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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB/A/2
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
POLITICS.COM, INC.
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(Exact Name of Small Business Issuer in Its Charter)
DELAWARE 33-0836078
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
2530 S. RURAL ROAD, TEMPE, AZ 85282
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(Address of Principal Executive Offices) (Zip Code)
(480) 858-0016
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(Registrant's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
To be So Registered Each Class is to be Registered
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Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.00001
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(Title of Class)
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(Title of Class)
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INTRODUCTORY NOTE
Politics.com, Inc., a Delaware corporation, has prepared and filed this
Form 10-SB on a voluntary basis to make available reportable information about
the company to existing shareholders and others interested in the activities of
the company.
As used in this Registration Statement, the terms "we," "us," "our,"
and "Politics.com" mean Politics.com, Inc., a Delaware corporation and its
wholly-owned subsidiary, Politics.com, Inc., a Nevada corporation (unless the
context indicates a different meaning).
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY
Politics.com, Inc., a Delaware corporation, was formed in January 1997
under the name Lone Oak, Inc. Lone Oak, Inc. is the successor-by-merger of B&E
Securities Management, Inc., a Maryland corporation incorporated in January
1969. B&E Securities Management, Inc. was inactive from around 1971 until its
merger with and into Lone Oak, Inc. in February 1997. Lone Oak, Inc. had no
significant operations since its inception until July 1999. In April 1999, Lone
Oak, Inc. sold its wholly-owned subsidiary, D&E Flight Simulators, Inc. for
$5,000. On July 27, 1999, Lone Oak, Inc. acquired all of the issued and
outstanding shares of common stock of Politics.com, Inc., a Nevada corporation
("Politics.com-Nevada") (following which Lone Oak, Inc. changed its name to
Politics.com, Inc.). Politics.com's business consists solely of the business
conducted by its wholly-owned subsidiary, Politics.com-Nevada.
Since our acquisition of Politics.com-Nevada, our business operations
have commenced and our Web site is operational. Specifically, we have:
- Engaged a web design firm to study our target market and build our Web
site based on the results of their study;
- Tested and launched our current web site;
- Conducted the first live town hall Internet-based webcast with a
presidential candidate, Bill Bradley;
- Conducted the first ever Internet-based Presidential Primary, where
users of our Web site were able to vote for presidential candidates;
- Acquired "politicaljunkie.com", a Web site that provided access to a
wide variety of political information;
- Entered into content and distribution relationships with content
providers and web portals;
- Hired Marc Jacobson, a former senior vice president at Prodigy
Communications Corporation, as our President and Chief Operating
Officer and engaged additional staff to assist in the development of
our web site; and
- Formed advisory boards consisting of political figures who advise and
consult with us with respect to the content, features and
functionality of our Web site.
GENERAL
Through our wholly-owned subsidiary, Politics.com-Nevada, we are a
development stage Internet company that intends to be a global Internet media
company, offering a branded network of information, communication,
entertainment, community, and commerce services with a common theme of politics.
We expect to draw users to our Web site by providing a one-stop
destination which will enable users to identify, select and access resources,
services, content and information on the Web, all of which will be related to
politics. Our Web site is expected to offer news, information and entertainment
search and directory service, activism and participation communities, and a
retail store.
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The Web site is currently available to any internet user with a
generally available web browser. We are constantly updating and modifying our
Web site to provide our users with the most current and useful information and
services relating to politics that we believe is available on the Internet.
THE INTERNET INDUSTRY AND POLITICS
The Internet is evolving into a global medium, allowing millions of
individuals throughout the world to communicate, share information and engage in
commerce electronically. The World Wide Web (the "Web") is a graphical based,
interactive environment which facilitates the exchange of information and
entertainment among users worldwide. The use of the Internet and the Web is
continuing to grow as the number of users increases due to the increasing number
of personal computers installed in homes and offices, the declining prices of
personal computers, the improvements in network infrastructure, the availability
of faster and cheaper Internet access, and the increasing familiarity and
acceptance of the Internet by businesses and consumers. Web usage is also
expected to continue to grow rapidly due to unique characteristics that
differentiate it from traditional media, such as real-time access to interactive
content, real-time communication capabilities and the absence of geographic or
temporal limitations.
The Internet is in the early stages of changing the political landscape
and political life in the United States and throughout the world. Government
bodies, political parties, candidates, movements, lobbying organizations, and
individuals seeking to employ the Internet as a vehicle for accomplishing their
goals, are beginning to utilize the Internet to express their political opinions
and beliefs. For example, current Presidential candidate Bill Bradley used our
Web site to participate in the first live town hall Internet webcast. Mr.
Bradley was able to present his views and answer questions asked by our Web site
users.
The online political landscape, while rich and diverse, is currently
not well-organized, nor is it well served by systems for communication,
collaboration, and commerce. It is therefore not an environment ready for the
voting public. We believe that the online political environment needs a portal
company attuned to the unique nature of the political process. Our Web site will
provide the basic infrastructure for politics on the Internet.
PRODUCTS AND SERVICES
Our principal Web site will be focused solely on political interests
and activities. The principal Web site will likely consist of the following
underlying features and services: a news, information and entertainment channel
which will enable users to read, listen, see and interact with political
figures, newsmakers and experts; a search and directory service will provide a
robust and well-organized information directory which will enable users to find
and link to Web sites providing information covering political data and
information; activism and participation communities which will serve as a town
hall and will enable users to roam, meet, discuss, organize, fund-raise,
petition and vote on political matters; and a retail store which will sell
memorabilia, tapes, books, reports, travel, subscriptions, memberships and other
relevant items.
We currently hold various Internet domain names relating to our brand,
including "www.politics.com," "www.gop.com" and "www.elections.com," which we
acquired on June 30, 1999 from Howard R. Baer, Chairman of the Board of
Directors and our majority stockholder. In addition, on August 17, 1999, we
acquired "politicaljunkie.com" for $55,000. The PoliticalJunkie Web site was a
Web site that attracted a regular audience of journalists, political
professionals, and politically committed individuals by offering an efficient
source of access to political information. We have since incorporated the
PoliticalJunkie Web site into the directory area of our WWW.POLITICS.COM Web
site. The directory area currently has a extensive library of information and
Web links to other Web sites relating to political information, including
approximately 90 newspapers, approximately 100 political columnists, many
governor's offices, and information on a number of declared and undeclared Year
2000 presidential candidates.
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OUR MARKET OPPORTUNITY
We believe we are well-positioned to exploit the following key market
trends:
- Our research indicates that a majority of U.S. households are
accessing the Internet and are increasingly relying on the Internet
for information about politics;
- Advertisers are spending more money to advertise on the Internet as
Internet usage continues to expand;
- The Internet audience is constantly looking for new sources of
information, entertainment, and interaction; and
- Our review of Web sites which are currently focused on politics as
their primary subject reveal that they are generally poorly organized,
lacking content and market presence.
We believe the opportunities to create value from an audience focused
on politics are numerous. For example:
- Vendors of products and services may want to promote and sell to
well-defined demographic groups;
- Promoters of political causes and interests may want to focus their
efforts to those individuals most open to their arguments;
- Organizers of political initiatives and movements may want to rent
space in an active, well-populated political arena;
- Candidates are already raising money online;
- Activists and organizations will subscribe to premium political
information and will host services;
- Owners of traditional and Internet media will want to promote their
programming to a targeted audience and will also want access to
content, programming, and properties produced by the destination; and
- Sponsorship of "good causes" will help position organizations and
individuals.
OUR STRATEGIES
WE OWN THE POLITICS.COM DOMAIN NAME.
We believe that ownership of the Politics.com domain name provides us
with a strategic market advantage. We believe that branding and consumer loyalty
on the Internet are dependent upon our ability to differentiate our services and
to enhance our users' experience by continually offering innovative technology
and appealing features and effectively marketing these features to existing and
potential users of our Web site.
We expect to receive immediate and continuing name recognition because
our domain name communicates the nature of our brand, it provides an umbrella
for state, local, and international affiliations and it also yields traffic from
those users that routinely use the address bar of a browser to find sites of
interest. We believe that people type "politics" into their browser just to see
the response.
We expect to refine our brand identity with further market research and
testing. We will seek to make Politics.com the Web site to go to for information
relating to politics. We may also enhance our brand development through:
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- Network radio advertising;
- National print, outdoor and Web-based advertising;
- Finding strategic partners;
- Engaging in marketing and distribution arrangements;
- Special event sponsorships;
- Public and community relations programs; and
- Network television and national cable advertising.
OUR KEY OPERATIONAL STRATEGIES.
We have a number of key operational strategies which include the
expectation to do the following:
- In addition to our offices in New York, we expect to open an office in
Washington, D.C. to strategically position us for ready access to key
talent, business partners, and the marketplace;
- Build a strong management team with the experience and talent to grow
a major media company;
- Appoint advisory boards to lend their experience, reputation, and
influence;
- Use an experienced Web development company to design, build, and host
the Web site. Internally produce original content and events. Acquire
and license generally available technology, content and services such
as chat rooms, site search, link directory, and free email;
- Use experienced managing editors to organize and manage content and
services;
- Acquire attractive, synergistic Web properties to rapidly expand the
breadth and depth of the Web site, in order to enhance the value of
the site to potential advertisers;
- Focus on aggressive marketing of our brand in a variety of media,
including print, radio, and television. Seek strategic relationships
with traditional and local media to enhance reach and penetration; and
- Build a nationwide, direct sales force to address advertising,
electronic commerce, campaign spending, and corporate markets. Focus
primarily on high-population centers. Appoint distributors and
franchisees to cover other regions.
Although we believe our operational strategies are attainable, we
cannot guarantee that we will successfully implement any or all of our key
operational strategies.
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MARKETING AND ADVERTISING OF THE POLITICS.COM WEB SITE
Our marketing goal is to attract traffic to the Politics.com Web site
and to develop the Politics.com brand. We expect our marketing plan to include
the use of multiple advertising media, such as affiliate programs, radio,
television, print, outdoor and Web-based advertising.
We also intend to increase our Web site traffic by increasing the
number and visibility of entry points to the Politics.com Web site through
co-branding and other marketing arrangements with content providers and other
political-related Web sites.
In an effort to increase traffic, we expect to add content and other
features to our Web site which we expect will encourage users to spend more time
on our Web site. We also intend to regularly enhance our technological features
and services and update our content in order to encourage consumers to use our
Web site more frequently.
We cannot assure that we will be able to effectively promote the
Politics.com Web site.
SALES AND REVENUES
We expect to generate revenue primarily through the sale of
advertisements, promotions, sponsorships, merchandising, hosting services (the
sale or rental of computer or server capacity which is connected to the
Internet), direct marketing and electronic commerce. We expect to derive revenue
from our Web site as follows:
- Advertising by vendors, candidates, parties, and special interest
groups both on the Web site and in a free email service;
- Commerce fees from advertisers making sales from their ads;
- Placement fees from political organizations, services, and figures;
- Pay-per-view or registration fees for premium services and products
which will include, among other things, subscriptions to special
e-mail publications, video conferences, and CD Roms;
- Sponsorships and special promotions;
- Paid surveys and polls;
- Sales of related products such as tapes, books, memorabilia, and
gifts;
- Placement fees from affiliated state and local political sites;
- Classified ad services;
- Travel services;
- Hosting fees (i.e., fees for providing the ability to access a Web
site on the Internet) from political organizations, individuals, and
movements for permanent and temporary spaces, special forums,
fund-raisers, campaigns, and conventions;
- Sales of value-added services to hosted organizations such as travel
services, direct marketing/mail, and virtual offices;
- Registration fees for special forums; and
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- Sales of books, videos, magazine subscriptions, art, collectibles,
newsletters, Washington, D.C. tours, affinity credit cards, etc.
We also expect to generate revenue from (i) co-branders who will
provide and use Politics.com's content and services in exchange for access fees;
(ii) distributors who will deliver Politics.com's services to their markets;
(iii) franchisees who will buy rights to local markets; (iv) media partners who
will co-distribute programming; (v) sponsors who will provide funding for some
events and properties; (vi) syndicators who will buy programming; and (vii)
vendors who will use our online store.
We expect that approximately 90% of our revenue will be generated by
advertising and sponsorship fees from organizations using our Web site to
communicate with their target markets and constituencies. Approximately 10% of
our revenues will result from service fees, e-commerce and other forms of
revenue described above.
Although we expect to derive revenue and generate sales from a variety
of sources, there can be no assurance that we will be able to generate revenue
or sales from any of the foregoing, or that the amount of revenue generated will
be sufficient to sustain our business as a going-concern.
COMPETITORS AND COMPETITIVE FACTORS AFFECTING OUR BUSINESS
The market for Internet products, services and advertising and commerce
is intensely competitive, and we expect that competition will continue to
intensify. We believe that the principal competitive factors in these markets
are name recognition, distribution arrangements, functionality, performance,
ease of use, the number of value-added services and features, and quality of
support. Our primary competitors are other companies providing portal and online
community services such as Yahoo, Lycos, and AOL. We do not believe, however,
that any of these competitors provide the same scope of services such as those
we intend to offer. In the event that any of these companies offer services
similar to ours, we could lose a substantial portion of our user traffic and
could suffer adverse consequences because our competitors, among other things,
may be more diversified, have greater resources and greater name recognition
than us. Although we believe that our commitment to providing quality and
consistent services and products will enable us to compete effectively with our
competitors, our failure to keep pace with rapidly changing technology could
have a material adverse effect on our operations and financial condition.
ACQUIRING AND DEVELOPING CONTENT AND FEATURES FOR THE POLITICS.COM COMMUNITY
We intend to develop partnerships with a wide variety of media sources,
strategic partners and content providers. We do not expect many of these
partnerships will involve the exchange of funds between us and these
organizations. Instead we expect to engage in barter transactions where we will
offer our services and the opportunity to advertise on our Web site as
consideration to these potential partners. Developing these relationships will
allow us to increase our Web site content which should enable us to attract and
retain Internet users of our Web site and to solidify our position as an
easy-to-use interface for political information. We also plan to license
technology and information from third parties where appropriate in order to
increase the content of our Web site. We cannot assure, however, that we will be
able to develop these relationships or obtain the funds necessary to enter into
any licensing agreements with third parties. Our failure to develop these
relationships or enter into license agreements for technology could have a
material adverse effect on our business and results of operations.
OUR CONTENT
We intend to maintain a non-partisan Web site which contains balanced
content and presents all credible points of view. Content will generally be
provided by third parties, including individual users. If we create original
content, we will indicate to the user that we were the author of the content. If
the content is someone else's opinion, we will clearly designate the material as
the opinion of that author and not as the views of Politics.com. Our employees
who are responsible for the content of our Web site are trained to be as
objective as possible in the selection of third party content, so that the site
remains non-partisan. We intend to be balanced in our presentation of different
points of view and will allow any point of view to be posted in the communities
area of our Web site, provided that the expression of such points of view does
not violate applicable laws. We believe, however, that
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many diverse groups will use the communities area of our Web site to maintain
and provide information that might not otherwise be generally found on the World
Wide Web.
PROPRIETARY RIGHTS
We believe our ability to compete effectively depends to a significant
extent on our ability to protect our proprietary information. We will rely
primarily upon confidentiality procedures, trade secrets and trademark and trade
name laws to protect our intellectual property rights.
We plan to enter into confidentiality agreements with our key employees
and our marketing partners, and will generally control access to our technology,
software and other proprietary information. Despite these precautions, however,
it may be possible for competitors or customers to copy all or part of our
technology or to obtain information which we regard as proprietary. Furthermore,
we cannot assure you that others will not independently develop technology
similar to ours. Misappropriation of our technology or development by our
competitors of technologies that are substantially equivalent or superior to our
technology would have a material adverse effect on our operations and financial
condition.
We are also subject to the risk of infringing the intellectual property
rights of others. Although we believe that our technology does not infringe on
the proprietary rights of others, and we have not received any written notice of
claimed infringements, because of the rapid technological development of the
Internet industry, certain of our technologies may infringe on existing
proprietary rights of third parties. If any such infringements exist or occur,
we cannot assure you that we will be able to obtain licenses or rights necessary
to avoid continued infringement on terms that would be satisfactory to us, if at
all. A failure to obtain such licenses or rights could have a material adverse
effect on our business, results of operations and financial condition. Further,
in such event, we may be required to modify the infringing technology. There can
be no assurance that we would be able to do so in a timely manner, upon
acceptable terms and conditions, or at all, and the failure to do so could have
a material adverse effect on our business, results of operations and financial
condition.
In addition, we may have to litigate to enforce our intellectual
property rights, to determine the validity and scope of the proprietary rights
of others or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and a diversion of our resources,
and could have a material adverse effect on our business, results of operations
and financial condition.
GOVERNMENT REGULATION
REGULATION OF THE INTERNET
At the present time the amount of state and federal governmental
regulation applicable to the Internet is relatively small when compared to other
areas of communication and commerce. As the size, use and popularity of the
Internet increases, it is possible that laws and regulations may be enacted with
respect to the Internet, covering issues such as user privacy, pricing,
taxation, content, copyrights, distribution, antitrust and quality of products
and services. Additionally, the rapid growth of electronic commerce may trigger
the development of tougher consumer protection laws. The adoption of such laws
or regulations could reduce the rate of growth of the Internet and could make it
more difficult and expensive for us to carry on our planned business activities.
Due to the increasing use of the Internet and the burden it has placed
on the current telecommunications infrastructure, telephone carriers have
requested the Federal Communications Commission ("FCC") to regulate Internet
service providers and online service providers and impose access fees on those
providers. If the FCC imposes access fees, the costs of using the Internet could
increase dramatically. These regulations, if promulgated, could result in the
reduced use of the Internet as a medium for commerce, which could have a
material adverse effect on our business, financial condition and results of
operations.
REGULATION CONCERNING PRIVACY
Specific laws and regulations concerning the use of the Internet have
been enacted. In particular, as directed by Congress in the Children's Online
Privacy Protection Act, also known as COPPA, the Federal Trade
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Commission recently adopted regulations, effective April 21, 2000, prohibiting
unfair and deceptive acts and practices in connection with the collection and
use of personal information obtained from children under 13 years old on the
Internet. Because our Web site is not directed at children and we do not
anticipate its widespread use by children, COPPA and the FTC's regulations
should not have a significant effect upon our business. While we expect to
have a privacy policy designed to enhance the protection of the privacy of our
users, there can be no assurance that these programs will conform with any
regulations which have been adopted by the FTC. Nevertheless, the FTC has
strongly advocated that general audience Web sites establish privacy policies
that include procedures to disclose and notify users of privacy and security
policies, obtain consent from users for collection and use of information, and
provide users with the ability to access, correct and delete personal
information stored by the company. While we expect to adopt a privacy policy
regarding use of personal user information and expect to post this policy on our
Web site, there can be no assurance that we will adopt policies that conform
with the regulations adopted or policies advocated by the FTC or any other
federal or state governmental entity.
It is also possible that cookies, or information keyed to a specific
server, file pathway or directory location that is stored on a user's hard
drive, which are used to track demographic information and to target
advertising, may become subject to laws limiting or prohibiting their use.
Limitations on or elimination of our use of cookies could limit the
effectiveness of our ability to market to certain users, which could have a
material adverse effect on our business, results of operations and financial
condition.
The European Union has adopted a directive that imposes restrictions on
the collection and use of personal data. Under the directive, EU citizens are
guaranteed rights to access their data, rights to know where the data
originated, rights to have inaccurate data rectified, rights to recourse in the
event of unlawful processing and rights to withhold permission to use their data
for direct marketing. The directive could, among other things, adversely affect
U.S. companies that collect information over the Internet from individuals in EU
member countries, and may impose restrictions that are more stringent than
current Internet privacy standards in the United States. Politics.com may
ultimately engage in data collection from users in EU member countries. If we
do, we would be subject to the EU directive.
We intend to take the necessary measures to ensure that our Web site
complies with industry standards relating to user privacy.
EMPLOYEES
As of December 15, 1999, we had eight employees, of which five were
full-time and three were part-time.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion of our plan of operation for the next 12
months should be read in conjunction with our financial statements, any notes
related thereto, and the other financial data included elsewhere in this
Registration Statement. This discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
factors discussed in this Registration Statement.
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OVERVIEW
Politics.com, Inc., a Delaware corporation, was incorporated on January
17, 1997, as Lone Oak, Inc. Lone Oak, Inc. is the successor-by-merger of B&E
Securities Management, Inc., a Maryland corporation which was inactive from
around 1971 until its merger with and into Lone Oak, Inc. in February 1997. Lone
Oak, Inc. had no significant operations since its inception until July 1999. In
April 1999, Lone Oak, Inc. sold its wholly-owned subsidiary, D&E Flight
Simulators, Inc. for $5,000. In July 1999, Lone Oak, Inc. acquired all of the
issued and outstanding common stock of Politics.com-Nevada, in exchange for an
aggregate of 7,000,000 shares of common stock of Lone Oak, Inc. Following the
acquisition, the former stockholders of Politics.com-Nevada owned approximately
77.0% of the issued and outstanding common stock of Lone Oak, Inc. Accordingly,
the transaction has been accounted for as a reverse acquisition, with
Politics.com-Nevada being deemed the acquiror and Lone Oak, Inc. being deemed
the acquired company. On July 27, 1999, Lone Oak, Inc. changed its name to
Politics.com, Inc.
Since Lone Oak, Inc. had no significant operations prior to the
acquisition of Politics.com-Nevada, we believe that the operations of Lone Oak,
Inc. prior to the acquisition of Politics.com-Nevada are not material or
relevant to an analysis of Politics.com as it exists today. Accordingly, the
financial statements of Lone Oak, Inc., with respect to periods prior to the
acquisition, are not being presented.
PLAN OF OPERATION
From inception to June 30, 1999, we received approximately $145,000
from Howard R. Baer, our Chairman for the initial funding of
Politics.com-Nevada. In addition, at June 30, 1999, we issued a promissory note,
payable on demand, in the principal amount of $151,000, with an interest rate of
10% per annum to Howard R. Baer as consideration for the purchase of the
Internet domain names "elections.com," "gop.com" and "politics.com". From July
1, 1999 to December 15, 1999, we borrowed, in the aggregate, an additional
$592,000 from Howard R. Baer, Carriage House Capital LLC (an affiliate of Howard
R. Baer), Kevin C. Baer and Northeast Investments (an affiliate of Kevin C.
Baer). These borrowings are unsecured and bear interest at the rate of 6% per
annum. Of these advances, approximately $292,000 are evidenced by promissory
notes that are payable on demand.
Through October 31, 1999 (the termination date of our offering of up to
666,667 shares of common stock), we sold 141,000 shares of our common stock in a
private placement exempt from registration under Rule 506 of Regulation D of the
Securities Act of 1933, as amended. We raised approximately $423,000 in this
private placement.
Notwithstanding the funds we raised in the private placement, we are
currently experiencing a severe working capital deficiency and are incurring
significant losses. At this time, we are not generating any significant revenue,
but are incurring substantial costs and expenses in connection with our business
operations and the development of our Web site. We have an immediate need for
additional capital.
As of December 15, 1999, our cash balances were approximately $75,000,
and we had a working capital deficiency of approximately $1.4 million, which
includes indebtedness to related parties of approximately $745,000. We expect to
remedy the working capital deficit by raising additional capital in the form of
either debt or equity financings. We cannot assure you that we will raise
sufficient funds to remedy the working capital deficit or fund our operations.
If we are unable to raise sufficient capital to remedy the working capital
deficit and fund our continuing operations, there will be a material adverse
effect on our business and our ability to continue as a going concern.
As of December 15, 1999, we intend to make capital expenditures in the
amount of approximately $50,000 for office furniture and equipment and leasehold
improvements for our planned Washington, D.C. office. We also expect to spend
approximately $110,000 per year for each of the next three years for our office
space in New York, and approximately $110,000 for each of the next three years
for our planned office space in Washington, D.C. We anticipate that we will
expend approximately $$750,000 for Web site development costs over the next
twelve months. During the next twelve months we expect to hire a significant
number of new employees and to incur approximately $700,000 of salary, benefits
and other personnel expenses.
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Our auditor's report indicates that certain factors raise substantial
doubt about our ability to continue as a going concern. Our auditors issued a
going concern opinion because we:
- have generated no significant revenues;
- have a severe working capital deficiency;
- have a limited operating history; and
- can provide no assurance that we will be able to generate sufficient
funds for our operations for the next twelve months.
Based upon our current budget and business planning, we believe that we
will need approximately $4.5 million of additional funding to continue our
operations over the next twelve months and that we will need to raise or
generate such amount over the next three months to eliminate this going concern
opinion. Because we are a development stage company, however, we cannot assure
you that we will be able to generate internally or raise sufficient funds to
continue our operations, or that our accountant's will not issue another going
concern opinion. To date, we have generated no significant revenue and have
incurred substantial losses. Further, through the termination date (October 31,
1999) of our planned offering of 666,667 shares of common stock, we sold 141,000
shares of common stock, for gross proceeds of $423,000. We have since used this
capital in our operations. Our failure to raise sufficient additional funds,
either through additional financing or continuing operations, will have a
material adverse effect on our business and financial condition.
YEAR 2000 COMPLIANCE
We will depend on the delivery of information over the Internet, a
medium which is susceptible to the Year 2000 problem. The Year 2000 problem is a
result of limitations of certain software written using two digits rather than
four to define the applicable year. If software with date-sensitive functions is
not Year 2000 compliant, it may recognize a date using "00" as the Year 1900
rather than the Year 2000. The Year 2000 problem could result in a system
failure or miscalculations causing significant disruption of our operation,
including, among other things, interruptions in Internet traffic, accessibility
of our Web site, delivery of our service, transaction processing or searching
and other features of our services. It is possible that this disruption will
continue for an extended period of time.
We will depend on information contained primarily in electronic format
in databases and computer systems maintained by us and by third parties. The
disruption of third-party systems or our systems interacting with these third
party systems could prevent us from delivering search results or other services
in a timely manner which could materially and adversely affect our business and
results of operations.
We believe that our computerized systems, which we recently purchased,
are Year 2000 compliant. We do not anticipate that we will perform any
additional testing on our computerized systems. If our computerized systems are
not in fact Year 2000 compliant, our failure to make our systems Year 2000
compliant in a timely manner will have a material adverse effect on our
business, results of operations and financial condition.
Although we believe that we will be Year 2000 compliant, we will use
third party vendors whose equipment and software may not be Year 2000 compliant.
The failure of such third parties to make their systems Year 2000 compliant will
have a material adverse effect on the our business, results of operation and
financial condition. We have not yet determined the extent to which the computer
systems of such third parties are Year 2000 compliant, if at all. The failure of
such third parties to make their systems Year 2000 compliant in a timely manner
will have a material adverse effect on our company.
We have not developed a Year 2000-specific contingency plan. If Year
2000 compliance issues are discovered, we will then evaluate the need for
contingency plans relating to such issues. We intend to actively work with our
vendors and service providers to minimize the risks of business disruptions
resulting from Year 2000 issues and to develop contingency plans where
necessary. Such plans may include using alternative suppliers and service
providers. We expect to have such plans in place by December 1999.
The most reasonably likely worst case scenario related to Year 2000
issues would involve a major shutdown of the Internet or there may be serious
disruptions in shipping products purchased through our retail store.
11
<PAGE>
In addition, if our users are not Year 2000 compliant, then may not be able to
access our Web site without serious disruptions. Each of the foregoing would
result in a severe loss of revenue to us until the problem was resolved.
ITEM 3. DESCRIPTION OF PROPERTY.
We currently lease approximately 3,000 square feet of office space in
New York, New York for approximately $9,000 per month, pursuant to a three year
lease. When we took possession of our new office space in New York, New York, we
terminated our tenancy in Arizona.
We are currently negotiating to lease approximately 3,800 square feet
of office space in Washington, D.C. for approximately $8,000 per month, pursuant
to a five year lease.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 15, 1999, by (i) each person or
group known by us to own beneficially more than 5% of the outstanding common
stock; (ii) each of our directors and named executive officers; and (iii) all of
our directors and executive officers as a group. The term "beneficial
ownership," as defined by applicable federal securities laws, includes shares
that may be acquired within 60 days upon the exercise of options, warrants and
other rights. This information is based upon information that has been received
from and on behalf of the named individuals. Unless otherwise noted below, the
persons named in the table have sole voting and sole investment powers with
respect to each of the shares reported as beneficially owned by such person:
<TABLE>
<CAPTION>
SHARES OF
NAME COMMON STOCK
- ---- BENEFICIALLY OWNED PERCENT OF CLASS
------------------ ----------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Marc Jacobson(1).............................................. 315,000 3.3%
Howard R. Baer................................................ 5,250,000 56.9%
Kevin C. Baer................................................. 1,750,000 19.0%
Brian Wadsworth(2)............................................ 330,000 3.5%
Burt Alimansky(3)............................................. 515,000 5.4%
All directors and executive officers as a group (5 persons)... 8,160,000 80.2%
5% STOCKHOLDERS
Arlene West (4)
c/o Burt Alimansky
605 Madison Ave., Suite 300
New York, New York 10222...................................... 515,000 5.4%
</TABLE>
- ---------------
(1) Represents options to purchase 315,000 shares of our common stock that are
exercisable within 60 days from December 15, 1999.
(2) Represents options to purchase 330,000 shares of our common stock that are
exercisable within 60 days from December 15, 1999.
(3) Includes 215,000 shares are held of record by Arlene West, Mr. Alimansky's
spouse, and options to purchase 300,000 shares of common stock that are
exercisable within 60 days from December 15, 1999. Mr. Alimansky disclaims
beneficial ownership of such shares held by Ms. West.
(4) Includes options to purchase 300,000 shares of common stock that are
exercisable within 60 days from December 15, 1999 which are held by Burt
Alimansky, her spouse. Ms. West disclaims beneficial ownership of all
options held by Mr. Alimansky.
12
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table sets forth the name, age and positions of our
directors, executive officers and key employees. Each of our directors is
serving as a director until the next annual meeting of stockholders and until
his successor is elected and qualified or until his earlier resignation or
removal. Each of our executive officers have been chosen for a term which
continues until the meeting of the Board of Directors which follows the next
annual meeting of stockholders and until his successor shall have been chosen
and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION DIRECTOR SINCE
- ---- --- -------- --------------
<S> <C> <C> <C>
Howard R. Baer............57 Chairman of the Board July 1999
Marc Jacobson.............47 President, Chief Operating Officer and Director September 1999
Burt Alimansky............56 Director September 1999
Kevin C. Baer.............31 Director, Vice President, Treasurer and Secretary July 1999
Brian Wadsworth...........50 Director July 1999
Kurt Ehrenberg............40 Managing Editor ---
</TABLE>
HOWARD R. BAER joined us in July 1999 as Chairman of the Board of
Directors. Mr. Baer was the founder of and has been Chairman of the Board of
Politics.com-Nevada since its inception in March 1999. Mr. Baer is the founder
of and has served as President of Carriage House Capital, L.L.C., a business and
financial services firm which provides consulting services to private and public
entities, since 1988. Mr. Baer is the father of Kevin C. Baer, one of our
directors and executive officers.
MARC JACOBSON joined us September 7, 1999 as President and Chief
Operating Officer and as a Director. From 1998 to 1999, Mr. Jacobson served as
senior vice president of corporate development and public policy at Prodigy
Communications Corporation, a leading Internet Service Provider. During the
period 1995 through 1999, Mr. Jacobson served in various capacities for Prodigy
including chief financial officer, general counsel and corporate secretary.
Prior to his employment with Prodigy, Mr. Jacobson served as an entertainment
attorney. He is the founding chairman of the New York State Bar Association's
Section on Entertainment, Arts and Sports Law. Mr. Jacobson is the chairman of
the advisory board for the Internet Alliance, a Washington-based trade
association, and also serves as an advisory board member for the New York
Infotech Forum.
BURT ALIMANSKY joined us as a director in September 1999. Since 1981,
Mr. Alimansky has served as managing director of Alimansky Capital Group Inc., a
New York City-based private financial advisory firm serving emerging-growth and
middle-market companies. Alimansky Capital Group, founded by Mr. Alimansky in
1981, advises privately-held companies on venture capital, private equity and
debt financings for buyouts, expansion, strategic buy-ins, restructurings, and
growth. In 1984, Mr. Alimansky founded and became chairman of New York Business
Forums Inc., an entity which holds monthly programs intended to stimulate
interaction among private equity investors, bankers, entrepreneurs, attorneys,
accountants and senior executives of major corporations. He has served as
director of several companies and investment firms and was a member of the board
of directors of the Alumni Association of Harvard Business School. Mr. Alimansky
currently serves as a national board member of the National Foundation for
Teaching Entrepreneurship and serves as chairman of the City of New York's
annual venture capital conference.
KEVIN C. BAER joined us in July 1999 as Vice President, Treasurer and
Secretary and as a director. Mr. Baer has been Vice President, Treasurer and
Secretary and a director of Politics.com-Nevada since its inception in March
1999. Mr. Baer has been an Executive Vice President of Carriage House Capital,
L.L.C., a business and financial services firm which provides consulting
services to private and public entities, since October 1992. Mr. Baer is the son
of Howard R. Baer, our Chairman and majority stockholder.
BRIAN WADSWORTH, now a consultant for us, joined us in July 1999 as a
director and has served as a director of Politics.com-Nevada since March 1999.
Mr. Wadsworth served as our interim President from July 1999 to September 7,
1999 and also served as interim President of Politics.com-Nevada from March 1999
to September 7,
13
<PAGE>
1999. Mr. Wadsworth previously served as president of Noble Technologies, Inc.,
a provider of business consulting services for technology companies from 1995
through February 1999. From 1993 through 1995, Mr. Wadsworth served as the chief
operating officer of Computer Concepts Corp., a developer and marketer of
computer software. Mr. Wadsworth has over thirty years experience with
technology and technology businesses including service in general manager,
product management, and sales and marketing positions.
KURT EHRENBERG joined us in July 1999 as Managing Editor. Mr. Ehrenberg
has been Managing Editor of Politics.com-Nevada since its inception in May 1999.
Prior to joining Politics.com-Nevada, Mr. Ehrenberg owned and operated the
PoliticalJunkie.com Web site, a site that attracts a regular audience of
journalists, political professionals, and politically committed individuals by
offering an efficient source of access to political information. Prior to
PoliticalJunkie.com, Mr. Ehrenberg accumulated over 20 years experience of
political activity, including election campaigns, lobbying, and consulting.
ITEM 6. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation to be paid to Marc Jacobson, our President and Chief Operating
Officer, and Brian Wadsworth, our interim President from July 1999 to September
7, 1999, during fiscal 1999. No other current executive officer is expected to
receive total compensation in excess of $100,000 during fiscal 1999.
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- AWARDS
OTHER SECURITIES
NAME AND FISCAL ANNUAL ANNUAL UNDERLYING ALL OTHER
PRINCIPAL YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
POSITION ENDED ($) ($) ($) (#) ($)
- ------------------------ --------- ----------- --------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Marc Jacobson(1),.........12/31/99 200,000 -- -- 840,000 --
President and Chief 12/31/98 -- -- -- -- --
Operating Officer 12/31/97 -- -- -- -- --
Brian Wadsworth(2),.......12/31/99 126,000 -- -- 330,000 --
Former President 12/31/98 -- -- -- -- --
12/31/97 -- -- -- -- --
</TABLE>
- -------------
(1) Mr. Jacobson was appointed as our President on September 7, 1999. He
currently receives a salary of $16,667 per month. Mr. Jacobson is eligible
to receive a bonus in an amount up to 50% of his annual salary. We have
agreed to grant to Mr. Jacobson options to purchase up to 840,000 shares of
common stock at an exercise price of $2.00 per share, such options to
become exercisable as follows: 315,000 are exercisable immediately and the
remaining 525,000 options become exercisable in six equal semi-annual
installments commencing on June 30, 2000 and on each December 31 and June
30 thereafter. The term of Mr. Jacobson's employment is three years. Mr.
Jacobson is entitled to receive severance for a period of up to twelve
months in an aggregate amount equal to his annual salary if he is
terminated without cause.
(2) Mr. Wadsworth served as our interim President from July 1999 until
September 7, 1999. He received a salary of $10,500 per month. He is
currently serves as a consultant for us. He has also been granted options
to purchase up to 330,000 shares of common stock at an exercise price of
$3.00 per share, such options to become exercisable as follows: 146,000 are
exercisable immediately and the remaining 184,000 options become
exercisable in five equal monthly installments commencing August 15, 1999.
The following table sets forth certain information with respect to
option grants made to the executive officers named above pursuant to the
Politics.com, Inc. 1999 Combination Stock Option Plan. This table identifies
14
<PAGE>
those options grants that have been made (or agreed to be made) during 1999. No
options were granted prior to the current fiscal year.
OPTION GRANTS DURING 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS EXERCISE PRICE APPRECIATION FOR
OPTIONS GRANTED TO OR BASE OPTION TERM(1)
GRANTED EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- --- ----------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Marc Jacobson........840,000 70.0% 2.00 9/7/2009 $1,056,543 $2,677,488
Brian Wadsworth......330,000 27.5% 3.00 7/27/2009 $622,605 $1,577,805
</TABLE>
- --------------
(1) The assumed rates are compounded annually for the full term of the options.
STOCK OPTION PLAN
On July 27, 1999, we adopted the 1999 Combination Stock Option Plan
(the "Plan"). Under the Plan, both non-qualified and incentive stock options to
purchase shares of our common stock may be granted to key employees and other
persons who are in a position to contribute to our long-term success and growth.
The Board of Directors currently administers the Plan and has the authority to,
among other things, determine those persons who are eligible to participate;
determine the size of the grant; establish the terms and conditions of the
options granted; make or alter restrictions and conditions on the options; and
adopt rules and regulations and interpret the Plan. A total of 2,000,000 shares
have been reserved for issuance under the Plan. As of December 22, 1999, options
to purchase 1,809,200 shares of common stock were outstanding or committed for
issuance under this Plan.
COMPENSATION OF THE DIRECTORS
Our directors do not receive any compensation for acting as a director
of Politics.com.
ADVISORY COMMITTEES
We have established six advisory boards to advise us concerning our Web
site and matters related to our business. We are still in the process of filling
the seats created by these advisory boards. We expect that the seats for these
advisory boards will be filled by former or current political figures,
journalists, media political analysts, representatives from academia,
representatives from non-profit trade associations or "think tanks", and
politically oriented entertainers. Each advisory board member will be requested
to sign an agreement agreeing to provide company advice and guidance regarding
their views of our Web site, its progress and features. Each advisory board
member is expected to serve for a period of two years, subject to renewal or
earlier termination for non-performance. Each advisory board member is entitled
to receive options to purchase up to 10,000 shares, subject to a vesting
schedule, pursuant to the 1999 Advisory Council Stock Option Plan (the "Advisory
Plan"). As of December 15, 1999, options to purchase 20,000 shares have been
granted to advisory board members under the Advisory Plan. Current members of
the advisory councils include Gregory Simon, former Domestic Policy Advisor to
Al Gore, the current Vice President of the United States, Trevor Potter, former
Chairman and commissioner of the Federal Election Commission, and Hal Bruno, the
former political director at ABC News for over 20 years.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On June 30, 1999, Howard R. Baer, Chairman of the Board, the majority
stockholder and a promoter of Politics.com, sold the domain names for
"elections.com," "gop.com" and "politics.com" to Politics.com-Nevada, in
exchange for an unsecured promissory note, payable on demand, in the principal
amount of $151,000 with an interest rate of 10% per annum. The principle
followed in determining the consideration to be paid to Mr. Baer for
15
<PAGE>
the domain names was determined by our Board of Directors and was based upon the
approximate cost of the domain names to Mr. Baer. The Board of Directors
believes that the terms of this transaction were at least as favorable as those
that could have been negotiated with unaffiliated third parties.
From March 1999 through June 1999, Howard R. Baer provided
approximately $145,000 for the initial funding of Politics.com-Nevada. Howard R.
Baer subsequently assigned to Kevin C. Baer, Vice President and one of our
directors, his rights with respect to $36,000 of such initial funding. At the
time of formation of Politics.com-Nevada, Howard R. Baer and Politics.com-Nevada
determined that Mr. Baer would provide approximately $150,000 of initial funding
to Politics.com-Nevada and that the amount of such funding would be convertible
into 6,990,000 shares of common stock of Politics.com-Nevada, such that,
following the conversion, there would be 7,000,000 outstanding shares of common
stock of Politics.com-Nevada. On June 30, 1999, Politics.com-Nevada issued an
aggregate of 6,990,000 shares of common stock to Howard R. Baer and Kevin C.
Baer, upon conversion of the amount of such initial funding. Specifically,
5,242,500 shares were issued to Howard R. Baer upon conversion of $108,000 of
such funding and 1,747,500 shares were issued to Kevin C. Baer upon conversion
of $36,000 of such funding. The Board of Directors believes that the terms of
these transactions were at least as favorable as those that could have been
negotiated with unaffiliated third parties.
Since June 30, 1999, Howard R. Baer and Carriage House Capital, L.L.C.,
an affiliate of his, has made unsecured advances bearing interest at a rate of
6% per annum in the amount of approximately $527,000 to Politics.com-Nevada. In
addition, since June 30, 1999, Kevin C. Baer and Northeast Investments (an
affiliate of his) advanced an aggregate of approximately $65,000 on the same
terms. These advances were to fund our current working capital needs.
Approximately $292,000 of these advances are evidenced by unsecured promissory
notes and are payable on demand. The Board of Directors believes that the terms
of these transactions were at least as favorable as those that could have been
negotiated with unaffiliated third parties.
On July 27, 1999, Politics.com acquired an aggregate of 7,000,000
shares of common stock of Politics.com-Nevada from Howard R. Baer and Kevin C.
Baer (representing all of the issued and outstanding shares of capital stock of
Politics.com-Nevada), and in consideration therefor, Politics.com issued an
aggregate of 7,000,000 shares as follows: 5,250,000 shares to Howard R. Baer and
1,750,000 shares to Kevin C. Baer. The number of shares issued to Howard R. Baer
and Kevin C. Baer was the result of arms length negotiations between the
stockholders of Politics.com-Nevada and the Board of Directors of Politics.com
and on the basis of the relative value of Politics.com and Politics.com-Nevada,
as perceived by the parties to the transaction. The Board of Directors believes
that the terms of this transaction are at least as favorable as those that could
have been negotiated with unaffiliated third parties.
We have agreed to issue to Burt Alimansky, one of our directors,
options to purchase up to 300,000 shares of our common stock, at a per share
price of $3.00, in consideration of consulting services rendered and to be
rendered to us. The Board of Directors believes that the terms of this
transaction are at least as favorable as those that could have been negotiated
with unaffiliated third parties.
On December 2, 1999, Howard R. Baer agreed to guarantee up to $550,000
of Politics.com's payment obligations to its Web site developer. The amount of
compensation (if any) to be provided to Mr. Baer for such guaranty has not yet
been determined by the Board of Directors.
16
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES.
GENERAL
Our authorized capital stock consists of 20,000,000 shares of Preferred
Stock, $.00001 par value per share, and 50,000,000 shares of common stock,
$.00001 par value per share. Only common stock is issued and outstanding.
The following descriptions of the capital stock are qualified in all
respects by reference to our Articles of Incorporation.
PREFERRED STOCK
We have never issued, and we have no present plans to issue, any shares
of preferred stock. The Board of Directors has the authority, without action by
the shareholders, to create one or more series of Preferred Stock and determine
the number of shares, designation, price, redemption terms, conversion and
voting rights with respect to any such series.
An unfriendly tender offer, proxy contest, merger or other change in
control would be more difficult if we issued any series of Preferred Stock.
COMMON STOCK
As of December 15, 1999 there were 9,232,487 shares of common stock
outstanding, and 106 holders of record.
The holders of common stock are entitled to one vote per share on all
matters to be voted on by stockholders, and cumulative voting is not permitted.
Subject to the prior right of any series of Preferred Stock that may be issued
by us in the future, holders of common stock are entitled to receive dividends,
if any, as may be declared from time to time by the Board of Directors from
funds legally available for the payment of dividends. If we are liquidated or
dissolved, the holders of common stock are entitled to receive all assets
available for distribution to the stockholders, subject to the prior payment of
all of our indebtedness, and subject to any preferential rights or other rights
of other security holders. The common stock has no preemptive rights or other
subscription rights, and there are no conversion rights or redemption or sinking
fund provisions with respect to such shares. All of the shares of common stock
are, and the shares to be sold in the offering will be, fully paid and
nonassessable, and will not be protected by any anti-dilution provisions.
17
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
MARKET INFORMATION. The following table sets forth, for the periods
indicated, the high and low quotations for our common stock, as reported on the
OTC Bulletin Board. The over-the-counter market quotations below reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions. There is no established public
trading market for our common stock.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
FISCAL 1998:
First Quarter ............................... $ -- $ --
Second Quarter............................... -- --
Third Quarter(1)............................. 1/16 1/16
Fourth Quarter............................... 1/16 1/16
FISCAL 1999:
First Quarter(2)............................. $ 7/8 $ 1/16
Second Quarter............................... 1 17/32 1/4
Third Quarter................................ 10 3/8 1 31/32
Fourth Quarter (through December 15, 1999)... 6 3/8 3 1/8
</TABLE>
- -------------------
(1) Our common stock commenced quotation on the OTC Bulletin Board in August
1998 under the symbol "LOAK". Our common stock is currently quoted on the
OTC Bulletin Board under the symbol "POCO".
(2) On March 26, 1999, we effected a one for fifteen reverse stock split.
As of December 22, 1999, there were 1,829,200 options to purchase
shares of common stock outstanding or committed for issuance under our 1999
Combination Stock Option Plan and 1999 Advisory Council Stock Option Plan. In
addition, there were approximately 1,520,659 shares of common stock that are
freely tradable without restriction under the Securities Act of 1933, as
amended, and approximately 7,710,816 shares of common stock that will be
eligible for sale in the public market without registration at different times
during the next 12 months, subject to certain volume and other limitations,
pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended.
On October 31, 1999, we completed a private placement of 141,000 shares of our
common stock at $3.00 per share in a transaction exempt from registration in
reliance upon Rule 506 of Regulation D promulgated under the Securities Act of
1933, as amended. We raised approximately $423,000 in connection with this
private placement.
HOLDERS. On December 15, 1999, there were approximately 106 holders of
record of the common stock.
DIVIDENDS. We have never declared or paid any dividends on our common
stock and we do not intend to pay dividends on our common stock in the
foreseeable future. We anticipate that we will retain any earnings to finance
the growth and development of our business and for general corporate purposes.
ITEM 2. LEGAL PROCEEDINGS.
We are not currently a party to any legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
There have been no changes in or disagreements with our accountants.
18
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
THE FOLLOWING SALES OF UNREGISTERED SECURITIES HAVE BEEN RESTATED TO GIVE EFFECT
TO THE ONE FOR FIFTEEN REVERSE STOCK SPLIT EFFECTIVE ON MARCH 26, 1999.
On February 24, 1997, B&E Securities Management Company, Inc. merged
into Lone Oak, Inc. The merger was accomplished through a stock for stock
transaction in which 60,584 shares of Lone Oak, Inc. common stock were issued to
the shareholders of B&E Securities Management Company, Inc. and 908,767 shares
of B&E Securities Management Company, Inc. were canceled. This transaction was
effected without registration under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemption from registration contained in
Section 4(2) of the Securities Act.
On January 12, 1998, Lone Oak, Inc. sold 161,408 shares of common stock
to Edward F. Myers, the father of Edward F. Myers III, a former director of Lone
Oak, Inc. for par value ($24.00). The issuance of the shares was effected
without registration under the Securities Act, in reliance upon the exemption
from registration contained in Section 4(2) of the Securities Act.
On January 12, 1998, Lone Oak, Inc. acquired directly from the
stockholders all the issued and outstanding shares of D&E Flight Simulators,
Inc. in exchange for 383,440 shares of Lone Oak, Inc. common stock. The issuance
of the shares was effected without registration under the Securities Act, in
reliance upon the exemption from registration contained in Section 4(2) of the
Securities Act.
On February 1, 1998, Lone Oak, Inc. issued 1,666 shares of common stock
to Philip L. Thalhiemer, a former director of Lone Oak, Inc., for services
provided to Lone Oak, Inc. The Board of Directors valued Mr. Thalhimer's
services at $2.50 per share. The issuance of the shares was effected without
registration under the Securities Act, in reliance upon the exemption from
registration contained in Section 4(2) of the Securities Act.
In March 1999, Lone Oak, Inc. sold 1,484,375 shares of common stock to
sophisticated investors for $95,000 in a private placement exempt from
registration in reliance upon Rule 504 of Regulation D promulgated under the
Securities Act.
In July 1999, Lone Oak, Inc. acquired 7,000,000 shares of common stock
of Politics.com-Nevada, constituting all of the issued and outstanding shares of
Politics.com-Nevada. In connection with the transaction, Lone Oak, Inc. issued
an aggregate of 7,000,000 shares of its common stock to the stockholders of
Politics.com-Nevada as follows: 5,250,000 shares to Howard R. Baer and 1,750,000
shares to Kevin C. Baer. The issuance of the shares was effected without
registration under the Securities Act, in reliance upon the exemption from
registration contained in Section 4(2) of the Securities Act.
In July 1999, following Lone Oak's acquisition of Politics.com-Nevada,
Lone Oak changed its name to Politics.com, Inc.
In July 1999, Politics.com, Inc. commenced a private placement pursuant
to which it offered up to 666,667 shares of its common stock, at $3.00 per share
to accredited and sophisticated investors. This offering terminated on October
31, 1999. We sold 141,000 shares of common stock and raised approximately
$423,000. The shares issued in connection with the private placement were issued
in reliance upon the exemption from registration contained in Rule 506 of
Regulation D promulgated under the Securities Act of 1933.
In December 1999, Politics.com granted options to purchase an aggregate
of 13,500 shares of common stock at an exercise price of $3.00 per share to two
consultants in consideration of services rendered and to be rendered to
Politics.com. One consultant provided public relations advice and the other
provided advice regarding chat program development and promotion. The issuance
of the options was effected without registration under the Securities Act, in
reliance upon the exemption from registration contained in Section 4(2) of the
Securities Act.
To the extent that the foregoing transactions constituted "sales"
within the meaning of the Securities Act, except as otherwise noted, the
securities issued in such transactions were not registered under the Securities
Act in
19
<PAGE>
reliance upon the exemption from registration set forth in Section 4(2)
thereof, relating to sales by an issuer not involving any public offering. Each
of the foregoing transactions, to the extent constituting "sales" within the
meaning of the Securities Act, were exempt under Section 4(2) thereof based on
the following facts: to the knowledge of Politics.com, there was no general
solicitation, there were a limited number of purchasers; the purchasers were
provided with or had access to information about Politics.com; either (i) the
purchasers or their respective representatives were sophisticated about business
and financial matters; or (ii) the purchasers were "accredited investors" within
the meaning of Rule 501 under the Securities Act; and Politics.com took
reasonable steps to assure that the purchasers were not underwriters within the
meaning of Section 2(11) under the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation include provisions (i) to eliminate the
personal liability of our directors for monetary damages resulting from breaches
of their fiduciary duty and (ii) to require us to indemnify our directors and
officers to the fullest extent permitted by the General Delaware Corporation
Law.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation to indemnify directors, officers, employees or agents
of the corporation in non-derivative suits if such party acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe this conduct was unlawful, as
determined in accordance with the Delaware General Corporation Law. Section 145
further provides that indemnification shall be provided if the party in question
is successful on the merits or otherwise in the defense of any claim.
20
<PAGE>
PART F/S
LONE OAK, INC. AND ITS SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<S> <C>
Consolidated Balance Sheets as of December 31, 1997 and 1998 ...........................................
Consolidated Statements of Operations for the Fiscal Years Ended December 31, 1997 and 1998 and for
cumulative period from inception to December 31, 1998. .................................................
Consolidated Statements of Changes in Stockholders' Equity for the Fiscal Years Ended December 31, 1997
and 1998................................................................................................
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 1997 and 1998.............
Notes to Consolidated Financial Statements..............................................................
</TABLE>
21
<PAGE>
LONE OAK, INC.
(A DEVELOPMENT STAGE COMPANY)
FORMERLY B&E SECURITIES MANAGEMENT COMPANY, INC.,
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
ASSETS 1998 1997
---------- -------
<S> <C> <C>
CURRENT ASSETS
Cash $ 587 $ --
Inventory (Note A) 9,143 --
--------- ----
TOTAL CURRENT ASSETS 9,730 $ --
--------- ----
TOTAL ASSETS $ 9,730 $ --
--------- ----
--------- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,064 $ --
--------- ----
TOTAL CURRENT LIABILITIES 3,064 --
--------- ----
COMMITMENTS AND CONTINGENCIES
(Note E and G) -- --
--------- ----
TOTAL LIABILITIES 3,064 --
--------- ----
STOCKHOLDERS' EQUITY
Preferred stock, $.00001 par value,
20,000,000 shares authorized; none issued -- --
Common stock, $.00001, par value, respectively, 50,000,000 shares
authorized; 605,432, and 60,584 shares issued and outstanding,
respectively (Note B and D) 6 1
Additional paid-in capital 111,381 100,886
--------- ----
--------- ----
Less: stock subscriptions receivable (24) --
--------- ----
--------- ----
Deficit accumulated during development stage (104,697) (100,887)
--------- ----
--------- ----
TOTAL STOCKHOLDERS' EQUITY 6,666 --
--------- ----
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,730 $ --
--------- ----
--------- ----
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
LONE OAK, INC.
(A DEVELOPMENT STAGE COMPANY)
FORMERLY B&E SECURITIES MANAGEMENT COMPANY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Years Cumulative
Ended From
December 31, January 17, 1997
----------------- (date of inception) to
1998 1997 December 31, 1998
---- ---- -----------------
<S> <C> <C> <C>
NET SALES $ -- $ -- $ --
COSTS OF SALES -- -- --
-------- ------ --------
GROSS PROFIT -- -- --
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES -- -- --
LOSS FROM OPERATIONS -- -- --
OTHER (INCOME) EXPENSE
Other income (80) -- (80)
Other expense 160 -- 160
TOTAL OTHER (INCOME) EXPENSE 80 -- 80
LOSS FROM OPERATIONS BEFORE INCOME TAXES (80) -- (80)
INCOME TAXES (800) -- 800
LOSS BEFORE LOSS FROM
DISCONTINUED OPERATIONS (880) -- (880)
DISCONTINUED OPERATIONS
Loss from Operations of
Discontinued Subsidiary (2,930) -- (2,930)
-------- ------ --------
NET LOSS $(3,810) $ -- $(3,810)
======== ====== ========
EARNINGS PER COMMON SHARE -
BASIC
Weighted Average Common Shares
Outstanding 589,012 60,584
Net loss per common share - basic:
Operations $ (.00) $ --
Discontinued operations (.01) $ --
-------- -----
Net loss $ (.01) $ --
======== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
LONE OAK, INC.
(A DEVELOPMENT STAGE COMPANY)
FORMERLY B&E SECURITIES MANAGEMENT COMPANY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional Stock Total
------------------ Paid-In Accumulated Subscription Stockholders'
Shares Amount Capital Deficit Receivable Equity
------ ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 60,584 $ 1 $100,886 $(100,887) $ -- $ --
Stock conversion (Note B) -- -- -- -- -- --
Net loss -- -- -- -- -- --
-------- ------- -------- --------- -------- ---------
BALANCE, DECEMBER 31, 1997 60,584 1 100,886 (100,887) -- --
Common stock issued (Note D) 161,408 2 22 -- (24) --
Common stock issued to acquire
assets of D&E Flight
Simulators, Inc. (Note D) 383,440 3 4,222 -- -- 4,225
Contributed capital (Note D) -- -- 6,251 -- -- 6,251
Net loss -- -- -- (3,810) -- (3,810)
-------- ------- -------- ----------- -------- -------
BALANCE, DECEMBER 31, 1998 605,432 $ 6 $111,381 $(104,697) $ (24) $6,666
======= ======= ======== ========== ======== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
LONE OAK, INC.
(A DEVELOPMENT STAGE COMPANY)
FORMERLY B&E SECURITIES MANAGEMENT COMPANY, INC.,
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Cumulative
Years from January 17,
Ended 1997
December 31, (date of
------------- Inception) to
1998 1997 December 31, 1998
---- ---- -----------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from operations $ (880) $ -- $ (880)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Changes in operating assets and
liabilities:
Inventory 335 -- 335
Accounts payable 3,064 -- 3,064
Other 735 -- 735
Loss from discontinued
operations (2,930) -- (2,930)
------ --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 324 -- 324
------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES -- -- --
-------- --------- --------
NET CASH USED IN INVESTING ACTIVITIES -- -- --
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 263 -- 263
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 263 -- 263
------ --------- -------
NET INCREASE IN CASH 587 -- 587
CASH AT BEGINNING OF PERIOD -- -- --
------- --------- -------
CASH AT END OF PERIOD $ 587 $ -- $ 587
------- --------- -------
------- --------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
LONE OAK, INC.
(A DEVELOPMENT STAGE COMPANY)
FORMERLY B&E SECURITIES MANAGEMENT COMPANY, INC.,
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Lone Oak, Inc., a Delaware corporation was incorporated on January 17,
1997. On February 24, 1997, the Company merged with B&E Securities
Management Company, Inc., which was then dissolved. B&E Securities
Management Company, Inc. was incorporated on January 30, 1969 in the state
of Maryland and has not had operations since 1971. As discussed in Note C,
the Company acquired 100% of D&E Flight Simulators, Inc., (the
"Subsidiary") a flight simulator equipment developer on January 12, 1998.
All operations of the Company during 1998 were conducted by D&E Flight
Simulators, Inc.
The Company is a development stage business engaged in the development of
flight simulators. Development stage operations for the Company began upon
the incorporation of Lone Oak, Inc. on January 17, 1997.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Lone Oak, Inc., and its wholly-owned subsidiary, D&E Flight Simulators,
Inc. (collectively, the "Company"). Material intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all investments with a maturity of three months or
less to be cash equivalents.
INVENTORY
Inventory is stated at the lower of cost or market on the first-in,
first-out (FIFO) method. Inventory consists of one completed flight
simulator and parts.
26
<PAGE>
LONE OAK, INC.
(A DEVELOPMENT STAGE COMPANY)
FORMERLY B&E SECURITIES MANAGEMENT COMPANY, INC.,
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
Income taxes are provided using the liability method of accounting in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes." A deferred tax asset or liability is
recorded for all temporary differences between financial and tax reporting
and net operating loss carryforwards. Deferred tax expense (benefit)
results from the net change during the year of deferred tax assets and
liabilities.
LOSS PER SHARE
The computation of loss per share of common stock is computed by dividing
net loss for the period by the weighted average number of common shares
outstanding during that period. The Company's presentation of diluted
earnings per share is the same as that of basic earning per share.
REVENUE RECOGNITION
Revenue from the sale of products is recognized at the time such products
are shipped to the customers and revenue from services are recognized when
such services are rendered.
B. BUSINESS COMBINATION:
On February 24, 1997, the Company merged with B&E Securities Management
Company, Inc. The merger was accomplished through a stock for stock
transaction in which all 908,767 common stock shares at $.01 par value of
B&E Securities Management Company, Inc. were canceled and 60,584 shares at
$.00001 par value of Lone Oak, Inc. common stock were issued. The
transaction was accounted for as a reverse merger (recapitalization). The
financial statements, as presented, reflect the results of operations of
B&E Securities Management Company, Inc., prior to the merger with Lone
Oak, Inc.
C. ACQUISITION:
On January 12, 1998, the Company acquired all outstanding shares of D&E
Flight Simulators, Inc. in exchange for shares of Lone Oak, Inc. The
Company issued 383,440 shares of stock to acquire 100% of D&E Flight
Simulators, Inc. D&E Flight Simulators, Inc. had net assets which
primarily consisted of inventory and computer equipment valued at
$3,169 at the acquisition date. D&E Flight Simulators, Inc. is 50%
owned by a relative of an officer and majority stockholder of Lone
Oak, Inc. The acquisition was accounted for using the purchase method
of accounting. The consolidated financial statements include the results
of operations of D&E Flight Simulators, Inc. from the date of acquisition
(January 12, 1998) to
27
<PAGE>
LONE OAK, INC.
(A DEVELOPMENT STAGE COMPANY)
FORMERLY B&E SECURITIES MANAGEMENT COMPANY, INC.,
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
C. ACQUISITION: (CONTINUED)
December 31, 1998. Prior to January 12, 1998, D&E Flight Simulators, Inc.
had not begun operating activity, and, therefore, the consolidated
financial statements of Lone Oak, Inc., shown pro forma, would not change.
D. STOCKHOLDERS' EQUITY:
On January 12, 1998, the majority stockholders of Lone Oak, Inc. approved
the sale of 161,408 shares of common stock at .00015, or $24, to the
majority stockholder of the Company. Additionally, on January 12, 1998, as
discussed in Note C, the majority stockholders of Lone Oak, Inc. approved
the issuance of 383,400 shares of common stock to acquire all assets of D&E
Flight Simulators, Inc.
During 1998, each of the Company's major stockholders purchased inventory
or paid expenses on behalf of D&E Flight Simulators, Inc. which was
classified as additional paid in capital.
The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time, direct the issuance of any
authorized but unissued or unreserved shares of Preferred Stock in series
and may, at the time of issuance, determine the rights, performances and
limitations of each series. The holders of Preferred Stock may be entitled
to receive a preference payment in the event of any liquidation,
dissolution or winding-up of the Company before any payment is made to the
holders of the Common Stock. The Board of Directors could issue Preferred
Stock with voting and other rights that could adversely affect the voting
power of the holders of Common Stock and could have certain anti-takeover
effects.
E. GOING CONCERN:
The Company is in the developmental stage of operations and has yet to
generate significant revenue or equity. These conditions raise substantial
doubt about the ability of the Company to continue as a going concern.
Management believes the sale of flight simulator equipment will generate
sufficient working capital through operations. Currently, the Company is
awaiting approval by the Federal Aviation Administration for their product
to be used in flight schools. Accordingly, the Company is dependent upon
its ability to achieve profitable operations and generate sufficient cash
flows from the sale of flight simulators. The Company plans to eliminate
the going concern uncertainty by raising the necessary additional funds
in the form of debt or equity financing.
28
<PAGE>
LONE OAK, INC.
(A DEVELOPMENT STAGE COMPANY)
FORMERLY B&E SECURITIES MANAGEMENT COMPANY, INC.,
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
F. SUPPLEMENTARY CASH FLOW INFORMATION:
Supplemental disclosures of cash flow information for the years ended
December 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash paid for interest and income taxes:
Interest $ - $ -
Income Taxes 800 -
</TABLE>
Non-cash investing and financing activities are as follows:
During the year ended December 31, 1998, the Company acquired $3,962 in
assets in the acquisition of D&E Flight Simulators, Inc. for common stock.
During the year ended December 31, 1998, the Company issued common stock in
exchange for stock subscriptions receivable amounting to $24.
During 1998, the majority stockholders contributed an additional $6,251 in
capital in the form of inventory purchases.
G. COMMITMENTS:
In December 1997, D&E Flight Simulators, Inc. (D&E) entered into a
licensing agreement with Simpkins Design Group, Inc. (Simpkins) allowing
D&E to manufacture, market and sell the FLY-IT general aviation control
panel for a period of five years. The agreement calls for Simpkins to
supply the FLY-IT controller to D&E or the specific components by which to
manufacture it. D&E agrees to pay $50 to Simpkins for each unit of the
FLY-IT sold or used. Additionally, D&E is restricted to selling the units
between $795 and $1,000.
H. RELATED PARTY TRANSACTIONS:
D&E Flight Simulators, Inc. conducts transactions with J. Bright Henderson
Art Gallery (JBH) which is owned by the President of the Company. JBH
provides credit card processing of sales transactions, labor for the
manufacture of flight simulators and packing and shipping for units sold.
During the years ended December 31, 1998 and 1997 the Company incurred
$7,165 and $0, in expense for these services, respectively. Additionally,
the Company had an accounts payable balance of $639 to JBH at December 31,
1998.
29
<PAGE>
LONE OAK, INC.
(A DEVELOPMENT STAGE COMPANY)
FORMERLY B&E SECURITIES MANAGEMENT COMPANY, INC.,
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
I. INCOME TAXES
For income tax purposes, the Company has a net operating loss carryfoward
("NOL") at December 31, 1998 of approximately $3,200 expiring in 2013 if
not offset against future federal taxable income. There may be certain
limitations as to the future annual use of the NOLs due to certain changes
in the Company's ownership.
Income tax benefit attributable to net loss differed from the amounts
computed by applying the statutory Federal Income tax rate applicable for
each period as a result of the following:
<TABLE>
<S> <C>
Computed "expected" tax benefit $ 1,100
Decrease in tax benefit resulting from net
operating loss for which no benefit is currently
available (1,100)
-------
$ -
</TABLE>
The Company had deferred tax assets of approximately $1,100 at December 31,
1998, resulting primarily from net operating loss carryforwards. The
deferred tax assets have been fully offset by a valuation allowance
resulting from the uncertainty surrounding their future realization.
J. SUBSEQUENT EVENTS
In March 1999, the Board of Directors and Stockholders approved a 1 for 15
reverse split of the Company's common stock to be effective March 26, 1999.
All share and per share data have been retroactively restated to reflect
this recapitalization.
30
<PAGE>
POLITICS.COM, INC.
(FORMERLY LONE OAK, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Balance Sheet as of June 30, 1999.............................................................
Unaudited Statement of Operations for the six months ended June 30, 1999 and 1998.......................
Unaudited Statement of Changes in Stockholders' Equity for the six months ended June 30, 1999...........
Unaudited Statement of Cash Flows for the six months ended June 30, 1999 and 1998.......................
Notes to Financial Statements...........................................................................
</TABLE>
These Financial Statements are included in this registration statement
because they are the most recent interim financial statements prior to the
reverse acquisition (recapitalization) of Lone Oak, Inc. by Politics.com,
Inc., a Nevada corporation.
The consolidated interim financial statements of Politics.com, Inc. (formerly
Lone Oak, Inc.) as of September 30, 1999 are included elsewhere in this
registration statement.
31
<PAGE>
POLITICS.COM, INC.
(FORMERLY LONE OAK, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
JUNE 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash $ 94,000
Escrow Funds 5,000
------------
Total Assets $ 99,000
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 44,692
----------
Total Current Liabilities 44,692
Stockholders' Equity:
Preferred Stock, $.00001 Par Value; 20,000,000 Shares
Authorized, None Issued -
Common Stock, $.00001 Par Value; 50,000,000 Shares
Authorized, 2,091,475 Shares Issued and Outstanding 21
Additional Paid-In Capital 195,948
Deficit Accumulated in the Development Stage (141,661)
----------
Total Stockholders' Equity 54,308
----------
Total Liabilities and Stockholders' Equity $ 99,000
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
POLITICS.COM, INC.
(FORMERLY LONE OAK, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
From
Six Months Ended January 17, 1997
June 30, (Inception)
------------------------------- To
1999 1998 June 30, 1999
------------ ------------ -----------------
<S> <C> <C> <C>
Revenues $ - $ - $ -
------------ ------------ ------------------
Costs and Expenses:
Selling, General and Administrative Expenses 42,403 40 43,283
------------ ------------ ------------------
Loss before Discontinued Operations (42,403) (40) (43,283)
------------ ------------ ------------------
Discontinued Operations:
Loss from Operations of Discontinued Subsidiary (2,783) (1,833) (5,713)
Gain on Sale of Discontinued Subsidiary 5,000 - 5,000
------------ ------------ ------------------
Net Gain (Loss) from Discontinued Operations 2,217 (1,833) (713)
------------ ------------ ------------------
Net Loss $ (40,186) $(1,873) $ (43,996)
------------ ------------ ------------------
------------ ------------ ------------------
Earnings Per Common Share - Basic:
Weighted Average Common Shares Outstanding 1,402,594 572,320
------------ ------------
------------ ------------
Net Loss Per Common Share - Basic:
Operations $ (.03) $ (.00)
Discontinued operations .00 (.00)
-------------- -------------
Net Loss $ (.03) $ (.00)
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
POLITICS.COM, INC.
(FORMERLY LONE OAK, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD OF INCEPTION TO JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Deficit
Additional Accumulated Stock
Common Paid-In In Development Subscription
Stock Capital Stage Receivable Total
----------- ----------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 17, 1997 $ 1 $100,886 $(100,887) $ - $ -
------- -------- --------- --------- ---------
Stock conversion - - - - -
Net loss - - - - -
------- -------- --------- --------- ---------
Balance, December 31, 1997 1 100,886 (100,887) - -
Common stock issued 2 22 - (24) -
Common stock issued to acquire
assets of D&E Flight Simulators,
Inc. 3 4,222 - - 4,225
Contributed capital - 6,251 - - 6,251
Net loss - - (3,810) - (3,810)
------- -------- --------- --------- ---------
Balance, December 31, 1998 $ 6 $111,381 $(104,697) $ (24) $ 6,666
Balance, January 1, 1999 $ 6 $111,381 $(104,697) $ (24) $ 6,666
Payment Received - - - 24 24
Sale of 1,484,375 Shares
of Common Stock 15 94,985 - - 95,000
Net Loss for the Period - - (40,186) - (40,186)
Sale of Subsidiary - (10,418) 3,222 - (7,196)
------- -------- --------- --------- ---------
Balance, June 30, 1999 $ 21 $195,948 $(141,661) $ - $ 54,308
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
POLITICS.COM, INC.
(FORMERLY LONE OAK, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
From
Six Months Ended January 17, 1997
June 30, (Inception)
------------------ To
1999 1998 June 30, 1999
---- ---- --------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Loss from Operations $(42,403) $ (40) $(43,283)
Adjustments to Reconcile Net Loss from Operations
to Net Cash Provided by Operating Activities
Changes in Operating Assets and Liabilities:
Decrease in Inventories -- -- 147
Increase in Accounts Payable 44,692 -- 47,168
Other -- 1,610 335
Loss from Discontinued Operations (2,783) (1,833) (5,125)
Gain on Sale of Discontinued Operations 5,000 -- 5,000
-------- -------- --------
Net Cash Provided (Used) by Operating Activities 4,506 (263) 4,242
Cash Flows from Investing Activities:
Increase in Escrow Funds (5,000) -- (5,000)
Disposition of Subsidiary, Net of Cash (1,117) -- (529)
-------- -------- --------
Net Cash (Used) by Financing Activities (6,117) -- (5,529)
Cash Flows from Financing Activities:
Payment of Stock Subscription Receivable 24 -- 24
Proceeds from Sale of Common Stock 95,000 263 95,263
-------- -------- --------
Net Cash Provided by Financing Activities 95,024 263 95,287
Increase in Cash 93,413 -- 94,000
Cash - Beginning 587 -- --
-------- -------- --------
Cash - Ending $ 94,000 $ -- $ 94,000
Supplemental Cash Flow Information:
Cash Paid for Interest $ -- $ -- $ --
Cash Paid for Income Taxes $ -- $ -- $ 800
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
POLITICS.COM, INC.
(FORMERLY LONE OAK, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
NOTE 1 - UNAUDITED FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the results of operations for the
periods indicated.
Results of operations for interim periods are not necessarily
indicative of the results of operations for a full year.
Certain items in these financial statements have been reclassified to
conform to the current period presentation.
NOTE 2 - SALE OF SUBSIDIARY
On April 30, 1999, the Company sold 100% of the outstanding common
shares of its wholly-owned subsidiary, D&E Flight Simulators, Inc., for $5,000.
Escrow funds represents the amount receivable from this transaction. These
escrow funds were paid to the Company in July 1999.
NOTE 3 - STOCKHOLDERS' EQUITY
REVERSE SPLIT
In March 1999, the Board of Directors and stockholders approved a 1 for
15 reverse split of the Company's common stock to be effective March 26, 1999.
All share and per share data have been retroactively restated to reflect this
recapitalization.
COMMON STOCK
In March 1999, the Company sold privately 1,484,375 shares of common
stock for gross proceeds of $95,000.
36
<PAGE>
POLITICS.COM, INC.
(FORMERLY LONE OAK, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
NOTE 4 - SUBSEQUENT EVENTS
On July 27, 1999, the Company acquired all of the issued and
outstanding common stock of Politics.com, Inc, a Nevada Corporation
("Politics-Nevada"). In connection with this transaction, the Company issued
7,000,000 shares of its common stock directly to the stockholders of
Politics-Nevada in exchange for all of Politics-Nevada's 7,000,000 issued and
outstanding common shares. The exchange resulted in Politics-Nevada stockholders
holding a larger portion of the voting rights of the Company than was held after
the acquisition by the persons who were the Company's stockholders prior to the
acquisition. As a result of the acquisition, Politics-Nevada became a
wholly-owned subsidiary of the Company. In connection with this transaction, the
Company changed its name to Politics.com, Inc., a Delaware corporation.
On July 27, 1999, the Company adopted the 1999 Combination Stock Option
Plan (the "Plan") which reserves for issuance 2,000,000 shares of common stock
under both non-qualified and incentive stock options. As of September 15, 1999
options to purchase 1,525,000 shares of common stock were outstanding or
committed for issuance.
The Company has agreed to pay its President an annual base salary of
$200,000 effective September 7, 1999 for a three year period. In addition, the
Company intends to pay its President a bonus of up to 50% of the annual base
salary upon the achievement of specified company objectives. The Company has
agreed to grant to its President options to purchase 840,000 shares of common
stock at an exercise price of $2.00 per share, such options to become
exercisable as follows: 315,000 options immediately, and the remaining 525,000
options in six equal semi-annual installments commencing June 30, 2000.
From August to October 1999 the Company sold 141,000 shares of
common stock for gross proceeds of $423,000 to private investors.
Brian Wadsworth, who served as our interim President from July 1999
until September 7, 1999, currently serves as a consultant to the Company on a
month to month basis for monthly compensation of $10,500. The 330,000 options
that were granted to Mr. Wadsworth while he was president continue to vest in
accordance with their terms.
37
<PAGE>
POLITICS.COM, INC., A NEVADA CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants...........................................................................
Balance Sheet as of June 30, 1999...........................................................................
Statements of Operations for the period March 23, 1999 (inception) to June 30, 1999.........................
Statement of Changes in Stockholders' Equity for the period March 23, 1999 (inception) to June 30, 1999.....
Statement of Cash Flows for the period March 23, 1999 (inception) to June 30, 1999..........................
Notes to Financial Statements...............................................................................
</TABLE>
38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Politics.com, Inc.
We have audited the accompanying balance sheet of Politics.com, Inc. (A
Development Stage Enterprise) as of June 30, 1999, and the related statements of
operations, changes in stockholders' equity, and cash flows for the period March
23, 1999 (Inception) to June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Politics.com, Inc. as of June
30, 1999, and the results of its operations and its cash flows for the period
March 23, 1999 (Inception) to June 30, 1999 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred a net loss since inception and
has had no revenues and has a working capital deficiency at June 30, 1999. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
WOLINETZ, GOTTLIEB & LAFAZAN, P.C.
Rockville Centre, New York
July 7, 1999 (Except for Note 8, as to
which the date is July 27, 1999)
39
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash $ 3,057
Deposits 18,333
Prepaid Expenses 15,000
---------
Total Current Assets 36,390
Intangibles - Internet Domain Names 151,000
---------
Total Assets $ 187,390
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 16,227
Note Payable - Related Party 151,000
Loans Payable - Related Party 786
---------
Total Current Liabilities 168,013
---------
Commitments and Contingencies
Stockholders' Equity:
Common Stock, $.001 Par Value; 50,000,000 Shares
Authorized, 7,000,000 Shares Issued and Outstanding 7,000
Additional Paid-In Capital 137,100
Deficit Accumulated in the Development Stage (124,723)
---------
Total Stockholders' Equity 19,377
---------
Total Liabilities and Stockholders' Equity $ 187,390
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 23, 1999 (INCEPTION) TO JUNE 30, 1999
<TABLE>
<S> <C>
Revenues $ --
---------
Costs and Expenses:
Selling, General and Administrative Expenses 107,723
Website Development Costs 17,000
---------
Total Costs and Expenses 124,723
---------
Net Loss $(124,723)
---------
---------
Earnings Per Common Share - Basic:
Weighted Average Common Shares Outstanding 79,800
---------
---------
Net Loss Per Common Share - Basic $ (1.56)
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
41
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD MARCH 23, 1999 (INCEPTION) TO JUNE 30, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock In The
--------------------- Additional Development
Shares Amount Paid-in Capital Stage Total
------ ------ --------------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance - Beginning -- $ -- $ -- $ -- $ --
Sale of Common Stock 10,000 10 90 -- 100
Issuance of Common Stock
Upon Conversion of
Indebtedness 6,990,000 6,990 137,010 -- 144,000
Net Loss for the Period -- -- -- (124,723) (124,723)
--------- --------- --------- --------- ---------
Balance - Ending 7,000,000 $ 7,000 $ 137,100 $(124,723) $ 19,377
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 23, 1999 (INCEPTION) TO JUNE 30, 1999
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net Loss $(124,723)
Changes in Operating Assets and Liabilities:
(Increase) in Prepaid Expenses (15,000)
Increase in Accounts Payable 16,227
---------
Net Cash (Used) by Operating Activities (123,496)
---------
Cash Flows from Investing Activities:
Purchase of Intangibles (151,000)
Deposits Paid ( 18,333)
---------
Net Cash (Used) by Investing Activities (169,333)
---------
Cash Flows from Financing Activities:
Proceeds from Borrowings from Related Party 144,786
Sale of Common Stock 100
Issuance of Note Payable - Related Party 151,000
---------
Net Cash Provided by Financing Activities 295,886
---------
Increase in Cash 3,057
Cash - Beginning --
---------
Cash - Ending $ 3,057
---------
---------
Supplemental Disclosure of Cash Information:
Cash Paid for Interest $ --
---------
---------
Cash Paid for Income Taxes $ --
---------
---------
Non-Cash Financing Activities:
Issuance of 6,990,000 Shares of Common Stock upon
Conversion of Indebtedness $ 144,000
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Politics.com, Inc. ("the Company") was incorporated on March 23, 1999
in the State of Nevada. The Company is a development stage enterprise that
intends to be a global Internet media company, offering a branded network of
information, communication, entertainment, community and commerce services with
a common theme of Politics. The Company has selected December 31 as its fiscal
year.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company is a development stage
enterprise. The Company has had no revenues and has incurred a net loss of
approximately $125,000 since inception and its current liabilities exceed its
current assets by approximately $132,000. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
Continuation of the Company is dependent on (i) its exiting the development
stage, (ii) achieving sufficiently profitable operations and (iii) obtaining
adequate financing. These financial statements do not reflect any adjustments
relating to the recoverability and classification of asset carrying amounts and
classification of liabilities should the Company be unable to continue as a
going concern.
In connection with the above, the Company acquired Lone Oak, Inc. on
July 27, 1999 (see Note 7) by means of a reverse acquisition
(recapitalization). The Company has not had any operating revenues and has
been funding its operations through debt and equity financings. The Company
will need to continue to fund its operations in this manner until it achieves
sufficiently profitable operations. The Company plans to eliminate the going
concern uncertainty by raising additional funds in the amount of
approximately $4.5 million though debt and/or equity financings. The
achievement and/or success of these planned measures, however, cannot be
determined at this time.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
44
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
WEBSITE DEVELOPMENT COSTS
Website development costs are expensed as incurred.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
REVENUE RECOGNITION
Revenues, consisting principally of advertising and electronic commerce
revenues will be recognized as the services are performed or when the goods are
delivered. Deferred revenues will consist primarily of prepaid advertising and
electronic commerce fees.
INTANGIBLES
Intangibles consist of the cost of certain Internet Domain Names. These
intangibles will be amortized using the straight-line method over periods
ranging from three to four years. The Company periodically reviews intangible
assets to determine if any impairment exists based upon projected, undiscounted
net cash flows of the related business. As of June 30, 1999, in the opinion of
management, there has been no such impairment. The Internet Domain Names are
"politics.com", "elections.com" and "gop.com".
INCOME TAXES
The Company records deferred income taxes using the liability method.
Under the liability method, deferred tax assets and liabilities are recognized
for the expected future tax consequences of temporary differences between the
financial statement and income tax bases of the Company's assets and
liabilities. An allowance is recorded, based upon currently available
information, when it is more likely than not that any or all of the deferred tax
asset will not be realized. The provision for income taxes includes taxes
currently payable, if any, plus the net change during the year in deferred tax
assets and liabilities recorded by the Company.
SOFTWARE DEVELOPMENT COSTS
SFAS No. 86 "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed" requires software development costs to be
capitalized upon the establishment of technological feasibility. The
establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs requires considerable judgement by management with
respect to certain external factors such as anticipated future revenue,
estimated economic life, and changes in software and hardware technologies. As
of June 30, 1999, the Company has not capitalized any software development
costs.
45
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation to its employees
using the intrinsic value method, which requires the recognition of compensation
expense over the vesting period of the options when the exercise price of the
stock option granted is less than the fair value of the underlying common stock.
Additionally, the Company provides pro forma disclosure of net loss and loss per
share as if the fair value method had been applied in measuring compensation
expense for stock options granted. Stock-based compensation related to options
granted to non-employees is recognized using the fair value method.
LOSS PER SHARE
The computation of loss per share of common stock is computed by
dividing net loss for the period by the weighted average number of common shares
outstanding during that period.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, including
cash, accounts payable and notes and loans payable approximated fair value
because of the short maturity of these instruments.
NOTE 3 - NOTE PAYABLE - RELATED PARTY
Note payable to the Company's Chairman of the Board is payable on
demand with interest at 10% per annum. Such note was issued as consideration for
the purchase of internet domain names.
NOTE 4 - STOCKHOLDERS' EQUITY
COMMON STOCK
On March 24, 1999 the Company sold 10,000 shares of common stock at
$.01 per share for gross proceeds of $100 as part of its initial capitalization.
Pursuant to the approval of the Company's Board of Directors, on
June 30, 1999 the Company issued 6,990,000 shares of common stock to two
individuals, one of whom is an officer and one of whom is a majority
stockholder and an officer of the Company, as conversion of indebtedness of
the Company in the amount of $144,000.
46
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
Note 5 - INCOME TAXES
For income tax purposes, the Company has a net operating loss
carryforward ("NOL") at June 30, 1999 of approximately $124,000 expiring in 2014
if not offset against future federal taxable income. There may be certain
limitations as to the future annual use of the NOLs due to certain changes in
the Company's ownership.
Income tax benefit attributable to net loss differed from the amounts
computed by applying the statutory Federal Income tax rate applicable for each
period as a result of the following:
<TABLE>
<S> <C>
Computed "expected" tax benefit $ 42,000
Decrease in tax benefit resulting from net operating
loss for which no benefit is currently available (42,000)
---------
$ -
---------
---------
</TABLE>
The Company had deferred tax assets of approximately $42,000 at June
30, 1999, resulting primarily from net operating loss carryforwards. The
deferred tax assets have been fully offset by a valuation allowance resulting
from the uncertainty surrounding the future realization of the net operating
loss carryforwards.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company has entered into an agreement with an employee of the
Company to purchase an Internet Domain Name and certain associated assets. Total
consideration will be $55,000 payable in three equal monthly installments. At
June 30, 1999, the Company paid the first installment of $18,333, which has been
reported as a deposit on the balance sheet, subject to conveyance of title to
the Company.
NOTE 7 - YEAR 2000 CONSIDERATIONS
The "Year 2000" problem relates to computer systems that have time and
date-sensitive programs that were designed to read years beginning with "19",
but may not properly recognize the year 2000. If a computer system or software
application used by the Company or a third party dealing with the Company fails
because of the inability of the system or application to properly read the year
2000 the results could have a material adverse effect on the Company.
The Company believes that when acquired its computer system will be
Year 2000 compliant. However, the Company is dependent on third party vendors.
Failures and interruptions, if any, resulting from the inability of certain
computing systems of third party vendors to recognize the Year 2000 could have a
material adverse effect on the Company's results of operations. There can be no
assurance that the Year 2000 issue can be resolved by any of such third parties
prior to the upcoming change in the century. Although the Company may incur
substantial costs, as a result of such third party service providers correcting
Year 2000 issues, such costs are not sufficiently certain to estimate at this
time.
47
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 8 - SUBSEQUENT EVENTS
On July 27, 1999, Lone Oak, Inc., a Delaware corporation ("Lone Oak"),
acquired all of the issued and outstanding common stock of the Company. In
connection with this transaction, Lone Oak issued 7,000,000 shares of its common
stock directly to the stockholders of the Company in exchange for all of the
Company's 7,000,000 issued and outstanding common shares. The exchange resulted
in the Company's stockholders holding a larger portion of the voting rights of
Lone Oak than was held after the acquisition by the persons who were Lone Oak
stockholders prior to the acquisition. As a result of the acquisition, the
Company became a wholly owned subsidiary of Lone Oak. In connection with the
transaction, Lone Oak changed its name to Politics.com, Inc., a Delaware
corporation.
48
<PAGE>
POLITICS.COM, INC., A DELAWARE CORPORATION
(FORMERLY LONE OAK, INC.)
INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Consolidated Balance Sheet as of September 30, 1999...........................................
Unaudited Consolidated Statement of Operations for the period March 23, 1999 (inception) to September
30, 1999................................................................................................
Unaudited Statement of Changes in Stockholders' Deficit for the period March 23, 1999 (inception) to
September 30, 1999......................................................................................
Unaudited Statement of Cash Flows for the period March 23, 1999 (inception) to September 30, 1999.......
Notes to Consolidated Financial Statements.............................................................
</TABLE>
49
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash $ 20,346
Prepaid Expenses 8,409
-----------
Total Current Assets 28,755
Intangibles - Internet Domain Names (Net of Accumulated
Amortization of $15,639) 190,361
Security Deposit 35,000
-----------
Total Assets $ 254,116
-----------
-----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable $ 619,236
Note Payable - Related Party 151,000
Loans Payable - Related Parties 290,786
-----------
Total Current Liabilities 1,061,022
-----------
Commitments and Contingencies
Stockholders' Deficit:
Preferred Stock, $.00001 Par Value; 20,000,000 Shares
Authorized , None Issued --
Common Stock, $.00001 Par Value; 50,000,000 Shares
Authorized, 9,136,975 Shares Issued and Outstanding 92
Additional Paid-In Capital 8,146,174
Deficit Accumulated in the Development Stage (4,528,847)
Deferred Compensation (4,424,325)
----------
Total Stockholders' Deficit ( 806,906)
----------
Total Liabilities and Stockholders' Deficit $ 254,116
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 23, 1999 (INCEPTION) TO SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<S> <C>
Revenues $ --
-----------
Costs and Expenses:
Selling, General and Administrative Expenses 3,961,634
Website Development Costs 545,354
Interest Expense 6,220
Amortization 15,639
------
Total Costs and Expenses 4,528,847
---------
Net Loss $(4,528,847)
-----------
-----------
Earnings Per Common Share - Basic:
Weighted Average Common Shares Outstanding 4,067,663
-----------
-----------
Net Loss Per Common Share - Basic $ (1.11)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD MARCH 23, 1999 (INCEPTION) TO SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional In The
Common Stock Paid-In Development Deferred
-------------------
Shares Amount Capital Stage Compensation Total
------ ------ ------- ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance - Beginning -- $ -- $ -- $ -- $ -- $ --
Sale of Politics-Nevada
Common Stock 10,000 -- 100 -- -- 100
Issuance of Politics-Nevada
Common Stock Upon
Conversion of Indebtedness 6,990,000 70 143,930 -- -- 144,000
Effect of Reverse Acquisition 2,091,475 21 65,645 -- -- 65,666
Sale of Common Stock, Net of
Offering Costs 45,500 1 76,499 -- -- 76,500
Deferred Compensation -- -- 4,424,325 -- (4,424,325) --
Stock Based Compensation -- -- 3,435,675 -- -- 3,435,675
Net Loss for the Period -- -- -- (4,528,847) -- (4,528,847)
--------- ----------- ----------- ----------- ----------- -----------
Balance - Ending 9,136,975 $ 92 $ 8,146,174 $(4,528,847) $(4,424,325) $ (806,906)
--------- ----------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 23, 1999 (INCEPTION) TO SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net Loss $(4,528,847)
Adjustment to Reconcile Net Loss to Net Cash
Used by Operating Activities:
Amortization 15,639
Stock Based Compensation 3,435,675
Changes in Operating Assets and Liabilities:
Increase in Prepaid Expenses ( 8,409)
Increase in Security Deposits ( 35,000)
Increase in Accounts Payable 619,236
----------
Net Cash Used by Operating Activities: ( 501,706)
----------
Cash Flows from Investing Activities:
Purchase of Intangibles - Internet Domain Names ( 206,000)
Net Assets Acquired in Reverse Acquisition 65,666
------
Net Cash Used by Investing Activities ( 140,334)
----------
Cash Flows from Financing Activities:
Sale of Common Stock - Private Offering 136,500
Expenses of Private Offering ( 60,000)
Proceeds of Borrowings from Related Party 144,786
Sale of Common Stock - Related Party 100
Issuance of Note Payable - Related Party 151,000
Proceeds of Loans Payable - Related Parties 290,000
-------
Net Cash Provided by Financing Activities 662,386
-------
Increase in Cash 20,346
Cash - Beginning of Period --
----------
Cash - End of Period $ 20,346
----------
----------
Supplemental Disclosure of Cash Information:
Cash Paid for Interest $ --
----------
----------
Cash Paid for Income Taxes $ --
----------
----------
Non-Cash Financing Activities:
Issuance of 6,990,000 Shares of Common Stock Upon
Conversion of Indebtedness $ 144,000
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
53
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
NOTE 1 - ORGANIZATION
On July 27, 1999, Lone Oak, Inc., a Delaware corporation ("Lone Oak"),
acquired all of the issued and outstanding common stock of Policitcs.com, Inc.,
a Nevada corporation ("Politics-Nevada"). In connection with this transaction,
Lone Oak issued 7,000,000 shares of its common stock directly to the
stockholders of Politics-Nevada in exchange for all of Politics-Nevada's
7,000,000 issued and outstanding common shares. The exchange resulted in
Politics-Nevada's stockholders holding a larger portion of the voting rights of
Lone Oak than was held after the acquisition by the persons who were Lone Oak's
stockholders prior to the acquisition. The transaction has been treated for
accounting purposes as a reverse acquisition (purchase) with Politics-Nevada
being the acquirer and Lone Oak being the acquired company. Consequently, only
the historical operations of Politics-Nevada are presented for periods through
July 27, 1999. As a result of the acquisition, Politics-Nevada became a
wholly-owned subsidiary of Lone Oak. In connection with this transaction, Lone
Oak changed its name to Politics.com, Inc., a Delaware Corporation
("Politics-Delaware").
Politics-Nevada was incorporated on March 23, 1999 in the State of
Nevada. Politics-Nevada is a development stage enterprise that intends to be a
global Internet media company, offering a branded network of information,
communication, entertainment, community and commerce services with a common
theme of politics. Politics-Nevada has selected December 31 as its fiscal year.
Politics-Delaware and its wholly-owned subsidiary Politics-Nevada are
hereafter collectively referred to as the "Company".
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited consolidated financial statements include the accounts of
Politics-Delaware and its wholly-owned subsidiary, Politics-Nevada. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
In the opinion of the Company, the accompanying consolidated financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations and
cash flows presented.
Results of operations for interim periods are not necessarily
indicative of the results of operations for a full year.
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 the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
54
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
WEBSITE DEVELOPMENT COSTS
Website development costs are expensed as incurred.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
REVENUE RECOGNITION
Revenues, consisting principally of advertising and electronic commerce
revenues will be recognized as the services are performed or when the goods are
delivered. Deferred revenues will consist primarily of prepaid advertising and
electronic commerce fees.
INTANGIBLES
Intangibles consist of the cost of certain Internet Domain Names. These
intangibles will be amortized using the straight-line method over periods
ranging from three to four years. The Company periodically reviews intangible
assets to determine if any impairment exists based upon projected, undiscounted
net cash flows of the related business. As of September 30, 1999, in the opinion
of management, there has been no such impairment. The Internet Domain Names are
"politics.com", "elections.com", "gop.com" and "PoliticalJunkie.com".
INCOME TAXES
The Company records deferred income taxes using the liability method.
Under the liability method, deferred tax assets and liabilities are recognized
for the expected future tax consequences of temporary differences between the
financial statement and income tax bases of the Company's assets and
liabilities. An allowance is recorded, based upon currently available
information, when it is more likely than not that any or all of the deferred tax
assets will not be realized. The provision for income taxes includes taxes
currently payable, if any, plus the net change during the year in deferred tax
assets and liabilities recorded by the Company.
SOFTWARE DEVELOPMENT COSTS
SFAS No. 86 "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed" requires software development costs to be
capitalized upon the establishment of technological feasibility. The
establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs requires considerable judgement by management with
respect to certain external factors such as anticipated future revenue,
estimated economic life, and changes in software and hardware technologies. As
of September 30, 1999 the Company has not capitalized any software development
costs.
55
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation to its employees
using the intrinsic value method, which requires the recognition of compensation
expense over the vesting period of the option when the exercise price of the
stock option granted is less than the fair value of the underlying common stock.
Additionally, the Company provides pro forma disclosure of net loss and loss per
share as if the fair value method has been applied in measuring compensation
expense for stock options granted. Stock-based compensation related to options
granted to non-employees is recognized using the fair value method.
LOSS PER SHARE
The computation of loss per share of common stock is computed by
dividing net loss for the period by the weighted average number of common shares
outstanding during that period.
Prior to the July 27, 1999 acquisition, the computation of net loss per
share is based on the weighted average number of outstanding common shares of
Politics-Nevada. Following the acquisition, shares presented are adjusted for
the effect of the reverse acquisition.
Because the Company is incurring losses, the effect of stock options
and warrants is antidilutive. Accordingly, the Company's presentation of diluted
earnings per share is the same as that of basic earnings per share.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, including
cash, accounts payable and notes and loans payable approximated fair value
because of the short maturity of these instruments.
NOTE 3 - NOTE AND LOANS PAYABLE - RELATED PARTIES
Note payable to the Company's Chairman of the Board is payable on
demand with interest at 10% per annum. Such note was issued as consideration for
the purchase of certain internet domain names.
Loans payable to related parties represent unsecured advances by the
Company's Chairman and an Officer. These loans, which are due on demand, bear
interest at 6% per annum.
56
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
NOTE 4 - STOCKHOLDERS' DEFICIT
PREFERRED STOCK
The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time, direct the issuance of any authorized
but unissued or unreserved shares of Preferred Stock in series and may, at the
time of issuance, determine the rights, performances and limitations of each
series. The holders of Preferred Stock may be entitled to receive a preference
payment in the event of any liquidation, dissolution or winding-up of the
Company before any payment is made to the holders of the Common Stock. The Board
of Directors could issue Preferred Stock with voting and other rights that could
adversely affect the voting power of the holders of Common Stock and could have
certain anti-takeover effects.
COMMON STOCK
On March 24, 1999 Politics-Nevada sold 10,000 shares of common stock at
$.01 per share for gross proceeds of $100 as part of its initial capitalization.
On June 30, 1999 Politics-Nevada issued 6,990,000 shares of common
stock to two individuals, one of whom is an officer and one of whom is a
majority stockholder and an officer of Politics-Nevada, as conversion of
indebtedness of Politics-Nevada in the amount of $144,000.
On July 27, 1999, Lone Oak acquired all of the issued and outstanding
common stock of Politics-Nevada. In connection with this transaction, Lone Oak
issued 7,000,000 shares of its common stock directly to the stockholders of
Politics-Nevada in exchange for all of Politics-Nevada's 7,000,000 issued and
outstanding common shares. The exchange resulted in Politics-Nevada's
stockholders holding a larger portion of the voting rights of Lone Oak than was
held after the acquisition by the persons who were Lone Oak stockholders prior
to the acquisition. As a result of the acquisition, Politics-Nevada became a
wholly-owned subsidiary of Lone Oak. In connection with the transaction, Lone
Oak changed its name to Politics.com, Inc., a Delaware corporation.
During August and September 1999 the Company sold 45,500 shares of
common stock for gross proceeds of $136,500 to private investors.
STOCK OPTION PLAN
On July 27, 1999, the Company adopted the 1999 Combination Stock Option
Plan (the "Plan"). Under the Plan, both non-qualified and incentive stock
options to purchase shares of the Company's common stock may be granted to key
employees and other persons. A total of 2,000,000 shares have been reserved for
issuance under the Plan. The options expire ten years from the date of grant,
subject to certain restrictions.
57
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
NOTE 4 - STOCKHOLDERS' DEFICIT (Continued)
STOCK OPTION PLAN (Continued)
The Company has issued various stock options to employees. The options'
vesting period varies from full vesting upon issuance of options to vesting over
a 3 to 4 year period. A summary of the Company's stock options activity is as
follows:
<TABLE>
<CAPTION>
Options
---------------------------------------
Weighted Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Balance, July 27, 1999
Granted 1,325,000 $ 2.37
--------- ------
Balance, September 30, 1999 1,325,000 $ 2.37
========= ======
<CAPTION>
Outstanding Exercisable Weighted Average
Exercise Price Range Shares Shares Exercise Price
------ ------ --------------
<S> <C> <C> <C>
$2.00 840,000 315,000 $2.00
$3.00 485,000 344,600 $3.00
</TABLE>
The Company recognized approximately $3,436,000 of stock-based
compensation expense and deferred compensation of approximately $4,424,000
during the period ended September 30, 1999, relating to options granted with
exercise prices below the estimated fair market value of the Company's common
stock at the date of grant. The Company applies APB Opinion No. 25 and related
Interpretations in accounting for these plans. Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") was
issued by the FASB in 1995 and, if fully adopted, changes the methods for
recognition of cost on plans similar to those of the Company. The Company has
adopted the disclosure-only provision of SFAS 123. Pro forma information
regarding net income and earnings per share is required by Statement 123, and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions: risk-free interest rate
of 5.5%; volatility factor of the expected market price of the Company's common
stock of .50; and a weighted-average expected life of the option, after the
vesting period, of 5 years.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
58
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
NOTE 4 - STOCKHOLDERS' DEFICIT (Continued)
STOCK OPTION PLAN (Continued)
Had compensation cost for stock options granted been determined based
on the fair value at the grant date consistent with the provisions of SFAS 123,
the Company's net loss and loss per share would have been increased to the pro
forma amounts indicated below:
<TABLE>
<S> <C>
Net loss - as reported $(4,528,847)
Net loss - pro forma $(5,089,386)
Loss per share - as reported
Basic $( 1.11)
Loss per share - pro forma
Basic $( 1.25)
</TABLE>
The effects of applying the pro forma disclosures of SFAS 123 are not
likely to be representative of the effects on reported net earnings for future
years due to the various vesting schedules.
NOTE 5 - INCOME TAXES
For income tax purposes, the Company has a net operating loss
carryforward ("NOL") at September 30, 1999 of approximately $1,093,000 expiring
in 2014 if not offset against future federal taxable income. There may be
certain limitations as to the future annual use of the NOLs due to certain
changes in the Company's ownership.
Income tax benefit attributable to net loss differed from the amounts
computed by applying the statutory Federal Income tax rate applicable for each
period as a result of the following:
<TABLE>
<S> <C>
Computed "expected" tax benefit $ 372,000
Decrease in tax benefit resulting from net operating
loss for which no benefit is currently available (372,000)
----------
$ -
----------
----------
</TABLE>
The Company had deferred tax assets of approximately $1,540,000 at
September 30, 1999, resulting primarily from net operating loss carryforwards of
approximately $372,000 and stock based compensation of approximately $1,168,000.
The deferred tax assets have been fully offset by a valuation allowance
resulting from the uncertainty surrounding their future realization.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company has entered into a 3 year employment agreement with its
President. The agreement calls for annual salary of $200,000. In addition, the
agreement provides for a bonus in an amount up to 50% of the annual salary and
up to 12 months severance in an aggregate amount equal to annual salary if
terminated without cause.
59
<PAGE>
POLITICS.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
NOTE 7 - YEAR 2000 CONSIDERATIONS
The "Year 2000" problem relates to computer systems that have time and
date-sensitive programs that were designed to read years beginning with "19",
but may not properly recognize the year 2000. If a computer system or software
application used by the Company or a third party dealing with the Company fails
because of the inability of the system or application to properly read the year
2000 the results could have a material adverse effect on the Company.
The Company believes that when acquired its computer system will be
Year 2000 compliant. However, the Company is dependent on third party vendors.
Failures and interruptions, if any, resulting from the inability of certain
computing systems of third party vendors to recognize the Year 2000 could have a
material adverse effect on the Company's results of operations. There can be no
assurance that the Year 2000 issue can be resolved by any of such third parties
prior to the upcoming change in the century. Although the Company may incur
substantial costs, as a result of such third party service providers correcting
Year 2000 issues, such costs are not sufficiently certain to estimate at this
time.
NOTE 8- SUBSEQUENT EVENTS
In October 1999 the Company entered into a 3 year lease that terminates
October 31, 2002. In additional to base rent, the lease provides for payment of
certain other occupancy costs. Approximate future minimum payments under this
lease are summarized as follows:
<TABLE>
<S> <C> <C>
November 1, 1999 to December 31, 1999 $ 16,000
January 1, 2000 to December 31, 2000 $ 97,000
January 1, 2001 to December 31, 2001 $ 100,000
January 1, 2002 to October 31, 2002 $ 85,000
</TABLE>
60
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
<S> <C> <C>
2.1 Articles of Incorporation, as amended, of the Company.*
2.2 Bylaws of the Company.*
3.1 Specimen Certificate of Common Stock.*
3.2 Promissory Note issued by Politics.com-Nevada in favor of Howard R. Baer
dated June 30, 1999.*
3.3 Promissory Note issued by Politics.com-Nevada in favor of Carriage House
Capital, LLC dated November 1, 1999.*
3.4 Promissory Note issued by Politics.com-Nevada in favor of Kevin C. Baer
dated November 1, 1999. *
3.5 Promissory Note issued by Politics.com-Nevada in favor of Northeast
Investments dated November 1, 1999.*
6.1 Contract of Sale between Politics.com, Inc., a Nevada corporation, and
Howard R. Baer dated June 30, 1999.*
6.2 Contract of Sale between Politics.com, Inc., a Nevada corporation, and Kurt
Ehrenberg dated August 17, 1999.*
6.3 1999 Combination Stock Option Plan.*
6.4 Form of Non-Qualified Stock Option Agreement between Politics.com, Inc., a
Delaware corporation, and Brian Wadsworth dated as of July 27, 1999.*
6.5 Form of Non-Qualified Stock Option Agreement.*
6.6 Form of Incentive Stock Option Agreement.*
6.7 Stock Purchase Agreement by and among Lone Oak, Inc., a Delaware
corporation, and Howard R. Baer and Kevin C. Baer dated July 22, 1999.*
6.8 Employment Letter dated July 29, 1999, as amended September 7, 1999.*
6.9 Lease Agreement between Renaissance 632 Broadway LLC and Politics.com,
Inc. dated October 29, 1999.*
6.10 1999 Advisory Council Stock Option Plan.*
6.11 Form of Advisory Council Engagement and Option Agreement.*
6.12 Services Agreement between Touchscreen Media Group and Politics.com, Inc.
dated October 29, 1999, as supplemented on December 2, 1999*
6.13 Individual Limited Guaranty by Howard R. Baer in favor of Touchscreen Media
Group dated December 2, 1999.*
27 Financial Data Schedule.**
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
61
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment no. 2 to registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized.
POLITICS.COM, INC.
DATE: JANUARY 19, 2000 BY: /s/ Marc Jacobson
---------------------------
MARC JACOBSON
PRESIDENT AND CHIEF OPERATING OFFICER
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 94,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 99,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 99,000
<CURRENT-LIABILITIES> 44,692
<BONDS> 0
0
0
<COMMON> 21
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 587
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 9,143
<CURRENT-ASSETS> 9,730
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,730
<CURRENT-LIABILITIES> 3,064
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 6,660
<TOTAL-LIABILITY-AND-EQUITY> 9,730
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 80
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 800
<INCOME-CONTINUING> (880)
<DISCONTINUED> (2,930)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,810)
<EPS-BASIC> (.01)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-17-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> (1)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
