U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
Commission file number 0-24709
GLOBUS INTERNATIONAL RESOURCES CORP.
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(Name of Small Business Issuer in its Charter)
Nevada #88-0203697
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two World Trade Center, Suite 2400, New York, N.Y. 10048
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(Address of principal executive offices) (Zip Code)
(212) 839-8000
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(Issuer's telephone number, including Area Code)
Securities registered under Section 12 (b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value per share
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(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
Yes |_| No |X|
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definative proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its fiscal year ended September 30, 1998 were
$19,658,000.
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as of
a specified date within the past 60 days. $925,140 as of May 31, 1999.
The number of shares outstanding of the issuer's common stock as of May 31,
1999 was 7,771,616 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents or the indicated portions thereof are incorporated
herein by reference into the indicated portions of this Annual Report on Form
10-KSB:______________________________________________________________.
Transitional Small Business Disclosure Format (check one):
Yes |X| No |_|
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PART I
ITEM 1. Description of Business.
The Company was incorporated on October 24, 1984 under the name Ross Custom
Electronics ("Ross") and was originally engaged in the electronics business. On
May 6, 1995, Globus Food Systems International Corp., a privately held Delaware
corporation engaged in the business of exporting food supplies, was merged into
Ross. Ross subsequently changed its corporate name to Globus Food Systems
International Corp. On October 18, 1996, Globus Food Systems International Corp.
changed its corporate name to Globus International Resources Corp. ("Globus" or,
the "Company") to reflect a broadening of its exporting business to include
non-food related products and services. In September 1996, the Company formed a
New York corporation, Globus Food Systems International Corp. ("Globus Foods"),
a wholly owned subsidiary, which conducts its food exporting business.
On December 11, 1996 the Company acquired, from Messrs. Serge Pisman, Yury
Greene and Herman Roth, the Company's principal shareholders, and others, all of
the issued and outstanding capital stock of Shuttle International, Inc.
("Shuttle"), in exchange for 2,500,000 shares of the Company's common stock.
Shuttle is engaged in the business of exporting non-food products, principally
auto parts and western clothing and accessories.
The Company's principal place of business is located at Two World Trade
Center, Suite 2400, New York, NY 10048. The Company is engaged, through Globus
Foods, in the marketing and exporting of foods from the United States, and
certain European countries, primarily to Russia and former USSR republics (also
referred to as the Commonwealth of Independent States ("CIS"), for resale to
supermarkets and restaurants. The Company has also arranged for the export of
acrylic auto paint to Russia.
The Company is a full service distributor exporting a variety of food
products from selected quality manufacturers in the United States and Europe to
the Russian and Eastern European marketplace through Globus Foods. Certain of
these manufacturers sell their products in these territories exclusively through
Globus Foods. The Company sells dairy and meat products, seafood, instant soups,
deli products and some other grocery items. Russian warehouse facilities for
food products are generally inadequate and the Company plans to improve existing
facilities and develop new warehouses in Russia in order to provide consumers
with broad access to American and European food products.
Meats, sausages and deli products comprise approximately eighty-six percent
(86%) of all of the Company's food items. Dairy products and seafood constitute
approximately six percent (6%) and five percent (5%) respectively. The remaining
three percent (3%) include instant soups and various other grocery items. The
shipment of these food products generally increase in October, November and
February due to the observance of traditional national and religious holidays,
although there can be no assurance.
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In October 1996, the Company commenced export to Russia of acrylic auto
paint. In connection therewith, the Company entered into an agreement in May
1996 with Fruit Impex S.A., a Panamanian corporation, to acquire acrylic auto
paint valued at $2,819,400 in exchange for 56,389 shares of the Company's common
stock (adjusted for the Company's reverse stock split). The shares are subject
to a three year escrow and voting rights agreement wherein the Company is
entitled to all voting rights. The Company, at its option, during the three year
escrow term may repurchase all or a portion of the shares for $75.00 per share.
On September 12, 1997, the Company entered into a letter of understanding
with Globe Meat Technology Ltd. ("GMT Denmark"), a Danish corporation, and Globe
Meat Technology Poland S.A. ("GMT Poland"), a Polish corporation. The letter of
understanding contemplates the entry by the parties into a commercial trade
agreement whereby the Company would export pork products to Russia and other CIS
countries. Pursuant to such an agreement, the Company, with the assistance of
GMT Poland, would open a $2,000,000 revolving line of credit in its own name at
a Polish bank. The Company would purchase pigs from Polish farmers for delivery
to GMT Poland. GMT Poland would then slaughter the pigs and process the meat
according to the Company's specifications, based upon the market for such meat
products in Russia and other CIS countries. At the end of one year, the Company
will have an option either to receive 30% of the net profits of GMT Poland or to
purchase a 30% equity interest in GMT Poland at a purchase price of $2,000,000.
GMT Denmark is a Danish company which develops meat processing plants
(based on Danish technology and know-how), globally, to promote Danish
technology and meat products for export. Although Russia and other CIS states
ceased the regulation of prices in 1992, Russia reinstated certain price
regulations in 1995. From time to time, the federal government of Russia, as
well as certain regional authorities, place direct price limitations on certain
products and subsidize products in order to maintain certain price levels. In
some cases, these governments place restrictions on profits which can be derived
from sales of food products. Although there can be no assurance, Russia and the
other CIS states frequently experience shortages of grain and other food
products. Such shortages may result in higher prices and in greater reliance on
foreign food producers and distributors, such as the Company.
SHUTTLE INTERNATIONAL, LTD.
On December 11, 1996, the Company acquired all of the issued and
outstanding shares of capital stock of Shuttle International, Ltd. ("Shuttle").
Shuttle is engaged in the distribution and exportation of non-food products such
as auto parts and clothing, primarily to Russia and the CIS states. Distribution
and exportation of non-food products are generally made in the same geographic
areas involved with the Company's food business.
Shuttle supplies auto parts and accessories to large wholesalers,
auto-service repair shops and automotive parts stores. These repair shops and
stores service exclusively automotive needs for automobiles not made in Russia
or the CIS. Shuttle ships to its large wholesaler customers container loads, on
a weekly basis, by air as well as sea. Shuttle has established relationships
with large U.S. wholesalers and manufacturers, as well as local dealers.
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Shuttle is an exclusive supplier of American western clothing to the
"Texas" chain of Western wear clothing and apparel stores in Moscow, Russia. The
Company supplies jeans, shirts, outerwear, hats, belts, boots, etc. from
American manufacturers to Russian retailers and wholesalers.
Shuttle also has an International Seminars Department which provides
directors and management of large and medium sized Russian companies, with
western banking, financial systems and accounting seminars at the World Trade
Center Institute in New York City.
Shuttle, in cooperation with the Canadian modular housing manufacturer
"Modulex", has built modern cottages in an exclusive Moscow suburb. All houses
were pre-built in Canada and shipped in sea containers.
The activities of the Seminar Department and modular housing venture have
been discontinued.
The Company's food and non-food distribution and exporting businesses
contribute approximately eighty-five percent (85%) and fifteen percent (15%) of
gross revenues, respectively, during fiscal 1998.
ITEM 2. Description of Property.
The Company, pursuant to a five-year agreement with the Port Authority of
New York and New Jersey, leases approximately 2,840 square feet of space for an
administrative, clerical and executive office for the Company's export business
at 2 World Trade Center, Suite #2400, New York, NY 10047. The term of the lease
commenced on February 15, 1996. Annual rent payments are $62,484 in years one
and two, $68,160 in year three, $76,680 in year four, and $82,368 in year five.
Under the terms of the Agreement, the Port Authority has the right to terminate
this Agreement without cause, subject to certain conditions, at any time on one
hundred eighty (180) days' notice to the Company. The Company also has a lease
with 1616 Mermaid Associates for a five year term which commenced on January 1,
1995 for approximately 1,000 square feet at 1616 Mermaid Avenue, Brooklyn, New
York 11224. The annual rent is $12,000. The Company has an option to renew this
lease for an additional five year term with annual rent increased by 9%.
Shuttle, pursuant to a five year lease agreement with 1616 Mermaid
Associates, leases approximately 1,000 square feet of space for its export
business at 1616 Mermaid Avenue, Brooklyn, New York 11224. The term of the lease
commenced on March 1, 1994. The annual rent is $18,000.
1616 Mermaid Associates is owned by Messrs. Serge Pisman, Herman Roth and
Yury Greene, the Company's President, Secretary and Treasurer, respectively.
ITEM 3. Legal Proceedings.
None.
ITEM 4. Submission of Matters to a Vote of Security Holders.
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No matters were submitted to a vote of the shareholders during the fourth
quarter of fiscal 1998.
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters.
The Company's Common Stock trades under the symbol "GIRC" on the OTC
Bulletin Board. The market for the Company's Common Stock is limited, sporadic
and highly volatile. The following table sets forth the high and low bid prices
per share of the Company's Common Stock since September 1995, as reported by the
OTC Bulletin Board. These prices reflect inter-dealer prices, without retail
mark-ups, mark-downs or commissions, and may not necessarily represent actual
transactions.
High Low
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Fiscal 1998
First Quarter 1.625 1.00
Second Quarter 1.625 0.625
Third Quarter 0.75 0.3125
Fourth Quarter 0.39 0.11
The number of shareholders of record as of December 31, 1998 was 76.
It is the present policy of the Company not to pay cash dividends. Any
payment of cash dividends in the future will depend upon the amount of funds
legally available for that purpose, the Company's earnings, financial condition,
capital requirements and other factors that the Board of Directors may deem
relevant.
ITEM 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto contained elsewhere in
this Annual Report.
General
The Company was incorporated in October 1984 as Ross Custom Electronics
("Ross"). Ross was
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engaged in the electronics business. During fiscal 1993, 1994 and through June
1995, Ross had virtually no operations. On March 15, 1995, Ross merged with
Globus Food Systems International Corp. which was accounted for as a pooling of
interests. On October 18, 1996, the Company changed its name to Globus
International Resources Corp. ("Globus"). Globus, in August 1995, commenced
operations by acquiring food and paint products from domestic and European
suppliers and selling those products to wholesalers in Russia and other former
U.S.S.R. countries (also referred to as the Commonwealth of Independent States
("CIS")).
On December 11, 1996, the Company acquired all of the issued and
outstanding capital stock of Shuttle International, Ltd. ("Shuttle") of which
90% was accounted for in a transaction similar to a pooling of interests and the
remaining 10% minority interest was accounted as a purchase acquisition with a
recognition of goodwill of $137,000. Shuttle is engaged in the distribution and
exportation of non-food products such as auto parts and clothing primarily to
Russia and the CIS states or, generally, the same geographic areas involved with
the Company's food business. Shuttle previously maintained an International
Seminars Department which provided directors and management of large and medium
sized Russian companies with western banking, financial systems and accounting
seminars at the World Trade Center Institute in New York City. Previously
Shuttle, in cooperation with a Canadian modular housing manufacturer, had built
modern cottages in an exclusive Moscow suburb. All houses were prebuilt in
Canada and shipped in sea containers. Both the seminar and housing venture
operations have been discontinued.
The revenues and expenses of the Company from October 1, 1993 to June 30,
1995 were generated solely by Shuttle. Globus commenced acquiring inventory in
May 1996 and sales commenced in August 1996.
RESULTS OF OPERATIONS
Comparison of the Year Ended September 30, 1998 to 1997
Revenues increased $4,269,000 (27.7%) in the year ended September 30, 1998
to $19,658,000 from $15,389,000 for the year ended September 30, 1997. The
increase is attributable to an increase in the food products segment of
$5,089,000 (39%) coupled with a decrease sale of auto paint products to Russian
customers, down $1,809,000. Sales of clothing and other auto parts increased
$256,000. The cost of sales in 1998 of $19,196,000 was $5,184,000 (37%) higher
than the 1997 cost of sales of $14,013,000. A significant reason for the low
gross margin was the writedown of $500,000 of paint inventories at September 30,
1998. The actual margins or sales of food products, auto parts and clothing were
similar to the prior year, however the cost of sales also reflects the above
mentioned writedown.
Selling expenses increased $170,000 (40%) during 1998 to $600,000 or 3.1%
of sales as compared to $429,000 or 8% of sales in 1997. The increase is due to
the variable expenses resulting from the increased sales volume.
General and administrative costs increased $155,000 (30%) to 3.9% of net
sales in 1998 from
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$594,000 (4.0% of net sales) in 1997. This increase arises from additional
personnel costs in fiscal 1998. Depreciation and amortization increased $60,000
(55%) to $170,000 (.8% of sales) from $110,000 (.7% of sales) in 1997, which is
the result of additional amortization of goodwill and deferred consulting
contracts in 1998 as well as the addition of $47,000 of fixed assets.
Interest income remained relatively constant in both periods, whereas
interest expense increased $348,000 to $345,000 in 1998, due to the large
increase in lines of credit used to purchase from vendors.
The 1998 net loss of $1,748,000 is a decrease from the net income of
$129,000 in 1997 is the result of the foregoing above, mainly caused by the
collapse of the Russian economy in the latter part of 1998. The decrease in the
tax provision is directly related to the net loss.
Comparison of the Year Ended September 30, 1997 and 1996
Revenues increased $5,401,000 (54.1%) in the year ended September 30, 1997
to $15,389,000 from $9,988,000 for the year ended September 30, 1996. The
increase is attributable to (i) an increase in the food products segment of
$3,368,000 (34.7%) to $13,077,000 in 1996, (ii) the sales of clothing and auto
paint products to Russian customers, which commenced in October, 1996, of
$791,000 and $1,009,000, respectively, and (iii) an increase in other automotive
parts sales of $234,000 (83.9%) in 1996 to $513,000 in the current period. The
cost of sales in 1997 of $14,013,000 was $4,620,000 (49.2%) higher than the 1996
cost of sales of $9,393,000 which resulted in an improved gross margin of 8.9%
in 1997 as compared to 6.0% in 1996. The improved margins resulted from the
apparel sales and improved margins of food products. These improved margins were
offset by reduced margins in the Company's sales of auto accessories items.
Selling expenses increased $200,000 (87.3%) during 1997 to $429,000 or 2.8%
of sales as compared to $229,000 or 2.3% of sales in 1996. This increase which
is evenly split between the food products segment and the other segment, is
attributable to an increase in fixed costs in 1997 of personnel and occupancy
expenses resulting from the operating of the Company's World Trade Center
office, plus an increase in variable selling expenses resulting from the
increased sales volume.
General and administrative costs increased $152,000 (36.1%) to 4.0% of net
sales in 1997 from $449,000 (4.5% of net sales). This increase arises from
additional personnel costs of which $137,000 is to the Company's officers.
Depreciation and amortization increased $96,000 (685.7%) to $110,000 (0.7% of
sales) from $14,000 (0.1% of sales) in 1996. This increase resulted from
amortization of goodwill and deferred consulting contracts in 1997.
Interest income remained relatively constant in both periods, whereas
interest expense decreased $5,000 (15.6%) to $27,000 in 1997 primarily due to
the reduction in long-term debt.
The increase in the provision for taxes in the current period of $111,000
(or 0.8% of sales) to $118,000 from a provision of $7,000 in 1996 is the result
of increased income.
Net income increased $230,000 from a net loss of $101,000 in 1996 to
$129,000 in 1997 as a
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result of foregoing.
Comparison of the Year Ended September 30, 1996 and 1995
Net sales increased $7,668,000 (330.5%) to $9,988,000 in fiscal 1996 as
compared to $2,320,000 in net sales in fiscal 1995. This increase is a mix of an
increase in food sales of $8,374,000 and a reduction in automotive accessories
sales of $706,000 from fiscal 1995 levels. This variant in product sales mix is
the reason the cost of sales increased 4.8% to 84.0% of sales ($9,393,000) in
fiscal 1996 from 89.2% of net sales ($2,069,000) in fiscal 1995. Historically,
export sales of food products are more competitive and realize a lower gross
margin than the sale of automotive accessories.
Selling expenses increased $145,000 (170.6%) to $230,000 in fiscal 1996
from $85,000 in fiscal 1995. As a percent of sales they decreased from3.7% in
1995 to 2.3% in 1996. The $145,000 increase is attributable to the payroll costs
of increased personnel and the opening in February 1996 of the Company's new
sales, administrative and executive offices in New York City.
General and administrative costs increased $195,000 (66.3%) to $449,000
(6.3% of sales) in fiscal; 1996 from $294,000 (12.7% of sales) in fiscal 1995.
The higher costs attained in 1996 are largely attributable to the incurrence of
$128,000 in professional and consulting fees in the last quarter of fiscal 1996
as well as increased administrative costs associated with the Company's new
headquarters and increased sales volume.
In fiscal 1996, the Company had interest income of $12,000 (net of interest
expenses of $32,000) as compared to net interest expense of $21,000 (net of
$4,000 in interest income) in 1995. The increase in interest income is the
result of investing cash generated from operations in interest bearing cash
equivalents.
The provision for income taxes of $7,000 in 1996 resulted primarily from
the non-deductibility of $236,000 of the above mentioned consulting fees while
the $48,000 tax benefit reflected in fiscal 1995 arises from the loss incurred
in that period.
The net loss for both fiscal 1996 and 1995 was $101,000.
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FINANCIAL CONDITION
September 30, 1998 Compared to September 30, 1997
Cash and cash equivalents at September 30, 1998 of $132,000 is $386,000
less than the cash and cash equivalents of $518,000 in September 30, 1997. This
decrease in cash is primarily the result of a weak Russian economy in the latter
part of fiscal 1998, which in turn affected both the sales and the timeliness of
accounts receivable collections.
Accounts receivable increased $768,000 (28%) to $3,489,000 at September 30,
1998 while sales for 1998 increased $4,269,00 (27.7%). The increase in accounts
receivable is not only attributable to the increased sales volume but also to
the extension of credit terms for sales and a reduction in the requirement of
cash prepayals prior to shipment. The Company's inventory level at September 30,
1998 was $421,000 less than the $2,004,000 level at September 30, 1997 primarily
because of a $604,000 reduction in the automotive paint inventory.
The Company expended $47,000 to acquire property assets in fiscal 1998,
primarily two trucks and some computers.
Accounts and acceptances payable decreased $993,000 to $446,000 at
September 30, 1998 from $1,439,000 at September 30, 1997, due to the lack of
sales and related purchase volume in the latter part of fiscal 1998 and the use
of bank lines of credit to pay vendors quicker than in the past.
Accrued expenses and other current liabilities increased $292,000 to
$541,000 at September 30, 1998 primarily due to offices salaries unable to be
paid in fiscal 1998 to $89,000, professional fees payable of $77,000 a TDA grant
for a study to be done on warehouse feasibility in Poland, and interest due on
the increased outstanding lines of credit.
The income tax liability is only $4,000 which represents minimum taxes to
various states and New York City. This is due to the loss incurred in fiscal
1998.
Notes payable to banks and related parties of $2,168,000 at September 30,
1998 was $1,950,000 more than the September 30, 1997 amount of $218,000. This is
the result of the poor financial results in fiscal 1998 and the related slow
collection from customers. The Company utilized lines of credit to pay vendors
for purchases, in turn raising amounts owed on debt.
Stockholders equity decreased $1,141,000 to $3,008,000 at September 30,
1998 from $4,149,000 at September 30, 1997. The decrease arises from the large
loss incurred in fiscal 1998, offset slightly by the conversion of a $500,000
convertible note into shares during the year.
September 30, 1997 Compared to September 30, 1996
Cash and cash equivalents at September 30, 1997 of $518,000 is $178,000
more than the cash and cash equivalents of $340,000 in September 30, 1996. This
increase in cash is primarily the result of cash generated from the reduction in
restricted cash of $268,000. Restricted cash is held
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by a bank as collateral for outstanding acceptances payable.
Accounts receivable increased $2,401,000 (750.3%) to $2,721,000 at
September 30, 1997 while sales for 1997 increased $5,401,000 (54.1%). The
increase in accounts receivable is not only attributable to the increased sales
volume but also to the extension of credit terms for sales and a reduction in
the requirement of cash prepayals prior to shipment. The Company's inventory
level at September 30, 1997 was $885,000 less than the $2,889,000 level at
September 30, 1996 primarily because of a $818,000 reduction in the automotive
paint inventory, of which $500,000 is a reserve for loss on disposition.
The Company expended $3,000 to acquire property assets in fiscal 1997 and
expensed $50,000 in professional fees in 1997 in connection with the successful
sale of the $500,000 (10%) Convertible Note in November 1997. The Company issued
25,000 shares on its Common Stock, in the aggregate, in payment for indebtedness
for services rendered and consulting services to be rendered.
Accounts and acceptances payable increased $272,000 to $1,440,000 at
September 30, 1997 from $1,168,000 at September 30, 1996.
Accrued expenses and other current liabilities increased $118,000 to
$249,000 at September 30, 1997 primarily as a result of an increase in
professional fees payable of $75,000 and an increase in salaries and interest
payable to related parties of $32,000.
The income tax liability of $91,000 (net of $52,000 deferred tax asset) at
September 30, 1997 is $110,000 higher than the $22,000 deferred tax assets (net
of $14,000 current liability). The increased obligation is a result of the
provision for taxes based upon the income for the year ended September 30, 1997.
Notes payable to banks and related parties of $218,000 at September 30,
1997 was $211,000 less than the September 30, 1996 amount of $429,000. This is
the result of the repayment of long-term debt and related party debt of $242,000
and the use of two bank lines of credit of $31,000 at September 30, 1997. The
Company satisfied obligations for services rendered aggregating $144,000 at
September 30, 1996 by the issuance of 325,000 shares of its Common Stock.
Stockholders' equity increased $1,230,000 to $4,149,000 at September 30,
1997 from $2,919,000 at September 30, 1996. The increase arises from the
issuance of the Company's common stock for services, cash and Shuttle's minority
interest aggregating $1,101,000 during the period and the net income of $129,000
earned during the period.
September 30, 1996 Compared to September 30, 1995
Unrestricted cash and cash equivalents increased $76,000 from $264,000 at
September 30, 1995 to $340,000 at September 30, 1996 and restricted cash
increased $206,000 to $1,136,000 at September 30, 1998. The increase in cash and
cash equivalents primarily is the results of the net proceeds from loans to the
Company from its stockholders and other related parties of $210,000 and the
non-cash charge of $128,000 to operations in the fourth quarter of fiscal 1996
from the issuance
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of shares of the Company's common stock in December 1996 at their fair market
value for services rendered by counsel and consultants. These professionals
valued their services at $44,000.
Accounts receivable decreased $162,000 to $320,000 at September 30, 1995
from $482,000 at September 30, 1995 because of the Company's expanded use of
obtaining advance payments from customers for sales prior to shipment of the
products.
Inventories increased $2,869,000 from $20,000 at September 30, 1995 to
$2,889,000 at September 30, 1996. This increase resulted from the acquisition of
$2,819,000 of automotive paint products for 56,389 shares of the Company's
common stock in May 1996. The Company commenced selling these products in fiscal
1997. In fiscal 1996, the Company used $52,000 of cash to acquire property
assets and for deposits on its leaseholds.
Accounts and acceptances payable, accrued expenses and other current
liabilities aggregated $1,299,000 at September 30, 1996 which is $57,000 less
than these liabilities aggregated at September 30, 1995. The reduction is
largely due to the payment of accrued salaries and rent to the Company's
officers and entities affiliated with the officers.
The deferred income tax asset (net of currently payable income taxes)
decreased from $39,000 at September 30, 1995 to $22,000 at September 30, 1996 as
a result of the reversal of timing differences between the deductibility of
expenses for income tax and financial reporting purposes.
Notes payable aggregated $386,000 at September 30, 1995 of which $11,000
was to related parties which was paid in fiscal 1996 and $375,000 is an
installment note payable to a bank. The installments due and paid in fiscal 1996
were $167,000 resulting in the liability to the bank of $208,000 at September
30, 1996. During fiscal 1996, the Company's officers and/or entities affiliated
with the officers loaned the Company $220,000 for working capital requirements.
Such notes were outstanding at September 30, 1996.
At September 30, 1996, the Company had recognized a liability of $128,000
for services rendered by professionals and consultants during fiscal 1996. These
obligations were satisfied by the issuance of shares of the Company's common
stock in December 1996.
Stockholders' equity increased $2,864,000 to $2,918,000 at September 30,
1996. The increase arises from the issuance of shares of the Company's common
stock for cash of $147,000 and inventory of $2,819,000 less the net loss
incurred in fiscal 1996 of $101,000.
Liquidity and Capital Resources
The Company's working capital at September 30, 1998 and 1997 was $2,682,000
and $3,714,000, respectively. The Company's primary sources of working capital
have been (i) the proceeds from its bank lines of credit, the Convertible Note,
the working capital term loan, related party loans and advances, and (ii) the
issuance of its securities for cash, as payments for services rendered and as
payment for inventory. The Company in 1997 issued 870,000 shares of its common
stock to 29 investors for an aggregate of $522,000 (before costs associated with
the offering). Prior
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to the acquisition of Shuttle in December 1996, the then stockholders of Shuttle
sold 10% of its capital shares for $100,000 in cash. The Company acquired this
10% minority interest in Shuttle for 250,000 shares of its common stock as part
of the same transaction in which it acquired 90% from three of its
officer/directors for 2,250,000 shares of common stock.
Currently the Company's primary cash requirements include (i) the funding
of its inventory purchases for and receivables from sales of products and (ii)
ongoing selling, administrative and other operating expenses. Management
believes that the Company's cash liquidity position will also be enhanced by the
sale of and reduction in the paint inventory and that its present two unsecured
bank lines aggregating $100,000 and its three secured letters of credit and
acceptances payable lines of credit aggregating $3,525,000, and the net proceeds
from the issuance of the remainder of its 10% Convertible Note, should be in
aggregate, sufficient to fund the Company's operation for the next twelve
months. The remaining balance on the Convertible Note at September 30, 1998 is
$130,000. The above assumes the Company's operations are consistent with
management's expectations. The Company may need additional financing thereafter.
There can be no assurance that the Company will be able to obtain financing on a
favorable or timely basis. The type, timing and terms of financing elected by
the Company will depend upon its cash needs, the availability of other financing
sources and the prevailing conditions in the financial markets. Moreover any
statement regarding the Company's ability to fund its operations from expected
cash flows is speculative in nature and inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified.
11
<PAGE>
ITEM 7. Financial Statements.
The financial statements of the Company are included in this report
commencing on page F-1.
ITEM 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
The following table sets forth the name, age and position of each person
who was serving as an executive office or director of the Company at May 31,
1999:
Name Age Office
- ---- --- ------
Serge Pisman 34 President, Director
Herman Roth 50 Secretary, Director
Yury Greene 59 Treasurer, Director
Section 16 (a) Beneficial Ownership Reporting Compliance.
12
<PAGE>
Section 16 (a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes of ownership with the Securities and Exchange
Commission (the "SEC"). Officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish the Company with copies
of all such reports they file.
Based solely on its review of the copies of such reports received by the
Company, and written representations that no Form 5 were required, the Company
believes that, during the fiscal year ended September 30, 1998 and prior fiscal
years, all filing requirements applicable to its officers and directors, and all
of the persons known to the Company to own more than ten percent of its Common
Stock, were complied with by such persons, except that Messrs. Pisman, Roth and
Greene filed their initial statements of beneficial ownership late.
ITEM 10. Executive Compensation.
The following table sets forth the annual compensation for the Company's
Chief Executive Officer and President:
Annual Compensation
-------------------
Name and Principal Other Annual
Position Year Salary* Bonus Compensation
-------- ---- ------- ----- ------------
Serge Pisman, President......... 1998 $104,815
1997 90,000
1996 47,000 2,000
* $34,000 was accrued during 1995 but paid in 1996; $19,118 was accrued during
1996 but paid in 1997; and $14,528 was accrued during 1997 and paid in 1998.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management.
The table below sets forth information as to each person owing of record or
who was known by the Company to own beneficially more than 5% of the 7,771,616
shares of issued and outstanding Common Stock of the Company as of June 10, 1999
and information as to the ownership of the Company's Stock by each of its
directors and executive officers and by the directors and executive officers as
a group. Except as otherwise indicated, all shares are owned directly, and the
persons named in the table have sole voting and investment power with respect to
shares shown as beneficially owned by them.
13
<PAGE>
Name and Address of Amount and Nature of Percent of
Title of Class Beneficial Owner Beneficial Ownership Class
- -------------- ---------------- -------------------- -----
Common Stock Serge Pisman 1,116,667 14.33%
2 World Trade Center
New York, New York 10048
Common Stock Herman Roth 1,116,666 14.33%
2 World Trade Center
New York, New York 10048
Common Stock Yury Greene 1,116,666 14.33%
2 World Trade Center
New York, New York 10048
All directors and officers as a group (3 in number) 3,349,999 42.99%
ITEM 12. Certain Relationships and Related Transactions.
Herman Roth loaned $125,000 to the Company in April, 1996 in exchange
for the Company's 7% promissory note in the principal amount of
$125,000. This note payable on March 31, 1997 was extended to April
30, 2000.
Ida and Victor Pisman, Serge Pisman's parents, loaned $20,000 to the
Company in August 1996 in exchange for the Company's 15% promissory
note in the principal amount of $20,000. This note was payable on
August 22, 1997 and was extended to August 25, 1999.
Serge Pisman, Herman Roth and Yury Greene own 1616 Mermaid Associates
which leases office space to the Company and to Shuttle. See
"Property."
Serge Pisman, Herman Roth and Yury Greene have personally guaranteed
payment of sums due under the Company's $1,500,00 line of credit with
the Park Avenue Bank, N.A.
Yury Greene has personally guaranteed payment of sums due under the
Company's $75,000 line of credit with Chase Manhattan Bank, N.A.
14
<PAGE>
ITEM 13. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this report:
Exhibit Exhibit Title
- ------- -------------
No.
---
(3)(i) Articles of Incorporation*
(3)(ii) By-laws*
(27) Financial Data Schedule
*previously filed
(b) No reports on Form 8-K were filed during the fourth quarter of
fiscal 1998.
15
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GLOBUS INTERNATIONAL RESOURCES CORP.
By: /s/ Serge Pisman
-------------------------------
Title: President
-------------------------------
Dated: June 29, 1999
-------------------------------
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Serge Pisman
-------------------------------
Title: President
-------------------------------
Dated: June 29, 1999
-------------------------------
By: /s/ Herman Roth
-------------------------------
Title: Secretary
-------------------------------
Dated: June 29, 1999
-------------------------------
By: /s/ Yury Green
-------------------------------
Title: Treasurer
-------------------------------
Dated: June 29, 1999
-------------------------------
16
<PAGE>
GLOBUS INTERNATIONAL RESOURCES CORP. AND SUBSIDIARIES
SEPTEMBER 30, 1998
I N D E X
Page No.
--------
INDEPENDENT ACCOUNTANTS' REPORT ........................................ F-1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as at September 30, 1998 and 1997 ....... F-2
Consolidated Statements of Operations
For the Years Ended September 30, 1998 and 1997 .................. F-3
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended September 30, 1998 and 1997 .................. F-4
Consolidated Statements of Cash Flows
For the Years Ended September 30, 1998 and 1997 .................. F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .......................... F-6 - F-23
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Globus International Resources Corp.
We have audited the accompanying consolidated balance sheets of Globus
International Resources Corp. and its subsidiaries as at September 30, 1998 and
1997, and the related consolidated statements of operations, changes in
stockholders' equity, 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 these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant 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 Globus
Resources International Corp. and its subsidiaries as at September 30, 1998 and
1997, and the results of their operations and their cash flows for the years
ended September 30, 1998 and 1997, in conformity with generally accepted
accounting principles.
Wernick Sanders Leventhal & Co., LLP
New York, N. Y.
January 8, 1999
F-1
<PAGE>
GLOBUS INTERNATIONAL RESOURCES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
--------------------------
1998 1997
----------- -----------
A S S E T S (Note 8)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 132,234 $ 517,867
Cash - restricted 597,412 447,543
Accounts receivable 3,489,982 2,721,130
Inventories 1,583,196 2,004,004
Income tax refunds receivable 40,000 --
Deferred income taxes -- 52,000
Prepaid expenses -- 20,000
----------- -----------
Total current assets 5,842,824 5,762,544
----------- -----------
Property assets - at cost,
net of accumulated depreciation 51,827 27,625
----------- -----------
Other assets:
Deferred financing costs 6,044 50,000
Deferred consulting costs 124,376 215,625
Goodwill net of accumulated amortization 115,367 124,128
Organization costs 2,927 4,991
Security deposits 26,000 26,000
----------- -----------
Total other assets 274,714 420,744
----------- -----------
$ 6,169,365 $ 6,210,913
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank lines of credit payable $ 1,893,955 $ 31,342
Notes payable - related parties 145,000 145,000
Convertible note payable 130,000 --
Current portion of long-term obligation -- 41,666
Accounts and acceptances payable 446,472 1,439,619
Accrued expenses and other current
liabilities - related parties 251,074 111,277
Accrued expenses and other current liabilities 290,193 137,228
Income taxes payable 4,000 142,607
----------- -----------
Total current liabilities 3,160,694 2,048,739
----------- -----------
Deferred rent -- 12,921
----------- -----------
Commitments and contingencies -- --
Stockholders' equity:
Common stock, $.001 par value, authorized -
50,000,000 shares, issued and outstanding -
5,049,497 and 4,548,860, respectively 5,050 4,549
Additional paid-in capital 4,762,522 4,155,309
Deficit (1,758,901) (10,605)
----------- -----------
Total stockholders' equity 3,008,671 4,149,253
----------- -----------
$ 6,169,365 $ 6,210,913
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
GLOBUS INTERNATIONAL RESOURCES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
September 30,
----------------------------
1998 1998
------------ ------------
Net sales $ 19,658,009 $ 15,389,452
Cost of goods sold 19,196,140 14,012,761
------------ ------------
Gross profit 461,869 1,376,691
------------ ------------
Operating expenses:
Selling 600,946 429,220
General and administrative 766,821 611,154
Depreciation and amortization 170,564 109,624
Allowance for doubtful accounts 410,000 --
------------ ------------
Total operating expenses 1,948,331 1,149,998
------------ ------------
Income (loss) from operations (1,486,462) 226,693
------------ ------------
Other income (expense):
Interest income 36,177 44,554
Interest expense (375,631) (27,038)
Other income -- 5,487
------------ ------------
Total income (expense) (339,454) 23,003
------------ ------------
Income (loss) before income taxes
and minority interest (1,825,916) 249,696
Provision (benefit) for income taxes (77,620) 118,244
------------ ------------
Income (loss) before minority interest (1,748,296) 131,452
Minority interest -- 2,812
------------ ------------
Net income (loss) ($ 1,748,296) $ 128,640
============ ============
Net income (loss) per common share ($0.36) $0.03
============ ============
Weighted average number of shares outstanding 4,809,508 3,729,065
============ ============
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
GLOBUS INTERNATIONAL RESOURCES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Common Shares Additional
-------------------------- Paid-In Accumulated
Shares Amount Capital Deficit
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at October 1, 1996 2,603,860 $ 2,604 $ 3,058,046 ($ 142,057)
Proceed from sale of Shuttle's
common stock prior to merger -- -- 100,000 --
Acquisition of Shuttle's International,
Ltd. - minority interest 250,000 250 131,179 2,812
Issuance of common stock for
consulting services 500,000 500 299,500 --
Issuance of common stock in
satisfaction of indebtedness
for services rendered 555,000 555 281,445 --
Cancellation of common stock
surrendered by a former consultant (230,000) (230) (137,770) --
Issuance of common stock for
cash, net of offering costs 870,000 870 422,909 --
Net income for the year ended
September 30, 1997 -- -- -- 128,640
----------- ----------- ----------- -----------
Balance at September 30, 1997 4,548,860 4,549 4,155,309 (10,605)
Interest element attributed to
convertible debt -- -- 269,231 --
Debt converted to equity 500,637 501 337,982 --
Net loss for the year ended
September 30, 1998 -- -- -- (1,748,296)
----------- ----------- ----------- -----------
Balance at September 30, 1998 5,049,497 $ 5,050 $ 4,762,522 ($1,758,901)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
GLOBUS INTERNATIONAL RESOURCES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
September 30,
--------------------------
1998 1997 (*)
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) ($1,748,296) $ 128,640
----------- -----------
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 170,564 109,624
Deferred income taxes 52,000 (18,400)
Deferred rent (12,921) 2,745
Provision for doubtful accounts 410,000 --
Provision for loss on disposal of inventory 500,000 --
Common stock issued for services rendered -- 16,500
Interest charge on debt discount 269,231 --
Minority interest -- 2,812
Increase (decrease) in cash flows as
a result of changes in asset and liability account balances:
Accounts receivable (1,178,852) (2,401,584)
Inventories (79,192) 885,211
Prepaid expenses 20,000 (14,360)
Accounts and acceptances payable (993,147) 271,452
Accrued expenses and other current liabilities:
Related parties 151,534 32,092
Other 152,975 85,789
Income taxes (178,607) 128,489
----------- -----------
Total adjustments (716,415) (899,630)
----------- -----------
Net cash used in operating activities (2,464,711) (770,990)
----------- -----------
Cash flows from investing activities:
Acquisition of property assets (47,000) (2,738)
Restricted cash (149,869) 688,736
----------- -----------
Net cash provided by (used in) investing activities (196,869) 685,998
----------- -----------
Cash flows from financing activities:
Proceeds from lines of credit 1,862,613 31,342
Proceeds from convertible note payable 500,000 --
Payments of long-term note payable (41,666) (166,667)
Payments of related party indebtedness -- (75,439)
Proceeds from issuance of common stock -- 523,779
Deferred financing cost (45,000) (50,000)
----------- -----------
Net cash provided by financing activities 2,275,947 263,015
----------- -----------
Net increase (decrease) in cash and cash equivalents (385,633) 178,023
Cash and cash equivalents at beginning of year 517,867 339,844
----------- -----------
Cash and cash equivalents at end of year $ 132,234 $ 517,867
=========== ===========
Supplemental Schedules of Non-Cash Operating
and Financing Activities:
Common stock issued for acquisition of inventory,
services rendered and payment of liability for
services previously rendered $ -- $ 572,000
=========== ===========
Common stock issued for acquisition
of minority interest $ -- $ 150,000
=========== ===========
Common stock issued in conversion of debt $ 381,787 $ --
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 323,033 $ 12,411
=========== ===========
Taxes paid $ 45,142 $ 4,766
=========== ===========
</TABLE>
(*) Reclassified for comparability.
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
GLOBUS INTERNATIONAL RESOURCES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS AT AND FOR THE YEARS SEPTEMBER 30, 1998 AND 1997
NOTE 1 - ORGANIZATION:
Globus International Resources Corp. (the "Company") was incorporated
in the State of Nevada on October 24, 1984 as Ross Custom Electronics. On
March 15, 1995, the Company merged with Globus Food Systems International
Corp. ("Globus") and changed its name to Globus Food Systems International
Corp. hereafter referred to as the Merger. On September 18, 1996, the
Company formed a wholly-owned New York State subsidiary corporation, Globus
Food Systems International Corp. On October 18, 1996, the Board of
Directors approved the change of the Company's name to Globus International
Resources Corp. and declared a reverse stock split of 1 share for each 50
shares issued and outstanding.
On December 11, 1996, the Company acquired all of the issued and
outstanding capital stock of Shuttle International, Ltd. ("Shuttle") in
exchange for 2,500,000 shares of the Company's common stock. The Company's
three officer/directors owned 90% of Shuttle prior to the acquisition by
the Company. Both Globus and Shuttle were under the common control of these
three officers since March 15, 1995. After the acquisition these three
officer/directors owned 2,449,999 (55.6%) shares of the Company's issued
and outstanding common stock whereas prior to the acquisition, they owned
200,000 shares of (56.5%) of the Company's then issued and outstanding
common shares. The acquisition of Shuttle was accounted for (i) at
historical cost in a manner similar to a pooling of interest for the
acquired stock of the Company's three officer/directors and (ii) as a
purchase recorded at market value for the acquired stock of the minority
interest and the resulting goodwill for the difference between the market
value of the minority interest and its equity on the date acquired.
The accompanying financial statements reflect the Merger, the October
18, 1996 reverse stock split, and the December 11, 1996 acquisition of 90%
of Shuttle as if they had occurred at the beginning of the periods
presented.
F-6
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(a) Business:
Globus is a full service export distributor of food and paint products
from manufacturers in the United States and Europe primarily to the Russian
and CIS States marketplaces.
Shuttle is engaged in the distribution and exportation of non-food
products such as auto parts and clothing primarily to Russia and the CIS
states or, generally, the same geographic areas involved with the Company's
food business. Shuttle also has an International Seminars Department which
provides directors, and management of large and medium size Russian
companies with western banking, financial systems and accounting seminars
at the World Trade Center Institute in New York City.
Previously Shuttle, in cooperation with a Canadian modular housing
manufacturer, had built modern cottages in an exclusive Moscow suburb. All
houses were pre-built in Canada and shipped in sea containers.
Both Globus' and Shuttle's business rely upon their established trade
relationships in Russia and the CIS states.
(b) Principles of Consolidation:
The accompanying consolidated financial statements as at September 30,
1998 and 1997 and for the years ended September 30, 1998 and 1997 include
the accounts of Globus International Resources Corp. and its subsidiaries,
Shuttle International, Ltd. and Globus Foods International, Inc. All
material intercompany transactions and balances have been eliminated in
consolidation.
(c) Revenue Recognition:
The Company recognizes revenues in accordance with generally accepted
accounting principles in the period in which its products are shipped to
its customers. The Company records expenses in the period in which they are
incurred, in accordance with generally accepted accounting principles.
(d) Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
(e) Cash and Cash Equivalents:
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
F-7
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(f) Concentrations of Credit Risk:
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash and
trade accounts receivable. The Company places its cash with high credit
quality financial institutions which at times may be in excess of the FDIC
insurance limit. Concentrations of credit risk with respect to trade
accounts receivable are generally limited due to the Company's requiring
the prepayment from approximately 30% of its customers of up to 50% of each
sale prior to shipment. Additionally, the accompanying financial statements
reflect an allowance for doubtful accounts of $420,000 and $10,000 at
September 30, 1998 and 1997, respectively.
(g) Inventories:
Inventories, consisting principally of finished goods, are valued at
the lower of cost (first-in, first-out method) or market. The accompanying
financial statements as at and for the year ended September 30, 1998
reflect an allowance for the disposal of inventory of $500,000.
(h) Property and Equipment:
The cost of property and equipment is depreciated over the estimated
useful lives of the related assets of 5 to 7 years. The cost of leasehold
improvements is amortized over the lesser of the length of the related
leases or the estimated useful lives of the assets. Depreciation is
computed on the straight-line method for financial reporting purposes.
Repairs and maintenance expenditures which do not extend original asset
lives are charged to income as incurred.
(i) Goodwill:
In December 1996, the Company acquired all of the outstanding capital
stock of Shuttle which was owned 90% by officer/directors of the Company.
The remaining 10% was owned by an unaffiliated individual who received
250,000 shares of the Company's common stock for his minority interest
which aggregated $18,571. The Company's common stock had a fair value of
$0.60 per share at the time of acquisition for a aggregate value of
$150,000. The difference between the fair value of the Company's common
stock and the minority interest at the date of acquisition aggregating
$131,429 has been attributed to good-will and is being amortized over
fifteen (15) years. Amortization charged to operations was $8,761 and
$7,301 for the years ended September 30, 1998 and 1997, respectively.
F-8
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(j) Income Taxes:
Deferred taxes are primarily attributable to different methods of
computing depreciation and amortization and timing differences of deducting
officers' compensation for financial reporting purposes and income tax
reporting purposes.
(k) Intangibles:
Organization costs are being amortized over a sixty month period.
Amortization charged to operations was $2,064 in 1998 and 1997.
Deferred consulting costs are being amortized over the life of the
consulting agreements. Amortization charged to operations in 1998 and 1997
was $91,249 and $84,375, respectively.
Deferred financing costs are legal, accounting and other costs
associated with the placement of a $500,000 convertible note in November
1997. Amortization charged to operations in fiscal 1998 was $45,692. During
fiscal 1998, $43,264 of deferred financing costs were charged to additional
paid-in capital upon the conversion of $350,000 of the convertible note and
accrued interest thereon into 500,637 shares of the Company's common stock.
(l) Per Share Data:
Net income (loss) per share was computed by the weighted average
number of shares outstanding during each period. The issuance of all common
shares in connection with all stock splits, the Merger and the acquisition
of Shuttle have been retroactively reflected in the computation as if they
had occurred as at October 1, 1996.
NOTE 3 - ACQUISITION OF SHUTTLE INTERNATIONAL, LTD.
On December 11, 1996, the Company acquired all of the capital stock of
Shuttle International, Ltd. ("Shuttle") in exchange for 2,500,000 shares of
the Company's common stock. This transaction has been accounted for as a
pooling of interests and, accordingly, the consolidated financial
statements for the period presented have been restated to reflect the
accounts of the Company and Shuttle.
Unaudited net sales and net income (loss) of the separate companies
for the periods preceding the acquisition were as follows:
Globus Shuttle
----------------------- ------------------------
Net Income Net Income
Net Sales (Loss) Net Sales (Loss)
--------- ---------- --------- ----------
For the three months
ended December 31, 1996 $3,616,581 $ 74,511 $ 323,219 $ 28,124
========== ========== ========== ==========
For the year ended
September 30, 1996 $9,708,457 ($ 196,241) $ 279,294 ($ 59,893)
========== ========== ========== ==========
F-9
<PAGE>
NOTE 4 - PROPERTY ASSETS:
Property assets consist of:
September 30,
-----------------------
1998 1997
-------- --------
Data processing and office equipment $ 59,243 $ 55,930
Furniture and fixtures 21,283 21,283
Automobiles and trucks 43,687 --
-------- --------
124,213 77,213
Less: Accumulated depreciation 72,386 49,588
-------- --------
$ 51,827 $ 27,625
======== ========
Depreciation expense charged to operations for the years ended
September 30, 1998 and 1997 amounted to $22,798 and $15,884, respectively.
NOTE 5 - SECURITY DEPOSITS.
Security deposits are comprised of rent deposits relating to various
leaseholds which the Company occupies of which $3,000 is for warehouse
space leased for a related party (See Note 7).
NOTE 6 - RELATED PARTY TRANSACTIONS.
(a) Notes Payable:
A stockholder and the Company entered into a loan agreement in April
1996 whereby the stockholder acquired the Company's 7% interest bearing
note $125,000 at par. The note was originally payable in full plus accrued
interest on March 31, 1997. On April 30, 1997, the note was amended and the
due date was extended to April 30, 1998. As a condition of the extension of
the above note, the Company's 7% interest bearing note payable (which was
originally payable in full plus accrued interest on July 16, 1997) to a
professional corporation owned by this stockholder's spouse in the amount
of $75,000 was prepaid in March 1997. Interest charged to operations for
the years ended September 30, 1998 and 1997 was $8,748 and $11,337,
respectively. Accrued interest payable on these loans aggregated $24,504
and $15,752 at September 30, 1998 and 1997, respectively, and is included
in accrued expenses. In May 1997, the stockholder agreed to subordinate his
loan to a bank which had granted the Company a $2,000,000 line of credit.
Although this stockholder has extended the due date to April 30, 1999, the
stockholder was verbally agreed not to demand payment of the debt as long
as any portion of the line of credit is outstanding.
F-10
<PAGE>
NOTE 6 - RELATED PARTY TRANSACTIONS. (Continued)
(a) Notes Payable: (Continued)
On August 26, 1996, the parents of the Company's President purchased
Shuttle's 15% interest bearing $20,000 note at par. The note, as amended,
is repayable in full on August 22, 1999 with accrued interest. Interest
charged to operations was $3,000 and $2,925 for the years ended September
30, 1998 and 1997, respectively. Accrued interest payable to these
individuals of $6,250 and $3,250 is included in accrued expenses at
September 30, 1998 and 1997, respectively. These creditors have agreed to
subordinate this indebtedness to a bank which had granted the Company a
$2,000,000 line of credit in May 1997 and also have verbally agreed not to
demand payment of the debt as long as any portion of the line of credit is
outstanding.
(b) Loan Payable:
A non-interest bearing $10,000 demand loan was repaid to a corporation
which is controlled by Company's three executive officer/directors during
fiscal 1997.
(c) Rent Payable:
Globus and Shuttle lease warehouse space from an entity controlled by
three of the Company's officer/directors. Rent charged to operations in
each of the years ended September 30, 1998 and 1997 was $30,000 of which
$52,075 and $27,375 was unpaid and included in accrued expenses - related
parties at September 30, 1998 and 1997, respectively. The leases which
expire in 1999 require aggregate monthly rentals of $2,500. Each lease has
option for renewal of five years at aggregate monthly rentals of $3,000.
(d) Officers' Compensation:
In August 1997, the Board of Directors authorized compensation of
$90,000 per year for each of the Company's President, CEO and
Vice-President commencing October 1, 1996. The Board's resolution also
provided for these officers annual compensation to increase to $150,000
commencing January 1, 1998. The officers have agreed to defer payment of
their compensation until cash flow permits. One of the officers has
verbally agreed to reduce his compensation to $75,000 per year in December
1998.
F-11
<PAGE>
NOTE 7 - FINANCING ARRANGEMENTS.
(a) Long-Term Debt:
The Company entered into an unsecured $500,000 working capital term
loan agreement on April 2, 1995 with a foreign bank. The loan is to be
repaid in twelve (12) equal quarterly principal installments of $41,667
plus interest at 1.75% (7.53% at September 30, 1997) over the LIBOR rate.
The balance outstanding of $41,666 at September 30, 1997 was repaid in
January 1998.
(b) Short-Term Debt:
(i) Banks:
The Company has five credit facilities at September 30, 1998 with four
domestic banks. Two unsecured lines of credit arrangements with two banks
aggregating $100,000 were entered into in 1996. One line, which is
guaranteed by an officer of the Company, for a maximum borrowing of $75,000
had $70,790 and $19,444, outstanding at September 30, 1998 and 1997,
respectively. Another line of credit of $25,000 had $22,992 and $11,898
outstanding at September 30, 1998 and 1997, respectively. Interest on the
lines averaged 10.25% in 1998 and 10.5% in 1997 (9.25 at September 30, 1998
and 10.5% at September 30, 1997). During fiscal 1998 and 1997, the average
month-end balance outstanding under these two lines was $31,707 , and
$13,652, respectively, and the highest month-end balance was $31,898. The
Company in December 31, 1997 obtained an unsecured $25,000 line of credit
of which $21,538 was outstanding at September 30, 1998. The line bears
interest at 15.25% and is guaranteed by an officer of the Company. The
Company's fourth credit facility allows the Company to obtain letters of
credit and acceptances payable for acquiring its finished goods up to an
aggregate of $1,500,000 of which zero was outstanding at September 30, 1998
and $35,000 was outstanding at September 30, 1997. The facility does not
permit borrowing by the Company. The Company has pledged its accounts
receivable and certain cash accounts held by the bank as collateral for any
obligation under this credit facility. At September 30, 1998 and 1997, the
cash pledged as collateral was $-0- and $35,000, respectively. In May 1997,
the Company obtained a fifth line of credit from a bank for letters of
credit, direct borrowings and acceptances payable originally aggregating
$2,000,000. At September 30, 1998, this line is for $3,000,000 with a
sub-limit of $1,000,000 on direct borrowings. There were no direct or
acceptance borrowings under this line from inception to September 30, 1997.
The Company at September 30, 1997 utilized $865,811 of this line in letters
of credit. At September 30, 1998, the Company had outstanding debt of
$341,000, acceptances payable of $1,577,783 and letters of credit of
$62,909. Outstanding debt borrowings under this line of credit bear
interest at 1-3/4% over prime (10.25% at September 30, 1998). This line is
collateralized by the guarantees of three of the Company's
officer/directors and a first lien on all corporate assets not previously
pledged or collateralized. One of these stockholders and the parents of
another have subordinated notes payable by the Company to them to this
bank. Additionally, the Company must maintain certificates of deposit with
this bank equal to 50% of the amount of any outstanding letters of credit
and/or bank borrowings under the line. The cash pledged as collateral under
this was $597,412 at September 30, 1998 and $447,543 at September 30, 1997.
F-12
<PAGE>
NOTE 7 - FINANCING ARRANGEMENTS. (Continued
(b) Short-Term Debt: (Continued)
(ii) Related Parties:
On April 7, 1996, the Company borrowed $125,000 from an
officer/stockholder which is to be repaid, as extended, with interest at 7%
on April 30, 1999: on July 16, 1996 the Company borrowed $75,000 from a
professional corporation, controlled by this stockholder's spouse, which
was repaid in March 1997; and on August 26, 1996 the Company borrowed
$20,000 from a parent of its President as evidenced by a 15% note which is
repayable in full, as extended, on August 22, 1999 with accrued interest.
Both of these notes are subordinated to a bank (see above) in connection
with the granting of a line of credit to the Company by the bank. As long
as any balance is outstanding under this line of credit, the note holders
have verbally agreed not to demand payment of the notes and to subordinate
such notes to this bank.
(iii) Convertible Note:
On November 2, 1997, the Company sold at par its 10% interest bearing
note in the amount of $500,000 to a foreign corporation. The note is due
and payable on November 2, 1998. In connection with the sale of the note,
the Company incurred $95,000 of financing costs which are being amortized
over the life of the note. The note principal and accrued interest, at the
holder's option is convertible in whole or part into (i) shares of the
Company's common stock at the lesser of $2.50 per share or 75% of the
average bid and ask of the Company's common stock for the five (5) trading
days immediately proceeding the noteholder's notice to convert and (ii) an
equal number of warrants to acquire the same number of shares in (i) at
$3.625 per share. If the Company is not successful in registering the
underlying common shares as freely trading stock, when and if such note or
any portion thereof is converted, by January 2, 1998, then the conversion
price is adjusted to the lesser of $2.50 per share or 65% of the average
bid and asked of the Company's common stock for the five proceeding trading
days. As required by generally accepted accounting principles a financing
expense of $224,103 was charged to operations for the discount between the
amount paid for the note and the fair value of the common shares into which
it can be converted with a corresponding increase in additional paid-in
capital. On January 5, 1998, $223,857 of principal and interest was
converted into 201,673 shares of common stock and warrants to acquire
201,673 shares of common stock at $3.625 per share. On May 15, 1998, an
additional $150,000 in the note's principal plus $7,890 in interest was
converted into 298,964 shares of the Company's common stock. In December
1998, the note-holder converted $87,783 of the note principal and accrued
interest of $9,912 into 1,100,000 of the Company's common shares. On
February 9, 1999, principal of $41,000 and interest of $5,201 was converted
into 221,119 shares of the Company's common stock.
F-13
<PAGE>
NOTE 8 - INCOME TAXES.
The components of the provision (benefit) for income taxes are:
For the Years
Years Ended
September 30,
---------------------------
1998 1997
--------- ---------
Currently payable:
Federal ($ 40,000) $ 99,244
State and local 4,000 37,400
--------- ---------
(36,000) 136,644
--------- ---------
Deferred:
Federal (10,000) (13,400)
State and local (31,620) (5,000)
--------- ---------
(41,620) (18,400)
--------- ---------
($ 77,620) $ 118,244
Deferred tax provision (benefit) results from differences in the
recognition of expense for tax and financial statement purposes. The
sources of these differences and the federal tax effect of each are as
follows:
For the Years
Years Ended
September 30,
-----------------------
1998 1997
-------- --------
Related party interest
and rent expense $ -- ($ 6,400)
Allowance for doubtful accounts -- (900)
Executive compensation -- (6,100)
-------- --------
$ -- ($13,400)
======== ========
F-14
<PAGE>
NOTE 8 - INCOME TAXES.
The difference between income taxes computed using the statutory
federal income tax rate and that shown in the financial statements are
summarized as follows:
<TABLE>
<CAPTION>
For the Years Ended
September 30,
-------------------------------------------------------
1998 1997
--------------------------- -------------------------
<S> <C> <C> <C> <C>
Income (loss) before
income taxes ($1,775,916) $249,696
=========== ==========
Computed tax - (benefit) at
statutory rate ($603,800) (34.0%) $84,900 34.0%
State taxes net of federal
tax benefit (18,220) (1.0) 16,944 6.8
Non-deductible portion of
interest and compensatory
element of common stock
issuances 91,600 5.2 5,600 2.2
Amortization of goodwill 2,900 0.1 2,500 1.0
Other - net (5,700) (0.3) 8,300 3.4
Reserve for net operating
loss carryforward
tax asset 455,600 25.6 -- --
----------- --------- ----------- ----------
Total tax provision ($77,620) (4.4%) $118,244 47.4%
=========== ========= =========== ==========
</TABLE>
NOTE 9 - DEFERRED RENT.
The accompanying financial statements reflect rent expense on a
straight-line basis over the life of the lease. Rent expense charged to
operations differs with the cash payments required under the terms of the
real property operating leases because of scheduled rent payment increases
throughout the term of the leases. The deferred rent liability is the
result of recognizing rental expense as required by generally accepted
accounting principles. In 1998, the Company renegotiated its lease for
reduced space and the deferred net was charged to operations.
NOTE 10 - COMMON STOCK.
(a) Sale of Securities:
(i) The Company during 1997 in a best efforts private placement
memorandum sold to qualified investors 87 units of its securities
for cash of $423,779 (net of costs associated with the offering
of $98,221) pursuant to Rule 504 of Regulations D of the
Securities Act of 1933, as amended. Each unit is comprised of
10,000 shares of the Company's $.001 par value common stock. The
offering memorandum which was originally for 70 units and
scheduled to expire on March 30, 1997 was extended and the number
units to be sold was increased.
F-15
<PAGE>
NOTE 10 - COMMON STOCK. (Continued)
(a) Sale of Securities: (Continued)
(ii) The Company in May 1996, exchanged 56,389 of its common shares
(as adjusted for all stock splits) for inventory of automotive
paint whose fair market value was $2,819,400. The Company, at its
option, through April, 1999 may repurchase all or a portion of
the shares for $75 per share.
(b) Common Stock Issued for Services Rendered:
During 1997, the Company satisfied liabilities for services rendered
during the year ended September 30, 1996 by employees, counsel and a
consultant by the issuance of shares of its common stock. The fair value of
the shares issued on the dates of each issuance, as determined by the Board
of Directors, was charged to operations in fiscal 1996. The obligations so
satisfied are as follows:
(i) The Board of Directors on October 26, 1996 entered into
employment agreement with two employees for 3 years, as amended,
at annual aggregate salaries of approximately $120,000. Each
contract stipulated that each employee was to receive shares of
the Company's common stock as payment for services previously
rendered aggregating $3,465. The fair value of the 55,000 shares
issued to the employees, as determined by the Board of Directors
on October 26, 1996, of $22,000 was charged to operations in
fiscal 1996 and included as in other obligations payable at
September 30, 1996. The $18,535 variance in valuation arises from
the employees' belief that if they were to sell unregistered
securities of the Company to realize their past compensation in
cash the market value of the Company's securities would be so
severely adversely impacted that approximately 55,000 of the
Company's unregistered common shares would be required to be sold
to realize the unpaid compensation.
(ii) The Board of Directors on November 1, 1996 entered into an
agreement with its counsel under which the Company issued 200,000
shares of its common stock as full payment of legal expenses
incurred prior to September 30, 1996. Although, the agreement
stipulates that the law firm valued the services when rendered at
$15,000, the Board of Directors determined that the fair value of
the shares (based on the shares average bid and ask market price
quotations on that day) issued on the date of issuance was
$80,000 which was charged to operations in fiscal 1996 and
included in other obligations payable at September 30, 1996. The
variance in the valuations results from the law firm's requiring
sufficient securities to compensate its not having received cash
for its services. Counsel believed that if it were to try to
realize their fees from the sale of the Company's securities on
that date in one transaction (or in a series of transactions
within a brief time frame) the per share market price would be so
negatively affected that, in counsel's estimation, approximately
200,000 shares would be required to be sold.
F-16
<PAGE>
NOTE 10 - COMMON STOCK. (Continued)
(b) Common Stock Issued for Services Rendered: (Continued)
(iii) The Board of Directors on December 1, 1996 entered into an
agreement with a financial consultant for 3 years, as amended.
The consultant is to receive $2,500 per month for his consulting
services. The agreement also required the Company to issue
300,000 shares of its common stock as full payment of $25,500 for
services rendered by the consultant prior to September 30, 1996.
The fair value of the common shares issued, as determined by the
Board of Directors on December 1, 1996, of $180,000 ($0.60 per
share) of which $22,500 was charged to operations in 1996 and is
included in other obligations payable at September 30, 1996. On
May 22, 1997, the Company and this consultant terminated the
agreement. As part of the termination, the consultant surrendered
to the Company 230,000 shares of the Company's common stock which
was issued to him for no consideration. The Company canceled and
returned to authorized and unissued these surrendered shares and
is reflected in the financial statements as a reduction of common
stock and additional paid-in capital of $138,000. The Company
charged to operations $16,500 in both the six months ended March
31, 1997 and fiscal 1997 for the excess of the fair value of the
70,000 shares of common stock not surrendered of $42,000 ($0.60
per share) and the value the consultant attributed to his
services.
(iv) In December 1996, the Company entered into a three year
consulting services agreement with Crabbe Capital Group Ltd.
which was subsequently extended an additional year. The agreement
requires that the consultant shall (i) introduce the Company to
the consultant's network of domestic and international commercial
banking sources, (ii) advise and assist the Company in
identifying, studying, and evaluating interest and exchange rate
fluctuations, and (iii) assist the Company in securing letters of
credit and reviewing its commercial banking alliances and
strategies. As compensation for entering into the agreement, the
Company issued 325,000 shares of its common stock, 275,000 of
which were issued pursuant to Rule 504 of Regulation D of the
Securities Act of 1933, as amended. The remaining 50,000 shares
state that those shares have not been registered under the
Securities Act of 1993, as amended.
(v) The fair value of the 325,000 shares of common stock issued of
$195,000 as determined by the Board of Directors will be
amortized and charged to operations over the life of the
consulting agreement.
F-17
<PAGE>
NOTE 10 - COMMON STOCK. (Continued)
(b) Common Stock Issued for Services Rendered: (Continued)
(vi) In December 1996, the Company entered into a one year consulting
services agreement (the "Agreement") with Comstat, Inc. under the
terms of which, the consultant shall advise and assist the
Company in identifying, studying, and evaluating mergers,
acquisitions, joint ventures, and strategic alliances, strategic
corporate planning and long-term business policies. Additionally,
the consultant shall assist the Company in acquiring additional
products to increase its product line through its network of
import/export associates. As compensation for entering into the
agreement, the Company issued 50,000 shares of its common stock
issues, pursuant to Rule 504 of Regulation D of the Securities
Act of 1993, as amended. The fair value of the 50,000 shares of
common stock issued of $30,000 as determined by the Board of
Directors will be amortized and charged to operations over the
life of the consulting agreement.
(vii)In March 1997, the Company entered into a two year consulting
agreement with Regency Group Enterprises, Inc. The consultant
received 125,000 shares of the Company's common stock to render
financial advise in regards to strategic corporate planning,
long-term investment policies, and potential mergers and
acquisitions. The fair value as determined by the Board of
Directors, of shares issued of $75,000 will be amortized over the
two year life of the agreement.
(c) Stock Options:
(i) The Company granted to each of three officers on December 31,
1997 options to acquire 300,000 shares of the Company's common
stock at $1.72 per share (110% of the market value at the date of
grant. The Company applies APB 25 in accounting for its stock
options. Accordingly, because the grant price equalled or
exceeded the market price on the date of grant, no compensation
expense is recognized for the stock options issued. The fair
value of the 900,000 options granted on December 31, 1997 of
$1,404,000 ($1.56) is being amortized to expense over the option
period in determining their pro forma earnings impact. Had
compensation cost for these stock options been recognized based
upon the fair value on the grant date under the methodology
prescribed by FAS 123, the Company's net income and earnings per
share for the year ended September 30, 1998 would have been
impacted by a charge for compensation of $105,400 resulting in an
adjusted net loss of $1,803,700 or ($0.2) per share.
F-18
<PAGE>
NOTE 10 - COMMON STOCK. (Continued)
(c) Stock Options: (Continued)
(i) (Continued)
The fair value of the options granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:
Expected life of option 10 years
Risk-free interest rate 10.0%
Expected violability 175.0%
Expected dividend yield NONE
On December 10, 1998, those three officer/directors surrendered
their options to acquire the 900,000 shares and the Board of
Directors approved the cancellation of the grants. The Board
authorized the issuance of 300,000 shares to each of these
persons as partial payment of their unpaid contractual
compensation. The aggregate accrued compensation paid by the
issuance of the 900,000 shares of common stock was $108,000 which
was 110% of the fair value market on December 10, 1998.
(ii) The Globus International Resources Corp. 1998 Associate Stock
Option Plan (the "Option Plan") was adopted by the Board of
Directors of the Company on December 31, 1997. The stock options
granted under this Option Plan will be nonstatutory stock options
not intended to qualify as incentive stock options within the
meaning of Section 442 of the Internal Revenue Code of 1986, as
amended. Employees, officers, directors, consultants contractors
and advisors of the Company or any subsidiary are eligible to
receive grants of the Option Plan stock options. The per share
option price of the Common Stock subject to each option shall be
at least equal to the greater of 110% of the fair market value of
the Company's Common Stock on the date or grant. The Option Plan
is administered by a committee appointed by the Board of
Directors. The Option Plan provides that a maximum of 500,000
shares of Common Stock may be issued upon the exercise of options
granted under the Option Plan. No options have been granted under
the Option Plan at September 30, 1998. On December 10, 1998, the
Board of Directors granted an option to a consultant for 300,000
shares of common stock and to an officer for 200,000 shares of
common stock. Both options' per share exercise price was $0.12
which was 110% of the fair market value at the date of grant.
Both the consultant and the officer exercised their respec- tive
option on the date of grant.
F-19
<PAGE>
NOTE 11 - MAJOR RELATIONSHIPS AND SEGMENT INFORMATION.
The Company is comprised of two business segments. The distribution of
food products and the distribution of auto paint and parts and clothing.
Clothing sales commenced in July 1996 represent 5.1% and 3.2% for fiscal
1998 and 1997, respectively. Set forth below are sales, operating income,
capital expenditures, depreciation and identifiable assets of the segments.
Operating income is reflective of a charge for corporate costs of $90,000
in fiscal 1998 and $115,000 for fiscal 1997 allocated from the food
distribution segment to the auto and clothing segments.
For the Years Ended
December 31,
---------------------
1998 1997
-------- --------
Net sales (000's):
Food products $18,097 $13,077
Other 1,561 2,313
-------- --------
$19,658 $15,390
======== ========
Operating income (loss) (000's):
Food products ($826) $229
Other (660) (2)
-------- --------
($1,486) $227
======== ========
Depreciation (000's):
Food products $159 $95
Other 12 15
-------- --------
$171 $110
======== ========
Capital additions (000's):
Food products $47 $3
Other -- --
-------- --------
$47 $3
======== ========
Identifiable assets (000's):
Food products $3,796 $2,788
Other 2,373 3,423
-------- --------
$6,169 $6,211
======== ========
The food products segment has had only nine (9) customers since it
started shipments in August 1995. One customer accounted for 31.7% and
46.6% of the food products segment's sales for fiscal 1998 and 1997,
respectively. Sales of this segment's products for another customer were
20.0% and 47.8% for the same periods. During 1998, this segment commenced
shipping to a new customer who accounted for 38.1% of sales.
The other segments' sales were to eight (8) customers of which one
customer accounted for 14.6% and 15.5% of sales for the years September 30,
1998 and 1997, respectively. Another customer accounted for 21.3% of sales
for the same periods. A third customer accounted for 21.3% and 39.0%,
respectively, of sales for 1998 and 1997. A fourth customer accounted for
10.9% in 1998 and 1.0% in 1997.
F-20
<PAGE>
NOTE 12 - COMMITMENTS AND CONTINGENCIES.
(a) Leases:
The Company is a lessee under three operating real property leases for
office and warehouse space. Rent expense charged to operations for the
years ended September 30, 1998 and 1997 was $109,639 and $101,337,
respectively. Future minimum annual rent commitments as of the Company's
fiscal year-end are as follows:
Years Ended
September 30,
-------------
1999
2000
2001
(b) Letters of Credit:
The Company is contingently liable for approximately $63,000 in
letters of credit outstanding at September 30, 1998.
(c) Consulting Agreement:
(i) In July 1996, the Company entered into a financial consulting
agreement with an individual who will advise the Company on
certain financial matters. The agreement provides for the
consultant to receive $2,000 a month for his services commencing
in August 1996. The agreement may be terminated by either party
upon two weeks notice.
(ii) The Company entered into a four year consulting services
agreement with Crabbe Capital Group Ltd. under which the
consultant shall (i) introduce the Company to the consultant's
network of domestic and international commercial banking sources,
(ii) advise and assist the Company in identifying, studying, and
evaluating interest and exchange rate fluctuations, and (iii)
assist the Company in securing letters of credit and review
commercial banking alliances and strategies. The Company issued
to the consultant 325,000 shares of its common stock as
compensation for its services. The fair value of the 325,000
shares of common stock issued of $195,000 is being amortized and
charged to operations over the life of the consulting agreement.
Amortization charged to operations in fiscal 1997 $40,625 and
$48,750 in 1998.
F-21
<PAGE>
NOTE 12 - COMMITMENTS AND CONTINGENCIES. (Continued)
(c) Consulting Agreement: (Continued)
(iii) The Company entered into a one year consulting services agreement
with a consultant to (i) advise and assist the Company in
identifying, studying, and evaluating mergers, acquisitions,
joint ventures, and strategic alliances, (ii) consult with the
Company concerning on-going strategic corporate planning and
long-term business policies, and assist the Company in acquiring
additional products to increase its product line and in obtaining
and expanding corporate purchases of its product through a
network of import/export associates. As compensation for entering
into the agreement, the Company issued 50,000 shares of its
common stock whose fair value of $30,000 is being amortized and
charged to operations over the life of the consulting agreement.
Amortization charged to operations in fiscal 1997 was $25,000 and
$5,000 in 1998.
(iv) The Company has another financial consulting agreement under
which the consultant for two years will advise the Company's
management in regards to strategic corporate planning, long-term
investment policies and potential mergers and acquisitions. The
consultant was issued 125,000 shares of the Company's stock as
payment for its services to be rendered. The fair value of the
issued shares of $75,000 is being charged over the life of the
agreement. Amortization charged to operations in 1997 was $18,750
and $37,500 in 1998.
(d) Employment Contract:
The Company's President, CFO and Vice President of sales were verbally
authorized compensation in aggregate of $127,000 per year through September
30, 1996. The Board of Directors' authorized an annual salary of $90,000
for each of these officers, who also are members of the Board of Directors
for fiscal 1997 and $150,000 for calendar 1998. The officers have agreed to
defer payment of their compensation until the Company's cash flow permits.
At September 30, 1998 and 1997 these officers were owned $155,659 and
$65,000, respectively. Such liabilities are included in accrued expenses
and other current liabilities - related parties.
Additionally in October 1995, the Company entered into three year
employments contracts with two employees the aggregate annual compensation
under these contracts is approximately $120,000.
F-22
<PAGE>
NOTE 12 - COMMITMENTS AND CONTINGENCIES. (Continued)
(e) Convertible Debt:
In November 1997, the Company issued, at par, its 10% interest bearing
$500,000 convertible debt security to a foreign corporation. The amount of
the note's principal and/or unpaid interest at 10% can be converted into
the Company's common shares at the noteholder's option throughout the term
of the note. The note is convertible into common shares at the lesser of
$2.50 per share of 75% of the average bid and ask of the Company's common
stock for the five (5) trading days immediately proceeding the noteholder's
exercise of the conversion option and into an equal number of warrants to
acquire the same number of shares at $3.625 per share. As required by
generally accepted accounting principles, a financing charge of $166,667
was charged to operations in November 1997 for the discount between the
amount paid for the note and the fair value of common shares into which it
can be converted.
On January 5, 1998, the noteholder converted $220,000 of debt and
$3,857 of accrued interest into 201,693 shares of the Company's common
stock and warrants to acquire another 201,673 common shares at $3.625 per
share. The note agreement requires the Company to register the common
shares which are issued under any conversion of the debt to common stock by
the noteholder. On May 14, 1998, the noteholder converted an additional
$157,890 in principal and interest into 298,964 shares of common stock and
warrants to acquire 298,964 common shares at $3.625 per share.
In December 1998, the noteholders converted $87,783 in principal and
accrued interest of $9,912 into 1,100,000 common shares. In February 1999,
another $41,000 in principal and $5,201 in accrued interest was converted
in 222,119 common shares.
(f) Year 2000:
The Company recognizes the need to ensure its operations will not be
adversely affected by year 2000 software failures. The Company is
communicating with suppliers, customers and others with which it does
business to coordinate year 2000 conversion. The cost of achieving
compliance is estimated to be a minor increase over the cost of normal
software upgrades and replacements.
F-23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Globus International Resources Corp. as at and for the
year ended September 30, 1998 is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 132,234
<SECURITIES> 0
<RECEIVABLES> 3,489,982
<ALLOWANCES> 420,000
<INVENTORY> 1,583,196
<CURRENT-ASSETS> 5,842,824
<PP&E> 124,213
<DEPRECIATION> 72,386
<TOTAL-ASSETS> 6,169,365
<CURRENT-LIABILITIES> 3,160,694
<BONDS> 0
0
0
<COMMON> 5,050
<OTHER-SE> 3,003,621
<TOTAL-LIABILITY-AND-EQUITY> 6,169,365
<SALES> 19,658,009
<TOTAL-REVENUES> 19,658,009
<CGS> 19,196,140
<TOTAL-COSTS> 1,538,331
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 410,000
<INTEREST-EXPENSE> 375,631
<INCOME-PRETAX> (1,825,916)
<INCOME-TAX> (77,620)
<INCOME-CONTINUING> (1,748,296)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,748,296)
<EPS-BASIC> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
