission and the Company, its counsel or auditors and all non-privileged memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of the National Association of Securities Dealers, Inc. ("NASD"). Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times and as often as any such Holder shall reasonably request. (j) With respect to a registration statement filed pursuant to Section 7.3, the Company, if requested, shall enter into an underwriting agreement with the managing underwriter, reasonably satisfactory to the Company, selected for such underwriting by Holders holding a majority of the Registrable Securities requested to be included in such underwriting. Such agreement shall be satisfactory in form and substance to the Company, each Holder and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders, if required by the Underwriter to be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities, may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders and their intended methods of distribution. (k) Notwithstanding the provisions of paragraph 7.2 or paragraph 7.3 of this Agreement, the Company shall not be required to effect or cause the registration of Registrable Securities pursuant to paragraph 7.2 or paragraph 7.3 hereof if, within thirty (30) days after its receipt of a request to register such Registrable Securities (i) counsel for the Company delivers an opinion to the Holders requesting registration of such Registrable Securities, in form and substance satisfactory to counsel to such Holder(s), to the effect that the entire number of Registrable 10 Securities proposed to be sold by such Holder(s) may otherwise be sold, in the manner proposed by such Holder(s), without registration under the Securities Act, or (ii) the SEC shall have issued a no-action position, in form and substance satisfactory to counsel for the Holder(s) requesting registration of such Registrable Securities, to the effect that the entire number of Registrable Securities proposed to be sold by such Holder(s) may be sold by it, in the manner proposed by such Holder(s), without registration under the Securities Act. (l) After completion of the Public Offering, the Company shall not, directly or indirectly, enter into any merger, business combination or consolidation in which (a) the Company shall not be the surviving corporation and (b) the stockholders of the Company are to receive, in whole or in part, capital stock or other securities of the surviving corporation, unless the surviving corporation shall, prior to such merger, business combination or consolidation, agree in writing to assume the obligations of the Company under this Agreement, and for that purpose references hereunder to "Registrable Securities" shall be deemed to include the securities which the Holders would be entitled to receive in exchange for Registrable Securities under any such merger, business combination or consolidation, provided that to the extent such securities to be received are convertible into shares of Common Stock of the issuer thereof, then any such shares of Common Stock as are issued or issuable upon conversion of said convertible securities shall also be included within the definition of "Registrable Securities". 8. Adjustments to Exercise Price and Number of Securities. 8.1 Adjustment for Dividends, Subdivisions, Combinations or Reclassifications. In case the Company shall (a) pay a dividend or make a distribution in shares of its capital stock (whether shares of Common Stock or of capital stock of any other class), (b) subdivide its outstanding shares of Common Stock into a greater number of shares, (c) combine its outstanding shares of Common Stock into a smaller number of shares, or (d) issue by reclassification of its shares of Common Stock any shares of capital stock of the Company; then, and in each such case, the per share Exercise Price and the number of Warrant Securities in effect immediately prior to such action shall be adjusted so that the Holder of this Warrant thereafter upon the exercise hereof shall be entitled to receive the number and kind of shares of the Company which such Holder would have owned immediately following such action had this Warrant been exercised immediately prior thereto. An adjustment made pursuant to this Section shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. If, as a result 11 of an adjustment made pursuant to this Section, the Holder of this Warrant shall become entitled to receive shares of two or more classes of capital stock of the Company, the Board of Directors of the Company (whose determination shall be conclusive) shall determine the allocation of the adjusted Exercise Price between or among shares of such class of capital stock. Immediately upon any adjustment of the Exercise Price pursuant to this Section, the Company shall send written notice thereof to the Holder of Warrant Certificates (by first class mail, postage prepaid), which notice shall state the Exercise Price resulting from such adjustment, and any increase or decrease in the number of Warrant Securities to be acquired upon exercise of the Warrants, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 8.2 Adjustment For Reorganization, Merger or Consolidation. In case of any reorganization of the Company or consolidation of the Company with, or merger of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental Warrant Agreement providing that the Holder of each Warrant then outstanding or to be outstanding shall have the right thereafter (until the expiration of such Warrant) to receive, upon exercise of such warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or merger, by a holder of the number of shares of Common Stock of the Company for which such warrant might have been exercised immediately prior to such reorganization, consolidation, merger, conveyance, sale or transfer. Such supplemental Warrant Agreement shall provide for adjustments which shall be identical to the adjustments provided in Section 8 and such registration rights and other rights as provided in this Agreement. The Company shall not effect any such consolidation, merger, or similar transaction as contemplated by this paragraph, unless prior to or simultaneously with the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing, receiving, or leasing such assets or other appropriate corporation or entity shall assume, by written instrument executed and delivered to the Holders, the obligation to deliver to the Holders, such shares of stock, securities, or assets as, in accordance with the foregoing provisions, such holders may be entitled to purchase, and to perform the other obligations of the Company under this Agreement. The above provision of this Subsection shall similarly apply to successive consolidations or successively whenever any event listed above shall occur. 12 8.3 Dividends and Other Distributions. In the event that the Company shall at any time prior to the exercise of all of the Warrants distribute to its stockholders any assets, property, rights, evidences of indebtedness, securities (other than a distribution made as a cash dividend payable out of earnings or out of any earned surplus legally available for dividends under the laws of the jurisdictions of incorporation of the Company), whether issued by the Company or by another, the Holders of the unexercised Warrants shall thereafter be entitled, in addition to the shares of Common Stock or other securities and property receivable upon the exercise thereof, to receive, upon the exercise of such Warrants, the same property, assets, rights, evidences of indebtedness, securities or any other thing of value that they would have been entitled to receive at the time of such distribution as if the Warrants had been exercised immediately prior to such distribution. At the time of any such distribution, the Company shall make appropriate reserves to ensure the timely performance of the provisions of this subsection or an adjustment to the Exercise Price, which shall be effective as of the day following the record date for such distribution. 8.4 Adjustment in Number of Securities. Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 8, the number of securities issuable upon the exercise of each Warrant shall be adjusted to the nearest full amount by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of securities issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 8.5 No Adjustment of Exercise Price in Certain Cases. No adjustment of the Exercise Price shall be made if the amount of said adjustment shall be less than 5 cents ($.05) per Share, provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least 5 cents ($.05) per Share. 8.6 Accountant's Certificate of Adjustment. In each case of an adjustment or readjustment of the Exercise Price or the number of any securities issuable upon exercise of the Warrants, the Company, at its expense, shall cause independent certified public accountants of recognized standing selected by the Company (who may be the independent certified public accountants then auditing the books of the Company) to compute such adjustment or readjustment in accordance herewith and prepare a certificate 13 showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to any Holder of the Warrants at the Holders' address as shown on the Company's books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based including, but not limited to, a statement of (i) the Exercise Price at the time in effect, and (ii) the number of additional or fewer securities and the type and amount, if any, of other property which at the time would be receivable upon exercise of the Warrants. 9. Exchange and Replacement of Warrant Certificates. Each Warrant Certificate is exchangeable without expense, upon the surrender thereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of securities in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrants, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 10. Elimination of Fractional Interest. The Company shall not be required to issue certificates representing fractions of shares of Common Stock upon the exercise of the Warrants, nor shall it be required to issue script or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests may be eliminated, at the Company's option, by rounding any fraction up to the nearest whole number of shares of Common Stock or other securities, properties or rights, or in lieu thereof paying cash equal to such fractional interest multiplied by the current value of a share of Common Stock. 11. Reservation, Validity and Listing. The Company covenants and agrees that during the exercise period, the Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants, such number of shares of Common Stock or other securities, properties or rights as shall be issuable upon the exercise under this Warrant Certificate. The Company covenants and agrees that, upon exercise 14 of the Warrants, and payment of the Exercise Price therefor, all shares of Common Stock and other securities issuable upon such exercise shall be duly authorized, validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder. As long as the Warrants shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock issuable upon the exercise of the Warrants to be listed and quoted (subject to official notice of issuance) on all securities exchanges and systems on which the Common Stock are then listed and/or quoted, including Nasdaq. 12. Notices to Warrant Holders. Nothing contained in this Agreement shall be construed as conferring upon the Holders of the Warrants the right to vote or to consent or to receive notice as a stockholder in respect of any meetings of stockholders for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date of the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notices shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend, or 15 the issuance of any convertible or exchangeable securities, or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 13. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly given when sent by (i) facsimile; and (ii) delivered personally or by overnight courier or mailed by registered or certified mail, return receipt requested: (a) If to the registered Holder of any of the Registrable Securities, to the address of such Holder as shown on the books of the Company; or (b) If to the Company, to the address set forth below or to such other address as the Company may designate by notice to the Holders. Daniel J. Brentlinger, President CropKing.com, Incorporated 5050 Greenwich Road Seville, Ohio 44273 With copies to: Thomas T. Prousalis, Jr., Esq. 1919 Pennsylvania Avenue, N.W. Suite 200 Washington, D.C. 20006 and David A. Carter, P.A. 2300 Glades Road, Suite 210W Boca Raton, Florida 33431 14. Entire Agreement: Modification. This Agreement (and the Underwriting Agreement to the extent applicable) contain the entire understanding between the parties hereto with respect to the subject matter hereof, and the terms and provisions of this Agreement may not be modified, waived or amended except in a writing executed by the Company and the Holders of at least a majority of Registrable Securities (based on underlying numbers of shares of Common Stock). Notice of any modification, waiver or amendment shall be promptly provided to any Holder not consenting to such modification, waiver or amendment. 15. Successors. All the covenants and provisions of this Agreement shall be 16 binding upon and inure to the benefit of the Company, the Holders and their respective successors and assigns hereunder. 16. Termination. This Agreement shall terminate at the earlier of (i) the public sale of all of the Registrable Securities, or (ii) at the close of business on __________, 2006. Notwithstanding the foregoing, the indemnification provisions of Section 7 shall survive such termination. 17. Governing Law; Submission to Jurisdiction. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Florida and for all purposes shall be construed in accordance with the laws of said State without giving effect to the rules of said State governing the conflicts of laws. The Company, the Underwriter and the Holders hereby agree that any action, proceeding or claim arising out of, or relating in any way to, this Agreement shall be brought and enforced in a federal or state court of competent jurisdiction with venue only in the Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or the United States District Court for the Southern District of Florida, West Palm Beach Division, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company, the Underwriter and the Holders hereby irrevocably waive any objection to such exclusive jurisdiction or inconvenient forum. A party to this Agreement named as a Defendant in any action brought in connection with this Agreement in any court outside of the above named designated county or district shall have the right to have the venue of said action changed to the above designated county or district or, if necessary, have the case dismissed, requiring the other party to refile such action in an appropriate court in the above designated county or federal district. 18. Severability. If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement. 19. Captions. The caption headings of the Sections of this Agreement are for convenience of reference only and are not intended, nor should they be construed as, a part of this Agreement and shall be given no substantive effect. 20. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any 17 person or corporation other than the Company and the Underwriter and any other registered Holder(s) of the Warrant Certificates or Registrable Securities any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company and the Underwriter and any other Holder(s) of the Warrant Certificates or Registrable Securities. 21. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. IN WITNESS HEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. CROPKING.COM, INCORPORATED BY: ------------------------------------- Daniel J. Brentlinger President Attest: - -------------------------------------- John Campanella, Secretary BARRON CHASE SECURITIES, INC. By: ------------------------------------- Robert Kirk, President 18 CROPKING.COM, INCORPORATED WARRANT CERTIFICATE THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE ON OR BEFORE 5:30 P.M, EASTERN TIME ON ___________, 2004 NO. W-________ ______Common Stock Underwriter Warrants This Warrant Certificate certifies that , or registered assigns, is the registered holder of Common Stock Underwriter Warrants of CROPKING.COM, INCORPORATED (the "Company"). Each Common Stock Underwriter Warrant permits the Holder hereof to purchase initially, at any time from __________, 1999 ("Purchase Date") until 5:30 p.m. Eastern Time on __________, 2004 ("Expiration Date"), one (1) share of the Company's Common Stock at the initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of $8.40 per share (120% of the public offering price). Any exercise of Common Stock Underwriter Warrants shall be effected by surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, but subject to the conditions set forth herein and in the Underwriter's Warrant Agreement dated as of ________, 1999, between the Company and Barron Chase Securities, Inc. (the "Underwriter's Warrant Agreement"). Payment of the Exercise Price shall be made by certified check or official bank check in New York Clearing House funds payable to the order of the Company in the event there is no cashless exercise pursuant to Section 3.1(ii) of the Underwriter's Warrant Agreement. The Common Stock Underwriter Warrants are also 19 referred to as "Warrants". No Warrant may be exercised after 5:30 p.m., Eastern Time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, hereby shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Underwriter's Warrant Agreement, which Underwriter's Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation or rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. The Underwriter's Warrant Agreement provides that upon the occurrence of certain events, the Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Underwriter's Warrant Agreement. Upon due presentment for registration or transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Underwriter's Warrant Agreement, without any charge except for any tax or other governmental charge imposed in connection with such transfer. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such number of unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Underwriter's Warrant Agreement shall have the meanings assigned to them in the Underwriter's Warrant Agreement. 20 IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed. Dated as of __________, 1999 CROPKING.COM, INCORPORATED BY: -------------------------------------- Daniel J. Brentlinger President Attest: - ------------------------------------ John Campanella, Secretary 21 EXHIBIT "A" FORM OF SUBSCRIPTION (CASH EXERCISE) (To be signed only upon exercise of Warrant) TO: CropKing, Incorporated 5050 Greenwich Road Seville, Ohio 44273 The undersigned, the Holder of Warrant Certificate number (the "Warrant"), representing ___________ Common Stock Underwriter Warrants of CROPKING.COM, INCORPORATED (the "Company"), which Warrant Certificate is being delivered herewith, hereby irrevocably elects to exercise the purchase right provided by the Warrant Certificate for, and to purchase thereunder, ______________ Shares of the Company, and herewith makes payment of $______________ therefor, and requests that the certificates for such securities be issued in the name of, and delivered to, ____________________________, whose address is __________________________________________, all in accordance with the Underwriter's Warrant Agreement and the Warrant Certificate. Dated:__________________ -------------------------------------------- (Signature must conform in all respects to name of Holder as specified on the face of the Warrant Certificate) -------------------------------------------- -------------------------------------------- (Address) -------------------------------------------- (Social Security Number or Tax Identification Number) 22 EXHIBIT "B" FORM OF SUBSCRIPTION (CASHLESS EXERCISE) TO: CropKing, Incorporated 5050 Greenwich Road Seville, Ohio 44273 The undersigned, the Holder of Warrant Certificate number ___ (the "Warrant"), representing ________________ Common Stock Underwriter Warrants of CROPKING.COM, INCORPORATED (the "Company"), which Warrant is being delivered herewith, hereby irrevocably elects the cashless exercise of the purchase right provided by the Underwriter's Warrant Agreement and the Warrant Certificate for, and to purchase thereunder, Shares of the Company in accordance with the formula provided at Section three (3) of the Underwriter's Warrant Agreement. The undersigned requests that the certificates for such Shares be issued in the name of, and delivered to, ________________________________, whose address is, ________________________________________________, all in accordance with the Warrant Certificate. Dated:__________________ -------------------------------------------- (Signature must conform in all respects to name of Holder as specified on the face of the Warrant Certificate) -------------------------------------------- -------------------------------------------- (Address) -------------------------------------------- (Social Security Number or Tax Identification Number) 23 (FORM OF ASSIGNMENT) (To be exercised by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED _____________________________________________________________ hereby sells, assigns and transfers unto (Print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _____________________________ Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated: Signature: - -------------------------------- ---------------------------------------- (Signature must conform in all respects to name of holder as specified on the fact of the Warrant Certificate) ---------------------------------------- (Insert Social Security or Other Identifying Number of Assignee) 24 -----END PRIVACY-ENHANCED MESSAGE-----