<PAGE> 1
As filed with the Securities and Exchange Commission on August 22, 2000
Registration Statement No.333-83701
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 9 TO THE
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CIRCLE GROUP INTERNET, INC.
----------------------------------------------
(Name of Small Business Issuer in its Charter)
Illinois 7375 36-4197173
------------------------ -------------------- -------------------
(State or other juris- (Primary Standard (I.R.S. Employer
diction of incorporation Industrial Classifi- Identification No.)
or organization) cation) Code Number)
1011 Campus Drive
Mundelein, IL 60060
847-549-6002
-------------------------------------------------------------
(Address and telephone number of principal executive offices)
Mr. Gregory J. Halpern
Mr. Frank K. Menon
Circle Group Internet, Inc.
1011 Campus Drive
Mundelein, IL 60060
847-549-6002
-------------------------------------------------------------
(Name, address and telephone number of agent for service)
With a copy to:
Roxanne K. Beilly, Esq.
Atlas Pearlman, P.A.
350 East Las Olas Boulevard
Suite 1700
Fort Lauderdale, Florida 33301
(954) 763-1200
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this registration statement.
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 of
1933, 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 of 1933, check the following box and
list the Securities Act of 1933 registration number of the earlier registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
of 1933 registration number of the earlier registration statement for the same
offering. [ ]
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box [ ].
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Title of Amount Offering Aggregate Amount
Shares to be to be Price Per of Offering Registration
Registered Registered Share (1) Price (1) Fee
---------- ---------- --------- ----------------- -------------
<S> <C> <C> <C> <C>
common stock,
$.00005 par value
per share 1,833,760 $10.00 $1,833,760 $4,854.33
</TABLE>
------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
<PAGE> 3
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD BY THE HOLDERS UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PRELIMINARY 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.
SUBJECT TO COMPLETION DATED , 2000
PROSPECTUS
CIRCLE GROUP INTERNET, INC.
1,833,760 SHARES OF COMMON STOCK
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
This prospectus covers 1,833,760 shares of common stock of Circle Group
Internet, Inc. being offered by certain selling security holders identified.
There is no public market for our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is [ ], 2000
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Prospectus Summary..........................................................................................3
Summary Consolidated Financial Data.........................................................................4
General Information.........................................................................................4
Risk Factors................................................................................................5
Forward Looking Statements..................................................................................9
Use of Proceeds............................................................................................10
Capitalization.............................................................................................10
Management's Discussion and Analysis of Financial Condition and Results of Operations......................10
Business ..................................................................................................21
Management.................................................................................................47
Indemnification of Officers and Directors..................................................................56
Certain Relationships and Related Transactions.............................................................56
Our Principal Shareholders.................................................................................59
Market for our Securities..................................................................................60
Selling Security Holders...................................................................................61
Plan of Distribution.......................................................................................67
Description of Securities..................................................................................70
Legal Matters..............................................................................................71
Experts ..................................................................................................72
Index to Financial Statements.............................................................................F-1
</TABLE>
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PROSPECTUS SUMMARY
Circle Group Internet, Inc.
We are an Internet company with e-finance, business consulting, web design and
multimedia services, and e-tailer divisions. Our business is built around the
common theme of Internet-based operations.
* Circle Group Internet provides business consulting services and
oversees the operations of its subsidiaries.
* CGI Capital, is a broker-dealer that offers and sells securities in
private placements. CGI Capital focuses its activities on the
Internet sector and, more generally, on issuers seeking to market
their stock offerings to accredited investors.
* CGI Total Media develops distinctive web sites and interactive
multimedia.
* On-Line Bedding, our e-tailer or Internet retailer, subsidiary is a
manufacturer and distributor of pillows, blankets, and other bedding
products.
Our executive offices are located at 1011 Campus Drive, Mundelein, Illinois
60060. Our telephone number is (847) 549-6002. Our web sites are located at
www.circlegroupinternet.com,www.cgrp.com, www.justdoit.net,
www.cgitotalmedia.com, www.bedsandbeyond.com and www.cgicapital.com. The
information on our web sites is not a part of this prospectus.
The Offering
Common Stock Offered by
Selling Security Holders 1,833,760 shares
Common Stock Outstanding:
Prior to the Offering 9,894,680 shares
After the Offering 9,894,680 shares
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SUMMARY CONSOLIDATED FINANCIAL DATA
In this section, we present our summary consolidated financial data. The summary
data in this section are not intended to replace our financials. The following
summary financial data should be read together with the financial statements and
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" sections included in this prospectus.
Statement of operations data:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
SALES $ 420,823 $ 486,592 $ 868,926 $ 708,794
----------- ----------- ----------- -----------
GROSS PROFIT (156,132) 206,755 (379,978) 273,685
----------- ----------- ----------- -----------
OPERATING EXPENSES 784,097 652,519 2,019,253 802,731
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (940,229) (445,764) (2,399,231) (529,046)
----------- ----------- ----------- -----------
NET LOSS (875,611) (394,815) (2,230,222) (453,956)
----------- ----------- ----------- -----------
BASIC LOSS PER SHARE $ (0.09) $ (0.046) $ (0.23) $ (0.054)
----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 9,894,680 8,502,580 9,884,180 8,388,680
----------- ----------- ----------- -----------
</TABLE>
Balance sheet data:
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
(UNAUDITED) (AUDITED)
CURRENT ASSETS $ 6,671,169 $10,111,607
----------- -----------
TOTAL ASSETS 14,453,361 18,080,834
----------- -----------
TOTAL LIABILITIES 5,300,718 7,086,272
----------- -----------
WORKING CAPITAL 1,370,451 3,025,335
----------- -----------
TOTAL STOCKHOLDERS
EQUITY 8,963,071 10,994,562
----------- -----------
GENERAL INFORMATION
The terms "Circle Group Internet," "we," "our," and "us" refer to Circle Group
Internet, Inc. and our subsidiaries CGI Capital, Inc., On-line Bedding, Inc.,
CGI Total Media, Inc., and PPI Capital Corporation. The term "you" refers to a
prospective investor.
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RISK FACTORS
An investment in our common stock involves a high degree of risk. In addition to
the other information contained in this prospectus, you should carefully
consider the following risk factors before investing in our common stock.
WE HAVE A HISTORY OF LOSSES. WE CANNOT GUARANTEE THAT WE WILL REPORT PROFITABLE
OPERATIONS IN THE FUTURE. ANY FAILURE ON OUR PART TO ACHIEVE PROFITABILITY MAY
LIMIT OUR FUTURE GROWTH POTENTIAL.
We reported a net loss of $5,715,648 for the fiscal year ended December 31, 1999
and a net loss of $2,040,650 for the six months ended June 30, 2000 (unaudited).
We cannot guarantee that we will report profitable operations in the future. If
we continue to incur significant losses our cash reserves may be depleted
earlier than currently anticipated, and we may be required to limit our future
growth objectives to levels corresponding with our then available cash reserves.
THE INVESTMENT COMPANY ACT WILL LIMIT THE VALUE OF RESTRICTED SECURITIES WE CAN
ACCEPT AS PARTIAL PAYMENT FOR OUR BUSINESS CONSULTING SERVICES WHICH MAY LIMIT
OUR FUTURE REVENUES.
We have historically accepted stock as payment for our business consulting
services, and may continue to do so in the future, but only to the extent that
it does not cause us to become an investment company under the Investment
Company Act. If we determine that continuing to accept stock will cause us to
become an investment company, we intend to only accept cash as payment for our
business consulting services. To the extent that we are required to reduce the
amount of stock we accept as payment for our business consulting services to
avoid becoming an investment company, our future revenues from our business
consulting services may decline if our client companies cannot pay our fees in
cash. Any future change in our fee structure for our business consulting
services could severely limit our ability to attract business consulting
clients.
THE NEED TO COMPLY WITH THE INVESTMENT COMPANY ACT, AND THE UNCERTAINTY OF OUR
ABILITY TO COMPLY, COULD MAKE US DELAY OR MODIFY OUR BUSINESS PLANS, CHANGE OUR
BUSINESS STRUCTURE, OR IMPAIR OUR ABILITY TO OPERATE AS WE PROPOSE.
The Investment Company Act restricts the operations of companies that are deemed
to be "investment companies." We do not believe that we are an investment
company under Section 3(a)(1) of the Investment Company Act. We are not engaged
in the investment company business, but are, both directly and through our
subsidiaries, engaged in operating our broker-dealer, offering business
consulting services, web site
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design and multimedia services, and operating our online bedding businesses. Our
wholly owned broker-dealer subsidiary, CGI Capital, is primarily engaged in the
business of selling securities in private placements to customers, acting as a
broker, and related activities. We do not believe CGI Capital is an investment
company under Section 3(c)(2) of the Investment Company Act. This provision of
the Investment Company Act has not, however, been subject to substantial
regulatory or judicial interpretation. We cannot assure you that the SEC will
agree with our conclusions, or that a court will agree with our conclusions if
these issues are ever litigated.
In the event that either the SEC or a court does not agree with our conclusions,
we may fail to comply with the requirements of the Investment Company Act. We
would then seek to take appropriate steps to bring us back into compliance. If
we are unable to take such steps, we might be required to register as an
investment company or to elect to be treated as a business development company
under the Investment Company Act, both of which are inconsistent with our
current business model. We would thus be required to restructure our operations,
which could involve disposing of, or terminating, our broker-dealer operations.
If we fail to comply with the requirements of the Investment Company Act, we
would be prohibited from engaging in business or selling our securities, and
could be subject to civil and criminal actions for doing so. In addition, our
contracts would be voidable, and a court could appoint a receiver to take
control of us and liquidate our business. Any failure to comply with the
Investment Company Act would seriously harm our business.
In addition, if we fail to comply with the requirements of the Investment
Company Act during this offering, we would cease to be a small business issuer,
and we would be unable to proceed with this offering as a small business issuer.
In that event, we might be required to register with the SEC as an investment
company, and we would be required to have an effective registration statement
before we could make a public offering of our securities.
WE ARE REQUIRED TO PAY INCOME TAXES ON REVENUES FROM NON-CASH COMPENSATION WHICH
FURTHER DEPLETES OUR CASH RESERVES.
Because we anticipate that we will continue to accept restricted stock as
partial payment for our services, we will continue to incur an income tax
payable on these revenues without generating the corresponding cash to pay the
tax. Until such time as we can convert some of the restricted securities to
cash, we will rely on our current cash reserves or cash generated from
operations, if any, to pay the income taxes associated with this non-cash
compensation. This reliance will further deplete our cash reserves and may
require us to curtail our growth plans to a level which is commensurate with our
then available cash reserves.
TWO OF OUR BRIDGE LOANS ARE IN DEFAULT. DEFAULT OF BRIDGE LOANS MADE BY US MAY
FURTHER REDUCE OUR CASH RESERVES AND MAY CAUSE US TO REDUCE OUR GROWTH PLANS.
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None of the approximate $405,000 in outstanding bridge loans which we have made
to third parties is collateralized. While all of these loans are convertible at
our option into equity of the borrower, because none of these companies are
publicly-traded the stock we would receive upon conversion of the note is
illiquid. Currently, two of these loans in the aggregate principal amount of
$200,000 are in default, and the balance of the notes carry maturities of August
31, 2000. We cannot guarantee that we will ever be successful in securing
repayment of the amounts due . The loss of these funds will further reduce our
cash reserves and negatively affect our ability to fund our future growth.
BECAUSE WE HAVE HAD NEGATIVE CASH FLOWS FROM OPERATIONS, WE MAY NEED TO RAISE
ADDITIONAL CAPITAL TO FUND OUR FUTURE GROWTH . WE CANNOT GUARANTEE THAT WE WILL
BE ABLE TO RAISE ADDITIONAL CAPITAL. IF WE ARE UNABLE TO RAISE ADDITIONAL
CAPITAL AS NEEDED, WE WOULD BE FORCED TO REDUCE OUR OPERATIONAL COSTS, AND
RESTRICT THE GROWTH PROJECTED IN OUR BUSINESS PLAN.
To date, we have had negative cash flows from operations and have depended on
sales of our securities to meet our cash requirements. We anticipate that we may
continue to have negative cash flows from operations during fiscal 2000 and
beyond. We anticipate that we will continue to be dependent upon funds we
received during 1999 from sales of our securities to provide sufficient cash for
our operations. Our current cash reserves are sufficient for our operating needs
for at least the next 12 months based upon our current level of operations.
Depending upon the growth rate of our business, we may need to raise additional
cash through public or private offerings to fund our growth until the time as we
can convert restricted securities we accept as payment for our services into
cash, if ever.
We have no current commitments regarding any additional capital raising
activities. We may not be able to obtain additional financing on acceptable
terms if needed. If we require, but are unable to obtain, additional financing
in the future, we may be unable to implement our business and growth strategies
or respond to changing business or economic conditions. Any inability on our
part to address these issues could adversely affect our ability to potentially
increase our business beyond current levels.
WE ACCEPT RESTRICTED SECURITIES AS PARTIAL COMPENSATION FOR OUR BUSINESS
CONSULTING SERVICES. IF THE ISSUERS OF THOSE SECURITIES ARE UNSUCCESSFUL, THE
SECURITIES WE ACCEPT AS COMPENSATION FOR OUR SERVICES COULD BE RENDERED
WORTHLESS, WHICH WOULD RESULT IN A NEGATIVE CASH FLOW FROM OPERATIONS.
To date, all of our client companies for our business consulting services have
been private companies. We have accepted and may continue to accept restricted
STOCK from these client companies as partial payment for our services to the
extent that it does not cause us to be an investment company. For us to realize
any revenue on the securities that we receive for services, the securities of
the issuers need to become liquid, either from a public stock offering or by
being acquired by a public company. In the event
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<PAGE> 10
these securities do not become liquid, we would be unable to convert them to
cash. This would result in a loss on the services we provided and cause a
negative cash flow from operations.
OUR MINIMAL PRIOR INVESTMENT BANKING EXPERIENCE MAY LIMIT OUR GROWTH AND
SUCCESS, WHICH MAY ADVERSELY AFFECT OUR ABILITIES TO INCREASE OUR REVENUES.
While several members of our management team have previous experience in the
securities industry, we have only recently expanded our operations into
investment banking through our acquisition of CGI Capital. The overall growth in
our revenues will depend largely on the development of this subsidiary. If we
are unsuccessful in developing our investment banking experiences, it may
adversely affect our ability to increase our revenues and profits.
THE LIMITED OPERATING HISTORY OF CGI CAPITAL MAY IMPEDE OUR ABILITY TO ATTRACT
QUALITY OFFERINGS. IF CGI CAPITAL IS UNABLE TO ATTRACT QUALITY OFFERINGS, ITS
CLIENT FOCUS MAY BE LIMITED TO COMPANIES WITH LESS OF AN APPEAL TO INVESTORS
WHICH MAY HAVE THE AFFECT OF DECREASING OUR SUCCESS RATE IN RAISING CAPITAL FOR
CGI CAPITAL'S CLIENTS.
Our ability to attract potential clients is also based, in part, on our success
with prior transactions in which we have assisted companies in raising capital.
We have only recently expanded our operations to include investment banking
activities, and must develop a further track record on which our future clients
can evaluate our likelihood of success in assisting them to raise capital. Until
we develop this track record, we may incur difficulties in attracting potential
clients who have the greatest potential for future success.
WE HAVE ONLY RECENTLY EXPANDED ON-LINE BEDDING'S OPERATIONS TO INCLUDE AN
ECOMMERCE WEB SITE, AND WE MAY BE UNSUCCESSFUL USING THE INTERNET FOR ON-LINE
BEDDING'S TRADITIONAL OPERATION. IF WE ARE UNSUCCESSFUL IN EXPANDING ON-LINE
BEDDING'S DISTRIBUTION TO INCLUDE INTERNET-BASED SALES, WE MAY NOT BE SUCCESSFUL
IN INCREASING ITS TOTAL SALES OR RECOUPING OUR INVESTMENT IN CREATING AND
OPERATING THE WEB SITE.
The overall growth in our revenues and profits from On-Line Bedding will depend
largely on the continuing development and marketing of its web site. We will be
relying upon Internet advertising, newsletters, and brochures to draw consumers
to On-Line Bedding's web site. Because we have limited experience running an
e-commerce platform, we cannot guarantee that we will be successful in
attracting consumers to OnLine Bedding's web site or increasing its revenues and
profits through online sales.
IN THE EVENT THAT THE SEC BRINGS AN ACTION AGAINST CGI CAPITAL FINDING A
VIOLATION OF SECTION 5 OF THE SECURITIES ACT, WE COULD BE SUBJECT TO PENALTIES
IN UNDETERMINABLE AMOUNTS AS MAY BE ORDERED BY THE SEC.
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The staff of the Enforcement Division of the SEC has notified CGI Capital that
it will be recommending that the SEC institute administrative proceedings
against CGI Capital charging violations of Section 5 of the Securities Act and
Section 15(b)(4) of the Securities Exchange Act in connection with two private
placement securities offerings from August 1999 through December 1999. The two
offerings raised approximately $1,041,210. The staff has informed CGI Capital
that it would allege that CGI Capital conducted a general solicitation with
respect to these offerings and the exemption from registration for those
securities pursuant to Regulation D was not available. In the event the SEC
brings an action against CGI Capital finding violations of Section 5 of the
Securities Act, we could be subject to penalties as levied by the SEC in as yet
undeterminable amounts.
Other securities regulators, including the NASD and state securities regulators,
could bring actions against CGI Capital making similar allegations and seeking
additional sanctions against the firm. Further, if an administrative order is
entered against CGI Capital, the firm could be prohibited from engaging in
certain types of securities transactions for a period of time.
SHAREHOLDERS OF THE AFFECTED COMPANIES COULD INITIATE ACTIONS AGAINST US AND/OR
CGI CAPITAL ALLEGING VIOLATIONS OF SECTION 5 OF THE SECURITIES ACT AND SEEKING
TO RECOVER THE AMOUNT OF THEIR INVESTMENT AND OTHER UNSPECIFIED AMOUNTS.
Whether or not the SEC initiates an action against CGI Capital, we and/or CGI
Capital could be sued by purchasers in the two affected offerings to recover
their investments and for any other damages they might claim. The maximum
exposure to us for recission would be $1,041,210. It is not clear the likelihood
of success of an action for recission, what other damages could be claimed, nor
the amounts of those damages.
BECAUSE THERE IS NO PUBLIC MARKET FOR OUR COMMON STOCK, INVESTORS WILL FACE
SIGNIFICANT DIFFICULTIES IN SELLING THEIR SHARES.
Even though the shares of common stock included in this prospectus have been
registered under the Securities Act and are freely saleable, the lack of a
public market for our common stock will make resale of these shares difficult,
if not impossible. While we intend to seek a listing of our common stock on the
American Stock Exchange or the NASD's OTC Bulletin Board in the future, we
cannot guarantee that a listing will be granted. Prospective investors should
not purchase shares of our common stock unless they can afford to hold these
securities for an indefinite period of time.
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements. We intend to identify
forward-looking statements in this prospectus using words such as "believes,"
"intends," "expects," "may," "will," "should," "plan," "projected,"
"contemplates," "anticipates," or similar statements. These statements are based
on our beliefs, as well as assumptions we made using information currently
available to us. Because these statements reflect our current views concerning
future events, these statements involve risks, uncertainties and assumptions.
Actual future results may differ significantly from the results discussed in the
forward-looking statements. Some, but not all, of the factors that may cause
these differences include those discussed in the Risk Factors section beginning
on page 4 of this prospectus. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
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USE OF PROCEEDS
We will not receive any proceeds from the resale of our common stock by the
selling security holders made under this prospectus.
CAPITALIZATION
The following table sets forth our capitalization at June 30, 2000 and has been
derived from financial information appearing in the financial statements
included in this prospectus.
JUNE 30, 2000
---------------
(unaudited)
Stockholders' equity:
common Stock, $.00005 par value
per share; 50,000,000 shares
authorized; 9,894,680 shares issued
and outstanding at March 31, 2000 $ 495
Additional paid-in capital 18,096,412
Treasury Stock, at cost (11,269)
------------
Accumulated deficit (8,932,315)
------------
Minority interest (deficiency) (680)
Total stockholders' equity 8,963,071
------------
Total capitalization $ 8,963,071
------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION ALONG WITH OUR FINANCIAL STATEMENTS AND
RELATED NOTES INCLUDED IN THIS PROSPECTUS. THE FOLLOWING DISCUSSION CONTAINS
FORWARDLOOKING STATEMENTS THAT ARE SUBJECT TO RISKS, UNCERTAINTIES AND
ASSUMPTIONS, INCLUDING THOSE DISCUSSED UNDER "RISK FACTORS." OUR ACTUAL RESULTS,
PERFORMANCE AND ACHIEVEMENTS IN 2000 AND BEYOND MAY DIFFER MATERIALLY FROM THOSE
EXPRESSED IN, OR IMPLIED BY, THESE FORWARD LOOKING STATEMENTS.
Overview
We acquired On-Line Bedding in January 1999. Our CEO was a co-founder, together
with his parents, of On-Line Bedding. At the time of the acquisition, our CEO
was not an officer, director or shareholder of the company. The acquisition,
however, was accounted for as a combination of related party interests treated
in a manner similar to that of a pooling of interests, with the excess of cost
over the net assets acquired being treated as a dividend to the related party.
Our consolidated balance sheet at December 31, 1998 and our condensed
consolidated statements of income, statement of changes in stockholders' equity
and statements of cash flows for the year ended December 31,
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1998 give pro forma effect to the acquisition of On-Line Bedding as if it had
occurred on January 1, 1998.
We acquired approximately 82% of the issued and outstanding capital stock of PPI
Capital in March 1999 from our CEO. PPI Capital is a shell corporation with no
operations or revenues. The acquisition was accounted for as a dividend to a
related party.
We acquired CGI Capital in November 1999 and its results of operations are
included in our financial statements since the date of acquisition.
Prior to July 2000, we offered our web site design and multimedia services
through our parent company. In July 2000 we internally restructured our
operations to respond to the development of our company, and organized CGI Total
Media to provide these services. We continue to offer our business consulting
services through our parent company, Circle Group Internet. Because this
restructure occurred after the date of the financial information contained in
this prospectus, no information appears for CGI Total Media and the sales and
results of operations of Circle Group Internet may differ in future periods as a
result of the organization of CGI Total Media.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 AS COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
CONSOLIDATED
Sales
Our sales decreased approximately 13.5% for the three months ended June 30, 2000
from the three months ended June 30, 1999. The following table provides a
breakdown of the sales for our companies for the periods indicated:
THREE MONTHS ENDED JUNE 30,
-------- --------
2000 1999
-------- --------
Circle Group Internet $ 12,500 $189,500
-------- --------
CGI Capital 60,851 --
--------
On-Line Bedding 347,472 297,092
-------- --------
$420,823 $486,592
-------- --------
Gross profit
Gross profit as a percentage of sales decreased approximately 152% to
approximately (37%) for the three months ended June 30, 2000 from approximately
61% for the three months ended June 30, 1999. This decrease is primarily the
result of:
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- increased cost of sales at Circle Group Internet attributable to
costs associated with additional staff, including programmers and
graphic designers hired to support our growth,
- increased sales of business consulting services at Circle Group
Internet which generate lower gross profit margins than sales at
On-Line Bedding, and
- our revenue recognition policy which in some instances requires us
to recognize the costs of sales associated with our business
consulting services while deferring the corresponding revenue.
Operating expenses
Operating expenses consist of payroll and related costs, insurance, occupancy
expenses, professional fees, and general operating expenses. Operating expenses
increased $342,495 or approximately 46% for the three months ended June 30, 2000
from the three months ended JUNE 30, 1999. This increase is primarily
attributable to:
- increases in payroll and related costs of approximately $83,614 for
the three months ended June 30, 2000 as compared to approximately $129,050 for
the three months ended June 30, 1999 as a result of the hiring of additional
personnel to support our higher level of sales,
- increases in occupancy costs of approximately $25,555 for the three
months ended June 30, 2000 from those costs in the three months ended June 30,
1999 as a result of our move to our larger facility in August 1999,
- approximately $48,000 in additional depreciation expense for the
three months ended March 31, 2000 as compared to the three months ended June 30,
1999,
- approximately $111,809 in additional legal expense for the three
months ended June 30, 2000 as compared to the three months ended June 30, 1999,
and
- increases in general operating expenses, including computer supplies
and services, insurance, travel, telephone, copying and Internet access of
approximately $68,000 for the three months ended June 30, 2000 as compared to
approximately $89,000 for the three months ended June 30, 1999.
Other income (expenses)
Other income (expenses) for the three months ended June 30, 2000 included
approximately $64,618 in interest income as compared to approximately $47,363 in
interest income for the comparable period in fiscal 1999.
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Net loss
We reported a net loss of $875,611 for the three months ended June 30, 2000 as
compared to a net loss of $394,815 for the three months ended June 30, 1999.
CIRCLE GROUP INTERNET
Sales reported by this company decreased from $189,500 for the three month ended
June 30, 1999 to $12,500 for the three months ended June 30, 2000. These sales
included sales of business consulting services. Sales for the comparable period
in fiscal 1999 were generally attributed to sales of our marketing software. We
anticipate that we may from time to time continue to accept restricted
securities as payment for our business consulting services in the future to the
extent consistent with our intention not to be an investment company. We may,
however, be limited to the amount of stock we can accept in the future and will,
at that time, only accept cash as payment for our business consulting services.
Operating expenses in this company increased from $720,127 for the three months
ended June 30, 1999 to $1,037,565 for the three months ended June 30, 2000 as a
result of our growth and development of this company. These additional expenses
included approximately $340,000 in additional payroll and related costs,
insurance, occupancy expenses, professional fees, and general operating
expenses. We do not anticipate any additional overall increases in operating
expenses during the balance of fiscal 2000.
Other income (loss), which is primarily attributable to interest income, was
$64,618 for the three months ended June 30, 2000 as compared to $48,818 for the
three months ended June 30, 1999.
This company reported a net loss of $896,777 for the three months ended June 30,
2000 versus net loss of $420,977 for the comparable period in fiscal 1999.
ON-LINE BEDDING
Sales reported by On-Line Bedding increased approximately 17% for the three
months ended June 30, 2000 to $347,472 from sales of $296,822 for the three
months ended June 30, 1999. Gross profit as a percentage of sales decreased by
approximately 42% to approximately 21.3% for the three months ended June 30,
2000 as compared to approximately 36.8% for the same period in fiscal 1999. The
gross profit reported for the three months ended June 30, 1999 was higher than
customarily reported by OnLine Bedding as a result of a non-recurring order flow
in that period.
Operating expenses at on-line bedding decreased approximately $8,349, or
approximately 66.2%, for the three months ended June 30, 2000 from the three
months
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ended June 30, 1999 as a result of decreases in payroll and occupancy costs.
We do not anticipate any increases in operating expenses within this company.
Other income reported by this company was $2,146 for the three months ended June
30, 2000 as compared to $1,218 for the three months ended June 30, 1999. Other
income represents interest income.
On-Line Bedding reported net income of $38,371 for the three months ended June
30, 2000 versus $26,162 for the three months ended June 30, 1999.
CGI CAPITAL
Sales reported by CGI Capital were $60,851 for the three months ended June 30,
2000. We did not have any revenues from this company during the three 33,400 for
the three months ended June 30, 2000. Other income reported by this company was
$35,413 for the three months ended June 30, 2000, which represents interest
income and loan origination fees. CGI Capital reported net income of $62,858 for
the three months ended JUNE 30, 2000.
SIX MONTHS ENDED JUNE 30, 2000 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
CONSOLIDATED
Sales
Our sales increased approximately 23% for the six months ended June 30, 2000
from the six months ended June 30, 1999. The following table provides a
breakdown of the sales for our companies for the periods indicated:
SIX MONTHS ENDED JUNE 30,
----------------------------
2000 1999
-------- --------
Circle Group Internet $ 52,550 $ 211,44
CGI Capital 223,264 38,048
On-Line Bedding 593,112 497,350
-------- --------
$868,926 $708,794
======== ========
Gross profit
Gross profit as a percentage of sales decreased significantly to approximately
(44%) for the six months ended June 30, 2000 from approximately 52% for the six
months ended June 30, 1999. This decrease is primarily the result of increased
costs associated with
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the provision of our business consulting services, including costs associated
with personnel hired to support the revenue growth in this area.
Operating expenses
Operating expenses consist of payroll and related costs, insurance, occupancy
expenses, professional fees, and general operating expenses. Operating expenses
increased $2,030,317, or approximately 164%, for the six months ended June 30,
2000 from the six months ended June 30, 1999. This increase is primarily
attributable to:
- increases in payroll and related costs of approximately $743,752 for
The six months ended June 30, 2000 as compared to approximately $99,482 for the
SIX MONTHS ended JUNE 30, 1999 as a result of the hiring of additional personnel
to support our higher level of sales,
- an increase in the allowance for loan losses account of approximately
$400,000 for the six months ended June 30, 2000 from the allowance in the six
months ended June 30, 1999 due to the potential for default of notes receivable,
- increases in occupancy costs of approximately $50,000 for the six
months ended June 30, 2000 from those costs in the six months ended June 30,
1999 as a result of our move to our larger facility in August 2000,
- approximately $210,000 in non-recurring compensation expense in
fiscal 2000 which represented the value of common stock issued to new employees
as signing bonuses,
- approximately $53,000 in additional depreciation expense for the six
months ended June 30, 2000 as compared to the six months ended June 30, 1999,
- professional fees, including legal and accounting, and other expenses
related to this offering of approximately $254,399 and
- increases in general operating expenses, including computer supplies
and services, insurance, travel, telephone, copying and Internet access of
approximately $325,000 for the six months ended June 30, 2000 as compared to
approximately $135,000 for the six months ended June 30, 1999
Other income (expenses)
Other income (expenses) for the six months ended June 30, 2000 included
approximately $166,748 in interest income.
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Net loss
We reported net loss of $2,230,222 for the six months ended June 30, 2000 as
compared to a net loss of $453,956 for the six months ended June 30, 1999.
CIRCLE GROUP INTERNET
Sales reported by this company decreased from $211,444 for the SIX months ended
June 30, 1999 to $52,550 for the six months ended June 30, 2000. These sales
included sales of business consulting services, our Internet viewing software
and our marketing software. Sales for the comparable period in fiscal 1999 were
generally attributed to sales of our marketing software.
Operating expenses at this company increased from $1,237,840 for the six months
ended June 30, 1999 to $3,268,157 for the six months ended June 30, 2000 as a
result of our growth and development. These additional expenses included
approximately $1,736,250 in additional payroll and related costs, insurance,
occupancy expenses, professional fees, and general operating expenses. Included
in operating expenses for the six months ended June 30, 2000 for this company
was the $210,000 non-recurring compensation discussed above.
This company reported a net loss of $2,088,246 or the six months ended June 30,
2000 versus a net loss of $564,140 for fiscal 1999.
ON-LINE BEDDING
Sales reported by On-Line Bedding increased approximately 19% for the six months
ended June 30, 2000 to $593,112 from sales of $497,350 for the six months ended
June 30, 1999. Gross profit as a percentage of sales decreased by approximately
2% to approximately 29% for the six months ended June 30, 2000 as compared to
approximately 31% for the period in fiscal 1999.
Operating expenses in this company, which were $46,088 for the six months ended
June 30, 2000, remained essentially unchanged from the six months ended June 30,
1999 which were $45,577. We do not anticipate any increases in operating
expenses within this company.
On-Line Bedding reported net income of $83,107 for the SIX months ended June 30,
2000 versus $70,898 for the six months ended June 30, 1999.
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, we had working capital of $1,180,879, a decrease of $9,654,872
from June 30, 1999. At June, 2000, our cash on hand decreased to $5,378,838
from $11,165,602 at June 30, 1999. This amount was further reduced subsequent
to june 30, 2000 as a result of our estimated payment of income tax liabilities
of approximately $783,000 and the purchase by us in May 2000 of $1,000,000 of
stock in the private placement of one of our client companies for which CGI
Capital acted as placement agent. In addition to cash on hand, we have
established a $1 million line of credit with a commercial bank. As a result of
the restatement of our financial statements for the fiscal year ended December
31, 1999, we owe no federal income taxes for the year then ended. We intend to
file a final return and seek a refund of our overpayment of the estimated taxes.
Reflected on our balance sheet at June 30, 2000 is $405,000 in notes receivable.
This amount represents loans we have made to several of our client companies. Of
this amount $200,000 is currently in default and we have made demand on the
borrowers. The remaining notes are not yet due.
Also reflected on our balance sheet at June 30, 2000 is $5,019,578 of deferred
revenue. This amount represents the value of non-marketable equity securities
received by us in lieu of cash for business consulting services.
Net cash used in operating activities was $2,237,876 for the six months ended
June 30, 2000 as compared to net cash used by operating activities of $360,000
for the SIX months ended June 30, 1999. This was the result of our policy of
accepting restricted securities as payment for our business consulting services,
together with the expenses associated with the rapid expansion of our operations
begun during fiscal 1999 and expenses associated with the other than temporary
realized loss on investments described above. The net effect of our policy of
accepting restricted securities as payment for our business consulting services
results in an increase in net cash used by operating activities until the time,
if ever, that the restricted securities are converted to cash. Net cash used in
investing activities increased from $78,975 for the three months ended March 31,
1999 to $530,181 for the three months ended March 31, 2000, as a result of an
increase in notes receivable discussed above. Net cash used by financing
activities for the three months ended March 31, 2000 was $21,811 compared to net
cash provided by financing activities of $1,621,208 for the three months ended
March 31, 1999.
We have primarily funded our operations through the sale of our common stock.
During the fiscal year ended December 31, 1999 we raised $2,500,000 from the
sale of our common stock in a Regulation A offering. The following describes
what we proposed to use the Regulation A proceeds for and the actual uses of
these proceeds:
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Proposed Actual
-------- ------
Salaries $820,000 $769,668
Marketing 485,000 159,474
Accounts Payable 75,000 75,000
Product Development 175,000 98,850
Working Capital 753,000 472,665
Build out leased premises -0- 484,163
Office & Computer Equipment -0- 270,242
Acquisition of Other Businesses -0- 55,512
Although the actual use of the Regulation A proceeds deviated slightly from our
proposed use of the proceeds, we believe that the use of the Regulation A
proceeds was substantially in compliance with the disclosure contained in our
Regulation A offering circular. While we may have changed certain specific
focuses as to how we would develop and market our Internet products from
developing and marketing software products directed to businesses with web sites
to create cost justification, leads, and prospects for their products and
services, to developing and marketing our Internet viewing software and
ultimately expanding our Internet focus to include the business consulting
services we offer, we continued to use the proceeds from the Regulation A
offering for developing and marketing Internet products and general expansion of
our operations.
Between March 1 and March 15, 1999, we sold 151,480 shares of common stock to 47
accredited investors who had access to relevant information concerning us in a
private placement exempt from registration in reliance on Section 4(2) and Rule
506, Regulation D, of the Securities Act, resulting in gross proceeds to us of
$376,200. We paid no underwriting fees, discounts or commissions in connection
therewith. The proceeds from this offering were used to launch CGI Capital.
Between April 1, 1999 and July 22, 1999, we sold 1,232,200 shares of our common
stock at $10.00 per share to a group of accredited investors with whom we had
pre-existing relationships. These sales were made in a private placement exempt
from registration under the Securities Act in reliance on Section 4(2) and Rule
506, Regulation D. We received $12,322,000 in proceeds from the sale of these
shares. We used a portion of the proceeds for the development and marketing of
our Internet viewing software. The balance of these proceeds will be used for
general working capital.
In September 1999, we invested $500,000 through the purchase of shares of
convertible preferred stock of an unaffiliated third party in a private
placement by that issuer. These shares are convertible into shares of common
stock, at our option, and we have been granted demand and piggy-back
registration rights on the underlying shares of common stock.
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U.S. companies that have more than 100 shareholders or are publicly traded in
the U.S. and are, or hold themselves out as being, engaged primarily in the
business of investing, reinvesting or trading in securities are subject to
regulation under the Investment Company Act of 1940. Unless a substantial part
of our assets consist of, and a substantial part of our income is derived from
operations, we may be required to register and become subject to regulation
under the Investment Company Act. Because Investment Company Act regulation is,
for the most part, inconsistent with our strategy of providing business
consulting services and overseeing the operations of our subsidiaries, we cannot
feasibly operate our business as a registered investment company.
If we are deemed to be, and are required to register as, an investment company,
we will be forced to comply with substantive requirements under the Investment
Company Act, including:
limitations on our ability to borrow;
limitations on our capital structure;
restrictions on acquisitions of interests in associated companies;
prohibitions on transactions with affiliates;
restrictions on specific investments; and
compliance with reporting, record keeping, voting, proxy disclosure and
other rules and regulations.
If we were forced to comply with the rules and regulations of the Investment
Company Act, our operations would significantly change, and we would be
prevented from successfully executing our business strategy.
In addition to the risk of inadvertently becoming an investment company under
the Investment Company Act, there are other risks inherent to our policy of
accepting restricted stock as partial payment for our business consulting
services as these securities are presently illiquid. To date, we are unable to
sell any of the securities we hold as investments, either because the securities
have not been registered under the Securities Act or the issuers have not
established trading markets. Our policy of accepting restricted securities as
partial compensation for our business consulting services has the effect of
decreasing the cash available for our future growth. If we are unable to
eventually convert these investments to cash, we could be required to seek
additional capital to fund our future growth. While we adopted the policy of
accepting restricted stock as partial compensation for our business consulting
services as a result of the embryonic nature of some of our client companies, we
may decide to change this policy in the future if we are unable to convert some
of the investments into cash. Any
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future change in our fee structure for our business consulting services could
severely limit our ability to attract business consulting clients. Our
management will determine the value of our assets and of our interests in our
client companies, and the income or losses attributable to them, for purposes of
determining compliance with the Investment Company Act on at least a quarterly
basis. To maintain compliance with the act, we may be unable to sell assets
which we would otherwise want to sell and may need to sell assets which we would
otherwise want to retain. In addition, we may have to acquire additional income
or loss generating assets that we might not otherwise have acquired and may need
to forego opportunities to acquire interests in attractive companies that might
be important to our business strategy. In addition, because our client companies
may not be majority-owned subsidiaries or primarily controlled companies either
when we acquire interests in them or at later dates, changes in the value of our
interests in our client companies and the income/loss and revenue attributable
to our client companies could require us to register as an investment company.
We have a maximum exposure in the amount of $1,041,210 from recission as a
result of a potential violation by CGI Capital of Section 5 of the Securities
Act in connection with two private placements in which it acted as placement
agent. We could also be subject to penalties as assessed by the SEC if CGI
Capital is found to have violated Section 5 of the Securities Act. We are unable
at this time to estimate the effect, if any, this matter would have on our
liquidity and financial condition.
Other than our working capital and the line of credit, we do not presently have
any additional sources of liquidity. However, we believe our existing resources
are sufficient to fund our planned expansion during the next 12 months. In the
event, however, that we are unable to convert any of our investments into cash
during the next 12 months, we may be required to seek additional financing, in
the form of public or private offerings, to
- fund our working capital needs until such time as we can convert the
restricted securities we accept as payment for our business
consulting services into cash,
- support our planned growth,
- continue development of CGI Capital,
- increase our marketing efforts,
- respond to anticipated capital requirements, and
- respond to competitive pressures or unanticipated requirements.
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We do not currently have any understandings or arrangements regarding the
raising of any additional capital, and we do not know if we will be successful
in raising additional capital if and when we determine it may be necessary.
SPECIAL CAPITAL CONSIDERATIONS OF CGI CAPITAL
CGI Capital must follow the SEC's Uniform Net Capital Rule, Rule 15c3-1, which
is designed to measure the financial integrity and liquidity of a broker-dealer,
and the minimum net capital deemed necessary to meet its commitments to its
customers. Rule 15c3-1 provides that a broker-dealer doing business with the
public must not permit its aggregate indebtedness to exceed 15 times its net
capital or, alternatively, that it not permit its net capital to be less than 2%
of aggregate debit items as calculated by the rule. As of this date, CGI Capital
is required to maintain a minimum net capital of $5,000. As of March 31, 2000,
it had net capital in excess of the minimum net capital required of $34,952. The
minimum net capital required is based upon the nature of CGI Capital's
broker-dealer business. If CGI Capital remains principally engaged in the offer
and sale of private placement securities, then its net capital requirements
remain at a minimum. In the event CGI Capital ever becomes involved in the
participation in public underwritings, then net capital requirements will be
increased to a minimum of $100,000.
As a broker-dealer, CGI Capital will be subject to liabilities based upon the
nature of its business. CGI Capital intends to restrict its business during the
first 12 months of operations to the private placement of equity securities. Its
capital requirements will be limited, and we should not be subject to any
fluctuations in the stock market. However, as a broker-dealer engaged in the
sale of equity securities, CGI Capital could be subject to claims by subscribers
to private offerings based upon allegations of false or misleading statements
contained in the selling memorandum. At the time CGI Capital undertakes public
offerings for its clients, it will be subject to similar liabilities related to
the contents of the prospectus. CGI Capital will seek to limit its liability by
conducting significant due diligence and working closely with its attorneys and
accountants. We are unable at this time to predict what effect CGI Capital's
activities, if any, will have on our liquidity and capital resources.
BUSINESS
OUR HISTORY
We were formed as an Illinois corporation in May 1994 using the name Circle
Group Entertainment Ltd. We subsequently changed our name to Circle Group
Internet, Inc. in 1997. We had no operations between May 1994 and January 1997,
except for research and development. Beginning in 1997, our first business
ventures were related to the development and marketing of software that
strategically placed web sites in Internet directories. Prior to the development
of these software products, we researched the Internet for technological
developments that we believed could give
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businesses the ability to enhance revenue generating opportunities through an
Internet presence. Our research led to the development of our initial software
products. These products were:
- BULLSEYE Target Market E-mail Spider for Windows 95 which gave users
the ability to target markets on the web through a keyword search,
- Web Visitor I.D. which automatically captured the e-mail address of
web site visitors, and
- Zap Pow Submissions which strategically placed web site addresses in
Internet directories.
These products were marketed principally to businesses with web sites to create
cost justification, leads, and prospects for their products and services. The
retail price of these products ranged from $35.00 to $350.00. These products
were met with marginal commercial acceptance. During 1999, we began the
development of our Internet viewing software. After its launch, we discontinued
the marketing of the BULLSEYE Target market E-Mail Spider, the Web Visitor I.D.
and the Zap Power Submissions and transitioned our focus to market our Internet
viewing software and ultimately expanded and focused much of our efforts to
include the business consulting services and the expansion of our operations to
include CGI Capital and On-Line Bedding.
Since 1997, we have also acquired three new businesses designed to expand and
broaden the scope of our business and operations.
OUR ACQUISITIONS
- In January 1999, we acquired On-Line Bedding, Inc., a distributor of
a wide variety of bedding and disposable products. We are expanding
On-Line Bedding's sales and distribution channels to include
e-commerce.
- In February 1999, we acquired an 82% interest in the common stock of
PPI Capital, Inc., a shell corporation. We anticipate that we will
use PPI Capital as either a holding company, or as a candidate for a
reverse merger with an operating entity.
- In March 1999, we entered into an agreement to purchase all of the
stock of CGI Capital, a broker-dealer registered with the SEC and a
member in good standing of the NASD. This acquisition closed in
November 1999 after we received approval from the NASD for the
change in control.
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During fiscal 2000 we organized CGI Total Media. PPI is a shell corporation
which has no operations as of the date of this prospectus.
On July 22, 1999, we effected a one for two forward split of our common stock.
All information contained in this prospectus gives proforma effect to this stock
split.
INFORMATION ABOUT THE ACQUISITIONS
On-Line Bedding, Inc.
On-Line Bedding, originally known as Hos-Pillow Corporation, is an Illinois
corporation formed in 1981 by affiliates of ours. Since its beginning, On-Line
Bedding has operated as a distributor of a wide variety of bedding and
disposable products. We acquired On-Line Bedding to enhance our revenues and
because we believe we can increase its business through the addition of an
e-commerce site. After engaging in due diligence on On-Line Bedding, we acquired
all of the issued and outstanding stock of On-Line Bedding from its shareholders
in exchange for 400,000 shares of our common stock. The purchase price was based
upon a multiple of On-Line Bedding's historic net income, utilizing a value of
$2.50 per share for our stock issued as the consideration for the share
exchange. On-Line Bedding's assets, which we acquired in this acquisition,
included cash and cash equivalents, accounts receivable, inventory, and office
furniture and equipment. See "Certain Relationships and Related Transactions."
Mr. Edward L. Halpern, who had served as president and CEO of On-Line Bedding
since its beginning, and was responsible for its day to day operations, remains
in those positions following our acquisition of On-Line Bedding. Mr. Edward L.
Halpern also joined our board of directors. On-Line Bedding has consolidated its
operations into our newly relocated principal offices, which occupy
approximately 22,000 square feet, allowing us to take advantage of various
operating efficiencies including central administrative and accounting
personnel.
PPI Capital, Inc.
PPI Capital was formed as an Illinois corporation in 1984 under the name Pain
Prevention, Inc. In November 1997, the corporation changed its name to PPI
Capital Corporation and reincorporated in Utah. PPI Capital was formerly a
wholly-owned subsidiary of Pain Prevention, Inc., a Utah corporation. In 1997,
Pain Prevention, Inc., the Utah corporation, transferred 80% of the capital
stock of PPI Capital to Meridian Enterprises, Inc., a Delaware corporation. Our
CEO, Greg Halpern, acquired the PPI Capital stock from Meridian in 1997. Pain
Prevention, Inc., the Utah corporation, also distributed the remaining 20% of
PPI Capital's stock to its shareholders. PPI Capital is a development stage
company which has had no operations since its formation. We purchased PPI
Capital as an investment. After engaging in due diligence on PPI Capital, we
acquired 82% of its issued and outstanding stock from Greg Halpern, for
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$20,000. The purchase price was based on a 50% discount from the price paid for
82% of the sister shell corporation of PPI Capital paid by an unaffiliated third
party in 1998. Since PPI Capital is a shell corporation, we acquired no assets
in this transaction. See "Certain Relationships and Related Transactions."
CGI Capital, Inc.
CIG Securities was formed in 1996 by Internet Broadcasting Company to take
advantage of the developing Internet direct public offering service market. We
officially changed CIG Securities name to CGI Securities on February 2, 2000,
and subsequently changed the name of CGI Securities to CGI Capital on February
24, 2000. CGI Capital did not conduct business between its formation in October
1996 until March 1999. Although it had not begun operations, it had secured the
appropriate regulatory approval from the NASD and the State of Florida. Our
securities counsel, who had represented Internet Broadcasting Company in the
formation of CGI Capital, introduced the principal of CGI Capital to us after we
decided to acquire a broker-dealer. After engaging in due diligence on CGI
Capital, we signed an agreement to purchase all of its issued and outstanding
stock from Internet Broadcasting Company, an unaffiliated third party, for
$35,000. CGI Capital's assets totaling approximately $13,495 which were acquired
in the transaction included deposits, prepaid expenses and capitalized
organizational costs. The purchase price was based upon the prevailing market
price set by the seller at the time of the transaction. CGI Capital has received
approval to conduct business as a broker-dealer in 48 states, plus the District
of Columbia, and has an application pending in one remaining state. We do not
anticipate that the costs of making and obtaining this additional approval will
be substantial.
CGI Capital offers accredited investors the opportunity to invest in private
placements made under Rule 506 of Regulation D. CGI Capital has operated as a
$5,000 broker-dealer offering private placements of securities on a best
efforts, application basis according to SEC Rule 15c2-4.
CGI Capital operates as a traditional broker-dealer using the Internet to offer
private placements to accredited investors. By using the Internet as an enabling
tool, we give the opportunity for our members to individually research our
client companies in a password-protected environment to fully evaluate our
private placement offerings. CGI Capital plans to continue to hire registered
representatives and expand the broker-dealer. Additionally, some of the
pre-existing members do not maintain Internet access. Those members are sent
hard copies of private placements that we offer in the traditional manner.
CGI Capital's principal offices are located in a secured, separate area of our
principal offices. Mr. Brad Levine, the previous principal of CGI Capital,
resigned all positions in December 1999. Mr. Erik Brown, our vice president of
corporate development, was appointed president of CGI Capital in May 1999, and
remained in that position until March 15, 2000. Mr. Menon, our president, was
appointed president of CGI Capital on
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March 15, 2000. Mr. Menon is responsible for its day to day operations. Mr.
Arthur Tanner, our CFO, serves as CGI Capital's CFO and financial operations
principal, and Mr. Frank Menon, our president, serves as CGI Capital's CEO.
These individuals have already obtained the required licenses from the NASD for
the positions they hold at CGI Capital.
ACQUISITION PROCEDURE
After we identified our acquisition candidates, we generally followed the same
procedures for all of these transactions. Based on our due diligence results, we
negotiated a purchase price and a definitive agreement with the owners of the
acquisition candidates. The negotiations for the purchase of CGI Capital were
held at an arms-length basis. Because the owners of On-Line Bedding and PPI
Capital were our affiliates, these negotiations were not at arms-length. We
believe, however, that the terms of these transactions were no less favorable
than the sellers' might have received from an unaffiliated third party. In none
of these transactions did we seek or obtain a fairness opinion.
CGI CAPITAL
We believe the Internet is gradually changing the traditional models used by
companies to raise private and public financing by opening up the equity markets
to more individual investors. When we initially decided to raise capital for our
own expansion, we found the process generally unfriendly to smaller companies,
and the cost of the capital very high. We also became concerned that our
management would spend a significant amount of its time focusing on the capital
raising efforts causing our business development and operations to suffer. The
more we learned about the traditional methods of raising capital through
investment bankers and venture capitalists, the more we believed that an
alternative should be made available to companies like ours. This alternative
would allow the entrepreneur to complete the process in a timely and cost
effective manner, while retaining control of his/her company, and remaining
focused on its business, operations, and growth.
As a result of our own capital raising activities, we developed the FUNDS-IN(TM)
program which is designed to help small to mid-size companies raise equity
capital in private placements through a friendlier funding source than offered
by traditional means. CGI Capital's e-finance activities focus on the Internet
sector and, more generally, on issuers who seek to market their stock offerings
to investors with an interest in technology.
CGI Capital actively solicits client companies that seek to raise private
capital in an efficient and cost effective manner. These potential clients
undergo a screening process during which the company's business plan and
preliminary due diligence materials are reviewed. Management of the companies
which successfully pass the
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screening process are invited to make a presentation about their company to CGI
Capital, and additional due diligence, including an industry analysis, are
undertaken during this phase. CGI Capital will have undertaken substantially the
same type of due diligence on the issuers as is generally conducted by other
broker-dealer firms. This will satisfy its obligations under applicable federal
securities laws related to the accuracy and adequacy of the information about
the issuer contained in the offering materials. When a decision is made to
proceed with an offering, CGI Capital then enters into agreements with the
issuers outlining the terms under which CGI Capital will act as placement agent.
The placement agreement will generally contain:
- the conditions of the offering,
- the obligations of each party,
- representations and warranties by the issuer as to the accuracy and
adequacy of the information contained in the private offering
memorandum,
- a requirement that an opinion be given to CGI Capital by the
issuer's counsel regarding a variety of matters, including the
validity of the issuance of the securities, the compliance of the
offering with the requirements of Regulation D, and that the
offering materials do not contain any material misstatements or
material omissions,
- a requirement that the issuer's independent auditors review the
interim financial statements included in the private offering
documents and provide an opinion to CGI Capital that the interim
financial statements appear to be prepared in conformity with GAAP.
CGI Capital offers a reduced commission to issuers, and we believe the fee
structure is competitive, in that:
- CGI Capital charges a $20,000 non-refundable due diligence fee,
- CGI Capital charges a commission ranging from 4% to 8% on the sale
of the securities in the private offerings in which it acts as the
exclusive placement agent. Unlike the customary practices in the
industry for private placements in the $1 million to $5 million
range, CGI Capital's commission is below the 10% to 13% commission
charged by other investment banking firms and broker-dealers; and
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- CGI Capital receives restricted stock of a client company ranging
from 1% to 5% of the issued and outstanding shares of the client
company's common stock before the offering.
CGI Capital believes its fee structure will enable it to attract a wide variety
of companies that seek assistance in raising capital privately. We believe this
will allow CGI Capital to undertake private placements which could have a
greater than average likelihood of being successful following the closing of the
private offering.
In the placement agency agreement, we generally will require issuers to grant
CGI Capital the right of first refusal for an IPO of the issuer, upon terms and
conditions to be negotiated at the time of the IPO. CGI Capital will only agree
to act as a placement agent in private offerings in which it believes the
issuer's business model and industry will provide an opportunity to undertake an
IPO in 12 to 18 months following the private placement. This right of first
refusal for an IPO has no bearing on the terms or success of the private
offering, but is an aspect in the placement agreement that offers the
opportunity for possible sources of future revenue.
Sales of securities made through general public solicitations, like IPOs,
are required to be registered under federal and state securities laws. However,
offerings made to accredited investors are generally exempt from these
registration requirements if conducted under the terms of Rule 506 of Regulation
D of the Securities Act. The term accredited investor generally includes:
- individuals whose income exceeded $200,000 annually in each of the
past two years, and who reasonably expect their income in the
current year to also exceed $200,000,
- married couples whose joint income exceeded $300,000 annually in
each of the past two years, and who reasonably expect their joint
income in the current year to also exceed $300,000, or
- individuals whose net worth exceeds $1,000,000.
Each issuer who wants to raise capital through CGI Capital will be required to
agree to issue the securities in a private offering under strict compliance with
Regulation D. The obligation to assure compliance with Regulation D will rest on
the issuer. CGI Capital, in turn, is responsible to comply with the various
federal and state regulations related to its activities as a broker-dealer in
the offer and sale of the securities.
CGI Capital offers and sells securities in private placements through
traditional investment banking methods using the Internet to offer additional
services to our pre-existing members. CGI Capital's primary fund raising process
currently operates much like a traditional broker-dealer. CGI Capital follows
the basic procedures for offering and selling shares to its members in private
placements described below.
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- The private offering memorandum is completed by the issuer's
counsel, reviewed, and approved by CGI Capital's counsel.
- An initial contact call is made by our fully-licensed
representatives to inform our pre-existing members of the new
private placement offering, and provide them with preliminary
information about the client company's business.
- Pre-qualified investors desiring further information are forwarded a
private placement memorandum, client company materials, and
subscription agreements. At that time, we offer them the option to
view our website at www.cgicapital.com to view the client company's
Funds-In web site. This password-protected web site allows the
pre-qualified investor to download our client company's private
placement memorandum and see an overview of the company in a user
friendly, easy to follow format.
- After the pre-qualified investor has fully reviewed all documents, a
follow-up call is made to respond to any questions the investor may
have. If the investor decides to proceed, the licensed
representative walks them through the subscription process.
- Subscription agreements and funds in the name of the client
company's escrow account are sent to CGI Capital, and the funds are
logged in a locked and secured area.
- The issuer will have previously established an escrow account with a
commercial financial institution into which the subscription
proceeds will be deposited, pending the acceptance of the
subscription by the issuer. In all instances, the issuer has the
final decision to accept or reject a subscription from a particular
investor, or to limit the number of securities the investor may
purchase.
- Once the issuer has accepted the subscription, the escrow agent will
send the subscription funds to the issuer and the commission portion
to CGI Capital. CGI Capital will not accept subscription proceeds or
otherwise handle subscription funds for the issuer.
CGI Capital has its infrastructure established to operate its e-finance business
patterned after the business described in the no-action request by IPONet, which
previously received favorable treatment by the SEC. We believe that CGI
Capital's proposed method of conducting its e-finance business does not conflict
with the applicable rules and regulations cited in the no-action request IPONet
no-action letter. The proposed procedures include:
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- Posting a notice of a private offering in a password protected page
on www.cgicapital.com. This page is accessible only to its members
who previously qualified as accredited investors prior to the
offering.
- Members interested in receiving more information about the private
offering, will contact the issuer directly, or forward an indication
of interest to CGI Capital, either using an on-line form, or
printing out the form and returning the hard copy to CGI Capital.
- CGI Capital, or the issuer, will then provide the member with
subscription documents online for the private offering, which will
also contain instructions regarding payment for the subscription.
CGI Capital's basic procedures for offering and selling shares to its members in
private placements may change based on any new SEC ruling in regards to the use
of the Internet for offering private placements. Based on any SEC rulings, CGI
Capital may adjust its operations to use the IPONet Internet-based model, or
conversely, operate the broker-dealer in a strict, traditional manner. It is
also possible that a derivative of the two methods for offering and selling
shares of private placements may result.
As of the date of this prospectus, CGI Capital, in its role as placement agent,
has concluded selling efforts on five best efforts private offering and selling
efforts on two additional best efforts private offerings are ongoing. The
following table provides information on these private offerings:
<TABLE>
<CAPTION>
Date Size Amount Raised Status
Offering of to of
Began Offering Date Offering
----- -------- ------------- --------
<S> <C> <C> <C>
June 25, 1999 $ 3,000,000 $ 930,099 selling efforts concluded
November 18, 1999 $ 3,000,000 $ 6,000 selling efforts concluded
November 23, 1999 $ 4,000,000 $ 111,111 selling efforts concluded
January 15, 2000 $ 3,000,000 $ 0 selling efforts concluded
January 15, 2000 $10,000,000 $ 58,000 selling efforts ongoing
May 26, 2000 $ 3,000,000 $ 3,000,000 selling efforts concluded
June 19, 2000 $ 3,600,000 $ 0 selling efforts ongoing
</TABLE>
CGI Capital is also engaged in preliminary due diligence on two additional
companies that have requested that CGI Capital acts as the placement agent for
their private offerings.
As CGI Capital develops, it is important to expand CGI Capital's membership base
through the establishment of a relationship with our licensed representatives,
or more efficiently through web site registration. CGI Capital will solicit
members for its database by contacting investors that meet the accredited
investor standards of the
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Securities Act, and offering them the opportunity to become a member. This
online process has many steps:
- Prospective members complete an on-line questionnaire which allows
CGI Capital, and any potential issuer of securities sold in a
private offering by CGI Capital, to have a reasonable basis to
believe that the person meets the accredited investor test adopted
under the Securities Act.
- The questionnaire may be completed on-line in a secured manner, or
printed out and returned to CGI Capital in a hard copy format.
- CGI Capital will then verify the information in the questionnaire to
determine that the person is an accredited investor.
- Once a person is qualified and registered as an accredited investor
with CGI Capital, the member will be given a confidential password
which will allow the member to access a password-protected page in
CGI Capital's web site where private offerings will be posted.
- CGI Capital's web site allows a member to access private offerings
which are posted after the date on which the individual is qualified
as a CGI Capital member, so that the registration as a member is not
a solicitation for a particular private offering.
- To maintain its members privacy, CGI Capital will contact its
members about new private offerings only if the member has
previously consented to these communications as part of the
registration process.
- CGI Capital will not release the names of its members to issuers
making the private offering unless the member is interested in the
issuers' offering.
Membership in CGI Capital is free and carries no obligation.
In the future, CGI Capital may elect to expand its e-finance activities to
include public offerings. These public offerings could include those in which
CGI Capital does not act as an underwriter, but rather participates in the
selling group with other NASD member firms as a selected dealer, or offerings in
which CGI Capital acts as the underwriter. We anticipate that CGI Capital's
basic procedures for offering and selling shares to individual investors in
public offerings will include:
- placing a tombstone advertisement and a digital version of the
preliminary prospectus on its web site, which will include the names
of the underwriters in the public offering. This page of the web
site will be accessible to CGI Capital's members, as well as any
other potential on-line investor. In cases where CGI Capital does
not act as an underwriter, its name will not appear on
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the tombstone advertisement or preliminary prospectus. Information
will appear that CGI Capital is not an underwriter of the
securities, but is authorized to accept customer orders for the
purchase of the securities.
- CGI Capital will not purchase any securities from the issuer for
resale, and will not participate in the management of the offering
or perform any function normally performed by an underwriter or
underwriting syndicate.
- the web site will contain a form linked to each preliminary
prospectus. A visitor to the site will be asked to complete and
return the form to CGI Capital indicating the visitor's interest in
purchasing the security.
- in cases where CGI Capital does not act as an underwriter, the
securities will be sold through CGI Capital as a selected dealer.
CGI Capital will receive a commission to be determined before the
offering, and it will not exceed the usual and customary selling
commission. Disclosure of these selling arrangements will be made to
investors.
We have not established general procedures as of this date for instances in
which CGI Capital may act as the underwriter. However, as per Rule 1018 and the
Membership Agreement for our firm, CGI Capital will promptly notify NASD
Regulation through the District Office where we maintain our principal place of
business in the event of the firm's intent to engage in any underwriting or
selling group activity of firm commitment offerings.
From time to time CGI Capital also undertakes bridge loan financing and
investment activities. As of March 31, 2000, CGI Capital had made bridge loans
to five client companies for an aggregate of $2,405,000 plus accrued interest of
$70,100. In April 2000, CGI Capital converted one of its notes and unpaid
interest in the aggregate amount of $2,114,667 into 528,667 shares of the
client's common stock. Two other notes in the aggregate amount of $200,000 plus
interest are past due, and we have made demand for payment from our client
companies. The remaining two notes are due and payable on August 31, 2000, or at
the earlier of the time that the client company receives in gross proceeds in a
private placement an amount equal to the principal amount of the note. All of
the notes are convertible at the option of CGI Capital into shares of the client
company's common stock each at a price of $4.00 per share.
On May 17, 2000, CGI Capital purchased 333,333 shares of a client company's
common stock in a private placement for an aggregate investment of $1,000,000.
In the future, we may continue to do bridge loan financing and investment
activities for companies. Each opportunity will be made on a case-by-case basis
depending on the company in which we would consider investing. These types of
investment and financing are normal broker-dealer activities in which the NASD
has granted us
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authorization to engage. CGI Capital would engage in the same amount of due
diligence in regard to these investments as it would with conducting a private
placement for a company. The circumstances in which we would engage in these
types of investments would be in the $1 to $3 million range, and the company
would need the capital in a short period of time - much shorter than would be
provided through a private placement, and all payable at the earlier of a
maturity date no later than six months or upon receipt of private placement
funds sufficient to satisfy the principal amount. All loans will also provide us
the option to convert into the company's common stock.
SPECIAL CONSIDERATIONS WHICH MAY AFFECT CGI CAPITAL
For CGI Capital to successfully grow, investor confidence in the United States
economy and the securities markets must remain high. If the United States
economy should slow, or if the securities markets should suffer a significant
and prolonged decline, it is likely investors would stop investing in private
placements. Our revenues are likely to be lower during periods of declining
securities prices or securities markets inactivity. Our business will be
particularly dependent upon the availability of capital in the public and
private equity markets for companies in the Internet sector - the focus of CGI
Capital. The stock market in general, and the market prices for Internet-related
companies in particular, have experienced extreme volatility unrelated to the
operating performance of these companies. These broad market and industry
fluctuations may adversely effect our ability to raise capital for our clients,
regardless of the client's operating performance. In this event, it would be
more difficult to increase our revenues.
Our ability to grow CGI Capital is also tied to how successfully we manage this
company, including our ability to close private placement offerings. Our members
will need an exit strategy from the private placements in which they may invest
as these types of investments are illiquid. Generally, this strategy will be a
public offering, merger, or acquisition. CGI Capital may act as lead underwriter
in the public offering, or CGI Capital may refer the issuer to another
investment banking firm who will undertake the public offering, and we will
participate as a member of the selling group. CGI Capital must establish
relationships with other investment banking firms who can either participate
with us in these public offerings, or who have the ability to undertake and
successfully close public offerings we refer to them. In this instance, we would
likely participate as a member of the selling group. If we are unable to
successfully close public offerings, either those that we underwrite or those in
which we participate as a member of the selling group, we will not earn the
potential revenues from this participation and our future growth will be
impeded.
CIRCLE GROUP INTERNET
As the result of our own growth experience, we recognize the need for emerging
companies to receive various types of consulting. Most entrepreneurs tend to be
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highly knowledgeable in specific areas of their business. However, we believe
there is a strong need for additional consulting services to benefit these
emerging companies. These include consulting services to assist them in managing
their employees, refining their infrastructure, developing an online identity,
and supporting overall business efficiency.
Many of our potential clients do not have the sufficient funds available to pay
the full value for these types of services. We developed a unique fee structure
that is a combination of restricted stock and a small amount of cash. We
generally receive cash as compensation for services to our client companies.
Under certain limited circumstances, we may take all or a portion of our
compensation in the form of restricted stock of our client companies. However,
we will not accept restricted stock as compensation to the extent that doing so
causes us to be an investment company under the Investment Company Act.
Restricted securities are subject to resale limitations and cannot be resold
without registration under the Securities Act, an exemption from the
registration requirements of the Securities Act, or subject to the resale
restrictions under Rule 144 of the Securities Act. Under Rule 144, a person, or
persons whose shares are aggregated, who has beneficially owned restricted
securities for at least one year, including the holding period of any prior
owner except an affiliate, would be generally entitled to resell within any
three month period a number of shares that does not exceed the greater of one
percent of the number of then outstanding shares of the common stock or the
average weekly trading volume of the common stock in the public market during
the four calendar weeks preceding the sale. Sales under Rule 144 are also
subject to manner of sale provisions, notice requirements and the availability
of current public information about the company who issued the shares.
Any person, or persons whose shares are aggregated, who is not deemed to be an
affiliate of the company that issued the shares at any time during the three
months preceding a sale, and who has beneficially owned shares for at least two
years, including any period of ownership of preceding non-affiliate
shareholders, would be entitled to sell the shares under Rule 144(k) without
regard to the volume limitation, manner of sale provisions, public information
requirements or notice requirements. The equity portion of the compensation we
receive, which is the restricted stock, is recorded as deferred revenue at
estimated value. Revenue will be recognized over the life of the consulting
contract when it has been determined that there are no major uncertainties
regarding the converting of these equity securities to cash. We expense our
business consulting services against this revenue. We believe this fee structure
makes our services affordable to developmental stage companies and preserves
more of their capital for future needs. We also believe that this fee structure
will give our shareholders an opportunity to benefit from the potential
increased value of a client's stock should the client ultimately be successful
in its business.
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We have received restricted securities as compensation from eight of our client
companies. All of these client companies do not have a public market for these
securities. Subject to the conditions of Rule 144 and the availability of a
trading market, these restricted securities may be resold at various times from
April 2000 through December 2000. Subject to the conditions of Rule 144(k),
these securities may be resold at various times from April 2001 through December
2001. We have received piggy-back registration rights from six of these
companies and agreed with one of these companies not to sell the securities for
a 90-day period after registration.
<TABLE>
<CAPTION>
Number of Approximate
Company Employees Revenues Profile Description
------- --------- ----------- ------- -----------
<S> <C> <C> <C> <C>
#1 11 $ 8,500 Start-up provides on-line high-quality children's educational entertainment.
#2 8 $930,000 Start-up operates a nationwide network of youth specialty sports camps.
#3 5 $667,600 Start-up software and hardware on-line superstore
#5 9 $492,500 Start-up provides on-line business-to-business investor relations services
#6 40 $20,000 Start-up provides a turn-key solution for DSL and long distance phone service.
#7 15 $3,700,000 Established provides satellite communications and high-speed Internet access
#8 209 $10,090,000 Established on-line home furnishings retailer.
#9 3 $24,000 Start-up on-line contact lens retailer
#10 3 $0 Start-up on-line children's apparel retailer
#11 3 $0 Start-up venture capital firm
#12 9 $1,383,520 Start-up business-to-business web site that assists with the managing
and planning of business conventions and meetings
</TABLE>
We use the following valuation process when we receive restricted stock as fees:
- Common stock accepted in a transaction from a client company where
there has been no prior public offering, but whose shares have been
offered and sold in a significant private placement within the last
90 days, is valued based upon the last sale price of shares in the
private placement.
- Common stock accepted in a transaction from a client company where
there has been no public or significant private placement offering
is deferred and valued after considering the following criteria:
* market multiples analysis;
* acquisition multiples analysis;
* calculation of market capitalization based on the contemplated
private placement sale price; and
* realization of business plan objectives and management team
expertise and ability to execute the business plan.
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We account for investments in stock accepted for services and other investments
under the cost method. Non-marketable equity securities are recorded at
estimated value. We regularly review the operating performance and the
assumptions underlying the cash flow forecasts to assess the carrying values for
these investments. The carrying value of these investments are written down to
reflect realizable value when events and circumstances indicate declines are
other than temporary.
Through formal and informal consulting services our goal is to reproduce and
implement our established method of infrastructure building to strengthen the
operations of our client companies. The scope of the business consulting
services provided by us is limited to operational consulting services and does
not include the raising of capital.
Our duties may extend from assisting a company in writing an employee handbook
to developing a marketing campaign that will target a specific audience. Our
goal is to offer a full range of services, so our client companies will be able
to focus its resources on growing their business. These services include:
- Business plan development, including assistance in creating and
revising the client's business plan to accurately articulate
corporate intentions;
- Internet marketing strategy development to define business models
and branding strategies;
- Technology support to provide secure e-commerce business between the
client's customers and the client, and to construct and maintain
employee communication systems including the client's networks and
servers;
- Evaluation of professionals to ensure the client is properly
represented by attorneys and accountants with experience in all
areas of the client's current and proposed business and operations;
- Debt management to assist the client to reduce or restructure the
client's debt to improve the client's valuation;
- Operations consulting to assist management in using the Internet for
day to day operations, and in the understanding, analyzing, and
management of the client's intellectual assets;
- Human resources consulting to help promote a management philosophy
and organizational structure tailored towards teamwork and group
contributions;
- Corporate communications to enhance the client's presentations;
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- Sales training to assist management in proper sales techniques;
- Negotiation training;
- Strategic networking to assist the client in linking its name with
beneficial contacts; and
- Strategy and planning consulting to assist the client in identifying
and analyzing market opportunities, as well as anticipating
competitive behavior.
In addition, we invested $500,000 for 50,000 shares of Series A 8% Cumulative
Convertible Preferred Stock in a private placement undertaken by an unaffiliated
third party with whom we do not have any business relationship. The preferred
stock is convertible at March 31, 2000 into 82,333 shares of the company's
common stock. The shares issuable upon conversion of the preferred stock have
demand and piggy-back registration rights.
CGI TOTAL MEDIA
CGI Total Media develops distinctive web sites and interactive multimedia. We
own all of our designs, software products, logos, names, applications, and
proprietary technologies. We internally develop and design each of our product's
source codes, graphic interfaces, and web designs.
Our web design services include developing, maintaining, and promoting
user-friendly web sites. We can incorporate web site placement technology,
secured e-commerce transactions, elaborate statistic compilers, animation,
visual programming language, audio/visual compression software, and
sophisticated 3-D technology.
The Internet viewing software was designed to serve as a portal and delivery
system to provide service and advertising to Internet users, and create Internet
dial-up service revenues that can be shared with our clients. We completed the
engineering and development of our Internet viewing software in August 1998, and
have begun our initial market efforts. We market our Internet viewing software
as an alternative to Netscape and Microsoft Internet Explorer, which comprise
the majority of all Internet viewing software used in the current Internet
landscape.
We developed our Internet viewing software to provide clients a means to deliver
advertisements to those interested in what the client's company has to offer.
The Internet viewing software features include our automatic update feature,
which finds changes on our servers and feeds those changes to the user's
computer when they access the Internet. This feature allows our clients to
deliver premium promotions, freebies, loss leaders, two-for-one sales, marketing
and sales promotions, and other
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information its customers may want. The Internet viewing software can also be
customized with 22 defaults to pages selected by the customer, and can include a
custom name, slogan, theme, licensee's color scheme, logo identity, and animated
picture.
Our Internet viewing software is minimally marketed to our business consulting
clients. When a potential client comes to us for consulting services, we then
offer them the Internet viewing software - but it is not actively marketed to
the common public. We have had one client to date from whom we received $35,000
for the product. There is a fair amount of competition with this product;
however, no one company controls a major portion of the market share.
Our research and development expenses are expensed as incurred. The following
table provides information on our research and development expenses for the
periods indicated:
Fiscal year ended December 31, 1998 $ 1,356
Fiscal year ended December 31, 1999 $ 23,514
ON-LINE BEDDING
On-Line Bedding distributes a wide variety of bedding and disposable products,
including:
- pillows
- blankets
- mattress pads
- pillow protectors and mattresses
- disposable airline sized pillows
- disposable pillowcases
- headrest covers
- airline blankets
- tray table covers
- napkins
- airsick bags
- hot and cold towels
Its customers include hospitals, nursing homes, hotels and motels, and
transportation-based companies like airlines, railroads, and motor coach
companies. On-Line Bedding's customers have included AMTRAK, Canadian Airlines,
Saudi Arabian Airlines, Piedmont Airlines, USAirways, Sunworld International,
and Laker Airline. On-Line Bedding does not have written contracts with its
customers. On-Line Bedding receives orders from its customers either verbally or
in the form of cancellable purchase orders.
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Since our purchase of On-Line Bedding, we developed an e-commerce site to expand
On-Line Bedding's current operations. This web site, www.bedsandbeyond.com,
offers single and multi-pack quantities of pillows, blankets, mattress pads,
quilts, mattresses, and other products at factory direct prices. The Web site
was launched in February 2000. On-Line Bedding commenced marketing its site
during the third week of May 2000. Through May 31, 2000, On-Line Bedding made
five sales for a total of $1,000 through its web site.
Customers enter our online store through our simple, intuitive and easy to use
web site. Our goal is to make the shopping process as easy as possible for
customers. Users accessing our online store generally fall into one of two
categories: individuals who know what product they want to buy and seek to
purchase it immediately in a highly convenient manner; or individuals who browse
the store, seeking product information to make an informed purchase. We designed
our online store to satisfy both types of users in a simple, intuitive fashion.
Customers who use our online store can:
- conduct targeted searches through a catalog of over 500 products,
- browse among featured product lines,
- participate in promotions,
- view informational videos, and
- access our customer support representatives by telephone, fax, and
e-mail during regular business hours
We expect to further improve our online store to include frequently asked
questions, educational materials, additional associated links, and continually
improve the e-commerce platform.
Shoppers purchase products by simply clicking on a button to add products to
their virtual shopping cart. Just as in a physical store, customers can add and
subtract products from their shopping cart as they browse prior to making a
final purchase decision. Our store design allows customers to buy several
products at once rather than having to repeat the same purchase process for each
desired product. To execute orders, customers click on buy buttons. A message on
the screen prompts customers to supply shipping and credit card information.
They may also telephone orders in as well. All customer information is stored on
our secure server, and is used solely for internal purposes.
Our customer representatives handle customer service and support, answer general
questions, and provide product information by telephone, fax and e-mail. We
believe that our representatives provide valuable feedback regarding customer
satisfaction, which we use to improve our services.
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On-Line Bedding purchases its products from various wholesale manufacturers, and
contracts production of its airline pillows and blankets with third party
manufacturers. On-Line Bedding maintains several sources for its products and
has never experienced any difficulty in obtaining raw materials. On-Line Bedding
warehouses a limited inventory, and drop ships its products from manufacturers
or wholesale suppliers in multiple locations throughout the United States to
reduce freight costs for its customers.
On-Line Bedding is on an electronic invoice system with the United States
military for a specialty pillow which is regularly purchased by the U.S. armed
forces. This pillow is anti-bacterial, self-deodorizing and fire retardant. It
is covered with a zippered, vinyl pillow protector. On-Line Bedding is also the
authorized pillow and related product vendor for Hospital Purchasing Service of
Michigan - a group of 500-plus members in eight states of hospitals and nursing
homes.
On-Line Bedding has historically direct marketed its products through regular
mailings of its catalog to existing customers, as well as hospitals, nursing
homes, airlines, and university housing directors. We anticipate expanding our
marketing efforts using traditional marketing methods, the introduction of our
e-commerce site, and web-based marketing strategies. These include strategic web
site placement, keyword targeting, affiliate linking, and other on-line
promotional strategies.
OUR INTELLECTUAL PROPERTY
Our success depends in part on our ability to protect our intellectual property.
To protect our proprietary rights, we rely generally on:
- copyright, trademark and trade secret laws,
- confidentiality and invention assignment agreements with employees,
and
- license agreements with vendors and customers.
We pursue the registration of all of our trademarks and service marks in the
United States. Although we have not secured registration of all of our marks, we
have made application to the U.S. Patent and Trademark Office to register the
FUNDS-IN trademark. The laws of some foreign countries do not protect our
proprietary rights to the same extent as do the United States laws. In addition,
effective copyright, trademark and trade secret protection may be unavailable in
foreign jurisdictions. In general, there can be no assurance that our efforts to
protect our intellectual property rights through copyright, trademark and trade
secret laws will be effective to prevent misappropriation of our intellectual
property. Our failure or inability to protect our proprietary rights could
materially adversely effect our business, financial condition, and results of
operations by lessening the value of the intellectual property and possibly
increasing competition.
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COMPETITION
CGI Capital competes with numerous other securities and investment banking
firms. In particular, we compete with investment bankers like Wit Capital
Corporation and Safeguard Scientifics, Inc. which also focus their efforts on
Internet based offerings. Most of our competitors have substantially greater
capital, resources, experience, and name recognition.
In the event we should expand CGI Capital's operations to include wholesale
and/or retail trading, our competition would expand to established
broker-dealers. The wholesale execution business has become considerably more
competitive over the past few years as numerous highly visible, large, and
well-financed securities firms have expanded their businesses. In addition,
companies not engaged primarily in the securities business, but having
substantial financial resources, have acquired leading securities firms. These
developments have increased competition from firms with capital resources
greater than those of CGI Capital. The retail securities industry has
experienced substantial commission discounting by broker-dealers who compete for
institutional and individual brokerage business. In addition, an increasing
number of specialized firms and commercial banks now offer discount services to
individual customers. These firms generally conduct transactions for their
customers on an execution only basis without offering other services like
portfolio valuation, investment recommendations, and research.
Commercial banks and other financial institutions have become a competitive
factor by offering their customers corporate and individual financial services
traditionally provided by securities firms. The current trend toward
consolidation in the commercial banking industry could further increase
competition in all aspects of CGI Capital's business and could effect the
opportunities for CGI Capital to expand its operations.
Many professionals, including other consulting firms, attorneys, and
accountants, offer business consulting services similar to those offered by us.
To better compete, we developed a unique fee structure that is a combination of
restricted common stock and a small amount of cash which we believe is
attractive to our potential clients and provide us with a competitive advantage.
Competition effecting CGI Total Media is substantial. The market for Internet
products, particularly Internet advertising and Internet search and retrieval
services, is intensely competitive. The two primary competitors for our Internet
viewing software are Netscape and Microsoft Internet Explorer. Currently,
Netscape and Internet Explorer control over 90% of the Internet viewing software
market. Since there are no substantial barriers to entry, we expect competition
in these markets to intensify.
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To compete with the established web designers, we use unique concepts to
increase the likelihood that visitors to a client's web site will be interested
in what they see, and have a reason to return. These concepts include:
- user-friendly web sites
- novel approaches to design work
- quick access to what the viewer wants
- emphasis on single page web sites to make viewing easier
- artistically pleasing layouts custom tailored to client needs
Our existing competitors, as well as a number of potential new competitors, may
have longer operating histories in the Internet market, greater name
recognition, larger customer bases and databases, and significantly greater
financial, technical and marketing resources. These competitors may be able to
undertake more extensive marketing campaigns, and make more attractive offers to
potential employees, distribution partners, advertisers, and content providers.
There can be no assurance that we will be able to compete successfully against
our current or future competitors.
On-Line Bedding has historically competed with a variety of wholesale
distributors of similar products, including Celeste Industries Corporation and
Baxter Laboratories. Many of On-Line Bedding's competitors are more established,
better capitalized, and offer a wider variety of product offerings. With our
planned expansion of On-Line Bedding with its e-commerce site, On-Line Bedding
will compete with numerous other companies to offer similar products on the web.
We believe that by building on the combination of On-Line Bedding's competitive
pricing, prompt delivery of products, established customer base, use of Internet
for ordering and marketing, and dedication to customer service, we will be able
to effectively compete in the e-commerce area of its industry.
GOVERNMENT REGULATION
U.S. companies that have more than 100 shareholders or are publicly traded in
the U.S. and are, or hold themselves out as being, engaged primarily in the
business of investing, reinvesting or trading in securities are subject to
regulation under the Investment Company Act of 1940. Unless a substantial part
of our assets consist of, and a substantial part of our income is derived from
operations, we may be required to register and become subject to regulation
under the Investment Company Act. Because Investment Company Act regulation is,
for the most part, inconsistent with our strategy of providing business
consulting services and overseeing the operations of our subsidiaries, we cannot
feasibly operate our business as a registered investment company.
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If we are deemed to be, and are required to register as, an investment company,
we will be forced to comply with substantive requirements under the Investment
Company Act, including:
limitations on our ability to borrow;
limitations on our capital structure;
restrictions on acquisitions of interests in associated companies;
prohibitions on transactions with affiliates;
restrictions on specific investments; and
compliance with reporting, record keeping, voting, proxy disclosure and
other rules and regulations.
If we were forced to comply with the rules and regulations of the Investment
Company Act, our operations would significantly change, and we would be
prevented from successfully executing our business strategy.
In addition to the risk of inadvertently becoming an investment company under
the Investment Company Act, there are other risks inherent to our policy of
accepting restricted stock as partial payment for our business consulting
services as these securities are presently illiquid. To date, we are unable to
sell any of the securities we hold as investments, either because the securities
have not been registered under the Securities Act or the issuers have not
established trading markets. Our policy of accepting restricted securities as
partial compensation for our business consulting services has the effect of
decreasing the cash available for our future growth. If we are unable to
eventually convert these investments to cash, we could be required to seek
additional capital to fund our future growth. While we adopted the policy of
accepting restricted stock as partial compensation for our business consulting
services as a result of the embryonic nature of some of our client companies, we
may decide to change this policy in the future if we are unable to convert some
of the investments into cash. Any future change in our fee structure for our
business consulting services could severely limit our ability to attract
business consulting clients.
Our management will determine the value of our assets and of our interests in
our client companies, and the income or losses attributable to them, for
purposes of determining compliance with the Investment Company Act on at least a
quarterly basis. To maintain compliance with the act, we may be unable to sell
assets which we would otherwise want to sell and may need to sell assets which
we would otherwise want to retain. In addition, we may have to acquire
additional income or loss generating assets that we might not otherwise have
acquired and may need to forego opportunities to acquire interests in attractive
companies that might be important to our business strategy. In
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addition, because our client companies may not be majority-owned subsidiaries or
primarily controlled companies either when we acquire interests in them or at
later dates, changes in the value of our interests in our client companies and
the income/loss and revenue attributable to our client companies could require
us to register as an investment company.
Although there are currently few laws and regulations directly applicable to the
Internet, it is likely that new laws and regulations will be adopted in the
United States and elsewhere that cover a variety of issues including:
- broadcast license fees
- copyrights
- privacy
- pricing
- sales taxes
- characteristics and quality of Internet services
It is possible that governments will enact legislation that may be applicable to
us in areas including:
- content
- network security
- encryption and the use of key escrow, data and privacy protection
- electronic authentication or "digital" signatures
- illegal and harmful content
- access charges
- retransmission activities
The applicability to the Internet of existing laws governing a variety of
issues, including property ownership, content, taxation, defamation, and
personal privacy is uncertain. The majority of these laws were adopted before
the widespread use and commercialization of the Internet, and do not contemplate
or address the unique issues of the Internet and related technologies. Any
export or import restrictions, new legislation or regulation, or governmental
enforcement of existing regulations may increase our cost of doing business or
increase our legal exposure.
The securities industry in the United States is extensively regulated under
federal and state laws. The SEC is a federal agency charged with administration
of the federal securities laws. Much of the regulation of broker-dealers,
however, has been delegated to self-regulatory organizations, principally the
NASD and the stock exchanges. These self-regulatory organizations adopt rules,
which must be approved by the SEC, to govern the industry. These self-regulatory
organizations conduct periodic examinations of member broker-dealers. Securities
firms are also regulated by state securities commissions in the states in which
they do business.
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Broker-dealers must follow rules which cover all aspects of the securities
business, including:
- sales methods
- trading practices among broker-dealers
- capital structure of securities firms
- record keeping
- the conduct of directors, officers, and employees
The broker-dealer's operations and profitability are often directly effected by
additional legislation, changes in rules adopted by the SEC and self-regulatory
organizations, or changes in the interpretation or enforcement of existing laws
and rules. The SEC, the self-regulatory authorities, and state securities
commissions may conduct administrative proceedings which can result in censure,
fine, suspension or expulsion of a broker-dealer, along with its officers and/or
employees. Regardless of the findings, administrative proceedings may require
substantial expenditures. The principal purpose of regulation and discipline of
broker-dealers is for the protection of customers and the securities markets,
rather than for the protection of creditors and stockholders of broker-dealers.
CGI Capital is required by federal law to belong to the Securities Investor
Protection Corporation, or SIPC. When the SIPC fund falls below a minimum
amount, members are required to pay annual assessments. CGI Capital is required
to contribute to the SIPC fund. The SIPC fund provides protection for securities
held in customer accounts up to $500,000 per customer, with a limitation of
$100,000 on claims for cash balances. SIPC provides protection for customers in
the event of the insolvency of CGI Capital or, at the time as it might expand
its operations to include retail or wholesale trading, of its clearing brokerage
company. The annual SIPC fee is $150. This fee will remain unchanged unless SIPC
makes across the board increases which will effect all broker-dealers.
CGI Capital must follow the SEC's Uniform Net Capital Rule, Rule 15c3-1 which is
designed to measure the financial integrity and liquidity of a broker-dealer and
the minimum net capital deemed necessary to meet its commitments to its
customers. Rule 15c3-1 provides that a broker-dealer doing business with the
public must not permit its aggregate indebtedness to exceed 15 times its net
capital or, alternatively, that it not permit its net capital to be less than 2%
of aggregate debit items as calculated by the rule.
Net capital rules, which are unique to the securities industry, impose financial
restrictions upon our business that are more severe than those imposed on other
types of businesses. Compliance with the net capital rules may limit the
operations of CGI Capital because they require minimum capital for purposes like
financing customer account balances, underwriting securities distributions, and
maintaining the inventory required for trading in securities. In addition, we
are restricted in the withdrawal of
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equity capital, and subordinated loans, which may not be made if the withdrawal
would impair net capital requirements.
As of this date, CGI Capital is required to maintain a minimum net capital of
$5,000. As of June 30, 2000, it had total net capital of $3,146,415. The minimum
net capital required is based upon the nature of CGI Capital's broker-dealer
business. If CGI Capital remains principally engaged in the offer and sale of
private placement securities, then its net capital requirements remain at a
minimum. In the event CGI Capital ever becomes involved in the participation in
public underwritings, then net capital requirements will be increased to a
minimum of $100,000.
CGI Capital is in compliance with the Rule 15c3-1, as well as the applicable
minimum net capital requirements of the NASD. However, at the present time CGI
Capital has no customer accounts and, accordingly, compliance is based upon
meeting the minimum net capital requirements of the NASD. While we do not
anticipate CGI Capital will undertake retail brokerage operations, we may choose
to do so in the future.
If we elect to operate as a retail stockbroker, we would be required to increase
CGI Capital's net capital beyond the existing $5,000 minimum required net
capital. In computing net capital under Rule 15c3-1, various adjustments are
made to net worth to exclude assets not readily convertible into cash, and to
provide a conservative statement of other assets, like a firm's position in
securities. A deduction is made against the market value of securities to
reflect the possibility of a market decline before their disposition. For every
dollar that net capital is reduced, by means of these deductions or through
other deductions like operating losses or capital distributions, the maximum
aggregate debit items a firm may carry is reduced.
Any failure to maintain the required net capital may subject a broker-dealer to
suspension by the SEC or other regulatory bodies, and may ultimately require its
liquidation.
We are focusing our e-finance efforts in an emerging area of Internet investment
banking. We do not know if new rules or regulations will be adopted by the SEC
or the NASD which might limit, or eliminate our ability to operate CGI Capital
as presently operated. The securities industry is extensively regulated at both
the federal and state levels by various regulatory organizations charged with
protecting the interests of customers. The SEC and NASD require strict
compliance with their rules and regulations. If new or revised rules or
regulations are adopted and we fail to comply with any of these laws, rules or
regulations, the SEC and/or the NASD could levy fines against, suspend or expel
CGI Capital. Significant fines could adversely impact our working capital, and a
suspension or expulsion would severely limit our projected future growth.
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FACILITIES
Our principal offices are located in approximately 22,000 square feet of
commercial office space at 1011 Campus Drive, Mundelein, Illinois 60060. We
lease this space from an unrelated third party under two separate lease
agreements. Under the five year leases dated May 1999 and June 1999, we pay an
annual aggregate rent of approximately $95,730 during the first year, and
approximately $142,560 annually during the remaining four years of the lease
terms. We also pay a pro-rata share of common area maintenance and real estate
taxes. We have an option to renew our lease for an additional five year term at
annual rental payments beginning at $63,600 in the first year escalating to
$73,140 in the fifth year of the renewal term for approximately 9,325 square
feet of the space, with the balance to be at the then current market rate at the
time of renewal.
EMPLOYEES
As of August 14, 2000, we employ 44 persons, 42 full-time and two part-time. The
following table illustrates the breakdown of our employees by employer:
Name of employer Number of employees
---------------- ----------------------------
Full-time Part-time
--------- ---------
Circle Group Internet 18 1
CGI Total Media 9 1
On-Line Bedding 2 0
CGI Capital 13 0
PPI Capital 0 0
None of our employees are represented by a labor union, and we are not governed
by any collective bargaining agreements. We have a satisfactory relationship
with our employees.
We plan to expand our employee base through the addition of approximately 10 new
employees including personnel for CGI Capital. We also will seek to expand our
management personnel.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings. However, the staff of the
Enforcement Division of the SEC has notified CGI Capital that it will be
recommending that the SEC institute administrative proceedings against CGI
Capital charging violations of Section 5 of the Securities Act and Section
15(b)(4) of the Securities Exchange Act in connection with two private placement
securities offerings from August 1999 through December 1999. The first of these
private placements was an offering in
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which CGI Capital acted as placement agent in the sale of 1,000,000 shares of
common stock of an issuer at an offering price of $3.00 per share to a total of
70 purchasers. The offering, which resulted in gross proceeds to the issuer of
approximately $930,099, was concluded on November 26,1999. The second of these
private placements was an offering in which CGI Capital acted as placement agent
in the sale of 1,000,000 shares of common stock of an issuer at an offering
price of $4.00 per share to a total of 19 purchasers. The offering, which
resulted in gross proceeds to the issuer of $111,111, commenced November 23,
1999. The staff has informed CGI Capital that it would allege that CGI Capital
conducted a general solicitation with respect to these offerings and the
exemption from registration for those securities according to Regulation D was
not available.
HOW TO GET MORE INFORMATION
We have filed with the SEC a registration statement on Form SB-2 which can be
read and copied at the public reference facilities maintained by the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Information about the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330. The registration statement is also available to the public from
commercial document retrieval services, or via EDGAR on the SEC's web site at
www.sec.gov.
Before the date of this prospectus we have been a non-reporting company under
the Securities Exchange Act. Upon effectiveness of the registration statement,
we will begin filing quarterly, annual and other reports with the SEC. We intend
to furnish our stockholders with annual reports, which will include financial
statements audited by independent accountants, and other periodic reports as we
may choose to provide, or as we are required by law.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, positions and ages of our executive
officers and directors.
Name Age Positions Held
---- --- --------------
Gregory J. Halpern 42 Chairman and Chief Executive Officer
Frank K. Menon 35 Director and President
Chief Executive Officer and President of
CGI Capital
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Dana L. Dabney 50 Director, Vice President of Human
Resources
Arthur C. Tanner 35 Chief Financial Officer
Michael J. Theriault 47 Chief Operating Officer
Edward L. Halpern 70 Director
Erik Brown 25 Vice President of Corporate Development
Steven H. Salgan, M.D. 47 Director
Stanford Jay Levin 48 Director
GREGORY J. HALPERN is our founder and has been a director and chief executive
officer since our formation in May 1994. Mr. Halpern is also a director of CGI
Capital since November 19, 1999. From May 1994 until March 1999, he also served
as our president. From 1981 to 1988, Mr. Halpern was a co-founder, member of the
board of directors and vice president of On-Line Bedding Corporation, the
company that distributes a wide variety of bedding and disposable products which
we acquired in January 1999. In 1984, he co-founded Pain Prevention, Inc., an
Illinois company which sold electronic dental anesthesia equipment for which Mr.
Halpern holds a patent. Pain Prevention, Inc. discontinued its operations in
1989 and subsequently changed its name to PPI Capital Corp. We acquired 80% of
the issued and outstanding capital stock of PPI Capital in March 1999 from Mr.
Halpern. Mr. Halpern has served as an officer and director of PPI Capital since
its inception in 1984. Mr. Halpern also served as an officer and director of PPI
Capital Group, Inc., a Utah corporation of which he was a principal shareholder,
from 1989 to May 1998. At the present time, PPI Capital, our subsidiary, and PPI
Capital Group, Inc. have no affiliation. Mr. Halpern developed clinical
protocols, and received two separate FDA clearances to market the technology.
From 1984 to June 1987, he was a director and the president of O.M. Corp., a
company which distributes proprietary computer animated health imaging video
products created by Mr. Halpern. Mr. Halpern has been a feature of more than 100
TV shows, newspapers, national magazines, and radio and is also a published
author of self-help books and an International Judo Champion. Gregory J. Halpern
is the son of Edward L.
Halpern.
FRANK K. MENON has been our president since March 1999 and a director since
March 1999. Mr. Menon previously served as our vice president of finance from
January 1999 until being elected president. Mr. Menon is also a director and
Chief Executive Officer of CGI Capital since November 19, 1999 and President
since March 15, 2000. Mr. Menon's background is in the securities industry,
where he was a broker at Merrill Lynch, Pierce, Fenner & Smith from 1992 to
1993, and a broker at J.E. Liss &
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Company, Inc. from 1993 to 1995. Mr. Menon was Director of Finance for Invest
L'Inc. Partners, from 1995 to 1997. During 1998, Mr. Menon invested for his own
account. From 1996 until 1998, Mr. Menon served on the board of directors for
All Cajun Food Company.
DANA L. DABNEY has been a member of our board of directors and has held various
offices, including vice president of sales and marketing, since January 1997.
Mr. Dabney has been our vice president of human resources since June 1999.
During our first two years of development, Mr. Dabney also was employed as a
mortgage broker. From 1994 until December 1997, he was employed by State
Financial Bank in Richmond, Illinois, which was formerly known as Richmond Bank,
and from January 1998 until December 1998 he was employed by Mortgage Market
Corporation, also in Illinois. From 1989 to 1995, Mr. Dabney was the president
of Across America Telemarketing Company, a company involved in the telemarketing
of retail consumer products. Mr. Dabney has also worked in the securities
industry. He was employed by Carl Icahn and Company from 1979 to 1984 as the
firm's primary options trader, and from 1984 to 1989 as a Market Maker, on the
Chicago Board Options Exchange.
ARTHUR C. TANNER has been our chief financial officer since March 1999. Mr.
Tanner is also a director, Chief Financial Officer and Financial Operations
Officer of CGI Capital since November 19, 1999. From November 1998 until joining
Circle Group Internet, he was vice president and controller for UBM, Inc., a
construction company with $50 million in annual revenues. From October 1997
until September 1998, Mr. Tanner was a financial consultant with Merrill Lynch,
Pierce, Fenner & Smith Incorporated, and from February 1997 until September
1997, he was a tax principal with R. Yeager & Co., certified public accountants,
where his responsibilities included public accounting, tax, and audit work. From
October 1995 until December 1996, Mr. Tanner was an international tax planner
for Silicon Graphics Computer Systems, where his responsibilities included
planning and execution of international tax strategies. Mr. Tanner received a
B.A. from Walsh College in 1987 and a J.D. from Ohio State University in 1995.
MICHAEL J. THERIAULT has been our chief operating officer since June 1999. Mr.
Theriault professional experience includes progressive operations, programming,
design, support, consulting, project management, and department management
experience in manufacturing, insurance, medical, consulting, and mortgage
banking industries on both mainframe and personal computer equipment. From
September 1989 until June 1997, Mr. Theriault was employed by Recon Optical,
Inc., serving as Supervisor of Business Systems from June 1997 until May 1999,
and Senior Systems and Programming Specialist and Senior Project Leader of
Manufacturing from September 1989 until June 1997. Mr. Theriault received a B.S.
in Computer Science and Business Management from Northeastern Illinois
University in 1978 and an M.B.A. from Lake Forest Graduate School of Management
in 1987.
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EDWARD L. HALPERN has been a director since March 1999 and served as our COO
from January 1999 until March 1999. Mr. Halpern founded On-Line Bedding in 1981
and served as its president, CEO and sole director. He has continued his duties
with On-Line Bedding since our acquisition of it in January 1999. Edward L.
Halpern is the father of Gregory J. Halpern.
ERIK BROWN has been our vice president of corporate development since March
1999, president of CGI Capital from May 1999 until March 2000, and director of
CGI Capital since November 19, 1999. Mr. Brown was a Financial Consultant in the
Private Client Group at Merrill Lynch, Pierce, Fenner & Smith from August 1997
to March 1999. He earned a degree in finance in 1997 from the Eli Broad College
of Business, Michigan State University.
STEVEN H. SALGAN, M.D. has been a member of our board of directors since March
2000. Since January 1998, Dr. Salgan has been president of Steven H. Salgan,
M.D., Ltd., a practice specializing in primary care internal medicine and
general/family medicine, and since May 1999, he has been president of Steven H.
Salgan, M.D., P.C. Since 1997, he has been a member of the American Association
of Professional Ringside Physicians, and since 1996, he has been a member of the
Internal Medicine Subcommittee for Quality Assurance of Saint Margaret - Meray
Hospital in Hammond, Indiana. Dr. Salgan received a B.S. in Psychology from
DePaul University in 1976, and a M.D. from Abraham Lincoln School of Medicine,
University of Illinois in June 1982.
STANFORD JAY LEVIN has been a member of the board of directors since March 2000.
Since 1988, Mr. Levin has been the proprietor of Levin Enterprises, an auto
brokerage company located in Indiana. From January 1986 until June 1988, Mr.
Levin was a public school teacher. From May 1981 until May 1985, he was employed
by Hohman Professional Corp., a real estate development and management company
where his duties included commercial real estate management and overseeing
renovations, and from June 1975 until May 1981, he was employed by Yale
Corporation of Hammond, a real estate management company, where his
responsibilities included commercial real estate management. Mr. Levin received
a B.S. in Education from Indiana University in 1975.
Other than the father-son relationship between Mr. Edward L. Halpern and Mr.
Gregory J. Halpern described above, there is no family relationship between any
of our executive officers and directors. Each director is elected at our annual
meeting of shareholders and holds office until the next annual meeting of
shareholders, or until his successor is elected and qualified. Officers are
elected annually by the board of directors and their terms of office are at the
discretion of the board. Our officers devote their full time to our business.
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COMMITTEES OF THE BOARD OF DIRECTORS
In July 1999, we established an audit committee and a compensation committee of
our board of directors. The audit committee will recommend the firm to be
employed as our independent public accountants, and will review the scope of the
audit and audit fees. In addition, the audit committee will consult with the
independent auditors with regard to the plan of audit, the audit report and the
management letter, and will confer with the independent auditors with regard to
the adequacy of internal accounting controls, as appropriate, out of the
presence of management. The members of the audit committee are Messrs. Gregory
J. Halpern, Levin and Salgan.
The compensation committee will administer our 1999 Stock Option Plan, and is
charged with monitoring, reporting and recommending to the board of directors on
all matters concerning compensation and benefits of our executive officers and
senior staff. The compensation committee consists of Messrs. Gregory J. Halpern,
Levin and Salgan; in matters considered by the compensation committee which
directly relate to Mr. Gregory J. Halpern, the compensation committee consists
of Messrs. Menon, Levin and Salgan.
EMPLOYMENT AGREEMENTS
To ensure their continued contribution to our growth and development, we have
entered into employment agreements with our executive officers. The material
terms of each are described below.
GREGORY J. HALPERN. We are a party to a three year employment agreement with Mr.
Halpern which expires in January 2002. Mr. Halpern is paid an annual salary of
$76,000, and we granted him 30,000 stock options exercisable at $2.50 per share
under our 1999 Stock Option Plan that expire in January 2003.
FRANK K. MENON. We are a party to a three year employment agreement with Mr.
Menon which expires in February 2002. Mr. Menon is paid an annual salary of
$72,000, and we granted him 40,000 stock options exercisable at $2.50 per share
under our 1999 Stock Option Plan that expire in February 2002. We also issued
Mr. Menon 10,000 shares of our common stock as a signing bonus.
DANA L. DABNEY. We are a party to a three year employment agreement with Mr.
Dabney, which expires in January 2002. Mr. Dabney is paid an annual salary of
$60,000, and we granted him 24,000 stock options exercisable at $2.50 per share
under our 1999 Stock Option Plan that expire in January 2003.
ARTHUR C. TANNER. We are a party to a three year employment agreement with
Mr. Tanner which expires in March 2002. Mr. Tanner is paid an annual salary of
$60,000, and we granted him 20,000 stock options exercisable at $2.50 per share
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which expire in March 2002. We subsequently granted Mr. Tanner an additional
10,000 stock options exercisable at $10.00 per share which expire in July 2003.
All of these options were granted under our 1999 Stock Option Plan. We also
issued Mr. Tanner 10,000 shares of our common stock as a signing bonus.
MICHAEL J. THERIAULT. We are a party to a three year employment agreement with
Mr. Theriault which expires in June 2002. Mr. Theriault is paid an annual salary
of $68,000, and we granted him 20,000 stock options exercisable at $10.00 per
share. We subsequently granted Mr. Theriault an additional 10,000 stock options
exercisable at $10.00 per share. All of these options were granted under our
1999 Stock Option Plan and expire in June 2003. We also issued Mr. Theriault
10,000 shares of our common stock as a signing bonus.
ERIK J. BROWN. We are a party to a three year employment agreement with Mr.
Brown which expires in March 2002. Mr. Brown is paid an annual salary of
$42,500, and we granted him 20,000 stock options exercisable at $2.50 per share.
We subsequently granted Mr. Brown an additional 10,000 stock options exercisable
at $10.00 per share. All of these stock options were granted under our 1999
Stock Option Plan and expire in March 2002. We also issued Mr. Brown 10,000
shares of our common stock as a signing bonus.
All of these employment agreements also provide, among other things:
- participation in any profit-sharing or retirement plan and in other
employee benefits applicable to our employees and executives;
- benefits in the event of disability or death; and
- contain non-disclosure and non-competition provisions. A state
court, however, may determine not to enforce, or only partially
enforce, the non-compete provisions of these employment agreements.
Under the terms of the employment agreements, we may terminate the employment of
the employee with cause, as defined in the employment agreement, in which event
he would receive no severance benefits.
KEY- MAN INSURANCE
We are the beneficiary of a $5 million life insurance policy on the life of Mr.
Gregory Halpern.
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EXECUTIVE COMPENSATION
We began our operations in 1997. The following table summarizes all compensation
accrued and paid by us in each of the last three fiscal years to our chief
executive officer and each other executive officer serving as executive officers
whose annual compensation exceeded $100,000.
<TABLE>
<CAPTION>
Compensation Awards
Annual Compensation ---------------------------
---------------------------------------------- Options
Name and Other Annual Number of All Other
Principal Position Year Salary Bonus Compensation Shares Compensation
------------------ ---- ------ ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gregory J. Halpern, 1997 $88,903 0 0 0 0
Chairman and Chief 1998 $76,000 0 0 0 0
Executive Officer 1999 $76,000 0 0 0 0
</TABLE>
Of the total $88,903 reported for Mr. Halpern for 1997, $12,903 represents
actual compensation paid to him and the balance of $52,000 represents the
estimate of the fair value of his services to us for which he did not receive
compensation. The $88,903 has been recognized by us as an expense during 1997.
We did not pay Mr. Halpern any compensation for services he rendered to us in
1998. The amount in the above table represents our estimate of the fair value of
the services and this amount has been recognized by us as an expense during
1998.
DIRECTORS COMPENSATION
In August 1999, we adopted a compensation policy for our outside directors,
which includes:
* options will be granted annually under our 1999 Stock Option Plan to
purchase 15,000 shares of our common stock, exercisable at the fair
market value on the date of grant, to each outside director;
* these options will vest at the rate of 5,000 options on each of the
first, second and third anniversary date of the grant date, and will
be exercisable for three years from the grant date,
* directors and officers insurance coverage in an amount reasonably
acceptable to us, and
* reimbursement for all reasonable out-of-pocket expenses the outside
director incurs in attending our board of directors meetings.
Members of our board of directors who are our executive officers do not receive
any additional compensation for their services to us in their capacity as a
member of our
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board of directors, other than coverage under our directors and officers
insurance policy.
1999 INCENTIVE STOCK OPTION PLAN
On January 1, 1999, our board of directors and a majority of our stockholders
initially adopted the Circle Group Internet, Inc. 1999 Stock Option Plan. The
purpose of the plan is to increase the employees', advisors and non-employee
directors' proprietary interest in Circle Group Internet, and to align more
closely their interests with the interests of our stockholders. An additional
purpose of the plan is also to enable us to attract and retain the services of
experienced and highly qualified employees and non-employee directors.
We initially reserved an aggregate of 1,000,000 shares of common stock for
issuance under the Plan. Subsequently, on February 17, 2000, we increased the
maximum number of shares issuable upon the exercise of options granted under the
plan to 2,000,000 shares. As of the date of this prospectus, grants for
1,497,000 under the plan are outstanding. The compensation committee of the
board of directors will administer the plan including the selection of the
persons who will be granted plan options under the plan, the type of plan
options to be granted, the number of shares which may be granted under each plan
option and the plan option price.
Plan options granted under the plan include:
- incentive stock options under Section 422 of the Internal Revenue
Code of 1986,
- non-qualified options, and
- reload options, which permit an eligible person to pay the exercise
price of the plan option with shares of common stock owned by the
eligible person, and receive a new plan option to purchase shares of
common stock equal in number to the tendered shares.
Any incentive option granted under the plan must provide for an exercise price
of at least 100% of the fair market value of the underlying shares on the date
of grant, but the exercise price of any incentive option granted to an eligible
employee owning more than 10% of our common stock must be at least 110% of the
fair market value as determined on the date of the grant.
The term of each plan option and the manner in which it may be exercised is
determined by the compensation committee of the board of directors, provided
that no plan option may be exercisable more than 10 years after the date of its
grant and, in the case of an incentive option granted to an eligible employee
owning more than 10% of
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<PAGE> 57
our common stock, no more than five years after the date of the grant. The
exercise price of non-qualified options shall be determined by compensation
committee of the board of directors.
The per share purchase price of shares in plan options granted under the plan
may be adjusted in the event of changes in our capitalization, but any
adjustment will not change the total purchase price payable upon the exercise in
full of plan options granted under the plan. Our officers, directors and key
employees will be eligible to receive non-qualified options under the plan. Only
our officers, directors and employees who are employed by us, including any
subsidiary, are eligible to receive incentive options.
All plan options are non-assignable and nontransferable, except by will or by
the laws of descent and distribution. Plan options may only be exercised by the
optionee during the lifetime of the optionee. If an optionee's employment is
terminated for any reason, other than his death or disability or termination for
cause, the plan option granted to him shall lapse to the extent unexercised on
the earlier of the expiration date or 30 days following the date of termination.
If the optionee dies during the term of his employment, the plan option granted
to him shall lapse to the extent unexercised on the earlier of the expiration
date of the plan option or the date one year following the date of the
optionee's death. If the optionee is permanently and totally disabled within the
meaning of Section 22(c)(3) of the Internal Revenue Code, the plan option
granted to him lapses to the extent unexercised on the earlier of the expiration
date of the option or one year following the date of the disability. The same
type of termination provisions apply to options granted to our board members in
the event they resign their board seats, or are not reelected by our
shareholders.
The board of directors or the compensation committee of the board of directors
may amend, suspend or terminate the plan at any time, except that no amendment
shall be made which:
- increases the total number of shares which we may grant under the
plan or changes the minimum purchase price, except in either case in
the event of adjustments due to changes in our capitalization,
- effects outstanding plan options or any of their exercise rights,
- extends the term of any plan option beyond 10 years, or
- extends the termination date of the plan.
Unless the plan shall have been suspended or terminated, the plan shall
terminate approximately 10 years from the date of the plan's adoption. Any
termination of the plan shall not affect the validity of any plan options
previously granted.
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<PAGE> 58
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Illinois Business Corporations Act provides for indemnification of
directors, employees, officers and agents of Illinois corporations. Our articles
of incorporation and bylaws provide that we shall indemnify our directors and
officers to the fullest extent permitted by the Illinois Business Corporation
Act. Because indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers or persons by these provisions, we
have been informed that, in the opinion of the SEC, indemnification is against
public policy as expressed and the Securities Act and is unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1997, Mr. Gregory Halpern received 6,494,000 shares and Mr. Dana Dabney
received 500,000 shares of our common stock for the nominal consideration of par
value $.0001 per share as founders of Circle Group Internet. Messrs. Halpern and
Dabney as its founders are considered promoters of Circle Group Internet, and
the stock was issued to them in connection with the organization of Circle Group
Internet.
During fiscal 1997, we established a note payable in the principal amount of
$16,403 to Mr. Gregory J. Halpern, our founder and CEO, to purchase furniture
and fixtures, including computer equipment for our offices. The note provided
for interest at 18% per annum and was unsecured. We repaid the note in full
before December 31, 1998.
From January 1997 until July 1999, we leased office space from Mr. Gregory J.
Halpern at a monthly rental amount of approximately $2,700. This office location
was within Mr. Halpern's residence.
In November 1997, On-Line Bedding purchased a new vehicle to be used by Mr.
Edward L. Halpern, its president, from an automobile dealership which was an
unaffiliated third party for approximately $75,816. In November 1998, prior to
our acquisition of On-Line Bedding, Mr. Edward L. Halpern purchased the vehicle
from OnLine Bedding for $41,800. At the time of the purchase, the depreciated
value of this vehicle on On-Line Bedding's financial statements was $73,776. The
purchase price paid by Mr. Halpern was equal to the then loan value of the
vehicle as quoted by a local bank. On-Line Bedding recognized a loss on the sale
of this asset of approximately $31,976 during the fiscal year ended December 31,
1998.
In January 1999, we acquired 100% of the issued and outstanding stock of On-Line
Bedding from Mr. Edward L. Halpern, one of our officers and directors, and his
wife in exchange for 400,000 shares of our common stock. Mr. Gregory J. Halpern,
our president and CEO, was a co-founder of On-Line Bedding. We accounted for our
acquisition of On-Line Bedding as a combination of related party interests. For
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<PAGE> 59
accounting purposes, we have recorded a dividend of $954,214 which represents
the excess of the purchase price paid over the net assets we received.
On-Line Bedding was an S corporation prior to our acquisition of its capital
stock. On-Line Bedding distributed all of its retained earnings to its
shareholders at the end of each fiscal year. Total distributions for the three
months ended March 31, 2000 and fiscal years ended December 31, 1998 and 1997
were $21,811, $275,709 and $72,033, respectively. At July 5, 2000, we owed Mr.
and Mrs. Edward Halpern $21,078 which represented shareholder distributions
prior to our acquisition of On-Line Bedding. We have issued Mr. and Mrs. Edward
Halpern a demand promissory note bearing no interest.
In addition, in March 1999, we acquired 3,200,000 shares of the common stock, or
approximately 82% of the issued and outstanding capital stock of PPI Capital, a
shell corporation, from Mr. Gregory J. Halpern, one of our officers and
directors, in exchange for $20,000. The remaining approximate 18% of PPI Capital
is owned by the shareholders of Pain Prevention, Inc., a Utah corporation which
was formerly PPI Capital's sole shareholder. Mr. Dana Dabney, one of our
officers and directors, owns 70,286 shares, or approximately 1.7% of the
remaining 18% of PPI Capital's stock not owned by Circle Group Internet. We
anticipate that we will use PPI Capital as either a holding company or as a
candidate for a reverse merger with an operating entity. We do not, however,
have any agreements or understandings with any third parties regarding PPI
Capital.
As a term of employment agreements we have with four of our executive officers,
we issued each of these individuals shares of our common stock as a signing
bonus. The following table sets forth the names, date of issuance and the number
of shares issued to each individual and value attributed to the shares issued.
<TABLE>
<CAPTION>
Name Date No. of Shares Value Attributed
---- ---- ------------- ----------------
<S> <C> <C> <C>
Frank K. Menon February 1, 1999 10,000 $ 25,000
Erik J. Brown March 1, 1999 10,000 $ 25,000
Arthur C. Tanner March 1, 1999 10,000 $ 25,000
Michael Theriault June 1, 1999 10,000 $ 100,000
</TABLE>
On March 1, 1999, Nancy Dabney, our receptionist and wife of Dana Dabney, one of
our founders, received 2,000 shares as a bonus.
On August 1, 1999, Mr. Gregory J. Halpern, our Chairman and Chief Executive
Officer, borrowed $935,000 from us under a secured promissory note. This note
bore interest
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<PAGE> 60
at 8% per annum. As collateral for the note, Mr. Halpern granted us a first
mortgage on his principal residence. This residence had a fair market value
which exceeded the principal amount of the note and, with the exception of our
mortgage, was unencumbered. Mr. Halpern is an accredited investor. The note was
satisfied in full on December 7, 1999, and we have released our mortgage on the
property.
In 1996, CGI Capital, which was formerly known as CIG Securities, Inc., was
formed by its parent company, Internet Broadcasting Company, Inc. a Delaware
corporation, to take advantage of the developing Internet direct public offering
service market. Prior to our acquisition of CGI Capital in November 1999, it was
a wholly-owned subsidiary of Internet Broadcasting Company, Inc. Messrs. Bradley
M. Levine, James W. Dwyer, Cort A. Neimark, Edmund Allen Tubbs, and Leonard
Simon are the controlling persons of Internet Broadcasting Company, Inc. On
behalf of Internet Broadcasting Company, Inc., Mr. Levine took the initiative in
founding and organizing CGI Capital, and he was the original officer and
director of CGI Capital. Because of these actions, he would be considered CGI
Capital's promoter. Mr. Levine, however, did not individually receive anything
of value for his actions in the formation and organization of CGI Capital. Upon
its organization, Internet Broadcasting Company, Inc. became CGI Capital's sole
shareholder, receiving 100 shares of its common stock which represented all the
issued common stock.
On December 16, 2000, we drew down $300,000 from the line of credit to purchase
a certificate of deposit. The certificate of deposit was pledged to secure a
personal line of credit of the Chairman of the Board of Directors. The
certificate of deposit pays interest yearly at 8.25% and matures on December 16,
2002. The certificate of deposit was collateralized by 50,000 shares of our
common stock owned by the Chairman of the Board of Directors. On March 7, 2000,
the certificate of deposit account was closed, and the amount of $300,000 was
transferred back to our line of credit. On April 14, 2000, we drew down again
$300,000 from the line of credit to purchase a certificate of deposit to pledge
as security for a personal line of credit of the Chairman of the Board of
Directors. The certificate of deposit pays interest yearly at 6.77% and matures
on March 7, 2003. The certificate of deposit is collateralized by 60,000 shares
of our common stock owned by the Chairman of the Board of Directors. On June 19,
2000, the certificate of deposit account was closed, and the amount of $300,000
was transferred back to our line of credit.
OUR POLICY REGARDING TRANSACTIONS WITH OUR AFFILIATES
Transactions with our officers, directors and principal shareholders have been
made upon terms no less favorable to us than we might receive from unaffiliated
third parties. In September 1999, we adopted a policy which requires that terms
be no less favorable to us than we might receive from unaffiliated third parties
and the approval of a majority of our disinterested directors for any future
transaction involving an officer, director or 5% of greater shareholder.
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<PAGE> 61
OUR PRINCIPAL SHAREHOLDERS
As of July 26, 2000, there were 9,894,680 shares of our common stock issued and
outstanding, without giving effect to the exercise of outstanding options or
warrants to acquire an additional 1,473,680 shares of our common stock. The
following table sets forth information as of July 26, 2000 with respect to the
beneficial ownership of shares of common stock currently issued and outstanding
by:
- each person known to us to be the owner of more than 5% of the
outstanding shares of common stock,
- each officer and director, and
- all officers and directors as a group.
Unless otherwise indicated, the address for each individual listed is 1011
Campus Drive Mundelein, Illinois 60060.
Name No. of Shares % of Ownership
---- ------------- --------------
Gregory J. Halpern 6,539,500 66.9%
Dana L. Dabney 541,000 5.5%
Frank K. Menon 270,000 2.7%
Erik Brown 80,000 *
Edward L. Halpern 400,000 4.1%
Michael J. Theriault 190,000 1.9%
Arthur C. Tanner 200,000 2.0%
Steven H. Salgan, M.D. 45,000 *
Stanford Jay Levin 65,000 *
All officers and directors
as a group (nine persons) 8,333,550 84.2%
----------
* represents less than 1%
In the preceding table:
- Mr. Halpern's shares include 309,500 shares held in the name of HF Trust, a
trust of which Mr. Halpern is the trustee, options to purchase 30,000 shares of
our common stock expiring in January 2003 and options to purchase 200,000 shares
of our common stock expiring in February 2003. 247,000 shares held by HF Trust
are being registered for resale under this prospectus.
- Mr. Dabney's shares includes options to purchase 24,000 shares of our common
stock expiring in January 2003, options to purchase 5,000 shares of our common
stock
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<PAGE> 62
expiring in February 2003, options, owned of record by Nancy Dabney, his wife,
to purchase 10,000 shares, of which 4,000 expire March 2002 and 6,000 expire
January 2003, and 2,000 shares owned of record by Nancy Dabney, his wife.
- Mr. Menon's shares includes options to purchase 40,000 shares of our common
stock expiring in February 2002 and options to purchase 220,000 shares of our
common stock expiring in February 2003.
- Mr. Brown's shares includes options to purchase 20,000 shares of our common
stock expiring in March 2002 and options to purchase 50,000 shares of our common
stock expiring in February 2003, but excludes options to purchase 10,000 shares
of our common stock which have not yet vested.
- Mr. Edward L. Halpern's shares include 196,000 shares owned of record by Mr.
Halpern and 204,000 shares owned of record by Diane Halpern, his wife.
- Mr. Theriault's shares includes options to purchase 20,000 shares of our
common stock expiring in June 2002 and options to purchase 160,000 shares of our
common stock expiring in February 2003, but excludes options to purchase 10,000
shares of our common stock which have not yet vested.
- Mr. Tanner's shares includes options to purchase 20,000 shares of our common
stock expiring in May 2002 and options to purchase 170,000 shares of our common
stock expiring in February 2003, but excludes options to purchase 10,000 shares
of our common stock which have not yet vested.
- Mr. Salgan's shares include options to purchase 5,000 shares of our common
stock expiring in March 2003, but excludes options to purchase 10,000 shares of
our common stock which have not yet vested.
- Mr. Levin's shares include warrants to purchase 20,000 shares of our common
stock expiring in March 2002 and options to purchase 5,000 shares of our common
stock expiring in March 2003, but excludes options to purchase 10,000 shares of
our common stock which have not yet vested.
MARKET FOR OUR SECURITIES
There has previously been no market for our common stock. We have applied for
listing of our common stock on the American Stock Exchange. We do not know if
our application for listing will be accepted. Even if our common stock is
accepted for listing, we do not know if a market for our common stock will ever
be established. Because we did not undertake an IPO, we do not have the support
of an underwriter who could help us in gaining recognition with individual
investors. We do not know of any analysts who intend to institute coverage on
our common stock if it should be included for listing on a
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<PAGE> 63
national exchange. Both of these factors are important in establishing a liquid
trading market for our common stock. The absence of any meaningful market in our
common stock will adversely affect your ability to sell the common stock in the
future.
We have approximately 411 record shareholders of our common stock. Based upon
the records of our transfer agent, we believe we have in excess of 560
beneficial owners of our common stock.
SELLING SECURITY HOLDERS
The following table sets forth the name of each selling security holder, the
number or shares of common stock beneficially owned by the selling security
holder as of July 5, 2000, and the number of shares being offered by each
selling security holder. During the past three years no selling security holder
has been our officer, director or affiliate, nor has any selling security holder
had any material relationship with us during the period, other than as set forth
below.
As a term of our two private placements, for one year from the date of the
purchase we have agreed to notify the purchasers of the filing of a registration
statement under the Securities Act, except those filed on Forms S-4 or S-8, and
give the purchasers the opportunity to include the shares of common stock owned
by them registration statement so as to permit the public resale of those
shares. The registration statement of which this prospectus forms a part is
being filed by us in satisfaction of the registration rights. The registration
statement has been prepared and filed at our expense, including our legal and
accounting fees, and printing expenses. We will not pay brokerage commissions,
transfer taxes and the fees of counsel to the selling security holders. In
connection with filing the registration statement, the selling security holders
will be required to furnish information to us and to indemnify us against civil
liabilities, including liabilities arising under the Securities Act with respect
to the information provided to us.
The shares of common stock being offered by this prospectus are being registered
to permit public secondary trading, and the selling security holders may offer
all or part of the shares for resale from time to time. However, the selling
security holders are under no obligation to sell all or any portion of the
shares of common stock immediately under this prospectus. Because the selling
security holders may sell all or a portion of their shares of common stock, no
estimate can be given as to the number of shares of common stock that will be
held by any selling security holder upon termination of any offering made under
this prospectus; accordingly, the following table assumes the exercise of the
warrants and the sale of all shares of common stock by the selling security
holders immediately following the date of this prospectus.
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<PAGE> 64
<TABLE>
<CAPTION>
No. of Shares No. of Shares %
No. of Shares of Common of Common Stock Owner-
of Common Stock Stock Offered Beneficially ship
Name of Selling Beneficially Owned By This Owned After
Security Holder as of July 26, 2000 Prospectus After Offering Offering
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David Abrahams 1,000 1,000 0 *
Louise Abrahams 2,000 2,000 0 *
Richard L. and Louise
Abrahams, Trustees 20,000 20,000 0 *
Amity Enterprises 50,000 50,000 0 *
Joseph Anthony 1,000 1,000 0 *
Kevin J. Bauer 600 600 0 *
Myron Basch 1,000 1,000 0 *
Marc Bear 2,000 2,000 0 *
Bruce F. Berkowitz 5,000 5,000 0 *
Ivo Beelen 4,000 4,000 0 *
Benchmark Capital
Ventures LLC 200,000 200,000 0 0
Ivka Berry 2,000 2,000 0 *
Joel and Trixie Bode 3,000 3,000 0 *
Jacqueline Burgess 200 200 0 *
Marshall S. Blackham 5,000 5,000 0 *
Charles Blumenfield 6,000 6,000 0 *
Lucille T. Brown 2,500 2,500 0 *
E. Ann Burke and
Marc Burke, JTWROS 10,000 10,000 0 *
James Campagna 2,500 2,500 0 *
</TABLE>
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<PAGE> 65
<TABLE>
<CAPTION>
No. of Shares No. of Shares %
No. of Shares of Common of Common Stock Owner-
of Common Stock Stock Offered Beneficially ship
Name of Selling Beneficially Owned By This Owned After
Security Holder as of July 26, 2000 Prospectus After Offering Offering
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Daniel I. Caplan, M.D. 5,000 5,000 0 *
Ronald Carlson 1,000 1,000 0 *
Kwanzu Chen 1,000 1,000 0 *
John T. Colvin and
Gail Covin, JTWROS 10,000 10,000 0 *
Congregation of Hakoil
Koil Yakov 40,000 40,000 0 *
Delta Energy Corp. 25,000 25,000 0 *
Dillion Capital LLC 5,000 5,000 0 *
Connie E. Donaldson 2,000 2,000 0 *
Steven Donia 4,000 4,000 0 *
Gary S. Ducharme 2,000 2,000 0 *
Gary J. Elkins and
Abigail Elkins, JTWROS 5,000 5,000 0 *
Shaun M. Emerson 10,000 10,000 0 *
Paul T. Evans 20,000 20,000 0 *
Stewart Flink 21,600 21,600 0 *
Isaac Friedman
and Philip Katz, JT 10,000 10,000 0 *
Mordechai Friedman 10,000 10,000 0 *
Ronald L. Fauconniere 5,000 5,000 0 *
Anthony Fiore 2,000 2,000 0 *
Jeffrey K. Forgacs 2,000 2,000 0 *
Javier Garcia, Jr. 200 200 0 *
Edward Giuntini 2,000 2,000 0 *
Caroline G. Graddon 5,000 5,000 0 *
Daniel K. Grice 2,500 2,500 0 *
George D. Guritz 10,000 10,000 0 *
George D. Guritz, IRA 10,000 10,000 0 *
HF Trust 312,550 247,000 247,000 2.5%
Kevin R. Hitzeman 15,000 15,000 0 *
Sean W. Hitzeman 15,000 15,000 0 *
Claudia S. Horty 18,000 18,000 0 *
Enamul Islem 400 400 0 *
Alison Jarret 7,500 7,500 0 *
JRF Investments II, Ltd. 5,000 5,000 0 *
JRF Investments III, Ltd. 5,000 5,000 0 *
JRF Investments IV, Ltd. 5,000 5,000 0 *
Ramesh Kannan 1,000 1,000 0 *
Clarence Kanthak 1,000 1,000 0 *
Thomas J. Kanthek 1,000 1,000 0 *
James A. Kasch 5,000 5,000 0 *
Mark Kaufman 628 628 0 *
Jay Kaufman 7,800 7,800 0 *
John Kaufman SEP IRA 624 624 0 *
James Kemp 4,000 4,000 0 *
</TABLE>
63
<PAGE> 66
<TABLE>
<CAPTION>
No. of Shares No. of Shares %
No. of Shares of Common of Common Stock Owner-
of Common Stock Stock Offered Beneficially ship
Name of Selling Beneficially Owned By This Owned After
Security Holder as of July 26, 2000 Prospectus After Offering Offering
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kollel Alta Faige 17,400 17,400 0 *
Kollel Alta Faige, Philip
Katz and Isaac
Friedman, JT 1,500 1,500 0 *
Daniel Korshak 400 400 0 *
Lawrence Lacerte 50,000 50,000 0 *
Eddie Lee 13,920 13,920 0 *
Stanford J. Levin 20,000 20,000 0 *
Shaqqian Lu 200 200 0 *
Mary Lytle 200 200 0 *
Stewart L. Macklin 2,500 2,500 0 *
William McClure 16,000 16,000 0 *
Alakesh Mitra 10,000 10,000 0 *
Thomas Molnar 4,000 4,000 0 *
Ismael Morales 800 800 0 *
Stephen Morris 600 600 0 *
Lawrence A. Mulvaney,
Trustee 1,000 1,000 0 *
Larry Mulvaney IRA 1,500 1,500 0 *
Khalid M. Mursi 5,000 5,000 0 *
Ramanaprasad Nandigama 400 400 0 *
Nguyen Hoi 4,000 4,000 0 *
George E. Orfanos 6,000 6,000 0 *
Harry Orfanos and
Vasso Orfanos, JTWROS 500 500 0 *
Nancy Page 1,000 1,000 0 *
Paradigm Fund C., L.P. 443,090 443,090 0 *
Points Partnership 2,500 2,500 0 *
Joanne Pontarelli 400 400 0 *
Patricia Ann Richard 2,400 2,400 0 *
Phillip Rose 3,000 3,000 0 *
Robert Rosin 50,000 50,000 0 *
Tom Rosenquist 2,000 2,000 0 *
Steven Salgan 40,000 40,000 0 *
Susan Schaumberger 10,000 10,000 0 *
Mary Alice Schmidtke IRA 2,500 2,500 0 *
Mary Schmidtke 4,000 4,000 0 *
Jeffery and Julie Schlesinger
JTWROS 624 624 0 *
Oskar Schneider 12,000 12,000 0 *
Vincent G. Secontine
Revocable Living Trust 2,000 2,000 0 *
Ralph Sesso IRA 2,500 2,500 0 *
Jitendra Shah and Neha
Shah, JTWROS 2,200 2,200 0 *
Sami Sheeshia 600 600 0 *
</TABLE>
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<PAGE> 67
<TABLE>
<CAPTION>
No. of Shares No. of Shares %
No. of Shares of Common of Common Stock Owner-
of Common Stock Stock Offered Beneficially ship
Name of Selling Beneficially Owned By This Owned After
Security Holder as of July 26, 2000 Prospectus After Offering Offering
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Geoffrey M. Shotton 10,000 10,000 0 *
Hardayal Singh 400 400 0 *
Mark Slezak 10,000 10,000 0 *
Martin Straus and
Mercedes Straus, TIE 10,000 10,000 0 *
Erik Surono 280 280 0 *
Erica Swerdlow and
Brian Swerdlow 3,000 3,000 0 *
Kenneth Swiggart 2,500 2,500 0 *
Peter G. Szinte 24,000 24,000 0 *
Phillip Tallman 2,000 2,000 0 *
Isaac Teitelbaum 20,000 20,000 0 *
Stanford F. Terry and
Ruth A. Terry, JTWROS 2,000 2,000 0 *
Michelle L. Tiburzi 5,000 5,000 0 *
Kyaw Myo Tin 2,000 2,000 0 *
Erik Travelstea 2,000 2,000 0 *
Donna Mae Turrentle 624 624 0 *
Mario Valente 4,000 4,000 0 *
Mario Valente and
Guiseppe Valente,
JTWROS 4,000 4,000 0 *
Vijay Vemuri 400 400 0 *
Anthony R. Verrecchia 1,200 1,200 0 *
Ed Wodziak Jr. 1,000 1,000 0 *
Mali H. Wu 2,000 2,000 0 *
Eugene Young 2,000 2,000 0 *
Farhad Zaghi 120,000 120,000 0 *
Total 1,833,760
</TABLE>
----------
* represents less than 1%
In the preceding table:
- Beneficial ownership is determined in compliance with the rules of the SEC and
generally includes voting or investment power with respect to securities and
includes any securities which the person has the right to acquire within 60 days
of July 5, 2000 through the conversion or exercise of any security or other
right.
- Mr. Joseph A. Rosin is the controlling person of Amity Enterprises.
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<PAGE> 68
- The information concerning Mr. Bear assumes the exercise of a warrant to
purchase 2,000 shares of our common stock at $2.50 per share.
- The total for Mr. Blumenfield does not include options to purchase 15,000
shares of our common stock at $10.00 per share, vesting 5,000 options on the
first, second and third anniversary date of the date of grant, awarded to him in
September 1999 as compensation for his service as an outside director.
- The information concerting Mr. Flink assumes the exercise of an outstanding
warrant to purchase 21,600 shares of our common stock at $2.50 per share.
- Congregation of Hakoil Koil Yakov is a not-for-profit entity which is
controlled by Mrs. Gitta Brull.
- HF Trust is a trust of which Mr. Gregory Halpern, one of our executive
officers and a member of our board of directors, is trustee. Because HF Trust is
an affiliate of ours, the number of shares it may sell during any three month
period will be subject to the volume limitations of Rule 144 of Securities Act
- Mr. James Kokenis is the beneficial owner of Delta Energy Corp.
- Mr. Stewart Flink is the beneficial owner of Dillion Capital LLC.
- Mr. John Fox is the controlling person of JRF Investments II, Ltd., JRF
Investments III, Ltd. and JRF Investments IV, Ltd.
- The information concerning Mr. Jay Kaufman assumes the exercise of an
outstanding warrant to purchase 7,800 shares of our common stock at $2.50 per
share.
- Kollel Alta Faige is a not-for-profit entity which is controlled by Jay
Kaufman and Isaac Friedman.
- The information concerning Mr. Lee assumes the exercise of a warrant to
purchase 13,920 shares of our common stock exercisable at $2.50 per share.
- The information concerning Mr. Levin assumes the exercise of a warrant to
purchase 20,000 shares of our common stock exercisable at $2.50 per share.
- Messrs. Sheldon Drobny, Ruben Rosenberg and Aaron J. Fischer are the general
partners of Paradigm Fund C., L.P. The number of shares of common stock
beneficially owned includes warrants exercisable at $2.50 per share to purchase
123,860 shares of our common stock. The common stock underlying these warrants
is being registered for resale under this prospectus.
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<PAGE> 69
- Messrs. Richard M. Finger and Timothy M. Finger are the general partners
Points Partnership.
- The number of shares of common stock beneficially owned by Ms. Schmidtke
includes warrants exercisable at $2.50 per share to purchase 2,000 shares of our
common stock. The common stock underlying these warrants is being registered for
resale under this prospectus.
- Mr. and Mrs. Swerdlow are the principals of EBS Public Relations, Inc. In
March 1999, we entered into a one year agreement with EBS Public Relations, Inc.
to provide public relations services to us and under the agreement agreed to
issue to EBS Public Relations, Inc. 500 shares of our common stock per month as
compensation for its services. In addition, we agreed pay out-of-pocket expenses
including overnight mails, postage, phone changes, photocopies, travel, etc. The
agreement was terminated on December 1999. EBS Public Relations, Inc. has
requested that the stock be issued directly to Mr. and Mrs. Swerdlow. The number
of shares of common stock shown as beneficially owned reflects the payments to
date.
- The number of shares of common stock beneficially owned by Mr. Szinte includes
warrants exercisable at $2.50 per share to purchase 4,000 shares of our common
stock. The common stock underlying these warrants is being registered for resale
under this prospectus.
- The number of shares of common stock beneficially owned by Mr. Valente
includes warrants exercisable at $2.50 per share to purchase 2,000 shares of our
common stock. The common stock underlying these warrants is being registered for
resale under this prospectus.
- The number of shares of common stock beneficially owned by Mr. Zaghi includes
warrants exercisable at $2.50 per share to purchase 20,000 shares of our common
stock. The common stock underlying these warrants is being registered for resale
under this prospectus.
PLAN OF DISTRIBUTION
There is currently no public market for our common stock.
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<PAGE> 70
The selling security holders have no means available to them to publicly sell
the shares of our common stock owned by them.
It is our intention to pursue a listing of our common stock on the American
Stock Exchange. We cannot predict at this time, however, if this listing will be
granted. If we do not obtain a listing on the American Stock Exchange, we will
attempt to have our common stock included for quotation on the NASD's OTC
Bulletin Board.
If we are eventually successful in obtaining a listing of our common stock on
either the American Stock Exchange or the OTC Bulletin Board, the shares of our
common stock offered by this prospectus may be then sold from time to time by
the selling security holders, who consist of the persons named under "Selling
Security Holders" above and those persons' pledgees, donees, transferees or
other successors in interest. The selling security holders may sell the shares
on the exchange on which our common stock is then listed or otherwise, at market
prices or at negotiated prices. They may sell the shares of common stock by one
or a combination of the following:
- a block trade in which a broker or dealer so engaged will attempt to
sell the shares as agent, but may position and resell a portion of
the block as principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by the
broker or dealer for its account under this prospectus;
- ordinary brokerage transactions and transactions in which a broker
solicits purchasers;
- an exchange distribution in compliance with the rules of the
exchange;
- privately negotiated transactions;
- short sales;
- if a sale qualifies, in compliance with Rule 144 of the Securities
Act rather than under this prospectus; and
- any other method permitted by applicable law.
From time to time, one or more of the selling security holders may pledge,
hypothecate or grant a security interest in some or all of the shares of common
stock owned by them, and the pledgees, secured parties or persons to whom the
shares have been hypothecated shall, upon foreclosure in the event of default,
be deemed to be selling security holders under this prospectus. The number of
selling security holders' shares of common stock beneficially owned by those
selling security holders who transfer, pledge, donate or assign the shares will
decrease when they take that action. The plan of distribution for selling
security holders' shares of common stock sold under this prospectus will
otherwise remain unchanged, except that the transferees, pledgees, donees or
other successors will be selling security holders under this prospectus.
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<PAGE> 71
A selling security holder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the common
stock in the course of hedging the positions they assume with the selling
security holder, including in connection with distributions of the common stock
by broker-dealers. A selling security holder may also enter into option or other
transactions with broker-dealers that involve the delivery of the shares of
common stock to the broker-dealers, who may then resell or otherwise transfer
the shares. A selling security holder may also loan or pledge the shares of
common stock to a broker-dealer and the broker-dealer may sell the shares which
were loaned to the broker-dealer or upon a default may sell or otherwise
transfer the pledged shares of common stock.
Brokers, dealers, underwriters or agents participating in the distribution of
the shares of common stock as agents may receive compensation in the form of
commissions, discounts or concessions from the selling security holders and/or
purchasers of the common stock for whom broker-dealers may act as agent, or to
whom they may sell as principal, or both. The compensation as to a particular
broker-dealer may be less than or in excess of customary commissions. The
selling security holders and any broker-dealers who act in connection with the
sale of the shares of common stock under this prospectus may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commission they
receive and proceeds of any sale of the shares of common stock may be deemed to
be underwriting discounts and commissions under the Securities Act. Neither we
nor any selling security holder can estimate the amount of compensation. CGI
Capital will not participate in any way in the distribution of the shares of
common stock offered by this prospectus. We know of no existing arrangements
between any selling security holder, any other stockholder, broker, dealer,
underwriter or agent relating to the sale or distribution of the shares of
common stock included in this prospectus.
We will pay substantially all of the expenses incident to the registration,
offering and sale of the shares of common stock included in this prospectus to
the public, which includes our legal, accounting and printing expenses. We will
not pay commissions or discounts of underwriters, broker-dealers or agents, or
any other costs incurred by the selling security holders.
We have advised the selling security holders that during the time as they may be
engaged in a distribution of the shares of common stock included in this
prospectus they are required to comply with Regulation M adopted under the
Securities Exchange Act. With some exceptions, Regulation M precludes any
selling security holder, any affiliated purchasers, and any broker-dealers or
other person who participates in the distribution from bidding for or
purchasing, or attempting to induce any person to bid for or purchase any
security which is the subject of the distribution until the entire distribution
is complete. Regulation M also prohibits any bids or purchases made to stabilize
the price of a security in connection with the distribution of that security.
All of the factors may affect the marketability of the shares of our common
stock.
69
<PAGE> 72
While we do not anticipate that we will ever become an investment company under
the Investment Company Act during the course of this offering, if this should
happen our status as a small business issuer under the rules and regulations of
the SEC would immediately terminate. The result of this would be that this
prospectus would immediately become unavailable for this offering and the
selling shareholders would be required to immediately discontinue the sale of
any shares of our common stock which are made in reliance on this prospectus. In
order for the selling shareholders to continue to sell their shares of our
common stock, we would first be required to file either a post-effective
amendment or a registration statement on the appropriate investment company form
that would need to be declared effective by the SEC before the offering could be
resumed.
DESCRIPTION OF SECURITIES
Our authorized capitalization consists of 50,000,000 shares of common stock,
$.00005 par value per share, of which 9,894,680 shares are issued and
outstanding as of July 26, 2000. We have no other classes of securities
authorized.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share held of
record. There are no cumulative voting rights. Each holder of our common stock
is also entitled to receive ratably dividends, if any, as may be declared by the
board of directors out of funds legally available for the payment of dividends.
We have never paid any dividends on our common stock, and we do not anticipate
declaring or paying dividends in the foreseeable future. It is anticipated that
any earnings which may be generated from our operations will be used to finance
our growth.
The holders of our common stock are also entitled to share ratably in any
distribution of our assets after payment of all debts and liabilities. All of
the outstanding shares of common stock are fully paid and non-assessable. There
are no preemptive rights, conversion rights, redemption provisions or sinking
fund provisions with respect to our shares of common stock.
OPTIONS AND WARRANTS
As of the date of this prospectus, we have outstanding options under our 1999
Stock Option Plan to acquire an aggregate of 1,497,000 shares of the common
stock.
We also have outstanding warrants to purchase an aggregate of 227,180 shares of
our common stock, exercisable at $2.50 per share, which are exercisable until
March 2002 which were issued by us in March 1999 to consultants who rendered
various services to us. The services provided to us by these consultants
included general business matters, investments, real estate, business
development, acquisitions, marketing and
70
<PAGE> 73
market research, international business, vehicle brokerage, transportation, and
banking and financial matters. There are 11 holders of these warrants. The
warrants may be exercised from time to time by the holders until their
expiration date, and may be transferred at the discretion of the holders. The
warrants also contain customary anti-dilution provisions in the event that we
declare a stock split or stock dividend or that we otherwise recapitalize Circle
Group Internet.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this prospectus, an aggregate of 7,045,148 outstanding shares
of our common stock, including the remaining 6,247,000 shares owned or
controlled by Gregory J. Halpern which are not registered for resale under this
prospectus, are restricted securities within the meaning of the federal
securities laws, and in the future may be sold in compliance with Rule 144
adopted under the Securities Act, assuming a public market exists for the
securities, of which there are no assurances. The 247,000 shares of our common
stock owned of record by a trust controlled by Mr. Gregory Halpern which are
registered for resale under this prospectus must also be resold in compliance
with Rule 144, even though the shares are registered, because Mr. Halpern is our
affiliate. Rule 144 provides in part that a person who is not our affiliate and
who holds restricted securities for a period of one year may sell all or part of
the securities in ordinary brokerage transactions, in compliance with volume
limitations and the availability of current public information on Circle Group
Internet.
Assuming a public market should develop for our common stock, of which there can
be no assurance, our shareholders are not contractually prohibited from selling
any of their shares of common stock, if and when sales opportunities arise
consistent with the provisions of Rule 144. We cannot predict the effect, if
any, that any sales of common stock, or the availability of common stock for
sale, may have on the market value of our common stock prevailing from time to
time. Sales of substantial amounts of common stock by shareholders, particularly
if they are our affiliates, could have a material adverse effect upon the market
value of our common stock.
TRANSFER AGENT
Our transfer agent is American Stock Transfer & Trust Co., 40 Wall Street, New
York, New York 10005.
LEGAL MATTERS
Legal matters in connection with this registration statement will be passed upon
for us by Atlas Pearlman, P.A., 350 East Las Olas Boulevard, Suite 1700, Fort
Lauderdale, Florida 33301.
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<PAGE> 74
EXPERTS
Our audited financial statements as of December 31, 1999 and 1998, and for the
fiscal years then ended, included in this prospectus have been audited by Harold
Y. Spector, independent certified public accountant, as indicated in his
reports. These financial statements are included in this prospectus in reliance
upon the authority of Mr. Spector as an expert in accounting and auditing.
72
<PAGE> 75
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
CONSOLIDATED BALANCE SHEETS .................................................F-1
CONSOLIDATED STATEMENTS OF OPERATIONS .......................................F-3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY ..................F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS .......................................F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ..................................F-7
</TABLE>
<PAGE> 76
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2000 (Unaudited) and December 31, 1999 (Audited)
ASSETS
June 30, December 31,
2000 1999
------------ ------------
Current Assets
Cash $ 5,378,838 $ 8,820,024
Restricted Cash - Certificate of
Deposit 0 1,076,773
Accounts Receivable 247,264 87,942
Commission Receivable 130,300 0
Interest Receivable 0 30,000
Employee Loans and Advances 74,457 68,231
Notes Receivable, net of allowance for
loan losses of $405,000 and $1,888,636
in 2000 and 1999; and net of unamortized
Loan Origination Fee of $0 and $116,364
in 2000 and 1999 0 0
Prepaid Expenses, including
refundable income taxes 801,643 14,219
Inventory 38,667 14,418
------------ ------------
Total Current Assets 6,671,169 10,111,607
Property & Equipment 1,310,269 1,194,682
Less: Accumulated Depreciation (310,938) (200,595)
------------ ------------
Total Property and Equipment 999,331 994,087
------------ ------------
Other Assets
Investments - Stock for Services 5,019,578 6,099,578
Investments - Other 1,689,572 500,000
Certificate of Deposit 0 300,000
Deposit and Others 43,695 44,474
Goodwill, net of accumulated
amortization of $1,608 30,016 31,088
------------ ------------
Total Other Assets 6,782,861 6,975,140
------------ ------------
TOTAL ASSETS $ 14,453,361 $ 18,080,834
============ ============
See Accompanying Notes
F-1
<PAGE> 77
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2000(Unaudited) and December 31, 1999(Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2000 1999
------------ ------------
Current Liabilities
Accounts Payable $ 279,513 $ 120,524
Accrued Expenses 1,627 8,741
Deferred Revenue 5,209,150 6,099,578
Line of Credit 0 800,000
Note Payable - Stockholder 0 57,429
------------ ------------
Total Current Liabilities 5,490,290 7,086,272
------------ ------------
Long-Term Liabilities 0 0
------------ ------------
Total Liabilities 5,490,290 7,086,272
------------ ------------
Stockholders' Equity
Common Stock, $.00005 par value;
50,000,000 shares authorized; 9,894,680
shares issued at June 30, 2000 and
9,873,680 shares issued and outstanding at
December 31, 1999 495 493
Paid-in Capital 18,096,412 17,886,414
Treasury Stock, 2000 shares at cost (11,269) 0
Accumulated Deficit (9,121,887) (6,891,665)
------------ ------------
8,963,751 10,995,242
Minority Interest (Deficiency) (680) (680)
------------ ------------
Total Stockholders' Equity 8,963,071 10,994,562
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 14,453,361 $ 18,080,834
============ ============
See Accompanying Notes
F-2
<PAGE> 78
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For The Three and Six Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 420,823 $ 486,592 $ 868,926 $ 708,794
Cost of Sales 576,955 279,837 1,248,904 435,109
----------- ----------- ----------- -----------
Gross Profit (Deficit) (156,132) 206,755 (379,978) 273,685
Operating Expenses 784,097 652,519 2,019,253 802,731
----------- ----------- ----------- -----------
Loss from Operations (940,229) (445,764) (2,399,231) (529,046)
----------- ----------- ----------- -----------
Other Income (Expenses)
Interest Income 76,356 50,949 192,747 75,090
Interest Expense (11,738) 0 (25,997) 0
Other Income 0 0 2,259 0
----------- ----------- ----------- -----------
Total Other Income (Expenses) 64,618 50,949 169,009 75,090
----------- ----------- ----------- -----------
Loss Before Taxes (875,611) (394,815) (2,230,222) (453,956)
Provision for Income Taxes 0 0 0 0
----------- ----------- ----------- -----------
Net Loss $ (875,611) $ (394,815) $(2,230,222) $ (453,956)
=========== =========== =========== ===========
Loss per share-Basic $ (0.09) $ (0.046) $ (0.23) $ (0.054)
=========== =========== =========== ===========
Weighted Average Number of Shares
Outstanding 9,894,680 8,502,580 9,884,180 8,388,680
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes
F-3
<PAGE> 79
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
For Six Months Ended June 30, 2000
<TABLE>
<CAPTION>
Common Stock
-------------------- Paid-in Accumulated Treasury Minority
Shares Amount Capital Deficit Stock Interest Total
--------- -------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 12/31/99,
As restated 9,873,680 $ 493 $ 17,886,414 $ (6,891,665) $ 0 $ (680) $ 10,994,562
Stock Issued for
Signing Bonus 21,000 2 209,998 210,000
Acquisition of
2000 Shares of Stock (11,269) (11,269)
Net Loss for the
Period (2,230,222) (2,230,222)
------------ ------------
Balance at 6/30/00 9,894,680 $ 495 $ 18,096,412 $ (9,121,887) $ (11,269) $ (680) $ 8,963,071
========= ======== ============ ============ ============ ============ ============
</TABLE>
See Accompanying Notes
F-4
<PAGE> 80
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For Six Months Ended June 30, 2000 and 1999
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (2,230,222) $ (453,956)
Adjustments to reconcile net loss to
net cash (used) by operating activities:
Depreciation and Amortization 114,453 13,022
Amortization of Loan Origination Fee (116,364) 0
Provision for Loan Losses 516,364 0
Stock for Signing Bonus 210,000 295,000
Other Income for Accumulated
Depreciation Adjustment (2,259) 0
(Increase) Decrease in:
Accounts Receivable (159,322) (203,184)
Interest Receivable 30,000 0
Commission Receivable (130,300) 0
Inventory (24,249) (43,564)
Prepaid and Others (787,424) (72,658)
Investments - Stock for Services 1,080,000 (1,452,000)
Increase (Decrease) in:
Accounts Payable 158,989 110,926
Accrued Expenses (7,114) (356)
Deferred Revenue (1,080,000) 1,452,000
Income Tax Payable 0 (5,995)
------------ ------------
Net cash (used) by operating activities (2,427,448) (360,765)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Employee Loan and Advance (17,495) 0
Purchase of Property and Equipment (115,587) (117,374)
Increase in Notes Receivable (400,000) 0
Purchase of Investments (1,000,000) 0
Restricted Cash - Certificate of
Deposit 1,076,773 (1,050,000)
------------ ------------
Net cash (used) by investing activities (456,309) (1,167,374)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Sales of Stock 0 11,565,430
Dividend Paid 0 (20,000)
Payments to Line of Credit (500,000) 0
Proceeds from (Payments to) Shareholders (57,429) 80,018
------------ ------------
Net cash provided (used) by financing
Activities (557,429) 11,625,448
------------ ------------
See Accompanying Notes
F-5
<PAGE> 81
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For Six Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH (3,441,186) 10,097,309
CASH BALANCE AT BEGINNING OF PERIOD 8,820,024 1,068,293
----------- -----------
CASH BALANCE AT END OF PERIOD $ 5,378,838 $11,165,602
=========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest $ 29,771 $ 0
=========== ===========
Cash paid for income taxes $ 793,594 $ 8,143
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
In 2000,
--------
Issuance of stock for signing bonuses $ 210,000
===========
Treasury stock received as repayment of an employee loan $ 11,269
===========
Receipt of Warrants for deferred commission income $ 189,572
===========
In 1999,
--------
Acquisition of business from a related party in stock $ 1,000,000
===========
Dividend incurred for the excess of cost over the net
Assets acquired $ 999,046
===========
Issuance of stock for signing bonuses $ 295,000
===========
</TABLE>
See Accompanying Notes
F-6
<PAGE> 82
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation of Interim Information
In the opinion of the management of Circle Group Internet, Inc. and subsidiaries
(the Company), the accompanying unaudited consolidated financial statements
include all normal adjustments considered necessary to present fairly the
financial position as of June 30, 2000, and the results of operations for the
three and six months ended June 30, 2000 and 1999, and cash flows for the six
months ended June 30, 2000 and 1999. Interim results are not necessarily
indicative of results for a full year.
Principle of Consolidation and Presentation
The accompanying condensed consolidated financial statements include the
accounts of Circle Group Internet, Inc. and its subsidiaries, On-Line Bedding
Corporation, PPI Capital Corp., and CGI Capital, Inc. (FKA CGI Securities,
Inc.), after elimination of all inter-company accounts and transactions. The
acquisition of On-Line Bedding Corporation was accounted for as a combination of
entities under common control in a manner similar to that of a pooling of
interests with the excess cost over the net assets acquired treated as a
dividend. The acquisition of PPI Capital Corp. from the principal shareholder
was accounted for as a dividend. The historical costs of both companies' assets
and liabilities were combined and became the recorded amounts of the Company's
assets and liabilities. The consolidated company has reported its operations for
1999 as if the combinations occurred at the beginning of the year. The
acquisition of CGI Capital, Inc. was accounted for as a purchase. Under the
purchase method, the accompanying condensed consolidated statements and cash
flows include only the subsidiaries results since the date of acquisition, July
1, 1999.
Use of Estimate
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
Concentrations of Cash
The Company places its cash and cash equivalents with high quality financial
institutions. At times, cash balances may be in excess of the FDIC insurance
limit. Management considers the risk to be minimal.
F-7
<PAGE> 83
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
Revenue from sales of products is recognized when the products are shipped.
Revenues from web design services are recognized when the services are complete.
Non-marketable equity securities received in lieu of cash for business
consulting services are recorded in the deferred revenue account at estimated
value when received. Revenue from these contracts will be recognized over the
life of the contract when it has been determined that there are no major
uncertainties regarding the realizability of converting these equity securities
to cash. This generally occurs after the client has completed a public offering
or is acquired by a publicly traded company. Cash revenues received in advance
from business consulting contracts are deferred and recognized over the life of
the contract.
Accounts Receivable
The Company believes that substantially all receivables are collectible and has
not established an allowance for doubtful accounts.
Notes Receivable and Allowance for Loan Losses
Notes Receivable are stated at unpaid principal balances, less the allowance for
loan losses and net of deferred loan origination fees. Interest on notes is
recognized over the term of the loan and is calculated using the simple-interest
method on principal amounts outstanding. The accrual of interest on notes is
reserved when, in the opinion of management, there is an indication that the
borrower may be unable to meet payments as they become due.
Loan Origination Fees are capitalized and recognized as an adjustment of the
yield on the related loan using the straight-line method over the loan term.
The allowance for loan losses is maintained at a level, which in management's
judgment is adequate to absorb potential losses. Management determines the
adequacy of the allowance based upon reviews of business conditions, current
economic conditions, the progress of the clients' private placements and other
pertinent factors. Loan losses are charged to the allowance. Provisions for loan
losses and recoveries of amounts previously charged off are added to the
allowance.
Inventories
Inventories consist of finished goods and are stated at the lower of cost or
market, using the first-in, first-out method.
F-8
<PAGE> 84
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
Property and Equipment is stated at cost. Maintenance and repair costs are
expensed as incurred. Depreciation is calculated on the accelerated and
straight-line methods over the estimated useful lives of the assets. Total
depreciation expense for three months ended June 30, 2000 and 1999 was $57,086
and $7,346, respectively. Total depreciation expense for six months ended June
30, 2000 and 1999 was $112,602 and $13,022, respectively.
Valuation - Stock Received for Services
The Company accepts common stock for its business-to-business consulting
services. At the date stock is received the Company values the stock as follows:
a) Common stock accepted in a transaction from a client company where
there has been no prior public offering, but whose shares have been
offered and sold in a significant private placement within the last 90
days, is valued based upon the last sale price of shares in the
private placement and is deferred.
b) Common stock accepted in a transaction from a client company where
there has been no public or significant private placement offering, is
deferred and valued after considering the following criteria: market
multiples analysis; acquisition multiples analysis; calculation of
market capitalization based on the contemplated private placement sale
price; realization of business plan objectives and management team
expertise and ability to execute the business plan
Investments
The Company accounts for investments in stock accepted for services and other
investments under the cost method. Non-marketable equity securities are recorded
at estimated value. The value of the non-marketable equity securities is
estimated at the date of receipt. Management regularly reviews the operating
performance and the assumptions underlying the cash flow forecasts to assess the
carrying values for these investments. The carrying value of these investments
are written down to reflect realizable value when events and circumstances
indicate declines are other than temporary.
Goodwill
The cost in excess of net assets acquired of a subsidiary is capitalized as
goodwill and is being amortized on a straight-line basis over a 180- month
period.
F-9
<PAGE> 85
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.
Income Taxes
Income taxes have been provided using the liability method in accordance with
Financial Accounting Standards Board Statement No. 109. "Accounting For Income
Taxes". SFAS No. 109 requires a company to recognize deferred tax liabilities
and assets for the expected future income tax consequences of events that have
been recognized in the Company's financial statements. Under this method,
deferred tax assets and liabilities are determined based on temporary
differences between the financial carrying amounts and the tax bases of assets
and liabilities using the enacted tax rates in effect in the years in which the
temporary differences are expected to reverse.
NOTE 2 - INVESTMENTS - STOCKS FOR SERVICES
As of June 30, 2000 and 1999, investments in stock received for services totaled
$5,019,578 and $1,452,000, respectively. No revenue was recognized in either
period. In 2000, the Company reduced deferred revenue by $1,080,000 to recognize
a loss on investment that management determined to be other than temporary.
<TABLE>
<CAPTION>
No. of Revenue
Valuation shares Estimated Valuation Earned in Deferred
Date Entity Received Value Method 2000 Revenue
---- ------ -------- ----- ------ ---- -------
<S> <C> <C> <C> <C> <C> <C>
4/23/99 Company I 272,000 $ 272,000 b $ 0 $ 272,000
5/7/99 Company II 200,000 1,000,000 a 0 1,000,000
5/28/99 Company III 90,000 180,000 a 0 180,000
9/15/99 Company IV 160,000 640,000 b 0 640,000
11/8/99 Company V 340,000 1,360,000 a 0 1,360,000
11/12/99 Company VI 400,000 120,000 b 0 120,000
11/10/99 Company VII 210,526 631,578 b 0 631,578
12/29/99 Company IX 272,000 816,000 b 0 816,000
----------- ------- ----------
Total $ 5,019,578 $ 0 $5,019,578
=========== ======= ==========
</TABLE>
F-10
<PAGE> 86
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - INVESTMENTS - STOCKS FOR SERVICES (Continued)
a) Common stock accepted in a transaction from a client company where
there has been no prior public offering, but whose shares have been
offered and sold in a significant private placement within the last 90
days, is valued based upon the last sale price of shares in the private
placement and is deferred.
b) Common stock accepted in a transaction from a client company where
there has been no public or significant private placement offering, is
deferred and valued after considering the following criteria: market
multiples analysis; acquisition multiples analysis; calculation of
market capitalization based on the contemplated private placement sale
price; realization of business plan objectives and management team
expertise and ability to execute the business plan
NOTE 3 - OTHER INVESTMENTS
As of June 30, 2000, other investments at estimated fair values consist of the
following:
Preferred Stock(A) $ 500,000
Equity Securities(B) 1,000,000
Warrants(C) 189,572
Other(D) 0
-----------
$ 1,689,572
===========
(A) The Company has an unregistered Series A 8% Cumulative Convertible Preferred
Stock. The security carries demand and piggyback registration rights as of
October 15, 1999. As of June 30, 2000, the fair value of the security was
$812,500 on a converted basis.
(B) On May 16, 2000, CGI purchased 333,333 shares of the common stock of another
client company in a private placement at $3.00 per share.
(C) In June 2000, CGI also received 63,190 warrants from this client for the
commission earned which will not be recognized until management determines that
there are no major uncertainties regarding the realizability of converting the
underlying equity security to cash. The warrants were valued at $3.00 per share
and expire in five years.
(D) As discussed in Note 6, CGI converted a client's note receivable and unpaid
interest of $2,114,667 into 528,667 shares of the client's stock. (See Note 6)
NOTE 4 - MINORITY INTEREST
The deficit in minority interest shown in the accompanying consolidated balance
sheets primarily represents the minority stockholder's share of losses of PPI
Capital, Inc. in excess of its investments and advances since acquired. The
minority deficiency is expected to be restored through allocations of future
income and disposition of the subsidiary.
F-11
<PAGE> 87
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - RESTRICTED CASH
Restricted cash represents the encumbered portion of a certificate of deposit
set aside for securing a line of credit (See Note 8). The certificate of deposit
was closed in June 2000.
NOTE 6 - NOTES RECEIVABLE
As of June 30, 2000, CGI Capital, Inc. (CGI) had notes receivable of $0, net of
allowance for loan loss of $405,000. CGI exchanged cash for the notes
receivable. No future performance is required by either party to the notes.
Since all notes receivable are reserved for losses, all currently accrued
interest is fully reserved. If interest on these notes had been accrued at their
original rates, such income would have approximated $124,100 for six months
ended June 30, 2000.
The first note, in the amount of $5,000, is due upon the raise of at least
$5,000 in proceeds by CGI in a best efforts private placement on behalf of the
client. The note is convertible at the sole option of CGI into equity of the
client company at $4 per share. The promissory note bears interest at 8% per
annum.
The second note, in the amount of $2,000,000, was due upon the earlier of the
client receiving $5 million in gross proceeds in a private placement conducted
by CGI or April 30, 2000. The loan accrued interest at 12% per annum, payable in
cash or in shares of the client's common stock. The note was convertible into
the client's common stock at $4 per share. The note was secured by the client's
unencumbered assets and a first mortgage on two real properties located in
Michigan. In April 2000, the Company converted the note and unpaid interest of
$2,1114,667 into 528,667 shares of the client's common stock. The Company also
recognized a $160,000 loan origination fee.
The third note, in the amount of $100,000 is due upon the earlier of the client
receiving $100,000 in gross proceeds in a private placement conducted by CGI or
April 30, 2000. The loan bears interest at 10% per annum, payable in cash or in
shares of the client's common stock. The note is convertible into the client's
common stock at $4 per share. CGI extended the maturity date to July 31, 2000.
The fourth note, in the amount of $100,000 is due upon the earlier of the client
receiving $100,000 in gross proceeds in a private placement conducted by CGI or
April 30, 2000. The loan bears interest at 10% per annum, payable in cash or in
shares of the client's common stock. The note is convertible into the client's
common stock at $3 per share. The note went into default on April 30, 2000.
Demand for payment has been made.
F-12
<PAGE> 88
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - NOTES RECEIVABLE (Continued)
The fifth note, in the amount of $200,000 is due upon the earlier of the client
receiving $200,000 in gross proceeds in a private placement conducted by CGI or
May 30, 2000. The loan bears interest at 10% per annum, payable in cash or in
shares of the client's common stock. The note is convertible into the client's
common stock at $4 per share. CGI extended the maturity date to August 31, 2000.
An analysis of the changes in the allowance for loan losses follows:
Balance, beginning of the period $1,888,636
Provision, charged to operations 516,364
Loans converted to common stock-
(See Note 3) (2,000,000)
Recoveries 0
----------
Balance at June 30, 2000 $ 405,000
==========
NOTE 7 - NOTE PAYABLE - SHAREHOLDER
As of June 30, 1999, On-Line Bedding had a note payable to the President of
On-Line Bedding in the amount of $80,018. The note was paid in full at June 5,
2000.
NOTE 8 - LINE OF CREDIT
The Company had a line of credit with a bank in the amount of $1,000,000. The
line carried a variable rate of interest (7.09% at June 30, 2000), matured on
June 15, 2000 and required monthly interest payments. The line of credit was
closed and the certificate of deposit unencumbered as of June 11, 2000.
NOTE 9 - PROVISION FOR INCOME TAXES
There was no provision for income tax for three and six months ended June 30,
2000 and 1999. Due to net operating losses and the uncertainty of realization,
no tax benefit has been recognized for operating losses.
At December 31, 1999, net federal operating losses of approximately $5.7 million
are available for carryforward against future years' taxable income and expire
in 2020. The Company's ability to utilize its federal net operating loss
carryforwards is uncertain and thus a valuation reserve has been provided
against the Company's net deferred tax assets.
F-13
<PAGE> 89
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 - PROVISION FOR INCOME TAXES (Continued)
The deferred net tax assets consist of the following at June 30:
2000 1999
----------- ---------
Net Federal Operating Loss
Carryforwards $ 2,701,596 $ 154,345
To recognize taxable deferred
revenue (1,706,657) 0
Valuation Allowance (994,939) (154,345)
----------- ---------
Net deferred tax assets $ 0 $ 0
=========== =========
NOTE 10 - STOCK OPTIONS AND WARRANTS
Stock Options Granted to Employees
The Company established a Stock Option Plan (the Plan) effective January 2, 1999
which provides for the issuance of qualified options to all employees and
non-qualified options to consultants and other service providers. The Company
amended the Plan and reserved 2,000,000 shares of common stock for issuance
under the amended Plan. During the six months ended June 30, 2000 and 1999, the
Company has granted 1,212,500 and 214,000 shares of options, respectively, under
the Plan. As of that dates, there was 1,513,500 and 214,000 outstanding options,
respectively. The range of exercise price was from $2.50 to $11.00. The options
may be exercised no later than three years from the date of issuance. The
weighted average fair value of options granted by the Company as of June 30,
2000 and 1999 was $10.00 and $3.60, respectively. None of these options have
been exercised to date.
A summary of the status of stock options issued by the Company as of June 30,
2000 and 1999, is presented in the following table.
<TABLE>
<CAPTION>
2000 1999
------------------------- --------------------------
Weighted Weighted
Average Average
Exercise Exercise
Number of Price Number of Price
Shares Per Share Shares Per Share
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of
Period 312,000 $ 6.13 0 $ --
Granted 1,212,500 10.16 214,000 3.60
Exercised 0 -- 0 --
Cancelled (11,000) 10.00 0 --
--------- ------ ------- -----
Outstanding at end of period 1,513,500 $ 9.33 214,000 $3.60
========= ====== ======= =====
Exercisable at end of period 1,513,500 $ 9.33 214,000 $3.60
========= ====== ======= =====
</TABLE>
F-14
<PAGE> 90
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
The following table sets forth additional information about stock options
outstanding at June 30, 2000:
<TABLE>
<CAPTION>
Range of Number Weighted Weighted Number
Exercise Outstanding Average Average Exercisable
Prices as of Remaining Exercise as of
-------- June 30,2000 Contractual Price June 30,2000
------------ Life --------- ------------
-----------
<S> <C> <C> <C> <C>
$ 2.50 161,000 1.57 years $ 2.50 161,000
$10.00 1,152,500 2.56 years $10.00 1,152,500
$11.00 200,000 2.67 years $11.00 200,000
--------- ---- ------ ---------
1,513,500 2.47 years $ 9.33 1,513,500
========= ==== ====== =========
</TABLE>
The Company accounts for equity-based instruments issued or granted to employees
using the intrinsic method as prescribed under APB No. 25 Accounting for Stock
Issued to Employees.
During 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), which defines a fair value based method of
accounting for stock options or similar equity instruments. The Company has
elected to adopt the disclosure-only provisions of SFAS 123 in accounting for
employee stock options. Accordingly, the Company has elected to account for its
stock-based compensation plan under APB Opinion No. 25 an accounting standard
under which no related compensation was recognized in 2000 or 1999, the year of
the grant; however the Company has computed for pro forma disclosure purposes,
the value of all options granted during the six months period ended June 30,
2000 and 1999 using the Black-Scholes option pricing model as prescribed by SFAS
No. 123 and the weighted average assumptions as follows.
June 30,
------------------
2000 1999
---- ----
Weighted average fair value per option granted $10.00 $ 3.60
Risk-free interest rate 6.00% 6.00%
Expected dividend yield 0.00% 0.00%
Expected Lives 2.47 2.67
Expected volatility 0.00 0.00
For purposes of pro forma disclosures, the estimated fair value of options is
amortized to expense over the options' vesting period. The Company's pro forma
information follows:
June 30,
--------------------------
2000 1999
---- ----
Net Loss as reported $(2,230,222) $(453,956)
=========== =========
Net Loss (pro forma) $(4,484,922) $(582,356)
=========== =========
Basic net loss per share as reported $(0.23) $(0.054)
=========== =========
Basic net loss per share (pro forma) $(0.45) $(0.069)
=========== =========
F-15
<PAGE> 91
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
There is no readily available trading market for the common stock of the
Company. The options to purchase the common stock have been valued at the price
at which the options were granted.
Stock Warrants Granted in Exchange for Services
During 1999, the Company granted warrants to purchase 227,180 shares of common
stock at the price of $2.50 per share in exchange for financial and operational
consulting services. These warrants will expire by March 2002.
NOTE 11 - NET LOSS PER SHARE
Net loss per share is computed based on the weighted average number of shares of
common stock outstanding during the period. Basic net loss per share for three
months ended June 30, 2000 and 1999 is $0.09 and $0.046, respectively. Basic net
loss per share for six months ended June 30, 2000 and 1999 is $0.23 and $0.054,
respectively. Net loss per share does not include options and warrants as they
would be anti-dilutive in 2000 and 1999 due to the net loss in those periods.
NOTE 12 - TREASURY STOCK
In 2000, the Company acquired 2,000 shares of stock from an employee as
repayment of an employee loan of $11,269. The treasury stock is carried at cost.
NOTE 13 - SEGMENT REPORTING
The Company organizes its business units into three reportable segments:
e-finance, business-to-business and e-tailer. The e-finance segment is a
broker-dealer that offers and sells securities in private placements. The
business-to-business segment develops distinctive websites and provides
business-to-business consulting services. The e-tailer segment is a manufacturer
and distributor of pillows, blankets, and other bedding products. The Company
also has a shell subsidiary, which does not meet the quantitative thresholds for
reportable segments.
The Company's management reviews the operating companies income to evaluate
segment performance and allocate resources. Operating companies income for the
reportable segments excludes income taxes, minority interest and amortization of
goodwill. Provision for income taxes is centrally managed at the corporate level
and, accordingly, such items are not presented by segment since they are
excluded from the measure of segment profitability reviewed by the Company's
management. Goodwill and the related amortization are principally attributable
to the business-to- business segment. The segments' accounting policies are the
same as those described in the summary of significant accounting policies.
F-16
<PAGE> 92
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13 - SEGMENT REPORTING (Continued)
A. Reportable Segment Data were as follows:
June 30,
----------------------------
2000 1999
------------ ------------
Sales to External Customers
E-finance $ 223,264 $ 0
Business-to-Business 52,550 211,444
E-tailer 593,112 497,350
------------ ------------
Total Sales to External Customers $ 868,926 $ 708,794
============ ============
Intersegment Revenues
E-finance $ 0 $ 0
Business-to-Business 0 0
E-tailer 0 0
------------ ------------
Total Intersegment Revenues $ 0 $ 0
============ ============
Segments' Profit and Losses:
E-finance $ (281,088) $ 0
Business-to-Business (2,079,837) (564,140)
E-tailer 131,775 110,184
------------ ------------
Total Segments' profit and losses $ (2,229,150) $ (453,956)
============ ============
Segments' Assets
E-finance $ 4,449,666 $ 0
Business-to-Business 13,963,588 13,804,312
E-tailer 468,756 430,326
------------ ------------
Total Segments' assets $ 19,071,882 $ 14,234,638
============ ============
B. Reconciliation of Segment Profit
and Loss to Consolidated Income
before Taxes: Total reportable
segments' profit and losses $ (2,229,150) $ (453,956)
Other Profit 0 0
Unallocated amounts:
Amortization of Goodwill (1,072) 0
------------ ------------
Consolidated Income before income
taxes $ (2,230,222) $ (453,956)
============ ============
NOTE 14 - LEASE COMMITMENTS
The Company leases its office facilities for $10,095 per month. Rental increases
occur every three months for the first year. Thereafter the monthly rental is
$11,555. Taxes, insurance and maintenance shall be billed when due.
F-17
<PAGE> 93
CIRCLE GROUP INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 14 - LEASE COMMITMENTS (Continued)
As of June 30, 2000, the minimum commitments under these leases are as follows:
December 31, Amount
------------ --------
2000 $ 60,570
2001 143,410
2002 142,560
2003 142,560
2004 92,440
--------
Total $581,540
========
Rent expense for three months ended June 30, 2000 and 1999 was $50,105 and
$7,215, respectively.
NOTE 15 - PRIVATE PLACEMENTS SUBJECT TO RESCISSION
The staff of the enforcement division of the Securities and Exchange Commission
has notified CGI Capital, Inc.(CGI) that it will be recommending that the
Commission institute administrative proceedings against CGI charging violations
of Section 5 of the Securities Act of 1933 and Section 15(b)(4) of the
Securities Exchange Act of 1934 in connection with two private placement
securities offerings from August 1999 through December 1999. In the event that
the SEC brings an action, investors who purchased securities in the two
offerings could bring actions against the Company and/or CGI for rescission of
their purchases. Maximum exposure to the Company due to rescission could be
$1,041,210. In addition, other securities regulators, including the NASD and
state securities regulators, could bring actions against CGI Capital making
similar allegations and seeking additional sanctions against the firm. There
could be collateral lawsuits concerning the consequences of any such rescission.
The likelihood of such suits or the potential exposure to the company is unknown
at this time.
NOTE 16 - RELATED PARTY TRANSACTIONS
The Company drew down $300,000 from the line of credit to purchase a certificate
of deposit. The certificate of deposit was pledged to secure a personal line of
credit for the Chairman of the Board of Directors. The certificate of deposit
paid interest yearly at 6.77% and was scheduled to mature on March 7, 2003. The
certificate of deposit was collateralized by 60,000 shares of the common stock
of Circle Group Internet, Inc. owned by the Chairman of the Board of Directors.
The certificate of deposit was closed and the line of credit replenished in the
amount of $300,000 on June 15, 2000.
F-18
<PAGE> 94
------------------------------------------------------------------------------
-------
------------------------------------------------------------------------------
-------
Dealer Prospectus Delivery Obligation
Until , 2000, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
We have not authorized any dealer, salesperson, or other person to provide any
information or make any representations about us, except the information or
representations contained in this prospectus. You should not rely on any
additional information or representation.
This prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, any securities:
- except the common stock offered by this prospectus;
- in any jurisdiction in which the offer or solicitation is not
authorized;
- in any jurisdiction where the dealer or other salesperson is
not qualified to make the offer or solicitation;
- to any person to whom it is unlawful to make the offer or
solicitation; or
- to any person who is not a United States resident or who is
outside the jurisdiction of the United States.
The delivery of this prospectus or any accompanying sales does not imply that:
- there have been no changes in the affairs of Circle Group
Internet after the date of this prospectus; or
- the information contained in this prospectus is correct after
the date of this prospectus.
1,833,760 shares
common stock
---------------------
Prospectus
---------------------
Circle Group Internet, Inc.
, 2000
------------------------------------------------------------------------------
---------------------------------------------------------------------------
<PAGE> 95
PART II
Information Not Required in Prospectus
ITEM 24. Indemnification of Directors and Executive Officers
The articles of incorporation of Circle Group Internet, Inc. provide
indemnification of directors and officers and other corporate agents to the
fullest extent permitted under the laws of Illinois. The articles of
incorporation also limit the personal liability of the Circle Group Internet,
Inc.'s directors to the fullest extent permitted by the Illinois Business
Corporation Act contains provisions entitling our directors and officers to
indemnification from judgments, fines, amounts paid in settlement and reasonable
expenses, including attorneys' fees, as the result of an action or proceeding in
which they may be involved by reason of being or having been a director or
officer of Circle Group Internet, provided said officers or directors acted in
good faith.
Because indemnification or liabilities arising under the Securities Act may be
permitted to our directors, officers or controlling persons by these, or
otherwise, we have been advised that in the opinion of the SEC this
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable. In the event that a claim for indemnification
against liabilities, other than the payment by us of expenses incurred or paid
by one of our directors, officers or controlling persons in the successful
defense of any action, suit or proceeding, is asserted by a director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
indemnification by us is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of the issue.
ITEM 25. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses to be incurred in
connection with the issuance and resale of the securities offered by this
prospectus. We are responsible for the payment of all expenses set forth below.
Registration fee $ 4,854
Application fee for the American Stock Exchange 15,000
Blue Sky filing fees and expenses 0
Printing and engraving expenses 26,000
Legal fees and expenses 290,000
Accounting fees and expenses 145,000
Miscellaneous 1,146
---------
Total $ 482,000
=========
II-1
<PAGE> 96
ITEM 26. Recent Sales of Unregistered Securities.
On October 9, 1996 CGI Capital issued 1,000 shares of its common stock to
Internet Broadcasting Company, Inc., formerly known as Capital Internet Group,
Inc., for par value, as founders shares. The issuance of these shares was exempt
from registration in reliance on Section 4(2) of the Securities Act. Internet
Broadcasting Company, Inc. was a financially sophisticated investor with
knowledge and experience in financial and business matters that it was capable
of evaluating the merits and risks of the prospective investment, and it had
full access to, or was otherwise provided with, all relevant information
reasonably necessary to evaluate CGI Capital.
In 1997, Mr. Gregory Halpern received 6,494,000 shares and Mr. Dana Dabney
received 500,000 shares of our common stock for the nominal consideration of par
value $.0001 per share as founders of Circle Group Internet. These issuances of
the shares of common stock were exempt from registration under Section 4(2) of
the Securities Act. Messrs. Halpern and Dabney were accredited investors.
During fiscal 1997, we established a note payable in the principal amount of
$16,403 to Mr. Gregory J. Halpern, our founder and CEO, to purchase furniture
and fixtures, including computer equipment for our offices. The note provided
for interest at 18% per annum and was unsecured. We repaid the note in full
before December 31, 1998. Mr. Halpern was an accredited investors.
Between June 1998 and January 1999, we sold an aggregate of 1,000,000 shares of
our common stock in an offering exempt from registration under the Securities
Act which was conducted according to Regulation A. The offering, which was a
self- underwritten direct public offering conducted by us via the Internet,
resulted in gross proceeds to us of $2,500,000 from approximately 402 investors.
We paid no underwriting fees, discounts or commissions in connection therewith.
The proceeds from this offering were used to fund the expansion of our
operations, to pay costs associated with our acquisitions of On-Line Bedding and
PPI Capital, and to provide working capital for the expansion of our
infrastructure.
Between January 1999 and October 1999, we issued options to purchase an
aggregate of 319,000 shares of our common stock, at exercise prices ranging from
$2.50 per share to $10.00 per share, under our 1999 Stock Option Plan to 16 of
our executive officers, directors and employees. Subsequent to their issuance,
options for an aggregate of 7,000 shares were canceled when the employment of
one of the optionees was terminated. In each instance, the exercise price of the
options was equal to the fair market value of our common stock on the date of
grant. None of the
II-2
<PAGE> 97
options have been exercised. The issuance of these securities was exempt from
the registration requirements of the Securities Act in reliance on the exemption
set forth in Section 4(2) of the Securities Act. All of the optionees, who are
our employees, are accredited investors.
In January 1999, we issued 400,000 shares of our common stock to Mr. Edward L.
Halpern and his wife, Diane Halpern, in a private transaction exchange for all
the issued and outstanding capital stock of On-Line Bedding. Mr. Halpern is an
affiliate of ours and Mr. and Mrs. Halpern are accredited investors. The
transaction was exempt from registration under the Securities Act in reliance on
the exemption provided by Section 4(2) of the Securities Act. We paid no
underwriting fees, discounts or commissions in connection therewith.
In March 1999, we issued warrants to purchase an aggregate of 227,110 shares of
our common stock, exercisable at $2.50 per share, which are exercisable until
March 2002, to consultants who rendered various consulting services to us on a
variety of business issues, including general business matters, investments,
real estate, business development, acquisitions, marketing and market research,
international business, vehicle brokerage, transportation, and banking and
financial matters. These consultants are financially sophisticated with
knowledge and experience in financial and business matters that they were
capable of evaluating the merits and risks of the prospective investment, and
they had full access to, or were otherwise provided with, all relevant
information reasonably necessary to evaluate Circle Group Internet. There are 11
holders of these warrants which were issued without registration under the
Securities Act of 1933 in reliance on Section 4(2) of the Securities Act. We
paid no underwriting fees, discounts or commissions in connection therewith.
Between March 1 and March 15, 1999, we sold 151,480 shares of common stock to 47
accredited investors resulting in gross proceeds to us of $376,200. We paid no
underwriting fees, discounts or commissions in connection therewith. The
proceeds from this offering were used to launch CGI Capital. These shares were
sold in a private placement exempt from registration under the Securities Act in
reliance on Section 4(2) and Rule 506, Regulation D, of the Securities Act. Each
of these investors (a) had access to business and financial information
concerning Circle Group, (b) represented that they were acquiring the shares for
investment purposes only and not with a view towards distribution or resale
exempt in compliance with applicable securities laws, and (c) had such knowledge
and experience in business and financial matters that they were able to evaluate
the risks and merits of an investment in Circle Group. No general solicitation
or advertising was used in connection with these issuances and the certificates
evidencing the shares that were issued contained a legend restricting their
transferability absent registration under the Securities Act or the availability
of an applicable exemption therefrom.
II-3
<PAGE> 98
Between April 1, 1999 and October 7, 1999 , we have issued an aggregate of 3,500
shares of common stock to EBS Public Relations, Inc. for public relations
services rendered to us under an agreement dated March 4, 1999. At the request
of EBS' principals, Erica and Brian Swerdlow, these shares have been issued to
them individually. EBS is a financially sophisticated investor with knowledge
and experience in financial and business matters that it was capable of
evaluating the merits and risks of the prospective investment, and it had full
access to, or was otherwise provided with, all relevant information reasonably
necessary to evaluate Circle Group Internet. Accordingly, the issuance of the
shares of common stock were exempt from registration under Section 4(2) of the
Securities Act.
On April 1, 1999; May 1, 1999; June 1, 1999 and July 1, 1999, we issued 200
shares of common stock to Ms. Mary Lytle for tutoring services rendered in
connection with the testing of our management for their broker-dealer licenses.
Ms. Lytle is a financially sophisticated investor with knowledge and experience
in financial and business matters that she was capable of evaluating the merits
and risks of the prospective investment, and she had full access to, or was
otherwise provided with, all relevant information reasonably necessary to
evaluate Circle Group Internet. Accordingly, the issuance of the shares of
common stock were exempt from registration under Section 4(2) of the Securities
Act.
Between April 1, 1999 and July 22, 1999, we sold 1,213,800 shares of our common
stock to 63 accredited investors. We received $12,138,000 in gross proceeds in
the private placement and paid no underwriting fees, discounts or commissions in
connection therewith. We used a portion of the proceeds from this offering for
the development and marketing of our Internet viewing software. The balance of
the funds will be used for general working capital. These shares were sold in a
private placement exempt from registration under the Securities Act in reliance
on Section 4(2) and Rule 506, Regulation D, of the Securities Act. Each of these
investors (a) had access to business and financial information concerning Circle
Group, (b) represented that they were acquiring the shares for investment
purposes only and not with a view towards distribution or resale exempt in
compliance with applicable securities laws, and (c) had such knowledge and
experience in business and financial matters that they were able to evaluate the
risks and merits of an investment in Circle Group. No general solicitation or
advertising was used in connection with these issuances and the certificates
evidencing the shares that were issued contained a legend restricting their
transferability absent registration under the Securities Act or the availability
of an applicable exemption therefrom.
In April 1999, we issued Mr. and Mrs. Edward Halpern a demand promissory note in
the principal amount of $80,018, bearing interest at 8% per annum, which
represented shareholder distributions prior to our acquisition of On-Line
Bedding. Mr. and Mrs. Halpern are accredited investors.
II-4
<PAGE> 99
On August 1, 1999 Mr. Gregory J. Halpern, our president and CEO, borrowed
$935,000 from us under a secured promissory note. This note bore interest at 8%
per annum. As collateral for the note, Mr. Halpern granted us a first mortgage
on his principal residence. This residence had a fair market value which
exceeded the principal amount of the note and, with the exception of our
mortgage, was unencumbered.
Mr. Halpern is an accredited investor. The note was satisfied in full on
December 7, 1999, and we have released our mortgage on the property.
Between July 1999 and March 2000, we issued an aggregate of 54,000 shares of our
common stock to 26 of our executive officers, directors and employees. These
issuances of shares of common stock were exempt from registration under Section
4(2) of the Securities Act. All of the officers, directors and/or employees were
either accredited investors, were financially sophisticated investors with
knowledge and experience in financial and business matters that they were
capable of evaluating the merits and risks of the prospective investment, had a
pre-existing relationship with our management and/or had access to all relevant
information reasonably necessary to evaluate us.
On March 7, 2000, we issued options to purchase an aggregate of 927,500 shares
of our common stock, at an exercise price of $10.00 per share, under our 1999
Stock Option Plan to 33 of our executive officers, directors and employees. In
each instance, the exercise price of the options was equal to the fair market
value of our common stock on the date of grant. None of the options have been
exercised. The issuance of the securities was exempt from the registration
requirements of the Securities Act in reliance upon the exemption set forth in
Section 4(2) of the Securities Act.
On March 8, 2000, we sold 5,000 shares of our common stock to Gary Cooper, a
former director of the Company. Mr. Cooper is a financially sophisticated
investor with knowledge and experience in financial and business matters that he
is capable of evaluating the merits and risks of the prospective investment, and
he had full access to, or was otherwise provided with, all relevant information
reasonably necessary to evaluate Circle Group Internet, Inc. Accordingly, the
issuance of the shares of common stock were exempt from registration under
Section 4(2) of the Securities Act. In June 2000, we repurchased the 5,000
shares of our common stock from Mr. Cooper for total cash consideration of
$50,000.
ITEM 27. Exhibits.
Exhibit No. Description of Exhibits
3.1* Articles of Incorporation of Circle Group Internet, Inc.
3.2* Articles of Amendment dated December 8, 1997 to the Articles of
Incorporation of Circle Group Internet, Inc.
3.3* Articles of Amendment dated December 15, 1997 to the Articles of
Incorporation of Circle Group Internet, Inc.
3.4* By-Laws of Circle Group Internet, Inc.
3.5* Articles of Amendment dated March 1, 2000 to the Articles of
Incorporation of Circle Group Internet, Inc.
4.1* Specimen Common Stock Certificate
II-5
<PAGE> 100
5* Opinion of Atlas, Pearlman, Trop & Borkson, P.A.
10.1* Employment Agreement dated January 2, 1999 between Circle Group
Internet, Inc. and Gregory J. Halpern
10.2* Employment Agreement dated January 2, 1999 between Circle Group
Internet, Inc. and Dana L. Dabney
10.3* Employment Agreement dated February 1, 1999 between Circle Group
Internet, Inc. and Frank K. Menon
10.4* Employment Agreement dated March 1, 1999 between Circle Group
Internet, Inc. and Arthur C. Tanner
10.5* Employment Agreement dated March 1, 1999 between Circle Group
Internet, Inc. and Erik J. Brown
10.6* Employment Agreement dated June 1, 1999 between Circle Group
Internet, Inc. and Michael J. Theriault
10.7* 1999 Stock Option Plan of Circle Group Internet, Inc.
10.8* Stock Purchase Agreement dated January 2, 1999 between the
shareholders of On-Line Bedding Corporation and Circle Group
Internet, Inc.
10.9* Stock Purchase Agreement dated March 8, 1999 between Circle Group
Internet, Inc., Internet Broadcasting Company, Inc. and CGI Capital,
Inc.
10.10* Extension Agreement dated May 25, 1999 between Circle Group
Internet, Inc., Internet Broadcasting Company and CGI Capital, Inc.
10.11* Stock Purchase Agreement dated February 1, 1999 between Gregory
Halpern and Circle Group Internet, Inc.
10.12* Extension Agreement dated August 25, 1999 between Circle Group
Internet, Inc., Internet Broadcasting Company and CGI Capital, Inc.
10.13* Client Agreement dated March 4, 1999 between EBS Public Relations,
Inc. and Circle Group Internet, Inc.
10.14* Industrial lease agreement dated May 20, 1999 between CLO
Enterprises and Circle Group Internet, Inc.
10.15* Industrial lease agreement dated June 18, 1999 between CLO
Enterprises and Circle Group Internet, Inc.
10.16* Amendment No. 1 to the Stock Purchase Agreement between the
shareholders of On-Line Bedding Corporation and Circle Group
Internet, Inc.
10.17* Secured Promissory Note dated August 1, 1999 from Gregory J. Halpern
10.18* Mortgage dated August 6, 1999 between Gregory J. Halpern and Karen
S. Halpern and Circle Group Internet, Inc.
10.19* Form of Placement Agency Agreement
10.20* Form of Business Consulting Agreement
10.21* Demand Promissory Note dated April 1, 1999
10.22* 1999 Stock Option Plan, as amended, of Circle Group Internet, Inc.
21** Subsidiaries of the Registrant
23.1** Consent of Harold Y. Spector, Certified Public Accountant
23.2* Consent of Atlas, Pearlman, Trop & Borkson, P.A. is included in
Exhibit 5
27** Financial Data Schedule
99* Letter dated July 14, 1999 to the Securities and Exchange Commission
requesting no-action regarding CGI Capital, Inc.
* Previously filed
** Filed herewith.
II-6
<PAGE> 101
ITEM 28. Undertakings
(a) We undertake:
(1) To file, during any period in which we offer or sell securities, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii)To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any additional or changed material information
with respect to the plan of distribution.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement relating to the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
(3) To file a post-effective amendment to remove any of the securities
that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Circle Group
Internet, Inc., we have been advised that, in the opinion of the SEC,
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against liabilities (other than the payment by us of expenses incurred or paid
by a director, officer or controlling person of Circle Group Internet, Inc. in
the successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether indemnification by it is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of the
issue.
II-7
<PAGE> 102
Signatures
In accordance with the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it 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 in the City of Mundelein, State of
Illinois, on August 22, 2000.
Circle Group Internet, Inc.
By: /s/ GREGORY J. HALPERN
------------------------
Gregory J. Halpern, Chief
Executive Officer
In accordance with the requirements of the Securities Act, this Amendment No. 9
to the 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/ Gregory J. Halpern Director and Chief Executive Officer August 22, 2000
------------------------------
Gregory J. Halpern
/s/ Frank K. Menon Director and President August 22, 2000
------------------------------
Frank K. Menon
/s/ Dana L. Dabney Director, Vice President of August 22, 2000
------------------------------ Human Resources
Dana L. Dabney
/s/ Arthur C. Tanner Chief Financial Officer August 22, 2000
------------------------------
Arthur C. Tanner
/s/ Michael J. Theriault Chief Operating Officer August 22, 2000
------------------------------
Michael J. Theriault
/s/ Edward J. Halpern Director August 22, 2000
------------------------------
Edward L. Halpern
/s/ Steven H. Salgan Director August 22, 2000
------------------------------
Steven H. Salgan, M.D.
/s/ Stanford Jay Levin Director August 22, 2000
------------------------------
Stanford Jay Levin
</TABLE>
The foregoing represents a majority of the Board of Directors
II-8
<PAGE> 103
Index to Exhibits
Exhibit No. Description of Exhibits
3.1* Articles of Incorporation of Circle Group Internet, Inc.
3.2* Articles of Amendment dated December 8, 1997 to the Articles
of Incorporation of Circle Group Internet, Inc.
3.3* Articles of Amendment dated December 15, 1997 to the
Articles of Incorporation of Circle Group Internet, Inc.
3.4* By-Laws of Circle Group Internet, Inc.
3.5* Articles of Amendment dated March 1, 2000 to the Articles of
Incorporation of Circle Group Internet, Inc.
4.1* Specimen Common Stock Certificate
5* Opinion of Atlas, Pearlman, Trop & Borkson, P.A.
10.1* Employment Agreement dated January 2, 1999 between Circle
Group Internet, Inc. and Gregory J. Halpern
10.2* Employment Agreement dated January 2, 1999 between Circle
Group Internet, Inc. and Dana L. Dabney
10.3* Employment Agreement dated February 1, 1999 between Circle
Group Internet, Inc. and Frank K. Menon
10.4* Employment Agreement dated March 1, 1999 between Circle
Group Internet, Inc. and Arthur C. Tanner
10.5* Employment Agreement dated March 1, 1999 between Circle
Group Internet, Inc. and Erik J. Brown
10.6* Employment Agreement dated June 1, 1999 between Circle Group
Internet, Inc. and Michael J. Theriault
10.7* 1999 Stock Option Plan of Circle Group Internet, Inc.
10.8* Stock Purchase Agreement dated January 2, 1999 between the
shareholders of On-Line Bedding Corporation and Circle Group
Internet, Inc.
10.9* Stock Purchase Agreement dated March 8, 1999 between Circle
Group Internet, Inc., Internet Broadcasting Company, Inc.
and CGI Capital, Inc.
10.10* Extension Agreement dated May 25, 1999 between Circle Group
Internet, Inc., Internet Broadcasting Company and CGI
Capital, Inc.
10.11* Stock Purchase Agreement dated February 1, 1999 between
Gregory Halpern and Circle Group Internet, Inc.
10.12* Extension Agreement dated August 25, 1999 between Circle
Group Internet, Inc., Internet Broadcasting Company and CGI
Capital, Inc.
10.13* Client Agreement dated March 4, 1999 between EBS Public
Relations, Inc. and Circle Group Internet, Inc.
10.14* Industrial lease agreement dated May 20, 1999 between CLO
Enterprises and Circle Group Internet, Inc.
10.15* Industrial lease agreement dated June 18, 1999 between CLO
Enterprises and Circle Group Internet, Inc.
10.16* Amendment No. 1 to the Stock Purchase Agreement between the
shareholders of On-Line Bedding Corporation and Circle Group
Internet, Inc.
<PAGE> 104
10.17* Secured Promissory Note dated August 1, 1999 from Gregory J.
Halpern
10.18* Mortgage dated August 6, 1999 between Gregory J. Halpern and
Karen S. Halpern and Circle Group Internet, Inc.
10.19* Form Placement Agency Agreement
10.20* Form of Business Consulting Agreement
10.21* Demand Promissory Note dated April 1, 1999
10.22* 1999 Stock Option Plan, as amended, of Circle Group
Internet, Inc.
21** Subsidiaries of the Registrant
23.1** Consent of Harold Y. Spector, Certified Public Accountant
23.2* Consent of Atlas, Pearlman, Trop & Borkson, P.A. is included
in Exhibit 5
27** Financial Data Schedule
99* Letter dated July 14, 1999 to the Securities and Exchange
Commission requesting no-action regarding CGI Capital, Inc.
* Previously filed
** Filed herewith.
