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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 9, 2000
REGISTRATION NO. 000-29479
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10/A-3
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES
EXCHANGE ACT OF 1934
WORLDWIDE WEB NETWORX CORPORATION
(Exact name of Registrant as specified in its charter)
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DELAWARE 541519 58-2280078
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(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
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521 FELLOWSHIP ROAD, SUITE 130
MOUNT LAUREL, NEW JERSEY 08054
(856) 914-3100
(Address and telephone number of principal executive offices
and principal place of business)
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COPIES OF COMMUNICATIONS TO:
ALLAN M. COHEN, GENERAL COUNSEL
WORLDWIDE WEB NETWORX CORPORATION
521 FELLOWSHIP ROAD, SUITE 130
MOUNT LAUREL, NEW JERSEY 08054
(856) 914-3100
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Not applicable
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $0.001 par value per share
(Title of Class)
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ITEM 1. BUSINESS
WORLDWIDE WEB NETWORX CORPORATION
GENERAL
WorldWide Web NetworX Corporation is a holding company that enters into
joint ventures with or acquires ownership interests in off-line
business-to-business companies in order to migrate the traditional business
transactions of those companies onto the Internet. We currently have joint
ventures with or acquired ownership interests in nine companies that are in
various phases of conducting their transactions using the Internet or developing
products or technologies applicable to Internet-based commerce. However, we
currently derive revenues from only two companies, ATM Service, Ltd. and The
Intrac Group, Ltd. ATM Service and Intrac principally derive revenue by
providing offline inventory liquidation and asset recovery services and from the
purchase and resale of advertising, merchandise, or business services. We
continue to work with these companies to provide technology, consulting,
marketing and business development services.
We own majority voting and economic interests in the common stock of three
companies with the rights and in the percentages stated in the following table:
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OUR PERCENTAGE
COMPANY FORM OF INTEREST OUR OWNERSHIP RIGHTS INTEREST
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The Intrac Group, Ltd................... Common Stock Voting and Economic 100%
NAI Direct, Inc......................... Common Stock Voting and Economic 64%
ATM Service, Ltd........................ Common Stock Voting and Economic 52%
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We own interests from 50% to 10% in three companies with the rights and in
the percentages stated in the following table:
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OUR PERCENTAGE
COMPANY FORM OF INTEREST OUR OWNERSHIP RIGHTS INTEREST
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WWWX-Jencom, LLC........................ LLC Interest Voting and Economic 50%
InterCommerce China, LLC................ LLC Interest Voting and Economic 33%
Entrade Inc............................. Common Stock Voting and Economic 11%
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In addition, we have interests of 5% or less in the common stock of
AssetTrade.com, Inc., VideoNet Corporation and One World Direct, Inc. Although
we own 50% of WWWX-Jencom, we are in the process of exercising our management
control over that company and we have yet to determine whether the products
developed by that company are or will be marketable. For more information on
WWWX-Jencom and its products, see the section entitled "WWWX-Jencom, LLC and
InterCommerce China, LLC." In addition, ATM Service, Ltd.'s web site has not
consummated any meaningful transactions or produced any meaningful revenue.
Please see the section entitled "We Cannot Assure You That ATMcenter.com Will
Conduct Internet Transactions."
STRATEGY
We plan to continue to acquire equity positions in other companies and enter
into agreements with other companies to promote our business-to-business
Internet strategy. Our goal is to expand the markets, services and products and
improve the efficiencies of these businesses by initiating or increasing their
use of Internet technology. We are continually searching for new opportunities
to forge relationships with companies which we believe would benefit from our
business strategy.
HISTORY
WorldWide Web NetworX Corporation was originally incorporated in Idaho in
July 1979 under the name "Gold Cache, Inc." We subsequently changed our name to
"Instra Corp" in August 1988. In
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July 1996, we changed our domicile to Delaware by merging into a newly
incorporated Delaware corporation named "Instra Corp."
On September 3, 1996, we filed a disclosure statement pursuant to
Rule 15c2-11 of the Securities Exchange Act of 1934 with the National
Association of Securities Dealers, Inc. for the purpose of including our common
stock, $0.001 par value per share, for trading on the OTC Bulletin Board, a
quotation service for securities which are not listed or traded on a national
securities exchange. Our common stock is currently listed on the OTC Bulletin
Board under the symbol "WWWXE".
After a period of relatively little operating activity, we entered into our
current line of business in May 1998, when we acquired Keiretsu Corporation, a
privately-held Nevada corporation incorporated on September 26, 1997. The
stockholders of Keiretsu exchanged all of their Keiretsu shares for shares of
our common stock. Our then current management resigned, the management of
Keiretsu became our new officers and directors, and we changed our name to
"WorldWide Web NetworX Corporation".
OUR COMPANIES AND STRATEGIC RELATIONSHIPS
The following is a description of our subsidiaries and the companies in
which we have interests. For each of the following companies we discuss, to the
extent applicable, the history of the company, joint venture partners,
traditional lines of business, corporate governance provisions and significant
agreements.
ATM SERVICE, LTD. AND THE INTRAC GROUP, LTD.
Presently, ATM Service, Ltd. is an off-line business that assists companies
to optimize their return on excess assets, closeouts, discontinued merchandise,
excess plant capacity and production time. ATM also assists customers seeking
new markets for their goods and services. ATM's customers include retailers,
distributors, wholesalers, manufacturers (of consumer products, industrial
machinery, equipment and supplies, and commodities such as petroleum products)
and service providers such as printing companies, telecommunications companies
and companies engaged in the travel industry. The Intrac Group, Ltd. is also an
off-line business that, prior to our acquisition, engaged in media buying for
clients and purchased and sold products and services for trade credits (which
are described in more detail below) which could be used for the purchase of
advertising media and other products and services. For our fiscal year ended
September 30, 1999, as well as for the three months ended December 31, 1999, no
customer of either ATM or Intrac represented 10% or more of our consolidated
revenues and neither ATM nor Intrac had any customer whose loss would be
considered material.
HISTORY
In December 1998, we formed ATM Service, Ltd. with Warren Rothstein, who is
currently one of our directors and the Chairman of ATM Service, Ltd. and The
Intrac Group, Ltd. Initially, WorldWide Web NetworX Corporation and
Mr. Rothstein each owned a 50% equity interest in ATM. In connection with the
formation of ATM, we agreed to issue 5,000,000 shares of our common stock to
Mr. Rothstein subject to forfeiture. See "Our Stock Issuance Agreement with
Warren Rothstein." Mr. Rothstein later relinquished his right to 1,000,000 of
these shares, as well as to a 26% interest in ATM, in order to enable us to use
those shares and a part of the 26% interest in ATM to acquire The Intrac Group.
In July 1999, we acquired The Intrac Group, a privately held international
marketing and asset management organization through a merger with our
wholly-owned acquisition subsidiary, Intrac Acquisition Corporation, which later
changed its name to The Intrac Group, Ltd. Our acquisition subsidiary acquired
The Intrac Group from its two stockholders, Thomas Settineri and Gary Levi, in
exchange for (1) 1,000,000 shares of our common stock, which were simultaneously
released by Warren
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Rothstein, reducing the number of shares issued to Mr. Rothstein and subject to
forfeiture to 4,000,000, (2) $1,500,000 in cash, and (3) 24% of ATM
Service, Ltd.'s outstanding stock, which was also transferred by Warren
Rothstein, together with 2% of ATM released to WorldWide Web NetworX
Corporation, reducing Mr. Rothstein's interest in ATM to 24%. We also agreed to
provide The Intrac Group, Ltd. with a $1,000,000 working capital loan which we
loaned to ATM which loaned this amount to Intrac.
In connection with our acquisition of The Intrac Group, Thomas Settineri
became President and Chief Executive Officer of both ATM Service, Ltd. and The
Intrac Group, Ltd. and Gary Levi became Chief Operating Officer of both ATM
Service, Ltd. and The Intrac Group, Ltd. Warren Rothstein remained as Chairman
of ATM Service, Ltd. and became Chairman of The Intrac Group, Ltd., thereby
making the management team for both companies identical. In addition, Thomas
Settineri became a director of WorldWide Web NetworX Corporation on
September 23, 1999.
ATM SERVICE, LTD. AND THE INTRAC GROUP, LTD.'S BUSINESSES
ATM and Intrac offer the following services:
LIQUIDATION: In a simple liquidation, ATM buys the assets of a customer for
cash. This method offers the customer the lowest form of recovery for
under-performing assets as the price ATM pays for the assets is usually below
what it cost the customer to acquire or produce the assets. ATM typically sells
the assets at a price greater than the price ATM paid for the assets to a buyer
ATM has identified before actually purchasing the assets.
PURCHASES AND RESALES OF MEDIA: Often, in connection with the utilization
of trade credits, which are described more fully below, Intrac purchases and
resells advertising media. Media is currently the predominant service that
Intrac provides to its customers to redeem trade credits.
ASSET MANAGEMENT: In an asset management transaction, ATM acts as an agent
and remarkets a customer's assets for cash and receives a percentage of the sale
as a commission. This method generally provides a greater recovery for customers
than a liquidation because ATM is generally able to sell the assets at higher
prices by selling them selectively and over time rather than selling the whole
lot immediately. In some asset management transactions, ATM also issues trade
credits.
COST RECOVERY: In a cost recovery transaction, ATM buys the customer's
assets for cash and trade credits (a non-monetary form of currency which are
discussed in more detail below) at a price that is equal to the customer's cost
to acquire or produce the assets. A cost recovery transaction is more complex
than the previous two transactions and has various aspects that are negotiated
at the inception and during the transaction.
The following list outlines the initial steps in a typical cost recovery
transaction:
- The first step of a cost recovery transaction starts like a liquidation:
ATM buys the assets from the customer and then sells the assets for cash.
- ATM pays a negotiated portion of the cash received to the customer and ATM
keeps the balance of the cash. The cash payment made to the customer is
the entire cash portion of the purchase price paid for the cost recovery
transaction.
- Along with the cash payment, ATM or Intrac issues the customer trade
credits to make up the balance of the purchase price.
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The following example demonstrates a reason a company may enter into a cost
recovery transaction:
A company has inventory in its warehouse that it can not use or market
at the prices it expected and needs to dispose of this inventory. A
liquidation sale for cash would only bring 20% of the price it cost the
customer to acquire or produce the inventory. In a cost recovery
transaction, by using a combination of cash and trade credits, ATM can
acquire the inventory for the same price it cost the customer to acquire or
produce the inventory. The cash portion of the purchase price is slightly
less than 20% of the customer's cost to acquire or produce the inventory and
the trade credits make up the rest. The customer benefits from this
transaction by avoiding the loss associated with a liquidation sale by
recovering its costs in cash and trade credits that can be used in the
future to purchase goods and services it needs for its operations using,
typically, some combination of cash and trade credits as discussed below.
Recently our revenues have been concentrated in the media sales and cost
recovery areas, however, we do not expect that we are or will be more dependent
on any one of these services or a group of any of these services in future
periods.
TRADE CREDITS
The trade credits issued by ATM and Intrac represent the right to buy assets
or services from their issuer and, in most cases, may only be used if some
portion of cash is also paid for the assets or services. A customer can use its
trade credits to purchase media, merchandise or any business services that the
customer would normally purchase on an all-cash basis. Trade credits typically
expire within two or more years after they are issued. Many customers negotiate
to obtain trade credits that represent the ability to purchase media, because
they have a predetermined media budget and plan for each fiscal year. The
advertising and media services Intrac can obtain include radio, television,
print, Internet, and outdoor advertising, such as billboards and bus stop
shelters. Intrac also provides a wide range of non-media trade credits which can
include virtually any other asset or business service a customer normally
purchases on an all-cash basis.
The following is an example of a non-media use of trade credits:
A customer that normally pays $300,000 each year for courier services
may request that its trade credits be used for courier services. Intrac may
negotiate to provide the customer with its courier service needs for the
year under the following terms: the customer may use $100,000 of its trade
credits for future courier service. In the following year, the company would
pay Intrac $200,000 in cash for such services and use the trade credits to
pay the balance.
The following is an example of a media use of trade credits:
A customer that normally pays $1,000,000 for various types of
advertising may request that its trade credits be used for media buys. When
the customer decides to use its trade credits, the customer provides Intrac
with its media plan for a specified period of time. The media plan includes
times of day, audiences, markets and other specifics. Intrac then approaches
media providers and negotiates the acquisition of the media required by the
customer. Intrac submits an advertising media plan to its customer, based on
the strategic objectives and goals of the customer, including the ratio for
the trade credits to be used as well as the availability of the media that
fits the customer's plan. For example, the customer may be able to use one
dollar of its trade credits for every three dollars of media the customer
buys from Intrac for cash. With that ratio, the customer would pay $750,000
in cash and redeem $250,000 of trade credits for its $1,000,000 media
purchase.
Intrac or ATM can profit from these transactions because Intrac typically
provides the service or media at a cost that is less than the amount of cash a
customer must use in connection with its use of
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trade credits. In the courier services example, the amount of cash Intrac
received is $200,000. Intrac would be able to acquire the courier services for
cash, or a combination of cash and trade credits, for an actual cash cost of
less than $200,000. In the media provision example, Intrac would be able to
acquire the media for cash, or a combination of cash and trade credits, where
the actual cash cost is less than $750,000.
The following is an actual example of a such a transaction:
Intrac developed a five year reciprocal trade program between an oil
company and a car rental company. The oil company had lubricant it desired
to sell and the car rental company required a steady supply of lubricant for
its rental fleet. The oil company agreed to sell to Intrac, for resale to
the car rental company, lubricant at fixed purchase prices, subject to
annual negotiation, for a five year period. Intrac purchased the lubricant
for a combination of cash and trade credits and sold the oil to the car
rental company for cash. The oil company utilized the trade credits to
purchase advertising media and special events marketing from Intrac for a
purchase price of 30% trade credits and the remainder in cash.
In connection with each of the services described above, the merchandise ATM
purchases may remain in the custody of the seller until it is resold or ATM may
take care, custody, and control of the merchandise it purchases from a customer.
ATM does not typically take custody, however, if ATM does take custody, ATM
arranges for the transportation and storage of the merchandise in an insured
commercial warehouse facility until it is resold. ATM may also manage the
disposition process including shipping, handling, billing, collecting, and
remitting to customers the proceeds of the sales made on their behalf.
ATM AND INTRAC'S RELATIONSHIP
Intrac and ATM have agreed in principle and are currently conducting their
businesses in the following manner:
- Intrac refers to ATM all new transactions involving the buying and selling
of assets and services and ATM refers to Intrac all transactions involving
the purchase and sale of media and uses Intrac for the fulfillment of all
of the trade credits issued by ATM in connection with its transactions.
- ATM pays Intrac a fee for the fulfillment of the trade credits issued by
either ATM or Intrac in connection with ATM's transactions equal to 110%
of the costs incurred by Intrac, which include the cost of purchasing the
advertising media, assets or services provided to ATM's customers in
connection with their use of the trade credits.
- Intrac continues to provide fulfillment for the trade credits issued by
The Intrac Group prior to our acquisition of Intrac.
- Any cash paid by a customer in connection with the use of trade credits
that exceeds the 110% fee payable to Intrac will be retained by ATM.
- ATM provides billing and collection for Intrac, at no additional cost.
- ATM and Intrac each pay half of the following:
- The salary of Thomas Settineri, the President and Chief Executive
Officer of both ATM and Intrac;
- The salary of Gary Levi, the Chief Operating Officer of both ATM and
Intrac; and
- The management fee payable to Warren Rothstein, the Chairman of both
ATM and Intrac.
ATM and Intrac are currently negotiating a definitive written agreement
setting forth all of the terms of the division of business between the two
companies.
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ATMCENTER.COM
ATM Service, Ltd. is an off-line business that assists companies to optimize
their return on excess assets, closeouts, discontinued merchandise, excess plant
capacity and production time. ATM uses the ATMcenter.com web site as a marketing
tool to list merchandise for sale and to elicit offers to buy or sell
merchandise. ATM and Intrac refer their existing customers to the ATMcenter.com
web site to obtain information about merchandise that is available for sale,
however, ATM currently consummates its transactions off-line.
WE CANNOT ASSURE YOU THAT ATMCENTER.COM WILL CONDUCT INTERNET TRANSACTIONS
To date, ATM has used the ATMcenter.com web site principally as a marketing
and promotional web site that promotes ATM and the merchandise ATM has listed
and made available for sale. In the light of the following facts:
- ATM has listed merchandise for sale on the ATMcenter.com web site since
January 1999;
- ATMcenter.com has been operational since April 1999; and
- To date, ATM has not consummated any meaningful transactions over, or
received any meaningful revenue directly from, the ATMcenter.com web site;
we cannot assure you that ATM will ever conduct any meaningful transactions over
or receive and any meaningful revenue directly from the ATMcenter.com web site.
INTERNATIONAL MARKETS
ATM owns a number of URLs, which are branded for use in different countries
and with various organizations. These web sites are customized "front doors" to
the ATMcenter.com web site. ATM is planning to make available a Spanish language
version of the ATMcenter.com web site by the end of June 2000 and is also
working on French, Portuguese and Chinese versions of ATMcenter.com which do not
yet have expected completion dates. By using these web sites in conjunction with
its current and any future representatives in foreign countries, ATM expects
that the ATMcenter.com web site will assist manufacturers, retailers and
industrial companies to promote their products to buyers around the world.
ATMcenter.com and its related web sites offer a potentially cost-efficient
solution to promote the merchandise companies have available for sale to a
larger market. By using translations of the ATMcenter.com web sites and
in-country representatives, ATM plans to market its products to buyers and
sellers within a region or country to assist trade among such parties, and to
encourage parties outside that region or country to buy or sell products in that
region or country.
ATM approaches marketing in countries other than the United States directly
or by recruiting in-country representatives, master distributors or
sub-distributors that are established companies in their respective regions. An
in-country representative may receive either the exclusive or the non-exclusive
right to represent ATM in a specific territory and does not pay any up-front fee
to ATM.
A master distributor must pay an up-front fee to ATM and will receive the
exclusive right to represent ATM in a designated region, depending on the size
of the territory. The up-front fee may be paid in either cash or in products or
services, or by a combination of these three forms of payment. Master
distributors may appoint sub-distributors within their territory, subject to
ATM's approval.
In order to offer their products for sale on the ATMcenter.com site, sellers
must pay an annual membership fee and, when their products are sold by ATM or
through the ATMcenter.com site, sellers may also be required to pay transaction
fees. A potential buyer is not required to be a dues paying member to utilize
the ATMcenter.com service, but must register on the website in order to purchase
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goods or services. An ATM representative will receive a negotiated percentage of
the net revenues that ATM receives from the representative's territory, which
will range from 25% to 30% depending upon the investment made and the services
to be performed by the representative. A master distributor will receive 50% of
the membership fees, annual renewals and any transaction fees paid by the
members enrolled by the master distributor in its territory.
Currently ATM has entered into agreements with the following companies:
MEXICO: GRUPO CORPORATIVO AND SERVICIOS EMPRESARIOS S.A. DE C.V.
ATM has entered into an agreement with Grupo Corporativo and Servicios
Empresarios S.A. de C.V., a privately held Mexican company, to act as ATM's
non-exclusive in-country representative in Mexico to sell and promote the
services provided by ATM in Mexico. Grupo Corporativo will receive 25% of the
net revenues derived from the transactions consummated by Grupo Corporativo in
Mexico. To date, ATM has not received any revenues from transactions consummated
by Grupo Corporativo in Mexico and we cannot assure you that ATM will receive
any such revenues.
KOREA: KOREAN GINSENG PRODUCTS CO. LTD.
ATM has entered into an agreement with Korean Ginseng Products Co. Ltd., a
publicly traded Korean company, to act as ATM's exclusive distributor in Korea
to sell and promote the services provided by ATM in Korea. Korean Ginseng
Products has agreed to pay a fee in the form of products and will share in the
revenues derived from annual membership fees and transaction fees earned from
the products of the members that are marketed through the Korea.ATMcenter.com
web site. To date, ATM has not received any membership fee or revenues from
Korean Ginseng Products Co. Ltd. or the Korea.ATMcenter.com web site and we
cannot assure you that ATM will receive any such fees or revenues.
FUNDACION PRIMERO MEXICO
Fundacion Primero Mexico is a foundation for the development of social and
welfare programs for the citizens of Mexico. Intrac entered into an agreement on
March 25, 1999 with the Fundacion to act as the exclusive on- and off-line
remarketer of the Fundacion's donated assets from Mexican corporations for an
initial 24 month term which term automatically extends year to year after that
until either party notifies the other in writing of its cancellation. These
assets may include consumer products and services, commodities, real estate,
industrial equipment, vehicles, construction services, building
equipment/materials, or any other assets. On April 22, 1999, the agreement was
amended in order to add ATM as a party to the contract. Intrac and ATM may have
to issue a performance bond to guarantee their obligations under the agreement
with the Fundacion.
The agreement with the Fundacion requires that ATM and Intrac remarket
donations on-line for each donating company. In return, ATM and Intrac will
provide acceptable products and services that the Fundacion requires for the
people of Mexico. To date neither ATM nor Intrac have received any revenues from
the Fundacion Primero relationship or ATM's related web sites and we cannot
assure you that ATM or Intrac will receive any such revenues.
ISRAEL: MG CAPITAL, LTD.
By agreement dated March 2, 2000, ATM appointed MG Capital, Ltd. as a
non-exclusive representative for ATMcenter.com in Israel. After entering into
the agreement with ATM, MG Capital has expressed an interest in becoming ATM's
exclusive representative in Israel. The parties are presently in the process of
negotiating the terms of an agreement. ATM has not yet received any revenues as
a result of its existing relationship with MG Capital and we cannot assure you
that ATM will receive any such revenues.
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SALES AND MARKETING
ATM has a sales and marketing staff that consists of six employees of ATM
and one employee provided to ATM by D&W Enterprises, a private company owned by
Warren Rothstein. ATM reimburses D&W for the services of the sales employee
provided by D&W as well as seven other non-sales employees provided by D&W.
ATM's sales and marketing staff identifies potential transactions and finds
buyers for the assets and services offered by ATM. The sales and marketing staff
is compensated with a base salary and a commission of between 5% and 10% of
ATM's gross profit of any transactions in which the staff participated on ATM's
behalf. Intrac has two part-time employees, Thomas Settineri and Gary Levi, and
retains the services of one full-time media purchasing consultant. In addition,
Intrac uses the services of other media purchasing businesses to service its
trade credits fulfillment and media purchasing business. ATM also has informal
arrangements with representatives in the United States and abroad who bring
potential transactions to ATM for a negotiated percentage of the gross profit of
the transaction, typically between 5% and 25% depending on the amount of effort
expended and cost to the representative. In addition, ATM has exclusive
marketing agreements with representatives in Mexico and Korea discussed in
detail under the heading "Business--International Markets". Approximately 90% of
ATM and Intrac's transactions are generated from ATM's in-house sales and
marketing team.
ATMCENTER.COM WEB SITE AND SOFTWARE
ATM uses software that ATM licensed from entrade.com, Inc., a subsidiary of
Entrade Inc., to operate ATMcenter.com. Under the license agreement with
entrade.com ATM is obligated to pay commissions to entrade.com for member fees
and transactions executed using the entrade.com software. This license agreement
and the fees are described in more detail in "Business--Entrade Inc."
OUR STOCK ISSUANCE AGREEMENT WITH WARREN ROTHSTEIN.
In connection with the formation of ATM Service, Ltd., Warren Rothstein
received 4,000,000 shares of our common stock valued at $4,000,000 which are
subject to forfeiture. The Stock Issuance Agreement provides that in each fiscal
quarter, commencing with the fiscal quarter ended March 31, 1999, if
Mr. Rothstein provides listings of merchandise for ATMcenter.com with a retail
value of $1,250,000 or more, 200,000 of his shares will be automatically
released from the forfeiture provision of the agreement. If Mr. Rothstein does
not provide the required listings during any quarter, he will forfeit 200,000 of
his shares. Our agreement with Mr. Rothstein does not specify who determines
that the required listings have been provided. Mr. Rothstein has provided us
evidence of listings on ATMcenter.com in excess of $1,250,000 in each of the
past five fiscal quarters and 1,000,000 shares have been released from the
forfeiture restrictions.
CORPORATE GOVERNANCE
We own 52% of ATM Service, Ltd. and 100% of The Intrac Group, Ltd. The
boards of directors and executive officers of the two companies are identical.
ATM SHAREHOLDERS AGREEMENT
The relationship between WorldWide Web NetworX Corporation, ATM
Service, Ltd. and ATM's individual shareholders is governed by a shareholders
agreement among WorldWide Web NetworX Corporation, Warren Rothstein, Thomas
Settineri and Gary Levi. Rothstein, Settineri and Levi collectively own 48% of
ATM Service, Ltd.'s capital stock, subject to the closing of a stock purchase
agreement dated January 26, 2000 among Rothstein, Settineri, Levi and
Entrade Inc. Upon the closing of that transaction, Rothstein, Settineri, and
Levi would collectively own 33% of ATM's capital stock and Entrade Inc. would
own 15% of ATM's capital stock. The transaction is subject to the execution of
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an amended ATM Service, Ltd. Shareholders Agreement and the approval of the
Entrade Inc. shareholders. The current shareholders agreement provides for a
five-member ATM Service, Ltd. board of directors consisting of two directors
appointed by WorldWide Web NetworX Corporation, and one director appointed by
each of Rothstein, Settineri and Levi. WorldWide Web NetworX Corporation has
designated Gerard T. Drumm, WorldWide Web NetworX Corporation's interim
President and Chief Executive Officer, and John T. Banigan, WorldWide Web
NetworX Corporation's Executive Vice President and Chief Financial Officer, as
its directors. Under the shareholders agreement that will be executed upon the
closing of the proposed Entrade Inc. purchase of ATM Service, Ltd. stock,
Entrade Inc. would have the right to appoint one director and Gary Levi would no
longer have that right.
In addition, the ATM shareholders agreement provides as follows:
TRANSFERS OF ATM SERVICE, LTD. SHARES: Without the unanimous consent of the
ATM Service, Ltd. board of directors, no stockholder may encumber its shares or
transfer its shares except for transfers to affiliates or for estate planning
purposes. The individual stockholders have the right to put a portion of their
shares to ATM Service, Ltd. upon death. The stockholders have a right of first
refusal and tag-along rights on any sale of stock by a stockholder that
constitutes more than 50% of the outstanding stock of ATM Service, Ltd. The
board of directors may compel a stockholder to sell and cooperate with the sale
of ATM Service, Ltd. to a third party.
FUNDING: WorldWide Web NetworX Corporation loaned $3.5 million to fund ATM
Service, Ltd.'s operations with interest payable at the minimum rate permissible
under the Internal Revenue Code, $1 million of which ATM has loaned to Intrac.
The principal and interest accrued are due upon the earlier of 10 years, an
initial public offering of ATM Service, Ltd. or the receipt of $15 million in
financing for ATM Service, Ltd.
INTRAC MERGER AGREEMENT
The merger agreement we entered into with The Intrac Group and
Messrs. Settineri and Levi in connection with our acquisition of The Intrac
Group contains comprehensive provisions that govern the management of The Intrac
Group, Ltd.
ASSETCONTROL.COM, LLC
On March 10, 2000, ATM joined with Textron Financial Corporation, a division
of Textron, Inc., Entrade Inc. and Safeguard Scientifics, Inc. to form
AssetControl.com, LLC, which is a Delaware limited liability company that is
owned 47.5% by Textron, 38% by Entrade, 9.5% by ATM and 5% by Safeguard. ATM and
Entrade have agreed in principle that, although ATM owns only 9.5% of
AssetControl, LLC, ATM will receive 23.75% of all income that AssetControl.com
distributes to its members and the parties are currently negotiating an
amendment to AssetControl's Operating Agreement to reflect that arrangement. The
AssetControl.com website became operational at the end of April 2000.
AssetControl provides asset disposition services for excess industrial
equipment, machinery and other assets, either on its own or through companies,
including ATM, with whom it contracts who will share the revenues derived from
the sale of such equipment, machinery and other assets.
NAI DIRECT, INC.
On September 23, 1999, we entered into a joint venture with New America
Network, Inc. to form NAI Direct, Inc., which is developing NAIdirect.com, a web
site that will permit corporate, governmental and institutional users, as well
as local business operators and private investors, to obtain
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commercial real estate services on-line, either directly or through New America
Network member brokers or third parties. We expect these services will include:
- A public portal that will allow users to have free access to browse
commercial property listings, commercial real estate news and information,
as well as providing access to NAI broker services and related real estate
services such as appraisals, title insurance, financing, surveying, and
environmental assessments.
- A corporate user portal through which a user can manage existing owned or
leased real estate properties, on-going commercial real estate
transactions, and listings of properties for sale.
- A broker portal through which NAI Direct member brokers can manage
transactions and list properties.
New America Network is a global system of real estate service providers,
branded as "New America International" and "NAI", that provides brokerage,
financial and investment services, property/facilities management and strategic
advisory services to the office, industrial and retail sectors.
NAI Direct is in the process of modifying and enhancing a software
application called Real Trac for use on NAIdirect.com. Real Trac is a
proprietary commercial real estate transaction management software developed by
New America Network for internal use. NAI Direct and New America Network have
not yet entered into a license agreement for Real Trac, however, they have
agreed to execute a form of agreement provided for in the Real Quest
shareholders agreement under which NAI Direct will pay New America Network a
royalty fee equal to 5% of NAI Direct's monthly gross revenue for the use of
Real Trac. Using Real Trac, NAIdirect.com will allow users to track transactions
with bulletin board, periodic reporting, contact listing and key document access
features. The transaction management software has been modified for use on
NAIdirect.com. NAI Direct is in the process of incorporating NAI broker
information on the web site and negotiating license agreements with third party
providers of information for use by the commercial real estate community,
including demographic, environmental and comparable sales data. We expect
NAIdirect.com to be operational by the end of June 2000. NAI has agreed to place
all of its commercial real estate listings on NAIdirect.com and will encourage
all NAI member brokers to place all of their local commercial real estate
listings on NAIdirect.com. The site will also offer a researched database so
that brokers and owners can instantly access potential tenants, investors or
lenders by delivering information to them electronically. It will also be
designed to offer large investment properties via privately negotiated sales or
auction. We anticipate that NAI Direct will receive revenue from a variety of
sources which will include transaction fees, property marketing fees, referral
fees from providers of related real estate services, royalty fees from on-line
sales of market and demographic data, premium fees for auction services, and
advertising fees.
Our ownership in NAIdirect.com is held through two subsidiaries: Real
Quest, Inc. and NAI Direct, Inc. In exchange for an 80% ownership interest in
Real Quest, Inc., we issued to New America Network, Inc. 750,000 shares of our
common stock and delivered an additional 750,000 shares in escrow to be
transferred to New America Network, Inc. upon NAI Direct earning cumulative
revenue of $2,000,000 within 24 months of the launch of the NAIdirect.com web
site. We have also provided $1,000,000 for working capital for NAI Direct, Inc.
in the form of a loan which may be drawn upon with approval from the President
of NAI Direct and the Chief Financial Officer of WorldWide Web NetworX
Corporation. The loan bears interest at the minimum rate permissible under the
Internal Revenue Code. The principal and interest on the loan are due at the
earlier of 10 years from the date of issuance or the occurrence of any of the
following events (1) the issuance by NAI Direct of a note or other evidence of
indebtedness (or the incurrence by NAI Direct in any other manner of any
indebtedness) or of a security or other instrument evidencing an ownership
interest in, or convertible into, or otherwise linked to, an ownership interest,
in NAI Direct, or the sale by NAI Direct of all or a material part of its
assets, whether or not such assets are thereafter leased by NAI Direct or any
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affiliate of NAI Direct which, in each case, makes available to NAI Direct,
without material conditions that remain unsatisfied, funds equal to or in excess
of $5,000,000 or (2) a bona fide, underwritten public offering of securities of
NAI Direct, the net proceeds of which to NAI Direct are greater than $5,000,000.
In addition, we have agreed to provide up to $4,000,000 in working capital
within 18 months of September 23, 1999 in the form of a loan or otherwise, of
which we have funded $300,000.
CORPORATE GOVERNANCE
We own 80% of Real Quest, Inc. and New America Network, Inc. owns 20%. Real
Quest, in turn, owns 80% of NAI Direct, Inc., subject to future dilution. The
remaining 20% of NAI Direct, Inc. is owned by the executive officers of NAI
Direct and New America Network, Inc. including Gerald Finn, the Chief Executive
Officer of New America Network, Inc., and Jeffrey Finn, the President and Chief
Operating Officer of New America Network, Inc.
REAL QUEST, INC. SHAREHOLDERS AGREEMENT
The Real Quest shareholders agreement between WorldWide Web NetworX
Corporation, New America Network, Inc., and Real Quest, Inc., provides for a
board of directors consisting of five members. New America Network, Inc. may
select two directors and WorldWide Web NetworX Corporation may select two
directors. The fifth director may be jointly selected by New America
Network, Inc. and WorldWide Web NetworX Corporation. WorldWide Web NetworX
Corporation has designated Gerard T. Drumm and John T. Banigan as its appointees
to the Real Quest board of directors. The Shareholders Agreement contains
comprehensive provisions that govern the management of Real Quest.
NAI DIRECT SHAREHOLDERS AGREEMENT
The terms of this shareholders agreement among Real Quest, Inc., NAI Direct,
Gerald Finn, Jeffrey Finn and the other individual shareholders are
substantially similar to the Real Quest shareholders agreement. The NAI Direct
shareholders agreement provides for the same method of selecting the board of
directors and provides for Gerald Finn and Jeffrey Finn to hold the same
offices. WorldWide Web NetworX Corporation has designated Gerard T. Drumm and
John T. Banigan as its appointees to the NAI Direct board of directors. The NAI
Direct shareholders agreement also provides for the following:
18 MONTH LOCK-UP: For the period of 18 months from September 23, 1999, none of
the parties may sell any portion of their equity interests in NAI Direct without
the written consent of the other parties, except for transfers to family members
and other shareholders who are employees of NAI Direct.
RIGHTS OF FIRST REFUSAL: In the event a shareholder of NAI Direct receives an
offer to purchase his or her NAI Direct shares, the shareholder must first offer
the shares to NAI Direct on the same terms and if NAI Direct does not accept the
offer, the other shareholders of NAI Direct who are officers or employees of NAI
Direct will have the right to purchase the shares on the same terms.
TAG-ALONG RIGHTS: If Real Quest receives an offer for all of the shares of NAI
Direct, Real Quest must give notice of such offer to the shareholders of NAI
Direct and permit them to include their shares of NAI Direct, on a pro rata
basis, in the proposed sale on the same terms.
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REPURCHASE OF EMPLOYEE'S SHARES: NAI Direct has the right, within 30 days
following the last of day of employment, to purchase the shares of any employee
who owns less than 2% of NAI Direct at October 31, 1999 for $.10 per share if
the repurchase occurs before October 1, 2002 and $.15 if the repurchase occurs
between October 1, 2002 and September 30, 2004. If NAI Direct does not exercise
its right, the shareholders who owned more than 2% of NAI Direct at October 31,
1999 may exercise such right.
DEFAULT UNDER REAL QUEST SHAREHOLDERS AGREEMENT: If there is a default and
termination under the Real Quest shareholders agreement, NAI Direct will
purchase all of the shareholders' shares at par value and all shareholders of
NAI Direct agree to sell their shares at par value to NAI Direct.
TWO-YEAR NON-COMPETE: Each of the parties has agreed that for a period of two
years after ceasing to be a shareholder of NAI Direct, such party will not
become an owner, employee or consultant of, or otherwise connected with, any
business that competes with NAI Direct.
WWWX-JENCOM, LLC AND INTERCOMMERCE CHINA, LLC
WWWX-JENCOM, LLC
In February 1999, we entered into an acquisition agreement to purchase video
technology and other projects in various stages of development from JenCom
Digital Technologies, LLC. In March 1999, we formed WWWX-Jencom, LLC with JenCom
Digital and contributed the purchased projects to WWWX-Jencom to establish a
joint venture for the commercialization of JenCom Digital's technology projects.
Our investment with JenCom Digital was a condition to the Stock Purchase
Agreement between us and D.H. Blair Investment Banking Corp., which served as
placement agent in connection with a series of our private placements. We own
50% of WWWX-Jencom, LLC. See "Item 7. Certain Relationships and Related
Transactions-D.H. Blair and JenCom Digital."
Under our acquisition agreement with JenCom Digital, we issued 2,000,000
shares of our common stock valued at $3,000,000 to JenCom Digital in exchange
for the video technology and other projects in various stages of development
from JenCom Digital that we contributed to WWWX-Jencom, LLC. We had also agreed
to issue an additional 3,000,000 shares of our common stock to JenCom Digital if
the video technology and other assets met goals set forth in the acquisition
agreement. In addition, under the terms of the acquisition agreement, in
March 1999, we loaned $900,000 to JenCom Digital, free of any interest. JenCom
Digital assigned this loan to WWWX-Jencom. The loan is to be repaid at the
earliest of (1) ten years from March 15, 1999, (2) a third-party investment in
WWWX-Jencom, LLC of $10,000,000 or (3) the sale of any asset by WWWX-Jencom, LLC
having proceeds exceeding $5,000,000.
RENEGOTIATIONS OF THE WWWX-JENCOM, LLC OPERATING AGREEMENT
Under the previous operating agreement for WWWX-Jencom, Henry Kauftheil, the
President of JenCom Digital, was appointed to act as sole manager of
WWWX-Jencom. Mr. Kauftheil was granted broad powers under the operating
agreement to run the affairs of WWWX-Jencom without consulting us. In
December 1999, we executed an agreement with JenCom Digital, its parent
International Commerce Exchange Systems, Inc. and others in which JenCom Digital
agreed to enter into a new operating agreement which would provide that JenCom
Digital share management control of WWWX-Jencom with us. In consideration of
this agreement we agreed to file a registration statement for JenCom Digital's
2,000,000 shares of our common stock before May 17, 2000. This agreement also
terminated JenCom Digital's right to receive the additional 3,000,000 shares of
our common stock on obtaining the performance criteria listed above. Instead,
International Commerce Exchange Systems received 1,500,000 shares of our common
stock upon the execution and delivery of the operating agreement for
InterCommerce China, LLC, described below, and is entitled to receive an
additional 1,500,000 shares of our common stock if InterCommerce China becomes a
public company and has either a market capitalization of $50,000,000 or a third
party investment of $5,000,000.
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In January 2000, we executed an Amended and Restated Operating Agreement of
WWWX-Jencom, LLC with JenCom Digital that provides that WWWX-Jencom, LLC will be
managed jointly by our designee, who is John T. Banigan, and Henry Kauftheil. We
are still in the process of exercising our management control over WWWX-JenCom.
JENCOM PRODUCTS
WWWX-Jencom, LLC owns four technology products. These technology products
are being developed in the State of Israel by JenCom Digital and we do not have
any involvement with their development or production. JenCom Digital has
represented to us, but we have not independently verified, the status of the
four products as follows:
VUCAM
VuCam is a software system that broadcasts events, specific locations, and
strategic positions over the Internet or via standard point-to-point modem
connections. Currently, VuCam is in an advanced development phase with working
models deployed in several sites. JenCom Digital is currently testing the
product and developing methods to install VuCam. JenCom Digital anticipates that
the product line will be built in the third quarter of 2000 and, with the
exception of component supplier relationships, all marketing and sales efforts
will be implemented. JenCom Digital anticipates VuCam will be able to enter the
market in the fourth quarter of 2000. The only foreseeable impediment to the
manufacture and sale might be a delayed application for Microsoft Windows 95/98
compatibility.
VuCam has a U.S. patent pending. The patent relates to a video surveillance
system comprising a robotic video camera and server at a remote location
providing remote user access through a Microsoft Windows environment.
TRUE SOUND
True Sound is an Internet sound technology that is designed to compress
soundwaves into smaller pieces than other technologies to be transmitted over
the Internet. This technology is intended to enable sound transmission over the
Internet with smaller packages of information producing more accurate sound
reproduction. Currently, True Sound is in the advanced development stage. JenCom
Digital hopes to begin the next phase of testing of the True Sound software in
the first quarter of 2001 with a market introduction in the second quarter of
2001. The sales and marketing division plans to hire a full-staff team to
implement their efforts.
STUDENT NETWORK APPLICATION
Student Network Application is a user-friendly system that enables
educators, students, and parents to continuously participate in a variety of
school activities both curricular and extracurricular in an interactive
multimedia environment. The application also provides administrators with
applications for a variety of administrative tasks.
The Student Network Application is at approximately the midpoint of its
development. The database architecture is nearly complete. The front-end user
interface and other user functions have not yet been developed.
JenCom Digital anticipates that the next phase of testing of the software
will commence in the fourth quarter of 2000 once the design and development of
the administrative and other primary modules, including the
parent/student/teacher interface, as well as the basic student demographic
system are completed. Market introduction is expected in the first quarter of
2001.
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POWER BROKER
Power Broker is designed to provide institutional fund managers with the
tools necessary to establish cross-department (research, sales and trading)
business functions that lead to effective order executions as well as accurate
forecasting and fund performance tracking. Currently, the Power Broker program
is in the development stage. With the recent market shift from a Windows
CE-dominated field to Palm OS technology, the software requires re-configuration
for compatibility with the new market leader.
JenCom Digital anticipates that testing of the software will commence in the
third quarter of 2001 with a market introduction in the fourth quarter of 2001.
INTERCOMMERCE CHINA, LLC
In connection with our agreement with JenCom Digital described above, we
agreed with International Commerce Exchange Systems, Inc., Henry Kauftheil,
InterCommerce China, LLC, a joint venture between JenCom Digital and other
parties, for which Warren Rothstein had agreed to act as the sole distributor of
goods, that WorldWide Web NetworX Corporation would be issued 33.33% of
InterCommerce China's equity and John Banigan has been designated as WorldWide
Web NetworX Corporation's appointee to serve as one of the three directors of
InterCommerce China.
In January 2000, we entered into an Amended and Restated Operating Agreement
of InterCommerce China, LLC with International Commerce Exchange Systems, Inc.,
Lester Wolff International Investment, Ltd., Henry Kauftheil, Peter Zhenxiang Lu
and Uncas Holdings Limited Partnership. We have a 33.33% interest in
InterCommerce China, LLC. Henry Kauftheil will manage InterCommerce China, LLC,
subject to the approval of 70% of the members for major decisions that are set
forth in the agreement.
In January 2000, ATM Service, Ltd. entered into a Distribution and Operating
Agreement with InterCommerce China, LLC that irrevocably appoints ATM
Service, Ltd. as exclusive agent to distribute and sell, for a ten-year term,
the merchandise that InterCommerce China, LLC is entitled to redistribute from
China under any agreements with China Product TradeNet Center, a Chinese
government agency responsible for managing overstocked inventory in
Chinese-owned factories throughout China. ATM Service, Ltd. will receive a
transaction fee and a service fee based on the sales proceeds as calculated in
the agreement.
ENTRADE INC.
On February 23, 1999, we entered into a merger agreement with Artra Group
Incorporated, a publicly-traded New York Stock Exchange listed company, in which
we agreed to sell our Entrade Inc. subsidiary to Artra. We completed the sale on
September 23, 1999. The transaction resulted in Entrade Inc. surviving as the
parent of Artra and succeeding to Artra's New York Stock Exchange listing under
the symbol ETA. As a result of the transaction, on September 23, 1999, we owned
1.8 million shares, or approximately 15%, of Entrade Inc.'s common stock and
received $1.3 million in cash following the execution of the merger agreement.
Additionally, we received $1.3 million in funding for the operations of Entrade
from Artra for the period from February 28, 1999, through September 23, 1999.
Since that time, the percentage of our ownership interest in Entrade Inc. has
been diluted because Entrade Inc. has issued stock to other investors. Under the
merger agreement, for as long as our percentage ownership of Entrade Inc. common
stock is greater than five-percent, Entrade Inc. must use its best efforts to
cause our designee, if acceptable to the Entrade Inc. board of directors, to be
elected to the Entrade Inc. board of directors. Our board of directors has
designated Mr. Drumm as our representative on the Entrade Inc. board of
directors. See "Item 7. Certain Relationships and Related Transactions."
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entrade.com, Inc., a subsidiary of Entrade Inc., is a business-to-business
e-commerce solutions provider, which owns proprietary e-commerce and online
auction technologies. It licenses and utilizes these technologies to create
online business communities and virtual distribution centers for the purchase
and sale of corporate assets including inventories, products and services.
ENTRADE.COM SOFTWARE
ATM has a non-exclusive license to use and the right to sublicense
entrade.com's proprietary software as the operating system underlying the
ATMcenter.com web sites. entrade.com may terminate the license only upon ATM's
material breach of the agreement or ATM's bankruptcy or dissolution. Upon the
execution of the license agreement, ATM issued $1,500,000 of combination trade
credits to entrade.com, which entrade.com can use to acquire products and
services. In a combination trade credit transaction, entrade.com purchases
products and/or services for a combination of cash and trade credits equal to
the value of such products and/or services. As ATM provides products and
services to entrade.com, the trade credit will be reduced by the amount of the
trade credit utilized in each transaction. In addition, entrade.com will earn
fees for transactions generated by the use of the entrade.com software on ATM's
websites in accordance with the following schedule:
FEES PAYABLE TO ENTRADE
<TABLE>
<CAPTION>
PERCENTAGE TO BE PAID
TYPE OF TRANSACTION GENERATING FEE TYPE OF FEE TO ENTRADE.COM
- ---------------------------------- ------------------ ---------------------
<S> <C> <C>
Master License Sales (Overseas)....................... Fixed Fee 50%
Sub License Sales (Overseas).......................... Fixed Fee 50%
Sub License Sales (Domestic).......................... Fixed Fee 50%
Subscription Agreements............................... Variable 30%
Transaction Fees...................................... Fixed Fee 30%
Subscription Renewals................................. Variable 30%
On Line Product Remarketing Sales..................... Marginal Profit 10%
Countertrade Redistribution Sales..................... Marginal Profit 50%
</TABLE>
The $1,500,000 trade credit issued by ATM to entrade.com will be reduced by
the amount of the fees earned by entrade.com pursuant to the foregoing schedule.
ATM may pay entrade.com any fees due under the agreement by providing goods,
services and media (as discussed above).
ENTRADE.COM
In connection with our sale of Entrade Inc., our then Chairman, President
and Chief Executive Officer, Robert Kohn, was required to enter into an
employment agreement with Artra Group Incorporated, that was subsequently
assigned to entrade.com. At the closing of the sale on September 23, 1999, Artra
required Mr. Kohn to resign all of his positions with us. See "Item 7. Certain
Relationships and Related Transactions."
VISION TECHNOLOGIES, INC.
We entered into a term sheet dated March 19, 1999 with Vision
Technologies, Inc., to acquire Vision for stock and cash. We advanced $650,000
in cash to Vision on March 23, 1999. JenCom Digital Technologies, LLC
contributed $350,000 to Vision on behalf of WWWX-Jencom, LLC on April 28, 1999.
On July 12, 1999, we agreed with Vision to amend the term sheet so that we would
make an investment in Vision rather than acquire the whole company. We advanced
an additional $200,000 to Vision that day. The term sheet terminated on
August 26, 1999. As a result of the termination, Vision had the option to either
return to us, within 180 days, the cash we advanced to Vision or to convert that
amount into Vision common stock at a conversion rate specified in the term sheet
at an
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unspecified date. To date Vision has not yet produced or sold products. We can
not assure you that Vision will be able to continue to operate if it does not
secure additional funding. See "Item 7. Certain Relationships and Related
Transactions." See "Item 2. Financial Information-Management's Discussion and
Analysis of Financial Condition and Results of Operation."
VIDEONET CORPORATION
In July 1999, we advanced $100,000 to VideoNet Corporation, a company that
is developing video conferencing technology. Our investment was secured by a 12%
$100,000 convertible note. In November 1999, we agreed to convert the note and
the accrued interest into shares of convertible preferred stock representing
approximately 2.4% of the equity of VideoNet.
ONE WORLD DIRECT, INC.
We own 450,000 shares, or approximately 5%, of One World Direct, Inc., a
Nevada corporation doing business as One World Networks Integrated Technologies.
One World Direct has a web site, oneworldlive.com, which it uses as a gateway
for consumers to purchase products, find current information on a variety of
subjects and interact directly with celebrities.
ASSETTRADE.COM, INC.
In April 1999, in connection with our acquisition of assets from Admiral
Asset Group, we acquired shares of AssetTrade.com, that currently represent
approximately 1.2% of AssetTrade.com, Inc. AssetTrade.com provides traditional
off-line asset recovery, disposal and marketing with Internet-based asset
recovery, inventory management and plans to provide on-line auctions for large
industrial and commercial organizations. See "Business-Admiral Asset Group" and
"Item 7. Certain Relationships and Related Transactions-Robert Kohn
Related-Party Transactions."
ADMIRAL ASSET GROUP
In April 1999, we acquired assets from Admiral Asset Group, Inc. including a
2% ownership interest in the non-voting common stock of AssetTrade.com, Inc. and
Admiral's network of business contacts in exchange for 750,000 shares of our
common stock valued at $1,125,000. We also agreed to fund Admiral's operating
budget for one year, and disclaimed assuming any other liabilities. The ongoing
operations of Admiral are minimal and include expenses for marketing, travel,
entertainment, office rent and supplies and wages for one employee. Our
obligation to pay for Admiral's expenses ended on February 29, 2000 but we may
continue to fund Admiral's expenses of approximately $20,000 per month on a
month-to-month basis. Admiral Asset Group is a transaction finder that may bring
transactions to us, ATM Service, Ltd., The Intrac Group, Ltd. or NAI
Direct, Inc.
GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES
FOREIGN LAWS AND REGULATIONS
Because we have relationships with ATMcenter.com agents in Mexico, China,
Israel and Korea and plan on entering into similar relationships with
representatives in other countries, and InterCommerce China has relationships in
China, we may be subject to the laws of those jurisdictions which pertain to our
activities in those jurisdictions and may include the buying, selling and
shipping, storing and importing and exporting of merchandise, the provision of
services and transacting business over the Internet. Additionally, because ATM
Service, Intrac, and NAI Direct offer and facilitate the sales of goods and
services worldwide, foreign jurisdictions may claim that our companies are
required to comply with their laws. Any future foreign regulation may have a
negative impact on our companies' methods of operations or result in additional
costs.
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TAXES
ATM Service, Ltd. and The Intrac Group, Ltd. do not collect or pay sales or
other similar taxes for assets or services purchased or for trade credits issued
or redeemed. We may be obligated to collect or pay such taxes in the future. The
imposition of sales, use, value-added or similar taxes could diminish our
competitiveness and harm our business.
INVESTMENT COMPANY ISSUES
We believe that we are actively engaged in the business of
business-to-business e-commerce through our subsidiaries and companies that we
are considered to "control." Under the Investment Company Act of 1940, as
amended, we are presumed to control a company if we own more than 25% of that
company's voting securities. We currently own 1.8 million shares, or
approximately 11%, of Entrade Inc. The price of Entrade Inc. stock has increased
significantly since it began trading on September 23, 1999 and our 1.8 million
shares had a market value of approximately $55.6 million on March 31, 2000. We
may be required to register as an investment company if more than 45% of our
total assets consist of, and more than 45% of our income/loss and revenue over
the last four quarters is derived from ownership interests in companies we do
not primarily control. Because we own neither a majority nor a controlling
interest in Entrade Inc., we could fail both of the 45% tests, and be deemed an
investment company under the Investment Company Act. In that event, we would
have to register as an investment company unless the SEC issued an order finding
that we were primarily engaged in a non-investment business. Because we own only
11% of Entrade, and our percentage ownership could decline, the SEC may not
issue such an order. It is not feasible for us to register as an investment
company because the Investment Company Act regulations are inconsistent with our
strategy of actively managing, operating and promoting collaboration among our
companies
In order to avoid investment company status, we may be obligated to dispose
of our Entrade Inc. stock sooner than we otherwise would at prices which could
be lower than they otherwise might be or we may be forced to forego an
opportunity to purchase an investment security that would be important to our
core operating strategy. If we are deemed an investment company, we would be in
violation of the Investment Company Act and we would have to either comply with
the Investment Company Act or we could be ordered to cease 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.
COMPETITION
ENTRADE INC.
We sold Entrade Inc. to Artra Group Incorporated in September 1999. For a
description of that transaction, see "Business-Entrade Inc." Entrade Inc. owns
or has equity interests in a group of business-to-business Internet companies
including entrade.com, utiliparts.com, AssetTrade.com, printeralliance.com,
pricecontainer.com, TruckCenter.com, AssetControl.com and TradeTextile.com.
Entrade has also recently acquired all of the capital stock of Public
Liquidations Systems, Inc. and Asset Liquidation Group, Inc., which engage in
business under the name Nationwide Auction Systems. Entrade's strategy is
similar to ours in that it plans to invest in and migrate the traditional
off-line business transactions of its businesses onto the Internet and it
operates businesses that buy and resell non-performing and other assets. Entrade
principally makes investments in such companies by exchanging licenses in its
transaction technologies for equity interests. In addition, Entrade's strategy
encompasses e-commerce sales, marketing, and procurement applications.
We actively encourage the companies that we have equity interests in to work
together and develop relationships among each other. While we believe that
WorldWide Web NetworX Corporation benefits from such relationships, we recognize
that we may compete with the companies that we have
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equity interests in, principally Entrade Inc. and its subsidiaries and
affiliated companies. As a competitor, Entrade has unusual access to and
knowledge of our business including the following:
- Robert Kohn, our former Chief Executive Officer and President was, until
April 2000, Chief Executive Officer and President of entrade.com and a
member of the board of directors of Entrade Inc.;
- Upon the closing of a stock purchase agreement dated January 26, 2000
among Warren Rothstein, Thomas Settineri, Gary Levi and Entrade Inc.,
Entrade Inc. would own 15% of ATM's capital stock.
- A number of our former employees, who were members of our technical and
administrative staff, are now employees of entrade.com;
- We rely on and are obligated to pay license fees to entrade.com for the
use of its proprietary software which we use to run ATMcenter.com and its
related web sites. We sold this software to Artra Group Incorporated in
September of 1999 as part of the sale of Entrade;
- We rely on the technical staff at entrade.com to maintain and upgrade all
of our computer systems and software and our web sites. As a result of
entrade.com's provision of technical support, entrade.com has unlimited
access to all our information systems and therefore all the files and
documents that are on our computer systems. We have no written agreement
for the provision of these services and they may be terminated without
notice;
- We rely on entrade.com to provide us with administrative functions
including reception and facilities management. We also share our phone
system with entrade.com; and
- We also currently share undivided office space with entrade.com which
promotes communication between entrade.com employees and WorldWide Web
NetworX Corporation employees. entrade.com, Inc. pays WorldWide Web
NetworX Corporation an allocable portion of the lease applicable to its
space. See "Item 3. Properties." We plan to separate the offices of
WorldWide Web NetworX Corporation and entrade.com, as well as maintain
separate computer and phone systems.
For more information regarding the transactions that caused this shift of
personnel and assets from WorldWide Web NetworX Corporation to Entrade Inc., see
"Item 7. Certain Relationships and Related Transactions."
COMPETITION FACING THE COMPANIES IN WHICH WE OWN INTERESTS
The Internet has produced intense competition for products and services
because it has reduced transaction costs and increased the ability of companies
that offer products and services to market to and communicate with potential
customers. As the market for business-to-business e-commerce grows, we expect
that competition will intensify as traditional business competitors move to the
Internet and Internet competitors expand their businesses and market reach.
Some of the companies in which we own interests compete to attract and
retain buyers and sellers. Several companies offer competitive solutions that
compete with one or more of the companies in which we own interests. We expect
that additional companies will offer competing solutions on a stand-alone or
combined basis in the future. Furthermore, our competitors may develop Internet
products or services that are superior to, or have greater market acceptance
than, the solutions offered by the companies in which we own interests. If the
companies in which we own interests are unable to compete successfully against
their competitors, such companies may fail.
Many of our competitors have greater brand recognition and greater
financial, marketing and other resources than the companies in which we own
interests. This may place the companies in which
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we own interests at a disadvantage in responding to their competitors' pricing
strategies, technological advances, advertising campaigns, strategic
partnerships and other initiatives.
There are a number of companies that compete with ATM and Intrac in the
off-line asset remarketing business and with respect to the utilization of trade
credits. These companies include Active International, Tradewell, Inc., Atwood
Richards, Inc. and Icon International, Inc. Most of these companies are asset
liquidators who, like ATM, utilize trade credits in full or partial payment for
excess inventories of products or services and then re-market these products or
services for cash. Thereafter, their customers can purchase products or services
with these trade credits or a combination of cash and trade credits, as agreed
by the parties in connection with the purchase and sale of the excess
inventories.
To our knowledge, among ATM's competitors, only Icon International and
Atwood Richards use the Internet in connection with the purchase and sale of
products and none of these other companies is involved in new product sales. We
believe that, of the competitors that utilize trade credits, Active
International is the most dominant. Competition in the asset recovery industry
for transactions is intense, however, ATM and Intrac believe they compare
favorably with competitors based upon their experience, the breadth of their
contacts in the asset recovery industry, their reputation and relationships, and
the quality of the service they provide to customers. ATM and Intrac expect
competition to increase as traditional competitors take advantage of the
Internet and e-commerce by launching web sites to advertise their products and
services, communicate with potential customers and effect transactions on-line.
As more competitors offer similar services over the Internet, it will be more
difficult for ATM to distinguish itself from its competitors. We believe that
ATM's reputation and relationships will continue to distinguish it from its
competitors, however, price, brand recognition and the appearance, functionality
and ease of use of ATM's web sites may ultimately become more important factors
in obtaining and retaining customers.
In addition, there are numerous companies that have developed or are in the
process of developing auction sites on the Internet to buy and sell products and
merchandise. These companies could compete directly with ATM and Intrac.
COMPETITION IN ATTRACTING COMPANIES
We face competition from other capital providers such as publicly-traded
Internet companies, venture capital companies and other corporations. Most of
these competitors have greater financial resources and brand name recognition
than we do and companies in search of financing may be more likely to align
themselves with a better known company or investor and one with more financial
resources. These competitors may limit our opportunity to acquire interests in
new companies. If we cannot acquire interests in attractive companies, our
business strategy may not succeed.
COMPETITION WITH COMPANIES IN WHICH WE OWN INTERESTS
We may compete with the companies in which we own interests for
Internet-related opportunities. We may also compete with the companies in which
we own interests to acquire interests in business-to-business e-commerce
companies, and the companies in which we own interests may compete with each
other for acquisitions or other business-to-business e-commerce opportunities.
The companies in which we own interests, therefore, may seek to acquire
companies that we would find attractive. While we may join with the companies in
which we own interests on future acquisitions, we have no current contractual
obligations to do so. We do not have any contracts or other understandings with
the companies in which we own interests that would govern the resolution of
these potential conflicts. Such competition may deter companies from entering
into strategic relationships with us and may limit our business opportunities.
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INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
ATM Service, Ltd. licenses from entrade.com the software it uses to run the
ATMcenter.com web site. The license is perpetual and non-exclusive and is
described more fully in the section "Business--Entrade Inc." This license is
important to our planned business for ATM and Intrac. If ATM were unable to use
the software it would require significant cost and time to develop a similar
application. Any interruption in ATM's web site's ability to eventually process
transactions could affect ATM's ability to obtain and retain Internet customers.
ATM has applied for service mark applications for "ATMCenter.com", "Instant
Invoice", "Instant P.O." and "Instant Purchase Order" which applications are
still pending.
NAI Direct and New America Network agreed to execute a form of agreement
that was provided for in the Real Quest shareholders agreement under which NAI
Direct will pay New America Network a royalty fee equal to 5% of NAI Direct's
monthly gross revenue for the use of Real Trac, but to date have not executed
the agreement. Real Trac is a proprietary commercial real estate transaction
management software developed by New America Network for internal use. We
believe the use of Real Trac is important to NAI Direct's business. If NAI
Direct were unable to use Real Trac, it would require significant cost and time
to develop a similar application.
NAI Direct owns the service mark for "NAI Direct, Inc." and the NAI Direct
logo.
EMPLOYEES
As of March 31, 2000,
- WorldWide Web NetworX Corporation had twelve full-time employees.
- ATM Service, Ltd. had a staff of 13 full-time employees, two part-time
employees and utilized the services of an additional eight persons who are
employees of D&W Enterprises, a company owned by Warren Rothstein. ATM
Service, Ltd. reimburses D&W Enterprises for the services of the
additional eight persons. See "Item 7. Certain Relationships and Related
Transactions."
- The Intrac Group, Ltd. had two part-time employees.
- WWWX-Jencom, LLC had no full-time employees; WWWX-Jencom, LLC reimburses
JenCom Digital Technologies, LLC for the services of the employees who
work on the JenCom projects.
- NAI Direct, Inc. had 12 full-time employees.
We consider our relationships with our employees to be good. None of our
employees are covered by collective bargaining agreements.
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ITEM 2. FINANCIAL INFORMATION.
SELECTED FINANCIAL INFORMATION
The tables that follow present portions of our financial statements and are
not complete. You should read the following selected financial information in
conjunction with our financial statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this registration statement. The statement of
operations data for the two years ended September 30, 1999 and the balance sheet
data as of September 30, 1999 and 1998 are derived from our audited financial
statements, which are included elsewhere in this registration statement. The
statement of operations data for the year ended September 30, 1997 and the
balance sheet data as of September 30, 1997 is that of Instra Corp., a
predecessor company and has been derived from its audited financial statements
that are included in this registration statement. The interim financial data set
forth below for the three month periods ended December 31, 1998 and 1999 has
been derived from our unaudited financial statements included elsewhere in this
registration statement. Our unaudited financial statements include all
adjustments consisting of only normal recurring adjustments, that management
considers necessary for a fair presentation of the financial position and
results of operations for the periods presented. Operating results for the three
months ended December 31, 1999 are not necessarily indicative of the results
that may be expected for the entire year ending September 30, 2000. Historical
results are not necessarily an indication of future results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" We
have not included financial information for periods prior to September 30, 1997,
as the prior operations are not meaningful.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------------ -------------------
1999 1998 1997 1999 1998
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................................. $ 1,339 $ 50 $ -- $1,041 $163
Loss from operations................................. (13,949) (139) (166) (2,937) (24)
Gain on sale of subsidiary........................... 25,426 -- -- -- --
Net income (loss).................................... 1,612 (219) (165) (2,616) (95)
Net income (loss) per share:
Basic................................................ .07 (.03) (.08) (.07) (.01)
Diluted.............................................. .07 (.03) (.08) (.07) (.01)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------ DECEMBER 31,
1999 1998 1997 1999
-------- -------- -------- ------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 7,234 $792 1 $ 5,053
Short-term investments................................... 29,475 -- -- 73,575
Total assets............................................. 47,511 986 25 91,079
Convertible debentures................................... 990 -- -- 990
Total stockholders' equity............................... 34,475 923 25 58,769
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. THE FOLLOWING DISCUSSION SHOULD
BE READ IN CONJUNCTION WITH OUR AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND
RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS REGISTRATION STATEMENT.
PLAN OF OPERATIONS
We currently intend to pursue the following plan of operations during the
next twelve months:
INCREASE REVENUES BY DEVELOPING OUR OPERATING COMPANIES. ATM Service, Ltd.
and The Intrac Group, Ltd. will continue to develop their customer bases through
the efforts of their present sales and marketing team. ATM Service, Ltd. will
also look to develop emerging markets through its own efforts or through
representatives. We will continue to develop NAIdirect.com through our ownership
in Real Quest, Inc. NAIdirect.com is presently developing its transactional web
site and intends to have revenues from the site in the next twelve months.
MONITOR AND REPORT ON OUR EQUITY INTEREST INVESTMENTS. We intend to hire
additional staff to monitor, report on and help develop companies in which we
have interests. This will allow us to help expand markets, services and products
and improve efficiencies in these businesses. It will also allow us to
constantly monitor our investments, giving us vital information for future
additional investments in those businesses.
SEEK OUT NEW INVESTMENT OPPORTUNITIES. We intend to seek out new investment
opportunities through our affiliated companies and be active in the business,
venture capital and Internet communities, using our cash, stock and/or Internet
expertise as our capital contributions to create joint ventures.
We anticipate our operating expenses will increase by $2,500,000 over the
next twelve months as a result of implementing our plan of operations. Our
actual operating and financial results and actual plan of operations may differ
materially from the stated plan of operations. Factors which may cause a change
from our actual results or actual plan of operations vary but include, without
limitation, decisions of our board of directors not to pursue the stated plan of
operations based on its reassessment of the plan, changes in the Internet
business, the wholesaling and asset recovery business and general economic
conditions.
GENERAL
We had declining and comparatively small operations until May 18, 1998 when
we entered our current line of business by acquiring Keiretsu Corporation. See
"Item 1. Business-History." Over the past three fiscal years, we have had
$1.4 million in revenues from operations, $14.3 million in losses from
operations, other income of $22.3 million and net income of $1.2 million.
Administrative costs incurred to date have been expended in connection with
software development, marketing expenses, and operating expenses. Operating
expenses have also included general and administrative expenses related to all
of our activities.
EFFECT OF VARIOUS ACCOUNTING METHODS ON OUR RESULTS OF OPERATIONS
The various interests that we acquire in the companies in which we own
interests are accounted for under one of three methods: consolidation, equity
method and cost method. The applicable
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accounting method is generally determined based on our voting interest in a
company in which we own an interest unless significant minority rights are
present.
CONSOLIDATION. Companies in which we directly or indirectly own more than
50% of the outstanding voting securities and exercise control are generally
accounted for under the consolidation method of accounting. Under this method, a
company's results of operations are reflected within our Consolidated Statements
of Operations. Participation of other company stockholders in the earnings or
losses of a consolidated company is reflected in the caption "Minority interest"
in our Consolidated Statements of Operations. Minority interest adjusts our
consolidated results of operations to reflect only our share of the earnings or
losses of the consolidated company. ATM Service, Ltd., The Intrac Group, Ltd.,
and Real Quest, Inc. were our only consolidated companies through December 31,
1999. ATM Service, Ltd. was recorded using the equity method from December 1998
through July 23, 1999, when we acquired a controlling interest. From that date
through December 31, 1999, we have consolidated ATM Service, Ltd. and included
the detail of its results of operations in our consolidated results of
operations.
EQUITY METHOD. Companies whose results we do not consolidate, but over whom
we exercise significant influence, are accounted for under the equity method of
accounting. Whether or not we exercise significant influence with respect to a
company depends on an evaluation of several factors including, among others,
representation on the company's board of directors and ownership level, which is
generally a 20% to 50% interest in the voting securities of the company,
including voting rights associated with our holdings in common, preferred and
other convertible instruments in the company. Under the equity method of
accounting, the detail of a company's results of operations are not reflected
within our Consolidated Statements of Operations; however, our share of the
earnings or losses of the company is reflected in the caption "Equity (income)
loss" in the Consolidated Statements of Operations. During the fiscal year ended
September 30, 1999, we accounted for two companies under the equity method of
accounting, WWWX-Jencom, LLC, and ATM Service, Ltd., as described in the
previous paragraph. For the three months ended December 31, 1999, we accounted
for WWWX-Jencom, LLC under the equity method of accounting.
The net effect of a company's results of operations on our net results of
operations is generally the same under either the consolidation method of
accounting or the equity method of accounting, as under both of these methods
only our share of the earnings or losses of a company is reflected in our net
results of operations in the Consolidated Statements of Operations.
COST METHOD. Companies not accounted for under the consolidation or the
equity method of accounting are accounted for under the cost method of
accounting at cost. Under this method, our share of the earnings or losses of
these companies is not included in our Consolidated Statements of Operations. As
of December 31, 1999 we accounted for six companies under the cost method of
accounting.
EFFECT OF VARIOUS ACCOUNTING METHODS ON THE PRESENTATION OF OUR FINANCIAL
STATEMENTS
The presentation of our financial statements may differ from period to
period primarily due to whether or not we apply the consolidation method of
accounting, the equity method of accounting or the cost method of accounting.
RESULTS OF OPERATIONS--THREE MONTHS ENDED DECEMBER 31, 1999 VS. DECEMBER 31,
1998
REVENUES
Revenues were $1 million for the three months ended December 31, 1999 as
compared to revenues of $163,000 for three months ended December 31, 1998. The
increase in revenue was
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primarily due to the acquisitions of interests in ATM Service, Ltd. and The
Intrac Group, Ltd. Revenues for the three months ended December 31, 1998 were
derived from consulting services.
Revenue from asset management, cost-recovery services and the related
purchases and resales of media was $976,000 for the three months ended
December 31, 1999 and deferred revenue was $2,321,000 at December 31, 1999.
For the three month period ended December 31, 1999, 45% of our revenue was
provided by cost recovery services, 41% of our revenue came from the purchase
and resale of media, 7% of our revenue was provided by asset management, 4% of
our revenue came from consulting and 3% of our revenues came from providing
management services. For the three months ended December 31, 1998, 100% of our
revenue was from consulting services.
COST OF REVENUE
Cost of revenue primarily consists of goods, freight, and warehousing of
inventory held for sale. Cost of revenue was $931,000 and $109,000 for the three
months ended December 31, 1999 and 1998, respectively. The increase in cost of
revenue was primarily due to the increase in revenues due to the acquisitions of
ATM Service, Ltd. and The Intrac Group, Ltd. The cost of revenue for the three
months ended December 31, 1998 consisted primarily of salaries and fees paid to
programmers and consultants.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of payroll and related
costs, professional fees, consulting fees, facilities cost and marketing
expenses. General and administrative expenses were $2.7 million and $78,000 for
the three months ended December 31, 1999 and 1998, respectively. The increase
was primarily due to an increase in the operations of ATM Service, Ltd. The
Intrac Group, Ltd., and Real Quest, Inc. As the number of our employees grew to
support our operations and those of our subsidiary companies, our general and
administrative costs increased.
The increases from 1998 to 1999 were primarily due to increases in payroll
and related costs of $1.4 million, professional fees of $491,000, travel and
entertainment expenses of $277,000 and office and rent expenses of $352,000.
We expect selling, general, and administrative expenses to increase due to
the consolidated companies being included in our consolidated statement of
operations for the entire year and the expansion of support necessary for the
increase in our growth and the growth of our consolidated subsidiaries to
implement our plan of operations.
DEPRECIATION AND AMORTIZATION
Amortization expense consists of amortization of goodwill. Depreciation
expense consists of depreciation of furniture, fixtures, machinery and computer
equipment. Depreciation and amortization expense was $374,000 for the three
months ended December 31, 1999. There was no depreciation or amortization
expense for the three months ended December 31, 1998. The increase in
depreciation and amortization was primarily due to goodwill amortization of
$314,000 relating to The Intrac Group acquisition.
LOSS FROM OPERATIONS
During the three months ended December 31, 1999, we incurred a loss from
operations of $2.9 million compared with $24,000 for the three months ended
December 31, 1998. The increased loss is primarily the result of increased
operations and the inclusion of our consolidated subsidiaries.
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IMPAIRMENT OF ADVANCES TO COMPANIES
We continually evaluate the carrying value of our ownership interests in
each of the companies in which we own interests for possible impairment based on
achievement of business plan objectives and milestones, the value of each
ownership interest in each company relative to carrying value, the financial
condition and prospects of each company, and other relevant factors.
At December 31, 1999, we did not have a need to adjust our valuation
allowances for advances made to affiliated companies. At December 31, 1998, we
evaluated the carrying value of an advance in the amount of $76,000 made to a
company in anticipation of acquiring an equity position in that company. Based
on our review of its business plan, we have recorded a 100% valuation allowance
of $76,000 representing the advances made.
INTEREST EXPENSE
Interest expense represents interest on our convertible debt and capital
lease obligations. Interest expense was $21,000 and $0 for the three months
ended December 31, 1999 and 1998, respectively.
EQUITY INCOME (LOSS)
Equity income (loss) represents our share of the earnings or losses of our
companies accounted for under the equity method. For the three months ended
December 31, 1999, equity loss includes our share of the loss from WWWX-Jencom
of $188,000. There was no equity income or loss for the three months ended
December 31, 1998.
AMORTIZATION OF DEBT COSTS
Deferred finance costs consist of expenses related to the issuance the
convertible debentures entered into in March 1999. Amortization of debt issuance
costs was $70,000 for the three months ended December 31, 1999. There was no
amortization of debt costs for the three months ended December 31, 1998.
INTEREST INCOME
Interest income represents interest on our cash and cash equivalents, which
are primarily invested in money market accounts. Interest income was $83,000 and
$5,000 for the three months ended December 31, 1999, and 1998, respectively.
INCOME TAX EXPENSE
Income tax benefit for the three months ended December 31, 1999 of $517,000
principally results from the income tax benefit of $1 million calculated at
federal statutory rates offset by an increase in our valuation allowance of
$458,000 with respect to deferred tax assets of a subsidiary not consolidated
for income tax purposes for which realization is uncertain. There was a benefit
of $33,000 for income taxes offset by a $33,000 increase in the valuation
allowance for the three months ended December 31, 1998.
NET LOSSES
For the three months ended December 31, 1999, we had net losses of
$2.6 million compared to net losses of $95,000 for the three months ended
December 31, 1998. The increased losses resulted from increased cost of
operations which were partially offset by increases in revenue.
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RESULTS OF OPERATIONS--THREE YEAR PERIOD ENDED SEPTEMBER 30, 1999
REVENUES
Revenues were $1.3 million for the year ended September 30, 1999 and $50,000
for the year ended September 30, 1998. There were no revenues for the year ended
September 30, 1997. The increase in revenue was primarily due to the
acquisitions of interests in ATM Service, Ltd. and The Intrac Group, Ltd.
Included in revenues for the year ended September 30, 1999, were $529,000 of
consulting revenue from entrade.com which we sold in September 1999.
We principally derive our revenue by providing inventory liquidation and
asset recovery services and from the purchase and resale of advertising media,
merchandise or business services through our consolidated companies, ATM
Service, Ltd. and The Intrac Group, Ltd., throughout North America. We plan to
expand our operations throughout the world.
We will contract with a customer to sell for the customer large blocks of
assets or inventory under asset management, liquidation, or cost recovery
agreements. In an asset management agreement, we act as an agent, remarket the
assets for cash, and receive a percentage of the sale as a commission.
Under both liquidation and cost-recovery agreements, we take title to the
assets and assume the risk of loss. We are not required, by either type of
agreement, to make any cash payments to the customer for the assets purchased
until such time as we sell the assets. These payments pertain to the portion of
assets actually sold. Our ultimate cost is a contracted percent of the amount we
sell the inventory for, which is uncertain until a sale occurs. Accordingly, we
do not record inventory for any assets purchased under these agreements.
The transactions conducted under asset management and cost recovery
agreements can also be settled, in part, in trade credits to purchase
advertising media, merchandise, or business services. Trade credits issued to
customers represent the difference between the contracted value of the inventory
as negotiated with the customer and the cash paid to the customer upon the sale
of the inventory. Trade credits are not redeemable by customers for cash. The
contracted value of the inventory is mutually agreed upon by us and the customer
at the time an agreement is reached and is usually in excess of the cash
liquidation value. We are not required to remit cash or any other form of
payment other than trade credits for the difference between the contracted value
and the cash paid for the inventory. Less than 20% of liquidation and cost
recovery agreements are transacted exclusively in trade credits.
Revenues associated with asset management and cost recovery services are
typically recognized when the inventory sold is shipped. However, if the
transactions involve the issuance of trade credits, we will defer a portion of
the revenue attributable to cash received under asset management and
cost-recovery agreements to reflect the outstanding commitment applicable to the
future redemption of the trade credits.
We issue two types of trade credits, "combination trade credits" and
"straight trade credits." Under a combination trade credit arrangement, the
customer purchases goods and services from us in exchange for trade credits and
cash. The ratio of cash to combination trade credits that make up the total
purchase price to be used in purchases from us are determined on a
transaction-by-transaction basis. The obligation to redeem combination trade
credits represents a best efforts obligation to us. The combination trade
credits have neither any recordable obligation nor do they represent any fixed
or determinable liability. Accordingly, no liability is recorded when
combination trade credits are issued.
To redeem combination trade credits, a customer must contact us and request
that we provide advertising media, merchandise or business services. We will
attempt to purchase the requested product for cash or a combination of cash and
trade credits. We have no liability or obligation to the customer if we are
unable to obtain any of the items requested that are not already within our
inventory or that we cannot reasonably obtain. Our inventory of services is
minimal at September 30, 1999, as we generally purchase goods or services to
redeem trade credits at the time they are requested by our
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customers. When we redeem combination trade credits, we recognize revenue equal
to the cash received from the customer for the goods and services plus, if
applicable, the pro rata portion of the deferred revenue relating to the
liquidation of the assets that gave rise to the trade credits. Cost of revenue
is recognized for the cash we paid for the goods and services.
Straight trade credits are issued to purchase goods and services from us
without the requirement to pay us a portion of the purchase price in cash.
Straight trade credits are issued to purchase pre-negotiated types of goods and
services, which have readily estimable costs. We record deferred revenue for
straight trade credits approximating the estimated cost to purchase future goods
and services plus a normal profit margin. When we redeem straight trade credits,
we recognize revenue equal to the pro rata portion of the deferred revenue
relating to straight trade credits. Cost of revenue is recognized for the cash
we paid for the goods and services. For the year ended September 30, 1999, 57%
of our revenue was from derived from consulting services predominantly provided
by Entrade which we sold to Artra in September 1999. The purchase and resale of
media accounted for 35% of our revenue; asset management provided 6% of our
revenue; liquidation and cost recovery provided 2% of our revenue.
Revenue from asset management, cost-recovery services and the related
purchases and resales of media was $577,000 for the year ended September 30,
1999 and deferred revenue was $470,000 at September 30, 1999.
Unredeemed combination trade credits totaled $8,017,000 at September 30,
1999. The customer must redeem the trade credits within specified periods
ranging from 2 to 5 years. Trade credits outstanding at September 30, 1999 and
expiring in the next four years are as follows: $2,259,000 in 2000, $1,445,000
in 2001, $1,270,000 in 2002, and $3,043,000 in 2003.
We also generated revenue by providing consulting services during the year
ended September 30, 1999. Consulting revenues are recognized in the period in
which the consulting services are performed. Consulting revenues were $762,000
for the year ended September 30, 1999, of which $529,000 was attributable to
Entrade which was sold in September 1999.
COST OF REVENUE
Cost of revenue consists of goods, freight, warehousing of inventory held
for sale and salaries paid to programmers and consultants. Cost of revenue was
$792,000 for the year ended September 30, 1999 and $36,000 for the year ended
September 30, 1998. There was no cost of revenues for the year ended
September 30, 1997. The increase in cost of revenue was primarily due to the
increase in revenues due to the acquisitions of Entrade, ATM Service, Ltd. and
The Intrac Group, Ltd.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of payroll and related
costs, professional fees, consulting fees, facilities cost and marketing
expenses. General and administrative expenses were $5.3 million, $140,000 and
$166,000 for the years ended September 30, 1999, 1998 and 1997, respectively.
The increase was primarily due to an increase in the operations of Entrade, and
the acquisitions of Entrade, ATM Service, Ltd. and The Intrac Group, Ltd. As the
number of our employees grew to support our operations and those of our
subsidiary companies, our general and administrative costs increased.
The increases from 1998 to 1999, excluding $1.6 million attributable to the
operations of entrade.com which was sold in September 1999, were primarily due
to increases in payroll and related costs of $2.1 million, professional fees of
$524,000, consulting fees of $372,000, software development expense of $366,000,
travel and entertainment expense $227,000 and rent of $118,000. The decrease
from 1997 to 1998 was primarily due to a decrease in project costs offset by an
increase in consulting expenses of $396,000.
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We expect selling, general, and administrative expenses to increase due to
the consolidated companies being included in our consolidated statement of
operations for the entire year and the expansion of support necessary for the
increase in our growth and the growth of our consolidated subsidiaries to
implement our plan of operations.
DEPRECIATION AND AMORTIZATION
Amortization expense consists of amortization of goodwill and other
intangible assets. Depreciation expense consists of depreciation of furniture,
fixtures, machinery and computer equipment. Depreciation and amortization was
$597,000 and $13,000 for the years ended September 30, 1999 and 1998,
respectively. The increase in depreciation and amortization was primarily due to
goodwill amortization of $109,000 relating to The Intrac Group acquisition, and
$430,000 relating to Entrade, which was sold in September 1999.
We expect depreciation and amortization to increase in the future due to the
amortization for the acquisitions of The Intrac Group made in 1999 and possible
acquisitions in the future. Goodwill relates to the acquisition of Intrac and
represents 7.36% of our total assets at September 30, 1999. Management has
estimated the useful lives assigned to the goodwill for Intrac based on its
estimated future cash flows. Management believes that there is no pervasive
evidence that any material portion of goodwill will dissipate over a shorter
period based on the expected future cash flows of Intrac.
WRITE-OFF OF PURCHASED RESEARCH AND DEVELOPMENT
In March 1999, we acquired projects in various stages of development from
JenCom Digital Technologies, Inc. The total cost of the acquisition was
$3 million through the issuance of 2 million shares of our common stock. In
conjunction with the acquisition of these projects, we recorded a charge to
operations of $3 million for in-process research and development at the time of
the acquisition, representing the fair value of products under development that
had not reached technological feasibility at the time of the acquisition. We
transferred our ownership interest in these assets to our 50% owned joint
venture WWWX-Jencom, LLC.
The in-process technology acquired was four significant research and
development projects which WWWX-Jencom continues to develop. The technologies
acquired are VuCam, a remote-control real-time streaming video software; True
Sound, a sound compression format; Student Network Application, an interactive
web-based system designed to facilitate involvement in school activities and the
flow of school-related information; and Power Broker, a communications and
trading management program.
The nature of the efforts required to develop the acquired in-process
technology into commercially viable products principally relates to the
completion of all planning, designing, and testing activities that are necessary
to establish that the product or service can be produced to meet its design
requirements, including functions, features, and technical performance
requirements.
- VuCam: At the time of the acquisition, the major specifications, technical
requirements, functions and features to be included in the product had
been established and portions of the software that runs VuCam had been
built. The appropriate hardware to use in the VuCam system had not yet
been determined. The design of the final user interface, database server
and client portions of the software had not yet been determined.
$1,200,000 of the purchase price has been allocated to this project. An
additional $440,000 of costs has been incurred through December 31, 1999.
Product completion and functionality testing is anticipated to occur in
the fourth quarter of 2000. JenCom estimated the cost to complete the
product at $400,000.
- True Sound: At the time of acquisition, the criteria and purpose of the
product had been established. The compression ratio definition and the
design of the compression object programming interface portions of the
software had not yet been established. $600,000 of the
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<PAGE>
purchase price has been allocated to this project. An additional $220,000
of costs have been incurred through December 31, 1999. Product completion
and functionality testing is anticipated to occur in 2001. JenCom
estimated the cost to complete the product at $400,000.
- Student Network Application: At the time of acquisition, the design and
purpose of the software had been determined but the functional
specifications and features had yet to be identified. The definition of
parent/teacher and student/teacher relationships within the system and the
design of the database cross information portions of the software were not
yet determined. $600,000 of the purchase price has been allocated to this
project. An additional $220,000 of costs have been incurred through
December 31, 1999. Product completion and functionality testing is
anticipated to occur in 2001. Jencom estimated the cost to complete the
product at $400,000.
- Power Broker: At the time of acquisition, the detailed program design had
not been completed, as the interaction between the Oracle and MS SQL
database server portions of the software had not been identified. $600,000
of the purchase price has been allocated to this project. An additional
$220,000 of costs have been incurred through December 31, 1999. Product
completion and functionality testing is anticipated to occur in 2001.
JenCom estimated the cost to complete the product at $320,000.
Future developments in technology, changes in other products and service
offerings, or other developments may cause us to alter or abandon these plans.
The material risks that will influence the timely and successful completion and
commercialization of each of these four products include (i) the availability to
WWWX-JenCom of adequate funding required to complete the development and
manufacture of the products, (ii) the acceptance of the products by the
marketplace, and (iii) the development of competitor products deemed by the
marketplace to be more technologically advanced or more cost effective. As of
December 31, 1999, no software development costs had been capitalized for any of
the four projects as technological feasibility had not been established at that
date.
WRITE-OFF OF INTANGIBLES
We evaluate impairment of our intangible and long-lived assets in accordance
with Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. In
making such determination, management compares the estimated future cash flow
performance, on an undiscounted basis, of the underlying operations or assets as
compared with their carrying value to determine the extent of any impairment
charge.
During 1999, we determined that the ATM Center System technology did not
meet ATM Service, Ltd.'s current business model and decided that it would no
longer use this technology to support its operations. We believe we may be able
to license this technology to other users in the future, however, we have not
determined whether there is a current market for this technology. Therefore, we
determined that there was no value to the technology and recorded a charge to
operations for the unamortized value of the technology of $5.6 million. In
September 1999, ATM Service, Ltd. entered into a license agreement with
entrade.com to use the Entrade Transaction Software to run ATMcenter.com.
LOSS FROM OPERATIONS
During the year ended September 30, 1999, we incurred a loss from operations
of $13.9 million compared with $139,000 and $166,000 in the years ended
September 30, 1998 and 1997, respectively. The increased loss is primarily the
result of increased operations and the inclusion of our consolidated
subsidiaries.
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<PAGE>
GAIN ON SALE OF SUBSIDIARY
In September 1999, we completed the sale of Entrade to Artra Group resulting
in a gain of $25.4 million. We received cash of $1.3 million and 1.8 million
shares of Entrade common stock, valued at $29.5 million. Additionally, we
received $1.3 million in funding for operations of Entrade from Artra for the
period February 28, 1999 through September 23, 1999.
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<PAGE>
IMPAIRMENT OF ADVANCES TO COMPANIES
We continually evaluate the carrying value of our ownership interests in
each of the companies in which we own interests for possible impairment based on
achievement of business plan objectives and milestones, the value of each
ownership interest in each company relative to carrying value, the financial
condition and prospects of each company, and other relevant factors.
At September 30, 1999, we evaluated the carrying value of our ownership
interest in Vision Technologies, Inc. Based on our review of Vision's business
plan and the lack of sufficient capital, we have recorded a 100% valuation
allowance of $1.0 million representing the cash advances of $850,000 and our 50%
ownership of the $350,000 in advances made by WWWX-Jencom.
INTEREST EXPENSE
Interest expense represents interest on our convertible debt and capital
lease obligations. Interest expense was $219,000 and $90,000 for the years ended
September 30, 1999 and 1998, respectively.
EQUITY INCOME (LOSS)
Equity income (loss) represents our share of the earnings or losses of our
companies accounted for under the equity method. Equity income (loss) includes
$417,000 of goodwill amortization relating to the amount by which our carrying
value exceeded our share of the underlying net assets of ATM Service, Ltd. and
$800,000 of stock compensation earned by Warren Rothstein our President and CEO
for listings provided to ATM Service, Ltd. The operations of ATM Service, Ltd.
are included in our consolidated operations from July 23, 1999, the date which
we acquired a controlling interest, through September 30, 1999. Additionally,
equity loss includes our share of the loss from WWWX-Jencom of $361,000. The
losses from WWWX-Jencom are expected to continue which would further reduce our
investment in WWWX-Jencom.
AMORTIZATION OF DEBT COSTS
Deferred finance costs consist of expenses related to the issuance of the
convertible debt agreements entered into in March 1999. Amortization of debt
issuance costs were $155,000 for the years ended September 30, 1999. There was
no amortization of debt costs in the years ended September 30, 1998 or 1997.
INTEREST INCOME
Interest income represents interest on our cash and cash equivalents, which
are primarily invested in money market accounts. Interest income was $56,000,
$10,000 and $1,000 for the years ended September 30, 1999, 1998 and 1997,
respectively.
INCOME TAX EXPENSE
Income tax expense for the year ended September 30, 1999 of $6.9 million
principally results from deferred income taxes of $8.8 million related to the
gain on the sale of Entrade offset by a valuation allowance of $2.9 million with
respect to deferred tax assets of a subsidiary not consolidated for income tax
purposes for which realization is uncertain.
NET INCOME (LOSS)
For the year ended September 30, 1999, we had net income of $1,612,000
compared to net losses of $219,000 and $167,000 for the years ended
September 30, 1998 and 1997, respectively. The increase in income resulted
primarily from the gain on sale of subsidiary which was reduced by increased
losses from operations.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the three years ended September 30, 1999, we have funded our
operations with a combination of cash proceeds from the sale of our common
stock, convertible debentures and our Entrade Inc. subsidiary. Since inception,
we have raised approximately $12.9 million from the sale of our common stock and
approximately $1.5 million from the sale of our convertible debentures. Proceeds
from the sale of Entrade Inc. stock generated cash proceeds of approximately
$2.6 million.
Cash used in operations increased to approximately $3.1 million in 1999
compared to $95,000 in 1998, and to $1.8 million for the three months ended
December 31, 1999 compared to $172,000 for the three months ended December 31,
1998, as a result of our increased operating expenses which were only partially
offset by increased net revenues and a decrease in accounts receivable.
Cash used in investing activities increased to approximately $3.1 million in
1999 compared to $145,000 in 1998, as a result of acquisitions of ownership
interests in companies of $3.0 million, advances to companies of $1.9 million,
and acquisitions of technology of $750,000, offset by proceeds from the sale of
a portion of our Entrade Inc. subsidiary of $2.6 million. Our acquisitions of
ownership interests in companies consisted of $1.1 million for BarterOne (which
subsequently became Entrade Inc.), $1.5 million for our wholly-owned subsidiary,
The Intrac Group, Ltd. and $675,000 for a cost-basis investment in One World
Direct partially offset by cash acquired. Our advances to companies included
$900,000 advanced to WWWX-Jencom, LLC of which $350,000 was advanced to Vision
Technologies, $850,000 advanced directly to Vision Technologies, and $100,000
advanced to VideoNet. Our acquisition of technology was for the ATM Center
System, a proprietary system for online electronic trading and banking from a
company in which Robert Kohn, our former Chairman, Chief Executive Officer,
President and principal shareholder had, at the time he held such positions, an
ownership interest. We purchased $206,000 of property and equipment for our
operations.
Consolidated working capital increased to $24.7 million at September 30,
1999, compared to $778,000 at September 30, 1998. The increase was primarily due
to the net proceeds from the equity and debentures we sold in 1999 and the cash
and stock proceeds we received from the sale of our Entrade Inc. stock, offset
by the cash used in operations, our acquisitions of ownership interests in and
advances to companies and our acquisition of technology. Our ability to sell our
shares of Entrade is subject to a one-year restriction, which expires in
September 2000, after which our ability to sell may be limited by market
considerations. Excluding our marketable securities, we would have a working
capital deficit at September 30, 1999, of $4.8 million.
Our operations are not capital intensive and we have not incurred
significant capital expenditures through September 30, 1999 and do not
anticipate significant capital expenditures in fiscal 2000. There were no
material capital asset purchase commitments at September 30, 1999.
We have committed to directly provide up to $1,000,000 of funding to our
affiliated company, NAI Direct, Inc., to fund its operations, which we have
placed in an escrow account for this purpose. As of December 31, 1999, the
balance in this account was approximately $350,000. We have also committed to
loan or otherwise obtain $4,000,000 of additional funding for NAI Direct as
required to meet its working capital requirements before March 2001. We expect
to fund this obligation during the balance of calendar year 2000 from the
proceeds of loans against our Entrade Inc. stock, the sale of a portion or all
of Entrade Inc. stock or from future equity offerings, as discussed below.
Holders of $865,000 in principal amount of our 6% cumulative convertible
debentures elected to convert into common stock. If the remaining Debentures are
not converted into common stock in accordance with the terms of the Debentures,
we will have to pay the remaining $125,000 principal amount plus interest and
related costs to the remaining holders.
We believe that cash and cash equivalents on hand at December 31, 1999, will
be adequate to fund our current operating needs and those of our consolidated
subsidiaries at current levels at least through
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May 2000. In order to continue to implement our growth strategy of making
additional investments in or advances to our companies, we will need additional
cash resulting from either the proceeds of loans against our Entrade Inc. stock,
the sale of a portion or all of our Entrade Inc. stock or from future equity
offerings. The value of our Entrade Inc. stock has fluctuated during calendar
year 2000 from approximately $26 million to approximately $100 million.
We anticipate that we will be able to obtain loans from a financial
institution or brokerage firm using our Entrade Inc. stock as collateral. These
loans against our Entrade Inc. shares are expected to provide sufficient funds
to finance our expansion over the next 6 months, which we expect to cost up to
$15 million. During that time, we do not anticipate that we or any of our
subsidiaries will have a positive cash flow from operations.
Our long-term plans call for the expansion of our operations and the
operations of our subsidiaries, as well as the acquisition of interests in new
businesses. In order to execute our plan over the next 6 to 24 months, we
anticipate that we will sell equity interests in us and our subsidiaries, in
private and public transactions. We anticipate that over the next 24 months
these equity fund-raising activities could range from $150 million to
$200 million. If we are able to raise additional capital in amounts necessary to
achieve our plans, we anticipate that substantially all of it will be used for
investments in new ventures or advances to our affiliated companies, increased
operating expenses, and marketing and advertising expenses. The balance will be
used for the Company's general working capital needs. If we are not able to
raise these funds on terms acceptable to us, we will not be able to fully
implement our current business plan over the next 6 to 24 months.
We cannot be sure that we will be able to borrow against our Entrade Inc.
stock, sell our Entrade Inc. stock at a desirable price or be able to obtain the
additional equity funding at an acceptable valuation or at all. Further, if we
sell a portion of our Entrade Inc. stock we would be subject to income taxes
based on the value of the Entrade Inc. stock at the time of the sale.
Additionally, the publicly-traded market for Entrade Inc.'s shares fluctuates
significantly, reducing our ability to attractively borrow against our
Entrade Inc. stock. If we cannot raise the additional funding, we may be forced
to curtail our planned growth strategy and reserve our cash resources to fund
our ongoing operations.
COST OF YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products were coded
to accept only two-digit entries in date code fields. Both before and after the
year 2000, these date code fields will need to accept four-digit entries to
enable the computer systems and software products to distinguish twenty-first
century dates from twentieth century dates. Any of our computer programs or
hardware that have date-sensitive software or embedded computer chips which have
not been upgraded to be compliant with the requirements of the year 2000
changeover may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including among other things, a temporary inability
to properly process transactions internally or in conjunction with external
computer systems on which we depend to provide our customers with our product
and services. Although we have not suffered from any of these types of events to
date, we may do so in the future.
OUR GENERAL READINESS
The year 2000 requirements affect the computers, software and other
equipment that we use, operate or maintain for our operations. Substantially all
of our software was developed after awareness of these issues became wide spread
in the software industry, such that our software was designed with reference to
preventing year 2000 related difficulties from arising. Nonetheless, we have
adopted an internal policy to ensure that our product remains year 2000
compliant. To the best of our knowledge,
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none of our internal systems or equipment which are necessary for the conduct of
our business has any defects, errors or deficiencies relating to the year 2000
which are not capable of being remedied.
COST OF OUR YEAR 2000 EFFORTS
We have incurred no direct expenses since our inception in connection with
this process, and do not expect to incur any significant additional expenditures
in this regard.
MOST LIKELY CONSEQUENCES OF YEAR 2000 PROBLEMS
We believe that it is not possible to determine with complete certainty that
all year 2000 related problems affecting us have been identified or corrected.
The number of devices and systems that could be affected and the interactions
among these devices and systems are numerous. We believe that there exists the
potential for a significant number of operational inconveniences and
inefficiencies, and possible disputes and claims related to products or services
used or provided by us.
CONTINGENCY PLANS
We have taken measures to ensure that our internal systems and equipment are
year 2000 compliant for both hardware and software. All of our operating systems
on all critical servers have been upgraded, and all individual computers and
tools have been verified as year 2000 compliant. We perform a daily back-up of
all critical information. In the event of a failure, we estimate that the
information technology infrastructure necessary to run our internal business
operations could be restored.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS.
We are exposed to equity price risks on our ownership interest in the common
stock of Entrade, Inc. which is a New York Stock Exchange publicly traded
security denominated in U.S. dollars. Since December 31, 1999, the value of our
Entrade stock has fluctuated from a low of $16.7 million on May 1, 2000 to a
high of $100.3 million on January 13, 2000. The value of our Entrade stock was
$55.6 million at the close of trading on March 31, 2000. A 20% decrease in
equity prices would result in an approximate $14.7 million decrease in the fair
value of our holdings of Entrade stock at December 31, 1999. The value of our
holdings may continue to fluctuate. We have not attempted to reduce or eliminate
our market exposure on our holdings. Although we are generally restricted from
selling our Entrade, Inc. stock until September 23, 2000 we may sell up to
50,000 shares per month prior to that date.
We are exposed to interest rate risk on our holdings of money market
instruments. Historically, our investment income has not been material to our
financial results, and we do not expect that changes in interest rates will have
a material impact on the results of operations. A 1/2% increase in interest
rates would result in an approximate $25,000 increase in interest income.
We also have issued fixed-rate debt, which is convertible into our common
stock at a pre-determined conversion price. Convertible debt has characteristics
that give rise to both interest rate risk and market risk because the fair value
of the convertible security is affected by both the current interest rate
environment and the underlying price of our common stock. As of March 31, 2000,
$865,000 in principal amount of the debt has been converted into common stock.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This registration statement contains forward-looking statements that are
subject to a number of risks and uncertainties, many of which are beyond our
control, which may include statements about our:
- plans for and ability to hire additional personnel, including a permanent
President and Chief Executive Officer;
- separating our office space and administrative and technology services
from entrade.com, Inc.
- business strategy, including transacting business on our web sites and
developing the companies in which we own interests;
- expectations for future expansion both in the U.S. and internationally;
- anticipated growth in revenue;
- uncertainty regarding our future operating results;
- anticipated sources of funds to fund our operations; and
- plans, objectives, expectations and intentions contained in this
registration statement that are not historical facts.
All statements, other than statements of historical fact included in this
registration statement regarding our strategy, future operations, financial
position, estimated revenues or losses, projected costs, prospects, plans and
objectives of management are forward-looking statements. When used in this
registration statement, the words "will", "believe", anticipate", "intend",
estimate", "expect", "project" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
such identifying words. All forward-looking statements speak only as of the date
of this registration statement. Although we believe that our plans, intentions
and expectations reflected in or suggested by the forward-looking statements we
make in this registration statement are reasonable, we can give no assurance
that these plans, intentions or expectations will be achieved.
ITEM 3. PROPERTIES.
Our corporate headquarters are located at 521 Fellowship Road, Suite 130,
Mount Laurel, New Jersey. Our lease commenced on July 19, 1999 with a term of
61 months. Our monthly rent over the term of the lease ranges from approximately
$11,000 to $26,000. Our lease covers 11,802 square feet. We occupy approximately
2,000 square feet. The remainder is subleased to Entrade Inc. for $11,596 per
month which Entrade uses as its operations center.
ATM Service, Ltd. has a lease for offices at 220 White Plains Road,
Tarrytown, NY. The lease commenced on October 1, 1999 for a term of five years.
The lease currently covers 6,500 square feet and the rent over the term of the
lease ranges from approximately $12,900 to $17,300.
The Intrac Group, Ltd. has a lease for offices at 424 Madison Avenue, New
York, NY. The Intrac Group, Ltd.'s lease commenced on October 1, 1997. The lease
covers 4,130 square feet. The monthly rent over the five-year term of the lease
ranges from approximately $8,000 to $9,300.
NAI Direct, Inc. has an informal agreement to rent office space from New
America Network, Inc. NAI Direct currently occupies 21 work stations at New
America Network's Hightstown, New Jersey offices. NAI Direct pays New America
Network $8,500 per month, on a month to month basis, while it looks for
permanent office space in central New Jersey.
We have a five year sublease from RDR Associates, Inc., to occupy at least
two offices and have use of a conference room in RDR's offices at 888 7th
Avenue, New York, NY. Admiral Asset Group
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and Mark Quinn of Entrade Inc. occupy this space. We established this lease
originally as a marketing and sales office for our Entrade Inc. subsidiary which
we sold in September 1999. We are not yet compensated for the use of this space.
However, we intend to seek reimbursement of monthly rent from Entrade Inc.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to
beneficial ownership of our common stock as of March 31, 2000:
- each person known by us to beneficially own 5% or more of our outstanding
common stock;
- each of our directors and executive officers;
- each executive officer named in the summary compensation table; and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
held by that person that are currently exercisable or exercisable within
60 days of March 31, 2000 are deemed outstanding. Percentage of beneficial
ownership is based upon 39,789,700 shares of common stock outstanding at
March 31, 2000. To our knowledge, except as set forth in the footnotes to this
table, each person named in the table has sole voting and investment power with
respect to the shares set forth opposite such person's name.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------ ------------------
<S> <C> <C>
OFFICERS AND DIRECTORS
Warren Rothstein(1)......................................... 4,000,000(2) 10.05%
Thomas A. Settineri(3)...................................... 750,000 1.88%
William F. Weld(5).......................................... -- --
Gerard T. Drumm(6).......................................... -- --
John T. Banigan(6).......................................... 1,650 (4)
Allan M. Cohen(6)........................................... 62,500(7) (4)
Michael E. Norton(8)........................................ 62,500(7) (4)
All directors and executive officers as a group (7
persons).................................................. 4,876,650(9) 12.22%(9)
FIVE PERCENT STOCKHOLDERS
Robert D. Kohn.............................................. 4,249,007(10) 10.65%
7715 Southampton Terrace, E-110
Tamarac, FL 33321
D.H. Blair Investment....................................... 2,622,967(11) 6.59%
Banking Corp.
44 Wall Street
New York, NY 10005
JenCom Digital Technologies, LLC............................ 3,500,000 8.79%
220 West 19(th) Street
12th Floor
New York, NY 10011
</TABLE>
- ------------------------
(1) c/o ATM Service, Ltd., 220 White Plains Road, Tarrytown, NY 10591.
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(2) 3,000,000 of Warren Rothstein's shares of common stock are subject to
forfeiture provisions under a stock issuance agreement.
(3) c/o The Intrac Group, Ltd., 424 Madison Avenue, New York, NY 10017.
(4) Less than 1%.
(5) c/o McDermott, Will & Emery, 50 Rockefeller Plaza, New York, NY 10020.
(6) c/o WorldWide Web NetworX Corporation, 521 Fellowship Road, Suite 130, Mt.
Laurel, NJ 08054.
(7) Represents options to purchase shares of our common stock at an exercise
price of $2.69 per share exercisable within 60 days of March 31, 2000.
(8) c/o NAI Direct, Inc., 572 Route 130, Hightown, New Jersey 08520.
(9) Includes options exercisable for 125,000 shares of common stock, which
options are owned by Allan Cohen and Michael Norton.
(10) Does not include an aggregate of 2,280,663 shares owned by Mr. Kohn's adult
children with respect to which Mr. Kohn has disclaimed beneficial ownership.
(11) Includes warrants exercisable for 222,967 shares of common stock, warrants
exercisable for 150,000 shares of common stock held by Engex, Inc., a
closed-end mutual fund whose investment advisor is an affiliate of D.H.
Blair; warrants exercisable for 255,000 shares of common stock held by
officers and employees of D.H. Blair. Does not include shares to which D.H.
Blair may have a claim that it is entitled to relating to our failure to
file a registration statement covering the 2,000,000 shares of common stock
that D.H. Blair purchased in March 1999.
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ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
MANAGEMENT
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Gerard T. Drumm........................... 49 Interim President and Chief Executive
Officer
John T. Banigan........................... 51 Executive Vice President-Affiliate
Development, Chief Financial Officer and
Treasurer
Allan M. Cohen............................ 29 Vice President, General Counsel, Secretary
and Director
William F. Weld........................... 54 Director
Thomas A. Settineri....................... 54 Director
Warren Rothstein.......................... 52 Director
Michael E. Norton......................... 49 Director
</TABLE>
Gerard T. Drumm has been our Interim President and Chief Executive Officer
since April 2000. From March 2000 to April 2000, Mr. Drumm was our Executive
Vice President-Mergers and Acquisitions. From March 1997 to February 2000,
Mr. Drumm was a partner in the New York office of the law firm of McDermott,
Will & Emery. From March of 1990 to February 1997, Mr. Drumm was of counsel to
the law firm of White & Case. From October 1980 to December 1990, Mr. Drumm
served in various functions as a vice president in the investment banking area
of Bankers Trust Company and, later, BT Securities Corporation. From 1976 to
1980, Mr. Drumm was an associate attorney with the New York law firm of Hawkins,
Delafield & Wood. Mr. Drumm received his bachelor's degree from Princeton
University in 1972 and his law degree from New York University School of Law in
1976.
JOHN T. BANIGAN has been our Executive Vice President--Affiliate
Development, Chief Financial Officer and Treasurer since April 2000. From
January 2000 to April 2000, Mr. Banigan was our Senior Vice President-Affiliate
Development. From 1996 to 1999, Mr. Banigan served as a management consultant in
Financial Services Consulting for KPMG Peat Marwick LLP. From 1992 to 1996,
Mr. Banigan was a Managing Director of BG Capital Corporation/Buckingham
Partners L.P., a merchant banking boutique. From 1989 to 1992, Mr. Banigan
served as Senior Vice President of The Hongkong and Shanghai Banking
Corporation. From 1986 to 1989, Mr. Banigan was a Managing Director of B.A.I.I.
(Asia) Limited, the Asian-based merchant banking arm of Banque Arabe et
Internationale D'Invetissement. From 1972 to 1986, Mr. Banigan served in various
functions for Chemical Banking Corporation including as senior corporate officer
for the China Region based in Hong Kong and Country Manager for Mexico resident
in Mexico City. Mr. Banigan received his bachelor's degree in international
economics from the School of Foreign Service at Georgetown University.
ALLAN M. COHEN has been our Vice President and General Counsel since
June 1, 1999 and Secretary and a Director since June 23, 1999. Mr. Cohen has
also served as general counsel and secretary of ATM Service, Ltd. from July 23,
1999 to March 2000. From 1997 to June 1999, Mr. Cohen was an associate attorney
in the New York office of the law firm of McDermott, Will & Emery in the
corporate department. From 1994 until 1997, Mr. Cohen was a student at the
University of Virginia School of Law. From 1992 to 1994, Mr. Cohen was a member
of the audit staff in the Washington,
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D.C. office of Arthur Andersen & Co. Mr. Cohen received his bachelor of science
degree in accounting from the Pennsylvania State University in 1992 and his
juris doctor degree from the University of Virginia School of Law in 1997.
Mr. Cohen is a Certified Public Accountant and is admitted to practice law in
the State of New York.
WILLIAM F. WELD has been one of our Directors since December 1999. Since
1997, Mr. Weld has been a partner in the New York and Boston offices, of the law
firm of McDermott Will & Emery and is currently partner-in-charge of its New
York office. In 1991, Mr. Weld was elected as the governor of the Commonwealth
of Massachusetts and served for six years. From 1988 to 1990, Mr. Weld was a
senior partner at Hale & Dorr LLP, a Boston law firm. From 1986 to 1988,
Mr. Weld served as assistant U.S. attorney general in charge of the criminal
division of the United States Department of Justice. From 1981 to 1986,
Mr. Weld was the United States Attorney for Massachusetts. Mr. Weld received his
bachelor's degree from Harvard College, a diploma in international economics
from Oxford University and his juris doctor degree from Harvard Law School.
Mr. Weld serves as a director of Affiliated Managers Group, Inc., a New York
Stock Exchange listed company.
THOMAS A. SETTINERI has served as one of our Directors and has been
President and Chief Executive Officer of ATM Service, Ltd. since July 23, 1999.
Since 1991, Mr. Settineri has been Chairman and Chief Executive Officer of The
Intrac Group. From 1974 to 1991, Mr. Settineri was President and Chief Operating
Officer of The Mediators, Inc., a privately held New York based company, which
was involved in marketing solutions and asset management programs for its
customers. Mr. Settineri received his bachelor of arts degree in economics from
Cornell University in 1969.
WARREN ROTHSTEIN served as our interim Chairman, President and Chief
Executive Officer from September 1999 to April 2000. Warren Rothstein has been
Chairman and a Director of ATM Service, Ltd. since February 10, 1999. Since
December of 1983, Mr. Rothstein has been and continues to serve as Chief
Executive Officer of D & W Enterprises Inc., a wholesale remarketing company.
MICHAEL E. NORTON has served as one of our Directors since June 23, 1999.
Since April 2000, Mr. Norton has served as a senior financial officer of NAI
Direct, Inc. From April 1999 to March 2000, Mr. Norton was our Vice
President-Finance and Chief Financial Officer. From October 1996 until
March 1999, Mr. Norton was controller for CDnow, Inc., a publicly-traded
Internet company. From August 1988 until January 1996, Mr. Norton was supervisor
of corporate accounting at Ingersoll-Rand. Mr. Norton received his bachelor of
arts degree in math from Rutgers University and is a Certified Management
Accountant and Certified Financial Manager. Mr. Norton is a member of the
Institute of Management Accountants and the American Production and Inventors
Control Society.
BOARD OF DIRECTORS
We currently have five Directors. All Directors hold office until the next
annual meeting of stockholders or until their successors have been elected and
qualified. Under the terms of the Agency Agreement between WorldWide Web NetworX
Corporation and D.H. Blair Investment Banking Corp., dated May 26, 1999, D.H.
Blair was given the right to appoint one of our outside Directors. On April 20,
2000, D.H. Blair notified us that it had designated its appointee to our Board
of Directors. As a condition to Mr. Weld's appointment to our board of
directors, we increased the amount of coverage under our director and officer
liability insurance to $10 million.
Our certificate of incorporation requires that we have not less than three
and no more than five Directors. During our last fiscal year ended
September 30, 1999, our Board of Directors consisted, for the first half of the
year, of only two Directors, Robert Kohn and Bjorn Koritz. Mr. Koritz resigned
his position from the Board of Directors on June 23, 1999 and Allan Cohen and
Michael Norton were appointed to the Board of Directors on the same day.
Mr. Kohn resigned all his positions with us in September 1999. Warren Rothstein
and Thomas Settineri joined our Board in September of 1999 and William Weld
joined our Board in December 1999. We intend to seek stockholder consent to
amend
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the certificate of incorporation to increase the size of the Board of Directors
so that we may search for and appoint additional outside directors to the
current Board of Directors and appoint the Director designated by D.H. Blair.
COMMITTEES OF THE BOARD OF DIRECTORS
We have established two standing committees of our Board of Directors: an
Audit Committee and a Compensation Committee. The basic functions of these
committees are summarized below.
AUDIT COMMITTEE. The audit committee, which currently consists of
Mr. Weld, will recommend the appointment of our independent public accountants,
review and approve the scope of the annual audit and review the results thereof
with our independent accountants. The audit committee also will assist the Board
in fulfilling its fiduciary responsibilities relating to accounting and
reporting policies, practices and procedures, and review the continuing
effectiveness of our business ethics and conflicts of interest policies. We
intend to appoint an additional two, non-employee Directors to our audit
committee after we obtain stockholder consent to amend the certificate of
incorporation to increase the size of the Board of Directors as discussed under
"Board of Directors", above.
COMPENSATION COMMITTEE. The compensation committee, which currently
consists of Mr. Weld, will recommend to the Board the salaries, bonuses and
stock awards received by our executive officers. The compensation committee is
also responsible for administering our 1999 Equity Compensation Plan. The
compensation committee will determine the recipients of awards, sets the
exercise price of shares granted, and determines the terms, provisions and
conditions of rights granted. We intend to appoint an additional two,
non-employee Directors to our compensation committee, after we obtain
stockholder consent to amend the certificate of incorporation to increase the
size of the Board of Directors as discussed under "Board of Directors", above.
DIRECTOR COMPENSATION
Directors who are also our employees or employees of our subsidiaries
receive no additional compensation for their services as Directors. Directors
who are not our employees will not receive a fee for attendance at meetings of
the Board of Directors, but they will be reimbursed for their out-of-pocket
expenses in connection with their activities as Directors. Our outside Directors
may be granted options under our 1999 Equity Compensation Plan as consideration
for their services.
ITEM 6. EXECUTIVE COMPENSATION.
The table below summarizes information concerning the total compensation for
the fiscal year ended September 30, 1999 for our former Chief Executive
Officers. None of our other executive officers received compensation in excess
of $100,000 during the year ended September 30, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING
OPTIONS (#)
SALARY/MANAGEMENT FEE ------------
--------------------- LONG TERM-
NAME COMPENSATION AWARD COMPENSATION OTHER COMPENSATION
- ---- --------------------- ------------ ------------------
<S> <C> <C> <C>
Robert D. Kohn............................. $98,000(1) 0 $2,475
Warren Rothstein........................... $76,480(2) 0 $6,294
</TABLE>
- ------------------------
(1) This salary paid to Mr. Kohn was the actual amount paid by our then
wholly-owned subsidiary, entrade.com.
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(2) This amount paid to Mr. Rothstein was the actual management services fee
paid by our 52%-owned subsidiary, ATM Service, Ltd.
1999 EQUITY COMPENSATION PLAN
Our 1999 Equity Compensation Plan was adopted by the Board of Directors in
July 1999. The purpose of our 1999 Equity Compensation Plan is to attract and
retain the best available personnel for positions of substantial responsibility,
to provide an additional incentive to our employees, directors and consultants
and to promote the success of our business. Our 1999 Equity Compensation Plan
provides for the issuance to our employees, non-employee directors and advisors
and consultants shares of common stock pursuant to the grant of incentive stock
options, non-qualified stock options and restricted stock. At our next annual
meeting, we plan to submit the Plan to our stockholders for approval. If the
Plan is not approved by our stockholders, we will still be able to issue
non-qualified options but not incentive options and any incentive options
granted before our next annual meeting will be converted into non-qualified
options.
A total of 3,860,000 shares of our common stock have been reserved for
issuance under our 1999 Equity Compensation Plan. The Plan is administered by
the compensation committee of our Board of Directors that currently consists of
Mr. Weld. We plan to expand the Board of Directors to add two additional
independent directors who will join Mr. Weld on the committee. Subject to the
provisions of the Plan, the committee has the authority to determine to whom
stock options and restricted stock awards are granted and the terms of any such
grant, including the number of shares subject to, the exercise price and vesting
provisions of, the award. The option price per share of the common stock under
the Plan will be determined by the compensation committee at the time of each
grant, provided, however, that the exercise price per share of any incentive
stock option may not be less than the fair market value of our common stock at
the time of the grant of such option. In addition, if any person possessing more
than 10% of the voting power of all classes of our outstanding capital stock is
granted incentive stock options, the exercise price per share must equal at
least 110% of the fair market value of our common stock on the grant date and
the term of the option may not exceed five years. Payment for the exercise of an
option may be made by cash, check or any other instrument as the compensation
committee may accept, including at the discretion of the compensation committee
unrestricted shares of our common stock. If we undergo a change of control, all
outstanding options and restricted stock will become fully vested unless the
compensation committee determines otherwise. In a change of control situation,
the compensation committee may require that an option holder surrender his or
her stock options in exchange for a number of shares of our common stock with a
value equal to the excess of the fair market value of the surrendered stock over
the option price of such stock.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
On July 7, 1999, we entered into an amendment to a Shareholders Agreement
with Warren Rothstein and ATM Service, Ltd. originally dated December 1, 1998 in
which Mr. Rothstein agreed that all business transactions that he contemplated
and entered into until June 1, 2005, would be done for and on behalf of ATM
Service, Ltd.
On July 23, 1999, ATM Service, Ltd. and The Intrac Group, Ltd. each entered
into a ten-year employment agreement with Thomas A. Settineri. Under these
agreements, ATM and Intrac, each agreed to employ Mr. Settineri as their
President and Chief Executive Officer and jointly pay him an annual salary of
$400,000. Mr. Settineri may not compete with us or our subsidiaries while
employed by us. In addition, if Mr. Settineri's employment is terminated before
July 23, 2004 by Mr. Settineri with cause, or by ATM or Intrac without cause, or
without cause but with a mutually agreed upon severance package, Mr. Settineri
is restricted from competing in any way with us or our subsidiaries until
July 23, 2004.
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On July 23, 1999, ATM Service, Ltd. and The Intrac Group, Ltd. each entered
into a ten-year employment agreement with Gary K. Levi. Under these agreements,
ATM and Intrac, each agreed to employ Mr. Levi as their Chief Operating Officer
and jointly pay him an annual salary of $200,000. Mr. Levi may not compete with
us or our subsidiaries while employed by us. In addition, if Mr. Levi's
employment is terminated before July 23, 2004 by Mr. Levi with cause, or by ATM
or Intrac without cause, or without cause but with a mutually agreed upon
severance package, Mr. Levi is restricted from competing in any way with us or
our subsidiaries until July 23, 2004.
On September 23, 1999, NAI Direct, Inc. entered into a three year employment
agreement with Gerald C. Finn. Under this agreement, NAI Direct agreed to employ
Mr. Finn as its Chief Executive Officer at an annual salary of $150,000.
Mr. Finn may not compete with us or our subsidiaries while employed by us. In
addition, Mr. Finn has agreed not to compete directly with us or our
subsidiaries for a period of two years following the date of his termination
unless NAI Direct terminates Mr. Finn without cause or if Mr. Finn terminates
his employment because (1) he was removed from his position as President or his
status or responsibilities were diminished, (2) he was assigned duties
inconsistent with his status as an executive of NAI Direct holding the position
of President, (3) his base salary was reduced, (4) NAI Direct relocated its
offices more than 50 miles away or required Mr. Finn to be based in an office
anywhere other than where Mr. Finn was located, (5) NAI Direct failed to
continue any option, equity or bonus plan in which Mr. Finn participated,
(unless an equitable arrangement was made in such plan) or NAI Direct failed to
continue Mr. Finn's participation in such a plan on the same terms as provided
to other participants, or (6) NAI Direct deprived Mr. Finn of any material
fringe benefit in which Mr. Finn participated. If Mr. Finn terminates his
employment with us for any of the six reasons enumerated in the previous
sentence, we must provide him with severance pay in a lump sum amount equal to
the greater of (1) 50% of his then annual salary or (2) the salary Mr. Finn
would have received during the remaining term of the agreement.
On September 23, 1999, NAI Direct, Inc. entered into a three year employment
agreement with Jeffrey Finn. Under this agreement, NAI Direct agreed to employ
Mr. Finn as its President at an annual salary of $135,000. Mr. Finn may not
compete with us or our subsidiaries while employed by us. In addition, Mr. Finn
has agreed not to compete directly with us or our subsidiaries while employed by
us. In addition, Mr. Finn has agreed not to compete directly with us or our
subsidiaries for a period of two years following the date of his termination
unless NAI Direct terminates Mr. Finn without cause or if Mr. Finn terminates
his employment because (1) he was removed from his position as Chief Executive
Officer or his status or responsibilities were diminished, (2) he was assigned
duties inconsistent with his status as an executive of NAI Direct holding the
position of Chief Executive Officer, (3) his base salary was reduced, (4) NAI
Direct relocated its offices more than 50 miles away or required Mr. Finn to be
based in an office anywhere other than where Mr. Finn was located, (5) NAI
Direct failed to continue any option, equity or bonus plan in which Mr. Finn
participated, (unless an equitable arrangement was made in such plan) or NAI
Direct failed to continue Mr. Finn's participation in such a plan on the same
terms as provided to other participants, or (6) NAI Direct deprived Mr. Finn of
any material fringe benefit in which Mr. Finn participated. If Mr. Finn
terminates his employment with us for any of the six reasons enumerated in the
previous sentence, we must provide him with severance pay in a lump sum amount
equal to the greater of (1) 50% of his then annual salary or (2) the salary
Mr. Finn would have received during the remaining term of the agreement.
On January 14, 2000, we entered into a three-year agreement with John T.
Banigan under which he agreed to serve as a Senior Vice President of WorldWide
Web NetworX Corporation. Mr. Banigan's compensation includes an annual salary of
$185,000, a signing bonus of $15,000, an annual bonus of at least $15,000 and
250,000 options to purchase our common stock at an exercise price of $5.625 per
share, which was greater than the closing price of our common stock on the date
of the grant, vesting over a period of four years. Mr. Banigan agreed not to
compete with us during his employment and for
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one year after his termination or the expiration of the employment agreement.
Mr. Banigan is now our Executive Vice President, Chief Financial Officer and
Treasurer.
On February 14, 2000, we entered into a three-year agreement with Gerard T.
Drumm under which he agreed to serve as a senior executive of WorldWide Web
NetworX Corporation. Mr. Drumm's compensation includes an annual salary of
$225,000, a signing bonus of $50,000 on his date of hire and $25,000 after sixty
days, performance bonuses of up to $75,000 based on milestones, and 200,000
options to purchase our common stock at an exercise price of $5.15 per share,
which was greater than the closing price of our common stock on the date of the
grant, vesting over a period of four years. Mr. Drumm agreed not to compete with
us during his employment and for one year after his termination or the
expiration of the employment agreement. Mr. Drumm is now our interim President
and Chief Executive Officer.
On March 20, 2000, we entered into a three-year agreement with Allan M.
Cohen under which he will serve as a Vice President and General Counsel of
WorldWide Web NetworX Corporation. Mr. Cohen's compensation includes an annual
salary of $175,000, an annual bonus to be determined by the Board of Directors
and 250,000 previously awarded options to purchase our common stock at an
exercise price of $2.69 per share, which was greater than the closing price of
our common stock on the date of the grant, vesting over a period of four years.
Mr. Cohen agreed not to compete with us during his employment and for one year
after his termination or the expiration of the employment agreement.
In October 1999, we agreed in principal and in February 2000 we entered into
a one-year agreement with Robert D. Kohn under which he will act as a finder
and/or financial consultant for us. Mr. Kohn will receive $60,000 annually as a
non-refundable draw against future finder's fees. We will also pay Mr. Kohn a
finder's fee for any introductions he makes for us that result in a transaction
in which either our securities are purchased by the party introduced to us by
Mr. Kohn or in which we acquire the securities of the introduced party.
Mr. Kohn's finder's fee will be equal to a percentage of the consideration paid
in the facilitated transaction, ranging from 5% for the first $1,000,000 to 1%
of any consideration in excess of $7,000,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From August 12, 1999 to September 23, 1999, Robert Kohn, our former
Chairman, Chief Executive Officer and President, served as the sole member of
the compensation committee until his resignation from all his positions on
September 23, 1999. Mr. Kohn served as the sole director and Chief Executive
Officer of Entrade, Inc. one of our subsidiaries, from February 1999 to
September 23, 1999 when Entrade was sold. Prior to the appointment of Mr. Kohn
to the compensation committee, the Board of Directors set the compensation of
our officers including those executive officers on the Board. During our fiscal
year ended September 30, 1999, our Board of Directors consisted, for the first
half of the year, of only two Directors, Robert Kohn and Bjorn Koritz.
Mr. Koritz served as a Director and our Secretary and General Counsel until he
resigned all his positions on June 23, 1999. Allan Cohen and Michael Norton were
appointed to the Board of Directors on June 23, 1999.
Mr. Kohn and Mr. Koritz had personal interests in transactions in which we
have engaged which are described in the section titled "Item 7. Certain
Relationships and Related Transactions."
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
ROBERT KOHN RELATED-PARTY TRANSACTIONS. This section describes a number of
transactions in which WorldWide Web NetworX Corporation or one of its
subsidiaries was a party and in which Robert Kohn had a direct or indirect
material interest.
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ROBERT KOHN'S POSITIONS
Robert Kohn held the following positions, relationships and ownership
interests during the periods indicated:
- Director of WorldWide Web NetworX Corporation from May 8, 1998 to
September 23, 1999 and President and Chief Executive Officer of WorldWide
Web NetworX Corporation from May 18, 1998 to September 23, 1999;
- The holder of more than 5% of the common stock of WorldWide Web NetworX
Corporation from May 1998 to the present;
- A strategic planner of business development for marketing and sales of
PECO Energy Company from February 1996 to March 1, 1999;
- The President of BarterOne, LLC, from its formation to its dissolution;
- The owner of an option to acquire a 4.5% membership interest in BarterOne,
LLC which was granted to Mr. Kohn by PECO Energy Company in exchange for
salary and other compensation concessions;
- A 33 1/3% owner of Positive Asset Remarketing, Inc. with a right to
receive 50% of its interest in AssetTrade.com, Inc.;
- An employee of Artra Group Incorporated from February 23, 1999 to
September 23 1999, at which time his employment agreement was assigned to
Entrade Inc;
- A holder of options exercisable for 1,000,000 shares of Entrade Inc.
common stock at a price of $2.75 per share;
- President and Chief Executive Officer of AssetTrade.com, Inc. from
December 1998 to the present; and
- Brother to Marlene Goss, a principal of EduNEXT.
OTHER PARTIES
The other parties involved in the transactions described in this section
include the following entities:
- PECO Energy Company: an electric and natural gas service provider in
southeastern Pennsylvania.
- Energy Trading Company: a wholly owned subsidiary of PECO Energy.
- BarterOne, LLC: a limited liability company which was incorporated in
Delaware in 1997 as a joint venture between Energy Trading Company and
Global Trade Group to serve as PECO Energy's Internet development unit.
BarterOne did business as entrade.com and was dissolved in 1999.
- Positive Asset Remarketing, Inc.: a company providing asset recovery
services to global customers.
- entrade.com, Inc.: a subsidiary of Entrade Inc. which we sold to Artra
Group Incorporated in a transaction which closed on September 23, 1999.
- AssetTrade.com, Inc.: a provider of traditional off-line asset recovery,
disposal and marketing with Internet-based asset recovery, inventory
management and on-line auctions for large industrial and commercial
organizations.
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TRANSACTIONS BEFORE THE SALE OF ENTRADE
WORLDWIDE WEB NETWORX CORPORATION PURCHASED 51% OF BARTERONE FROM ENERGY TRADING
COMPANY
In December 1998, we acquired from Energy Trading Company, its 51%
membership interest in BarterOne, LLC for consideration of $480,000 and 416,666
shares of our common stock. As a result of the September 23, 1999 closing of our
sale of Entrade Inc. to Artra, and pursuant to the acquisition agreement, PECO
Energy Company returned its certificate representing 416,666 of our shares and
we issued to PECO a certificate representing 73,450 of our shares valued at
$1.00 per share or $73,450 in the aggregate. To enable us to acquire the 51%
membership interest of Energy Trading Company in BarterOne, Mr. Kohn returned
his option to purchase 4.5% of BarterOne. As consideration for the return of
this option, we agreed to issue to Mr. Kohn 475,000 shares of our common stock
valued at $1.00 per share or $475,000 in the aggregate.
WORLDWIDE WEB NETWORX CORPORATION PURCHASED ORBIT SYSTEM AND ASSETTRADE.COM
INTEREST FROM POSITIVE ASSET REMARKETING
In January 1999, we purchased, for 3,500,000 shares of our common stock
valued at $1.00 per share or $3,500,000 in the aggregate, assets from Positive
Asset Remarketing including all the rights of Positive Asset Remarketing under a
license from BarterOne to the ORBIT System Software and 25% of
AssetTrade.com, Inc.'s common stock.
WORLDWIDE WEB NETWORX CORPORATION PURCHASED ATM SOFTWARE/METHODOLOGIES FROM
POSITIVE ASSET REMARKETING.
In February 1999, we purchased, for 3,500,000 shares of our common stock,
valued at $1.50 per share or $5,250,000 in the aggregate, and $750,000, all of
Positive Asset Remarketing's rights to the ATM System which included proprietary
banking and trade operations that establish on-line electronic trading and
commerce functions.
WORLDWIDE WEB NETWORX CORPORATION SALE OF ENTRADE INC. TO ARTRA GROUP
INCORPORATED
In February 1999, we entered into a merger agreement with Artra for the sale
of our Entrade Inc. subsidiary. Our Entrade subsidiary contained the following
assets:
- our 25% interest in the Class A voting shares of AssetTrade.com, Inc.;
- our 100% membership interest in BarterOne, LLC;
- a non-customized version of the ORBIT System;
- a new entrade.com transaction software that was developed by entrade.com;
and
- other assets of our subsidiary Entrade Inc.
In connection with this transaction, we received the following
consideration:
- $800,000 in cash;
- a $500,000 promissory note which has since been paid;
- 1,800,000 shares of the outstanding equity securities of Entrade Inc; and
- $1,302,000 in funding of Entrade's operations from the date of the merger
agreement through its consummation.
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In connection with the sale of our Entrade subsidiary to Artra, on
February 23, 1999, the following person entered into agreements with Artra or an
entity affiliated with Artra:
- Robert D. Kohn entered into a three-year employment agreement with Artra,
at an annual salary of $165,000. He also received an option to purchase
1,000,000 shares of Artra stock at an exercise price of $2.75 per share.
Mr. Kohn also agreed during the term of the employment agreement and for
an additional period of one year after termination or expiration, unless
terminated because of a change in business purpose, that neither he nor
any corporation or entity in which he may be interested will at anytime
engage in any competitive business or solicit, hire or contract for
services or employ any of the executives of Artra.
- Robert D. Kohn entered into a non-competition agreement with the new
Entrade or its successor for a four-year term after the closing of the
sale of Entrade to Artra.
- Robert D. Kohn entered into a non-qualified stock option agreement whereby
Artra granted Mr. Kohn an option to purchase any part or all of 1,000,000
shares of Artra's common stock at an exercise price of $2.75 per share
subject to vesting as follows: one-third on December 1, 1999, one-third on
February 18, 2000 and one-third on February 18, 2001.
LEASE OF OFFICE SPACE
We have a five year sublease from RDR Associates, Inc., to occupy at least
two offices and have use of a conference room in RDR's offices at 888 7th
Avenue, New York, NY. Admiral Asset Group and Mark Quinn of Entrade Inc. occupy
this space. We paid for this lease by issuing 50,000 shares of our common stock
to RDR in December of 1999, which had a value of $1.50 per share or $75,000 in
the aggregate. We established this lease originally as a marketing and sales
office for our Entrade Inc. subsidiary which we sold in September 1999. We are
not yet compensated for the use of this space. We intend to seek reimbursement
for monthly rent from Entrade Inc.
TRANSACTIONS AFTER THE SALE OF ENTRADE
NEW ENTRADE.COM SOFTWARE LICENSE
In September 1999, our subsidiary, ATM Service, Ltd., licensed from
entrade.com, Inc. the new entrade.com software which we had sold in connection
with our sale of our Entrade subsidiary. ATM Service, Ltd. agreed to pay a
one-time licensing fee equal to $1,500,000 in trade credits to entrade.com in
September and agreed to make royalty payments equal to a percentage of all
revenues from transactions generated by using the licensed software. The royalty
payment percentage varies from 10% to 50% depending on the type of transaction.
EDUNEXT
We entered into an agreement with Marlene A. Goss, and Fern Entrekin dated
as of June 13, 1998. Ms. Goss is the sister of Robert Kohn. Ms. Goss and
Ms. Entrekin developed an educational program to provide solutions to schools to
build learning communities. The agreement contemplated the formation of a
subsidiary of WorldWide Web NetworX Corporation, to be named EduNEXT, and the
development of related web sites. We agreed to acquire the educational program
in exchange for the following:
- $50,000 of our stock, at $2.50 per share, to be paid as follows: 10,000
shares to be delivered upon the execution of the agreement and an
additional 10,000 shares to be delivered one year from the execution of
the agreement; and
- $53,500 in working capital with $15,000 to be paid immediately upon
execution of the agreement and weekly payments totaling $38,500 for the
remainder of the $53,500.
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As of March 31, 3000, we had issued 20,000 shares, valued at $20,000 or
$1.00 per share, under this agreement and paid $31,500 to Ms. Goss.
VISION TECHNOLOGIES
In April and August 1999, we invested $850,000 directly and $350,000 through
WWWX-Jencom, LLC in Vision Technologies, Inc. At the time of the investments,
Mr. Bjorn Koritz, our then Vice President, General Counsel, Secretary and a
Director, was a Director of Vision, its General Counsel and a holder of 10% of
Vision's common stock.
D.H. BLAIR AND JENCOM
As a condition to a stock purchase agreement with D.H. Blair Investment
Banking Corp. dated March 4, 1999 to purchase 2,000,000 shares of our common
stock, D.H. Blair required that we invest in and execute a definitive agreement
with JenCom Digital Technologies, LLC to acquire a 50% interest in technology
assets of JenCom, described in "Item 1. Business--WWWX-Jencom, LLC and
InterCommerce China, LLC--JenCom Products", which resulted in our current
ownership interest in WWWX-Jencom, LLC. Affiliates of D.H. Blair own interests
in International Commerce Exchange Systems, Inc., an indirect parent of JenCom
Digital Technologies, LLC, and a member of InterCommerce China, LLC.
INTERCOMMERCE CHINA, LLC
Pursuant to the operating agreement of InterCommerce China, LLC, eight
individuals, including Warren Rothstein and Allan M. Cohen, each have the option
to purchase a 0.625% interest in InterCommerce China. The option becomes
exercisable upon the public issuance of any class of securities of InterCommerce
China, at an exercise price equal to 30% of the fair market value of the option
interest as of the date of the operating agreement.
RELATIONSHIPS WITH MCDERMOTT, WILL & EMERY
We use McDermott, Will & Emery periodically as outside counsel on various
matters. William Weld, one of our directors, has been a partner since 1997 at
and is currently the partner in-charge of the New York office of the law firm of
McDermott, Will & Emery. Gerard Drumm, our Executive Vice President-Mergers and
Acquisitions, was a partner in the New York office of McDermott from March 1997
to February 2000. Allan Cohen, our General Counsel and one of our directors, was
an associate attorney in the New York office of McDermott from 1997 to
June 1999. We have paid McDermott, Will & Emery a total of $109,000 for
professional legal services during the period September 1999 through March 31,
2000.
D&W ENTERPRISES
Eight employees of D&W Enterprises, Inc., a company owned by Warren
Rothstein, work exclusively for ATM Service, Ltd. These employees are
compensated by D&W and D&W is reimbursed by ATM Service, Ltd. During the year
ended September 30, 1999, we paid $183,000 for these services.
RELATIONSHIPS WITH AND AMONG ENTRADE.COM, ATM SERVICE, LTD. AND THE INTRAC GROUP
Entrade.com provided technical consulting services totaling $128,500 to ATM
for the period January 1, 1999 through March 31, 2000. At March 31, 2000,
$128,500 was due to Entrade.com from ATM.
In addition to the $3,500,000 that we loaned to ATM, we have provided
services and made payments on behalf of ATM totaling $211,000 during the period
July 23, 1999 through March 31, 2000.
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At March 31, 2000, $211,000 was due to WorldWide Web NetworX Corporation from
ATM. ATM has made payments on behalf of Intrac totaling $1,033,000 during the
period July 23, 1999 through March 31, 2000. At March 31, 2000, $1,033,000 is
due from Intrac to ATM.
The following of our officers and directors have or have had the following
management positions with, and economic interests in ATM and Intrac:
Warren Rothstein, a director since September 1999 and our interim Chairman,
President and Chief Executive Officer from September 1999 to April 2000, has
been a director and Chairman of each of ATM and Intrac since each of their
respective inceptions. Since July 1999, Mr. Rothstein has beneficially owned 24%
of the outstanding equity of ATM.
Thomas Settineri, a director since September 1999 has been a director and
President and Chief Executive Officer of each of ATM and Intrac since July 1999.
Since July 1999, Mr. Settineri has beneficially owned 18% of the outstanding
equity of ATM.
Allan Cohen, a director and our Vice President, General Counsel and
Secretary was General Counsel and Secretary to ATM from July 23, 1999 to
March 2000.
NAI DIRECT
NAI Direct, Inc. has an informal agreement to rent office space from New
America Network, Inc. NAI Direct currently occupies 21 work stations at New
America Network's Hightstown, New Jersey offices. NAI Direct pays New America
Network $8,500 per month, on a month to month basis, while it looks for
permanent office space in central New Jersey.
GUARANTEE OF NAI DIRECT EQUIPMENT LEASE
In March 2000, we guaranteed the obligations of NAI Direct under a lease of
computer equipment and network software which requires monthly payments totaling
$100,000 over a two-year term with an option to purchase at lease end.
ITEM 8. LEGAL PROCEEDINGS.
We are not a party to any material legal proceedings.
ITEM 9. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Our common stock is currently quoted on the OTC Bulletin Board under the
symbol "WWWXE". The following table sets forth the highest and lowest bid prices
for our common stock for each fiscal quarter during the last two years and
subsequent interim periods as reported by the National Quotation Bureau.
At March 31, 2000, there were 1,060 record holders of our common stock.
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The prices set forth below represent interdealer quotations, without retail
markup, markdown or commission and may not be reflective of actual transactions.
<TABLE>
<CAPTION>
FISCAL 1998 HIGH BID LOW BID
- ----------- ---------- -----------
<S> <C> <C>
First Quarter...............................................
Second Quarter..............................................
Third Quarter............................................... 3 1 1/4
Fourth Quarter.............................................. 2 3/8 11/16
FISCAL 1999
First Quarter............................................... 1 5/16 21/64
Second Quarter.............................................. 9 3/8 17/32
Third Quarter............................................... 9 1/4 3 3/16
Fourth Quarter.............................................. 4 5/8 2 9/16
FISCAL 2000
First Quarter............................................... 7 1/2 2 1/8
</TABLE>
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
We sold the following securities within the past three years and prior to
the date of filing of this registration statement.
On February 11, 2000, we issued warrants to purchase 500,000 shares of our
common stock to Allan Kline at an exercise price of $4.00 which is exercisable
for one year as consideration of his settlement for and release from any claims
for compensation associated with services he rendered.
On January 7, 2000, we issued 1,500,000 shares of our common stock, valued
at $2,250,000 or $1.50 per share, to JenCom Digital Technologies, LLC in
consideration for a 33.3% interest in InterCommerce China, LLC.
On December 30, 1999, we issued 50,000 shares of our common stock, valued at
$75,000 or $1.50 per share, to RDR Associates in connection with a real estate
lease.
On October 1, 1999, we agreed to issue 2,500 shares of our common stock,
valued at $3,750 or $1.50 per share, to Robert Yayac for consulting services
rendered.
On October 1, 1999, we agreed to issue 2,500 share of our common stock,
valued at $3,750 or $1.50 per share, to Claudia Zinnin-McGee for consulting
services rendered.
On September 23, 1999, we issued 1,500,000 shares of our common stock to New
America Network, Inc. for an 80% interest in Real Quest, Inc. of which 750,000
shares were delivered to an escrow agent to be transferred to New America
Network, Inc. upon the attainment by NAIdirect.com of at least $2,000,000 in
cumulative gross revenues within 24 months of the launch of the NAIdirect.com
web site. We valued the 750,000 shares that we delivered to New America
Network, Inc. at $1,125,000 or $1.50 per share.
On September 30, 1999, we agreed to issue 30,000 shares of our common stock,
valued at $45,000 or $1.50 per share, to Luc Morgan for consulting services
rendered.
On September 22, 1999, pursuant to a private placement under Rule 506, we
issued 912,669 shares of our common stock to 25 accredited investors for an
aggregate purchase price of approximately $1,369,004 or $1.50 per share. For
acting as our placement agent, we paid D.H. Blair $180,534 in fees and expenses,
and we issued warrants exercisable at a price of $1.80 per share for 91,267
shares of our common stock to D.H. Blair. The following is a list of the 25
accredited investors: Delbert and Pat Allen, Simon and Leah Barber, Barington
Capital Group L.P., Stephen Berman, Joel and Shana Blumberg, Michael Bollag,
Jacob and Channah B. Borenstein, Bernard Cohen, Raymond and
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Susan Drapkin, Jay R. Fialkoff, Glenn Fishman, Sigmund Freundlich, Morris
Friedman, Paul Friedman, The Susan Gartenberg Revocable Trust, JBA International
Inc. Retirement Plan, Peter and Donna Kash, Murray Koppelman, LF Global
Investments LLC, L&H Family Foundation, Harusy N. and Susan G. Mininberg, Barry
Ogrin, Optic Express Inc., the Schon Family Foundation, and Miriam Stern.
On August 25, 1999, pursuant to a private placement under Rule 506, we
issued 1,435,000 shares of our common stock to 22 accredited investors for an
aggregate purchase price of approximately $2,152,500 or $1.50 per share. For
acting as our placement agent, we paid D.H. Blair $282,354 in fees and expenses,
and we issued warrants exercisable at a price of $1.80 per share for 143,500
shares of our common stock to D.H. Blair as partial payment of its fee for
acting as agent in the private placement of 1,435,000 shares of our common stock
to D.H. Blair. The following is a list of the 22 accredited investors: Ace
Investments LP, Harold Altman, Eve Ashman, Judith Boim IRA, Stifel Nicolaus c/f
Bresler & Bresler p/s Keogh FPO Alan Bresler, Stifel Nicolaus c/f Hanna Bresler
p/s sub Keogh, Rhoda L. Chase, the Cohen Family Trust, Larry Dorfman, Jack
Forgash, Herman Howard, JLV Investments LP, Milan Panic, Putnam Investment
Corporation, Aaron Shpayer, the Estate of Phyllis Trenk, Louis Weisbach, the
Weiss Capital Group LLC, The M&B Weiss Family Limited Partnership, Melvyn I.
Weiss, James D. Wolfensohn, and the World Financial Exchange Inc.
On July 23, 1999, we issued 750,000 shares of our common stock, valued at
$1,125,000 or $1.50 per share, to Thomas Settineri for his interest in The
Intrac Group and other consideration.
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On July 23, 1999, we issued 250,000 shares of our common stock, valued at
$375,000 or $1.50 per share, to Gary Levi for his interest in The Intrac Group
and other consideration.
On July 23, 1999, pursuant to a private placement under Rule 506, we issued
5,057,000 shares of our common stock to 60 accredited investors for an aggregate
purchase price of approximately $7,585,502 or $1.50 per share. For acting as our
placement agent, we paid D.H. Blair $1,011,089 in fees and expenses, and we
issued warrants exercisable at a price of $1.80 per share for 505,700 shares of
our common stock to D.H. Blair. The following is a list of the 60 accredited
investors: Academy Partners LLC, Jack Burstein, Michael Conus, Nathan and Rose
Eisen, Lou Falcigno, Jerry Finkelstein, Gary Fragin IRA, Morris Friedman, Joseph
Giamonco, Gitel Family Limited Partnership, Martin Goldman, Tom Grant,
Ben Greszes, Felice Gross, Mark Honigsberg Living Trust, Herman Jacobs,
Melvin L. Katten, Roman Kent, Jay Kestenbaum, Scott and Amy Koppelman,
Martin Lerner, LF Global Investments LLC, the Lionel Trust, the
Robert B. Meares Retirement Plan, Albert Milstein, Maria Molinsky,
Gail Mulvihill, Ann C. Oestreicher, Donald E. Panoz, Louis Reaback,
Raymond Reaback, Kalman Renov, Ruki Renov, Ruki Renov c/f Tani Renov,
Ruki Renov c/f Ari Renov, Ruki Renov c/f Yoni Renov, Ruki Renov c/f Eli Renov,
Ruki Renov c/f Yael Renov, RER Corporation, Rivki Rosenwald, Rivki Rosenwald c/f
Doni Rosenwald, Nathan and Shirley Rothner Family Trust, David Sandell and
Gabriela Gandara, John Anthony Sandell and Manuela Luisa Biancotti,
Mary Sandell, Paul H. Sanders, Aaron Shpayer, Ethel Sirotkin Revocable Trust,
Martin Sirotkin, Paul Sirotkin, David Shamilzadeh, Esther Stahler c/f
Avi Stahler, Esther Stahler c/f Daniel Stahler, Esther Stahler c/f Eli Stahler,
Esther Stahler c/f Jamie Stahler, Esther Stahler c/f Lisa Stahler, Tova Family
Limited Partnership, TPR Investments Associates, and the World Financial
Exchange Inc.
On May 26, 1999, we agreed to issue warrants exercisable at a price of $1.80
per share for 200,000 shares of our common stock to D.H. Blair as partial
payment of its fee for acting as agent in the private placement relating to D.H.
Blair's purchase of 2,000,000 shares of our restricted common stock in
March 1999.
On April 16, 1999, we agreed to issue 100,000 shares of our restricted
common stock, valued at $150,000 or $1.50 per share, to Alexander, Wescott & Co.
in settlement of potential claims.
On April 16, 1999, we agreed to issue 98,950 shares of our common stock
valued at $148,425 or $1.50 per share to Alexander, Wescott & Co., Inc. as
payment of its fee for acting as agent in the private placement of our Series A
6% Convertible Debentures.
On April 7, 1999, we agreed to issue 750,000 shares of our common stock,
valued at $1,125,000 or $1.50 per share, to Kathryn Berman, as payment for
assets of Admiral Asset Group, substantially all of which consisted of its 2%
ownership interest in AssetTrade.com and Admiral's network of business contacts.
On April 7, 1999, we agreed to issue 150,000 shares of our common stock,
valued at $225,000 or $1.50 per share, to Michelle Kramish Kain for legal
services.
On April 2, 1999, we issued warrants exercisable at a price of $2.25 for
100,000 shares of our common stock, valued at $128,000 or $1.28 per share, to
Ralph Isham for consulting services.
On April 2, 1999, we issued warrants exercisable at a price of $2.25 for
100,000 shares of our common stock, valued at $128,000 or $1.28 per share, to
Arnold Kling for consulting services.
On March 31, 1999, we agreed to issue 10,000 shares of our common stock,
valued at $15,000 or $1.50 per share, to George Losse for consulting services.
On March 22, 1999, pursuant to Rule 506, we issued Series A 6% Convertible
Debentures to 16 investors for an aggregate purchase price of $989,500.
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On March 4, 1999, we issued 2,000,000 shares of our common stock to D.H.
Blair for an aggregate purchase price of $3,000,000 or $1.50 per share. For
acting as our placement agent, we paid D.H. Blair $390,000 in fees and expenses.
On February 26, 1999, we agreed to issue 2,000,000 shares of our common
stock, valued at $3,000,000 or $1.50 per share, to JenCom Digital Technologies,
LLC, for technology assets and a 50% interest in WWWX-Jencom, LLC.
On February 24, 1999, we issued 3,500,000 shares of our common stock, valued
at $5,250,000 or $1.50 per share, to 33 persons, who were the designees of the
principals of Positive Asset Remarketing, Inc., for assets, including the ATM
Center System, relating to our software. The following is a list of the 33
designees of the principals of Positive Asset Remarketing: Robert Kohn, 20/20
Irrevocable Trust, Tony Raine, William Murray, Liz Monteath, Marc Gingris, Fang
Yang, Brandon Silver, Ashley M. MacRae, Robert E. O'Hayer, Jr., Kristen DiNovi,
Tim Sexton, Stuart Ross, Thomas Schneider, Michael Burke, PC, Benjamin R. Kafka,
Lillian Frances Nominee Trust, Lou Kafka, James Egan, Kenneth Kafka, Hirsh
Kafka, Aaron Dubinsky, William Armstrong, Jeannine Armstrong, Carrie Armstrong,
William Armstrong, Jr., Rene Lafond, William F. Olsen, Derrick J. McDonald, T.A.
Venkataraman, James A. Seery, Nathaniel B. Fine and America's Financial Network.
On January 29, 1999, we agreed to issue 3,500,000 shares of our common
stock, valued at $3,500,000 or $1.00 per share, to 38 persons, who were the
designees of the principals of Positive Asset Remarketing, Inc., for assets
including 25% of AssetTrade.com, Inc. The following is a list of the 38
designees of the principals of Positive Asset Remarketing: Mark Bastarache, Tony
Raine, William Murray, Bounsou Samounty, Stephan A. Fisher Family Trust, Dennis
Bridges, Russell Sadler, Mary Harris, Avenir Internet Solutions, Lockhart Muir
Family Trust, Geoffrey and Diana Quinn, Christopher and Irene Quinn, Sara Quinn,
Gillian De La Rue, Liz Monteath, Raymond J. Bastarache, Amramol Family Trust,
Lilliam Frances Nominee Trust, Lou Kafka, James Egan, Kenneth Kafka, Hirsh
Kafka, William Armstrong, Jeannine Armstrong, Carrie Armstrong, William
Armstrong, Jr., Alfred H. Kafka, Bernard Richard Nominee Trust, Rebecca Kafka,
Benjamin S. Kafka, Elizabeth Kafka, Victoria Kafka, Deborah Bell, Joseph Sousa,
Gary Travers, Mark Kafka, Bartermax, Inc. and Rebecca Tolmei.
On December 16, 1998, we agreed to issue an aggregate of 1,500,000 shares of
our common stock, valued at $1,500,000 or $1.00 per share, to Ben Kafka, Mark
Quinn, Raymond Bastarache and Alfred Kafka for the acquisition of a 49% interest
in BarterOne.
On December 16, 1998, we agreed to issue 475,000 shares of our restricted
common stock, valued at $475,000 or $1.00 per share, to Gary Lerman, pursuant to
an agreement with Energy Trading Company, for his 4.5% interest in Barter One,
LLC.
On December 16, 1998, we issued 416,666 shares of our common stock valued at
$416,666 or $1.00 per share, to Energy Trading Company for its 51% interest in
BarterOne. 343,216 of these shares were later returned to us and cancelled
pursuant to our agreement with Energy Trading Company.
In connection with the December 16, 1998 agreement with Energy Trading
Company, we issued 475,000 shares of our common stock, valued at $475,000 or
$1.00 per share to Jessica Kohn, Mr. Kohn's daughter, at the direction of
Mr. Kohn in consideration for Mr. Kohn's option to acquire a 4.5% interest in
Barter One LLC.
Pursuant to an agreement of December 16, 1998, we agreed to issue 5,000,000
shares of our common stock, valued at $5,000,000 or $1.00 per share, to Warren
Rothstein for his interest in ATM Service and other consideration. Our agreement
to issue 1,000,000 of these shares was cancelled on July 23, 1999 pursuant to
our acquisition of Intrac.
On October 30, 1998, we agreed to issue 50,000 shares of our common stock,
valued at $50,000 or $1.00 per share, to Alex Polkhovsky for consulting
services.
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On July 22, 1998, we issued an aggregate of 502,500 shares of our common
stock, valued at $502,500 or $1.00 per share, pursuant to Rule 504 to the
following nine accredited investors: Douglas Nagel, James Hall, Robert Hall,
Emil Investments Ltd., Soultana Demakos, Nostradamus S.A., Salvatore R. Cerruto,
and Stephan Guarino, in connection with our assumption of an aggregate of
$502,500 principal amount Series A 12% Cumulative Convertible Promissory Notes
of Keiretsu Corporation (which corporation we acquired in May of 1998) and the
conversion of said Promissory Notes.
On July 22, 1998, we issued an aggregate of 502,500 shares of our common
stock, valued at $502,500 or $1.00 per share, to the following nine accredited
investors: Douglas Nagel, James Hall, Robert Hall, Emil Investments Ltd.,
Soultana Demakos, Nostradamus S.A., Salvatore R. Cerruto, and Stephan Guarino,
in connection with our assumption of an aggregate of $502,500 principal amount
Series A 12% Cumulative Convertible Promissory Notes of Keiretsu Corporation and
the conversion of said Promissory Notes.
On July 22, 1998, pursuant to Rule 504, we issued 391,000 shares of our
common stock to the following 40 persons for an aggregate purchase price of
$391,000 or $1.00 per share: Randolph N. Patton; Bryan E. Brandon; Joseph H.
Wilcox; Tamara L. Davis; James W. Dunn; Debra Palla; Donald R. Philpott; Mark L.
Horwitz; Len Aronoff; Billie E. Davis Jr.; Scott A. Landis; Visual Company;
Geoge Solovitz; Michele Darcy; Judith Brown ITF Robin J. and Bernadine F. Abel
Trust; John J. Flynn; Mason R. McCleod; Lee Meier; Heidi Kohl; Thomas O'Day;
Virginia Beasly; Shannon Schmidt; Kenneth Hoskinson; Van Koinis; Mitchell Shayne
Estep; Peter J. Schreyer; Randall W.Garrison; George Gerson; Shelley Diaz; Emily
A. Skalko; Frederick A. Lenz; Jimmy Dean Dowda; Bryan King; William K. Price;
Robert C. Kain Jr.; Marcy Studzinski; Irene Kline; Kenneth C. Voigt; Robert D.
Keleher; and Thomas Cascino.
On July 22, 1998, pursuant to Rule 504, we issued 7,500 shares of our common
stock, valued at $7,500 or $1.00 per share, to Michelle Kramish Kain for legal
services.
Pursuant to a consulting agreement of July 22, 1998 and pursuant to
Rule 504, we agreed to issue 990,000 shares of our common stock, to Stratcomm
Media Ltd. for an aggregate purchase price of $99,000, or $.10 per share; and we
agreed to issue 125,000 shares of our common stock, valued at $12,500 or $.10
per share, to Stratcomm Media Ltd. for advisory services rendered relating to
selling the stock noted above.
On June 13, 1998, we entered into an agreement for services and the EduNext
program, pursuant to which we agreed to issue 20,000 shares of our restricted
common stock valued at $20,000 or $1.00 per share, to Marlene Goss for services
and a software license.
On May 20, 1998, we issued 6,000,000 shares of our common stock valued at
$660,000 or $.11 per share, to the ten shareholders of Keiretsu Corporation in
exchange for all of their shares of common stock in Keiretsu.
On March 20, 2000, we issued options exercisable for 200,000 shares of our
common stock to Gerard T. Drumm, one of our employees, at an exercise price of
$5.15 per share.
On March 20, 2000, we issued options exercisable for 105,000 shares of our
common stock to Tim Sexton, one of our employees, at an exercise price of $5.15
per share.
On March 20, 2000, we issued options exercisable for 75,000 shares of our
common stock to Michael Metzger, one of our employees, at an exercise price of
$5.15 per share.
On March 20, 2000, we issued options exercisable for 50,000 shares of our
common stock to Luc Morgan, one of our employees, at an exercise price of $5.15
per share.
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On March 20, 2000, we issued options exercisable for 20,000 shares of our
common stock to Angela Gray, one of our employees, at an exercise price of $5.15
per share.
On January 14, 2000, we issued options exercisable for 250,000 shares of our
common stock to John Banigan, one of our employees, at an exercise price of
$5.65 per share.
On December 3, 1999, we issued options exercisable for 75,000 shares of our
common stock to William Weld, one of our directors, at an exercise price of
$3.0625 per share.
On October 22, 1999, we issued options exercisable for 50,000 shares of our
common stock to Theresa Wallace, one of our employees, at an exercise price of
$2.30 per share.
On August 12, 1999, we issued options exercisable for 250,000 shares of our
common stock to Allan Cohen, one of our employees, at an exercise price of $2.69
per share.
On August 12, 1999, we issued options exercisable for 20,000 shares of our
common stock to Kristen diNovi, one of our employees, at an exercise price of
$2.69 per share.
On August 12, 1999, we issued options exercisable for 25,000 shares of our
common stock to Gina Elton, one of our employees, at an exercise price of $2.69
per share.
On August 12, 1999, we issued options exercisable for 15,000 shares of our
common stock to Toni Ingram, one of our employees, at an exercise price of $2.69
per share.
On August 12, 1999, we issued options exercisable for 15,000 shares of our
common stock to Tony Jones, one of our employees, at an exercise price of $2.69
per share.
On August 12, 1999, we issued options exercisable for 200,000 shares of our
common stock to Laura Kohn, one of our employees at an exercise price of $2.69
per share.
On August 12, 1999, we issued options exercisable for 15,000 shares of our
common stock to Vinessa Mathias, one of our employees, at an exercise price of
$2.69 per share.
On August 12, 1999, we issued options exercisable for 15,000 shares of our
common stock to Candice Meyer, one of our employees, at an exercise price of
$2.69 per share.
On August 12, 1999, we issued options exercisable for 250,000 shares of our
common stock to Michael Norton, one of our employees at an exercise price of
$2.69 per share.
On August 12, 1999, we issued options exercisable for 50,000 shares of our
common stock to George Perla, one of our employees, at an exercise price of
$2.69 per share.
On August 12, 1999, we issued options exercisable for 20,000 shares of our
common stock to Kathryn Sachdev, one of our employees, at an exercise price of
$2.69 per share.
On August 12, 1999, we issued options exercisable for 45,000 shares of our
common stock to Tim Sexton, one of our employees, at an exercise price of $2.69
per share.
On August 12, 1999, we issued options exercisable for 10,000 shares of our
common stock to Jacci Swope, one of our employees, at an exercise price of $2.69
per share.
On August 12, 1999, we issued options exercisable for 20,000 shares of our
common stock to Don Boltz, who, at the time was one of our employees and is now
and employee of entrade.com, at an exercise price of $2.69 per share.
On August 12, 1999, we issued options exercisable for 15,000 shares of our
common stock to Alex Fogel who, at the time was one of our employees and is now
and employee of entrade.com, at an exercise price of $2.69 per share.
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On August 12, 1999, we issued options exercisable for 15,000 shares of our
common stock to Bonnie Hall who, at the time was one of our employees and is now
and employee of entrade.com, at an exercise price of $2.69 per share.
On August 12, 1999, we issued options exercisable for 10,000 shares of our
common stock to Mary Harris who, at the time was one of our employees and is now
and employee of entrade.com, at an exercise price of $2.69 per share.
On August 12, 1999, we issued options exercisable for 80,000 shares of our
common stock to Jeff Kohn who, at the time was one of our employees and is now
and employee of entrade.com, at an exercise price of $2.69 per share.
On August 12, 1999, we issued options exercisable for 10,000 shares of our
common stock to Arisa Kubo who, at the time was one of our employees and is now
and employee of entrade.com, at an exercise price of $2.69 per share.
On August 12, 1999, we issued options exercisable for 15,000 shares of our
common stock to George Losse who, at the time was one of our employees and is
now and employee of entrade.com, at an exercise price of $2.69 per share.
On August 12, 1999, we issued options exercisable for 20,000 shares of our
common stock to Luc Morgan who, at the time was one of our employees and is now
and employee of entrade.com, at an exercise price of $2.69 per share
On August 12, 1999, we issued options exercisable for 20,000 shares of our
common stock to Alex Polkhovsky who, at the time was one of our employees and is
now and employee of entrade.com, at an exercise price of $2.69 per share.
On August 12, 1999, we issued options exercisable for 17,500 shares of our
common stock to Stuart Ross who, at the time was one of our employees and is now
and employee of entrade.com, at an exercise price of $2.69 per share.
On August 12, 1999, we issued options exercisable for 17,500 shares of our
common stock to Tom Schneider who, at the time was one of our employees and is
now and employee of entrade.com, at an exercise price of $2.69 per share.
On August 12, 1999, we issued options exercisable for 10,000 shares of our
common stock to Cathy Van Horn who, at the time was one of our employees and is
now and employee of entrade.com, at an exercise price of $2.69 per share.
On August 12, 1999, we issued options exercisable for 10,000 shares of our
common stock to Jeff Xiong who, at the time was one of our employees and is now
and employee of entrade.com at an exercise price of $2.69 per share.
On August 12, 1999, we issued options exercisable for 10,000 shares of our
common stock to Linda Delaney who, at the time was one of our employees and is
now and employee of entrade.com, at an exercise price of $2.69 per share.
On August 12, 1999, we issued options exercisable for 10,000 shares of our
common stock to Chris Schneid who, at the time, was one of our employees and is
now and employee of entrade.com, at an exercise price of $2.69 per share.
Unless otherwise indicated, the sales set forth above are claimed to be
exempt from registration with the Securities and Exchange Commission pursuant to
Section 4(2) of the Securities Act of 1933, as amended, as transactions by an
issuer not involving any public offering, because (i) we sold those securities
to financially sophisticated individuals who at the time of purchase were fully
aware of our activities, as well as our business and financial condition,
(ii) there was no advertising for or general
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solicitation of investors, and (iii) when these securities were acquired for
investment purposes, investors understood the ramifications of their investment.
All certificates representing the shares issued by us as set forth herein which
are currently outstanding, except for those shares sold pursuant to Rule 504,
have been properly legended.
Alexander, Wescott & Co., the placement agent for the 6% convertible
debentures, received a commission equal to $129,000 in cash and 98,950 shares of
our common stock valued at $148,425 or $1.50 per share. We issued an additional
100,000 share of our common stock, valued at $150,000 or $1.50 per share, to
Alexander, Wescott & Co. as a settlement for any outstanding claims.
D.H. Blair Investment Banking Corp., the placement agent for each of the
offerings that took place on September 22, 1999 for 912,669 shares of our common
stock, August 25, 1999 for 1,435,000 shares of our common stock, July 23, 1999
for 5,057,000 shares of our common stock, and March 4, 1999 for 2,000,000 shares
of our common stock received a commission equal to 10% of the gross proceeds for
each of the offerings, a nonaccountable expense allowance equal to 3% of the
gross proceeds for each of the offerings and warrants to purchase a total of
940,467 shares of our common stock. We also entered into an agreement with D.H.
Blair which gives D.H. Blair the right to a fee if we enter into a merger,
acquisition, joint venture, debt or lease placement or similar on or off-balance
sheet corporate finance transaction, product or technology licensing
arrangements, research and development sponsorships or products or service sales
with an entity that was introduced to us by D.H. Blair. D.H. Blair also received
registration rights with respect to the 2,000,000 shares of our common stock it
owns and the 940,467 shares of our common stock into which the warrants are
convertible at $1.80 per share. In addition, D.H. Blair has the right to appoint
a director to our board of directors.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
GENERAL
Our certificate of incorporation authorizes 100,000,000 shares, $.001 par
value per share, of common stock and 10,000,000 shares, $.01 par value per
share, of preferred stock. In May 1999, a majority of the shareholders approved
an amendment to our certificate of incorporation creating a class of preferred
stock and authorizing 10,000,000 shares. We have not yet notified the
shareholders of record as required by Delaware Law. We plan to ask our
shareholders to ratify the amendment to our certificate of incorporation for the
preferred stock. As of March 31, 2000, we had 39,789,700 shares of common stock
issued and outstanding, assuming no exercise of outstanding warrants and
options, as described below, and not including the 705,014 shares of our common
stock we have agreed to issue upon the conversion of our debentures, as
described below. No shares of preferred stock are issued and outstanding.
The following summary of the terms and provisions of our capital stock is
not complete, and you should read our certificate of incorporation and bylaws,
copies of which have been filed as exhibits to this registration statement.
COMMON STOCK
VOTING. Our common stock is entitled to one vote per share on all matters
submitted to a vote of the stockholders, including the election of directors.
Except as otherwise required by law or provided in any resolution adopted by the
board of directors with respect to any series of preferred stock, the holders of
our common stock will possess all voting power. Generally, all matters to be
voted on by stockholders must be approved by a majority (or, in the case of
election of directors, by a plurality) of the votes entitled to be cast by all
shares of our common stock that are present in person or represented by proxy,
subject to any voting rights granted to holders of any preferred stock. Except
as otherwise provided by law, and subject to any voting rights granted holders
of any preferred stock, amendments to our certificate of incorporation generally
must be approved by a majority of the votes
56
<PAGE>
entitled to be cast by all outstanding shares of our common stock. Our
certificate of incorporation does not provide for cumulative voting in the
election of directors.
DIVIDENDS. Subject to any preferential rights of any outstanding series of
preferred stock created by the board of directors from time to time, the holders
of shares of our common stock will be entitled to cash dividends as may be
declared from time to time by the board of directors.
LIQUIDATION. Subject to any preferential rights of any outstanding series
of preferred stock created from time to time by the board of directors, upon our
liquidation, dissolution or winding up, the holders of shares of our common
stock will be entitled to receive pro rata all of our assets available for
distribution to such holders.
PREFERRED STOCK
Our board of directors is authorized to issue preferred stock in series from
time to time with such designations, rights, preferences and limitations as our
board of directors may declare by resolution. The rights, preferences and
limitations of separate series' of preferred stock may differ with respect to
such matters as may be determined by the board of directors, including, without
limitation, the rate of dividends, method and nature of payment of dividends,
terms of redemption, amounts payable on liquidation, sinking fund provisions (if
any), conversion rights (if any) and voting rights. The potential exists,
therefore, that additional shares of preferred stock might be issued which would
grant dividend preferences and liquidation preferences to preferred stockholders
over common stockholders. Unless the nature of a particular transaction and
applicable statute require such approval, the board of directors has the
authority to issue shares of preferred stock without stockholder approval. The
issuance of preferred stock may have the effect of delaying or preventing a
change in control without any further action by stockholders.
REGISTRATION RIGHTS
The following parties have the right to demand that we register our
securities that they hold:
HOLDERS OF SERIES A 6% CUMULATIVE CONVERTIBLE DEBENTURES: We were obligated
to file a registration statement under the Securities Act of 1933 to
register the shares of our common stock underlying the debentures by May 3,
1999. We have not fulfilled this obligation and, as a result, a penalty may
be accruing equal to 2% of the face value of the debentures to each
debenture holder for each month the filing of the registration statement has
been and continues to be delayed past May 3, 1999. We may also be subject to
an additional 2% penalty for each month the registration statement is not
effective beginning 90 days following the date we file the registration
statement with the Securities and Exchange Commission. Holders of $864,500
in principal amount of the debentures, representing 87.5% of the principal
amount issued, have elected to convert their debentures into 705,014 shares
of our common stock in full satisfaction of our obligations to those
holders. We have committed to file a registration statement covering the
705,014 shares within 60 days of the effectiveness of this registration
statement. Debentures totaling $125,000 in principal amount matured on
March 22, 2000 and remain outstanding pursuant to their terms. See
"Debentures", below.
STOCKHOLDERS FROM D.H. BLAIR PRIVATE PLACEMENT OFFERINGS: We agreed with
the holders of 7,404,667 shares of our common stock obtained in a series of
three private placement transactions on July 23, 1999, August 25, 1999 and
September 23, 1999, to file a registration statement by May 23, 2000 and use
our best efforts to have the registration statement declared effective by
July 23, 2000. This right is limited to one registration statement. In
addition, all the holders of such shares have piggy-back registration rights
for two registration statements.
57
<PAGE>
D.H. BLAIR AND TRANSFEREES: We agreed with D.H. Blair, the holder of
2,000,000 shares of our common stock and warrants convertible into 940,467
shares of our common stock at $1.80 per share, to file a registration
statement by October 4, 1999 covering the 2,000,000 shares. D.H. Blair has
transferred 717,500 of the 940,467 warrants and the registration rights were
transferred to each transferee. We have not filed the registration statement
and, as a result, D.H. Blair may have a claim that it is entitled to
(1) 200,000 shares for each month the effectiveness of the registration
statement is delayed beyond October 4, 1999 plus (2) such number of shares
equal to (A) $3,000,000 multiplied by (B) the quotient of (x) the closing
bid price on the seven month anniversary of the closing less the closing bid
price of the common stock on the date such registration statement is
declared effective divided by (y) $1.50. We also agreed, commencing on
December 4, 1999, to (1) make and keep public information available as such
term is defined under Rule 144 and (2) to file with the SEC all reports
required under the Securities Exchange Act of 1934. In addition, with
respect to the warrants, until March 4, 2002, upon giving us twenty days
notice, D.H. Blair and its transferees have the right to demand that all or
a part of their shares be registered. This right is limited to two
registration statements. We must give 30 days written notice of our
intention to file a registration statement to D.H. Blair and its transferees
and must, upon request, include such shares as D.H. Blair and its
transferees designate in this registration statement. This right is limited
to two registration statements. There is no requirement that the warrant
holders exercise any warrant, at any time other than "during the exercise
period" to have the underlying shares registered, which could result in our
having to maintain the effectiveness of the registration statement
throughout the exercise period.
CONSULTANTS: We issued to each of Ralph Isham and Arnold Kling, as
consideration for consulting services provided to us by GTI Venture Partners
LLC, a warrant for 100,000 shares of our common stock exercisable until
April 1, 2003 at an exercise price of $2.25 per share. During the exercise
period of the warrants, Messrs. Isham and Kling each have unlimited
piggy-back regulation rights to include their shares in any registrations
statements on Form S-1 or SB-2 which register for resale any of our
securities.
JENCOM DIGITAL TECHNOLOGIES, LLC: We have agreed with JenCom as the holder
of 2,000,000 shares of our common stock to file a registration statement to
register JenCom's shares by May 17, 2000.
WARREN ROTHSTEIN, THOMAS SETTINERI AND GARY LEVI: We issued 4,000,000
shares of our common stock to Warren Rothstein in connection with our joint
venture, ATM Service, Ltd. and 1,000,000 shares of our common stock to
Thomas Settineri and Gary Levi in connection with our acquisition of The
Intrac Group. Messrs. Rothstein, Settineri and Levi have unlimited
piggy-back registration rights with respect to their shares. Mr. Rothstein
agreed to waive his registration rights with respect to the next
registration statement we file.
GOLDPLATE HOLDINGS: We issued, to Alexander, Wescott & Co., as
consideration for its services as our placement agent for an offering of our
Series A 6% Convertible Debentures and as a settlement for any claims,
198,950 shares of our common stock with unlimited piggy-back registration
rights. Alexander, Wescott & Co. subsequently transferred these shares to
Goldplate Holdings.
MICHELLE KRAMISH KAIN: We issued to Michelle Kramish Kain 150,000 shares of
common stock for which she has unlimited piggy-back registration rights.
NEW AMERICA NETWORK, INC.: We issued 750,000 shares of our common stock to
New American Network, Inc., in connection with our joint venture, NAI
Direct, Inc. We issued an additional 750,000 shares, currently held escrow,
which will be delivered to New America Network upon the attainment of
cumulative gross revenues of at least $2,000,000 within 24 months of the
launch of
58
<PAGE>
the NAIdirect.com web site. New American Network, Inc. has unlimited
piggy-back registration rights for any registration statements filed after
January 1, 2000.
DEBENTURES
On March 22, 1999, we issued, in a private placement, $989,500 in principal
amount of Series A 6% cumulative convertible debentures. To date, holders of
$864,500 in principal amount of these debentures have elected to convert their
debentures into an aggregate of 705,014 shares of our common stock. We have
issued 479,109 shares to date and will issue 225,905 upon receipt of the
original debentures or affidavits of loss. $125,000 in principal amount of the
debentures remain outstanding. The debentures matured on March 22, 2000. We are
in the process of negotiating with the remaining holders of the debentures to
convert their debentures into our common stock. If the remaining debentures are
not converted into common stock in accordance with the terms of the debentures,
we will have to pay the remaining principal amount plus interest and related
costs to the remaining holders.
WARRANTS
CONSULTING WARRANTS
As compensation for consulting services from GTI Venture Partners LLC, we
issued to each of Ralph Isham and Arnold Kling 100,000 warrants. Each such
warrant entitles Mr. Isham and Mr. Kling to purchase one share of common stock
at an exercise price of $2.25 per share (subject to adjustment for stock splits,
combinations and reclassifications) at any time for a period of four years from
April 2, 1999. We may call and redeem these warrants at $.01 per warrant upon
10 days prior written notice in the event of a reorganization, sale, merger,
conveyance, combination, etc. as defined in the warrants but only if the value
of the common stock following the occurrence thereof equals or exceeds $10.00
per share. The warrants have piggy-back registration rights and the shares
issuable upon exercise of the warrants are being registered in this registration
statement. The warrants do not confer upon the holders thereof any voting,
dividend or other rights as stockholders.
D.H. BLAIR WARRANTS
As part of its compensation for acting as placement agent in connection with
our private placement offering in May through September, 1999, our placement
agent, D.H. Blair Investment Banking Corp. received warrants for acting as
placement agent and in connection with D.H. Blair's purchase of 2,000,000 shares
of common stock in March 1999. These warrants entitle D.H. Blair to purchase
940,467 shares of our common stock at a purchase price of $1.80 per share.
Subsequent to their issuance, D.H. Blair transferred 717,500 of these warrants.
The warrants earned in each closing are exercisable for three-year periods from
the closing dates.
TRANSFER AGENT
The transfer agent for our common stock is American Stock Transfer and Trust
Company located at 40 Wall Street, New York, NY 10005; telephone number
(212) 936-5100.
ITEM 12. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Our bylaws provide that we will indemnify our directors and officers and
other corporate agents to the fullest extent authorized by Delaware law.
Delaware law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
except with respect to liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
59
<PAGE>
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
This provision will have no effect on any non-monetary remedies that may be
available to us or our stockholders, nor will it relieve us or other officers or
directors from compliance with federal or state securities laws.
Our bylaws also permit us to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions in such capacity regardless of whether the bylaws would permit such
indemnification. At present, we have officers' and directors' insurance
liability for our directors with an annual aggregate coverage limit of ten
million dollars.
We have not entered into indemnification agreements with our directors and
executive officers that would require us to indemnify them against liabilities
arising by virtue of their status or service as directors or executive officers.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements and Supplementary Data required by this Item are
included in Item 15 of this registration statement.
ITEM 14. CHANGE IN ACCOUNTANTS.
In August 1999, we selected Ernst & Young LLP as our principal independent
auditors to replace Richard A. Eisner & Company LLP. We dismissed Richard A.
Eisner & Company LLP in August 1999. In connection with the audit for the fiscal
year ended September 30, 1998, and during the interim period through
August 1999 there were no disagreements with Richard A. Eisner & Company LLP on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure, which, if not resolved to the satisfaction of
Richard A. Eisner & Company LLP, would have caused them to make reference to the
matter in their report. The report of Richard A. Eisner & Company LLP on our
financial statements for the fiscal year ended September 30, 1998 did not
contain any adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles. Our decision
to change our accountants was not approved by our Board of Directors or any
committee of the Board.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
60
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
WORLDWIDE WEB NETWORX CORPORATION
Reports of Independent Auditors............................. F-2
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Operations....................... F-5
Consolidated Statements of Stockholders' Equity............. F-6
Consolidated Statements of Comprehensive Income............. F-7
Consolidated Statements of Cash Flows....................... F-8
Notes to Consolidated Financial Statements.................. F-9 - F-31
WORLDWIDE WEB NETWORX CORPORATION UNAUDITED PRO FORMA
INFORMATION
Unaudited Pro Forma Condensed Combined Statements of
Operations - Basis of Presentation........................ F-32
Unaudited Pro Forma Condensed Combined Statements of
Operations................................................ F-33
Notes to Unaudited Pro Forma Condensed Combined Statements
of Operations............................................. F-34 - F-35
INSTRA CORPORATION, A PREDECESSOR COMPANY
Independent Auditors' Report................................ F-36
Balance Sheet............................................... F-37
Statement of Operations..................................... F-38
Statement of Shareholders' Equity and Accumulated Deficit... F-39
Statement of Cash Flows..................................... F-40
Notes to Financial Statements............................... F-41 - F-43
THE INTRAC GROUP, INC. FOR THE YEARS ENDED DECEMBER 31, 1998
AND 1997 AND FOR THE PERIOD JANUARY 1, 1999 TO JULY 23,
1999
Independent Auditors' Report................................ F-44
Balance Sheets.............................................. F-45
Statements of Operations.................................... F-46
Statements of Shareholders' Equity (Deficit)................ F-47
Statements of Cash Flows.................................... F-48
Notes to Financial Statements............................... F-49 - F-51
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
WorldWide Web NetworX Corporation
We have audited the accompanying consolidated balance sheet of WorldWide Web
NetworX Corporation as of September 30, 1999 and the related consolidated
statements of operations, stockholders' equity, comprehensive income and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. These standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of WorldWide Web
NetworX Corporation as of September 30, 1999, and the results of its operations
and its cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 17, 2000
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
WorldWide Web NetworX Corporation
Cherry Hill, New Jersey
We have audited the accompanying consolidated balance sheet of WorldWide Web
NetworX Corporation and subsidiary as of September 30, 1998 and the related
consolidated statements of operations, changes in stockholders' equity,
comprehensive income and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in
all material respects, the consolidated financial position of WorldWide Web
NetworX Corporation and subsidiary as of September 30, 1998, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
April 13, 1999
F-3
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
------------------- -----------
1999 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,234 $ 792 $ 5,053
Short-term investments.................................... 29,475 -- 73,575
Accounts receivable (net of allowance for doubtful
accounts of $19, $0 and $19, respectively).............. 858 49 863
Prepaid expenses.......................................... 143 -- 155
------- ------ -------
Total current assets........................................ 37,710 841 79,646
Property and equipment, net................................. 295 27 324
Ownership interests and advances to Affiliated Companies.... 2,744 -- 2,556
Intangible assets (net of accumulated amortization of $109,
$0 and $463, respectively)................................ 4,884 -- 5,990
Deferred financing costs (net of accumulated amortization of
$155, $0 and $255 respectively)........................... 139 -- 69
Other assets................................................ 49 118 286
Deferred income taxes....................................... 1,690 -- 2,208
------- ------ -------
Total assets................................................ $47,511 $ 986 $91,079
======= ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses.......................................... $ 1,157 $ 23 $ 1,216
Accounts payable.......................................... 1,530 40 1,317
Deferred revenue.......................................... 470 -- 2,321
Current portion of capital lease obligation............... 37 -- 39
Convertible debentures.................................... 990 -- 990
Deferred income taxes..................................... 8,813 26,398
------- ------ -------
Total current liabilities................................... 12,997 63 32,281
Capital lease obligation, net of current portion............ 39 -- 29
Stockholders' equity:
Preferred stock--authorized 10,000,000 shares, $.01 par
value, none issued...................................... -- -- --
Common stock--authorized 100,000,000 shares, $.001 par
value; 38,455,569, 10,618,500 and 38,525,569 shares
issued and outstanding, respectively.................... 39 11 39
Additional paid-in capital................................ 36,443 1,136 36,638
Retained earnings (deficit)............................... 1,393 (219) (1,223)
Unearned stock compensation............................... (3,400) -- (3,200)
Subscription receivable................................... -- (5) --
Accumulated other comprehensive income.................... -- -- 26,515
------- ------ -------
Total stockholders' equity.................................. 34,475 923 58,769
------- ------ -------
Total liabilities and stockholders' equity.................. $47,511 $ 986 $91,079
======= ====== =======
</TABLE>
See accompanying notes.
F-4
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30 DECEMBER 31
------------------------ -----------------------
1999 1998 1999 1998
----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Consulting................................... $ 762 $ 50 $ 38 $ 163
Media sales.................................. 465 -- 428 --
Asset management............................. 82 -- 75 --
Cost recovery................................ 30 -- 473 --
Management services.......................... -- -- 27 --
---------- --------- ---------- ----------
Total revenues................................. $ 1,339 $ 50 $ 1,041 $ 163
Operating expenses:
Cost of revenues
Consulting................................. 320 36 34 109
Media...................................... 442 -- 410 --
Cost recovery.............................. 30 -- 471 --
Management services........................ -- -- 16 --
---------- --------- ---------- ----------
Total cost of revenues....................... 792 36 931 109
---------- --------- ---------- ----------
Gross profit................................. 547 14 110 54
Selling, general and administrative.......... 5,280 140 2,673 78
Depreciation and amortization................ 597 13 374 --
Writeoff of purchased research and
development................................ 3,036 -- -- --
Impairment of software purchased for internal
use........................................ 5,583 -- -- --
---------- --------- ---------- ----------
Loss from operations........................... (13,949) (139) (2,937) (24)
Other income (expenses):
Gain on sale of subsidiary................... 25,426 -- -- --
Impairment of advances to Affiliated
Companies.................................. (1,106) -- -- (76)
Interest expense............................. (219) (90) (21) --
Amortization of debt issuance costs.......... (155) -- (70) --
Interest income.............................. 56 10 83 5
Equity income (loss)......................... (1,578) -- (188) --
---------- --------- ---------- ----------
Total other income (expenses): 22,424 (80) (196) (71)
---------- --------- ---------- ----------
Income (loss) before income taxes.............. 8,475 (219) (3,133) (95)
Income tax expense (benefit)................... 6,863 -- (517) --
---------- --------- ---------- ----------
Net income (loss).............................. $ 1,612 $ (219) $ (2,616) $ (95)
========== ========= ========== ==========
Net income (loss) per share:
Basic........................................ $ 0.07 $ (0.03) $ (0.07) $ (0.01)
Diluted...................................... $ 0.07 $ (0.03) $ (0.07) $ (0.01)
========== ========= ========== ==========
Weighted average shares outstanding:
Basic........................................ 21,906,553 8,602,000 35,634,369 10,841,321
Diluted...................................... 22,418,294 8,602,000 35,634,369 10,841,321
========== ========= ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1999 AND THE THREE MONTHS ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED UNEARNED
COMMON STOCK PAID-IN EARNINGS SUBSCRIPTION STOCK
SHARES AMOUNT CAPITAL (DEFICIT) RECEIVABLE COMPENSATION
----------- -------- ---------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1997.......... 6,000,000 $ 6 $ 54 $ -- $ (5) $ --
Issuance of common stock for:
Recapitalization with Instra........ 2,100,000 2 (2) -- -- --
Sale of convertible notes........... 502,500 1 250 -- -- --
Conversion of debt.................. 502,500 1 341 -- -- --
Cash, net of issuance costs of
$16............................... 1,381,000 1 473 -- -- --
Services rendered................... 132,500 -- 20 -- -- --
Net loss............................ -- -- -- (219) -- --
----------- --- ------- -------- ---- -------
Balance at September 30, 1998....... 10,618,500 11 1,136 (219) (5) --
Issuance of common stock for:
Services rendered................. 4,408,950 4 4,609 -- -- (4,000)
Acquisition of ownership interests
in Affiliated Companies......... 10,523,450 11 12,762 -- -- --
Purchase of technology............ 3,500,000 4 5,246 -- -- --
Cash, net of issuance costs of
$1,864.......................... 9,404,669 9 12,234 -- -- --
Warrants issued in connection with
services rendered................. -- -- 256 -- --
Stock compensation.................. -- -- 200 -- -- 600
Receipt of subscription
receivable........................ -- -- -- -- 5 --
Net income.......................... -- -- -- 1,612 -- --
----------- --- ------- -------- ---- -------
Balance at September 30, 1999....... 38,455,569 39 36,443 1,393 -- (3,400)
Issuance of common stock for:
Services rendered (unaudited)..... 20,000 -- 20 -- -- --
Lease agreement (unaudited)......... 50,000 -- 75 -- -- --
Stock compensation (unaudited)...... -- -- 100 -- -- 200
Net loss (unaudited)................ -- -- -- (2,616) -- --
Unrealized appreciation, net of tax
of $17,585 (unaudited)............ -- -- -- -- -- --
----------- --- ------- -------- ---- -------
Balance as of December 31, 1999
(unaudited)....................... 38,525,569 $39 $36,638 $ (1,223) $ -- $(3,200)
=========== === ======= ======== ==== =======
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS'
INCOME EQUITY
-------------- -------------
<S> <C> <C>
Balance at October 1, 1997.......... $ -- $ 55
Issuance of common stock for:
Recapitalization with Instra........ -- --
Sale of convertible notes........... -- 251
Conversion of debt.................. -- 342
Cash, net of issuance costs of
$16............................... -- 474
Services rendered................... -- 20
Net loss............................ -- (219)
------- -------
Balance at September 30, 1998....... -- 923
Issuance of common stock for:
Services rendered................. -- 613
Acquisition of ownership interests
in Affiliated Companies......... -- 12,773
Purchase of technology............ -- 5,250
Cash, net of issuance costs of
$1,864.......................... -- 12,243
Warrants issued in connection with
services rendered................. 256
Stock compensation.................. -- 800
Receipt of subscription
receivable........................ -- 5
Net income.......................... -- 1,612
------- -------
Balance at September 30, 1999....... -- 34,475
Issuance of common stock for:
Services rendered (unaudited)..... -- 20
Lease agreement (unaudited)......... -- 75
Stock compensation (unaudited)...... -- 300
Net loss (unaudited)................ -- (2,616)
Unrealized appreciation, net of tax
of $17,585 (unaudited)............ 26,515 26,515
------- -------
Balance as of December 31, 1999
(unaudited)....................... $26,515 $58,769
======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30 DECEMBER 31
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss)......................................... $1,612 $(219) $ (2,616) $(95)
Other comprehensive income:
Unrealized holding gains in available-for-sale
securities............................................ -- -- 44,100 --
Tax related to comprehensive income..................... -- -- (17,585) --
------ ----- -------- ----
Net unrealized appreciation in available-for-sale
securities.............................................. -- -- 26,515 --
------ ----- -------- ----
Comprehensive income (loss)............................... $1,612 $(219) $ 23,899 $(95)
====== ===== ======== ====
</TABLE>
See accompanying notes.
F-7
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30 DECEMBER 31
------------------- ---------------------
1999 1998 1999 1998
-------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $ 1,612 $(219) $(2,616) $ (95)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Purchased research and development........................ 3,036 -- -- --
Impairment of intangible asset............................ 5,583 -- -- --
Stock compensation........................................ 1,216 20 308 --
Depreciation.............................................. 14 3 20 2
Amortization.............................................. 583 10 354 --
Deferred income taxes..................................... 6,863 -- (517) --
Gain on sale of subsidiary................................ (25,426) -- -- --
Amortization of debt issuance costs....................... 155 -- 70 --
Amortization of debt discount............................. -- 80 -- --
Equity loss............................................... 1,578 -- 188 --
Impairment of advance to Affiliated Companies............. 1,106 -- -- 76
Changes in operating assets and liabilities net of
acquisitions:
Accounts receivable..................................... 1,008 (49) (5) (170)
Accounts payable........................................ (600) 20 (213) (26)
Accrued expenses........................................ (419) 40 (10) 46
Prepaid expenses........................................ (143) -- (12) (5)
Deferred revenue........................................ 470 -- 451 --
-------- ----- ------- ------
Net cash used in operating activities....................... (3,364) (95) (1,982) (172)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of ownership interests in Affiliated Companies,
net of cash acquired...................................... (2,985) -- -- (563)
Advances to Affiliated Companies............................ (1,850) -- -- --
Acquisition of technology................................... (750) -- -- --
Proceeds from sale of subsidiary............................ 2,602 -- -- --
Purchase of property and equipment.......................... (206) (30) (49) (19)
Decrease (increase) in other assets......................... 70 (115) (142) 83
-------- ----- ------- ------
Net cash used in investing activities....................... (3,119) (145) (191) (499)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures............ 990 503 -- --
Debt issuance costs incurred................................ (129) -- -- --
Payments on line of credit.................................. (179) -- -- --
Payment of capital lease obligation......................... -- -- (8) --
Net proceeds from issuance of common stock.................. 12,243 484 -- 5
-------- ----- ------- ------
Net cash provided by (used in) financing activities......... 12,925 987 (8) 5
-------- ----- ------- ------
Net increase (decrease) in cash and cash equivalents........ 6,442 747 (2,181) (666)
Cash and cash equivalents at beginning of period............ 792 45 7,234 792
-------- ----- ------- ------
Cash and cash equivalents at end of period.................. $ 7,234 $ 792 $ 5,053 $ 126
======== ===== ======= ======
NONCASH TRANSACTIONS
Capital lease obligation incurred........................... $ 76 $ -- $ -- $ --
Exchange of convertible notes for common stock.............. -- 342 -- --
Receipt of stock for sale of subsidiary..................... 29,475 -- -- --
ISSUANCE OF COMMON STOCK FOR:
Acquisition of ownership interests in Affiliated
Companies................................................. 12,773 -- -- 1,597
Acquisition of technology................................... 5,250 -- -- --
</TABLE>
See accompanying notes.
F-8
<PAGE>
WorldWide Web NetworX Corporation
Notes to Consolidated Financial Statements
September 30, 1999 and December 31, 1999
(Information as of December 31, 1999 and for the Three-Month Periods
Ended December 31, 1999 and 1998 is Unaudited)
1. ORGANIZATION AND BUSINESS
WorldWide Web NetworX Corporation (the "Company") is a holding company
engaged in business-to-business, or "B2B" e-commerce through a network of
companies. The Company defines e-commerce as conducting or facilitating business
transactions over the Internet. As of September 30, 1999 and December 31, 1999,
the Company owned interests in nine companies, which are referred to in these
financial statements as "Affiliated Companies." The Company enters into
relationships, including joint ventures, strategic relationships and
acquisitions, with off-line companies that have established distribution
channels and fulfillment capability and provides e-commerce technology,
consulting, marketing and business development services to the Companies. The
Company's goal is to expand the markets, services and products and to improve
the efficiencies of these businesses.
In May 1998, Instra Corp. ("Instra"), a publicly traded Delaware corporation
with minimal business operations exchanged 6,000,000 shares of Instra common
stock for all the outstanding shares of Keiretsu Corporation ("Keiretsu").
Keiretsu was incorporated in Nevada on September 26, 1997 and did not commence
operations until after the share exchange. Instra had 25,219,990 shares of
common stock outstanding prior to the share exchange. As a condition of the
share exchange, 14,719,990 shares of Instra common stock were canceled and the
remaining outstanding shares were reduced to 2,100,000 at the rate of one share
for each five shares outstanding as a result of a reverse stock split. As a
result of the transaction, Keiretsu became a wholly owned subsidiary of Instra
and the former Keiretsu stockholders became the owners of 74.1% of the
outstanding Instra common stock. The transaction was treated as a
recapitalization to which retroactive effect has been given in the accompanying
financial statements. In conjunction with the merger, Instra changed its name to
WorldWide Web NetworX Corporation.
2. SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The accompanying unaudited interim financial statements as of December 31,
1999 and for the three month periods ending December 31, 1999 and 1998 have been
prepared in accordance with generally accepted accounting principles for interim
financial information pursuant to the rules and regulations of the SEC. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, considered necessary for fair presentation of the Company's
financial position at December 31, 1999 and its operations and cash flows for
the three month periods ending December 31, 1999 and 1998 have been included.
Operating results for the three month period ended December 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
September 30, 2000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-9
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiary, The Intrac Group, Ltd. and its majority owned and
controlled subsidiaries, ATM Service, Ltd., and Real Quest, Inc. The various
interests that the Company acquires in its Affiliated Companies are accounted
for under three methods: consolidation, equity method and cost method. The
applicable accounting method is generally determined based on the Company's
voting interest in an Affiliated Company unless significant minority rights are
present.
CONSOLIDATION
Affiliated Companies in which the Company directly or indirectly owns more
than 50% of the outstanding voting securities are generally accounted for under
the consolidation method of accounting. Under this method, an Affiliated
Company's results of operations are reflected within the Company's statement of
operations. All significant intercompany accounts and transactions are
eliminated. Participation of other Affiliated Company shareholders in the
earnings or losses of a consolidated Affiliated Company is reflected in the
caption "Minority interest" in the Company's statement of operations. Minority
interest adjusts the Company's consolidated results of operations to reflect
only the Company's share of the earnings or losses of the consolidated
Affiliated Company.
EQUITY METHOD
Affiliated Companies whose results are not consolidated, but over whom the
Company exercises significant influence, are accounted for under the equity
method of accounting. Whether or not the Company exercises significant influence
with respect to an Affiliated Company depends on an evaluation of several
factors including, among others, representation on the Affiliated Company's
Board of Directors and ownership level, which is generally a 20% to 50% interest
in the voting securities of the Affiliated Company, including voting rights
associated with the Company's holdings in common, preferred and other
convertible instruments in the Affiliated Company. Under the equity method of
accounting, an Affiliated Company's results of operations are not included in
detail within the Company's statement of operations; however, the Company's
share of the earnings or losses of the Affiliated Company is reflected in the
caption "Equity income (loss)" in the statement of operations.
The amount by which the Company's carrying value exceeds its share of the
underlying net assets of Affiliated Companies accounted for under the
consolidation or equity method of accounting is recorded as goodwill and is
amortized on a straight-line basis over its estimated useful life. Goodwill
amortization adjusts the Company's share of the Affiliated Company's earnings or
losses.
COST METHOD
Affiliated Companies not accounted for under the consolidation or the equity
method of accounting are accounted for under the cost method of accounting.
Under this method, the Company's share of the earnings or losses of such
companies is not included in the consolidated statement of operations. However,
cost-method impairment charges are recognized in the consolidated statement of
operations and deducted from the carrying value in the consolidated balance
sheet, while the new cost basis is not increased if circumstances suggest that
the value of the Affiliated Company has subsequently recovered.
F-10
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company records its ownership interest in debt securities of Affiliated
Companies accounted for under the cost method at cost. The Company records its
ownership interest in equity securities of Affiliated Companies accounted for
under the cost method at cost, unless these securities have readily determinable
fair values based on quoted market prices, in which case these interests would
be recorded at fair value. In addition to the Company's investments in voting
and non-voting equity and debt securities, it periodically makes advances to its
Affiliated Companies in the form of promissory notes which are accounted for in
accordance with SFAS No. 114.
The Company continually evaluates the carrying value of its ownership
interests in and advances to each of its Affiliated Companies for possible
impairment based on achievement of business plan objectives and milestones, the
value of each ownership interest in the Affiliated Company relative to carrying
value, the financial condition and prospects of the Affiliated Company, and
other relevant factors. The business plan objectives and milestones the Company
considers include, among others, those related to financial performance such as
achievement of planned financial results or completion of capital raising
activities, and those that are not primarily financial in nature such as the
launching of a web site or the hiring of key employees. The fair value of the
Company's ownership interests in and advances to privately held Affiliated
Companies is generally determined based on the value at which independent third
parties have or have committed to invest in its Affiliated Companies.
REVENUE RECOGNITION
The Company principally derives its revenue by providing inventory
liquidation and asset recovery services and from the purchase and resale of
advertising media, merchandise or business services through its consolidated
Affiliated Companies, ATM Service, Ltd. ("ATM Ltd.") and The Intrac Group, Ltd.
("Intrac") throughout North America. The Company plans to expand its operations
throughout the world. For the fiscal year ended September 30, 1999, as well as
for the three months ended December 31, 1999, no customer for whom the Company
provided these services represented 10% or more of the Company's total revenues.
The Company will contract with a customer to sell for the customer large
blocks of assets or inventory under asset management, liquidation, or cost
recovery agreements. In an asset management agreement, the Company acts as an
agent and sells the assets for cash receiving a commission based on a percentage
of the proceeds of the sale. The Company records the commission received as
revenue when the asset is shipped.
Under both liquidation and cost-recovery agreements, the Company takes title
to the assets and assumes the risk of loss. The Company is not required, by
either type of agreement, to make any cash payments to the customer for the
assets purchased until such time as the Company sells the assets. These payments
pertain to the portion of assets actually sold. The ultimate cost to the Company
is a contracted percent of the amount the Company sells the inventory for, which
is uncertain until a sale occurs. Accordingly, the Company does not record
inventory for any assets purchased under these agreements.
Revenues associated with asset management and cost recovery services are
equal to the gross cash received from the sale, because the Company assumes the
risk of loss, and are recognized when the inventory sold is shipped. However, if
the transactions involve the issuance of trade credits, the Company will defer a
portion of the revenue attributable to cash received under asset management and
F-11
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
cost-recovery agreements to reflect the outstanding commitment applicable to the
future redemption of the trade credits as discussed below.
The transactions conducted under asset management and cost recovery
agreements can also be settled, in part, in credits to purchase advertising
media, merchandise, or business services ("trade credits"). Trade credits issued
to customers represent the difference between the contracted value of the
inventory as negotiated with the customer and the cash paid to the customer upon
the sale of the inventory. Trade credits are not redeemable by customers for
cash. The contracted value of the inventory is mutually agreed upon by the
Company and the customer at the time an agreement is reached and is usually in
excess of the cash liquidation value. The Company is not required to remit cash
or any other form of payment other than trade credits for the difference between
the contracted value and the cash paid for the inventory. Certain liquidation
and cost recovery agreements are transacted exclusively in trade credits.
The Company issues two types of trade credits, "combination trade credits"
and "straight trade credits." Under a combination trade credit arrangement, the
customer purchases goods and services from the Company and pays for the goods
and services in both cash and the redemption of trade credits. The ratio of cash
to combination trade credits that make up the total purchase price to be used in
purchases from the Company is determined on a transaction-by-transaction basis.
To redeem combination trade credits, a customer must contact the Company and
request that the Company provide advertising media, merchandise or business
services. The Company will attempt to purchase the requested products for cash
or with a combination of cash and trade credits. The Company has no liability or
obligation to the customer if it is unable to obtain any of the items requested
that are not already within the Company's inventory of services or that it
cannot reasonably obtain. The Company's inventory of services is minimal at any
given time. The Company relies on its ability to readily obtain these services
from its vendors to satisfy its obligations. The obligation to redeem
combination trade credits represents a best efforts obligation of the Company.
The face value of combination trade credits have neither any recordable
obligation nor do they represent a fixed and determinable liability. However, as
noted above, the Company defers a portion of its revenue attributed to the cash
received under the asset management and cost recovery agreements to reflect the
Company's cost to redeem the trade credits. When the Company redeems combination
trade credits, it recognizes revenue equal to the cash received from the
customer for the goods and services plus, if applicable, the pro rata portion of
the deferred revenue relating to the liquidation of the assets that gave rise to
the trade credits.
The Company may also issue straight trade credits to its customers. These
credits are issued as an additional incentive to its customers to enter into
asset management and cost recovery agreements. Straight trade credits are
typically issued in conjunction with combination trade credits and similar to
combination trade credits are issued for the purchase of advertising media,
merchandise or business services. However, unlike combination trade credits,
straight trade credits allow the customer to acquire goods and services without
the use of cash. Additionally, the customer and the Company pre-negotiate the
types of media, merchandise or business services for which the straight trade
credits will be redeemed. When the customer redeems straight trade credits, the
Company recognizes revenue equal to the pro rata portion of the deferred revenue
relating to the liquidation of the assets that gave rise to the trade credits.
Cost of revenue is recognized for the cash paid by the Company for the goods and
services purchased on behalf of the customer.
F-12
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred revenue from asset management, liquidation and cost-recovery
services was $470,000 at September 30, 1999 and $2,321,000 at December 31, 1999.
Unredeemed Combination trade credits totaled $8,017,000 at September 30,
1999. The vendor must redeem the trade credits within specified periods ranging
from 2 to 5 years. Trade credits redeemable for the next four years are as
follows: $2,259,000 in 2000, $1,445,000 in 2001, $1,270,000 in 2002, and
$3,043,000 in 2003. Unredeemed straight trade credits of $230,000 at
September 30, 1999 and $350,000 at December 31, 1999 are included in deferred
revenue.
The Company also generated revenue by providing consulting services
throughout North America during the year ended September 30, 1999. Consulting
revenues are recognized in the period in which the consulting services are
performed. The Company derived 36% of its total revenues for the year ended
September 30, 1999 from one customer to whom it provided consulting services. Of
the total consulting revenues for the year ended September 30, 1999, $529,000
was attributable to Entrade which was sold in September 1999 (Note 9).
CASH EQUIVALENTS
The Company considers as cash equivalents all highly liquid investments with
a maturity of three months or less when purchased.
SHORT-TERM INVESTMENTS
The Company classifies its short-term investments as available for sale.
Such investments are recorded at fair value based on quoted market prices, with
unrealized gains and losses, which are considered to be temporary, recorded as
other comprehensive income or loss until realized. The cost of short-term
investments sold is based on the average cost method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets which
average from three to five years.
SOFTWARE DEVELOPMENT COSTS
Costs incurred in the research and development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility has been established. After technological feasibility
is established, any additional development costs are capitalized in accordance
with Statement of Financial Accounting Standard ("SFAS") No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed."
Capitalization ceases upon general release to customers. Amortization of such
capitalized costs is the greater of the amount computed using (i) the ratio that
current gross revenues for a product bear to the total of current and
anticipated future gross revenues of that product or (ii) the straight-line
method over the remaining estimated economic life of the product, including the
period being reported on. Amortization begins when the product is available for
general release to customers. During 1999, the Company recognized research and
development expenses totaling $3,036,000 for proprietary internet software
technologies, which were not technologically feasible at the date they were
purchased. These technologies were purchased from JenCom Digital
Technologies, Inc. and contributed to WWWX-Jencom, LLC (Note 5).
F-13
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company performs an ongoing review of the recoverability of its
capitalized software costs. At the time a determination is made that capitalized
amounts are not recoverable based on the estimated cash flows to be generated
from the applicable software, any remaining capitalized amounts are written off.
INTERNAL USE SOFTWARE
Effective for fiscal years beginning after December 15, 1998, the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 requires all costs related to the
development or purchase of internal use software, other than those incurred
during the application development stage to be expensed as incurred. Costs
incurred during the application development stage are required to be capitalized
and amortized over the estimated useful life of the software. The Company
adopted SOP 98-1 on October 1, 1998 and capitalized $6,000,000 of software
obtained for internal use (Note 5). Capitalized software costs are amortized on
a straight-line basis over three years. Amortization related to the capitalized
software was $417,000 for the year ended September 30, 1999. In September 1999,
the Company determined that it would not use the software it capitalized and
there was no identified market for its sale to others. Accordingly, the
unamortized balance of this software of $5,583,000 was written off at
September 30, 1999. To date, the Company has expensed all costs incurred for
web-site development.
INTANGIBLE ASSETS
Intangible assets consist of goodwill attributable to businesses acquired.
Goodwill represents the excess of the cost of businesses acquired over the fair
value of the related net assets at the date of acquisition. Goodwill is
amortized using the straight-line method over an expected useful life of 3 to
5 years.
LONG-LIVED ASSETS
The Company evaluates impairment of its intangible and other long-lived
assets, including goodwill, in accordance with Statement of Financial Accounting
Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF. In making such determination, management
compares the estimated future cash flows, on an undiscounted basis, of the
underlying operations or assets with their carrying value to determine if any
impairment exists. If an impairment exists, any adjustment is determined by
comparing the carrying amount to the fair value of the impaired asset. The
Company considers all impaired assets "to be held and used" until such time as
management commits to a plan to dispose of the impaired asset. At that time, the
impaired asset is classified as "to be disposed of" and is carried at its fair
value less its cost of disposal.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized based on the interest method over the
term of the associated debt agreement.
F-14
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding for the
period. Diluted net income (loss) per share reflects the potential dilution of
securities by including other common stock equivalents, including stock options,
convertible debt, and warrants to purchase common stock in the weighted average
number of common shares outstanding for a period, if dilutive. Contingently
issuable shares are included in diluted net income per share, if dilutive, based
on the number of shares, if any, that would be issuable under the terms of the
arrangement if the end of the reporting period were the end of the contingency
period.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable. The
Company's customer base is mainly in the United States. The Company does not
require collateral or other security to support credit sales, but provides an
allowance for bad debts based on historical experience and specifically
identified risks.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has the following financial instruments: cash and cash
equivalents, short-term investments, accounts receivable, accounts payable,
convertible notes, and accrued expenses. The carrying value of these financial
instruments approximates their fair value.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has adopted Statement of Financial Accounting Standards
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS No. 123). The provisions
of SFAS No. 123 allow companies to either expense the estimated fair value of
stock options or to continue to follow the intrinsic value method set forth in
APB Opinion 25, "Accounting for Stock Issued to Employees" (APB 25) but disclose
the pro forma effects on net income or loss as if the fair value been expensed.
The Company has elected to continue to apply APB 25 in accounting for its stock
option plan, and accordingly, recognizes compensation expense for the difference
between the fair value of the underlying common stock and the grant price of the
option at the date of grant.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES (SFAS No. 133), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS No. 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. SFAS No. 133, is effective for
fiscal years beginning after June 15, 2000. The Company has not yet determined
the impact of this pronouncement or when it will adopt it.
F-15
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
3. SHORT-TERM INVESTMENTS
Short-term investments at September 30, 1999 and December 31, 1999 consisted
of 1,800,000 shares of common stock of Entrade Inc. received as consideration
for the sale of a subsidiary to Artra (Note 9). These shares are restricted as
to sale until September 23, 2000, however, the shares may be pledged as
collateral by the Company. The quoted market value of the Entrade Inc. (a NYSE
company formerly named Artra) shares held by the Company was $55,575,000 at
March 31, 2000. Entrade Inc. is a public company subject to the reporting
requirements of the U.S. Securities and Exchange Commission.
The following summarizes the audited balance sheet and statement of
operations information reported by Entrade Inc. at December 31, 1999 and for the
year then ended and the unaudited balance sheet and statement of operations at
September 30, 1999 and the nine months then ended, respectively. (amounts in
thousands, except per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
BALANCE SHEET 1999 1999
- ------------- ------------- ------------
<S> <C> <C>
Current assets.............................................. $15,185 $15,326
Non-current assets.......................................... 14,230 65,432
Current liabilities......................................... 10,639 20,217
Non-current liabilities..................................... -- 12,721
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
STATEMENT OF OPERATIONS SEPTEMBER 30, 1999 DECEMBER 31, 1999
- ----------------------- ------------------ -----------------
<S> <C> <C>
Net revenues................................................ $ -- $ 4,542
Cost of revenues, exclusive of depreciation and
amortization.............................................. -- 1,759
Loss from continuing operations............................. (6,254) (19,304)
Net loss.................................................... (6,254) (19,304)
Net Loss per Share:
Basic..................................................... $ (1.51) $ (3.65)
Diluted................................................... $ (1.51) $ (3.65)
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30
------------------- DECEMBER 31
1999 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Office equipment............................................ $100 $21 $147
Office furniture............................................ 117 9 119
Equipment under capital lease............................... 76 -- 76
Leasehold improvements...................................... 19 -- 19
---- --- ----
312 30 361
Accumulated depreciation.................................... (17) (3) (37)
---- --- ----
Total property and equipment................................ $295 $27 $324
==== === ====
</TABLE>
F-16
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
5. ACQUISITIONS OF OWNERSHIP INTERESTS IN AFFILIATED COMPANIES
ENTRADE INC.
Between December 1998 and February 1999, the Company acquired all of the
outstanding equity interests of BarterOne, LLC ("BarterOne"), a Delaware limited
liability company. The Company issued 2,523,450 shares of its common stock and
paid cash of $1,056,000 to purchase BarterOne. The Company's CEO and principal
stockholder at the date of the transaction, Robert D. Kohn, received 475,000
shares of the Company's Common Stock for his option to acquire a 4.5% interest
in BarterOne which was granted to him by PECO Energy Company in exchange for
compensation and concessions. Energy Trading Company, a wholly owned subsidiary
of PECO Energy Company, received consideration of $480,000 and 416,666 shares of
the Company's common stock for its 51% ownership interest in BarterOne.
BarterOne held worldwide perpetual licensing rights to the ORBIT system software
(Online Reciprocal Business and Inventory Transaction System), an electronic
commerce system to be used as a transaction tool over the Internet, and was
engaged in the business of developing and marketing online asset management and
remarketing programs to major corporations. In December 1997, BarterOne was
incorporated in Delaware as a joint venture between Energy Trading Company and
Global Trade Group to serve as PECO Energy's Internet development unit.
BarterOne did business as entrade.com and was dissolved in 1999. Robert D. Kohn
was the president of BarterOne from its formation to its dissolution.
Additionally, Robert D. Kohn was a strategic planner of business development for
marketing and sales of PECO Energy Company from February 1996 to March 1, 1999.
The Company accounted for this acquisition under the purchase method of
accounting. The Company valued the shares issued at $2,523,450, resulting in a
total purchase price, including cash and other expenses, of $3,580,000, all of
which was allocated to cost in excess of assets acquired. The goodwill was being
amortized over a five-year period. Goodwill amortization of $430,000 is included
in the statement of operations.
In January 1999, the Company acquired from Positive Asset Remarketing, Inc.
("PAR") 25% of the outstanding Class A voting stock of asseTrade.com, Inc.,
("asseTrade") in exchange for 3,500,000 shares of the Company's common stock.
asseTrade was a privately held entity which entered into a software license
agreement with BarterOne and is engaged in the business of developing and
marketing online asset disposition and auction services to major corporations.
The Company's CEO and principal stockholder at the time of the transaction,
Robert D. Kohn, held a 33.33% ownership interest in PAR. In December 1998,
Robert D. Kohn became the President and Chief Executive Officer of asseTrade.
Subsequent to the acquisition, the Company transferred the assets of BarterOne
and the asseTrade stock to NA Acquisition Corp. ("NAAC"), a 90%-owned
subsidiary. Prior to the consummation of the merger, NAAC changed its name to
Entrade Inc. ("Entrade"). The remaining 10% of Entrade was held by a former
BarterOne shareholder, which is a wholly-owned subsidiary of PECO Energy
Company. In September 1999, the Company consummated the sale of Entrade to
another company (Note 9).
ATM SERVICE, LTD.
In December 1998, the Company entered into an agreement with Warren
Rothstein (who served as interim President and CEO and Chairman of the Board of
Directors of the Company from September 1999 to April 2000) and formed a
corporation, ATM Service, Ltd. ("ATM Ltd."), owned equally by the Company and
Warren Rothstein. Warren Rothstein obtained his interest in the joint venture in
exchange for agreeing to manage ATM Ltd. and sourcing goods and services for
ATM Ltd. to sell
F-17
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
5. ACQUISITIONS OF OWNERSHIP INTERESTS IN AFFILIATED COMPANIES (CONTINUED)
through its web site. The corporation was formed to provide inventory
liquidation and other forms of asset recovery services primarily by e-commerce
over the Internet.
The Company committed to issue 5,000,000 shares (subsequently reduced to the
issuance of 4,000,000 shares) of common stock to Warren Rothstein for services
to be rendered to ATM Ltd. over a 6-year period. The agreement provides that the
shares issued will be subject to forfeiture to the extent of 200,000 shares in
each quarter that Warren Rothstein fails to provide listings of merchandise with
a retail value of $1,250,000 for sale on ATM Ltd.'s web site. The shares have
voting and dividend rights, but may not be transferred except in accordance with
the agreement. The Company recorded deferred compensation of $5,000,000 at the
date of the agreement for the shares issued, which was reduced to $4,000,000 in
July 1999, as a result of the amendment discussed below. As the shares are
earned, the Company will record a charge to expense for the then-fair value of
such shares. Through September 30, 1999, the restriction on 600,000 of these
shares has been released and the Company recorded a charge of $800,000 which is
included in equity loss because the Company had a 50% interest in ATM Ltd when
the restriction on the shares was released. An additional 200,000 shares were
released during the three months ended December 31, 1999 and the Company
recorded a charge of $300,000 which is included in selling, general and
administrative expense in its statement of operations.
In February 1999, the Company acquired from Positive Asset Remarketing
("PAR"), the ATM Center System, a proprietary system for online electronic
trading and banking, which it contributed to ATM Ltd. The Company issued
3,500,000 shares of its common stock valued at $5,250,000 and cash of $750,000
to PAR. In addition, the Company agreed to fund the costs of maintaining,
operating and updating the web site until ATM Ltd. was funded to the
satisfaction of Warren Rothstein and the Company, after which the Company would
be reimbursed for such costs by ATM Ltd. The Company's then-CEO and principal
stockholder, Robert D. Kohn, as a shareholder of PAR, received 1,166,667 shares
of the Company's common stock and $250,000 of the proceeds from the sale of the
system to the Company. The Company recorded the transfer of the technology at
its carrying value of $6 million and recorded an investment in ATM Ltd. The
Company was accounting for its investment under the equity method and as such,
was amortizing the amount by which its carrying value exceeded its share of the
underlying net assets of ATM Ltd. over a three-year period. Amortization expense
of $417,000 was recorded and included in Equity loss in the Company's statement
of operations for the year ended September 30, 1999, with a corresponding
decrease in the investment.
As a condition to the acquisition of The Intrac Group in July 1999, the
agreement with Warren Rothstein was amended and the Company received 26% of
Warren Rothstein's holdings in ATM Ltd., and reduced the number of contingent
shares issuable to Warren Rothstein to 4,000,000. No value was assigned to the
26% interest in ATM Ltd. received from Warren Rothstein as the Company's basis
in ATM Ltd. did not change. The Company immediately issued 24% of its interest
in ATM Ltd. that was received from Warren Rothstein to the former shareholders
of Intrac resulting in the Company increasing its ownership interest in ATM Ltd.
from 50% to 52%, Warren Rothstein owning a 24% interest and the former
shareholders of Intrac owning a 24% interest. (See acquisition of Intrac below.)
Based on the increase in the Company's ownership to 52%, the Company began
consolidating ATM Ltd. on July 23, 1999, under the purchase method of
accounting. The purchase price has been allocated to assets and liabilities
based on estimated fair values at the date of acquisition. The Company valued
its net investment in ATM Ltd. at the carrying value of its equity investment at
the date of acquisition as there were no significant operations of ATM Ltd. from
the date of the Company's original equity
F-18
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
5. ACQUISITIONS OF OWNERSHIP INTERESTS IN AFFILIATED COMPANIES (CONTINUED)
investment through the date the Company obtained a controlling interest. The
detail of the results of operations of ATM Ltd. have been included in the
Company's statement of operations since July 23, 1999, when the Company obtained
a controlling interest.
In September 1999, the Company determined that it would not use the ATM
Center System technology and the Company licensed new technology from
entrade.com, a subsidiary of Entrade Inc. While the Company may sell or license
the ATM Center System technology to others, no customers have yet been
identified and no marketing efforts have commenced. In accordance with FAS 121
and the Company's policies, the ATM Center Systems technology was classified as
an asset to be held or used and not an asset to be disposed of since management
had not committed to a plan to dispose of the technology. There was no readily
determinable market to evaluate the fair market value of this technology.
Therefore, as the Company does not have an alternative future use, the Company
determined the fair value of the technology to be zero and recorded an
impairment loss of $5,583,000 at September 30, 1999.
In July 1999, the Company loaned $3.5 million to fund ATM Ltd.'s operations
with interest payable at 6%, $1 million of which ATM Ltd. has loaned to Intrac.
The principal and interest accrued are due upon the earlier of 10 years, an
initial public offering of ATM Ltd. or the receipt of $15 million in financing
for ATM Ltd. The loans to both ATM Ltd. and Intrac eliminate in the consolidated
financial statements.
During 1999, all of the losses incurred by ATM Ltd., including the portion
attributable to Warren Rothstein for his minority interest, were allocated to
the Company. Warren Rothstein did not make any capital contributions to
ATM Ltd. from its inception and as a result has no basis in ATM Ltd. Therefore,
the Company has recorded no minority interest in its balance sheet at
September 30, 1999 or December 31, 1999. Additionally, Warren Rothstein is not
required to make any capital contribution to ATM Ltd. for losses incurred by
ATM Ltd.
THE INTRAC GROUP, LTD.
On July 23, 1999, the Company acquired all the outstanding shares of capital
stock of The Intrac Group ("Intrac") in exchange for 1,000,000 shares of the
Company's common stock, $1,500,000 in cash, a 24% interest in ATM Ltd., and the
assumption of liabilities of approximately $2,755,000, which primarily consisted
of accounts payable and accrued liabilities. No value has been assigned to the
24% interest in ATM Ltd because the Company did not provide any monetary
consideration to Mr. Rothstein for his 26% interest that was transferred to the
Company to complete the Intrac merger. The results of operations of Intrac have
been included in the Company's statement of operations since July 23, 1999.
The Company is accounting for this acquisition under the purchase method of
accounting. The purchase price has been allocated to assets and liabilities
based on estimated fair values at the date of acquisition. The Company valued
the 1,000,000 shares of its common stock at $1,500,000, resulting in a
preliminary purchase price of Intrac of $3,608,000, including the cash,
transaction costs and the net liabilities assumed. At December 31, 1999 the
Company recorded additional liabilities totaling $1.4 million, which increased
the purchase price to $5,008,000. The Company has allocated the purchase price
and determined that the costs in excess of assets acquired (goodwill) is
$5,008,000. The goodwill is being amortized over a five-year period. Goodwill
amortization of $109,000 and $314,000 is
F-19
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
5. ACQUISITIONS OF OWNERSHIP INTERESTS IN AFFILIATED COMPANIES (CONTINUED)
included in the statement of operations for the year ended September 30, 1999
and for the three months ended December 31, 1999.
The following unaudited proforma financial information presents the combined
results of operations as if the Intrac acquisition had occurred on October 1,
1998 and October 1, 1997, respectively, after giving effect to adjustments
including goodwill amortization, income taxes and employment agreements. The
unaudited proforma information does not necessarily reflect the results of
operations that would have occurred had the Company and Intrac been a single
entity during such periods.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30
-------------------
1999 1998
-------- --------
<S> <C> <C>
Revenue..................................................... $8,555 $11,337
Proforma net income (loss).................................. 560 (1,447)
Proforma diluted net income (loss) per share................ .02 (.15)
</TABLE>
REAL QUEST, INC./NAI DIRECT, INC.
On September 23, 1999, the Company acquired 80% of the common stock of Real
Quest, Inc. ("Real Quest") from New America Network, Inc. ("NAI") in exchange
for 750,000 shares of its common stock. Real Quest's only asset is its 80%
ownership of NAI Direct, Inc. ("NAI Direct"). NAI Direct plans to conduct
operations through its web site that will permit users to obtain commercial real
estate services on-line. There were no significant operations of NAI Direct at
the date of the acquisition. The Company also delivered an additional 750,000
shares to an escrow agent, to be released to New America Network, Inc., if NAI
Direct attains revenues of $2 million within the 24-month period following the
launch of its web site. The Company valued the 750,000 shares of its common
stock at $1,125,000. No value has been assigned to the contingent shares as the
contingency has not yet been resolved. The Company is accounting for this
acquisition under the purchase method of accounting. The purchase price has been
allocated to assets and liabilities based on estimated fair values at the date
of acquisition. The Company has determined that the costs in excess of assets
acquired (goodwill) is $1,385,000. The goodwill is being amortized over a
five-year period. Goodwill amortization of $40,000 is included in the statement
of operations for the three months ended December 31, 1999.
The Company also loaned NAI Direct $1,000,000 with interest payable at 6% to
fund operations. The loan was eliminated in the consolidated financial
statements. The principal and accrued interest are due upon the earlier of
1) 10 years, 2) an initial public offering of NAI Direct with net proceeds
exceeding $5,000,000 or 3) indebtedness or the sale of any assets or ownership
interest in NAI Direct which results in funds in excess of $5,000,000.
Additionally, the Company has agreed to provide up to $4,000,000 in working
capital to NAI Direct within 18 months of September 30, 1999 in the form of a
loan or otherwise. NAI Direct plans to license a transaction management software
application called Real Trac from NAI under an agreement in which NAI Direct
will pay NAI a royalty fee equal to 5% of NAI Direct's gross revenue for each
month. NAI Direct has an informal agreement to rent office space from NAI for
$8,500 per month, on a month-to-month basis. In March 2000, the Company
guaranteed the obligations of NAI Direct under a lease of computer equipment and
network software
F-20
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
5. ACQUISITIONS OF OWNERSHIP INTERESTS IN AFFILIATED COMPANIES (CONTINUED)
which requires monthly payments totaling $100,000 over a two-year term with an
option to purchase at lease end.
ADMIRAL ASSET GROUP
On April 7, 1999, the Company acquired from Admiral Asset Group, Inc.
("Admiral"), a privately held company, its 2% ownership interest in
asseTrade.com and Admiral's network of business contacts in exchange for 750,000
shares of its common stock and the assumption of accrued liabilities for
operating expense of Admiral for one year. The Company's total ownership
percentage in asseTrade.com was 2% after the acquisition. The Company valued the
750,000 shares of its common stock at $1,125,000. The Company has allocated the
entire purchase price of $1,605,000 to the ownership interest in asseTrade.com
because the other assets acquired were inconsequential. Admiral provides
consulting services generally paid on commission basis in the asset management,
real estate and barter business.
WWWX-JENCOM, LLC
In February 1999, the Company entered into an agreement with JenCom Digital
Technologies, LLC ("JenCom") whereby the Company acquired, for 2,000,000 shares
of common stock of the Company, four of JenCom's proprietary Internet software
technologies ("the JenCom Assets"). The 2,000,000 shares issued were valued at
$3,000,000. The Company then assigned the JenCom Assets to WWWX-Jencom, LLC
("WJC"), a limited liability company which is owned 50% by JenCom and 50% by the
Company. WJC was formed to further develop and market the Internet technology
products acquired from JenCom. The purchased products represent research and
development in process and were not technologically feasible at the acquisition
date and have been written off as purchased research and development in the
statement of operations.
During 1999, the Company also loaned $900,000 to WJC. The interest free loan
is repayable upon the earliest to occur of the following: 1) 10 years from
March 15, 1999, 2) a third-party investment in WJC of $10,000,000 or 3) the sale
of any asset of WJC that generates gross proceeds of $5,000,000 or more. Out of
the proceeds of the loan, $350,000 was advanced from WJC to Vision
Technology, Inc. (see below).
The Company is accounting for its investment in WJC under the equity method.
The Company has included its share of the net losses of WJC as Equity loss in
the statement of operations, with a corresponding reduction of its investment in
WJC at September 30, 1999 and December 31, 1999. JenCom is providing all
employees for the development of the four products and is being reimbursed at
the fair value of the costs incurred. The Company agreed to file a registration
statement before May 17, 2000 for the 2,000,000 shares issued to JenCom.
VIDEONET CORP.
In July 1999, the Company advanced $100,000 to VideoNet Corp. ("VideoNet"),
evidenced by a 12%, $100,000 convertible note. Subsequent to September 30, 1999,
the note and the accrued interest were converted into convertible preferred
stock of VideoNet, representing approximately 2.4% of the outstanding capital
stock of VideoNet. VideoNet is a privately held company that is developing video
conferencing services through proprietary technology. The Company is accounting
for this investment under the cost method.
F-21
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
5. ACQUISITIONS OF OWNERSHIP INTERESTS IN AFFILIATED COMPANIES (CONTINUED)
ONE WORLD DIRECT, INC.
In March 1999, the Company paid $675,000 for approximately 450,000 shares,
representing approximately 5% of the outstanding shares, of One World
Direct, Inc., a privately held company that is an e-commerce-based virtual
community of celebrity-branded web sites and products. The Company is accounting
for this investment under the cost method.
VISION TECHNOLOGIES, INC.
In March 1999, the Company agreed in principle to acquire Vision
Technologies, Inc. ("Vision") for cash and stock. Vision is a privately held
company that is developing high-performance digital video imaging technologies.
At the time of investment, Mr. Bjorn Koritz, the Company's then Vice President,
General Counsel, Secretary and a Director, was a Director of Vision, its General
Counsel and a holder of 10% of Vision'software common stock. In July 1999, the
agreement was amended so the Company would make an investment in Vision rather
than acquire it. The Company advanced $850,000 in cash to Vision. Additionally,
$350,000 was advanced by WJC. In August 1999, the term sheet was terminated, and
Vision has the option to either return the cash to the Company within 180 days
or convert that amount into shares of Vision common stock representing 4% of
Vision.
The Company has evaluated the carrying value of its ownership interest in
Vision. Based on its review of Vision's business plan and the lack of sufficient
capital, the Company has recorded a 100% valuation allowance of $1,025,000
representing the cash advances of $850,000 and its 50% ownership of the advances
made by WJC.
The following summarizes the Company's ownership interests in and advances
to Affiliated Companies accounted for under the equity method and cost method of
accounting. The ownership interests are classified according to applicable
accounting methods at September 30, 1999. Cost basis represents the Company's
original acquisition cost and advances less any impairment charges recorded by
the Company. (in thousands).
<TABLE>
<CAPTION>
TOTAL CARRYING VALUE
----------------------------
VALUATION COST SEPTEMBER 30, DECEMBER 31,
INVESTMENT ADVANCES ALLOWANCE BASIS 1999 1999
---------- -------- --------- -------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Equity method:
WJC................................. $ -- $ 900 $ (175) $ 725 $ 364 $ 176
Cost Method:
VideoNet............................ -- 100 -- 100 100 100
One World Direct.................... 675 -- -- 675 675 675
Vision.............................. -- 850 (850) -- -- --
AsseTrade........................... 1,605 -- -- 1,605 1,605 1,605
Other............................... 81 -- (81) -- -- --
------ ------ ------- ------ ------ ------
2,361 950 (931) 2,380 2,380 2,380
------ ------ ------- ------ ------ ------
Total............................... $2,361 $1,850 $(1,106) $3,105 $2,744 $2,556
====== ====== ======= ====== ====== ======
</TABLE>
The Company also has an investment in Entrade Inc. which it accounts for
under the cost method and is included in short-term investments (Note 3).
F-22
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
6. CUMULATIVE CONVERTIBLE DEBENTURES
In April 1998, Keiretsu sold $502,500 of Series A 12% Cumulative Convertible
Promissory Notes, which debt was assumed by WWWX in May 1998 when it merged with
Keiretsu, and 502,500 shares of restricted common stock for a total of $502,500.
The issuance of the Notes resulted in a debt discount of $251,000. During the
period from July through August 1998, the notes were converted into 502,500
shares of common stock of WWWX and the unamortized debt discount was included in
stockholders' equity.
In March 1999, the Company sold, through a private placement, $990,000 of
Series A 6% Cumulative Convertible Debentures ("Debentures") due and payable
12 months from the issue date. The debenture holders have the right to convert
into shares of common stock of the Company after the earlier of 1) the effective
date of a registration statement to be filed by the Company registering the
resale of the shares or 2) 120 days after the filing of such registration
statement. The right to convert expires if not so exercised. The conversion
price is the lesser of 1) a 35% discount to the five-day average closing bid
price preceding the conversion date, as defined or 2) the five-day average
closing bid price of the common stock immediately preceding the closing date of
the debenture offering. The conversion price is not less than $.25 per share and
not more than $1.50 per share.
The placement agent received cash of $129,000 and 98,950 shares of the
Company's common stock valued at $149,000 for the offering of the debentures.
The amounts paid to the placement agent were recorded as debt issuance costs and
are being amortized over the term of the debt agreement.
The Debentures provide for penalties if a registration statement to register
the shares to be issued upon conversion is not filed within 60 days of the sale
of the Debentures and declared effective within 90 days from the date of filing
due to the failure of the Company to exercise reasonable diligence. Management
believes it has exercised reasonable diligence, however, a registration
statement has not been filed. Therefore, penalties of $150,000 have been accrued
at September 30, 1999.
On March 27, 2000, 14 of the 16 holders of the Debentures, representing
$865,000 in principal amount, have converted their Debentures and accrued
interest and penalties into an aggregate of 705,014 shares of the Company's
common stock in full satisfaction of the Company's obligations to those holders.
The Company has committed to file a registration statement covering the 705,014
shares within 60 days of the effectiveness of the Company's registration
statement on Form 10. The Company has accrued $125,000 in penalties at
December 31, 1999.
F-23
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Loss in unconsolidated subsidiary......................... $ 2,865 $ --
Purchased research and development and other
intangibles............................................. 1,174 --
Other reserves............................................ 548 --
NOL carryforward.......................................... 716 82
------- -------
Deferred tax assets....................................... 5,303 82
Less valuation allowance.................................. (2,865) (82)
------- -------
Total deferred tax assets................................. 2,438 --
Deferred tax liabilities:
Unrealized appreciation on available-for-sale
securities:............................................. -- --
Deferred gain on sale of subsidiary....................... (8,902) --
Other..................................................... (659) --
------- -------
Total deferred tax liabilities............................ (9,561) --
------- -------
Total net deferred tax liabilities........................ $(7,123) $ --
======= =======
</TABLE>
At September 30, 1999, a valuation allowance equal to the net deferred tax
asset of a subsidiary not consolidated for tax purposes has been recorded on the
basis of uncertainty with respect to the ultimate realization by the
unconsolidated subsidiary. At September 30, 1998, a full valuation allowance was
recorded as realization was uncertain. At September 30, 1999, the Company has
available net operating loss carryforwards of approximately $2,430,000 which
expire in the years 2012 to 2019 for federal purposes and 2004 and 2006 for
state purposes. The timing and manner in which the Company will utilize net
operating loss carryforwards in any year, or in total, may be limited by
Section 382 of the Internal Revenue Code.
A reconciliation of income tax expense to amounts computed using federal
statutory rates is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Income tax expense (benefit) computed at federal statutory
rate (35%)................................................ $2,906 $(82)
Goodwill amortization....................................... 19
------ ----
Income tax expense (benefit)................................ $6,863 $ --
====== ====
</TABLE>
Included in income tax expense for the year ended September 30, 1999 are
deferred federal and state income taxes of $6,070,000 and $793,000,
respectively. There are no current income taxes for the years ended
September 30, 1999 and 1998 or the three months ended December 31, 1998 and
1999.
F-24
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
8. STOCKHOLDERS' EQUITY
SALE OF COMMON STOCK
During 1998, the Company issued 1,513,500 shares of its common stock for
cash of $474,000, net of issuance costs, and for services rendered resulting in
expense of $20,000 for the value of the shares.
In March 1999, an investment bank purchased 2,000,000 shares of the
Company's common stock for $3,000,000. The investment bank received $390,000 in
commissions and expenses for this sale and warrants to purchase 200,000 shares
of common stock at $1.80 per share. The warrants expire on July 23, 2002.
Pursuant to a stock purchase agreement, the shares sold were to be registered
through the filing of a registration statement by October 4, 1999 or the Company
may be subject to a penalty of additional shares until a registration statement
covering such shares is declared effective. The Company estimated that, at
December 31, 1999, 600,000 shares of common stock will be issued under the
penalty provisions. The company has included the shares to be issued under the
penalty provision in its loss per share calculation for the three months ended
December 31, 1999. As of March 31, 2000, the Company has an obligation to issue
an additional 600,000 shares under the penalty provision.
In May 1999, the Company entered into an agreement with the same investment
bank to sell shares of the Company's common stock in a private placement. The
offering closed on September 22, 1999 and the Company issued 7,404,669 shares of
common stock for an aggregate purchase price of $11,107,003. The investment bank
received $1,470,000 in cash commissions for the placement of the stock and
warrants to purchase 740,467 shares of the Company's common stock at $1.80 per
share. The warrants expire on various dates from July 31, 2002 to September 22,
2002.
During fiscal 1999, the Company also issued 310,000 shares of common stock
for services rendered. The issuance of the shares resulted in expense of
$464,000, which is included in the statement of operations.
During fiscal 1999, the Company issued warrants to purchase 200,000 shares
of its common stock for services rendered. The warrants are exercisable at $2.25
per share and expire on April 2, 2003. The issuance of warrants resulted in
expense of $256,000, which is included in the statement of operations. The fair
value for these warrants was estimated at the date of grant using the
Black-Scholes method with the following assumptions: risk-free interest rate of
6%, dividend yield of 0%, average expected life of the warrants of 2 years and
volatility of 215%.
In December 1999, the Company issued 50,000 shares of its common stock for
the lease of office space. The issuance of the shares resulted in $75,000 of
other assets which is included in the balance sheet. The lease is effective for
a term of 60 months. The office space is currently being used by employees of
Entrade.com (Note 5). Entrade will reimburse the Company for rent on a monthly
basis.
COMMON STOCK OPTIONS
The Company has an equity compensation plan whereby the Company may grant
either incentive or nonqualified stock options to purchase shares of the
Company's common stock or restricted shares of the Company's common stock.
Twenty-five percent of the options are exercisable on the first anniversary of
the date of the participant's hire date. The additional amounts become
exercisable at varying rates from 6.25% on the last day of each quarter
thereafter. The Company has reserved 3,860,000 shares of its common stock to be
issued under the plan.
F-25
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
8. STOCKHOLDERS' EQUITY (CONTINUED)
The incentive stock options may be granted at not less than the fair market
value of the shares at the date of grant, and the nonqualified stock options are
to be granted at no less than eighty-five percent of the fair market value of
the shares at the date of grant. The fair market value of the Company's common
stock is determined by the Board of Directors based on the trading price of the
Company's stock at the date of grant. Under APB No. 25, if the exercise price of
the Company's employee stock options equals or exceeds the fair value of the
underlying stock on the date of grant, no compensation expense is recognized. On
September 23, 1999, 280,000 unvested options issued to employees of Entrade were
cancelled upon the consummation of the sale of Entrade. (Note 9)
The following table summarizes information about stock options outstanding
at September 30, 1999 and December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED REMAINING
PER SHARE NUMBER OF AVERAGE PER CONTRACTUAL LIFE
PRICES SHARES SHARE PRICE (YEARS)
---------- --------- ----------- ----------------
<S> <C> <C> <C> <C>
September 30, 1999............................ $ 2.69 915,000 $2.69 9.9
========== ========= ===== ===
December 31, 1999 (Unaudited)................. $2.30-3.06 1,040,000 $2.70 9.7
========== ========= ===== ===
</TABLE>
No options were exercisable at September 30, 1999 and December 31, 1999.
FASB No. 123 requires pro forma information regarding net income as if the
Company had accounted for its employee stock options under the fair value method
of that Statement. The fair value for these options was estimated at the date of
grant using the Black-Scholes method with the following assumptions for all
periods presented: risk-free interest rate of 6%, dividend yield of 0%, average
expected life of the option of 4 years, and volatility of 215%.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows (in thousands except per share data):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1999
------------------ ------------------
(UNAUDITED)
<S> <C> <C>
Net income (loss):
As reported................................................ $1,612 $(2,616)
SFAS No. 123 pro forma..................................... 1,566 (2,734)
Diluted net income (loss) per share:
As reported................................................ 0.07 (0.07)
SFAS No. 123 pro forma..................................... 0.07 (0.08)
</TABLE>
The weighted average fair value of options granted during the year ended
September 30, 1999 and the three months ended December 31, 1999 for which the
estimated fair value of the stock equaled the exercise price ranged from $2.23
to $3.26 per share and averaged $3.19.
F-26
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
8. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION ACTIVITY
A summary of stock option activity follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1999
-------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Outstanding at beginning of period................... -- $ -- 915,000 $2.69
Options granted...................................... 1,210,000 2.69 125,000 2.76
Options cancelled or expired......................... (295,000) -- -- --
--------- ----- --------- -----
Outstanding at end of period......................... 915,000 $2.69 1,040,000 $2.70
========= ===== ========= =====
</TABLE>
During the year ended September 30, 1999, the Company issued 45,000 shares
of restricted stock.
SHARES RESERVED FOR FUTURE ISSUANCE
At December 31, 1999, the Company has reserved the following shares of
common stock for issuance:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
(UNAUDITED)
<S> <C>
Convertible debt............................................ 660,000
Common stock options outstanding............................ 1,040,000
Common stock options available for grant.................... 2,775,000
Common stock warrants....................................... 1,140,467
Contingent common stock
Acquisitions................................................ 750,000
Registration penalty........................................ 600,000
---------
6,965,467
=========
</TABLE>
F-27
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
9. SALE OF AFFILIATED COMPANY
In February 1999, the Company agreed to sell to Artra Group Incorporated
("Artra"), a publicly traded company, its 90%-owned Entrade subsidiary whose
assets the Company acquired in December 1998 (Note 5). Concurrently, Entrade and
Artra entered into a loan agreement whereby Artra agreed to lend up to
$2,000,000 to Entrade. The shareholders of Artra approved the acquisition on
September 23, 1999 and completed a reverse merger of Artra into a wholly owned
subsidiary of Entrade. In the merger, Artra shareholders exchanged their Artra
shares for Entrade common shares . As consideration for the sale of Entrade, the
Company received 1,800,000 shares of Artra's common stock, trading now as
Entrade as a result of the merger, and $1,300,000 in cash. Additionally, the
Company received $1,302,000 of funding from Artra for the operations of Entrade
from February 23, 1999 through September 23, 1999. The sale of Entrade resulted
in a gain of $25,426,000, which is included in the statement of operations. The
1,800,000 shares of Entrade Inc. stock represented 15% of the combined company
at the date of the transaction and have been recorded as short-term investments
(Note 3).
As part of the Artra agreement, the Company's then Chairman, President, and
CEO, Robert D. Kohn, entered into an employment agreement with entrade.com
effective February 23, 1999 for a period of three years and as a result was
required to resign all positions with the Company on September 23, 1999. He also
received an option to purchase 1,000,000 shares of Artra stock at an exercise
price of $2.75 per share.
The operations of Entrade have been included in the consolidated operations
of the Company from December 1998 through September 23, 1999.
10. COMMITMENTS AND CONTINGENCIES
The Company has operating leases covering office space and office equipment.
At September 30, 1999, future minimum lease payments on these noncancelable
operating leases having initial or remaining terms of more than one year are
$198,000 for 2000, $197,000 for 2001, $140,000 for 2002, $142,000 for 2003, and
$133,000 for 2004. Rent expense under the operating leases was $83,000, $6,000,
$80,000 and $0 for the years ended September 30, 1999 and 1998, and the three
months ended December 31, 1999 and 1998, respectively.
The Company also leases equipment under capital leases. Future minimum lease
payments on capital leases, net of imputed interest of $11,000, are $37,000 for
2000 and $39,000 for 2001.
In September 1999, ATM Ltd., licensed from entrade.com, Inc., a subsidiary
of Entrade Inc., software which the Company sold in connection with its sale of
Entrade. ATM Ltd. agreed to pay a one-time licensing fee equal to $1,500,000 to
entrade.com through the issuance of combination trade credits. The Company
ascribed no value to this transaction as combination trade credits represent a
best efforts obligation and have neither any recordable value nor represent any
fixed or determinable liability. The Company also agreed to pay continuing
royalty payments equal to a percentage of all revenues from transactions
generated by using the licensed software in which entrade.com is involved. The
royalty payment percentage varies from 10% to 50% depending on the type of
transaction.
F-28
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
11. NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per share (in thousands except per share data):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30 DECEMBER 31
---------------------- -----------------------
1999 1998 1999 1998
---------- --------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss).............................. $ 1,612 $ (219) $ (2,616) $ (95)
Effect of dilutive securities:
---------- --------- ---------- ----------
Convertible debentures......................... 32 -- -- --
---------- --------- ---------- ----------
Adjusted net income (loss)..................... 1,644 (219) (2,616) (95)
========== ========= ========== ==========
Weighted average number of common shares....... 21,906,553 8,602,000 35,634,369 10,841,321
Effect of dilutive securities:
Stock options.................................. 27,736 -- --
Convertible debentures......................... 359,836 -- --
Warrants....................................... 124,169 -- --
---------- --------- ---------- ----------
Adjusted weighted average shares and assumed
conversions.................................. 22,418,294 8,602,000 35,634,369 10,841,321
========== ========= ========== ==========
Earnings (loss) per share:
Basic.......................................... $ 0.07 $ (0.03) $ (0.07) $ (0.01)
Diluted........................................ $ 0.07 $ (0.03) $ (0.07) $ (0.01)
</TABLE>
Due to their antidilutive effect, dilutive securities were excluded from the
computation of diluted net income (loss) per share for the year ended
September 30, 1998 and the three months ended December 31, 1999 and 1998.
The 750,000 contingently issuable shares related to the Real Quest
investment and 3,400,000 shares contingently issuable to Warren Rothstein were
not included in the earnings per share calculation because the conditions
related to the contingencies were not satisfied at September 30, 1999.
Subsequent to September 30, 1999, the Company issued an additional 50,000
shares of common stock and warrants to purchase 500,000 shares of common stock
in settlement of accrued expenses for services rendered in 1999.
12. RELATED PARTY TRANSACTIONS
In addition to the related party transactions described in Notes 5, 9, 10,
and 13, the Company has entered into the following related party transactions.
The Company provides various services including rental space and bookkeeping
for Affiliated Companies and for Entrade. Total services provided to Affiliated
Companies including Entrade during the year ended September 30, 1999, were
$184,000 of which $38,000 is due from these Affiliated Companies at
September 30, 1999. Total services provided to Affiliated Companies during the
three months ended December 31, 1999 were $4,900. At December 31, 1999, $15,000
is due from Affiliated Companies. Total services provided to Entrade during the
three months ended December 31, 1999 were
F-29
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
12. RELATED PARTY TRANSACTIONS (CONTINUED)
$137,000, of which $37,000 has not been repaid at December 31, 1999. Entrade
provided technical consulting services to ATM totaling $42,000 and $63,000 for
the year ended September 30, 1999 and the three months ended December 31, 1999,
respectively, of which $109,000 has not been repaid at December 31, 1999.
ATM has made payments on behalf of Intrac totaling $58,000 and $788,000 for
the year ended September 30, 1999 and the three months ended December 31, 1999,
respectively, all of which remains unpaid at December 31, 1999.
The Company used the services of D&W Enterprises to manage its ATM Ltd.
operations. D&W Enterprises is 100%-owned by Warren Rothstein, who was the
Company's President, CEO and Chairman from September 1999 through April 2000.
During the year ended September 30, 1999 and the three months ended
December 31, 1999, the Company paid $183,000 and $272,000, respectively, for the
services rendered which represented the full cost incurred by D&W Enterprises
for the services rendered.
In June 1998, the Company entered into an agreement with Marlene A. Goss and
Fern Entrekin. Ms. Goss is the sister of Robert D. Kohn, the Company's then CEO
and primary stockholder. Ms. Goss and Ms. Entrekin developed an educational
program to provide solutions to schools to build learning communities. The
agreement contemplated the formation of a subsidiary of WorldWide Web NetworX
Corporation, to be named EduNEXT, and the development of related web sites. The
Company agreed to acquire the educational program in exchange for $50,000 of
Company stock, at an agreed upon value of $2.50 per share, to be paid as
follows: 10,000 shares to be delivered upon the execution of the agreement and
an additional 10,000 shares to be delivered one year from the execution of the
agreement; and $53,500 in working capital with $15,000 to be paid immediately
upon execution of the agreement and weekly payments totaling $38,500 for the
remainder of the $53,500. As of December 31, 1999, the Company had issued 20,000
shares under this agreement and paid $31,500 to Ms. Goss.
In December 1998, the Company entered into an oral license agreement with
BarterOne, LLC, in which the Company granted an exclusive, perpetual and
royalty-free license for the use of the MARS System computer software, an
Internet based e-commerce application, to BarterOne. The agreement memorializing
the license was executed in May 1999 with entrade.com, which received all of
BarterOne's rights under the license. The Company's then CEO, Robert D. Kohn,
was also the President of BarterOne. The Company transferred all of the assets
of BarterOne, including the license for the MARS System, to Entrade Inc. as part
of the Company's sale of Entrade Inc. to Artra Group Incorporated in
September 1999 (Note 9).
As discussed in Note 8, in March 1999, the Company entered into a stock
purchase agreement with an investment bank that required the Company to invest
in and execute a definitive agreement with JenCom to acquire a 50% interest in
technology assets of JenCom which resulted in the Company's current ownership
interest in WWWX-Jencom (Note 5). Affiliates of the investment bank own
interests in International Commerce Exchange Systems, Inc., an indirect parent
of JenCom and a member of InterCommerce China, LLC (Note 13).
In October 1999, the Company agreed to enter into a one-year agreement with
the Company's former President, CEO and Chairman, Robert D. Kohn, under which he
will act as a finder and/or
F-30
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1999
12. RELATED PARTY TRANSACTIONS (CONTINUED)
financial consultant and will receive $60,000 annually for his consulting
services as a non-refundable draw against future finder's fees for any
introductions that result in a transaction that is consummated. The finder's fee
will be equal to a percentage of the consideration paid in the facilitated
transaction, ranging from 5% for the first $1,000,000 to 1% of any consideration
in excess of $7,000,000.
The Company uses McDermott, Will & Emery as outside legal counsel. During
the year ended September 30, 1999 and for the three months ended December 31,
1999, the Company paid $58,500 and $8,800, respectively, for professional legal
services. One of the Company's directors is the partner in charge of the New
York office of McDermott, Will & Emery.
13. SUBSEQUENT EVENTS
Subsequent to December 31, 1999, the Company obtained a 33.33% interest in
InterCommerce China, LLC ("ICC"). The Company issued 1,500,000 shares of its
stock to JenCom Digital Technologies in exchange for the ownership interest.
Additionally, the Company agreed to issue an additional 1,500,000 shares upon
ICC's merger or conversion or consolidation into a publicly traded entity in a
transaction which involves $5,000,000 invested in ICC or a $50,000,000 ICC
market capitalization within a period of four years. ATM Ltd. has also entered
into a ten-year exclusive operating agreement to distribute and sell all
merchandise, equipment, goods, and other products that ICC receives, sells or
distributes from or to the Peoples Republic of China under agreements with the
China Product TradeNet Center, a Chinese government agency responsible for
managing overstocked inventory in Chinese state-owned factories throughout
China. Pursuant to the operating agreement of ICC, two of the Company's officers
and directors each have the option to purchase a 0.625% interest in ICC. The
options become exercisable upon the public issuance of any class of securities
of ICC, at an exercise price equal to 30% of the fair market value of the option
interest as of the date of the operating agreement.
F-31
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
BASIS OF PRESENTATION
(UNAUDITED)
On July 23, 1999, the Company acquired all the outstanding shares of capital
stock of The Intrac Group ("Intrac") in exchange for 1,000,000 shares of the
Company's common stock, $1,500,000 in cash, a 24% interest in ATM Ltd., and
assumption of net liabilities of $2,008,000 for total purchase consideration of
$5,008,000. The Company accounted for this acquisition using the purchase method
of accounting, and accordingly, the total purchase price was allocated to the
assets and liabilities based on estimated fair values with any excess purchase
price being allocated to goodwill.
The unaudited pro forma condensed combined statement of operations for the
year ended September 30, 1999 gives effect to the acquisition of Intrac as if
the transaction had occurred on October 1, 1998.
The Company has not provided an unaudited pro forma condensed combined
balance sheet as of December 31, 1999 since the acquisition of Intrac is fully
reflected in that balance sheet.
The unaudited pro forma condensed combined statement of operations has been
prepared by the management of the Company and should be read in conjunction with
the Company's historical consolidated financial statements contained elsewhere
herein, and the historical financial statements of Intrac, which are included
elsewhere herein. Intrac's fiscal year end is December 31. Therefore, for the
purpose of the historical data included in the unaudited condensed combined
statement of operation for the year ended September 30, 1999, the unaudited
Intrac financial data for the three months ended December 31, 1998 was combined
with Intrac's audited financial statements for the period from January 1, 1999
to July 23, 1999.
Since the unaudited pro forma condensed combined statement of operations
which follows is based upon the operating results of Intrac during periods when
they were not under control of management of the Company, the information
presented may not be indicative of the results which would have actually been
obtained had the acquisition been completed on the pro forma date reflected nor
are they indicative of future financial or operating results. The unaudited pro
forma financial information does not give effect to any synergies that may occur
due to the integration of the Company with Intrac.
F-32
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WORLDWIDE
WEB NETWORX THE INTRAC PRO FORMA PRO FORMA
CORPORATION GROUP ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues............................ $ 1,339 $ 7,216 $ -- $ 8,555
Operating expenses:
Cost of revenue....................... 792 5,868 -- 6,660
----------- ----------- ----------- -----------
Gross profit.......................... 547 1,348 -- 1,895
Selling, general and administration... 5,280 2,481 (234)a 7,527
Depreciation and amortization......... 597 13 847b 1,457
Writeoff of purchased research and
development......................... 3,036 -- -- 3,036
Impairment of intangible asset........ 5,583 -- -- 5,583
----------- ----------- ----------- -----------
Loss from operations...................... (13,949) (1,146) (613) (15,708)
Other income (expenses)................... 22,424 6 -- 22,430
----------- ----------- ----------- -----------
Income (loss) before income taxes......... 8,475 (1,140) (613) 6,722
Income tax expense (benefit).............. 6,863 63 (764) 6,162
----------- ----------- ----------- -----------
Net income (loss)......................... $ 1,612 $ (1,203) $ 151 $ 560
=========== =========== =========== ===========
Net income (loss) per share:
Basic................................. $ 0.07 $ 0.03
Diluted............................... $ 0.07 $ 0.02
=========== ===========
Weighted average shares outstanding:
Basic................................. 21,906,553 22,717,512
Diluted............................... 22,418,294 23,229,253
=========== ===========
</TABLE>
See accompanying notes.
F-33
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined statements of operations for the
year ended September 30, 1999 gives effect to the acquisition of Intrac as if
the tranaction had occurred on October 1, 1998.
The effect of the Intrac acquisition has been presented using the purchase
method of accounting and accordingly, the total purchase price was allocated to
the assets and liabilities based on their estimated fair values with any excess
purchase price being allocated to goodwill.
2. PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS
The pro forma statements of operations adjustments for the year ended
September 30, 1999 consists of:
a) Selling, general and administrative expenses have been reduced by $234,000
for the year ended September 30, 1999, to reflect the Company entering into
employment agreements with Intrac's officers at amounts below their
historical levels.
b) Depreciation and amortization expenses have been adjusted by $847,000 for
the year ended September 30, 1999, to reflect additional goodwill
amortization relating to the Intrac acquisition, which is being amortized
over a five-year period.
c) An income tax benefit has been provided at 40% of Intrac's operating results
plus the pro forma adjustments for the year ended September 30, 1999.
F-34
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
3. WEIGHTED AVERAGE SHARES OUTSTANDING
The weighted average outstanding shares during the period is calculated as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1999
-------------
<S> <C>
Basic
Shares outstanding........................................ 21,906,553
Shares issued for the Intrac acquisition.................. 1,000,000
Shares issued for the Intrac acquisition included in
shares outstanding...................................... (189,041)
----------
22,717,512
==========
Diluted:
Shares outstanding........................................ 22,418,294
Shares issued for the Intrac acquisition.................. 1,000,000
Shares issued for the Intrac acquisition included in
shares outstanding...................................... (189,041)
----------
23,229,253
==========
</TABLE>
F-35
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Instra Corp.
We have audited the accompanying balance sheet of Instra Corp. as of
September 30, 1997 and the related statements of operations, shareholders'
equity and accumulated deficit and cash flows for the year ended September 30,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Instra Corp. as
September 30, 1997, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
/s/ Smith, Ortiz, Gomez, and Buzzi
Coral Gables, Florida
April 22, 1998
F-36
<PAGE>
INSTRA CORP.
BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 518
--------
Total current assets.................................... 518
Note receivable............................................. 18,000
Accrued interest receivable................................. 1,067
Other receivable............................................ 5,000
--------
Total assets.............................................. $ 24,585
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,205
Other liabilities......................................... 2,944
--------
Total current liabilities............................... 6,149
--------
Shareholders' equity:
Common stock, authorized 100,000,000 shares with a par
value of $0.001 per share; 2,100,000 shares issued and
outstanding............................................. 2,100
Amount paid in excess of par value........................ 867,825
Accumulated deficit....................................... (851,489)
--------
Total shareholders' equity.............................. 18,436
--------
Total liabilities and shareholders' equity.............. $ 24,585
========
</TABLE>
See accompanying notes to financial statements and independent auditors' report.
F-37
<PAGE>
INSTRA CORP.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<S> <C>
Miscellaneous income........................................ $ 1,824
---------
Expenses:
Printing.................................................. 689
Travel.................................................... 3,562
Consulting................................................ 24,889
Accounting................................................ 5,250
Legal..................................................... 2,250
Telephone................................................. 1,202
Project cost.............................................. 128,517
---------
166,359
---------
Operating income (loss)................................. (164,535)
Other income (expense)...................................... --
---------
Income (loss) before taxes.............................. (164,535)
Income tax expense (benefit)................................ --
---------
Net income (loss)....................................... $(164,535)
=========
Net loss per share.......................................... $ (.08)
=========
Weighted average shares outstanding......................... 2,100,000
</TABLE>
See accompanying notes to financial statements and independent auditors' report.
F-38
<PAGE>
INSTRA CORP.
STATEMENT OF SHAREHOLDERS' EQUITY AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
AMOUNT IN
NUMBER OF EXCESS OF ACCUMULATED
SHARES PAR VALUE PAR VALUE DEFICIT
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Balance at September 30, 1996...................... 1,997,000 $1,997 $682,553 $(686,954)
Sale of shares..................................... 90,000 90 161,910 --
Sale of shares..................................... 13,000 13 23,362 --
Net loss for the year ended September 30, 1997..... -- -- -- (164,535)
--------- ------ -------- ---------
Balance at September 30, 1997...................... 2,100,000 $2,100 $867,825 $(851,489)
========= ====== ======== =========
</TABLE>
See accompanying notes to financial statements and independent auditors' report.
F-39
<PAGE>
INSTRA CORP.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(164,535)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Changes in assets and liabilities:
Accounts payable.......................................... 1,987
---------
Cash used by operating activities........................... (162,548)
---------
Cash flows from financing activities:
Sale of shares of common stock............................ 185,375
Note receivable and accrued interest...................... (19,067)
Other receivables......................................... (3,442)
---------
Cash provided by financing activities....................... 162,866
---------
Net increase in cash and cash equivalents................... 318
Cash and cash equivalents, at beginning of year............. 200
---------
Cash and cash equivalents, at end of year................... $ 518
=========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest paid............................................. $ --
=========
Income taxes paid......................................... $ --
=========
</TABLE>
See accompanying notes to financial statements and independent auditors' report.
F-40
<PAGE>
INSTRA CORP.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. SUMMARY OF ORGANIZATION AND BUSINESS ACTIVITY AND HISTORY
(A) ORGANIZATION
Gold Cache, Inc. (the name was changed to InstraCorp, see below) was
incorporated under the laws of the state of Idaho on July 30, 1979, for the
purpose of engaging in mining activities. The stated capital was $60,000 with an
authorized 6,000,000 shares of stock having a par value of $0.01 per share.
On September 18, 1980, the Articles of Incorporation were amended to
increase the stated capital to $80,000 with an authorized 8,000,000 shares
having a par value of $0.01 per share.
The Articles of Incorporation were amended on January 21, 1983 to increase
the stated capital to $160,000 having an authorized 16,000,000 shares with a par
value of $0.01 per share. The business purpose of the Company was changed to
"the transaction of any lawful business for which corporations may be
incorporated under the Idaho Business Corporation Act".
On August 19, 1988, the Articles of Incorporation were amended to change the
name to InstraCorp. The capitalization of the Company was changed to 16,000,000
authorized shares with no par value. One share of the new no par value stock
shall be issued for 20 shares of the old $0.01 par value stock, resulting in a
reverse split of the outstanding shares.
On May 9, 1996, the Company amended its Articles of Incorporation to change
the capitalization of the authorized shares to 100,000,000 shares with a par
value of $0.001 from 16,000,000 shares with no par value and to the name Instra
Corp.
At September 30, 1997, the Company was an active corporation and remains
incorporated in the State of Delaware. See note 2.
(B) BASIS OF PRESENTATION
Assets and liabilities and revenues and expenses are recognized on the
accrual basis of accounting.
(C) ORGANIZATION COSTS
Organizational costs were charged to expense in the period incurred.
(D) INCOME TAXES
Income tax carryforwards are accounted for in accordance with Financial
Accounting Standards Board statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109), see Note 3.
(E) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash and cash equivalents
consist of cash in bank.
F-41
<PAGE>
INSTRA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
2. CAPITAL STRUCTURE
At a meeting of the shareholders held on May 9, 1996 the following changes
were approved:
1) The authorized capital from 16,000,000 shares having no par value to
100,000,000 shares with a par value of $0.001 per share (total $100,000).
The financial statements of the Company, have been restated to reflect
the change in authorized capital.
2) The domicile from Idaho to Delaware. On July 18, 1996 the change of
domicile was completed.
3) Its name from InstraCorp to Instra Corp.
During the year ended September 30, 1997 the Company sold 90,000 and 13,000
shares of its common stock.
3. INCOME TAXES
The Company has adopted SFAS 109 for the year ended September 30, 1997, see
Note 1 subsection (3). SFAS 109 required that the Company utilize an asset and
liability approach for financial accounting and reporting for income taxes. The
primary objectives of accounting for income taxes under SFAS 109 are to
recognize the amount of tax payable for the current period and also to recognize
the amount of deferred tax liability or asset based on management's assessment
of the tax consequences of events that have been reflected in the Company's
financial statements or tax returns. The adoption of SFAS 109 has no effect on
the Company's financial statements because the Company has not had any
determinable income.
4. LICENSING AGREEMENT AND STOCK SALES
On November 20, 1996 and again on January 27, 1997, the Company entered into
an Exclusive License Agreement(s) and subsequent agreements with a
non-affiliated Liechtenstein corporation for the worldwide rights to an
electrical device called the Needle Impulse Generator. As part of terms of the
Agreement the Company issued 51,000,000 shares to the Liechtenstein corporation
and the principal shareholders returned to the Company 17,865,000 shares of its
common stock for cancellation, at no cost. Also, on January 22, 1997, the
Company entered into a best-efforts agreement with a non-affiliated Switzerland
corporation for the sale of up to 8,000,000 shares of its common stock at
various prices under the terms of a Reg S Memorandum for a total of up to
$48,000,000. The Company issued 90,000 shares and 13,000 shares of its common
stock sold under the best-efforts agreement respectively in fiscal 1997 which
have been reflected in the Statement of Shareholders' Equity and Accumulated
Deficit. On June 16, 1997, the agreement for sale of shares under the Reg S
Memorandum was terminated. On April 28, 1998 the Exclusive License Agreement was
rescinded by both parties to be effective as of December 31, 1997 and the
51,000,000 shares issued therefore were returned to the Company for
cancellation. In addition, the Company re-issued to the principal shareholder
the 17,865,000 shares which had previously been canceled. The effect of issuing,
canceling and re-issuing the shares is not reflected in the financial
statements. In connection with these transactions the Company incurred costs
associated with the further development of the technology in the amount of
$128,517 that were charged off as project costs in the respective Statements of
Operations.
F-42
<PAGE>
INSTRA CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
5. SUBSEQUENT EVENT
In May 1998 the Company merged with an entity incorporated in Nevada, known
as Keiretsu Corporation ("Keiretsu") As a result of the merger, the Company
cancelled 14,719,990 of the 25,219,988 shares that were outstanding at the time.
The remaining outstanding shares were reduced to 2,100,000 at the rate of one
share for each five shares outstanding as a result of a reverse stock split. The
financial statements give retroactive effect to the cancellation of shares and
the reverse stock split as of September 30, 1996. The stockholders of Keiretsu
exchanged all their shares for 6,000,000 shares of the Company. As a result of
this transaction, Keiretsu became a wholly owned subsidiary of the Company and
the former Keiretsu stockholders became the owners of 74.1% of the outstanding
stock of the Company. In conjunction with the transaction, the Company changed
its name to WorldWide Web NetworX Corporation ("WWWX"). Subsequent to the
merger, WWWX raised money by selling notes and restricted common stock and
became an e-commerce company.
F-43
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders' of
The Intrac Group, Inc.
We have audited the accompanying balance sheets of The Intrac Group, Inc. as
of December 31, 1998 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended and for the period
January 1, 1999, through July 23, 1999. These financial statements are the
responsibility of The Intrac Group, Inc. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Intrac Group, Inc. at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended and for the period January 1, 1999, through July 23,
1999 in conformity with generally accepted accounting principles.
/s/ Dannible & McKee, LLP
Syracuse, NY
April 28, 2000
F-44
<PAGE>
THE INTRAC GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1)........................ $ 445,015 $ 374,624
Accounts receivable, net of allowance of $275,200 in 1997
(Note 1)................................................ 102,587 2,422,489
Inventory................................................. 615,684 20,000
Prepaid expenses.......................................... 4,410 4,410
Advance to stockholder.................................... 23,980 --
Deferred income tax (Notes 1 and 2)....................... 467,000 339,000
Income taxes refundable................................... -- 3,304
---------- ----------
Total current assets.................................... 1,658,676 3,163,827
---------- ----------
Equipment, furniture and fixtures, less accumulated
depreciation of $52,688 in 1998 and $38,262 in 1997 (Note
1)........................................................ 73,334 2,717
Other assets................................................ 57,768 73,102
---------- ----------
$1,789,778 $3,239,646
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 264,499 $ 681,471
Media credits issued not earned (Note 1).................. 3,996,669 4,427,758
Income tax payable (Note 1)............................... 18,084 --
---------- ----------
Total current liabilities............................... 4,279,252 5,109,229
---------- ----------
Stockholders' equity (deficit): (Note 2)
Common stock, no par value, 100 shares authorized, issued
and outstanding......................................... 20,000 20,000
Accumulated deficit....................................... (2,509,474) (1,889,583)
---------- ----------
(2,489,474) (1,869,583)
---------- ----------
$1,789,778 $3,239,646
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE>
THE INTRAC GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JANUARY 1, 1999 -------------------------
TO JULY 23, 1999 1998 1997
---------------- ----------- -----------
<S> <C> <C> <C>
Gross revenues (Note 1).............................. $ 5,131,471 $10,481,861 $14,732,849
Less--Agency commissions............................. 461,029 297,904 135,722
----------- ----------- -----------
4,670,442 10,183,957 14,597,127
Cost of sales........................................ 3,806,656 8,244,047 13,027,488
----------- ----------- -----------
Gross profit..................................... 863,786 1,939,910 1,569,639
----------- ----------- -----------
Operating expenses:
Selling, general and administrative................ 1,818,854 2,647,331 1,939,662
Depreciation....................................... 9,368 14,426 2,420
----------- ----------- -----------
1,828,222 2,661,757 1,942,082
----------- ----------- -----------
Loss from operations............................. (964,436) (721,847) (372,443)
Interest expense..................................... (10,709) -- --
Interest income...................................... 3,726 51,601 27,350
----------- ----------- -----------
Loss before income taxes......................... (971,419) (670,246) (345,093)
(Provision for) benefit from income taxes (Notes 1
and 2):
Currently payable.................................. (11,791) (25,468) (20,242)
Deferred........................................... (79,000) 128,000 45,000
----------- ----------- -----------
(90,791) 102,532 (24,758)
----------- ----------- -----------
Net loss......................................... $(1,062,210) $ (567,714) $ (320,335)
=========== =========== ===========
Net loss per common share............................ $ (10,622) $ (5,677) $ (3,203)
=========== =========== ===========
Weighted average common shares outstanding........... 100 100 100
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE>
THE INTRAC GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1996.............................. $20,000 $(1,520,604) $(1,500,604)
Distribution to stockholder............................... -- (48,644) (48,644)
Net loss................................................ -- (320,335) (320,335)
------- ----------- -----------
Balance at December 31, 1997.............................. 20,000 (1,889,583) (1,869,583)
Distribution to stockholder............................... -- (52,177) (52,177)
Net loss................................................ -- (567,714) (567,714)
------- ----------- -----------
Balance at December 31, 1998.............................. 20,000 (2,509,474) (2,489,474)
------- ----------- -----------
Net loss................................................ -- (1,062,210) (1,062,210)
------- ----------- -----------
Balance at July 23, 1999.................................. $20,000 $(3,571,684) $(3,551,684)
======= =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE>
THE INTRAC GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JANUARY 1, 1999 ------------------------
TO JULY 23, 1999 1998 1997
---------------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. $(1,062,210) $ (567,714) $ (320,335)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for doubtful accounts.................... 109,515 182,990 299,322
Provision for depreciation......................... 9,368 14,426 2,420
Provision for deferred taxes....................... 79,000 (128,000) (45,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable......... (1,833,002) 2,136,912 (2,464,686)
(Increase) decrease in inventory, prepaid expenses
and other assets................................. 369,738 (580,350) 58,817
(Increase) decrease in income taxes refundable..... -- 3,304 (3,304)
Increase (decrease) in accounts payable............ 2,693,900 (416,972) 345,606
Increase (decrease) in accrued liabilities and
income taxes payable............................. (6,293) 18,084 (13,079)
Increase (decrease) in media credits issued not
earned........................................... 97,725 (431,089) (1,659,228)
----------- ---------- -----------
Net cash provided by (used for) operating
activities..................................... 457,741 231,591 (3,799,467)
----------- ---------- -----------
Cash flows from investing activities:
Advance to stockholder............................... (96,529) (223,980) --
Increase in equipment, furniture and fixtures........ (14,586) (85,043) --
Repayment of advances to stockholder................. 93,132 200,000 --
----------- ---------- -----------
Net cash used for investing activities........... (17,983) (109,023) --
----------- ---------- -----------
Cash flows from financing activities:
Line of credit borrowings............................ 200,000 -- --
Line of credit repayments............................ (25,959) -- --
Distribution to stockholder.......................... -- (52,177) (48,644)
----------- ---------- -----------
Net cash provided by (used for) financing
activities..................................... 174,041 (52,177) (48,644)
----------- ---------- -----------
Increase (decrease) in cash and cash equivalents....... 613,799 70,391 (3,848,111)
Cash and cash equivalents, beginning of period......... 445,015 374,624 4,222,735
----------- ---------- -----------
Cash and cash equivalents, end of period............... $ 1,058,814 $ 445,015 $ 374,624
=========== ========== ===========
</TABLE>
F-48
<PAGE>
THE INTRAC GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Intrac Group, Inc. (the "Company") is primarily engaged in arranging
marketing, independent media buying and planning in exchange for goods and
services. On July 23, 1999, WorldWide Web NetworX Corporation (WWWX) acquired
all the outstanding capital stock of the Company from its stockholders in
exchange for 1,000,000 shares of WWWX common stock, $1,500,000 in cash and a 24%
interest in ATM Service, Ltd., an affiliate of WWWX, and the assumption of
certain liabilities in a transaction accounted for as a purchase.
Revenue recognition--The Company records media credits due to customers in
an amount equal to the fair market value of the products or services received
from those customers. As media or other services are provided to said customers
the related amount of media credits are recognized as revenue. Amounts of media
credits due to customers are shown in the accompanying balance sheets as media
credits issued not earned.
Economic dependency and concentration of credit risks--The Company grants
unsecured credit under standard credit terms. In addition, the Company maintains
cash balances with financial institutions, which are secured by the Federal
Deposit Insurance Corporation up to $100,000. The Company has approximately
$1,422,000, $328,000 and $687,000 in uninsured balances at July 23, 1999,
December 31, 1998 and 1997, respectively
The Company operates in one business segment and has no foreign operations.
In 1999, 1998 and 1997 sales to the two largest customers represented
approximately 69%, 60% and 26%, respectively, of gross revenues. Accordingly, a
change in the relationship with these customers or the Company's continued
ability to be successful in their marketing efforts, could have a near term
severe impact on the Company.
Cash and cash equivalents--For the purpose of the statement of cash flows,
the Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories--The Company values inventory at the lower of cost or market
using the first in--first out (FIFO) costing method. Inventory consists of
merchandise received in exchange for media credits and is held for resale to
third parties.
Advertising costs--The Company expenses advertising costs as incurred.
During 1999, 1998 and 1997, the Company expensed approximately $10,000, $12,400
and $28,500, respectively.
Equipment, furniture and fixtures--Equipment, furniture and fixtures are
stated at cost and are being depreciated using accelerated methods over their
estimated useful lives, which range from five to seven years. For income tax
purposes, depreciation is computed using methods prescribed by appropriate
income tax regulations. Repairs are expensed as incurred.
Allowance for doubtful accounts--The Company provides an allowance for
accounts receivable which are doubtful of collection. The allowance is based on
management's periodic analysis of receivables, evaluation of current economic
conditions and other pertinent factors. Ultimate losses may vary from the
current estimates. Additions to the allowance are charged against earnings in
the period in which they become known. Losses are charged and recoveries are
credited to the allowance.
Income taxes--The Company has elected to be taxed as an S Corporation for
Federal and state tax purposes, whereby the liability for generally all Federal
and state income taxes is assumed
F-49
<PAGE>
THE INTRAC GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
individually by the stockholders of the Company whether or not the income giving
rise to such taxes has been distributed.
In 1998 and 1997 the Company was taxed as a C Corporation for state and city
tax purposes, whereby the Company computed deferred income taxes using the
liability method. The Company is still taxed as a C Corporation for city tax
purposes in 1999. Under this method, state and city income taxes are provided
for the tax effects of transactions reported in the financial statements and
consist of taxes currently due plus deferred taxes related to differences
between the financial reporting and income tax basis of assets and liabilities,
primarily related to accounts receivable, inventory, accounts payable and media
credits issued but not earned. Deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Post-retirement benefits--The Company offers no post-retirement benefits.
Legal proceedings--The Company is not involved in any material legal
proceedings that in the opinion of management would have a material effect on
the Company.
Net loss per common share--Net loss per common share is computed based on
the weighted average number of common shares outstanding during each period.
There were no dilutive common stock equivalents outstanding.
Fair value of financial instruments--The Company maintains various financial
instruments in the ordinary course of business, which consist of cash and cash
equivalents, trade receivables and payable, prepaid media and media credits
issued not earned. The Company does not hold or issue instruments for trading
purposes.
Use of estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2--INCOME TAXES
As discussed in Note 1, the Company was taxed as a C Corporation for state
and city tax purposes at the applicable state and city rates in 1998 and 1997.
In 1999, the Company elected to be taxed as an S Corporation for state tax
purposes. The Company had a loss for city tax purposes of approximately
$(67,400) at July 23, 1999 and income for state and city tax purposes of
approximately $58,400 in 1998 and $90,500 in 1997. Provision for applicable
state and New York City income taxes consisted of $11,791 currently payable and
a provision of deferred taxes of $79,000 in 1999, $25,468 currently payable and
a benefit of deferred taxes of ($128,000) in 1998 and currently payable taxes of
$20,242 and a benefit of $(45,000) for deferred taxes in 1997. Income taxes paid
in 1999, 1998 and 1997 were approximately $33,500, $25,000 and $14,000,
respectively.
F-50
<PAGE>
THE INTRAC GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--INCOME TAXES (CONTINUED)
The accompanying financial statements include the following components of
net deferred taxes:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts....................... $ -- $ 43,000
Media credits and other accruals...................... 562,000 339,000
-------- --------
562,000 382,000
Deferred tax liabilities:
Accounts receivable, inventory and other prepaid
expenses............................................ (95,000) (43,000)
-------- --------
Current Asset......................................... $467,000 $339,000
======== ========
</TABLE>
Deferred income taxes are recorded using currently inacted income tax rates
applicable to the period in which the deferred tax asset or liability is
expected to be realized or settled. As changes in tax laws are enacted, deferred
income taxes are adjusted through the provision for income taxes in the year of
change.
NOTE 3--OPERATING LEASES
The Company leases office space for approximately $9,400 per month under an
operating lease agreement. Effective January 1, 1999, future minimum rental
commitments are approximately $97,000 annually until current renovations to the
building are completed at which time annual rent will be approximately $111,000
through September 2002. In addition, the Company also leases office machinery
and three vehicles under operating leases. Future rental commitments under these
leases are approximately $32,300 in 1999, $25,400 in 2000, $23,600 in 2001,
$15,900 in 2002, and $1,300 in 2003. Total rental expenses on all leases,
approximated $83,000, $141,100 and $109,000 in 1999, 1998 and 1997,
respectively.
NOTE 4--LINE OF CREDIT
The Company has an available line of credit in the amount of $250,000 at 9%
interest. Outstanding borrowings on this line of credit were $174,000 at
July 23, 1999 and $0 at December 31, 1998 and 1997. Interest paid on the line of
credit for the period ended July 23, 1999, and for the years ended December 31,
1998 and 1997 was $10,709 and $0, respectively.
F-51
<PAGE>
(B) EXHIBITS
The following exhibits are being filed as a part of this Form 10
registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
* 3.1 Certificate of Incorporation, as amended.
* 3.2 Bylaws.
* 4.1 Specimen Common Stock Certificate.
* 4.2 Form of 6% Cumulative Convertible Debenture of WorldWide Web
NetworX Corporation.
* 4.3 Warrant to Purchase 100,000 shares of common stock of
WorldWide Web NetworX Corporation, dated April 2, 1999,
issued to Ralph H. Isham.
* 4.4 Warrant to Purchase 100,000 shares of common stock of
WorldWide Web NetworX Corporation, dated April 2, 1999,
issued to Arnold P. Kling.
* 4.5 Form of Warrant to Purchase Common Stock of WorldWide Web
NetworX Corporation issued to D.H. Blair Banking
Corporation.
* 4.6 Warrant to Purchase 500,000 shares of common stock of
WorldWide Web NetworX Corporation dated February 10, 2000,
issued to Elminor Portfolio Corp. B.V.I.
*10.1. Agreement and Plan of Reorganization, dated as of May 20,
1998, between Instra Corp., Keiretsu Corporation and the
stockholder of Keiretsu Corporation.
*10.2. Agency Agreement, dated November 24, 1998, between
Alexander, Wescott & Co., Inc. and WorldWide Web NetworX
Corporation.
*10.3. Stock Issuance Agreement, dated as of December 1, 1998,
between Warren Rothstein and WorldWide Web NetworX
Corporation.
*10.4. BarterOne Membership Interest Sale Agreement, dated as of
December 16, 1998, between Energy Trading Company and
WorldWide Web NetworX Corporation.
*10.5. Acquisition Agreement, dated as of January 29, 1999, between
Global Trade Group, Ltd., and WorldWide Web NetworX
Corporation.
*10.6. Acquisition Agreement, dated as of January 29, 1999, between
Positive Asset Remarketing, Inc., and WorldWide Web NetworX
Corporation.
*10.7. Agreement, dated as of February 16, 1999, among Energy
Trading Company, WorldWide Web NetworX Corporation, and NA
Acquisition Corp.
*10.8. Agreement and Plan of Merger, dated as of February 23, 1999,
among Artra Group Incorporated, WorldWide Web NetworX
Corporation, NA Acquisition Corp., and WWWX Merger
Subsidiary, Inc.
*10.9. Acquisition Agreement, dated as of February 24, 1999 between
Positive Asset Remarketing, Inc. and WorldWide Web NetworX
Corporation.
*10.10. Form of Subscription Agreement between WorldWide Web NetworX
Corporation and Subscribers of 6% Cumulative Convertible
Debenture of WorldWide Web NetworX Corporation.
*10.11. Acquisition Agreement, dated as of February 25, 1999,
between JenCom Digital Technologies, LLC and WorldWide Web
NetworX.
*10.12. Stock Purchase Agreement, dated March 4, 1999, between D.H.
Blair Investment Banking Corp. and WorldWide Web NetworX
Corporation.
*10.13. Consulting Agreement, dated as of April 2, 1999, between
Ralph H. Isham and WorldWide Web NetworX Corporation.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
*10.14. Consulting Agreement, dated as of April 2, 1999, between
Arnold P. Kling and WorldWide Web NetworX Corporation.
*10.15. Acquisition Agreement, dated as of April 7, 1999, between
Admiral Asset Group, Inc., and WorldWide Web NetworX
Corporation.
*10.16. Agreement, dated April 16, 1999, between Alexander, Wescott
& Co., Inc., and WorldWide Web NetworX Corporation.
*10.17. Amendment, dated as of April 28, 1999, to the Acquisition
Agreement between JenCom Digital Technologies, LLC, and
WorldWide Web NetworX Corporation.
*10.18. Amendment to Agreement and Plan of Merger, dated as of April
30, 1999, among Artra Group Incorporated, WorldWide Web
NetworX Corporation, NA Acquisition Corp., and WWWX Merger
Subsidiary, Inc.
*10.19. Agency Agreement, dated as of May 26, 1999, between D.H.
Blair Investment Banking Corp. and WorldWide Web NetworX
Corporation.
*10.20. Form of Subscription Agreement between WorldWide Web NetworX
Corporation and Subscribers of a private placement of WWWX
common stock.
*10.21. First Amendment to Stock Issuance Agreement, dated as of
July 9, 1999, between Warren Rothstein and WorldWide Web
NetworX Corporation.
*10.22. Agreement and Plan of Merger, dated as of July 9, 1999,
among WorldWide Web NetworX Corporation, Intrac Acquisition
Corporation, and The Intrac Group.
*10.23. Employment Agreement, dated July 23, 1999, between ATM
Service, Ltd. and Thomas Settineri.
*10.24. Employment Agreement, dated July 23, 1999, between Intrac
Acquisition Corporation and Thomas Settineri.
*10.25. Employment Agreement, dated July 23, 1999, between ATM
Service, Ltd. and Gary Levi.
*10.26. Employment Agreement, dated July 23, 1999, between Intrac
Acquisition Corporation and Gary Levi.
*10.27. Post-Closing Agreement, dated July 23, 1999, among WorldWide
Web NetworX Corporation, Intrac Acquisition Corporation, The
Intrac Group, Thomas Settineri, and Gary Levi.
*10.28. Merger and Acquisition Agreement letter, dated as of July
23, 1999, between WorldWide Web NetworX Corporation and D.H.
Blair Investment Banking Corp.
*10.29. 1999 Equity Compensation Plan.
*10.30. Software License Agreement between ATM Service, Ltd. and
entrade.com, Inc. dated September 1999.
*10.31. Share Exchange Agreement, dated as of September 23, 1999,
between New America Network, Inc. and WorldWide Web NetworX
Corporation.
*10.32. NAI Direct, Inc. Shareholders' Agreement, dated September
23, 1999, between Real Quest, Inc., Gerald C. Finn, Jeffrey
Finn and NAI Direct, Inc.
*10.33. Real Quest, Inc. Shareholders' Agreement, dated September
23, 1999, between WorldWide Web NetworX Corporation and New
America Network, Inc.
*10.34. Employment Agreement, dated September 23, 1999, between NAI
Direct, Inc. and Jeffrey Finn.
*10.35. Employment Agreement, dated September 23, 1999, between NAI
Direct, Inc. and Gerald C. Finn.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
*10.36. Escrow Agreement, dated September 23, 1999, between
WorldWide Web NetworX Corporation, New America Network, Inc.
and Weinstein, Goss, Schleifer, Eisenberg, Winkler,
Rothweiler & Ostroff.
*10.37. Agreement dated December 22, 1999, among WorldWide Web
NetworX Corporation, International Commerce Exchange
Systems, Inc., JenCom Digital Technologies, Ltd. and Henry
Kauftheil.
*10.38. Amended and Restated Operating Agreement of WWWX-JenCom,
LLC, dated as of January 7, 2000, between WorldWide Web
NetworX Corporation and JenCom Digital Technologies, LLC.
*10.39. Amended and Restated Operating Agreement of InterCommerce
China, LLC, dated as of January 7, 2000, among WorldWide Web
NetworX Corporation, International Commerce Exchange
Systems, Inc., Lester Wolff International Investment, Ltd.,
Henry Kauftheil, Peter Zhenxiang Lu, and Uncas Holdings
Limited Partnership.
*10.40. Distribution and Operating Agreement, dated as of January 7,
2000, between ATM Service, Ltd., and Intercommerce China,
LLC.
*10.41. Employment Agreement, dated as of January 14, 2000, between
WorldWide Web NetworX Corporation and John T. Banigan.
*10.42 Employment Agreement, dated as of February 14, 2000, between
WorldWide Web NetworX Corporation and Gerard T. Drumm.
*10.43 Employment Agreement, dated as of March 20, 2000, between
WorldWide Web NetworX Corporation and Allan M. Cohen.
*10.44 Agreement and Protocol dated as of April 22, 1999, among
Fundacion Primero Mexico, A.C., The Intrac Group, Ltd., ATM
Service, Ltd., and Fideicomiso De Bital.
*10.45 Letter of Agreement dated July 7, 1999, between Warren
Rothstein and WorldWide Web NetworX Corporation.
*10.46 Agreement dated September 30, 1999, between ATM Service,
Ltd., and Korean Ginseng Products Company, Ltd., as amended
October 8, 1999.
*10.48 Israel In-Country Representative Agreement dated March 2,
2000, between ATM Service, Ltd., and MG Capital, Ltd.
*10.49 ATM Contribution Agreement (Textron)
*16 Letter regarding change in certifying accountant from
Richard A. Eisner & Company LLP.
*21.1 Subsidiaries of the Registrant.
*27.1 Financial Data Schedule
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* Previously filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Act of 1934,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, there unto duly authorized on May 9, 2000
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<S> <C> <C>
WORLDWIDE WEB NETWORX CORPORATION
By: /s/ GERARD T. DRUMM
-----------------------------------------
Gerard T. Drumm
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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<PAGE>
EXHIBIT INDEX
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<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
* 3.1 Certificate of Incorporation, as amended.
* 3.2 Bylaws.
* 4.1 Specimen Common Stock Certificate.
* 4.2 Form of 6% Cumulative Convertible Debenture of WorldWide Web
NetworX Corporation.
* 4.3 Warrant to Purchase 100,000 shares of common stock of
WorldWide Web NetworX Corporation, dated April 2, 1999,
issued to Ralph H. Isham.
* 4.4 Warrant to Purchase 100,000 shares of common stock of
WorldWide Web NetworX Corporation, dated April 2, 1999,
issued to Arnold P. Kling.
* 4.5 Form of Warrant to Purchase Common Stock of WorldWide Web
NetworX Corporation issued to D.H. Blair Banking
Corporation.
* 4.6 Warrant to Purchase 500,000 shares of common stock of
WorldWide Web NetworX Corporation dated February 10, 2000,
issued to Elminor Portfolio Corp. B.V.I.
*10.1. Agreement and Plan of Reorganization, dated as of May 20,
1998, between Instra Corp., Keiretsu Corporation and the
stockholder of Keiretsu Corporation.
*10.2. Agency Agreement, dated November 24, 1998, between
Alexander, Wescott & Co., Inc. and WorldWide Web NetworX
Corporation.
*10.3. Stock Issuance Agreement, dated as of December 1, 1998,
between Warren Rothstein and WorldWide Web NetworX
Corporation.
*10.4. BarterOne Membership Interest Sale Agreement, dated as of
December 16, 1998, between Energy Trading Company and
WorldWide Web NetworX Corporation.
*10.5. Acquisition Agreement, dated as of January 29, 1999, between
Global Trade Group, Ltd., and WorldWide Web NetworX
Corporation.
*10.6. Acquisition Agreement, dated as of January 29, 1999, between
Positive Asset Remarketing, Inc., and WorldWide Web NetworX
Corporation.
*10.7. Agreement, dated as of February 16, 1999, among Energy
Trading Company, WorldWide Web NetworX Corporation, and NA
Acquisition Corp.
*10.8. Agreement and Plan of Merger, dated as of February 23, 1999,
among Artra Group Incorporated, WorldWide Web NetworX
Corporation, NA Acquisition Corp., and WWWX Merger
Subsidiary, Inc.
*10.9. Acquisition Agreement, dated as of February 24, 1999 between
Positive Asset Remarketing, Inc. and WorldWide Web NetworX
Corporation.
*10.10. Form of Subscription Agreement between WorldWide Web NetworX
Corporation and Subscribers of 6% Cumulative Convertible
Debenture of WorldWide Web NetworX Corporation.
*10.11. Acquisition Agreement, dated as of February 25, 1999,
between JenCom Digital Technologies, LLC and WorldWide Web
NetworX.
*10.12. Stock Purchase Agreement, dated March 4, 1999, between D.H.
Blair Investment Banking Corp. and WorldWide Web NetworX
Corporation.
*10.13. Consulting Agreement, dated as of April 2, 1999, between
Ralph H. Isham and WorldWide Web NetworX Corporation.
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<PAGE>
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EXHIBIT
NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
*10.14. Consulting Agreement, dated as of April 2, 1999, between
Arnold P. Kling and WorldWide Web NetworX Corporation.
*10.15. Acquisition Agreement, dated as of April 7, 1999, between
Admiral Asset Group, Inc., and WorldWide Web NetworX
Corporation.
*10.16. Agreement, dated April 16, 1999, between Alexander, Wescott
& Co., Inc., and WorldWide Web NetworX Corporation.
*10.17. Amendment, dated as of April 28, 1999, to the Acquisition
Agreement between JenCom Digital Technologies, LLC, and
WorldWide Web NetworX Corporation.
*10.18. Amendment to Agreement and Plan of Merger, dated as of April
30, 1999, among Artra Group Incorporated, WorldWide Web
NetworX Corporation, NA Acquisition Corp., and WWWX Merger
Subsidiary, Inc.
*10.19. Agency Agreement, dated as of May 26, 1999, between D.H.
Blair Investment Banking Corp. and WorldWide Web NetworX
Corporation.
*10.20. Form of Subscription Agreement between WorldWide Web NetworX
Corporation and Subscribers of a private placement of WWWX
common stock.
*10.21. First Amendment to Stock Issuance Agreement, dated as of
July 9, 1999, between Warren Rothstein and WorldWide Web
NetworX Corporation.
*10.22. Agreement and Plan of Merger, dated as of July 9, 1999,
among WorldWide Web NetworX Corporation, Intrac Acquisition
Corporation, and The Intrac Group.
*10.23. Employment Agreement, dated July 23, 1999, between ATM
Service, Ltd. and Thomas Settineri.
*10.24. Employment Agreement, dated July 23, 1999, between Intrac
Acquisition Corporation and Thomas Settineri.
*10.25. Employment Agreement, dated July 23, 1999, between ATM
Service, Ltd. and Gary Levi.
*10.26. Employment Agreement, dated July 23, 1999, between Intrac
Acquisition Corporation and Gary Levi.
*10.27. Post-Closing Agreement, dated July 23, 1999, among WorldWide
Web NetworX Corporation, Intrac Acquisition Corporation, The
Intrac Group, Thomas Settineri, and Gary Levi.
*10.28. Merger and Acquisition Agreement letter, dated as of July
23, 1999, between WorldWide Web NetworX Corporation and D.H.
Blair Investment Banking Corp.
*10.29. 1999 Equity Compensation Plan.
*10.30. Software License Agreement between ATM Service, Ltd. and
entrade.com, Inc. dated September 1999.
*10.31. Share Exchange Agreement, dated as of September 23, 1999,
between New America Network, Inc. and WorldWide Web NetworX
Corporation.
*10.32. NAI Direct, Inc. Shareholders' Agreement, dated September
23, 1999, between Real Quest, Inc., Gerald C. Finn, Jeffrey
Finn and NAI Direct, Inc.
*10.33. Real Quest, Inc. Shareholders' Agreement, dated September
23, 1999, between WorldWide Web NetworX Corporation and New
America Network, Inc.
*10.34. Employment Agreement, dated September 23, 1999, between NAI
Direct, Inc. and Jeffrey Finn.
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<PAGE>
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<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
*10.35. Employment Agreement, dated September 23, 1999, between NAI
Direct, Inc. and Gerald C. Finn.
*10.36. Escrow Agreement, dated September 23, 1999, between
WorldWide Web NetworX Corporation, New America Network, Inc.
and Weinstein, Goss, Schleifer, Eisenberg, Winkler,
Rothweiler & Ostroff.
*10.37. Agreement dated December 22, 1999, among WorldWide Web
NetworX Corporation, International Commerce Exchange
Systems, Inc., JenCom Digital Technologies, Ltd. and Henry
Kauftheil.
*10.38. Amended and Restated Operating Agreement of WWWX-JenCom,
LLC, dated as of January 7, 2000, between WorldWide Web
NetworX Corporation and JenCom Digital Technologies, LLC.
*10.39. Amended and Restated Operating Agreement of InterCommerce
China, LLC, dated as of January 7, 2000, among WorldWide Web
NetworX Corporation, International Commerce Exchange
Systems, Inc., Lester Wolff International Investment, Ltd.,
Henry Kauftheil, Peter Zhenxiang Lu, and Uncas Holdings
Limited Partnership.
*10.40. Distribution and Operating Agreement, dated as of January 7,
2000, between ATM Service, Ltd., and Intercommerce China,
LLC.
*10.41. Employment Agreement, dated as of January 14, 2000, between
WorldWide Web NetworX Corporation and John T. Banigan.
*10.42 Employment Agreement, dated as of February 14, 2000, between
WorldWide Web NetworX Corporation and Gerard T. Drumm.
*10.43 Employment Agreement, dated as of March 20, 2000, between
WorldWide Web NetworX Corporation and Allan M. Cohen.
*10.44 Agreement and Protocol dated as of April 22, 1999, among
Fundacion Primero Mexico, A.C., The Intrac Group, Ltd., ATM
Service, Ltd., and Fideicomiso De Bital.
*10.45 Letter of Agreement dated July 7, 1999, between Warren
Rothstein and WorldWide Web NetworX Corporation.
*10.46 Agreement dated September 30, 1999, between ATM Service,
Ltd., and Korean Ginseng Products Company, Ltd., as amended
October 8, 1999.
*10.48 Israel In-Country Representative Agreement dated March 2,
2000, between ATM Service, Ltd., and MG Capital, Ltd.
*10.49 ATM Contribution Agreement (Textron)
*16 Letter regarding change in certifying accountant from
Richard A. Eisner & Company LLP.
*21.1 Subsidiaries of the Registrant.
*27.1 Financial Data Schedule
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** To be filed by amendment
* Previously filed
