<PAGE>
As filed with the Securities and Exchange Commission on May 14, 1999
Registration No. 333-72975
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FINANCIAL INTRANET, INC.
(Name of small business issuer in charter)
Nevada 7375 88-0357272
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) I.D. Number)
410 Saw Mill River Road
Ardsley NY 10502
(914) 693-5060
(Address and telephone number, of registrant's principal executive offices)
- --------------------------------------------------------------------------------
Michael Sheppard, President c/o
Financial Intranet, Inc.
410 Saw Mill River Road
Ardsley NY 10502
(914) 693-5060
(Address of principal place of business or intended principal place of business)
(Name, address and telephone number, of agent for service)
- --------------------------------------------------------------------------------
Please send a copy of all communications to:
Steven W. Schuster, Esq.
McLaughlin & Stern, LLP
260 Madison Avenue
New York, New York 10016
(212) 448-1100
Fax (212) 448-0066
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the registration statement becomes effective.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act, check
the following box /X/
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum
Title of Each Class of Security Amount Being Offering Price Per Aggregate Amount of
Being Registered Registered Unit/Share(1) Offering Price Registration Fee
------------------------------- ------------ ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Shares of common stock $.001 par value(2) ...... 4,444,444 $ 1.35 $6,000,000 $ 1,668.00
Shares of common stock underlying warrants(3)(4) 5,408,333 $ 1.35 $7,301,250 $ 2,028.13
Shares of common stock(4) ...................... 692,994 $ 1.35 $ 935,542 $ 259.87
Shares of common stock underlying convertible
promissory notes(3)(4) ..................... 6,075,000 $ 1.35 $8,201,250 $ 2,278.12
Total registration fee ......................... $ 6,234.12(5)
------------
$ 8,521.43
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee. (2)
Securities being registered for sale by Financial Intranet.
(3) Pursuant to Rule 416 there are also being registered such additional shares
as may be issued as a result of the anti-dilution provisions of the warrants
and the convertible promissory notes.
(4) Securities being registered for resale only.
(5) $8,521.43 previously paid as the registration fee.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
EXPLANATORY NOTE
This registration statement covers the primary offering of common stock by
Financial Intranet, Inc. and the offering of common stock by certain selling
securityholders. Financial Intranet is registering under the primary prospectus
4,444,444 shares of common stock for sale. The selling securityholders are
registering, under an alternate prospectus 5,408,333 shares of common stock
underlying certain warrants, 6,075,000 shares of common stock underlying certain
convertible promissory notes (including an additional 2,025,000 shares of common
stock being registered with respect to certain anti-dilution provisions of such
promissory notes), 655,000 shares of common stock previously issued and 37,994
shares of common stock which may be issued. The alternate prospectus pages,
which follow the primary prospectus, contain certain sections which are to be
combined with all of the sections contained in the primary prospectus, with the
exceptions of the front and back cover pages and the section entitled "The
Offering." Furthermore, all references contained in the alternate prospectus to
the "offering" shall refer to Financial Intranet's offering under the primary
prospectus.
ii
<PAGE>
FINANCIAL INTRANET INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Caption Location
<S> <C> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Page Prospectus..................................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Outside Pages of
Prospectus........................................................ Inside Front and Outside Back Cover
3. Summary Information and Risk Factors.............................. Prospectus Summary; Risk Factors
4. Use of Proceeds................................................... Use of Proceeds
5. Determination of Offering Price Factors........................... Plan of Distribution
6. Dilution.......................................................... Dilution
7. Selling securityholders........................................... Selling securityholders
8. Plan of Distribution.............................................. Plan of Distribution
9. Legal Proceedings................................................. Business
10. Directors, Executive Officers, Promoters and Control
Persons........................................................... Management
11. Security Ownership of Certain Beneficial Owners and
Management........................................................ Principal Stockholders
12. Description of Securities......................................... Description of Securities
13. Interest of Named Experts and Counsel............................. Legal Matters; Experts
14. Disclosure of Commission Position on Indemnification
for Securities Act................................................ Plan of Distribution--Indemnification
15. Organization Within Last Five Years............................... Business
16. Description of Business........................................... Business; Risk Factors; Financial Statements;
Selected Financial Data; Prospectus Summary; Use of
Proceeds
17. Management's Discussion and Analysis Discussion and or
Plan of Operation................................................. Management's Analysis of Financial Condition and
Results of Operation
18. Description of Property........................................... Business-Facilities
19. Certain Relationships and Related Transactions.................... Certain Transactions
20. Market for Common Equity and Related Matters...................... Market for Common Equity
21. Executive Compensation............................................ Management-Executive Compensation
22. Financial Statements.............................................. Financial Statements
23. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure............................... Not Applicable
</TABLE>
iii
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED May 14, 1999
PROSPECTUS
4,444,444 Shares of Common stock
Financial Intranet, Inc.
$1.35 per share
Financial Intranet, Inc. is directly offering 4,444,444 shares of
common stock. We are not required to sell any specific number or amount of
common stock. We will use our best efforts to sell the common stock offered
without discounts or selling commissions. We will receive a maximum of
$5,820,000 before expenses if we sell all 4,444,444 shares. Our common stock is
listed on the Nasdaq OTC Bulletin Board under the symbol "FNTN."
These are speculative securities and this investment involves a high
degree of risk. See "Risk Factors" beginning on page 6.
We will offer the common stock for a maximum of 6 months from the date
of this prospectus. The funds will not be placed in an escrow account. We will
keep the proceeds as shares of common stock are purchased.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy of the prospectus. Any representation to the contrary is a criminal
offense.
Selling securityholders are offering under an alternate prospectus
9,458,333 shares of common stock underlying warrants and convertible promissory
notes, 655,000 shares of common stock previously issued and 37,994 shares of
common stock which may be issued.
The Date of this Prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus summary ...............................................................2
Risk factors .....................................................................6
Use of proceeds .................................................................10
Capitalization ..................................................................11
Dilution ........................................................................12
Dividend policy .................................................................13
Management's discussion and analysis of
financial condition and results of
operations .....................................................................14
Business ........................................................................18
Management ......................................................................30
Certain transactions ............................................................35
Principal stockholders ..........................................................36
Selling securityholders .........................................................37
Description of securities .......................................................40
Shares eligible for future sale .................................................43
Plan of distribution ............................................................43
Legal matters ...................................................................44
Experts .........................................................................44
Financial statements ...........................................................F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
About Our Company
We are an emerging media and communications company providing
specialized services to the investment industry.
o We offer mutual funds and investment managers a private
intranet to distribute product information and training
materials to broker/dealers and financial advisors. The client
can transmit these materials through interactive video
teleconferences and the transmission of video-on-demand, text
and digitally stored documents.
o We provide broker/dealers and financial advisors with
communications services, including voice and data
transmission. We also provide value-added features, including:
o immediate access to information about mutual funds,
o video teleconferencing, and
o leads to potential customers who visit our web site.
o We maintain a web site at www.fntn.com for prospective
investors. The web site offers
o "chat rooms,"
o message boards,
o delayed quotes on securities prices,
o advanced charting of security performance,
o portfolio management tools,
o a searchable mutual fund data base, and
o a realtime searchable news database
We have a strategic relationship with Siemens Nixdorf
Informationssysteme Ges.m.b.H. Siemens has installed and manages our integrated
hardware and software system. We and Siemens have developed applications based
on Siemens' proprietary video-on-demand and data mining technology.
Our business strategy is to offer our services to the investment
industry throughout the United States.
Our principal executive office is located at 410 Saw Mill River Road,
Suite 2040, Ardsley, New York 10502. Our telephone number is (914) 973-5060.
3
<PAGE>
The Offering
<TABLE>
<S> <C>
Securities offered: 4,444,444 shares of common stock
Offering price: $1.35 per share of common stock.
The price is estimated at $1.35
for purposes of this preliminary
prospectus. The offering price
will equal the average of the
closing bid and asked prices per
share of common stock as listed
on the OTC Bulletin Board on the
trading date prior to the
commencement of the offering
under this prospectus.
Securities outstanding prior to the
offering: 22,724,282 shares
Securities outstanding after
offering: 36,665,053 shares. The number
assumes conversion of the
selling securityholders'
convertible promissory notes and
exercise of the selling
securityholders' warrants and
the issuance of certain
additional shares but assumes no
exercise of any other
outstanding options or warrants.
Risk factors: An investment in the common
stock is highly speculative and
involves substantial risks
including the risks of :
o limited operations
o projected losses
o limited number of products
o management's broad discretion
in the application of proceeds
o the possible need for additional financing
o competition.
Investors should carefully
consider the matters under the
caption "Risk Factors."
Use of proceeds: [6~Financial Intranet will receive
maximum net proceeds from its
sale of the common stock of
approximately $5,820,000. We
intend to use the net proceeds
approximately as follows:
o marketing and sales
o capital expenditures
o expansion of network architecture
o repayment of accounts payable
o research and development
o deposits with telecom carriers
o working capital.
OTC Bulletin Board symbol: FNTN
</TABLE>
4
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data as of December 31, 1997 and 1998 and for the fiscal
years ended December 31, 1997 and 1998 have been derived from our audited
consolidated financial statements, including the related notes, included
elsewhere in this prospectus. This financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
appearing elsewhere in this prospectus.
Year Ended December 31
<TABLE>
<CAPTION>
** 1 1997 1998
---- ----
<S> <C> <C>
Statement of Operations Data:
Total revenue............................................................................ $0 $ 89,169
Cost of revenue ......................................................................... 0 163,033
Operating expenses....................................................................... 817,280 2,065,976
Loss from operations..................................................................... (817,280) (2,139,840)
Other expense............................................................................ (150) (2,138)
Net loss................................................................................. (817,430) (2,141,978)
Net loss per common share................................................................ (0.07) (0.12)
Weighted average shares outstanding...................................................... 10,932,900 18,328,984
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
Balance Sheet Data:
Working capital (deficit).................................................................. $(667,438)
Total assets............................................................................. 1,413,148
Total long-term debt..................................................................... 500,000
Total stockholders' equity................................................................. 42,963
</TABLE>
5
<PAGE>
RISK FACTORS
Investors can have difficulty evaluating our prospects because we recently
commenced business.
We began building our infrastructure and our research and development
for our intranet in February 1997 and offer a limited relevant operating
history. You should consider our prospects in light of the risks, expenses and
difficulties frequently encountered by new businesses in connection with the
marketing and sale of new products and services.
Our projected losses raise substantial doubt about our ability to continue as a
going concern unless we obtain financing or generate adequate revenues.
Unless we generate sufficient revenues or obtain financing through this
offering or another means, our operations in the development stage raise
substantial doubt about our ability to continue as a going concern. We had net
losses of $817,430 for the year ended December 31, 1997 and $2,141,978 for the
year ended December 31, 1998. We have had limited revenues since inception. We
had no revenues from inception through December 31, 1997. We had revenues of
$89,169 in 1998. We expect to incur up-front operating costs to expand our
marketing efforts, which may result in further losses. We will not be profitable
until we establish a broader customer base for our services and derive
substantial revenues from our sale of communications and intranet services.
Our profitability depends on the success of a limited number of products.
Our business may be adversely affected if we receive lower than
anticipated revenues from either of our two principal sources:
o communications services with value added features for
broker/dealers and financial advisors, and
o marketing services for mutual funds and other financial
product companies.
Telecommunications companies and others with greater resources and name
recognition could make it very difficult to compete.
Telecommunications companies and other distributors of financial
information are our most significant competitors. Many competitors have greater
financial, technical, marketing, sales and customer support and other resources.
Many competitors have reputations for successfully developing, licensing and
selling their products and technologies. Competitors may be able to undertake
more extensive marketing campaigns and adopt more aggressive pricing policies
than we. They may be able to add value-added services, similar to ours. In that
case, we may face significant price competition and reduced profit margins. We
may not be able to compete successfully with larger companies.
Reduced barriers to entry may increase competition.
Technological changes have lowered the cost of operating communications
and computer systems and purchasing software. These changes reduce our cost of
providing services but also facilitate increased competition by reducing
competitors' costs in providing similar services. Such competition could
increase price competition and reduce anticipated profit margins.
Our lack of patent or copyright protection may increase the difficulty of
protecting our rights to our technology.
We regard the technology we use as proprietary, but have no existing or
pending patent or copyright protection. Our success depends in part on our
ability to protect our technology and other intellectual property
6
<PAGE>
by relying on one or more of the following:
o confidentiality agreements with employees and third parties
o license agreements with consultants, vendors and customers
o trade secret laws
o trademark laws
o common law copyright
We have signed agreements with third parties who have access to our technology.
Despite such protections, a third party could copy or otherwise obtain and use
our products or technology, or develop similar technology independently. We may
be forced to litigate to protect our interests. Litigation of this type is
frequently expensive. We may not have the financial resources to pursue such
litigation. We cannot be assured of success without patent and copyright
protection and we cannot be assured of success.
Others may claim that we breached their patents or copyrights and prevent us
from using our technology.
While we consider our technology unique, others utilize similar
technologies. These companies may claim that we have breached their copyrights,
patents or proprietary rights. We may be forced to litigate these disputes. This
litigation, too, would be expensive with no assurance of success.
Our success may depend on our ability to obtain additional financing following
this offering.
We anticipate that the net proceeds from the sale of all of the shares
and income from operations will satisfy our financial requirements for at least
24 months following the date of this prospectus. We base this expectation on our
current operating plan. The plan is subject to change because of events within
and outside of our control. In the event of a change, we may require additional
financing sooner than anticipated. Opportunities such as an acquisition may
arise which may require additional financing. We may not be able to obtain
funding on a timely basis, on favorable terms, or at all. One selling
securityholder is obligated to purchase convertible promissory notes and
warrants for an additional $1,100,000 during the 10 months after the date of
this prospectus. Except for that selling securityholder, we do not have a credit
facility or any committed source of financing. Our business, financial condition
and results of operations will suffer if we are unable to obtain the financing
we need or generate sufficient funds from operations. Although we anticipate
that we will continue to offer our existing services to additional customers, we
may curtail our planned expansion and may be unable to fund ongoing operations.
The ability of our officers and principal shareholders to control our business
may limit minority shareholders' ability to influence corporate affairs.
As of May 10, 1999, Michael Sheppard, President, Maura Marx, Executive
Vice President and Ben B. Stein, a consultant, own approximately 23% of the
outstanding shares of our common stock. They would own 37.7% of the outstanding
shares of common stock if they exercised all their options with an exercise
price of $.19 per share prior to completion of this offering. They would own
24.5% of the outstanding shares of common stock if they exercised all their
options and we sold all 4,444,444 shares in this offering and the selling
securityholders exercised all their warrants and converted all their promissory
notes. The exercise of such options by Messrs. Sheppard and Stein and Ms. Marx
may enable them to elect our directors and determine our policies.
We depend upon certain key employees to develop and market our services.
Financial Intranet's success is highly dependent upon key members of
senior management who designed the services and are responsible for marketing
them. The efforts of Mr. Sheppard, our President, and Ms. Marx, our Executive
Vice President are particularly essential to our operations and growth.
Financial Intranet has employment agreements with Mr. Sheppard and Ms. Marx but
no key-man life insurance on any employees. Our
7
<PAGE>
future operations will also depend in part upon our ability to retain current
employees and to attract and retain additional qualified personnel. We may not
be able to attract and retain such personnel or, if we are able to do so, on
favorable terms.
Because our operations are dependent on the continued operation of our computer
equipment, any disruption to our computer system could adversely affect our
business.
Substantially all of our communications hardware and certain of our
computer hardware operations are located at our offices in Ardsley, New York.
Our system is vulnerable to damage from:
o fire,
o flood,
o power loss,
o telecommunications failures, and
o break-ins and similar events.
We do not have any secondary systems, although we intend to establish
such a system with the proceeds of a maximum offering. We believe that a total
system failure would not result in interruption of our business for more than
two weeks. We have a disaster recovery plan and carry business interruption
insurance. However, any significant failure in our services could cause
significant harm to our customer relations.
We may be vulnerable to attempts by unauthorized computer users to penetrate our
network security.
Someone may be able to misappropriate proprietary information or cause
interruptions in our services. We may need to expend significant capital and
resources to protect against the threat of such security breaches or to
alleviate problems caused by such breaches. In addition to security breaches,
inadvertent transmission of computer viruses could expose us to risk of loss or
litigation and possible liability.
We may become liable if information disseminated by our website violates any law
or the rights of a third party.
Content from our Web site is distributed to others. We may be subjected
to claims of negligence, copyright, patent or trademark infringement,
defamation, indecency and other claims. Such claims have been brought, sometimes
successfully, against Internet content distributors. Our disclaimers regarding
content provided by others and indemnification from content providers may prove
inadequate. In addition, we could be subjected to claims based upon the content
that is accessible from our Web site through links to other Web sites. We
maintain general liability insurance of $2,000,000 and are applying for errors
and omission insurance. Our insurance may not cover potential claims of this
type or may not be adequate to indemnify us for all liability that may be
imposed. Any liability not covered by insurance or in excess of insurance
coverage could adversely effect us.
Our potential issuance of shares upon the exercise of certain options or
conversion of promissory notes at prices below the offering price could reduce
the market price of our stock.
The purchase of our stock by these investors or their potential of
purchases at below market price may reduce the market price of our stock. We
have issued stock options, warrants and convertible notes to persons who
invested in us or provided goods, services or credit. These people have the
right to purchase up to 15,938,622 shares at various prices below that offered
in this prospectus.
The sale of shares by selling security holders at the same time that we sell
shares could reduce the market price of our stock.
This prospectus is part of a larger registration statement. The
registration statement contains a second prospectus which allows a number of
investors to sell up to 10,151,327 shares of stock. The selling security
8
<PAGE>
holders' sale of their shares may reduce the market price of our stock. Some of
the shares can only be offered after the investors have exercised warrants, but
the exercise prices of the warrants are below the market price of our stock.
The price of our stock may decrease as a result of sales under Rule 144.
5,179,570 shares of common stock held by present shareholders have not
been registered under the Securities Act of 1933. The stock can be sold under
Rule 144. Sales of substantial amounts of stock under Rule 144 could adversely
affect the market price of the shares and make it more difficult for us to sell
our stock in the future. The failure of third party vendors to be year 2000
compliant could adversely affect us.
We work with a number of sophisticated companies in the
telecommunications industry, including Siemens, MCI/Worldcom and Frontier, who
have certified that they are year 2000 compliant. However, entities with which
we transact business, including customers and vendors may suffer from the year
2000 problem. We cannot be certain their products or systems are year 2000
compliant. We cannot predict the effects of the year 2000 problem on such
entities or on the economy in general, or the resulting effects on us. We may
suffer interruptions or additional expense or lose revenue to the extent
customers or vendors are not compliant.
9
<PAGE>
USE OF PROCEEDS
The net proceeds which Financial Intranet will receive from the sale of its of
common stock, after deducting offering expenses of approximately $180,000, will
be $5,820,000. Financial Intranet intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
Approximate
Application of Proceeds dollar amount Percentage
- ----------------------- ------------- ----------
<S> <C> <C>
Marketing and sales.......................................................................... $1,600,000 27.4%
Capital expenditures for equipment........................................................... 900,000 15.5%
Disaster recovery programs and expansion into other geographic markets....................... 750,000 12.9%
Expand network architecture for switching and
installation of cabling to customers..................................................... 700,000 12.0%
Payment of past due accounts payable....................................................... 670,000 11.5%
Research and development of additional product and
software development tools................................................................. 500,000 8.6%
Deposits with telecom carriers who provide communications
services that we resell ................................................................... 150,000 2.6%
Working capital, primarily general and administrative expenses............................... 550,000 9.5%
Total $5,820,000 100.0%
========== ======
</TABLE>
If gross proceeds from this offering are $1,000,000 or less, we will
spend approximately 90% of the proceeds on marketing and sales and approximately
10% on payment of past due accounts payable. We will spend approximately
$1,600,000 from the proceeds of a maximum offering on marketing and sales.
Expenditures for marketing and sales will include advertising, brand marketing,
trade shows, product catalogs, public relations and the hiring of additional
sales and marketing personnel. If we receive gross proceeds of more than
$1,000,000 but less than the maximum amount, we anticipate applying the proceeds
to all of the items except for construction of a second data center to
facilitate our expansion outside the United States or construction of a disaster
recovery system. We do not anticipate using any proceeds of this offering to
construct a second data center unless we receive the maximum proceeds.
Our allocation of net proceeds represents our best estimate based upon
present plans. Financial Intranet may reallocate some of the proceeds if our
plans change. We have broad discretion as to the application of a significant
portion of the net proceeds without having to seek the approval of the investors
in this offering. Future events may cause us to reallocate our resources,
including cash, for uses not presently contemplated by us.
Selling commissions of up to $600,000 and non-accountable expense
allowances of up to $180,000 may be deducted from the proceeds and a
reallocation would occur if any broker/dealers participate in the offering.
Financial Intranet believes that the net proceeds from its offering
and revenues generated by planned operations will satisfy our working capital
needs for the next 24 months. However, Financial Intranet may require additional
financing to expand its business. We will require additional financing for any
acquisitions and do not know the means or terms of financing any acquisition or
whether such financing would be available on acceptable terms. We have no
commitments or understandings for any acquisitions.
Financial Intranet expects to receive $1,100,000 over the next 10
months as agreed upon by the purchaser of convertible promissory notes and
warrants in February 1999. If we receive minimal proceeds from this offering, we
anticipate using $300,000 of such investment for marketing and sales and the
balance for working capital. Financial Intranet can't predict the amount or
potential source of other funds and has no current other commitments
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<PAGE>
to obtain such funds. We can't be assured of obtaining additional financing on
acceptable terms when needed.
CAPITALIZATION
The following table shows our capitalization as of December 31, 1998. The
information below should be read in conjunction with the other financial
information contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
Total short-term debt including current maturities of long-term debt....................... $ -0-
Total long-term debt, less current maturities.............................................. 500,000
Stockholders's equity:..................................................................... 42,963
-----------
Common stock, $.001 par value; 50,000,000 shares authorized; 20,561,048 shares
outstanding.......................................................................... 20,561
Paid in capital....................................................................... 4,079,186
Deferred compensation cost............................................................ (1,062,878)
Accumulated deficit during the development stage........................................ (2,993,906)
-----------
Total stockholder's equity................................................................. $42,963
-----------
</TABLE>
11
<PAGE>
DILUTION
Purchasers of the shares of Financial Intranet will experience an
immediate and substantial dilution in the net tangible book value per share of
their investment. As of December 31, 1998, Financial Intranet had an aggregate
of 20,561,048 shares of common stock outstanding and a net tangible book value
of $(206,243) or $(.01) per share of common stock. See the December 31, 1998
financial statements. "Net Tangible Book Value Per Share" represents the total
amount of Financial Intranet's tangible assets, less the total amount of its
liabilities, divided by the total number of shares of common stock outstanding.
Our proforma net tangible book value would be $.22 per share after
giving effect to our sale of 4,444,444 shares at the offering price of $1.35 per
share of common stock. This amount represents an immediate dilution of
approximately $1.13 per share of common stock to new investors. At the same
time, it represents an immediate increase of $.31 per share of common stock to
stockholders. Dilution is defined as the difference between the attributed price
per share of common stock to purchasers in Financial Intranet's offering and the
proforma net tangible book value per share of common stock as of December 31,
1998. The increase is defined as the difference between the proforma net
tangible book value per share of common stock as of December 31, 1998 and the
proforma net tangible book value per share of common stock as of December 31,
1998 after giving effect to the issuance of 10,151,327 shares of common stock.
Such increase to current stockholders is solely attributable to the cash price
paid by purchasers of the common stock offered for sale by Financial Intranet.
The following table illustrates the per share dilution as of December 31, 1998:
Public offering price per share $1.35
-----
Net proforma tangible book value per share before giving $(.01)
effect to Financial Intranet's offering
Increase per share attributable to the net proceeds of
the sale of 4,444,444 shares of common stock
offered by Financial Intranet $ .22
Proforma net tangible book value per share as of
December 31, 1998 reflecting Financial Intranet's offering $ .30
Dilution per share to purchasers in Financial Intranet's offering $1.05
In order to make these calculations, we included the following:
o 5,408,333 shares of common stock issuable upon exercise of
the warrants issued to selling securityholders;
o 4,050,000 shares of common stock issuable upon conversion of
the selling securityholders' convertible promissory notes;
o 655,000 shares of common stock issued to the selling
securityholders; and
o 37,994 shares of common stock which may be issued to the
selling securityholders.
We excluded the following:
o 858,442 shares of common stock issuable upon exercise of
outstanding stock options and warrants at exercise prices
from $.18 to $1.20 per share;
o 5,202,162 shares of common stock issuable upon exercise of
options at an exercise price of $.19 per share; or
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o shares that may be issuable pursuant to anti-dilution
provisions and market price protection provisions of certain
securities.
The following table sets forth, as of December 31, 1998, a comparison
of the number of shares of common stock acquired by current stockholders, the
total consideration paid for such shares of common stock and the average price
per share paid by current stockholders of common stock and to be paid by the
prospective purchasers of the shares of common stock offered for sale by
Financial Intranet. The calculations are based upon the anticipated public
offering price of $1.35 per share of common stock, before deducting estimated
offering expenses.
<TABLE>
<CAPTION>
Common stock Acquired Total Consideration
--------------------- -------------------
Number Percent Amount Percent Average Price Per Share
------ ------- ------ ------- -----------------------
<S> <C> <C> <C> <C> <C>
Current Stockholders: 20,561,048 82.2% $4,122,947 40.7% $ .201
New Investors: 4,444,444 17.8% 6,000,000 59.3% 1.35
Total: 25,005,492 100% $10,122,947 100% $ .405
</TABLE>
DIVIDEND POLICY
Financial Intranet has not paid and does not anticipate paying any dividends on
its common stock in the foreseeable future. Financial Intranet currently intends
to retain all working capital and earnings, if any, to finance its business
operations and expansion. The payment of any cash dividends will be at the
discretion of the board of directors and will be dependent upon Financial
Intranet's results of operations, financial condition, capital requirements,
contractual restrictions and other factors deemed relevant by the board of
directors.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes included elsewhere in this prospectus.
Results of Operations:
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Revenue
Our principal source of revenue was income from the resale of telephone and data
communication. Revenue for the year ended December 31, 1998 were $89,169 as
compared with no revenue in the prior year. Financial Intranet is a development
stage company and in 1997 had not commenced operations. We expect to derive
growth in revenues primarily through increased volume of communications usage
sold.
Cost of Revenue
Financial Intranet's cost of revenue consists primarily of telephone
communications lines and the internet access and hosting expenses required to
support and deliver Financial Intranet's communications services. Cost of
revenues for the year ended December 31, 1998 was $163,033 compared with no
costs in the prior year. We expect cost of revenues to increase in direct
relationship to the future revenues anticipated from increases in usage volume.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of commissions to our sales force
and promotional, advertising and public relations costs. Sales and marketing
expenses decreased 10% from $55,794 in 1997 to $50,246 in 1998. Lower
advertising and promotion costs were partially offset by commission expenses
paid to Financial Intranet's sales force which did not exist in 1997. We expect
sales and marketing expenses to increase due to the growth of the sales force as
well as the increased advertising and promotional activities.
General and Administrative Expenses
General and administrative expenses consist primarily of
o employee compensation and related expenses (including
payroll taxes and benefits) for executive, administrative
and operations personnel
o licensing, legal and other professional fees
o travel and entertainment o facility and office-related costs
such as rent insurance and telephone.
These costs increased 32% from $748,214 in 1997 to $988,509 in 1998 principally
due to increased payroll and office costs, as well as higher legal fees and a
$41,200 reserve for the potential uncollectibility of a long-term note
receivable. Included in these 1998 costs are $90,626 in non-cash issuance of
common stock to outside consultants in lieu of services performed. Management
expects general and administrative expenses to increase in future periods to
support the growth of the business.
Other Financing-related Expenses
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Other financing-related expenses charged to operations consists of certain
non-cash costs of the issuance of common stock, warrants and stock options.
These expenses increased from $13,272 in 1997 to $897,808 in 1998.
Depreciation and Amortization
Depreciation and amortization consists primarily of depreciation of computer
equipment and amortization of software development costs. These activities were
effectively placed in service in 1998. No depreciation and amortization costs
existed in 1997. The 1998 expenses were $129,413 which represents a half year of
depreciation and amortization.
Other Income and Expense
Other income consists principally of interest from loans and notes receivable
and dividends from short-term investments. Interest and other income increased
67% from $2,475 for the year ended December 31, 1997 to $4,140 for the year
ended December 31, 1998. Interest expense consists of interest accrued on loans
and notes payable to officers. Interest expense more than doubled from $2,675
for the year ended December 31, 1997 to $6,278 for the year ended December 31,
1998.
Income Taxes
No provision for federal and state income taxes has been recorded as Financial
Intranet incurred net operating losses in both 1997 and 1998. Financial Intranet
had approximately $634,000 of net operating loss carryforwards for federal
income tax purposes as of December 31, 1997. We have not determined the net
operating loss carryforward as of December 31, 1998 because we have not filed
our tax returns for such period. The net operating loss will be available to
offset future taxable income. Given Financial Intranet's limited operating
history, losses incurred to date and the difficulty in accurately forecasting
Financial Intranet's future results, management does not believe that the
realization of the potential future benefits of these carryforwards meets the
criteria for recognition of a deferred tax asset required by generally accepted
accounting principles and, accordingly, a full 100% valuation allowance has been
provided.
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
Financial Intranet began as a development stage company in December 1996. We had
expenses of only $9,760 in 1996, consisting entirely of consulting costs for
which stock was issued in lieu of payment. For the year ended December 31, 1997,
while still in a development stage, Financial Intranet had selling, general and
administrative costs of $817,280, which were discussed in the above analysis. In
addition, interest costs for the year ended December 31, 1997 were $2,625 and
none for the prior year.
Liquidity and Capital Resources
We had a balance of $149,225 in cash and cash equivalents at December 31, 1998.
Financial Intranet had negative working capital of $(667,438) at December 31,
1998. Net cash used in operating activities was $453,786 for the year ended
December 31, 1998. Cash used in operating activities was primarily attributable
to a net loss of $2,141,978 partially offset by non-cash items such as
depreciation and amortization of $129,413 stock compensation costs of $897,808
as well as positive changes in working capital. Net cash used in operating
activities for the year ended December 31, 1997 was $533,042 which was
principally due to the net loss of $817,430, partially offset by $159,290 in
consulting services paid by issuance of common stock and positive changes in
working capital.
Net cash used in investing activities of $859,343 for the year ended December
31, 1998 was primarily attributable to capital expenditures of $833,128 and
capitalized software development costs of $41,551, partially offset by a
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<PAGE>
$15,336 loan repayment from an officer. Net cash used in investing activities of
$365,597 for the year ended December 31, 1997 was due to $235,712 in capital
equipment acquired, $68,275 in software development costs, $20,410 in loans
advanced to an officer and notes receivable advances of $41,200.
Net cash provided by financing activities for the year ended December 31, 1998
was $1,460,425 and consisted of proceeds from the issuance of common stock and
convertible promissory notes, less related financing costs and a $47,250
repayment of a vendor loan. Net cash provided by financing activities for the
year ended December 31, 1997 was $900,466, and consisted of proceeds from the
issuance of common stock, less related financing fees, and proceeds from a
vendor loan, which was repaid during 1998.
We believe that the cash proceeds from the offering, together with existing
private placement arrangements, will be sufficient to meet anticipated cash
requirements because Financial Intranet does not expect to generate positive
cash flow from operations until the second quarter of the year 2000. However,
unless Financial Intranet generates significant revenue or obtains financing
through this offering or another means in the near future, Financial Intranet's
operations in the development stage raise substantial doubt about its ability to
continue as a going concern. We have the right to demand payment of $1,100,000
from the investor in a private placement during the 10 months from the date of
this prospectus. There can be no assurance that additional capital beyond the
amounts currently forecasted by Financial Intranet will not be required, nor
that any such required additional capital will be available on reasonable terms,
if at all, at such time as required by Financial Intranet.
We anticipate that we can continue to provide the services that we currently
offer to more customers without any proceeds from this offering. We believe that
revenues from operations and the $1,100,000 which the investor in a private
placement has agreed to provide us during the 10 months following the date of
this prospectus will enable us to conduct our business. The proceeds of this
offering will enable us to accelerate our intended expansion, although there can
be no assurance. In addition, without all of the proceeds of this offering or
financing from another source, we will not be able to implement the disaster
recovery program mentioned in our use of proceeds.
Financial Intranet has satisfied its cash requirements primarily through private
placements of common stock, warrants and debentures convertible into shares of
common stock, as well as the issuance of common stock in lieu of payment for
services. Also, officers have loaned Financial Intranet funds as needed to
provide working capital.
On May 20, 1998, Financial Intranet issued a 6% convertible debenture in the
principal amount of $500,000. The entire principal amount of the debenture and
all accrued interest was converted into an aggregate of 1,070,800 shares of
common stock.
On June 5, 1998, Financial Intranet issued a 12% convertible promissory note in
the principal amount of $500,000. The entire principal amount of this promissory
note and all accrued interest was converted into 1,237,666 shares of common
stock.
On December 31, 1998, Financial Intranet issued a 7% convertible promissory note
in the principal amount of $500,000 with a maturity date of December 31, 2001.
In conjunction with the issuance of the note, Financial Intranet issued warrants
to purchase 1,250,000 shares of common stock for $0.60 per share. The shares
issuable upon conversion of the promissory note and exercise of the warrant are
being registered pursuant the registration statement of which this prospectus is
a part.
There can be no assurance that the warrants will be exercised or the note
converted.
On February 8, 1999, Financial Intranet issued a 7% convertible promissory note
in the principal amount of $600,000. The principal amount of $240,000 was
converted to common stock on March 10, 1999 and the balance of $360,000 is
payable on demand commencing May 9, 1999. Financial Intranet also issued
warrants to purchase 1,500,000 shares of Common stock for $0.40 per share. We
have the right to demand that the investor purchase, for $1,100,000, additional
convertible promissory notes and warrants to purchase 1,833,333 shares of Common
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stock. We can demand this amount over 10 months from the date of this
prospectus. The promissory notes will bear interest at the rate of 7% per annum.
Financial Intranet anticipates using the proceeds of the additional promissory
notes for working capital. The shares issuable upon conversion of the promissory
note and exercise of the warrant are being registered pursuant the registration
statement of which this prospectus is a part. There can be no assurance that the
warrants will be exercised or the note converted.
From time to time, officers have loaned Financial Intranet funds as needed to
provide working capital. Financial Intranet issued three outstanding notes in
favor of Ben B. Stein, a principal shareholder, consultant and former officer
and director. The original principal amount of the notes was $60,889. Mr. Stein
agreed on March 3, 1999 to apply the outstanding principal amount of the notes
and all accrued interest to the exercise of options in lieu of a cash payment by
Financial Intranet. We have an outstanding note in favor of Michael Sheppard for
$36,115 due on demand. The promissory note bears interest at 8% per annum.
Year 2000 Compliance
The year 2000 problem is the result of a widespread programming technique that
causes computer systems to identify a date based on the last two numbers of a
year, with the assumption that the first two numbers of the year are "19." As a
result, the year 2000 would be stored as "00," causing computers to incorrectly
interpret the year as 1900. Left uncorrected, the year 2000 problem may cause
information technology systems (e.g. computer databases) and non-information
systems (e.g. elevators) to produce incorrect data or cease operating
completely.
We have received confirmation from Siemens, which installed and manages our
hardware and software systems, that they are year 2000 compliant. Financial
Intranet uses recent releases of software applications and operational programs
that are certified by the manufacturers to be year 2000 compliant. We have not
incurred material costs to become year 2000 compliant. Financial Intranet has
contingency plans to deal with unanticipated year 2000 problems including
backing up its data base and financial and accounting records.
Financial Intranet has been advised by its telecommunications providers and
providers of information services on its Website and other significant vendors
that they are year 2000 compliant and that they have contingency plans in place.
At this time, Financial Intranet fully expects to be year 2000 compliant and
believes that its providers and its significant vendors have taken, or are
taking, the steps necessary to be in compliance by the year 2000. We believe we
can quickly switch to other vendors from any who are not year 2000 compliant and
that we will not incur prolonged disruption to our business. Nevertheless,
uncertainties remain about the affect on Financial Intranet of third parties who
are not year 2000 compliant. The business of Financial Intranet could be
adversely affected should Financial Intranet or other entities with whom
Financial Intranet does business be unsuccessful in completing critical
modifications in a timely manner.
Forward-looking statements in this prospectus may prove to be materially
inaccurate.
In addition to historical information, this prospectus contains
forward-looking information that involves risks and uncertainties. The words
"may," "will," "expect," "anticipate," "continue," "estimate," "project,"
"intend" and similar expressions are intended to identify forward-looking
statements. Actual results may differ materially from those included within the
forward-looking statements as a result of certain factors, including the risks
described above and elsewhere in this prospectus.
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BUSINESS
Introduction
Financial Intranet, Inc. is an emerging New York based media and communications
company which delivers services to the investment community. Financial
Intranet's initial objectives are to obtain a share of the telephony resale
market by offering value-added services to broker/dealers and financial advisors
and providing mutual funds and other investment managers with a cost-efficient
method for distributing information about their products.
To accomplish these goals, Financial Intranet and its technology partners have
developed a secure intranet capable of delivering high quality narrow-band
video-on-demand. We currently resell telecommunications services to
broker/dealers. Broker/dealers and financial advisors who are subscribers of
Financial Intranet can now use the same communications lines for the
transmission of voice, video and text data. Mutual funds and futures traders
have begun using our intranet to provide product information to broker/dealers
using video, text and graphics and to distribute their documentation. We believe
that the mutual funds and futures dealers can distribute their documentation via
our intranet at lower cost than printing and physically distributing the same
materials. Financial Intranet intends to offer its network to deliver continuing
education courses on series and ethics material to broker/dealers on an ongoing
basis.
Our web site also offers financial information to individuals .These individuals
provide historical information about their investment practices which we collect
and analyze. If the individuals consent, we provide this information to
broker/dealers who specialize in the sectors in which the individual expressed
an interest. These broker/dealers are subscribers to our communications
services. We will use the generation of leads as a marketing tool to sell
communication services to broker/dealers. Revenues will be generated both by the
resale of telecommunications services bundled with value-added services to
subscribing broker/dealers and from fees from mutual funds for the use of
Financial Intranet's network and access to its subscribers.
The technology underlying Financial Intranet's high-speed intranet,
video-on-demand service and data mining capability was developed by Financial
Intranet in association with Siemens. Financial Intranet has signed agreements
creating a strategic alliance with a number of Siemens companies.
History of Financial Intranet
Financial Intranet was incorporated in 1993 as Alexis and Co. in the State of
Nevada. We changed our name to Wee Wees Inc. and thereafter, on December 17,
1996 to Financial Intranet, Inc. upon the purchase of a controlling interest by
Ben B. Stein. Prior to that date, Financial Intranet had not conducted any
business.
We received our reseller certificate from the Federal Communication Commission
in 1997 to provide international telecommunications services originating in the
United States. Upon the effective date of a tariff in 1997, Financial Intranet
also became authorized to provide domestic interstate telecommunications
services in accordance with its tariffs. Financial Intranet is also authorized
to offer intrastate telephone services in New York, Texas, California, Florida,
New Jersey, Connecticut and Colorado. We offer interstate and intrastate long
distance service at this time. In June 1997, Financial Intranet entered into an
agreement with MCI/WorldCom to resell communications services to end users.
Financial Intranet entered into our first contracts with Siemens in July 1997 to
provide hardware and assist in developing technology for its intranet. In
October 1997, Financial Intranet began providing communications services to
broker/dealers. In April 1999, we signed an agreement with Frontier
Communications to resell communication services to end users. Financial Intranet
derived its 1998 revenues from the resale of communications services to
approximately 20 broker/dealers.
We launched our web site in July 1998. Financial Intranet began delivering
video-on-demand on our web site in 1998. We began using data mining software to
take the information gathered on the website and
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<PAGE>
generate live customer leads for broker/dealers in 1998. We added chat rooms and
message boards in January 1999.
An investor has agreed to invest $1,100,000 over the next 10 months under the
terms of a private placement in February 1999. We will use the proceeds from
such investor to expand our operations . The proceeds of this offering will be
used to accelerate the expansion of services that we currently offer.
Markets
Financial Intranet targets three groups in the investment industry :
Mutual funds and other providers of investment products
Mutual funds need to deliver product information and increase their exposure to
potential investors. Approximately 7,000 mutual funds were being offered to
investors according to a Reuters article entitled "More Mutual Funds Turning to
Outside Management" dated April 23, 1999. If a broker/dealer is to market a
fund's products, that fund must provide it with sales information, including a
current prospectus. The broker/dealer and its registered representatives must
review the prospectus and the fund's rate of return history and sign a selling
agreement with the fund before they can solicit or offer the product to the
public. Moreover, funds may desire to provide this information in a compelling
manner to attract the interest of broker/dealers and their registered
representatives and distinguish the fund from its competitors.
Historically, mutual funds provide information to broker/dealers and their
registered representatives by mass mailings of printed material, such as
prospectuses, sales aids and charts. Funds also utilize wholesalers to introduce
the mutual funds to broker/dealers. According to the July 1996 issue of Research
Magazine Online, approximately 5,000 wholesalers sold mutual funds in 1996. Fund
managers have advised us in interviews that reaching a large group of
broker/dealers and their registered representatives and distributing
documentation is expensive and can be a particular burden for smaller funds
without large marketing budgets. Fund managers said they needed a more effective
and economic way to inform a wider range of broker/dealers to increase the
percentage of closed sales to prospective investors.
We offer an alternative to using mailings and wholesalers. Using our high speed
secure intranet, a fund can distribute to our subscribers
o plain text,
o graphics,
o digitally stored documents such as prospectuses, and
o video content.
Financial Intranet believes this method of distribution will appeal to
broker/dealers and their registered representatives who will have immediate
access to fund information without having to leave their trading screen. A
broker can listen to audio or view a video or digitally stored document in a
window while still following real-time trading information. The advantage to the
broker is more information available at his convenience in his office and more
product to sell in a user-friendly format.
We target various providers of investment products. Financial Intranet offers
services to
o mutual funds,
o insurance companies,
o commodity trading advisors,
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o commodity pool operators,
o banks, and
o other investment product creators.
Mutual funds can use a variety of our services.
The network allows mutual funds to
o deliver pre-recorded information on their products and
educational video content. We deliver the service using our
point to point video-on-demand capability . We are producing
content. Funds from this offering will enable us to broaden
this service by allowing us to develop more content.
o deliver interactive training and support. We deliver the
service through point to multi-point live video
teleconferencing. Mutual funds can answer questions about
the features of their products. We offer this feature on a
trial basis. The rate at which we increase its availability
depends on the availability of funds.
o distribute sales material. Simple text, graphics or
digitally stored documents can be viewed on screen or
printed by the recipient. Financial Intranet is currently
digitalizing documents, provided by our customers for
transmission over the network. The proceeds of this offering
will enable us to more rapidly expand our ability to
digitalize documents for distribution.
Three mutual funds use our network to advertise their products.
Financial Intranet is working with these funds to develop the materials which
can be disseminated. Financial Intranet expects that as more broker/dealers
purchase its communication services and participate on its intranet, mutual
funds and other investment managers will pay Financial Intranet to distribute
information about their products.
Broker/dealers and financial advisors
Selling communications services to broker/dealers will be a
significant portion of our business. Telecommunications represent one of the
largest recurring expenses to broker/dealers and financial advisors. There were
5,553 NASD member firms and 309 New York Stock Exchange member firms doing a
public business in 1996 according to the Nasdaq stock market company directory,
1997 edition. The NYSE member firms spent approximately $3,100,000,000 on
communications in 1996, a 50% increase from 1985.
Financial Intranet provides discount, long-distance telephony to
subscribers. We plan to enter the local resale market. Financial Intranet's
reseller agreements with MCI WorldCom Inc. and Frontier Corp. allow it to
utilize those companies' communication infrastructures while incurring little
up-front installation and maintenance costs. We believe that one appeal of our
service is its ability to utilize any channel in our network for the
transmission of voice, video, text and digitally stored documents as and when
needed.
Value-added services at no additional cost are intended to make our
communications services more attractive. Financial Intranet provides
broker/dealers and financial advisors value-added services in addition to the
technical enhancements to basic communication services. We generate live
consumer leads. Financial Intranet developed a web site accessible to
individuals. Individuals may "register" by completing a questionnaire and
consenting to specified limited use of the information. In exchange for
registration, the individual may receive a reward and access to the other
features on our web site. We currently provide a 20 minute pre-paid phone card
as a reward. Financial Intranet keeps track of the products in which each
visitor to its web site shows an interest. The information gathered from each
investor is analyzed using our data mining technology, and the name and profile
of a consenting individual is given to one broker/dealer or financial advisor
operating in that person's geographical area or area of interest. The
broker/dealer or financial advisor benefits from the possible sale of products
and the opportunity to develop a relationship with the individual.
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We reviewed the first 500 questionnaires completed at our web site. Of
the individuals responding:
o 95% claim to do a substantial amount of research regarding
investment opportunities;
o 92% have a brokerage account;
o approximately half execute trades through their broker;
o 87% trade at least once a month, the majority trading either
weekly or monthly;
o 67% earn over $50,000 per year; 20% earn over $100,000 per
year;
o 90% reside in the United States; 8% reside in Europe; 2%
reside elsewhere.
Financial Intranet believes that many of these individuals are potential
customers for our subscribing broker/dealers and financial advisors based on the
response to the questionnaires. Financial Intranet can also assist
broker/dealers by using the network to provide the various sales application
forms on-line to the registered representatives.
Broker/dealers and financial advisors are currently offered two levels of
access, informational access and interactive access. Interactive access allows
broker/dealers and financial advisors to schedule video conferences. Information
access provides video-on-demand and news. Delayed quotes on securities prices
are available for no additional charge on our web site. We recognize that
broker\dealers require real time quotes. Real time quotes and financial data are
available through Financial Intranet's co-marketing agreement with S&P Comstock
for an additional charge. We could provide real time quotes directly if we
construct a second data center with the proceeds of a maximum offering. The
second data center will afford us sufficient redundancy in our hardware to
improve our reliability if our primary data center sustains a disruption.
Financial Intranet also offers links to broker/dealer web sites.
We have begun to offer broker/dealers and financial advisors training on mutual
funds and other investment products using video-on-demand, plain text and
digitally-stored documents which can be viewed or read at the recipient's
location. The information can be updated as needed by the provider of the
product. Financial Intranet's network now has the capability to offer
video-on-demand but its growth is limited by a lack of content. We are
developing content for the video on demand. The development of content can be
accelerated with the receipt of additional funding from this offering. Training
will also be available through point to multi-point (e.g. mutual fund to
broker/dealers) through live interactive video teleconferencing. This live
interchange allows broker/dealers to ask questions about the fund or other
product.
Financial Intranet expects that brokerage firms will utilize its network to help
them fulfill their continuing education requirement for the NASD. Financial
Intranet intends to offer broker/dealers the ability to obtain education and
training materials for examinations administered by the NASD through the
presentation of courses via video-on-demand at the broker/dealer's trading
terminal or personal computer. We do not expect to offer this service unless we
complete the maximum offering or obtain financing from another source.
Individual investors
Individual investors have access to Financial Intranet's web site. The web site
offers
o delayed quotes on securities prices,
o advanced, customizable charting,
o portfolio management ,
o video-on-demand library,
o a searchable mutual fund database,
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o "chat rooms,"
o message boards, and
o a real time searchable news data base .
The number of "hits" per day on Financial Intranet's web site increased from
approximately 13,000 to 85,000 since we began the chat rooms in January 1999.
We make the names of certain registrants available to broker/dealers. During
registration, we ask each individual for permission to forward his/her name to a
broker/dealer or financial advisor. The registrant is also asked to acknowledge
that the material presented at the web site is derived from outside sources and
Financial Intranet is not responsible for its content.
We do not expect the web site to be a direct source of substantial income.
Individual investors do not pay to access or register at Financial Intranet's
web site. Financial Intranet is offering some fee based services and products
such as books and investment newsletters on stocks and investors and mutual
funds which may become an ancillary source of revenue.
Marketing and sales
We believe that increasing our marketing will best facilitate our growth because
we currently offer most of the services described in this prospectus. We employ
2 full time salespeople and 2 consultants to assist our President and Executive
Vice President in marketing our products. We also advertise our products and
services on the internet and attend trade shows. If we receive no proceeds from
this offering, we will add salespeople and expand our advertising. We will use
90% of the proceeds of this offering for marketing if gross proceeds from this
offering are $1,000,000 or less. We will spend approximately $1,600,000 from the
proceeds of a maximum offering on marketing and sales. If we raise only minimal
proceeds from this offering, we will use approximately $300,000 from the
$1,100,000 which an investor is obligated to provide us over the next 10 months.
Products and services
Resale of long distance and local communication services
Resellers are among the fastest growing segment of the telecommunications
industry. Resellers grew at an annual rate of 16% between 1994 and 1996 while
the total long distance market is growing at approximately 6% per year according
to the Telecommunications Resellers Association, a trade association. Resellers
represented approximately 19% (or $13,000,000,000) of the $68,000,000,000 total
retail long distance market in 1996. The trade association stated on its web
site in January 1999 that 800 telecommunications resellers operate in the United
States. The trade association reported that while resellers have historically
engaged only in the resale of long distance communications, they are now adding
other services such as local resale, pagers, travel cards and PCS
phones/cellular phones. Financial Intranet believes that its value-added
services provide an advantage over other resellers.
A key element of Financial Intranet's services to the investment community is
the resale of discount, long distance telephony and other communication services
to broker/dealers and financial advisors. Voice, video-on-demand services, text,
and digitally-stored documents share the same network connection to each
customer's office. Financial Intranet has reseller agreements with MCI WorldCom
Inc. and Frontier Corp. The agreement with MCI/WorldCom expires in March 2001
and may be extended on a month-to-month basis thereafter. Our agreement with
Frontier expires in April 2001. Financial Intranet can also enter into such
agreements with other carriers who may be more competitive in specific
geographical areas or with respect to specific services. Resale of communication
services has been the principal source of revenue to date and is expected to be
one of our major revenue producing products during the initial years of
operation.
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Financial Intranet is permitted to provide interstate and international long
distance service. Financial Intranet tariffed in New York, Florida, Connecticut,
Texas and California to provide intrastate toll telecommunications services and
in anticipation of entering the local resale business. We are registered in New
Jersey and Colorado where no tariffs are required. We have tariffs pending in
Georgia, Illinois, Massachusetts, Pennsylvania and Maryland. We are permitted to
offer intrastate toll telecommunications services in four other states without
filing a tariff by either filing a registration or commencing operations. None
of these authorizations include the authority to provide Financial Intranet's
telecommunications services on a local exchange, non-toll basis for which
separate applications and/or tariff filings are required.
We intend to engage in development of a voice-over internet protocol. This
feature will enable us to facilitate the transmission of voice and other
communications over the Internet. We do not anticipate devoting significant
proceeds from this offering to development as this technology is available
through Siemens.
Video-on-demand training and marketing
Financial Intranet now offers video conferencing and video-on-demand services to
provide flexible distance learning opportunities. These services permit
customers to conduct live training or informational sessions via
teleconferencing and to access pre-recorded materials through video-on-demand.
We can provide video-on-demand training and marketing applications. These
applications use stored video content, and are available on demand to Financial
Intranet's customers via its private intranet and to individual investors at its
web site. For broker/dealers, this content will include materials regarding
various investment products. Financial Intranet and mutual funds are jointly
developing materials related to their products. We are also developing our own
content. The content can range from videotapes of teleconferencing sessions to
customized materials with data, video and text.
Content is delivered at different speeds depending on its destination.
Broker/dealers receive video and detailed sales fulfillment material at high
speed and have direct contact with mutual funds. Financial Intranet's video
image occupies one quarter of the screen of the desktop computer and does not
interfere with access to real time financial data. Individuals have access to
more general information and can access stored video and certain
digitally-stored documents such as prospectuses. The digitally-stored documents
are delivered at the transmission speed available to them.
Video conferencing
Financial Intranet has begun testing point to point and point to multi-point
video conferencing to facilitate both marketing and training. A client, such as
a mutual fund, can now schedule a point to multi-point live video conference.
Scheduling information is accessible to the client on Financial Intranet's
private intranet. Financial Intranet's intranet can transmit full screen
downstream video (originator to viewer) at 30 frames per second. The upstream
video (viewers to originator) is delivered at 5 frames per second, a sufficient
quality for the originator to be able to identify who is asking a question.
We provide video conferencing hardware to clients. We currently lease or
purchase the required equipment. Our ability to expand this service is
constrained by our lack of equipment. We lease or purchase additional equipment
on an as needed basis as we secure additional demand for our service. We believe
that purchasing equipment with the proceeds of this offering will enable us to
have an inventory of equipment and obtain equipment on better terms than
continuing to purchase equipment on an as needed basis. We intend to use a
portion of the proceeds of this offering to purchase additional equipment, if we
receive proceeds of $1,000,000 or more.
Financial Intranet intends to use a portion of the proceeds of this offering to
develop a system for delivering
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continuing education training to broker/dealers to meet NASD requirements. This
system will track the progress of a broker/dealer's registered representatives
and provide courses appropriate to their requirements and skill levels. We do
not anticipate developing this system unless we complete a maximum offering or
obtain financing from another source.
Individual investor web site
Financial Intranet recruits prospective investors as leads for the
broker/dealers, financial advisors and mutual funds, who subscribe to our
communications services. The web site is a mechanism to deliver multimedia
information and education to individual investors while capturing information
about those investors. A continuous background feature is the provision of
o 20 minute-delayed stock quotes,
o exchange information,
o newsletters,
o chat rooms,
o market news,
o information about mutual funds and other markets, and o
message boards.
Data mining technology
We track the activities of our broker/dealer subscribers and the visitors to our
web site. We obtain information provided by investors who register. We maintain
information about specific materials downloaded by broker/dealers and registered
investors and subsequent actions relating to the information received.
Financial Intranet uses this data to provide customer leads, surveys and reports
based on criteria provided by its broker/dealer and financial advisor customers
through the use of its proprietary data mining system. Financial Intranet
believes its ability to convert the data it gathers into practical knowledge
gives Financial Intranet an advantage over its competitors in the communication
service resale industry. Financial Intranet does not, however, attempt to
determine the suitability of investors for particular investments.. That
qualification remains the responsibility of the broker/dealer.
Expansion
We have concentrated on the investment industry. Financial Intranet believes
this industry will benefit most from our information and communications services
and that the investment industry presents the most immediate opportunity for
revenue. Financial Intranet hopes that as it becomes established as a provider
of financial services information, we will capture a larger portion of the long
distance resale business.
We plan to expand our intranet services to other industries and associations. We
are examining expansion into pharmaceutical and health products, real estate,
insurance and entertainment industries. We believe these industries can benefit
from our telecommunications products and from participating in an
industry-centered intranet. We intend to focus on industries which rely on
distributors of their products and services or need to train geographically
dispersed sales people.
Financial Intranet intends to expand from the eastern United States throughout
the United States and possibly Europe and the Pacific Rim. Overseas expansion
may entail adding data centers or implement collocation agreements to service
those markets and provide Financial Intranet with a redundant data source. We
will not be able to add additional data centers unless we complete a maximum
offering or obtain financing from another source. We are unlikely to attempt to
expand to reach customers based overseas within the next 12 months unless we
complete a maximum offering.
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We may also expand through the acquisition of companies that provide
complementary services. We are considering an acquisition of a company that
sells communications services. Discussions regarding the potential acquisition
are in the preliminary stage and no terms have been agreed upon. The
contemplated acquisition is not probable at this time. Any acquisition that
requires payment of a cash purchase price will likely require financing in
addition to the proceeds of this offering. Other issues to be resolved in an
acquisition include the assimilation of the operations, management and products
of the acquired companies. We can't be sure that we will complete any
acquisitions.
Technology and Business Partners
Financial Intranet's overall delivery system has three parts:
o The data center in Ardsley, NY, houses Financial Intranet's
video library and video processing software and its data
warehouse and data mining capability.
o The link between Financial Intranet and its customers. This
includes private lines from UUNet, an MCI WorldCom company,
and the "last miles" on either end connecting the leased
lines to Financial Intranet and each of its customers. This
link creates a virtual private network.
o The services gateway which resides at each customer's
office.
We have a strategic alliance with Siemens Nixdorf Informationssysteme Ges.m.b.H.
and several of its subsidiaries, most significantly Siemens Information and
Communication Products LLC and Siemens Telecom Network. Steven Weller, a member
of the Board of directors of Financial Intranet, is the Vice President of Sales
for the Computer Systems division of Siemens Information and Communication
Products LLC.
The Siemens companies installed a fully integrated system including hardware and
software in Financial Intranet's data center. They provided full documentation
and trained our internal technical team. Siemens will provide full time remote
management of Financial Intranet's system for a twelve month period beginning
February 1, 1999 under a management agreement. Out cost is $105,000 for the
year. Financial Intranet anticipates renewing the management agreement after one
year. Financial Intranet believes at least three full-time employees would be
required to perform these services in-house without the management agreement.
Siemens also licensed its proprietary data mining technology to Financial
Intranet for a one-time single site fee.
Competition
Financial Intranet does not believe any other company offers the same array of
services as us although a number of companies compete with Financial Intranet in
specific areas.
Telecommunications carriers and resellers
Financial Intranet's communications resale services compete with:
o other resellers,
o local exchange carriers,
o local phone carriers,
o regional Bell operating companies, and
o long distance carriers.
Some competitors offer a wider range of communications services than Financial
Intranet. Some have
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significantly greater assets. Financial Intranet believes it has an advantage
over other resellers because of our value-added-services.
Mutual fund information services for financial sales professionals
Financial Intranet believes it has no direct competition providing mutual fund
information to financial services professionals such as broker/dealers and
financial planners. The large brokerage houses have long had internal systems
for the redistribution of mutual fund data to their employees. These systems use
data replication to replace paper distribution of mutual fund sales and
marketing materials to in-house brokers.
Financial Intranet's most direct competitor as an outside electronic
redistributor of fund sales and marketing materials is First Data Investor
Services Group, developer of BROKERCONNECT. Financial Intranet believes it has a
significant advantage over BROKERCONNECT. We deliver the same electronic text
redistribution services but add video-on-demand content provided by the fund and
as interactive video training and the prospect of receiving customer leads.
Real time data redistribution
Brokerage firms purchase trading desks equipped with terminals and real-time
data feeds for their registered representatives. Many companies provide
real-time data feeds, including PC Quote, Quotron and S&P Comstock. Through our
co-marketing agreement with S&P Comstock, Financial Intranet believes it can
deliver S&P terminals and data feeds to broker/dealers at a
competitive price. Financial Intranet does not see data feeds as a significant
independent revenue source. Data feeds primarily provide value enhancement to
attract brokers to purchase Financial Intranet's communication services.
Government Regulation
Communications regulation
Financial Intranet and its underlying carriers who provide the network
facilities and services we resell are subject to certain regulation at the
federal level by the FCC and, with limited exceptions, at the state level by
public service, public utility or state corporation commissions.
Financial Intranet and all other "non-dominant" carriers (telecommunications
service providers) are authorized to provide interstate telecommunication
services under a general policy decision adopted by the FCC as opposed to any
company specific authorization. We are not subject to periodic renewal
requirements. In mid-1997, Financial Intranet was granted its certificate of
public convenience and necessity pursuant to Section 214 of the Communications
Act of 1934. This certificate authorizes us to provide international services,
that is, communications originated by customers in the United States and its
possessions and terminating in foreign countries. Financial Intranet's
certificate has no expiration date and is not subject to periodic renewal
requirements.
Financial Intranet filed tariffs with the FCC after obtaining certificates under
Section 214. FCC regulations require that Financial Intranet, like all carriers,
file and maintain separate tariffs for its interstate and international service
offerings. Tariffs contain the terms, conditions and rate for each
telecommunications service offered or provided by Financial Intranet. Tariffs
are not approved by the FCC, but may be reviewed by the FCC on its own motion or
pursuant to complaint by a customer, a non-customer member of the public or a
competing communications company. Tariffs are strictly construed and any
ambiguity in the tariff is construed in favor of the public (customer) and
against the carrier. Financial Intranet has the right to file revisions to its
tariff and change any rate, term or condition at any time, except that any term,
condition or rate once filed must remain, by FCC rule, effective for a minimum
of 30 days. The FCC may not interfere with or reject any filed tariff rate, term
or condition without specific findings that such rate, term or condition is
unjust, unreasonable or unduly discriminatory.
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The FCC assumes that all non-dominant carriers' rates are reasonable and
non-discriminatory. Any new or revised rate may be filed on only one day's prior
notice. The FCC does not review specific tariff filings unless someone protests
or it learns of some issue of lawfulness. Should issues be raised against any
tariff filing, the FCC must find that the tariff or tariff provision is
"patently unlawful," that is, contrary on its face to some law, rule,
regulation, policy or pre-existing decision of the courts or FCC. Where patent
unlawfulness is not shown, the FCC may suspend a tariff filing's effectiveness
for no more than 120 days, request that a carrier voluntarily "defer" the
effective date or investigate the tariff after the suspension is over.
Financial Intranet is also tariffed in New York, California, Florida,
Connecticut and Texas which allows it to provide intrastate toll communications
services. It is registered in New Jersey and Colorado (no tariffs being
required) and has tariffs pending in Georgia, Illinois, Massachusetts,
Pennsylvania and Maryland, and is legally permitted to offer intrastate toll
telecommunications services in four other states without filing a tariff by
either filing a registration or commencing operations. None of these
authorizations include the authority to provide Financial Intranet's
telecommunications services on a local exchange, non-toll basis for which
separate applications and/or tariff filings are required.
Should operations be expanded to countries other than the United States,
Financial Intranet will be required to comply with the laws and regulations
applicable to that country's telecommunications industry. In Western Europe, the
telecommunications industry is also subject to the actions, policies and
regulations of the European Commission. Beginning January 1, 1998, regulation of
telecommunications in Western Europe was formally liberalized to increase
competition in telecommunications. The timing and degree of liberalization
however varies, sometimes widely, country by country, and some countries like
Portugal and Greece have delayed implementation of new regulations.
Since few laws or regulations are directly applicable to access or commerce on
the internet, our internet and intranet is not subject to direct government
regulation, other than regulations applicable to businesses generally. However,
a number of legislative and regulatory proposals are under consideration by
federal, state, local and foreign governmental organizations and, as a result, a
number of laws or regulations may be adopted with respect to internet user
privacy, taxation, infringement, pricing, quality of products and services and
intellectual property ownership.
Securities regulation
Financial Intranet's customers are subject to various federal and state laws and
regulations of self-regulatory agencies such as the NASD, regarding the sale of
securities and continuing education. Changes in these laws and regulations may
affect Financial Intranet's business. While Financial Intranet's web site states
that Financial Intranet is not responsible for the information presented,
Financial Intranet will make reasonable efforts to assure that its services are
not misused.
We do not intend to engage in activities which would require registration as a
broker\dealer. The leads are provided to our subscribers without charge, as a
value added service for their purchase of communications services. The
subscriber has the responsibility to approve the lead as a client, have the
client complete any new account forms or other documents regarding an investment
and determine the suitability of any investments for the client. We do not
receive commissions from any business that may be generated by the new client.
Intellectual Property
We regard the technology we use as proprietary, but have no existing or pending
patent or copyright protection. We rely on the following to protect our software
and other propriety technology:
o confidentiality and license agreements with third parties,
o trade secret and trademark laws, and
o common law copyright.
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Suppliers
Financial Intranet's principal suppliers for the resale of communication
services are MCI WorldCom Inc. and Frontier Corp. We use third party production
companies to produce video on terms negotiated with respect to each project.
Financial Intranet uses computer hardware and software and related services
provided by Siemens Nixdorf Informationssysteme Ges.m.b.H. and several of its
subsidiaries. Although we believe our supplier relationships are good, we
believe that alternate suppliers of telephony, computer hardware, software and
servicing are available at competitive prices. Regulatory and other changes in
the industry have lowered network costs. We believe we will obtain agreements
from suppliers of communications services which will permit the contained resale
of services at acceptable margins. Financial Intranet could experience a
disruption in its business if it needed to replace the Siemens companies without
sufficient notice.
Disaster Recovery System
Implementation of a second data center from the proceeds of a maximum offering
will facilitate both expansion overseas and implementation of a more thorough
disaster recovery program. Our current data center already provides some
redundancy and protection against a disruption in our computer systems. We
believe that all but the most severe problems can be corrected quickly and
without much disruption to our business. Our data center has four clustered
servers. Video transmissions can be transferred to another server within hours
if an existing server malfunctions. A defective motherboard can be replaced in
one or two days. Our software is backed up each day. We also purchase
telecommunications services from reliable major companies, WorldCom and
Frontier. A second data center would eliminate the delay that could result from
a total system failure. We anticipate that the second data center would be
implemented by leasing space and equipment at an existing Siemens data center.
Currently, a total system failure could disrupt operations for up to two weeks
until we secured connections to the Siemens data center in Toronto. We also
carry business disruption insurance.
Facilities
Financial Intranet's principal offices are located at 410 Saw Mill River Road,
Ardsley, New York. Such offices are located on two floors leased by Financial
Intranet under two leases. A lease for 909 square feet at an annual rent of
$18,675 terminates on December 31, 2000. A lease for 700 square feet for annual
rent of $15,575 terminates on December 31, 2000. Financial Intranet believes
that the offices are sufficient for its current operations and proposed
operations through the term of the lease.
Employees
Financial Intranet has five full-time employees and one part-time employee. Four
full-time employees are officers. We have five part-time outside consultants.
None of the employees are represented by a collective bargaining agreement and
management believes it has good relations with its employees.
Legal Proceedings
On or about July 23, 1998, H & H Acquisition Corporation, individually and
purportedly on behalf of Financial Intranet, commenced an action in United
States District Court, Southern District of New York entitled H & H Acquisition
Corp., individually and on behalf of Financial Intranet. Inc. v. Financial
Intranet Holdings. Financial Intranet. Inc., Ben Stein, - Interwest Transfer
Co., Steven A. Sanders.. Michael Sheppard, Maura Marx, Henry A. Schwartz,
Leonard Gotshalk. Gotshalk Enterprises. Law Office of Steven A. Sanders., P.C.
and Beckman, Millman & Sanders, LLP, 98 Civ. 5269. The action's principal basis
appears to be plaintiff's claim that Ben Stein wrongfully claims ownership of
certain shares of common stock which, according to plaintiff, belong to
plaintiff. The plaintiff asserts sixteen causes of action. Only some make
allegations against
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Financial Intranet, Michael Sheppard and Maura Marx. The
plaintiff alleges:
o Mr. Sheppard and Ms. Marx assisted defendants Stein and
Financial Internet Holdings (a company owned by Stein) in
converting stock which plaintiff allegedly owns..
o Mr. Sheppard and Ms. Marx assisted in defrauding plaintiff
with respect to the stock plaintiff claims.
o a derivative claim on behalf of Financial Intranet that
alleges that Mr. Sheppard and Ms. Marx permitted issuance of
shares to defendant Gotshalk without proper consideration
and refused to allow plaintiff to purchase additional
shares.
o Mr. Sheppard and Ms. Marx permitted Financial Intranet to
pay defendant Schwartz monies which should not have been
paid, and authorized issuance of stock to Schwartz without
proper authority.
o Mr. Sheppard and Ms. Marx caused the issuance of stock to
themselves without proper authority.
o a derivative claim on behalf of Financial Intranet seeking
an order directing the holding of a shareholders meeting and
rescission of actions determined to be improper by the Court
or its designee. The shareholders meeting was held in
December 1998.
o Financial Intranet and its former transfer agent wrongfully
transferred shares belonging to plaintiff to a third party.
The transfer agent has asserted a claim against us seeking
indemnification for any liabilities incurred by the transfer
agent in this action.
o Plaintiff is entitled to $2500.00, plus interest, from us
for alleged breach of contract. Financial Intranet settled
this cause of action.
Plaintiff also seeks an accounting from Mr. Sheppard and Ms. Marx, among other
defendants, for damages Financial Intranet allegedly suffered.
Financial Intranet, Mr. Sheppard and Ms. Marx believes that the claims against
it, Mr. Sheppard and Ms. Marx are without merit and is vigorously defending the
action. Financial Intranet, Mr. Sheppard and Ms. Marx have filed an answer. The
answer denies all material allegations of the complaint and the claim asserted
by the transfer agent, and asserts a variety of defenses. Discovery has not yet
commenced. We cannot make any assurances about the litigation's outcome. If the
plaintiff prevails against us, we could be adversely affected.
Available Information
We will begin to file various documents that are required by the SEC following
this offering. These include annual reports, quarterly reports, special reports
and proxy statements. Financial Intranet plans to give its stockholders annual
reports containing audited financial statements, all other reports which
Financial Intranet is required to provide and any other documents which
Financial Intranet believes its shareholders should have.
This prospectus is part of a registration statement filed with the SEC. It does
not contain all of the information in the registration statement, nor the
exhibits or the schedules which were included with the registration statement.
The registration statement, and the exhibits and schedules thereto, may be
inspected and copied at the principal office of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC at Seven World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part
thereof may be obtained at prescribed rates from the SEC's Public Reference
Section at 450 Fifth Street, N.W., Washington, D.C. 20545 or by calling the SEC
at 1-800 SEC-0330. The SEC also maintains a World Wide Web site on the Internet
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding
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registrants that file electronically with the SEC.
When we quality statements in this prospectus with the word "believe," unless
otherwise indicated, we are basing our belief on the knowledge and experience of
our personnel and advisors. Statistical information included in this prospectus
has been obtained by us from publications we deem reliable and with which we
have no relationship.
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MANAGEMENT
Executive Officers and Directors
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Michael Sheppard........................................... 49 Director, President, Chief Operating Officer
Joseph F. Engelberger...................................... 74 Director
Steven S. Weller........................................... 44 Director
Maura Marx................................................. 36 Executive Vice President, Secretary
Alan Spar.................................................. 26 Chief Technical Officer/Vice President,
Technology
Alan M. Ross............................................... 55 Vice President, Finance and Administration
</TABLE>
All directors serve one year terms or until the next annual meeting of the
shareholders.
Michael Sheppard--President, Chief Operating Officer and Director
Mr. Sheppard joined Financial Intranet as a consultant in February 1997 and
became President, Chief Operating Officer and Director in April 1997. Mr.
Sheppard has been involved in setting up the corporate infrastructure of several
early stage development companies and undertaking their day-to-day operations as
chief executive and chief operating officer. From January 1996 through January
1997, Mr. Sheppard was Chief Operating Officer of Freelinq Communications,
formerly Televideo Corporation, based in New York City. Freelinq offers real
time video-on-demand via ATM/XDSL technology with high-speed internet
transmission and advertiser supported free theatrical films delivered through
twisted pair telephone lines. From 1995 to 1996 he was chief operating officer
for Lee Communications Ltd., which is a laser development and transmission
company. From 1993 to 1995, he was Chief Executive Officer for MLS Lighting Ltd.
In 1980 he founded Belden Communications and served as its President and Chief
Executive Officer until it was acquired in 1985. It was engaged in the sale and
distribution of proprietary products used in the motion picture and television
markets, and was merged in 1985 into Lee America Ltd., which was bought by Lee
Lighting Ltd., a United Kingdom company, in 1986.
Joseph F. Engelberger
Mr. Engelberger became a Director of Financial Intranet in August 1998. Joseph
Engelberger founded Helpmate Robotics, Inc. Since 1984, he has been Chairman and
Chief Executive Officer of Helpmate Robotics, Inc. He received B.S. and M.S.
degrees from Columbia University in 1946 and 1949, respectively, and he has
authored numerous articles in the instrumentation and robotics fields.
His honors include the Progress Award of the Society of Manufacturing Engineers,
the Leonardo da Vinci Award of the American Society of Mechanical Engineers and
the 1982 American Machinist Award. The University of Liverpool bestowed the
first McKechnie Award on him in 1983. In 1984, he was elected to the National
Academy of Engineering. He was the recipient of the Egleston Medal for
distinguished engineering achievement from Columbia University. The University
of Bridgeport, Spring Garden College, Briarwood College, Trinity College and
Carnegie-Mellon University granted him honorary doctorates. In January 1997, he
received the Beckman Award for pioneering and original research in the general
field of automation. Mr. Engelberger serves on the Board of directors of EDO
Corporation (NYSE:EDO).
Steven Weller
Mr. Weller became a director of Financial Intranet in November 1998. Since 1989,
Mr. Weller has been the Vice President of Siemens Information and Communication
Products LLC. He is the Vice President of Sales for the
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Computer Systems division. He is responsible for all sales and technical support
personnel. He was previously the Vice President of Sales for the North American
Key Accounts.
Maura Marx--Executive Vice President, Secretary
Ms. Marx became Secretary in December 1998 and became Executive Vice President
in February 1999. She had been the Senior Vice President and Assistant Secretary
since September 1997. From 1994 until 1996, she was employed as a salesperson in
the Sales and Leasing Department of the Friedman Realty Group, a major New York
commercial real estate firm. Her responsibilities centered on selling, servicing
and expanding the firm's client base of foreign banking institutions. Ms. Marx
was head of the Sales & Marketing Department for Warner Bros. Film Gesmbh based
in Vienna Austria from 1992 until 1994. She was responsible for tactical and
budget planning, and for distribution and promotion of Warner films and Warner
retail goods throughout Austria. From 1990 until 1992, she served as Assistant
Director of European Development for the Guggenheim Museum Salzburg Advisory
Board (GMSAB).
Consultants
Ben B. Stein--Director of Brokerage Sales
Mr. Stein founded Financial Intranet in December 1996. Since November 1998, he
has been a consultant to Financial Intranet as Director of Brokerage Sales. He
is responsible for selling our products and services to the brokerage community.
From December 1996 through November 1998, he was a member of the board of
directors and Secretary of the Company. Mr. Stein has over 25 years experience
in the securities industry during which time he has held Series 3, Series 4,
Series 7, Series 8, Series 24, Series 27 and Series 63 Licenses issued by the
NASD. From July 1998 through October 1998, he was a registered representative
with the Empire Financial Group. From 1993 to 1996, Mr. Stein was Chief
Executive Officer of Stein Shore Securities, Inc., a full-service broker/dealer
with three branch offices. From 1991 through 1993, Mr. Stein operated as Senior
Vice President of Marsh Block & Company, a securities firm specializing in
investment banking. Mr. Stein received a Bachelor of Science degree in Business
Administration from Roosevelt University in Chicago, Illinois in 1961. He became
a Certified Public Accountant in 1968.
Kevin M. Haggerty--Consultant for Mutual Fund & Brokerage Industries
Mr. Haggerty became a consultant in October 1997. He provides consulting
services on marketing and sales of our products, training programs ans services
to customers. From 1990 to April 1997, Mr. Haggerty was the Senior Vice
President--Manager for equity trading at Fidelity Capital Markets in Boston, a
division of Fidelity Investments, the mutual fund complex. He was in charge of
all U.S. Institutional and broker/dealer equity trading. He was also responsible
for option, agency over-the-counter training, and all of the exchanges, floor
operations and execution, including the Chicago Board Options Exchange, New York
Stock Exchange, American Stock Exchange, the Pacific Stock Exchange and the
Boston Stock Exchange.
Executive Compensation
Employees
Michael Sheppard receives a salary of $150,000 per year under his employment
agreement dated September 12, 1997. The employment agreement expires on December
31, 2002. Mr. Sheppard received an incentive bonus of 750,000 shares of common
stock upon execution of a consulting agreement on February 27, 1997. Mr.
Sheppard received an option under the employment agreement to purchase 2,231,352
shares of common stock at a price of $0.19 per share. The option expires upon
the earlier to occur of December 31, 2002 or 90 days after the termination of
Mr. Sheppard's employment without cause or immediately after termination with
cause. The option is personal to Mr. Sheppard and is not assignable. Mr.
Sheppard has not purchased any shares of common stock pursuant to his option.
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Ms. Marx receives a salary of $100,000 per year under her employment agreement
dated September 12, 1997. The employment agreement expires on December 31, 2002.
Ms. Marx received an incentive bonus of 500,000 shares of common stock upon
execution of the employment agreement. She received an option under her
employment agreement to purchase 1,279,379 shares of common stock at a price of
$0.19 per share. The option expires upon the earlier to occur of December
31, 2002 or 90 days after the termination of Ms. Marx's employment without cause
or immediately after termination with cause. The option is personal to Ms. Marx
and is not assignable. Ms. Marx has not purchased any shares of common stock
pursuant to her option.
Mr. Ross receives a salary of $80,000 per year and has an unvested option to
purchase 250,000 shares of common stock at an exercise price of $0.62 1/2 per
share. One third of Mr. Ross's options vest on December 7 of each year
commencing in December 1999.
Mr. Spar receives a salary of $100,000 per year and has an unvested option to
purchase 250,000 shares of common stock at an exercise price of $0.62 1/2 per
share. One third of Mr. Spar's options vest on December 9 of each year
commencing in December 1999.
Consultants
Mr. Stein received compensation of $150,000 per year and 1,500,000 shares of
common stock as a signing bonus and 1,500,000 shares of common stock in lieu of
his compensation for 1997 under his consulting agreement dated February 27,
1997. He signed an employment agreement for the same annual compensation on
September 12, 1997. Mr. Stein ceased his employment and became a consultant in
November 1998. Mr. Stein's consulting fee is based solely on commissions earned
from telecommunications services sold to clients he introduces to us. The
consulting agreement expires on December 31, 2002. Financial Intranet accrued
Mr. Stein's consulting fee for 1998 in the aggregate amount of $150,000 but paid
$40,500 of such accrued amount in 1999.
The employment and consulting agreements provided Mr. Stein with options to
purchase shares of common stock at a price of $.19 per share. Under his
consulting agreement dated March 3, 1999, Mr. Stein agreed to reduce his options
from 3,640,262 to 2,500,000 and agreed to apply the $109,500 balance of his
accrued salary and the principal of $56,889 owed under two promissory notes to
purchase 879,685 shares of common stock. He now owns options to purchase
1,620,315 shares. The options expire upon the earlier to occur of December 31,
2002 or immediately if Mr. Stein's consulting agreement is terminated with
cause. The options are personal to Mr. Stein and are not assignable.
Mr. Haggerty became a consultant commencing October 6, 1997. He received a
warrant to purchase 1,000,000 shares of common stock at a price of $0.01 per
share. The warrant became exercisable one year after grant. He exercised this
warrant on October 9, 1998. The consulting agreement expires October 20, 1999 .
The agreement can be terminated on 30 days notice by either Mr. Haggerty or
Financial Intranet. We will pay him $10,000 per month commencing November 1999
if we decide to extend the term to October 20, 2000.
Total Compensation
The following table shows the total compensation paid for services in all
capacities during the years ended December 31, 1998, 1997 and 1996 to officers
who received compensation in excess of $100,000 per year.
33
<PAGE>
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Annual Compensation
-------------------
Restricted
Name and Principal Position Year Salary Bonus Other Stock Awards Stock Options
- --------------------------- ---- ------ ----- ----- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Ben B. Stein(1)...................................... 1998 $150,000 $0 $0 $0 1,242,955
1997 150,000 0 10,500 54,000 2,397,307
1996 0 0 0 0 0
Michael Sheppard..................................... 1998 150,000 0 0 0 720,914
1997 116,352 0 0 27,000 1,510,438
1996 0 0 0 0 0
Maura Marx........................................... 1998 100,000 0 0 0 447,464
1997 48,750 0 0 18,000 903,031
1996 0 0 0 0 0
</TABLE>
(1) On February 27, 1997, Mr. Stein received 1,500,000 shares of common
stock in lieu of cash compensation for 1997 and an additional 1,500,000
shares of common stock as an inducement to execution of the consulting
agreement.
OPTION GRANTS IN LAST FISCAL YEAR--INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Percent of Total
Number of Options Granted
Securities to Employees In
Underlying Fiscal Year Ended Exercise or Base
Name Options Granted December 31, 1998 Price Per ($/Share) Expiration Date
- ---- --------------- ----------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Ben B. Stein.............................. 1,242,955 51.5% $.19 12-31-2002
Michael Sheppard.......................... 720,914 29.9% $.19 12-31-2002
Maura Marx................................ 447,464 18.6% $.19 12-31-2002
</TABLE>
Fiscal Year End Option Values
The following table shows the value of unexercised in-the-money options held by
the executive officers and consultant as of December 31, 1998.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Fiscal Year End Options at Fiscal Year End
-------------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ben B. Stein.................................................. 3,640,262 0 $1,674,521 0
Michael Sheppard.............................................. 2,231,352 0 1,026,422 0
Maura Marx.................................................... 1,350,495 0 621,228 0
</TABLE>
Director's Compensation
Financial Intranet's directors who are not full-time employees of Financial
Intranet receive compensation of $350 and reimbursement of expenses for
attendance at each meeting of the board of directors. Mr. Weller has received
options
34
<PAGE>
to purchase 10,000 shares of common stock at an exercise price of $.60 per
share, which options are exercisable through November 12, 2001. Mr. Engelberger
has received options to purchase 10,000 shares of common stock at an exercise
price of $.725 per share, which options are exercisable through August 31, 2001.
Committees of the Board
The board of directors has one committee, the stock option committee. The stock
option committee administers the stock option plan and authorizes the award of
stock options by Financial Intranet. Messrs. Sheppard, Weller and Engleberger
are the members of the stock option committee.
Indemnification of Directors and Officers and Related Matters
The by-laws of Financial Intranet provide that, to the fullest extent permitted
by applicable law, as amended from time to time, Financial Intranet will
indemnify any person who was or is a party or is threatened to be made a party
to an action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was director,
officer, employee or agent of Financial Intranet or serves or served any other
enterprise at the request of Financial Intranet.
Financial Intranet maintains directors' and officers' insurance insuring the
directors against any liability arising out of the director's status as a
director of Financial Intranet regardless of whether Financial Intranet has the
power to indemnify the director against such liability under applicable law.
Financial Intranet has been advised that it is the position of the SEC that
insofar as the foregoing provisions may be invoked to disclaim liability for
damages arising under the Securities Act, such provisions are against public
policy as expressed in the Securities Act and are unenforceable.
Stock Option Plans
Financial Intranet has established the 1998 Stock Option Plan which provides for
the granting of options which are intended to qualify either as incentive stock
options within the meaning of Section 422 of the Internal Revenue Code or as
options which are not intended to meet the requirements of such section. The
total number of shares of Common stock reserved for issuance under the plan is
1,500,000. Options to purchase shares may be granted under the plan to persons
who, in the case of incentive stock options, are key employees (including
officers) or, in the case of non-statutory stock options, are key employees
(including officers) or non-employee directors or non-employee consultants.
The plan will be administered by the board of directors or a committee chosen by
the board of directors, which will have discretionary authority, subject to
certain restrictions to determine the number of shares issued pursuant to
incentive stock options and nonstatutory stock options and the individuals to
whom, the times at which and the exercise price for which the options will be
granted. On November 13, 1998, Financial Intranet appointed Steven S. Weller,
Michael Sheppard and Joseph F. Engelberger to constitute the stock option
committee to administer the plan.
The exercise price of all incentive stock options granted under the plan must be
at least equal to the fair market value of such shares on the date of the grant
or, in the case of incentive stock options granted to the holder of more than
10% of Financial Intranet's common stock, at least 110% of the fair market value
of such shares on the date of the grant. The maximum exercise period for which
incentive stock options may be granted is ten years from the date of grant (five
years in the case of an individual owning more than 10% of Financial Intranet's
common stock). The aggregate fair market value (determined at the date of the
option grant) of shares with respect to which incentive stock options are
exercisable for the first time by the holder of the option during any calendar
year shall not exceed $100,000.
The exercise price of all non-statutory stock options granted under the plan
must be at least equal to the 85% of the fair market value of such shares on the
date of the grant
As of the date hereof, no options have been granted pursuant to the plan.
35
<PAGE>
CERTAIN TRANSACTIONS
On February 7, 1997, Financial Intranet issued Ben Stein, the principal
shareholder of Financial Intranet, 1,500,000 shares of common stock in lieu of
salary due for 1997 in the amount of $150,000.
On February 8, 1999, Financial Intranet issued a 7% convertible promissory note
in the principal amount of $600,000. The principal amount of $240,000 was
payable on demand on March 10, 1999 and the principal amount of $360,000 is
payable on demand on May 9, 1999. The promissory note is convertible into common
stock at a conversion price equal to the lesser of:
o 75% of the average of the five lowest closing bid prices of
common stock during the 30 trading days ending on the
trading day immediately preceding the conversion date, or
o $.40 per share.
Mr. Ben Stein guaranteed, with recourse, Financial Intranet's obligations under
the convertible promissory note and pledged 1,500,000 restricted shares of
common stock as collateral security for such obligations. The lender received
600,000 of the pledged shares in March 1999 based on a conversion price of $.40
per share in satisfaction of payment of the principal amount of $240,000.
Financial Intranet issued 600,000 shares of common stock to Mr. Stein in May
1999 to replace the pledged shares..
On March 3, 1999, Mr. Stein applied $167,140 owed to him by Financial Intranet
in lieu of cash payment to purchase 879,685 shares of common stock under options
with an exercise price of $.19 per share. The $167,140 owed to Mr. Stein
consisted of $109,500 in accrued compensation from 1998 and two promissory notes
in the principal amount of $56,889 and all accrued interest.
36
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the common stock as of April 15, 1999 by:
o each stockholder known by Financial Intranet to be the
beneficial owner of more than 5% of the outstanding common
stock;
o each director and executive officer; and
o all directors and executive officers as a group.
Except as otherwise indicated, Financial Intranet believes that the
beneficial owners of the common stock listed below have sole investment and
voting power with respect to such shares. The following table:
o Assumes the exercise of all stock options held by the
shareholder.
o Includes 1,020,000 shares owned by Financial Intranet
Holdings, Inc., a company wholly-owned by Mr. Stein. Mr.
Stein disclaims ownership of 183,000 shares owned by his
children, 80,000 shares owned by his wife and 30,000 shares
owned by his mother and sister.
o Includes options exercisable at a price of $.19 per share
for
o 1,620,315 shares issuable to Mr. Stein.
o 2,231,352 shares issuable to Mr. Sheppard and
o 1,350,491 shares issuable to Ms. Marx
o Includes 10,000 shares of common stock issuable at an
exercise price of $.725 per share for Mr. Engelberger's
options and $.60 per share for Mr. Weller's options.
<TABLE>
<CAPTION>
Number of Percentage Number of Percentage
Shares of Shares Shares of Shares
Prior to Prior to After After
Shareholder Offering Offering Offering Offering
- ----------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Ben B. Stein....................................................... 5,967.537 24.5% 5,367,537 15.9%
Michael Sheppard................................................. 2,732,177 10.9 2,732,177 7.9
Maura Marx....................................................... 1,817,346 7.5 1,817,346 5.4
Joseph Engelberger............................................... 10,000 -- 10,000 --
Steven Weller .................................................... 10,000 -- 10,000 --
All shareholding officers and directors as a group
(4 Persons)..................................................... 4,569,523 17.4 4,569,523 12.8
</TABLE>
The address of each principal shareholder is c/o Financial Intranet, Inc., 410
Saw Mill River Road, Ardsley, New York 10502.
37
<PAGE>
SELLING SECURITYHOLDERS
In addition to the 4,444,444 shares being offered by Financial Intranet, the
registration statement, of which this prospectus forms a part, also covers the
registration on behalf of the selling securityholders of an aggregate of:
o 5,408,333 shares of common stock issuable upon the exercise
of warrants,
o 4,050,000 shares of common stock issuable upon conversion of
certain convertible promissory notes,
o 655,000 shares of common stock previously issued and
o 37,994 shares otherwise issuable to the selling
securityholders.
The number of shares of common stock which may be issued to the selling
securityholders are subject to certain market price protection provisions and
additional shares of common stock may be sold by the selling securityholders
pursuant to the alternative prospectus. Financial Intranet may receive proceeds
if the warrants are subsequently exercised, as to which there can be no
assurance. The costs of qualifying these shares of common stock under federal
and state securities laws, together with legal and accounting fees, printing and
other costs in connection with this offering, will be paid by Financial
Intranet.
The following list identifies the selling securityholders and the number of
shares of common stock owned by such selling securityholder along with shares
available upon the exercise of the respective options, warrants, or conversion
rights which are being registered pursuant to the registration statement, of
which this prospectus forms a part.
<TABLE>
<CAPTION>
Number of Percentage Percentage
Shares of Shares Number of of Shares
Owned Owned Shares Owned
Before Before Owned After After
Shareholder Offering(1) Offering(1) Offering(9) Offering
- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Ahood Sharbatly(1)(2)....................................... 1,090,046 4.99 0 0
Zubair Kazi(1)(3)........................................... 1,090,046 4.99 0 0
Ben B. Stein (4)............................................ 5,967,537 24.5 5,367,537 15.9
Cardinal Capital Management Inc.(5)......................... 376,497 1.7 0 0
J.G. Capital, Inc. (6)..................................... 341,497 1.6 0 0
Joseph Theismann(7)......................................... 150,000 -- 0 0
Corporate Capital Management Corp.(8)....................... 50,000 -- 0 0
</TABLE>
(1) The table assumes exercise of warrants and conversion of
all promissory notes issued to Messrs. Sharbatly and Kazi. The
convertible promissory notes and warrants prohibit each of them and
their affiliates from beneficially owning more than 4.99% of the and
outstanding common stock at any time. They cannot convert the
promissory notes or exercise the warrants to the extent that such
conversion or exercise will result in the selling securityholder
exceeding such limitation.
(2) Mr. Sharbatly may receive an aggregate of up to
2,500,000 shares of Common stock upon exercise of all warrants and
conversion of his promissory note in the principal amount of $500,000.
The number of shares assumes a conversion price of $.40 per share for
the convertible promissory note.
(3) Mr. Kazi may receive 6,133,333 shares of common stock
upon exercise of all warrants and conversion of promissory notes in
the aggregate principal amount of $1,460,000.
o Assumes conversion prices of :
38
<PAGE>
o $.40 for a promissory note in the principal amount of
$360,000
o $.50 for a promissory note in the principal amount of
$200,000 and
o $.60 for three promissory notes in the aggregate principal
amount of $900,000.
(4) Mr. Stein is the founder of Financial Intranet, the largest
shareholder and serves as a consultant.
(5) Includes three warrants to purchase:
o 160,000 shares at an exercise price of $.64 per
share
o 75,000 shares at an exercise price of $.40 per
share, and
o 95,000 shares at an exercise price of $.60 per
share.
(6) Includes three warrants to purchase:
o 125,000 shares at an exercise price of $.40 per
share
o 75,000 shares at an exercise price of $.40 per
share, and
o 95,000 shares at an exercise price of $.60 per
share.
(7) Includes warrants to purchase 150,000 shares of common stock
at an exercise price of $.75 per share. Mr. Theismann is a
spokesperson for Financial Intranet.
(8) Includes warrants to purchase 50,000 shares of common stock
at an exercise price of $.64.
(9) Assumes exercise of all warrants and conversion of all
promissory notes held by the selling securityholders.
Plan of Distribution
The shares offered by the selling securityholders may be sold from time to time
directly by the selling securityholders. Alternatively, the selling
securityholders may, from time to time, offer such securities through
underwriters, dealers and/or agents. The distribution of securities by the
selling securityholders may be effected in one or more transactions,
privately-negotiated transactions or through sales to one or more broker/dealers
for resale of such securities as principals, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the selling securityholders in connection with
such sales. The selling securityholders, and intermediaries through whom such
securities are sold, may be deemed "underwriters" within the meaning of the
Securities Act with respect to the securities offered. Any profits they realize
or commission they receive may be deemed underwriting compensation.
At the time a particular offer of securities is made by or on behalf of the
selling securityholders to the extent required, a prospectus will be distributed
which will set forth the number of securities being offered and the terms of the
offering, including the name or names of any underwriter, dealer or agent, the
purchase price paid by the underwriter for securities purchased from the selling
securityholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers and the proposed selling price to the public.
Sales of securities by the selling securityholders or even the potential of such
sales would likely have an adverse effect on the market prices of the securities
being offered. Following the closing of this offering (which assumes the
exercise of all warrants and conversion of all promissory notes held by the
selling securityholders), 30,885,483 shares of common stock will be freely
tradable
39
<PAGE>
MARKET PRICE OF COMMON STOCK
Market Information
The following table sets forth the high and low prices for the periods indicated
as reported by the National Daily Quotation Service, Inc. between dealers and do
not include retail mark-ups, mark-downs, or commissions and do not necessarily
represent actual transactions, as reported by the NASD Composite Feed or other
qualified inter-dealer quotation medium. During the first two quarters of the
fiscal year ending December 31, 1997, no established public trading market
existed for the common stock . The market prices included for these two quarters
were based on very limited transactions and sporadic price quotations that did
not reflect the true market value of the stock.
The prices listed for these periods reflect limited or sporadic quotations. As
of May 10, 1999, the closing bid price was $1.18 per share.
<TABLE>
<CAPTION>
Low High
--- ----
<S> <C> <C>
1997 Fiscal Year:
First Quarter.................................................................................. 3.75 6.375
Second Quarter................................................................................. .38 4.625
Third Quarter.................................................................................. .156 .484
Fourth Quarter................................................................................. .125 .594
1998 Fiscal Year:
First Quarter.................................................................................. .219 .547
Second Quarter................................................................................. .22 .95
Third Quarter.................................................................................. .58 1.99
Fourth Quarter................................................................................. .41 1.00
1999 Fiscal Year
First Quarter..................................................................................... .56 1.58
</TABLE>
The common stock is recorded on the OTC Bulletin Board with the symbol FNTN. As
of May 10, 1999, Financial Intranet had 48 record holders of its common stock
and an estimated 2,045 beneficial holders.
40
<PAGE>
DESCRIPTION OF SECURITIES
The following descriptions of securities are qualified in all respects by
reference to the certificate of incorporation and by-laws and the terms of
certain convertible promissory notes and warrants, copies of which are filed as
hibits to the registration statement of which this prospectus is a part. The
certificate of incorporation authorizes Financial Intranet to issue up to
50,000,000 shares of common stock, par value $.001 per share, and no preferred
stock. Neither the certificate of incorporation nor the by-laws contain any
provision that would delay, defer or prevent a change in control.
Common stock
22,724,282 shares of common stock are issued and outstanding. Each share of
common stock entitles the holder to one vote on each matter submitted to the
stockholders. The holders of common stock:
o have equal ratable rights to dividends from funds legally
available therefor when, as and if declared by the board of
directors;
o are entitled to share ratably in all of the assets available
for distribution to holders of common stock upon
liquidation, dissolution or winding up of the affairs of
Financial Intranet;
o do not have preemptive, subscription or conversion rights,
or redemption or sinking fund provisions applicable thereto;
and
o are entitled to one non-cumulative vote per share on all
matters submitted to stockholders for a vote at any meeting
of stockholders. Financial Intranet has not paid any
dividends on its common stock to date. Financial Intranet
anticipates that, for the foreseeable future, it will retain
earnings, if any, to finance the continuing operations of
its business. The payment of dividends will depend upon,
among other things, capital requirements and the operating
and financial conditions of Financial Intranet.
Shareholders do not have any pre-emptive rights to subscribe for or purchase any
stock, warrants or other securities of Financial Intranet. The common stock is
not convertible or redeemable. Neither the certificate of incorporation nor its
by-laws provide for pre-emptive rights.
Options
Financial Intranet has issued options to three affiliates (including two
executive officers) to purchase 5,202,162 shares of common stock at an exercise
price of $.19 per share, which options are exercisable through December 31,
2001. Financial Intranet has issued options to two other employees to purchase
500,000 shares of common stock at an exercise price of $.625 per share,
one-third of which vests each year commencing December 7, 1999 and are
exercisable for two years after vesting. Financial Intranet has issued options
to persons not affiliated with Financial Intranet to purchase an aggregate of
592,630 shares of common stock at exercise prices ranging from $.18 to $7.50.
Convertible notes and Warrants
$500,000 7% convertible promissory note and warrants
On December 31, 1998, Financial Intranet issued a 7% convertible promissory note
in the principal amount of $500,000 with a maturity date of December 31, 2001
and warrants to purchase 1,250,000 shares of common stock at an exercise price
of $.60 per share through December 31, 2003. The promissory note is convertible
into common stock at any time by the lender. On the maturity date, Financial
Intranet is required to automatically convert the remaining
41
<PAGE>
outstanding principal amount and accrued interest of the promissory note at the
conversion price into common stock.
Each of the 1,250,000 warrants issued in conjunction with the promissory note
entitle the holder to purchase one share of common stock at an exercise price
per share of common stock of $0.60. The warrants may be exercised through
December 31, 2003.
$1,700,000 7% convertible promissory notes and warrants
Initial Note and Warrants
In February 1999, Financial Intranet issued a 7% convertible promissory note in
the principal amount of $600,000, with $240,000 principal amount, and all
accrued interest thereon, payable on demand commencing March 10, 1999, and
$360,000 principal amount, and all accrued interest thereon, payable on demand
commencing May 9, 1999. The holder converted the $240,000 portion of the note
into common stock in March 1999.Financial Intranet issued 1,500,000 warrants in
February 1999 to purchase common stock at an exercise price per share of $.60.
The warrants may be exercised through February 6, 2002. The investor also agreed
to lend Financial Intranet an additional $1,100,000 in four subsequent tranches.
Financial Intranet's obligations under the promissory note for $600,000 are
subject to a guarantee by Ben B. Stein and secured by a pledge of 1,500,000
shares of common stock. Mr. Stein pledged 600,000 shares of common stock as
collateral for Financial Intranet's obligation payable March 10, 1999, and
900,000 shares as collateral for Financial Intranet's obligation payable May 9,
1999.
On February 6, 2002, Financial Intranet is required to automatically convert any
and all remaining outstanding principal amount and accrued interest of the
promissory note at the conversion price into common stock.
Installment Convertible Promissory Notes and Warrants
Commencing on the date of this prospectus and terminating 30 days later,
Financial Intranet may require the investor or the investor may demand to
purchase for $200,000 a promissory note in the principal amount of $200,000 and
a warrant for the purchase of 333,333 shares of common stock at an exercise
price of $.60 per share. During the 90 day period after the closing of the
installment for a promissory note in the principal amount of $200,000, Financial
Intranet may require the investor or the investor may demand to purchase for
$300,000 a promissory note in the principal amount of $300,000 and a warrant for
the purchase of 500,000 shares of common stock. During the 90 day period after
the issuance of the first $300,000 note, Financial Intranet may require the
investor or the investor may demand to purchase for $300,000 a promissory note
in the principal amount of $300,000 and a warrant for the purchase of 500,000
shares of common stock. During the 90 day period after the issuance of the
second $300,000 note, we may require the investor or the investor may demand to
purchase for $300,000 a promissory note in the principal amount of $300,000 and
a warrant for the purchase of 500,000 shares of common stock. The warrants are
exercisable for a period of five years after issuance at an exercise price of
$.60 per share.
The shares of common stock issuable upon conversion of the promissory notes and
warrants issued in conjunction with the notes are being registered in the
alternate prospectus.
The conversion prices for the convertible promissory notes are the lesser of :
o 75% of the average of the five lowest closing bid prices of
the common stock during the 30 trading days ending on the
trading day immediately preceding the conversion date, or
42
<PAGE>
o either: $.40 per share for the promissory note for $500,000
issued in December 1998 and the promissory note in the
principal amount of $600,000 issued in February 1999;
$.50 per share for the promissory note in the principal
amount of $200,000, and
$.60 per share for the three promissory notes in the
aggregate principal amount of $900,000.
The convertible promissory notes are convertible and the warrants are
exercisable, in whole or in part, at any time. However, the promissory note may
not be converted nor the warrants exercised to the extent that after such
conversion, the sum of
o the number of shares of common stock beneficially owned by
the holder and its affiliates (other than shares of common
stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the promissory note)
and
o the aggregate number of shares of common stock issuable upon
the proposed conversion of the promissory note and the
warrants would result in beneficial ownership by the holder
and its affiliates of 4.99% or more of Financial Intranet's
issued and outstanding shares of common stock following such
exercise or conversion.
The 4.99% limitations in the promissory note and warrants do not apply to any
automatic conversion by Financial Intranet. The 4.99% limitations apply to any
transferee of the promissory note from the purchaser of such shares from
Financial Intranet.
Transfer Agent
The transfer agent for the common stock is Liberty Transfer Co., 191 New York
Avenue, Huntington, New York 11743.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, Financial Intranet will have outstanding an
aggregate of 36,665,053 shares of common stock, assuming exercise of the
warrants and conversion of the promissory notes issued to the selling
securityholders. 31,485,483 shares of common stock will be freely tradable
without restriction or further registration under the Securities Act. Of the
remaining shares of common stock outstanding, 5,168,459 shares are "restricted"
shares that are owned by "affiliates" of Financial Intranet as such terms are
defined under the Securities Act and 93,370 shares are "restricted" shares that
are owned by nonaffiliates of Financial Intranet.
In general, under Rule 144, a person (or persons whose shares are aggregated)
who has beneficially owned restricted securities within the meaning of Rule 144
securities for at least one year, including the holding period of any securities
which are converted into the restricted shares and including the holding period
of any prior owner, except an affiliate of Financial Intranet, would be entitled
to sell within any three-month period, only that a number of shares that do not
exceed the greater of 1% of the then outstanding shares of common stock or the
average weekly trading volume of the common stock reported during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about Financial Intranet. Any person (or persons
whose shares are aggregated with such person) who is not deemed to have been an
affiliate of Financial Intranet at any time during the 90 days preceding a sale,
and who has beneficially owned shares for at least three years (including any
period of ownership of preceding non-affiliated holders), would be entitled to
sell shares under Rule 144(k) without regard to the volume limitations, manner
of sale provisions, public information requirements or notice requirements.
The registration statement of which this prospectus is a part also registers
655,000 shares of common stock previously issued to selling securityholders,
9,458,333 shares of common stock to be issued upon exercise of warrants and
convertible promissory notes and 37,994 shares which may otherwise be issued to
the selling securityholders, thus permitting the resale of such shares by
non-affiliates in the public market without restriction under the Securities
Act.
PLAN OF DISTRIBUTION
Through our officers and directors, we are offering the shares of common stock
for sale on a "best efforts" basis. The shares will be offered by Michael
Sheppard, our President, and Maura Marx, our Executive Vice President. No
officer or director will receive any compensation for sales of shares of common
stock in this offering.
Licensed broker/dealers may also participate in the offering. We will pay a
commission of 10% and a non-accountable expense allowance of 3% to NASD
registered broker/dealers for sales of shares effected by NASD members. The
names of the NASD member broker/dealers that may participate in this offering,
if any, are identified on the annexed broker/dealer list. This list will be
updated by post-effective amendment to the extent that additional
broker/dealers, if any, agree to participate in this offering after the date of
this prospectus.
The offering shall commence on the date hereof and terminate 180 days later,
unless extended by us for up to an additional 90 days. All subscription proceeds
will be deposited no later than noon of the next business day after receipt into
our bank account. No escrow account will be established. Subscriptions will be
accepted as they are received.
The selling securityholders may sell their shares of common stock from time to
time in transactions, which may include block transactions by or for the account
of the selling securityholders, in the over-the-counter market or in negotiated
transactions, or through the writing of options on their shares, through a
combination of such methods of sale, or otherwise. Sales may be made at fixed
prices which may be changed, at market prices prevailing at the time of sale, or
at negotiated prices. If any selling securityholder sells shares of common
stock, or options thereon, pursuant to this prospectus at a fixed price or at a
negotiated price which is, in either case, other than the prevailing market
price or in a block transaction to a purchaser who resells, or if any selling
securityholder pays compensation to a broker/dealer that is other than the usual
and customary discounts, concessions or commissions, or if there are any
44
<PAGE>
arrangements either individually or in the aggregate that would constitute a
distribution of such shares, a post-effective amendment to the registration
statement of which this prospectus is a part, would need to be filed and
declared effective by the SEC before such selling securityholders could make
such sale, pay such compensation or make such a distribution. Financial Intranet
is under no obligation to file a post-effective amendment to the registration
statement of which this prospectus is a part under such circumstances.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the securities being
offered by Financial Intranet will be passed upon for Financial Intranet by
McLaughlin & Stern, LLP, New York, New York. McLaughlin & Stern, LLP owns
options to purchase 75,000 shares of common stock at an exercise price of $.60
per share and 75,000 shares of common stock at an exercise price of $1.20 per
share. Mr. Schuster owns 11,111 shares of common stock.
EXPERTS
The financial statements as of December 31, 1998 and December 31, 1997 and for
the years ended December 31, 1998 and December 31, 1997 included in this
prospectus have been so included in reliance on the report of Reminick, Aarons &
Company, LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
45
<PAGE>
FINANCIAL INTRANET, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Financial Statements
Report of Independent Public Accountants......................................................................... F-2
Balance Sheets as of December 31, 1997 and 1998 ............................................................... F-3
Statements of Operations for the years ended December 31, 1997 and December 31, 1998 ............................ F-4
Statements of Changes in Stockholders' Equity for the years ended December 31, 1997 and 1998..................... F-5
Statements of Cash Flows for the years ended December 31, 1997 and December 31, 1998 ............................ F-8
Notes to Financial Statements ................................................................................... F-10
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Financial Intranet, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheets of Financial Intranet, Inc. (a
Development Stage Company) as of December 31, 1998 and 1997, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Financial Intranet, Inc. (a
Development Stage Company) as of December 31, 1998 and 1997, and the results of
its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is in the development stage and has
experienced significant losses since its inception. In addition, the Company has
a negative working capital at December 31, 1998 and 1997 and the continuation of
the business is also dependent upon the Company's private placement and public
offering being successful. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans with regard
to these matters are also further described in Note 1. The accompanying
financial statements do not include any adjustments that may result should the
Company be unable to continue as a going concern.
/s/ REMINICK, AARONS & COMPANY, LLP
New York, New York
March 5, 1999, except for Note 6,
as to which the date is March 15, 1999
F-2
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1997 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................................. $ 1,929 $ 149,225
Accounts receivable........................................................................ 0 44,070
Due from officers.......................................................................... 20,410 5,074
Prepaid expenses........................................................................... 4,693 4,378
-------- ---------
Total current assets.......................................................................... 27,032 202,747
Property and equipment, net................................................................... 235,712 961,195
Deferred offering costs....................................................................... 0 79,991
Deferred debt issuance costs.................................................................. 0 55,000
Notes receivable.............................................................................. 41,200 0
Capitalized software development costs, net................................................... 68,275 88,058
Other assets.................................................................................. 23,773 26,157
-------- ---------
Total assets.................................................................................. $395,992 $1,413,148
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities.................................................. $140,292 $771,567
Due to officers........................................................................... 43,489 98,618
Loan payable.............................................................................. 47,250 0
-------- ----------
Total current liabilities.................................................................... 231,031 870,185
Note payable................................................................................. 0 500,000
-------- ----------
Total liabilities............................................................................ 231,031 1,370,185
-------- ----------
Commitments and contingencies
Stockholders' Equity:
Common stock, $.001 par value, 25,000,000 shares authorized and 15,589,228
shares issued and outstanding December 31, 1997; 50,000,000 shares authorized
and 20,561,048 shares issued and outstanding December 31, 1998 ........................... 15,589 20,561
Additional paid-in capital................................................................... 1,306,622 4,079,186
Accumulated deficit during the development stage............................................. (851,928) (2,993,906)
Less: Stock subscriptions receivable......................................................... (75,000) 0
Deferred compensation cost............................................................. (230,322) (1,062,878)
-------- ----------
Total stockholders' equity................................................................... 164,961 42,963
-------- ----------
Total liabilities and stockholders' equity................................................... $395,992 $1,413,148
======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998
---- ----
<S> <C> <C>
Revenue .................................................................... $ 0 $ 89,169
------------ ------------
Operating costs and expenses:
Cost of revenue ......................................................... 0 163,033
Sales and marketing expenses ............................................ 55,794 50,246
General and administrative expenses ..................................... 748,214 988,509
Depreciation and amortization ........................................... 0 129,413
Stock compensation expense .............................................. 13,272 897,808
------------ ------------
Total operating costs and expenses ................................... 817,280 2,229,009
------------ ------------
Loss from operations ....................................................... $ (817,280) $ (2,139,840)
Other income (expense):
Interest income ......................................................... $ 2,475 $ 4,140
Interest expense ........................................................ (2,625) (6,278)
------------ ------------
Total other (expense) ................................................ (150) (2,138)
----- -------
Net loss ................................................................... $ (817,430) $ (2,141,978)
============ ============
Basic and diluted net loss per share ....................................... $ (0.07) $ (0.12)
============ ============
Number of shares used in calculating basic
and diluted net loss per share .......................................... 10,932,900 18,328,984
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
Additional
Paid-in
Description Shares Amount Capital
- ----------- ------ ------ ----------
<S> <C> <C> <C>
Balance--January 1, 1997 .......................................................... 3,980,000 $ 3,980 $ 30,620
February 29, 1997--issuance of stock in lieu of compensation to key
executives .................................................................. 4,250,000 4,250 148,500
May 1997 through December 31, 1997--Private Placement .......................... 6,904,228 6,904 877,823
August 4, 1997--issuance of stock in lieu of $6,500 in promotional
fees ........................................................................ 100,000 100 6,400
September, 1997--issuance of stock to employees and increase in
additional paid-in capital resulting from stock options granted ............. 40,000 40 243,594
November 15, 1997--issuance of stock per non-dilution provisions of
consulting agreement ........................................................ 315,000 315 (315)
Net loss ....................................................................... -- -- --
---------- ----------- ------------
Balance--December 31, 1997 ........................................................ 15,589,228 15,589 1,306,622
January, 1998--issuance of stock subscribed in 1997 ............................ 400,000 400 29,600
Jan.-July 1998--issuance of stock per non-dilution provisions of
consulting agreement ........................................................ 346,742 347 (347)
May-Dec., 1998--issuance of stock in lieu of services .......................... 309,249 309 96,317
June and July, 1998--Promissory notes converted ................................ 1,070,800 1,071 463,930
June and October, 1998--Private placement ...................................... 1,237,666 1,238 443,262
June 11, 1998--issuance of stock in lieu of fees on June, 1998 private
placement ................................................................... 38,393 38 (38)
July 17, 1998--issuance of stock to release security interest in certain
equipment ................................................................... 500,000 500 314,500
October 15, 1998--issuance of stock in lieu of fees on 1997 private
placement ................................................................... 68,970 69 (69)
October 15, 1998--issuance of stock resulting from exercise of
warrants .................................................................... 1,000,000 1,000 159,000
Increase in additional paid-in capital resulting from stock options and
warrants granted ............................................................ -- -- $ 1,266,409
Net loss ....................................................................... -- -- --
---------- ----------- ------------
Balance--December 31, 1998 ........................................................ 20,561,048 $ 20,561 $ 4,079,186
---------- ----------- ------------
</TABLE>
F-5
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY--(Continued)
For the Years Ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
Accumulated
Deficit
During the
Subscriptions Deferred Stock Development
Description Receivable Compensation Stage
- ----------- ------------- -------------- -----------
<S> <C> <C> <C>
Balance--January 1, 1997 ........................................................ -- $-- $ (34,498)
February 29, 1997--issuance of stock in lieu of compensation to key
executives ................................................................ -- -- --
May 1997 through December 31, 1997--Private Placement ..................... (75,000) -- --
August 4, 1997--issuance of stock in lieu of $6,500 in promotional
fees ...................................................................... -- -- --
September, 1997--issuance of stock to employees and increase in
additional paid-in capital resulting from stock options
granted ................................................................... -- (230,322) --
November 15, 1997--issuance of stock per non-dilution provisions of
consulting agreement ...................................................... -- -- --
Net loss .................................................................. -- -- (817,430)
----------- ------------ -----------
Balance--December 31, 1997 ...................................................... (75,000) (230,322) (851,928)
January, 1998--issuance of stock subscribed in 1997 ........................ 75,000 -- --
Jan.-July 1998--issuance of stock per non-dilution provisions of
consulting agreement ....................................................... -- -- --
May-Dec., 1998--issuance of stock in lieu of services ...................... -- -- --
June and July, 1998--Promissory notes converted ............................ -- -- --
June and October, 1998--Private placement .................................. -- -- --
June 11, 1998--issuance of stock in lieu of fees on June, 1998
private placement .......................................................... -- -- --
July 17, 1998--issuance of stock to release security interest in
certain equipment .......................................................... -- -- --
October 15, 1998--issuance of stock in lieu of fees on 1997 private
placement .................................................................. -- -- --
October 15, 1998--issuance of stock resulting from exercise of
warrants ................................................................... -- -- --
Increase in additional paid-in capital resulting from stock options
and warrants granted ....................................................... -- (832,556) --
Net loss ................................................................... -- -- (2,141,978)
----------- ------------ -----------
Balance--December 31, 1998 ...................................................... $-- $(1,062,878) $(2,993,906)
=========== ============ ===========
</TABLE>
F-6
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY--(Continued)
For the Years Ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
Total
Description Stockholders' Equity
- ----------- --------------------
<S> <C>
Balance--January 1, 1997 ............................................................................. $ 102
-
February 29, 1997--issuance of stock in lieu of compensation to key executives ..................... 152,750
May 1997 through December 31, 1997--Private Placement .............................................. 809,727
August 4, 1997--issuance of stock in lieu of $6,500 in promotional fees ............................ 6,500
September, 1997--issuance of stock to employees and increase in additional paid-in capital
resulting from stock options granted ............................................................ 13,312
November 15, 1997--issuance of stock per non-dilution provisions of consulting agreement ........... --
Net loss ........................................................................................... (817,430)
-----------
Balance--December 31, 1997 ............................................................................ 164,961
January, 1998--issuance of stock subscribed in 1997 ................................................ 105,000
Jan.-July 1998--issuance of stock per non-dilution provisions of consulting agreement .............. --
May-Dec., 1998--issuance of stock in lieu of services .............................................. 96,626
-----------
June and July, 1998--Promissory notes converted .................................................... 465,001
-----------
June and October, 1998--Private placement .......................................................... 444,500
June 11, 1998--issuance of stock in lieu of fees on June, 1998 private placement ................... --
July 17, 1998--issuance of stock to release security interest in certain equipment ................. 315,000
October 15, 1998--issuance of stock in lieu of fees on 1997 private placement ...................... --
October 15, 1998--issuance of stock resulting from exercise of warrants ............................ 160,000
Increase in additional paid-in capital resulting from stock options and warrants granted ........... 433,853
Net loss ........................................................................................... (2,141,978)
-----------
Balance--December 31, 1998 ............................................................................ $ 42,963
===========
</TABLE>
See Statement of Cash Flows - (Noncash Investing and Financing
Activities) for related disclosure regarding issuance of common stock
for noncash consideration.
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998
-----------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ......................................................................... $ (817,430) $(2,141,978)
----------- -----------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ................................................. 0 129,413
----------- -----------
Reserve for bad debts ......................................................... 0 41,200
Consulting services paid by issuance of common stock ........................ 159,290 90,626
----------- -----------
Compensation expense resulting from stock options granted ................... 13,272 897,808
----------- -----------
Changes in operating assets and liabilities:
Accounts receivable ........................................................... 0 (44,070)
----------- -----------
Prepaid expenses .............................................................. (4,693) 315
Deferred offering costs ....................................................... 0 (55,991)
----------- -----------
Other assets .................................................................. (23,773) (2,384)
Accounts payable and accrued expenses ......................................... 140,292 631,275
----------- -----------
Net cash used in operating activities ......................................... (533,042) (453,786)
----------- -----------
Cash flows from investing activities:
Notes receivable advances ..................................................... (41,200) 0
Loans advanced from (to) officer............................................... (20,410) 15,336
Purchase of property and equipment ............................................ (235,712) (833,128)
----------- -----------
Capitalized software development costs ...................................... (68,275) (41,551)
----------- -----------
Net cash used in investing activities ...................................... (365,597) (859,343)
----------- -----------
Cash flows from financing activities:
(Repayments of) proceeds from loan payable .................................. 47,250 (47,250)
Proceeds from issuance of promissory notes .................................... 0 1,500,000
Payment of financing fees ..................................................... (70,523) (156,000)
Proceeds from issuance of common stock ........................................ 880,250 37,500
Collection of stock subscriptions receivable .................................. 0 70,000
Proceeds from issuance of warrants ............................................ 0 1,046
Advances from officers ........................................................ 43,489 55,129
----------- -----------
Net cash provided by financing activities ..................................... 900,466 1,460,425
----------- -----------
Net increase in cash and cash equivalents ........................................ 1,827 147,296
Cash and cash equivalents--beginning ............................................. 102 1,929
----------- -----------
Cash and cash equivalents--ending ................................................ $ 1,929 $ 149,225
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest ........................................ $ 2,625 $ 4,167
=========== ===========
</TABLE>
F-8
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
STATEMENTS OF CASH FLOWS --(Continued)
<TABLE>
<CAPTION>
Noncash investing and financing activities:
<S> <C>
The following noncash transactions occurred during the year ended December
31, 1997:
-- 4,250,000 shares of the Company's common stock were issued to three
(3) key executives in lieu of $152,750 for executive compensation and
consulting fees.
-- 100,000 shares of the Company's common stock were issued to outside
consultants in lieu of $6,500 in promotional fees.
-- 315,000 shares of the Company's common stock valued at $315 were
issued at par value to outside consultants in accordance with the
anti-dilution provisions of the consulting agreement entered into by
the Company in December 1996.
-- Additional paid-in capital was increased by $243,594 and deferred
compensation of $230,322 was recorded resulting from stock options
granted (4,810,776 shares at $.05).
The following noncash transactions occurred during the year ended December
31, 1998:
-- 309,249 shares of the Company's common stock were issued to outside
consultants in lieu of $90,626 in services and $16,000 in deferred
offering costs, which represented the fair market value of services
rendered.
-- 1,000,000 shares of the Company's common stock were issued to an
independent consultant in exchange for $10,000 (as discussed in
Note 6) for providing various marketing, sales, general, and public
relations consulting services over a 24-month period. This amount
represented the excess of the market price of the Company's common
stock at date of grant over the exercise price.
-- 346,742 shares of the Company's common stock at par value were issued
to outside consultants in accordance with the anti-dilution provisions of
the consulting agreement entered into by the Company which terminated
in July 1998.
-- 500,000 shares valued at $315,000 were issued to an outside
facilitator as a settlement to release its security interest in
certain of the Company's equipment. This amount represented the fair
market value of the common stock issued at the date of settlement.
/* 1 moved from here; text not shown/
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
Description of Business
Financial Intranet, Inc. (the "Company"), formerly Wee Wees, Inc. (which was
formerly Alexis & Co.) is a Nevada corporation incorporated on December 16,
1993. The founder of the Company acquired all of the outstanding shares of Wee
Wees, Inc. to obtain the benefits of a corporate entity for the business. The
Company provides a secure on-demand proprietary network (intranet) for
broker-dealers and their registered representatives. The network is designed to
provide updated training and data information concerning, among other things,
those mutual funds planning to participate in the Company's network. In
addition, the Company has developed an Internet presence accessible to the
general public, which will highlight the Company's clients. It is the Company's
plan to connect over 500 U.S. broker-dealer locations and subsequently provide
local access ports in various cities around the world. The Company has not yet
generated significant revenue from its operations and is therefore considered to
be a development stage company in accordance with Statement of Financial
Accounting Standards No. 7.
Going Concern Uncertainty
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. At December 31, 1997, the Company had a
negative working capital of $203,999 and a stockholders' equity of $164,961. At
December 31, 1998, the Company has a negative working capital of $667,438 and a
stockholders' equity of $42,963. As the Company is still in the development
stage and has experienced significant losses since its inception, there is
substantial doubt that it will be able to continue as a going concern without
the additional funding as contemplated by the Company's private placement and
public offering (see Note 12). If the public offering is not effected and
successful, management plans to seek alternate funding from an affiliated third
party, which will enable the Company to grow beyond the development stage. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Accounts Receivable
Accounts receivable are principally from users of the Company's communications
network. Accounts receivable at December 31, 1998 was $44,070. There were no
accounts receivable at December 31, 1997 as no revenues were generated during
1997. Management believes that all accounts receivable are fully collectible;
accordingly, no allowance for uncollectible accounts has been provided.
F-10
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 1--Summary of Significant Accounting Policies--(Continued)
Property and Equipment
Property and equipment are stated at cost. At December 31, 1997, the computer
hardware and software acquired to implement the Company's intranet and internet
systems were not fully operational. As such, no depreciation or amortization had
been calculated for these assets for 1997. Depreciation for the year ended
December 31, 1998 was $107,645 as the equipment and related software were not
placed in service until 1998. These assets are being depreciated on a
straight-line basis over their estimated lives, which range from three to five
years.
Deferred offering and debt issuance costs
Costs incurred in connection with the proposed offering of securities (see Note
12) and with the issuance of the December 31, 1998 convertible promissory note
have been deferred and will be offset against the proceeds of the offering and
conversion of debt. If the offering is not effected, these costs will be
expensed. The debt issuance costs will be amortized over the life of the debt,
if not converted.
Capitalized software development costs
Capitalized software development costs represent the costs of developing and
updating an Internet presence at the Company's web site. These costs are being
amortized on a straight-line basis over its estimated life of two years in
accordance with Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use." Amortization of capitalized
software development costs was $21,768 for the year ended December 31, 1998.
There was no amortization in 1997 because the web site was not placed in service
until 1998.
Basis for assigning amounts to equity securities issued for other than cash
Shares of common stock issued for other than cash have been assigned amounts
equivalent to the fair market value of the service or assets received in
exchange.
Revenue recognition
Revenue is recognized at the time telephone communications usage is incurred.
Advertising
Advertising and marketing costs are expensed as incurred.
Income taxes
The Company accounts for income taxes in accordance with the asset and liability
method of accounting for income taxes proscribed by Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and
F-11
<PAGE>
liabilities are measured using enacted tax rates expected to apply to the
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 1--Summary of Significant Accounting Policies--(Continued)
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
Earnings per share
During the year ended December 31, 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 requires the presentation of basic and diluted earnings per
share ("EPS"). Basic EPS is computed by dividing net loss available to common
stockholders by the weighted-average number of common shares outstanding during
the period. Diluted EPS is computed by dividing that net loss by the
weighted-average number of common shares and common stock equivalents
outstanding during the period. Common stock equivalents have been excluded from
the weighted-average shares for 1997 and 1998, because their inclusion is
anti-dilutive. All prior period EPS information has been computed in accordance
with the new pronouncement.
Stock-based compensation
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 is effective for fiscal years beginning
after December 31, 1995 and prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair value
method. The Company accounts for its stock-based compensation in accordance with
the provisions of APB 25.
Effect of recently issued accounting standards
In June 1997, the Financial Accounting Standards Board issued two new disclosure
standards.
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130") establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company's net loss is the only item of comprehensive
income through December 31, 1997 and December 31, 1998.
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and related Information" ("SFAS 131"), which supersedes
Statement of Financial Accounting Standards No. 14, "Financial Reporting for
Segments of a Business Enterprise", establishes standards for the way that
public enterprises report information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements regarding products and
services, geographic areas and major customers. SFAS 131 defines operating
F-12
<PAGE>
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The Company has only one operating segment.
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 1--Summary of Significant Accounting Policies--(Continued)
SFAS 130 and 131 are effective for financial statements for periods beginning
after December 15, 1997 and require that comparative information for earlier
years be restated.
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures About Pensions
and Other Postretirement Benefits" ("SFAS 132"), which standardizes the
disclosure requirements for pensions and other postretirement benefits. SFAS 132
is applicable for fiscal years beginning after December 15, 1997. The Company
does not expect adoption of SFAS 132 to have a material effect, if any, on the
financial statements and results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, collectively referred to as derivatives and hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial condition and measure those
instruments at fair value. SFAS 133 is effective for fiscal years beginning
after June 15, 1999. The Company has not determined the effect on its financial
statements or results of operations, if any, from the adoption of this
statement.
In October 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 134, "Accounting for Mortgage-backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise" (SFAS 134). This is an amendment to Statement of
Financial Accounting Standards No. 65, "Accounting for Certain Mortgage Banking
Activities", which establishes standards requiring that, after a securitization
of a mortgage loan is held for sale, an entity engaged in mortgage banking
activities classify the resulting mortgage-backed security as a trading
security. SFAS 134 is effective for fiscal years beginning after December 15,
1998. The Company's financial statements and results of operations are
unaffected by SFAS 134.
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use" (SOP 98-1),
which provides guidance on accounting for the cost of computer software
developed or obtained for internal use regarding either the capitalization or
expensing of software costs that meet certain specified criteria. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998 with earlier
application encouraged. SOP 98-1 has been adopted by the Company for the year
ended December 31, 1998.
In April 1998, the AICPA issued Statement of Accounting Position, 98-5
"Reporting on the costs of Start up Activities" (SOP 98-5), which provides
guidance on defining start up activities and requires that entities expense
start-up costs and organizational costs as they are incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998 with earlier
application encouraged, and was adopted by the Company in 1997.
F-13
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 2--Notes Receivable-- (Continued)
Reclassifications
Certain accounts from the 1997 financial statements have been reclassified in
order to conform with the 1998 financial statement presentation. These
reclassifications have no effect on the previously reported net loss.
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 revenue and expenses during the reporting period.
Actual results could differ from those estimates.
** 13 In connection with entering into a Letter of Intent to acquire 80% of the
equity of Micro-Intelligent Systems, Inc. (MIS), a private corporation that
manufactures a portable electronic document device, the Company provided loans
to MIS. On February 25, 1997, in conjunction with the signing of the Letter of
Intent, the Company provided a loan of $20,000, due on demand on or after
February 25, 2007, together with interest at the rate of 4% per annum. On March
21, 1997, the Company issued an additional loan of $20,000, due on demand on or
after March 21, 2007, together with interest at the rate of 4% per annum.
Subsequently, management has rescinded plans for the acquisition. Accrued
interest of $1,200 was due on these notes receivable at December 31, 1998. As
of December 31, 1998, the Company has fully reserved the balance of $41,200 for
the potential uncollectibility of this note and related accrued interest.
Note 3--Property and Equipment
Property and equipment consists of the following at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
12/31/97 12/31/98
-------- --------
<S> <C> <C>
Computer equipment...................................................................... $235,712 $1,068,840
Accumulated depreciation................................................................ -- (107,645)
-------- ----------
$235,712 $ 961,195
======== ==========
</TABLE>
Note 4--Loan Payable
In September 1997, Civilization Communications Inc. (CivCom), a consultant, (see
Note 6) advanced funds to various vendors on behalf of the Company. These
payments were documented in a promissory note dated January 2, 1998 in the
principal amount of $47,250, bearing interest at the prime rate and due on June
30, 1998. On August 28, 1998 the balance, including principal and interest, was
fully repaid.
Note 5--Note Payable
F-14
<PAGE>
On December 31, 1998, the Company entered into a subscription agreement for a
private placement of $500,000 consisting of a 7% convertible promissory note in
the principal amount of $500,000, and warrants to purchase 1,250,000 shares of
the Company's common stock, at an exercise price of $.60 per share as defined in
the agreement.
The Company paid, on the closing date, fees of $55,000 as a reduction of the
proceeds. In addition, the two placement agents, as part of their fees, received
25,000 shares of common stock and warrants to purchase 160,000 shares of common
stock at an exercise price of $.64 per share and 125,000 shares of common stock
at an exercise price of $.40 per share, respectively, of common stock. The
25,000 shares were issued in January 1999.
Note 6--Commitments
Operating leases
The Company subleased its office space in New York City until April 1998. Rent
expense under this lease charged to operations was $22,431 and $16,299 for the
years ended December 31, 1997 and 1998, respectively.
F-15
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 6--Commitments--(Continued)
In October 1997, the Company entered into a lease agreement for office space in
Ardsley, New York for a term of three (3) years commencing on January 1, 1998.
The lease agreement provides for a fixed annual base rent of $15,575 payable in
equal monthly installments plus a proportionate share of certain incremental
building operating expenses as defined in the lease agreement.
In June 1998, the Company entered into another lease agreement for additional
office space in Ardsley, New York for a term commencing on July 15, 1998 and
expiring on December 31, 2000. This lease provides for an annual base rent of
$8,303 payable in equal monthly installments, plus a proportionate share of
certain incremental building operating expenses as defined in the lease
agreement. Rent expense under these leases charged to operations was $0 and
$22,062 for the years ended December 31, 1997 and 1998, respectively. Minimum
required future rental payments under these operating leases at December 31,
1998 are as follows:
1999...............................................$23,878
2000............................................... 23,878
-------
$47,756
=======
Consulting agreement--Civilization Communications Inc.
In October 1996, the Company entered into an agreement executed by its founder
(amended December 20, 1996), with Civilization Communications Inc. (CivCom), to
provide various consulting services. Specifically, CivCom assisted in the
preparation of the Company's Business Plan and the preparation of the initial
Private Placement Memorandum (PPM) as well as associated and relevant documents.
In addition, the agreement provides for CivCom, at the Company's request, to
assist in the preparation of all filings and to prepare the documentation
required to be filed with various state and federal agencies concerning the
raising of the funds encompassed by the PPM. In consideration of the services
provided, the agreement provides for $25,000 in compensation, payable as
follows: a $15,000 cash payment from the funds acquired through the placement of
any of the Company's securities and 200,000 shares (subsequently adjusted to
240,000 shares) of common stock (in lieu of $10,000).
In accordance with the non-dilutive provisions of the agreement, CivCom was
entitled to maintain a 6.1% share of the total outstanding shares of the
Company's common stock through July 7, 1998. As such, CivCom was issued 315,000
shares during 1997 and 346,742 shares during 1998 at which time the agreement
was cancelled by the Company. Subsequent to July 1998, CivCom continued to
consult the Company on a fixed price per hour basis.
Consulting agreements--key executives
In February 1997, the Company entered into consulting agreements with three key
executives to whom the Company intended to eventually offer long-term employment
agreements (see below). The consulting agreements provide for monthly stipends
from the date of signing to the date the Company and the executives enter into
the employment agreements. The consulting agreements also provide for the
issuance of the Company's common stock at par value since at the time there was
no determined market value for the shares issued as the Company was recently
formed and had no operations at this time. In addition, in February 1997, in
lieu of $150,000 in compensation for consulting services through December 31,
1997, the founder was issued an additional 1,500,000 shares of the Company's
common stock. The key executives and the related provisions within their
respective agreements are as follows:
F-16
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 6--Commitments--(Continued)
<TABLE>
<CAPTION>
Par Value of
Monthly Common stock Stock
Executive Stipend Issued Issued
- ------------ ------------ ------ ------
<S> <C> <C> <C>
Founder................................................................. $0 1,500,000 shares $1,500
Founder................................................................. $12,500 1,500,000 shares 1,500
President and Chief Operating Officer................................... $12,500 750,000 shares 750
Executive Vice-President ............................................... $5,417 500,000 shares 500
---------- --------
4,250,000 $4,250
</TABLE>
Employment agreements
On September 12, 1997, the Company entered into employment agreements with three
key executives which were later amended on March 15, 1999. The agreements are
for a five-year period commencing on September 12, 1997 and may be extended by
the Company for an additional three-year period upon written notice six months
prior to the third anniversary of the original term. The agreements stipulate
the duties, compensation and benefits, indemnification, termination and various
other terms of employment. Included in compensation for all three executives is
an option to purchase, at any time while the executive is employed by the
Company, additional shares (in addition to any shares previously issued) of the
Company's common stock through December 31, 1998. The purchase price for such
shares is at a price per share equal to eighty percent of the per share bid
price averaged over five working days prior to the date of the signed employment
agreement. The options shall permit each executive to purchase up to a certain
percentage (see below) of the Company's issued and outstanding shares of common
stock less; i) shares previously issued according to the consulting agreement;
ii) less any shares previously issued as a result of the exercise of this option
and (iii) less any shares issued in lieu of cash expenses advanced by the
executive or accepted as previously earned consulting fees paid to the executive
in lieu of cash. All options granted under the employment agreements expire on
December 31, 2002, except for earlier dates relative to termination.
The number of the Company's issued and outstanding common stock for the purpose
of calculating the total number of shares which may be purchased by the
executive in exercising the option shall be: i) the number of shares issued on
the later of the exercise date or any date prior to December 31, 1998, providing
that ii) the total number of shares issued as utilized in the calculation of the
shares available for purchase under the option shall not exceed the number of
shares issued and outstanding at December 31, 1998 as recorded on the Company's
stock ledger and as reported by the Company's transfer agent. These options are
non-transferable and expire on the last date of the original employment term or
any extension thereof (See note 8). The executives and the related provisions of
their employment agreement are detailed below:
<TABLE>
<CAPTION>
Stock Option
Percentage
Executive Base Salary through December 31, 1998
- --------- ----------- -------------------------
<S> <C> <C>
Founder.................................................................................$150,000 25.0%
President and Chief Operating Officer...................................................$150,000 14.5%
Executive Vice-President ............................................................. $100,000 9.0%
</TABLE>
F-17
<PAGE>
Consulting agreement--independent consultant
On October 6, 1997, the Company entered into a consulting agreement with an
individual to provide various marketing, sales, general and public relations
consulting in connection with undertaking the promotion of the Company's
products, training
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 6--Commitments--(Continued)
programs and services to broker/dealers, underwriters and administrators of
mutual funds. In consideration for services provided, the agreement granted the
consultant a warrant to purchase up to one million (1,000,000) shares of the
common stock of the Company at $.01 per share. In addition, all travel, mailing,
entertainment, printing, postage and all other expenses directly related to
services will be reimbursed by the Company. The warrant was exercised on October
9, 1998 for 1,000,000 shares.
The terms of the agreement are for a 24-month period commencing with the date of
the signing of the agreement and shall terminate on October 20, 1999, with an
extension convertible to October 20, 2000, unless sooner by death of the
consultant or a 30-day notice of termination by either party. Stock compensation
costs charged to operations for warrants issued was $150,000 for the year ended
December 31, 1998.
Major customers
A substantial portion of the Company's revenue is derived from three major
customers which, individually, constitute approximately 38.3%, 22.0% and 15.6%
of total revenue.
F-18
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 7--Private Placements
The Company had a private placement offering in June 1997, whereby 6,904,228
shares of common stock were issued. The Company had two outstanding subscription
agreements from investors totaling $75,000 at December 31, 1997.
The Company subsequently issued 400,000 shares of common stock in January 1998.
On May 20, 1998, the Company entered into subscription agreements to issue a
total of $500,000 in convertible debentures, due November 20, 1998. The
debentures pay 6% cumulative interest annually, payable in cash or in freely
trading common stock of the Company, at the Company's option at the time of each
conversion until the principal amount is paid in full or has been converted. The
debentures are subject to automatic conversion at the end of six months from the
date of issuance based on a formula as defined under the agreements. The holder
of the debenture has the right, at their option, to convert it into shares of
the Company's common stock at any time before the close of business on the
maturity date. The debentures were converted into 1,070,800 shares in June and
July 1998.
On June 4, 1998, the Company entered into a Placement Agent Agreement with
Corporate Capital Management LLC (CCM). The agreement appointed CCM exclusive
placement agent of the Company during the offering period as defined in the
agreement for the purpose of assisting the Company in the sale of $500,000 (the
Funds) in principal amount of its convertible 12% promissory note due December
1, 1998 (the Note). The agreement provides for a cash fee in an amount equal to
10% of the gross proceeds from the sale of the Note plus warrants to purchase
50,000 shares of the Company's common stock. The warrants shall be exercisable
at a price equal to 110% of the bid price for the common stock on the date of
closing of the sale of the Note. In conjunction with the agreement to retain CCM
as placement agent, on June 4, 1998, the Company entered into a subscription
agreement for the Note. The Note is convertible, at the holder's option, at any
time, into shares of common stock of the Company. The number of shares of common
stock into which the Note may be converted shall be determined at the lesser of
(i) 72.5% of the lowest closing bid price quoted on the over-the-counter
Bulletin Board market of the common stock for the five-day trading period ending
on the day prior to the conversion date or (ii) the lowest closing bid price
quoted on the Bulletin Board of the common stock for the five-day trading period
ending on the day prior to the closing of the sale of the Note. The note was
converted to 1,352,718 shares of the Company's common stock in June 1998 and
115,052 shares were subsequently cancelled in October 1998.
Note 8--Stock Options and Warrants
The following stock options and warrants were granted during 1997 and 1998:
Warrants to purchase 1,000,000 shares of common stock exercisable at $.01 per
share pursuant to a consulting agreement (See note 6).
Warrants to purchase 166,667 shares of common stock to a consultant on July 15,
1998 which expire June 22, 2003, at an exercise price of $.40 per share.
Stock options to purchase 250,000 shares of common stock to each of two
employees at an exercise price of $.625 per share, which vest one-third each
year over the next three years beginning in December 1999.
Warrants to purchase 150,000 shares of common stock for legal services: 75,000
shares on July 10, 1998 which expire July 10, 2003, at an exercise price of
$1.20 per share; and 75,000 shares on November 25, 1998 which expire November
24, 2003, at an exercise price of $.60 per share.
F-19
<PAGE>
Stock options to purchase 4,810,776 and 2,411,333 shares of common stock during
1997 and 1998, respectively, exercisable at FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 8--Stock Options and Warrants--(Continued)
$.19 per share pursuant to employment agreements with three key executives (See
note 6).
Warrants to purchase 10,000 shares of common stock to each of two directors, one
issued on September 1, 1998 which expires August 31, 2001, exercisable at a
price of $.725 per share; and the other issued on November 13, 1998 which
expires November 13, 2001, exercisable at a price of $.60 per share.
Warrants to purchase 285,000 shares of common stock to two investment bankers as
commissions for a December 31, 1998 private placement of convertible promissory
notes, one of which is for 125,000 shares of common stock exercisable at a price
of $.40 per share, and the other which is for 160,000 shares of common stock
exercisable at a price of $.64 per share.
Warrants to purchase 200,000 shares of the Company's common stock were issued to
a consultant on April 1, 1997 at an exercise price of $7.25. These warrants
expire on March 31, 2002.
Warrants to purchase 50,000 shares of the Company's common stock were issued to
the placement agent for a June, 1998 private placement. The warrants are
exercisable at $.64 per share.
The charge to operations for the above grants of options and warrants for the
year ended December 31, 1998 was $156,150.
Summary information with respect to stock options granted is as follows:
<TABLE>
<CAPTION>
Outstanding Outstanding
Exercise Options Options
Price Granted Exercisable
----- ------- -----------
<S> <C> <C> <C>
Balance, January 1, 1997..................................................... -- --
Activity:
Options granted........................................................... $.19 4,810,776 4,810,776
Options exercised......................................................... -- --
Options cancelled......................................................... -- --
--------- ---------
Balance, December 31, 1997................................................... $.19 4,810,776 4,810,776
Activity:
Options granted........................................................... $.19 2,411,333 2,411,333
Options exercised......................................................... -- --
Options cancelled......................................................... -- --
--------- ---------
Balance, December 31, 1998................................................... $.19 7,222,109 7,222,109
========= =========
</TABLE>
F-20
<PAGE>
Compensation cost charged to operations for stock options granted was $13,272
and $276,658 for the years ended December 31, 1997 and 1998, respectively.
1998 Stock Option Plan
In December, 1998, the Company established the 1998 Stock Option Plan ("1998
Plan") which provides for the granting of options which are intended to qualify
either as incentive stock options ("Incentive Stock Options") within the meaning
of Section 422 of the
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 8--Stock Options and Warrants--(Continued)
Internal Revenue Code of 1986, as amended, or as options which are not intended
to meet the requirements of such section ("Non-statutory Stock Options"). The
total number of shares of Common stock reserved for issuance under the 1998 Plan
is 1,500,000. Options to purchase shares may be granted under the 1998 Plan to
persons who, in the case of Incentive Stock Options, are key employees
(including officers) of the Company or, in the case of Non-statutory Stock
Options, are key employees (including officers) or non-employee directors of, or
non-employee consultants to, the Company.
The exercise price of all Incentive Stock Options granted under the 1998 Plan
must be at least equal to the fair market value of such shares on the date of
the grant or, in the case of Incentive Stock Options granted to the holder of
more than 10% of the Company's Common stock, at least 110% of the fair market
value of such shares on the date of the grant. The maximum exercise period for
which Incentive Stock Options may be granted is ten years from the date of grant
(five years in the case of an individual owning more than 10% of the Company's
Common stock). The aggregate fair market value (determined at the date of the
option grant) of shares with respect to which Incentive Stock Options are
exercisable for the first time by the holder of the option during any calendar
year shall not exceed $100,000.
The exercise price of all Non-statutory Stock Options granted under the 1998
Plan must be at least equal to 85% of the fair market value of such shares on
the date of the grant.
No options have been granted during 1998 pursuant to the 1998 Plan.
Note 9--Income Taxes
The Company has net operating loss carryforwards available for income tax
reporting purposes of approximately $3,000,000, in the aggregate, expiring in
2011 to 2013 which, upon recognition, gives rise to a deferred income tax asset
of approximately $340,000 and $1,200,000 at December 31, 1997 and 1998,
respectively.
The Company has recorded a 100% valuation allowance on the net deferred tax
asset since management cannot determine if it is more likely than not that the
deferred tax asset will be utilized.
Note 10--Related Party Transactions
Due from officers
At December 31, 1997, the Company had a $19,500 note receivable from an
officer/stockholder of the Company. The note receivable, which is due on demand,
bears interest at 8% per annum. At December 31, 1997, there was $910 of accrued
interest on the note receivable. The balance of this note receivable was fully
repaid on November 19, 1998. At December 31, 1998, there was $5,074 in accounts
receivable due from officers.
F-21
<PAGE>
Due to officers
At December 31, 1997, the Company had an unsecured note payable in the amount of
$43,489 to an officer/stockholder. The borrowings, advanced to meet current
operating obligations, were due on demand and are non-interest bearing. The
remaining balance at December 31, 1998 was $5,889.
In addition, on August 27, 1998 and December 16, 1998, the Company borrowed an
additional $50,000 and $5,000, respectively from the same officer. The
promissory notes, with an interest rate of 8% per annum, are due in 180 days. At
December 31, 1998, interest of $1,350 was accrued on this note.
At December 31, 1998, the Company had an unsecured note payable in the amount of
$36,115 to another officer/stockholder, due on demand. The promissory note bears
an interest rate of 8% per annum. At December 31, 1998, interest of $254 was
accrued on this note.
Note 11--Contingency
Litigation
On July 23, 1998, H & H Acquisition Corp., individually and on behalf of the
Company, commenced an action in federal court in the Southern District of New
York against the Company, the founder and certain officers, among others. The
complaint is an action to recover shares of common stock of the Company
previously sold to an officer/stockholder and unspecified damages. Management
believes that the claims against the Company and certain officers are without
merit and is vigorously defending the action. In addition, management believes
that the plaintiffs' principal causes of action relate to the founder, who has
filed a motion to dismiss the complaint on the grounds, in part, that a mutual
release previously executed with the plaintiff covers the alleged action. No
provision has been made in these financial statements for any possible losses
arising from this litigation.
Settlement agreement
In February 1998, a collateral pledge agreement was executed between the Company
and two outside parties to arrange for the Company to receive $350,000 to
purchase certain network computer and telecommunications equipment. Pursuant to
that collateral pledge agreement, the Company granted a first priority security
interest to one of the parties (the "facilitator") in order to secure the
obligations of the other party ("the borrower") under said agreement. The
Company did not receive the contemplated funds and had to make other
arrangements to fund its purchase of the equipment.
In July 1998, in order to obtain a release of the security interest in the
equipment, the Company issued 500,000 shares of its common stock to the
facilitator. If the facilitator desires to sell the shares, the Company has a
right of first refusal to purchase those shares. In the event there is a sale of
the total shares, the facilitator receives the first $175,000 of the net
proceeds, and the balance shall be divided equally between the facilitator and
the Company. If the sale of shares has not taken place by July 31, 1999, this
agreement shall terminate and the facilitator shall retain ownership of the
shares. The Company has charged $315,000 to operations for the year ended
December 31, 1998 to reflect the issuance of the 500,000 shares of common stock.
Note 12--Subsequent Events
Private placement
F-22
<PAGE>
On February 8, 1999, the Company entered into a subscription agreement for a
private placement of up to $1,700,000 principal amount of 7% convertible
promissory notes and warrants to purchase up to 3,333,333 shares of common stock
in up to five separate installments at an exercise price of $.40 per share for
the initial warrants and $.60 per share for the installments. The agreements
consist of an initial purchase of a Promissory Note in the principal amount of
$600,000 (the "Initial Note") and Initial Warrants to purchase 1,500,000 shares
of Common stock for a purchase price of $600,000.
At the Initial Closing, the Company issued an Initial Note which may later be
convertible into common stock of the Company in the principal amount of
$600,000, with $240,000 of the principal amount, and all accrued interest
thereon, payable upon conversion by the holder thereof commencing March 10,
1999, and $360,000 of the principal amount, and all accrued interest thereon,
payable upon conversion by the holder thereof commencing 90 days after the
Initial Closing Date. The Initial Note with respect to the $240,000 principal
amount was converted on March 10, 1999 and the balance of the $360,000 principal
amount may be converted at any time commencing May 9, 1999. The Installment
Notes in the aggregate principal amount of $1,100,000 may be converted, in whole
or in part, at any time after issuance at the option of the holder.
Commencing on the date the offering becomes effective, and terminating 30
days later, the Company may serve a demand notice or the investor may serve a
purchase notice, with respect to the purchase for $200,000 of a promissory note
in the principal amount of $200,000 and a warrant for the purchase of 333,333
shares of Common Stock at an exercise price of $.60 per share.
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 12--Subsequent Events--(Continued)
The "Conversion price" shall be the lesser of: (i) 75% of the average of the
five lowest closing bid prices of the Common stock during the 30 trading days
ending on the trading day immediately preceding the Conversion date, or (ii)
$.40, $.50 and $.60 per share with respect to the promissory note for the
$200,000 promissory note and two promissory notes in the principal amount of
$300,000, respectively.
During the 90 day period after the closing of the installment for a promissory
note in the principal amount of $200,000, the Company may serve a demand notice
or the investor may serve a purchase notice, with respect to the purchase for
$300,000 of a promissory note in the principal amount of $300,000 and a warrant
for the purchase of 500,000 shares of Common stock (the "Third Installment").
During the 90 day period after the Third Installment, the Company may serve a
demand notice or the investor may serve a purchase notice, with respect to the
purchase for $300,000 of a promissory note in the principal amount of $300,000
and a warrant for the purchase of 500,000 shares of Common stock (the "Fourth
Installment"). During the 90 day period after the Fourth Installment, the
Company may serve a demand notice or the investor may serve a purchase notice,
with respect to the purchase for $300,000 of a Promissory Note in the principal
amount of $300,000 and a warrant for the purchase of 500,000 shares of Common
stock The warrants are exercisable for a period of five years after issuance at
an exercise price of $.60 per share.
The two agents for this placement, as part of their fee, each received 15,000
shares of Common stock and Initial Warrants to purchase 75,000 shares of Common
stock at an exercise price equal to $0.40 per share of Common stock (and
otherwise on terms set forth in the Common stock Purchase Warrant) on the
Initial Closing Date.
On each Closing Date for an installment: (i) the two Placement Agents, as part
of their fee, shall also each receive 1,727 shares of Common stock for each
$100,000 funded to the Company by the Investor, Installment Warrants to purchase
10,000
F-23
<PAGE>
shares of Common stock on the Closing Date for each $100,000 funded on
the second installment, and Installment Warrants to purchase 8,333 shares of
Common stock on each Closing Date for each $100,000 funded on the third, fourth
and fifth installments. The Installment Warrants will have an exercise price of
$0.60 per share.
Public offering
In February 1999, the Company filed a Registration Statement (Form SB-2)
covering the primary offering of Common stock by the Company and the offering of
common stock by certain selling securityholders. Under the primary prospectus,
the Company is registering 4,444,444 Shares of common stock, par value $.001 per
share, to be held for sale. Under an alternate prospectus, the selling
securityholders are registering 5,408,333 shares of common stock underlying the
warrants, 6,075,000 shares of common stock underlying the convertible promissory
notes (including an additional 2,025,000 shares of common stock being registered
with respect to certain anti-dilution provisions of such promissory notes),
655,000 shares of common stock previously issued and 37,994 shares of common
stock which will be issued upon conversion of certain promissory notes. These
shares will be offered to the public at an offering price of $1.35 per share.
Founder consulting agreement
On March 3, 1999 the Company entered into a consulting agreement with the
Company's Founder (the "Founder") whereby the Founder will be retained as a
consultant to act as Director of Brokerage Sales on a commission only basis
through December 31, 2002. The terms of compensation include commissions paid as
a percentage of sales and reimbursement of certain expenses as defined in the
agreement. In addition, under the terms of this agreement, the Founder
acknowledges that he agrees to reduce the number of unexercised options held by
him to purchase shares of the Company common stock from 3,640,262 to 2,500,000
shares at an exercise price of $.19 per share. The Founder has also agreed to
exercise these options with respect to 879,685 shares as of March 3, 1999 in
exchange for settlement of $167,140 in accrued salary and loans owed by the
Company to the Founder.
<PAGE>
We have not authorized anyone to give any information different
from that contained in this prospectus. You must not rely on any
unauthorized information. We are offering to sell, and seeking offers
to buy, shares of common stock only in states where offers and sales
are permitted. The information in this prospectus is accurate only as
of the date of this prospectus.
TABLE OF CONTENTS
Page
----
Prospectus Summary .....................................2
Risk Factors ...........................................6
Use of Proceeds .......................................10
Capitalization.........................................11
Dilution .............................................12
Dividend Policy .......................................13
Management's Discussions and Analysis of
Financial Condition and Results of
Operations ............................................14
Business...............................................18
Management ............................................30
Certain Transactions ..................................35
Principal Stockholders ................................36
Selling Securityholders ...............................37
Description of Securities .............................40
Shares Eligible for Future Sale .......................43
Plan of Distribution ..................................43
Legal Matters..........................................44
Experts................................................44
Financial Statements ................................F-1
Until ____, 1999 (25 days after the date of this prospectus),
all dealers effecting transactions in the securities offered hereby,
whether or not participating in the distribution, may be required to
deliver a prospectus. This is in addition to the obligation of dealers
to deliver a prospectus when acting as underwriters and with regard to
their unsold allotments or subscription.
4,444,444 Shares
of Common Stock
Financial Intranet, Inc.
PROSPECTUS
May , 1999
A-2
<PAGE>
[Alternate Cover Page--- The
Offering] SUBJECT TO COMPLETION,
DATED MAY 14, 1999
PROSPECTUS
10,151,327 Shares of Common stock
Financial Intranet Inc.
Selling securityholders are offering 10,151,327 shares of common stock of
Financial Intranet, Inc.
The selling securityholders may sell the shares of common stock from time to
time. They have no underwriting arrangements. The selling securityholders and
intermediaries through whom such securities may be sold may be "underwriters"
under the Securities Act, and any profits or commissions may be underwriting
compensation. Financial Intranet agreed to indemnify the selling securityholders
against certain liabilities, including liabilities under the Securities Act.
On the date hereof, Financial Intranet commenced a public offering of 4,444,444
shares of common stock through a registration statement of which this prospectus
is a part.
These are speculative securities and this investment involves a high degree of
risk. See "Risk Factors" on page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy of the prospectus. Any representation to the contrary is a criminal
offense.
The date of this Prospectus , 1999
A-1
<PAGE>
The Offering
<TABLE>
<S> <C>
Securities offered by selling securityholders:..................... 10,151,327 shares
Securities outstanding prior to Financial Intranet's offering:..... 22,724,282 shares
Securities outstanding after offering:............................. 36,665,053 shares which include:
o 5,408,333 shares of common
stock issuable upon exercise
of the warrants,
o 4,050,000 shares of common
stock issuable upon conversion
of the promissory notes issued
to the selling
securityholders,
o 655,000 shares of common stock
previously issued to the
selling securityholders,
o 37,994 shares otherwise
issuable to the selling
securityholders, and
o 4,444,444 shares of common
stock being offered by
Financial Intranet.
Risk Factors....................................................... An investment in any of the securities being offered
hereby is highly speculative and involves substantial
risks including the risks of:
o limited operations
o projected losses
o limited number of products
o management's broad discretion
in the application of proceeds
o the possible need for
additional financing
o competition
Investors should carefully consider the matters set forth under the caption
"Risk Factors."
OTC Bulletin Board Symbol:......................................... FNTN
</TABLE>
A-2
<PAGE>
We have not authorized anyone to give any information
different from that contained in this prospectus. You must not rely
on any unauthorized information. We are offering to sell, and
seeking offers to buy, shares of common stock only in states where
offers and sales are permitted. The information in this prospectus
is accurate only as of the date of this prospectus.
TABLE OF CONTENTS
Page
Prospectus Summary ........................................2
Risk Factors ..............................................6
Use of Proceeds ..........................................10
Capitalization............................................11
Dilution..................................................12
Dividend Policy ........................................13
Management's Discussions and Analysis of
Financial Condition and Results of
Operations ............................................14
Business..................................................18
Management ...............................................30
Certain Transactions .....................................35
Principal Stockholders ...................................36
Selling Securityholders ..................................37
Description of Securities ................................40
Shares Eligible for Future Sale ..........................43
Plan of Distribution .....................................43
Legal Matters.............................................44
Experts...................................................44
Financial Statements ....................................F-1
Until , 1999 (25 days after the date of this prospectus), all
dealers effecting transactions in the securities offered hereby, whether
or not participating in the distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver
a prospectus when acting as underwriters and with regard to their unsold
allotments or subscription.
10,151,327 Shares
of Common Stock
Financial Intranet, Inc.
PROSPECTUS
----------------
May , 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors
Subsection 1 of Section 78.7302 of Chapter 78 of the Nevada General
Corporation Law ("NGCL") empowers a corporation to indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (except in an action by or in the right of
the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceedings, had no reasonable
cause to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding,
he had reasonable cause to believe his action was unlawful.
Subsection 2 of Section 78.7502 of the NGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of
the fact that he acted in any of the capacities set forth above, against
expenses, including amounts paid in settlement and attorneys' fees,
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in accordance with the
standard set forth above, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have
been adjudged by a court of competent jurisdiction after exhaustion of all
appeals therefrom to be liable to the corporation or for amounts paid in
settlement to the corporation unless and only to the extent that the court
in which such action or suit was brought or other court of competent
jurisdiction determines that, in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
Section 78.751 of the NGCL provides that unless indemnification is ordered
by a court, the determination to provide indemnification must be made by
the stockholders, by a majority vote of a quorum of the board of directors
who were not parties to the action, suit or proceeding, or in certain
circumstances by independent legal counsel in a written opinion. In
addition, the articles of incorporation, bylaws or an agreement made by the
corporation may provide for the payment of the expenses of a director or
officer of the expenses of defending an action as incurred upon receipt of
an undertaking to repay the amount if it is ultimately determined by a
court of competent jurisdiction that the person is not entitled to
indemnification. Section 78.751 of the NGCL further provides that, to the
extent a director or officer of a corporation has been successful on the
merits or otherwise in the defense of any action, suit or proceeding
referred to in subsection (1) and (2) , or in the defense of any claim,
issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification provided for by Section 78.751
of the NGCL shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled and that the scope of indemnification
shall continue as to directors, officers, employees or agents who have
ceased to hold such positions, and to their heirs, executors and
administrators.
Finally, Section 78.752 of the NGCL empowers the corporation to purchase
and maintain insurance on behalf of a director, officer, employee or agent
of the corporation against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such whether or
not the corporation would have the authority to indemnify him against such
liabilities and expenses.
The Registrant's bylaws provide for indemnification of officer, directors
and others to the fullest extent permitted by the laws of the State of
Nevada.
II-1
<PAGE>
Item 25. Other Expenses of Issuance and Distribution
The expenses payable by registrant in connection with the issuance
and distribution of the securities being registered are estimated
as follows:
Securities and Exchange Commission Fees................... $8,521.43
Accounting Fees and Expenses.............................. $30,000.00
Blue Sky Fees and Expenses................................ $25,000.00
Printing Expenses (including Securities).................. $30,000.00
Legal Fees................................................ $70,000.00
Miscellaneous............................................. $16,478.57
----------
Total.................................................. $180,000.00
===========
The selling securityholders will not assume any of the expenses of their
offering except to the extent that they engage their own legal counsel.
The estimate of expenses includes expenses in connection with the
issuance and distribution of shares by the selling security holders.
Item 26. Recent Sales of Unregistered Securities
All issuances were under Section 4(2) unless otherwise indicated.
Certain issuances under 4(2) were to officers, employees or legal
counsel who are familiar with the operations of the registrant. Other
issuances under Section 4(2) were to advisors, including Civilization
Communication Inc., Kevin Haggerty, Great North Capital Corp., Cardinal
Capital Management, Inc., Josephberg Grosz & Co., JG Capital Inc.,
Ganesh Asset Management Ltd. and Chez Inc. Financial Intranet believed
that these advisors were sufficiently sophisticated to qualify for the
exemption because they are in the business of advising corporations on
marketing, finance or public relations, as the case may be, and are
familiar with the business of the registrant.
Common Stock
On April 28, 1999, Financial Intranet issued 600,000 shares of common stock
to Barry Stein to replace shares that Mr. Stein had pledged to secure
Financial Intranet's obligations under a convertible promissory note.
On April 28, 1999, Financial Intranet issued 11,111 shares of common stock
to Steven Schuster, counsel to Financial Intranet, in consideration for
advisory services valued at $10,000.
On March 3, 1999, Financial Intranet issued 15,000 shares of common stock
each to Cardinal Capital Management Inc. and JG Capital, Inc. as part of
their fees as advisors for structuring a February 8, 1999 private
placement.
On March 3, 1999, Financial Intranet issued 879,685 shares of common stock
to Barry Stein for aggregate consideration of $167,140 upon exercise of
options.
On January 25, 1999, Financial Intranet issued 5,812 shares of common stock
to Ganesh Asset Management for exercise of warrants.
On January 21, 1999, Financial Intranet issued 197,402 shares of common
stock to Barry Stein in consideration for
II-2
<PAGE>
employment services valued at $43,837.55.
On January 21, 1999, Financial Intranet issued 205,825 shares of common
stock to Michael Sheppard in consideration for employment services valued
at $55,854.14.
On January 21, 1999, Financial Intranet issued 208,409 shares of common
stock to Maura Marx in consideration for employment services valued at
$56,109.39.
On January 7, 1999, Financial Intranet issued 12,500 shares of common stock
each to Cardinal Capital Management Inc. and Josephberg Grosz & Co. as part
of their fees as advisors for structuring a December 1998 private
placement.
On December 17, 1998, Financial Intranet issued 26,667 shares of common
stock to Civilization Communication, Inc. in consideration for advisory
services valued at $16,000 in connection with preparation of a Form 10.
On October 9, 1998, Financial Intranet issued 1,000,000 shares of common
stock to Kevin Haggerty in consideration for marketing consulting services
valued at $10,000.
On October 15, 1998, Financial Intranet issued 60,637 shares of common
stock to Great North Capital Corp. in consideration for advisory fees for
structuring a 1997 private placement.
On October 15, 1998, Financial Intranet issued 8,333 shares of common stock
to Ganesh Asset Management, Ltd. in consideration for advisory fees for
structuring a 1997 private placement.
On July 17, 1998, Financial Intranet issued 500,000 shares of common stock
to Internet Credit Corp. in consideration for release of security interest
in equipment.
On July 15, 1998, Financial Intranet issued 112,093 shares of common stock
to Civilization Communication, Inc. pursuant to anti-dilution provisions of
a consulting agreement dated December 1996.
On June 12, 1998, Financial Intranet issued 60,000 shares of common stock
to JG Partners, LP in consideration for investment banking services valued
at $25,000.
On June 11, July 11, and July 23, Financial Intranet issued a total of
1,070,800 shares of common stock to Thomas Kernaghan & Co. in consideration
for investment banking $500,000 pursuant to Rule 504.
On June 11, 1998, Financial Intranet issued 28,794 and 9,599 shares to
Great North Capital and Corporate Capital Management, respectively, in
consideration for advisory services regarding the funding by Cadence
Capital Corporation.
On June 5, 1998, Financial Intranet issued 1,352,718 shares of common stock
to Cadence Capital Corporation in consideration for $500,000 pursuant to
Rule 504 of Regulation D.
On May 19, 1998, Financial Intranet issued 38,066 shares of common stock to
Steven Sanders in consideration for legal services valued at $9,453.50.
On May 19, 1998, Financial Intranet issued 9,516 shares of common stock to
Debra Millman in consideration for legal services valued at $2,422.
On May 19, 1998, Financial Intranet issued 175,000 shares of common stock
to Civilization Communication, Inc. in consideration for advisory services
valued at $43,750 in connection with preparation of a Form 10.
II-3
<PAGE>
On February 9, 1998, Financial Intranet issued 234,649 shares of common
stock to Civilization Communication Corp. pursuant to anti-dilution
provisions of a consulting agreement dated December 1996.
On January 14, 1998, Financial Intranet issued 400,000 shares of common
stock to Landmark Capital in consideration for $107,500.
On November 15, 1997, Financial Intranet issued 315,000 shares to
Civilization Communication Corp. pursuant to anti-dilution provisions of a
consulting agreement.
On September 5, 1997, Financial Intranet issued 20,000 shares of common
stock to Ron Pauls, an employee, in consideration for employment services
rendered.
On September 5, 1997, Financial Intranet issued 20,000 shares of common
stock to James Reiff, an employee, in consideration for employment services
rendered.
On August 4, 1997, Financial Intranet issued 100,000 shares of common stock
to CHEZ, INC. in consideration for $6,500 in public relations.
In June 1997, Financial Intranet issued 6,904,228 shares of common stock to
investors of which 4,304,228 were purchased by non-U.S. residents overseas
for an aggregate consideration of $955,250 pursuant to Rule 504 of
Regulation D.
On February 27, 1997, Financial Intranet issued 750,000 shares of common
stock to Michael Sheppard as an incentive payment for execution of
employment contract pursuant to Section 701.
On February 27, 1997, Financial Intranet issued 500,000 shares of common
stock to Maura Marx as an incentive payment for execution of employment
contract pursuant to Section 701.
On February 27, 1997, Financial Intranet issued 1,500,000 shares of common
stock to Barry Stein as an incentive payment for execution of employment
contract pursuant to Section 701.
On December 20, 1996, Financial Intranet issued 240,000 shares of common
stock to Civilization Communication Corp. in consideration for services
related to preparation of the business plans valued at $10,000.
On December 17, 1996, Financial Intranet issued 40,000 shares of common
stock to Michael Daniels in consideration for services rendered in
connection with his sale of a controlling interest in Wee Wees, Inc.
OPTIONS AND WARRANTS
On February 28, 1999, Financial Intranet issued 20,000 warrants to each of
Scott Goldstein and Sheldon Goldstein in consideration for legal services.
The warrants have an exercise price of $.60 per share and expire five years
after issuance.
On February 8, 1999, Financial Intranet issued warrants to purchase 75,000
shares of common stock to each of Cardinal Capital Management Inc. and J.G.
Capital Inc. in consideration f or investment banking services rendered in
connection with a private placement. The warrants expire five years after
issuance.
On December 31, 1998, Financial Intranet issued warrants to purchase
160,000 shares of common stock to Cardinal Capital Management Inc. with an
exercise price of $.64 per share and 125,000 shares of common stock to J.G.
Capital Inc. with an exercise price of $.40 per share. The warrants expire
five years after issuance. The warrants were issued in consideration for
investment banking services rendered for a private placement.
II-4
<PAGE>
On December 21, 1998, Financial Intranet issued 75,000 warrants to purchase
common stock to McLaughlin & Stern, LLP with an exercise price of $.60 per
share in consideration of legal services rendered and disbursements
incurred. The warrants expire on November 24, 2003.
On December 21, 1998, Financial Intranet agreed to issue options to
purchase 250,000 shares of common stock to Alan Spar at a price of $.625
per share. The options were issued as part of an employment compensation
package, vest over three years and expire on December 31, 2001.
On December 21, 1998, Financial Intranet issued 250,000 options to purchase
common stock to Alan Ross at a price equal to $.625 per share. The options
were issued as part of an employment compensation package, vest over three
years and expire on December 31, 2001.
On November 13, 1998, Financial Intranet issued 10,000 warrants to purchase
common stock at $.60 per share to Steven Weller. The warrants were issued
in consideration for Mr. Weller's agreement to serve as a Director and
expire on November 12, 2001.
On September 1, 1998, Financial Intranet issued 10,000 warrants to purchase
common stock at $.725 per share to Joseph F. Engelberger. The warrants were
issued in consideration for Mr. Engelberger's agreement to serve as a
Director and expire on August 31, 2001.
On July 15, 1998, Financial Intranet issued 166,667 warrants to McCap, Inc.
for public relations services at an exercise price of $.40 per share
expiring June 22, 2003.
On July 11, 1998, Financial Intranet issued 75,000 warrants to purchase
common stock for $1.20 per share to McLaughlin & Stern, LLP in
consideration of legal services rendered and disbursements incurred. The
warrants expire on July 10, 2003.
On July 1, 1998, Financial Intranet issued 980 warrants to purchase common
stock for $.32 per share to Corporate Capital Management for advisory
services. The warrants expire on September 15, 2000.
On June 5, 1998, the Company issued warrants to purchase 50,000 shares of
common stock to Corporate Capital Management with an exercise price of $.64
per share for advisory services.
Pursuant to his employment agreement dated September 12, 1997, Michael
Sheppard received options to purchase 2,231,352 shares of common stock at
an exercise price of $.19 per share. The warrants expire on December 31,
2002.
Pursuant to her employment agreement dated September 12, 1997, Ms. Marx
received options to purchase 1,350,495 shares of common stock at an
exercise price of $.19 per share. The warrants expire on December 31, 2002.
Pursuant to Mr. Stein's employment agreement, dated September 12, 1997, he
received options to purchase 3,640,262 shares of common stock as of common
stock at an exercise price of $.19 per share. The warrants expire on
December 31, 2002.
On September 15, 1997, Financial Intranet issued 2,422 warrants to purchase
common stock for $.18 per share to Corporate Capital Management for
advisory services. The warrants expire on September 15, 2000.
On September 15, 1997, Financial Intranet issued 5,812 warrants to purchase
common stock for $.18 per share to Ganesh Asset Management for advisory
services. The warrants expire on September 15, 2000.
On September 15, 1997, Financial Intranet issued 2,353 warrants to purchase
common stock for $.32 per share to Ganesh Asset Management for advisory
services. The warrants expire on September 15, 2000.
II-5
<PAGE>
On September 15, 1997, Financial Intranet issued 7,266 warrants to purchase
common stock for $.18 per share to Great North Capital for advisory
services. The warrants expire on September 15, 2000.
On September 15, 1997, Financial Intranet issued 2,942 warrants to purchase
common stock for $.32 per share to Great North Capital for advisory
services. The warrants expire on September 15, 2000.
On April 1, 1997, Financial Intranet issued warrants to purchase 200,000
shares of common stock with an exercise price of $7.25 per share to H&H
Acquisitions Inc. in connection with the acquisition of Wee Wees Inc. These
warrants expire on March 3, 2002.
Item 27. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1 -- Registrant's Restated Articles of Incorporation dated December 22, 1998
3.2 -- Registrant's By-laws
4.1 -- Form of Common Stock Certificate
4.2 -- 1998 Stock Option Plan
5 -- Opinion of McLaughlin & Stern, LLP (To be filed by amendment)
10.1 -- Letter regarding purchase of Wee Wees, Inc. dated October 9, 1996.
10.2 -- Employment Agreement dated as of September 12, 1997 between Registrant and Michael Sheppard.
10.3 -- Employment Agreement dated as of September 12, 1997 between Registrant and Ben B. Stein.
10.4 -- Employment Agreement dated as of September 12, 1997 between Registrant and Maura Marx.
10.5 -- Amendment to Employment Agreement dated as of December 15, 1998 between Registrant and Michael Sheppard.
10.6 -- Amendment to Employment Agreement dated as of December 15, 1998 between Registrant and Maura Marx.
10.7 -- Consulting Agreement dated as of February 27, 1997 between Registrant and Michael Sheppard.
10.8 -- Promissory Note issued by Registrant to investor on December 31, 1998 in connection with private placement.
10.9 -- Warrant issued by Registrant to investor on December 31, 1998 in connection with private placement.
10.10 -- Subscription agreement between Registrant and investor in private placement on December 31, 1998.
10.11 -- Subscription agreement between Registrant and investor in private placement on February 8, 1999.
10.12 -- Warrant issued by Registrant to investor on February 8, 1999 in connection with private placement.
10.13 -- Form of Warrant certificate issuable by Registrant to investor upon subsequent installments due under private
placement.
10.14 -- Guaranty executed by Ben B. Stein on February 8, 1999 in connection with private placement.
10.15 -- Stock Pledge Agreement executed by Ben B. Stein on February 8, 1999 in connection with private placement.
10.16 -- Service Agreement between the Registrant and Siemens dated December 30, 1998.(1)
10.17 -- Warrant issued by Registrant to Cardinal Capital Management on December 31, 1998 in connection with private
placement.
10.18 -- Warrant issued by Registrant to Josephberg Grosz & Co. on December 31, 1998 in connection with private placement.
10.19 -- Warrant issued by Registrant to Josephberg Grosz & Co. on February 8, 1999 in connection with private placement.
10.20 -- Warrant issued by Registrant to Cardinal Capital Management on February 8, 1999 in connection with private placement.
10.21 -- Convertible Promissory Note issued by Registrant to investor on February 8, 1999.
10.22 -- Registration Rights Agreement executed by Registrant on February 8, 1999.
10.23 -- Consulting Agreement with Barry Stein dated February 27, 1997.
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C>
10.24 -- Registration Rights Agreement executed by Registrant on December 31, 1998.
10.25 -- Consulting agreement with Kevin Haggerty dated October 6, 1997.(1)
10.26 -- Consulting agreement with Maura Marx dated February 27, 1997.(1)
10.27 -- Rebiller Service Agreement with WorldCom Inc. dated June 30, 1997.(1)
10.28 -- Consulting Agreement with Barry Stein dated as of March 3, 1999.(1)
10.29 -- Agreement with Frontier Corp. dated April 1999.(1)
10.30 -- Consulting Agreement with Joseph Theismann dated April 30, 1999.(1)
23.1 -- Consent of Reminick Aaron & Company, LLC.(1)
23.2 -- Consent of McLaughlin & Stern, LLP (included in Exhibit 5.1).
24 -- Power of Attorney (contained on signature page).
27 -- Financial Data Schedule.(1)
</TABLE>
Schedules other than those listed above have been omitted since they are either
not required, are not applicable or the required information is shown in the
financial statements or related notes.
(1) Included with Amendment No. 1. Other exhibits were previously filed.
Item 28. Undertaking
The undersigned Registrant hereby undertakes to:
(a) (1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a) (3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of a prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) Include any additional or changed material information on the plan of
distribution;
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement for the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering;
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering; and
(b) Provide to the underwriter at the closing specified in the underwriting
agreement certificates in such denominations and registered in such names
as required by the Underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business
II-7
<PAGE>
issuer of expenses incurred or paid by a director, officer or controlling
person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements of filing on Form
SB-2 and authorized this registration statement to be signed on
its behalf by the undersigned, in the Town of Ardsley, State of
New York, on May 12, 1999.
FINANCIAL INTRANET INC.
By:/s/ MICHAEL SHEPPARD
----------------------
Michael Sheppard
President
By:/s/ ALAN M. ROSS
----------------------
Alan M. Ross
Vice President -- Finance
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below
constitutes and appoints Michael Sheppard and Maura Marx and each of them his
true and lawful attorney-in-fact and agent with power of substitution and
resubstitution, for him or her, and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post effective
amendments) to this Registration Statement on Form SB-2, and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done to comply with the provisions of the
Securities Act and all requirements of the Commission, hereby ratifying and
confirming all that said attorneys-in-fact or either of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
By: /s/ MICHAEL SHEPPARD Director, President, Chief Operating May 12, 1999
-------------------- Officer
Michael Sheppard
By: * Director May 12, 1999
--------------------
Steven S. Weller
By: * Director May 12, 1999
- --- -------------------------
Joseph F. Engelberger
Pursuant to Power-of-Attorney
* /s/ MICHAEL SHEPPARD
</TABLE>
II-9
<PAGE>
As filed with the Securities and Exchange Commission on May 13, 1999
Registration No. 333-72975
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBIT
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FINANCIAL INTRANET, INC.
(Name of small business issuer in charter)
EXHIBIT 10.25
EXHIBIT 10.26
EXHIBIT 10.27
EXHIBIT 10.28
EXHIBIT 10.29
EXHIBIT 10.30
EXHIBIT 23.1
EXHIBIT 27
sb2am1d3.51
II-10
<PAGE>
EXHIBIT 10.16
FINANCIAL INTRANET
December 29, 1998
Alan Spar
Vice President of Technology
Financial Intranet Incorporated
410 Saw Mill River Road
Ardsley, NY 10502
Peter Campbell
Siemens Business Services
2185 Derry Road west
Mississauga, ON L5N 7A6
Dear Peter:
This letter serves as confirmation that we plan to move forward with a contract
to employ the Siemens Business Services group to remotely manage our data
center, providing that the terms of the contract are mutually acceptable by both
Siemens and Financial Intranet Incorporated. We are excited to take this next
step in our relationship.
Since we have not to come to an agreement on the details, we would like to use
this letter as authorization to begin the monitoring of our data center via
telephone/modem or dedicated line connection (dbt) for a period of three months,
and for a fee of $5,500 per month. I understand that this is the first stage of
the stepped pricing arrangement that was outlined in your email to Michael
Sheppard on December 9, 1998.
Authorization for any work that will exceed the $5,500 per month amount must be
authorized in writing by Michael Sheppard or myself.
We look forward to hammering out the details of the contract. In the unlikely
event that we cannot agree on the details of the contract within three months of
commencement, neither party will be obligated to extend the relationship any
further.
The following page is a general outline of the services that we have discussed.
If you agree, please sign and fax back a copy.
<PAGE>
Systems to be Monitored Include:
RM 600 Webserver/Netscape Enterprise Server
Networker/Oracle/Informix
RM 400 Video Pump Server
RM 400 Development Server
RM 400 Firewall/Raptor
Ascend Max 4002 Router
Siemens Tape Backup System
Services Include:
"Pinging" of Website via Internet.
Configuration and monitoring of backups for all systems.
Monitoring of Unix filesystems, CPU's, Memory usage.
Database Administration for Oracle/Informix.
Firewall Administration.
Reports to be provided on bandwidth consumption, CPU, disk, and memory usage,
all system accesses, and system changes.
Regular dial-in or dedicated line system access for monitoring purposes (tbd)
Helpdesk Support: Service Hours 9am. to 5pm.
Outside of these hours, services will be billed on a time and materials basis
($150-220/hr)
Helpdesk call allowance is 30 calls per month, $5/call thereafter.
Sincerely,
/s/Alan Spar
-------------------------------
Alan Spar
Financial Intranet Incorporated
VP, Technology
Accepted by: /s/Peter Campbell
Siemens Business Services
Date: Dec. 30, 1998
<PAGE>
EXHIBIT 10.25
The Consulting agreement ("Agreement") is made this 6th day of October 1997 by
and between Financial Intranet, Inc., with principal offices at 1 Dag
Hammarskjold Plaza, New York, NY 10017 ("corporation"), and Kevin Haggerty, an
individual with principal residence at 200 Highland Road, Rye, New York 10580
("Consultant").
Whereas: The Consultant is willing, ready and capable of providing consulting
services in various marketing, sales, general consulting and public relations
services for, and on behalf of, the Corporation. The Consultant will advise and
assist when possible with various marketing and sales activities of the
Corporation's products, training programs and services, to Broker/Dealers,
underwriters and administrators of mutual funds, bankers, insurance companies
and other third party companies.
Whereas: The Corporation is desirous of retaining the Consultant under the term
of this Agreement and the Consultant is desirous of providing specific services
to the Corporation under the terms of this Agreement;
Now, therefore: In consideration of the mutual covenants and terms contained in
this Agreement, and for good and valuable consideration, the Corporation and the
Consultant agree as follows:
1. The above Preamble is incorporated into and made a part of this Agreement.
2. The Corporation hereby engages and retains the Consultant, upon the terms
and conditions set forth herein and for the period and the terms specified
in paragraphs 5 through 8 hereof to render various consulting services on
marketing, sales, general consulting and public relations for, and on behalf
of the Corporation and connection with consulting on various marketing and
sales activities of the Corporation's products, training programs and
services, to Broker/Dealers, underwriters and administrators of mutual
funds, bankers, insurance companies and other third party companies. The
Corporation acknowledges that this agreement has been duly and property
approved by the Corporation's Board of Directors.
3. The Consultant accepts this engagement subject to the provisions of the
payment for his services as provided hereunder, to act as the Corporation's
consultant on marketing, sales and any business advice, that the Corporation
may request. Also the Consultant agrees to consult on any promotional and
public relations activities that the Corporation undertakes. The Consultant
also agrees to provide and assist the Corporation with introductions to any
business entity that will enable the Corporation to expand its business and
enhance its capital base.
4. The Consultant is hereby engaged and retained by the client to provide the
services as defined in paragraph 2 hereinabove and such other services as
may be agreed upon and/or approved by the Corporation's Board of Directors
and shall not engage or provide in any similar services to other companies,
individuals and/or third party entities during the term of this Agreement.
<PAGE>
5. In consideration of the services to be provided by the Consultant as
enumerated in paragraphs 2 and 3 hereinabove, the Corporation agrees to
retain the Consultant to provide the services enumerated hereinabove for the
term of this agreement and compensate the Consultant as follows:
(a) And as for a bonus to induce the consultant to enter into this Agreement
for the Consultant's services to be provided to the Corporation by the
Consultant on his "best efforts" basis, the Corporation shall grant the
Consultant a Warrant to purchase up to one million (1,000,000) shares of
the common stock of the Corporation at an exercise price of one cent
($0.01) per share and exercisable through a window of time commencing
one year from the date of issue through the last day of the sixth year
from the date of issue of the Warrant. The terms of the Warrant are more
fully described as specified on the face and rear of the Warrant and a
copy of the proposed Warrant is attached hereto and made a part hereof.
6. The Corporation agrees to reimburse the Consultant for all travel, mailing,
entertainment, printing, postage and all other expenses directly related to
the services provided by the Consultant discharging his duties hereunder.
Any single expense in excess of $250.00 shall be pre-approved by the
Corporation prior to such expense being incurred by the Consultant.
7. The Consultant hereby agrees to devote his time and effort in discharging
his duties hereunder to the Corporation to fulfill the obligations set forth
herein on his best efforts basis.
8. The term of this Agreement shall be for a period commencing with the date of
the signing of this Agreement and shall terminate October 20, 1999 unless
sooner terminated upon the date upon which the Agreement may be terminated
by the Corporation or Consultant or within 30 days of notice by either
party.
(a) The Corporation may extend this contract to October 20, 2000 if it
agrees to compensate the Consultant $120,000.00 for the one year
extension period. The compensation would be payable to the Consultant at
the rate of $10,000.00 per month. Failure to compensate the Consultant
for thirty days as stated will trigger a default for the Corporation.
This will automatically cancel the contract. The Corporation will have
no obligation to the Consultant other than the one months unpaid fee to
the Consultant. The Consultant is an independent contractor.
(b) 30 day notice by either party by certified mail.
9. In order to review and/or evaluate the Corporation's technology and/or
Business Plans, and past projected operations, the Corporation may be
required to provide to the Consultant summaries of its technology, Business
Plans and operations and such additional information as may be deemed to be
required in sufficient detail to permit the Consultant to exercise his full
due diligence in order to develop marketing and sales activities and develop
related documents and exhibits. The technology and/or Business Plans as well
as
<PAGE>
any additional information which is deemed by the Corporation to be
"confidential" shall be clearly marked as such and is hereinafter
collectively referred to as the "Confidential Information" and the
distribution of such Confidential Material shall be restricted in accordance
as follows:
(a) The Consultant will hold in the strictest confidence any and all
Confidential Information provided by the Corporation and make no use of
it except for the Corporation's direct benefit as contemplated
hereunder.
(b) At the conclusion of the diligence and investigation period the
consultant shall, upon the Corporation's request, return any and all
Confidential Information which is or has been in consultant's possession
and shall retain no copies of the Confidential Information.
(c) It is understood that the foregoing requirements assumed or to be
assumed by a consultant shall not apply to information that:
(I) is now, or in the future becomes freely available to the public
through no fault of or action by the Corporation and the
consultant or any of their distributees;
(II) is disclosed with a written approval of the Corporation or;
(III) is required to be disclosed by law.
10. For the purpose of this agreement and the services, duties and
responsibilities created hereunder, nothing contained herein shall create an
equity or ownership interest in the corporation by the consultant except as
provided for through exercise of the warrant granted by the Corporation to
the consultant as a signing bonus. It is understood and agreed between the
parties that the consultant is an independent contractor of the Corporation
for the purpose set forth herein and the Corporation shall have no
responsibilities to withhold any portion of the fees payable hereunder or
pay any insurance as may be required by federal, state or local agencies.
11. This Agreement shall be interpreted and governed by the laws of the state of
New York. All clauses of this Agreement are distinct and severable and if
any clause is illegal or void, it shall not affect the validity or legality
of the remaining provisions of this agreement.
(a) The parties hereto agree to execute such other documents as are
necessary to carry out the intent and the spirit of this agreement.
(b) Subject to the other provisions hereof, the terms and conditions of this
Agreement shall extend and be binding upon and shall inure to the
benefit of the successors and assigns of the parties hereto.
(c) All notices, demands or requests required or authorized hereunder shall
be deemed sufficiently given if in writing and sent registered or
certified mail, return receipt requested postage pre-paid, or by
telefax, telegram or cable to:
<PAGE>
If to the Corporation:
Attention: Michael Sheppard,
President
Financial Intranet, Inc.
410 Saw Mill River Road
Ardsley, NY 10502
And if to Consultant:
Mr. Kevin Haggerty
200 Highland Road
Rye, NY 10580
12. This instrument contains the entire agreement of the parties relating to the
subject matter hereof. The parties have made no agreements, representations
and warranties relating to the subject hereof which are not set forth
herein. No modifications of the Agreement shall be valid unless made in
writing and signed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and year
first above written.
Consultant: Corporation:
/s/ Kevin Haggerty Date 10/6/97 /s/ Michael Sheppard Date 10/6/97
- ----------------------------------- -------------------------------------
Kevin Haggerty Financial Intranet, Inc.
By:
<PAGE>
EXHIBIT 10.26
CONSULTING AGREEMENT
This Consulting agreement ("Agreement") is entered into this 27th day
of February 1997 by and between Financial Intranet Inc., formerly Wee Wees Inc.,
(hereinafter referred to as "FNTN"), with principle offices at 50 Broad Street
New York, NY Suite 314 and Ms. Maura Marx (hereinafter referred to as "Ms.
Marx") with principle residence at
Whereas FNTN wishes to retain Ms. Marx as a consultant to FNTN during
its development stages ; and
Whereas FNTN contemplates entering into a long term employment with Ms.
Marx as one of the considerations offered to Ms. Marx to undertake the
consultancy activities with FNTN; and
Whereas Ms. Marx wishes to aid FNTN as a consultant during its
development stages; and
Whereas Ms. Marx intends to accept, when and if offered by FNTN, an
acceptable long term employment agreement;
Now Therefore it is agreed as follows:
1. The above preamble to this Agreement, representing the intent of Ms.
Marx and FNTN to one and other is hereby incorporated and made part of this
Agreement.
2. FNTN, being unable, at this time, to offer and support a long term
employment agreement with Ms. Man, agrees to retain Ms. Man as a paid consultant
to aid FNTN to expand and implement its marketing activities and sales staff as
more fully described in the original business plan attached hereto for reference
purposes.
3. FNTN agrees to pay to Ms. Marx a consulting fee, payable from funds
when and if available on a priority basis , a monthly stipend of $5,417, (the
"Consulting Fee") during the period commencing with the date of this Agreement
and terminating upon the date that FNTN and Ms. Marx execute and enter into a
mutually acceptable Employment Agreement,
4. In the event FNTN does not pay the Consulting Fee to Ms. Marx for
two (2) consecutive months, then in that event, Ms. Marx may, at her sole
option, terminate this Agreement upon advising FNTN in writing of her intention
to terminate her activities as a consultant.
(A) Upon termination as provided for hereinabove, neither FNTN or Ms.
Marx shall ha; e any further liability to each other with the exception
that FNTN shall remain liable to pay to Ms. Marx any Consulting Fees
due but not paid to Ms. Marx as well as any out of pocket expenses
incurred or advanced by Ms. Marx for the account of FNTN in her
furtherance of her consulting activities for FNTN under the terms of
this Agreement.
<PAGE>
5. FNTN shall advance or repay to Ms. Marx, as the case may be, for any
out-of-pocket expenses incurred or advanced by Ms. Marx in performing her duties
under the Agreement for the benefit of FNTN.
(A) Any single expense in excess of fifty dollars ($50) shall require
the approval of FNTN's President prior to Ms. Marx expending or
incurring funds equal to or greater than any single expense of $50.
6. It is the intent of this Agreement to establish a long term
employment agreement between FNTN and Ms. Marx, at the earliest time, during
which FNTN can implement the terms of the long term employment agreement
provided that:
(B) This Agreement shall still be in effective at the time
that employment agreement is offered by FNTN, accepted by Ms.
Marx and executed by FNTN and Ms. Marx and approved by FNTN's
President; and
(B) The term of the long term employment agreement shall be
for a term not less than three (3) years with acceptable
renewal clauses.; and
(C) During the term of this Agreement as well as during the
term of the long term employment agreement, Ms. Marx shall act
as FNTN's Acting Senior Vice President of Sales and Marketing
and serve as FNTN's Senior Vice President FNTN.
7. As an inducement for Ms. Marx to enter into this Agreement, FNTN
agrees to provide to Ms. Marx a total of 500,000 shares of 50.001 par value of
FNTN'S common stock, to be considered at being issued to Ms. Marx for a value of
$500.00 and as an additional payment applied to the consulting activities to be
provided by Ms. Marx to FNTN.
(A) The shares issued hereunder are being provided from FNTN's
treasury shares and at a value equal to the par value of the
shares since there is currently no market for the shares
issued to Ms. Marx hereinabove).
(B) The shares to be issued hereunder shall be made available
as soon as practical and shall be effectively issued the
effective date of this Agreement as first written above.
8. This Agreement may be terminated unilaterally by FNTN in the event
Ms. Man an: FNTN has not negotiated, agreed to and executed a long term
employment by and between FNTN and Ms. Marx by January 28, 1998.
(A) Upon termination as provided for hereinabove,
neither FNTN or Ms Marx shall have any further liability to
each other with
<PAGE>
the exception that FNTN shall remain liable to pay to Ms. Marx
any Consulting Fees due but not paid to Ms. Marx as well as any
out of pocket expenses incurred or advanced by for the account
of FNTN in furtherance of consulting activities for FNTN under
the terms of this Agreement.
9. The terms of this Agreement have been approved by FNTN's Acting
President.
10. This Agreement shall be construed and interpreted under the laws of
the state of New York.
11. The terms of this Agreement has been negotiated between Ms. Marx
and FNTN in New York City, New York State and represents the full understandings
between the parties and may not be amended except by a writing signed by both
parties.
Read and Agreed.
FINANCIAL INTRANET, INC.
/S/Maura Marx By: /s/Michael Sheppard
- --------------------------- ------------------------------
<PAGE>
EXHIBIT 10.27
WorldCom REBILLER SERVICE AGREEMENT
This Agreement is made by and between WorldCom Inc. ("WorldCom"),
located at 515 East Amite, Jackson Mississippi 3920 1-2702 and Financial
Intranet, Inc.("Customer") with its principal office at 50 Broad Street, Suite
314, New York, New York 10004. In consideration of the mutual promises and
covenants set forth in this Agreement, the parties agree as follows:
1. Service:
1.1 WorldCom will provide its WorldOne(Service Mark) Service, (the
"Service") to Customer pursuant to WorldCom Inc. Tariff FCC No. I and
No. 2 and applicable state tariffs, all as may be amended from time to
time (the "Tariffs"). All of the terms and conditions of the Tariffs now
or hereafter in effect are incorporated in this Agreement. In the event
that any provision set forth in this Agreement conflicts with the terms
and conditions of any of the Tariffs, the provision set forth in this
Agreement will govern.
2. Term: Termination: Start of Service:
2.1 Except as provided below, the term of this Agreement will commence on
the Effective Date, as defined in Section 3.3 below, and terminate
Thirty-Six (36) months thereafter (the "Term"). Thereafter, the Term
will continue on a month-to-month basis until this Agreement is
terminated by either party on at least thirty (30) days prior written
notice to the other party.
2.2 Notwithstanding the Term as defined in paragraph 2.1 of this Agreement,
WorldCom may at any time and in its sole and absolute discretion
terminate this Agreement, effective immediately if:
2.2.1 Customer fails on three (3) separate occasions to act as
WorldCom requests after making a misrepresentation to WorldCom
or to an End User;
2.2.2 Customer becomes insolvent, files a petition in bankruptcy or
makes an assignment for the benefit of creditors;
2.2.3 Customer applies for or consents to the appointment of a trustee
or receiver, or a trustee or receiver is appointed for either
party; or
<PAGE>
and (ii) if Customer does not have an existing service agreement with
WorldCom, the "Effective Date" will be the date this Agreement has been
fully executed by both parties and the Credit Review has been completed.
4. Minimum Usage Commitments:
4.1 For purposes of this Agreement, Customer's Minimum Commitment, as
defined in Section 4.2 below, will consist of net revenues for Service
after discounts have been applied.
4.2 Commencing with the billing cycle six (6) months after the Effective
Date and continuing throughout the remainder of the Term, or any
extension thereof, Customer agrees to maintain at least $1,000,000 in
monthly revenue for Service provided hereunder ("Customer's Minimum
Commitment"). In the event Customer does not maintain Customer's Minimum
Commitment in the months indicated, then for those month(s) only,
Customer will pay WorldCom the difference between Customer's Minimum
Commitment and Customer's actual charges for the month(s) in question
(the "Deficiency Charge"). The Deficiency Charge will be due at the same
time payment is due for Service provided to Customer, or immediately in
an amount equal to Customer's Minimum Commitment for the unexpired
portion of the Term, if WorldCom terminates the Agreement based on
Customer's default.
5. Billing and Payment of Charges:
5.1 Customer agrees that it is responsible for (i) all charges incurred by
WorldCom to change the PLC of End Users to the WorldCom network, (ii)
all charges incurred by WorldCom to change End Users back to their
previous PLC arising from disputed transfers to the WorldCom network
plus an administrative charge equal to twenty percent (20%) of such
charges, and (iii) any other damages suffered by or awards against
WorldCom resulting from disputed transfers . WorldCom will have no
obligation to resolve a dispute involving a PLC Charge.
5.2 WorldCom will bill Customer for the Service, PLC Charges and other
amounts on a monthly basis. Customer will pay all charges billed by
WorldCom within thirty (30) days after the date of the invoice. Customer
will pay for such charges by certified check, wire transfer, cash,
company check, or other instrument or method deemed acceptable by
WorldCom.
5.3 Customer's obligation to pay all undisputed charges billed by WorldCom
is absolute and unconditional under any and all circumstances.
<PAGE>
5.4 Customer will provide WorldCom with all necessary tax exemption
certificates in a form acceptable to the applicable taxing authority or
pay all necessary taxes at such time as such taxes become due.
5.5 Customer agrees that WorldCom's invoices are the official billing
instrument under the terms and conditions of this Agreement and that
Customer will remit payment based upon WorldCom's calculation of minutes
of usage. Customer further agrees that WorldCom is not obligated to
process routine monthly credits, and that the mere failure to match call
records with Customer's billing system is not sufficient cause to
justify WorldCom' s issuances of credits. In the event Customer
reasonably believes that a discrepancy exists in any WorldCom invoice,
Customer will provide WorldCom with detailed documentation of same which
precisely specifies the nature of the perceived discrepancy. In the
event Customer disputes a charge within an invoice. Customer shall
promptly pay all invoiced charges and notify WorldCom in writing of the
amount of and the reason for any dispute. Customer shall notify WorldCom
within forty-five (45) days of the invoice of any disputed charges.
WorldCom and Customer agree to make reasonable efforts to resolve such
disputes in a timely manner. II' WorldCom and Customer fail to resolve
the disputed amount within ninety (90) days of the due date~ the
disputed amount shall be treated as having been due on the original due
date. if Customer initiates a billing dispute as provided above,
Customer agrees to allow WorldCom complete access to Customer's switches
and billing records, provided such access does not disrupt Customer's
normal course of business, and further agrees to joint tests with
WorldCom.
6. Activation of ANIs: End User Traffic Profile:
6.1 Start of Service WorldCom's obligation to provide and Customer's
obligation to accept and pay for non-usage sensitive charges (i.e.,
installation charges or other such charges not associated with
per-minute rates) for Service shall be binding to the extent provided
for in this Agreement upon the submission of an acceptable Service
Request to WorldCom by Customer. Customer's obligation to pay for usage
sensitive charges for Services shall commence with respect to any
Service as of the earlier of (i) the "Requested Service Date" set forth
in each Service Request, or (ii) the date the Service in question is
made available to Customer and used ("Start of Service")
6.2 Service Requests Customer's requests to initiate or cancel Services
shall be described in an appropriate WorldCom Service Request ("Service
Requests"V Service Requests may consist of machine readable tapes,
facsimiles or other means approved~ by WorldCom. Further, Service
Requests shall specify all reasonable information, as determined by
WorldCom, necessary or appropriate for WorldCom to provide the
Service(s) in question, which shall include without limitation, the
type, quantity an~ end point(s) (when necessary) of circuits comprising
a Service Interconnection~n, cr automatic number identification ("ANI")
information relevant to the Service(s), the
<PAGE>
Requested Service Date, and charges, if any, relevant to the Services
described in the Service Request. After WorldCom's receipt and
verification of a valid Service Request for Service requiring a change
in the primary interexchange carrier ("PlC"), WorldCom agrees to (i)
submit the ANI(s) relevant to such Service Requests to the following
local exchange carriers ("LECs") (with which WorldCom currently has
electronic interface capabilities) within ten (10) days: Ameritech, Bell
Atlantic, BellSouth, Nynex, Pacific Bell, Southwestern Bell, US West,
GTE and United, and (ii) submit the ANI(s) relevant to such Service
Requests to those LECs with which WorldCom does not have electronic
interface capabilities within a reasonable time.
6.3 During the Term, Customer will not make a Submission that contains
nonconforming ANIs and/or LEC-rejected ANIs. Customer will pay to
WorldCom the sum of twenty-five cents ($.25) for each AIN in a
Submission that is rejected for any reason by either WorldCom or LEC.
6.4 Customer will not transmit a Service activation or Service termination
order to a LEC. Customer will exercise reasonable business efforts to
ensure that no End User transmits such an order.
6.5 EXCEPT AS PROVIDED OTHERWISE IN THIS AGREEMENT, WORLDCOM MAKES NO
REPRESENTATIONS OR WARRANTIES AS TO ITS ABILITIES TO PROCESS SERVICE
ACTIVATION SUBMISSIONS. WORLDCOM WILL EXERCISE REASONABLE BUSINESS
EFFORTS TO PROCESS SUCH SUBMISSIONS IN A TIMELY MANNER.
6.6 Before Customer's initial order for Service, Customer shall provide
WorldCom with a forecast regarding the number of minutes expected to be
terminated or originated in various LATAs and/or Tandems, so as to
enable WorldCom to configure optimum network arrangements. In the event
Customer's Service traffic volumes result in a lower than industry
standard completion rate or otherwise adversely affect the WorldCom
network, WorldCom reserves the right to block the source of such adverse
traffic at any time. Customer will provide WorldCom with additional
forecasts from time to time upon WorldCom's request which shall not be
more frequent than once every three (3) months.
7.0 Customer's End Users.
7.1 Customer will obtain and upon WorldCom's request provide WorldCom
(within two (2) business days of the date of the request) a written
Letter of Agency ("LOA') acceptable to WorldCom [or with any other means
approved by the 'Federal Communications Commission ("FCC")], for each
ANI indicating the consent of the end users of Customer ("End Users") to
be served by Customer and transferred (by way of change of such End
User's designated PlC) to the WorldCom network prior to
<PAGE>
order processing. Each LOA will provide, among other things, that the
End Users have consented to the transfer being performed by Customer or
Customer's designee. When applicable, Customer will be responsible for
notifying End Users, in writing (or by any other means approved by the
FCC) that (i) a transfer charge will be reflected on their LEC bill for
effecting a change in their primary interexchange carrier ("PlC"), (ii)
the entity name under which their interstate, intrastate and/or operator
services will be billed (if different from Customer), and (iii) the
"primary" telephone number(s) to be used for maintenance and questions
concerning their long distance service and/or billing. Customer agrees
to send WorldCom a copy of the documentation Customer uses to satisfy
the above requirements promptly upon request of WorldCom. WorldCom may
change the foregoing requirements for Customer's confirming orders
and/or for notifying End Users regarding the transfer charge at any time
in order to conform with applicable FCC and state regulations. Provided,
however, Customer will be solely responsible for ensuring that the
transfer of End Users to the WorldCom network conforms with applicable
FCC and state regulations, including without limitation, the regulations
established by the FCC with respect to verification of orders for long
distance service generated by telemarketing as promulgated in 47 C.F.R.,
Part 64, Subpart K, ss.64.1100 or any successor regulation(s).
7.2 Excluded ANIs WorldCom has the right to reject any AM supplied by
Customer for any of the following reasons: (i) WorldCom is not
authorized to provide or does not provide long distance services in the
particular jurisdiction in which the ANI is located, (ii) a particular
ANI submitted by Customer is not in proper form, (iii) Customer is not
certified to provide long distance services in the jurisdiction in which
the ANI is located, (iv) Customer is in default of this Agreement, (v)
Customer fails to cooperate with WorldCom in implementing reasonable
verification processes determined by WorldCom to be necessary or
appropriate in the conduct of business, or (vi) any other circumstance
reasonably determined by WorldCom which could adversely affect
WorldCom's performance under this Agreement or WorldCom's general
ability to transfer its other customers or other end users to the
WorldCom network, including without limitation, WorldCom's ability to
electronically effect PlC changes with the LECs. In the event WorldCom
rejects an AM, WorldCom will notify Customer as soon as possible of its
decision specifically describing the rejected AM and the reason(s) for
rejecting that ANI, and will not incur any further liability under this
Agreement with regard to that ANI. Further, any AM requested by Customer
for Service may be deactivated by WorldCom if no Service billings
relevant thereto are generated in any three (3) consecutive calendar
month/billing periods. WorldCom will be under no obligation to accept
AMs within the three (3) full calendar month period preceding the
scheduled expiration of the Term.
7.3 Records Customer will maintain documents and records ("Records")
supporting Customer's re-sale of Service, including, but not limited to,
appropriate and valid LOAs from End Users for a period of not less than
12 months or such other longer
<PAGE>
period as may be required by applicable law, rule or regulation.
Customer shall indemnify WorldCom for any costs, charges or expenses
incurred by WorldCom arising from disputed PlC selections involving
Service to be provided to Customer for which Customer cannot produce an
appropriate LOA relevant to the AM and PlC charge in question, or when
WorldCom is not reasonably satisfied that the validity of a disputed LOA
has been resolved.
7.4 Customer Service Customer will be solely responsible for billing the End
Users and providing the End Users with customer service. Customer agrees
to immediately notify WorldCom in the event an End User notifies
Customer of problems associated with the Service, including without
limitation, excess noise, echo, or loss of Service.
8. Customer Responsibilities:
8.1 In the event Customer requests expeditious Service and WorldCom agrees
to such request, WorldCom will pass the charges assessed by any
supplying parties (e.g. local access providers) involved at the same
rate to customer. WorldCom may further condition its performance of such
request upon Customer's payment of additional charges to WorldCom.
8.2 Customer shall indemnify and hold harmless WorldCom from all costs,
expenses, claims or actions arising from fraudulent calls of any nature
which may comprise a portion of the Service to the extent the party(s)
claiming the calls in question to be fraudulent is (or had been at the
time of the call) an End User of the Service through Customer or an end
User of the Service through Customer's distribution channels. Customer
shall not be excused from paying WorldCom for Service provided to
Customer or any portion thereof on the basis that fraudulent calls
comprised a corresponding portion of the Service. In the event WorldCom
discovers fraudulent calls are being made (or reasonably believes
fraudulent calls are being made), nothing contained herein shall
prohibit WorldCom from taking immediate action (without notice to
customer) that is reasonably necessary to prevent such fraudulent calls
from taking place, including without limitation, denying Service to
particular ANIs or terminating Service to or from specific locations.
9. Liability, General Indemnity, Reimbursement:
9.1 IN NO EVENT WILL EITHER PARTY HERETO BE LIABLE TO THE OTHER PARTY FOR
ANY INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL LOSSES OR DAMAGES,
INCLUDING WITHOUT LIMITATION, LOSS OF REVENUE, LOSS OF CUSTOMERS, LOSS
OF GOODWILL, OR LOSS OF PROFITS ARISING IN ANY MANNER FROM THIS
AGREEMENT AND THE PERFORMANCE OR NONPERFORMANCE OF OBLIGATIONS
HEREUNDER.
<PAGE>
9.2 In the event parties other than Customer (e.g. Customer's End Users)
shall have use of the Service through Customer, then Customer agrees to
forever indemnify and hold WorldCom, its affiliated companies and any
third party provider or operator of facilities employed in the provision
of the Service harmless from and against any and all claims, demands,
suits, actions, losses, damages, assessments or payments, which those
parties may assert arising out of or relating to any defect in the
Service.
9.3 Customer agrees to reimburse WorldCom for all reasonable costs and
expenses incurred by WorldCom due to WorldCom's direct participation
(either as a party or a witness) in any administrative, regulatory, or
criminal proceeding concerning Customer if WorldCom's involvement in
said proceeding is based solely on WorldCom's provision of Service to
Customer.
10. Rights and Obligations Upon Customer's Breach:
10.1 Except as provided in paragraph 2.2 of this Agreement or in the Tariffs,
in the event that Customer breaches any provision of this Agreement,
WorldCom will provide Customer with written notice of such breach.
10.2 Except as provided in paragraph 2.2 and 10.3 of this Agreement or in the
Tariffs, Customer must cure any breach of this Agreement to WorldCom's
satisfaction within fifteen (15) days of Customer's receipt of notice of
such breach.
10.3 Customer must cure a breach of any payment obligation that is set forth
in section 5. of this Agreement to WorldCom's satisfaction within three
(3) days of Customer's receipt of notice of such breach.
10.4 If Customer does not timely and adequately cure a breach of this
Agreement, WorldCom may do any one or more of the following:
10.4.1 terminate this Agreement; or
10.4.2 terminate any other agreement it may have with Customer; or
10.4.3 contact each End User directly for the purpose of notifying such
End User that WorldCom will no longer provide long distance
telephone services to Customer, that WorldCom will provide long
distance telephone service to it pursuant to the Tariffs and
that WorldCom will continue to provide such service unless such
End User notifies its LEC to change its long distance telephone
service to another primary interexchange carrier.
<PAGE>
11. Confidential Information:
11.1 Each party understands that in performing this Agreement it may have
access to private or confidential information relating to the other
party or such other party's customers ("Confidential Information"). Each
party agrees that the Confidential Information will:
11.1.1 remain the exclusive property of the disclosing party;
11.1.2 not be copied, published or disclosed to others;
11.1.3 be used solely in the performance of this Agreement; and
11.1.4 be returned to the disclosing party upon termination of this
Agreement.
Violation by a party of the foregoing provisions shall entitle the
nondisclosing party at its option, to obtain injunctive relief without a
showing of irreparable harm or injury and without bond.
12. Regulatory Requirements:
12.1 Customer represents and warrants that it has obtained a valid
Certificate of Public Necessity in all required jurisdictions. Customer
warrants that in all jurisdictions in which it provides long distance
services that require certification, it has obtained the necessary
certification from the appropriate governmental authority. Further, if
required by WorldCom, Customer agrees to provide proof of such
certification acceptable to WorldCom. In the event Customer is
prohibited, either on a temporary or permanent basis, from conduction
telecommunications operation in a given state, Customer shall (i)
immediately notify WorldCom by facsimile, and (ii) send written notice
to WorldCom within twenty-four (24) hours of such prohibition.
12.2 Customer will submit to WorldCom, before making any Submission, copies
of any and all Certificates of Public Necessity or other related
documentation that WorldCom may request, including, but not limited to,
that for the State of Florida should Customer seek to serve End Users in
that State.
12.3 Interstate/Intrastate Service. Except with respect to Service
specifically designated as intrastate Service or international Service,
the rates provided to Customer are applicable only to Service if such
Service is used for carrying interstate telecommunications (i.e.,
Service subject to FCC jurisdiction). WorldCom shall not be obligated to
provide Service with end points within a single state or Service which
originates/terminates at points both of which are situated within a
single state. In those
<PAGE>
states where WorldCom is authorized to provide intrastate service (i.e.,
telecommunications transmission services subject to the jurisdiction of
state regulatory authorities), WorldCom will, at its option, provide
intrastate Service pursuant to applicable state laws, regulations and
applicable tariff, if any, filed by WorldCom with state regulatory
authorities as required by applicable law.
13. Authorized Use of WorldCom Name:
13.1 Without WorldCom's prior written consent, Customer shall not (I) refer
to itself as an authorized representative of WorldCom whenever it refers
to the Service in promotional, advertising or other materials, or (ii)
use WorldCom's logos, trademarks, service marks, or any variations
thereof in any of its promotional, advertising or other materials.
Additionally customer shall provide to WorldCom for its prior review,
and written approval all promotions, advertising and other materials or
activity using or displaying WorldCom's name or the Service to be
provided by WorldCom. Customer agrees to change or correct, at
Customer's expense, any material or activity which WorldCom, in its sole
judgement, determines to be inaccurate, misleading, or otherwise
objectionable.
14. Notices:
14.1 Any notice required by this Agreement will be effective and deemed
delivered three (3) business days after posting with the United States
Postal Service .when mailed by certified mail, return receipt requested,
properly addressed and with the correct postage, one (1) business day
after pick-up by the courier service when sent by overnight courier,
properly addressed and prepaid or one (1) business day after the date of
the sender's electronic confirmation of receipt when sent by facsimile
transmission.
14.2 Notices will be sent to the addresses or FAX numbers set forth in this
Agreement, unless either party notifies the other in writing of an
address or FAX number change.
15. General:
15.1 Customer may not assign this Agreement except to a person or entity that
is controlled, controlling or controlled in conjunction with Customer
and upon at least forty-five (45) days prior written notice to WorldCom.
15.2 Customer may not subcontract with other persons or entities to undertake
any of Customer's obligations that are set forth in this Agreement.
15.3 This Agreement shall be construed under the laws of the State of
Mississippi without regard to choice of law principles except to the
extent that the Telecommunications
<PAGE>
Act of 1996, as amended and as interpreted by the Federal Communications
Commission, applies.
15.4 Neither party will be liable for failure to perform its obligations
hereunder due to causes beyond its control, including accidental damage
to WorldCom's network, acts of God, laws or requirements of any
government or national emergencies.
15.5 If any of the provisions of this Agreement are determined to be invalid,
the remaining provisions will still be valid.
15.6 Headings are used in this Agreement for convenience only and are not to
be used to interpret this Agreement or any of its provisions.
15.7 This Agreement will be deemed effective only upon full execution of this
Agreement by each of the parties. This Agreement may be modified only
pursuant to a writing that is signed by each of the parties.
15.8 This Agreement is subject to all applicable existing and future laws,
rules and regulations of any governmental authority.
15.9 Each party represents and warrants that it has the full legal and
regulatory authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement, and that this Agreement is
not in conflict with any other agreement to which such party is bound.
15.10 In any action arising out of or relating to this Agreement, the
prevailing party will be entitled to recover its reasonable attorneys'
fees and other costs in addition to any other relief that may be
awarded.
15.11 Except as otherwise specifically provided for herein, the remedies set
forth in this Agreement comprise the exclusive remedies available to
either party at law or in equity.
15.12 This Agreement contains the full understanding of the parties and
supersedes any prior agreements between the parties.
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement and the
individuals signing below represent that they have the authority to sign for and
on behalf of the respective parties.
ACCEPTED BY: ACCEPTED BY:
BY: /s/Michael Sheppard BY: /s/Derek Park
NAME: Michael Sheppard NAME: Derek Park
TITLE: President TITLE: Director of Marketing
DATE: 6/30/97 DATE:_______________________
FAX: 1-212-376-8294 FAX: 601-974-8377
<PAGE>
EXHIBIT 10.28
Consulting Agreement
This Consulting agreement ("Agreement") is entered into as of this 3rd day of
March 1999 by and between Financial Intranet Inc. (hereinafter referred to as
the "Corporation"), with principal offices at 410 Saw Mill River Road, Ardsley
New York 10502 and Ben B. Stein (hereinafter referred to as "Stein") with
principal residence at 589 Lakeworth Circle, Lake Mary, Florida 32746
WHEREAS, the Corporation, desires to have Consultant devote his efforts
to the development of Corporation's business as Director of Brokerage Sales.
WHEREAS, Consultant, understanding and accepting the conditions of
engagement set forth herein, desires to be so engaged.
WHEREAS, certain terms used herein are defined in Exhibit A.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants set forth herein, and for other good and valuable consideration, the
receipt whereof is hereby duly acknowledged, the parties hereto covenant and
agree as follows:
1. Engagement
(A) Corporation agrees to engage Consultant and Consultant agrees to be
so engaged, in the capacity of Director of Brokerage Sales and for such other
duties and services for the Corporation as may be determined and assigned to him
from time to time by the Board of Directors or the President of the Corporation.
Consultant's duties shall include generating, soliciting and marketing sales of
the Corporation's Network Services within the brokerage and financial services
industries or any other market as may be determined by the Corporation's
President. Consultant shall devote his full time, entire knowledge and best
skills to the furtherance of the business purposes of the Corporation.
Consultant shall at all times discharge his duties in consultation with and
under the supervision of the Corporation's President. Consultant shall be
available for telephonic communications from the Corporation on request of the
President and, on reasonable notice, be available for meetings at the
Corporation's offices.
(B) Consultant shall have the responsibility to select and interview
sales people to work under Consultant's direction as independent contractors.
The engagement of any salespeople and the terms of their engagement are subject
to the Corporation's prior written approval.
(C) Consultant shall provide the Corporation with written sales reports
on a weekly basis indicating the persons and Customers contacted on behalf of
the
<PAGE>
Corporation, the dates contacted and the status of the proposed sale.
(D) Any use of telemarketing, direct mail or any other marketing
techniques shall be in strict accord with company policy and approved
methodologies. Consultant shall at all times conduct his efforts in a
commercially reasonable manner.
(E) Consultant shall solicit and obtain from prospective Customers
service orders on forms supplied and/or by procedures approved by the
Corporation and within no more than ten (10) days shall transmit all necessary
Customer information to the Corporation's order entry center for the
Corporation's acceptance or rejection in its sole discretion. Acceptance of an
order requires that the Customer Agreement (authorization form) be entered or a
database entry be programmed by the Corporation.
(F) Consultant shall not use any promotional, marketing, or other form
of solicitation or advertising material, in any fashion whatsoever, concerning
the Network Services offered by the Corporation or use the Corporation's
trademarks, trade names or copyrights in materials which have not been provided
by or approved by the Corporation.
2. Term
Engagement shall be for a term effective as of November 13, 1998
through December 31, 2002.
3. Compensation
(A) Cash Compensation.
(I) Consultant's compensation for services rendered to or on
behalf of the Corporation and for Qualified Revenues produced by the Consultant
and collected by the Corporation shall be based on the commission schedule
attached as Exhibit B.
The Board of Directors may, at its sole discretion, elect
to provide additional compensation from time to time based on the operating
performance of the Consultant.
(II) The Corporation shall pay Commissions during the time
period there is Customer usage of the Network Services by the Customer obtained
by the Consultant during his engagement by the Corporation up to a maximum of
twelve (12) months from the date of the original or any renewed, new or expanded
Customer Agreement obtained by the Consultant.
(III) The obligation to pay any Commissions to the Consultant
under this Agreement is expressly conditioned upon the Corporation's collection
of the Customer charges for usage of the Network Services; provided, however,
that payment of said Commissions may in the sole discretion of the Corporation
be suspended
<PAGE>
temporarily or permanently discontinued in the event the Consultant fails to use
his best efforts to maximize the revenues derived from Customer usage of the
Network Services and/or the Consultant takes any action in derogation of
preserving and maintaining the Corporation's base of Customers.
(IV) Notwithstanding any other provision of this Agreement,
should Consultant sell or attempt to sell for any other entity services similar
to the Network Services, or to transfer or attempt to transfer any Customers to
any other entity, such sale, attempt to sell, transfer or attempt to transfer
shall result in immediate dismissal, and forfeiture of Commissions and all other
company benefits.
(V) Should Consultant become aware of new services offered by
other telecommunications providers, Consultant shall disclose the new services
to the Corporation and shall cooperate and use his best efforts to assist the
Corporation in acquiring any available knowledge and information on the new
services to offer to the Corporation's existing and potential Customers. In the
event the new services are acquired by the Corporation as a result of the
material and substantive efforts of Consultant, Consultant's Commission shall be
adjusted based on the Qualified Revenues derived from such new services;
provided that a commission structure for the new services commensurate with the
commission structure in place for the Network Services shall be acceptable
unless otherwise expressly so provided, subject in any event to the terms and
conditions of this Agreement.
(VI) The Corporation shall pay Consultant Commissions on all
Qualified Revenues. True-up or other adjustments to the total of Qualified
Revenues attributable to Consultant's sales efforts will be made, if at all,
within sixty (60) days and thereafter will not be adjusted.
(VII) Commission Statements shall be provided monthly and
shall be based on the usage information received by the Corporation from its
underlying network facilities providers. Commission Statements shall include a
summary in reasonable detail of the calculations and usage data relied on to
prepare the Commission Statement.
(B) Stock Options.
(I) The Corporation and the Consultant acknowledge that as of
the date of this agreement, the Consultant had unexercised options to purchase
2,500,000 shares of Common Stock at an exercise price of $.19 per share.
Consultant has agreed to exercise these options with respect to 879,685 shares
of Common Stock as of the date of this agreement, leaving a balance of
1,620,315, pursuant to Section 5.
(II) All options granted under this Agreement expire on
December 31, 2002, subject to termination on such other date as provided as
follows (the "Option Period"). If the Consultant dies, the Consultant's estate
shall have the right to
<PAGE>
exercise any unexercised options for one year after the date of Consultant's
death. In the event the Consultant voluntarily ceases to act as a consultant
under this agreement, any option then held by the Consultant shall remain in
effect until the end of the Option Period. In the event that the Consultant's
engagement is terminated for any reason by the Company other than for "Cuase"
(as defined in section 6), any option then held by the Consultant shall
terminate at the end of th4e Option Period. Any options shall terminate
immediately upon termination for "Cause."
(III) Any option granted to the Consultant is personal to the
Consultant and is not assignable by the Consultant. All options shall be
exercised by written notice as called for in this Engagement Agreement. Delivery
of the certificates representing the shares called for under the within option
shall be made promptly after receipt of such notice of exercise, against the
payment of the purchase price by certified check or cashier's check.
(IV) Shares issued pursuant to the grant of the options in
accordance with the terms of this agreement may not be sold, exchanged,
transferred, pledged, hypothecated, or otherwise disposed of except as provided
for under Rule 144 of the Securities and Exchange Act of 1933 (the "Act"). The
following shall apply:
(A) Said Common Stock must be held indefinitely unless
(1) distribution of said Common Stock has been made registered under the Act,
(2) as sale of said Common Stock is made in conformity with the provisions of
Rule 144 of the Act, or (3) in the opinion of counsel acceptable to the Company,
some other exemption from registration is available.
(B) The Consultant will not make any sale, transfer or
other disposition of said Common Stock except in compliance with the Act and
Rules and Regulations thereunder.
(C) The Consultant is familiar with all of the provisions
of Rule 144 including (without limitation) the holding period thereunder.
(V) The Company is under no obligation to register the sale,
transfer or other disposition of said Common Stock by the Consultant or on his
behalf or to take any other action necessary in order to make compliance with an
exemption from registration available.
(VI) There will be a restrictive legend placed on the
certificates for said Common Stock stating in substance:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and may not be sold, pledged, or
otherwise transferred except pursuant to an effective registration
statement under said Act, SEC Rule 144 or an opinion of counsel
acceptable to the company that some other
<PAGE>
exemption from registration is available."
(VII) The number of Shares subject to this Option during the
Option Period shall be cumulative as to all prior dates of calculation and shall
be adjusted for any stock dividend, subdivision, split-up or combination of
common stock.
(VIII) The exercise price shall be subject to adjustment from
time to time as follows:
(A) If, at any time during the Option Period, the
number of shares of common stock outstanding is increased by a stock dividend
payable in shares of common stock, then, immediately following the record date
fixed for the determination of holders of shares of common stock entitled to
receive such stock dividend, subdivision or split-up, the exercise price shall
be appropriately decreased so that the number of Shares included in the Shares
issuable upon the exercise hereof shall be increased in proportion to such
increase in outstanding shares.
(B) If, at any time during the Option Period, the
number of shares of common stock outstanding is decreased by a combination of
outstanding shares of common stock, then, immediately following the record date
for such combination, the exercise price shall be appropriately increased so
that the number of Shares issuable upon the exercise hereof shall be decreased
in outstanding shares.
(IX) The Corporation and the Consultant hereby acknowledge
that prior to this date the Consultant had been awarded options to purchase a
number of shares of the Company's Common Stock equal to (A)25% percent of the
shares issued by the Company through December 31, 1998 minus (B) 1,500,000
shares of Common Stock previously issued to the Consultant and further reduced
in accordance with the parties agreement dated September 12, 1997. Consultant
had also been entitled to options to purchase an additional two percent of the
Corporation's issued and outstanding shares as of December 31, 1998, but that
Consultant had previously assigned his rights to options to purchase one percent
of the Corporation's issued and outstanding shares of common stock to each of
Michael Sheppard and Maura Marx. The parties acknowledge that, as of December
31, 1998, the number of options set forth in paragraph (I) represent all of the
options and warrants that Consultant is entitled to exercise and that Consultant
has no other outstanding options or warrants pursuant to this Agreement or
otherwise.
4. Expenses
The Corporation agrees to pay Consultant an allotment towards rent,
office supplies, telephone, automobile and health insurance as set forth on
Exhibit C. In addition to the expenses set forth above, Corporation shall
advance or repay to Consultant, as the case may be, for any out-of-pocket
expenses incurred or advanced by Consultant in performing his duties under the
Agreement for the benefit of Corporation. Any single expense in excess of two
hundred and fifty dollars ($250) shall
<PAGE>
require the approval of the President of the Corporation prior to Consultant
expending or incurring funds equal to or greater than any single expense of
$250. Notwithstanding the Corporation's commitment to provide reimbursement for
any expenses, in order to receive allotments or reimbursement for any expenses,
Consultant shall provide the Corporation with such invoices and receipts and
such additional information in the format as is requested by the Corporation.
5. Exercise of Option
Consultant has agreed to exercise options with respect to 879,685
sahres of Common Stock as of the date of this agreement. The Corporation and the
Consutlatnt agree to apply the aggregate of $167,140 owed to Mr. Stein by the
Copoation as of the date hereof to the purchase of 879,685 shares of Common
Stock. Such $167,140 represent all accrued and unpaid compensation due to date
in the amount of $109,500 and satisfaction of all amounts due to Consultant
under certain promissory notes, including all accrued and unpaid interest
thereon, in the amount of $57,640.
6. Termination for Cause
For purposes of this Agreement, "Cause" means conviction of (and such
conviction is sustained on appeal) or the entry of a plea of guilty by the
Executive to a felony involving fraud, conversion, embezzlement, theft, or a
type of similar felony involving the Company's property.
7. Taxes
Consistent with the policies of the Corporation in connection with
Consultant's previous prevision of services to the Corporation, the Corporation
will deliver to Consultant a Form 1099 regarding the Consultant's compensation.
Consultant shall be responsible for payment of all taxes which may be imposed in
connection with Consultant's provision of services to the Corporation, whether
under this agreement, the consulting agreement dated as of February 27, 1997 or
the agreement dated as of September 12, 1997.
6. Independent Contractor
Consultant shall be an independent contractor and shall not have the
authority to bind or obligate the Corporation to any contract or agreement and
Consultant shall not represent to third parties that he has the authority to
bind or obligate the Corporation. The terms of any sales of the Corporation's
products or services shall be subject to the prior written consent of the
Corporation.
7. Termination
This agreement may be terminated for cause by the Corporation prior to
the end
<PAGE>
of the term upon written notice by the Corporation. Termination for cause shall
include, but not necessarily be limited to, the following:
(A) Consultant's failure, or refusal to perform services required of
him by the Corporation to the best of his ability.
(B) Consultant's commitment of an offense of moral turpitude or offense
under federal, state or local laws.
(C) Commission by Consultant of an act of disloyalty against the
Corporation or the violation by Consultant of any provision of this Agreement.
8. Notices
All notices required or permitted to be given under this Agreement
shall be given by telecopy, overnight courier or certified mail, return receipt
requested, to the parties at the addresses first set forth above or to such
other addresses as either may designate in writing to the other party. Notices
sent by certified mail shall be deemed given three days after mailing.
9. Confidential Matters
Consultant acknowledges his understanding that in the performance of
his duties and obligations hereunder he may obtain knowledge of "Confidential
Information" as hereinafter defined, relating to the business of the
Corporation. Consultant agrees to treat as Confidential Information and to hold
in strictest confidence any and all Confidential Information except to the
extent necessary for performance of his services and obligations under this
Agreement and in all such instances Consultant will take reasonable steps to
safeguard the confidentiality of all such information. Consultant's use of any
Confidential Information is subject to the written instructions of the
Corporation.
Except as set forth in this Section 9, Consultant shall keep in
strictest confidence, not use for his own benefit, and prevent the disclosure to
any person, firm or corporation, or any unauthorized person or persons the
Confidential Information after the date of this Agreement. Consultant shall not
directly or indirectly publish, communicate, divulge or describe to any
unauthorized person nor utilize in any way any Confidential Information received
from or on behalf of Corporation except as set forth above.
After termination of this Agreement, Consultant shall return to the
Corporation any confidential information previously delivered to Consultant,
including any copies thereof.
"Confidential Information" shall mean all information of any kind or
nature pertaining to the Corporation and/or its affiliates which is not
available to the public,
<PAGE>
including, but not limited to, information relating to the Corporation's and/or
its affiliates' agreements, the Corporation's proprietary rights, research,
developments, inventions, know-how, trade secrets, patents, patent applications,
documents of any kind and manuals, technical advances, research results,
commercial arrangements, manufacture, engineering, products, processes,
accounting, sales, strategies, tax returns, financial statements, marketing,
customers or customer lists, and any information of a like nature furnished to
or obtained by the Consultant from the Corporation and/or its affiliates
relating to activities of third parties which said third party or parties have
transmitted to the Corporation and/or its affiliates under any agreement or
arrangement to hold the same secret or confidential.
10. Inventions
Consultant shall promptly disclose to the Corporation any and all
inventions. improvements, machines, appliances, processes, products, or the like
(all of which are referred to herein as "inventions") which Consultant may
invent, conceive, produce, or reduce to practice, either solely or jointly with
others, at any time, in furtherance or in the performance of his duties as set
forth in this Agreement. Any and all such inventions which in any way relate to
the products or services manufactured, sold, or used by the Corporation, or to
any methods, processes, or apparatus used in connection with the delivery or
production of such services or goods, or in either case which are or may be or
may become capable of use in the business of the Corporation, shall at all times
and for all purposes be regarded as acquired and held by Consultant in a
fiduciary capacity and solely for the benefit of the Corporation.
No termination of engagement of the Consultant by the Corporation or of
this Agreement shall release the Consultant or his heirs or legal
representatives from complying with the foregoing obligations as to such
inventions. To that extent, the terms of this Article 10 shall survive this
Agreement.
11. Equitable Relief
The parties further acknowledge that in the event of a breach by the
Consultant of any of his obligations under Sections 9 or 10, the Corporation may
be unable to ascertain the exact amount of damages resulting from such breach,
will suffer irreparable harm and will not have an adequate remedy at law.
Accordingly, in the event of any such breach or threatened breach by the
Consultant, the Corporation shall be entitled to such equitable and injunctive
relief as may be available to restrain the Consultant and any corporation,
partnership or other entity participating in such breach or threatened breach
from the violation of the provisions hereof. Nothing herein shall be construed
as prohibiting the Corporation from pursuing any other remedies available at law
or in equity as may be available to it by reason of such breach or threatened
breach.
12. Governing Law
<PAGE>
This Agreement shall be construed and enforced in accordance with the
laws of the State of New York with respect to contracts executed in the State of
New York. The parties acknowledge that all disputes arising under this Agreement
shall be brought in the courts of the State of New York and the parties consent
to the jurisdiction of the courts of the State of New York.
13. Entire Contract
This Agreement constitutes the entire understanding and agreement
between the Corporation and the Consultant with regard to all matters referred
to herein. There are no other agreements, conditions or representations, oral or
written, express or implied, with regard thereto. The parties acknowledge that
this agreement supersedes the consulting agreement dated February 27, 1997 and
the Employment Agreement dated September 12, 1997. The Corporation has no
further obligations to Consultant under such agreements, except with respect to
any accrued or deferred cash compensation which remains due the Consultant under
such agreements. This Agreement may be amended only in writing signed by both
parties. Each party has had the opportunity to have this agreement reviewed by
counsel.
14. Non- Waiver
A delay or failure by either party to exercise a right under this
Agreement, or a partial or single exercise of that right, shall not constitute a
waiver of that or any other right.
15. Assignment
This Agreement shall not be assigned by Consultant except that any
benefits which inure at any time to his estate or personal representative shall
be transferable as a matter of right to such entity or entities. The Corporation
shall have the right to transfer and assign this Agreement and its rights
hereunder in its entirety in its sole discretion.
16. Enforceability.
The invalidity or unenforceability of any provision, term, or condition
hereof shall in no way effect the validity or enforceability of any other
provision or of this Agreement or of the Agreement in its entirety.
17. Restrictive Covenant
In the event that the engagement of the Consultant is terminated by any
party for any reason, the Consultant for a period of one year from the date of
the termination shall be and hereby agrees to be prohibited from directly or
indirectly, either as a
<PAGE>
principal, agent, manager, Consultant, owner, partner, stockholder, director, or
officer of a corporation or otherwise from engaging or becoming interested in ,
financially or otherwise, in any business, trade, or occupation similar to or in
competition with the business of the Corporation. Consultant shall not solicit,
directly or indirectly, including the mailing of informative notices, and of the
Corporation's customers during the year following termination of this agreement.
18. Counterparts
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original of which together shall constitute one and the
same agreement.
19. Binding Effect
The provisions of this Agreement shall be binding upon and inure to the
benefit of both parties and their respective successors and assigns.
IN WITNESS WHEREOF, the Corporation and the Consultant have
executed this Agreement as of the date first above written.
FINANCIAL INTRANET, INC.
BY: /S/Michael Sheppard
/s/Ben B. Stein
BEN B. STEIN
<PAGE>
EXHIBIT A
"Commission Payment Date" is the fifty-fifth (55th) day following the last day
of any calendar month.
"Commissions" are the amounts payable for the sales of the Corporation
telecommunications services closed by the Consultant.
"Customer" is any natural person or legal entity that issues a proper letter of
agency or other duly authorized order for the network services of the
Corporation as defined hereinafter and upon the Corporation's acceptance of such
order becomes liable for the payment of charges for said network services.
"Customer Agreement" is the letter of agency, order and/or authorization form,
tape transcribed order of service via toll free access or dial-up lines to the
Corporation, contract, agreement or any other written or oral communication
and/or commitment appropriately verified as timely, accurate and authentic by
the Corporation and/or any third party the Corporation employs to verify
customer service orders.
"Network Services" are telecommunications services provided by the Corporation's
global telecommunications network for the origination and termination of a
Customer's voice, data, fracsimile, and/or video communications traffic.
"Qualified Revenue" are those revenues collected by the Corporation from
Customers for usage of the Corporation's Network Services on or before the
twenty-fifth (25th) day of the month following the last day of the calendar
month in which the Customer's usage of the Corporation's Network Services
occurred (the "Collection Period"), exclusive of all taxes, fees, operator
and/or directory assistance and/or all other non-usage charges.
"Affiliate" shall mean any person, whether a natural person or legal entity,
which controls, is controlled by or is under common control with, a named party
of this Agreement.
<PAGE>
EXHIBIT B
April 13, 1999
Mr. Ben B. Stein
589 Lakeworth Circle
Lake Mary, FL 32746
Dear Barry,
The purpose of this letter is to outline Financial Intranet's expense
reimbursement policy pertaining to your expenses, and to issue certain monthly
allotments that have been approved by the Company.
FORMAT OF EXPENSE REPORTING
1. The attached expense report form should be filled out on a weekly
basis, and submitted at the end of each month. (This form can also be
found in the Lotus 123, release 5 version of master forms, if you have
that).
2. It is imperative that the "detailed entertainment record" and/or
"purpose of trip" sections be completed and detailed, i.e. names,
dates, locations, etc.
3. Receipts are required for all expenses over $5,.00, with the business
nature written on the back of the receipt, unless shown in the
"detailed entertainment record" or "purpose of trip" sections. This
includes gas, tolls, parking, transportation, meals and lodging, and
any other expenses listed on the face of the expense report.
4. Any expense reports not signed or properly documented will be sent
back.
5. Expenses submitted that are (older than three months will not be
approved.
6. Only business-related expenses, i.e. no personal expenses, will be
approved and reimbursed.
ALLOTMENTS
The following monthly allotments will apply to all expense reports not yet paid,
as well as all future ones. The Company has authorized these allotments, and
detailed support must still be included, where applicable, i.e. copies of
telephone bills, insurance premium notices, etc:
a. Cellular Phone: $170 maximum (based on the current payment plan,
which
<PAGE>
allows 1400 minutes per month).
b. Office telephone and fax lines: $250 maximum
c. Car allowance: $600
d. Car insurance premium: $112 (based on 6-month premium of $672.00)
e. Medical insurance premium: $285 (based on single employee-only
policy)
f. Office rent: $335 (all-inclusive, based on annual rent of $10/sq.
ft. for 400-foot office space.
If there are any questions, please call me at 914-693-2745 or email at
[email protected].
Thanks for your anticipated cooperation.
Sincerely,
Alan M. Ross
Vice President, Finance
Attachment: Expense report form
cc: Michael Sheppard
Steven Schuster - McLaughlin & Stern
<PAGE>
EXHIBIT C
BARRY STEIN COMMISSION SCHEDULE
Gross Profit Commission Rate
- ------------ ---------------
Greater than or equal to 40% 8%
30 - 39% 6%
20 - 29% 4%
10 - 19% 2%
Less than 10% 0
<PAGE>
EXHIBIT 10.29
frontier
COMMUNICATIONS
CARRIER SERVICE AGREEMENT
BETWEEN
FRONTIER COMMUNICATIONS OF THE WEST, INC.
AND
FINANCIAL INTRANET
FRONTIER MAY CONSIDER THIS
DOCUMENT NULL AND VOID IF
AN EXECUTED ORIGINAL IS NOT
RECEIVED BY FRONTIER
WITHIN 20 DAYS OF THE
FOOTNOTE DATE.
<PAGE>
TABLE OF CONTENTS
SECTION
1. Services; Forecasts; PIU Certification; Service Orders
2. Term Of The Agreement
3. Billing And Payment; Rates And Charges; Security; Minimum Charges
4. Billing Disputes
5. Termination Rights
6. Taxes And Assessments
7. Warranties And Limitation Of Liability
8. Indemnification
9. Representation
10. Force Majeure
11. Waivers
12. Assignment
13. Confidentiality
14. Integration
15. Construction
16. Governing Law
17. Notices
18. Counterparts
19. Compliance With Laws
20. Third Parties
21. Survival Of Provisions
22. Unenforceable Provisions
23. Cumulative Rights And Remedies
24. Amendments
25. Authority
26. Non-Solicitation
GENERIC EXHIBITS
Exhibit A Definitions
Exhibit B Ancillary Fee Schedule
Exhibit C Call Detail Records; Electronic Data Exchange; Letter Of Agency
Requirements
SERVICE SPECIFIC EXHIBITS
Exhibit D Frontier Access Direct National Origination Service (NOS)
Switched Outbound Service Schedule
Exhibit D(a) Frontier Access Direct NOS Switched Outbound Service
Exhibit E Frontier Access Direct NOS Switched and Dedicated Toll Free
Service Schedule
Exhibit E(a) Frontier Access Direct NOS Switched Toll Free Service
Exhibit E(b) Frontier Access Direct NOS Dedicated Toll Free Service
Exhibit F Frontier Access Direct NOS Dedicated Outbound Service Schedule
Exhibit F(a) Frontier Access Direct NOS Dedicated Outbound Service
Exhibit G Frontier Access Direct NOS Switched International Termination
Service Schedule
Exhibit G(a) Frontier Access Direct NOS Switched International Termination
Service
Exhibit H Frontier Access Direct NOS Dedicated International Termination
Service Schedule
Exhibit H(a) Frontier Access Direct NOS Dedicated International Termination
Service
Exhibit I Frontier Access Direct OCN Table
Exhibit J Link Card Services Schedule
Exhibit J(a) Link Domestic Card Services
Exhibit J(b) Link Originating International Service
Exhibit J(c) Link Terminating International Service
Exhibit K Network Interconnection Schedule
2
<PAGE>
CARRIER SERVICES AGREEMENT
This Carrier Services Agreement ("Agreement') is entered into between Frontier
Communications of the West, Inc. on behalf of itself and its affiliates that may
provide a portion of the services hereunder ("Frontier"). a California
corporation located at 90 Castilian Drive, Goleta, CA 93117 and Financial
Intranet ("Fl" or 'Purchaser"), a Nevada corporation with its principal place of
business located at 410 Saw Mill River Road, Suite 2040, Ardsley, NY 10502
(hereinafter, Frontier and Fl may be referred to in the aggregate as "Parties"',
and each singularly as a "Party".)
PURPOSE
The Parties are telecommunications carriers subject to the Communications Act of
1934, as amended, as well as the Telecommunications Act of 1996. Fl desires to
purchase network transport and other telecommunication services from Frontier
for El's resale to its customers. For valuable consideration, receipt of which
is hereby acknowledged, the Parties hereto agree as follows:
1. SERVICES; FORECASTS: PIU CERTIFICATION~ SERVICE ORDERS:
1.1 Frontier shall, in accordance with this Agreement, provide to El
those services Fl subscribes to hereunder as defined and identified
herein and on exhibits, schedules and other attachments appended
hereto and made a port of this Agreement from time to time by the
Parties (collectively, the "Exhibits"). Aft such services being
provided under the Exhibits are collectively referred to as the
"Services" and individually as a "Service".
1.2 Network performance is a function of carrier network engineering and
Frontier will be dependent in significant part upon FI's forecasts
and projections as it configures. engineers and augments its network
for optimum performance and to effectively handle Fl's anticipated
traffic volumes. Frontier expects that El has identified such traffic
volumes for the usage~-based Services over the term of this Agreement
and therefore Fl shall provide Frontier with good faith forecasts of
Fl's expected monthly traffic volume and geographic distribution for
each usage-based Service over a three month period. Forecasts shall
be provided at least 90 days in advance of the forecasted period (and
updated more frequently if a submitted forecast is no longer
accurate). The initial forecast shall be provided prior to or on the
Effective Date of this Agreement. Forecasts shall be in the format
supplied by Frontier, which format Frontier may revise from time to
time during the term hereof. Provision of Services is contingent on
the availability of Frontier facilities.
1.3 With respect to; (i) outbound Services originating on dedicated
facilities and terminated by Frontier on switched facilities (and for
which ANIs are not passed to Frontier), and ( ii) toll-free Services
originating on switched facilities and terminated by Frontier on
dedicated facilities, Fl shall provide a good faith certification as
to its percentage of interstate usage ("PIU') for its minutes of
usage ("MOU") forecasted under Section 1.2 hereof. The initial
certification shall be provided prior to or on The Effective Date of
this Agreement and updated when requested by Frontier. The
certification shall be in the format supplied by Frontier, which
format Frontier may revise from time to time during the term hereof.
1.4 Orders for! the Services shall be transmitted and processed in
accordance with Frontier's then-current, standard order procedures
and guidelines, as well as any procedures set out in the applicable
Exhibit for a specific Service (as such procedures and guidelines may
be modified from time to time by Frontier upon prior written notice
to Fl).
1.5 Terms, conditions and guidelines for call detail records and
electronic data exchange are
3
<PAGE>
set out in the attached Exhibit C (as such terms, conditions and
guidelines may be modified from time to time by Frontier upon prior
written notice to Fl).
2. TERM OF THE AGREEMENT:
2.1 INITIAL TERM; This Agreement is effective and the Parties'
obligations commence upon the date of execution by Frontier
("Effective Date") and continues in effect for a period of two (2)
years ("Initial Term") from the earlier of the date switchless
Service is first utilized by FI(as determined by Frontier's records),
or the 90th day after the Effective Date, which date shall be deemed
the "Start of Service Date".
2.2 AUTOMATIC RENEWAL: This Agreement renews automatically for successive
one year periods at the expiration of the Initial Term, unless
otherwise canceled in accordance with the termination provisions of
this Agreement.
2.3 CANCELLATION: Either Party may terminate this Agreement upon
expiration of a term upon written notice given at least 90 days prior
to expiration of the then-current term.
2.4 The Parties acknowledge and agree that, except with respect to
termination of this Agreement for a Party's uncured breach,
termination of this Agreement may not apply to the Private Line
Services in accordance with Section 1.1 of the Private Line Services
Agreement.
3. BILLING AND PAYMENT: RATES AND CHARGES: SECURITY: MINIMUM CHARGES:
3.1 Fl shall pay Frontier for the Services at the rates, fees and charges
set forth below and in the applicable Exhibits. FL is liable for all
charges for the Services, including without limitation, any
fraudulent usage charges and short duration calls. If Fl is required
to provide security hereunder, then Frontier is not obligated to
accept orders, or provide or continue to provide any Services, until
the required security is received by Frontier. If Fl is an existing
customer of Frontier. the rates and charges set forth herein shall be
effective with Fl's first full Billing Cycle following the later of
the Effective Dote of this Agreement or the date Frontier receives
any security required hereunder.
3.2 Fl shall provide Frontier with security in the amount of $50,000 and
in the form of either a cash deposit or an irrevocable, stand-by
letter of credit from a financial institution and in a format
acceptable to Frontier. Fl shall be required to increase such letter
of credit to $100,000 within three months following the Start of
Service Date or upon attaining a monthly billed dollar usage amount
in excess of $25,000. whichever occurs first. Cash deposits shall
bear interest at the rate for telephone security deposits set by the
Public Utility/Service Commission in the state where Fl is
headquartered.
3.3 Fl's initial credit limit hereunder shall be $50,000. if Fl's charges
for the Services ore projected to exceed (based on Frontier's
measurement of Fl's daily usage run rate), or do exceed, its credit
limit, Frontier may require additional security of its choice from Fl
in an amount equal to two times Fl's highest Invoice over the prior
six month period (or such lesser period if this Agreement has not
been in effect for six months) as a condition to continuing to
provide the Services. In addition, if Fl is delinquent in payment of
an Invoice and Frontier does not have security from Fl in an amount
equal to two times Fl's highest Invoice over the prior six month
period (or such lesser period if this Agreement has not been in
effect for six months), Frontier may require additional security of
its choice from Fl in such amount. Any such additional security shall
be provided by Fl to Frontier within 48
4
<PAGE>
hours (if the security is to be other than a letter of credit and
within 10 Business Days if the security is to be a letter of credit)
from its receipt of Frontier's written request for additional
security.
3.4 Frontier agrees to take commercially reasonable efforts to invoice Fl
via facsimile on or about the fifth Business Day after the close of
each Billing Cycle for the Services and for any other sums due
Frontier ("Invoice").
3.5 Each Invoice shall be paid by Fl in immediately available U.S. funds
so that the payment is received by Frontier no later than thirty (30)
calendar days from the dote of the Invoice (the "Due Date]. The
Parties agree that (i) the Invoice date will be the same day the
Invoice is faxed to Fl. and (ii) the Invoice will be faxed on a
Business Day and followed by a confirmation copy sent by first class
U.S. mail. Any Invoice not properly disputed under Section 4 hereof
and not paid by the Due Date shall bear late payment fees at the rate
of 1-1/2% per month (or such lower amount as maybe required by law)
until paid. Further. Frontier may, without notice, immediately
suspend the Services, order processing and Fl's access to CDR and
Electronic Exchange if any Invoice not properly disputed under
Section 4 hereof is not paid by its Due Date.
3.6 Upon the six month anniversary of the Start of Service Date, Frontier
agrees to review FI's payment history and updated financial
statements as a means to determine, at its sole discretion, any
changes to Fl's future security requirements.
3.7 The Fl facsimile number and contact for purposes of this Section 3.
are 914693-5059, Attention: Alan Ross, Vice President of Finance. Fl
may change the facsimile number and contact upon written notice to
Frontier.
3.8 Fl agrees to pay to Frontier any and all local exchange carrier
("LEC") assessed charges (other than access charges otherwise
included under the pricing in this Agreement) and governmental and
regulatory charges or assessments levied upon Frontier as a result of
Services provided to Fl, such as but not limited to:
A. Pass-through charges mandated or permitted by regulatory agencies,
including but not limited to, payphone dial-around compensation
surcharges and PICC charges, plus any reasonable administrative
charge Frontier may establish for its wholesale customers for
administering such pass-through charges;
B. When Frontier is acting as the RespOrg, National Administrative
Services Center assessments (including any monthly recurring
charges) for toll-free Service installation;
C. Applicable ancillary fees and charges set out in the attached
Exhibit B, as the same may be modified from time to time by
Frontier upon written notice to Fl.
If Fl subscribes to a Service for which payphone surcharges would be
applicable, then in lieu of the payphone surcharge pass-through under
A. above, Frontier may agree, at its sole discretion, to permit Fl to
directly assume the responsibility and liability for the reporting
and payment of payphone surcharges in accordance with the terms of a
separate written agreement between the Parties. If such a separate
agreement is signed by the Parties and Fl does not comply with its
terms, Frontier may, notwithstanding such agreement, pass through
payphone dial-around surcharges in accordance with A. above and Fl
agrees to pay the same.
5
<PAGE>
3.9 Fl shall be liable for the following minimum usage charge(s)
commencing with Fl's Billing Cycle that starts in the third (3rd)
month following the Effective Date (the "Minimum Charge").
MINIMUM PERIOD MINIMUM CHARGE
-------------- --------------
Third (3rd.) month $10,000
Fourth (4th) month $10,000
Fifth (5th) month $10,000
Sixth (6th) month and each month thereafter $50.000
If during the Minimum Period Fl's net charges (after any available
discounts hereunder) for the Services are less than the Minimum
Charge. Fl shall pay the shortfall. Governmental assessments and
surcharges, non-recurring charges, operator assistance charges and
local loop and third party and regulatory pass-through charges are
not included when calculating the Minimum Charge. If this Agreement
is terminated prior to the time the Minimum Charge becomes effective
(other than termination by Fl for an uncured breach by Frontier), Fl
shall be liable far the amount described in Section 5.5 hereof.
3.10 Frontier may revise the rates, monthly recurring and other charges in
this Agreement and the Exhibits at any time upon written notice to
Fl. Unless a later effective date is otherwise stated in the notice,
domestic and offshore rates are effective within 30 days and
International rates are effective within seven days of the date of
Frontier's written notice. If the effective rate for a Service is
increased pursuant to this paragraph, then Fl may cancel the Service
subject to the rate increase upon written notice to Frontier given
within 30 days after Fl's receipt of the rate increase notice.
Cancellation of a Service under this paragraph includes a pro-rota
reduction in the Minimum Charge to adjust for the Service being
canceled. If a rate increase affects a portion of a Service that is
not severable from the entire Service Fl shall not be able to cancel
the affected portion, e.g. domestic outbound switched Service is not
cancelable as a result of a rate increase in directory assistance
calls (DA cannot be separately blocked); further, if the rate
increase affects traffic to a particular LATA or country, Fl may only
cancel Service to the particular LATA/country to the extent severable
by Frontier.
3.11 Fl agrees that any make up to minimum charges, shortfall charges and
surcharges for which it is liable under this Agreement are based on
agreed upon minimum commitments on its part and corresponding rate
concessions on Frontier's part, and are not penalties or
consequential or other damages under Section 7.3 hereof.
3.12 Fl agrees that a breach of any other agreement it may have with
Frontier or a Frontier Affiliate shall be deemed a material breach of
this Agreement.
4. BILLING DISPUTES:
Fl shall have the affirmative obligation of providing written notice of any
dispute with an Invoice within 90 days after receipt of the Invoice by Fl
(which notice shall include sufficient detail far Frontier to investigate
the dispute). Fl may withhold payment only on amounts so disputed within 30
Business Days after Fl's receipt of the Invoice. Fl may not withhold
payment of amounts disputed after such 30 Business Day period. If Fl does
not report a dispute with respect to an Invoice within the 90 day period,
Fl is deemed to have waived its dispute rights for that Invoice and to have
agreed to pay the same. Provided El has provided sufficient detail for
investigation of the dispute, Frontier will use reasonable efforts to
resolve and communicate its resolution of the dispute within 30 Business
Days of its receipt of the dispute notice. If the dispute is resolved in
6
<PAGE>
Frontier's favor any amounts to be paid by Fl shall be subject to the late
payment charges under Section 3.5 hereof retroactive to the Due Date of the
disputed Invoice. Notwithstanding anything herein to the contrary, Fl shall
not withhold any disputed amounts while its Frontier account is delinquent,
and claims of fraudulent usage shall not constitute a valid basis for a
dispute.
5. TERMINATION RIGHTS:
5.1 REGULATORY CHANGES: If the FCC. a state PUC or a court of competent
jurisdiction issues a rule, regulation, law or order which has the
effect of canceling, changing, or superseding any material term or
provision of this Agreement (collectively, "REGULATORY Requirement,
then this Agreement shall be deemed modified In such a way as the
Parties mutually agree is consistent with the form, intent and
purpose of this Agreement and is necessary to comply with such
REGULATORY Requirement. Should the Parties not be able to agree an
modifications necessary to comply with a REGULATORY Requirement
within 30 days after the REGULATORY Requirement s effective, then
upon written notice either Party may, to the extent practicable,
terminate that portion of this Agreement impacted by the REGULATORY
Requirement.
5.2 Either Party may terminate this Agreement upon the other Party's
insolvency, dissolution or cessation of business operations.
5.3 Frontier may, upon written notice, within, twenty-four hours
terminate this Agreement f or (i)) Fl's failure to pay any delinquent
Invoice, or (ii) to pay any security or additional security within
the time-frame required under this Agreement.
5.4 In the event of a breach of any material term or condition of this
Agreement by a Party (other than a failure to pay or provide security
which is covered under Section 5.3 above), the other Party may
terminate this Agreement upon 30 days written notice, unless the
breaching Party cures the breach during the 45 day period. A breach
that cannot be reasonably cured within a 45 day period may be
addressed by a written waiver of this paragraph signed by the Part
5.5 Upon any material breach by Fl not cured after expiration of all
applicable notice and cure periods, if any, Frontier may at its sole
option do any or all of the following:
A. Cease accepting or processing orders for Service and suspend
Service;
8. Cease all electronically and manually generated information and
reports (including any CDR not paid for by Fl);
C. Draw on any letter of credit, security deposit or other assurance
of payment and enforce any security interest provided by Fl;
D. Terminate this Agreement and Service without liability to
Frontier;
E. Collect from Fl an amount equal to the Minimum Charge for the
remaining portion of the unexpired term of this Agreement; and
F. Pursue such other legal or equitable remedy or relief as may be
appropriate.
6. TAXES AND ASSESSMENTS:
7
<PAGE>
Fl is responsible for the collection and remittance of all governmental
assessments, surcharges and fees pertaining to ifs resale of the Services
(other than taxes on Frontier's net income) (collectively, 'Taxes"). Fl
shall provide Frontier with, and maintain, valid and properly executed
certificate(s) of exemption for the Taxes, as applicable.
7. WARRANTIES AND LIMITATION OF LIABILITY:
7.1 Frontier warrants that the Services shall be provided on a digital
fiber optic network that meets the applicable technical standards
established for call transport by the telecommunications industry,
including BellCore publication #SRT-SV-002275, with a grade of
Service of P.01 and 557 signaling, where available. FRONTIER MAKES NO
OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO TRANSMISSION,
EQUIPMENT OR SERVICE PROVIDED HEREUNDER, AND EXPRESSLY DISCLAIMS ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR
FUNCTION.
7.2 Fl AGREES THAT ITS SOLE REMEDY IN THE EVENT OF ANY BREACH OF THE
WARRANTIES DESCRIBED IN THIS SECTION 7 SHALL BE (I) WITH RESPECT TO
THE PRIVATE LINE SERVICES, THE OUTAGE CREDITS DESCRIBED IN THE
PRIVATE LINE SERVICES SCHEDULE; AND, (Ii) WITH RESPECT TO THE OTHER
SERVICES, TERMINATION OF THIS AGREEMENT PURSUANT TO SECTION 5.4.
7.3 In no event shall either Party be liable to the other Party for
incidental and consequential damages, lass of goodwill, anticipated
profit, or other claims for indirect damages in any manner related to
this Agreement or the Services.
8. INDEMNIFICATION:
Each Party shall defend and indemnify the other Party and its directors,
officers, employees, representatives and agents from any and all claims,
taxes, penalties, interest, expenses, damages, lawsuits or other
liabilities (including without limitation, reasonable attorney fees and
court costs) relating to or arising out of (i) the operation of its
business, and (ii] its breach of this Agreement; provided, however,
Frontier shall not be liable and shall not be obligated to indemnify Fl,
and Fl shall defend and indemnify Frontier hereunder, for any claims by any
third party, including End-Users, with respect to services provided by Fl
which may incorporate any of Frontier's services.
9. REPRESENTATION:
The Parties acknowledge and agree that the relationship between them is
solely that of independent contractors. Neither Party, nor their respective
employees, agents or representatives, has any right, power or authority to
act or create any obligation, express or implied, on behalf of the other
Party.
10. FORCE MAJEURE:
Other than with respect to failure to make payments due hereunder, neither
Party shall be liable under this Agreement for delays, failures to perform,
damages, losses or destruction, or malfunction of any equipment, or any
consequence thereof, caused by, or due to fire, earthquake, flood, water,
the elements, third party labor disputes, utility curtailments, power
failures, explosions, civil disturbances, governmental actions, shortages
of equipment or supplies, unavailability of transportation, acts or
omissions of third parties, or any other cause beyond its reasonable
control.
8
<PAGE>
11. WAIVERS:
No waiver cit any term or condition of this Agreement shall be enforceable
unless it is in writing and signed by the Party against whom it is sought
to be charged. No failure or delay by either Party in exercising any right,
power or remedy will operate as a waiver of any such right, power or
remedy, unless otherwise provided herein. The waiver by either Party of any
of the covenants, conditions or agreements to be performed by the other or
any breach thereof shall not operate or be construed as a waiver of any
subsequent breach of any such covenant, condition or agreement.
12. ASSIGNMENT:
Neither Party may assign or transfer its rights or obligations under this
Agreement without the other Party's written consent, which consent may not
be unreasonably delayed or withheld, except that Frontier may assign this
Agreement to its Affiliates or successor-in-interest without Fl's consent.
Any assignment or transfer without the required consent is void.
13. CONFIDENTIALITY
13.1 Each Party agrees that all information furnished to it by the other
Party, or to which it has access under this Agreement, shall be
deemed the confidential and proprietary information or trade secrets
(collectively referred to as "Proprietary information") of the
Disclosing Party and shall remain the sole and exclusive property of
the Disclosing Party (the Party furnishing the Proprietary
Information referred to as the "Disclosing Party" and the other Party
referred to as the "Receiving Party"). Each Party shall treat the
Proprietary Information and the contents of this Agreement in a
confidential manner and, except to the extent necessary in connection
with the performance of its obligations under this Agreement, neither
Party may directly or indirectly disclose the same to anyone other
than its employees on a need to know basis and who agree to be bound
by the terms of this Section. without the written consent of the
Disclosing Party.
13.2 The confidentiality of obligations of this Section do not apply to
any portion of the Proprietary Information which is (i)) or becomes
public knowledge through no fault of the Receiving Party; (ii) in the
lawful possession of Receiving Party prior to disclosure to it by the
Disclosing Party (as confirmed by the Receiving Party's records);
(iii) disclosed to the Receiving Party without restriction on
disclosure by a person who has the lawful right to disclose the
information; or (iv) disclosed pursuant to the lawful requirements or
formal request of a governmental agency. If the Receiving Party is
requested or legally compelled by a governmental agency to disclose
any of the Proprietary information of the Disclosing Party. the
Receiving Party agrees that it will provide the Disclosing Party with
prompt written notice of such requests so that the Disclosing Party
has the opportunity to pursue its legal and equitable remedies
regarding potential disclosure.
13.3 Each Party acknowledges that its breach or threatened breach of this
Section may cause the Disclosing Party irreparable harm which would
not be adequately compensated by monetary damages. Accordingly, in
the event of any such breach or threatened breach, the Receiving
Party agrees that equitable relief, including temporary or permanent
injunctions, is an available remedy in addition to any legal remedies
to which the Disclosing Party may be entitled.
9
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13.4 Neither Party may use the name, logo, trade name, Service marks,
trade marks, or printed materials of the other Party, in any
promotional or advertising material, statement, document, press
release or broadcast without the prior written consent of the other
Party, which consent may be granted or withheld at the other Party's
sole discretion.
14. INTEGRATION:
This Agreement and all Exhibits, schedules and other attachments
incorporated herein, represent the entire agreement between the Parties
with respect to the subject matter hereof and supersede and merge all prior
agreements, promises, understandings, statements, representations,
warranties, indemnities and inducements to the making of this Agreement
relied upon by either Party, whether written or oral.
15. CONSTRUCTION:
The language used in this Agreement is deemed the language chosen by the
Parties to express their mutual intent. No rule of strict construction
shall be applied against either Party.
16. GOVERNING LAW:
Frontier currently maintains regional Service and operations centers to
support customer accounts in New York, California and Michigan. This
Agreement will be construed and enforced in accordance with the law of the
state where Fl's account is supported, as designated by Frontier in this
Agreement or as designated in Exhibits or amendments to this Agreement,
without regard to that state's choice of law principles. The Parties agree
that any action related to this Agreement shall be brought and maintained
only: (i) in the Superior court of the State of California for the County
of Santa Barbara, if the designated customer support center is located in
California; (ii) in a Federal or State court of competent jurisdiction
located in Monroe County, New York, if the designated customer support
center is located in New York; or (iii) in the Federal District Court for
the Eastern District of Michigan or a State court of competent jurisdiction
located in Oakland County, Michigan, if the designated customer support
center is located in Michigan. The Parties each consent to the jurisdiction
and venue of such courts and waive any right to object to such jurisdiction
and venue.
17. NOTICES:
All notices, including but not limited to, demands, requests and other
communications required or permitted hereunder (not including Invoices)
shall be in writing and shall be deemed given: (i) when delivered in
person, (ii) 24 hours after deposit with an overnight delivery Service for
next day delivery, (ii) the same day when sent by facsimile transmission
during normal business hours. receipt confirmed by sender's equipment, or
(iii) three Business Days after deposit in the United States mail, postage
prepaid, registered or certified mail, return receipt requested, and
addressed to the recipient Party at the address set forth below:
If to Frontier: Frontier Communications
180 South Clinton Ave.
Rochester, NY 14646
Attn: Brian Fitzpatrick or Senior Vice President Carrier
Services
Facsimile #: (716)232-9165
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with a copy to: Frontier Communications
90 Castilian Drive
Goleta, CA 93117
Attn: Peggy Palak Manager, National Contract Admin.
Facsimile #: (800) 689-2395
If to Fl: Financial Intranet
410 Saw Mill River Road, Suite 2040
Ardsley, NY 10502
Attn: Michael Sheppard, President
Facsimile #: (914) 693-5059
18. COUNTERPARTS:
This Agreement may be executed in several counterparts, each of which shall
constitute an original, but all of which shall constitute one and the same
instrument.
19. COMPLIANCE WITH LAWS:
During the term of this Agreement, the Parties shall comply with all local,
state and federal laws and regulations applicable to this Agreement and to
their respective businesses. Further, each Party shall obtain, file and
maintain any tariffs, permits, certifications, authorizations, licenses or
similar documentation as may be required by the FCC, a state Public Utility
or Service Commission, or any other governmental body or agency having
jurisdiction over its business ("Authorizations"). Upon the request of a
Party, which request shall be no more frequent than once every six months
(unless based an a request or an order of a governmental body or agency
having jurisdiction over either Party). the other Party will provide copies
of the requested Authorizations.
20. THIRD PARTIES:
The provisions of this Agreement and the rights and obligations created
hereunder are intended for the sole benefit of Frontier and Fl. and do not
create any right, claim or benefit on the part of any person not a Party to
this Agreement, including End-Users.
21. SURVIVAL OF PROVISIONS:
Any obligations of the Parties relating to monies owed, as well as those
provisions relating to confidentiality, limitations on liability and
indemnification, shall survive termination of this Agreement.
22. UNENFORCEABILITY OF PROVISIONS
The illegality or unenforceability of any provision of this Agreement does
not affect the legality or enforceability of any other provision or
portion. If any provision or portion of this Agreement is deemed illegal or
unenforceable for any reason, there shall be deemed to be made such minimum
change in such provision or portion as is necessary to make it valid and
enforceable as so modified.
23. CUMULATIVE RIGHTS AND REMEDIES:
Except as may otherwise be provided herein, the assertion by a Party of any
right or the obtaining of any remedy hereunder shall not preclude such
Party from asserting or obtaining any other right or remedy, at law or in
equity. hereunder,
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24. AMENDMENTS:
This Agreement is voidable by Frontier if the text is modified by Fl
without the written or initialed consent of a Frontier Vice President.
Except as may otherwise be provided herein, any amendments or modifications
to this Agreement must be in writing and signed by a Frontier Vice
President (or higher level officer) and an authorized officer of Fl.
25. AUTHORITY
Each individual executing below on behalf of a Party hereby represents and
warrants to the other Party that such individual is duly authorized to so
execute, and to deliver, this Agreement. By its signature below, each Party
acknowledges and agrees that sufficient allowance has been made for review
of this Agreement by respective counsel and that each Party has been
advised by its legal counsel as to its legal rights, duties and obligations
under this Agreement.
26. NON-SOLICITATION
Fl agrees that while this Agreement is in effect, and for a period of 12
months following expiration or termination of this Agreement, neither it
nor its representatives will directly or indirectly solicit Frontier
employees to leave their employment with Frontier.
<TABLE>
<S> <C>
Frontier Communications of the West, Inc. Financial Intranet
By: By: /s/Michael Sheppard, President
------------------------------------------- -------------------------------
Brian V. Fitzpatrick, Senior Vice President Michael Sheppard, President
Frontier Carrier Services Group
Date:______________________ Date: 4/12/99
</TABLE>
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Exhibit A
Page 1 of 3
DEFINITIONS
(not otherwise defined in the body of the Agreement or an Exhibit)
1. Frontier Toll-free Numbers are toll-free telephone numbers ordered onto the
Frontier network by Fl and for which Frontier has either (i)) been
appointed the RespOrg. or (ii) reserved and issued the toll-free telephone
number to Fl. Frontier shall be deemed to be the RespOrg for all toll-free
telephone numbers reserved and issued by it under (ii) above.
2. ANI is an End-User telephone line used for outbound switched Services.
3. BILLING Cycle is the Frontier BILLING cycle to which Fl's account hereunder
is assigned by Frontier (a full BILLING cycle approximates 30 days).
4. Business Day is Monday through Friday, 8:00 am to 5:00 PM EST, excluding
nationally recognized holidays. Unless otherwise stated, "days" refers to
calendar days.
5. Presubscribed means that an End-User's ANI(s) has been assigned by the LEC
to Frontiers network via Frontiers CIC.
6. Carrier Toll-free Numbers ore toll-free telephone numbers ordered onto the
Frontier network by Fl for which a party other than Frontier or Fl has been
appointed the RespOrg.
7. Code is a calling card authorization number used to access the Calling Card
Services.
8. Fl Toll-free Numbers are toll-free telephone numbers ordered onto the
Frontier network by Fl for which Fl has been appointed the RespOrg.
9. End-Users are customers of Fl receiving any of the Services hereunder. To
the extent that Fl subscribes to the Services for its own use. Fl is deemed
to be on End-User.
10. Toll-tree Numbers collectively refers to the Frontier Toll-free Numbers,
Carrier Toll-free Numbers, Fl Toll-free Numbers and PIN Toll-free Numbers.
11. Toll-free Number Guidelines refer to the telecommunications industry's
general rules with respect to toll-free number portability, including but
not limited to. (i) the Federal Communications Commission's ("FCC")
toll-free number portability policies and rules, (ii) the SMS Toll-free
requirements set forth in the Bell Operating Companies' Tariff FCC No. 1,
and (iii) the Toll-free DataBase Ad-Hoc Committee's Guidelines for
Toll-free DataBase. as all of the foregoing may be replaced or modified
from time to time.
12. PIN Toll-free Numbers are Frontier Toll-free Numbers assigned to Fl for use
with the Toll-free PIN Service.
13. RespOrg is a responsible organization as defined in the Guidelines. A
RespOrg is the entity that is responsible for managing and administering
the account records in the Toll-free Service Management System DataBase.
14. Time Point (TP) is the measurement method for call duration. P-l is the
"request for Service event": TP-6 is the "answer detected event"; TP-7 is
the "call disconnect event", Calls for all
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Exhibit A
Page 2 of 3
Services (other than dedicated carrier Toll-free transport) are measured at
TP-7 minus TP-6 times Three and divided by 60. Dedicated carrier Toll-free
calls are measured at TP-7 minus TP- 1.
15. Delinquent (whether capitalized or not) means any Invoiced amounts not
properly disputed under Section 4 of this Agreement and remaining unpaid on
the Invoice's Due Date.
16. Affiliate means any entity directly or indirectly controlling, controlled
by or under common control with a Party.
17. Calling Card SERVICES consist of coiling card traffic generated via Codes.
18. Toll-free PIN Service consists of inbound Switched Services combined with a
PIN Toll-free Number accessed via tour digit personal identification
numbers ("PIN Numbers") used by End-Users ("0000", "4663", "9675" and
"9999" are not available as PIN Numbers). The use of the PIN Numbers with a
PIN Toll-free Number permits multiple End-Users to utilize the same
toll-free telephone number on an individual basis. Toll-free Directory
Assistance is not available with the Toll-free PIN Service.
19. Toll-free Directory Assistance consists of calls made to directory
providers for assistance in locating a Frontier toll-free Number.
20. NOS Dedicated Services consist of: (i) End-User switched outbound long
distance traffic delivered to a Frontier Point of Presence ("POP") via
dedicated facilities and terminated over the Frontier network, and (ii)
switched toll-free traffic generated via Toll-free Numbers which traffic
originates on the Frontier network and is terminated by Frontier onto Fl's
or an End-User's dedicated facilities.
21. NOS Switched SERVICES consist of switched inbound and outbound long
distance traffic generated by End-Users that originates and terminates on
the Frontier network.
22. National Origination SERVICES ("NOS"): collectively includes the NOS
Switched Services, the NOS Dedicated Services and related toll-free and
international traffic.
23. Dedicated Canter Termination consists of switched outbound long distance
traffic delivered by Fl to a Frontier POP via dedicated facilities and
terminated over the Frontier network.
24. Dedicated Toll-free Transport consists of Frontier's routing of El's
toll-free calls originating on Frontier's network to Fl's facilities for
termination by Fl.
25. Domestic means the 48 contiguous United States.
26. Off-Shore means Alaska, Hawaii, Puerto Rico and the U.S. Virgin Islands.
27. Private Line SERVICES consist of point-to-point DS-1, DS-3, OC-3 and OC-12
circuit capacity provided over Frontier's SONET network.
28. Operator Services see Operator Services Schedule. Operator Services
specifically exclude calling card operator assistance calls made via Codes,
which are deemed to be part of the Calling Card Services.
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Exhibit A
Page 3 of 3
29. CIC(Carrier Identification Code): is a three or four digit number issued by
Bellcore and used by a LEC (and others) to identity a long distance
carrier.
30. Sub-CIC Service: consists of switched outbound long distance traffic
generated by End-Users that are PIC'd to Fl's CIC. Fl CIC is "translated"
or pointed at Frontier's Feature Group D trunks so that Fl's traffic
reaches the Frontier network via shared Feature Group D trunks.
31. Area Code Blocking: Provides the ability to block toll-free calls which
originate from certain area codes. End-Users can allow or disallow area
codes.
32. Area Code Routing: Provides End-Users the ability to route calls to a
predetermined location based on originating area code. Calls may be routed
to a maximum of 15 different numbers.
33. Time of Day Routing: provides End-User the ability to route calls to a
maximum of four (4) different locations based on time of day that the call
originates (in half hour increments).
34. Percent Call Allocation Routing: Provides End-Users the ability to route
calls to multiple centers (or ANIs) based on a predetermined percentage of
calls received as follows.
o 10 Locations, each receives 10% of calls
o 4 Locations, each receives 25% of calls
o 3 Locations, each receives 33% of calls
o 2 Locations, one receives 75% of calls, the other location 25%
o 2 Locations, one receives 90% of calls, the other 10%
35. 6-Digit Routing/Blocking: Provides End-User the ability to route or prevent
the completion of toll-free calls based on NPA-NXX.
36. 10-Digit routing/Blocking: Provides End-Users the ability to route or
prevent the completion of toll-free calls based on NPA-NXX-FI.
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<PAGE>
EXHIBIT 10.30
AGREEMENT
THIS AGREEMENT is made and entered into ____ day of April, 1999, by and
between JOSEPH R. THEISMANN (Theismann), with an address at JRT Associates,
Inc., 5661 Columbia Pike, Suite 200, Falls Church, Virginia 22041, and FINANCIAL
INTRANET, INC. (the "Company"), a Nevada corporation having offices at 410 Saw
Mill River Road, Ardsley, New York 10502.
WHEREAS, the Company desires to employ Theismann as an independent
contractor, and Theismann desires to accept such employment with the Company,
subject to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and
Theismann agree as follows:
1. Period of Engagement.
The Company shall engage Theismann, and Theismann shall serve the
Company for one (1) year commencing as of the date hereof (the "Term"). The Term
may be extended by one (1) additional year with the same compensation package in
year two (2) as in year one (1)
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at the option of Theismann upon a minimum of sixty (60) days prior written
notice to the Company.
2. Duties and Responsibilities.
During the Term of this Agreement, Theismann shall be engaged by the
Company as a spokesperson.
(a) Question and Answer Session.
Theismann agrees to participate in six (6) question and answer sessions
on the Company's chat room during the Term at intervals of not more than once
per week. Theismann will answer questions by talking via telephone to a
representative of the Company who will then put Theismann's comments on the
Internet. Theismann may be located anywhere in the United States during his
participation in each session, The Company shall provide Theismann with a
minimum of two (2) weeks notice prior to each session, and the parties shall
mutually agree on the exact date and time. The Company shall have the right to
advertise Theismann's scheduled appearance on its chat room in any manner and
through any medium at its sole cost and expense. The topics to be discussed by
Theismann shall be selected by the Company and shall be mutually acceptable to
both the Company and Theismann. During each session, the company shall select
the questions to be answered by Theismann. Each session shall be a maximum of
thirty (30) minutes in duration.
(b) Trade Show.
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Theismann agrees to appear at one (I) trade show in the United States
as selected by the Company during the Term to sign autographs and answer
questions regarding Financial Intranet. The Company shall give notice to
Theismann no less than six (6) weeks prior to his appearance, and the parties
shall mutually agree on the exact date and time for Theismann's appearance.
(c) Video Production.
Theismann agrees to devote a maximum of eight (8) hours on a single day
for the production of video tapes and audio tapes by the Company on a minimum of
six weeks prior notice from the Company, and the parties shall mutually agree on
the exact date and time for the video/audio production. The video tapes and
audio tapes may include, but not be limited to, such commercials, infomercials,
testimonials, and motivational talks as the Company desires to produce subject
to Theismann' s approval. The Company shall have the right, at its discretion,
to distribute and reproduce such tapes and audio tapes over the Internet during
the Term of this Agreement only.
(d) Promotional Efforts.
During the Term, Theismann shall use his best efforts to utilize his
name and image to promote the Company's products and services and to assist the
Company in improving
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<PAGE>
customer relations. The parties acknowledge that Theismann will only be required
to provide such services on a part-time basis and that, except for the specific
time to be devoted by Theismann to the Company's business under Sections 2(a),
(b) and (c), the amount of time to be devoted by Theismann for such promotional
efforts shall be determined solely by Theismann. Statements by Theismann with
respect to the business and operation of the Company shall be subject to the
review and approval of the Company.
3. Compensation.
(a) As compensation for services rendered hereunder and in
consideration of this Agreement, the Company shall (i) pay Theismann a fee of
$7,500.00 payable upon execution of this Agreement, (ii) issue to Theismann
warrants to purchase 100,000 shares of the Company's common stock at an exercise
price of Seventy Five Cents ($0.75) per share for twelve (12) months from the
date of this Agreement, such warrants to vest on the first day of each month at
a rate of 8,333 shares per month for the first eight months and 8,334 per month
for the last four months of the Term, and these warrants shall be exercisable
for eighteen (18) months from the date of grant regardless of whether this
Agreement is extended beyond the initial Term described herein or terminated as
provided herein, and (iii) issue to Theismann warrants to purchase an additional
50,000 shares of the Company's common stock at an exercise price equal to twenty
percent (20%) below the closing bid price of the Company's common stock as
listed on Bloomberg Systems on the day of the Production of video tapes and
audio tapes under Section 2 above, which warrants vest on the day of production
and shall be exercisable for twelve (12)
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<PAGE>
months from the date of grant, regardless of whether this Agreement is extended
beyond the initial Term described herein or terminated as provided herein.
(b) The Company shall include the 150,000 shares of common stock
issuable upon exercise of the warrants in its registration statement filed with
the Securities and Exchange Commission in February 1999 so that the shares of
common stock will be registered under the Securities Act of 1933.
(c) The compensation described herein is only for the initial one (1)
year Term of this Agreement. In the event the Term is extended to a second year
as provided herein, Theismann shall be entitled to the same compensation package
in year two (2).
(d) The Company expressly agrees that the warrants to be issued to
Theismann shall be unencumbered, unrestricted, freely assignable or
transferrable by Theismann to a third party, fully paid and non-assessable, free
from taxes, liens, and other charges.
(e) The Company further expressly agrees that the shares deliverable on
the exercise of these warrants shall be unencumbered, unrestricted, freely
assignable or transferrable by Theismann to a third party, fully paid and
non-assessable, free from taxes, liens, and other charges, upon the
effectiveness of the registration statement described in paragraph 6.
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<PAGE>
(f) The Company shall at all times reserve and hold available
sufficient shares of stock to satisfy all conversion and purchase rights of
outstanding convertible securities, options, and warrants including but not
limited to the warrants described herein.
(g) The purchase rights represented by these warrants are exercisable
at the option of Theismann or his assigns, in whole or in part, as they become
vested as described herein. In the case of the exercise of warrants for less
than all the shares exercisable, the Company shall execute and deliver new
warrants of like tenor for the balance of the shares purchased.
(h) If the Company, by stock dividend, split, reverse split,
reclassification of shares, or otherwise, changes as a whole the outstanding
common stock into a different number or class of shares, then:
(1) The number and class of shares so changed shall, for the
purposes of these warrants, replace the shares outstanding
immediately prior to the change; and
(2) these warrants' purchase price in effect, and the number of
shares purchasable under these warrants, immediately prior to the
date upon which the change becomes effective, shall be
proportionately adjusted (the price to the nearest cent).
Irrespective of any adjustment or change in the warrants' purchase
price or the number of shares purchasable under this or any other
warrant of like tenor, the warrants theretofore and thereafter
issued may continue to express the warrant purchase price per
share and the number of shares purchasable as the warrant purchase
price per share and the number of shares of purchasable were
expressed in the warrants when initially issued.
6
<PAGE>
(i) If the Company consolidates with or merges into another
corporation, the registered owner shall thereafter be entitled on exercise to
purchase, with respect to each share of common stock purchasable hereunder
immediately before the consolidation or merger becomes effective, the securities
or other consideration to which a holder of one share of common stock is
entitled in the consolidation or merger without any change in or payment in
addition to the warrant purchase price in effect immediately prior to the merger
or consolidation. The Company shall take any necessary steps in connection with
a consolidation or merger to assure that all of the provisions of these warrants
shall thereafter be applicable, as nearly as reasonably may be, to any
securities or other consideration so deliverable on exercise of these warrants.
The Company shall not consolidate or merge unless, prior to consummation, the
successor company (if other than the Company) assumes the obligations of this
paragraph by written instrument executed and mailed to the registered owner at
the address of the owner on the books of the Company. A sale or lease of all or
substantially all the assets of the Company for a consideration (apart from the
assumption of obligations) consisting primarily of securities is a consolidation
or merger for the foregoing purposes.
6) On the happening of an event requiring an adjustment of the
warrants' purchase price or the shares purchasable hereunder, the Company shall
forthwith give written notice to the registered owner stating the adjusted
warrants' purchase price and the adjusted number and kind of securities or other
property purchasable hereunder resulting from the event and setting forth in
reasonable detail the method of calculation and the facts upon which the
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<PAGE>
calculation is based. The Board of Directors of the Company, acting in good
faith, shall determine the calculation.
4. Expenses.
The Company shall reimburse Theismann for all reasonable and ordinary
expenses incurred in the performance of Theismann's duties provided that the
Company approves all expenses in excess of $100.00 in advance. Theismann shall
provide to the Company any and all statements, bills or receipts evidencing the
expenses for which Theismann seeks reimbursement, and such other related
information or materials as the Company may from time to time reasonably
require. In the event that Theismann travels to any location outside of the
Washington, D.C. metropolitan area, including, but not limited to any trade
shows, the Company shall be responsible and shall pay for first class round trip
air tickets and hotel accommodations for Theismann. Theismann shall make all
first class round-trip air reservations and invoice Financial Intranet and the
Company shall promptly pay such invoices.
5. Termination.
(a) The Company shall have the right to terminate this Agreement prior
to the end of the Term for "Cause" at any time and without prior notice. For
purposes of this Agreement, Cause shall include: (i) material default or other
material breach by Theismann of Theismann's obligations hereunder; (ii) failure
by Theismann to perform diligently and
8
<PAGE>
competently Theismann's duties hereunder; or (iii) misconduct, dishonesty,
insubordination, acts of moral turpitude or other act by Theismann detrimental
to the Company or its good will or damaging to its relationships with its
customers, suppliers, or employees, including, without limitation, (A) use of
alcohol or illegal drugs such as to interfere with the performance of Theismann'
s obligations hereunder, (B) conviction of or plea of guilty or no contest to a
felony or a misdemeanor involving moral turpitude, and (C) material failure by
Theismann to comply with applicable laws or governmental regulations with
respect to Company operations or the performance of Theismann's duties. in the
event Theismann is terminated for Cause by the Company or Theismann voluntarily
ceases to provide the services required under this Agreement, all warrants due
to or vested in Theismann, regardless of whether the warrants have been
exercised, pursuant to the terms of this Agreement, shall remain the sole and
exclusive property of Theismann to do with as he wishes upon the terms contained
herein. Any right to future warrants shall terminate in the event of a
termination for cause or in the event Theismann voluntarily ceases to provide
the services required herein. For example, if the Company terminates Theismann
for cause at the end of the seventh month, Theismann shall be entitled to the
following warrants: 8,333 x 7 months 58,331. This example does not take into
consideration warrants due for the production of the video which shall vest on
the day of production of the video.
(b) If the Company terminates this Agreement prior to the end of the
Term for a reason other than cause, the total compensation required pursuant to
Section 2 shall be due to
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<PAGE>
Theismann in full, immediately, in full and complete satisfaction of any and all
obligations owing to Theismann pursuant to this Agreement
6. Confidential Information.
Both during and after the Term Theismann shall not, directly or
indirectly, divulge, publish, communicate, or make available to any person,
corporation, governmental agency, or other entity (except in performing
Theismann's duties hereunder), or use for Theismann's own or any other person or
entity's purposes or benefit, any trade secret, confidential business
information, e-mailing or customer lists, finances (including prices, costs, and
revenues), and other confidential business information or date of the Company or
any affiliate which is not generally known to the public (separately and
collectively, "Information"), and shall use Theismann's best efforts to prevent
the publication or disclosure by any other person or entity of any such
Information. All documents and Information compiled, received, held, or used by
Theismann in connection with the business of the Company shall remain the
Company's property and shall be delivered by Theismann to the Company upon the
termination of Theismann's engagement or at any earlier time requested by the
Company.
7. Promotional Material.
Theismann agrees to allow the Company to use his name, image and
biographical information and transcripts, photographs and videos of previous
motivational speeches as approved by Theismann in his sole discretion and
provided that the proposed use does not violate any preexisting agreement to
which Theismann is presently a party, through any type of media
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<PAGE>
chosen by the Company, for the advertising of the Company's products and
services and the promotion of the Spokesman's appearance during the Term hereof.
Theismann shall assist in providing the Company with photographs and videos of
prior motivational speeches, which the. Company shall have the right to edit,
reproduce and distribute on the Company's web-site during the Term, subject to
the restrictions contained herein. Theismann agrees to allow the Company to use
his name and image, through any type of media, for the advertising of the
Company's products and services during the Term of the Agreement only. The
Company agrees that any promotional material developed by the Company using
Theismann or his likeness can be used by the Company only during the Term of
this Agreement.
8. Arbitration.
Any dispute between the Company and Theismann relating to this
Agreement or relating to or arising out of Theismann's engagement with the
Company, shall be settled by binding arbitration before a single arbitrator in
New York, New York, pursuant to the Rules of the American Arbitration
Association. Each party shall bear its own costs, expenses and fees, including,
without limitation, attorneys' fees and experts' fees with respect to any such
arbitration. Judgment upon any resulting arbitration award may be entered in any
court of competent jurisdiction and shall be binding on both parties.
9. Independent Contractor.
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Theismann shall have the status of an independent contractor under this
Agreement and shall not have the authority and shall not represent to third
parties that he has the authority to bind or obligate the Company
10. Indemnification
The Company agrees to and does hereby indemnify, defend and hold
Theismann harmless from and against any and all claims, causes of action,
liabilities, losses and damages, (including reasonable attorney's fees) arising
from actions or omissions of the Company with respect to this Agreement or
arising from or in connection with Theismann's involvement with the Company,
including but not limited to all claims involving the product and services
provided by the Company including any product or services provided to any third
party including its customers and the public. Promptly after any such claims,
causes of action, liabilities, losses and damages become known to Theismann,
Theismann shall give the Company prompt written notice of, and an opportunity to
defend, any and all asserted claims, causes of action, liabilities, losses and
damages.
11. Notice.
Any notice or other communication required or permitted under this
Agreement by either party hereto to the other shall be in writing, and shall be
deemed effective upon (a) personal delivery, if delivered by hand, (b) three
days after the date of deposit in the mails, postage prepaid, if mailed by
certified or registered mail, or (c) the next business day, if sent by a prepaid
overnight courier service, and in each case addressed as follows:
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If to Theismann Joseph R. Theismann
c/o JRT Associates, Inc.
5661 Columbia Pike
Suite 200
Falls Church, Virginia 22041
If to the Company Financial Intranet, Inc.
410 Saw Mill River Road
Ardsley, New York 10502
Attention: Michael Sheppard
Facsimile: (914) 693-5059
With a copy to:
McLaughlin & Stern, LLP
260 Madison Avenue
New York, New York 10016
Attention: Steve W. Schuster, Esquire
Facsimile: (212) 448-0066
Either party may change the address or addresses to which notices are
to be sent by giving notice of such change of address.
12. Entire Agreement.
This Agreement represents the entire agreement between the Company and
Theismann with respect to Theismann's engagement with the Company, and
supersedes and is in full substitution for any and all prior agreements or
undertakings, whether oral or written, relating to Theismann's engagement.
13. Amendment.
13
<PAGE>
This Agreement may not be canceled, changed, modified, or amended
orally, and no cancellation, change, modification or amendment hereof shall be
effective or binding unless in a written instrument signed by the Company and
Theismann.
14. No Waiver.
The failure at any time either of the Company or Theismann to
require the performance by the other of any provision of this Agreement shall in
no way affect the full right of such party to require such performance at any
time thereafter, nor shall the waiver by either the Company or Theismann of any
breach of any provision of this Agreement be taken or held to constitute a
waiver of any future breach of such or any other provisions of this Agreement.
15. Assignment.
This Agreement is binding on and for the benefit of the Company and
Theismann and their respective successors, heirs, executors, administrators, and
other legal representatives. Neither this Agreement nor any right or obligation
hereunder may be sold, transferred, assigned, or pledged by the Company or by
Theismann without the prior written consent of the other.
16. Interpretation and Severability.
In the event any provision of this Agreement, or any portion
thereof, is determined by any arbitrator or court of competent jurisdiction to
be void or unenforceable, the remaining provisions of this Agreement shall
nevertheless be binding upon the Company and
14
<PAGE>
Theismann with the same effect as though the void or unenforceable provision or
portion thereof had been severed and deleted.
17. No Conflict.
With the exception of certain agreements that Theismann is a party
to concerning the use of his image, photos, videos, and/or motivational
speeches, the parties represent and warrant that they are not subject to any
agreement, order, judgment or decree of any kind which would prevent them from
entering into this Agreement or performing fully their obligations hereunder.
18. Governing Law.
This Agreement shall be governed by and construed in accordance
with the substantive laws of the State of New York, without application of its
conflict or choice of law provisions.
19. Execution.
This Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day, month and year first above written.
/s/Joseph R. Theismann
--------------------------------
Joseph R. Theismann
FINANCIAL INTRANET, INC.
By: /s/ Michael Sheppard
----------------------------
Michael Sheppard,
President, Authorized Agent
16
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Financial Intranet, Inc.
We consent to the reference to our firm under the caption "Experts" in the
Amendment No. 1 to the Registration Statement (Form SB-2), and related
prospectus of Financial Intranet, Inc. and to the incorporation by reference
therein of our report dated March 5, 1999, except for Note 6, as to which the
date is March 15, 1999 with respect to the financial statements as of December
31, 1998 and 1997 and for the years then ended.
/s/ REMINICK, AARONS & COMPANY, LLP
New York, New York REMINICK, AARONS & COMPANY, LLP
May 13, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<EXCHANGE-RATE> 1.000 1.000
<CASH> 149,225 1,929
<SECURITIES> 0 0
<RECEIVABLES> 44,070 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 202,747 27,032
<PP&E> 1,068,840 235,712
<DEPRECIATION> 107,645 0
<TOTAL-ASSETS> 1,413,148 395,992
<CURRENT-LIABILITIES> 870,185 231,031
<BONDS> 500,000 0
0 0
0 0
<COMMON> 20,561 15,589
<OTHER-SE> 22,402 149,372
<TOTAL-LIABILITY-AND-EQUITY> 1,413,148 395,992
<SALES> 89,169 0
<TOTAL-REVENUES> 89,169 0
<CGS> 163,033 0
<TOTAL-COSTS> 163,033 0
<OTHER-EXPENSES> 2,024,113 817,280
<LOSS-PROVISION> 41,863 0
<INTEREST-EXPENSE> 2,138 150
<INCOME-PRETAX> (2,141,978) (817,430)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,141,978) (817,430)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,141,978) (817,430)
<EPS-PRIMARY> (.12) (.07)
<EPS-DILUTED> (.12) (.07)
</TABLE>
