U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
Registration Statement on Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
GRG, INC.
------------------------
(Name of Small Business Issuer as specified in its charter)
NEVADA 65-0831618
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(State or other jurisdiction of (I.R.S. incorporation or
organization) Employer I.D. No.)
100 2nd Avenue North Suite 200
St. Petersburg, Florida 33701
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(Address of Principal Executive Office)
Issuer's Telephone Number, including Area Code: (727) 550-2442
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
$0.001 Par Value Common Voting Stock
------------------------------------
Title of Class
DOCUMENTS INCORPORATED BY REFERENCE: None.
Item 1. Description of Business.
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Business Development.
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Organization, Charter Amendments and General History.
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Organization.
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GRG, Inc., a Nevada corporation ("GRG"), was organized on March 19,
1992, under the name "Karat Productions, Inc." We were organized for the purpose
of conducting any lawful business, including, but not limited to, the
manufacture, sale and distribution of diamonds and colored gemstones.
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At inception, we were authorized to issue 100,000,000 shares of
non-assessable common voting stock, par value one mill ($0.001) per share.
Charter Amendments.
-------------------
The following amendments to the Articles of Incorporation have been
effected since we were organized:
o Reduction of par value from $0.001 per share to $0.0005 per shares, effective
August 9, 1993.
o Increased par value back to $0.001 per share; effected a three for
one forward split of the outstanding common stock; and changed the
name of GRG to "Ghiglieri Corporation," effective June 5, 1997.
o Changed the name of GRG to "GRG, Inc.," effective March 3, 1998.
Copies of the initial Articles of Incorporation, these amendments and
the Bylaws are attached hereto and incorporated herein by reference. See Part
III, Item 1.
General History.
----------------
We ceased our original business operations, which proved unsuccessful,
and were dormant until 1998, when it entered into a series of transactions to
acquire interests in the telephone, real estate and sports marketing industries.
In March 1998, we acquired the international telecommunications asset s
of International Tele-Data, Inc., a New York Corporation (" ITD") for 5,224,000
shares of our common stock. The agreement, referred to as the partial
liquidation agreement, provided that only the crucial assets of ITD were
acquired, along with means of settling any ITD liabilities and claims which
could potentially affect GRG after the transaction. Those assets identified as
crucial were employees, and intangibles including contracts identified in the
partial liquidation agreement, leads, customer base, and office equipment and
database of ITD used in the international telecommunications business. Certain
other assets of ITD were not included in the transaction since they were not
pertinent to the international telecommunications business targeted by GRG. All
shares issued in the transaction were subject to a two-year proxy granting
voting rights of the shares under the control of ITD's principals to the
executive committee of the GRG board of directors. The accounting of this
transaction is at predecessor cost since ITD is a major shareholder post
formation.
In March 1998, we acquired certain assets of Catalyst Communications,
Inc., a Utah Corporation (" Catalyst") for 3,150,000 shares of our common stock.
The agreement provided that GRG acquire employees, crucial suppliers, leads,
customer base, and office equipment and database of Catalyst used in business of
marketing Internet promotions. Certain other assets of Catalyst were not
included in the transaction since they were not pertinent to the Internet and
telecommunications business targeted by GRG. The accounting of this transaction
is at predecessor cost since control parties of Catalyst were also control
parties of GRG at the time of the transaction.
This Registration Statement is being filed on a voluntary basis to
maintain GRG's quotations on the OTC Bulletin Board of the National Association
of Securities Dealers, Inc. (the "NASD"). See the heading "Effects of Existing
or Probable Governmental Regulations," Item I.
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NASD OTC Bulletin Board Quotations.
----------------------------------
GRG's common stock is quoted on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. (the "NASD") under the symbol "GRGI,"
For information concerning these stock quotations during the past two years, see
the caption "Market Price of and Dividends on the Company's Common Equity and
Other Stockholder Matters," Part II, Item 1. The quotations presented do not
represent actual transactions or broker/dealer markups, markdowns or
commissions.
Further, effective January 4, 1999, the NASD adopted rules and
regulations requiring that prior to any issuer having its securities quoted on
the OTC Bulletin Board of the NASD that such issuer must be a "reporting issuer"
which is required to file reports under Section 13 or 15(d) of the Securities
and Exchange Act of the 1934, as amended (the "1934 Act"). The Company is not
currently a "reporting issuer," and this Registration Statement
is being filed to bring GRG into compliance with these quotations provisions.
Under the "phase-in" schedule of the NASD, GRG had until December 1, 1999,
within which to become a "reporting issuer," and to satisfy all comments of the
Securities and Exchange Commission respecting this Registration Statement. This
Registration Statement will automatically be effective after 60 days in
accordance with Securities Exchange Act rules. This does not mean that GRG will
satisfy all outstanding SEC comments within the 60 days and be eligible for
listing on the OTC Bulletin Board at that time. OTC Bulletin Board quotations of
GRG's common stock ceased on December 1, 1999, and the Company's common stock is
quoted in the "Pink Sheets" of the National Quotations Bureau, LLC ("NQB"). This
result further impedes the development of an "established trading market" in the
common stock of GRG because the "Pink Sheets" market is not as accepted by most
brokers/dealers in securities as the OTC Bulletin Board, and a broker/dealer
must subscribe to the NQB's service. GRG will, as soon as practicable following
the satisfaction of all necessary requirements of the NASD, file for quotations
on the OTC Bulletin Board; however, no assurance can be given that the NASD will
allow the quotations of GRG's common stock to be reinstated.
Business.
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Risk Factors.
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Limited Operating History.
--------------------------
We have had limited operations since our inception in 1992. None of our
operations have proved successful, and there is no assurance that we can
profitably market our present products and services. The Company entered the
telecommunications business in March of 1998.
Substantial Losses.
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We had no revenues and substantial losses for the years ended December 31,
1998 and 1997, and limited revenues and additional losses for the nine months
ended September 30, 1999.
Year or Period Gross Net
Ended Revenue Loss
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December 31, 1997 -0- $ (21,983)
December 31, 1998 -0- $(5,857,756)
September 30, 1999 $49,304 $(1,202,043)
No assurance can be given that we will not continue to incur losses on or that
its business operations will prove to be profitable. There is risk that we will
not be able to continue as a going concern if these losses continue for an
extended period of time. See the financial statements of GRG, which accompany
this Registration Statement.
Additional Capital Required .
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--------------------------------
GRG does not have sufficient capital to operate and grow the business.
Additional capital will be required for GRG to continue. operations.
Economic Conditions.
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Any substantial downturn in economic conditions or any significant price
decreases related to the telecommunications industry could reduce margins to a
point that GRG could not make a profit.
Lack of Dividends.
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GRG has not paid does not expect to pay any cash dividends with respect to
its common stock in the foreseeable future. Failure to pay dividends may further
impede the investor from recovering his investment.
No Market for Common Stock.
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There is currently no "established trading market" for GRG's shares of
common stock, and there can be no assurance that such a market will ever develop
or be maintained. Any market price for shares of common stock of GRG is likely
to be very volatile.
"Restricted Shares" Eligible for Future Sales.
---------------------------------------------
Of the 22,299,427 outstanding shares of GRG's common stock, 17,041,661 are
designated as "restricted securities," and 4,186,332 have satisfied the one year
"holding period" requirements of Rule 144. There is risk that many shareholders
will have the restrictions removed during the same time period. This could
create a supply of common stock far exceeding the demand for same and result in
driving the price of the stock down
Risks Associated with Execution of Growth Strategy.
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A principal component of GRG's growth strategy is to deploy and facilitate
an international gateway network of long distance telecommunication services in
the United States and selected international countries. GRG's ability to execute
its growth strategy depends on a number of factors including, (1) the
availability of purchase opportunities; (2) GRG's ability to acquire these
services and related opportunities on economically feasible terms; (3) its
ability to obtain the capital necessary to finance the acquisition of required
facilities and to pay any necessary sales, marketing and operational
expenditures; (4) to market and sell services; and (5) to manage potentially
rapidly growing operations effectively and in a manner which will result in
significant customer satisfaction. There can be no assurance that GRG will be
successful in any of these respects.
Competition
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GRG expects competition to persist, intensify and increase in the
telecommunications industry in the future. Almost all of GRG's current and
potential competitors have longer operating histories, larger installed customer
bases, longer relationships with clients and significantly greater financial,
technical, marketing and public relation resources than GRG and could decide at
any time to increase their resource commitments to GRG's target market.
Low Barriers to Entry
---------------------
There are relatively low barriers to entry into GRG's targeted business.
Anyone can attempt to purchase and sell the telecommunication services which GRG
purchases and markets. Accordingly, GRG is likely to face additional competition
from new entrants into the market in the future
Rapid Price Changes.
--------------------
There is intense price competition among the major competitors in the
telecommunications industry. This continued decrease in the price of these
services may make it economically unfeasible for GRG to continue its present and
proposed telecommunications purchases and sales.
Risks of "Penny Stock."
-----------------------
GRG's common stock is currently being traded as a "penny stock". Penny
stocks are not traded on a "recognized" national exchange. Therefore, there is a
risk of not being able to liquidate stock in a timely manner.
Year 2000.
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We believe all of GRG's computer systems and applications are Y2K
compliant. GRG has experienced no trouble with customers or suppliers, either
foreign or domestic, relating to Y2K. We do not feel there is any substantial
risk relating to Y2K at this time.
Real Time Media
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We have a dispute with Real Time Media concerning the Joint Marketing
Agreement giving GRG the marketing rights to the products of Real Time Media.
There is a risk that litigation will follow. If we enter litigation we will have
to obtain Iternet promotional products from another. Ultimately, litigation
could cause us to cease doing business in Internet promotions.
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Principal Products and Services.
--------------------------------
GRG currently maintains two lines of businesses, which it operates:
International Telecommunications operations and Teleprizes.
International Telecommunications.
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Asynchronous Transfer Mode ("ATM")
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We believe that as technology advances, a comprehensive range of both
consumer and business communications and information services will be provided
over networks utilizing Asynchronous Transfer Mode ("ATM") technology, which is
a method of bandwidth compression that may allow one line to carry the
equivalent of six lines. These services will include traditional voice, video,
data and facsimile transmission, as well as virtual private networks. We have
chosen the "ATM" platform for our network based on the following:
o Flexibility. ATM technology is based on an open protocol (a
nonproprietary, published standard) that allows for market driven
development of new-uses and applications for ATM networks.
o Improving Technologies. GRG believes that ATM's open protocol will
allow seamless interconnection with international
telecommunications markets. A seamless interconnection will allow
customers to use GRG's ATM-based services, including voice and
facsimile, without modifying existing telephone and facsimile
equipment or requiring customers to use dial access codes.
o Standardized Interface. Web browsers can provide a standardized
interface to data and applications on an ATM network.
The "Global Resources Network"
------------------------------
GRG has deployed a facilities-based, international network that will
utilize an Asynchronous Transfer Mode (ATM) backbone. Technology leading General
DataComm, (NYSE: GDC), will provide the hardware and technical support for the
broadband applications. Vital Network, a wholly owned subsidiary of GDC, will
monitor the ATM backbone from their Network Operations Center (NOC) in
Connecticut. The "Global Resources Network" will provide high speed, large
volume, broadband telecommunications services, such as voice, data, video, fax
and Internet service worldwide. GRGI will have a redundant Network Operations
Center in St. Petersburg, FL. The Company has three (3) Siemen's Digital Central
Office's for use as international gateways in Los Angeles, Miami and New York.
GRGI has agreements to terminate traffic into Mexico. One node of our ATM
switching platform, supporting the "Global Resources Network" has been located
in Mexico City with additional nodes being installed in San Antonio, Los
Angeles, Miami, New York City, Monterrey and Guadalajara. The Company has
negotiated with the local access providers to provide last mile fiber
connectivity in Mexico. This high speed, high volume service allows for a US
based company to have a virtual connection between their facilities in the USA
and Mexico.
Today, with regulatory changes throughout the world favoring innovation
and competition, telecommunications infrastructures are being upgraded,
resulting in faster digital communications rates than previously possible. And
now with electronic channels of commerce, like the Internet, have been
established, reliable public and private communication links are essential to
any organization's survival. To allow customers to capitalize on these changes,
GRG will offer solutions that are integrated with other multi-service
applications. This is a high capacity ATM switching platform engineered
specifically for use within the service provider network. Enterprises can use
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the "Global Resources Network" to consolidate multiple networks into a single
ATM overlay backbone. The "Global Resources Network" will deliver higher
performance for end user LAN applications, Internet, and intranet access.
Support for new multimedia applications including high-resolution image
transfer, videoconferencing, and telemedicine are also available.
GRG's innovative architecture provides a complete end-to-end
multi-service network solution across a single integrated backbone. This will
enable GRG to deploy a variety of data, voice, video and multimedia information
over one network infrastructure for all of it customers. All of the elements of
the "Global Resources Network" are managed under a distributed, open network
management framework to enable interconnection with other systems. We will
capitalize the costs associated with designing, building, and placing each node
of the "Global Resources Network" into service.
The "Global Resources Network" will be operational in January ,2000 on
a limited basis. The entire network is scheduled to be operational on or before
April 1, 2000.
The Internet.
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Under the trademark "TeleprizesTM," we have marketing rights through a
joint marketing agreement with RealTIME Media, Inc. "scratch and win" Internet
games, which have already been accepted for Internet implementation. These games
are similar to other "Scratch and Win" games used as advertising and promotional
programs where you scrath off surface and reveal if you won a prize. However, in
our case the "Scratch and Win" play is designed for Internet promotion,
primarily designed to draw people to a specific web site.
We have had recent success in this area of business landing contracts
with lowestfare.com and egghead.com for the use of Real Time Media's Internet
promotions. These successes have produced minimal amounts of income but have
proved the Internet promotion market as both viable and subject to penetration.
Recent Public Announcements.
---------------------------
GRG has agreements that provide for the exchange of telecommunications
traffic with foreign carriers. GRG has strategic agreements to terminate traffic
into Mexico, Latin and South America. The Company has entered into a Strategic
Alliance with Value Added Services (VAS), a Mexican company, with expertise in
regulatory affairs pertaining to telecommunications in Latin America. VAS is
obtaining all the necessary certifications and licenses to provide service
throughout Mexico. One node of our ATM switching platform, has been located in
VAS facilities in Mexico City.
The company has signed a master agreement with a licensed long distance
carrier in Mexico to terminate traffic in the US and internationally. This
agreement allows for GRG to utilize 800 origination services for all of Mexico
and internationally. Traffic will be delivered to GRG at its point of presence
in San Antonio for distribution on the GRN. The Company is negotiating
additional foreign partners for Latin and South America that have licenses in
their home markets.
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Distribution Methods of the Products or Services.
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Marketing.
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International Telecommunications.
---------------------------------
International Market. In 1998, the global trend toward more liberalized
telecommunications markets accelerated in an unprecedented fashion. The World
Trade Organization ("WTO") Agreement, struck in 1997, took effect in February
1998. Sixty-nine countries, representing 95% of the world's $600 billion
telecommunications revenues signed the Agreement, with most committing to
improved access by foreign companies to these international telecommunications
markets.
The liberalization movement also enjoyed significant advances in the
Asia-Pacific and Latin America areas, expanding the mosaic of foreign competitor
opportunities in these regions. While many nations have yet to open their
international telecommunications markets to competition, 1998 was a banner year.
In addition, the Internet is in the process of becoming a global phenomenon,
creating exceptional opportunities to provide telecommunications connectivity in
every region of the world. GRG will focus its strategies on:
North America. Long the leader, it is the world's international
telecommunications hub. 25 billion outbound minutes, one-third of all global
international public switched traffic, originates from this region. Assuming we
raise the capital, GRG is positioned to compete in this region's market. While
the WTO Agreement will result in the further opening of the global
telecommunications market in the new millennium, GRG intends to maintain its
focus on Latin America and the Caribbean. In 2000, GRG will handle in excess of
300 million minutes of traffic. Growth in the Latin American international
market continues to be a strong source of GRG's telecommunications services.
Management believes it has only scratched the surface of this market, and will
focus on originating U.S. telecommunications traffic to Latin America, while
also bringing traffic from these countries into the U.S.
Latin America and the Caribbean. This region's economic promise, combined
with recent efforts by several nations to allow competition into their
telecommunications industries, makes it a significant target market. The
examples of Chile and Mexico, the region's deregulation leaders, are stimulating
others to accelerate their efforts to open their telecommunications industries.
Colombia, El Salvador and Guatemala are the most recent countries to allow
competition in international voice services. Argentina, Bolivia, Brazil, Peru
and Venezuela have committed to allow competition for their international
services over the next few years, with others surely to follow their lead. This
region now generates some 5 billion minutes of outbound traffic annually. GRG
has contractual relationships allowing extensive origination and termination of
traffic into Mexico on fiber. See Part III, Item 1.
The Company's strategy to capitalize on the growing demand for
international telecommunications services consists of the following key
elements:
o Secure additional operating agreements with foreign carriers,
particularly in fast-growing markets in the Americas, Asia, and
Pacific Rim.
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o Develop and expand its global ATM network facilities.
o Pursue strategic alliances, joint ventures and acquisitions to
increase both foreign and domestic originated traffic with niche
opportunities.
o Broaden its offering of higher margin value-added products and
Broadband services.
o Leverage its existing network facilities through targeted direct
marketing of international services to multi-national corporate
customers.
o Maintain efficient, low-cost operations.
The Company's target customer base includes the Fortune 1000 companies with
multi-national locations and long distance carriers, both domestic and foreign.
The company will be able to increase its revenues by providing broadband
services to U.S. based customers. The Company believes that the principal
reasons its customers will select GRGI to carry their international traffic are:
o The company offers a state-of-the-art network with high speed,
broadband applications at rates that are competitive.
o The Company's ability to engineer, furnish and install bandwidth
on demand telecommunications services for each customer's needs
and to provide highly responsive customer service.
o GRGI is a U.S. facilities-based international carrier that does
not compete primarily for end-user customers in the domestic long
distance market, but is a service provider for high speed, large
volume, bandwidth applications.
Distribution.
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We have selected carrier to carrier services as our focus; hence GRG will
offer it's network capacities to the domestic and foreign carriers with volumes
of international traffic. Fiber allows us to provide the best quality available
and act as a pipeline of connectivity for the telecommunication services in
foreign countries. We will deploy a fiber network complete with switches in the
international gateways of Los Angeles, Miami and New York. Fiber will allow GRG
to provide service for Voice, Internet, Data and Multi Media.
Competitive Business Conditions.
--------------------------------
The communications and information services industries are highly
competitive. Many existing and potential competitors have financial, personnel,
marketing and other resources significantly greater than those of GRG, as well
as other competitive advantages including customer bases.
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GRG is subject to significant competition from other entities that engage
in the telecommunications industry. Many of the world's most widely recognized
telecommunications companies have begun to develop and sell overseas
telecommunications. Management of GRG believes that industry competition will be
increased by consolidation and strategic alliances in the industry resulting
from the Telecommunications Act of 1996, the opening of the U.S. market to
foreign carriers and technological advances could give rise to significant new
competitors to GRG.
For virtual private network services and voice services, GRG will
compete primarily with international and regional network providers. There are
currently three principal facilities based long distance fiber optic networks
(AT&T, Sprint and MCI/WorldCom, as well as numerous Local Exchange Carriers. GRG
is aware that others, including QWEST, IXC Communications, Inc. ("IXC") and The
Williams Companies, Inc. ("Williams"), are building additional networks that,
when constructed, could employ advanced technology similar to that of the Global
Resource Network and will offer significantly more capacity than is currently
available in the marketplace. The additional capacity that is expected to become
available in the next several years may cause significant decreases in the
prices for services.
The ability of GRG to compete effectively in this market will depend upon
its ability to maintain high quality services at prices equal to or below those
charged by its competitors.
In the long distance market, GRG's primary competitors will include AT&T,
Sprint and MCI/WorldCom, all having extensive experience in the long distance
market. In addition, the Telecommunications Act will allow the regional Bell
operating companies ("RBOCs") and others to enter the long distance market. GRG
will not compete with Local Exchange Carriers, many of whom have extensive
experience in the local market. GRG believes that the "ATM" compression
technology will prove to be a viable technology for the transmission of voice,
video, data, Internet, and fax services. The technology is in place that will
enable GRG to provide voice services at an acceptable level of quality at this
time.
The communications and information services industries are subject to
rapid and significant changes in technology. For instance, recent technological
advances permit substantial increases in transmission capacity of both new and
existing fiber, and the introduction of new products or emergence of new
technologies may further reduce the cost or increase the supply of certain
services similar to those which GRG plans on providing. Accordingly, in the
future GRG's most significant competitors may be new entrants to the
communications and information services industries who are not burdened by an
installed base of outmoded equipment.
Patents, Trademarks, Licenses, Franchisees, Concessions, Royalty
Payments or Labor Contracts.
----------------------------
Long term Termination Agreements with International Host countries are in
place and/or under negotiation. Marketing rights to a patent pending "Scratch
and Win" Instant Win Sweepstakes software have been granted from Real Time
Media. GRG entered into an agreement with Action Performance, Inc. ("Action")
that provides GRG with an exclusive telecommunications banner-advertising rights
to Action's Internet web site.
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Telecommunications.
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Our proposed international telecommunications activities do not require,
and we do not intend to rely on, patents or trademarks.
Internet.
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Although GRG's trade names are not subject to patent protection, we
treat them as proprietary and use confidentiality agreements as appropriate in
an attempt to protect these trade names GRG has received a trademark for "Club
Speed" from the United States Patent and Trademark Office, which it uses on some
of its products.
Need for Government Approval of Principal Products or Services.
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GRG's communications service business will be subject to varying degrees
of Federal, state, local and international regulation. See the following
heading.
Effect of Governmental Regulations on Business.
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International Telecommunications.
---------------------------------
Federal Regulation.
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The Federal Communications Commission (the "FCC") regulates interstate
and international telecommunications services. The FCC imposes extensive
regulations on common carriers such as Local Exchange Carriers which have some
degree of market dominance. The FCC imposes less regulation on common carriers
without market dominance, such as GRG. The FCC permits these non-dominant
carriers to provide domestic interstate services (including long distance and
access services) without prior authorization. The FCC requires carriers to
receive an authorization to construct and operate telecommunications facilities,
and to provide or resell telecommunications services between the United States
and international points. GRG has obtained FCC authorization to provide
international services on a facilities and resale basis. GRG will be required to
file tariffs for its interstate and international long distance services with
the FCC before commencing operations.
Under the Telecommunications Act, any entity, (including cable television
companies, electric and gas utilities), may enter any telecommunications market
subject to reasonable state regulation of safety, quality and consumer
protection. Because implementation of the Telecommunications Act is subject to
numerous federal and state policy rule making proceedings and judicial review,
there is still uncertainty as to what impact it will have on GRG. The
Telecommunications Act is intended to increase competition.
Local Exchange Carriers are required to negotiate in good faith with
carriers requesting any or all of the above arrangements. In the case of ATM, if
the negotiating carriers cannot reach agreement within a prescribed time, either
carrier may request binding arbitration of the disputed issues by the state
regulatory commission. Where an agreement has not been reached, Local Exchange
Carriers remain subject to interconnection obligations established by the FCC
and state telecommunication regulatory commissions.
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The Telecommunications Act of 1996 contains special provisions that
modify previous court decrees that prevented Regional Bell Companies from
providing long distance services and engaging in telecommunications equipment
manufacturing. These provisions permit a a Regional Bell Company to enter the
long distance market in its traditional service area if it satisfies several
procedural and substantive requirements, including obtaining FCC approval upon a
showing that the Regional Bell has entered into interconnection agreements (or,
under some circumstances, has offered to enter into such agreements) in those
states in which it seeks long distance relief. The interconnection agreements
satisfy a 14-point "checklist" of competitive requirements and the FCC must be
satisfied that the Regional Bell's entry into long distance markets is in the
public interest. To date, the FCC has denied several petitions by Regional Bells
for such entry, and none have been granted. The Telecommunications Act permitted
the Regional Bells to enter the out-of-region long distance market upon its
enactment.
Internet Service Providers are generally considered "enhanced service
providers" and are exempt from Federal and state regulations governing common
carriers. Accordingly, GRG's provision of Internet access services via the GRG
Network will be exempt from tariffing, certification and rate regulation.
Nevertheless, regulations governing disclosure of confidential communications,
copyright, excise tax and other requirements may apply to GRG's provision of
Internet access services. GRG cannot predict the likelihood that state, federal
or foreign governments will not impose additional regulation on GRG's Internet
business; nor can it predict the impact that future regulation will have on
GRG's operations.
In December 1996, the FCC initiated a Notice of Inquiry regarding
whether to impose regulations or surcharges upon providers of Internet access
and Information Service (the "Internet NOI").
The Internet NOI sought public comment upon whether to impose or
continue to forebear from regulation of Internet and other packet-switched
network service providers. The Internet NOI specifically identifies Internet
telephony as a subject for FCC consideration. On April 10, 1998, the FCC issued
a Report to Congress on its implementation of the universal service provisions
of the Telecommunications Act. In that Report, the FCC indicated that it would
reexamine its policy of not requiring an Internet Service Provider "ISP" to
contribute to the universal service mechanisms when the ISP provides its own
transmission facilities and engages in data transport over those facilities in
order to provide an information service.
Any such contribution would be related to the ISP's provision of
telecommunications itself. In the report, the FCC also indicated that it would
examine the question of whether certain forms of "phone-to-phone IP telephony"
are information services or telecommunications services. It noted that the FCC
did not have an adequate record on which to make any definitive pronouncements
on that issue at the time, but that the record the FCC had reviewed suggested
that certain forms of phone-to-phone IP telephony appear to have the same
functionality as non-IP telecommunications services and lack the characteristics
that would render them information services.
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If the FCC were to determine that certain services are subject to FCC
regulations as telecommunications services, the FCC noted it might find it
reasonable that the ISPs pay access charges and make universal service
contributions. GRG cannot predict the outcome of these proceedings or other FCC
proceedings that may effect GRG's operations or impose additional requirements,
or regulations or charges upon GRG's provision of Internet access services.
The Internet.
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Sweepstakes games are regulated by a combination of Federal and state
regulations for telecommunication and state regulations for sweepstakes.
Although rules tend to vary from state to state, sweepstakes rules typically
require posting of games rules and odds, articles of consideration for the
sweepstakes play and ability of individuals wishing to play the sweepstakes game
to do so for free, among others. Certain states and Federal legislators are
considering incorporating additional rules to sweepstakes games; however, GRG
cannot estimate the effect of any potential changes at this time.
Research and Development.
-------------------------
As part of GRG's entrance to the international telecommunications market,
it intends to enhance existing products and develop new products. GRG had no
costs associated with customer-sponsored research and development activities
during the years ended December 31, 1998 or 1997, or the nine months ended
September 30, 1999.
Number of Employees.
--------------------
International Telecommunications.
---------------------------------
GRG currently has a management team consisting of five executives. GRG
expects to hire 20 employees by the middle of 2000, and to have over 100
employees once the Global Resource Network has been fully deployed.
Item 2. Management's Discussion and Analysis or Plan of Operations.
- -------------------------------------------------------------------
Plan of Operations.
-------------------
We will focus on development of Mexico, Central America, South America and
the Caribbean markets due to the ever-growing demand for termination of
international traffic into these countries. Several countries in these areas
have either opened their doors to legal competition or are expected to do so in
1999 or early 2000.
To meet our revenue goals, we need to raise $2,000,000 of additional
capital (see "Liquidity and Capital Resources"), to meet our operating needs
from sales or issuance of equity securities, credit facilities and other
borrowings, or the issuance of debt securities. In addition, GRG may sell or
dispose of existing businesses or investments or lease network facilities being
developed.
GRG intends to capitalize on the significant growth opportunities it
believes are being created by the following major trends in the international
telecommunications services market:
o Global deregulation and privatization;
11
<PAGE>
o Increased availability of digital undersea, fiber optic cable
and terrestrial satellite capacity;
o Cost reduction driven by technology and competition; and,
Economic development and increased reliance on telephones and
access lines to service telephony and technology worldwide.
The foregoing contains "forward-looking" statements and information,
all of which is modified by reference to the caption "Risk Factors," Item 1.
Results of Operations
---------------------
Selected Financial Data
-----------------------
The following selected Consolidated Statement of Operations, Other
Financial Data and Balance Sheet Data as of and for the year ended December 31,
1998, have been derived from our Consolidated Financial Statements and the notes
related thereto, which were audited by Jones, Jensen and Company, Independent
Certified Public Accountants. Information for the three months and nine months
ended September 30, 1999 is unaudited. The Consolidated Financial Statements as
of December 31, 1998 and the report of Jones, Jensen and Company thereon, are
included elsewhere in this report. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" our Consolidated Financial Statements, including the
notes thereto, and the other financial data included elsewhere in this report.
<TABLE>
<CAPTION>
Year Ended Three Months Ended Nine Months Ended
December 31, 1998 Sept. 30, 1999 Sept. 30, 1999
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Communication services revenue $ 0 $ 49,304 $ 49,304
Operating expenses:
Cost of communication services 0 76,869 76,869
Selling, general and administrative 4,746,129 446,640 1,139,559
Depreciation and amortization 1,134 21,813 32,771
---------- --------------- --------------
Total operating expense 4,747,263 545,327 1,249,199
---------- --------------- --------------
Operating loss (4,747,263) (496,023) (1,199,895)
Interest expense 0 (1,544) (1,544)
Other, net (1,110,493) 2,792 (604)
Net loss attributable
to common stockholders $(5,857,756) $ (494,775) $ (1,202,043)
========== ============== ==============
Loss per share attributable
to common stockholders $ (0.48) $ (0.03) $ (0.07)
========== ============== ==============
Other Financial Data:
Operating EBITDA (loss) $(4,746,129) $ (474,210) $ (1,167,124)
Net cash used in operating activities (2,210,942) (457,434) (1,178,884)
Net cash used in investing activities (263,424) (252,567) (253,037)
Net cash provided by (used in)
financing activities 2,574,426 672,646 1,405,894
Capital additions $ 13,424 $ 327,567 $ 328,037
Other Operating Data:
12
<PAGE>
Billable minutes 0 0 2,185,176
Switches 0 0 0
Points of presence 0 0 0
Balance Sheet Data:
Cash and cash equivalents and
marketable securities $ 100,060 $ 74,033 $ 74,033
Property and equipment, net 12,290 321,943 321,943
Total assets 333,394 581,632 581,632
Long-term debt, excluding
current installments 0 193,419 193,419
Stockholders' equity $ 309,353 322,785 322,785
</TABLE>
The following discussion should be read in conjunction with our
financial statements, the notes thereto, and the other financial data included
elsewhere in this report.
Overview
--------
Since GRG's restructuring in 1998, we have invested in developing our
ability to provide international communication services and expanding our market
presence. We have made investments in telecommunications infrastructure, back
office operations, an administrative facility and a direct sales organization.
Furthermore, we have acquired through partition and other means the rights to
use an extensive commercial telecommunications network in which we believe is
necessary to economically render the voice and data services we offer and intend
to offer. We have also expanded our ability to generate revenues in North
America during 1999. Currently, our revenues are derived from wholesale sales.
Each revenue source has a different impact on our results of operations. The
sale of capacity on the "Global Resources Network" will vary substantially from
period to period and will result in fluctuations in our operating results. For a
discussion of the effects of the "Global Resources Network" on communication
services revenue and other line items, see The "Global Resources Network".
In 1998, due to the inception of our telecommunications operations, we
did not report any telecommunications revenue or related cost of sales. The
discussion below is intended to introduce the reader to our approach and discuss
matters which will impact future operations. All operational costs relating to
Internet business are included in sales, general and administrative costs.
Communication Services Revenue
------------------------------
Our communication services revenue is currently based primarily on the
number of minutes of use billed ("billable minutes") and, to a lesser extent, on
the additional services and products provided through our network at a fixed
cost. We currently derive our communication services revenue principally from
international long distance telecommunications services.
Our industry has experienced, and expects to continue to experience,
declining revenue per minute in all markets, as a result of increased worldwide
competition within the telecommunications industry. We believe, however, that
the impact on our results of operations from price decreases will be at least
partially offset by (1) continuing decreases in our cost of providing
telecommunications services, particularly those decreases resulting from our
continued efforts to convert from leased to owned infrastructure and reduced
interconnection costs through the use of the "Global Resources Network" as it is
expanded, (2) the introduction of new products and services and (3) our ability
to enter into additional interconnection agreements. There can be no assurance,
however, that these results, including a decline in our cost of communication
services, can be achieved.
13
<PAGE>
Cost of Communication Services
------------------------------
Our cost of communication services can be classified into three general
categories: access costs, network costs and termination costs. Access costs
generally represent the costs associated with transporting the traffic from a
customer's premises to the closest access point on our network. Access costs
vary depending upon the distance from our network to the customer's premises and
from country to country. We currently expect that our effective per minute cost
will be reduced as deregulation continues and competition accelerates, certain
European Union directives requiring cost-oriented pricing (i.e., costs that an
effectively competitive market would yield) by incumbent telecommunications
operators are enforced and as we are able to obtain cost effective
interconnection agreements. However, we can provide no assurance regarding the
extent or timing of such cost decreases. In the event that such access costs do
not fall as fast as we can expect or not at all, our gross margins could be
adversely impacted.
Network costs represent the costs of transporting calls over our
network from its point of entry to its point of exit. Network costs generally
consist of leased line rental costs and costs associated with interconnection
with facilities of incumbent telecommunications operators. These costs will
decrease substantially as each node of the "Global Resources Network" is placed
into service and we secure infrastructure ownership on other routes, which will
enhance gross margins. However, there will be an associated increase in
depreciation and amortization expense (which is included in a different line
item). In order to succeed, we will need our per minute network costs to decline
substantially compared to our per minute revenue. See "Depreciation and
Amortization".
Termination costs currently represent the costs which we are required
to pay to other carriers from the point of exit from our network to the point of
destination. Termination costs are generally variable with traffic volume and
traffic mix. If a call is terminated in a city in which we have a switch or
point of presence, the call is usually transferred to the public switch
telephone network for local termination. If the call is to a location in which
we do not have a switch or point of presence, then the call must be transferred
to another carrier with which we are interconnected.
We utilize least cost routing designed to terminate traffic in the most
cost effective manner. We believe that local termination costs should decrease
as we (1) add additional switches and points of presence, (2) interconnect with
additional incumbent telecommunications operations and other infrastructure
providers, and (3) construct or purchase additional transmission facilities.
Local termination costs should also decrease as new telecommunications service
providers emerge and, in Western Europe, as European Union member states
implement and enforce regulations requiring incumbent telecommunications
operators to establish rates which are set at the forward- looking, long run
economic costs that would be incurred by an efficient provider using
state-of-the-art technology. We cannot provide any assurance regarding the
results referred to in the foregoing forward-looking statements, including the
extent or timing of cost decreases.
14
<PAGE>
Selling, General And Administrative Expenses
--------------------------------------------
Our selling, general and administrative expenses include commissions
paid to independent sales representatives and overhead costs associated with our
headquarters, back office and network operations centers and sales offices. Our
selling, general and administrative expenses have continued to increase since
our inception as we developed and expanded our business, although these expenses
have fallen as a percentage of communications revenue. We anticipate that these
expenses will continue to increase as our business is expanded in the future,
however, we cannot provide any assurance that this will be the case. We
anticipate that these expenses will continue to be incurred in advance of
anticipated related communication services revenue.
Depreciation And Amortization
-----------------------------
Depreciation and amortization expense includes charges relating to
depreciation of property and equipment, which consist principally of
telecommunications related equipment such as switches and points of presence,
indefeasible rights of use and minimum investment units, furniture and
equipment, leasehold improvements, and amortization of intangible assets and
costs associated with acquired employee bases and sales forces. We depreciate
our network over periods ranging from five (5) to seven (7) years and amortize
our intangible assets over periods ranging from three (3) to five (5) years. We
expect depreciation and amortization expense to increase as we further expand
our network, particularly as each node of the "Global Resources Network" is
placed into service, at least until significant portions of the "Global
Resources Network" are built and sold.
The "Global Resources Network"
------------------------------
Today, with regulatory changes throughout the world favoring innovation
and competition, telecommunications infrastructures are being upgraded,
resulting in faster digital communications rates than previously possible. And
now with electronic channels of commerce, like the Internet, have been
established, reliable public and private communication links are essential to
any organization's survival. To allow customers to capitalize on these changes,
GRG will offer solutions that are integrated with other multi-service
applications. This is a high capacity ATM switching platform engineered
specifically for use within the service provider network. Designed to nicer NEBS
requirements, with DC power, and carrier-oriented timing and synchronization
options, it is one of the leading platforms for delivering ATM services in some
of the world's most advanced and demanding public ATM networks. Enterprises can
use the "Global Resources Network" to consolidate multiple networks into a
single ATM overlay backbone. The "Global Resources Network" will yield bottom
line benefits in the form of resource consolidation and sharing of disparate
voice and data facilities, servers, and LANs. It delivers higher performance for
end user LAN applications, Internet, and intranet access. Support for new
multimedia applications including high-resolution image transfer,
videoconferencing, distance learning, and telemedicine is another distinct
advantage.
The "Global Resources Network" when completed is expected to have
significant effects on our results of operations. GRG's innovative architecture
provides a complete end-to-end multi-service network solution across a single
integrated backbone. This will enable GRG to deploy a variety of data, voice,
video and multimedia information over one network infrastructure for all of it
customers. All of the elements of the "Global Resources Network" are managed
under a distributed, open network management framework to enable interconnection
with other systems. We will capitalize the costs associated with designing,
building, and placing each node of the "Global Resources Network" into service.
15
<PAGE>
We will sell bandwidth on demand on the "Global Resources Network".
Revenue from bandwidth sales will qualify under generally accepted accounting
principles to be treated as sales and recognized under a line item to be titled
"Bandwidth Sales". Bandwidth Sales will be recognized as revenue when the
purchaser obtains the right to use the capacity. The related cost of bandwidth
will be reported in the same period. With respect to each sale of bandwidth, the
related cost of bandwidth sales will be equal to a proportionate amount of the
total capitalized cost of the related network. Revenue from operating leases of
private line circuits, which will be included in communication services revenue,
will be recognized on a straight-line basis over the life of the lease. The
portion of the total capitalized cost of the "Global Resources Network" used to
provide communication services will be included in property and equipment and
charged to depreciation and amortization over its useful life.
We expect to trade bandwidth on the "Global Resources Network" for
bandwidth on other systems. Depending upon structure, these trades of bandwidth
may have a material affect on our statement of operations. We will incur sales
and marketing related expenses that will not be capitalized and will affect our
results of operations, particularly while the "Global Resources Network" is
being designed, built and placed into service. In addition, we will continue to
incur additional operating and maintenance expenses as the remaining phases of
the "Global Resources Network" become operational. As a result of financing a
portion of the "Global Resources Network" with debt, we will capitalize a
portion of the interest incurred that relates to the construction of the "Global
Resources Network" until it is placed in service and will incur substantial
increases in interest expense thereafter.
The "Global Resources Network" will have a beneficial effect on our
costs of services as well as net income (loss). This will occur as we put
traffic on our own facilities ("on-net"), as opposed to facilities that we lease
from other carriers. A large portion of the expenses with facilities we own is
accounted for as depreciation and amortization, while leased capacity is
accounted for as a cost of services. As a result, we expect that our gross
margins and profit will be improved as we bring traffic "on-net". The positive
effect of bringing traffic "on-net" will be somewhat delayed, because our leased
line agreements require minimum notification to terminate our obligations.
Results Of Operations
---------------------
The following discussion of results of operations relates to the
Company on a historical basis. Because we are a development stage company, we
expect changes in our operations when or if we are no longer in the development
stage.
Year ended December 31, 1998 Compared to December 31, 1997
----------------------------------------------------------
Communication Services Revenue And Related Cost Of Sales
-------------------------------------------------------------------
Because our facilities to sell long distance traffic were not completed
in 1998, we did not record any billable minutes or related communication
services revenues or costs.
16
<PAGE>
Selling, General And Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses increased to $4,746,129
for the year ended December 31, 1998 from $21,983 in for the year ended December
31, 1997. Much of these expenses are attributable to overhead costs associated
with our headquarters, back office and network operations as well as maintaining
sales offices. In 1998, salaries and commissions were $255,994, and advertising
and promotion expenses were $29,265. We expect to incur additional expenses as
we continue to invest in our sales and marketing infrastructure and actively
market our products and services. Approximately $2.75 million of these costs
were non-cash one-time restricted stock awards to board members and related
entities for expenses associated with establishing the company's operations. The
company has expended approximately $150,000 in Internet development costs.
Operating EBITDA Loss
---------------------
Operating EBITDA loss increased to $4.75 million for 1998 as a result
of the above mentioned items.
Depreciation And Amortization
-----------------------------
Depreciation and amortization expense, which will include depreciation
of our network, when completed, increased to approximately $1,134 in 1998 from
- -0- in 1997. The increase was due primarily to the depreciation of equipment
related to network expansion and office facility. Depreciation expense will
increase substantially as each ring of the "Global Resources Network" becomes
operational.
Interest
--------
The Company did not incur any interest income or expense and did not
capitalize any interest in 1998 or
1997.
Nine Months Ended September 30, 1999 Compared To Nine Months ended September 30,
1998
- ---------------------------------------------------------------------------
Communications Service Revenue And Related Cost Of Sales
- ----------------------------------------------------------------------------
For the nine months ending September 30, 1999, the Company realized minimal
revenues of $49,304 from its telecommunications services. The most significant
event was the landing of additional contracts which are anticipated to increase
future revenues from Mexico. There was a cost of sales of $76,869 for the nine
months ended September 30, 1999. This amount was greater than the related
revenues due to one-time costs associated with bringing the traffic online.
- ---------------------------------------------------------------------------
Selling, General And Administrative Expenses
--------------------------------------------
- ---------------------------------------------------------------------------
Selling, general and administrative expenses decreased from $1,508,229
in the nine months ended September 30, 1998 to $1,139,559 for the nine months
ended September 30, 1999. Substantially all of this reduction was due to the
fact that there was a nonrecurring charge of $350,000 for acquisition services
in 1998.
17
<PAGE>
For the nine months ended September 30, 1999, We expended approximately:
o $100,000 in Internet development costs focusing entirely on customer
relationship development
o $600,000 for payroll and personnel costs
o $50,000 of commission expense on our ill fated China project
o $75,000 for legal and professional fees
o $300,000 for overhead, travel, insurance and other operating costs
In the event the Company is able to fulfill its business plan, these costs will
increase in future years, especially in the personnel area.
Operating EBITDA Loss
---------------------
Operating EBITDA decreased from a loss of ($2.564,973) for the nine
months ended September 30, 1998 to a loss of ($1,167,728), again due to the
$350,000 charge for acquisition services incurred in 1998 and due to the write
off of $1,056,744 for rescinded transactions in 1998.
Interest
--------
The company incurred interest expense of $1,544 for the nine months
ended September 30, 1999 compared to zero for the same period in 1998. This
amount will increase in future years as the Company raises capital from debt
offerings or incurs interest expense with leased network equipment.
Depreciation And Amortization
-----------------------------
Depreciation and amortization rose from zero for the nine months ended September
30, 1998 to $32,771 for the nine months ended September 30, 1999. This was due
to the acquisition of equipment for the building of the "Global Resources
Network".
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
- -----------------------------------------------------------------------------
Communications Service Revenue and Related Cost of Sales
--------------------------------------------------------
As discussed above, for the three months ended September 30, 1998, the
Company began to realize minimal revenues of $49,304 from its telecommunications
services. The most significant event was the landing of additional contracts
which are anticipated to increase future revenues from Mexico. There was a cost
of sales of $76,869 for the three months ended September 30, 1999. This amount
was greater than the related revenue due to one-time costs associated with
bringing the traffic online.
Selling, General And Administrative Expenses
--------------------------------------------
Selling, general and administrative Expenses increased from $356,669
for the three months ended September 30, 1998 to $446,645 for the three months
ended September 30, 1999. This increase was due to increases in salaries and
payroll related expenses. The company made reductions in its staff shortly after
September 30, 1999 in a cost containment effort. The company's Internet
development costs were $25,000 which approximated the same amount as the three
month period in the prior year.
18
<PAGE>
Operating EBITDA Loss
---------------------
Operating EBITDA increased from a loss of ($449,919) for the three
months ended September 30, 1998 to a loss of ($471,418). This was due to the
operating cost increase described above offset by relief from losses on
rescinded acquisitions which were incurred in 1998.
Liquidity And Capital Resources
-------------------------------
We have incurred losses from operating activities in each year since
our inception and expect to incur operating and net losses for at least one more
year until the Company's network becomes fully functional. Since inception, we
have utilized cash provided by financing activities to fund operating losses,
and capital expenditures. The sources of this cash have been primarily through
private and public equity and financing. Since inception, we have raised
approximately $4,000,000 of gross proceeds from the sale of our common stock. As
of December 31, 1998, and September 30, 1999, we had $100,060 and $74,033 in
cash, cash equivalents and other liquid investments, respectively.
We believe that the net proceeds from the 1998 and 1999 financing,
together with cash and marketable securities on hand and the sale of capacity on
the "Global Resources Network" will provide sufficient funds for us to expand
our business as planned and to fund operating losses for at least the next two
(2) months. However, the amount of our future capital requirements will depend
on a number of factors, including the success of our business, the start-up
dates of each ring of the "Global Resources Network", the dates at which we
further expand our network, the types of services we offer, staffing levels,
acquisitions and customer growth, as well as other factors that are not within
our control, including competitive conditions, government regulatory
developments and capital costs. In addition, we continually discuss and evaluate
potential acquisitions. In the event that (1) our plan or assumptions change or
prove to be inaccurate, (2) we consummate an acquisition, (3) we are unable to
convert from leased to owned infrastructure in accordance with our current plans
or (4) the cash and investments on hand, and the proceeds from the sale of
capacity on the "Global Resources Network" prove to be insufficient to fund our
growth in the manner and at the rate currently anticipated, we may be required
to delay or abandon some or all of our development and expansion plans or we may
be required to seek additional sources of financing earlier than currently
anticipated. In the event we are required to seek additional financing, there
can be no assurance that such financing will be available on acceptable terms or
at all. If we do not raise the required amounts, we will have to significantly
alter our plans. (see "Risk Factors")
The Company face a crucial test of its capital needs and requirements
in late 1999 as it searches for private capital (equity or debt) of $2,000,000
for equipment purchases, deposits and working capital to implement the new
business it has signed. Our plan is to lease facilities to turn up traffic
immediately, construct the GRG network, and transfer the traffic from the leased
facilities to those owned by GRG. In the event that the Company is unable to
raise the amounts needed, it will have to scale back its telecommunications
sector and focus on acquisitions or developing less capital-intensive sectors of
the business such as Teleprizes(TM).
19
<PAGE>
Capital Expenditures - Commitments
----------------------------------
The development of our business has required substantial capital.
Capital additions for each period consist of capital expenditures, the net
increase in property and equipment purchases payable, assets acquired under
capital lease obligations and capitalized interest during the period. During
1998, capital additions were nominal, but are expected to greatly increase in
future years. We added $300,000 of equipment during the 3rd Quarter of 1999. The
company plans to expend approximately $450,000 for ATM equipment, $150,000 for
switch deposits and payments, and $300,000 for deposits on long distance lines
in the 4th Quarter of 1999. Additional equipment needs for the network systems
will be secured with long term leases.
Foreign Currency
----------------
We have limited exposure to fluctuations in foreign currencies relative to
the U.S. dollar as a result of billing portions of our communication services
revenue and a substantial portion of our transmission costs, being denominated
in U.S. dollars. A substantial portion of our capital expenditures are, and will
continue to be, denominated in U.S. dollars.
With the continued expansion of our network, a substantial portion of
the costs associated with the network, such as local access and termination
charges and a portion of the leased line costs, as well as a majority of local
selling expenses and possibly debt service, will be charged to us in the same
currency as revenues billed. These developments create a natural hedge against a
portion of our foreign exchange exposure. To date, much of the funding necessary
to establish the local direct sales organizations has been derived from
communication services revenue that was billed in local currencies.
Consequently, we believe that our financial position as of December 31, 1998 and
September 30, 1999 and our results of operations for the year ended December 31,
1998 and the three months and nine months ending September 30, 1999 were not
significantly impacted by fluctuations in the U.S. dollar in relation to foreign
currencies.
Year 2000
---------
The year 2000 problem is the result of computer programs,
microprocessors and embedded date reliant systems using two digits rather than
four to define the applicable year. If such programs are not corrected, such
date sensitive computer programs, microprocessors and embedded systems may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculation causing disruptions in
operations.
In an effort to assess our year 2000 state of readiness, during 1998 we
performed a complete inventory assessment of all of our internal systems, which
we have divided into two categories, business essential, or mission critical,
and support systems, or non-mission critical. As part of our year 2000 program
and as part of our overall procurement plan, we have sought to ensure that fixed
assets acquired were year 2000 compliant. As part of this process, we have
inventoried, tested, and ensured year 2000 compliance of our mission critical
systems. The inventory and testing of these mission critical systems is
20
<PAGE>
complete. The backbone of our communications network is primarily composed of
use of switches which are year 2000 compliant. Our message processing and
billing systems, which are used to record and process millions of call detail
records, and our transmission equipment, which our only other mission critical
systems, are also year 2000 compliant. The majority of our non-mission critical
systems are year 2000 compliant. We believe our mission critical and our
non-mission critical systems are all year 2000 compliant as of September 30,
1999.
We have initiated formal communications with the key carriers and other
vendors on which our operations and infrastructure are dependent to determine
the extent to which we are susceptible to a failure resulting from such third
parties' 2000 problems. Accordingly, during the procurement process, we have
taken steps to ensure that our vendors, carriers and products purchased are year
2000 compliant or are adequately addressing the year 2000 issues. We can provide
no assurance that the carriers and other vendors on which our operations and
infrastructure rely are or will be year 2000 compliant in a timely manner.
Interruptions in the services provided to us by these third parties could result
in disruptions in our services. Depending upon the extent and duration of any
such disruptions and the specific services affected, such disruptions could have
a material adverse affect on our business, financial condition and results of
operations. As a contingency against any possible disruptions in services
provided by vendors, we have sought to diversify our vendor base. We believe
that the diversity of our vendor base is sufficient to mitigate year 2000
related disruptions in service to our customers. In addition, we believe that
the fact that we conduct business in, and derive revenue from, multiple Western
European countries helps to mitigate the potential impact of year 2000 related
disruptions. In addition, disruptions in the economy generally resulting from
year 2000 problems could also have a material adverse affect on us. We could be
subject to litigation resulting from any disruption in our services. The amount
of potential liability or lost revenue which would result from these disruptions
in service could have a material adverse effect on our business, financial
condition and results of operations.
Neither GRG, nor our suppliers and customers have experienced anyY2K
problems. Further, at this point they do not expect any.
Inflation
---------
We do not believe that inflation has had a significant effect on our
operations to date.
Market Risk Exposure
--------------------
We are subject to foreign currency exchange rate risk relating to
receipts from customers, payments to suppliers and interest payments on
outstanding Euro denominated securities. We do not consider the market risk
exposure relating to foreign currency exchange to be material. See "Liquidity
and Capital Resources - Foreign Currency".
We have financial instruments that are subject to interest rate risk,
principally short-term investments and debt obligations issued at a fixed rate.
Historically, we have not experienced material gains or losses due to interest
rate changes when selling short-term investments and typically hold these
securities until maturity. Based on our current holdings of short-term
investments, our exposure to interest rate risk is not material. Fixed rate debt
obligations issued by us are generally not callable until maturity.
21
<PAGE>
Item 3. Description of Property.
---------------------------------
GRG's principal executive offices are 100 2nd Avenue North, Suite #200,
St. Petersburg, Florida. GRG's lease is for 2,986 square feet at $3,338 a month
and expires on August 31, 2001. The facility is used entirely for office and
administration. The Company anticipates leasing additional facilities in the
future for telecommunications equipment as the "Global Resources Network" is
built.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
Security Ownership of Certain Beneficial Owners.
------------------------------------------------
The following table sets forth the share holdings of those persons
who own more than five percent of GRG's common stock as of October 22, 1999,
based upon 22,299,427 outstanding shares:
<TABLE>
<CAPTION>
Number of Shares Percentage
Name and Address Beneficially Owned of Class(1)
- ---------------- ------------------ -----------
<S> <C> <C>
Carl Smith
355 Interstate Blvd.
Sarasota, FL 34240 3,335,598 (1) 15.0%
Ken Craig
612 Downs Avenue 1,560,000(2) 6.9%
Temple Terrace, FL 33617
Jeffrey M. Good
4490 38th Way South 1,560,000(2) 6.9%
St. Petersburg, FL 33711
Ranald Stewart
3424 Jean Circle
Tampa, FL 33629 3,639,512 16.3%
-------------- -------
10,055,110 45.1%
============== =======
</TABLE>
(1) Includes 1,200,000 shares owned by SB Resources Group, Inc. (see
"Security Ownership of Directors and Officers" below), 1,633,935 shares
owned by ASFT, Inc. (see "Security Ownership of Directors and Officers"
below),45,020 shares owned by Carl Smith III (son), 50,000 shares owned
by Carl Smith III and Julie M. Smith, 50,800 shares owned by Franklin
S. Smith (son), 2,300 shares owned by Tina S. Cook (daughter), 25,000
shares owned by Linzy Cook (granddaughter), 301,876 shares owned by
Vikki Cook (granddaughter), and 26,667 shares owned by Tampa Bay
Financial, Inc.
22
<PAGE>
(2) Subject to vesting requirements based on 1 share released for every two
dollars of gross profit earned by the Company
Security Ownership of Directors and Officers.
---------------------------------
The following table sets forth the share holdings of GRG's
directors and executive officers as of October 22, 1999. Information regarding
the capacities in which each person serves for GRG is contained in Part I, Item
5.
Number of Shares Percentage of
Name and Address Beneficially Owned of Class
- ---------------- ------------------ -------------
O. Howard Davidsmeyer, Jr.
5159 Riverwood Avenue 328,800 1.5%
Sarasota, FL 34231
Carl L. Smith
355 Interstate Blvd. 3,335,598 15.0%
Sarasota, FL 34240
Christopher R. Beck
235 Sunrise Avenue 480,000 2.2%
Suite C-24
Palm Beach, FL 33629
Ranald Stewart, Jr.
3424 Jean Circle 3,639,512 16.3%
Tampa, Fl 33629
Ken Craig
612 Downs Avenue 1,560,000 6.9%
Temple Terrace, FL 33617
Matthew A. Veal
1004 Marlin Lakes Circle 102,500 0.4%
#211
Sarasota, FL 34232
Jeffrey M. Good
4490 38th Way South 1,560,000 6.9%
St. Petersburg, FL 33711
------------- ------
Totals 10,966,410 49.2%
============= ======
Changes in Control.
-------------------
There are no present arrangements or pledges of GRG's securities that may
result in a change in control of GRG.
23
<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons.
- ---------------------------------------------------------------------
Identification of Directors and Executive Officers.
---------------------------------------------------
The following table sets forth the names of all current directors and
executive officers of GRG. These persons will serve until the next annual
meeting of the stockholders (held in June of each year) or until their
successors are elected or appointed and qualified, or their prior resignations
or terminations.
Date of Date of
Positions Election or Termination
Name Held Designation or Resignation
- ---- ---- ----------- --------------
O. Howard
Davidsmeyer, Jr. Chairman 3/98 *
Carl L. Smith Director 3/98 *
Christopher R. Beck Director 3/98 *
Ranald Stewart, Jr. Director 3/98 *
Matthew A. Veal CFO 1/99 *
Jeffrey M. Good President/COO 10/99 *
Ken Craig CEO 10/99 *
* These persons presently serve in the capacities indicated.
Business Experience.
--------------------
O. Howard Davidsmeyer, Chairman of the Board of Directors. Mr.
Davidsmeyer is 76 years of age. Mr. Davidsmeyer has been the chairman of
Diversified Resources Group, Inc., formerly known as Data 1 Inc.) from 1994 to
1996 and again from 1997 to the present. He also served as CEO from 1994 to 1995
and again June 1999 to the present. He has also served as chairman of Catalyst
Communications, Inc. from 1994 to the present. Mr. Davidsmeyer's career extends
many years and includes a variety of business and civic accomplishments.
Carl L. Smith, Director. Mr. Smith is 56 years of age. Mr. Smith is an
entrepreneur in marketing, sales and business development. Mr. Smith has served
as the CEO of Catalyst Communications, Inc. from 1994 to the present and has
served on the board of directors of Diversified Resources Group, Inc. from 1994
to 1996 and from April 1999 to the present. Mr. Smith has also been chairman of
Tampa Bay Financial, Inc. from 1994 to the present.
Christopher R. Beck, Director. Mr. Beck is 46 years of age. Mr. Beck is a
successful businessman and master negotiator with experience in sales, marketing
and corporate management. He has served for the last five years as the president
of Phone USA, an independent telecommunications firm and also became president
of Cordless Power, Inc. a division of Diversified Resources Group, Inc. in 1999.
24
<PAGE>
Ranald Stewart, Jr., Director. Mr. Stewart is 61 years of age. Mr. Stewart
is a business executive and entrepreneur involved in new company formation,
marketing, management and finance. Mr. Stewart has served as the Chairman/CEO of
International Tele-Data, Inc. from 1994 to the present. Mr. Stewart has also
served on the Boards of Valucar, Genlink, Bentely Pharmaceutical, and Belmac.
Mr. Stewart is a graduate of The University of Florida.
Matthew A. Veal, CFO. Mr. Veal is 40 years of age. Mr. Veal, a CPA, is
currently CFO for Catalyst and Tampa Bay Financial. From 1997 to 1998 he was
Chief Accounting Officer for Koasmas Group International. From 1995 to 1997 he
was CFO for Catalyst and from 1994 to 1995 he was CFO for ComCentral Corp. Mr.
Veal served on the Boards of Directors of ComCentral and Data 1. Mr. Veal is a
graduate of the University of Florida School of Accounting.
Jeffrey M. Good, President & COO. Mr. Good is 53 years of age. From 1994 to
1996, Mr. Good serves as Director of National Sales for Quintrel Corporation, a
software development company specializing in telecommunications applications. In
1996, Mr. Good became the Vice President of Systems Communications, Inc. from
1997 to 1998. Mr. Good, through Plum Creek Communications, Inc. a consulting
company he formed, served as a consultant specializing in mergers and
acquisitions for International Tele-Data, Inc. Mr. Good joined GRGI as Chief
Operating Officer in October 1998 and was promoted to President in October 1999.
Ken Craig, CEO. Mr. Craig is 45 years of age. Mr. Craig is an attorney
experienced in reorganization, compliance and management of Public Companies.
Mr. Craig left the legal profession in the early 90's after founding two
telecommunication finance companies. He worked on the acquisition of Centel for
the benefit of the Williams Companies and became a division president of Wiltel,
the surviving entity. From 1996 to 1997 he was President and CEO of Renaissance
Golf Products, Inc. In 1998 - 1999 he was a consultant for Divot Golf ("PUTT"),
first reorganizing a subsidiary and then restructuring the parent at the request
of the Board of Directors. Mr. Craig joined GRGI in September, 1999. Mr. Craig
is a graduate of Stetson University and the University of Mississippi School of
Law, and is admitted to practice law in a variety of jurisdictions.
Family Relationships.
---------------------
There are no family relationships between any director or executive
officer.
Involvement in Certain Legal Proceedings.
-----------------------------------------
During the past five years, except as noted below, no present or former
director, executive officer or person nominated to become a director or an
executive officer of GRG:
o was a general partner or executive officer of any business against
which any bankruptcy petition was filed, either at the time of the
bankruptcy or two years prior to that time, except Mr. Veal, Mr. Smith
and Mr. Davidsmeyer having served as officers and directors of
Diversified Resources Group, Inc. and Catalyst Communications, Inc.,
which filed for bankruptcy in 1997 and 1998, respectively;
25
<PAGE>
o was convicted in a criminal proceeding or named subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
o was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities or banking
activities; or
o was found by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have violated
a federal or state securities or commodities law, and the judgment has
not been reversed, suspended or vacated.
Executive Committee In December 1998, the Board of Directors
established executive committee (the "Executive Committee"), which is granted
such authority as may be determined from time to time by a majority of the Board
of Directors. The Executive Committee consists of Messrs. Davidsmeyer and
Stewart.
Audit Committee Shortly after becoming a registrant, the Board of
Directors will establish an audit committee (the "Audit Committee"), which will
consist of two or more directors. The Audit Committee will be established to
make recommendations concerning the engagement of independent public
accountants, review with the independent public accountants the plans and
results of the audit engagement, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees, and review
the adequacy of the Company's internal accounting controls.
Compensation Committee Shortly after completion of the Company's
registration, the Board of Directors will establish a compensation committee
(the "Compensation Committee"), which will consist of two or more non-employee
or independent directors to the extent required by Rule 16b-3 under the Exchange
Act and Section 162(m) of the Code, to determine compensation for the Company's
senior executive officers.
Nominating Committee Shortly after completion of the Company's
registration, the Board of Directors will establish a nominating committee (the
"Nominating Committee"), which will initially consist of Mssrs. Smith and Beck.
The function of the Nominating Committee will be to recommend to the full board
of Directors nominees for election as directors of the Company and the
composition of committees of the Board of Directors.
The Board of Directors of the Company initially will not have any other
committees.
Director Compensation
Except for these shares granted to directors for board services (see
"Certain Relationships and Related Transactions" and "Recent Sales of
Unregistered Securities"), the Company does not currently contemplate any
compensation to do its directors for 1999.
26
<PAGE>
Item 6. Executive Compensation.
- --------------------------------
The following table sets forth the aggregate compensation paid by GRG
for services rendered during the periods indicated:
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Name and Year or Other Rest- Under- LTIP Other
Principal Period Salary Bonus Annual rictedlying Pay- Comp-
Position Ended ($) ($) Compen-Stock Optionsouts ensation
- -----------------------------------------------------------------
Vince 9/30/99 111,154 0 0 0 0 0 42,000(7)
Murone, 12/31/98 0 0 0 0 0 0 0 0
President 12/31/97 0 0 0 0 0 0 0 0
Ken Craig, 9/30/99 0 0 11,570 0 0 0 0 0(9)
CEO 12/31/98 0 0 0 0 0 0 0 0
CEO 12/31/98 0 0 0 0 0 0
12/31/97 0 0 0 0 0 0 0 0
Matthew A. 9/30/99 0 0 5,000(1) 0 0 0 0
Veal, 12/31/98 0 0 0 0 0 0 0 0
CFO 12/30/97 0 0 0 0 0 0 0 0
Jeffrey M. 9/30/99 113,076 0 0 0 0 0 0(9)
Good, COO 12/31/98 0 0 8,077(2) 0 0 0 0
President 12/31/97 0 0 0 0 0 0 0
O. Howard 9/30/99 0 0 0 0 0 0 0 0
Davidsmeyer12/31/98 0 0 250,000(3) 0 0 0
Jr.Chairman12/31/97 0 0 0 0 0 0 0
Carl L. 9/30/99 0 0 0 1,650,000(6)0 0 0
Smith, 12/31/98 0 0 0 0 0 0 0 0
Director 12/31/97 0 0 0 0 0 0 0 0
Christopher 9/30/99 0 0 0 0 0 0 0 0
R. Beck, 12/31/98 0 0 70,385(4) 0 0 0 600,000(4)
Director 12/31/97 0 0 0 0 0 0 0 0
Ranald 9/30/99 0 0 0 0 0 0 0 0
Stewart, 12/31/98 0 0 0 250,000(5) 0 0 0
Director 12/31/97 0 0 0 0 0 0 0 0
Robert 9/30/99 0,769(8) 0 0 0 0 0 0
Alexander, 12/31/98 105,000 0 0 0 0 0 0 0
[Former 12/31/97 0 0 0 0 0 0 0 0
President,
Former Vice
President]
27
<PAGE>
(1) Received $5,000 in fees.
(2) Received $8,077 in gross wages.
(3) Received 250,000 shares of "restricted securities" as
compensation for a Consulting Fee Agreement for board services
dated March 20, 1998, valued at $0.99 per share.
(4) Received $70,385 in wages and 250,000 shares as compensation
for a Consulting Fee Agreement for board services dated March
20, 1998 and 350,000 shares issued for merger and acquisition
services which were valued at $1.00 per share.
(5) Received 250,000 shares "restricted securities" as
compensation for a Consulting Fee Agreement for board services
dated March 20, 1998, valued at $0.99 per share.
(6) Received (through Vikki Cook, unmarried cohabitant) 250,000
shares for board services pursuant to a consulting contract
dated March 28, 1998, received 200,000 shares through ASFT,
Inc., a company owned by Vikki Cook for administrative
services in November 1998, and received 1,200,000 shares from
SB Resources Group, Inc., a company owned by Vikki Cook, for
telecommunication services in December 1998, valued at $0.99
per share.
(7) Terminated in Oct. 1999. This amount represents severance
payments due Mr. Murone.
(8) Terminated in Oct. 1999.
(9) Received 1,560,000 shares each under a performance stock
agreement on November 12, 1999, subject to earnout provisions
(see Item 4, "Recent Shares of Unregistered Securities").
Cash Compensation Awards.
-------------------------
No cash compensation, deferred compensation or long-term incentive plan
awards were issued or granted to GRG's management during the
years ended December 31, 1998 and 1997, or the period ended September 30, 1999,
except as set forth in the Summary Compensation Table. Further, no member of
GRG's management has been granted any option or stock appreciation
rights; accordingly, no tables relating to such items have been included within
this Item.
Stock Option or Benefit Plans.
------------------------------
28
<PAGE>
GRG has adopted certain stock performance agreements with management dated
November 12, 1999. Jeffrey M. Good and Ken Craig have been granted performance
1,560,000 shares of common stock of GRG. The acquisition of these shares will be
deemed paid in full under the formula of one paid in full share for every $2.00
of gross profit produced by GRG, through November 1, 2001, and November 1, 2004,
respectively.
Compensation of Directors.
--------------------------
Currently, there are no standard arrangements pursuant to which GRG's
directors are compensated for any services provided as a director. No additional
amounts are payable to GRG's directors for committee participation or special
assignments. See item "5" for further discussion of directors and prior
compensation.
Employment Contracts and Termination of Employment and Change in
Control
Arrangements.
-------------
Other than the Consulting Fee Agreements with SB Resources Group, Inc.,
dated March 16, 1998, Vikki C. Cook, Ranald Stewart, Jr., Christopher R. Beck,
O. Howard Davidsmeyer, Jr., all dated March 20, 1998, (See item 7 "Certain
Relationships and Related Transactions and part II, item 4 "Recent Sales of
Unrestricted Securities"), and Executive Employment Agreements and Stock
Performance agreements with Jeffrey Good and Ken Craig (See part II, item 4
"Recent Sales of Unrestricted Securities"), there are no employment contracts,
compensatory plans or arrangements, including payments to be received from GRG,
with respect to any director or executive officer of GRG which would in any way
result in payments to any such person because of his or her resignation,
retirement or other termination of employment with GRG or its subsidiaries, any
change in control of GRG, or a change in the person's responsibilities following
a change in control of GRG. Copies of the agreements are attached hereto and
incorporated herein by reference. Mr. Good's employment agreement, dated
November 1, 1998, is for three years plus a one year renewal option with an
annual base compensation of $140,000 plus benefits. Mr. Craig's employment
agreement is for three years with an annual base compensation of $150,000 plus
benefits. See Part III, Item 1.
Item 7. Certain Relationships and Related Transactions.
- --------------------------------------------------------
The only transactions between members of management, nominees to become
directors or executive officers, 5% stockholders, or promoters or persons who
may be deemed to be parents of GRG are:
o During 1998, the Company issued 4 contracts to its directors for
250,000 shares each for board services (see item 4 "Recent Sales of
Unregistered Securities").
* Also during 1998, United Funding Solutions, Inc. a Company controlled
by Chris Beck, and ASFT, Inc. and SB Resources Group, Inc. a company
controlled by Carl Smith awarded contracts of 350,000 shares, 200,000
shares and 1,200,000 shares for acquisition services, administrative
and consulting services, and telecommunications services, respectively.
* During March 1998, the Company acquired certain assets from Catalyst
Communications, Inc. (Catalyst), a company controlled by Carl Smith,
O. Howard Davidsmeyer, Jr. and Matthew A. Veal, for 3,150,000 shares of
common stock. (See Item 4, "Recent Sales of Unregistered Securities")
o During 1998, Catalyst paid GRG's expenses of $267,305, all of which
were repaid. Catalyst and its affiliates also donated capital of
$1,625,000 to the Company. Chris Beck paid Company expenses of $44,406
to the Company and was repaid all but $3,000 as of December 31, 1998
which was paid in 1999.
29
<PAGE>
o During 1999, ASFT, Inc. purchased 356,400 shares for $0.25 and
1,277,533 shares for $0.50 per share. Tampa Bay Financial, Inc., also
controlled by Carl Smith, also acquired 26,667 shares at $0.50 per
share.
Item 8. Description of Securities.
- -----------------------------------
Common Stock.
-------------
GRG has one class of securities authorized, consisting of 100,000,000
shares of $0.001 par value common voting stock. The holders of GRG's common
stock are entitled to one vote per share on each matter submitted to a vote at a
meeting of stockholders. The shares of common stock do not carry cumulative
voting rights in the election of directors.
Stockholders of GRG have no pre-emptive rights to acquire additional
shares of common stock or other securities. The common stock is not subject to
redemption rights and carries no subscription or conversion rights. All shares
of the common stock now outstanding are fully paid and non-assessable.
No Outstanding Options, Warrants or Calls.
------------------------------------------
With the exception of the option to acquire 1,560,000 shares of common
stock of GRG outlined under the heading "Stock Option or Benefit Plans, Part I,
Item 6", held by Jeffrey M. Good, who is the current President and COO of GRG,
there are no outstanding options, warrants or calls to purchase any of the
authorized securities of GRG.
No Provisions Limiting Change of Control
---------------------------------------
There is no provision in GRG's Articles of Incorporation or Bylaws that
would delay, defer, or prevent a change in control of GRG.
Part II
Item 1. Market Price of and Dividends on GRG's Common Equity and
Other Stockholder Matters.
- --------------------------
Market Information.
-------------------
Quotations of GRG's common stock only commenced on the OTC Bulletin Board
of the National Association of Securities Dealers, Inc. (the "NASD") on April
15, 1998. There is no "established trading market" for the common stock of GRG,
and no assurance can be given that any current market for GRG's common stock
will develop or be maintained. For any market that develops for GRG's common
stock, the sale of "restricted securities" (common stock) pursuant to Rule 144
of the Securities and Exchange Commission by members of management and others
may have a substantial adverse impact on any such public market. Information
about the dates when current holders' Rule 144 holding period of "restricted
30
<PAGE>
securities" commenced can be found under the caption "Recent Sales of
Unregistered Securities," Part II, Item 4. A minimum holding period of one year
is required for resale's under Rule 144, along with other pertinent provisions,
including publicly available information concerning GRG (this requirement will
be satisfied by the filing and effectiveness of this Registration Statement, the
passage of 90 days and the continued timely filing by GRG of all reports
required to be filed by it with the Securities and Exchange Commission;
limitations on the volume of "restricted securities" which can be sold in any 90
day period; the requirement of unsolicited broker's transactions; and the filing
of a Notice of Sale of Form 144.
Effective January 4, 1999, the NASD adopted rules and regulations
requiring that prior to any issuer having its securities quoted on the OTC
Bulletin Board of the NASD that such issuer must be a "reporting issuer" which
is required to file reports under Section 13 or 15(d) of the
the 1934 Act. Under the "phase-in" schedule of the NASD, GRG has until December
1, 1999, within which to become a "reporting issuer," and to satisfy all
comments of the Securities and Exchange Commission respecting this Registration
Statement. This Registration Statement will automatically be effective after 60
days in accordance with Securities Exchange Act rules. This does not mean that
GRG will satisfy all outstanding SEC comments within the 60 days and be eligible
for listing on the OTC Bulletin Board at that time OTC Bulletin Board quotations
of GRG's common stock ceased on December 1, 1999, and the Company's common stock
is quoted in the "Pink Sheets" of the NQB.
The following quotations were provided by the National Quotation Bureau,
and do not represent actual transactions; these quotations do not reflect dealer
markups, markdowns or commissions.
STOCK QUOTATIONS*
CLOSING BID
Quarter ended: High Low
- -------------- ---- ---
June 30, 1998 $5.25 $0.625
September 30, 1998 $3.125 $0.3125
December 31, 1998 $1.09375 $0.5625
March 31, 1999 $2.25 $0.625
June 30, 1999 $1.96875 $0.9375
September 30, 1999 $1.3125 $0.78125
December 31, 1999 $ $
* The Company's stock did not trade before the second quarter of 1998.
Holders.
--------
The number of record holders of GRG's securities as of the date of this
Registration Statement is approximately 1,420.
31
<PAGE>
Dividends.
----------
GRG has not declared any cash dividends with respect to its
common stock, and does not intend to declare dividends in the foreseeable
future. The future dividend policy of GRG cannot be ascertained with any
certainty, and if and until GRG completes any sales of its products, no such
policy will be formulated. There are no material restrictions limiting, or that
are likely to limit, GRG's ability to pay dividends on its securities.
Item 2. Legal Proceedings.
- ---------------------------
Other than as indicated below, GRG is not a party to any pending legal
proceeding. No Federal, state or local governmental agency is presently
contemplating any proceeding against GRG. No director, executive officer or
persons who may be deemed to be an "affiliate" of GRG or owner of record or
beneficially of more than five percent of GRG's common stock is a party adverse
to GRG or has a material interest adverse to GRG in any proceeding, except in
the cases disclosed below:
(1) Global Resources Group, Inc. vs. E-Tel Corporation, Phil Martin and
Raymond Klingenburg, Case NO: CL 99-381 AF, Circuit Court of the 15th
Judicial Circuit, In and For Palm Beach County, Florida:
In this action, we have sued the Defendants, E-Tel, Phil Martin and
Raymond Klingenburg for a breach of an Agreement and Plan of Exchange,
unjust enrichment, money had and received, fraud in the inducement,
constructive fraud/breach of fiduciary duty, conversion and for
impression of a constructive trust. In turn, E-Tel and Phil Martin have
filed an Ame3nded Counterclaim alleging two causes of action for breach
of contract. This cause is not set for trial. We do not believe we will
make a significant recovery but hope to recover 10,000 shares of stock
issued t these individuals.
(2) Michael Williams vs. GRG, Inc. d/b/a/ Global Resources Group, Inc.,
Christopher Beck and Jeffrey M. Good, Case No: CL 99-2502 AG, Circuit
Court of the 15th Judicial Circuit, In and for Palm Beach County,
Florida:
In this action, the Plaintiff, Michael Williams has sued the defendants
for tortuous interference with his contract of employment with E-Tel.
In his complaint, Williams alleges that he executed a written
employment agreement pursuant to which he was to be paid a base salary
of $80,000.00 per year during the two year term of the agreement, plus
other benefits including health insurance, bonus, stock option, company
car, reimbursement of expenses and an auto allowance. GRG, Inc. and the
other defendants have denied that they tortuously interfered with Mr.
Williams' employment agreement and have alleged various affirmative
defenses. This matter is currently set for trial on the Court's March
6, 2000 Trial Docket. We will vigorously defend this case and believe
our liability to be minimal, if any.
(3) Cooney, Ward, Lesher & Damon, P.A., vs. Global Resources Group, Inc.,
Joseph Simmons, etc. Case No: 98-10774-AF, Circuit Court of the 15th
Judicial Circuit in and for Palm Beach County, Florida.
This action, filed on December 3, 1998, in the Circuit Court of the
fifteenth Judicial Circuit, in and for Palm Beach County, Florida,
arises out of a stock ownership dispute. Cooney, Ward, Lesher & Damon,
P.A., acting as an escrow agent, is currently holding 400,000 shares of
stock of GRG, Inc. GRG, Inc., is involved in a claim against Joseph
32
<PAGE>
Simmons, his wife, and their related entities ("the Simmons group")
regarding ownership of the stock. The nature of the action is an
interpleader action filed by Cooney, Ward, et al., seeking to release
the stock to the Registry of the Court for a determination as to
ownership between GRG, Inc., and the Simmons Group. We have filed an
answer to the interpleader complaint and a claim against the Simmons
group alleging GRG, Inc.'s interest in the stock. The Simmons group,
has received and extension of time within which to respond to the
cross-claim and to file its own claim regarding ownership of the stock.
It is the intention of the Company to vigorously contest any claim by
the Simmons group to ownership of the stock. We believe the court will
find in our favor, but we have expensed the entire amount of shares as
a loss since our recovery may take a significant amount of time.
Item 3. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- ---------------------
Anderson, Anderson and Strong, L.C., Certified Public Accountants, of
Salt Lake City, Utah, audited the financial statements of GRG for the calendar
years ended December 31, 1997, 1996 and 1995; these financial statements are
filed as a part of this Registration Statement.
Jones, Jensen & Company, LLC, Certified Public Accountants, of Salt
Lake City, Utah, were engaged by the Board of Directors of GRG to prepare the
audit of the financial statements of GRG for the year ended December 31, 1998;
and will prepare the audit of the financial statements for the year ending
December 31, 1999.
There were no disagreements between GRG and Andersen, Andersen and
Strong, L.L.C., whether resolved or not resolved, on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which, if not resolved, would have caused them to make reference to
the subject matter of the disagreement in connection with their reports.
The Report of Andersen, Andersen and Strong, L.L.C. did not contain any
adverse opinion or disclaimer of opinion, and with the exception of a "going
concern" qualification because of the lack of material operations of and
recurring losses from operations of GRG on the date of the Independent Auditor's
Report, were not qualified or modified as to uncertainty, audit scope or
accounting principles.
During GRG's three most recent calendar years, and since
then, neither Andersen, Andersen and Strong nor Jones, Jensen & Company has
advised GRG that any of the following exists or is applicable:
(1) That the internal controls necessary for GRG to develop reliable
financial statements do not exist, that information has come to
their attention that has lead them to no longer be able to rely
on management's representations or that has made them unwilling
to be associated with the financial statements prepared by
management;
(2) That GRG needs to expand significantly the scope of
its audit, or that information has come to their attention
that if further investigated may materially impact the
fairness or reliability of a previously issued audit report
or the underlying financial statements or any other
financial presentation, or cause them to be unwilling to
rely on management's representations or be associated with
GRG's financial statements for the foregoing reasons
or any other reason; or
33
<PAGE>
(3) That they have advised GRG that information has come to their
attention that they have concluded materially impacts the
fairness or reliability of either a previously issued audit
report or the underlying financial statements
for the foregoing reasons or any other reason.
During GRG's three most recent calendar years and since then, GRG has
not consulted Jones Jensen & Company regarding the application of accounting
principles to a specified transaction, either completed or proposed; or the type
of audit opinion that might be rendered on GRG's financial statements or any
other financial presentation whatsoever.
GRG has provided Andersen, Andersen & Strong with a copy of the disclosure
provided under this caption of this Registration Statement, and has advised them
to provide GRG with a letter addressed to the Securities and Exchange Commission
as to whether they agree or disagree with the disclosures made herein. A copy of
its response is attached hereto and is incorporated herein by this reference.
See Part III, Item 1.
Item 4. Recent Sales of Unregistered Securities.
- -------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
------------
Name Date Number of Shares Aggregate
Acquired Consideration
<S> <C> <C> <C>
Alliance Marketing December 1997 1,000,000 (1)
International Tele-Data March 1998 5,224,310 (2)
Catalyst Communications March 1998 3,150,000 (3)
Vikki Cook December 1998 250,000 (4)
Ranald Stewart December 1998 250,000 (4)
Chris Beck December 1998 250,000 (4)
O.H. Davidsmeyer, Jr. December 1998 250,000 (4)
SB Resources Group, Inc. December 1998 1,200,000 (5)
ASFT, Inc. November 1998 200,000 (6)
Justine Blankenship November 1998 250,000 (7)
United Funding Solutions, March 1998 350,000 (8)
Inc.
Franklin PB Enterprises February 1998 450,000 (9a)
E-Tel June 1998 10,000 (9b)
Pro Sports Group Corp. June 1998 25,000 (9c)
504 Regulation D Offering Fall 1998 663,956 (10)
504 Regulation D Offering Winter 98/99 448,647 (11)
Private Placement Spring/Summer 1999 3,247,514 (12)
Performance Shares Issuance November 12, 1999 1,560,000 (13)
to Ken Craig
Performance Shares Issuance November 12, 1999 1,560,000 (14)
to Jeff Good
</TABLE>
* Please refer to the below information for details on aggregate consideration
(1) In December 1997, the Company issued 1,000,000 shares for services to
Alliance Leasing, valued at $0.001 per share. Those shares were cancelled in
February 1999.
(2) In March 1998, the Company acquired the international telecommunications
assets from International Teledata, Inc. for 5,224,310 shares of common stock in
1998, in a transaction valued at the predecessor cost of $23,749 or $0.0045 per
share.
(3) In March 1998, the Company acquired Teleprizes(TM) for 3,150,000 shares of
common stock, with certain marketing rights associated with providing internet
scratch off sweepstakes promotions to internet web sites to induce traffic.
Teleprizes(TM) was acquired from Catalyst Communications, Inc., a corporation
controlled by Carl Smith, O. Howard Davidsmeyer, Jr. and Matthew A. Veal. The
acquisition was accounted for at predecessor cost of $95,934 or $0.03 per share.
That affiliate and related control parties also contributed $1,625,000 in cash
and payment of expenses to the Company.
(4) In December 1998, the Company issued 250,000 shares each under four (4)
contracts for board services to each of its directors (Carl Smith, O. Howard
Davidsmeyer, Jr., Chris Beck and Ranald Stewart, Jr.) for services in 1998.
Those issuances were valued at $0.991 per share, which approximates the market
value and offering price of the Company's shares during 1998.
(5) In December 1998, the Company issued 1,200,000 shares of stock to SB
Resources Group, Inc., a corporation controlled by Carl Smith, for
telecommunications services associated with the sale and marketing of the
Company's internet sweepstakes products. This contract was also valued at the
$1.00 market price of the Company's stock.
(6) In November 1998, the Company issued 200,000 shares under an agreement for
administrative services from ASFT, Inc., a corporation controlled by Carl Smith,
which accrued during 1998. These shares were also valued at $1.00 per share.
34
<PAGE>
Reimbursements
--------------
(7) In November 1998, The Company reimbursed Justine Blankenship, a shareholder,
for a $250,000 expenditure by issuing her 250,000 shares of common stock which
were valued at $1.00 per share.
Mergers and Acquisitions
------------------------
(8) In March 1998, the Company issued 350,000 shares to United Funding
Solutions, Inc., a company controlled by Chris Beck, for services in connection
with acquisition made by the Company. These shares were valued at $1.00 per
share.
Rescinded Acquisitions
----------------------
(9) The Company issued shares in connection with the rescinded acquisition of 3
entities, each of which is discussed below:
a. Franklin P.B. Enterprises- The Company entered into contracts in February
1998 to acquire companies with various real estate holdings owned by an
unrelated shareholder. The Company advanced $238,494 and issued 3,150,000 shares
of its common stock, of which 2,700,000 shares were canceled. The Company
accounted for the shares at $1.00 per share.
b. E-Tel - In June 1998, the Company entered into a contract to acquire the
common stock of E-Tel Corporation for 1,250,000 shares of common stock. E-Tel
was also in the international long distance phone business. The transaction was
canceled after the Company's determination that it would be unable to recover
its investment. The Company recovered and cancelled 1,240,000 shares of the
stock.
c. Pro Sports Group Corporation - In June 1998, the Company acquired Pro Sports
Group Corporation for 200,000 shares, valued at $1.00 per share, as a complement
to its marketing operations. When Pro Sports was found to have no value, the
Company terminated the acquisition recovered 175,000 shares and wrote-off the
remaining 25,000 shares at $1.00 per share. The Company accounted for the shares
at $1.00 per share.
Shares Issued in 504 Regulation D Offering at $1.00 per Share
-------------------------------------------------------------
(10) The Company sold 663,956 of its common shares for cash at various dates
in September and October 1998.
Shares Issued in 504 Regulation D Offering at $0.75 per Share
-------------------------------------------------------------
(11) The Company sold 376,627 of its common shares to investors in November 1998
for cash, and 72,020 shares to investors for cash in January 1999.
(12) During 1999, ASFT, Inc., a related party, purchased for cash, 356,400
shares for $0.25 per share and 1,304,200 shares for $0.50 per share.
Non-affiliated investors also purchased 98,126 shares for $0.50 per share in the
spring of 1999 and 1,488,788 shares for $0.25 per share in the summer of 1999.
35
<PAGE>
(13) Received 1,560,000 shares in a stock performance agreement dated November
12, 1999, subject to vesting based on 1 share released for every $2.00 gross
profit earned.
(14) Received 1,560,000 shares in a stock performance agreement dated November
12, 1999, subject to vesting based on 1 share released for every $2.00 gross
profit earned.
*per answers provided by management but not on shareholders list
All issued pursuant to Consulting Fee Agreements with each of these
persons or entities.
Each of these persons had access to all material information
regarding GRG prior to the offer or sale of these securities; ASFT, Inc. and SB
Resources Group, Inc. are beneficially owned by Vikki C. Cook who is believed to
be an "accredited investor"; and the other shares were issued to directors or
executive officers who had access to all material information respecting GRG.
The offers and sales of all of these securities are believed to have been exempt
from the registration requirements of Section 5 of the Securities Act of 1933,
as amended, pursuant to Section 4(2) thereof, and from similar applicable
states' securities laws, rules and regulations exempting the offer and sale of
these securities by available state exemptions from required registration.
Item 5. Indemnification of Directors and Officers.
- ---------------------------------------------------
Section 78.751(1) of the Nevada Revised Statutes ("NRS") authorizes a
Nevada corporation to indemnify any director, officer, employee, or corporate
agent "who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or in the right
of the corporation" due to his or her corporate role. Section 78.751(1) extends
this protection "against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or her in
connection with the action, suit or proceeding if he or she acted in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful."
Section 78.751(2) of the NRS also authorizes indemnification of the
reasonable defense or settlement expenses of a corporate director, officer,
employee or agent who is sued, or is threatened with a suit, by or in the right
of the corporation. The party must have been acting in good faith and with the
reasonable belief that his or her actions were not opposed to the corporation's
best interests. Unless the court rules that the party is reasonably entitled to
indemnification, the party seeking indemnification must not have been found
liable to the corporation.
To the extent that a corporate director, officer, employee, or agent is
successful on the merits or otherwise in defending any action or proceeding
referred to in Section 78.751(1) or 78.751(2), Section 78.751(3) of the NRS
requires that he be indemnified "against expenses, including attorneys' fees,
actually and reasonably incurred by him or her in connection with the defense."
36
<PAGE>
Section 78.751 (4) of the NRS limits indemnification under Sections 78.751
(1) and 78.751(2) to situations in which either (1) the stockholders, (2)the
majority of a disinterested quorum of directors, or (3) independent legal
counsel determine that indemnification is proper under the circumstances.
Pursuant to Section 78.751(5) of the NRS, the corporation may advance an
officer's or director's expenses incurred in defending any action or proceeding
upon receipt of an undertaking. Section 78.751(6)(a) provides that the rights to
indemnification and advancement of expenses shall not be deemed exclusive of any
other rights under any bylaw, agreement, stockholder vote or vote of
disinterested directors. Section 78.751(6)(b) extends the rights to
indemnification and advancement of expenses to former directors, officers,
employees and agents, as well as their heirs, executors, and administrators.
Regardless of whether a director, officer, employee or agent has the right
to indemnity, Section 78.752 allows the corporation to purchase and maintain
insurance on his behalf against liability resulting from his or her corporate
role.
Index to Financial Statements
Report of Independent Auditors
(a)
Jones Jensen & Company, LLC
Index to Financial Statements
Report of Independent Auditors
Financial Statements.
- ---------------------
Audited Financial Statements for the year ended December 31, 1998.
---------------------------------
Independent Auditors' Report.
Balance Sheet.
Statements of Operations.
Statements of Stockholders' Equity.
Statements of Cash Flows.
Notes to the Financial Statements.
Unaudited Financial Statements for the period ended September 30, 1999.
------------------------------------
Balance Sheet.
Statements of Operations.
Statement of Stockholders' Equity.
Statements of Cash Flows.
37
<PAGE>
Notes to Financial Statements
Part III
Item 1. Index to Exhibits.
- ---------------------------
(b) The following exhibits are filed as a part of this Registration
Statement:
Exhibit
Number Description*
- ------ ------------
3(i) Articles of Incorporation (including amendments).
3(ii) Bylaws.
Material Contracts
------------------
10(i)(a) Partial Liquidation Agreement between International Teledata, Inc.
and its shareholders and the Company dated March 20, 1998
10(i)(b) Sale of Marketing Rights Agreement between the Company and Catalyst
Communications, Inc. dated March 19, 1998
10(i)(c) Consulting Agreement between the Company and Christopher R. Beck
dated March 20, 1998
10(i)(d) Consulting Agreement between the Company and SB Resources Group,
Inc. dated March 16, 1998
10(i)(e) Consulting Agreement between the Company and Vikki C. Cook dated
March 20, 1998
10(i)(f) Consulting Agreement between the Company and Ranald Stewart dated
March 20, 1998
10(i)(g) Consulting Agreement between the Company and O. Howard Davidsmeyer,
Jr dated March 20, 1998
10(i)(h) Consulting Agreement between the Company and Christopher R. Beck
dated March 20, 1998
10(i)(i) Joint Marketing Agreement between the Company and Real Time Media
Inc. dated June 22, 1999
10(i)(j) Carrier Service Agreement between the Company and Qwest
Communications Corporation dated January 19, 1999
10(i)(k) Promissory Note and Warrant between the Company and F. Stanton
Moyer dated August 5, 1999
10(i)(l) Promissory Note and Warrant between the Company and John McWilliams
dated August 15, 1999
38
<PAGE>
10(i)(m) Master Agreement between the Company and Value Added Services, Inc.
dated October 11, 1999
10(i)(n) Promissory Note and Warrant between the Company and F. Stanton Moyer
dated October 5, 1999
10(i)(n) Promissory Note and Warrant between the Company and F. Stanton Moyer
dated November 5, 1999
Management Contracts and Compensatory Plans/Arrangements
10(ii)(a) Employment Agreement between the Company and Jeffrey M. Good dated
November 1, 1998
10(ii)(b) Employment Agreement between the Company and Kenneth W. Craig dated
November 12, 1999
10(ii)(c) Performance Stock Agreement between the Company and Jeffrey M. Good
dated November 12, 1999
10(ii)(d) Performance Stock Agreement between the Company and Kenneth W. Craig
dated November 12, 1999
21 Subsidiaries (none)
27 Consent of Independent Auditors
* Summaries of all exhibits contained within this Registration
Statement are modified in their entirety by reference to these
Exhibits.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant has caused this Registration Statement to be signed on its behalf
by the undersigned, hereunto duly authorized.
GRG, INC.
Date: 11/15/99 By: Kenneth W. Craig
------------------------
Kenneth W. Craig, CEO
Date: 11/15/99 By: Jeffery M. Good
------------------------
Jeffery M. Good,
President/COO
Date: 11/15/99 By:Matthew A. Veal
------------------------
Matthew A. Veal,
Principal Financial and Accounting
Officer
Date: 11/15/99 By:O. Howard Davidsmeyer
--------------------------
O. Howard Davidsmeyer, Jr.
Chairman of the Board
Date: 11/15/99 By: Carl L. Smith
--------------------------
Carl L. Smith
Director
Date: 11/15/99 By: Christopher R. Beck
--------------------------
Christopher R. Beck
Director
Date: 11/15/99 By: Ranald Stewart, Jr.
--------------------------
Ranald Stewart, Jr.
Director
39
<PAGE>
GRG, INC.
(dba GLOBAL RESOURCES GROUP, INC.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
FINANCIAL STATEMENTS
December 31, 1998
40
<PAGE>
C O N T E N T S
Independent Auditors' Report.................................................. 3
Balance Sheet................................................................. 4
Statements of Operations...................................................... 6
Statements of Stockholders' Equity............................................ 7
Statements of Cash Flows......................................................10
Notes to the Financial Statements.............................................12
41
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
GRG, Inc.
(dba Global Resources Group, Inc.)
(Formerly Gighlieri Corporation)
(A Development Stage Company)
St. Petersburg, Florida
We have audited the accompanying balance sheet of GRG, Inc. (dba Global
Resources Group, Inc.) (formerly Ghiglieri Corporation) (a development stage
company) as of December 31, 1998 and the related statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1998 and
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GRG, Inc. (dba Global Resources
Group, Inc.) (formerly Ghiglieri Corporation) (a development stage company) as
of December 31, 1998 and the results of its operations and its cash flows for
the years ended December 31, 1998 and 1997 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 4 to the
financial statements, the Company's recurring losses from operations and net
accumulated deficit raise substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are also described in
Note 4. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
November 10, 1999
42
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Balance Sheet
<TABLE>
<CAPTION>
ASSETS
<S> <C>
December 31,
1998
CURRENT ASSETS
Cash $ 100,060
Other current assets 110
-----------------
Total Current Assets 100,170
FIXED ASSETS (Note 1)
Furniture and fixtures 13,424
Accumulated depreciation (1,134)
Net Fixed Assets 12,290
OTHER ASSETS
Settlement receivable, net of allowance (Note 2) 125,000
Investment in contracts (Notes 3, 6 and 7) 95,934
-----------------
Total Other Assets 220,934
TOTAL ASSETS $ 333,394
=================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
43
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C>
December 31,
1998
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 21,041
Note payable to officer (Note 6) 3,000
-----------------
Total Current Liabilities 24,041
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDERS' EQUITY (Notes 3 and 6)
Common stock, $.001 par value, 100,000,000 shares authorized;
issued and outstanding 16,899,893 shares 16,900
Additional paid-in capital 6,198,540
Deficit accumulated during the development stage (5,906,087)
-----------------
Total Stockholders' Equity 309,353
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 333,394
=================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
5
44
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
March 19,
For the Years Ended 1992 Through
December 31, December 31,
1998 1997 1998
---------------- --------------- ---------------
<S> <C> <C> <C>
REVENUES
Sales, net $ - $ - $ -
Cost of sales - - -
---------------- --------------- ---------------
Gross Margin - - -
---------------- --------------- ---------------
EXPENSES
General and administrative 4,746,129 21,983 4,794,460
Depreciation and amortization 1,134 - 1,134
---------------- --------------- ---------------
Total Expenses 4,747,263 21,983 4,795,594
---------------- --------------- ---------------
LOSS FROM OPERATIONS (4,747,263) (21,983) (4,795,594)
---------------- --------------- ---------------
OTHER (EXPENSE)
Loss on disposition of property and equipment (23,749) - (23,749)
Writeoff of rescinded acquisitions (Note 3) (1,086,744) - (1,086,744)
---------------- --------------- ---------------
Total Other (Expense) (1,110,493) - (1,110,493)
---------------- --------------- ---------------
(LOSS) BEFORE INCOME TAXES (5,857,756) (21,983) (5,906,087)
INCOME TAX EXPENSE - - -
---------------- --------------- ---------------
NET (LOSS) $ (5,857,756) $ (21,983) $ (5,906,087)
================ =============== ===============
BASIC (LOSS) PER SHARE $ (0.48) $ (0.01)
================ ===============
WEIGHTED AVERAGE SHARES OUTSTANDING 12,269,191 3,461,538
================ ===============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
6
45
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance at inception on
March 19, 1992 - $ - $ - $ - $ -
Issuance of common capital stock
for cash at $0.003 per share at
March 19, 1992 750,000 750 1,500 - 2,250
Capital contributions by
shareholder's through payment of
expenses - - 2,400 - 2,400
Net loss from inception on March 19,
1992 through December 31, 1993 - - - (9,504) (9,504)
--------------- -------------- -------------- -------------- ----------------
Balance, December 31, 1993 750,000 750 3,900 (9,504) (4,854)
Capital contributions by
shareholders' through payment of
expenses - - 16,040 - 16,040
Issuance of common capital stock
for cash at $0.008 per share -
net of offering costs 2,250,000 2,250 15,391 - 17,641
Net loss for the year ended
December 31, 1994 - - - (12,144) (12,144)
--------------- -------------- -------------- -------------- ----------------
Balance, December 31, 1994 3,000,000 3,000 35,331 (21,648) 16,683
Net loss for the year ended
December 31, 1995 - - - - -
--------------- -------------- -------------- -------------- ----------------
Balance, December 31, 1995 3,000,000 3,000 35,331 (21,648) 16,683
Net loss for the year ended
December 31, 1996 - - - (4,700) (4,700)
--------------- -------------- -------------- -------------- ----------------
Balance, December 31, 1996 3,000,000 $ 3,000 $ 35,331 $ (26,348) $ 11,983
--------------- -------------- -------------- -------------- ----------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
7
46
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 3,000,000 $ 3,000 $ 35,331 $ (26,348) $ 11,983
Issuance of common capital stock
for services at $0.01 per share 1,000,000 1,000 9,000 - 10,000
Net loss for the year ended
December 31, 1997 - - - (21,983) (21,983)
--------------- -------------- -------------- -------------- ----------------
Balance, December 31, 1997 4,000,000 4,000 44,331 (48,331) -
Common stock issued for
acquisition of International
Teleservices Operating Division
at predecessor cost of $0.00
per share per share 5,224,310 5,224 18,525 - 23,749
Common stock issued for
acquisition of Teleprizes
Operating Division at predecessor
cost of $0.03 per share 3,150,000 3,150 92,784 - 95,934
Capital contribution by shareholders - - 1,625,000 - 1,625,000
Issuance of shares to directors
for services at $0.99 per share 1,000,000 1,000 990,000 - 991,000
Issuance of shares for
telecommunications services at
$1.00 per share 1,200,000 1,200 1,198,800 - 1,200,000
--------------- -------------- -------------- -------------- ----------------
Balance Forward 14,574,310 $ 14,574 $ 3,969,440 $ (48,331) $ 3,935,683
--------------- -------------- -------------- -------------- ----------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
8
47
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance Forward 14,574,310 $ 14,574 $ 3,969,440 $ (48,331) $ 3,935,683
Issuance of shares for
administrative services at
$1.00 per share 200,000 200 199,800 - 200,000
Issuance of shares to shareholder
as reimbursement for expenses
paid at $1.00 per share 250,000 250 249,750 - 250,000
Issuance of shares for merger
and acquisition services at $1.00
per share 350,000 350 349,650 - 350,000
Common stock issued in rescinded
acquisitions at $1.00 per share 485,000 485 484,515 - 485,000
Issuance of shares in Regulation D
Rule 504 offering at $1.00 per share 663,956 664 663,292 - 663,956
Issuance of shares in Regulation D
Rule 504 offering at $0.75 per share 376,627 377 282,093 - 282,470
Net loss for the year ended
December 31, 1998 - - - (5,857,756) (5,857,756)
--------------- -------------- -------------- -------------- ----------------
Balance, December 31, 1998 16,899,893 $ 16,900 $ 6,198,540 $ (5,906,087) $ 309,353
=============== ============== ============== ============== ================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
9
48
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
March 19,
For the Years Ended 1992 Through
December 31, December 31,
1998 1997 1998
---------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (5,857,756) $ (21,983) $ (5,906,087)
Adjustments to reconcile net (loss) to net cash
used in operating activities:
Depreciation and amortization 1,134 - 1,134
Issuance of stock for services 2,991,000 - 2,991,000
Issuance of stock for expenses - 10,000 10,000
Stock issued in rescinded acquisitions 485,000 - 485,000
Allowance for doubtful accounts 125,000 - 125,000
Loss on disposition of property and equipment 23,749 - 23,749
Changes in asset and liabilities:
Decrease in inventory - 18,668 -
(Increase) in other assets (110) - (110)
Increase (decrease) in accounts payable 21,041 (6,685) 21,041
---------------- --------------- ---------------
Net Cash (Used) in Operating Activities (2,210,942) - (2,249,273)
---------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Settlement receivable from supplier (250,000) - (250,000)
Purchase of fixed assets (13,424) - (13,424)
---------------- --------------- ---------------
Net Cash (Used) in Investing Activities (263,424) - (263,424)
---------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Expenses paid by shareholders - - 18,440
Cash contributed by promoters 1,625,000 - 1,625,000
Borrowings from related parties 311,711 - 311,711
Payments to related parties (308,711) - (308,711)
Issuance of common stock for cash 946,426 - 966,317
---------------- --------------- ---------------
Net Cash Provided by Financing Activities $ 2,574,426 $ - $ 2,612,757
---------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
10
49
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
March 19,
For the Years Ended 1992 Through
December 31, December 31,
1998 1997 1998
---------------- --------------- ---------------
<S> <C> <C> <C>
NET INCREASE IN CASH $ 100,060 $ - $ 100,060
CASH AT BEGINNING OF YEAR - - -
---------------- --------------- ---------------
CASH AT END OF YEAR $ 100,060 $ - $ 100,060
================ =============== ===============
CASH PAID FOR:
Interest expense $ - $ - $ -
Income taxes $ - $ - $ -
NON CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for ITD assets $ 23,749 $ - $ 23,749
Common stock issued for acquisition of Teleprizes Division $ 95,934 $ - $ 95,934
Common stock issued for services $ 2,991,000 $ - $ 2,991,000
Common stock issued in rescinded acquisitions $ 485,000 $ $ 485,000
</TABLE>
The accompanying notes are an integral part of these
financial statements.
11
50
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998
NOTE 1 - ACCOUNTING POLICIES AND PROCEDURES
The Company was originally incorporated as Karat Productions, Inc.
under the laws of the State of Nevada on March 19, 1992. The
Company changed its name to Global Resources Group, Inc. in
February 1998. The Company has not paid dividends. Dividends
that may be paid in the future will depend on the financial
requirements of the Company and other relevant factors.
On June 5, 1997, the Company completed a forward stock split of
one share for three shares and changed the par value of its common
stock from $0.0005 to $0.001. This report has been prepared giving
effect to the stock split shares from inception.
During 1994, the Company completed a public offering of 2,250,000
(adjusted for) shares and received $15,391, net of the offering
expenses.
At the organization date, the Company had intended to pursue the
business of manufacturing jewelry and in that connection the
Company purchased an inventory of various types of jewelry to be
used in that activity. However, after the death of an officer of
the Company the planned activity was abandoned.
The Company has been in the development stage since inception per
SFAS No. 7.
The Company's planned principle operations are in the business of
building a Pan-American communications network with access to
international switching centers in various U.S. cities and points
of presence throughout Mexico and the Caribbean.
A summary of the significant policies consistently applied in the
preparation of the financial statements follows:
a. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has adopted a calendar year end.
b. Basic (Loss) Per Share
The computation of basic (loss) per share of common stock is based
on the weighted average number of shares outstanding at the date
of the consolidated financial statements.
12
51
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998 and 1997
NOTE 1 - ACCOUNTING POLICIES AND PROCEDURES (Continued)
c. Income Taxes
At December 31, 1998, the Company had a net operating loss
carryforward of approximately $5,900,000 that may be offset
against future taxable income through 2013. No tax benefit has
been reported in the financial statements, because the Company
believes there is a 50% or greater chance the carryforward will
expire unused. Accordingly, the potential tax benefits of the loss
carryforward are offset by a valuation allowance of the same
amount.
d. Cash Equivalents
The Company considers all highly liquid investments and deposits
with a maturity of three months or less when purchased to be cash
equivalents.
e. Revenue Recognition
The Company records communications services revenue as earned, at
the time services are provided. Network capacity sales, if any,
are recorded at the time the capacity is provided to the customer.
f. Depreciation
Furniture and fixtures are stated at cost. Depreciation of
property and equipment is computed using straight-line and
accelerated methods over the estimated useful lives of the related
assets, are as follows:
Furniture and fixtures 5 years
g. 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.
h. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
13
52
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998
NOTE 1 - ACCOUNTING POLICIES AND PROCEDURES (Continued)
i. Investment in Contracts
Investment in contracts represents the intangible assets acquired
in conjunction with the Teleprizes TM purchase from Catalyst
Communications, Inc. The investment in contracts as discussed in
Note 3 is being amortized over five (5) years and is currently
valued at $95,934 at December 31, 1998.
j. Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of
Long-lived assets and certain identifiable intangibles are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
k. Change in Accounting Principle
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" and Statement of Financial Accounting Standards No. 129
"Disclosures of Information About an Entity's Capital Structure."
SFAS No. 128 provides a different method of calculating earnings
per share than was previously used in accordance with APB Opinion
No. 15, "Earning Per Share." SFAS No. 128 provides for the
calculation of "Basic" and "Dilutive" earnings per share. Basic
earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar
to fully diluted earnings per share. SFAS No. 129 establishes
standards for disclosing information about an entity's capital
structure. SFAS No. 128 and SFAS No. 129 are effective for
financial statements issued for periods ending after December 15,
1997. In fiscal 1998, the Company adopted SFAS No. 128, which did
not have a material impact on the Company's financial statements.
The implementation of SFAS No. 129 did not have a material effect
on the Company's financial statements.
14
53
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998
NOTE 1 - ACCOUNTING POLICIES AND PROCEDURES (Continued)
k. Change in Accounting Principle (Continued)
The Financial Accounting Standards Board has also issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes
in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income
be reported in a financial statement that displays with the same
prominence as other financial statements. SFAS No. 131 supersedes
SFAS No. 14 "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 establishes standards on the way that
public companies report financial information about operating
segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for
disclosure regarding products and services, geographic areas and
major customers. SFAS No. 131 defines operating segments as
components of a company about which separate financial information
is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in
assessing performance.
SFAS No. 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and requires comparative
information for earlier years to be restated. Implementation of
SFAS No. 130 and 131 did not have a material effect on the
Company's financial statements.
In February 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard
("SFAS") No 132. "Employers' Disclosures about Pensions and other
Postretirement Benefits" which standardizes the disclosure
requirements for pensions and other Postretirement benefits and
requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate
financial analysis. SFAS No. 132 is effective for years beginning
after December 15, 1997 and requires comparative information for
earlier years to be restated, unless such information is not
readily available. The adoption of this statement had no material
impact on the Company's financial statement.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires
companies to record derivatives as assets or liabilities, measured
at fair market value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Management believes the adoption of this statement
will have no material impact on the Company's financial
statements.
15
54
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1998
NOTE 2 - COMMITMENTS AND CONTINGENCIES
a. Leases
The Company leases 3,000 square feet for its operations in St.
Petersburg, Florida. Minimum future rentals for the next five
years are as follows:
1999 $ 38,818
2000 39,565
2001 40,311
2002 -
2003 -
------------------
Total $ 118,694
==================
Rent expense for the years ended December 31, 1998 and 1997 was
$43,920 and $-0-, respectively.
b. Employment Contracts
Effective November 1, 1998, the Company has entered into a 3-year
employment agreement with its Chief Operating Officer, which
provides for a base salary of $140,000 per year plus benefits. The
agreement was modified during 1999 (see Note 7).
c. Litigation
From time to time, the Company is subject to litigation in the
normal course of business. The Company believes that any adverse
outcome from litigation would not have a material adverse effect
on its financial position or results of operations.
On August 5, 1999, the Company signed a settlement agreement with
Satellite Access Systems, Inc. (SAS) which provided for SAS to pay
the Company back the $250,000 which had been advanced by the
Company for unrendered services by December 31, 1999. The Company
subsequently collected $125,000 of the $250,000. The balance of
$125,000 was reserved because of doubts about its collectability.
16
55
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1998
NOTE 3 - EQUITY TRANSACTIONS
International Teledata Acquisition
On March 20, 1998, the Company signed a partial liquidation
agreement and acquired international telecommunications assets
from International Teledata, Inc. (ITD) for 5,224,310 shares of
common stock in 1998, in a transaction valued at the predecessor
cost of $23,749 or $0.00 per share. The transaction was a purchase
of certain assets of ITD and not a purchase of the shares of ITD.
ITD is still operating as an independent company and is not a
subsidiary of the Company. Accordingly, the financial statements
of ITD are not presented because the partial liquidation agreement
with ITD did not constitute a recapitalization of ITD. Predecessor
cost was used because the shareholders of ITD controlled the
Company immediately after the transaction. The assets were
expensed in 1998 due to doubt about the recoverability of the
cost.
Teleprizes
The Company acquired Teleprizes TM for 3,150,000 shares of common
stock, with certain marketing rights associated with providing
internet scratch off sweepstakes promotions to internet websites
to induce traffic. Teleprizes TM was acquired from an affiliated
company, Catalyst Communications, Inc, which is controlled by the
major shareholders of the Company. The acquisition was accounted
for at predecessor cost of $95,934 or $0.03 per share because the
shares were issued to related parties. That affiliate and related
control parties also contributed $1,625,000 in cash and payment of
expenses to the Company.
Board Services
On December 31, 1998, the Company issued 250,000 shares each under
four (4) contracts for board services to each of its directors for
consulting and management services in 1998. Those issuances were
valued at $0.99 per share, which approximated the market value and
offering price of the Company's shares for cash during 1998.
Telecommunications Services
On December 31, 1998, the Company issued 1,200,000 shares of stock
to a corporation controlled by an affiliate, for
telecommunications services associated with the sale and marketing
of the Company's internet sweepstakes products. This contract was
valued at $1.00 per share which was the price for which the
Company sold its shares for cash in 1998.
17
56
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1998
NOTE 3 - EQUITY TRANSACTIONS (Continued)
Administrative Services
On November 30, 1998, the Company issued 200,000 shares under an
agreement for administrative services which accrued during 1998.
These shares were valued at $1.00 per share which was the price at
which the Company issued shares for cash in 1998.
Reimbursements
The Company reimbursed a shareholder for a $250,000 expenditure by
issuing her 250,000 shares of common stock which were valued at
$1.00 per share.
Merger and Acquisition Services
The Company issued 350,000 shares to a company affiliated with one
of its directors for services in connection with acquisition made
by the Company. These shares were valued at $1.00 per share.
Rescinded Acquisitions
The Company issued shares in connection with the rescinded
acquisition of 3 entities, each of which is discussed below:
a. Franklin P B Enterprises - On February 23, 1998, the
Company entered into contracts to purchase companies with
various real estate holdings owned by a common shareholder.
The Company advanced cash of $238,494 and issued 3,150,000
shares of its common stock, of which 2,700,000 shares were
canceled. The Company valued the uncancelled shares at
$1.00 per share. The Company expensed the $653,494
capitalized in this transaction based on its determination
that it would be unable to recover the investment and
terminated the agreement.
b. E-Tel Corporation (E-Tel) - On March 4, 1998, the Company
entered into a contract to purchase the common stock of
E-Tel for 1,250,000 shares of its common stock. E-Tel was
also in the international long distance phone business. The
transaction was canceled after the Company's determination
that it would be unable to recover its investment. The
Company recovered 1,240,000 shares of the stock but
expensed the remaining 10,000 shares valued at $1.00 per
share and cash advances made to E-Tel of $220,750 for a
total loss of $230,750.
c. Pro Sports Group Corporation (Pro Sports) - On May 14,
1998, the Company purchased Pro Sports for 200,000 shares,
valued at $1.00 per share, as a complement to its marketing
operations. When Pro Sports was found to have no value, the
Company terminated the acquisition, recovered 175,000
shares and wrote-off the remaining 25,000 shares at $1.00
per share and cash advances made to Pro Sports of $142,500,
for a total loss of $167,500.
18
57
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1998
NOTE 3 - EQUITY TRANSACTIONS (Continued)
Rescinded Acquisitions (Continued)
The unrecovered shares were valued at $1.00 per share which was
the price the Company received in cash for shares issued in 1998.
The cash advances of $601,744 as well as 485,000 shares valued at
$1.00 per share were expensed for a total write-off of $1,086,744
for the year ended December 31, 1998.
Shares Issued in 504 Regulation D Offering at $1.00 Per Share
The Company sold 663,956 of its common shares for cash to
investors.
Shares Issued in 504 Regulation D Offering at $0.75 Per Share
The Company sold 376,627 of its common shares to investors for
cash.
NOTE 4 - GOING CONCERN
The Company's consolidated financial statements are prepared using
generally accepted accounting principles applicable to a going
concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The
Company has incurred losses from its inception through December
1998.
The Company's plans for its future are as follows:
a. Selling business in its international telecommunications
area: The Company has subsequently entered into new
contracts in its international telecommunications sector
which it believes will generate gross margins sufficient to
bring the Company to profitability. The implementation of
these contracts will require that the Company raise
additional capital for equipment and deposits with long
distance carriers.
b. Further development of internal sweepstakes marketing area:
As discussed in Note 8, the Company has entered into a
joint marketing agreement with an Internet sweepstakes
provider. Development of this business is promising, but
will require capital for startup purposes. The Company is
also pursuing additional strategies including the opening
of a website to sell telecommunications products.
c. Cost containment: The Company recently reduced its work
force by approximately 30% in the marketing and
administrative areas. These reductions are not expected to
have any long-term impact on the Company.
d. Pursuit of mergers: From time to time, merger opportunities
with entities generating positive cash flow may arise.
Current management will vigorously pursue profitable
opportunities.
19
58
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1998
NOTE 4 - GOING CONCERN (Continued)
The Company estimates that it will need $1,700,000 and $2,000,000
for the years ended December 31, 1999 and December 31, 2000,
respectively, to fund operations. The Company expects to raise
this amount through equity and debt financing.
NOTE 5 - REGULATORY MATTERS
The Company is subject to regulation in countries in which it does
business. The Company believes that an adverse determination as to
the permissibility of the Company's services under the laws and
regulations of any such country may have a material adverse
short-term effect on its business, particularly in Mexico and the
Caribbean. There have been no adverse regulatory findings to date.
NOTE 6 - RELATED PARTY TRANSACTIONS
During 1998, the Company issued shares to related parties in the
following manner:
Services
During 1998, the Company issued 4 contracts to its directors for
250,000 shares each for board services. Also during 1998,
affiliated companies of directors were awarded contracts of
350,000 shares, 200,000 shares and 1,200,000 shares for
acquisition services, administrative and consulting services, and
telecommunications services, respectively. During March 1998, the
Company acquired certain assets from Catalyst Communications, Inc.
(Catalyst), a company controlled by its directors, for 3,150,000
shares of common stock. See Note 3 for additional discussion of
these transactions.
Borrowings and Contributed Capital
During 1998, Catalyst paid Company expenses of $267,305 on behalf
of the Company all of which was repaid to Catalyst in 1998.
Catalyst and its affiliates also donated capital of $1,625,000 to
the Company. The capital was used to fund the cash advances to the
rescinded acquisitions, consulting services and other operational
expenses. An officer of the Company paid Company expenses of
$44,406 to the Company and was repaid all but $3,000 in 1998. The
$3,000 was subsequently repaid in 1999.
NOTE 7 - SUBSEQUENT EVENTS
Issuance of Employment Contracts
In October 1999, the Company reached a three-year agreement with a
new Chief Executive Officer. The agreement provides for a base
salary of $150,000, plus benefits and stock options. Final terms
of the stock options have not been determined.
20
59
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998
NOTE 7 - SUBSEQUENT EVENTS (Continued)
Potential Dispute with Internet Supplier
In June 1999, the Company modified its existing agreements with
Real Time Media, Inc., to enter into a joint venture agreement to
market an Internet scratch-and-win sweepstakes product.
Subsequently, there arose a dispute between the Company and Real
Time Media, Inc. over certain elements of that agreement. The
Company believes that a resolution can be reached because of the
ongoing negotiations which are expected to allow the Company to
recover its investment through future revenues. The Company has
not reserved against the investment in contracts, with a cost of
$95,934 which is included in other assets, because the estimated
net present value of the future revenues from the contracts
exceeds the carrying value.
Carrier Contracts
In January 1999, the Company entered into contracts to purchase
transmission capacity from various domestic and foreign carriers,
particularly Qwest International, Inc. However, the Company is
currently renegotiating those contracts. The Company is not
involved in disputes with carriers arising in the ordinary course
of business other than as described below.
Related Party Transactions
During 1999, ASFT, Inc., a related party, purchased for cash,
356,400 shares for $0.25 per share and 1,304,200 shares for $0.50
per share. The price per share equates that which non-related
parties paid for the Company's stock in two private placements at
the same dates.
Notes Payable
From January through October 1999, the Company borrowed $325,000
of 10% notes payable, due in monthly installments of $14,199 until
fully paid. The notes were collateralized by certain long distance
contracts of the Company. The Company issued 325,000 warrants to
the noteholders which are exercisable at $1.50 per share and
expire on July 8, 2003. The warrants were issued at a price which
equaled or exceeded the trading value of the stock on the date of
issue; accordingly, no expense will be recorded for the warrants.
21
60
<PAGE>
GRG, INC.
(dba GLOBAL RESOURCES GROUP, INC.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
FINANCIAL STATEMENTS
September 30, 1999 and December 31, 1998
61
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Balance Sheets
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 74,033 $ 100,060
Refundable deposits 1,500 -
Supplies and inventory 50,000 -
Other 2,610 110
------------------ ------------------
Total Current Assets 128,143 100,170
------------------ ------------------
FIXED ASSETS
Telecommunications equipment 328,036 -
Furniture and fixtures 13,424 13,424
Accumulated depreciation (19,517) (1,134)
------------------ ------------------
Net Fixed Assets 321,943 12,290
------------------ ------------------
OTHER ASSETS
Settlement receivable, net of allowance of $125,000
and $125,000 at September 30, 1999 and
December 31, 1998, respectively 50,000 125,000
Investment in contracts, net of accumulated amortization
of $14,388 and $-0- at September 30, 1999 and
December 31, 1998, respectively 81,546 95,934
------------------ ------------------
Total Other Assets 131,546 220,934
------------------ ------------------
TOTAL ASSETS $ 581,632 $ 333,394
================== ==================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
62
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Balance Sheets (Continued)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1999 1998
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable and accrued expenses $ 45,428 $ 21,041
Customer security deposits 20,000 -
Note payable to officer - 3,000
Notes payable (Note 3) 101,668 -
------------------ ------------------
Total Current Liabilities 167,096 24,041
------------------ ------------------
LONG-TERM NOTES PAYABLE (Note 3) 91,751 -
------------------ ------------------
Total Liabilities 258,847 24,041
------------------ ------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 100,000,000 shares authorized; 19,219,427 and
16,899,893 shares issued and outstanding,
at September 30, 1999 and December 31, 1998, respectively 19,219 16,900
Additional paid-in capital 7,411,696 6,198,540
Accumulated deficit (7,108,130) (5,906,087)
------------------ ------------------
Total Stockholders' Equity 322,785 309,353
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 581,632 $ 333,394
================== ==================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
63
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
For the For the March 19,
Nine Months Ended Three Months Ended 1992 Through
September 30, September 30, September 30,
1999 1998 1999 1998 1999
-------------- ---------------- --------------- ------------- ---------------
REVENUES
<S> <C> <C> <C> <C> <C>
Sales, net $ 49,304 $ - $ 49,304 $ - $ 49,304
Cost of sales 76,869 - 76,869 - 76,869
-------------- ---------------- --------------- ------------- ---------------
Gross Margin (Deficit) (27,565) - (27,565) - (27,565)
-------------- ---------------- --------------- ------------- ---------------
EXPENSES
General and administrative 1,139,559 1,508,229 446,645 356,669 5,957,768
Depreciation and amortization 32,771 - 21,813 - 33,905
-------------- ---------------- --------------- ------------- ---------------
Total Expenses 1,172,330 1,508,229 468,458 356,669 5,991,673
-------------- ---------------- --------------- ------------- ---------------
(LOSS) FROM OPERATIONS (1,199,895) (1,508,229) (496,023) (356,669) (6,019,238)
-------------- ---------------- --------------- ------------- ---------------
OTHER INCOME (EXPENSE)
Interest expense (1,544) - (1,544) - (1,544)
Interest income 1,992 - 1,333 - 1,992
Other income (expense) (2,596) - 1,459 - (2,596)
Write-off of rescinded acquisitions - (1,056,744) - (93,250) (1,086,744)
-------------- ---------------- --------------- ------------- ---------------
Total Other Income (Expense) (2,148) (1,056,744) 1,248 (93,250) (1,088,892)
-------------- ---------------- --------------- ------------- ---------------
(LOSS) BEFORE INCOME TAXES (1,202,043) (2,564,973) (494,775) (449,919) (7,108,130)
INCOME TAX EXPENSE - - - - -
-------------- ---------------- --------------- ------------- ---------------
NET (LOSS) $ (1,202,043) $ (2,564,973) $ (494,775) $ (449,919) $ (7,108,130)
============== ================ =============== ============= ===============
BASIC INCOME (LOSS) PER SHARE $ (0.07) $ (0.23) $ (0.03) $ (0.03)
============== ================ =============== =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 17,894,786 11,231,729 18,738,909 13,429,460
============== ================ =============== =============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
64
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance at inception on
March 19, 1992 - $ - $ - $ - $ -
Issuance of common capital stock
for cash at $0.003 per share -
March 19, 1992 750,000 750 1,500 - 2,250
Capital contributions by
shareholder's - expenses - 1993 - - 2,400 - 2,400
Net loss from inception on
March 19, 1992 through
December 31, 1993 - - - (9,504) (9,504)
-------------- -------------- ------------- ----------------- ------------------
Balance, December 31, 1993 750,000 750 3,900 (9,504) (4,854)
Capital contributions by
shareholders' - expenses - 1994 - - 16,040 - 16,040
Issuance of common capital stock
for cash at $0.008 per share -
net of offering costs - 1994 2,250,000 2,250 15,391 - 17,641
Net loss for the year ended
December 31, 1994 - - - (12,144) (12,144)
-------------- -------------- ------------- ----------------- ------------------
Balance, December 31, 1994 3,000,000 3,000 35,331 (21,648) 16,683
Net loss for the year ended
December 31, 1995 - - - - -
-------------- -------------- ------------- ----------------- ------------------
Balance, December 31, 1995 3,000,000 3,000 35,331 (21,648) 16,683
Net loss for the year ended
December 31, 1996 - - - (4,700) (4,700)
-------------- -------------- ------------- ----------------- ------------------
Balance, December 31, 1996 3,000,000 $ 3,000 $ 35,331 $ (26,348) $ 11,983
-------------- -------------- ------------- ----------------- ------------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
65
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
(Continued)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 3,000,000 $ 3,000 $ 35,331 $ (26,348) $ 11,983
Issuance of common capital stock
for services at $0.01 per share -
1997 1,000,000 1,000 9,000 - 10,000
Net loss for the year ended
December 31, 1997 - - - (21,983) (21,983)
-------------- -------------- ------------- ----------------- ------------------
Balance, December 31, 1997 4,000,000 4,000 44,331 (48,331) -
Common stock issued for acquisition
of International Teledata, Inc. and
International Teleservices Division
at predecessor cost of $0.00
per share 5,224,310 5,224 18,525 - 23,749
Common stock issued for acquisition
of Teleprizes Operating Division at
predecessor cost of $0.03 per share 3,150,000 3,150 92,784 - 95,934
Capital contribution by shareholders - - 1,625,000 - 1,625,000
Issuance of shares to Directors for
board services at $0.99 per share 1,000,000 1,000 990,000 - 991,000
Issuance of shares for
telecommunications services at
$1.00 per share 1,200,000 1,200 1,198,800 - 1,200,000
Issuance of shares for administrative
services at $1.00 per share 200,000 200 199,800 - 200,000
-------------- -------------- ------------- ----------------- ------------------
Balance Forward 14,774,310 $ 14,774 $ 4,169,240 $ (48,331) $ 4,135,683
-------------- -------------- ------------- ----------------- ------------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
66
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
(Continued)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance Forward 14,774,310 $ 14,774 $ 4,169,240 $ (48,331) $ 4,135,683
Issuance of shares to shareholder as
reimbursement for expenses 250,000 250 249,750 - 250,000
Issuance of shares for merger and
acquisition services at $1.00 per
share 350,000 350 349,650 - 350,000
Common stock issued in rescinded
acquisitions at $1.00 per share 485,000 485 484,515 - 485,000
Issuance of shares in Regulation D
Rule 504 offering at $1.00 per share 663,956 664 663,292 - 663,956
Issuance of shares in Regulation D
Rule 504 offering at $0.75 per share 376,627 377 282,093 - 282,470
Net loss for the year ended
December 31, 1998 - - - (5,857,756) (5,857,756)
-------------- -------------- ------------- ----------------- ------------------
Balance, December 31, 1998 16,899,893 16,900 6,198,540 (5,906,087) 309,353
Issuance of shares in Regulation D
Rule 504 offering at $0.75 per share
(unaudited) 72,020 72 53,944 - 54,016
Return of shares by officers and
cancellation of shares (unaudited) (1,000,000) (1,000) - - (1,000)
Issuance of shares in Private
Placement at $0.50 per share
(unaudited) 1,402,326 1,402 699,760 - 701,162
Issuance of shares in Private
Placement at $0.25 per share
(unaudited) 1,845,188 1,845 459,452 - 461,297
Net loss for the nine months
ended September 30, 1999
(unaudited) - - - (1,202,043) (1,202,043)
-------------- ----------- --------- ------------- ------------------
Balance, September 30, 1999
(unaudited) 19,219,427 $ 19,219 $ 7,411,696 $ (7,108,130) $ 322,785
============== ============== ============= ================= ==================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
67
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
For the For the March 19,
Nine Months Ended Three Months Ended 1992 Through
September 30, September 30, September 30,
1999 1998 1999 1998 1999
-------------- ---------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (1,202,042) $ (2,564,973) $ (494,775) $ (449,919) $ (7,108,129)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization 32,771 - 21,813 - 33,905
Issuance of stock for services - - - - 2,991,000
Issuance of stock for expenses - - - - 10,000
Allowance for doubtful accounts - 125,000 - - 125,000
Loss on disposition of property, plant
and equipment - 23,749 - - 23,749
Stock issued in rescinded acquisitions - 465,350 - 24,559 485,000
Changes in assets and liabilities:
(Increase) decrease in supplies
inventory (50,000) - (50,000) - (50,000)
(Increase) decrease in prepaid
expenses and other current assets (4,000) - - - (4,110)
(Increase) decrease in other
receivables - (1,553) - (1,553) -
Increase (decrease) in customer
deposits 20,000 - 20,000 - 20,000
Increase (decrease) in accounts payable 24,386 24,673 45,428 17,944 45,428
Increase (decrease) in accrued expenses - 1,062 - 2,916 -
-------------- ---------------- --------------- ------------- ---------------
Net Cash (Used) by Operating Activities (1,178,885) (1,926,692) (457,534) (406,053) (3,428,157)
-------------- ---------------- --------------- ------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Settlement, recoverable from supplier 75,000 (250,000) 75,000 - (175,000)
Purchase of fixed assets (328,036) (4,200) (327,567) - (341,459)
-------------- ---------------- --------------- ------------- ---------------
Net Cash (Used) by Investing Activities $ (253,036) $ (254,200) $ (252,567) $ - $ (516,459)
-------------- ---------------- --------------- ------------- ---------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
68
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
For the For the March 19,
Nine Months Ended Three Months Ended 1992 Through
September 30, September 30, September 30,
1999 1998 1999 1998 1999
-------------- ---------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Cash contributed by promoters $ - $ 1,625,000 $ - $ - $ 1,625,000
Issuance of stock for expenses paid - - - - 18,440
Loans from/to related parties - 65,188 - (68,397) -
Long-term debt 200,000 - 200,000 - 200,000
Principal payments on long-term debt (6,581) - (6,581) - (6,581)
Notes from/ to officers (3,000) 22,269 - 9,266 -
Issuance of common stock 1,215,475 449,950 479,227 440,741 2,181,790
-------------- ---------------- --------------- ------------- ---------------
Net Cash Provided by Financing
Activities 1,405,894 2,162,407 672,646 381,610 4,018,649
-------------- ---------------- --------------- ------------- ---------------
Net Increase (Decrease) in Cash (26,027) (18,485) (37,455) (24,443) 74,033
CASH AT BEGINNING OF PERIOD 100,060 - 111,488 5,958 -
-------------- ---------------- --------------- ------------- ---------------
CASH (OVERDRAFT) AT END OF
PERIOD $ 74,033 $ (18,485) $ 74,033 $ (18,485) $ 74,033
============== ================ =============== ============= ===============
CASH PAID FOR:
Interest expense $ 1,544 $ - $ 1,544 $ - $ 1,544
Income taxes $ - $ - $ - $ - $ -
NON CASH FINANCING ACTIVITIES:
Common stock issued for ITD assets $ - $ 23,749 $ - $ - $ 23,749
Common stock issued for acquisition of
Teleprizes operating division $ - $ 95,934 $ - $ - $ 95,934
Common stock issued in rescinded
acquisition $ - $ 465,000 $ - $ - $ 485,000
Common stock issued for services $ - $ - $ - $ - $ 2,991,000
</TABLE>
The accompanying notes are an integral part of these
financial statements.
69
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Notes to Financial Statements
September 30, 1999 and December 31, 1998
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been
prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position,
results of operations and cash flows at September 30, 1999 and for
all periods presented have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with
general accepted accounting principles have been condensed or
omitted. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December
31, 1998 audited consolidated financial statements. The results of
operations for the periods ended September 30, 1999 are not
necessarily indicative of the operating results for the full year.
NOTE 2 - STOCK OPTIONS
On November 12, 1999, the Company adopted stock performance
agreements with management. The Company has granted options for
1,560,000 shares of common stock. The options will be deemed to
have been paid through services rendered at the rate of 1 share
for every $2 of gross profit generated by the Company through
November 1, 2004. At the date of grant, the Company's stock was
trading at $0.812 per share. Compensation will be recorded as the
options are earned. For example, if the full 1,560,000 options
were currently exercisable, the compensation expense would be
$1,266,720 (1,560,000 x $0.812).
NOTE 3 - NOTES PAYABLE
<TABLE>
<CAPTION>
<S> <C> <C>
Note payable to an individual dated August 5, 1999, bearing
interest at 10%, requiring monthly payments of $2,184, due
August 5, 2001, secured by long distance phone service contracts. $ 48,355
Note payable to an individual dated August 15, 1999, bearing
interest at 10%, requiring monthly payments of $6,553, due
September 15, 2001, secured by long distance phone service
contracts. 145,064
Total notes payable 193,419
Less: current portion of notes payable (101,668)
----------------
Total Long-Term Debt $ 91,751
================
</TABLE>
70
<PAGE>
GRG, INC.
(dba Global Resources Group, Inc.)
(Formerly Ghiglieri Corporation)
(A Development Stage Company)
Notes to Financial Statements
September 30, 1999 and December 31, 1998
NOTE 3 - NOTES PAYABLE (Continued)
Future maturities of notes payable are as follows:
For the
Years Ended
September 30,
2000 $ 101,668
2001 91,751
-----------------
$ 193,419
=================
71
<PAGE>
EX-23
JONES, JENSEN & COMPANY
Board of Directors
GRG, Inc.
St. Petersburg, Florida
We consent to the use in this registration Statement of GRG, Inc. on Form 10-SB,
of our report dated November 10, 1999 of GRG, Inc. for the years ended December
31, 1998 and 1997, which are part of this Registration Statement, and to all
references to our firm included in this Registration Statement.
/s/ JONES, JENSEN & COMPANY
Salt Lake City, Utah
November 12, 1999
72
<PAGE>
