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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-SB-A
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
THE FINANCIAL COMMERCE NETWORK, INC.
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(Exact name of the registrant as specified in its charter)
0-27971
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(SEC Registration Number)
NEVADA 22-2582276
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(State or other jurisdiction of (I.R.S. employer
Incorporation or Organization) identification no.)
63 Wall Street
New York, NY 10005
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(Address of principal executive offices) (Zip code)
Registrant's Telephone number, including area code (212) 742-9870
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Securities to be registered pursuant to Section 12(b)of the Act:
Title of each class Names of each exchange on which
to be so registered each class is to be registered
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NONE N/A
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
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(Title of Class)
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ITEM 1: BUSINESS
(a) BUSINESS HISTORY
The Company was organized as a corporation in Washington on July 11,
1969. Prior to March 1999, the Company had not had any material operations for
some years.
On February 16, 1999, the Company's Board of Directors authorized the
issuance of an option to certain shareholders, to purchase 15 million shares of
the Company's common stock for a conversion price of $5,000 in consideration of
the forgiveness of certain loans made by the shareholders to the Company. On
February 24, 1999, that option was purchased from the shareholders by David
Weiss, a former employee of Alexander, Wescott & Co., Inc., for $95,000. The
previous Board of Directors of the Company resigned effective February 26, 1999.
Prior to resigning, the Board appointed David Weiss and his appointee as
directors. Subsequently, the remaining members of the Board were appointed.
On March 11, 1999, Mr. Weiss exercised his option to purchase the 15
million shares. He then contributed 13.5 million shares back to the Company to
enable it to acquire operating subsidiaries. On March 29, 1999, the Company
acquired Alexander, Wescott & Co., Inc. ("ALWC") as a wholly-owned subsidiary.
ALWC is a registered broker-dealer with the United States Securities and
Exchange Commission ("SEC") and a member of the National Association of
Securities Dealers, Inc. ("NASD"). ALWC was a wholly-owned subsidiary of
Alexander, Wescott Holdings, Inc., a holding company predominately owned by
Richard H. Bach, the present chairman and chief executive officer of the
Company. The acquisition was in exchange of 13.5 million shares, or 68% of the
issued and outstanding stock of the Company, of common stock of the Company
issued to the holding company. Alexander, Wescott Holdings, Inc. subsequently
conducted a self tender of its shares of common stock in exchange for shares of
the Company. See, Item 4, Security Ownership of Certain Beneficial Owners and
Management.
Pursuant to the approval of the Company's shareholders at a
Shareholders Meeting held on May 13, 1999, the Company re-incorporated in Nevada
as Intrex.com, Inc., effective May 19, 1999. On September 8, 1999, the Company
changed its name to The Financial Commerce Network, Inc. The Company maintains
its principal office at 63 Wall Street, New York, New York 10005.
(b) BUSINESS OF ISSUER
The Company is developing a comprehensive high-end financial and
information services portal on the Internet for accredited investors and
institutions. The portal, called 'The Financial Commerce Network' or TFCN.com,
was launched on September 30, 1999. The portal is intended to be fully
interactive and will be an expansion on the services presently offered by
on-line investment sites such as those provided by Siebert Financial Corp.,
E*Trade Group and Ameritrade Holding Corp. It is intended that a user of the
portal would be afforded many products and services such as on-line trading,
block trades, private placements, IPOs, bond offerings, equity research and
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other matters. The trades will be executed through ALWC and such other
registered broker dealers as the Company will acquire or with which the Company
shall enter into strategic alliances.
The Company's comprehensive, financial and information services Web
portal is aimed at providing institutional investors and accredited private
investors with comprehensive and seamless access to a broad array of
informational and transactional services. TFCN.com will be a 'private club,'
offering members an array of services typically only available through a private
banking relationship.
Initially the services of TFCN.com will be made available to the
existing clients of ALWC, although the Company intends to market its services to
others in the future.
It is anticipated that revenues will be generated from membership fees
and commissions from trading earned by the Company's registered broker dealer
subsidiary.
The Company believes that TFCN.com will become the first online source
to offer all the following products and services:
PRODUCTS:
- - Online Prime Brokerage
- - Online trading
- - Online Block trading
- - Self-directed trade routing (if desired)
- - Private Placements
- - IPOs
- - Secondary Offerings
- - Asset Management
- - Foreign Equities
- - 'Hedgeworld,' which is an information location containing information
concerning hedge funds
- - 2-way connections to other broker-dealers, information vendors etc.
SERVICES:
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- - Equity Research
- - Analytical tools
- - Real-time quotes
- - News feeds
- - Information concerning news events, merger and acquisition activity in the
market, etc.
- - Concierge (hotel reservations; theater, concerts and sports tickets etc.)
It is anticipated that customers will have direct access to market
makers and the New York Stock Exchange floor and will be able to execute trades
through several different sources while consolidating all transactions in a
single prime brokerage account that can be accessed from any location worldwide.
It is anticipated that customers will also be able to choose where and how to
route their orders, a level of control in trading currently unavailable through
normal broker-dealer relationships.
The Company believes that by merging the convenience and reach of the
Internet with the selection and simplicity of a prime brokerage account,
TFCN.com will provide a new type of service in online investing. In addition to
benefitting from online informational and transactional services, it is
anticipated that TFCN.com customers will be able to obtain individualized
assistance from a trained team of account managers of the Company, available day
and night, and reachable on the site and through a designated toll-free phone
number.
The Company currently has an existing revenue stream through its
acquisition of ALWC, which continues to operate as a registered broker dealer
and which generated in excess of $7 million in revenues in 1998. Revenues for
the nine months ended September 30, 1999 were approximately $1,449,000.
The Company's online services will initially be limited to the
following products and services:
- - Trading in listed US Equities
- - Prime Brokerage
- - Private Placements
- - Listed Options
- - Limited concierge (hotel reservations; theater, concerts and sports tickets
etc.)
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In the future, it is planned that other services will be added,
eventually enabling customers to customize their transactional interface with
TFCN.com. These products and services will include:
- - Fixed Income trading
- - Derivatives trading
- - Restricted stock trading
- - IPOs
- - Self-directed trade routing (if desired)
- - Secondary Offerings
- - Asset Management
- - Foreign Equities
- - 'Hedgeworld'
- - 2-way connections to other broker-dealers, information vendors etc
- - Equity Research
- - Analytical tools
- - Real-time quotes
- - News feeds
- - Information concerning news events, merger and acquisition activity in the
market, etc.
- - Expanded concierge (hotel reservations; theater, concerts and sports
tickets etc.)
ALEXANDER, WESCOTT & CO, INC.:
ALWC is presently the principal subsidiary of the Company. It is a full
service broker/dealer which provides order execution, block trading and
investment banking services. ALWC is registered as a broker/dealer with the
Securities and Exchange Commission (SEC), the National Association of
Securities Dealers, Inc. (NASD), the Municipal Securities Rulemaking Board
(MSRB) and the Securities Investor Protection Corporation (SIPC).
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ALWC was acquired by the Company on March 29, 1999. ALWC was a
wholly-owned subsidiary of Alexander, Wescott Holdings, Inc., a holding
company predominately owned by Richard H. Bach, the present chairman and chief
executive officer of the Company. The acquisition was in exchange of 13.5
million shares of common stock of The Financial Commerce Network issued to the
holding company.
ALWC's approach to the securities business is similar to a private
bank. ALWC believes in looking after the needs of its clients, both
institutions and individuals, with the objective of establishing long-term
relationships. ALWC's staff of approximately 25 investment professionals, in
two offices, provide order execution, block trades and investment banking
services. ALWC executes client orders through its trading desk in New York and
specializes in block trades and third- market executions.
The firm assists Small and Micro capitalization companies in raising
funds through Private Placements and Bridge Loans. This sector of small,
growing businesses has difficulty raising capital and gaining access to "Wall
Street".
ALWC introduces its clients on a fully disclosed basis to Spear Leeds
& Kellogg. A "fully disclosed" account is an account in which the clearing
firm maintains an account in the name of the client, as opposed to an
"omnibus" account which is maintained only in the name of the introducing
broker dealer.
ALWC TRADING DEPARTMENT: Based in New York City, ALWC's trading desk
executes orders for institutional clients and high net worth individuals. The
desk also specializes in block trades and third-market executions. The desk
executes both buy and sell orders, with the net cost usually being better than
the offer on the buy-side and better than the bid on the sell-side. The firm's
traders have developed an expertise in trading in the middle of the spread. By
trading in the middle of the spread, the department can generate profits while
still remaining highly competitive. The firm also operates as a "market maker"
in the securities of certain companies. This means that ALWC purchases and
sells such securities for the purpose of creating a market for the purchasers
and sellers of such securities. ALWC's status as a market maker requires it to
maintain a higher minimum net capital, as required under the federal
securities laws, than other broker dealers which do not make markets.
INSTITUTIONAL AND ACCREDITED INVESTOR SALES DEPARTMENT: Located in
both of the firm's offices, the sales department is compiled of approximately
10 registered representatives specializing in institutional and private client
sales. The firm primarily services clients that qualify as "accredited
investors" for the purposes of the federal securities laws. An accredited
investor is defined under the federal securities laws as an investor who meets
one or more of the following criteria:
* A natural person whose net worth with his spouse exceeds $1 million;
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* A natural person who had individual income in excess of $200,000 in
each of the two most recent years or joint income with his spouse in excess of
$300,000 in each of those years and who reasonably expects to reach the same
income level in the current year;
* A corporation, Massachusetts or similar business trust or
partnership or organization described in Section 501(c)(3) of the Internal
Revenue Code, with total assets in excess of $5 million;
* Either (i) a bank as described in Section 3(a)(2) of the Securities
Act of 1933, or any savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Securities Act of 1933 whether acting in
its individual or fiduciary capacity, or any broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934, (ii) an
insurance company as defined in Section 2(13) of the Securities Act, (iii) an
investment company registered under the Investment Company Act of 1940 or a
business development company as defined in Section 2 (a)(48) of such Act, (iv)
a Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301 (c) or (d) of the Small Business Investment
Act of 1958, or (v) an employee benefit plan within the meaning of Title I of
the Employee Retirement Income Security Act of 1974, if the investment
decision is made by a plan fiduciary, as defined in Section 3 (21) of such
Act, which plan fiduciary is either a bank, savings and loan association,
insurance company or registered investment advisor, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self directed plan,
with investment decisions made solely by persons who are accredited investors;
* A private business development company as defined in Section
202(a)(22) of the Investment Advisors Act of 1940;
* A director, executive officer or general partner of the Company;
* A trust, with total assets in excess of $5 million whose purpose is
directed by a sophisticated person as described in Rule 506(b)(2)(ii) of
Regulation D of the Securities Act; or
* An entity in which all of the equity owners are accredited
investors.
This department generates a significant percentage of the firm's
total revenues via commissions (both agency and principal) on brokerage
transactions resulting from the sale of equity and fixed income securities.
Many of the firm's clients are institutions, such as fund managers, banks and
other broker/dealers, and high net worth individuals. The firm focuses on
hiring seasoned brokers with an established book of clients who are located
throughout the U.S., Europe and other parts of the world. This reduces both
the typical production "start-up" delays associated with inexperienced
salesmen and the failure or attrition of those new recruits. Furthermore, by
acquiring more seasoned professionals, the firm can service its clients better
and increase its production faster with producing salesmen. The firm is
currently registered in 40 states, and anticipates being registered in more as
it continues to grow.
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CORPORATE FINANCE DEPARTMENT: ALWC's investment banking activities
encompass raising capital for small, growing public corporations through
Private Placements and Bridge Loans. ALWC's investment banking clients are
carefully selected, undervalued firms with strong growth potential. In
connection with its investment banking activities, ALWC provides a full
compliment of services to its corporate clients. In addition to the public or
private financing of a corporate client, these services may include
participation in the corporation's active development as an investment banker
and consultant generating fee income.
CLEARING ACCOUNTS AND OPERATIONS: ALWC introduces its clients on a
fully disclosed basis to Spear Leeds & Kellogg. The firm chose to clear its
business since this results in substituting a variable cost for a fixed cost.
ALWC does not hold any funds or securities of its customers and does not
directly settle or clear either its own or its customers' securities
transactions. Spear Leeds & Kellogg's clearing services include billing and
credit control, and receipt, custody and delivery of securities, on a fee
basis. These services relieve ALWC from most of the "back office" functions
associated with brokerage activities and free the firm from the need and
expense of expanding its operations department based in New York, New York.
COMPETITION
There are existing entities conducting business and competing with the
Company on various levels. Most of them have been in business for a far longer
period than the Company and are larger and more established than the Company,
such as Merrill Lynch & Co., PaineWebber, W.R. Hambrecht Inc. and Wit Capital.
There are also other competing companies that are relatively new to this
business, such as DLJDirect, Datek and E*Trade.
Existing competitors tend to focus on specific product lines or groups
of product lines. For the established firms, those services are primarily
delivered in person, through the mail or over the telephone. While the
Internet provides them with a complimentary communications channel it has a
limited product distribution capability in the manner in which such
competitors use it. For the newer companies, the Internet has become the
primary communication and distribution channel, but these firms tend to focus
on a more main stream customer.
For example, PaineWebber Global Prime Brokerage
(WWW.GLOBALPRIMEBROKER.COM) primarily serves institutional customers,
providing clearing and custody services, global institutional sales and
trading services, bridge financing and equity and economic research. Merrill
Lynch's Internet services (announced June 1, 1999 and anticipated to begin
operations later this year) focuses on online trading and asset management for
wealthy individuals. Wit Capital (WWW.WITCAPITAL.COM) is focused on
underwriting securities offerings through the Internet. W.R. Hambrecht Inc.
(WWW.WRHAMBRECHT.COM) is focused on underwriting securities offerings of
emerging technology companies. E*Trade provides online trading to any
investor, but does not provide research and other services to its customers
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The Company's strategy is to develop a Web portal site that will
provide the institutional and high net worth customer with a diverse number of
financial services and products in a unified site with the Internet as the
primary communication and product distribution channel.
Very few firms presently offer such a broad selection of products and
services, as is envisioned for the Company's Web portal site, for a
sophisticated customer.
GOVERNMENT REGULATIONS
Certain aspects of the Company's business, as that of its competitors
and the financial services industry in general, are subject to stringent
regulation by U.S. Federal and state regulatory agencies and securities
exchanges, each of which have been charged with the protection of the
financial markets and the interests of those participating in those markets.
These regulatory agencies in the United States include, among others, the
Securities and Exchange Commission ("SEC"), Municipal Securities Rulemaking
Board ("MSRB"), the National Association of Securities Dealers, Inc. ("NASD")
and the NASD Regulation, Inc. ("NASDR").
Additional legislation and regulations and changes in rules
promulgated by the SEC or other U.S. Federal and state governmental regulatory
authorities and self-regulatory organizations and by non-U.S. governments and
governmental regulatory agencies may directly affect the manner of operation
and profitability of ALWC.
ALWC is a registered as broker-dealer with the SEC and as such is
subject to regulation by the SEC and by self-regulatory organizations, such as
the NASD and any securities exchanges of which it may become a member.
ALWC is subject to Rule 15c3-1 under the Securities Exchange Act of
1934 which is designed to measure the general financial condition and
liquidity of a broker-dealer. Under this rule, they are required to maintain
the minimum net capital deemed necessary to meet broker-dealers' continuing
commitments to customers and others. Under certain circumstances, this rule
limits the ability of the Company to withdraw capital from such
broker-dealers.
Broker-dealers are also subject to other regulations covering the
operations of their business, including sales and trading practices, use of
client funds and securities, and conduct of directors, officers, and
employees. Broker-dealers are also subject to regulation by state securities
administrators in those states where they do business. Violations of the
stringent regulations governing the actions of a broker-dealer can result in
the revocation of broker-dealer licenses, the imposition of censures or fines,
the issuance of cease and desist orders and the suspension or expulsion from
the securities business of a firm, its officers, or employees. The SEC and the
national securities exchanges emphasize in particular the need for supervision
and control by broker-dealers of their employees.
TRADEMARKS
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The Company is in the process of applying for a trademark for "TFCN."
PATENTS
The Company has no patents.
EMPLOYEES
The Company employs a full-time staff of approximately twenty-five,
and has made arrangements with independent contractors for various purposes,
including the development of the Web portal site discussed above. The Company
considers its relations with its employees to be satisfactory.
ITEM 2: FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion covers only the operations of the operating
subsidiary, Alexander, Wescott & Co., Inc. ("ALWC") for the nine months ended
September 30, 1998. The Financial Commerce Network, Inc. had no operations for
this period.
RESULTS OF OPERATIONS
Results of Operations for The Financial Commerce Network, Inc. prior to
March 29, 1999 were not material. Accordingly, the results reported below
pertain only to the Company's sole operating subsidiary ALWC prior to March
29, 1999. Both the Company's and ALWC's fiscal year ends on December 31st.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
NET LOSSES
For the nine-month periods ended September 30, 1999 and 1998, the
Company incurred a net loss of $23,350,285 and a net profit of $181,485,
respectively. Explanations of these results are set forth below.
REVENUE
For the nine-month period ended September 30, 1999, the Company
recorded revenue of $1,449,138 as compared to $6,255,386 for the same period
ended September 30, 1998.
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During the nine month period ended September 30, 1999, ALWC's trading
and commission revenue was $954,880 and revenue from investment banking was
$355,951. During the nine month period ended September 30, 1998, ALWC's
trading and commission revenue was $2,620,355 and revenue from investment
banking was $3,316,874.
The decline in revenues in 1999 and resulting losses were anticipated
when the decision was made to refocus the Company's business plan and to
develop the Internet portal in late 1998.
During the latter half of 1998, ALWC decided to extricate itself from
the retail brokerage business. It sold one of its branch offices to another
registered broker dealer and closed two other offices. The sale of the branch
office was in consideration for the buyer's assumption of certain lease
obligation and for a percentage of the trading commissions generated by the
office for one year. The buyer never made any payments. The Company ceased to
do any retail business at December 31, 1998. This had the effect of reducing
revenues approximately 20%.
Early in 1999, it was decided that ALWC should no longer continue
proprietary trading. This had been profitable in the past and accounted for
nearly one third of total revenues but placed ALWC's capital at risk.
Lastly, management recognized that the Company would have to devote a
substantial amount of time to launch the new Internet portal and to build a
new managerial team with the requisite technical expertise and experience to
ensure a successful outcome. This had the effect of reducing revenues from
private placement significantly. This has largely been completed and the
Company has returned to rebuilding its business and client base. The Company
will primarily concentrate on execution services for its clients, private
placements and third market executions for other broker dealers.
EXPENSES
On March 29, 1999, ALWC was acquired by the Company from Alexander,
Wescott Holdings, Inc. This acquisition had a profound but temporary effect on
the Company's operating results as explained above and included substantial
accruals which are reflected in the September 30, 1999 balance sheet as a
result of the acquisition of ALWC.
GENERAL AND ADMINISTRATIVE
General and administrative costs consist primarily of employee
compensation and benefits and occupancy costs. Significant costs are
attributed to the Company becoming a reporting public company. This status
will increase audit and legal costs significantly. In relation to the Company
becoming a public company, the cost of corporate relations will also increase
as quarterly reports and other investor information is required. The Company
anticipates that its General and Administrative costs (as a percentage of
costs) will decline as the Company's operations expand.
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General and administrative expenses increased to $22,301,306 for the
nine-month period ended September 30, 1999 compared to $5,952,901 for the
nine-month period ended September 30, 1998, an increase which was mostly
attributable to the issuance of stock options with an exercise price below the
market price.
The Company has established a valuation allowance for its deferred tax
assets, which arose from operating losses and timing differences for the
recognition of compensation associated with the options that were granted
during the third quarter of 1999. In order for the Company to recognize a
portion or all of this benefit, it must attain profitable operations. Due to
the lack of operating history in the current businesses in which the Company
derives its revenues, the Company cannot be assured when and if it will attain
profitable operations sufficient to realize any of these deferred tax
benefits.
FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997
The following discussion covers only the operations of ALWC for the
years ended December 31, 1998 and 1997 as The Financial Commerce Network, Inc.
had no operations during these periods.
NET LOSSES AND PROFITS
For the year ended December 31, 1998, ALWC incurred a net loss of
$85,331. For the 1997 fiscal period ALWC had a net profit of $443,493.
Explanations of these results are set forth below.
REVENUE
For fiscal 1998 and the 1997 fiscal period ALWC's revenue was
$7,117,676 and $5,862,216, respectively. During fiscal 1998, ALWC's trading
and commission revenue was $3,438,171 and revenue from investment banking was
$3,502,903. During fiscal 1997, revenue from trading and commissions was
$3,050,175 and revenue from investment banking was $2,784,727. The increase in
revenues during 1998 over 1997 was primarily attributable to normal growth of
ALWC and increased investment banking and trading commissions.
EXPENSES
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased to $7,260,007 for fiscal
1998 compared to $5,163,723 for fiscal 1997, an increase of $2,096,284. This
increase was primarily attributable to increases in compensation and benefits
and clearance and communication charges. These increases were partly the
result of increased revenues as described above.
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LIQUIDITY AND CAPITAL RESOURCES
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
During the nine months ended September 30, 1999, the Company used cash
for operating activities of approximately $2,345,000 compared to cash
generated from operations for the nine months ended September 30, 1998 of
approximately $76,000. Cash used for operations for the nine months ended
September 30, 1999 resulted from the Company's net loss of approximately
$23,350,285, of which $21,369,482 was a non-cash loss, partially offset by an
increase in accounts payable and accrued expenses. Cash provided by operations
for the nine months ended September 30, 1998 resulted from the Company's net
income.
During the nine months ended September 30, 1999 the Company generated
cash from financing activities of approximately $2,733,000 compared to
approximately $25,000 for the nine months ended September 30, 1998. The cash
generated during the nine months ended September 30, 1999 was attributable to
sales of common stock and preferred stock and advances from affiliates and
shareholders. The cash provided during the nine months ended September 30,
1998 was attributable to capital contributions reduced by advances to
affiliates.
ALWC has funded a portion of its activities through September 30, 1999
from the net proceeds of private placement of its securities.
At September 30, 1999, ALWC had current assets of $2,499,862 and
current liabilities of $1,823,453.
In addition, implementation of the Company's business plan requires
capital resources substantially greater than those currently available to the
Company. The Company may determine, depending on the opportunities available
to it, to seek additional debt or equity financing to fund the cost of
continuing expansion. There can be no assurance that additional equity
financing will be available. If neither additional debt or equity financing is
available, the Company might seek loans. In addition, the Company might seek
some sort of strategic alliance with another company that would provide equity
to the Company.
To the extent that the Company finances expansion through the issuance
of additional equity securities, any such issuance would result in dilution of
the interests of the Company's stockholders. Additionally, to the extent that
the Company incurs indebtedness or issues debt securities to finance expansion
activities, it will be subject to all of the risks associated with incurring
substantial indebtedness, including the risks that interest rates may
fluctuate and cash flow may be insufficient to pay the principal of, and
interest on, any such indebtedness.
The Company has no current arrangements with respect to, or sources
of, additional financing, and it is not contemplated that its existing
stockholders will provide any portion of the Company's future financing
requirements. There can be no assurance that any additional financing
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will be available to the Company on acceptable terms, or at all. The inability
of the Company to obtain financing when needed will have a material adverse
effect on the Company.
FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997
During the year ended December 31, 1998 the Company used cash for
operations of approximately $469,000 compared with cash used for operations of
approximately $30,000 for the year ended December 31, 1997. Cash used for
operations for the 1998 year resulted from the Company's net loss of
approximately $85,000, increases in investments owned of approximately
$139,000, unrealized appreciation on investments of approximately $141,000,
decreases in securities sold, not yet purchased, of approximately $119,000 and
commissions payable of $165,000 partially offset by increases in accounts
payable and accrued expenses of $156,000 and amounts due to the clearing
broker of $108,000. Cash used for operations for the 1997 year resulted from
increases in investments owned of approximately $662,000 and other current
assets of approximately $285,000 partially offset by the Company's net income
of approximately $443,000 and increases in securities sold, not yet purchased,
of approximately $148,000 and commissions payable of approximately $278,000.
During the year ended December 31, 1998 cash used in investing
activities amounted to approximately $204,000 compared to cash provided by
investing activities of approximately $204,000 for the year ended December 31,
1997. In 1998 the cash used was attributable to advances to affiliates and in
1997 the cash provided was attributable to advances from affiliates.
During the year ended December 31, 1998 cash provided by financing
activities of approximately $535,000 was attributable to capital
contributions.
YEAR 2000 ISSUES
BACKGROUND. Some computers, software, and other equipment include programming
code in which calendar year data is abbreviated to only two digits. As a
result of this design decision, some of these systems could fail to operate or
fail to produce correct results if "00" is interpreted to mean 1900, rather
than 2000. These problems are widely expected to increase in frequency and
severity as the year 2000 approaches, and are commonly referred to as the
"Year 2000 Problem."
ASSESSMENT. The Year 2000 Problem could affect computers, software, and other
equipment used, operated, or maintained by the Company. Accordingly, ALWC is
reviewing its internal computer programs and systems to ensure that the
programs and systems will be Year 2000 compliant. The Company presently
believes that its computer systems will be Year 2000 compliant in a timely
manner. However, while the estimated cost of these efforts are not expected to
be material to the Company's financial position or any year's results of
operations, there can be no assurance to this effect.
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ALWC has obtained certification of its processes to assess Year 2000
Problems from the National Association of Securities Dealers. The NASD has
required all member firms to conduct extensive testing of their systems to
ensure Y2K compliancy prior to December 31, 1999. The cost of complying to the
Company was less than $10,000.
SUPPLIERS. The Company has initiated communications with third party suppliers
of the major computers, software, and other equipment used, operated, or
maintained by the Company to identify and, to the extent possible, to resolve
issues involving the Year 2000 Problem. However, the Company has limited or no
control over the actions of these third party suppliers. Thus, while the
Company expects that it will be able to resolve any significant Year 2000
Problems with these systems, there can be no assurance that these suppliers
will resolve any or all Year 2000 Problems with these systems before the
occurrence of a material disruption to the business of the Company or any of
its customers. Any failure of these third parties to resolve Year 2000
problems with their systems in a timely manner could have a material adverse
effect on the Company's business, financial condition, and results of
operation.
MOST LIKELY CONSEQUENCES OF YEAR 2000 PROBLEMS. The Company believes that it
is compliant for the Year 2000 Problems. However, management believes that it
is not possible to determine with complete certainty that all Year 2000
Problems affecting the Company have been identified or corrected. The number
of devices that could be affected and the interactions among these devices are
simply too numerous. In addition, one cannot accurately predict how many Year
2000 Problem-related failures will occur or the severity, duration, or
financial consequences of these perhaps inevitable failures. As a result,
management expects that the Company could likely suffer the following
consequences:
1. a significant number of operational inconveniences and inefficiencies
for the Company and its clients that may divert management's time and
attention and financial and human resources from its ordinary business
activities; and
2. a lesser number of serious system failures that may require significant
efforts by the Company or its clients to prevent or alleviate material
business disruptions.
CONTINGENCY PLANS. ALWC completed its contingency plans in September 1999.
Depending on the systems affected, these plans could include accelerated
replacement of affected equipment or software, short to medium-term use of
backup equipment and software, increased work hours for Company personnel or
use of contract personnel to correct on an accelerated schedule any Year 2000
Problems that arise or to provide manual workarounds for information systems,
and similar approaches. If ALWC is required to implement any of these
contingency plans, it could have a material adverse effect on ALWC's financial
condition and results of operations.
Based on the activities described above, the Company does not believe
that the Year 2000 Problem will have a material adverse effect on the
Company's business or results of operations.
15
<PAGE>
DISCLAIMER. The discussion of the Company's efforts, and management's
expectations, relating to Year 2000 compliance are forward-looking statements.
The Company's ability to achieve Year 2000 compliance and the level of
incremental costs associated therewith, could be adversely impacted by, among
other things, the availability and cost of programming and testing resources,
vendors' ability to modify proprietary software, and unanticipated problems
identified in the ongoing compliance review.
INFLATION
The Company believes that the impact of inflation and changing prices
on its operations since commencement of operations has been negligible.
SEASONALITY
The Company does not deem its revenues to be seasonal and any effect
would be immaterial.
ITEM 3: PROPERTIES
The Company leases office space on the 21st Floor at 63 Wall Street,
New York, New York at a current monthly rental of $11,200. This lease expires
January 31, 2003. The Company also leases space at 258 Genesee Street, Suite
307, Utica, New York 13502 at a monthly rental of $900 a month.
ITEM 4: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the date of this filing, the
number of shares of the Company's outstanding Common Stock, $.001 par value,
beneficially owned (as such term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) by each director of the Company, by each named executive
officer of the Company, by each beneficial owner of more than 5% of the
Company's Common Stock and by all of the Company's officers and directors as a
group.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage
of Beneficial Owner Beneficial Ownership (1) of Class (2)
- ----------------------------------- ------------------------ ------------
<S> <C> <C>
Alexander, Wescott Holdings, Inc. 2,372,720 7%
63 Wall Street
New York, New York
Richard Bach 20,312,985 60%
1039 Robinson Road
Mohawk, New York 13407
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage
of Beneficial Owner Beneficial Ownership (1) of Class (2)
- ----------------------------------- ------------------------ ------------
<S> <C> <C>
Laurence Lentchner 0 0%
68 Mattison Road
Branchville, New Jersey 07826
Ara Proudian 1,941,896 6%
c/o Alexander, Wescott & Co., Inc.
63 Wall Street
New York, New York 10005
All officers and directors as a group 23,626,780 74%
</TABLE>
- -----------------
(1) Unless otherwise noted, all shares are beneficially owned and the sole
voting and investment power is held by the person indicated.
(2) Based on 20,393,084 shares outstanding as of September 30, 1999 and
11,500,000 options to purchase shares. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants
that are held by such person and which are convertible or exercisable
within sixty (60) days of the date hereof (pursuant to Rule 13d-3 under
the Securities Exchange Act of 1934) have been converted or exercised.
ITEM 5: DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names of all directors and executive officers
of the Company along with certain information relating to the business
experience of each of the listed officers.
<TABLE>
<CAPTION>
Name Age Position
- ------------------- ----- ---------------------------------
<S> <C> <C>
Richard Bach 47 Chief Executive Officer and Chairman
Ara Proudian 29 President and Director
Jim Mullen 39 Secretary and Director
Laurence Lentchner 57 Director
</TABLE>
Directors are elected to serve until the next annual meeting of
stockholders or until their successors are elected and qualified. Officers
serve at the discretion of the Board of Directors subject to any contracts of
employment.
17
<PAGE>
Richard Hans Bach: Mr. Bach is the Chairman of the Board of Directors
and Chief Executive Officer of the Company. He was previously the Chairman of
Alexander, Wescott Holdings, Inc., which was the parent of ALWC. Before he
joined Alexander Wescott Holdings Co., Inc., Mr. Bach was president of
Traubner, Bach & Co., a registered broker-dealer specializing in
"third-market" and institutional executions. Mr. Bach also served as president
of Investors Financial Services, which was a registered commodities dealer.
Jim Mullen: Mr. Mullen is the Mr. Mullen is Secretary of the Company
and a Member of the Board of Directors. He is also manager of the Investment
Banking Division of ALWC. Prior to joining ALWC in 1996, Mr. Mullen was the
Foreign Operations Supervisor for the Harvard Management Company, which is
responsible for Harvard University's Endowment Fund.
Laurence H. Lentchner: Dr. Lentchner is a Member of the Board of
Directors of the Company. He has been a practicing psychologist in northern
new jersey for thirty years. He often consults in the area of business
psychology. He has a doctor of philosophy from new york university.
Ara Proudian: Mr. Proudian is head of over-the-counter trading at ALWC.
Prior to 1996, Mr. Proudian was a co-founder and owner of Investor's Depot, a
registered broker-dealer specializing in fixed income securities. Prior to
that Mr. Proudian was a proprietary trader with Alltech Securities, an New
York Stock Exchange member firm.
ITEM 6: EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by,
or paid for all services rendered to the Company by the Company's Chief
Executive Officer. No other executive officer of the Company received total
compensation in excess of $100,000 during the last three years.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Payouts Awards
------- ------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Long-
term
Other Restrict- incen-
Name Annual ed tive All
and Compen- Stock Options/ Plan Other
Principal sation Award(s) SARs Payouts Com-
Position Year Salary ($) Bonus ($) ($) ($) (#) ($) pensation(1)
--------- ---- ---------- --------- ------- --------- ----- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard Bach, 1998 $250,000(2) $0 0 0 0 0 5,825
Chief Executive 1997 $0(3) $0 0 1,715,350(4) 0 0 5,825
Officer and 1996 $0(3) $0 0 0 0 0 5,825
Chairman of the
Board of Directors
Carl Walston, (6) 1998 $175,000(2) $0 0 0 0 0 5,825
Former President and 1997 $175,000(2) $0 0 182,230(4) 0 0 5,825
Director 1996 $120,000(2) $0 0 0 0 0 5,825
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Todd Nesbit (6) 1999(5) $150,000 $0 0 0 0 0 0
Chief Operations
Officer
Brian Kelly (6) 1999(5) $140,000 $0 0 0 0 0 0
Chief Information
Officer
Ara Proudian, 1998 $150,000(2) $ 0 0 0 0 0 5,825
President and Director 1997 $0(3) $ 0 0 0 0 0 5,825
1996 $0(3) $ 0 0 0 0 0 5,825
</TABLE>
- --------------------------------
(1) Constitutes payment of insurance benefits.
(2) Both Mr. Bach and Mr. Proudian are paid by Alexander, Wescott & Co.,
Inc., the wholly owned subsidiary of the Company. Mr. Walston, prior to
his retirement, was also paid by Alexander, Wescott & Co., Inc.
(3) Mr. Bach and Mr. Proudian were paid no salary in 1997 and 1996 because
they acted as traders for Alexander, Wescott & Co., Inc. and were paid
commissions from the customers of Alexander, Wescott & Co., Inc. on
whose behalf they traded.
(4) Mr. Bach was given a bonus in 1997 of 343,070 shares of Alexander,
Wescott Holdings, Inc, which had a value of $1,715,350. Mr. Walston was
given a stock bonus in 1997 of 36,446 shares of Alexander, Wescott
Holdings, Inc., which had a value of $182,230. All of these shares were
exchanged for shares of the Company in connection with a self tender
offer made by Alexander, Wescott Holdings, Inc. to its shareholders.
(5) Neither Mr. Nisbet nor Mr. Kelly were officers of the Company at the end
of the last fiscal year.
(6) Carl Walston retired effective November 30, 1999. Todd Nisbit and Brian
Kelly resigned from the Company effective November 4, 1999 and November
30, 1999, respectively.
COMPENSATION OF DIRECTORS
No compensation is paid currently by the Company to any of its
Directors, who are not employees of the Company. However, each Director is
entitled to receive reimbursement for travel expenses for attendance at
meetings of the Board.
ITEM 7: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has no related party transactions.
ITEM 8: DESCRIPTION OF SECURITIES
19
<PAGE>
The Company is authorized to issue up to 50,000,000 shares of
Common Stock, par value, $.001 per share and 10,000,000 shares of preferred
stock.. As of September 30, 1999, 20,393,084 shares of Common Stock were
issued and outstanding and 128,000 shares of preferred stock were issued and
125,500 were outstanding.
Each share of Common Stock is entitled to one vote per outstanding
share held on each matter submitted to a vote at a meeting of shareholders.
Each shareholder may exercise such vote either in person or by proxy.
Shareholders are not entitled to cumulate their votes for the election of
Directors. There are no preemptive or other preferential rights to purchase
additional shares of Common Stock. Upon liquidation, dissolution or winding-up
of the Company, the holders of Common Stock are entitled to receive, pro rata,
the assets of the Company which are legally available for distribution to
shareholders subject to the prior rights on liquidation of creditors and the
holders of shares of Preferred Stock, if any. All of the issued and
outstanding shares of Common Stock are validly authorized, fully paid and
non-assessable.
DIVIDENDS
The Company has not paid any cash dividends on its Common Stock.
The present policy of the Board of Directors is to retain earnings to finance
the operations and development of the Company's business. Accordingly, it is
anticipated that no cash dividends will be paid in the foreseeable future.
TRANSFER AGENT
The transfer agent for the Common Stock is United Stock Transfer,
Inc., 3615 South Huron Street, Suite 104, Engelwood, CO 80110.
REPORTS TO STOCKHOLDERS
The Company, by filing this Registration Statement, is registering
its Common Stock under the provisions of Section 12(g) of the Securities
Exchange Act of 1934, as amended. Such registration requires the Company to
comply with periodic reporting, proxy solicitation and certain other
requirements of the Securities Exchange Act of 1934, as amended.
PART II
ITEM 1: MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-market and
reported on the NASD electronic bulletin board, under the symbol "FCNI". The
following table sets forth the high and low bid prices of the Company's Common
Stock as reported on the over-the-counter market for the periods indicated.
The prices represent inter-dealer quotations, without retail mark-up,
mark-down or commission, and may not necessarily represent actual
transactions.
20
<PAGE>
<TABLE>
<CAPTION>
Bid Prices
Period High Low
------ ---- ---
<S> <C> <C>
Calendar Year 1998 $ 1.39 $ 0.44
First Quarter $ 2.50 $ 0.75
(January 1, 1999 to
March 30, 1999)
Second Quarter $ 7.25 $ 2.06
(March 30, 1999 to
June 30, 1999)
</TABLE>
As of September 30, 1999, there were approximately 493 record holders
of the Company's Common Stock.
The Company has never paid any cash dividends on its Common Stock and
has no present intention to do so. The Company intends to retain all of its
earnings for use in its business.
ITEM 2: LEGAL PROCEEDINGS
The Company is a party to only one legal proceeding. Dwarf Holding,
Inc. commenced an arbitration proceeding against the Company alleging that the
Company breached the terms of a contract between the parties under which,
Dwarf Holdings, Inc. claims that the Company was obligated to issue it freely
tradeable shares. No specific amount of damages are alleged.
The subsidiary of the Company, Alexander, Wescott & Co., Inc. ("ALWC")
is named as a defendant in three legal proceedings.
Mellon Bank, F.S.B. v. Alexander, Wescott & Co., Inc., 98 Civ. 2650
(S.D.N.Y.) - This lawsuit alleges that ALWC was paid $326,000 more than it was
owed in connection with acting as a placement agent in a private offering of
securities. The plaintiff seeks damages of $326,000.
Balmore Funds, S.A. v. NCT Audio, Inc., et al., 99 Civ. 281 (S.D.N.Y.)
- ALWC is a third party defendant in which the third party plaintiff alleges
that ALWC committed fraud, made negligent misrepresentations, exercised
deceptive trade practices, breached its fiduciary duty and breached its
contractual obligations in connection with the private offering referred to
above. NCT Audio claims that ALWC made representations and promises to Balmore
Funds, S.A. that ALWC was not authorized to make. NCT Audio is seeking
reimbursement for any amount that it might have to pay out as damages to
Balmore Funds, S.A. Specific money damages are not specified.
21
<PAGE>
Pedrazzi v. Bishop Rosen & Co., Inc., et al., Arb. No. 99-02175
(N.A.S.D.) - a customer of ALWC alleges churning, unauthorized trading and a
failure to supervise by ALWC and its employees. The arbitration seeks $50,000
damages.
ITEM 3: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Rothstein, Kass & Company, P.C. was engaged as the Company's principal
accountant to audit the Company's financial statements for the fiscal year
ended December 31, 1998. The Company has had no disagreements with its
accountants.
ITEM 4: RECENT SALES OF UNREGISTERED SECURITIES.
On February 16, 1999, Company's Board authorized the issuance of an
option (the "Option") to purchase 15 million shares of Company common for a
conversion price of $5,000. The Option was issued to Randy McNeice, Phillip
Carstens, William Ross, Gary Gottesman, Jerry Naccatato and Terrence Dunne
(the "Old Investors"). The consideration for the issuance was the forgiving of
certain loans made to Company by those individuals.
On February 24, 1999, the Old Investors entered into an agreement to
sell the option to David Weiss for $95,000. On March 11th Mr. Weiss exercised
the option and became owner of 15 million shares of Company common stock. On
March 29, 1999, Mr. Weiss contributed 13.5 million shares of common stock back
to the Company in order to allow it to purchase Alexander, Wescott & Co., Inc.
On February 26, 1999, the Company entered into a private placement
agreement in which the Company issued 4,347,826 shares of common stock at a
price of $.23 per share, pursuant to Rule 504.
On March 18, 1999, the Company issued 211,498 shares of common stock in
exchange for professional services rendered in connection with the provision
of legal services by Neil Liebman, Esq. Those shares were valued at $0.23 per
share which was the price per share as offered in the private placement in
connection with which he rendered legal services.
On June 30, 1999, the Company issued 200,000 shares of common stock to
Dwarf Holdings, Inc. in connection with a consulting agreement. These shares
were valued using the closing market price of the Company's stock on the dates
that the services were rendered, and for the services to be rendered, the
valuation was based on the closing market price on the date of issuance, less
a 10% discount due to lack of marketability. As of September 30, 1999, the
Company has expensed approximately $625,000 under these terminated agreements.
ITEM 5: INDEMNIFICATION OF DIRECTORS AND OFFICERS.
22
<PAGE>
The Company's By-laws provide for indemnification of officers and
directors to the fullest extent permitted by Nevada law. In addition, under
the Company's By-laws, no director shall be liable personally to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director; provided that the Certificate of Incorporation does not eliminate
the liability of directors for (i) any breach of the director's duty of
loyalty to the Company or its stockholders; (ii) acts of omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) acts or omissions in respect of certain unlawful dividend payments or
stock redemptions or repurchases; or (iv) any transaction from which such
director derives improper personal benefit.
PART F/S
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS AND EXHIBITS PAGE
<S> <C>
Independent Auditors' Report................................................. F-1
Consolidated Balance Sheets as of December 31, 1998.......................... F-2
Consolidated Statement of Operations for the years ended December 31,
1997 and 1998........................................................... F-3
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1997 and 1998.............................................. F-4
Consolidated Statement of Cash Flows for the years ended December 31, 1997
and 1998................................................................ F-5
Notes to the Financial Statements............................................ F-6-13
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
*2.1 Articles of Incorporation of The Financial Commerce Network,
Inc., f/k/a Intrex.com, Inc. and Amended Articles
*2.2 By-laws of The Financial Commerce Network, Inc., f/k/a
Intrex.com, Inc.
*3 Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of The Financial Commerce Network,
Inc., f/k/a Intrex.com, Inc.
6 Material Contracts
Spear Leeds & Kellogg Clearing Agreement
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
</TABLE>
* Previously filed
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized.
THE FINANCIAL COMMERCE NETWORK, INC.
(Registrant)
Date: January 6, 2000 By: /s/ ARA PROUDIAN
-----------------------
Ara Proudian, President
<PAGE>
THE FINANCIAL COMMERCE NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1998
<PAGE>
THE FINANCIAL COMMERCE NETWORK, INC. AND SUBSIDIARY
CONTENTS
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Financial Commerce Network, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of The Financial
Commerce Network, Inc. and Subsidiary as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 1998 and 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Financial Commerce Network, Inc. and Subsidiary as of December 31, 1998, and the
results of their operations and their cash flows for the years ended December
31, 1998 and 1997, in conformity with generally accepted accounting principles.
/s/ Rothstein Kass & Company, P.C.
Roseland, New Jersey
March 29, 1999
F-1
<PAGE>
THE FINANCIAL COMMERCE NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 90,959 $ 92,253
Investments owned, at market.............................. 730,138 772,130
Investments owned, at fair value.......................... 289,880 343,039
Due from affiliate........................................ 382,946
Deferred income taxes..................................... 57,000 57,000
Other current assets...................................... 428,866 852,494
---------- ------------
Total current assets.................................... 1,596,843 2,499,862
OFFICE EQUIPMENT, net of accumulated depreciation of $2,678
at December 31, 1998 and $4,076 at September 30, 1999
(unaudited)............................................... 13,389 16,058
OTHER ASSETS................................................ 25,100 35,620
---------- ------------
$1,635,332 $ 2,551,540
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Equity securities sold, not yet purchased................. $ 32,425 $
Accounts payable and accrued expenses..................... 248,889 1,165,714
Commissions payable....................................... 140,075 28,737
Bank loan payable......................................... 74,002
Due to stockholders....................................... 440,000
Due to affiliate.......................................... 15,880 115,000
Due to clearing broker.................................... 108,419 --
---------- ------------
Total current liabilities............................... 545,688 1,823,453
---------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, authorized 50,000,000
shares, issued and outstanding 622,502 shares at
December 31, 1998 and 20,393,084 shares at September 30,
1999 (unaudited)........................................ 623 20,393
Convertible preferred stock, $.001 par value, authorized
10,000,000 shares, none issued at December 31, 1998 and
128,000 issued, 125,500 outstanding at September 30,
1999 (unaudited)........................................ 126
Additional paid-in capital................................ 897,270 23,866,102
Retained earnings (accumulated deficit)................... 191,751 (23,158,534)
---------- ------------
1,089,644 728,087
---------- ------------
$1,635,332 $ 2,551,540
========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
THE FINANCIAL COMMERCE NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998 1998 1999
- ------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Trading and commissions $ 3,050,175 $3,438,171 $2,620,355 $ 954,880
Investment banking 2,784,727 3,502,903 3,316,874 355,951
Interest 4,632 10,912 8,879 30,100
Unrealized appreciation
(depreciation) on investments (37,318) 140,690 264,223 75,874
Other 25,000 45,055 32,333
---------------------------------------------------------
5,802,216 7,117,676 6,255,386 1,449,138
---------------------------------------------------------
EXPENSES
Employee compensation
and benefits 3,221,878 4,716,421 4,122,433 1,519,206
Clearance 897,931 971,524 730,077 526,123
Occupancy 183,208 280,277 204,191 114,466
Communications 157,827 263,628 381,230 204,475
Insurance 49,634 131,160 20,239 14,264
Compensation for stock options 20,700,000
Other 653,245 896,997 494,731 1,601,306
---------------------------------------------------------
5,163,723 7,260,007 5,952,901 24,679,840
---------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 638,493 (142,331) 302,485 (23,230,702)
INCOME TAXES 195,000 (57,000) 121,000
---------------------------------------------------------
NET INCOME (LOSS) $ 443,493 $ (85,331) $ 181,485 $(23,230,702)
PREFERRED STOCK DIVIDENDS (119,583)
---------------------------------------------------------
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCK $ 443,493 $ (85,331) $ 181,485 $(23,350,285)
---------------------------------------------------------
BASIC AND DILUTED INCOME (LOSS)
PER COMMON SHARE $ 0.71 $ (0.14) $ 0.29 $ (1.55)
---------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES USED IN
COMPUTING BASIC AND DILUTED
INCOME (LOSS) PER COMMON SHARE 622,502 622,502 622,502 15,010,806
---------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
THE FINANCIAL COMMERCE NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1997 AND 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL
COMMON STOCK PREFERRED STOCK PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1997 622,502 $ 623 $ -- $ 362,270
NET INCOME
-------------------------------------------------------------------
BALANCES, December 31, 1997 622,502 623
CAPITAL CONTRIBUTIONS
NET LOSS
-------------------------------------------------------------------
BALANCES, December 31, 1998 622,502 623 897,270
ISSUANCE OF COMMON STOCK
FOR PRIVATE PLACEMENT (unaudited) 4,347,826 4,348 995,441
ISSUANCE OF COMMON STOCK FOR SERVICES (unaudited) 211,498 211 --
ISSUANCE OF COMMON STOCK (unaudited) 15,000,000 15,000 (10,000)
PURCHASE OF TREASURY STOCK, (13,500,000 shares)
(unaudited)
ASSUMPTION OF LIABILITIES RELATED TO ACQUISITION (UNAUDITED) (572,230)
ISSUANCE OF COMMON STOCK FROM TREASURY (unaudited) (90,000)
ISSUANCE OF COMMON STOCK FOR SERVICES (unaudited) 200,000 200 624,175
ISSUANCE OF PREFERRED STOCK (unaudited) 128,000 128 1,201,872
CONVERSION OF PREFERRED STOCK TO
COMMON STOCK (unaudited) 11,258 11 (2,500) (2) (9)
PREFERRED STOCK DIVIDEND (unaudited) 119,583
ISSUANCE OF COMMON STOCK OPTIONS (unaudited) 20,700,000
NET LOSS (unaudited)
-------------------------------------------------------------------
BALANCES, September 30, 1999 (unaudited) 20,393,084 $20,393 125,500 $ 126 $ 23,866,102
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RETAINED
EARNINGS
(ACCUMULATED TREASURY
DEFICIT) STOCK
<S> <C> <C>
BALANCES, January 1, 1997 $ (166,411) $ --
NET INCOME 443,493
--------------------------------------
BALANCES, December 31, 1997 362,270 277,082
CAPITAL CONTRIBUTIONS 535,000
NET LOSS (85,331)
--------------------------------------
BALANCES, December 31, 1998 191,751
ISSUANCE OF COMMON STOCK
FOR PRIVATE PLACEMENT (unaudited)
ISSUANCE OF COMMON STOCK FOR SERVICES (unaudited)
ISSUANCE OF COMMON STOCK (unaudited)
PURCHASE OF TREASURY STOCK, (13,500,000 shares) 90,000
(unaudited)
ASSUMPTION OF LIABILITIES RELATED TO ACQUISITION (UNAUDITED)
ISSUANCE OF COMMON STOCK FROM TREASURY (unaudited) (90,000)
ISSUANCE OF COMMON STOCK FOR SERVICES (unaudited)
ISSUANCE OF PREFERRED STOCK (unaudited)
CONVERSION OF PREFERRED STOCK TO
COMMON STOCK (unaudited)
PREFERRED STOCK DIVIDEND (unaudited)
ISSUANCE OF COMMON STOCK OPTIONS (unaudited)
NET LOSS (unaudited) (23,350,285)
--------------------------------------
BALANCES, September 30, 1999 (unaudited) $(23,158,534) $ --
--------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
THE FINANCIAL COMMERCE NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998 1998 1999
- ----------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 443,493 $ (85,331) $ 181,485 $(23,350,285)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Deferred income taxes (57,000)
Issuance of common stock options 20,700,000
Preferred stock dividend 119,583
Common stock issued for professional services 624,375
Depreciation 2,678 4,017 1,398
Unrealized depreciation (appreciation)
on investments 37,318 (140,690) (264,223) (75,874)
Changes in operating assets and liabilities:
Investments owned, at cost (279,739) (138,556) 24,451 33,882
Investments owned, at cost (382,170) 38,635 206,610 (53,159)
Other current assets (285,237) (62,883) (109,306) (423,628)
Other assets 10,668 (6,100) 138,797 (10,520)
Equity securities sold, not yet purchased 147,675 (119,034) (142,096) (32,425)
Accounts payable and accrued expenses 31,510 156,100 252,927 341,617
Commissions payable 278,017 (164,937) (188,580) (111,338)
Due to clearing broker (31,448) 108,419 (28,071) (108,419)
---------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (29,913) (468,699) 76,011 (2,344,793)
---------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances from (repayments to) affiliate 220,249 (204,369) (382,946)
Purchases of office equipment (16,067) (1,419) (4,067)
---------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 204,182 (204,369) (1,419) (387,013)
---------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock 1,000,000
Sales of preferred stock 1,202,000
Advances from (repayments to) affiliate (195,120) 99,120
Payments on bank loan (8,020)
Advances from stockholders 440,000
Capital contributions 535,000 220,000
---------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 535,000 24,880 2,733,100
---------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 174,269 (138,068) 99,472 1,294
CASH AND CASH EQUIVALENTS, beginning of period 54,758 229,027 229,027 90,959
---------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 229,027 $ 90,959 $ 328,499 $ 92,253
---------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
THE FINANCIAL COMMERCE NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998 1998 1999
- ------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Common stock issued for professional
services (411,498 shares)(unaudited) $ -- $ -- $ -- $ 673,022
----------------------------------------------------------------------
Common stock options issued as
compensation (11,500,000 options)(unaudited) $ -- $ -- $ -- $20,700,000
----------------------------------------------------------------------
</TABLE>
During the nine months ended September 30, 1999, the Company assumed liabilities
of $572,230 as part of the acquisition of
Alexander Wescott & Co., Inc. (unaudited)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
THE FINANCIAL COMMERCE NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS The Financial Commerce Network, Inc.
("TFCN") was incorporated in the State
of Washington in July 1969 for the
purpose of acquiring other
corporations. Alexander, Wescott &
Co., Inc. ("ALWC"), the sole
subsidiary of TFCN, is a broker-dealer
registered with the Securities and
Exchange Commission (SEC) and an
introducing broker registered with the
Commodity Futures Trading Commission
(CFTC). ALWC is also a member of the
National Association of Securities
Dealers, Inc. (NASD) and the National
Futures Association (NFA). ALWC's
operations consist primarily of
engaging in principal transactions and
providing investment banking services.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION
The consolidated financial
statements include the accounts
of TFCN and its wholly-owned
subsidiary, ALWC (collectively
the Company). All significant
intercompany transactions and
balances have been eliminated in
consolidation.
ACQUISITION
Effective March 29, 1999, Alexander,
Wescott Holdings, Inc. (Holdings), the
parent company of ALWC entered into an
agreement with TFCN. The agreement
provided for TFCN to issue 13,500,000
shares of its common stock and assume
liabilities of approximately $572,000,
in exchange for all of Holdings'
outstanding shares of ALWC in a
transaction accounted for as a reverse
acquisition. As a result, ALWC is
considered to be the acquiring company
since the stockholders of ALWC
acquired more than 50% of the issued
and outstanding stock of TFCN. For the
years ended December 31, 1998 and 1997
TFCN had no revenues, costs and
expenses were approximately $2,000,
and other income was approximately
$4,000 in 1998. At December 31, 1998,
assets consisted of cash of $802. The
accompanying financial statements give
effect to this acquisition.
CASH AND CASH EQUIVALENTS
The Company considers money market
accounts to be cash equivalents.
OFFICE EQUIPMENT
Office equipment is stated at cost
less accumulated depreciation. The
Company provides for depreciation
using the straight-line method over an
estimated useful life of 6 years.
F-6
<PAGE>
THE FINANCIAL COMMERCE NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED) SECURITIES TRANSACTIONS
Securities transactions and the
related revenues and expenses are
recorded on the trade date.
INVESTMENT BANKING REVENUES
Investment banking revenues are
recorded in accordance with the terms
of the investment banking agreements.
INVESTMENTS OWNED AND EQUITY
SECURITIES SOLD, NOT YET PURCHASED
All investments owned and equity
securities sold, not yet purchased are
valued at market and unrealized gains
and losses are reflected in revenues.
INVESTMENTS OWNED, AT FAIR VALUE
Investments owned, at fair value
include restricted equity securities
which are valued using appropriate
reductions from market to provide for
restrictions on marketability and
warrants received in connection with
investment banking services, which are
priced using the Black-Scholes Options
pricing model.
INCOME (LOSS) PER COMMON SHARE
The Company complies with Statement of
Financial Accounting Standards No.
128, "Earnings Per Share" (SFAS 128).
SFAS No. 128 requires dual
presentation of basic and diluted
earnings per share for all periods
presented. Basic earnings per share
excludes dilution and is computed by
dividing income (loss) available to
common shareholders by the weighted
average number of common shares
outstanding for the period. Diluted
earnings per share reflects the
potential dilution that could occur if
securities or other contracts to issue
common stock were exercised or
converted into common stock or
resulted in the issuance of common
stock that then shared in the earnings
of the entity. Basic and diluted
income (loss) per common share were
the same for all periods presented.
INCOME TAXES
ALWC filed its 1997 and will file its
1998 federal income tax return on a
consolidated basis with Holdings.
Income tax expense is allocated
pursuant to the separate tax
attributes of each company. There were
no significant income taxes for TFCN
for any of the periods presented.
F-7
<PAGE>
THE FINANCIAL COMMERCE NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED) The Company complies with Statement of
Financial Accounting Standards No. 109
(SFAS 109), "Accounting for Income
Taxes". SFAS 109 requires the
recognition of deferred tax assets and
liabilities for both the expected
future tax impact of differences
between the financial statement and
tax bases of assets and liabilities,
and for the expected future tax
benefit to be derived from tax loss
carryforwards. Valuation allowances
are established, when necessary, to
reduce deferred tax assets to the
amount expected to be realized.
DEFERRED REGISTRATION COSTS
The Company has deferred professional
and other fees incurred in connection
with a proposed public offering. If
the offering is successful, these
costs will be charged to additional
paid-in capital; otherwise the costs
will be charged to operations.
UNAUDITED FINANCIAL STATEMENTS
The financial statements as of
September 30, 1999 and for the nine
months ended September 30, 1999 and
1998 are unaudited. These financial
statements reflect all adjustments
which are, in the opinion of
management, necessary for a fair
presentation of the results for the
interim periods. All such adjustments,
if any, are of a normal and recurring
nature.
USE OF ESTIMATES
The preparation of financial
statements in conformity with
generally accepted accounting
principles requires management to make
estimates and assumptions that affect
the reported amounts of assets and
liabilities and disclosure of
contingent assets and liabilities at
the date of the financial statements
and the reported amounts of revenues
and expenses during the reporting
period. Actual results could differ
from those estimates.
F-8
<PAGE>
THE FINANCIAL COMMERCE NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. NET CAPITAL REQUIREMENT ALWC, as a member of the NASD, is
subject to the SEC Uniform Net Capital
Rule 15c3-1. This Rule requires the
maintenance of minimum net capital and
that the ratio of aggregate
indebtedness to net capital, both as
defined, shall not exceed 15 to 1 and
that equity capital may not be
withdrawn, or cash dividends paid, if
the resulting net capital ratio would
exceed 10 to 1. ALWC is also subject
to the CFTC's minimum financial
requirements which require that ALWC
maintain net capital, as defined,
equal to the greater of its
requirements under Regulation 1.17
under the Commodity Exchange Act or
Rule 15c3-1. At December 31, 1998,
ALWC's net capital was approximately
$216,000, which was approximately
$116,000 in excess of its minimum
requirement of $100,000. At September
30, 1999 (UNAUDITED), ALWC's net
capital was approximately $681,000
which was approximately $581,000 in
excess of its minimum requirement of
$100,000. At various times during the
nine months ended September 30, 1999,
the Company was in violation of its
minimum net capital requirement. This
violation was caused by an error in
the computation and was cured in early
July as soon as ALWC became aware of
the error.
4. OTHER CURRENT ASSETS Other current assets consist of the
following at December 31, 1998 and
September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Prepaid expenses $ 31,502 $102,781
Receivable from clearing broker 127,262 269,391
Advances against commissions 145,339 277,840
Other receivables 72,405 150,124
Promissory note 52,358 52,358
----------------------
$428,866 $852,494
----------------------
----------------------
</TABLE>
The promissory note from a former
employee of approximately $52,000,
plus interest at 9% per annum, is due
on or before December 31, 1999.
5. ACCOUNTS PAYABLE AND
ACCRUED EXPENSES Accounts payable and accrued expenses
consist of the following at December
31, 1998 and September 30, 1999
(unaudited).
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Accounts payable $ 248,889 $ 458,447
Other accrued expenses 209,201
Payroll and related 498,066
---------------------------
$ 249,889 $1,165,714
---------------------------
---------------------------
</TABLE>
F-9
<PAGE>
THE FINANCIAL COMMERCE NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. BANK LOAN PAYABLE
(UNAUDITED) The bank loan, assumed in connection
with the acquisition of ALWC, is a
variable rate Commercial Promissory
Note, with an interest rate of 2% over
the Wall Street Journal Prime Rate.
The loan is repayable in 60 monthly
payments of principal and interest
through October 2002.
7. INCOME TAXES The provision for income taxes
consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998 1998 1999
<S> <C> <C> <C> <C>
CURRENT
Federal $145,000 $ - $ 97,000 $ -
State 50,000 24,000
------------------------------------------------------
195,000 121,000
------------------------------------------------------
DEFERRED
Federal (44,000) (7,472,000)
State (13,000) (1,868,000)
------------------------------------------------------
(57,000) (9,340,000)
LESS VALUATION
ALLOWANCE 9,340,000
------------------------------------------------------
(57,000)
------------------------------------------------------
$195,000 $(57,000) $121,000 $ -
----------------------------------------------------
----------------------------------------------------
</TABLE>
The deferred income tax benefit of
approximately $57,000 for the year
ended December 31, 1998 results from
the 1998 operating loss. The deferred
income tax asset of $9,340,000
resulting from the loss sustained in
the nine months ended September 30,
1999, has been fully reserved as
management has no assurance that the
benefits will be realized. The
deferred tax asset balance consists of
a deferred federal tax asset of
approximately $44,000 and a state
deferred tax asset of approximately
$13,000 at December 31, 1998. In 1997,
income tax expense does not bear a
normal relationship to income before
income taxes due to the utilization of
previously reserved deferred tax
assets relating to net operating loss
carryforwards of approximately
$166,000.
F-10
<PAGE>
THE FINANCIAL COMMERCE NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. RELATED PARTY
TRANSACTIONS On March 11, 1999, an officer of TFCN
exercised an option to purchase
15,000,000 shares of the Company's
common stock for $5,000.
ALWC paid Holdings for rental of
office space and equipment and for
other operating expenses amounting to
$312,455 and $215,328, respectively,
during the years ended December 31,
1998 and 1997, respectively, and
$87,330 and $212,287, respectively,
for the nine months ended September
30, 1999 and 1998, respectively,
(unaudited). Additionally, during
1999, the Company made certain
advances to enable Holdings to meet
its current cash flow requirements
(unaudited).
Also during 1999, the Company received
approximately $115,000 from an
affiliate which is non-interest
bearing and due on demand (unaudited).
9. TREASURY STOCK On March 29, 1999, the Company paid
$90,000 to certain creditors of an
officer of the Company in exchange for
the creditors releasing their security
interest in 13,500,000 shares of the
Company's common stock. Simultaneous
with the release of the security
interest, the officer contributed to
the Company's treasury the 13,500,000
shares of common stock which were then
issued to acquire all of the
outstanding shares of ALWC. This
valuation was determined based upon
the cash paid for the benefit of the
officer in consideration for the
officer's contribution to the Company
of the 13,500,000 shares of stock.
10. OFF-BALANCE SHEET RISK Pursuant to clearance agreements, ALWC
introduces all of its securities
transactions to clearing brokers on a
fully-disclosed basis. All of the
customers' money balances and long and
short security positions are carried
on the books of the clearing brokers.
In accordance with the clearance
agreements, ALWC has agreed to
indemnify the clearing brokers for
losses, if any, which the clearing
brokers may sustain from carrying
securities transactions introduced by
ALWC. In accordance with industry
practice and regulatory requirements,
ALWC and the clearing brokers monitor
collateral on the customers' accounts.
In addition, the receivables from the
clearing brokers are pursuant to these
clearance agreements.
11. EXEMPTION FROM
RULE 15c3-3 At December 31, 1998 and 1997 and
September 30, 1999 (UNAUDITED), ALWC
was exempt from the Securities and
Exchange Commission Rule 15c3-3 and,
therefore, is not required to maintain
a "Special Reserve Bank Account for
the Exclusive Benefit of Customers".
F-11
<PAGE>
THE FINANCIAL COMMERCE NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. RETIREMENT PLAN ALWC has a 401(k) plan (the Plan),
which was implemented during 1998,
covering all employees who meet
certain eligibility requirements. ALWC
makes a matching contribution to the
Plan, which is at the discretion of
ALWC and is determined annually. There
were no matching contributions for the
years ended December 31, 1998 and 1997
or for the nine months ended September
30, 1999 and 1998 (UNAUDITED).
13. COMMITMENTS (UNAUDITED) The Company is obligated under various
operating leases for office space
which expire through January 2003.
14. CONTINGENCIES In the normal course of business, ALWC
has been named as a defendant in
various matters. Management of ALWC,
after consultation with legal counsel,
believes that the resolution of these
matters will not have a material
adverse effect on the financial
condition, results of operations or
cash flows of ALWC.
15. SALE OF BUSINESS On December 31, 1998 ALWC sold its
Mineola, New York retail business for
$25,000. At December 31, 1998 and
September 30, 1999 (UNAUDITED),
$25,000 is included in other assets as
a receivable from the buyer.
16. SUBSEQUENT EVENTS Effective February 16, 1999, TFCN
entered into a 1 for 25 reverse stock
split, thereby reducing the number of
outstanding shares of the Company's
common stock to 622,502. The financial
statements give retroactive effect to
the reverse stock split.
On February 26, 1999, the Company
entered into a private placement
agreement in which the Company issued
4,347,826 shares at a price of $.23
per share and realized proceeds of
$1,000,000. Additionally, the Company
issued 211,498 shares of common stock
in exchange for professional services
rendered in connection with this
transaction.
17. SUBSEQUENT EVENTS
(UNAUDITED) In May 1999 the Company entered into
agreements with various internet
consulting firms to begin the
development of its internet portal
website.
On May 13, 1999 the Company
reincorporated in the State of Nevada
and is now authorized to issue a total
of 60,000,000 shares consisting of
10,000,000 shares of preferred stock
with a par value of $.001 and
50,000,000 shares of common stock with
a par value of $.001. In addition to
the reincorporation, the Company
changed its name to Intrex.com, Inc.
F-12
<PAGE>
THE FINANCIAL COMMERCE NETWORK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. SUBSEQUENT EVENTS
(UNAUDITED) (CONTINUED) In June 1999 the Company issued
200,000 restricted shares of common
stock to a vendor for services
rendered and to be rendered to the
Company. The vender was to identify,
engage and manage a web solutions
vendor with responsibility for
designing a website, provide a
spokesperson for media engagements,
recruit and hire certain officers for
the Company as well as assist in
certain financing activities.
These shares were valued using the
closing market price of the Company's
stock on the dates that the services
were rendered, and for the services to
be rendered, the valuation was based
on the closing market price on the
date of issuance, less a 10% discount
due to lack of marketability. As of
September 30, 1999, the Company has
expensed approximately $625,000 under
these terminated agreements.
During the third quarter of 1999 the
Company issued 128,000 shares of its
$10, 6% convertible preferred stock
and received proceeds of $1,202,000,
net of expenses of $78,000. In
accordance with this private placement
agreement, the preferred stock is
convertible into common shares of TFCN
as prescribed in the agreement. The
shares are convertible at a 25%
discount from market. Accordingly,
approximately $119,000 has been
recorded as a preferred stock
dividend, to account for this
beneficial conversion feature.
On August 17, 1999 the Company granted
options to purchase 11,500,000 shares
of common stock with an exercise price
of $.875 to certain officers and a
director of the Company. The options
vest immediately and expire in five
years. Based on the underlying price
of the securities on the date of
grant, approximately $20,700,000 was
charged to operations during the third
quarter of 1999.
On September 8, 1999 the Company
changed its name to The Financial
Commerce Network, Inc.
F-13
<PAGE>
Exhibit 6
FULLY DISCLOSED CLEARING AGREEMENT
OF
SPEAR, LEEDS & KELLOGG
This AGREEMENT is made and entered into as of this 9th day of November by and
between Spear, Leeds & Kellogg ("SLK") and Alexander, Wescott & Co., Inc.
("Broker").
1. Subject to the approval of the New York Stock Exchange, from the
opening of business on or about November 9, 1999 until the termination
of this Agreement as provided for in Paragraph 17, hereof, SLK will
carry the cash and margin accounts of the customers introduced by
Broker to SLK, and accepted by SLK, and will clear transactions on a
fully disclosed basis for such accounts, all as more specifically
provided in Paragraph 3 hereof, and subject to the terms and conditions
hereinafter set forth.
All references made to margin accounts in this agreement shall apply
only if the introducing firm introduces such accounts.
2. REPRESENTATIONS AND WARRANTIES
(a) Broker represents and warrants that:
Broker is duly registered and in good standing as a
broker/dealer with the Securities and Exchange Commission and
the NATIONAL ASSOCIATION OF SECURITIES DEALERS ("NASD").
Broker has ail requisite authority, whether arising under
applicable federal or state laws or the rules and regulations
of any securities exchange or regulatory authority to which
Broker is subject, to enter into this Agreement and to retain
the services of SLK in accordance with the terms hereof; and
Broker and each of its employees is in substantial compliance,
and during the term of this Agreement will remain in
substantial compliance, with the registration, qualification,
capital financial reporting, customer protection, and other
requirements of every securities exchange of which Broker is a
member, of the NASD, of the Securities and Exchange Commission
and every state to which jurisdiction Broker and each of its
employees are subject.
(b) SLK represents and warrants that:
SLK is duly registered and in good standing as a broker/dealer
with the Securities and Exchange Commission and is a member
firm in good standing with the New York Stock Exchange
("NYSE").
1
<PAGE>
SLK has all requisite authority, whether arising under
applicable federal or state laws, or the rules and regulations
of any securities exchange or regulatory authority to which
SLK is subject, to enter into this Agreement; and
SLK is in substantial compliance, and during the term of this
Agreement will remain in substantial compliance, with the
registration, qualification, capital, financial reporting,
customer protection requirements and other requirements of
every regulatory and self-regulatory organization to which
jurisdiction SLK is subject.
3. SERVICES TO BE PERFORMED BY SLK
SLK, acting as Broker's agent, shall carry the customers' cash and
margin accounts introduced by Broker on a fully disclosed basis, and
perform the following services:
(a) Execute transactions in the customers' accounts and release or
deposit money or securities to or for the accounts, only upon
Broker's instructions.
(b) Prepare and mail confirmations and summary monthly statements
to Broker's customers on forms disclosing that the account is
carried on a fully disclosed basis for the Broker.
(c) Settle contracts and transaction in securities (i) between
Broker and other brokers and dealers, (ii) between Broker and
its customers and (iii) between Broker and third persons.
(d) Per-form cashiering functions for such customers' accounts,
including receipt and delivery of securities purchased, sold,
borrowed and loaned; make and receive payments therefore,
provide custody and safekeeping of securities and cash, and
handle margin accounts, dividends and exchanges, rights,
warrants, redemptions, and tender offers with respect to such
securities.
(e) Mail to each customer a copy of the Notice to Customers as
required by New York Stock Exchange Rule 382(c).
(f) Complete the transfer of securities and accounts on behalf of
customers.
(g) Seek to ensure compliance with restricted and control
securities under the Securities Act of 1933.
(h) Pursuant to NYSE Rule 382(d), SLK will furnish any written
customer complaint it receives regarding Broker, or Broker's
associated persons, and relating to Broker's obligations and
responsibilities under this Agreement, directly to:
2
<PAGE>
(1) Broker; and
(2) Broker's Designated Examining Authority (or, if none,
to its appropriate regulatory agency or authority).
SLK will also notify the complaining customer, in writing,
that it has received the complaint, and that the complaint has
been furnished to the parties listed in h(l) and h(2) above.
(i) Pursuant to NYSE Rule 382(e):
(1) At the commencement of this Agreement, and annually
thereafter, SLK will furnish Broker with a list of
reports (i.e., exception reports and/or other
reports) that it can provide Broker, upon Broker's
written request, to assist Broker in its supervision
and monitoring of customer accounts.
(2) SLK will retain and preserve copies of the reports
requested by and/or supplied to Broker pursuant to
NYSE Rule 440 (Books and Records), or will have the
ability to either recreate copies of these reports or
provide the report format and data elements contained
in the original.
(3) Annually, within thirty (30) days of July 1st of each
year, SLK will give written notice to Broker's Chief
Executive Officer and Chief Compliance Officer
indicating: (a) the list of reports offered by SLK to
Broker described above; and (b) the specific reports
actually requested by and/or supplied to Broker as of
that date.
SLK will also provide a copy of this written notice
to Broker's Designated Examining Authority (or if
none, to its appropriate regulatory agency or
authority).
Notwithstanding subparagraph (a) through (i) above, SLK may, in its
sole discretion, for good cause shown, refuse to open an account for a
specific customer-, close an account already opened-, refuse to confirm
and/or cancel a confirmation-, reject a delivery or receipt of
securities and/or money-, refuse to clear any trade executed by
Broker-, or refuse to execute any trade for the account of a customer
introduced by Broker. Broker acknowledges that in connection with the
performance of the above described services, SLK may retain, at its
option, one or more independent data processing service bureaus to
perform any of the required functions, and agrees that SLK shall not be
responsible for any losses, damages, liability or expenses incurred by,
or claims made by, the Broker or its customers wising from the failure
of any such service bureau to perform said functions accurately, in
accordance with specifications, or within the customary time periods.
SLK's only obligation will be to cause any such service bureau to
correct any processing error in its next regularly scheduled
3
<PAGE>
processing, and to deliver any overdue work as soon as reasonably
practicable. In no event shall SLK be responsible for indirect or
consequential damages.
4. SERVICES FOR WHICH SILK IS NOT RESPONSIBLE
Unless otherwise expressly agreed in writing, SLK will not provide, nor
be responsible for providing, any services specifically enumerated in
this Paragraph:
(a) Accounting, bookkeeping or record keeping, cashiering, or
other services involving commodity transactions, or any other
transaction not involving securities;
(b) Preparation of Broker's payroll records, financial statements
or any analysis thereof;
(c) Preparation or issuance of checks in payment of Broker's
expenses, other than expenses incurred by SILK on behalf of
Broker pursuant to this Agreement;
(d) Payment of commissions to Broker's salesmen;
(e) Preparation or filing of any of Broker's reports to the
Securities and Exchange Commission, any state securities
commission, or any securities exchange, securities association
or other membership to which Broker is subject. However, SLK
will, at the request of Broker, furnish Broker with any
necessary information and data contained in records kept by
SLK, and not otherwise available to Broker, for use in making
such reports by Broker.
(f) Verification of address changes of Broker's customers.
(g) Rendering investment advice to customers.
5. DUTIES, OBLIGATIONS AND RESPONSIBILITIES OF BROKER
(a) INFORMATION TO BE SUPPLIED BY BROKER:
Broker will provide SLK with such basic data and documents, as
shall be necessary or appropriate to permit SLK to discharge
its service obligations hereunder, including, but not limited
to, copies of records of any receipts of customers' funds and
securities received directly by Broker. In all cases, such
data and documents must be compatible with the requirements of
SLK's bookkeeping system. In addition, Broker will furnish SLK
with such information and signatures as are requested by SLK
for the opening and carrying of customer accounts on forms
that have been approved by SLK All accounts shall be opened in
accordance with SLK's requirements, and the acceptance of an
opening of an account without such requirements being
fulfilled shall not be deemed to be a waiver of such
requirements.
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A duly authorized principal executive officer of Broker
will approve in writing the opening of each customer's
account. Broker shall be responsible for maintaining proper
customer addresses and SLK may, for all purposes, rely on
such addresses as they are furnished by Broker.
Pursuant to NYSE Rule 382(e)(1), after receiving SLK's list of
available exception reports and/or other reports, Broker must
promptly notify SLK, in writing, of those specific reports
offered by SLK that Broker requires to supervise and monitor
its customer accounts.
Pursuant to NYSE Rule 382(f), in those instances where SLK
permits Broker to issue checks, whether to Broker's customers
or to third parties (i.e., parties other than Broker's
customers), Broker shall represent to SLK IN WRITING, that
Broker maintains, and shall enforce, supervisory procedures
with respect to the issuance of such checks. Such supervisory
procedures must be acceptable to SLK.
(b) RECEIPT OF MONEY AND SECURITIES:
In all cash accounts, Broker shall be responsible for all
customer purchases until actual and complete payment therefor
has been received by SLK, and, in the case of checks
representing such payment received by SLK, Broker shall be
responsible until the proceeds are actually received and
credited to SLK by its bank. SLK agrees to use due diligence
in depositing such checks promptly.
Broker shall be responsible for all sales until acceptable
delivery of the securities to SLK has been made. Broker agrees
to promptly turn over to SLK funds or securities received by
Broker from its customers, together with such information as
may be relevant or necessary to enable SLK to promptly and
properly record such remittance and receipts in the customers'
respective accounts. Broker shall arrange for timely
settlement of "delivery versus payment" transactions, and
shall not introduce any retail or individual accounts
requiring settlement, on "delivery vs payment" or "receive
versus payment" basis without first obtaining the prior
written approval of the customer allowing SLK to accept
"partial deliveries" and to abide by other clearance
arrangements as may be directed by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., or the
NASD. SILK may, at its option, charge for late payments or
deliveries, any interest incurred by it accrued at its then
prevailing "Brokers Call" rate plus 1% on the principal amount
of trade, or at such other interest rate as may be agreed upon
in writing, above the Broker's Call rate.
SLK reserves the right to give prior oral or written notice to
Broker, and to any customer, of SLK's intention to take
remedial action for failure to make timely settlement.
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(c) DUTIES OF BROKER WITH RESPECT TO CUSTOMERS:
The customer shall remain the customer of Broker, and Broker
shall be responsible for obtaining all of the essential facts
relative to every customer, every cash or margin account,
every order, and every person holding power of attorney over
any account accepted by Broker. Broker shall also be
responsible for the conduct of customer accounts and the
supervision thereof, including, but not limited to, assessing
the suitability of a transaction for the customer when
required under applicable rules, the authenticity of all
orders, signatures and endorsements, the frequency of trading
by a customer, and the genuineness of all signatures,
certificates and papers, the status under the Securities Act
of 1933 of securities proposed to be sold or margined by a
customer, and reviewing the accounts for, among other things,
manipulative practices and insider trading, and compliance
with all federal, state, securities exchange and association
laws, rules and regulations to which the Broker and customer
are subject.
Broker undertakes to comply with NYSE Rule 405 (1), (2) and
(3), and with other rules of regulatory organizations having
jurisdiction over Broker. It is understood that Broker will
establish adequate procedures regarding Rule 405 and will make
a diligent attempt in every case to conform to this rule.
Broker shall diligently supervise compliance through the use
of a compliance manual or other written procedures.
Broker must notify SLK in each case where Broker and a
customer authorize a Registered Representative of Broker to
exercise discretion in an account. In addition, Broker will
advise SLK at the time an order is placed if such order is for
a discretionary account of one of Broker's Registered
Representatives.
Broker warrants that, to its best knowledge, the customers
introduced to SILK by Broker shall not be minors and shall not
be such as to come under prohibitions referred to in NYSE Rule
407, or in any other law, rule or regulation of any other
regulatory authority,- that Broker's customers shall in fact
be the owners of accounts opened by SLK in their names, and
that any orders and instructions given by Broker or any of
Broker's employees shall have been fully and properly
authorized.
Prior to engaging in option trading for any of Broker's
customers, Broker shall deliver to such customer the most
recent copy of the booklet titled "Characteristics and Risks
of Standardized Options", or its successor, together with any
effective supplements thereto. A current prospectus of the
Option Clearing Corporation is option@L Broker will take all
appropriate steps to assure that customers engaging in such
trading are sophisticated investors, fully aware of the risks
involved, and that option trading is suitable for such
customers. Broker will comply in all respects with SLK's
options compliance program, including the obtaining of
information, written approval of option accounts by the Senior
Registered Options Principal of Broker,
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and execution of forms required by SLK. SLK shall not be
required to endorse any put or call options for any account
unless the account is satisfactory to SLK.
This agreement places the responsibility for "knowing the
customer" and "suitability" on the Broker. It permits SLK to
satisfy itself, for its own benefit, that Broker has the
ability to comply itself, for its own benefit, and that Broker
has the ability to comply and has complied with the
requirements of NYSE Rule 405 and the comparable requirements
of similar rules of any other self-regulatory organization to
which Broker belongs. It is understood that the preparation
and/or possession by SLK of surveillance records or any new
data, including exception reports, on behalf of, or for the
use of Broker, shall neither obligate SLK to review such
material nor make SLK responsible to know its contents.
(d) FINANCIAL DATA
Broker agrees to furnish SLK with a copy of all FOCUS Reports
upon request.
(e) Broker shall make and maintain reports, records and regulatory
filings required to be kept by the Broker by any entity that
regulates it, including any reports and records required to be
made or kept under the Currency and Foreign Transactions
Reporting Act of 1970, the Money Laundering Act of 1986, and
any rules and regulations promulgated pursuant thereto.
(f) Broker shall assume all responsibility for reviewing customer
orders prior to execution, and errors in execution.
6. BROKER INDEMNIFICATION
Broker hereby agrees to indemnify, defend and hold harmless
SLK from and against all claims, demands, proceedings, suits
and actions made or brought against SLK, and to indemnify
SLK's liabilities, losses, damages, expenses, attorneys' fees
and costs arising out of one or more of the following (except
for those claims arising out of SLK's willful misconduct):
(a) Failure of Broker or the Broker's customer to make payment
when due for securities purchased, or to deliver when due,
securities sold for the account of Broker or the Broker's
customers;
(b) Failure of a customer of Broker to meet any initial margin
call or any maintenance call, except that SILK shall be
responsible only for the portion of any such losses that are
directly attributable to SLK's failure to give proper and
timely notification to the customer of any call;
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(c) Failure of Broker to properly perform its duties, obligations
and responsibilities with respect to customer accounts (as
set forth in Paragraph 5, above), it being understood that
the participation of any employee of SLK in any transactions
referred to in Paragraph 5 shall not affect Brokers
indemnification obligations hereunder, unless such
participation by SLK's employee was fraudulent;
(d) Any dishonest, fraudulent, negligent or criminal act or
omission on the part of any of Brokers' officers, partners,
employees, agents or customers,
(e) All claims or disputes between Broker and its customers with
respect to the matters set forth in this Agreement, it being
understood: (i) that Broker guarantees the validity of
customer orders in the form such orders are transmitted to
SLK by Broker, and guarantees to SLK that each customer will
promptly and fully perform his commitments and obligations
with respect to all transactions in all of his accounts
carried by SLK hereunder, and (ii) that checks received by
SLK from Broker's customers shall not constitute payment
until they have been paid and the proceeds actually received
and credited to SLK by its bank;
(f) Any adverse claims with respect to any customer securities
delivered or cleared by SLK, it being understood that SLK
shall be deemed to be an intermediary between Broker and
customer and shall be deemed to make no warranties other than
as provided in Section 9-306(3) of the Uniform Commercial
Code;
(g) The default by any over-the-counter broker with which the
Broker deals on a principal basis, giving up SLK for
Clearance;
(h) The default by any third-party broker with whom the Broker
deals rather than using SLK to execute a transaction for
itself or a customer;
(i) The negligence, malfeasance, or mistakes of an employee of
Broker with respect to the use of any check-signing authority
that may be granted to Broker by SLK,
(j) The breach by the Broker of any warranty, representation, duty
or obligation under this Agreement;
(k) SLK's guarantee of any signatures with respect to transactions
in the accounts of Broker's customers;
(l) The failure of Broker's customers to fulfill their obligations
to the Broker or to SLK (whether or not such failure is in the
Broker's control).
7a. OMNIBUS ACCOUNT
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To further assure Broker's performance of its obligations under
this Agreement, including but not limited to its indemnification
obligations under Paragraph 6, Broker shall, on or before the
execution of this Agreement, establish an account at SLK to be
designated as the Broker's Omnibus Account (the "Account"). The
Account shall at all times contain cash, securities, or a
combination of both, having a market value of $ 0. Broker shall be
paid interest on the cash balances in the Account at the rate of 100
basis points below the Broker Call rate. The Account may be used by
Broker to trade securities on a proprietary basis.
7b. CLEARING DEPOSIT
If SLK requires a clearing deposit, the Account shall at all times
contain cash, securities, or a combination of both, having a market
value of $500,000. The clearing deposit shall be returned within 30
days after cancellation of this agreement. This deposit does not
represent an ownership interest.
If SLK shall suffer any loss or incur any expense for which it is
entitled to be indemnified pursuant to this Agreement, and Broker shall
fail to make such indemnification within five business days after being
requested to do so, SLK shall deduct the amount of such claim, loss or
expense from the commissions then credited to Broker pursuant to
Paragraph 8. If the amount of said commissions is less than the amount
of such claim, loss or expense, SLK shall have the right to withdraw
from the Account cash or securities (or both) having a market value
equal to the amount of such deficiency. Broker shall then be obligated
to immediately deposit in the Account cash or securities sufficient to
bring the Account back to a market level of at least $ 500,000.
Upon the termination of this Agreement, or as soon as practical
thereafter, SLK will pay and deliver to Broker the funds and securities
in the Account, less any amounts which it is entitled to withdraw under
the preceding paragraph; provided, however, that SLK may retain in the
Account an amount to protect it from any claim or proceeding of any
type, then pending or actually threatened, until the final
determination thereof is made. If within a reasonable time after the
termination of this Agreement, a threatened claim or proceeding is not
resolved, or a legal action or proceeding is not instituted, the amount
retained with respect to such threatened claim or proceeding shall be
paid or delivered to Broker.
8. COMMISSION PAYMENTS
(a) SLK shall charge each of Broker's customers the commission
that Broker directs it to charge for each transaction. If
specific instructions are not received with respect to a
specific transaction in the time period required by SLK to
implement same, SLK shall charge the customer the commission
prescribed in the basic commission schedule delivered to SLK
by Broker. Such basic schedule may be amended from time to
time by Broker by written instructions delivered to SLK;
provided, however, that such changes shall be implemented
only to the extent they are within the usual
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capabilities of SLK's data processing and operations systems
and only within such reasonable time limitations as SLK may
deem necessary to avoid disruption of its normal operating
capabilities. For purposes of confirmation preparation, Broker
will also furnish from time to time the source and amount of
any commission or other payment received by Broker in
connection with transactions in the customers' accounts.
(b) Commissions charged Brokers customers shall be collected by
SLK and credited to broker, after deducting SLK's compensation
referred to in Paragraph 9 (and any other amount owed to SLK
pursuant to this Agreement). Such commissions shall be
credited to the Account on a monthly basis, on the fifth
business day after the final settlement date of the month.
9. COMPENSATION
As compensation for services provided hereunder by SLK, there shall be
deducted from the commissions charged Broker's customers the amounts
set forth in the fully disclosed pricing schedule attached hereto. Said
compensation schedule may be changed as may be agreed to by both
parties.
10. MARGIN ACCOUNTS
(a) Any transaction for a customer will be considered a cash
transaction until such time as Broker has furnished SLK with
an executed customer's margin agreement and consent to loan of
securities in a form acceptable to SLK
(b) All margin accounts introduced by Broker shall be subject to
SLK's "house margin requirements." SLK currently imposes a
40% maintenance requirement, but said requirement, and other
margin requirements, may be changed at any time by giving
the Broker 10 days prior written notice of such change. In
all such margin accounts, Broker shall be responsible for
the initial margin requirement for any transaction until
such initial margin has been received by SLK in acceptable
form. SLK reserves the right to refuse to accept any
transaction in a margin account after the initial
transaction, without actual receipt of the necessary margin,
and to impose a higher margin requirement, when, in SLK's
opinion, the past history or nature of such account or the
securities therein justifies such action. SLK shall endeavor
to notify Broker in advance of all margin calls, and shall
provide Broker with copies of such calls. In the event that
satisfactory margin is not provided within the time
specified by SLK, SLK shall be at liberty to take such
actions as SLK may, in its judgment, deem appropriate. After
such initial margin has been received, subsequent margin
calls may be made by SLK. Broker agrees to cooperate with
SLK in complying with and obtaining margin on subsequent
calls.
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(c) Interest charged with respect to debit balances in customers'
accounts shall be determined in accordance with the fully
disclosed pricing schedule attached hereto.
(d) Broker shall be responsible for any failure on the part of a
customer to meet a "maintenance call", except to the extent
directly attributable to SLK's failure to give proper and
timely notification to the customer. An officer of Broker
who has been designated by Broker (and acknowledged in
writing by SLK) may request, to the extent permitted by the
margin rules, that SILK withhold temporarily any
contemplated action, or "Sell-out" or "Buy-in", for accounts
which have failed to meet a margin call. Such requests shall
be made in writing and shall clearly set forth the period of
time during which the contemplated action is requested to be
withheld. Should SLK comply in whole or in part with such
request, Broker guarantees to reimburse SLK immediately for
the maximum amount of loss or liability which SLK may
sustain or incur by reason of any compliance with such
request, by depositing sufficient funds with SLK in a
reserve or other appropriate account at a bank of SLK's
choosing over which SLK shall be signatory, to reimburse SLK
for the loss or unsecured indebtedness held in the account
of the particular customer~ provided, however, that
compliance with such a request shall not be deemed a waiver
by SLK of any of its rights hereunder, including but not
limited to, the right to close out a contract or position
if, in SLK's judgment, changing conditions render such
action advisable.
(e) Broker shall be responsible for sending each margin customer a
written statement at the time of the opening of a margin
account in compliance with Rule 10b-16 of the Securities
Exchange Act of 1934.
(f) Broker shall obtain a margin agreement from each margin
account introduced to SLK, including a hypothecation
authority, in a form and substance acceptable to SLK
11. UNSECURED DEBITS OR UNSECURED SHORT POSITIONs
Unsecured debits or short positions (on a "marked to market" basis) in
a customer's account that are not resolved by payment or delivery
within thirty calendar days shall be charged to the account of the
Broker maintained by SLK, and to which SLK credits the Broker with
commissions due. Such unpaid debits or short positions shall be netted
against commissions due on a monthly basis. Any excess of such unpaid
debits or short positions over commissions due shall be applied against
Broker's Account and shall be considered a claim against Broker
pursuant to paragraph 7 of this Agreement.
12. RESPONSIBILITIES AND RIGHTS OF SLK
SLK will maintain prescribed books and records of all transactions
executed or cleared through it. SLK also undertakes to perform in good
faith the services agreed to be performed
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in this Agreement, including the foregoing, but shall not be bound to
make any investigation into the facts surrounding any transaction that
it may have with Broker or that Broker may have with its customers or
other persons, nor shall SLK be under any responsibility of compliance
by Broker with any laws or regulations which may be applicable to
Broker.
Nothing herein shall be deemed to restrict in any way the right of SLK,
or any affiliate of SLK, to compete with Broker in any or all aspects
of Broker's business.
13. SLK INDEMNIFICATION
SLK shall have no liability to any of Broker's customers for any loss
suffered by any customer. SLK's liability will be only to Broker, and
then only to the extent herein expressly set forth. SLK hereby agrees
to indemnify, defend and hold harmless Broker from and against all
claims, demands, proceedings, suits and actions, and all liabilities,
expenses, attorney fees, and costs in connection therewith, arising out
of any dishonest, fraudulent, or criminal act or omission on the part
of any of its officers, partners or employees with respect to the
services provided by SLK under this Agreement.
14. EMPLOYEES
Without the prior written consent of the other, neither party will
during the period of this Agreement and for one year thereafter, hire
or attempt to hire any person who is employed by the other on the
termination of this Agreement, or whose employment with the other
terminated within the one year period prior to the termination of this
Agreement.
15. CONSTRUCTION OF AGREEMENT
Neither this agreement nor the performance of the services hereunder
shall be considered to create a joint venture or partnership between
SLK and Broker, or between Broker and other brokers for whom SILK may
perform the same or similar services. Neither SILK nor Broker will
utilize the name of the other in any way without the other's consent,
and under no circumstances shall either party employ the other's name
in such a manner as to create the impression that the relationship
created or intended between them is anything other than that of
clearing broker and correspondent broker.
During the term of this agreement, Broker will not enter into any other
similar Agreement or obtain the services contemplated by this agreement
from any other party.
16. CONFIDENTIALLY
Broker and SLK agree not to disclose the terms of this Agreement to any
outside parties, except to regulatory bodies with appropriate
jurisdiction and to authorized employees of the Broker or SLK on a
need-to know basis. Any other publication or disclosure of the terms
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of this Agreement may be made only with the prior written consent of
the parties.
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17. TERMINATION
This agreement shall continue until terminated as hereinafter provided:
(a) Upon any unilateral change by SLK of more than 10% per annum
in the compensation schedule referred to in Paragraph 9 of
this Agreement, or upon the unreasonable rejection by SLK of
any customers or trades pursuant to Paragraph 3, Broker may,
upon fifteen (15) days prior written notice to SILK, terminate
this Agreement as of the effective date of such unilateral
change.
(b) This Agreement may be terminated by either party, without
cause, upon thirty (30) days written notice delivered in
person or by registered or certified mail.
If either party terminates the Agreement pursuant to this
subparagraph, SLK shall have the right to impose reasonable
limitations upon Broker's activities during the period between
the giving of notice and the transfer of Broker's account.
(c) In the event either party defaults in the performance of its
obligations under this Agreement, the non-defaulting party may
terminate this Agreement on the following terms and
conditions. Written notice must be delivered to the defaulting
party specifying the nature of the default and notifying the
defaulting party that unless the default is cured within a
period of ten (10) days from receipt of the notice, this
Agreement may be terminated without further proceedings by the
non-defaulting party.
(d) This Agreement may be terminated by SLK or Broker immediately
in the event that the other party is enjoined, disabled,
suspended, prohibited or otherwise unable to engage in the
securities business, or any part of it, as a result of any
administrative or judicial proceeding or action by the
Securities and Exchange Commission, any state securities law
administrator or any self-regulatory organization having
jurisdiction.
(e) Termination of this Agreement, however caused, shall not
release Broker or SLK from any liability or responsibility to
the other with respect to transactions effected prior to the
effective date of such termination, whether or not claims
relating to such transactions shall have been made before or
after such termination.
(f) If Broker terminates this Agreement pursuant to subparagraph
(b) above within the first year of the date of this Agreement,
or SLK terminates this Agreement pursuant to subparagraph (c)
or (d) above, Broker will pay to SLK a termination fee equal
to the reasonable expenses incurred by SLK (i) in establishing
systems procedures and capacity for servicing Broker and its
customers, and (ii) in discontinuing the clearing arrangement.
However, in no event shall said termination fee be less than
$5,000 or
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more than $10,000. Said fee shall be paid ,.within 10 days
after receipt of SLK's statement setting forth, in reasonable
detail, the expenses incurred by SLK
18. ACTION AGAINST CUSTOMERS; CUSTOMER COMPLAINTS
SLK shall have the right at all times, in its sole discretion, and at
its sole expense, to institute and prosecute in its name, upon notice
to Broker, any action or proceeding against any of Brokers customers as
to any controversy or claim arising out of SLK's transactions with
Broker or with Broker's customers, and nothing contained in this
Agreement shall be deemed or construed to impair or prejudice such
right in any way whatsoever, nor shall the institution or prosecution
of any such action or proceeding relieve Broker of any liability or
responsibility which Broker would otherwise have had under this
Agreement. Broker shall assign its rights against its customers to SLK,
to the extent requested by SLK and necessary to carry out the intent of
this Paragraph.
In addition to SLK's obligations regarding customer complaints pursuant
to NYSE Rule 382(d), set forth in Paragraph 3(h) of this Agreement, SLK
and Broker shall each communicate to the other any complaint/inquiry
regarding the other.
19. NOTICES
Any notice or request that is required or permitted to be given under
this Agreement shall be sufficient if in writing, and sent by hand or
certified mail, in either case, return receipt requested, to the
respective parties at the following addresses:
Broker:
Alexander, Wescott & Co., Inc.
63 Wall Street 21st Floor
New York, NY 10005-3001
Carl R. Walston-President
SLK:
Spear, Leeds & Kellogg
120 Broadway
New York, New York 10271
Attn: General Counsel
20. AMENDMENTS
This Agreement represents the entire Agreement between the parties with
respect to the subject matter contained herein. This Agreement may not
be changed orally, but only in a writing signed by both parties.
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21. EXCHANGE REGULATION
The parties acknowledge that they will be subject to the rules of the
New York Stock Exchange, Inc., the American Stock Exchange, Inc., and
any other securities exchanges or associations of which either party is
or may become a member, and of any governmental agencies to whose
jurisdiction either party may be subject.
22. ASSIGNMENT
This Agreement shall be binding upon, and shall inure to the benefit
of, the respective successors and assigns of Broker and SLK.
23. APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
24. ARBITRATION DISCLOSURE
- ARBITRATION IS FINAL AND BINDING ON THE PARTIES.
- THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN
COURT, INCLUDING THE RIGHT TO JURY TRAIL.
- PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN
AND DIFFERENT FROM COURT PROCEEDINGS.
- THE ARBITRATORS' AWARD IS NOT REQUIRED TO INCLUDE FACTUAL
FINDINGS OR LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR
TO SEEK MODIFICATION OF RULINGS BY THE ARBITRATORS IS STRICTLY
LIMITED.
- THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY
OF ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE
SECURITIES INDUSTRY.
25. ARBITRATION AGREEMENT
ANY CONTROVERSY BETWEEN SLK AND BROKER ARISING OUT OF THE BUSINESS OR
THIS AGREEMENT SHALL BE SUBMITTED TO ARBITRATION CONDUCTED BEFORE THE
NEW YORK STOCK EXCHANGE, INC., OR THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC., AS SLK MAY ELECT, AND IN ACCORDANCE WITH THE
RULES OF THE SELECTED ORGANIZATION.
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ARBITRATION MUST BE COMMENCED BY SERVICE UPON THE OTHER PARTY OF A
WRITTEN DEMAND FOR ARBITRATION OR A WRITTEN NOTICE OF INTENTION TO
ARBITRATE, THEREIN ELECTING THE ARBITRATION TRIBUNAL.
26. This Agreement shall be submitted to and/or approved by any National
Securities Exchange, or other regulatory and self-regulatory bodies
vested with the authority to review and/or approve this Agreement or
any amendment or modifications hereto. In the event of any disapproval,
the parties hereto agree to bargain in good faith to achieve the
requisite approval.
27. If any provision or condition of this Agreement shall be held to be
invalid or unenforceable by any court, or regulatory or self-regulatory
agency or body, such invalidity or unenforceability shall attach only
to such provision or condition. The validity of the remaining
provisions and conditions shall not be affected thereby, and this
Agreement shall be carried out as if any such invalid or unenforceable
provision or conditions were not contained herein.
28. For purposes of the Securities and Exchange Commission's financial
responsibility rules and the Securities Investor's Protection Act, the
Broker's customers will be considered customers of SLK and not
customers of the Broker. Nothing herein shall cause the Broker's
customers to be construed or interpreted as customers of SLK for any
other purpose, or to negate the intent of any other section of this
agreement, including, but not limited to, the delineation of
responsibilities as set forth elsewhere in this Agreement.
29. PRIME BROKERAGE:
(a) ESTABLISHMENT OF AN ACCOUNT
SLK agrees to establish on its books and records an account in
the name of a prime broker for introducing firm's clients and
to maintain same providing SLK receives from said client SIA
Form 151 "Executing Broker Customer Agreement" and all other
documents SLK may deem appropriate.
The introducing firm shall provide SLK with the Prime Broker
tax ID number and the full street address of it's client, the
"SIA Form 151 " as well as, the necessary settlement
instructions.
(b) CUSTOMER QUALIFICATIONS
By introducing Prime broker accounts to SLK, the introducing
firm confirms that it is aware that their client maintains a
minimum net equity of $500,000 in cash or securities with a
ready market for trades executed on behalf of an account not
managed by an advisor or $100,000 in cash or securities with a
ready market for trades executed on behalf of a customer
account managed by an investment advisor
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registered under Section 203 of the Investment Advisors Act of
1940. The introducing firm understands that if for any reason
the account falls below such minimum net equity SLK has the
right to refuse to process trades as a prime broker
transaction. Each time you enter an order you hereby represent
that your client shall be in compliance with such minimum net
equity or will notify SLK otherwise.
In the event that any prime broker diS2ffirms any trade you
have executed you hereby agree to be responsible and liable to
SLK for settling such transaction.
(c) RESTRICTIONS ON ACCOUNT
You understand that SLK in its sole discretion may refuse to
accept Prime Broker Transactions on your client's behalf or
restrict or prohibit trading of securities in your client's
account or refuse to clear your client's transactions.
(d) CONFIRMATIONS
Unless otherwise instructed in writing, SLK shall confirm
transactions to your client, as well as to the prime broker,
by the morning of the next business day after the trade date.
The introducing firm agrees to notify SLK in a timely manner
of the contract amount of the transaction, the security
involved, the number of shares or units, whether the
transaction is a purchase or sale, and if a sale, whether the
transaction was 2 short or long sale. Introducing broker is
responsible for complying with all applicable rules and
regulations of the SEC and applicable self-regulatory
organizations governing the execution of short sales.
30. PROPRIETARY ACCOUNTS OF INTRODUCING BROKERS ["PAIB"]:
The parties agree to the following conditions and provisions as set
forth in the SEC No-Action Letter dated November 3, 1998 relating to
the net capital treatment of assets in the proprietary account of an
introducing broker ("PAIB") and to permit Introducing Broker to use
PAIB assets in its Net Capital Computations.
1. SLK shall perform a computation for PAIB assets ("PAIB Reserve
Computation") of Introducing Broker in accordance with the
customer reserve computation set forth in Rule 15c3-3
("customer reserve formula") with the following modifications:
A. Any credit (including a credit applied to reduce a
debit) that is included in the customer reserve
formula may not be included as a credit in the PAIB
reserve computation;
B. Note E(3) to Rule 15c3-3a which reduces debit
balances by 1 % under the basic method and
subparagraph (a)(1)(ii)(A) of the net capital rule
which
18
<PAGE>
reduces debit balances by 3% under the alternative
method shall not apply; and
C. Neither Note E(1) to Rule 1 5c3-3a nor NYSE
Interpretation/04 to item 10 of Rule 15c3-3a
regarding securities concentration charges shall be
applicable to the PAIB reserve computation.
2. The PAIB reserve computation shall include all proprietary
accounts of Introducing Broker. All PAIB assets shall be kept
separate and distinct from customer assets under the customer
reserve formula in Rule 15c3-3.
3. The PAIB reserve computation shall be prepared within the same
time frames as those prescribed by Rule 15c3-3 for the
customer reserve formula.
4. SLK shall establish and maintain a separate "Special Reserve
Account for the Exclusive Benefit of Customers" with a bank in
conformity with the standards of paragraph (f) of Rule 15c3-3
("PAIB Reserve Account"). Cash and/or qualified securities as
defined in the customer reserve formula shall be maintained in
the PAIB Reserve Account in an amount equal to the PAIB
reserve requirement.
5. If the PAIB reserve computation results in a deposit
requirement, the requirement may be satisfied to the extent of
any excess debit in the customer reserve formula of the same
date. However, a deposit requirement resulting from the
customer reserve formula shall not be satisfied with excess
debits from the PAIB reserve computation.
6. Within two business days of entering into this PAIB Agreement,
Introducing Broker shall notify its designated examining
authority in writing (with a copy sent to SLK upon request)
that it has entered into this PAIB Agreement.
7. Commissions receivable and other receivables of Introducing
Broker from SLK (excluding clearing deposits) that are
otherwise allowable assets under the net capital rule are not
to be included in the PAIB reserve computation, provided the
amounts have been clearly identified as receivables on the
books and records of the Introducing Broker and as payables on
the books of SLK.
8. If. Introducing Broker is a guaranteed subsidiary of SLK or if
Introducing Broker guarantees SLK (i.e., guarantees all
liabilities and obligations) then the proprietary accounts of
Introducing Broker shall be excluded from the PAIB Reserve
Computation.
9. Upon discovery that any deposit made to the PAIB Reserve
Account did not satisfy its deposit requirement, SLK shall by
facsimile or telegram immediately notify its
19
<PAGE>
designated examining authority and the Securities and Exchange
Commission ("Commission"). Unless a corrective plan is found
acceptable by the Commission and the designated examining
authority, SLK shall provide written notification within 5
business days of the date of discovery to Introducing Brokers
that PAIB assets held by SLK shall not be deemed allowable
assets for net capital purposes. The notification shall also
state that if Introducing Broker wishes to continue to count
its PAIB assets as allowable, it has until the last business
day of the month following the month in which the notification
was made to transfer all PAIB assets to another clearing
broker. However, if the deposit deficiency is remedied before
the time at which the Introducing Broker must transfer its
PAIB assets to another clearing broker, the Introducing Broker
may choose to keep its assets at SLK.
10. The parties shall adhere to the terms of the No-Action letter,
including the Interpretations set forth, in all respects.
THIS AGREEMENT CONTAINS A PRE-DISPUTE ARBITRATION CLAUSE IN PARAGRAPH 24. BROKER
ACKNOWLEDGES THAT IT HAS RECEIVED, AND READ, A COPY OF THIS AGREEMENT, AND
AGREES TO BE BOUND BY THE TERMS AND CONDITIONS CONTAINED HEREIN.
SPEAR, LEEDS & KELLOGG
By: _______________________
Name: _______________________
Title: _______________________
Alexander, Wescott & Co., Inc
By: _______________________
Name: _______________________
Title: _______________________
Update 8/9/99 [CS]
20
<PAGE>
October 28, 1999
Alexander, Wescott & Co., Inc.
63 Wall Street
21st Floor
New York, 'NY 10005-3001
Dear Chief Compliance Officer:
As you know, New York Stock Exchange Rule 382 and NASD Rule 3230, governing the
relationship between clearing firms and introducing firms, were recently
amended. Pursuant to the amended Rules, upon your request Spear, Leeds & Kellogg
("SLK") will provide you with copies of certain exception reports and other
reports. A list of the specific reports SLK can provide, along with a brief
description of each report, is set forth below. Please place a check mark next
to each report you would like to receive, sign this letter in the place
indicated, and return the letter to us.
Please note, some reports are available for retail accounts only and some are
available for professional accounts only.
If your firm is interested in obtaining certain customized reports or reports
not listed below, SLK's Clearance Services Department will be pleased to discuss
both your firm's needs and the available methods of transmission and delivery of
the reports.
REPORTS AVAILABLE FOR RETAIL ACCOUNTS ONLY:
A_____ ITEMS FOR ATTENTION REPORT (CR364-01)
This report is a summary report. It reflects all significant exceptions
(i.e., discrepancies, missing items, improper positions, etc.) in an
account. For example, among other things, this report lists: missing
option and margin agreements, large debit balances, overdue items, etc.
B_____ EXCEPTION STATUS REPORT (CR331-48)
This report reflects all account activity, positions, balances equity,
buying power, cash available and margin maintenance requirements.
C_____ OPEN MARGIN CALLS (WITH BREAKDOWN BY DATE) (CR310-01)
This report reflects open margin calls. It shows the dollar amount of
the margin call that remains open from the initial date Of Occurrence,
and it also shows the type of margin
<PAGE>
call (i.e., Fed call, Exchange call and/or House call).
D_____ MARGIN CALLS (CR301-12)
This report reflects present open margin calls.
E_____ OPTION SUITABILITY EXCEPTION REPORT (CR301-17)
This report lists an account's approved option trading strategies, and
indicates option trading that is Outside of Current approval.
F_____ 200 CONTRACTS REPORT (CR301-01)
This report lists accounts that have an option position of 200 or more
contracts in a given security.
G_____ CONCENTRATED ACCOUNTS (CR301-07)
This report lists accounts that have a concentrated position. It
reflects the percentage of equity a concentrated position encompasses
for such account, as well as the market value of the concentrated
position, and the prior night's closing price for that particular
security.
H_____ UNSECURED ACCOUNTS (CR301-37)
This report reflects accounts that have an unsecured balance/negative
equity.
I_____ MONEY LINE BY REGISTERED REPRESENTATIVE (CR331-45)
This report reflects cash balances on trade date and settlement date,
total market value, SMA, cash available, and buying power.
J_____ CASH OVERDUE BY AGE (CR301-04)
This report reflects accounts with overdue cash items. It lists the age
of the overdue cash item.
K_____ STOCK OVERDUE BY AGE (CR301-25)
This report reflects accounts with overdue Securities. It lists the age
of the overdue securities.
L_____ COMMISSION DAILY DETAIL (PS915-01)
2
<PAGE>
This report reflects commissions by branch and registered
representative. It shows the number of shares traded, the price per
share, the commission earned, and the commission percentage the account
is maintained at.
REPORTS AVAILABLE FOR PROFESSIONAL ACCOUNTS ONLY:
M______ DAY TRADE EXCEPTION SUMMARY REPORT (DTAP0702-3)
this report is a snapshot of day trading margin calls sorted by company
code.
N______ DAY TRADE EXCEPTION ANALYSIS REPORT (DTAP0702-4)
This report is a daily day trading detail of margin violations.
O______ MARGIN CALL REPORT (When Available)
When available, this report will reflect all margin calls (Fed calls,
Exchange calls and/or House calls) aged by date and containing a daily
mark on House calls.
Finally, SLK is required to update its customer records. Please print the
following current information:
Your firm's Designated Examining Authority ["DEA"]: _________________________
Your firm's Coordinator at its DEA: Name:____________________
Phone:___________________
Your firm's Chief Executive Officer ["CEO"]: Name:____________________
Phone:___________________
Your firm's Chief Compliance Officer: Name:____________________
Phone:___________________
Please place an authorized signature below acknowledging your firm's receipt of
this letter. and return the letter to us.
ACKNOWLEDGED:
Introducing Broker: ___________________________
3
<PAGE>
By: ___________________________
Print name: ___________________________
Title: ___________________________
Date: ___________________________
4
<PAGE>
November 22, 1999
Mr. Geoffrey Cohen
Vice President
Assistant Compliance Director
Spear, Leeds & Kellogg,
Dear Mr. Cohen:
As required by NYSE Rule 382 the Exchange has completed its review of your
firm's fully disclosed clearing agreement with Alexander, Wescott & Co., Inc.
and finds it acceptable. The copy of the clearing agreement has been retained
for our files.
As a reminder, irrespective of the specific allocations of responsibilities
provided for in the clearing agreement, both the Securities and Exchange
Commission and the New York Stock Exchange, Inc., for purposes of the Securities
Investor Protection Act and SEC Rules 15c3-1 and 15c3-3, consider the Customers'
accounts to be those of the carrying/clearing firm.
Additionally, your organization may have entered into an agreement With the NYSE
to receive Consolidated Network A last sale and quotation information and other
types of market data. The agreement stipulates that you will use market data for
your individual business needs and will neither furnish said information to any
other person, nor retransmit market data within or outside of your premises.
Any questions concerning this restriction should be discussed with Ms. Deidre
Quinn, Manager of Subscriber Services at (212) 656-2121.
Very truly yours
Paul Rice
Surveillance Assistant
c: Ms. Deidre Quinn
Ms. Lisa Gallagher
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
The Financial Commerce Network and Subsidiary, Inc. on Form 10-SB dated January
6, 2000 (file 0-27971) of our report, dated March 29, 1999 on our audit of the
consolidated financial statements of The Financial Commerce Network and
Subsidiary, Inc. as of December 31, 1998 and for the years ended December 31,
1998 and 1997.
/s/ Rothstein, Kass & Company, P.C.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 92,253
<SECURITIES> 1,115,169
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,499,862
<PP&E> 20,134
<DEPRECIATION> 4,076
<TOTAL-ASSETS> 2,551,540
<CURRENT-LIABILITIES> 1,823,453
<BONDS> 0
0
126
<COMMON> 20,393
<OTHER-SE> 707,568
<TOTAL-LIABILITY-AND-EQUITY> 2,551,540
<SALES> 0
<TOTAL-REVENUES> 1,449,138
<CGS> 0
<TOTAL-COSTS> 24,679,840
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (23,230,702)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,230,702)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,350,285)
<EPS-BASIC> (1.55)
<EPS-DILUTED> (1.55)
</TABLE>
