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As filed with the Securities and Exchange Commission on April 25, 2000
Reg. No. ________
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
VILLAGEWORLD.COM, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
New York ____ 11-3137508
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Code Number) Identification No.)
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620 Johnson Avenue, Bohemia, New York 11716 (631) 218-0700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Peter Keenan, President
VILLAGEWORLD.COM, INC.
620 Johnson Avenue, Bohemia, New York 11716 (631) 218-0700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Gabriel Kaszovitz, Esq.
Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP
750 Lexington Avenue, New York, NY 10022-1200
(212) 888-8200 Fax: (212) 888-7776
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration number of the earlier effective registration statement for the
same offering. [ ] ______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Per Aggregate Amount of
Securities to be Registered be Registered Share(1) Offering Price(1) Registration Fee
--------------------------- ------------- ------------------ ---------------- ----------------
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Common Stock, 3,879,384
par value $.001 per share......... Shares(2) $1.41 $5,469,931 $1,445
3,879,384
Total.......................... Shares(2) $1.41 $5,469,931 $1,445
</TABLE>
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(1) Estimated solely for the purpose of computing the amount of
the registration fee pursuant to Rule 457.
(2) Includes 862,624 shares of common stock issuable upon conversion of
11,900 shares of our outstanding Class C Cumulative Convertible
Preferred Stock (the "Class C preferred stock ") owned by selling
shareholders, calculated as if all of such Class C preferred stock
were converted to common stock on May 1, 2000, assuming a conversion
rate of $1.404, and such additional shares of common stock as may be
issuable upon conversion of the Class C preferred stock if the
conversion rate changes so that more shares of common stock are
issuable as a result. Includes 1,020,168 shares of common stock that
was issued upon conversion of 3,900 shares of our Class C preferred
stock. Also includes 823,667 shares of common stock issuable upon the
exercise of 152,000 warrants exercisable at $.01 per share and
671,667 warrants exercisable at $1.00 per share and 1,172,922 shares
of common stock.
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 OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
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SUBJECT TO COMPLETION, DATED MAY 4, 2000
VILLAGEWORLD.COM, INC.
3,879,384 SHARES OF COMMON STOCK
This prospectus covers 3,879,384 shares of our common stock, par
value $.001 per share, for sale by our shareholders. Our common stock trades on
the over-the-counter ("OTC") Bulletin Board under the symbol "VILW". On May 1,
2000, the last sale price of our common stock on the OTC Bulletin Board was
$1.50.
------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS." BEGINNING ON PAGE 7, FOR
INFORMATION THAT SHOULD BE CONSIDERED IN DETERMINING WHETHER TO
PURCHASE ANY OF THE SHARES.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is ________, 2000.
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YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM
THAT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR
IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE SUCH
OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF
DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK. IN THIS
PROSPECTUS, REFERENCES TO THE "COMPANY," "VILLAGEWORLD.COM," "WE," "US" AND
"OUR" REFER TO VILLAGEWORLD.COM, INC.
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TABLE OF CONTENTS
Page
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Prospectus Summary................................................................................................ 1
Risk Factors...................................................................................................... 3
Disclosure Regarding Forward Looking Statements................................................................... 8
Use of Proceeds................................................................................................... 9
Price Range of Our Common Stock................................................................................... 9
Capitalization....................................................................................................10
Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................................................11
Business..........................................................................................................15
Management........................................................................................................23
Principal Shareholders............................................................................................24
Certain Relationships and Related Transactions....................................................................25
Selling Shareholders..............................................................................................27
Description of Securities.........................................................................................28
Plan of Distribution..............................................................................................33
Legal Matters.....................................................................................................34
Experts...........................................................................................................35
Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................................................................................35
Where You Can Find More Information...............................................................................36
Index to Consolidated Financial Statements.......................................................................F-1
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PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all the
information that may be important to you. You should read the entire prospectus
especially "Risk Factors."
VILLAGEWORLD.COM, INC.
We are an internet service provider and as such provide our
subscribers with access to the world wide web in the same manner as do many
other internet service providers, the largest and most well known of which is
America On Line. We also sell and install network systems consisting of both
computer hardware and software. We have so far installed hundreds of network
systems, including sixty for school districts, ranging in cost from several
thousand dollars to over $5,000,000. We derive the major portion of our
revenues from such installations.
Although there are many internet service providers in the United
States, we believe that we have created a niche for ourselves in this industry
by providing directories and other information that is of special interest to a
group of persons who have a common affiliation. To date, the common
affiliations of our subscribers are based on ten school districts and one
university, all of which are located on Long Island, New York. Our target
market of potential subscribers for each network system we install for a school
district or educational institution are the schools themselves and particularly
the students, parents, teachers and staff of the schools in the school district
or of the educational institution. Our appeal to those persons is the
availability of directories of teachers, students and administrative staff
allowing more readily available communication with and among such persons
concerning homework assignments and other aspects of their school's activities,
and of other directories such as school calendars. We also prepare with the
guidance of those school districts and educational institutions and make
available to our subscribers a large volume of source material for use by the
students in their studies and for their homework assignments. Such material is
more readily available from us than it would be from other internet service
providers because we store such information on our systems where it can more
easily be found by the students and other subscribers.
We now have approximately 2,000 subscribers to our internet system.
Our major objective is to increase the number of persons who subscribe to our
internet service. We recently entered into an agreement with a large church
association for sharing of subscription revenues received by paying customers
for a network under the church association's name Ecofaith.com,Inc. In addition
to access to the world wide web, we will provide information of special
interest to the congregants of that association's member churches who subscribe
to such network.
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We also sell advertising on each of our school district or
educational institution based networks to local merchants in that community. We
also provide web hosting services in which we assist those merchants or others
to establish and maintain a web site at which they provide information about
their products, services and themselves.
We were incorporated in New York on December 14, 1992 under the
name Big City Bagels, Inc. On July 1, 1999 Villagenet Inc. ("Village Net")
completed its merger with our predecessor, Big City Bagels, Inc. and on December
30, 1999 we changed our name to VillageWorld.com, Inc. Our principal executive
offices are located at 620 Johnson Avenue, Bohemia, New York 11716. Our phone
number is (631) 218-0700 and our fax number is (631) 218-0769.
THE OFFERING
Number of Shares of
Common Stock Outstanding 89,317,933 shares(1)
Common Stock Offered
by Selling Shareholders 3,879,384 shares(2)
Use of Proceeds We will not receive any proceeds from the sale
of the shares of common stock other than
$673,187 we might receive upon exercise of
823,667 outstanding warrants.
Risk Factors For a discussion of certain factors you should
consider before buying shares of our
common stock. See "Risk Factors."
OTC Bulletin Board Symbol VILW
- -----
(1) Includes 70,124,976 shares of our common stock issuable upon
conversion of 508,152 shares of our outstanding Class B preferred
stock. Does not include our common stock issuable upon conversion of
our Class C preferred stock. See "Description of Securities - Class
C 6% Cumulative Convertible Preferred Stock" for the calculation of
the number of shares of our common stock issuable upon the
conversion of one share of our Class C preferred stock. Also does
not include 1,348,917 shares issuable upon exercise of outstanding
warrants at exercise prices ranging from $.01 to $25 per share and
does not include 143,780 shares issuable upon exercise of
outstanding options at exercise prices ranging from $0.9375 to
$42.50 per share.
(2) Includes 862,624 shares of our common stock issuable upon conversion
of outstanding shares of our Class C 6% preferred stock, if all of the
11,900 shares of our Class C
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preferred stock outstanding had been converted into our common stock on
May 1, 2000. Includes 1,020,168 shares of common stock that was issued
upon conversion of 3,900 shares of our Class C preferred stock. Also
includes 823,667 shares of our common stock issuable upon the exercise of
certain outstanding warrants at exercise prices ranging from $0.01 per
share to $1.00 per share and 1,172,922 shares of common stock.
RISK FACTORS
The shares offered hereby are speculative and involve a high degree
of risk. Before making an investment decision, prospective investors should
carefully consider the following risk factors, in addition to other information
in this Memorandum.
1. IF OUR SUPPLIERS AND TELECOMMUNICATIONS CARRIERS DO NOT CONTINUE
TO SELL OR LEASE THEIR PRODUCTS TO US, WE WILL BE UNABLE TO SUPPLY OUR SERVICES
TO OUR CUSTOMERS.
The growth of internet use and of the network infrastructure
used by internet service providers such as us, will probably place a
significant demand on our suppliers and telecommunications carriers. We cannot
be certain that our suppliers and telecommunications carriers will continue to
sell or lease their products and services to us at commercially reasonable
prices or at all. Difficulties in developing alternative sources of supply, if
required, could adversely affect our business, financial condition and
operating results. Moreover, failure of our telecommunications providers to
promptly provide the data communications capacity required by us could cause
interruptions in our ability to provide access services to our customers, which
may also adversely affect our business, financial condition and operating
results.
2. IF WE FAIL TO CONTINUOUSLY UPGRADE OUR NETWORK INFRASTRUCTURE,
WE WILL PROBABLY LOSE OUR SUBSCRIBERS.
We may be unable to continue to upgrade our network
infrastructure to provide service to more subscribers. Our network
infrastructure is composed of a complex system of routers, switches,
transmission lines and other hardware used to provide internet access and other
services. The future success of our business will depend on the capacity,
reliability and security of this network infrastructure. We will have to
continue to upgrade and adapt our network infrastructure as the number of our
customers and the amount and type of information they wish to transmit over the
internet increases. This development of our network infrastructure will require
substantial financial, operational and managerial resources. We cannot be
certain that we will be able to upgrade or adapt our network infrastructure to
meet additional demand or changing customer requirements on a timely basis and
at a commercially reasonable cost, or at all. If we fail to upgrade our network
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infrastructure on a timely basis or adapt it to an expanding customer base,
changing customer requirements or evolving industry standards, our business
could be adversely affected.
3. IF ALL OF OUR NETWORK SYSTEMS FAIL TO OPERATE IT WOULD PREVENT
US FROM SUPPLYING SERVICES TO OUR SUBSCRIBERS AND COULD RESULT IN SUBSCRIBER
CANCELLATIONS.
Disruptions of our services due to system failure could result
in subscriber cancellations. A significant portion of our computer equipment,
including critical equipment dedicated to our internet access services, is
presently located at three separate locations: 620 Johnson Avenue, Bohemia, New
York; 60 Hudson Street, New York, New York; and Islip Avenue, Brentwood, New
York. The occurrence of a natural disaster, the failure of all three network
operation centers, or the occurrence of other unanticipated problems at our
network operating centers could cause interruptions in our services. Extensive
or multiple interruptions in providing customers with internet access and other
services are a primary reason for customer decisions to cancel the use of
internet access services. Accordingly, any disruption of our services due to
system failure could have an adverse effect on our business and financial
results.
4. IF WE DO NOT ADAPT TO TECHNOLOGY TRENDS AND EVOLVING INDUSTRY
STANDARDS WE WILL NOT BE ABLE TO REMAIN COMPETITIVE.
The internet market is characterized by rapid changes due to
technological innovation, evolving industry standards, changes in customer
needs and frequent new service and product introductions. New services and
products based on new technologies or new industry standards expose us to risks
of equipment obsolescence. We will need to use leading technologies effectively,
continue to develop our technical expertise and enhance our existing services
on a timely basis to compete successfully in the internet access industry. We
cannot be certain that we will be successful in these efforts.
We are also at risk due to fundamental changes in the way that
internet access may be delivered in the future. Currently, internet access
services are accessed primarily by computers connected by telephone lines.
Recently, several companies began offering continuous high speed internet
access through the use of cable modems. These cable modems have the ability to
transmit data at substantially faster speeds than the modems currently used by
our customers over phone lines. As the internet becomes accessible by broad
segments of the U.S. population through these cable modems and other consumer
electronic devices, or as customer requirements change the means by which
internet access is provided, we will have to modify our technologies to
accommodate these developments and remain competitive. The continued
development and implementation of these technological advances may require
substantial time and expense, and we cannot be certain that we will succeed in
adapting our internet access services business to alternative access devices
and conduits. Our failure to
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respond in a timely and effective manner to these and other new and evolving
technologies could have a negative impact on our business, financial condition
and operating results.
5. IF INTERNET USAGE DOES NOT CONTINUE TO GROW, WE MAY NOT BE ABLE
TO SECURE ENOUGH SUBSCRIBERS TO MAKE OUR INTERNET BUSINESS VIABLE.
Widespread use of the internet is a relatively recent
phenomenon. Our future success depends on continued growth in the use of the
internet and the continued development of the internet as a viable commercial
medium. We cannot be certain that Internet usage will continue to grow at or
above its historical rates or that extensive internet content will continue to
be developed or accessible for free or at nominal cost to users. If internet
use does not continue to grow or users do not accept our products and services,
our business, financial condition and operating results could be adversely
affected.
6. MANY OF OUR COMPETITORS ARE LARGER AND HAVE GREATER FINANCIAL
AND OTHER RESOURCES THAN WE DO AND THOSE ADVANTAGES COULD MAKE IT DIFFICULT FOR
US TO COMPETE WITH THEM.
There are many companies that provide the same network
installation services that we offer. There are also many internet service
providers. Many of those and other potential competitors are well established,
are much larger than we are and have substantially greater financial and other
resources than we have. Our success will depend on our ability to establish and
maintain a competitive position in these marketplaces, which we may not be able
to do.
7. FUTURE STATE AND FEDERAL GOVERNMENT REGULATION COULD PROHIBIT US
FROM CONDUCTING OUR BUSINESS IN THE MANNER IN WHICH WE ARE CONDUCTING IT NOW.
We provide internet access and other services, in part,
using telecommunications services provided by carriers that are subject to
the jurisdiction of state and federal regulators. Due to the increasing
popularity and use of the internet, state and federal regulators may adopt
additional laws and regulations relating to content, user privacy, pricing,
copyright infringement and other matters. We cannot predict the impact, if any,
that future regulation or regulatory changes may have on our business.
8. THE LAW GOVERNING OUR LIABILITY FOR MATERIAL CARRIED OVER THE
INTERNET IS UNSETTLED.
If we are held liable for information carried over the internet
to our subscribers we might incur significant costs in defending against and
paying claims. The law relating to the liability of internet services providers
for information carried on or
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disseminated through their networks is unsettled. As the law in this area
develops, we may be required to expend substantial resources or discontinue
certain services to reduce our exposure to potential liability. Any costs that
we incur as a result of contesting any asserted claims or the consequent
imposition of liability could adversely affect our business and operating
results.
9. WE WILL NEED TO RAISE FUNDS IN THE FUTURE FOR OUR OPERATIONS AND
IF WE ARE UNABLE TO SECURE SUCH FINANCING, WE MAY NOT BE ABLE TO EXPAND OUR
BUSINESS AND MAY EVEN HAVE TO CURTAIL OUR OPERATIONS.
We will be required to raise additional funds in the future. If
additional funds are raised through the issuance of equity securities, there
may be a significant dilution in the value of our outstanding common stock.
Furthermore, there can be no assurance that additional financing will be
available when we need it or that if available, such financing will be on terms
favorable to us. If such financing is not available when we need it, or is not
available on acceptable terms, we may be unable to develop or enhance our
services, take advantage of business opportunities or respond to competitive
pressures, any of which could have a material adverse effect on our business,
our financial condition and the results of our operations.
10. THE MARKET PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE IN THE
PAST AND COULD BE VOLATILE IN THE FUTURE.
Market prices of the securities of internet companies are often
volatile. Many factors may have an impact on the market price of our common
stock, including fluctuations in our financial results, the actions of our
customers and competitors, new regulations and other factors affecting the sale
of the common stock into the public market. In addition, the stock market has,
from time to time, experienced significant price and volume fluctuations that
may be unrelated to the operating performance of particular companies.
11. THE APPLICATION OF THE "PENNY STOCK" REGULATIONS COULD
ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.
The SEC has adopted rules that regulate broker/dealer
practices in connection with transactions in "penny stocks." Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on
Nasdaq, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system). As of
the date of this prospectus, our common stock is now a "penny stock". Prior to
a transaction in a penny stock, a broker/dealer is required to:
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- deliver a standardized risk disclosure document
prepared by the SEC that provides information about
penny stocks and the nature and level of risks in the
penny stock market;
- provide the customer with current bid and offer quotations for
the penny stock;
- explain the compensation of the broker/dealer and its salesperson
in the transaction;
- provide monthly account statements showing the market value of
each penny stock held in the customer's account; and
- make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction.
These requirements may have the effect of reducing the level of trading activity
of the market for our common stock.
12. OUR OUTSTANDING CONVERTIBLE PREFERRED STOCK AND OPTIONS AND
WARRANTS MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.
3,879,384 shares are covered by this prospectus, of which 862,624
shares are issuable upon conversion of our outstanding Class C preferred stock,
and 823,667 shares that are issuable upon exercise of outstanding warrants at
exercise prices ranging from $.01 per share to $1.00 per share, will be eligible
for immediate sale into the public securities markets immediately after such
preferred stock is converted and after such warrants are exercised. In addition,
70,124,976 shares that are issuable upon conversion of our Class B preferred
stock and 669,030 shares issuable upon exercise of other outstanding warrants
and options exercisable at prices ranging from $0.9375 to $42.50 per share, are
eligible for sale in the public securities market either immediately or one or
two years after such preferred shares are converted or after such warrants and
options are exercised. We cannot make any prediction as to the effect, if any,
that sales of those shares or the availability of those shares for sale, will
have on the market prices of our common stock prevailing from time to time.
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13. SINCE WE HAVE NOT PAID ANY DIVIDENDS ON OUR COMMON STOCK AND DO
NOT INTEND TO DO SO IN THE FORESEEABLE FUTURE, A PURCHASER IN THIS OFFERING WILL
ONLY REALIZE AN ECONOMIC GAIN ON HIS INVESTMENT FROM AN APPRECIATION, IF ANY, IN
THE MARKET PRICE OF OUR COMMON STOCK.
We have never paid, and have no intentions in the foreseeable
future to pay, any dividends on our common stock. Therefore, an investor in
this offering, in all likelihood, will only realize a profit on his investment
if the market price of our common stock increases in value.
14. THE CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK WILL
DISCOURAGE PURCHASES OF OUR COMMON STOCK BY PERSONS WHO MIGHT OTHERWISE SEEK TO
GAIN CONTROL OF OUR COMPANY.
Our executive officers and directors and affiliated persons
will, if they convert all of their Class B preferred stock, beneficially own
73,327,178 shares of our outstanding common stock which would then represent
approximately 82.1% of the total of our outstanding common stock before
conversion of any of our Class C preferred stock and before the exercise of any
outstanding warrants and options. Accordingly, such persons will be able to
exercise substantial control in the election of our company's directors,
increases in our authorized capital or the dissolution or merger of our company,
or sale of our assets, and otherwise influence the control of our affairs. Such
substantial control by these persons could serve to impede or prevent a change
of control of our company.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. For example, statements included in this
prospectus regarding our financial position, business strategy and other plans
and objectives for future operations, and assumptions and predictions about
future demand for our services and products, supply, costs, marketing and
pricing factors are all forward-looking statements. When we use words like
"intend," "anticipate," "believe," "estimate," "plan" or "expect," we are
making forward- looking statements. We believe that the assumptions and
expectations reflected in such forward-looking statements are reasonable, based
on information available to us on the date of this prospectus, but we cannot
assure you that these assumptions and expectations will prove to have been
correct or that we will take any action that we may presently be planning. We
have disclosed certain important factors that could cause our actual results to
differ materially from our current expectations under"Risk Factors" and
elsewhere in this prospectus. You should understand that forward-looking
statements made in connection with this offering are necessarily qualified by
these factors. We are not undertaking to publicly update or revise any
forward-
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looking statement if we obtain new information or upon the occurrence of
future events or otherwise.
USE OF PROCEEDS
The shares of common stock covered by this prospectus are to be
sold by our shareholders and other than $673,187 we might receive upon exercise
of 823,667 warrants, we will not receive any proceeds from such sales.
PRICE RANGE OF OUR COMMON STOCK
MARKET INFORMATION
Our common stock had been quoted under the symbol VILN on the OTC
Bulletin Board. On January 6, 2000 we changed our symbol to VILW to reflect our
name change from Big City Bagels, Inc. to VillageWorld.com, Inc. Our Class A
Warrants trade under the symbol "VILWW."
The following table sets forth the range of high and low bid
quotations of our common stock, as reported on the OTC bulletin board, for the
periods indicated. The prices represent inter-dealer quotations, which do not
include retail markups, markdowns or commissions, and may not represent actual
transactions.
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Common Stock Warrants(2)
------------ ----------
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
1998(1)
- -------
First Quarter 7-1/2 3-3/4 3/8 1/16
Second Quarter 3-3/4 1-1/4 5/32 1/16
Third Quarter 3/8 1/16 1/32
Fourth Quarter 3/8 1/8 0 0
1999
- ----
First Quarter 2-31/32 3/16 .01 .001
Second Quarter 2-13/32 7-8 0 0
Third Quarter 1-23/32 21/32 .001 .001
Fourth Quarter 7/8 5/8 0 0
2000
- ----
First Quarter 4-3/8 7/16 0 0
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- -----
(1) The prices for our common stock have been adjusted to reflect our
one-for-five reverse stock split effected on June 24, 1998.
(2) Our Class A warrants were delisted from Nasdaq on November 18, 1998
because there were no active market makers registered to trade our
Class A warrants.
On May 1, 2000, the last sale price for our common stock as reported
by the OTC Bulletin Board was $1.50.
SECURITY HOLDERS
At May 1, 2000 there were 19,192,957 shares of our common stock
outstanding which were held by approximately 85 stockholders of record. We
believe that as of May 1, 2000 there were in excess of 500 beneficial owners of
our common stock, most of whose shares are held in "street name." This figure of
outstanding shares does not include 70,124,976 shares of our common stock
issuable upon conversion (at a rate of 138-to-1) of 508,152 outstanding shares
of our Class B preferred stock and does not include our common stock issuable
upon conversion of our Class C preferred stock. See "Description of Securities"
for the calculation of the number of shares of our common stock which are
issuable upon conversion of our Class C preferred stock. Such figure of
outstanding shares also does not include 1,492,697 shares of common stock
issuable upon the exercise of outstanding warrants and options.
DIVIDEND POLICY
We have not paid, and our board of directors does not presently
intend to declare, any dividends on our common stock in the foreseeable future.
We anticipate that all of our earnings and other resources, if any, will be
retained by us for investment in our business. Even if we wanted to pay any
dividends, the designation of preferences for our Class C preferred stock
prohibits payment of dividends on our common stock so long as the dividends on
such preferred stock are unpaid. In the future we expect to accumulate, rather
than pay, the dividends on our outstanding preferred stock. In addition, we may
incur indebtedness in the future, the terms of which may prohibit or effectively
restrict dividend payments.
10
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
financial statements and notes thereto. This discussion may be deemed to include
forward looking statements.
MERGER
On July 1, 1999, Village Net, Inc. ("VillageNet") completed its
merger with our predecessor Big City Bagels, Inc. ("BCB") and Intelligent
Computer Solutions, Inc. ("ICS"). For accounting purposes, the transaction was
accounted for as a reverse acquisition where BCB and ICS are treated as the
acquired companies and VillageNet as the acquiring company, as the shareholders
of VillageNet obtained a majority of the shares of the combined company upon
completion of the merger. Accordingly, VillageNet's financial statements are the
historical financial statements presented. BCB and ICS are included in the
financial statements from the date of the merger, although BCB's discontinued
operations through December 31, 1999 were accrued at June 30, 1999 in accordance
with generally accepted accounting principles. The following discussions relate
to the historical financial results of VillageNet for all periods and include
the results of ICS beginning July 1, 1999.
VillageNet, founded in June 1995, is a community-oriented internet
service provider specializing in educational and family-based internet services
with a local emphasis on business advertising and shopping, chat rooms and
parent/student/teacher interaction. It is a subscriber service that offers
solutions to the world closest to home, simplifying and concentrating internet
information for users interested in on-line purchases as well as their local
community's activities, including educational, cultural and consumer affairs.
Our internet provider service is based on the idea that people want to use the
internet as a convenient way to communicate with school districts, local
government and local businesses, taking advantage of the latest technology
available for such user services.
ICS, founded in October 1994, is a systems-integration firm
specializing in network design, implementation and maintenance and providing
internet/intranet messaging and security products and services. Its wide range
of services, from complex installations for the Pentagon and Fortune 500
companies to educational institutions, has led to growth of the business. ICS
also manufactures several specialized Internet applications in the area of
messaging and security. It plans to offer these products and services
nationally.
11
<PAGE> 16
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Year Ended December 31,
-----------------------
SUMMARY OF OPERATIONS: 1999 1998
---- ----
<S> <C> <C>
Total Revenues $ 1,276,115 $ 418,712
Net (loss) income $ (1,234,890) $ 70,418
Basic and diluted (loss) per common share $ (0.02) $ 0.00
Weighted average common shares outstanding, giving
effect to the conversion of all Class B Preferred
Stock outstanding 63,269,036 39,372,221
YEAR-END FINANCIAL POSITION:
Working capital $ 328,904 $ 246
Total assets $ 4,831,695 $ 264,452
Total liabilities $ 1,910,454 $ 381,725
Stockholders' equity (deficit) $ 2,921,241 $ (117,273)
</TABLE>
RESULTS OF OPERATIONS
Revenues for the year ended December 31, 1999 were $1,276,115
compared to $418,712 for the year ended December 31, 1998 an increase of 205%.
This increase was primarily attributable to the addition of ICS sales of
$902,961 for the six months ended December 31, 1999. Subscription service
revenue decreased by $45,558 for the year ended December 31, 1999. This
decrease was primarily attributable to a decline in the number of subscribers,
as the Company scaled back on its advertising and marketing efforts until it
raised capital for expansion.
Cost of sales was $952,333, representing 75% of total revenues for the year
ended December 31, 1999, compared to $198,733 or 47% of total revenues for the
year ended December 31, 1998. This increase in cost of sales as a percentage of
sales was primarily attributable to the addition of ICS's computer network
business for the year ended December
12
<PAGE> 17
31, 1999. Cost of sales of ICS were $717,170, representing 79% of hardware
sales and installation services for the year ended December 31,1999. Cost of
sales of VillageNet were $235,163 and $198,733, representing 63% and 47% of
revenues for subscription services for the year ended December 31, 1999 and
1998, respectively. VillageNet upgraded its backbone service and redundancy to
ensure its connectivity. These costs increased without an increase in revenues.
This was undertaken to position the Company for expansion of its internet
business.
Selling, general and administrative expenses (SG&A) were $961,061
for the year ended December 31, 1999, an increase of 712% from $118,361 for the
year ended December 31, 1998. This increase was primarily attributable to the
addition of the SG&A expenses of ICS and public-company related expenses of
VillageWorld.com for the year ended December 31, 1999. Of the total SG&A
expenses, $416,520 represents VillageWorld.Com and $544,541 represents ICS.
There was an increase of $84,996 in professional fees of which $35,793 was
attributable to the merger. Rent increased by $16,262 for office space acquired
in the merger. There was an increase of $27,893 in filing cost from the previous
year.
Interest expense increased by $587,753 during the year ended
December 31, 1999, due to the incorporation of debt financing and bridge loans
relating to the private placement of our Class C preferred stock. Of such
increase, $475,000 of interest expense was attributable to the like-amount
reduction in the stated principle of the bridge loans in order to recognize the
fair value of common stock purchase warrants issued therewith.
The net loss for the year ended December 31, 1999 was $1,234,890
compared to net income of $70,418 for the year ended December 31, 1998. The
primary reasons for the increase in the current period loss were: (i) the
incorporation of the results of operations of ICS amounting to a loss of
$224,646, (ii) amortization expense of goodwill of $141,758; (iii) one time in
nature, non-recurring costs related to the merger; (a) interest expense
attributable to the bridge loan financing prior to the preferred stock private
placement amounting to $569,680; (b) a severance expense to the former CEO
amounting to $178,750.
The Company has identified certain accounting adjustments applicable to its
report at September 30, 1999. These adjustments relate to the reporting of
discontinued operations, stock-based severance compensation, additional
(inputed) interest expense and goodwill. (See Note O in Notes to Consolidated
Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at December 31, 1999 were $800,561, compared to
$21,897 at December 13, 1998. This increase was primarily attributable to the
Company's receipt of proceeds from the private placement of Preferred Stock.
13
<PAGE> 18
Accounts receivable increased to $494,820 at December 31, 1999, from $43,454 at
December 31, 1998. This increase was primarily due to the acquisition of
accounts receivable of $469,142 in the merger with ICS.
Inventory increased to $96,791 at December 31, 1999 from $0 at December 31,
1998, due to the acquisition of inventory in the merger with ICS.
Prepaid expenses and other current assets increased to $129,094 at December 31,
1999 from $0 at December 31, 1998, due to the acquisition of prepaid insurance
and other current assets of $82,772 and prepaid taxes of $46,322 in the merger
with ICS.
Fixed assets, net of accumulated depreciation, increased to $325,285 at
December 31, 1999 from $141,485 at December 31, 1998, as a result of the
purchase of $139,425 of internet equipment to upgrade and increase the
Company's internet capacity and reliability, and the acquisition of equipment
of $94,478 in the merger.
Intangible assets, net of accumulated amortization, increased to $2,694,252 at
December 31, 1999 from $916 at December 31, 1998. This increase resulted from
the recognition of $2,835,173 in excess of costs over fair value of net assets
acquired in the purchase of ICS by VillageNet. Amortization expense of $141,837
was charged for the year ended December 31, 1999.
Security deposits and other assets increased to $13,230 at December 31, 1999
from $0 at December 31, 1998, primarily due to the acquisition of security
deposits of $10,378 in the merger with ICS.
The combination of accounts payable and accrued expenses increased to $411,693
at December 31, 1999 from $24,320 at December 31, 1998. This increase was
primarily due to the assumption of accounts payable and accrued expenses of
$342,135 in the merger with ICS.
Notes and loans payable increased to $767,885 at December 31, 1999 from $306,301
at December 31, 1998. We have obtained $200,000 of bank notes, maturing April
30, 2000 with interest payable monthly at prime plus two percent, to fund
operations. In addition $516,531 of loans were assumed in the merger with ICS,
these loans are subordinated to the bank debt with interest at five percent per
annum.
At December 31, 1999, we had $328,904 of working capital and a current ratio of
1.25 to 1.
Our operating activities used net cash of $720,615 during the year ended
December 31, 1999, as compared to net cash provided by operations of $133,164
for the prior year. This
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<PAGE> 19
increase in use of cash was primarily due to the funding of our net loss from
continuing operations and to pay liabilities associated with discontinued
operations.
Management of the predecessor had decided to discontinue its business as a
franchiser and operator of a commissary that supplies retail stores and
wholesale accounts with bagel products, because we recognized that this
remaining business would not generate sufficient revenues to achieve
profitability.
In April 2000 the Company sold 666,667 shares of its common stock to
one accredited investor and issued a five year warrant to purchase 666,667
shares of our common stock at an exercise price of $1.00 per share for an an
aggregate purchase price of $500,000. For arranging such transaction, the
Company issued a five year warrant to PHD to purchase 5,000 shares of our
common stock at an exercise price of $1.00 per share.
We will require additional working capital to finance operations as well as to
pay liabilities of the discontinued operations of our former bagel franchise
business. Additionally we plan to expand our internet business through the
franchising of internet service providers and increase our marketing and
advertising to expand its local ISP network.
The Company intends to acquire Internet companies currently outsourcing
internet access needs that are compatible with the ISP services offered by the
Company. By then placing these companies on its existing backbone
infrastructure, we expect to add services, attract new internet users and
increase revenue through the elimination of outsourcing costs of the acquired
companies.
BUSINESS
The following description of our business should be read in conjunction with
the information included elsewhere in this prospectus. The description contains
certain forward-looking statements and our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this prospectus.
OVERVIEW
We are an internet service provider and as such provide our
subscribers with access to the world wide web in the same manner as do many
other internet service providers, the largest and most well known of which is
America On Line. We provide our subscribers with the same access to the wealth
of information, communications, services, programs and commerce available on
the worldwide web as are provided by other internet service providers,
including the largest provider. We also sell and install network systems
consisting of both computer hardware and software. We have so far installed
hundreds of network systems, including sixty for school districts, ranging in
cost from several thousand dollars to over $5,000,000. Our revenues have been
principally provided from installing network systems.
15
<PAGE> 20
We believe that we have created a niche for ourselves as both an installer of
network systems and as an internet service provider, in the services we
provide to school districts and the children, teachers and parents in those
school districts. To date our activities have been primarily in the New York
metropolitan area. To date we have established eleven separate network systems,
each of which is based on a school district or educational institution.
Our target market of potential subscribers for each network system we install
for a school district or educational institution are the schools themselves
and particularly the students, parents, teachers and staff of the schools in
the school district or of the educational institution. Our appeal to those
persons is the availability of directories of teachers, students and
administrative staff allowing more readily available communication with and
among such persons concerning homework assignments and other aspects of their
school's activities, and of other directories such as school calendars which
are of interest to our subscribers. We also prepare with the guidance of those
school districts and educational institutions and make available to our
subscribers a large volume of source material for use by the students in their
studies and for their homework assignments. Such material is more readily
available from us than it would be from other internet service providers
because we store such information on our systems where it can more easily be
found by the students and other subscribers.
Our services as an internet provider, and particularly of the
directories and other information about a specific school district or
educational institution, are made known to that district's or institution's
students, parent body, teachers and administrative staff by the school district
or educational institution itself. This is the main way in which our
subscribers find out about us and subscribe for our service. We also secure
subscribers by advertising in the school publications and the local media
available in the school district or the area in which the educational
institution is located. As noted above, we also provide our subscribers with
access to the world wide web.
We also sell advertising on each of our school district or
educational institution based networks to local merchants in that community.
Such advertising aimed at our subscribers who are located in the community
where the retail establishment is located, is obviously more effective for such
local merchants than advertising on a network whose subscribers are not so
geographically concentrated. We also provide web hosting services in which we
assist those merchants or others to establish and maintain a web site at which
they provide information about their products, services and themselves.
Special features of our networks are:
- Our subscribers have the option of filtering out adult
oriented material. We have at least 10,000 adult oriented
sites automatically blocked by our caching equipment, so as to
prevent access to such sites from our subscribers computers
where the subscriber has elected that option. We continually
update the list of such sites mostly based on information
initially received from our
16
<PAGE> 21
subscribers about new sites providing adult
oriented material, and after review by our staff of the
material available at that site.
- When our subscriber requests information from a web site on the
internet, we download the information on that web site onto our
system's memory and send it to our subscriber. When the next
subscriber attempts to access the same information, we send it
from our memory instead of going onto the internet and downloading
it again. This saves our subscriber time and reduces their costs
in securing such material.
- Using larger bandwidth on which to store material in our memory,
and leasing T-1 and T-3 lines to enable our subscribers faster
access on our network system and on the world wide web.
- Providing our subscribers and our other customers with what we
believe is high quality customer service and support.
The hardware and software equipment and systems we sell and install
are manufactured and supplied by the largest and best known companies,
including Cisco Systems, Sun Microsystems, Microsoft, Oracle, IBM, Digital
Equipment, Compaq Computer and Intel. These and other vendors help train our
employees in the use, installation and maintenance of their products.
We have identified the following strategic initiatives which we are
currently undertaking and plan to pursue in the future:
- Establish similar network systems for other, non-educational
groups. We recently entered into an agreement with a church
association with a membership of thousands of churches throughout
the United States, to enable such church body to be an internet
service provider to their churches and church members, through our
internet network, for which we will receive a portion of the
continuing periodic subscription fees.
- We also serve as a subcontractor providing technical support for
the customers of other internet service providers. We recently
entered into an agreement with Ultrastar Internet Services, LLC
under which we are to provide Ultrastar with dial up and digital
subscriber lines, internet access and technical support for
private label internet services using as the names of the internet
service provider those which Ultrastar is contractually permitted
to use, such as, the New York Yankees, the Baltimore Orioles,
David Bowe and Hanson. Under
17
<PAGE> 22
the terms of our agreement with Ultrastar, we are to receive a
portion of each subscription fee paid by subscribers to
Ultrastar.
- Establish and/or maintain network systems for school
districts, educational institutions and other community
based groups in other areas of the United States by
establishing strategic relationships with other
companies in those areas who install and/or maintain
network systems, web sites or other computer or network
based systems and programs. We anticipate that even if
we do not share in the revenues generated from the
design and installation of those networks, we will
either maintain the network system and receive all or
the bulk of the fees paid by subscribers, or receive
franchise fees for permitting those other companies to
use our technology for installing and operating such
community based network systems. We have filed
registrations to conduct such franchising programs in
three states, New York, California and Illinois, and
expect to file in additional states.
- Continue our efforts to attract new community groups who want our
system installed and maintained, and thereby expand our
subscriber base.
As of the date of this prospectus we have approximately 2,000
paying subscribers to our network systems. We have 35 employees, of whom four
are executive officers of our company.
We are in the process of winding down and discontinuing
the business previously conducted by our predecessor of operating retail bagel
outlets, and franchising others to operate retail bagel outlets, in different
parts of the United States.
LEGAL PROCEEDINGS
There are legal proceedings pending against us arising from the
business formerly conducted by us of operating and franchising retail bagel
outlets. Both claims together do not exceed $119,000 and are not material
claims against us.
PROPERTY
Our principal offices are located in leased facilities
at 620 Johnson Avenue, Suite 1B and Suite 6, Bohemia, New York 11716. The lease
term for Suite 1B is from April 1, 1997 through March 31, 2002 with an option to
renew such lease for an additional five years. For the use of Suite 1B we pay
annual rent of $33,000 with such rent increasing by 4% per year for the
remainder of the lease term. The lease term for Suite 6 is from April 1, 1999
through March 31, 2002 and we have an
18
<PAGE> 23
option to renew such lease for an additional five years. For the use of Suite 6
we pay annual rent of $30,000 with such rent increasing by 5% per year for the
remainder of the lease term.
We also lease office space at 3101 West Coast Highway,
Suite 311, Newport Beach, California, in which we operate our ISP franchising
business. We pay annual rent of $22,452 and such lease expires on December 31,
2000.
COMPETITION
There are many companies that provide the same network
installation services that we offer. There are also thousands of internet
service providers. Many of those and other potential competitors are well
established, are much larger than we are and have substantially greater
financial and other resources than we have. Our success will depend on our
ability to establish and maintain a competitive position in these marketplaces,
which we may not be able to do.
TRADEMARKS AND SERVICE MARKS
Our service marks "Village World(R)" and "Village
Net(R)" are registered with the United States Patent and Trademark Office. We
have filed a trademark application with the United States Patent and Trademark
Office seeking registration for "VillageWorld.com."
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
members of our board of directors and executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Peter J. Keenan 30 President and Director
Robert Appel 27 Chief Executive Officer
Edilberto R. Enriquez 39 Treasurer and Chief
Financial Officer
Hector M. Gavilla 56 Director
</TABLE>
<PAGE> 24
<TABLE>
<S> <C> <C>
Dr. Steven Levi 30 Director
David A. Levi 23 Secretary and Director
Moshe Schwartz 30 Director
</TABLE>
Peter J. Keenan is a director of our company, has served as our
president since July 1999 and has also served as the President of Intelligent
Computer Solutions, Inc. ("ICS"), which was merged with our company on July 1,
1999. From October 1994 to June 1996, Mr. Keenan was technical director of ICS.
Since 1995, Mr. Keenan also served as technical director of VillageNet, Inc.,
which was also merged with our company on July 1, 1999. From September 1991 to
October 1994, Mr. Keenan was employed by Advanced Testing Technologies, Inc.
("ATTI") as a purchasing agent.
Robert Appel has served as our chief executive officer since
March 2000. From June 1999 to March 2000 Mr. Appel served as an internal
management consultant with Donaldson, Lufkin & Jenrette, Pershing Division. From
September 1998 to May 1999 Mr. Appel attended New York University, Stern School
of Business and received his Masters degree in business. From February 1998 to
August 1998, Mr. Appel served as a Vice President of Brean Murray & Co.and from
1994 through 1998 he was an assistant portfolio manager for Shufro, Rose &
Ehrman.
Edilberto R. Enriquez has been employed as treasurer and
chief financial officer of our company since July 1999 and served as the
controller of ICS since March, 1999. From December 1997 to March 1999, Mr.
Enriquez was employed as an accounting manager for IHC Services, Inc., an
exporting company. From 1991 to October 1997, Mr. Enriquez was a senior
accountant at Linotype-Hell Company, a manufacturing company.
Hector M. Gavilla has served as a director of our company since
July 1999, and served as President of ATTI since 1987. Since 1994, Mr. Gavilla
has been vice president and secretary of each of ICS and VillageNet and has
served as an executive officer of the following companies: European Testing
Technologies, Ltd., ATTI Europe, ATTI International Development, Inc.,
Automated Computer Systems, Inc. and ICS Systems, Inc. Of these companies, only
ATTI Europe and ICS Systems are actively operating. ICS Systems is a computer
software company specializing in operating systems and electronic drivers for
automatic test equipment.
Dr. Steven Levi has been a director of our company since
March 2000. Dr. Levi received his M.D. in 1995 from Pittsburgh University and
is currently a practicing physician of internal medicine at Jefferson Memorial
Hospital in
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<PAGE> 25
Philadelphia, PA. From 1995 to 1998 Dr. Levi served as the director of new
development for ICS Systems. Dr. Steven Levi is the brother of David Levi.
David A. Levi has been a director of our company since
October 1999. Mr. Levi served as a purchasing agent for ATTI since January 1997
Since May 1998, Mr. Levi served as president of ICS Systems. From 1994 to 1997,
Mr. Levi was a student at the University of Michigan where he received a degree
in history. David Levi is the brother of Steven Levi.
Moshe Schwartz has been a director of our company since March
2000. While Mr. Schwartz is currently an independent consultant in the
investment banking arena, from July 1998 through February 2000 he served as a
Vice President at KCSA Public Relations. Mr. Schwartz received his J.D. in 1995
from the Benjamin N.Cardozo School of Law and from 1995 through 1998 was an
Assistant District Attorney in Kings County, New York.
Our board of directors is elected at each annual meeting
of our shareholders. Each director holds office until his successor is duly
elected and qualified or until his or her earlier resignation or removal. Our
directors do not currently receive any fees or other compensation in connection
with their services as directors. We currently have no separate committees of
directors, and all directors participate in matters customarily delegated to an
audit committee, compensation committee and executive committee.
EMPLOYMENT AGREEMENTS
In August, 1996, Intelligent Computer Solutions, Inc. ("ICS"), entered
into an employment agreement to provide for the employment of Mr. Peter Keenan
as the company's President. The employment agreement provides for employment on
a full-time basis and contains provisions that Mr. Keenan will not compete or
engage in a business competitive with our current or anticipated business until
eighteen months after the termination of his Agreement. Pursuant to the
employment agreement, we currently pay Mr. Keenan a base salary of $100,000 per
annum.
In March 2000, we entered into a memorandum of understanding with Mr.
Robert Appel to serve as our Chief Executive Officer. The memorandum of
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<PAGE> 26
understanding provides for employment on a full-time basis and contains
provisions that Mr. Appel will not compete or engage in a business competitive
with our current or anticipated business until twelve months after the
termination of his Agreement. Pursuant to the terms of this agreement, we will
pay Mr. Appel a base salary of $75,000 per annum and intend to grant him a five
year option to purchase 300,000 shares of our common stock at an exercise price
of $.01 per share, with vesting rights to be negotiated.
The following table sets forth information concerning
cash and non-cash compensation paid by us for the fiscal periods ending
December 31, 1999, 1998, 1997 to our Chief Executive Officer and to each of our
executive officers whose compensation exceeded $100,000 on an annual basis
(collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------------------------------------------------
Year Salary Bonus Other
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peter J. Keenan 1999 97,981 -- --
Chairman of the Board and President 1998 109,367 -- --
1997 108,704 -- --
Mark Weinreb 1999 105,968 -- $22,500(1)
Chairman of the Board, Chief Executive 1998 192,550 -- --
Officer and Secretary 1997 185,696 -- --
(Predecessor Company)
</TABLE>
- -------
(1) Our executive officers, named above, routinely received other
benefits from us, the amounts of which are customary in the
industry. We have concluded, after reasonable inquiry, that the
aggregate amounts of such benefits during the year ended December
31, 1999 did not exceed 10% of the compensation set forth above as
to the named individuals. In 1999, prior to the merger, Mark
Weinreb entered into a Severance and Consulting Agreement with the
predecessor company. Pursuant to the agreement we awarded him,
pursuant to our 1998 Performance Equity Plan, a grant of 125,000
shares of our common stock. In addition, we retained Mr. Weinreb as
a
22
<PAGE> 27
consultant beginning July 1, 1999 for a period of 16 weeks, for
which we paid a total of $22,500 in consulting fees.
The following table summarizes the number of shares and the terms of
stock options granted to the Company's Executive Officers in the year ended
December 31, 1999:
Individual Grants
<TABLE>
<CAPTION>
% of Total
Options/Shares
Name and Position Options/Shares Granted to Employees Exercise Price Market Price on Expiration
During Period Granted in Fiscal Year ($/Price) Date of Grant Date
----------------- -------------- ------------------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Mark Weinreb
Shares 125,000 100% N/A $1.43 N/A
Options 2,000 3% $0.9375 $0.9375 3/30/09
50,000 83% $0.48-$1.00 $2.00 7/1/04
</TABLE>
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<PAGE> 28
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of May 1,
2000,with respect to the beneficial ownership of our common stock by (i) each of
our current directors (ii) each executive officer, (iii) all of our directors
and executive officers as a group and (iv) each person known by us to own
beneficially more than five percent (5%) of the outstanding shares of our common
stock.
<TABLE>
<CAPTION>
Number of Shares of Class B Preferred
Number of shares of Stock Beneficially Owned and
Name and address of Common Stock Number of Shares of Common Stock Percent of Class
Beneficial Owner (1) Beneficially Owned (2) Into Which it is Convertible (2)(3) Assuming Conversion
- ------------------- ---------------------- ---------------------------------------- -------------------
Class B Stock of Common Stock
Unconverted of Class B
Shares Converted Shares
---------------- ----------------
<S> <C> <C> <C> <C>
Robert Appel 0 0 0 0
Edilberto R. Enriquez 0 0 0 0
Hector M. Gavilla 1,718,198(4) 101,178(4) 13,962,564(4) 47.2%
Hector P. Gavilla 1,454,534 85,750 11,833,500 42.8%
Peter J. Keenan 2,187,651 128,854 17,781,852 54.0%
David A. Levi 471,719 28,871 3,984,198 19.2%
Eli Levi 1,631,575(5) 100,315(5) 13,843,470(5) 46.8%
Roberta Levi 1,631,575(5) 100,315(5) 13,843,470(5) 46.8%
Dr. Steven Levi 471,719 28,871 3,984,198 19.2%
Moshe Schwartz 2,000 0 0 *
Directors and Executive
Officers as a group (seven persons) 4,851,287(6) 287,774(6) 39,712,812(6) 75.6%
</TABLE>
- ----------
(*) Represents less than 1% of the outstanding shares of our common stock.
(1) Each such person's address is at the Company's executive office, 620
Johnson Avenue, Bohemia, New York 11716.
(2) The number of shares of common stock beneficially owned by each person or
entity is determined under the rules promulgated by the SEC. Under such
rules, beneficial
24
<PAGE> 29
ownership includes any shares as to which the person or entity has sole
or shared voting power or investment power and shares which such person
or entity has the right to acquire within sixty days after April 17,
2000. The inclusion herein of any shares deemed beneficially owned does
not constitute an admission by such person of beneficial ownership of
such shares. The information is based upon information furnished by the
persons listed.
(3) The figures set forth in the table include the number of shares of our
common stock issuable upon conversion of each individual's shares of our
Class B preferred stock. The holders of Class B preferred stock have the
right, at their option, to convert such shares into common stock at any
time.
(4) Includes 990,930 shares of common stock owned by Mr. Gavilla and 727,268
shares of common stock held by Mr. Gavilla, as custodian for Alexander F.
Gavilla, Mr. Gavilla's minor son. Such figure also includes 58,302 shares
of Class B preferred stock owned by Mr. Gavilla and 42,876 shares of
Class B preferred stock held by Mr. Gavilla, as custodian for Alexander
F. Gavilla, Mr. Gavilla's minor son. Hector M. Gavilla is the father of
Hector P. Gavilla.
(5) Includes 580,928 shares of common stock and 35,722 shares of Class B
Preferred Stock owned by Roberta Levi, and 580,928 shares of common stock
and 35,722 shares of Class B preferred stock owned by Eli Levi. Eli and
Roberta Levi are husband and wife. Also includes 471,719 shares of
common stock and 28,871 shares of Class B preferred stock held by Roberta
Levi, as custodian for Shari Levi, Mr. and Mrs. Eli Levi's minor
daughter. David Levi and Dr. Steven Levi are sons of Eli and Roberta
Levi.
(6) Includes those shares of common stock deemed to be included in the
respective beneficial ownership of Hector M. Gavilla, Peter J. Keenan,
David Levi, Dr. Steven Levi and Moshe Schwartz set forth in the table
above.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our company was founded at the end of 1992 and until the middle of 1999 we
operated retail bagel outlets and franchised others to operate retail bagel
outlets under our "Big City Bagels" name. We are in the process of
discontinuing that business. On July 1, 1999, pursuant to an exchange of
securities, the Company became the legal parent of two companies, ICS and
VillageNet, that were conducting the business now conducted by us, the
installation of internet network systems and as an internet service provider.
Prior to that acquisition, we had 7,899,225 shares of common stock outstanding.
In that transaction, we issued to the stockholders of ICS and VillageNet an
aggregate of 8,619,466 shares of our common stock and 508,152 shares of our
Class B preferred stock
25
<PAGE> 30
which are convertible at the holders' options into an aggregate of 70,124,976
additional shares of our common stock. In July, 1999, for its services in
connection with introducing the company to VillageNet and ICS, Perrin, Holden
and Davenport Capital Corp. ("PHD"), an investment banking firm, received
warrants to purchase 500,000 shares of our common stock at an average exercise
price of $0.6775 per share which warrants were exchanged by PHD in January 2000
for 360,000 shares of our common stock.
In the summer and fall of 1999, PHD arranged for an aggregate of $600,000
to be loaned to us, which we needed to finance our operations. We issued notes
to the lenders and granted them warrants to purchase 375,000 shares of our
common stock at an exercise price of $0.75 per share. For its services in
securing such loans, we granted PHD warrants to purchase 90,000 shares of our
common stock, also at the same exercise price of $0.75 per share. In December
1999, we issued an aggregate of 189,359 shares of our common stock in exchange
for the 375,000 warrants that we granted for such $600,000 loan, and in lieu of
the interest then accrued on such notes. In January, 2000 PHD exchanged
90,000 warrants we granted to PHD for 51,455 shares of our common stock.
On December 30, 1999, PHD acted as placement agent for our sale of 15,000
shares of our Class C preferred stock (including 6,000 shares of Class C
preferred stock in exchange for the $600,000 loan referred to above.) For its
services, we paid PHD $158,000 and issued 94,800 shares of our common stock.
In February 2000 we entered into an agreement with an individual to serve
as our spokesman and, as such, granted him a five-year warrant to purchase
70,000 shares of our common stock at an exercise price of $.01 per share. For
its services in arranging the transaction, we granted PHD a warrant to purchase
20,000 shares of our common stock and granted MFC Marketing, Inc., founded by
Nelson Braff, a principal of PHD, a warrant to purchase 60,000 shares of our
common stock; both warrants are at an exercise price of $.01 per share.
We guarantee a $100,000 loan payable by Mr. Keenan to the former
stockholders of ICS.
We have a note payable, dated August 1, 1996, to Advanced Testing
Technologies, Inc. ("ATTI"). ATTI is a company whose stockholders are also
stockholders in our company. The outstanding balance is $208,741, which bears
interest at a rate of five percent per annum. Principal and interest payments
are due on a quarterly basis which began August 1, 1997, equal to ICS's net
profit before taxes. Quarterly payments are $2,000. This note is due and
payable on May 1, 2002. As of December 31, 1999 no payments have been made
26
<PAGE> 31
on this loan. Interest of $32,089 has accrued on this note. In addition, we
have received from ATTI working capital advances amounting to $359,144 as of
December 31, 1999. No interest has been accrued on these advances. These
loans have been subordinated to the bank credit line.
SELLING SHAREHOLDERS
The following table sets forth as of May 1, 2000, (i) the name of each
selling shareholder, (ii) the amount of shares of our common stock which may be
offered by each selling shareholder, and (iii) the amount and percentage of
shares of common stock to be owned by each such holder following the sale of
such shareholder's stock offered by this prospectus. The number of shares of
our common stock set forth below, under the caption "Amount of Shares Offered,"
represent the aggregate number of shares of (A) our common stock owned by each
selling shareholder; plus (B) our common stock issuable by us upon conversion of
our Class C preferred stock owned by a selling shareholder, calculated as if all
such Class C shares were converted to common stock on May 1, 2000 assuming a
conversion rate of $1,404. However, under the designation of preferences for our
Class C preferred stock, under certain circumstances, we may be required to
issue a greater number of shares of our common stock upon conversion of the
Class C preferred stock. For conversion rates of our Class C preferred stock,
see Description of Securities -- Class C 6% Cumulative Preferred stock; plus (C)
1,020,168 shares of common stock that was issued upon conversion of 3,900 shares
of our Class C preferred stock; plus (D) 152,000 shares of our common stock
issuable upon the exercise of warrants at an exercise price of $.01 per share
and 671,667 shares issuable upon the exercise of warrants at an exercise price
of $1.00 per share.
<TABLE>
<CAPTION>
Amount of
Shares Shares Percentage
------ ------ Shares Owned Owned after
Selling Shareholder Owned Offered(a) after Offering Offering
- ------------------- ------ ---------- -------------- -----------
<S> <C> <C> <C> <C>
Bindeli, Jay L. 33,416 33,416 0 *
Brass Capital, LLC 27,238 27,238 0 *
Calabro, Paul 27,238 27,238 0 *
Davis, Yousef 108,951 108,951 0 *
Drescher, Michael 36,245 36,245 0 *
Farnsworth Associates, LLC 18,122 18,122 0 *
Fichthom, Kurt H. 108,951 108,951 0 *
Garfunkel, Mark 18,122 18,122 0 *
Jara Group, LLC 36,245 36,245 0 *
Kahn, Leon 54,476 54,476 0 *
</TABLE>
27
<PAGE> 32
<TABLE>
<S> <C> <C> <C> <C>
Kador Investment Co. Ltd 416,151 416,151 0 *
Koretsky, Michael 36,245 36,245 0 *
Liebowitz, Ted 272,377 272,377 0 *
Millennium Capital
Partners LLC 1,333,334(b) 1,333,334 0 *
McGuire, Joseph W. &
Wilma C. Rossi, JTWROS 108,951 108,951 0 *
Radusky, Henry 36,245 36,245 0 *
Jamie Radusky, IRA 36,245 36,245 0 *
Scharf, Chava 36,245 36,245 0 *
Starling Corp. 381,328 381,328 0 *
Sugarman, Rina 90,004 90,004 0 *
Perrin, Holden and
Davenport Capital Corp. 531,255(c)(1) 571,255 0 *
Bobby Valentine 70,000(d)(2) 70,000 0 *
MFC Marketing, Inc. 60,000(e)(1) 20,000 0 *
Gary Cohn 2,000(d) 2,000 0 *
</TABLE>
- ----------
* Represents less than 1% of the outstanding shares of our common stock.
(a) Includes 862,624 shares issuable upon conversion of 11,900 shares of our
Class C preferred stock.
(b) Includes a five year warrant to purchase 666,667 shares of our common stock
currently exercisable at $1.00 per share.
(c) Includes a warrant to purchase 20,000 shares of our common stock at an
exercise price of $.01 per share and a warrant to purchase 5,000 shares of
our common stock at an exercise price of $1.00 per share.
(d) Represents a five year warrant to purchase shares of our common stock
exercisable at $.01 per share.
(e) MFC Marketing, Inc. disclaims any beneficial ownership of the shares of
common stock deemed to be owned by PHD.
(1) Nelson Braff is a principal of both MFC Marketing, Inc. and PHD. (See
Section entitled Certain Relationships and Related Transactions.)
(2) Bobby Valentine has agreed to serve as our spokesperson.
DESCRIPTION OF SECURITIES
Common Stock
We are currently authorized to issue 200,000,000 shares of our common
stock, par value $.001 per share, of which 19,192,957 shares were issued and
outstanding as of May
28
<PAGE> 33
1, 2000.
The holders of our common stock are entitled to one vote per share for the
election of directors and with respect to all other matters to be voted on by
shareholders. Shares of our common stock do not have cumulative voting rights.
Therefore, the holders of more than 50% of the shares voting for the election
of directors can elect all of the directors if they choose to do so and, in
that event, the holders of the remaining shares will not be able to elect any
directors. The holders of our common stock are entitled to receive dividends
when, as and if declared by our board of directors out of legally available
funds. In the event our company is liquidated, dissolved or wound up, the
holders of our common stock are entitled to share ratably in all assets
remaining available for distribution to them after payment of liabilities and
after provision has been made for each class of stock having preference over
the common stock. Holders of shares of common stock, as such, have no
conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the common stock.
Preferred stock
We are currently authorized to issue 1,000,000 shares of preferred stock,
par value $.001 per share, of which 520,052 shares were issued and outstanding
as of May 1, 2000.
We may issue additional shares of our preferred stock from time to time in
one or more series as determined by our board of directors. Our board is
authorized to establish the designation, powers, preferences, voting rights and
other rights of each series of preferred stock including (a) the rate of
distribution, (b) the price at and the terms and conditions on which shares
shall be redeemed, (c) the amount payable upon shares for distribution of any
kind, (d) the terms and conditions on which shares may be converted if the
shares of any series are issued with the privilege of conversion and (e) voting
rights except as limited by law. Our board of directors, could, without
shareholder approval, issue preferred stock with voting and other rights that
could adversely affect the voting power of the holders of our common stock and
which could have certain antitakeover effects.
Although we currently do not have any plans to designate any additional
series of preferred stock other than the existing Class A preferred stock,
Class B preferred stock and the Class C preferred stock, there can be no
assurance that we will not do so in the future.
Class A Preferred stock
On December 24, 1997 we designated 350,000 shares of our Preferred stock as
Class A Preferred stock of which 265,000 shares were subsequently issued,
converted into our
29
<PAGE> 34
common stock and cancelled. There are no shares of our Class A preferred stock
outstanding.
Class B Preferred stock
As of the date of this prospectus, 508,152 shares of our Class B preferred
stock were issued and outstanding.
Dividends. We will not declare or pay dividends or distributions on our
common stock, unless at the same time, a dividend or distribution is declared
or paid on the Class B preferred stock for each share of Class B preferred
stock equal to the dividend or distribution paid on our common stock multiplied
by the number of shares of common stock that a holder of such Class B preferred
stock would be entitled to receive if such holder had converted such share of
Class B preferred stock into common stock prior to the record of date for such
dividend or distribution on the common stock.
Voting Rights. The holders of Class B preferred stock are entitled to
cast votes equal to the number of shares of common stock into which shares of
Class B preferred stock are convertible.
Conversion Rights. Each share of our Class B preferred stock is
convertible into 138 shares of our common stock such that 508,152 shares of our
Class B preferred stock would convert into 70,124,976 shares of our common
stock.
Class C 6% Cumulative Convertible Preferred stock
We are authorized to issue of up to 25,000 shares of our Class C 6%
cumulative convertible preferred stock, par value $.001 per share, of which
11,900 shares were outstanding as of May 1, 2000, and 9,200 remain available for
issuance.
Rank. The Class C preferred stock ranks senior to all classes and series
of our capital stock now or hereafter authorized, issued or outstanding. We
cannot issue any class or series of any class of stock which ranks senior to or
pari passu with our Class C preferred stock with respect to dividend rights or
rights on liquidation or dissolution of our company.
Dividends. Each share of our Class C preferred stock earns cumulative
dividends at the rate of $6.00 per annum to be paid in cash or at our election
in our common stock, payable only when the Class C shares are converted or
redeemed.
30
<PAGE> 35
Rights on Liquidation, Dissolution, or Winding Up. Etc. In the event of
a liquidation or dissolution of our company as a result of which our assets are
to be distributed to our shareholders, such assets shall be distributed first
to holders of the Class C preferred stock at the rate of $100 per share plus
all accumulated but unpaid dividends thereon, before distribution of any such
assets to any holders of the common stock or the Class B preferred stock, and
such payments to the holders of the Class C preferred stock shall be in full
redemption of those shares.
Voting Rights. The holders of the Class C Shares are not entitled to vote
on matters submitted for approval by the holders of the common stock.
Conversion of Class C Preferred stock. At the holder's election, each
Class C preferred stock is convertible into so many shares of our common stock
as shall equal $100 plus the accumulated and unpaid dividend on such Class C
preferred stock, divided by the lesser of:
(a) $1.404; or
(b) When converted in the period indicated below, the following
percentage of the average of the highest closing bid prices for our common
stock for the five trading days prior to the date when the holder elects
to convert such Class C preferred stock into our common stock:
<TABLE>
<CAPTION>
Percentage If Such election is made:
---------- -------------------------
<S> <C>
82.5% not later than six months from the date hereof;
81% after six months, but not later than nine months from the
date hereof;
79% after nine months, but not later than twelve months
from the date hereof;
75% after twelve months from the date hereof.
</TABLE>
Automatic Conversion. On December 28, 2002, any Class C preferred stock
which have not by then been converted shall be automatically converted without
any action on the part of the holder, to so many shares of our common stock as
such holder would receive if he had elected to convert his Class C preferred
stock on that date.
Redemption. The Class C preferred stock may be redeemed by us, at our
election, at any time upon 30 days' prior written notice given by us to the
holders of the then
31
<PAGE> 36
outstanding Class C preferred stock, at a redemption price per share payable in
cash as follows:
If redemption is made: Redemption price per share:
- ---------------------- ---------------------------
not later than six months from the $117.50 plus accrued and
date hereof; unpaid dividends;
six months after, but not later $119.00 plus accrued and unpaid
than nine months after the date dividends;
hereof;
nine months after, but not later $121.00 plus accrued and unpaid
than twelve months from the date dividends;
hereof;
after twelve months from the date $125.00 plus accrued and unpaid
hereof. dividends.
1996 Performance Equity Plan
In March 1996, our predecessor adopted a 1996 Performance Equity Plan (the
"1996 Plan"). The 1996 Plan is administered by our Board of Directors which
determines the persons (other than directors) to whom awards will be granted,
the number of awards to be granted, and the specific terms of each grant subject
to the provisions of the 1996 Plan.
Awards consist of stock options (both non-qualified options and options
intended to qualify as "Incentive" stock options under Section 422 of the
Internal Revenue Code of 1986, as amended), a restricted stock awards, deferred
stock awards, stock appreciation rights, and other stock-based awards, as
described in the 1996 Plan.
On March 31st of each calendar year during the term of the 1996 Plan,
assuming there are enough shares then available for grant under the 1996 Plan,
each of our directors will automatically be awarded options to purchase 2,000
shares of Common stock at an exercise price which is the fair market value of
our common stock on March 30 of that year. All of such options are immediately
exercisable as of the date of grant and have a term of ten years.
Of the 70,000 shares for which options can be granted under the 1996 Plan,
7,988 shares were issued upon the exercise of options granted, 43,780 shares
are reserved for issuance upon exercise of outstanding options ranging at
exercise prices ranging from $0.9375 to $42.50 per share and 28,232 shares are
currently reserved for options to be granted in the future.
1998 Performance Equity Plan
32
<PAGE> 37
In 1998, we adopted a 1998 Performance Equity Plan (the "1998 Plan"). The
1998 Plan is administered by our Board of Directors. Of the 400,000 shares
authorized for grant under the 1998 Plan we have reserved 100,000 shares for
issuance upon exercise of options already granted which can be exercised at
$1.00 per share. We also issued 125,000 shares of our common stock to our
former Chief Executive Officer in connection with his severance agreement.
Class A Warrants
These warrants are publicly traded, are exercisable at a price of $12.50
per share and expire on May 7, 2000. There are 481,250 of our Class A Warrants
outstanding.
Transfer and Warrant Agent
The transfer agent for our common stock and the warrant agent for our
Class A warrants, is Continental Stock Transfer and Trust Company, whose
address is Two Broadway, New York, New York 10004.
PLAN OF DISTRIBUTION
We are registering 3,879,384 shares of our common stock covered by this
prospectus on behalf of the selling shareholders. We will pay the costs and
fees of registering our common stock, but the selling shareholders will pay any
brokerage commissions, discounts or other expenses relating to the sale of
their common stock.
The selling shareholders may, from time to time, sell all or a portion of
such shares of our common stock on any market upon which the common stock may
be quoted, in privately negotiated transactions or otherwise, at fixed prices
that may be changed, at market prices prevailing at the time of sale, at prices
related to the prevailing market prices, or at negotiated prices.
In effecting sales, brokers and dealers engaged by the selling
shareholders, including PHD, may arrange for other brokers or dealers to
participate. Brokers and dealers may receive commissions, discounts or
concessions for their services from the selling shareholders or, if any such
broker-dealer acts as agent for the purchaser of such shares, from such
purchaser, in amounts to be negotiated. These commissions or discounts are not
expected to exceed those customary in the types of transactions involved.
The selling shareholders and any broker-dealer or agent involved in the
sale or resale of the common stock may qualify as "underwriters" within the
meaning of Section 2(a)(11)
33
<PAGE> 38
of the Securities Act of 1933, as amended, and a portion of any proceeds of
sale and the broker-dealers' or agents' commissions, discounts, or concessions
may be deemed to be underwriters' compensation under the Securities Act.
In addition to selling their common stock under this prospectus, the
selling shareholders may transfer their common stock in other ways not
involving market makers or established trading markets, including directly by
gift, distribution, or other transfer; and the sale of such shares may be made
by such transferees in the public securities markets by delivery of this
prospectus to the buyers in such transactions.
We have informed the selling shareholders that the anti manipulation
provisions of Regulation M promulgated under the Securities Exchange Act of
1934, as amended, may apply to the sales of their shares offered by this
prospectus, and we have also advised the selling shareholders of the
requirement for delivery of this prospectus in connection with any sale of the
common stock offered by this prospectus.
LEGAL MATTERS
The legality of the common stock included in this prospectus has been
passed upon for us by Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP, New
York, New York.
CHANGE OF ACCOUNTANTS
On December 30, 1999, we dismissed our independent accountant, Richard A.
Eisner & Company, LLP ("Eisner"). None of Eisner's reports on the financial
statements during the past two fiscal years contained an adverse opinion or
disclaimer of opinion, or was modified as to audit scope or accounting
principles. The report issued by Eisner on our Form 10-KSB for the year ending
December 31, 1998 contained an explanatory paragraph regarding our ability to
continue as a going concern. During our engagement of Eisner, there were no
disagreements with Eisner on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to Eisner's satisfaction would have caused Eisner
to make reference to the subject matter of the disagreement in connection with
its report. We requested that Eisner furnish us with a letter addressed to the
SEC stating whether it agrees with the above statements. A copy of that letter
was filed with the SEC.
On December 30, 1999, we engaged Laurence Rothblatt & Company, Independent
Certified Public Accountants ("Rothblatt"), to serve as our independent
accountant and auditor for future periods. Prior to December 30, 1999,
Rothblatt had served as the independent auditor for VillageNet, Inc. Except for
consultation with matters relating to
34
<PAGE> 39
VillageNet, Inc., during our two most recent fiscal years and the subsequent
interim period preceding our engagement of Rothblatt, neither we nor anyone on
our behalf had consulted with Rothblatt regarding the application of
accounting principles to a specific or contemplated transaction, or the type of
audit opinion that might be rendered on our financial statements, and no
written or oral advice was provided to us that was an important factor
considered by our board of directors in reaching a decision as to any
accounting, auditing or financial reporting issue.
Our dismissal of Eisner and the engagement of Rothblatt was approved and
ratified by our Board of Directors. We do not have an audit committee.
EXPERTS
Our consolidated financial statements as of December 31, 1999 included in
this prospectus were audited by Laurence Rothblatt & Co., Independent Certified
Public Accountants, as stated in their report appearing herein and are included
in reliance upon the report of that firm given on their authority as experts in
accounting and auditing.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Sections 721 through 726, inclusive, of the New York Business Corporation
Law ("BCL") authorizes New York corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities incurred
in legal proceedings involving such person because of their being or having
been officers or directors and to purchase and maintain insurance for
indemnification of such officers and directors.
Section 402(b) of the BCL permits a corporation, by so providing in its
certificate of incorporation, to eliminate or limit a director's personal
liability to the corporation or to its shareholders for damages arising out of
certain alleged breaches of their duties as directors. The BCL, however,
provides that no such limitation of liability may affect a director's liability
with respect to any of the following: (1) acts or omissions made in bad faith
or which involved intentional misconduct or a knowing violation of law; (2) the
declaration of dividends or other distributions or repurchase or redemption of
shares in violation of the BCL; (3) the distribution of assets after
dissolution or making of loans to directors in violation of the BCL; or (4) any
transaction from which the director derived a financial profit or other
advantage to which he was not legally entitled.
Our restated certificate of incorporation provides that the personal
liability of our directors is eliminated to the fullest extent permitted by
Section 402(b) of the BCL. In addition, our bylaws provide in substance that,
to the fullest extent permitted by New York
35
<PAGE> 40
law, each director and officer shall be indemnified by us against reasonable
expenses, including attorney's fees, and any liability which he or she may
incur in connection with any action to which he or she may be made a party by
reason of his or her being or having been a director or officer of our Company.
The indemnification provided by our by-laws is not deemed exclusive of or in
any way to limit any other rights which any person seeking indemnification may
be entitled.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended may be permitted to directors, officers, or persons
controlling the company pursuant to the foregoing provisions, we have been
informed that in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities and
Exchange Act of 1934 and intend to deliver an annual report to our shareholders
which we expect will include audited financial statements. In accordance with
the requirements of the Securities and Exchange Act of 1934, we have and will
continue to file reports, proxy statements and other information with the SEC.
Reports and other information filed by us may be inspected and copied at the
public reference facilities of the Commission in Washington, D.C. Copies of
such materials can be obtained from the Public Reference Section of the SEC,
Washington, D.C. 20549, at prescribed rates. In addition, the SEC maintains a
web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. In addition to furnishing our shareholders with annual reports
containing audited financial statements, we will provide them with such other
periodic reports as we deem appropriate or as may be required by law.
We will provide without charge to each person who receives this
prospectus, upon the written or oral request of such person, a copy of any of
the information that is incorporated by reference. Such requests should be
directed by mail to Mr. David Levi, Secretary, VillageWorld.com, Inc., 620
Johnson Avenue, Bohemia, New York 11716.
36
<PAGE> 41
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
<TABLE>
<S> <C>
Independent Auditors' Report ................................ F-2
Consolidated Balance Sheet as of December 31, 1999 .......... F-3
Consolidated Statements of Operations for the years
ended December 31, 1999 and 1998 .......................... F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999 and 1998 .......................... F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1999 and 1998 ........................... F-6
Notes to Consolidated Financial Statements .................. F-8
INTELLIGENT COMPUTER SOLUTIONS, INC.
FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31, 1998..... F-18
Statements of Income and Retained Earnings for the six
months ended June 30, 1999 and 1998 ......................... F-19
Statements of Cash Flows for the six months ended
June 30, 1999 ............................................... F-20
Notes to Financial Statements
June 30, 1999 .............................................. F-21
Independent Auditors' Report................................. F-22
Balance Sheets as of December 31, 1998 and 1997.............. F-23
Statements of Income and Retained Earnings (Deficit) for
the years ended December 31, 1998 and 1997.................. F-24
Statements of Cash Flows for the years ended
December 31, 1998 and 1997 ................................. F-25
Notes to Financial Statements ............................... F-26
Pro Forma Financial Statements .............................. P-1
Pro Forma Unaudited Condensed Statements of Operations ...... P-2
Notes to Pro Forma Unaudited Statements of Operations ....... P-3
</TABLE>
F-1
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
Board of Directors
VillageWorld.com, Inc.
Bohemia, New York
We have audited the accompanying consolidated balance sheet of VillageWorld.com,
Inc. and subsidiaries as of December 31, 1999 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the two-year period then ended. These consolidated 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 our audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
VillageWorld.com, Inc. and subsidiaries as of December 31, 1999 and the results
of its operations and its cash flows for each of the years in the two-year
period then ended in conformity with generally accepted accounting principles.
/s/ Laurence Rothblatt & Company
Great Neck, New York
March 22, 2000
F-2
<PAGE> 43
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1999
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 800,561
Accounts receivable 494,820
Inventory 96,791
Refundable income taxes 126,000
Current assets attributable to discontinued operations 21,891
Prepaid expenses and other current assets 129,094
-----------
Total Current Assets 1,669,157
Fixed assets, net of accumulated depreciation 325,285
Intangible assets, net of accumulated amortization 2,694,252
Deferred tax asset 28,400
Other assets attributable to discontinued operations 101,371
Security deposits and other assets 13,230
-----------
TOTAL $ 4,831,695
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable - bank $ 200,000
Accounts payable and accrued expenses 411,693
Deferred income 49,520
Current liabilities attributable to discontinued operations 615,489
Other current liabilities 63,551
-----------
Total Current Liabilities 1,340,253
Loans payable 567,885
Security deposits payable 2,316
-----------
Total Liabilities 1,910,454
-----------
Stockholders' Equity:
Convertible Class B preferred stock; $.001 par value; 1,000,000 shares
authorized; 508,152 shares issued and outstanding 508
Convertible Class C preferred stock; $.001 par value; 25,000 shares
authorized; 15,800 shares issued and outstanding 15,800
Common stock; $.001 par value; 200,000,000 shares authorized; 17,404,584
shares issued 17,405
Additional paid in capital 4,581,815
Accumulated deficit (1,629,663)
Treasury stock (65,279 shares at cost) (64,624)
-----------
Total stockholders' equity 2,921,241
-----------
TOTAL $ 4,831,695
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 44
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998
------------ -----------
<S> <C> <C>
REVENUES:
Subscription services $ 373,154 $ 418,712
Hardware sales 665,218 --
Installation services 98,468 --
Other 139,275 --
------------ -----------
Total Revenues 1,276,115 418,712
------------ -----------
COSTS AND EXPENSES:
Cost of sales 952,333 198,733
Selling, general and administrative 961,061 118,361
Amortization of excess of cost over fair value of net assets acquired 141,758 --
Interest expense, including $475,000 attributable to reduction in stated debt
principal arising from issuance of stock purchase warrants 587,753 --
------------ -----------
Total costs and expenses 2,642,905 317,094
------------ -----------
Income (loss) from operations
before income taxes (1,366,790) 101,618
Provision (credit) for income taxes (131,900) 31,200
------------ -----------
Net income (loss) $ (1,234,890) $ 70,418
============ ===========
Net income (loss) attributable to common stockholders $ (1,511,390) $ 70,418
============ ===========
Basic and diluted net income (loss) per common share $ (0.02) $ --
============ ===========
Basic and diluted weighted average common shares outstanding, giving effect to
the conversion to common stock of all Class B Preferred Stock outstanding 63,269,036 39,372,221
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 45
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class B Class C
Preferred Stock Preferred Stock Common Stock
----------------- ----------------------- --------------------------
Shares Amount Shares Amount Shares Amount
------- ------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 -- $ -- -- $ -- 1,000 $ 1,000
Net income -- -- -- -- -- --
------- ------- ---------- --------- ----------- -----------
Balance, December 31, 1998 -- -- -- -- 1,000 1,000
Exchange of VillageNet pre-merger
shares for shares of the Company 254,076 254 4,308,733 3,309
Reverse acquisition of Big City 7,964,504 7,965
Purchase of ICS 254,076 254 4,309,733 4,310
Stock and warrants (converted) issued for services 536,455 537
Private placement 158 15,800
Stock and warrants (converted) issued in
connection with bridge loans and
repayment thereof 284,159 284
Beneficial conversion of preferred stock
Net loss -- -- -- -- -- --
------- ------- ---------- --------- ----------- -----------
Balance, December 31, 1999 508,152 $ 508 158 $ 15,800 17,404,584 $ 17,405
======= ======= ========== ========= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Additional Treasury Stock
Paid-In ---------------------- Accumulated
Capital Shares Amount Deficit Total
---------- ------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $ -- -- $ -- $ (188,691) $ (187,691)
Net income -- -- -- 70,418 70,418
---------- ------- -------- ----------- -----------
Balance, December 31, 1998 -- -- -- (118,273) (117,273)
Exchange of VillageNet pre-merger
shares for shares of the Company (3,563) 0
Reverse acquisition of Big City (787,196) (65,279) (64,624) (843,855)
Purchase of ICS 2,572,960 2,577,524
Stock and warrants (converted) issued for services 639,463 640,000
Private placement 1,314,256 1,330,056
Stock and warrants (converted) issued in
connection with bridge loans and
repayment thereof 569,395 569,679
Beneficial conversion of preferred stock 276,500 (276,500) 0
Net loss -- -- -- (1,234,890) (1,234,890)
---------- ------- -------- ----------- -----------
Balance, December 31, 1999 $4,581,815 (65,279) $(64,624) $(1,629,663) $ 2,921,241
========== ======= ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 46
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1998
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from operations $(1,234,890) $ 70,418
----------- ---------
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 191,941 21,216
Stock issued in lieu of interest 94,679 --
Interest imputed on bridge loans 475,000 --
Stock issued for services 178,750 --
Deferred taxes 12,800 8,900
(Increase) Decrease in:
Accounts receivable 199,720 (32,664)
Inventory (49,602) --
Refundable income taxes (126,000) --
Current assets attributable to discontinued operations 137,629 --
Prepaid expenses and other current assets (84,289) 22,300
Other assets attributable to discontinued operations 347,290 --
Increase (Decrease) in:
Accounts payable and accrued expenses 61,600 (19,117)
Related party advances(repayments) (28,516) 37,326
Deferred revenue 8,735 24,785
Current liabilities attributable to discontinued operations (942,354) --
Other current liabilities 36,892 --
----------- ---------
Total adjustments 514,275 62,746
----------- ---------
Net cash provided (used) by operating activities (720,615) 133,164
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in merger 139,306 --
Increase in deposits 3,403 201
Purchase of fixed assets (139,426) (65,085)
----------- ---------
Net cash provided (used) by investing activities 3,283 (64,884)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 120,000 --
Private placement, net of issue costs of $249,944 and
bridge loan repayment of $600,000 730,056 --
Proceeds from bridge financing 600,000 --
Proceeds(repayment) of loans payable 45,940 (48,075)
----------- ---------
Net cash provided (used) by financing activities 1,495,996 (48,075)
----------- ---------
NET INCREASE (DECREASE) IN CASH 778,664 20,205
Cash, beginning of period 21,897 1,692
----------- ---------
Cash, end of period $ 800,561 $ 21,897
=========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 47
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998
----------- ----
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF NON CASH ACTIVITIES:
Cash paid during the year for:
Interest $ 10,197 $ --
Income taxes 7,004 380
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES:
On July 1, 1999 the Company issued 254,076 shares of Preferred Stock and
12,274,237 shares of Common Stock in a merger
Excess of fair value over net assets acquired in merger $ 2,835,173
Preferred stock (254)
Common stock (12,275)
Additional paid in capital (1,834,617)
Treasury stock 64,624
Accounts receivable 651,086
Inventory 47,189
Current assets attributable to discontinued operations 159,520
Prepaid expenses and other current assets 44,085
Fixed assets 94,478
Other assets attributable to discontinued operations 448,661
Security deposits and other assets 15,736
Note payable - bank (80,000)
Accounts payable and accrued expenses (325,773)
Current liabilities attributable to discontinued operations (1,557,843)
Other current liabilities (26,659)
Loans payable (516,531)
Deferred taxes (6,600)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 48
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE A - MERGER
VillageWorld.com, Inc. is the successor consolidated entity formed by the
merger on July 1, 1999, of Big City Bagels, Inc. ("Big City"), VillageNet,
Inc. ("VillageNet") and Intelligent Computer Solutions, Inc. ("ICS").
VillageNet was incorporated in New York on June 6, 1995, ICS was incorporated
in New York on October 21, 1994. The Company was incorporated in New York on
December 21, 1992. Subsequent to the merger, Big City, Inc., a publicly held
company, and the legally surviving parent company, changed its name to
VillageWorld.com, Inc.
To effect the merger Big City issued 8,619,466 shares of Common Stock and
508,152 shares of Class B Preferred Stock to the stockholders of VillageNet and
ICS. The transaction was accounted for as an acquisition of Big City and ICS by
VillageNet, as the former shareholders of VillageNet own a majority of the
shares of the combined companies as of the completion of the transaction. In
addition, as Big City is discontinuing its bagel business, the reverse
acquisition of Big City was treated as a purchase with the issuance of common
stock and options to purchase common stock to the pre-merger shareholders and
option holders of Big City in exchange for the net asset deficiency of Big City,
valued at the fair value of the net asset deficiency assumed. The acquisition of
ICS was accounted for as a purchase with the securities issued as consideration
for ICS valued at $2,577,524; such fair value determination by the Company being
in part based on the opinion of an independent appraiser. The financial
statements reflect the operations of VillageNet for the year ended December 31,
1999 and 1998 and ICS for the period July 1, 1999 to December 31, 1999. The
decision to dispose of the bagel operations was made prior to the merger. In
accordance with Accounting Principles Board Opinion No. 30 the results of the
discontinued operations of Big City were accrued at June 30, 1999 (see note
D(8)).
NOTE B - NAME CHANGE
At a stockholders' meeting held December 30, 1999, the stockholders voted to
amend the Certificate of Incorporation, changing the name from Big City Bagels,
Inc. to VillageWorld.com, Inc. ("VWI" or "the Company").
NOTE C - THE COMPANY AND BASIS OF PRESENTATION
The Company is a provider of internet on-line services, offering its subscribers
a wide variety of services including electronic mail, software, computing
support, and easy access of the internet. In addition, the Company provides
small businesses with fully managed services that include internet connections,
remote dial access and Web hosting services. ICS is a full service system
integration firm specializing in high-end computer networking infrastructures,
internet solutions, and Local and Wide Area Network installations.
All significant intercompany balances are eliminated in consolidation.
Prior to the merger, management adopted a plan to discontinue the bagel
operations. The Company is in the process of closing its commissary operations,
which supplies bagel products to franchise stores. The Company is also entering
into separation agreements with existing franchisees' to terminate their prior
franchise agreements. The Company expects to close its bagel operations by the
end of the first quarter in the year 2000 (see Note D(8)).
F-8
<PAGE> 49
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. INVENTORY:
Inventory is stated at the lower of cost (first-in, first-out) or market.
2. DEPRECIATION:
Fixed assets are stated at cost, less accumulated depreciation. The fair
value of assets acquired in business combinations is recognized as the new
cost basis. Depreciation is provided using the straight-line method over
the estimated useful lives of the respective assets.
3. CASH AND CASH EQUIVALENTS:
The Company considers all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid instruments
purchased with a maturity of three months or less to be cash equivalents.
4. USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the 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.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, notes and loans payable, accrued expenses and
capitalized lease obligations approximate fair value due to their
short-term nature or their underlying terms.
6. STOCK-BASED COMPENSATION:
The Company accounts for stock-based compensation pursuant to Statement of
Financial Accounting Standards No. 123, ("SFAS No. 123"). The provisions
of SFAS No. 123 allow companies to either expense the estimated fair value
of stock options or to continue to follow the intrinsic value method set
forth in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB No. 25") but disclose the pro forma effects on
net income (loss) had the fair value of the options been expensed. The
Company has elected to continue to apply APB No. 25 in accounting for its
stock option incentive plans (see Note M).
F-9
<PAGE> 50
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
7. EARNINGS (LOSS) PER COMMON SHARE:
The Company calculates earnings (loss) per share pursuant to Statement of
Financial Accounting Standards No. 128 "Earnings Per Share," which
requires the presentation of basic and diluted earnings per share. Basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share include the dilutive
effects of such securities, except when they are anti-dilutive.
In 1999, the net loss is increased by the beneficial conversion feature of
the preferred stock to derive net loss attributable to common
stockholders. Due to the fact that there is neither an economic benefit
for not converting, nor an economic detriment from converting the Class B
Preferred Stock, the per share calculation assumes conversion of all
outstanding Class B Preferred Stock for both periods presented.
8. DISCONTINUED OPERATIONS:
In 1999, prior to the merger, management of the Company's predecessor
determined to discontinue the bagel operations. In accordance with
Accounting Principle Board Opinion No. 30, losses from such discontinued
operations as well as any future related losses to be incurred on the
ultimate disposition of the remaining assets are accrued/accruable at the
date the decision to discontinue is made. Since the bagel operations were
those of the predecessor, all actual losses incurred and estimated to be
incurred through the disposal of the operations have been accrued as of
June 30, 1999 in order to correctly allocate acquisition costs and values
at such date in accordance with Financial Accounting Standard No. 38.
Accordingly, discontinued operations are not reflected in the accompanying
statement of operations for the year ended December 31, 1999, as they have
been accrued at June 30, 1999, the date immediately prior to the
acquisition of the predecessor company (see Note O re: Fourth Quarter
Adjustments).
NOTE E - PRO FORMA FINANCIAL STATEMENTS
The following summarizes unaudited, pro forma results of operations
assuming that the merger described in Note (A) occurred as of the beginning of
the earliest year presented:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
----------- -----------
<S> <C> <C>
Net sales (1) $ 2,967,145 $ 6,491,363
Net loss (2) (1,358,374) (145,150)
Net loss per common share (3) (0.02) 0.00
</TABLE>
(1) Included in net sales for the year ended December 31, 1998 are
revenues of approximately $2,280,000 relating to one school contract that
was completed.
(2) The pro-forma results exclude results from discontinued operations for
each of the years then ended.
(3) The net loss per common share gives effect to the conversion to common
stock of all Class B Preferred Stock outstanding.
F-10
<PAGE> 51
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE F - FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
Life
<S> <C> <C>
Furniture and fixtures $ 23,921 5-7 years
Internet equipment 305,183 5 years
Office equipment 78,903 5-7 years
Auto 4,393 5 years
--------
412,400
Less accumulated depreciation and amortization 87,115
--------
$325,285
========
</TABLE>
NOTE G - INTANGIBLE ASSETS
Intangible assets at cost, are amortized using the straight-line method and
consist of the following:
<TABLE>
<CAPTION>
Life
<S> <C> <C>
Goodwill $ 2,835,173 10 years
Trademark costs 1,179 15 years
--------------
2,836,352
Less accumulated amortization 142,100
--------------
$ 2,694,252
==============
</TABLE>
NOTE H - NOTE PAYABLE
The Company has a revolving line of credit with a bank providing for a maximum
borrowing of $200,000. Interest is payable monthly at prime plus two percent,
maturing April 30, 2000. This credit line is secured by the Company's assets and
guaranteed by certain stockholders of the Company.
NOTE I - LOANS PAYABLE
The Company has a note payable, dated August 1,1996, to a related party. The
outstanding balance is $208,741, which bears interest at a rate of five percent
per annum. Principal and interest payments are due on a quarterly basis, equal
to ICS's pre-tax income. Quarterly payments are $2,000. This note is due and
payable on May 1, 2002. As of December 31, 1999 no payments have been made on
this loan. Interest of $32,089 has accrued on this note. In addition the Company
has received from this same related party working capital advances amounting to
$359,144 as of December 31, 1999. No interest has been accrued on these
advances. These loans have been subordinated to the bank credit line.
F-11
<PAGE> 52
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE J - COMMITMENTS
1.) Operating leases:
The Company leases office locations under various operating leases which expire
between December 2000 and March 2002. Future minimum rental payments as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------
<S> <C>
2000 $ 90,800
2001 71,400
2002 11,500
---------
$ 173,700
=========
</TABLE>
Additionally, the Company remains obligated under an operating lease for a store
that was sold by its predecessor to a third party in 1998, in the event that the
acquirer defaults on the lease. The lease expires in October 2005 and requires
monthly payments of $4,666 through October 2001 and $5,086 through October 2005.
At December 31, 1999, the Company has not been informed that the lease is in
default.
Rent expense for the years ended December 31, 1999 and December 31, 1998 was
$35,499 and $18,738, respectively.
2.) Employment agreement:
The Company has an employment agreement with the President of the Company which
provides for compensation at the rate of $50,000 per year. This amount may be
increased annually by the Board of Directors up to a maximum of $125,000 per
year, provided there is an additional employee(s), designated by two members of
the Board, added to the company's payroll who will be paid an annual salary
equal to any excess amount over $50,000 per year paid to the President (see Note
P).
NOTE K - INCOME TAXES
The provision (credit) for income taxes consists of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current:
Federal $ (143,700) $ 14,000
State (1,000) 8,300
Deferred:
Federal 8,700 6,700
State 4,100 2,400
----------- --------
Total $ (131,900) $ 31,400
=========== ========
</TABLE>
F-12
<PAGE> 53
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE K - INCOME TAXES (CONTINUED)
A reconciliation of the federal statutory rate to the Company's effective tax
rate is as follows:
<TABLE>
<S> <C> <C>
Federal statutory rate $(478,800) $ 36,700
Federal statutory rate differential 21,800 (12,500)
State taxes, net of federal benefit (116,100) 7,000
Items providing no carryforward benefit 441,200 0
--------- --------
Total $(131,900) $ 31,200
========= ========
</TABLE>
As of December 31, 1999, the Company has net operating loss carryforwards of
approximately $481,000 for tax purposes, which will be available to offset
future taxable income. If not used, these carryforwards will expire through
2019.
Deferred income taxes reflect the net tax effects of a net operating loss.
Significant components of the Company's deferred tax asset at December 31,
consists of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 481,000 $ 105,300
Loss carry forward utilization 0 (22,300)
Valuation allowance for deferred assets (424,300) (26,300)
--------- ---------
56,700 56,700
Deferred tax liabilities:
Property and equipment (28,300) (8,900)
--------- ---------
Net deferred tax asset $ 28,400 $ 47,800
========= =========
</TABLE>
NOTE L - EMPLOYEE BENEFIT PLAN
The Company has a savings plan that qualifies as a deferred salary arrangement
under Section 401(k) of the Internal Revenue Code. Under the plan, participating
employees may defer a portion of their pretax earnings, up to the Internal
Revenue Service annual contribution limit. The Company matches one third of each
employee's contributions to a maximum matching contribution of 2% of the
employee's earnings. The Company's pension expense was $7,640 and $845 for the
years ended December 31, 1999 and 1998, respectively.
F-13
<PAGE> 54
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE M - COMMON STOCK
1.) Stock options:
Neither VillageNet nor ICS has granted any stock options to its employees. At
July 1, 1999, 33,780 options granted by the Company's predecessor were
outstanding. These options remain outstanding at December 31, 1999 as follows:
(a) 1998 Performance Equity Plan:
The Company's 1998 Performance Equity Plan (the "1998 Plan") provides for the
issuance of up to 400,000 shares of common stock to employees, officers,
directors and consultants. The awards may consist of incentive stock options,
nonqualified options, restricted stock awards, deferred stock awards, stock
appreciation rights and other awards as described in the 1998 Plan. Vesting
periods are determined by the board of directors.
At December 31, 1999, options for 175,000 shares of common stock were available
for future grant under the 1998 Plan.
(b) 1996 Performance Equity Plan:
The Company's 1996 Performance Equity Plan (the "1996 Plan") provides for the
issuance of awards of up to 70,000 shares of common stock to employees,
officers, directors and consultants. The awards, which generally vest over four
years, may consist of incentive stock options, nonqualified options, restricted
stock awards, deferred stock awards, stock appreciation rights and other awards
as described in the 1996 Plan. At December 31, 1999, the Company has reserved
62,012 shares of common stock for issuance under the 1996 Plan.
The following table summarizes information about stock options outstanding and
exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Number Number Expiration
Grant Date Outstanding Exercise Price Exercisable Date
----------- -------------- ----------- ----
<S> <C> <C> <C> <C>
3/31/99 10,000 $ 0.9375 10,000 3/30/09
4/22/98 480 3.125 120 4/21/08
3/31/98 8,000 4.6875 8,000 3/30/08
12/15/97 2,100 10.00 1,050 12/15/07
3/31/96 3,000 20.00 3,000 3/30/06
3/31/97 10,000 26.875 10,000 3/30/07
7/11/96 200 42.30 200 7/10/06
------ ------
33,780 32,370
====== ======
Weighted-average
exercise price $12.04 $12.20
====== ======
</TABLE>
At December 31, 1999, options for 28,232 shares of common stock were available
for future grant under the 1996 Plan.
(c) In May 1999, management of the Company's predecessor made a grant of
50,000 five year options, outside of any of our Performance Equity Plans, to
Mark Weinreb. These options have an exercise price ranging from $0.48 to $1.00.
F-14
<PAGE> 55
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE M - COMMON STOCK (CONTINUED)
2.) Warrants
As at December 31, 1999, the following warrants were outstanding:
<TABLE>
<CAPTION>
Shares Reserved
For Issuance Exercise Price Expiration Date
------------ -------------- ---------------
<S> <C> <C> <C>
Class A Warrants 481,250 $12.50 May 7, 2000
Placement Agent Warrants 15,000 $25.00 December 30, 2002
Placement Agent Warrants 25,000 $6.5625 December 30, 2002
Other Warrants 4,000 $5.00-$8.75 April 30, 2003
</TABLE>
NOTE N - PREFERRED STOCK
On December 30, 1999, the Company completed a private placement in which it
received net proceeds of $1,330,056 less the repayment of $600,000 of bridge
financing notes owed by the Company, through the sale of 15,800 shares of Class
C preferred stock. In lieu of interest owed on the bridge loans, 189,359 shares
of common stock were issued to the debt holders.
The bridge loan financing which preceded the private placement including
warrants to purchase 375,000 shares of the Company's common stock. These
warrants had a fair value at the time of issuance of $475,000, recognition of
which reduced the stated value of the debt principle to $125,000. When the
bridge loans were repaid from the proceeds of the private placement, the
resulting additional(imputed) interest expense of $475,000 was recognized.
The preferred stock accrues dividends at the rate of 6% per annum, payable in
cash or in shares of common stock at the election of the Company on the date the
preferred stock is converted into shares of common stock. The preferred stock
and dividends accrued are convertible into shares of the Company's common stock
by dividing the $100 purchase price for each Class C Preferred share by the
lower of $1.404, or an amount equal to a discount, ranging from 75% to 82 -1/2%
(depending on the time the holder elects to convert) from the average of the
closing bid prices for the Company's common stock during the five trading days
prior to the holders election to convert. The amount of such discount may be
increased if the Company has not registered, under the Securities Act, the
common stock into which the Class C Preferred shares are convertible, for public
sale by May 26, 2000.
Due to the beneficial conversion feature of the preferred stock, the Company
recorded a charge of $276,500 to retained earnings (accumulated deficit) on
December 31, 1999, with a credit of like amount to additional paid-in capital.
F-15
<PAGE> 56
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE O - FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
In accordance with Accounting Principles Board Opinion No. 30 and
Financial Accounting Standard No. 38, the loss from discontinued operations
incurred by the Company's predecessor has been accrued at June 30, 1999. Such
loss, in the amount of $965,374 had not been accrued when the Company reported
its second quarter Form 10-QSB. Accordingly under the appropriate reporting no
loss from discontinued operations would have been presented at September 30,
1999. Such amount was previously reported as $531,238.
Certain other items including stock-based severance compensation and a portion
of the additional interest expense related to the bridge loan have also been
corrected. In addition, $461,250 of additional stock-based merger related costs
have been identified and added to goodwill. Lastly the Company has downwardly
revised their estimate of the useful life of goodwill from 15 to ten years.
Had the above accounting been followed at September 30, 1999 the results of
operations for the nine and three months ended September 30, 1999 would have
shown the following (amounts that were reported are shown for comparison):
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1999
As originally reported As corrected
---------------------- ------------
Nine Months Three Months Nine Months Three Months
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Amortization of goodwill $ 39,565 $ 39,565 $ 70,879 $ 70,879
Interest expense 14,020 12,736 106,520 105,236
Other items of continuing operations 922,545 739,101 1,086,528 903,084
--------- --------- ----------- -----------
Total costs and expenses from
continuing operations 976,130 791,402 1,263,927 1,079,199
Loss from discontinued operations (531,238) (531,238) 0 0
--------- --------- ----------- -----------
Net loss $(632,846) $(626,026) $ (389,405) $ (382,585)
========= ========= =========== ===========
Per share data:
Continuing operations $ (0.01) $ (0.01) $ (0.05) $ (0.02)
Discontinued operations (0.06) (0.03) N/A N/A
--------- --------- ----------- -----------
Net loss $ (0.07) $ (0.04) $ (0.05) $ (0.02)
========= ========= =========== ===========
</TABLE>
The per share data above does not give effect to the conversion of the Class B
Preferred Stock.
NOTE P - SUBSEQUENT EVENT (UNAUDITED)
On March 28, 2000, the Company signed a letter of intent with Millenium
Development Group, LLC ("MDG"), an investment group, whereby MDG proposed to
purchase 500,000 shares of the Company's common stock and 500,000 five year
warrants, with an exercise price of $1.90 per share, for $500,000. This
investment in common stock and warrants would be subject to certain restrictions
on the trading of the common stock purchased. In addition, MDG proposed to
purchase for $2,500,000 an additional 2,500,000 shares of common stock with an
equal number of five year warrants, at various exercise levels. This investment
will be subject to a 45 day due diligence period by MDG of the Company, during
which time the Company would agree not to raise capital from any other sources.
F-16
<PAGE> 57
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE P - SUBSEQUENT EVENT (UNAUDITED) (CONTINUED)
In January and February 2000 the Company issued an aggregate of 1,020,120 shares
of its common stock to twelve persons who elected to convert their shares of the
Company Class C preferred stock into common stock. Such shares were converted
based on the conversion formulas in the designation of preferences for the Class
C preferred stock.
In February 2000 the Company issued 11,111 shares of its common stock to an
attorney in payment of $10,000 for legal services rendered by such attorney for
the Company.
In February 2000 the Company granted five-year warrants to four persons to
purchase an aggregate of 152,000 shares of the Company's common stock at an
exercise price of $0.01 per share for the following services:
(1) to one person, for acting as a public spokesman for the Company, a
warrant to purchase 70,000 shares;
(2) To PHD and MFC Marketing, Inc. for arranging the transaction with
the spokesman, warrants to purchase an aggregate of 80,000
shares; and
(3) to one person for legal services provided in such transaction, a
warrant to purchase 2,000 shares.
In March 2000 the Company issued an aggregate of 105,000 shares of its common
stock to three persons in settlement of their claims against the Company arising
from the Company's discontinued bagel franchising operations.
On March 13, 2000, the Company entered into a memorandum of understanding with
Mr. Robert Appel pursuant to which he became our Chief Executive Officer. The
memorandum provides for employment on a full-time basis and contains provisions
that Mr. Appel will not compete or engage in a business competitive with our
current or anticipated business until twelve months after the termination of his
agreement. The memorandum provides for a base salary of $75,000 per annum and we
have granted him a five-year option to purchase 300,000 shares of our common
stock at an exercise price of $.01 per share and vesting rights being
negotiated.
F-17
<PAGE> 58
INTELLIGENT COMPUTER SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
ASSETS
Cash $ 69,552 $ 186,638
Accounts Receivable 651,086 1,068,215
Inventories 47,189 477,017
Due from Affiliates 277,791 283,115
Prepaid Expenses 39,385 12,058
---------- ----------
Total Current Assets 1,085,003 2,027,043
Fixed assets, net of accumulated depreciation 61,278 49,513
Security Deposits 12,883 6,270
---------- ----------
TOTAL $1,159,164 $2,082,826
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Note Payable $ 80,000 $ --
Current Portion of Long-Term Debt 24,453 21,971
Accounts Payable 281,641 1,030,430
Accrued Expenses 44,132 112,996
Income Taxes Payable 195,575
Due to Affiliate 315,426 305,325
Other Current Liabilities 26,659 48,200
---------- ----------
Total Current Liabilities 772,311 1,714,497
Note Payable - Related Parties 176,652 176,652
Deferred Taxes Payable 6,600 6,600
---------- ----------
Total Liabilities 955,563 1,897,749
---------- ----------
Stockholders' Equity
Preferred stock - no par value, Authorized - 100 shares,
Issued and outstanding 40 shares 2,000 2,000
Common stock - no par value, Authorized - 2000 shares,
Issued and outstanding - 1000 shares 1,000 1,000
Retained Earnings 200,601 182,077
---------- ----------
Total Stockholders' Equity 203,601 185,077
---------- ----------
TOTAL $1,159,164 $2,082,826
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE> 59
INTELLIGENT COMPUTER SOLUTIONS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
REVENUES:
Hardware sales $ 1,221,842 $ 1,375,152
Installation services 308,635 453,712
Other 166,553 80,375
----------- -----------
Total Revenues 1,697,030 1,909,239
----------- -----------
COSTS AND EXPENSES:
Cost of sales 1,096,110 1,426,763
Selling, general and administrative 552,047 462,771
Interest expense 11,349 9,294
Equity loss -- 332
----------- -----------
Total costs and expenses 1,659,506 1,899,160
----------- -----------
Income before provision for income taxes 37,524 10,079
Provision for income taxes 19,000 2,400
----------- -----------
Net income 18,524 7,679
Retained Earnings (Deficit) - Beginning 182,077 (64,682)
----------- -----------
Retained Earnings (Deficit) - Ending $ 200,601 $ (57,003)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE> 60
INTELLIGENT COMPUTER SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 26,524 $ 246,759
--------- ---------
Adjustments to reconcile net income to net cash
(used) provided by operating
activities:
Depreciation 8,848 20,944
Deferred Tax Expense 6,600
Loss from Operations of Affiliate 332
(Increase) decrease in:
Accounts Receivable 417,129 (857,676)
Inventory 429,828 (428,575)
Other Current Assets (35,327) (9,875)
Increase (decrease) in:
Accounts Payable (817,653) 821,106
Accrued Expenses 85,309
Income Taxes Payable (195,575) 195,575
Other Current Liabilities (21,541) 48,200
--------- ---------
Total adjustments (214,291) (118,060)
--------- ---------
Net Cash (Used) Provided by Operating Activities (187,767) 128,699
--------- ---------
Cash Flows From Investing Activities:
Purchase of Fixed Assets (20,613) (20,515)
(Increase) in Security Deposits (6,613)
Decrease (Increase) in Due from Affiliate 5,325 44,858
--------- ---------
Net Cash (Used) Provided by Investing Activities (21,901) 24,343
--------- ---------
Cash Flows From Financing Activities:
Proceeds from long-term debt 2,482 9,458
Note Payable 80,000 (50,000)
Issuance of Preferred Stock 2,000
Increase in Due to Affiliates 10,100 65,051
--------- ---------
Net Cash Provided by Financing Activities 92,582 26,509
--------- ---------
Net (decrease) increase in cash (117,086) 179,551
Cash - Beginning 186,638 7,087
--------- ---------
Cash - Ending $ 69,552 $ 186,638
========= =========
Supplemental Information:
Taxes Paid $ 230,875 $ 325
Interest Paid 9,108 15,699
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-20
<PAGE> 61
INTELLIGENT COMPUTER SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(NOTE A)- THE COMPANY AND BASIS OF PRESENTATION
The Company is a full service system integration firm
specializing in high-end computer networking infrastructures,
internet solutions, and Local and Wide Area Network
installations. The Company markets its services throughout the
United States.
The information herein is unaudited. However, in the opinion
of management, such information reflects all adjustments
(consisting only of normal recurring accruals) necessary to
make the financial statements not misleading. Additionally, it
should be noted that the accompanying financial statements do
not purport to contain complete disclosures in conformity with
generally accepted accounting principles.
The results of operations for the three and six months ended
June 30, 1999 are not necessarily indicative of the results of
operations for the full year ending December 31, 1999.
(NOTE B)- MERGER
On July 1, 1999, the Company was acquired by Village Net, Inc.
("Village Net") and merger with Big City Bagels, Inc. ("Big
City"), for 8.6 million shares of Common Stock and 508,152
shares of Class B Preferred Stock.
The transaction will be accounted for as an acquisition of Big
City and the Company by Village Net as the former shareholders
of Village Net own a majority of the shares of the combined
companies as of the completion of the transaction. In
addition, as Big City is discontinuing its bagel business, the
reverse acquisition of Big City will be treated as a purchase
with the issuance of common stock and options to purchase
common stock to the pre-merger shareholders and option holders
of Big City in exchange for the net assets of Big City, valued
at fair value of the net assets acquired and to be sold. The
acquisition of the Company will be accounted for as a purchase
with the securities issued as consideration for the Company
valued at $2,577,524 based on the opinion of an independent
appraiser
F-21
<PAGE> 62
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
INTELLIGENT COMPUTER SOLUTIONS, INC.
Bohemia, New York
We have audited the accompanying balance sheets of Intelligent Computer
Solutions, Inc. as of December 31, 1998 and 1997 and the related statements of
income and retained earnings (deficit) and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 aspects, the financial position of Village Net, Inc. as of December
31, 1998 and 1997 and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ WEISBERG, LESK, & KAMPFER, LLP
HUNTINGTON, NEW YORK
May 10, 1999
Except for Note 9
Which is May 21, 1999
F-22
<PAGE> 63
INTELLIGENT COMPUTER SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
restated
<S> <C> <C>
ASSETS
Cash $ 186,638 $ 7,087
Accounts Receivable 1,068,215 210,539
Inventories (Note 2) 477,017 48,442
Due from Affiliates (Note 3) 283,115 327,973
Prepaid Expenses 12,058 2,183
---------- --------
Total Current Assets 2,027,043 596,224
Fixed assets, net of accumulated depreciation 49,513 49,942
Investment in Affiliate (Note 3) -- 332
Security Deposits 6,270 6,270
---------- --------
TOTAL $2,082,826 $652,768
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Note Payable $ -- $ 50,000
Current Portion of Long-Term Debt (Note 4) 21,971 12,513
Accounts Payable 1,030,430 209,324
Accrued Expenses 112,996 27,687
Income Taxes Payable (Note 5) 195,575 --
Due to Affiliate (Note 3) 305,325 240,274
Other Current Liabilities 48,200 --
---------- --------
Total Current Liabilities 1,714,497 539,798
Note Payable -- Related Parties (Note 4) 176,652 176,652
Deferred Taxes Payable (Note 5) 6,600 --
---------- --------
Total Liabilities 1,897,749 716,450
---------- --------
Stockholders' Equity (Deficiency)
Preferred stock (Note 7) -- no par value,
Authorized -- 100 shares, Issued and
outstanding 40 shares 2,000 --
Common stock -- no par value, Authorized --
2000 shares, Issued and outstanding --
1000 1,000 1,000
Retained Earnings (Deficit) 182,077 (64,682)
---------- --------
Total Stockholders' Equity (Deficiency) 185,077 (63,682)
---------- --------
TOTAL $2,082,826 $652,768
========== ========
</TABLE>
See Independent Auditors' Report and Notes to Financial Statements
F-23
<PAGE> 64
INTELLIGENT COMPUTER SOLUTIONS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
restated
<S> <C> <C>
REVENUES:
Hardware sales $4,433,899 $3,936,225
Installation services 1,281,821 1,682,479
Other 368,931 221,471
---------- ----------
Total Revenues 6,084,651 5,840,175
---------- ----------
COSTS AND EXPENSES:
Cost of sales 4,619,271 5,031,473
Selling, general and administrative 1,007,364 745,069
Interest expense 25,157 11,720
---------- ----------
Total costs and expenses 5,651,792 5,788,262
---------- ----------
Income before provision for income taxes 432,859 51,913
Provision for income taxes 186,100 325
---------- ----------
Net income 246,759 51,588
Accumulated Deficit -- Beginning (64,682) (116,270)
---------- ----------
Retained Earnings (Deficit) -- Ending $ 182,077 $ (64,682)
========== ==========
</TABLE>
See Independent Auditors' Report and Notes to Financial Statements
F-24
<PAGE> 65
INTELLIGENT COMPUTER SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
restated
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 246,759 $ 51,588
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Depreciation 20,944 19,514
Deferred Tax Expense 6,600 --
Loss from Operations of Affiliate 332 168
(Increase) decrease in:
Accounts Receivable (857,676) 383,003
Estimated Earnings in Excess of Billings -- 26,312
Inventory (428,575) 266,984
Prepaid Expenses (9,875) (2,183)
Increase (decrease) in:
Accounts Payable 821,106 (721,725)
Accrued Expenses 85,309 890
Income Taxes Payable 195,575 --
Sales Tax Payable -- (115)
Other Current Liabilities 48,200 (5,350)
--------- ---------
Net Cash Provided by Operating Activities 128,699 19,086
--------- ---------
Cash Flows From Investing Activities:
Purchase of Fixed Assets (20,515) (36,479)
(Increase) in Security Deposits -- (6,270)
Decrease (Increase) in Due from Affiliate 44,858 (269,830)
--------- ---------
Net Cash Provided (Used) by Investing Activities 24,343 (312,579)
--------- ---------
Cash Flows From Financing Activities:
Note Payable 9,458 8,833
Line of Credit (50,000) 50,000
Issuance of Preferred Stock 2,000 --
Increase in Due to Affiliates 65,051 240,274
--------- ---------
Net Cash Provided by Financing Activities 26,509 299,107
--------- ---------
Net increase in Cash 179,551 5,614
Cash -- Beginning 7,087 1,473
--------- ---------
Cash -- Ending $ 186,638 $ 7,087
========= =========
Supplemental Information:
Taxes Paid $ 325 $ 325
Interest Paid 15,699 8,020
</TABLE>
See Independent Auditors' Report and Notes to Financial Statements
F-25
<PAGE> 66
INTELLIGENT COMPUTER SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - ORGANIZATION
The Company was incorporated on October 21, 1994 pursuant to the provisions of
the State of New York. On August 1, 1996 Peter Keenan purchased 510 shares of
the Company's stock, which represents a 51% ownership interest in the Company.
The Board of Directors also named him President of the Company.
The Company is a full service system integration firm specializing in high-end
computer networking infrastructures, internet solutions, and Local and Wide Area
Network installations. The Company markets its services throughout the United
States.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company, as summarized
below, are in conformity with generally accepted accounting principles.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined on the
first-in, first-out basis.
Fixed Assets
Fixed assets are stated at cost. Depreciation is computed using accelerated and
straight-line methods over the estimated useful lives of the related assets.
Maintenance, repairs and minor renewals are charged to expense when incurred.
Replacements and major renewals are capitalized.
Income Taxes
The Company and its stockholders' were previously taxed as a small business
under the provisions of Section 1362 of the Internal Revenue Code and the
applicable provision for the New York State Corporation tax code. Effective
January 1, 1998 the Company terminated its election to be treated as a small
business corporation and therefore will record its state and federal tax
liability in accordance with Financial Accounting Standards Board Statement No.
109 "Accounting for Income Taxes".
Deferred taxes payable are recorded for temporary differences between the
recognition of income and expense for tax and financial reporting purposes,
using current tax rates. Temporary differences result principally from reporting
accelerated depreciation over the straight-line method of depreciation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles require management to make estimates and assumptions that
effect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents, notes
receivable from related parties, notes payable to related parties. The carrying
amount of these financial instrument have been estimated by management to
approximate fair value.
F-26
<PAGE> 67
INTELLIGENT COMPUTER SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Restatement
The Company has restated its equity investment in Intelligent Computer Solutions
Network Systems, Inc. The Company has reduced its investment to the amount
actually invested for the year ended December 31, 1998.
NOTE 3 - RELATED PARTY TRANSACTIONS
A) During the year ended December 31, 1998 and 1997, the had sales to a
related party of approximately $10,500 and $13,500 respectively. The
Company had purchases from this related party of $12,000 for the year ended
December 31, 1998.
B) On December 31, 1997 the Company acquired a 50% interest in the outstanding
common stock of Intelligent Computer Solutions Network Systems, Inc. During
1998 as a result of additional shares being issued, the Company's equity
interest was reduced to 35% of the outstanding common stock. The investment
is accounted for using the equity method. The carrying value of this
investment was $ 0 and $ 300 at December 31, 1998 and 1997, respectively.
NOTE 4 - NOTES PAYABLE
The Company has a note payable, dated August 1,1996, to a related party. The
outstanding balance is $176,651, which bears interest at a rate of five percent
per annum. Principal and interest payments are due on a quarterly basis
beginning August 1, 1997, equal to the Company's net profit before taxes. In no
event shall such quarterly payments be less than $2,000. This note is due and
payable on May 1, 2002. As of December 31, 1997 no payments have been made to
the related party. Interest of approximately $9,5000 and $8,800 has been accrued
for the years ended December 31, 1998 and 1997, respectively.
NOTE 5 - INCOME TAXES
The provision for income taxes at December 31, 1998 consists of:
<TABLE>
<S> <C>
Current:
Federal $133,100
State 46,400
Deferred:
Federal 4,900
State 1,700
--------
Total $186,100
========
</TABLE>
F-27
<PAGE> 68
INTELLIGENT COMPUTER SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 5 - INCOME TAXES (CONTINUED)
A reconciliation of the federal statutory rate to the Company's effective tax
rate follows:
<TABLE>
<S> <C>
Federal statutory rate $ 157,200
Federal statutory rate differential (4,500)
State taxes, net of federal benefit 33,400
---------
Total $ 186,100
=========
Deferred tax liabilities:
Property and equipment $ 6,600
=========
</TABLE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
A) The Company occupies its present office and warehouse space under a
five-year lease expiring March 31, 2002. The terms of the lease require
minimum annual rent of $33,000 and increases annually at the rate of four
percent per year on each anniversary date of the lease.
Minimum future rental commitments under operating leases are payable as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1999 $ 40,000
2000 41,000
2001 40,000
2002 10,000
--------
Total minimum future rental commitments $131,000
========
</TABLE>
B) The Company leases a vehicle under an operating lease through April 2000.
C) The Company has an employment agreement with the President of the Company
which provides for compensation at the rate of $ 50,000 per year. This
amount may be increased annually by the Board of Directors up to a maximum
of $ 125,000 per year, provided there is an additional employee(s),
designated by two members of the Board, added to the Company's payroll who
will be paid an annual salary equal to any excess amount over $ 50,000 per
year paid to the President.
NOTE 7 - PREFERRED STOCK
On January 1, 1998 the Company authorized 100 shares of no par value preferred
stock. The preferred stock is convertible into shares of common stock at the
conversion rate of one to one.
F-28
<PAGE> 69
INTELLIGENT COMPUTER SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - PENSION PLAN
The Company maintains a tax qualified IRC section 401(k) retirement plan for all
qualified employees. The employees may contribute a maximum amount of 15% of
their gross wages to the plan. The Company contributes up to one-third of each
employee's contributions to a maximum contribution of 2% of the gross wages for
each employee participating in the plan. For the years ended December 31, 1998
and 1997 the annual pension expense was approximately $7,000 and $5,000,
respectively.
NOTE 9 - SUBSEQUENT EVENT
On May 21, 1999, the Company and a related party, Village Net have signed an
agreement for the acquisition by merger with Big City Bagels, Inc. The merger is
subject to several conditions, including receipt of a fairness opinion from
Heritage Capital Corp. and is expected to close in June 1999. Big City, founded
in December 1992, operates and franchises upscale bagel/deli cafes under the
registered trademark Big City Bagels.
The stockholders' of the Company and Village Net expects to exchange their stock
for a combination of Common Stock and voting convertible preferred stock from
the shareholders of Big City in an amount which, after conversion of preferred
stock into Common Stock, will approximate 90% of the outstanding shares of the
Common Stock following the transaction and conversion. Management of Big City
will be assumed by the management of ICS and Village Net.
F-29
<PAGE> 70
VillageWorld.com, Inc. and Subsidiaries
Pro Forma Unaudited Condensed Statement of Operations
For the Year Ended December 31, 1999
The following pro forma unaudited condensed statements of operations for the
year ended December 31, 1999, reflect the results of operations of Village Net
and ICS, as if the acquisition of ICS by Village Net had occurred on January 1,
1999. As the Company is discontinuing its bagel business, the operations of the
Company prior to the reverse acquisition by Village Net are discontinued and
accordingly are not included in the pro forma statements of operations.
These pro forma unaudited condensed statements of operations should be read in
conjunction with the notes thereto. The pro forma unaudited condensed statements
of operations are not necessarily indicative of what the actual results of
operations would have been had the transactions occurred on January 1, 1999, nor
do they purport to indicate the results of future operations.
P-1
<PAGE> 71
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
Pro Forma Unaudited Condensed Statement of Operations
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
VillageWorld.com * ICS
Year ended December January 1 - Pro Forma Pro Forma
31, 1999 June 30, 1999 Adjustments Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Subscription services $ 373,154 (6,000)(A) $ 367,154
Hardware sales 665,218 1,221,842 1,887,060
Installation services 98,468 308,635 407,103
Other 139,275 166,553 -- 305,828
----------- ----------- ----------- -----------
Total Revenues 1,276,115 1,697,030 (6,000) 2,967,145
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 952,333 1,096,110 (6,000)(A) 2,042,443
Selling, general and administrative 961,061 552,047 (178,750)(C) 1,334,358
Amortization of excess of cost over fair
value of net assets acquired 141,758 141,758 (B) 283,516
Interest expense, including $475,000
attributable to reduction in stated debt
principle arising from issuance of stock
purchase warrants 587,753 11,349 -- 599,102
----------- ----------- ----------- -----------
Total costs and expenses 2,642,905 1,659,506 (42,992) 4,259,419
----------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes (1,366,790) 37,524 36,992 (1,292,274)
Provision (benefit) for income taxes (131,900) 19,000 -- (112,900)
----------- ----------- ----------- -----------
Income (loss) from continuing operations $(1,234,890) $ 18,524 $ 36,992 $(1,179,374)
=========== =========== =========== ===========
Basic and diluted weighted average common
shares outstanding, giving effect to the
conversion to common stock of all Class B
Preferred Stock outstanding $(0.01)
===========
</TABLE>
* Includes ICS for the period July 1, 1999 to December 31, 1999 as ICS was
acquired by VillageWorld.com, Inc. on July 1, 1999.
P-2
<PAGE> 72
VillageWorld.com, Inc. and Subsidiaries
Notes to Pro Forma Unaudited Statement of Operations
For the Year Ended December 31, 1999
(A) To eliminate inter-company billings and expenses for the period January 1,
1999 to June 30, 1999.
(B) To reflect the amortization of goodwill over its estimated useful life of
10 years for the period January 1, 1999 to June 30, 1999.
(C) To eliminate the costs of the buy-out of the employment agreement of the
former president of the Company, as this is a non-recurring item directly
attributable to the acquisition.
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<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Sections 721 through 726, inclusive, of the New York Business Corporation
Law ("BCL") authorizes New York corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities incurred
in legal proceedings involving such person because of their being or having
been officers or directors and to purchase and maintain insurance for
indemnification of such officers and directors.
Section 402(b) of the BCL permits a corporation, by so providing in its
certificate of incorporation, to eliminate or limit a director's personal
liability to the corporation or to its shareholders for damages arising out of
certain alleged breaches of their duties as directors. The BCL, however,
provides that no such limitation of liability may affect a director's liability
with respect to any of the following: (1) acts or omissions made in bad faith
or which involved intentional misconduct or a knowing violation of law; (2) the
declaration of dividends or other distributions or repurchase or redemption of
shares in violation of the BCL; (3) the distribution of assets after
dissolution or making of loans to directors in violation of the BCL; or (4) any
transaction from which the director derived a financial profit or other
advantage to which he was not legally entitled.
The registrant's restated certificate of incorporation provides that the
personal liability of the registrant's directors is eliminated to the fullest
extent permitted by Section 402(b) of the BCL. In addition, the registrant's
By-laws provide in substance that, to the fullest extent permitted by New York
law, each director and officer shall be indemnified by us against reasonable
expenses, including attorney's fees, and any liability which he or she may
incur in connection with any action to which he or she may be made a party by
reason of his or her being or having been a director or officer of the
registrant's Company. The indemnification provided by the registrant's By-laws
is not deemed exclusive of or in any way to limit any other rights which any
person seeking indemnification may be entitled.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers, or persons controlling the registrant pursuant to the foregoing
provisions, the registrant has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
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<PAGE> 74
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth all estimated costs and expenses payable in
connection with the sale of the common stock being registered hereby.
<TABLE>
<S> <C>
SEC registration fee....................................$ 1,280
*Legal fees and expenses................................$25,000
*Accounting fees and expenses............................$2,500
Legal fees to PHD's counsel as per Agreement............$10,000
*Miscellaneous...........................................$5,000
Estimated Total.............................$43,780
</TABLE>
*Estimated
Item 26. Recent Sales of Unregistered Securities
Set forth below is information regarding securities sold by us in the last
three years that were not registered under the Securities Act.
1. In December 1997, Perrin Holden and Development Capital Corp. ("PHD")
acted as a placement agent for which services the Company granted PHD five year
warrants to purchase 25,000 post reverse split shares of the Company's common
stock at a post reverse split exercise price of $6.5625 per share and 15,000
post reverses split shares of the Company's common stock at a post reverse
split exercise price of $25.00 per share.
2. In 1998 the Company sold 265,000 shares of Class A preferred stock to
accredited investors for an aggregate of $2,650,000.
3. During December 1998 and February 1999, our Class A preferred stock
was converted into 6,536,713 shares of the Company s common stock.
4. In December 1997 the Company issued 69,300 post reverse split, (346,697
pre reverse split) shares of its common stock to one person as consideration for
the purchase of a bagel store in New York City. In December 1998, 67,300 of
such 69,300 post reverse split shares were contributed back to the Company,
leaving 2,000 post reverse split shares issued in that transaction still
outstanding.
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<PAGE> 75
5. In February 1998 the Company issued 3,765 post reverse split shares
(18,824 pre reverse split shares) as consideration for assignment of a lease.
6. On June 24, 1998 the Company's Board of Directors declared a
one-for-five reverse split of its common stock.
7. In May, 1998, the company granted to three persons, for services
rendered to the Company, five year warrants to purchase an aggregate of 4,000
shares of the Company s common stock at prices ranging from $1.00 to $1.75 per
share.
8. On July 1, 1999, the Company acquired two companies, ICS, and
VillageNet, that were conducting the business now conducted by the Company, the
installation of internet network systems and as an internet service provider. In
that transaction, the Company issued to the stockholders of ICS and VillageNet
an aggregate of 8,619,466 shares of the Company's common stock and 508,152
shares of our Class B preferred stock which are convertible at the holder's
options into an aggregate of 70,124,976 additional shares of the Company's
common stock. Such transaction was arranged by PHD who received warrants to
purchase 500,000 shares of the Company's common stock at an average exercise
price of $.06775, which were later exchanged by PHD for 360,000 shares of the
Company's common stock (see paragraph 12 below).
9. In the summer and fall of 1999 PHD arranged for an aggregate of
$600,000 to be loaned to the Company. The Company issued notes to the lenders
and granted them warrants to purchase 375,000 shares of common stock at an
exercise price of $0.75 per share. On December 30, 2000 the lenders and the
Company exchanged all those warrants we granted for such $600,000 loan, and the
lenders waived the payment of the interest then accrued on such notes, for an
aggregate of 189,359 shares of the Company's common stock. (See paragraph 12
below).
10. In December 1999 the Company sold 15,800 shares of its Class C
preferred stock to 19 accredited investors for an aggregate of $1,580,000. Part
of such $1,580,000 raised consisted of the $600,000 promissory notes referred
to in paragraph 8 above, which were used to buy 60 Class C preferred shares.
11. PHD acted as placement agent for which services the Company paid PHD
$158,000, reimbursed PHD for its expenses and issued 94,800 shares of the
Company's common stock to PHD.
12. In December 1999 the Company issued (a) 360,000 shares of its common
stock to PHD in exchange for the 500,000 warrant (referred to in paragraph 8
above) held by PHD to purchase shares of the Company's common stock; (b)
189,359 shares of its common stock to five persons in exchange for their
warrants (referred to in paragraph 9 above) to purchase 375,000 shares of the
Company's common stock and for such persons
II-3
<PAGE> 76
waiving payment of the accrued interest on the $600,000 of promissory notes
held by them, and (c) 51,455 shares to PHD in exchange for the warrant
(referred to in paragraph 9 above) to purchase 90,000 shares of the Company's
common stock.
13. In January and February 2000 the Company issued an aggregate of
1,020,120 shares of its common stock to twelve persons who elected to convert
their shares of the Company Class C preferred stock into common stock. Such
shares were converted based on the conversion formulas in the designation of
preferences for the Class C preferred stock.
14. In February 2000 the Company issued 11,111 shares of its common stock
to an attorney in payment of $10,000 for legal services rendered by such
attorney for the Company.
15. In February 2000 the Company granted fiveyear warrants to four persons
to purchase an aggregate of 152,000 shares of the Company's common stock at an
exercise price of $0.01 per share for the following services:
(1) to one person, for acting as a public spokesman for the Company,
a warrant to purchase 70,000 shares;
(2) To PHD and MFC Marketing, Inc. for arranging the transaction
with the spokesman, warrants to purchase an aggregate of 80,000
shares; and
(3) to one person for legal services provided in such transaction, a
warrant to purchase 2,000 shares.
16. In March 2000 the Company issued an aggregate of 150,000 shares of its
common stock to seven persons in settlement of their claims against the Company
arising from the Company's discontinued bagel franchising operations.
17. In April 2000 the Company sold 666,667 shares of its common stock to
one accredited investor and issued a five year warrant to purchase 666,667
shares of our common stock at an exercise price of $1.00 per share for an an
aggregate purchase price of $500,000. For arranging such transaction, the
Company issued a five year warrant to PHD to purchase 5,000 shares of our common
stock at an exercise price of $1.00 per share.
18. At various times from 1996 to the date of this prospectus, the Company
granted options to its employees, consultants and directors under its Stock
Option Plan, to purchase an aggregate of 143,780 shares of the Company's common
stock at prices ranging from $0.9375 to $42.50 per share.
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<PAGE> 77
19. All of the foregoing issuances, grants and exchanges were exempt from
the registration requirements of the Securities Act for the following reasons:
(1) with respect to the transactions described in paragraphs
numbered 2 and 10 above, pursuant to the provisions of Rule 506
of Regulation D under the Securities Act, as sales only to
accredited investors;
(2) with respect to the transactions described in paragraphs
numbered 1, 4, 5, 7, 8, 9, 11, 14, 15, 16, 17 and 18 above,
pursuant to the provisions of Section 4(2) of the Securities Act
as Transactions not involving a public offering;
(3) With respect to the transactions described in paragraph 3, 6, 12
and 13 above, pursuant to the provisions of Section 3(a)(9) of
the Securities Act, because such transaction were exchanges of
securities by the issuer with its existing security holders
exclusively where no commission or other remuneration was paid
or given directly or indirectly for soliciting such exchange;
and
(4) with respect to actions described in paragraph 6 above,
in addition to the reasons already given, because no sales of
securities were involved.
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<PAGE> 78
Item 27. Exhibits and Financial Statement Schedule
<TABLE>
<CAPTION>
Exhibit
Number
- -------
<S> <C>
3.1 Restated Certificate of Incorporation (1)
3.2 Amendment to Certificate of Incorporation filed December 29, 1999 (2)
3.3 Amendment to Certificate of Incorporation filed December 31, 1999 (2)
3.4 Bylaws of the Company, as amended (4)
4.1 Form of common stock certificate(1)
4.2 Form of Class A Warrant (1)
4.3 Form of Class B preferred stock certificate(*)
4.4 Form of Class C preferred stock certificate (*)
10.4 Employment Agreement by and between the Company and Peter Keenan(6)
10.5 1996 Performance Equity Plan (1)
10.6 1998 Performance Equity Plan (3)
16 Letter on change in certifying accountants (5)
24 Power of attorney (included in signature page to Registration Statement)
</TABLE>
* Filed herewith
(1) Filed with the Company's Registration Statement on Form SB-2 (No.
333-2154) declared effective on May 7, 1996 and incorporated by
reference.
(2) Filed with the Company's Form 8-K filed on December 30,1999 and
incorporated by reference.
(3) Filed with the Company's Form S-8 (Reg. No. 333-80373) filed with
the Commission on June 10, 1999 and incorporated by reference.
(4) Filed with the Company's Form 10-KSB (No. 000-28058) on March 31,
1999 and incorporated by reference.
(5) Filed with the Company's Form 8-KA filed on January 14, 2000 and
incorporated by reference.
(6) Filed with the Company's Form 10-KSB filed on March 31, 1999 and
incorporated by reference.
II-6
<PAGE> 79
Item 28. Undertakings
The Registrant hereby undertakes that it will:
1. File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(1) include any prospectus required by section 10(a)(3) of the
Securities Act;
(2) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(3) include any additional or changed material information on the
plan of distribution.
2. For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial bona
fide offering of those securities.
3. File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to the registrant's directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, we have
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by a
director, officer or controlling person of our Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-7
<PAGE> 80
POWER OF ATTORNEY
The Registrant and each person whose signature appears below hereby
constitutes and appoints Peter Keenan such person's true and lawful
attorney-in-fact and agent with full power of substitution, to execute in the
name and on behalf of the Registrant and each such person, individually and in
each capacity stated below, one or more amendments (including post-effective
amendments) to this Registration Statement on Form SB-2, as the attorneyinfact
acting in the premises deems appropriate and to file any such amendment with
all exhibits to this Registration Statement with the Commission.
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<PAGE> 81
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that we meets
all of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the town of Bohemia, State of New York, on April 19, 2000.
VILLAGEWORLD.COM, INC.
By: /s/ Peter Keenan
------------------------------
Name: Peter Keenan
Title: President
In accordance with to the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Peter Keenan President (Principal Executive Officer) April 24, 2000
- -----------------------
Peter Keenan
/s/ Robert Appel Chief Executive Officer April 24, 2000
- -----------------------
Robert Appel
/s/ Edilberto Enriquez Chief Financial Officer April 24, 2000
- ----------------------- (Principal Accounting and Financial officer)
Edilberto Enriquez
/s/ Hector Gavilla Director April 24, 2000
- -----------------------
Hector M. Gavilla
/s/ David Levi Director April 24, 2000
- -----------------------
David Levi
/s/ Steven Levi Director April 24, 2000
- -----------------------
Dr. Steven Levi
/s/ Moshe Schwartz Director April 24, 2000
- ------------------------
Moshe Schwartz
</TABLE>
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<PAGE> 82
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
- -------
<S> <C>
3.1 Restated Certificate of Incorporation (1)
3.2 Amendment to Certificate of Incorporation filed December 29, 1999 (2)
3.3 Amendment to Certificate of Incorporation filed December 31, 1999 (2)
3.4 Bylaws of the Company, as amended (4)
4.1 Form of common stock certificate(1)
4.2 Form of Class A Warrant (1)
4.3 Form of Class B preferred stock certificate(*)
4.4 Form of Class C preferred stock certificate (*)
10.4 Employment Agreement by and between the Company and Peter Keenan(6)
10.5 1996 Performance Equity Plan (1)
10.6 1998 Performance Equity Plan (3)
16 Letter on change in certifying accountants (5)
24 Power of attorney (included in signature page to Registration Statement)
</TABLE>
* Filed herewith.
(1) Filed with the Company's Registration Statement on Form SB-2 (No.
333-2154) declared effective on May 7, 1996 and incorporated by
reference.
(2) Filed with the Company's Form 8-K filed on December 30,1999 and
incorporated by reference.
(3) Filed with the Company's Form S-8 (Reg. No. 333-80373) filed with the
Commission on June 10, 1999 and incorporated by reference.
(4) Filed with the Company's Form 10-KSB (No. 000-28058) on March 31, 1999
and incorporated by reference.
(5) Filed with the Company's Form 8-KA filed on January 14, 2000 and
incorporated by reference.
(6) Filed with the Company's Form 10-KSB filed on March 31, 1999 and
incorporated by reference.
II-10
<PAGE> 1
EXHIBIT 4.3
CLASS B PREFERRED STOCK
NUMBER SHARES
BIG CITY BAGELS, INC.
Incorporated Under The Laws Of The State Of New York
See Reverse Side For Certain Definitions
TOTAL AUTHORIZED ISSUE 1,100,000 SHARES
<TABLE>
<S> <C>
25,000,000 SHARES PAR VALUE $.001 EACH 1,000,000 SHARES PAR VALUE $.001 EACH
COMMON STOCK PREFERRED STOCK
350,000 SHARES DESIGNATED AS CLASS A
PREFERRED STOCK
564,562 SHARES DESIGNATED AS CLASS B
PREFERRED STOCK
</TABLE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL
SATISFACTORY TO BLF, INC. TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT OR SUCH STATE SECURITIES LAWS.
This is to Certify that ________________________________________ is the owner of
** **
________________________________________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS B PREFERRED STOCK OF
BIG CITY BAGELS, INC. (the "Corporation")
transferable on the books of the Corporation by the holder hereof, in person or
by duly authorized attorney, upon surrender of this Certificate, properly
endorsed.
The Corporation will furnish without charge to each stockholder who so requests,
the powers, designations, preferences and relative, participating, optional, or
other special rights of the shares of Series A Preferred Stock and the
qualifications, limitations or restrictions of such preferences and/or rights.
IN WITNESS WHEREOF, the seal of the Corporation and the signatures of its duly
authorized officers.
Dated:
<TABLE>
<S> <C> <C>
___________________________________________ CORPORATE _____________________________________________
Nelson Braff., SECRETARY SEAL Mark Weinreb, PRESIDENT
</TABLE>
<PAGE> 1
EXHIBIT 4.4
NUMBER SHARES
Incorporated Under The Laws Of The State Of New York
VILLAGEWORLD.COM, INC.
See Reverse Side For Certain Definitions
and Restrictive Legend
TOTAL AUTHORIZED ISSUE 201,000,000 SHARES
<TABLE>
<S> <C>
200,000,000 SHARES PAR VALUE $.001 EACH 1,000,000 SHARES PAR VALUE $.001 EACH
COMMON STOCK PREFERRED STOCK
</TABLE>
CLASS C 6% CUMULATIVE CONVERTIBLE PREFERRED STOCK
This is to Certify that ________________________________________ is the owner of
** **
________________________________________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS C 6% CUMULATIVE CONVERTIBLE
PREFERRED STOCK OF
VILLAGEWORLD.COM, INC. (the "Corporation")
transferable on the books of the Corporation by the holder hereof, in person or
by duly authorized attorney, upon surrender of this Certificate, properly
endorsed.
The powers, designations, preferences and relative, participating, optional, or
other special rights of the shares of Class C 6% Cumulative Convertible
Preferred Stock and the qualifications, limitations or restrictions of such
preferences and/or rights, are set forth in an amendment to the Corporation's
Certificate of Incorporation on file with the Department of State of the State
of New York. Such amendment can also be secured from the Corporation by any
stockholder who so requests and without charge.
IN WITNESS WHEREOF, the seal of the Corporation and the signatures of its duly
authorized officers.
Dated: ___________________
<TABLE>
<S> <C> <C>
___________________________________________ CORPORATE ___________________________________________
David Levi, SECRETARY SEAL Peter Keenan PRESIDENT
</TABLE>
