FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
1st Internet Group, Inc.
(Name of Small Business Issuer in its charter)
Florida 65-0890599
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification
number)
5883 Lake Worth Road, Lake Worth, Florida 33463
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (561) 642-2811
Securities to be registered under Section 12(b) of the Act:
Title of each class to be so registered: n/a
Name of exchange on which each class is to be registered: n/a
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.01 per share
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TABLE OF CONTENTS
Page No.
Part I
Item 1. Description of Business 3
Item 2. Management's Discussion and Analysis 11
Item 3. Description of Property 20
Item 4. Security Ownership of Certain
Beneficial Owners and Management 21
Item 5. Directors, Executive Officers,
Promoters and Control Persons 22
Item 6. Executive Compensation 23
Item 7. Certain Relationships and Related
Transactions 24
Item 8. Description of Securities 25
Part II
Item 1. Market for Common Equity and Related
Stockholder Matters 25
Item 2. Legal Proceedings 26
Item 3. Changes In and Disagreements with
Accountants 26
Item 4. Recent Sales of Unregistered
Securities 26
Item 5. Indemnification of Directors and
Officers 26
Part F/S 27
Part III
Item 1. Index to Exhibits 28
Item 2. Description of Exhibits 28
Signatures 28
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
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1st Internet Group, Inc. ("1st Internet" or "Company" or
"Registrant") was formed on November 23, 1998 as a Florida
corporation. On February 25, 1999, the Company became a holding
company by acquiring all of the outstanding stock of three
operating companies: 1st Discount Brokerage, Inc. ("Brokerage"),
1st Discount Insurance, Inc. ("Insurance"), and Corporate
Accounting Group, Inc. ("Accounting"). All three subsidiaries are
Florida corporations. Brokerage was incorporated under the name
Discount Institutional Brokerage, Inc. on June 14, 1995. On June
25, 1995, Discount Institutional Brokerage, Inc. changed its name
to Fidelity Discount Investments, Inc. On August 4, 1995,
Fidelity Discount Investments, Inc. changed its name to the
present name of 1st Discount Brokerage, Inc. Insurance was
incorporated on January 3, 1996 and Accounting was incorporated
on January 22, 1991.
Brokerage is a broker-dealer registered with the Securities
and Exchange Commission ("SEC") and the National Association of
Securities Dealers ("NASD"). Brokerage is currently licensed in
45 states and is pending registration in all others; however, the
temporary delay may cause a backlog of clientele waiting for the
ability to trade over the Internet. Brokerage provides retail
discount securities brokerage and related investment/portfolio
management counseling services. Brokerage makes extensive use of
a variety of electronic media, including the Internet, to service
individual investors throughout the United States and
internationally. Brokerage has an international office located in
Munich, Germany.
Insurance provides annuity and life insurance products to
complement and augment the needs of brokerage and non-brokerage
clientele.
Accounting is an accounting and tax preparation company
servicing the needs of brokerage and insurance clientele.
Brokerage
- ---------
Historically, investors could access the financial markets
only through full-commission brokers, who would offer investment
advice and execute trades. The deregulation of brokerage
commissions in 1975 engendered discount brokerage firms. The
recent emergence of electronic brokerage services further reduces
the costs associated with the human interaction required by
full-commission and discount brokerage firms.
In 1996, the SEC adopted rules which brought about sweeping
changes in the structure of the over-the-counter market known as
the Order Handling Rules, which permitted the creation and
operation of electronic communication networks ("ECNs"). ECNs are
open broadcasting systems that allow anyone with a connection to
the network to see all the bids and offers posted into the system
for any NASDAQ traded security. The Order Handling Rules require
market makers to display
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certain limit orders in their quotations or to send those orders
to an ECN for display. This regulatory environment coupled with
the increased availability of information to investors on a real-
time basis, advances in the Internet, and networking and
communications technologies have created investing opportunities
for online brokerage services.
Brokerage Products and Services
===============================
Brokerage makes extensive use of a variety of electronic
media, including the Internet, in order to service individual
investors throughout the United States and internationally.
Brokerage is able to execute securities transactions efficiently
at a relatively low cost and therefore offer discount commission
rates among the lowest in the industry. Brokerage provides
execution services for stocks, mutual funds, options and bonds
through these means. In addition, Brokerage provides market data
and research services to its customers through "Reuter's Reality
Online." Brokerage customers can access bid and ask prices,
charts, research and other information for any listed or NASDAQ
traded stock.
Brokerage's services are based on proprietary transaction-
enabling technologies and are designed to serve the needs of
self-directed investors. Active self-directed investors execute
more trades per day than any other category of investors and
require timely information and quick order execution to
effectuate their trading strategies. Brokerage's services include
fully automated stock, option and mutual fund order processing
via personal computer or touch-tone telephone, as well as through
traditional registered representatives. Customers are able to
track their online investment portfolio and access financial
market news and information. All records are maintained on one
centralized system, so that customers have access to current
account information regardless of which medium they use.
While the market is currently demonstrating rapid account
growth in the near future, it is unlikely to continue
indefinitely. Management expects that this factor will eventually
put pressure on customer acquisition costs, retention efforts,
and pricing. In addition, the expansions of full service
financial firms to the Internet pose a serious market threat to
the smaller independent firms. Firms with a broad base of revenue
will be at a definite competitive advantage on both advertising
and pricing fronts.
Management intends to use the Internet to expand business
through many facets. First, it improves client/broker relations
by increasing the efficiency of trading. Second, the Internet
provides convenience for a new base of clientele looking to use
the Web as the sole vehicle for trade. Finally, the web-site
offers a strategic marketing tool for business expansion and name
recognition.
Trading, administrative and technical support services for
all levels of online service are among Brokerage's highest
priorities. Brokerage believes that providing an effective
customer service team is critical to success. Live customer
support is available 10 hours a day from 8:00am to 6:00pm Eastern
time, Monday through Friday. Brokerage currently employs 7
registered representatives to execute customer orders, research
past trades, discuss account information and provide detailed
technical support. Brokerage does not hold any funds or
securities of its clients, nor does it directly
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execute and process either its own or its customers' securities
transactions. Since December 1998, Brokerage has cleared all
transactions for its customers on a fully-disclosed basis through
U.S. Clearing Corporation.
Online Trading Industry Overview
================================
Online trading is the fastest growing segment of the
brokerage industry and is expected to continue to grow
significantly. In a report dated March 11, 1999, Forrester
Research, Inc., an independent research firm, estimated that
during 1998 the number of North American households investing
online nearly doubled, reaching just under 2.4 million by the
start of 1999. They also estimate that the number of investors
will increase to 4.3 million by the end of 2000. The year-end
estimate was surpassed in April of 1999. In addition, recent
predictions foretell the Internet will account for 60% of
commissioned discount brokerage trading, approximately $2.2
billion, by the year 2001. In 1996, Internet commissions
accounted for only 15% of the market, or $268 million dollars.
"Online brokerage services have proven to be the killer app
in electronic commerce and a key driver for financial services
firms," said Nicole Vanderbilt, Director of Digital Commerce,
Jupiter Communications. Jupiter, a new media research firm that
focuses on how the Internet and other technologies are changing
traditional consumer industries, estimates that online trading
households will reach 31 percent of the personal investing market
by the year 2002.
Brokerage's network comprises a series of servers, routing
and Internet networking equipment, workstations, software
support clusters and firewall management systems. Any computer
that can connect to the Internet can connect to Brokerage's
system.
Once an account is opened, the customer downloads
proprietary software and is given a unique user name and
password. The customer then logs onto the system and is connected
to an order server. The order server accepts buy/sell or sell
short messages from the customer and qualifies the order for
review. Once an order is qualified, it is sent to the exchange of
the customer's choice and messages are sent to update the
database. The update offers the customer real-time quotes on
entered transactions, daily account and margin positions. All
transactions for the day are processed for delivery to the
clearing firm.
Key Market Drivers
==================
Management believes that the success of the online trading
industry will be driven by five factors: a reduction in trading
friction (described below), the exponential growth of the World
Wide Web, the increase in consumer comfort with electronic
commerce, a recent shift in discount brokerage channels, and
rising investor participation and autonomy.
o There have traditionally been a number of factors that have
made investing difficult for individual consumers. This
friction has historically been created by high commission
costs, lack of information, and investors' inability to
control their investment decisions. The online channel
reduces these frictions by using cost effective pricing
strategies, a high-speed information channel and individual
autonomy.
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o The continued growth of the World Wide Web has been
overwhelmingly positive. International Data Corp predicts
that by 2001 there will be 227.7 million WEB subscribers.
In addition to the growth in usage, people are spending on
average 245 minutes online a month. This implies that there
is going to be a significant customer base for online
brokerage corporations as more consumers come online and
view the Internet as an increasingly important tool.
o Increasing consumer comfort with electronic commerce has
developed a convenient marketplace for commercial trade and
business transactions. Piper Jaffray Equity Research
estimates that there has been a sharp rise in consumer
purchases from 19% in May of 1997 to 40% in May of 1998.
Moreover, 40% of WEB users seek investment information on
the WEB, while only 15% actually make a purchase. As people
gain a stronger sense of security for their investments,
management believes that the consumer purchasing trend will
transcend into the online investment industry.
o As evidenced by the recent experiences of many traditional
discount brokerages like Schwab and Waterhouse, the Internet
is a very attractive new service to offer existing
customers. The Internet's tremendous convenience, low cost,
and wealth of research information naturally provides an
arena for discount brokerage customers.
o The increase in investment autonomy displayed in the rise of
IRAs, 401Ks, and employee stock ownership plans, combined
with a strong market, have made significant contributions to
the interest and participation of individuals in the market.
In particular, the 401K plans have forced investors to
actively overview their personal retirement funds. In
addition, the strong market makes an influential appeal for
stock-options as employment compensation.
Management believes that these five trends will create an
environment where success begets success, resulting in greater
activity.
Internet Trading Misconceptions
===============================
Management believes that the combination of industry-wide
advertising and the lack of individual-investment knowledge have
created a trend to promote "get rich quick" schemes. This has
undermined the volatility and unpredictability of the market and
has started to replace it with a false sense of market
anticipation. Investors who are uninformed about recent market
movements and biases can be at great financial risk. In addition,
the lack of personal communication between Brokerage and
clientele yield a missed opportunity to dispel the online trading
myths. While management attempts to correct this industry-wide
dilemma by offering answers to frequently asked questions at our
web-site, it is relatively impossible to personalize service and
amply respond to all customer difficulties.
Moreover, the notion of an instantaneous trade via the
Internet is flawed as well. When any trade is placed over the
Internet, it must be routed to Brokerage's server, the broker
then places the order and it is subsequently routed to a clearing
firm. During peak trading hours, it is customary for multiple
trades to be placed and therefore delay the transaction process.
Currently, Brokerage makes
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every effort to place trades as quickly as possible after receipt
of the order. However, Brokerage cannot guarantee that every
trade will be placed at the exact moment the client places the
order. Brokerage's current Internet transaction period is
averaging less than 30 seconds to complete a trade. Management is
continuing to develop and utilize new strategies to make the
process more efficient.
Internet investors who trade on margin and do not have a
comprehensive knowledge of its procedures are an added risk to
Brokerage. If the asset an investor purchases depreciates or a
margin call is placed, uninformed investors who have lost capital
are a potential liability to the reputation of the firm. While
Brokerage assumes the investors who trade on margin understand
the process, management is working to revise its web-site to
better explain the regulations and risks involved.
Additionally, the possibility of opening a trading venue to
daytime gamblers has become a plausible concern for Brokerage.
While management stresses a comprehensive screening process to
attempt to alleviate this situation, the get rich quick schemes
as mentioned above promote this arena. We will continue to
improve our application process, and work with our clients to
ensure they are aware of their fiscal predicaments.
In addition to the above, many firms are facing
misconception issues with clients regarding the availability of
initial public offerings (IPOs). Brokerage does not offer IPOs to
it clients and therefore is not faced with this additional risk.
Governmental Regulation
=======================
The securities industry is subject to extensive regulation
under federal and state law. The SEC is the federal agency
responsible for administering the federal securities laws. In
general, broker-dealers are required to register with the SEC
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Brokerage is a broker-dealer registered with the
SEC. Under the Exchange Act, every registered broker-dealer that
does business with the public is required to be a member of and
is subject to the rules of the NASD. The NASD has established
Conduct Rules for all securities transactions among broker-
dealers and private investors, trading rules for the over-the-
counter markets, and operational rules for its member firms. The
NASD conducts examinations of member firms, investigates possible
violations of the federal securities laws and its own rules, and
conducts disciplinary proceedings involving member firms and
associated individuals. The NASD administers qualification
testing for all securities principals and registered
representatives for its own account and on behalf of the state
securities authorities.
Brokerage is also subject to regulation under state law. An
amendment to the federal securities laws prohibits the states
from imposing substantive requirements on broker-dealers which
exceed those imposed under federal law. However, the recent
amendment does not preclude the states from imposing registration
requirements on broker-dealers that operate within their
jurisdiction or from sanctioning these broker-dealers for
engaging in misconduct.
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Internet Regulation
===================
Due to the increasing popularity of the Internet, various
regulatory authorities are considering laws and/or regulations
with respect to online services covering issues such as user
privacy, pricing, content copyrights, and quality of services. In
addition, the growth and development of the market for online
commerce may prompt more stringent consumer protection laws that
may impose additional burdens on those companies conducting
business online. Furthermore, the applicability of existing laws
to the Internet and other online services in various
jurisdictions is uncertain. Finally, as the Company's services
are available over the Internet in multiple states and foreign
countries, these jurisdictions may claim that the Company is
required to qualify to do business as a foreign corporation in
each such state and foreign country. New legislation or the
application of laws and regulations from jurisdictions to
Brokerage or online services could harm our business.
Competitive Assessment
======================
Brokerage competes against full-commission and discount
brokerage firms, as well as against financial institutions,
mutual fund sponsors and other organizations, many of which are
significantly larger than Brokerage. Among such competitors are
E*Trade Group Inc., Charles Schwab & Co. Inc., Quick & Reilly
Inc., Waterhouse Securities Inc., Fidelity Brokerage Services
Inc., and Datek Securities Corporation. Management believes that
such success will continue to attract additional competitors such
as banks, insurance companies, providers of online financial and
information services, and others as they expand their product
lines.
The market for electronic brokerage services is intensely
competitive, rapidly changing and has few barriers to entry.
Brokerage can compete on the basis of speed and accuracy of order
execution, processing and confirmation, quality of client
service, ease of use, amount and timeliness of information
provided and price and reliability of trading systems.
Brokerage differentiates itself from its competitors in
three core areas:
Value - Brokerage's mission is to bring full financial
services, which includes traditional and online brokerage
services, to clients. To accomplish this, Brokerage focuses
on providing value added, long-term, professional common
sense personal financial planning by using all of the
Company's resources, which include tax preparation, general
accounting and insurance services to augment the brokerage
services.
Customer Service - simply put, the customer comes
first. Brokerage's commitment to fairness is the
cornerstones of its foundation and structure. Furthermore,
Brokerage's expectations are to exceed customers' objectives
24 hours a day, 7 days a week. This policy stands at the
forefront of the Company's daily activities.
Quality Personnel - The Company has developed a
proprietary 1st STEP(trademark) program that provides the
inexperienced investor with an interpersonal tutorial to the
financial marketplace. Each financial consultant goes
through a rigorous training program for one year. Obtaining
securities and insurance licensing is mandated for all
financial consultants. Subsequent training in securities
fundamentals, financial planning, selling, marketing and
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administrative activities further distinguishes Brokerage's
professionals. 1ST STEP(trademark) establishes trust and
confidence in the financial consultant/client relationship
separating Brokerage's professionals from their counterparts
and peers.
Aggregation Strategy
====================
Along with internal, external, domestic, and international
expansion, Brokerage expects to achieve growth through individual
and cooperative alliances. More importantly, management of the
Company expects that accretive acquisitions will be pursued
vigorously to acquire large blocks of incremental market share.
This aggregation strategy, along with new branch office openings,
will permit significant economies of scale to further enhance net
profitability.
Brokerage's strategy to expand into international markets
(the Munich office opened in July 1998) stems from the ability to
provide international customers access to U.S. financial market
data and to offer electronic execution services for foreign
markets.
Marketing and Sales Plan
========================
The Company plans to employ aggressive marketing initiatives
to bring greater brand name recognition to its products and
services. These initiatives may include large promotional
expenditures on television, newspaper, and Internet portal entry
points.
Dependence on Three Major Customers
===================================
Brokerage receives approximately 82% of its gross commission
from three institutional clients in Germany. These clients
accounted for $1,755,431 of the total gross commission collected
by Brokerage in the first and second quarters.
Accounting
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Our Business
============
Accounting primarily provides bookkeeping and tax
preparation services to small businesses and individual clients.
Management recognizes that clients desire a certainty about their
financial planning stratagem. Management believes that the
financial relationship between Brokerage, Accounting and
Insurance gives us a competitive edge by offering a complete
financial services experience. The Company provides clients with
an opportunity to invest in brokerage-related services and
insurance policies.
In addition, management believes that bookkeeping is an
under-appreciated sector of the market. The Internet has
revolutionized the communication process by providing an
efficient and secure method for the transfer of documentation. We
believe that this will facilitate the bookkeeping industry as
people search for a convenient method to report transactions.
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Market and Strategic Overview
=============================
The Company believes that most Americans require tax
preparation services. Segmented firms have historically supplied
different financial sectors, but the Company believes that the
current trend toward multi-service firms will enable Accounting
to attract more clients for its full range of services.
Management of Accounting also believes that as people
continue to look for more convenient and efficient ways to
transfer documentation, the Internet provides a secure highway
for the movement of this information. Moreover, the power of e-
mail promotes the infrastructure of the Web, eliminating the
meticulous nature of copying paperwork. Coupling these factors,
we believe people will begin to seek record keeping services over
the Internet. This industry is very early in its development and
we expect it to grow as convenience becomes even more of a
commodity.
Key Market Drivers
==================
The primary market driver for accounting is its stable claim
in the financial service industry. As more planning becomes
eminent in the development of individual financial futures, the
tax preparation and bookkeeping sectors will continue to grow.
The accounting industry functions around this premise and relies
solely upon it. As people look to the Internet as the future
commercial tool, management believes there will be a growing
demand for Internet bookkeeping and preparation services.
Competitive Assessment
======================
The income tax preparation and financial planning services
industry is highly competitive. Accounting's competitors include
companies specializing in income tax preparation as well as
companies that provide general financial services. Many of these
competitors, which include H + R Block Inc., HD Vest Inc.,
Jackson Hewitt Tax Service Inc. and Triple Check Income Tax
Service Inc. in the tax preparation field and many well-known
brokerage firms in the financial services field, have
significantly greater financial and other resources than the
Company.
The Company believes that the primary elements of
competition are convenience, quality of service and price. Based
on management's experience and the Company's success to date, we
believe that we can effectively compete in this market with
respect to these factors.
Insurance
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Our Business
============
Insurance was formed to complement the full range of
financial services offered by the Company and its subsidiaries.
The agents, insurance brokers, sell life, health and annuity
policies for insurance firms and are paid a commission by the
policy provider for the sale. There are no financial liabilities
as Insurance is an agent for policy providers and not a full-
service insurance firm. Insurance has a relatively insignificant
role in the daily operations of the Company and its financial
condition. The commissions on insurance sales account for
approximately .5% of the Company's total revenues.
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Market and Strategic Overview
=============================
The insurance sector of the financial services industry has
consistently been a stable fiscal element. While Insurance is an
agent for alternative policy providers, it prides itself on
ensuring clients the best possible and most reasonable solution
for their personal financial needs. Long term investment plans,
financial security, and financial relief in the case of
emergencies and financial mishaps define the insurance sector.
Almost all American families seek to have a modicum of insurance
to provide a solid backbone for their individual financial goals
and alternative investment opportunities.
Insurance believes by coupling the services of Brokerage and
Accounting with Insurance, it has a competitive advantage by
offering a full financial service experience that caters to the
needs of the individual. Management believes that Insurance will
continue to grow as the Company promotes the idea of a "one-stop"
solution for personal financial services.
Item 2. Management's Discussion and Analysis
This registration statement includes, without limitation,
certain statements containing the words "believes",
"anticipates", "estimates", "could", "plans to", and "predicts"
and words of a similar nature, which constitute "forward-looking
statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. This Act provides a
"safe harbor" for forward-looking statements to encourage
companies to provide prospective information about themselves so
long as they identify these statements as forward looking and
provide meaningful, cautionary statements identifying important
factors that could cause actual results to differ from the
projected results. All statements other than statements of
historical fact made in this Form 10-SB are forward-looking. In
particular, the statements herein regarding the Company's
expansion plans and methods; the stabilization of business and
its affect on revenues and expenses; the length of time the
proceeds from the Company's stock offering and cash flow from
operations will fund its planned operations; the effect that any
possible change in the Net Capital Rule could have on the
operations of the Company; the complete effect to the Company's
operations if heavy stress is placed on the Company's computer
systems or those of third parties on which it relies, the effect
of name recognition associated with the Internet if Internet
usage and online trading slow down; the complete effect on the
business if the trading market experiences an unforeseen change;
the effects on the operations of the Company if the Company
experiences any sort of trouble with its clearing firm(s); the
effects on the operations of the Company if the Company were to
lose the services of any of its officers or directors or a
conflict among employees arose; the readiness of the Company for
the change to the Year 2000 and the readiness of third party's on
whom the Company relies; the effect a breach in customer security
could have; the effect on the operations of the Company if it is
unable to adapt to changing technology; the accomplishment of
advertising goals for the Accounting subsidiary; the consistency
of the bookkeeping and accounting industries and its effect on
the revenue and expenses of the Accounting subsidiary; the role
bookkeeping has in the success of a financial firm and the growth
the industry will face if and when expanded to the Internet; the
percentage of operating revenue to be generated by personal and
corporate accounting services; the effect on the Accounting
subsidiary's operations if businesses and individuals rely more
and more on do it yourself software and services; the effect a
possible flat tax rate could have on the Accounting subsidiary's
operations; and the effect a possible
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misinterpretation of new policies or lack of awareness could have
on operation are forward-looking statements. Forward-looking
statements reflect management's current expectations and are
inherently uncertain. The Company's actual results may differ
significantly from management's expectations.
Introduction
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The Company is a holding company with three operating
subsidiaries: 1st Discount Brokerage, Inc., 1st Discount
Insurance, Inc., and Corporate Accounting Group, Inc.
Brokerage is a broker-dealer registered with the SEC, the
NASD and 45 continental states. Brokerage has pending
registration in the remaining states. Brokerage provides retail
discount securities brokerage and related investment/portfolio
management counseling services. Brokerage makes extensive use of
a variety of electronic media, including the Internet, to service
individual investors throughout the United States and
internationally.
Insurance provides annuity, life, and health insurance
products to complement and augment the needs of brokerage and
non-brokerage clientele.
Accounting is an accounting and tax preparation service
company providing these services to individuals and businesses
while complementing the needs of Brokerage's and Insurance's
clientele.
In addition to continuing the existing marketing strategy
for the three entities, the Company also plans to expand its
business and operations by transferring current clientele to the
Internet, expanding marketing strategies, and purchasing Internet
market share from existing competitive online brokers and
accounting clients from existing bookkeeping and tax preparation
firms.
Brokerage - Year-to-Year Comparison
- -----------------------------------
First & Second Quarters 1999
============================
Brokerage's revenue for the first and second fiscal quarters
of 1999 was $2,155,278, an increase of 777% over the first and
second quarters during the 1998 fiscal year. Brokerage's
comparative revenue during that period was $245,866. Brokerage
as of March 31, 1999 had already surpassed the revenue grossed
during all of the year-end 1998. Significant growth and marketing
strategies have acted as the impetus for Brokerage's expansion.
Brokerage's revenue accounted for 95% of the Company's total
revenues during the first and second fiscal quarters of 1999.
In addition to the significant growth in revenue, expenses
have also increased as Brokerage has grown. Expenses during the
first and second fiscal quarters of 1999 were $1,936,290 compared
to $244,509 during the first and second quarters of fiscal year
1998.
Brokerage's overall growth has been the primary impetus for
net income to rise to $123,072 during the first and second
quarters of 1999 as compared to net income of $12,651 in the same
fiscal period during the year 1998.
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Year-End 1998
=============
Brokerage's total revenue for the year ending December 31,
1998 was $1,069,021, a 69% increase over the reported revenues of
$634,259 for the year ending December 31, 1997. Total revenue
increased primarily as a result of an additional $626,087 in
commission.
The expansion of Brokerage yielded an increase in commission
revenue. Brokerage has expanded to take on more institutional
clientele and hire new financial consultants. In addition, the
opening of a branch office in Germany expanded Brokerage to
include foreign investors in U.S. securities and services.
Finally, the expansion of Brokerage to include the Internet as a
new source for clientele and financial services coupled with
consistent technological upgrades has influenced trading revenue
and growth.
Although revenues have significantly increased with the
expansion of the business, so have the expenses. Total expenses
rose 98% from $545,990 for the year ending December 31, 1997 to
$1,078,514 year ending December 31, 1998. Clearing and execution
fees rose 96% from $42,464 in year ending December 31, 1997 to
$83,420 in year ending December 31, 1998. In addition, the
commissions, salaries, and benefits expense rose from $337,399 in
year ending December 31, 1997 to $887,972 in year ending December
31, 1998, a change of 163%. Administrative and occupancy fees
have risen to $81,775 in year ending December 31, 1998 from
$29,927 during the previous year, a change of 173%.
In the past year, Brokerage has expanded its offices to
facilitate the increase in clientele and employment growth. This
has been the primary cause for the increase in administrative and
occupancy expenses. Moreover, the increases in general purchases
(i.e., paperwork, computer software & hardware and technical
instrumentation) have been another facet of the increase in cost.
The trading and execution expenses have risen due to an expansion
of clientele and customer investment. Finally, the expenses
associated with employment have risen as a result of the hiring
of new financial consultants and administrative employees.
Net income for the year ending December 31, 1998 was
$(7,191), while in the year ending December 31, 1997, it was
$88,269. The change in operating income yielded a net decrease in
cash of $(119,366), finalizing the year-end cash and cash
equivalents at a value of $121,698 for the year ending December
31, 1998. In general, Brokerage's net income decreased due to an
increase in operating expenses resulting from business expansion
and future planning. Management of Brokerage predicts that as the
business stabilizes over the next few years, coupled with a
consistent growth rate, revenues will advance while expenses will
become uniform.
Liquidity
=========
Since inception through April, 1999 the Company has financed
its operations through earnings, capital infusions by the
principal shareholder and sales of common stock. In April of
1999, the Company raised $998,000 through the sale of common
stock. Cash and cash equivalents at December 31, 1998 were
$121,698 as compared to $241,064 at December 31, 1997. The ratio
of
13
<PAGE>
current assets to current liabilities was almost 1.6 to 1 at
December 31, 1998, compared to 8.4 to 1 at December 31, 1997.
Pursuant to the SEC's net capital rule, Brokerage is
currently required to maintain net capital of $50,000 and a ratio
of aggregate indebtedness to net capital (the "net capital
ratio") not to exceed 15 to 1. As of December 31, 1998,
Brokerage's net capital ratio was 1.08 to 1. SEC rules also
prohibit "equity capital" (which, pursuant to the net capital
rule includes the subordinated loans) from being withdrawn or
cash dividends from being paid if Brokerage's net capital ratio
exceeds 10 to 1 or if it has less than the minimum required net
capital.
Net cash provided by operating activities was $(82,020) at
year-end December 31, 1998 and $124,458 at year-end December 31,
1997. The decrease in cash flow was primarily a result of an
increase in commission receivable from $(10,255) at year-end
December 31, 1997 to $(225,237) at year-end December 31, 1998.
Net cash used in investing activities was $26,701 during
year-end December 31, 1998 and $(58,114) during year-end December
31, 1997. Net cash used in investing activities was primarily a
result of purchasing additional computer systems, office
equipment and leasehold improvements.
Net cash provided by financing activities was $(64,047) in
Year-end December 31, 1998 and $(16,254) in year-end December 31,
1997. The decrease in cash flows from financing activities was a
result of capital contributions and distributions.
Based on currently proposed plans and assumptions relating
to the implementation of the Company's business plan, management
believes that the proceeds from its stock offering, combined with
cash flow from operations, will enable it to fund its planned
operations through the first quarter of 2001.
Net Capital Rule
================
As a registered broker-dealer and member of the NASD,
Brokerage is subject to the Net Capital Rule. The Net Capital
Rule, which specifies minimum net capital requirements for
registered brokers-dealers, is designed to measure the general
financial integrity and liquidity of a broker-dealer and requires
that at least a minimum part of its assets be kept in relatively
liquid form. In general, net capital is defined as net worth
(assets minus liabilities), plus qualifying subordinated
borrowings and certain discretionary liabilities, and less
certain mandatory deductions that result from excluding assets
that are not readily convertible into cash and from
conservatively valuing certain other assets. Among these
deductions are adjustments, which reflect the possibility of a
decline in the market value of an asset prior to disposition.
Failure to maintain the required net capital may subject a
firm to suspension or revocation of registration by the SEC and
suspension or expulsion by the NASD and other regulatory bodies
and ultimately could require the firm's liquidation. The Net
Capital Rule prohibits payments of dividends, redemption of
stock, the prepayment of subordinated indebtedness and the making
of any unsecured
14
<PAGE>
advance or loan to a shareholder, employee or affiliate, if the
payment would reduce the firm's net capital below a certain
level.
The Net Capital Rule also provides that if the sum of the
net capital withdrawals during a 30-day period exceeds 30% of the
excess net capital, and the SEC concludes that the capital
withdrawal may be detrimental to the financial integrity of the
broker-dealer, the SEC may restrict any withdrawal of equity
capital, or unsecured loans or advances to shareholders. In
addition, the Net Capital Rule provides that the total
outstanding principal amount of a broker-dealer's indebtedness
under certain subordination agreements, the proceeds of which are
included in its net capital, may not exceed 70% of the sum of the
outstanding principal amount of all subordinated indebtedness
included in net capital, par or stated value of capital stock,
paid in capital in excess of par, retained earnings and other
capital accounts for a period in excess of 90 days.
A change in the Net Capital Rule, the imposition of new
rules or any unusually large charge against net capital could
limit Brokerage's operations that require the intensive use of
capital, such as the financing of client account balances, and
also could restrict its ability to pay dividends, repay debt and
repurchase shares of its outstanding stock. A significant
operating loss or any unusually large charge against net capital
could adversely affect its ability to expand or even maintain its
present levels of business, which could harm business.
Possible Harms to Financial Condition
=====================================
Brokerage relies heavily on various electronic mediums.
Brokerage receives trade orders using the Internet and telephone.
In addition, all trade orders are processed through U.S. Clearing
Corp. (the "Clearing Firm"). This method of trading is primarily
dependent on the consistency of the electronic systems supporting
them. Heavy stress placed on these systems during peak trading
times could cause Brokerage's systems to operate at unacceptably
low speeds or malfunction. Any significant degradation or failure
of Brokerage's computer and communication systems, those of the
Clearing Firm, or any other systems in the trading process (e.g.,
online service providers, record keeping and data processing
functions performed by third parties, and third-party software
such as Internet browsers) could pose a threat to the timeliness
of financial transactions. These delays could cause a moderate
loss for Brokerage's clientele and could subject Brokerage to
claims from clients for possible losses, including litigation
claiming fraud or negligence. Management is in the process of
creating operating redundancies in Brokerage's systems and
regularly conducting backups to protect against system failures.
These systems and/or safeguards may not be sufficient in all
circumstances.
The uncertainty associated with the acceptance of the
Internet as an effective commercial tool could prove to be weary
in the future. As a majority of Brokerage's advertising and new
basis for clientele is based on the Internet, the potential loss
of certainty in the Internet for consumers may draw individuals
back to the primary use of a full-service brokerage firm.
Although Brokerage offers a majority of financial services, name
recognition without the use of the Internet could be detrimental
to the expansion of the Company.
15
<PAGE>
The market itself can create a possible harm for the firm if
an unforeseen change is drastic. An untimely shift in interest
rates, inflation, unemployment, or any immediate scare or threat
to consumer independence and monetary gain could prove to act as
an impetus for investor withdrawal. A lack of faith in the
market and its ability to grow, or a reduction in consumer
spending could reduce individual investment, therefore reducing
capital within the corporation.
The reliability of the clearing firm is another facet of the
transaction process that could be detrimental to the Company in
the future. The possibility of misplaced trades, incomplete
registration, and inconsistent account transfers due to
Brokerage's recent change in clearing firms could all prove to
have an effect on the short-term liquidity of the corporation. In
addition, there is no way to determine how current clientele will
react to the delay in trading of their portfolios. This
inconsistency could transcend into a loss of customer/broker
relations that could harm the Company.
The Company's success depends heavily on the work of William
Corley, Chief Executive Officer, P. Jason Ling, Chief Financial
Officer, Michael Graham, Chief Operating Officer, and Thomas Doll
and Michael Fisher, Branch Managers. The loss of services of any
of these employees could have an impact on the financial
condition of the company. The replacement of these individuals
could be a long and meticulous process that would delay daily
services for an extended period of time.
The plausibility of employee misconduct, while difficult to
predict, is a considerable threat to the Company's growth and
expansion. Currently, the corporation employs a small number of
staff members in comparison to a majority of corporations. As a
result, the compliance and work ethic of each individual is
crucial to the day-to-day operations of the Company. A conflict
could compromise the working environment and disrupt the
definitive roles of each individual. The misguided use of
confidential information or the possibility of an intentionally
misplaced trade could compromise the integrity of the Company's
operations.
Because the Company depends to a very substantial degree
upon the proper functioning of its computer systems, a failure of
its systems to be Year 2000 compliant could harm its business.
Failure of this kind could, for example, cause settlement of
trades to fail, lead to incomplete or inaccurate accounting,
recording, or processing of trades in securities, currencies,
commodities, and other assets, result in a generation of
erroneous results, or give rise to uncertainty about our exposure
to trading risks and our need for liquidity. If not remedied,
potential risks include business interruption or shutdown,
financial loss, regulatory actions, harm to our reputation, and
legal liability.
In addition, the Company depends upon the proper functioning
of third-party computer and non-information technology systems.
These parties include trading counter parties, financial
intermediaries such as stock and commodities exchanges,
depositories, clearing agencies, clearing houses, and commercial
banks and vendors such as providers of telecommunication services
and other utilities. If third parties with whom we interact have
Year 2000 problems that are not remedied, the following problems
could result:
o in the case of vendors, a disruption of important
services upon which we depend, such as
telecommunications and electrical power failure;
16
<PAGE>
o in the case of third-party data providers, the receipt
of inaccurate or out-of-date information that could
impair our ability to perform critical data functions;
o in the case of financial intermediaries such as
exchanges and clearing agents, failed trade settlements
could cause an inability to trade in certain markets
and a disruption of funding flows;
o in the case of banks and other lenders, the disruption
of capital flows could potentially result in liquidity
stress.
Disruption or suspension of activity in the world's
financial markets is also possible. Uncertainty about the
success of remediation efforts generally may cause many market
participants to reduce the level of their market activities
temporarily as they assess the effectiveness of these efforts
during a "phase-in" period beginning in late 1999. This in turn
could result in a general reduction in trading and other market
activities (and lost revenues) as well as reduced funding
availability in late 1999 and early 2000. We cannot predict the
impact that any reduction would have on our business.
The market for electronic brokerage services over the
Internet is infantile in its stage and rapid in its development.
The compilation of technological change, client requirements,
frequent services, product enhancements and introductions, and
emerging industry standards give way to evolving marketing and
financial costs. The maturation of this financial arena can
render current technologies and services obsolete and
unmarketable. Our future success depends, in part, on our ability
to develop and use new technologies, adapt and respond to future
changes in technology, and enhance our existing services. As a
result of the financial aspect of the industry there is no
guarantee that we can continue to pursue new opportunities or
compete with the financial firms that have already claimed a
definitive monetary stake within the industry.
Customer security is another essential aspect of Internet
trading. The growing information age of the Internet has opened a
new arena for white-collar crime. Clients rely on the security of
their financial condition as a high priority. A compromise of
this magnitude could jeopardize the relationship of the client
and firm and progress into more complicated issues with retention
of customers and disclaimers. Security compromises could have an
effect on the entire market and its potential to grow, which
could harm our business.
Accounting - Year-to-Year Comparison
- ------------------------------------
First & Second Quarters 1999
============================
Accounting's revenue during the first and second fiscal
quarters of 1999 was $107,494, a 13.2% gain in comparison to the
first and second quarters of fiscal year 1998, where such
revenues were $94,968. General expansion and growth attributed to
the increase in revenue.
17
<PAGE>
In addition to the growth in revenue, expenses have also
increased as Accounting has grown. Expenses during the first and
second fiscal quarters 1999 were $99,458, compared to $78,712,
during the first and second quarters of fiscal year 1998.
Year-End 1998
=============
Accounting's total revenue year ending December 31, 1998 was
$151,565, a 22% decrease from the reported revenues for the year
ending December 31, 1997, a value of $194,170. Total revenue
decreased primarily due to a shift in business focus from tax
preparation to the more stable, but less lucrative bookkeeping
industry.
The nature of the accounting industry has yielded a constant
source of revenue over the past year. There have been no major
changes in clientele or staff members. Our general revenue line-
by-line depends heavily on our bookkeeping and personal and
corporate tax revenue sectors.
Although revenues have decreased over the past two years,
expenses in proportion to revenue have also decreased. Selling,
general and administrative expenses during the year ending
December 31, 1997 were $187,340 or 96.5% of the year's revenues.
However, during the year ending December 31, 1998 expenses were
$127,890 or 84.4% of the year's total revenues. This decrease in
expenses resulted in a profit in the year ending December 31,
1998 of $21,310 compared to a profit of $504 in the year ending
December 31, 1997, a net increase of $20,806 or 4132%.
Advertising has proportionally been one of the largest expenses
the company has endured during the past two years, totaling
approximately $35,000. We believe that we have accomplished our
advertising goals and the expense is expected to decrease. In
addition, the shared expenses between the subsidiaries have
diminished variable individual expenses including, but not
limited to, rent (although the comparison between the line by
line rent expense has increased, proportional to square footage
as a measure of office space, the expense decreased),
administrative fixed costs, and general operating expenses. As a
result, we believe that the consistency of the bookkeeping and
accounting industries will continue to provide a stable source
for corporate revenue while diminishing the general expenses an
independent company would ordinarily bear.
Liquidity
=========
The nature of the accounting industry has yielded a constant
source of revenue over the past year. There have been no major
changes in clientele or staff members. Recently, we have hired
additional employees to assist with bookkeeping responsibilities
and the upcoming fiscal period. Our general revenue depends
heavily on our bookkeeping and personal and corporate tax revenue
sectors.
Bookkeeping during the year-end December 31, 1998 grossed
$59,185 in revenues, approximately 39.1% of the total revenue for
Accounting. We believe that this is one of the most essential
components of a successful financial firm and we also believe
that there is a tremendous opportunity for company growth as this
industry is expanded to the Internet.
Personal and Corporate accounting services grossed $73,535
during the year-end December 31, 1998, or 48.6% of the total
revenue. This is the primary function of the firm so it is
expected that the operating revenue be generated in the majority
by this sector.
18
<PAGE>
Seasonality
===========
Accounting's tax preparation business is conducted
predominantly in the months of February, March and April, when
most individuals prepare their federal, state and local income
tax returns. The corporation hires no additional seasonal
employees and conducts 65% of its monetary business in these
months.
Possible Harms to Financial Condition
=====================================
We rely heavily on the traditional accounting methods as a
major source of revenue. We conduct business traditionally in
independent sessions with clients. As technology is changing
rapidly the notion of online tax services is spreading throughout
the industry. This could pose a potential harm to our business as
individuals begin to complete their taxes with self-sustaining
and teaching programs and send them via the Internet.
The current trend towards a flat tax rate has prompted a
scare within the accounting arena. The market depends completely
on tax preparation and the registration processes. The
elimination of the current filing system for a more convenient
and cost effective method could pose serious implications for the
market for accounting services and could harm our business.
The constant changes in the accounting standards and
policies of the filing process give way to a plethora of possible
harms. The misinterpretation of new policies, the absence of
awareness for change of existing policies and policy negligence
could compromise the integrity of the corporation. We depend
heavily on our reputation as our customers provide a solid
clientele base for our other financial services. In addition,
policy malpractice could lead to lawsuits regarding negligence or
jeopardize customer/accountant relations.
Insurance
- ---------
First & Second Quarters 1999
============================
Insurance's revenues for the first and second fiscal
quarters of 1999 were $6,032, a decrease of $680 over the same
fiscal period for the year-end 1998.
However, Insurance's expenses were significantly reduced.
During the first and second quarters of fiscal year 1999,
expenses were $3,726 a decrease of $43.5% in comparison to the
same period during 1998, in which expenses were $6,591.
In conjunction with the other financial services offered by
the Company, Insurance plays an insignificant role in the
financial condition of the daily operations, accounting for
approximately .5% of the first and second quarter revenues.
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<PAGE>
Year-End 1998
=============
Insurance's revenue for the year ending December 31, 1998
was $24,612, which accounted for 2% of the Company's total
revenue. This was a 27.2% decrease in revenue from the Company's
Insurance sector compared to the year ending December 31, 1997,
in which reported revenue was $33,799 or approximately 4% of the
Company's total revenue. The comparison details that Insurance
plays an immaterial role in the fiscal operations conducted by
the three subsidiaries. In addition, the decrease in revenue is a
result of the Company's change in business focus from insurance
brokerage to securities brokerage.
Selling, general and administrative expenses decreased from
$33,546 in the year ending December 31, 1997 to $16,798 in the
year ending December 31, 1998. This was a 50% decrease between
the two years. Insurance accounted for 4.4% of the Company's
total expenses in the year ended December 31, 1997 and 1.4% for
the year ended December 31, 1998.
Year 2000 Readiness
- -------------------
With the new millennium approaching, many institutions
around the world are reviewing and modifying their computer
systems to ensure that they are Year 2000 compliant. The issue,
in general terms, is that many existing computer systems and
microprocessors with data functions (including those in non-
information technology equipment and systems) use only two digits
to identify a year in the date field with the assumption that the
first two digits of the year are always "19." Consequently, on
January 1, 2000, computers that are not Year 2000 compliant may
read the year as 1900. Systems that calculate, compare, or sort
using the incorrect date may malfunction.
The Company has conducted a multitude of Year 2000
compliance tests to ensure Company readiness and software
compatibility. To date, the Company has spent $5,951 on Year 2000
compliance software and hardware and has budgeted an additional
$25,000 for possible expenses during this period. While
management believes the Company is in a firm position to cope
with the transition, clientele are still skeptical with the
readiness of the market itself. While the SEC has recently
guaranteed a successful industry-wide Year 2000 compliance test
of computer systems and readiness, management continues to
monitor and review the issue. SEC Chairman Arthur Levitt stated
that in a recent test more then 97% of the 260,000 expected
results were successfully completed. Only four Year 2000
compliance errors were noted. In addition, management of the
Company is completing a second test of the systems' Year 2000
compliance performance and will continue to modify or replace
current software that may be vulnerable to the Year 2000 shift.
ITEM 3. DESCRIPTION OF PROPERTY
The Company leases office space in the Lake Worth/Greenacres
area of West Palm Beach, Florida. The address of the office is
5883 Lake Worth Rd., Lake Worth, Florida 33463. The Company also
leases one office in Munich, Germany. The lease agreement in Lake
Worth is for two suites totaling 3,080 sq. feet. The lease
agreement was amended in May, 1999 with the addition of the
second suite. There will not be a charge for the second suite
during the first year, and the annual base rent will be $15,400.
20
<PAGE>
In the second year, the annual rent will increase to $32,340.
There will be an annual rental increase of $1,540 during the
third and fourth years.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of
July 15, 1999, with respect to the beneficial ownership of the
common stock by each officer and director of the Company, each
person (or group of persons whose shares are required to be
aggregated) known to the Company to be the beneficial owner of
more than five percent (5%) of the common stock, and all such
directors and executive officers of the Company as a group.
Unless otherwise noted, the persons named below have sole voting
and investment power with respect to the shares shown as
beneficially owned by them.
Title of Name and Address Amount & Nature Percent of
Class of Beneficial Owner of Beneficial Owner Class
- ---------------------------------------------------------------
Common William H. & Rosa Corley<F1> 3,004,000<F2> 51.1%
5883 Lake Worth Road
Lake Worth, FL 33463
Common Thomas Doll<F1> 1,140,000<F2> 19.4%
5883 Lake Worth Road
Lake Worth, FL 33463
Common Michael J. Graham<F1> 540,000<F2> 9.2%
6271 Barton Creek Ct.
Lake Worth, FL 33463
Common Philip Jason Ling<F1> 115,000<F2><F4> 2.0%
7385 Nautica Way
Lake Worth, FL 33467
Common Michael Fisher<F1> 1,000<F2><F5> <F3>
2301 S. Congress #322
Boyton Beach, FL 33426
<F1> An officer and/or director of the Company.
<F2> These shares are restricted.
<F3> Less than one percent.
<F4> Additionally, options to purchase 150,000 shares of common
stock at $1.00 per share vesting 20%/year were granted on
July 1, 1999.
<F5> Additionally, options to purchase 200,000 shares of common
stock at $1.00 per share vesting 20%/year were granted on
July 1, 1999.
CHANGES IN CONTROL
The Company has no arrangements which might result in a
change in control of the Company.
21
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
The following table sets forth the directors and executive
officers of the Company, their ages, and all positions with the
Company.
Name Age Positions
- ---------------------------------------------------------------
William H. Corley, Jr. 37 Chief Executive Officer,
President and Director
Philip Jason Ling 31 Chief Financial Officer and
Director
Michael James Graham 33 Chief Operating Officer,
Vice President and Director
Michael Raymond Cornell
Fisher 36 Director
Thomas Doll 33 Director
William H. Corley, Jr. is the founder, Chief Executive
Officer, President and a director of the Company. He started his
career with Bankers Life and Casualty, a Chicago-based life
insurance company, and obtained the Series 218 life and health
license. Later, he obtained the Series 7 license for dealing in
registered securities, and the Series 63 license permitting
transactions in all 50 states. In 1986, Mr. Corley became
president and chief executive officer of Corley Financial
Services, a full service brokerage firm with membership in the
National Association of Securities Dealers. He also obtained the
Series 24 general securities principal license which permits
management of other licensed stockbrokers, the Series 27 license
as a financial and operations principal which permits filing of
financial statements for a brokerage firm, and the Series 53
license as a municipal bonds principal.
In 1989, Mr. Corley relocated to New York City as a vice
president for Global America on Wall Street. Soon afterward, he
was promoted to senior vice president. When the firm ceased
operations, he accepted a position with J.W. Charles Financial
Services in Boca Raton with a mandate to develop a European
equity and bond institutional division. The new activity
ultimately centered on the banking community in Switzerland, plus
other major financial centers of Europe. Four years later, in
January of 1993, Mr. Corley joined Merrill Lynch as a Vice
President. As in prior assignments with other companies, he built
up a significant business and earned the President's Club Award.
Mr. Corley earned a bachelor of science degree in Business
Administration from Palm Beach Atlantic College, a Master of Arts
from Louisiana Baptist University, and is listed in the Who's Who
in the South-Southeastern United States.
Philip Jason Ling is a founder of the Company, and is
Chief Financial Officer and a director. Mr. Ling earned his
bachelor of science in accounting from Fisher School of
Accounting at the University of Florida in 1993. He became
licensed as a certified public accountant by the state of Florida
in 1996. From 1993 to 1996, Mr. Ling worked for Securities
Consultants International LLC, a national securities/brokerage
consulting firm. In 1996, he formed zum Tobel & Ling, LLP, a
certified public accounting and consulting firm focusing on the
securities industry. In 1998, he formed P. Jason Ling, CPA, P.A.,
a certified public accounting and consulting firm, once again
focusing on the securities industry.
22
<PAGE>
Michael James Graham, is Chief Operating Officer and a
director of the Company. Mr. Graham started his career as an
accountant 12 years ago. He worked for DeRosa & DeRosa for three
years, from 1987 to 1990, as a public accountant in New York. He
is founder and has been president of Corporate Accounting Group,
Inc., a subsidiary of the Company, since 1991. Mr. Graham also
serves as the financial operations principal and a registered
representative of 1st Discount Brokerage, Inc., a subsidiary of
the Company. He earned a bachelor of arts degree in accounting
from Stockton State College.
Michael Raymond Cornell Fisher is a director of the Company.
Mr. Fisher is a founder and executive vice president of 1st
Discount Insurance, Inc., a subsidiary of the Company, and also
serves as a general securities principal and registered
representative of 1st Discount Brokerage, Inc., a subsidiary of
the Company. He earned his bachelor of science degree in
education from Palm Beach Atlantic College, where he currently
serves on the board of directors, and a master of arts in
education from Southwestern Baptist Theological Seminary. Mr.
Fisher served in the ministry for seven years. In January of
1996, he joined First Discount Brokerage.
Thomas Doll is a director of the Company. He serves as a
registered representative and branch manager of the Company's
subsidiary, 1st Discount Brokerage, Inc.'s Munich, Germany
office. He has been the branch manager since 1997. From 1992 to
1997, Mr. Doll was an assistant office manager of Hutzler
Brokerage Agency in Munich. He earned a bachelor of science
degree from University of Passau in economics.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth the compensation received by
the Company's President for the last three fiscal years. None of
the other officers' compensation packages exceeded $100,000 per
year.
SUMMARY COMPENSATION TABLE <F1>
Name and Principal Annual Compensation
Position Year Salary
- ----------------------------------------------------
William H. Corley, Jr. 1998 $50,750
CEO, President and 1997 71,023
Director 1996 8,750
<F1> All columns which are inapplicable have been removed.
OPTIONS/SAR GRANTS
There were no stock options or stock appreciation rights
granted to the chief executive officer during the last fiscal
year.
23
<PAGE>
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR END
OPTION/SAR VALUE TABLE
Not applicable.
LONG TERM INCENTIVE PLANS
There are no long term incentive plans in effect and
therefore no awards have been given to any executive officer in
the past year.
COMPENSATION OF DIRECTORS
The Company pays no fees to members of the Company's Board
of Directors for the performance of their duties as directors.
The Company has not established committees of the Board of
Directors.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN
CONTROL ARRANGEMENTS
The Company has executed employment contracts with its Chief
Executive Officer, its Chief Operating Officer and its Chief
Financial Officer. The contracts, which are attached to this
registration statement as exhibits, are of a general nature for a
one year period of time, which may be extended. Following is a
summary of the base salary entitled to each officer pursuant to
the terms of each agreement.
Officer Position Base Salary
----------------------------------------------------------
William H. Corley, Jr. CEO $75,000
Michael Graham COO $50,000
P. Jason Ling CFO $24,000
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 1, 1999, the Company issued to P. Jason Ling, an
officer and director of the Company, options to purchase 150,000
shares of common stock at $1.00 per share, vesting 20% per year
and expiring ten years from the date of issuance. On July 1,
1999, the Company also issued to Michael Fisher, a director of
the Company, options to purchase 200,000 shares of common stock
at $1.00 per share, vesting 20% per year and expiring ten years
from the date of issuance. The Company is in the process of
preparing option agreements to formalize the issuance of such
options. Such agreements, when completed and executed, will be
filed as an exhibit to this registration statement in a follow up
amendment.
Other than as described above, there have been no material
transactions in the past two years or proposed transactions to
which the Company has been or proposed to be a party in which any
officer, director, nominee for officer or director, or security
holder of more than 5% of the Company's outstanding securities is
involved.
The Company has no promoters other than its executive
officers and directors. There have been no transactions which
have benefitted or will benefit its executive officers and
directors either directly or indirectly.
24
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES
The Company is presently authorized to issue 100,000,000
shares of common stock, $.01 par value per share. The Company
presently has 5,878,000 shares of common stock outstanding. The
shareholders of the Company do not have a preemptive right to
acquire the Company's unissued shares. There are no provisions,
other than the articles and by-laws of the Company and the
Florida Business Corporation Act, that govern the voting of the
Company's shares. The Company has not to date paid any dividends
on its common stock. There are no provisions, other than as may
be set forth in the Florida Business Corporation Act, that
prohibit or limit the payment of dividends. There are no
provisions in the Company's articles or by-laws that would delay,
defer or prevent a change in control of the Company.
PART II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company is voluntarily filing this Registration
Statement on Form 10-SB to obtain listing on the OTC Bulletin
Board, which requires all listed companies to be registered with
the SEC under Section 13 or 15(d) of the Securities Exchange Act
of 1934 and to be current in its required filings once so
registered.
The Company has no public trading market for its common
stock. Although the Company intends to seek a quotation for its
common shares on the Over-the-Counter Bulletin Board in the
future, there is no assurance the Company will do so, nor is
there any assurance that should the Company succeed in obtaining
a listing for its securities on the OTC Bulletin Board or on some
other exchange, that a trading market for the Company's stock
will develop. There are no outstanding options, warrants to
purchase, or securities convertible into common equity of the
Company outstanding. The Company has not agreed to register any
shares of its common stock for any shareholder. There are
presently 4,880,000 shares of common stock, which were issued in
the acquisition of 1st Discount Brokerage, Corporate Accounting
Group, and 1st Discount Insurance by the 1st Internet Group on
February 25, 1999, and which may be sold in reliance upon Rule
144 of the Securities Act of 1933.
STOCKHOLDERS
The are approximately 88 shareholders of record for the
Company's common stock.
DIVIDENDS
To date, the Company has not paid any dividends on its
common stock. The payment of dividends, if any, in the future is
within the discretion of the Board of Directors and will depend
upon the Company's earnings, its capital requirements and
financial condition, and other relevant factors. There are no
provisions in the Company's articles of incorporation or by-laws
that prevent or restrict
25
<PAGE>
the payment of dividends. As previously discussed in the
Management's Discussion and Analysis section of this registration
statement, the Net Capital Rule prohibits payments of dividends,
among other things, if the payment will reduce the Company's net
capital below a certain level. Dividend payments, if any, would
be subject to the provisions of the Florida Business Corporation
Act as well.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal
proceedings and, to the best of its knowledge, no such action by
or against the Company has been threatened. None of the
Company's officers, directors, or beneficial owners of 5% or more
of the Company's outstanding securities is a party adverse to the
Company nor do any of the foregoing individuals have a material
interest adverse to the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company previously used the accounting services of zum
Tobel & Ling, LLP. Although the Company had no disagreements with
zum Tobel & Ling, LLP, it changed accounting firms to Sweeney
Gates & Co. when the Company hired as its Chief Financial
Officer, P. Jason Ling, previously a partner of zum Tobel & Ling,
LLP.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On February 25, 1999, the Company issued an aggregate of
4,880,000 shares of restricted common stock in exchange for all
of the issued and outstanding stock in its three subsidiaries.
Such shares were issued pursuant to Section 4(2) of the
Securities Act of 1933. These securities were issued as follows:
3,604,000 shares to William H. Corley Jr. & Rosa Corley in
exchange for one share of Insurance, 1,000 shares of Brokerage
and 8,708 shares of Accounting; 640,000 shares to Thomas Doll in
exchange for 250 shares of Brokerage; 552,000 shares to Michael
Graham in exchange for 6,425 shares of Accounting; 72,000 shares
to Steven Donchey in exchange for 1,024 shares of Accounting; and
12,000 shares to Evelyn Hamilton in exchange for 25 shares of
Accounting. There were no underwriting discounts or commissions
involved in the exchange of these securities. Further, there was
no formal acquisition agreement. Each shareholder of Brokerage,
Accounting and Insurance executed a subscription letter for the
exchange of such stock.
In April of 1999, the Company sold an aggregate of 998,000
shares of its common stock to a total of 80 investors at a sales
price of $1.00 per share pursuant to an exemption from
registration provided by Regulation D, Rule 504. These securities
were sold for cash. There were no underwriting discounts or
commissions involved in the sale of these securities.
On July 1, 1999, the Company issued options to purchase
common stock of the Company to nine of its employees, consisting
of options to purchase an aggregate of 425,000 shares at $1.00
per share, vesting 20% per year; options to purchase 150,000
shares at $1.00 per share, vesting immediately; and options to
purchase 7,500 shares at $1.50 per share, vesting immediately.
All such options expire ten years from the date of issuance and
were issued pursuant to Section 4(2) of the Securities Act of
1933.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subchapter 607.0850 of the Florida Business Corporation Act
provides that officers and directors may be indemnified by the
Company for any liability incurred by them while acting within
the scope of their duties as officers and directors of the
Company, except for acts of intentional
26
<PAGE>
misconduct or unlawfulness. The Company's by-laws provide that
the Company shall indemnify all officers and directors to the
fullest extent provided under Florida law. The Company has been
advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy, and is
unenforceable.
The Company's Accounting subsidiary has a Tax Preparers
Error or Omissions Liability Insurance policy. No other E&O
insurance policies exist for the Company or its subsidiaries.
PART F/S
The Company's audited financial statements for the years
ended December 31, 1998 and 1997 and the Company's unaudited
financial statements for the six months ended June 30, 1999 and
1998 required by this Part F/S have been attached to this
registration statement as Exhibit 99.0 and is incorporated herein
by reference to such financial statements.
The unaudited condensed, consolidated financial statements
presented herein do not include all of the information and note
disclosures required by generally accepted accounting principles.
These condensed consolidated financial statements should be read
in conjunction with the audited financial statements and notes
thereto for the years ended December 31, 1998 and 1997. The
accompanying financial statements for the period ended June 30,
1999 have not been examined by independent accountants in
accordance with generally accepted auditing standards, but in the
opinion of management such financial statements include all
adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the Company's financial position and
results of operations. The results of operations for the six
months ended June 30, 1999 may not be indicative of the results
that may be expected for the year ending December 31, 1999.
27
<PAGE>
PART III
ITEMS 1 AND 2. INDEX TO EXHIBITS AND DESCRIPTION
Exhibit
Number Description
- ------- -----------------------------------------------------
2.0 Subscription Letter/Exchange of Stock - Corley
2.1 Subscription Letter/Exchange of Stock - Doll
2.2 Subscription Letter/Exchange of Stock - Graham
2.3 Subscription Letter/Exchange of Stock - Donchey
2.4 Subscription Letter/Exchange of Stock - Hamilton
3.0 Articles of Incorporation
3.1 Articles of Amendment to the Articles of Incorporation
3.2 By-Laws
10.0 Employment Agreement-William Corley
10.1 Employment Agreement-Michael Graham
10.2 Employment Agreement-P. Jason Ling
21.0 Subsidiaries of the Registrant
23.0 Consent of Accountants
27.0 Financial Data Schedule
99.0 Financial Statements for the Years Ended
December 31, 1998 and 1997 (AUDITED) and for the Six
Months Ended June 30, 1999 and 1998 (UNAUDITED)
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act
of 1934, the registrant has caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly
authorized.
1st Internet Group, Inc.
(Registrant)
Date: 9/24/99 By: /s/ WILLIAM H. CORLEY, JR.
--------------------------------
William H. Corley, Jr.
President, CEO and duly
authorized officer
28
February 25, 1999
1st Internet Group, Inc.
5883 Lake Worth Rd.
Greenacres, FL 33463
Re: Subscription for Shares
To Whom It May Concern:
The undersigned hereby subscribes for three million six hundred four
thousand (3,604,000) shares of the Common Stock (the "Shares") of 1st
Internet Group, Inc., a Florida corporation (the "Corporation"), in
consideration of the transfer to the Corporation from the undersigned of
one share of the Common Stock of 1st Discount Insurance, Inc., 1000 shares
of the Common Stock of 1st Discount Brokerage, Inc., and 8708 shares of the
Common Stock of Corporate Accounting Group, Inc.
All of the Shares so received will be taken by the undersigned for its own
account as an investment and not with a view to the distribution thereof.
It is understood that you will issue the Shares without their registration
under the securities Act of 1933. The undersigned will be responsible for
any loss or expense that may be incurred by you by reason of any sale or
disposition of the Shares by the Undersigned which will involve the
Corporation in a violation of the Securities Act of 1933. The undersigned
will give you written notice of any intention to dispose of any or all of
the Shares specifying the terms of such proposed disposition.
Very truly yours,
/s/ WILLIAM H. CORLEY
- ----------------------
William H. and Rosa Corley
February 25, 1999
1st Internet Group, Inc.
5883 Lake Worth Rd.
Greenacres, FL 33463
Re: Subscription for Shares
To Whom It May Concern:
The undersigned hereby subscribes for six hundred forty thousand (640,000)
shares of the Common Stock (the "Shares") of 1st Internet Group, Inc., a
Florida corporation (the "Corporation"), in consideration of the transfer
to the Corporation from the undersigned of 250 shares of the Common Stock
of 1st Discount Brokerage, Inc.
All of the Shares so received will be taken by the undersigned for its own
account as an investment and not with a view to the distribution thereof.
It is understood that you will issue the Shares without their registration
under the securities Act of 1933. The undersigned will be responsible for
any loss or expense that may be incurred by you by reason of any sale or
disposition of the Shares by the Undersigned which will involve the
Corporation in a violation of the Securities Act of 1933. The undersigned
will give you written notice of any intention to dispose of any or all of
the Shares specifying the terms of such proposed disposition.
Very truly yours,
/s/ THOMAS DOLL
- ----------------------
Thomas Doll
February 25, 1999
1st Internet Group, Inc.
5883 Lake Worth Rd.
Greenacres, FL 33463
Re: Subscription for Shares
To Whom It May Concern:
The undersigned hereby subscribes for five hundred fifty two thousand
(552,000) shares of the Common Stock (the "Shares") of 1st Internet Group,
Inc., a Florida corporation (the "Corporation"), in consideration of the
transfer to the Corporation from the undersigned of 6425 shares of the
Common Stock of Corporate Accounting Group, Inc.
All of the Shares so received will be taken by the undersigned for its own
account as an investment and not with a view to the distribution thereof.
It is understood that you will issue the Shares without their registration
under the securities Act of 1933. The undersigned will be responsible for
any loss or expense that may be incurred by you by reason of any sale or
disposition of the Shares by the Undersigned which will involve the
Corporation in a violation of the Securities Act of 1933. The undersigned
will give you written notice of any intention to dispose of any or all of
the Shares specifying the terms of such proposed disposition.
Very truly yours,
/s/ MICHAEL J. GRAHAM
- ----------------------
Michael J. Graham
February 25, 1999
1st Internet Group, Inc.
5883 Lake Worth Rd.
Greenacres, FL 33463
Re: Subscription for Shares
To Whom It May Concern:
The undersigned hereby subscribes for seventy two thousand (72,000) shares
of the Common Stock (the "Shares") of 1st Internet Group, Inc., a Florida
corporation (the "Corporation"), in consideration of the transfer to the
Corporation from the undersigned of 1024 shares of the Common Stock of
Corporate Accounting Group, Inc.
All of the Shares so received will be taken by the undersigned for its own
account as an investment and not with a view to the distribution thereof.
It is understood that you will issue the Shares without their registration
under the securities Act of 1933. The undersigned will be responsible for
any loss or expense that may be incurred by you by reason of any sale or
disposition of the Shares by the Undersigned which will involve the
Corporation in a violation of the Securities Act of 1933. The undersigned
will give you written notice of any intention to dispose of any or all of
the Shares specifying the terms of such proposed disposition.
Very truly yours,
/s/ STEVEN DONCHEY
- ----------------------
Steven Donchey
February 25, 1999
1st Internet Group, Inc.
5883 Lake Worth Rd.
Greenacres, FL 33463
Re: Subscription for Shares
To Whom It May Concern:
The undersigned hereby subscribes for twelve thousand (12,000) shares of
the Common Stock (the "Shares") of 1st Internet Group, Inc., a Florida
corporation (the "Corporation"), in consideration of the transfer to the
Corporation from the undersigned of 25 shares of the Common Stock of
Corporate Accounting Group, Inc.
All of the Shares so received will be taken by the undersigned for its own
account as an investment and not with a view to the distribution thereof.
It is understood that you will issue the Shares without their registration
under the securities Act of 1933. The undersigned will be responsible for
any loss or expense that may be incurred by you by reason of any sale or
disposition of the Shares by the Undersigned which will involve the
Corporation in a violation of the Securities Act of 1933. The undersigned
will give you written notice of any intention to dispose of any or all of
the Shares specifying the terms of such proposed disposition.
Very truly yours,
/s/ EVELYN HAMILTON
- ----------------------
Evelyn Hamilton
[FILED, 98 NOV 23, AM 11:09, SECRETARY OF STATE, TALLAHASSEE,
FLORIDA]
1st Internet Group, Inc.
Articles of Incorporation
We the undersigned do hereby associate ourselves together for the
purpose of becoming a corporation under and pursuant to the laws of
the state of Florida, providing for the formation, liability, rights,
privileges and immunities or corporation for profit, and for the
purposes, do hereby certify, declare and set forth as follows,
to-wit:
ARTICLE I
NAME: The name and address of this corporation shall be:
1st Internet Group, Inc.
5883 Lake Worth Road
Lake Worth, FL 33463
ARTICLE II
NATURE OF BUSINESS: The general nature of this business to be
transacted by this corporation is, the transaction of any and all
lawful business for which corporations may be incorporated in the
State of Florida.
ARTICLE III
TERM OF EXISTENCE: This corporation shall exit [sic] perpetually
unless sooner dissolved according to law.
ARTICLE IV
CAPITAL STOCK: The maximum number of shares of stock this corporation
is authorized to have outstanding at one time is 100,000 shares
(100,000) of common stock with no par value.
ARTICLE V
INITIAL CAPITAL: The amount of capital with which this corporation
shall commence business shall be five hundred dollars ($500.00)
ARTICLE VI
REGISTERED AGENT AND REGISTERED OFFICE: The Registered Agent of said
corporation at the Registered Office shall be William H. Corley. The
Registered Office shall be at:
5883 Lake Worth Road
Lake Worth, FL 33463
ARTICLE VII
OFFICERS AND DIRECTORS: The names and post office addresses of the
first directors of this corporation who shall hold office for the
first year or until their successors are chosen shall be:
<PAGE>
William H. Corley - President
5883 Lake Worth Road
Lake Worth, FL 33463
Michael J. Graham - Vice President
5883 Lake Worth Road
Lake Worth, FL 33463
The corporation shall have at least one and no more than five (5)
directors and no person shall be required to own, hold, or to control
stock in the corporation as a condition precedent to holding any
office in this corporation.
ARTICLE VIII
INCORPORATOR: The name and post office addresses of the incorporator
to these Articles of Incorporation, are as follows:
Michael J. Graham
5883 Lake Worth Road
Lake Worth, FL 33463
/s/ MICHAEL J. GRAHAM - INCORPORATOR
- ------------------------------------
Michael J. Graham - Incorporator
ARTICLE IX
OFFICERS: The officers of this corporation shall be a President, and
such other officers and agents as may be necessary. All officers and
agents, and factors as may be deemed necessary, shall be chosen in
such manner, hold their offices for such terms, and have such powers
and duties as may be prescribed in the by-laws or determined by the
Board of Directors.
Any person may hold tow [sic] or more offices. This corporation
reserves the right to amend, alter, change or repeal any provision
contained in these Articles of Incorporation in the manner now or
hereafter prescribed by law and all rights conferred on stockholders
herein are granted subject to this reservation.
ARTICLE X
POWERS: This corporation shall have the following powers:
A. To have a corporation seal, which may be altered at pleasure, and
to use the same by causing it, or facsimile thereof to be
impressed, affixed, or any other manner reproduced.
B. To purchase, take, receive, lease, or otherwise acquire, own,
hold, improve, use and otherwise deal in, and with real personal
property or any interest therein wherever situated.
C. To sell, convey, mortgage, pledge, create a security interest in,
lese [sic], exchange, transfer, and otherwise dispose of all or
any part of the property and assets.
<PAGE>
D. To lend money to and use the credit to assist the officers and
employees in accordance with Florida Statute 607.141.
E. To purchase, take, receive, subscribe for or otherwise acquire,
own, hold, vote, use, employ sell, mortgage, lend, pledge or
otherwise use and deal in and with, shares or other interests in,
or obligation of, other domestic or foreign corporations,
associates, partnerships, or individuals, or direct or indirect
obligations of United States or of any other government, state
territory, government district, or municipality, or of any
instrumentality thereof.
F. To make contracts and guarantees and incur liabilities, borrow
money at such rates of interest as the corporation may determine,
issue its bonds, notes, and other obligations, and secure any of
its obligations by mortgage or pledge of all or any of its
property, franchises and income. To buy and sell and transfer
options.
G. To lend money for corporate purposes, and invest and reinvest its
funds, and to take and hold real and personal property as
security for payment of the funds so loaned or reinvested.
H. To conduct its business, carry on the operation and have offices
and exercises the powers granted by the Florida Statutes, 607,
within or without the State.
I. To elect or appoint officers and agents of the corporation and
define their duties and to fix their compensations.
J. To make and alter the by-laws, not inconsistent with these
Articles of Incorporation, or laws of the State of Florida, for
the administration and regulation of the affairs of the
corporation.
K. To make donations for the public welfare or for the charitable,
scientific, or educational purposes.
L. To transact any lawful business which the Board of Directors
shall find will be in of governmental policy.
M. To pay pensions and establish pension plans, profit sharing
plans, stock option plans, and other incentive plans for any or
all of its directors, officers, and employees of its
subsidiaries.
N. To be a promoter, incorporator, partner, member, associate or
manager of any corporation, partnership, joint venture, trust or
other enterprise.
0. To have and exercise all powers necessary or convenient to affect
the purposes of this corporation.
<PAGE>
[FILE STAMPED: FILED, 98 NOV 23, AM 11:10, SECRETARY OF STATE,
TALLAHASSEE, FLORIDA]
ARTICLE XI
REGISTERED AGENT: The Registered Agent for this corporation shall be:
William H. Corley - Registered Agent
5883 Lake Worth Road
Lake Worth, FL 33463
/s/ WILLIAM H. CORLEY, REGISTERED AGENT
---------------------------------------
Registered Agent- William H. Corley
I,William H. Corley accept service of process of 1st Internet Group,
Inc.
/s/ WILLIAM H.CORLEY - REGISTERED AGENT
- ---------------------------------------
William H. Corley - Registered Agent
The undersigned has executed these Articles of Incorporation this
10th day of November 1998.
/s/ WILLIAM H. CORLEY - PRESIDENT
- ---------------------------------
President - William H. Corley
/s/ MICHAEL J. GRAHAM - VP
- --------------------------
Vice President - Michael J. Graham
[File-stamped as follows: FILED, 99 Mar -4, AM 11:40, Secretary of State,
Tallahassee, Florida]
ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION
of
lst INTERNET GROUP, INC.
Pursuant to Section 607.1005 of the Florida Statutes, on February 25, 1999
the directors of 1st INTERNET GROUP, INC., a Florida corporation (the
"Corporation"), adopted the following resolutions by written consent:
RESOLVED: That Jason Ling, Thomas Doll and Michael
Fisher are elected to the Board of Directors
to serve until their successors are duly
elected and qualified to serve.
RESOLVED: That the authorized capital of the Corporation
should be increased to 100,000,000 common
shares, $0.01 par value per share.
RESOLVED: That Articles IX, X and XI of the Corporation's
Articles of Incorporation should be
removed.
RESOLVED: That the Articles of Incorporation as filed
with the Florida State Department should be
amended to reflect the foregoing resolutions.
No shares of the Corporation's capital stock have been issued. Accordingly,
shareholder approval was not required.
NOW THEREFORE, in accordance with the foregoing resolutions:
Article IV of the Corporation's Articles of Incorporation is
deleted and the following inserted in its place:
The total number of shares of all
classes which the corporation shall
be authorized to issue is 100,000,000
common shares, $0.01 par value per
share.
Articles IX, X and XI are deleted.
IN WITNESS WHEREOF, the directors of the Corporation have executed and
submitted this instrument this 28th day of February, 1999.
/s/ WILLIAM H. CORLEY JR.
------------------------
Will1am H. Corley Jr. P/D
/s/ MICHAEL J. GRAHAM
------------------------
Michael J. Graham
<PAGE>
------------------------
Jason Ling
------------------------
Thomas Doll
/s/ MICHAEL FISHER
------------------------
Michael Fisher
-2-
BYLAWS
of
lst INTERNET GROUP, INC.
Adopted
FEBRUARY 25, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I. OFFICES
1.01 Principal and Business Offices.................................1
1.02 Registered Office..............................................1
ARTICLE II. SHAREHOLDERS
2.01 Annual Meeting.................................................1
2.02 Special Meeting................................................1
2.03 Place of Meeting...............................................1
2.04 Notice of Meeting..............................................2
2.05 Closing of Transfer Books or Fixing
of Record Date..............................................2
2.06 Voting Records.................................................2
2.07 Quorum.........................................................3
2.08 Conduct of Meeting.............................................3
2.09 Proxies........................................................3
2.10 Voting of Shares...............................................4
2.11 Voting of Shares by Certain Holders............................4
(a) Other Corporations.......................................4
(b) Legal Representatives and Fiduciaries....................4
(c) Receiver.................................................4
(d) Pledgees.................................................4
(e) Subsidiaries.............................................4
ARTICLE III. BOARD OF DIRECTORS
3.01 General Powers and Numbers.....................................5
3.02 Tenure and Qualifications......................................5
3.03 Regular Meetings...............................................5
3.04 Special Meetings...............................................5
3.05 Notice of Meetings.............................................5
3.06 Quorum.........................................................6
3.07 Manner of Acting...............................................6
3.08 Conduct of Meetings............................................6
3.09 Vacancies......................................................6
3.10 Compensation...................................................6
3.11 Presumption of Assent..........................................7
3.12 Committees.....................................................7
ARTICLE IV. OFFICERS
4.01 Number.........................................................7
4.02 Election and Term of Office....................................8
4.03 Removal........................................................8
4.04 Vacancies......................................................8
4.05 President......................................................8
4.06 Vice Presidents................................................9
4.07 Secretary......................................................9
i
<PAGE>
TABLE OF CONTENTS (Cont.)
ARTICLES IV. OFFICERS
4.08 Treasurer.....................................................9
4.09 Assistant Secretaries and Assistant Treasurers...............10
4.10 Other Assistants and Acting Officers.........................10
4.11 Salaries.....................................................10
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.01 Contracts....................................................10
5.02 Loans........................................................11
5.03 Checks, Drafts, etc..........................................11
5.04 Deposits.....................................................11
5.05 Voting of Securities Owned by this Corporation...............11
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.01 Certificate for Shares.......................................12
6.02 Facsimile Signatures and Seal................................12
6.03 Transfer of Shares...........................................12
6.04 Restrictions on Transfer.....................................12
6.05 Lost, Destroyed or Stolen Certificates.......................12
6.06 Consideration for Shares.....................................13
6.07 Stock Regulations............................................13
ARTICLE VII. WAIVER OF NOTICE
ARTICLE VIII. CONSENT WITHOUT A MEETING
ARTICLE IX. INDEMNIFICATION
ARTICLE X. SEAL
ARTICLE XI. FISCAL YEAR
ARTICLE XII. AMENDMENTS
12.01 By Shareholders............................................14
12.02 By Directors...............................................14
12.03 Implied Amendments.........................................14
ii
<PAGE>
ARTICLE I. OFFICES
------------------
1.01. Principal and Business Offices. The corporation may have
such principal and other business offices, either within or outside the
State of Florida, as the Board of Directors may designate or as the
business of the corporation may require from time to time.
1.02. Registered Office. The registered office of the
corporation required by the Florida Business Corporation Act to be
maintained in the State of Florida may be, but need not be, identical with
the principal office in the State of Florida. The address of the registered
office may be changed from time to time by the Board of Directors or, if
within the county, by the registered agent. The business office of the
registered agent of the corporation shall be identical to such registered
office.
ARTICLE II. SHAREHOLDERS
------------------------
2.01. Annual Meeting. The annual meeting of the shareholders
shall be held on the first Wednesday of April in each calendar year at 9:00
o'clock a.m., or at such other time and date as may be fixed by or under
the authority of the Board of Directors, for the purpose of electing
directors and for the transaction of such other business as may come before
the meeting. If the day fixed for the annual meeting shall be a legal
holiday in the State of Florida, such meeting shall be held on the next
succeeding business day. If the election of directors shall not be held on
the day designated herein, or fixed as herein provided, for any annual
meeting of the shareholders, or at any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as convenient.
2.02. Special Meeting. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute, may be
called by the President or the Board of Directors or by the person
designated in the written request of the holders of not less than one-tenth
of all shares of the corporation entitled to vote at the meeting.
2.03. Place of Meeting. The Board of Directors may designate any
place either within or outside the State of Florida as the place of meeting
for any annual meeting or for any special meeting called by the Board of
Directors. A waiver of notice signed by all shareholders entitled to vote
at a meeting may designate any place, whether within or outside the State
of Florida, as the place for the holding of such meeting. If no designation
is made, or if a special meeting be otherwise called, the place of meeting
shall be the principal business office of the corporation in the State of
Florida or such other suitable place in the county of such principal office
as may be designated by the person calling such meeting, but any meeting
may be adjourned to reconvene at any place designated by vote of a majority
of the shares represented thereat.
<PAGE>
2.04. Notice of Meeting. Written notice stating the place, day
and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than
ten (10) days (unless a longer period is required by law) nor more than
thirty (30) days before the date of the meeting, either personally or by
mail, by or at the direction of the President, the Secretary, or the
person(s) calling the meeting, to each shareholder of record entitled to
vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, addressed to the
shareholder at his or her address as it appears on the stock record books
of the corporation, with postage thereon prepaid.
2.05. Closing of Transfer Book or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders, or any adjournment thereof, or shareholders
entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the Board of
Directors may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, thirty (30) days. If the
stock transfer books shall be closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders,
such books shall be closed for at least ten (10) days immediately preceding
such meeting. In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than
thirty (30) days and, in case of a meeting of shareholders, not less than
ten (10) days prior to the date on which the particular action requiring
such determination of shareholders is to be taken. If the stock transfer
books are not closed and no record date is fixed for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders,
or shareholders entitled to receive payment of a dividend, the close of
business on the date on which notice of the meeting is mailed or on the
date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided
in this section, such determination shall be applied to any adjournment
thereof except where the determination has been made through the closing of
the stock transfer books and the stated period of closing has expired.
2.06. Voting Records. In the event the corporation issues its
stock to more than six (6) shareholders Section 607.0901 of the Florida
Business Corporation Act dealing with affiliated transactions and
control-share acquisitions shall apply.
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2.07. Quorum. Except as otherwise provided in the articles of
incorporation, a majority of the shares entitled to vote, represented in
person or by proxy, shall constitute a quorum at a meeting of shareholders
but in no event shall a quorum consist of less than one-third of the shares
entitled to vote at the meeting. When a specified item of business is
required to be voted on by a class or series of stock, a majority of the
shares of such class or series shall constitute a quorum for the
transaction of such item of business by that class or series. If a quorum
is present, the affirmative vote of the majority of the shares represented
at the meeting and entitled to vote on the subject matter shall be the act
of the shareholders unless the vote of a greater number or voting by
classes is required by the Florida Business Corporation Act or the articles
of incorporation. If less than a quorum is represented at a meeting, a
majority of the shares so represented may adjourn the meeting from time to
time without further notice. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might
have been transacted at the meeting as originally noticed. The shareholders
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave
less than a quorum.
2.08. Conduct of Meetings. The President, or in the President's
absence, a Vice President in the order provided under Section 4.06, and in
their absence, any person chosen by the shareholders present shall call the
meeting of the shareholders to order and shall act as chairman of the
meeting, and the Secretary shall act as secretary of all meetings of the
shareholders, but, in the absence of the Secretary, the presiding officer
may appoint any other person to act as secretary of the meeting.
2.09. Proxies. At all meetings of shareholders, a shareholder
entitled to vote may vote in person or by proxy appointed in writing by the
shareholder or by his duly authorized attorney-in-fact. Such proxy shall be
filed with the Secretary before or at the time of the meeting. Unless
otherwise provided in the proxy or Section 607.101 of the Florida Business
Corporation Act, a proxy may be revoked at any time before it is voted,
either by written notice filed with the Secretary or the acting secretary
of the meeting or by oral notice given by the shareholder to the presiding
officer during the meeting. The presence of a shareholder who has filed a
proxy shall not of itself constitute a revocation. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy. The Board of Directors shall have the power and
authority to make rules as to the validity and sufficiency of proxies.
2.10. Voting of Shares. Each outstanding share shall be entitled
to one vote on each matter submitted to a vote at a
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meeting of shareholders, except to the extent that the voting rights of the
shares of any class or classes are enlarged, limited or denied by the
articles of incorporation.
2.11. Voting of Shares by Certain Holders.
(a) Other Corporations. Shares standing in the name of another
corporation, domestic or foreign, may be voted either in person or by proxy
by the president of such corporation or any other officer appointed by such
president. A proxy executed by any principal officer of such other
corporation or assistant thereto shall be conclusive evidence of the
signer's authority to act, in the absence of express notice to this
corporation, given in writing to the Secretary of this corporation, of the
designation of some other person by the Board of Directors or the bylaws of
such other corporation.
(b) Legal Representatives and Fiduciaries. Shares held by an
administrator, executor, guardian, conservator or assignee for creditors
may be voted by such person, either in person or by proxy. Shares standing
in the name of a trustee may be voted by him or her, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him or her
without a transfer of such shares into his or her name. Shares standing in
the name of a fiduciary may be voted by him or her, either in person or by
proxy. A proxy executed by a fiduciary shall be conclusive evidence of the
signer's authority to act in the absence of express notice given in writing
to the Secretary that such manner of voting is prohibited or otherwise
directed by the document creating the fiduciary relationship.
(c) Receiver. Shares standing in the name of a receiver may be voted
by such receiver, and shares held by or under the control of a receiver may
be voted by such receiver without the transfer thereof into his or her name
if authority to do so is contained in an appropriate court order pursuant
to which such receiver was appointed.
(d) Pledgees. A shareholder whose shares are pledged shall be
entitled to vote such shares in person or by proxy, until the shares have
been transferred into the name of the pledgee, and thereafter the pledgee
or his or her nominee shall be entitled to vote the shares so transferred.
(e) Subsidiaries. Neither shares of the corporation's stock owned by
another corporation, the majority of the voting stock of which is owned or
controlled by it, nor shares of its own stock held by another corporation
in a fiduciary capacity shall be voted, directly or indirectly, at any
meeting; and such shares shall not be counted in determining the total
number of outstanding shares at any given time.
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ARTICLE III. BOARD OF DIRECTORS
3.01. General Powers and Number. The business and affairs of the
corporation shall be managed by its Board of Directors. The number of
directors of the corporation initially shall be a minimum of one (1) but
may be increased to not more than five (5) without amendment. The number of
directors may be increased or decreased from time to time by amendment to
this Section adopted by the shareholders or the Board of Directors but no
decrease shall have the effect of shortening the term of an incumbent
director.
3.02. Tenure and Qualifications. Each director shall hold office
until the next annual meeting of shareholders and until the director's
successor shall have been elected, or until his or her prior death,
resignation or removal. Any director or the entire Board of Directors may
be removed from office, with or without cause, by affirmative vote of a
majority of the outstanding shares entitled to vote for the election of
such director, or the Board of Directors. A director may resign at any time
by filing a written resignation with the Secretary of the corporation.
Directors need not be residents of the State of Florida or shareholders of
the corporation.
3.03. Regular Meetings. A regular meeting of the Board of
Directors shall be held, without other notice than this bylaw, immediately
after the annual meeting of shareholders, and each adjourned session
thereof. The place of such regular meeting shall be the same as the place
of the meeting of shareholders which precedes it, or such other suitable
place as may be announced at such meeting of shareholders. The Board of
Directors may provide, by resolution, the time and place, either within
or outside the State of Florida, for the holding of additional regular
meetings without other notice than such resolution.
3.04. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the President or any two
directors. The persons calling any special meeting of the Board of
Directors may fix any place, either within or outside the State of Florida,
as the place for holding any special meeting of the Board of Directors
called by them, and if no other place is fixed the place of meeting shall
be the principal business office of the corporation in the State of
Florida. Special meetings may be held by means of a telephone conference
circuit and connecting to such circuit shall constitute presence at such
meeting.
3.05. Notice of Meetings. Notice of each meeting of the Board of
Directors (unless otherwise provided in or pursuant to Section 3.03) shall
be given by written notice delivered personally or mailed or given by
telephone or telegram to each director at his or her business or home
address or at such other ad-
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dress as such director shall have designated in writing filed with the
Secretary, in each case not less than 48 hours prior thereto. If mailed,
such notice shall be deemed to be delivered when deposited in the United
States mail so addressed, with postage thereon prepaid. If notice be given
by telegram, such notice shall be deemed to be delivered when the telegram
is delivered to the telegraph company; if by telephone, at the time the
call is completed. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director
attends a meeting and objects thereat to the transaction of any business
because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice or waiver
of notice of such meeting.
3.06. Quorum. A majority of the number of directors as provided
in Section 3.01 shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors, but a majority of the directors
present (though less than such quorum) may adjourn the meeting from time to
time without further notice.
3.07. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the
Board of Directors, unless the act of a greater number is required by the
Florida Business Corporation Act, the corporation's articles of
incorporation or these bylaws.
3.08. Conduct of Meetings. The President, and in the President's
absence, a Vice President in the order provided under Section 4.06, and in
their absence, any director chosen by the directors present, shall call
meetings of the Board of Directors to order and shall chair the meeting.
The Secretary of the corporation shall act as secretary of all meetings of
the Board of Directors, but in the absence of the Secretary, the presiding
officer may appoint any assistant secretary or any director or other person
present to act as secretary of the meeting.
3.09. Vacancies. Any vacancy occurring in the Board of
Directors, including a vacancy created by an increase in the number of
directors, may be filled until the next succeeding annual election by the
affirmative vote of a majority of the directors then in office, though less
than a quorum of the Board of Directors, provided that in case of a vacancy
created by removal of a director(s), the shareholders shall have the right
to fill such vacancy at the same meeting or any adjournment thereof.
3.10. Compensation. The Board of Directors, by affirmative vote
of a majority of the directors then in office, and irrespective of any
personal interest of any of its members, may establish reasonable
compensation of all directors for services to the corporation as directors,
officers or otherwise, and the
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manner and time of payment thereof, or may delegate such authority to an
appropriate committee. The Board of Directors also shall have authority to
provide for or to delegate authority to an appropriate committee to provide
for reasonable pensions, disability or death benefits, and other benefits
or payments, to directors, officers and employees and to their estates,
families, dependents or beneficiaries on account of prior services rendered
by such directors, officers and employees to the corporation.
3.11. Presumption of Assent. A director who is present at a
meeting of the Board of Directors or a committee thereof of which he is a
member at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless his dissent shall be entered in
the minutes of the meeting or unless he shall file his written dissent to
such action with the person acting as the secretary of the meeting before
the adjournment thereof or shall forward such dissent by registered mail to
the Secretary of the corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in
favor of such action.
3.12. Committees. The Board of Directors, by resolution adopted
by the affirmative vote of a majority of the number of directors as
provided in Section 3.01, may designate one or more committees, each
committee to consist of three or more directors elected by the Board of
Directors, which to the extent provided in said resolution as initially
adopted, and as thereafter supplemented or amended by further resolution
adopted by a like vote, shall have and may exercise, when the Board of
Directors is not in session, the powers of the Board of Directors in the
management of the business and affairs of the corporation, except action in
respect to dividends to shareholders, election of the principal officers or
the filling of vacancies on the Board of Directors or committees created
pursuant to this Section. The Board of Directors may elect one or more of
its members as alternate members of any such committee who may take the
place of any absent member or members at any meeting of such committee,
upon request by the President or upon request by the chairman of such
meeting. Each such committee shall fix its own rules governing the conduct
of its activities and shall make such reports to the Board of Directors of
its activities as the Board of Directors may request.
ARTICLE IV. OFFICERS
4.01. Number. The principal officers shall be a President, one
or more Vice Presidents (the number and designations to be determined by
the Board of Directors), a Secretary and a Treasurer, each of whom shall be
elected by the Board of Directors; the Board of Directors may elect a
chairman who if so elected shall be a principal officer. Any two or more
offices may be held by the same person. The Board of Directors may
designate
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one of the Vice Presidents as the Executive Vice President. Such other
officers and assistant officers as may be deemed necessary may be elected
or appointed by the Board of Directors or the President.
4.02. Election and Term of Office. The officers to be elected by
the Board of Directors shall be elected annually by the Board of Directors
at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held
at such meeting, such election shall be held as soon thereafter as
conveniently may be. Each officer shall hold office until his successor
shall have been duly elected or until his prior death, resignation or
removal.
4.03. Removal. Any officer or agent may be removed by the Board
of Directors whenever in its judgment the best interests of the corporation
will be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Election or appointment
shall not of itself create contract rights.
4.04. Vacancies. A vacancy in any principal office because of
death, resignation, removal, disqualification or otherwise, shall be filled
by the Board of Directors for the unexpired portion of the term.
4.05. President. The President shall be the principal executive
officer and, subject to the control of the Board of Directors, shall in
general supervise and control all of the business and affairs of the
corporation. He or she shall preside at all meetings of the shareholders
and of the Board of Directors. The President shall have authority, subject
to such rules as may be prescribed by the Board of Directors, to appoint
such agents and employees of the corporation as he or she shall deem
necessary, to prescribe their powers, duties and compensation, and to
delegate authority to them. Such agents and employees shall hold office at
the discretion of the President. The President shall have authority to
sign, execute and acknowledge, on behalf of the corporation, all deeds,
mortgages, bonds, stock certificates, contracts, leases, reports and all
other documents or instruments necessary or proper to be executed in the
course of the corporation's regular business, or which shall be authorized
by resolution of the Board of Directors; and, except as otherwise provided
by law or the Board of Directors, the President may authorize any Vice
President or other officer or agent of the corporation to sign, execute and
acknowledge such documents or instruments in his or her place and stead. In
general he shall perform all duties incident to the office of President and
such other duties as may be prescribed by the Board of Directors from time
to time.
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4.06. Vice Presidents. In the absence of the President, or in
the event of the President's death, inability or refusal to act, or in the
event for any reason it shall be impracticable for the President to act
personally, the Vice President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated by the Board of
Directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting,
shall have all the powers of and be subject to all the restrictions upon
the President. Any Vice President may sign, with the Secretary or Assistant
Secretary, certificates for shares of the corporation, and shall perform
such other duties and have such authority as from time to time may be
delegated or assigned to him or her by the President or the Board of
Directors. The execution of any instrument of the corporation by any Vice
President shall be conclusive evidence, as to third parties, of the Vice
President's authority to act in the stead of the President.
4.07. Secretary. The Secretary shall: (a) keep the minutes of
the meetings of the shareholders and of the Board of Directors in one or
more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these bylaws or as required by
law; (c) be custodian of the corporate records and of the seal of the
corporation, if any, and see that the seal of the corporation, if any, is
affixed to all documents which are authorized to be executed on behalf of
the corporation under its seal; (d) keep or arrange for the keeping of a
register of the post office address of each shareholder which shall be
furnished to the Secretary by such shareholder; (e) sign with the
President, or a Vice President, certificates for shares of the corporation,
the issuance of which shall have been authorized by resolution of the Board
of Directors; (f) have general charge of the stock transfer books of the
corporation; and (g) in general perform all duties incident to the office
of Secretary and have such other duties and exercise such authority as from
time to time may be delegated or assigned to him or her by the President or
by the Board of Directors.
4.08. Treasurer. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the
corporation; (b) receive and give receipts for moneys due and payable to
the corporation from any source whatsoever, and deposit all such moneys in
the name of the corporation in such banks, trust companies or other
depositories as shall be selected in accordance with the provisions of
Section 5.04; and (c) in general perform all of the duties incident to the
office of Treasurer and have such other duties and exercise such other
authority as from time to time may be delegated or assigned to him or her
by the President or by the Board of Directors.
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4.09. Assistant Secretaries and Assistant Treasurers. There
shall be such number of Assistant Secretaries and Assistant Treasurers as
the Board of Directors or President from time to time authorizes. The
Assistant Secretaries may sign with the President or a Vice President
certif icates for shares of the corporation the issuance of which shall
have been authorized by a resolution of the Board of Directors. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform
such duties and have such authority as from time to time shall be delegated
or assigned to them by the Secretary or the Treasurer, respectively, or by
the President or the Board of Directors.
4.10. Other Assistants and Acting Officers. The Board of
Directors and the President shall have the power to appoint any person to
act as assistant to any officer, or as agent for the corporation in the
officer's stead, or to perform the duties of such officer whenever for any
reason it is impracticable for such officer to act personally, and such
assistant or acting officer or other agent so appointed by the Board of
Directors or President shall have the power to perform all the duties of
the office to which that person is so appointed to be assistant, or as to
which he or she is so appointed to act, except as such power may be
otherwise defined or restricted by the Board of Directors or President.
4.11. Salaries. Salaries may be paid to the principal officers
of the corporation at the discretion of the Board of Directors, and if so
paid, shall be fixed from time to time by the Board of Directors or by a
duly authorized committee thereof, and no officer shall be prevented from
receiving such salary by reason of the fact that such officer is also a
director of the corporation.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.01. Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute
or deliver any instrument in the name of and on behalf of the corporation,
and such authorization may be general or confined to specific instances. No
contract or other transaction between the corporation and one or more of
its directors or any other corporation, firm, association or entity in
which one or more of its directors are directors or officers or are
financially interested, shall be either void or voidable because of such
relationship or interest or because such director or directors are present
at the meeting of the Board of Directors or a committee thereof which
authorizes, approves or ratifies such contract or transaction or because
the votes of the interested director(s) are counted for such purpose, if
(1) the fact of such relationship or interest is disclosed or known to the
Board of Directors or committee which authorizes, approves or ratifies the
contract or transaction by a vote or consent sufficient for the
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purpose without counting the votes or consents of such interested
directors; or (2) the fact of such relationship or interest is disclosed or
known to the shareholders entitled to vote and they authorize, approve or
ratify such contract or transaction by vote or written consent; or (3) the
contract or transaction is fair and reasonable to the corporation. Common
or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or a committee thereof which
authorizes, approves or ratifies such contract or transaction.
5.02. Loans. No indebtedness for borrowed money shall be
contracted on behalf of the corporation and no evidences of such
indebtedness shall be issued in its name unless authorized by or under the
authority of a resolution of the Board of Directors. Such authorization may
be general or confined to specific instances.
5.03. Checks, Drafts, etc. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued
in the name of the corporation shall be signed by such officer(s),
employee(s) or agents of the corporation and in such manner as shall from
time to time be determined by or under the authority of a resolution of the
Board of Directors.
5.04. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the
corporation in such banks, trust companies or other depositaries as may be
selected by or under the authority of a resolution of the Board of
Directors.
5.05. Voting of Securities Owned by this Corporation. Subject
always to the specific directions of the Board of Directors, (a) any shares
or other securities issued by any other corporation and owned or controlled
by this corporation may be voted at any meeting of security holders of such
other corporation by the President of this corporation if he or she is
present, or in the President's absence, by any Vice President of this
corporation who may be present, and (b) whenever, in the judgment of the
President, or in the President's absence, of any Vice President, it is
desirable for this corporation to execute a proxy or written consent with
respect to any shares or other securities issued by any other corporation
and owned by this corporation, such proxy or consent shall be executed in
the name of this corporation by the President or one of the Vice Presidents
of this corporation, without necessity of any authorization by the Board of
Directors, affixation of corporate seal or countersignature or attestation
by another officer. Any person or persons designated in the manner above
stated as the proxy or proxies of this corporation shall have full right,
power and authority to vote the shares or other securities issued by such
other corporation and owned by this corporation the same as such shares or
other securities might be voted by this corporation.
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ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFERS
6.01. Certificate for Shares. Certificates representing shares
of the corporation shall be in such form, consistent with law, as shall be
determined by the Board of Directors. Such certificates shall be signed by
the President. All certificates for shares shall be consecutively numbered
or otherwise identified. The name and address of the person to whom the
shares represented thereby are issued, with the number of shares and the
date of issue, shall be entered on the stock transfer books of the
corporation. All certificates surrendered to the corporation for transfer
shall be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
cancelled, except as provided in Section 6.05.
6.02. Facsimile Signatures and Seal. The seal of the
corporation, if the corporation has elected to have a seal, on any
certificates for shares may be a facsimile. The signature of the President
upon a certificate may be a facsimile if the certificate is manually signed
on behalf of a transfer agent or a registrar, other than the corporation
itself or an employee of the corporation.
6.03. Transfer of Shares. Prior to due presentment of a
certificate for shares for registration of transfer, the corporation may
treat the registered owner of such shares as the person exclusively
entitled to vote, to receive notifications and otherwise to have and
exercise all the rights and powers of an owner. Where a certificate for
shares is presented to the corporation with a request to register for
transfer, the corporation shall not be liable to the owner, or any other
person suffering loss as a result of such registration of transfer if (a)
there were on or with the certificate the necessary endorsements, and (b)
the corporation had no duty to inquire into adverse claims or has
discharged any such duty. The corporation may require reasonable assurance
that said endorsements are genuine and effective and in compliance with
such other regulations as may be prescribed by or under the authority of
the Board of Directors.
6.04. Restrictions on Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the corporation upon the transfer of such shares.
6.05. Lost, Destroyed or Stolen Certificates. Where the owner
claims that his or her certificate for shares has been lost, destroyed or
wrongfully taken, a new certificate shall be issued in place thereof if the
owner (a) so requests before the corporation has notice that such shares
have been acquired by a bona fide purchaser, and (b) if required by the
corporation, files with the corporation a sufficient indemnity bond, and
(c)
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satisfies such other reasonable requirements as may be prescribed by or
under the authority of the Board of Directors.
6.06. Consideration for Shares. The shares of the corporation
may be issued for such consideration as shall be fixed from time to time by
the Board of Directors, provided that any shares having a par value shall
not be issued for a consideration less than the par value thereof. The
consideration to be paid for shares may be paid in whole or in part, in
money, in other property, tangible or intangible, or in labor or services
actually performed for the corporation. When payment of the consideration
for which shares are to be issued shall have been received by the
corporation, such shares shall be deemed to be fully paid and nonassessable
by the corporation. No certificate shall be issued for any share until such
share is fully paid.
6.07. Stock Regulations. The Board of Directors shall have the
power and authority to make all such rules and regulations not inconsistent
with the statutes of the State of Florida as it may deem expedient
concerning the issue, transfer and registration of certificates
representing shares of the corporation.
ARTICLE VII. WAIVER OF NOTICE
Whenever any notice is required to be given under the provisions
of the Florida Business Corporation Act or under corresponding provisions
of the corporation's articles of incorporation or bylaws, a waiver thereof
in writing, signed at any time, whether before or after the time of the
meeting, by the person or persons entitled to such notice, shall be deemed
equivalent to the giving of such notice. Such waiver by a shareholder in
respect of any matter of which notice is required under any provision of
the Florida Business Corporation Act shall contain the same information as
would have been required to be included in such notice under any applicable
provisions of said Law, except that the time and place of meeting need not
be stated.
ARTICLE VIII. CONSENT WITHOUT A MEETING
Any action required by the articles of incorporation or these
bylaws or any provisions of the Florida Business Corporation Act to be
taken at a meeting or any other action which may be taken at a meeting may
be taken without a meeting if a consent in writing setting forth the action
so taken shall be signed by the requisite number of shareholders or
directors under law or all of the members of a committee thereof entitled
to vote with respect to the subject matter thereof and such consent shall
have the same force and effect as a vote.
ARTICLE IX. INDEMNIFICATION
The corporation shall indemnify all directors and officers to the
fullest extent now or hereafter permitted by the
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Florida Statues. This bylaw shall not limit the rights of such persons or
other persons to indemnification as provided or permitted as a matter of
law, under the Florida Statutes or otherwise.
ARTICLE X. SEAL
The Board of Directors may provide a corporate seal which shall
be circular in form and shall have inscribed thereon the name of the
corporation and the state of incorporation and the words "Corporate Seal."
ARTICLE XI. FISCAL YEAR
Except as the Board of Directors may otherwise determine, the
fiscal year of the corporation shall be the year ending on the last day of
December of each year.
ARTICLE XII. AMENDMENTS
12.01. By Shareholders. These bylaws may be altered, amended or
repealed and new bylaws may be adopted by the shareholders by affirmative
vote of not less than a majority of the shares present or represented at an
annual or special meeting of the shareholders at which a quorum is in
attendance.
12.02. By Directors. These bylaws may also be altered, amended
or repealed and new bylaws may be adopted by the Board of Directors by
affirmative vote of a majority of the number of directors present at any
meeting at which a quorum is in attendance; but no bylaw adopted by the
shareholders shall be amended or repealed by the Board of Directors if the
bylaw so adopted so provides.
12.03. Implied Amendments. Any action taken or authorized by the
shareholders or by the Board of Directors which would be inconsistent with
the bylaws then in effect but is taken or authorized by affirmative vote of
not less than the number of shares or the number of directors required to
amend the bylaws so that the bylaws would be consistent with such action,
shall be given the same effect as though the bylaws had been temporarily
amended or suspended so far, but only so far, as is necessary to permit the
specific action so taken or authorized.
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DESCRIPTION: EMPLOYMENT AGREEMENT - CORLEY
EMPLOYMENT AGREEMENT
This Employment Agreement is made on this 1st day of May 1999, 1st
Internet Group, Inc. ("Employer"), whose principal place of
business at 5883 Lake Worth Road, Lake Worth, Florida 33463, and
William Corley ("Employee").
WHEREAS, Employer is actively engaged in the business of a
securities brokerage firm; a insurance firm; and an accounting
firm; and,
WHEREAS, Employer wishes to employ Employee and Employee wishes to
be employed pursuant to the terms of this Employment Agreement.
NOW THEREFORE, in consideration of the mutual covenants and
agreements contained in this Employment Agreement, and other good
and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties, intending to be legally bound,
agree as follows:
Article I
Employment of Employee
Employer agrees to employ Employee, and Employee accepts employment
with Employer, on and subject to the terms and conditions set forth
in this Employment Agreement.
Article 2
Duties of Employee
Section 2.1. POSITION AND DUTIES. Employer agrees to employ
Employee to act as Chief Executive Officer for Employer. Employee
shall be responsible for performing the following duties: executive
management, overseeing business development, strategic planning,
and growth of operations. Employer reserves the right from time to
time to change the nature of Employee's duties and job title:
provided, however, Employee's duties and job title shall always be
of an executive nature.
Section 2.2. TIME DEVOTED TO WORK. Employee agrees to devote
Employee's entire business time, attention, and energies to the
business of Employer in accordance with Employer's instructions and
directions and shall not be engaged in any other business activity,
whether or not the activity is pursued for gain, profit, or other
pecuniary advantage, during the term of this Employment Agreement
without Employer's prior written consent.
Article 3
Place of Employment
Section 3.1. PLACE OF EMPLOYMENT. Employee shall be based at
Employer's principal office at 5883 Lake Worth Road, Lake Worth, FL
33463 and shall not be required to travel away from that office on
business more than thirty (30) days during a calendar year.
Employer agrees that during the term of this Employment Agreement
it shall not assign Employee to work at any location which is more
than 100 miles from said principal office without Employee's
consent.
Section 3.2. MOVING EXPENSES. If Employer relocates its
principal office more than 100 miles from its current principal
office, or requests that Employee relocate to one of its offices
which is more than 100 miles from its current principal office,
and Employee consents to relocate to that new location, Employer
shall promptly pay or reimburse Employee for all reasonable
moving expenses incurred by Employee in connection with the
relocation plus an amount to reimburse Employee for any federal
and state income taxes that it has to pay on amounts reimbursed.
Employer also shall indemnify Employee against any loss incurred
in connection with the sale of Employee's principal residence.
The amount of any loss shall be determined by taking the
difference between the average of two appraisal prices set by two
independent appraisers agreed to by Employer and Employee and the
actual sales price of Employee's principal residence.
Article 4
Compensation of Employee
<PAGE>
Section 4.1. BASE SALARY. For all services rendered by Employee
under this Employment Agreement, Employer agrees to pay Employee an
annual base salary of $75,000, which shall be payable to Employee
in such installments, but not less frequently than bi-monthly, as
are consistent with Employee's practice for its other Employees.
Employee's base salary shall be reviewed at least once a year by
Employer and shall be increased at a minimum by the percentage
increase in the Consumer Price Index for the previous year.
Section 4.2. REIMBURSEMENT FOR BUSINESS EXPENSES. Employer shall
promptly pay or reimburse Employee for all reasonable business
expenses incurred by Employee in performing Employee's duties and
obligations under this Employment Agreement, but only if Employee
properly accounts for expenses in Accordance with Employer's
policies.
Article 5
Vacations and Other Paid Absences
Section 5.1. VACATION DAYS. Employee shall be entitled to two (2)
weeks paid vacation days each calendar year during the term of this
Employment Agreement.
Section 5.2. HOLIDAYS. Employee shall be entitled to the same paid
holidays as authorized by Employer for its other Employees.
Section 5.3. SICK DAYS AND PERSONAL ABSENCE DAYS. Employee shall
be entitled to the same number of paid sick days and personal
absence days authorized by Employer for its other Employees.
Article 6
Termination of Employment
Section 6.1. TERM OF EMPLOYMENT. Employee's employment shall
commence on the date of execution by Employer and shall continue
for one (1) year ("end-of-employment date"), unless extended or
terminated sooner, as provided by this article of the Employment
Agreement.
Section 6.2. EXTENSION OF EMPLOYMENT. On the end-of-employment
date and every one (1) year thereafter, Employee's employment
with Employer automatically shall be extended for an additional one
(1) year unless, at least ninety (90) days prior to the end-of-
employment date, or successive one (1) year anniversary thereof,
Employer or Employee delivers to the other a written notice that
Employee's employment with Employer is not to be extended.
Section 6.3. TERMINATION AT EMPLOYEE'S DEATH. Employee's
employment with Employer shall terminate at Employee's death.
Section 6.4. TERMINATION BY EMPLOYEE. Employee may, but is not
obligated to, terminate this employment Agreement at any time under
the following circumstances:
(a) Employee's health becomes so impaired that continued
performance of Employee's duties under this Employment Agreement
would be hazardous to Employee's physical or mental health.
(b) There is a change in control of Employer. There is a change
in control of Employer if someone other than a current owner of
Employer becomes the beneficial owner of 20 percent or more of the
voting power of Employer.
(c) Employee is assigned duties that are significantly different
than those described in this Employment Agreement, or duties
assigned Employee by this Employment Agreement are eliminated or
transferred to someone else.
(d) Employee is removed from any of the positions described in
Section 2.1 of this Employment Agreement (other than by Employer
for cause).
(e) Employee's fringe benefits or other compensation are
materially reduced.
(f) Employer requires Employee to travel more frequently than
contemplated by this Employment Agreement.
<PAGE>
(g) Employer fails to have a successor assume this Employment
Agreement.
(h) Employer becomes insolvent or files a bankruptcy petition.
Section 6.5. TERMINATION BY EMPLOYER.
(a) TERMINATION FOR CAUSE. Employer may terminate Employee's
employment for cause.
(b) "CAUSE" DEFINED. Employer shall have cause to terminate
Employee's employment if Employee fails to substantially perform
any duties required by this Employment Agreement (unless Employee's
failure is due to a physical or mental incapacity), Employee is
grossly negligent in the performance of required duties, Employee
engages in conduct that damages Employer, Employee is convicted of
a felonious act of moral turpitude, or Employee discloses material
confidential information in violation of Article 7 of this
Employment Agreement. Employer shall have cause to terminate
Employee's employment should Employee's performance, attitude, or
work habits become unreasonable.
Section 6.6. NOTICE OF TERMINATION. Any termination of Employee's
employment by Employer or Employee must be communicated to the
other party by a written notice of termination. The notice must
specify the provision of this employment Agreement authorizing the
termination and must set forth in reasonable details the facts and
circumstances providing the basis for termination of Employee's
employment.
Section 6.7. DATE TERMINATION IS EFFECTIVE. If Employee's
employment terminates because this Employment Agreement expires,
then Employee's employment will be considered to have terminated on
that expiration date. If Employee's employment terminates because
of Employee's death, then Employee's employment will be considered
to have terminated on the date of Employee's death. If Employee's
employment is terminated by Employee, then Employee's employment
will be considered to have terminated on the date that notice of
termination is given. If Employee's employment is terminated by
Employer for cause, then Employee's employment will be considered
to have terminated on the date specified by the notice of
termination. If, within thirty (30) days after a notice of
termination is given, the party receiving the notice notifies the
other party that there is a dispute concerning the termination,
then Employee's employment will not be considered to have
terminated, and Employer shall continue to compensate Employee
pursuant to this Employment Agreement, until the dispute is ended
by a written agreement between the parties or a final judgment,
order, or decree of a court of competent jurisdiction. A judgment,
order. or decree of a court of competent jurisdiction will be
considered final only if the time for appealing the decision has
expired and no notice of appeal has been filed.
Article 7
Confidential Information
Section 7.1. CONFIDENTIAL INFORMATION DEFINED. "Confidential
Information" as used in this Employment Agreement shall mean any
and all technical and non-technical information belonging to, or in
the possession of, Employer or its officers, directors, Employees,
affiliates, subsidiaries, clients, vendors, or Employees, including
without limitation, patent, trade secret, and proprietary
information; techniques, sketches, drawings, models, inventions,
know-how, processes, apparatus, equipment, algorithms, source
codes, object codes, software programs, software source documents,
and formulae related to Employer's business or any other current,
future and/or proposed business, product or service contemplated by
Employer; and includes, without limitation, all information
concerning research, experimental work, development, design details
and specifications, engineering, financial information, procurement
requirements, purchasing, manufacturing, customer lists, vendor
lists, business forecasts, sales and merchandising, and marketing
plans or similar information.
Section 7.2 DISCLOSURES. Employee agrees that it shall, at no time
during or after termination of this Employment Agreement, directly
or indirectly make use of, disseminate, or in any way disclose
Confidential Information to any person, firm or business, except to
the extent necessary for performance of this employment Agreement.
Employee agrees that it shall disclose Confidential Information
only to Employer's other Employees who need to know such
information and who have previously agreed to be bound by the terms
and conditions of a substantially similar confidentiality provision
and shall be liable for damages for the intentional or negligent
disclosure of Confidential Information. Employee's obligations with
respect to any portion of Confidential Information shall terminate
only when Employee has documented to Employer that (a) such
information was lawfully in the public domain at the time it was
communicated to Employee by
<PAGE>
Employer; or (b) the communication was in response to a valid order
by a court of competent jurisdiction or was necessary to establish
the rights of Employer under this Employment Agreement.
Article 8
Noncompetition Agreement
Section 8.1. AGREEMENT NOT TO COMPETE. For one (1) year after
Employee's employment with Employer terminates, Employee agrees not
to directly or indirectly own, manage, control, or operate; serve
as an officer, director, partner, or Employee of; have any direct
or indirect financial interest in; or assist in any way; any person
or entity that competes with any business conducted by Employer or
any of Employer's affiliates or subsidiaries in any geographic
region in which Employer conducts business.
Section 8.2. COMPETITIVE BUSINESSES. For purposes of this Article
11, a competitive business shall be any person or entity which
operates as a securities broker dealer whose primarily business is
to provide its clients with the ability buy, sell, or trade
securities via the internet or world wide web, or via some similar
system, network, method, or service.
Section 8.3. OWNERSHIP OF PUBLIC CORPORATION NO VIOLATION.
Employee will not be considered to have violated this provision
merely because Employee owns no more than twenty percent (20%) of
the stock of any publicly held corporation.
Article 9
Notices
Any notice given under this Employment Agreement to either party
shall be made in writing. Notices shall be deemed given when
delivered by hand or when mailed by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the
party at the address set forth below.
Employee's address: 5883 Lake Worth Road.
Lake Worth, FL 33463
Employer's address: 5883 Lake Worth Road,
Lake Worth, FL 33463
Each party may designate a different address for receiving notices
by giving written notice of the different address to the other
party. The written notice of the different address will be deemed
given when it is received by the other party.
Article 10
Binding Agreement
Section 10.1. EMPLOYER'S SUCCESSORS.
(a) The rights and obligations of Employer under this Employment
Agreement shall inure to the benefit of and shall be binding in
all respects upon the successors and assigns of Employer.
(b) Employer shall require any direct or indirect successor (by
purchase, merger, consolidation, or (otherwise) of all or
substantially all of Employer's stock, business and/or assets to
expressly agree to assume Employer's obligations under this
Employment Agreement and perform them in the same manner and to the
same extent as Employer would have been required to do if no
succession had occurred. The agreement must be in a form and
substance satisfactory to Employee.
(c) If Employer fails to obtain such an agreement before the
effective date of the succession, Employer's failure will be
considered a breach of this Employment Agreement, and Employee
shall be entitled to the greater of (i) one year's base salary in
effect on the effective date of such succession. However,
Employer's failure to obtain such agreement shall not affect-said
successor's obligations pursuant to paragraph 10.1(a) above.
<PAGE>
Section 10.2. EMPLOYEE'S SUCCESSORS. This Employment Agreement
shall inure to the benefit and be enforceable by and upon
Employee's personal representatives, legatees, and heirs. If
Employee dies while amounts are still owed, such amounts shall be
paid to Employee's legatees or, if no such person or persons have
been designated, to Employee's estate.
Article 11
Waivers
The waiver by either party of a breach of any provision of this
Employment Agreement shall not operate or be construed as a waiver
of any subsequent breach.
Article 12
Entire Agreement
Section 12.1. NO OTHER AGREEMENTS. This instrument contains the
entire agreement of the parties. The parties have not made any
agreements or representations, oral or otherwise, express or
implied, pertaining to the subject matter of this Employment
Agreement other than those specifically included in this employment
Agreement.
Section 12.2. PRIOR AGREEMENTS. This Employment Agreement
supersedes any prior agreements pertaining to or connected with or
arising in any manner out of the employment of Employee by
Employer. All such prior agreements are terminated and are of no
force or effect whatsoever.
Article 13
Amendment of Agreement
No change or modification of this Employment Agreement shall be
valid unless it is in writing and signed by the party against whom
the change or modification is sought to be enforced. No change or
modification by Employer shall be effective unless it is approved
by Employer's Board of Directors and signed by an officer
specifically authorized to sign such documents.
Article 14
Severability of Provisions
If any provision of this Employment Agreement is invalidated or
held unenforceable, the invalidity or unenforceability of that
provision or provisions shall be deemed modified or severed only to
the minimum extent necessary to make said provision(s) valid and
enforceable while maintaining the intent of said provision(s). No
such modification shall affect the validity or enforceability of
any other provision of this Employment Agreement.
Article 15
Assignment of Agreement
Employer shall not assign this Employment Agreement without
Employee's prior written consent, but failure to obtain such
consent shall not affect-said assignee's obligations pursuant to
paragraph 10.1(a) above, which consent shall not be unreasonably
withheld.
Article 16
Governing Law. Venue & Attorneys Fees
All questions regarding the validity and interpretation of this
Employment Agreement shall be governed by and construed and
enforced in all respects in accordance with the laws of the State
of Florida. Venue for any action arising in any manner out of the
Employee's employment, this Employment Agreement, or any of the
terms contained herein shall be the Federal and or State courts
located in Palm Beach County, Florida, regardless of where this
Employment Agreement is to be performed. In the event either party
engages legal counsel to enforce any provision contained in this
Employment Agreement, the prevailing party shall be entitled to all
reasonable attorneys fees, investigative expenses, costs, and court
costs, whether or not a suit is actually filed, but including all
levels of appeal.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement in duplicate on the date and year first above written.
<PAGE>
EMPLOYEE:
/s/ WILLIAM CORLEY
- ------------------
William Corley
EMPLOYER:
1st Internet Group, Inc.
By: /s/ PHILIP J. LING
- ----------------------
Name: Philip J. Ling
Title: CFO
DESCRIPTION: EMPLOYMENT AGREEMENT - GRAHAM
EMPLOYMENT AGREEMENT
This Employment Agreement is made on this 1st day of May 1999, 1st
Internet Group, Inc. ("Employer"), whose principal place of
business at 5883 Lake Worth Road, Lake Worth, Florida 33463, and
Michael Graham ("Employee").
WHEREAS, Employer is actively engaged in the business of a
securities brokerage firm; a insurance firm; and an accounting
firm; and,
WHEREAS, Employer wishes to employ Employee and Employee wishes to
be employed pursuant to the terms of this Employment Agreement.
NOW THEREFORE, in consideration of the mutual covenants and
agreements contained in this Employment Agreement, and other good
and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties, intending to be legally bound,
agree as follows:
Article I
Employment of Employee
Employer agrees to employ Employee, and Employee accepts employment
with Employer, on and subject to the terms and conditions set forth
in this Employment Agreement.
Article 2
Duties of Employee
Section 2.1. POSITION AND DUTIES. Employer agrees to employ
Employee to act as Chief Operations Officer for Employer. Employee
shall be responsible for performing the following duties: executive
management, overseeing business development, and daily operations.
Employer reserves the right from time to time to change the nature
of Employee's duties and job title; provided, however, Employee's
duties and job title shall always be of an executive nature.
Section 2.2. TIME DEVOTED TO WORK. Employee agrees to devote
Employee's entire business time, attention, and energies to the
business of Employer in accordance with Employer's instructions and
directions and shall not be engaged in any other business activity,
whether or not the activity is pursued for gain, profit, or other
pecuniary advantage, during the term of this Employment Agreement
without Employer's prior written consent.
Article 3
Place of Employment
Section 3.1. PLACE OF EMPLOYMENT. Employee shall be based at
Employer's principal office at 5883 Lake Worth Road, Lake Worth, FL
33463 and shall not be required to travel away from that office on
business more than thirty (30) days during a calendar year.
Employer agrees that during the term of this Employment Agreement
it shall not assign Employee to work at any location which is more
than 100 miles from said principal office without Employee's
consent.
Section 3.2. MOVING EXPENSES. If Employer relocates its
principal office more than 100 miles from its current principal
office, or requests that Employee relocate to one of its offices
which is more than 100 miles from its current principal office,
and Employee consents to relocate to that new location, Employer
shall promptly pay or reimburse Employee for all reasonable
moving expenses incurred by Employee in connection with the
relocation plus an amount to reimburse Employee for any federal
and state income taxes that it has to pay on amounts reimbursed.
Employer also shall indemnify Employee against any loss incurred
in connection with the sale of Employee's principal residence.
The amount of any loss shall be determined by taking the
difference between the average of two appraisal prices set by two
independent appraisers agreed to by Employer and Employee and the
actual sales price of Employee's principal residence.
Article 4
<PAGE>
Compensation of Employee
Section 4.1. BASE SALARY. For all services rendered by Employee
under this Employment Agreement, Employer agrees to pay Employee an
annual base salary of $50,000, which shall be payable to Employee
in such installments, but not less frequently than bi-monthly, as
are consistent with Employee's practice for its other Employees.
Employee's base salary shall be reviewed at least once a year by
Employer and shall be increased at a minimum by the percentage
increase in the Consumer Price Index for the previous year.
Section 4.2. REIMBURSEMENT FOR BUSINESS EXPENSES. Employer shall
promptly pay or reimburse Employee for all reasonable business
expenses incurred by Employee in performing Employee's duties and
obligations under this Employment Agreement, but only if Employee
properly accounts for expenses in Accordance with Employer's
policies.
Article 5
Vacations and Other Paid Absences
Section 5.1. VACATION DAYS. Employee shall be entitled to two (2)
weeks paid vacation days each calendar year during the term of this
Employment Agreement.
Section 5.2. HOLIDAYS. Employee shall be entitled to the same paid
holidays as authorized by Employer for its other Employees.
Section 5.3. SICK DAYS AND PERSONAL ABSENCE DAYS. Employee shall
be entitled to the same number of paid sick days and personal
absence days authorized by Employer for its other Employees.
Article 6
Termination of Employment
Section 6.1. TERM OF EMPLOYMENT. Employee's employment shall
commence on the date of execution by Employer and shall continue
for one (1) year ("end-of-employment date"), unless extended or
terminated sooner, as provided by this article of the Employment
Agreement.
Section 6.2. EXTENSION OF EMPLOYMENT. On the end-of-employment
date and every one (1) year thereafter, Employee's employment
with Employer automatically shall be extended for an additional one
(1) year unless, at least ninety (90) days prior to the end-of-
employment date, or successive one (1) year anniversary thereof,
Employer or Employee delivers to the other a written notice that
Employee's employment with Employer is not to be extended.
Section 6.3. TERMINATION AT EMPLOYEE'S DEATH. Employee's
employment with Employer shall terminate at Employee's death.
Section 6.4. TERMINATION BY EMPLOYEE. Employee may, but is not
obligated to, terminate this employment Agreement at any time under
the following circumstances:
(a) Employee's health becomes so impaired that continued
performance of Employee's duties under this Employment Agreement
would be hazardous to Employee's physical or mental health.
(b) There is a change in control of Employer. There is a change
in control of Employer if someone other than a current owner of
Employer becomes the beneficial owner of 20 percent or more of the
voting power of Employer.
(c) Employee is assigned duties that are significantly different
than those described in this Employment Agreement, or duties
assigned Employee by this Employment Agreement are eliminated or
transferred to someone else.
(d) Employee is removed from any of the positions described in
Section 2.1 of this Employment Agreement (other than by Employer
for cause).
(e) Employee's fringe benefits or other compensation are
materially reduced.
(f) Employer requires Employee to travel more frequently than
contemplated by this Employment Agreement.
<PAGE>
(g) Employer fails to have a successor assume this Employment
Agreement.
(h) Employer becomes insolvent or files a bankruptcy petition.
Section 6.5. TERMINATION BY EMPLOYER.
(a) TERMINATION FOR CAUSE. Employer may terminate Employee's
employment for cause.
(b) "CAUSE" DEFINED. Employer shall have cause to terminate
Employee's employment if Employee fails to substantially perform
any duties required by this Employment Agreement (unless Employee's
failure is due to a physical or mental incapacity), Employee is
grossly negligent in the performance of required duties, Employee
engages in conduct that damages Employer, Employee is convicted of
a felonious act of moral turpitude, or Employee discloses material
confidential information in violation of Article 7 of this
Employment Agreement. Employer shall have cause to terminate
Employee's employment should Employee's performance, attitude, or
work habits become unreasonable.
Section 6.6. NOTICE OF TERMINATION. Any termination of Employee's
employment by Employer or Employee must be communicated to the
other party by a written notice of termination. The notice must
specify the provision of this employment Agreement authorizing the
termination and must set forth in reasonable details the facts and
circumstances providing the basis for termination of Employee's
employment.
Section 6.7. DATE TERMINATION IS EFFECTIVE. If Employee's
employment terminates because this Employment Agreement expires,
then Employee's employment will be considered to have terminated on
that expiration date. If Employee's employment terminates because
of Employee's death, then Employee's employment will be considered
to have terminated on the date of Employee's death. If Employee's
employment is terminated by Employee, then Employee's employment
will be considered to have terminated on the date that notice of
termination is given. If Employee's employment is terminated by
Employer for cause, then Employee's employment will be considered
to have terminated on the date specified by the notice of
termination. If, within thirty (30) days after a notice of
termination is given, the party receiving the notice notifies the
other party that there is a dispute concerning the termination,
then Employee's employment will not be considered to have
terminated, and Employer shall continue to compensate Employee
pursuant to this Employment Agreement, until the dispute is ended
by a written agreement between the parties or a final judgment,
order, or decree of a court of competent jurisdiction. A judgment,
order. or decree of a court of competent jurisdiction will be
considered final only if the time for appealing the decision has
expired and no notice of appeal has been filed.
Article 7
Confidential Information
Section 7.1. CONFIDENTIAL INFORMATION DEFINED. "Confidential
Information" as used in this Employment Agreement shall mean any
and all technical and non-technical information belonging to, or in
the possession of, Employer or its officers, directors, Employees,
affiliates, subsidiaries, clients, vendors, or Employees, including
without limitation, patent, trade secret, and proprietary
information; techniques, sketches, drawings, models, inventions,
know-how, processes, apparatus, equipment, algorithms, source
codes, object codes, software programs, software source documents,
and formulae related to Employer's business or any other current,
future and/or proposed business, product or service contemplated by
Employer; and includes, without limitation, all information
concerning research, experimental work, development, design details
and specifications, engineering, financial information, procurement
requirements, purchasing, manufacturing, customer lists, vendor
lists, business forecasts, sales and merchandising, and marketing
plans or similar information.
Section 7.2 DISCLOSURES. Employee agrees that it shall, at no time
during or after termination of this Employment Agreement, directly
or indirectly make use of, disseminate, or in any way disclose
Confidential Information to any person, firm or business, except to
the extent necessary for performance of this employment Agreement.
Employee agrees that it shall disclose Confidential Information
only to Employer's other Employees who need to know such
information and who have previously agreed to be bound by the terms
and conditions of a substantially similar confidentiality provision
and shall be liable for damages for the intentional or negligent
disclosure of Confidential Information. Employee's obligations with
respect to any portion of Confidential Information shall terminate
only when Employee has documented to Employer that (a) such
information was lawfully in the public domain at the time it was
communicated to Employee by
<PAGE>
Employer; or (b) the communication was in response to a valid order
by a court of competent jurisdiction or was necessary to establish
the rights of Employer under this Employment Agreement.
Article 8
Noncompetition Agreement
Section 8.1. AGREEMENT NOT TO COMPETE. For one (1) year after
Employee's employment with Employer terminates, Employee agrees not
to directly or indirectly own, manage, control, or operate; serve
as an officer, director, partner, or Employee of; have any direct
or indirect financial interest in; or assist in any way; any person
or entity that competes with any business conducted by Employer or
any of Employer's affiliates or subsidiaries in any geographic
region in which Employer conducts business.
Section 8.2. COMPETITIVE BUSINESSES. For purposes of this Article
11, a competitive business shall be any person or entity which
operates as a securities broker dealer whose primarily business is
to provide its clients with the ability buy, sell, or trade
securities via the internet or world wide web, or via some similar
system, network, method, or service.
Section 8.3. OWNERSHIP OF PUBLIC CORPORATION NO VIOLATION.
Employee will not be considered to have violated this provision
merely because Employee owns no more than twenty percent (20%) of
the stock of any publicly held corporation.
Article 9
Notices
Any notice given under this Employment Agreement to either party
shall be made in writing. Notices shall be deemed given when
delivered by hand or when mailed by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the
party at the address set forth below.
Employee's address: 6271 Barton Creek Court
Lake Worth, FL 33463
Employer's address: 5883 Lake Worth Road,
Lake Worth, FL 33463
Each party may designate a different address for receiving notices
by giving written notice of the different address to the other
party. The written notice of the different address will be deemed
given when it is received by the other party.
Article 10
Binding Agreement
Section 10.1. EMPLOYER'S SUCCESSORS.
(a) The rights and obligations of Employer under this Employment
Agreement shall inure to the benefit of and shall be binding in
all respects upon the successors and assigns of Employer.
(b) Employer shall require any direct or indirect successor (by
purchase, merger, consolidation, or (otherwise) of all or
substantially all of Employer's stock, business and/or assets to
expressly agree to assume Employer's obligations under this
Employment Agreement and perform them in the same manner and to the
same extent as Employer would have been required to do if no
succession had occurred. The agreement must be in a form and
substance satisfactory to Employee.
(c) If Employer fails to obtain such an agreement before the
effective date of the succession, Employer's failure will be
considered a breach of this Employment Agreement, and Employee
shall be entitled to the greater of (i) one year's base salary in
effect on the effective date of such succession. However,
Employer's failure to obtain such agreement shall not affect-said
successor's obligations pursuant to paragraph 10.1(a) above.
<PAGE>
Section 10.2. EMPLOYEE'S SUCCESSORS. This Employment Agreement
shall inure to the benefit and be enforceable by and upon
Employee's personal representatives, legatees, and heirs. If
Employee dies while amounts are still owed, such amounts shall be
paid to Employee's legatees or, if no such person or persons have
been designated, to Employee's estate.
Article 11
Waivers
The waiver by either party of a breach of any provision of this
Employment Agreement shall not operate or be construed as a waiver
of any subsequent breach.
Article 12
Entire Agreement
Section 12.1. NO OTHER AGREEMENTS. This instrument contains the
entire agreement of the parties. The parties have not made any
agreements or representations, oral or otherwise, express or
implied, pertaining to the subject matter of this Employment
Agreement other than those specifically included in this employment
Agreement.
Section 12.2. PRIOR AGREEMENTS. This Employment Agreement
supersedes any prior agreements pertaining to or connected with or
arising in any manner out of the employment of Employee by
Employer. All such prior agreements are terminated and are of no
force or effect whatsoever.
Article 13
Amendment of Agreement
No change or modification of this Employment Agreement shall be
valid unless it is in writing and signed by the party against whom
the change or modification is sought to be enforced. No change or
modification by Employer shall be effective unless it is approved
by Employer's Board of Directors and signed by an officer
specifically authorized to sign such documents.
Article 14
Severability of Provisions
If any provision of this Employment Agreement is invalidated or
held unenforceable, the invalidity or unenforceability of that
provision or provisions shall be deemed modified or severed only to
the minimum extent necessary to make said provision(s) valid and
enforceable while maintaining the intent of said provision(s). No
such modification shall affect the validity or enforceability of
any other provision of this Employment Agreement.
Article 15
Assignment of Agreement
Employer shall not assign this Employment Agreement without
Employee's prior written consent, but failure to obtain such
consent shall not affect-said assignee's obligations pursuant to
paragraph 10.1(a) above, which consent shall not be unreasonably
withheld.
Article 16
Governing Law. Venue & Attorneys Fees
All questions regarding the validity and interpretation of this
Employment Agreement shall be governed by and construed and
enforced in all respects in accordance with the laws of the State
of Florida. Venue for any action arising in any manner out of the
Employee's employment, this Employment Agreement, or any of the
terms contained herein shall be the Federal and or State courts
located in Palm Beach County, Florida, regardless of where this
Employment Agreement is to be performed. In the event either party
engages legal counsel to enforce any provision contained in this
Employment Agreement, the prevailing party shall be entitled to all
reasonable attorneys fees, investigative expenses, costs, and court
costs, whether or not a suit is actually filed, but including all
levels of appeal.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement in duplicate on the date and year first above written.
<PAGE>
EMPLOYEE:
/s/ MICHAEL GRAHAM
- ------------------
Michael Graham
EMPLOYER:
1st Internet Group, Inc.
By: /s/ WILLIAM H. CORLEY, JR.
- ----------------------
Name: William H. Corley, Jr.
Title: Chairman-CEO
DESCRIPTION: EMPLOYMENT AGREEMENT - LING
EMPLOYMENT AGREEMENT
This Employment Agreement is made on this 1st day of May 1999, 1st
Internet Group, Inc. ("Employer"), whose principal place of
business at 5883 Lake Worth Road, Lake Worth, Florida 33463, and
P. Jason Ling ("Employee").
WHEREAS, Employer is actively engaged in the business of a
securities brokerage firm; a insurance firm; and an accounting
firm; and,
WHEREAS, Employer wishes to employ Employee and Employee wishes to
be employed pursuant to the terms of this Employment Agreement.
NOW THEREFORE, in consideration of the mutual covenants and
agreements contained in this Employment Agreement, and other good
and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties, intending to be legally bound,
agree as follows:
Article I
Employment of Employee
Employer agrees to employ Employee, and Employee accepts employment
with Employer, on and subject to the terms and conditions set forth
in this Employment Agreement.
Article 2
Duties of Employee
Section 2.1. POSITION AND DUTIES. Employer agrees to employ
Employee to act as Chief Financial Officer for Employer. Employee
shall be responsible for performing the following duties: executive
management, overseeing business development, and compliance and
financial reporting. Employer reserves the right from time to time
to change the nature of Employee's duties and job title; provided,
however, Employee's duties and job title shall always be of an
executive nature.
Section 2.2. TIME DEVOTED TO WORK. Employee is employed on a part-
time basis and may be engaged in any other business activities.
Article 3
Place of Employment
Section 3.1. PLACE OF EMPLOYMENT. Employee shall be based at
Employer's principal office at 5883 Lake Worth Road, Lake Worth, FL
33463 and shall not be required to travel away from that office on
business more than thirty (30) days during a calendar year.
Employer agrees that during the term of this Employment Agreement
it shall not assign Employee to work at any location which is more
than 100 miles from said principal office without Employee's
consent.
Section 3.2. MOVING EXPENSES. If Employer relocates its
principal office more than 100 miles from its current principal
office, or requests that Employee relocate to one of its offices
which is more than 100 miles from its current principal office,
and Employee consents to relocate to that new location, Employer
shall promptly pay or reimburse Employee for all reasonable
moving expenses incurred by Employee in connection with the
relocation plus an amount to reimburse Employee for any federal
and state income taxes that it has to pay on amounts reimbursed.
Employer also shall indemnify Employee against any loss incurred
in connection with the sale of Employee's principal residence.
The amount of any loss shall be determined by taking the
difference between the average of two appraisal prices set by two
independent appraisers agreed to by Employer and Employee and the
actual sales price of Employee's principal residence.
Article 4
Compensation of Employee
Section 4.1. BASE SALARY. For all services rendered by Employee
under this Employment Agreement, Employer agrees to pay Employee an
annual base salary of $24,000, which shall be payable to Employee
in
<PAGE>
such installments, but not less frequently than bi-monthly, as are
consistent with Employee's practice for its other Employees.
Employee's base salary shall be reviewed at least once a year by
Employer and shall be increased at a minimum by the percentage
increase in the Consumer Price Index for the previous year.
Section 4.2. REIMBURSEMENT FOR BUSINESS EXPENSES. Employer shall
promptly pay or reimburse Employee for all reasonable business
expenses incurred by Employee in performing Employee's duties and
obligations under this Employment Agreement, but only if Employee
properly accounts for expenses in Accordance with Employer's
policies.
Article 5
Vacations and Other Paid Absences
Section 5.1. VACATION DAYS. Employee shall be entitled to two (2)
weeks paid vacation days each calendar year during the term of this
Employment Agreement.
Section 5.2. HOLIDAYS. Employee shall be entitled to the same paid
holidays as authorized by Employer for its other Employees.
Section 5.3. SICK DAYS AND PERSONAL ABSENCE DAYS. Employee shall
be entitled to the same number of paid sick days and personal
absence days authorized by Employer for its other Employees.
Article 6
Termination of Employment
Section 6.1. TERM OF EMPLOYMENT. Employee's employment shall
commence on the date of execution by Employer and shall continue
for one (1) year ("end-of-employment date"), unless extended or
terminated sooner, as provided by this article of the Employment
Agreement.
Section 6.2. EXTENSION OF EMPLOYMENT. On the end-of-employment
date and every year thereafter, Employee's employment with Employer
automatically shall be extended for an additional one (1) year
unless, at least ninety (90) days prior to the end-of-employment
date, or successive one (1) year anniversary thereof, Employer or
Employee delivers to the other a written notice that Employee's
employment with Employer is not to be extended.
Section 6.3. TERMINATION AT EMPLOYEE'S DEATH. Employee's
employment with Employer shall terminate at Employee's death.
Section 6.4. TERMINATION BY EMPLOYEE. Employee may, but is not
obligated to, terminate this employment Agreement at any time under
the following circumstances:
(a) Employee's health becomes so impaired that continued
performance of Employee's duties under this Employment Agreement
would be hazardous to Employee's physical or mental health.
(b) There is a change in control of Employer. There is a change
in control of Employer if someone other than a current owner of
Employer becomes the beneficial owner of 20 percent or more of the
voting power of Employer.
(c) Employee is assigned duties that are significantly different
than those described in this Employment Agreement, or duties
assigned Employee by this Employment Agreement are eliminated or
transferred to someone else.
(d) Employee is removed from any of the positions described in
Section 2.1 of this Employment Agreement (other than by Employer
for cause).
(e) Employee's fringe benefits or other compensation are
materially reduced.
(f) Employer requires Employee to travel more frequently than
contemplated by this Employment Agreement.
(g) Employer fails to have a successor assume this Employment
Agreement.
(h) Employer becomes insolvent or files a bankruptcy petition.
<PAGE>
Section 6.5. TERMINATION BY EMPLOYER.
(a) TERMINATION FOR CAUSE. Employer may terminate Employee's
employment for cause.
(b) "CAUSE" DEFINED. Employer shall have cause to terminate
Employee's employment if Employee fails to substantially perform
any duties required by this Employment Agreement (unless Employee's
failure is due to a physical or mental incapacity), Employee is
grossly negligent in the performance of required duties, Employee
engages in conduct that damages Employer, Employee is convicted of
a felonious act of moral turpitude, or Employee discloses material
confidential information in violation of Article 7 of this
Employment Agreement. Employer shall have cause to terminate
Employee's employment should Employee's performance, attitude, or
work habits become unreasonable.
Section 6.6. NOTICE OF TERMINATION. Any termination of Employee's
employment by Employer or Employee must be communicated to the
other party by a written notice of termination. The notice must
specify the provision of this employment Agreement authorizing the
termination and must set forth in reasonable details the facts and
circumstances providing the basis for termination of Employee's
employment.
Section 6.7. DATE TERMINATION IS EFFECTIVE. If Employee's
employment terminates because this Employment Agreement expires,
then Employee's employment will be considered to have terminated on
that expiration date. If Employee's employment terminates because
of Employee's death, then Employee's employment will be considered
to have terminated on the date of Employee's death. If Employee's
employment is terminated by Employee, then Employee's employment
will be considered to have terminated on the date that notice of
termination is given. If Employee's employment is terminated by
Employer for cause, then Employee's employment will be considered
to have terminated on the date specified by the notice of
termination. If, within thirty (30) days after a notice of
termination is given, the party receiving the notice notifies the
other party that there is a dispute concerning the termination,
then Employee's employment will not be considered to have
terminated, and Employer shall continue to compensate Employee
pursuant to this Employment Agreement, until the dispute is ended
by a written agreement between the parties or a final judgment,
order, or decree of a court of competent jurisdiction. A judgment,
order. or decree of a court of competent jurisdiction will be
considered final only if the time for appealing the decision has
expired and no notice of appeal has been filed.
Article 7
Confidential Information
Section 7.1. CONFIDENTIAL INFORMATION DEFINED. "Confidential
Information" as used in this Employment Agreement shall mean any
and all technical and non-technical information belonging to, or in
the possession of, Employer or its officers, directors, Employees,
affiliates, subsidiaries, clients, vendors, or Employees, including
without limitation, patent, trade secret, and proprietary
information; techniques, sketches, drawings, models, inventions,
know-how, processes, apparatus, equipment, algorithms, source
codes, object codes, software programs, software source documents,
and formulae related to Employer's business or any other current,
future and/or proposed business, product or service contemplated by
Employer; and includes, without limitation, all information
concerning research, experimental work, development, design details
and specifications, engineering, financial information, procurement
requirements, purchasing, manufacturing, customer lists, vendor
lists, business forecasts, sales and merchandising, and marketing
plans or similar information.
Section 7.2 DISCLOSURES. Employee agrees that it shall, at no time
during or after termination of this Employment Agreement, directly
or indirectly make use of, disseminate, or in any way disclose
Confidential Information to any person, firm or business, except to
the extent necessary for performance of this employment Agreement.
Employee agrees that it shall disclose Confidential Information
only to Employer's other Employees who need to know such
information and who have previously agreed to be bound by the terms
and conditions of a substantially similar confidentiality provision
and shall be liable for damages for the intentional or negligent
disclosure of Confidential Information. Employee's obligations with
respect to any portion of Confidential Information shall terminate
only when Employee has documented to Employer that (a) such
information was lawfully in the public domain at the time it was
communicated to Employee by Employer; or (b) the communication was
in response to a valid order by a court of competent jurisdiction
or was necessary to establish the rights of Employer under this
Employment Agreement.
Article 8
<PAGE>
Noncompetition Agreement
Section 8.1. AGREEMENT NOT TO COMPETE. For one (1) year after
Employee's employment with Employer terminates, Employee agrees not
to directly or indirectly own, manage, control, or operate; serve
as an officer, director, partner, or Employee of; have any direct
or indirect financial interest in; or assist in any way; any person
or entity that competes with any business conducted by Employer or
any of Employer's affiliates or subsidiaries in any geographic
region in which Employer conducts business.
Section 8.2. COMPETITIVE BUSINESSES. For purposes of this Article
11, a competitive business shall be any person or entity which
operates as a securities broker dealer whose primarily business is
to provide its clients with the ability buy, sell, or trade
securities via the internet or world wide web, or via some similar
system, network, method, or service.
Section 8.3. OWNERSHIP OF PUBLIC CORPORATION NO VIOLATION.
Employee will not be considered to have violated this provision
merely because Employee owns no more than twenty percent (20%) of
the stock of any publicly held corporation.
Article 9
Notices
Any notice given under this Employment Agreement to either party
shall be made in writing. Notices shall be deemed given when
delivered by hand or when mailed by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the
party at the address set forth below.
Employee's address: 7385 Nautica Way
Lake Worth, FL 33467
Employer's address: 5883 Lake Worth Road,
Lake Worth, FL 33463
Each party may designate a different address for receiving notices
by giving written notice of the different address to the other
party. The written notice of the different address will be deemed
given when it is received by the other party.
Article 10
Binding Agreement
Section 10.1. EMPLOYER'S SUCCESSORS.
(a) The rights and obligations of Employer under this Employment
Agreement shall inure to the benefit of and shall be binding in
all respects upon the successors and assigns of Employer.
(b) Employer shall require any direct or indirect successor (by
purchase, merger, consolidation, or (otherwise) of all or
substantially all of Employer's stock, business and/or assets to
expressly agree to assume Employer's obligations under this
Employment Agreement and perform them in the same manner and to the
same extent as Employer would have been required to do if no
succession had occurred. The agreement must be in a form and
substance satisfactory to Employee.
(c) If Employer fails to obtain such an agreement before the
effective date of the succession, Employer's failure will be
considered a breach of this Employment Agreement, and Employee
shall be entitled to the greater of (i) one year's base salary in
effect on the effective date of such succession. However,
Employer's failure to obtain such agreement shall not affect-said
successor's obligations pursuant to paragraph 10.1(a) above.
Section 10.2. EMPLOYEE'S SUCCESSORS. This Employment Agreement
shall inure to the benefit and be enforceable by and upon
Employee's personal representatives, legatees, and heirs. If
Employee dies while amounts are still owed, such amounts shall be
paid to Employee's legatees or, if no such person or persons have
been designated, to Employee's estate.
<PAGE>
Article 11
Waivers
The waiver by either party of a breach of any provision of this
Employment Agreement shall not operate or be construed as a waiver
of any subsequent breach.
Article 12
Entire Agreement
Section 12.1. NO OTHER AGREEMENTS. This instrument contains the
entire agreement of the parties. The parties have not made any
agreements or representations, oral or otherwise, express or
implied, pertaining to the subject matter of this Employment
Agreement other than those specifically included in this employment
Agreement.
Section 12.2. PRIOR AGREEMENTS. This Employment Agreement
supersedes any prior agreements pertaining to or connected with or
arising in any manner out of the employment of Employee by
Employer. All such prior agreements are terminated and are of no
force or effect whatsoever.
Article 13
Amendment of Agreement
No change or modification of this Employment Agreement shall be
valid unless it is in writing and signed by the party against whom
the change or modification is sought to be enforced. No change or
modification by Employer shall be effective unless it is approved
by Employer's Board of Directors and signed by an officer
specifically authorized to sign such documents.
Article 14
Severability of Provisions
If any provision of this Employment Agreement is invalidated or
held unenforceable, the invalidity or unenforceability of that
provision or provisions shall be deemed modified or severed only to
the minimum extent necessary to make said provision(s) valid and
enforceable while maintaining the intent of said provision(s). No
such modification shall affect the validity or enforceability of
any other provision of this Employment Agreement.
Article 15
Assignment of Agreement
Employer shall not assign this Employment Agreement without
Employee's prior written consent, but failure to obtain such
consent shall not affect-said assignee's obligations pursuant to
paragraph 10.1(a) above, which consent shall not be unreasonably
withheld.
Article 16
Governing Law. Venue & Attorneys Fees
All questions regarding the validity and interpretation of this
Employment Agreement shall be governed by and construed and
enforced in all respects in accordance with the laws of the State
of Florida. Venue for any action arising in any manner out of the
Employee's employment, this Employment Agreement, or any of the
terms contained herein shall be the Federal and or State courts
located in Palm Beach County, Florida, regardless of where this
Employment Agreement is to be performed. In the event either party
engages legal counsel to enforce any provision contained in this
Employment Agreement, the prevailing party shall be entitled to all
reasonable attorneys fees, investigative expenses, costs, and court
costs, whether or not a suit is actually filed, but including all
levels of appeal.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement in duplicate on the date and year first above written.
EMPLOYEE:
<PAGE>
/s/ P. JASON LING
- ------------------
P. Jason Ling
EMPLOYER:
1st Internet Group, Inc.
By: /s/ WILLIAM H. CORLEY, JR.
- ----------------------
Name: William H. Corley, Jr.
Title: Chairman-CEO
SUBSIDIARIES OF 1st INTERNET GROUP, INC.
1st Internet Group, Inc. owns 100% of the outstanding common
stock of the following Florida corporations:
Discount Institutional Brokerage, Inc. was incorporated on June
14, 1995. On June 25, 1995, Discount Institutional Brokerage,
Inc. changed its name to Fidelity Discount Investments, Inc. On
August 4, 1995, Fidelity Discount Investments, Inc. changed its
name to the present name of 1st Discount Brokerage, Inc., under
which it operates.
1st Discount Insurance, Inc. was incorporated on January 3, 1996.
Corporate Accounting Group, Inc. was incorporated on January 22,
1991.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
1st Internet Group, Inc.
Lake Worth, Florida
We hereby consent to the use in the Registration Statement on
Form 10-SB of our report dated March 22, 1999, relating to the
consolidated financial statements of 1st Internet Group, Inc. and
Subsidiaries which is contained in the Registration Statement.
/s/ SWEENEY GATES & CO.
Fort Lauderdale, Florida
September 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1998 (AUDITED) AND FOR THE SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001086232
<NAME> 1ST INTERNET GROUP INC
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 212,679 1,034,942
<SECURITIES> 0 0
<RECEIVABLES> 250,281 655,889
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 397,960 1,607,486
<PP&E> 86,174 114,468
<DEPRECIATION> 45,600 48,122
<TOTAL-ASSETS> 504,042 1,796,840
<CURRENT-LIABILITIES> 266,343 448,060
<BONDS> 0 0
0 0
0 0
<COMMON> 48,800 58,780
<OTHER-SE> 185,768 1,290,000
<TOTAL-LIABILITY-AND-EQUITY> 504,042 1,796,840
<SALES> 0 0
<TOTAL-REVENUES> 1,245,198 2,268,804
<CGS> 0 0
<TOTAL-COSTS> 1,223,202 2,080,621
<OTHER-EXPENSES> 63 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 21,933 196,072
<INCOME-TAX> 0 73,000
<INCOME-CONTINUING> 21,933 123,072
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 21,933 123,072
<EPS-BASIC> .000 .00
<EPS-DILUTED> .000 .00
</TABLE>
1st INTERNET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Changes in Stockholders'
Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
1st Internet Group, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of
1st Internet Group, Inc. and Subsidiaries as of December 31,
1998, and the related consolidated statements of income, changes
in stockholders' equity, and cash flows for the years ended
December 31, 1998 and 1997. These consolidated financial
statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain a 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 statement presentation. We believe that our audits
provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of 1st Internet Group, Inc. and Subsidiaries
as of December 31, 1998, and the results of their operations and
cash flows for the years ended December 31, 1998 and 1997 in
conformity with generally accepted accounting principles.
/s/ SWEENEY, GATES & CO.
March 22, 1999
Fort Lauderdale, Florida
<PAGE>
1st INTERNET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 147,679 $ 919,511
Accounts receivable 250,281 655,889
Prepaid expenses and other assets - 32,086
------------ -----------
Total current assets 397,960 1,607,486
------------ -----------
Property and equipment, net of
accumulated depreciation of
$45,600 and $48,122, respectively 40,574 66,346
Restricted cash 65,000 115,431
Other assets 508 7,577
------------ -----------
$ 504,042 $ 1,796,840
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 22,500 $ 21,000
Current portion of long-term
debt due related party 11,869 -
Accounts payable and accrued
expenses 21,038 33,121
Commissions payable 210,936 320,939
Income tax payable - 73,000
------------ -----------
Total current liabilities 266,343 448,060
------------ -----------
Notes payable due related party,
less current portion 3,131 -
------------ -----------
Stockholders' Equity:
Common stock, $.01 par value;
100,000,000 shares authorized;
4,880,000 and 5,938,000 shares
issued and outstanding 48,800 58,780
Additional paid-in capital 262,168 1,265,188
Retained (deficit) earnings (51,400) 24,812
------------ -----------
259,568 1,348,780
Subscription receivable (25,000) -
------------ -----------
Total stockholders' equity 234,568 1,348,780
------------ -----------
$ 504,042 $ 1,796,840
============ ===========
The accompanying notes are an integral part of these financial
statements.
F-2
<PAGE>
1st INTERNET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31, Six months ended June 30,
----------------------- -----------------------
1998 1997 1999 1998
---------- ---------- ---------- ----------
(Unaudited)
Revenue:
Brokerage services $1,069,021 $ 634,259 $2,155,278 $ 245,866
Accounting services 151,565 194,170 107,494 94,968
Insurance services 24,612 33,799 6,032 6,712
---------- ---------- ---------- ----------
Total revenue 1,245,198 862,228 2,268,804 347,546
---------- ---------- ---------- ----------
Selling, general and
administrative expenses:
Brokerage 1,078,514 545,990 1,936,290 244,509
Accounting 127,890 187,340 99,458 78,712
Insurance 16,798 33,546 3,726 6,591
Administrative - - 41,147 -
---------- ---------- ---------- ----------
Total expenses 1,223,202 766,876 2,080,621 329,812
---------- ---------- ---------- ----------
Income before other income
and (expense) 21,996 95,352 188,183 17,734
---------- ---------- ---------- ----------
Other income (expense):
Interest income 9,073 3,166 9,667 75
Interest expense (4,665) (3,191) (1,778) (911)
Realized loss (4,471) (4,116) - (4,247)
---------- ---------- ---------- ----------
Total other income
(expense) (63) (4,141) 7,889 (5,083)
---------- ---------- ---------- ----------
Net income before income
taxes 21,933 91,211 196,072 12,651
Provision for income taxes - - 73,000 -
---------- ---------- ---------- ----------
Net income $ 21,933 $ 91,211 $ 123,072 $ 12,651
========== ========== ========== ==========
Pro forma information
(unaudited):
Pro forma net income
(unaudited) (Notes
3 and 8):
Historical net income $ 21,933 $ 91,211 $ 196,072 $ 12,651
Pro forma provision for
income taxes 6,400 34,000 74,000 3,700
---------- ---------- ---------- ----------
Pro forma net income $ 15,533 $ 57,211 $ 122,072 $ 8,951
========== ========== ========== ==========
Pro forma per share
data (unaudited)
(Note 3):
Net earnings per share
- basic and diluted $ 0.00 $ 0.01 $ 0.02 $ 0.00
========== ========== ========== ==========
Weighed average number
of common shares
outstanding - basic
and diluted 4,880,000 4,880,000 5,395,200 4,880,000
========== ========== ========== ==========
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE>
1st INTERNET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-In (Deficit) Subscription
Stock Amount Capital Earnings Receivable Total
--------- ------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 4,880,000 $48,800 $ 329,150 $(58,222) $(25,000) $ 294,728
Capital contributions - - 44,390 - - 44,390
Return of capital - - (23,754) - - (23,754)
Net income - - - 91,211 - 91,211
--------- ------- ---------- -------- -------- ----------
Balance, December 31, 1997 4,880,000 48,800 349,786 32,989 (25,000) 406,575
Return of capital - - (87,618) - - (87,618)
Dividends - - - (106,322) - (106,322)
Net income - - - 21,933 - 21,933
--------- ------- ---------- -------- -------- ----------
Balance, December 31, 1998 4,880,000 48,800 262,168 (51,400) (25,000) 234,568
Receipt of subscription
receivable - - - - 25,000 25,000
Sale of stock 998,000 9,980 988,020 - - 998,000
Contributions of capital - - 15,000 - - 15,000
Dividends - - - (46,860) - (46,860)
Net income - - - 123,072 - 123,072
--------- ------- ---------- -------- -------- ----------
Balance, June 30, 1999
(Unaudited) 5,878,000 $58,780 $1,265,188 $ 24,812 $ - $1,348,780
========= ======= ========== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-4
<PAGE>
1st INTERNET GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
----------------------- -----------------------
1998 1997 1999 1998
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 21,933 $ 91,213 $ 123,072 $ 12,651
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 10,823 13,389 5,551 5,073
Increase in receivables (226,284) (15,624) (405,608) (8,407)
Increase in deposits - (571) - -
Decrease in securities inventory 4,126 8,486 - -
(Increase) decrease in prepaid expenses 677 (677) (32,086) 3,953
Increase in restricted cash (50,000) - (50,431) -
(Increase) decrease in other assets 163 - (7,069) 346
Increase (decrease) in accounts payables
and accrued expenses (7,817) 29,387 12,082 (25,474)
Increase (decrease) in commissions payable 198,546 12,390 110,004 (12,390)
Increase in income taxes payable - - 73,000 -
---------- ---------- ---------- ----------
Net cash provided by (used in) operations (47,833) 137,993 (171,485) (24,248)
---------- ---------- ---------- ----------
Cash flows used for investing activities:
Disposal of property and equipment 30,058 - 20,600 -
Purchase of property and equipment - (59,761) (48,792) (1,220)
---------- ---------- ---------- ----------
Net cash provided by (used in) investing
activities 30,058 (59,761) (28,192) (1,220)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from debt 22,500 22,566 - -
Payment of debt (10,774) (71,386) (4,631) (4,208)
Sale of stock 100,000 - 998,000 -
Receipt of subscription receivable - - 25,000
Capital contributions - 44,390 - -
Return of capital (87,618) - - (129,548)
Dividends (106,322) (23,754) (46,860) -
---------- ---------- ---------- ----------
Net cash used by financing activities (82,214) (28,184) 971,509 (133,756)
---------- ---------- ---------- ----------
Net increase (decrease) in cash (99,989) 50,048 771,832 (159,224)
Cash and cash equivalents at beginning of year 247,668 197,620 147,679 247,668
---------- ---------- ---------- ----------
Cash and cash equivalents at end of year $ 147,679 $ 247,668 $ 919,511 $ 88,444
========== ========== ========== ==========
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 4,221 $ 3,136 $ 1,778 $ 911
========== ========== ========== ==========
Cash paid for income taxes $ - $ - $ - $ -
========== ========== ========== ==========
Supplemental disclosure of non-cash
investing and financing activities:
Contribution of loan to paid-in capital $ - $ - $ 15,000 $ -
========== ========== ========== ==========
Acquisition of subsidiaries through
issuance of common stock $ - $ - $ 234,568 $ -
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-5
<PAGE>
1st INTERNET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization - 1st Internet Group, Inc. (the "Company") was
formed on November 23, 1998, as a Florida corporation. The
Company was inactive until February 25, 1999, when it became
a holding company by acquiring all of the outstanding stock
of three operating companies: 1st Discount Brokerage, Inc.
("Brokerage"), 1st Discount Insurance, Inc. ("Insurance")
and Corporate Accounting Group, Inc. ("Accounting") on a
stock for stock basis. Since all of companies were under
common ownership, the acquisitions have been accounted for
in a manner similar to a pooling of interests (see Note 2).
All three subsidiaries are Florida corporations.
Brokerage is a broker dealer registered with the Securities
and Exchange Commission and the National Association of
Securities Dealers. Brokerage provides retail discount
securities brokerage and related investment/portfolio
management counseling services. Brokerage has a branch
office in Munich, Germany. Insurance provides annuity and
life insurance products to complement the needs of Brokerage
and non-Brokerage clients. Accounting is an accounting and
tax preparation company servicing the needs of Brokerage and
Insurance clients and others.
Unaudited interim financial statements - The accompanying
consolidated financial statements of the Company for the six
months ended June 30, 1999 and 1998 are unaudited, but, in
the opinion of management, reflect adjustments all of which
are of a normal recurring nature, necessary for the fair
presentation of such financial statements in accordance with
generally accepted accounting principles. The results of
operations for an interim period are not necessarily
indicative of results for a full year.
Basis of presentation and consolidation - The consolidated
financial statements include the accounts of all four
entities mentioned above. All material intercompany
accounts and transactions have been eliminated in
consolidation.
Cash equivalents - Cash equivalents are short term, liquid
investments with an original maturity of three months or
less and are carried at cost which approximates market
value.
Property and equipment - Property and equipment are recorded
at cost. Depreciation is computed using the straight-line
method and the declining balance method over the estimated
useful life of the related assets ranging from five to seven
years.
Restricted cash - Restricted cash consists of funds on
deposit with U. S. Clearing, Inc. and J. W. Genesis, Inc.,
pursuant to Brokerage's clearing agreements.
Security transactions - Security transactions (and related
commission revenue and expense) are recorded on a settlement
date basis, generally the third business day following the
transactions.
Advertising costs - Advertising expense is charged to
operations as incurred. Advertising expense was $29,395 for
the year ended December 31, 1998 and $5,689 for the six months
ended June 30, 1999.
F-6
<PAGE>
1st INTERNET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Income taxes - Brokerage, Insurance and Accounting with the
consent of its stockholders, separately elected to be an "S"
Corporation under the Internal Revenue Code during 1998 and
1997. Brokerage terminated its S corporation election on
December 1, 1998. All taxable income or loss flows through
to the stockholders of each company. Accordingly, no income
tax expense or liability is recorded in the accompanying
financial statements for 1998 and 1997.
During 1999, the Company provides for income taxes under the
provisions of Statement of Financial Accounting Standard,
No. 109, "Accounting for Income Taxes" ("SFAS 109"), which
requires the asset and liability method of accounting for
income taxes in which 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. Deferred tax assets and liabilities
are measured using the enacted tax rates expected to apply
to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Earnings per share - The Company has adopted the Financial
Accounting Standards Board No. 128, "Earnings Per Share"
("SFAS No. 128"), for computing and presenting earnings per
share. Since the Group has no potentially dilutive shares
outstanding, earnings per share for both basic and diluted
earnings per share are the same.
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
disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Impairment of long-lived assets - The Company evaluates the
recoverability of its property and equipment, and other
assets in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets to be Disposed of" (SFAS 121"). SFAS 121
requires recognition of impairment of long-lived assets in
the event the net book value of such assets exceeds the
estimated future undiscounted cash flows attributable to
such assets or the business to which such intangible assets
relate. No impairments were required to be recognized
during the years ended December 31, 1998 and 1997 and the
six months ended June 30, 1999.
Segment reporting - In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). This
statement requires companies to report information about
operating segments in interim and annual financial
statements. It also requires segment disclosures about
products and services, geographic areas and major customers.
The Company has determined that it did not have any
separately reportable operating segments as of the years
ended December 31, 1998 and 1997 and the six months ended
June 30, 1999. See Note 7 for information on geographic and
major customer information.
F-7
<PAGE>
1st INTERNET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Comprehensive income - In June 1997, FASB issued Statement
of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for reporting and displaying of comprehensive
income and its components in a full set of general-purpose
financial statements. SFAS 130 is effective for financial
statements for fiscal years beginning after December 15,
1997. Its adoption did not impact the Company's financial
position, results of operations, or cash flows as the
Company had no items of other comprehensive income during
the years ended December 31, 1998 and 1997, or the six
months ended June 30, 1999.
Recent accounting pronouncements - In June 1998, FASB issued
Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 establishes accounting
and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for
hedging activities. SFAS 133 amended by SFAS 137, is
effective for all fiscal quarters and all fiscal years
beginning after June 15, 2000, with earlier application
encouraged. The Company does not currently use derivative
instruments and, therefore, does not expect that the
adoption of SFAS 133 will have any impact on its financial
position or results of operation.
In March 1998, the Accounting Standards Executive Committee
of the American Institute of Certified Public Accountants
("AICPA"), issued Statement of Position No. 98-1,
"Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP No. 98-1"), which provides
guidance regarding when software developed or obtained for
internal use should be capitalized. SOP 98-1 is effective
for fiscal years beginning after December 15, 1998. The
adoption of SOP No. 98-1 for the six months ended June 30,
1999, did not have a material impact on the Company's
financial position or results of operations.
In April 1998, the Accounting Standards Executive Committee
of the AICPA issued Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5
requires that start-up costs, including organizational costs
be expensed as incurred. The Company accepted early
adoption of SOP 98-5 and has expensed all start-up costs.
2. ACQUISITIONS
On February 25, 1999, the Company became a holding company
by acquiring all of the outstanding stock of three operating
companies, Brokerage, Accounting and Insurance, in a stock
for stock exchange wherein the Company issued 4,880,000 of
its common shares. All companies involved were under common
control, and the majority stockholder of the Company was the
majority stockholder of Brokerage, Accounting and Insurance.
Therefore, the acquisitions have been treated as purchases
and accounted for in a manner similar to a pooling of
interests and all periods presented have been restated to
reflect the accounting treatment.
F-8
<PAGE>
1st INTERNET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
3. PRO FORMA INFORMATION
Pro forma income tax
The objective of the unaudited pro forma income statement
information is to show what the significant effects on the
historical financial information might have been had the
Company not been treated as an S corporation for income tax
purposes. The pro forma adjustments reflect provisions for
income taxes computed based upon statutory tax rates as if
the Company had been subject to federal and state taxation
during 1999, 1998 and 1997 (see Note 8).
Pro form earnings per share
The objective of the unaudited pro forma earnings per share
is to show earnings per share retroactively on the
historical income statements as if the Company had been a C
corporation throughout all periods presented.
4. RECEIVABLES FROM CLEARING FIRM AND OTHERS
The following represents receivables due to Brokerage by US.
Clearing, Inc. and J. W. Genesis and the receivables payable
to Accounting by its clients:
December 31, June 30,
1998 1999
------------ ----------
Commissions due Brokerage $ 243,867 $ 640,541
Receivables due Accounting 5,660 15,348
Other 754 -
------------ ----------
TOTAL $ 250,281 $ 655,889
============ ==========
F-9
<PAGE>
1st INTERNET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
5. PROPERTY AND EQUIPMENT
Furniture and equipment consisted of the following:
December 31, June 30,
1998 1999
------------ ----------
Vehicle $ 20,600 $ -
Computer equipment 29,983 54,701
Equipment 8,907 20,493
Furniture and fixtures 26,684 38,364
Leasehold improvements - 910
------------ ----------
86,174 114,468
Less accumulated depreciation (45,600) (48,122)
------------ ----------
$ 40,574 $ 66,346
============ ==========
Depreciation expense was $10,823 and $13,389 for the years
ended December 31, 1998 and 1997, respectively, and $5,551
and $5,073 for the six months ended June 30, 1999 and 1998,
respectively.
6. DEBT
At December 31, 1998 and June 30, 1999, Accounting owed
$22,500 and $21,000, respectively on a variable rate
revolving line of credit to a bank. The revolving line of
credit is due on demand, bears interest at 1.75% over the
bank's announced prime rate, and is guaranteed by the
Company's Chairman and CEO and the President of Accounting,
individually.
Long-term debt due the President of Accounting at December
31, 1998 is summarized as follows:
Notes payable, interest at 12%,
due March 2000 $ 15,000
--------------
15,000
Less current portion (11,869)
--------------
$ 3,131
==============
As part of the acquisition of Accounting by the Company in
February 1999, the President of Accounting contributed this
loan to capital.
Interest expense for the years ended December 31, 1998 and
1997 totaled $4,665 and $3,191, respectively, and $1,778 and
$911 for the six months ended June 30, 1999 and 1998,
respectively.
F-10
<PAGE>
1st INTERNET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
7. STOCKHOLDERS' EQUITY TRANSACTIONS
During 1998, the Company sold 640,000 shares of common stock
to a commissioned salesman for $125,000. $25,000 of this
amount was not paid as of December 31, 1998, and was
reflected as a subscription receivable. The $25,000 was
paid during the period ended June 30, 1999.
During 1998, two companies distributed capital that was
charged to additional paid-in capital, offsetting capital
contributed by the stockholders in prior years. The amounts
were Brokerage - $65,000 and Accounting - $22,618.
Additionally, during 1999 and 1998, $51,368 and $106,322,
respectively, were paid in dividends.
As of June 30, 1999, the Company had completed the sale of
998,000 shares of common stock in a private placement at a
price of $1.00 per share.
8. INCOME TAXES
Commencing December 1, 1998, Brokerage elected to be taxed
as a C corporation. The taxes for the one-month
period were immaterial. Simultaneously, with the
acquisition of Accounting and Insurance by the Company on
February 25, 1999, Accounting and Insurance elected to be
taxed as C corporations. Therefore, the tax provision
provided for the six months ended June 30, 1999, includes
the Company and Brokerage from January 1, 1999, and
Accounting and Insurance from March 1, 1999, on a
consolidated basis. The taxes payable by the S corporation
stockholders for Accounting and Insurance is considered
immaterial.
The provision for income taxes consisted of the following:
December 31, June 30,
1998 1997 1999 1998
-------- -------- -------- --------
Current:
Federal $ - $ - $ 66,000 $ -
State - - 7,000 -
-------- -------- -------- --------
Provision for
income taxes $ - $ - $ 73,000 $ -
======== ======== ======== ========
F-11
<PAGE>
1st INTERNET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
8. INCOME TAXES (continued)
A reconciliation of the statutory federal income tax rate of
the Company's effective tax rate is as follows:
December 31, June 30,
1998 1997 1999 1998
-------- -------- -------- --------
Statutory federal
income
tax rate 0.0% 0.0% 34.0% 0.0%
State income taxes,
net of federal
benefits 0.0% 0.0% 3.6% 0.0%
-------- -------- -------- --------
Effective tax rate 0.0% 0.0% 37.6% 0.0%
======== ======== ======== ========
Deferred taxes for the above periods were immaterial.
The unaudited pro forma income tax calculation for the two
years ended December 31, 1998 and 1997, and for the six
months ended June 30, 1998, is prepared as if the Company
did not elect to be taxed as an S corporation and instead
was taxed as a C corporation for tax purposes. The
unaudited pro forma income tax calculation presented for the
six months ended June 30, 1999, includes Accounting and
Insurance as if they elected not to be taxed as an S
corporation commencing January 1, 1999, and instead were
taxed as C corporations on a consolidated basis with the
Company.
The pro forma provisions for income taxes consisted of the
following:
December 31, June 30,
1998 1997 1999 1998
-------- -------- -------- --------
Current:
Federal $ 5,500 $ 31,000 $ 67,000 $ 3,200
State 900 3,000 7,000 500
-------- -------- -------- --------
Provision for
income taxes $ 6,400 $ 34,000 $ 74,000 $ 3,700
======== ======== ======== ========
F-12
<PAGE>
1st INTERNET GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
8. INCOME TAXES (continued)
A reconciliation of the pro forma statutory federal income
tax rate to the Company's effective tax rate is as follows:
December 31, June 30,
1998 1997 1999 1998
-------- -------- -------- --------
Statutory federal
income
tax rate 25.0% 34.0% 34.0% 25.0%
State income taxes,
net of federal
benefits 4.0% 3.6% 3.6% 4.0%
-------- -------- -------- --------
Effective tax rate 29.0% 37.6% 37.6% 29.0%
======== ======== ======== ========
Deferred taxes for the pro forma periods were immaterial.
9. BROKER-DEALER REGULATIONS
Pursuant to the net capital provisions of rule 15c3-1 of the
Securities Exchange Act of 1934, Brokerage is required to
maintain a minimum net capital, as defined under such
provisions. At December 31, 1998 and June 30, 1999,
Brokerage maintained net capital that complied with the
minimum net capital provisions of the rule.
10. OFF BALANCE SHEET RISK AND CONCENTRATION OF BUSINESS
In the normal course of business, Brokerage executes
securities transactions. These activities expose Brokerage
to off-balance sheet risk in the event that customers or
other parties fail to satisfy their obligations.
Securities transactions are recorded on the settlement date,
generally three business days after the trade date. Should
a customer or broker fail to deliver cash or securities as
agreed, Brokerage may be required to purchase or sell
securities at unfavorable market prices.
During the twelve months ended December 31, 1998 and six
months ended June 30, 1999, three institutional German
clients accounted for 40% and 82% of Brokerage's gross
revenue, respectively. One commissioned salesman, who is a
stockholder of the Company, services the clients.
F-13
