WALL STREET STRATEGIES CORPORATION AND SUBSIDIARY
WASHINGTON, D. C. 20549
FORM 10-QSB- June 30, 2000
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000
[ ] Transition Report Pursuant to Section 13 OR 15(d) of
the Exchange Act
For the transition period from ________ to _________
COMMISSION FILE NUMBER 000-29499
WALL STREET STRATEGIES CORPORATION
(Exact name of Small Business Issuer as Specified in its Charter)
NEVADA
(State or Other Jurisdiction of Incorporation or Organization)
13-4100704
(IRS Employer Identification No.)
80 Broad Street, New York, NY 10004
(Address of Principal Executive Offices)
(212) 514-9500
Issuer's Telephone Number. Including Area Code
130 William Street, Suite 401, New York, NY 10038
(Former Address)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: As of August 17, 2000, the registrant
had 17,581,603 shares of Common Stock outstanding.
Transmittal Small Business Disclosure Format (check one)
Yes [ ] No [X]
<PAGE>
WALL STREET STRATEGIES CORPORATION AND SUBSIDIARY
FORM 10-QSB - June 30, 2000
Index Page
Number
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Balance Sheets at June 30, 2000 3
and December 31, 1999 (unaudited for June 30, 2000 period)
Condensed Consolidated Statements of Operations for the 4
three months ended March 31, 2000 and March 31, 1999
and the six months ended June 30, 2000 and June 30, 1999
(unaudited)
Condensed Consolidated Statement of Shareholders' Equity 5
for the six months ended June 30, 2000 (unaudited)
Condensed Consolidated Statements of Cash Flows for the 6
six months ended June 30, 2000 and June 30, 1999
(unaudited)
Notes to Condensed Consolidated Financial Statements 7
(unaudited)
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II OTHER INFORMATION
Item 1 Legal Proceedings 18
Item 2 Changes in Securities 18
Item 3 Defaults Upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8 - K 18
2
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PART I - FINANCIAL INFORMATION
This report contains statements that constitute forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Those statements appear in a number of places herein and include statements
regarding the intent, belief or current expectations of the Company, primarily
with respect to the future operating performance of the Company or related
developments. Any such forward-looking statements are not guarantees of future
perforamnce and involve risks and uncertainties, and actual results and
developments may differ from those described in the forward-looking statements
as a result of various factors, many of which are beyond the control of the
Company.
<TABLE>
<CAPTION>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
FORM 10-QSB - JUNE 30, 2000
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2000 1999
----------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 942,968 $ 2,506,505
Accounts receivable 9,328 70,500
Marketable securities, available for sale, at market value 52,783 58,898
Deferred commission expense 468,053 255,577
Other current assets 384,700 96,446
----------- -----------
Total current assets 1,857,832 2,987,926
Property and equipment, net 1,516,863 17,737
Deferred website development costs, net 77,330 63,584
Restricted cash deposit 272,000 272,000
Security deposits 2,000 46,023
Other assets - 70,640
----------- -----------
$ 3,726,025 $ 3,457,910
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 1,696,965 $ 259,315
Accrued compensation 151,606 264,548
Income taxes payable 35,115 20,457
Deferred subscription income 1,114,433 511,154
Current portion of capitalized lease obligations 105,988 -
Accrued pension expense - 100,000
----------- -----------
Total current liabilities 3,104,107 1,155,474
----------- -----------
Capitalized lease obligations, net of current portion 206,274 -
----------- -----------
Commitments and contingencies
Shareholders' equity
Preferred stock, $.001 par value; 5,000,000 shares authorized;
none issued and outstanding
Common stock, $.001 par value; 50,000,000 shares authorized;
17,581,603 and 17,564,103 shares issued and outstanding 17,582 17,564
Additional paid-in capital 17,061,504 13,081,092
Accumulated deficit (9,391,198) (4,423,270)
Unearned compensation (7,171,564) (6,250,458)
Accumulated other comprehensive loss (100,680) (122,492)
----------- -----------
Total shareholders' equity 415,644 2,302,436
----------- -----------
$ 3,726,025 $ 3,457,910
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
FORM 10-QSB - JUNE 30, 2000
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenue
Subscription income, net $ 1,204,016 $1,084,922 $ 2,634,311 $1,742,077
Consulting income - 15,000 - 133,120
Interest and dividends 14,003 1,406 28,255 2,317
Realized gain on sale of
marketable securities - 32,522 36,118 27,337
----------- ---------- ----------- ----------
1,218,019 1,133,850 2,698,684 1,904,851
=========== ========== =========== ==========
Costs and expenses
Salaries and commissions 2,345,548 681,675 4,815,200 1,069,974
Other operating expenses 578,366 272,369 936,891 384,497
Consulting fees 300,889 28,205 600,574 42,705
Payroll taxes and employee benefits 144,431 33,431 280,705 112,148
Professional fees 376,764 - 482,243 -
Website development costs 172,399 - 250,597 -
Depreciation and amortization 94,189 3,402 134,813 4,999
Rent and occupancy 76,046 21,927 108,135 37,090
----------- ---------- ----------- ----------
4,088,632 1,041,009 7,609,158 1,651,413
=========== ========== =========== ==========
(Loss) income before provision (benefit)
for income taxes (2,870,613) 92,841 (4,910,474) 253,438
Provision (benefit) for income taxes (40,190) 67,436 57,454 76,030
----------- ---------- --------- ----------
Net (loss) income $(2,830,423) $ 25,405 $(4,967,928) $ 177,408
=========== ========= =========== ==========
Basic and diluted net (loss) income per share $ (0.17) $ 0.00 $ (0.29) $ 0.02
=========== ========== ============ ==========
Weighted average common shares
outstanding 17,131,564 9,455,898 17,087,428 9,455,898
=========== ========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
FORM 10 - QSB - JUNE 30, 2000
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
Accumulated
Additional other Total Total
Common stock paid-in Accumulated Unearned comprehensive shareholders' Comprehensive
Shares Amount capital deficit compensation income (loss) equity income (loss)
------------ ------ ---------- ----------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 17,564,103 $ 17,564 $ 13,081,092 $(4,423,270) $ (6,250,458) $ (122,492) $ 2,302,436
Issuance of common stock
and options for services 17,500 18 3,980,412 - (3,980,430) - -
Amortization of stock
compensation - - - - 3,059,324 - 3,059,324
Marketable securities
valuation adjustment - - - - - 21,812 21,812 $ 21,812
Net (loss), six months
ended June 30, 2000 - - - (4,967,928) - - (4,967,928) (4,967,928)
---------- -------- ------------ ----------- ------------ ---------- ----------- ------------
Total comprehensive
income (loss) $(4,946,116)
============
Balance, June 30, 2000 17,581,603 $ 17,582 $ 17,061,504 $(9,391,198) $ (7,171,564) $ (100,680) $ 415,644
========== ======== ============ ============ ============ ========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
FORM 10-QSB - JUNE 30, 2000
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended
June 30,
2000 1999
----------- ---------
<S> <C> <C>
INCREASE (DECEASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities
Net (loss) income $(4,967,928) $ 177,408
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities
Depreciation and amortization 134,813 4,999
Realized (gain) loss on sale of marketable securities (36,118) (27,337)
Stock compensation 3,059,324 -
Deferred rent 2,819 -
Changes in operating assets and liabilities
Accounts receivable 61,172 -
Deferred commission expense (212,476) 388
Security deposits 44,023 -
Other assets (217,314) (96,890)
Accounts payable and accrued expenses 659,556 163,364
Accrued compensation (112,942) -
Income taxes payable 14,658 71,530
Deferred subscription income 603,279 215,311
Accrued pension expense (100,000) -
----------- ---------
Net cash (used in) provided by operating activities (1,067,134) 508,773
---------- --------
Cash flows from investing activities
Purchase of property and equipment (339,178) (29,102)
Deferred website development costs paid (176,530) -
Proceeds from the sale of marketable securities 64,045 -
Cash paid for purchase of marketable securities - (36,134)
Payment made for other assets (4,065) -
-------- ---------
Net cash used in investing activities (455,728) (65,236)
-------- ---------
Cash flows from financing activities
Payment of capitalized lease obligations (40,675) -
Repayment of loan from shareholder - (9,197)
------- ---------
Net cash used in financing activities (40,675) (9,197)
------- ----------
Net (decrease) increase in cash and cash equivalents (1,563,537) 434,340
Cash and cash equivalents, beginning of period 2,506,505 96,685
----------- ---------
Cash and cash equivalents, end of period $ 942,968 $ 531,025
=========== =========
Supplemental disclosure of cash flow information
Interest paid $ 17,930 $ -
=========== =========
Income taxes paid $ 42,796 $ -
=========== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
WALL STREET STRATEGIES CORPORATION AND SUBSIDIARY
FORM 10-QSB
For the Quarter Ended June 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1 Basis of presentation
1. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles applicable to interim financial statements.
Accordingly, they do not include all of the information and notes
required for a complete set of financial statements. In the opinion of
management, all adjustments and reclassifications considered necessary
for a fair and comparable presentation have been included and are of a
normal recurring nature. Operating results for the three months and six
months ended June 30, 2000, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000 or
future periods. These financial statements should be read in conjunction
with the December 31, 1999 financial statements and notes thereto
included in the Company's Form 10SB/A filed with the Securities and
Exchange Commission. The accounting policies used in the preparation of
these condensed consolidated financial statements are consistent with
those described in the December 31, 1999 consolidated financial
statements.
2 The Company
Organization
Wall Street Strategies Corporation (the "Company"), formerly Vacation
Emporium Corporation, was originally formed as a Nevada corporation on
April 2, 1999, and is the surviving entity in a merger with its then
corporate parent, The Vacation Emporium International, Inc., a Colorado
corporation formed under the name Rising Sun Capital Ltd. on May 12,
1988.
Reverse acquisition
Effective September 23, 1999, the Company acquired all of the
outstanding common stock of Wall Street Strategies, Inc. ("WSSI"), a
Delaware corporation, pursuant to an Agreement and Plan of Share
Exchange (the "Exchange Agreement") dated July 30, 1999.
Under the terms of the Exchange Agreement, the Company issued to the
sole shareholder of WSSI, 9,455,898 shares of the Company's common stock
in exchange for all of the issued and outstanding common stock of WSSI.
This issuance represented approximately 53.84% of the post-merger issued
and outstanding common shares of the Company. For accounting purposes,
this transaction has been treated as an acquisition of the Company by
WSSI and as a recapitalization of WSSI. The acquisition of the Company
by WSSI has been recorded based on the fair value of the Company's net
tangible assets, which consisted of cash in the amount of $13,350. The
Company, prior to the acquisition, was an inactive shell company. The
historical financial statements prior to September 23, 1999 are those of
WSSI. Since this transaction is in substance a recapitalization of WSSI
and not a business combination, pro forma information is not presented.
All costs associated with this transaction have been expensed.
In connection with, and in contemplation of this transaction, on July
30, 1999, the Company sold 1,258,205 shares of common stock for $.0025
per share to certain key employees of WSSI, and to two other individuals
who entered into employment agreements with the Company. These shares
7
<PAGE>
2 The Company (continued)
Reverse acquisition (continued)
were placed in escrow and are subject to repurchase by the Company
over vesting periods, which range from one to three years, at the same
purchase price of $.0025 if the individuals' employment is terminated
other than by reason of death or disability. Additionally, on
September 23, 1999, the Company completed the sale of 600,000 shares
of common stock at $5.00 per share in a private placement to certain
accredited investors.
Business
The Company, through its subsidiary (WSSI), provides investment research
and related information services for individual and institutional
investors and financial professionals. WSSI, which was founded in 1991,
delivers its products and services, including financial and market
information, analysis, advice and commentary, to subscribers through a
variety of media including telephone, facsimile, e-mail, audio
recordings, newsletters, the Internet and traditional mail.
Going concern
The accompanying condensed consolidated financial statements have been
prepared assuming the Company will continue as a going concern. The
Company has incurred significant losses from operations and has
generated insufficient operating revenue to fund its expenses. In
addition, at June 30, 2000 the Company had a working capital deficiency
of approximately $1,246,000. These factors (among others) raise
substantial doubt about the Company's ability to continue as a going
concern. The ability of the Company to operate as a going concern is
dependent upon its ability to obtain additional debt and/or equity
capital. On August 18, 2000, the Company sold to an unrelated accredited
investor, pursuant Regulation S, 10 shares of the Company's Series A
Convertible Preferred Stock and a warrant exercisable over a five year
period to purchase 80,000 shares of the Company's common stock at $3.00
per share for an aggregate consideration of $1,000,000 (realizing net
proceeds of $995,000 after payment of certain expenses of the
purchaser). See Note 7, "Subsequent Event" and "Management's Discussion
and Analysis of Results of Operations and Financial
Condition--Liquidity" below.
The Company plans to raise additional working capital through strategic
alliances and private and public offerings. In that connection, in
December 1999, the Company retained Joseph Charles & Associates, Inc. to
assist the Company with respect to matters relating to the financing of
the Company's business, recapitalization, mergers and acquisitions. The
Company is also having discussions with several other investment banking
firms and prospective investors regarding potential financings. There
can be no assurance, however, that any such parties or others will
provide financing to the Company and, even if provided, that the Company
will have sufficient funds to execute its intended business plan or
generate positive operating results. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition--Liquidity"
below.
The accompanying condensed consolidated financial statements do not
include any adjustments related to the recoverability and classification
of assets or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
3 Marketable securities, available for sale
Marketable securities, available for sale, consists of the following at
June 30, 2000:
Unrealized Market
Cost loss value
U.S. equity securities $ 153,463 $ (100,680) $ 52,783
========== ============ ========
8
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4 Property and equipment, net
Property and equipment consists of the following at June 30, 2000:
Estimated useful life
Computer equipment 3 years $ 915,828
Furniture and fixtures 5 years 346,324
Media equipment 7 years 114,942
Leasehold improvements 10 years or the term of the
lease, whichever is shorter 234,247
-----------
1,611,341
Less accumulated depreciation
and amortization (94,478)
-----------
$ 1,516,683
===========
Computer equipment of approximately $353,000 has been recorded under
capitalized leases as of June 30, 2000. Depreciation expense on the
assets recorded under capitalized leases was approximately $47,000 for
the six months ended June 30, 2000.
Leasehold improvements have been recorded net of approximately $295,000
to be reimbursed by the landlord in accordance with the terms of its
lease agreement. This amount is included in other current assets in the
accompanying June 30, 2000 condensed consolidated balance sheet.
5 Retirement plans
In January 1996, WSSI adopted a Profit Sharing Plan on behalf of its
employees whereby contributions to the plan are made at the discretion
of management and no contributions are made by employees. In January
2000, the Profit Sharing Plan was amended to add a salary deferral
feature under Section 401(k) of the Internal Revenue Code of 1986, as
amended. Under such feature, an employee may elect to have part of his
or her compensation contributed on a before-tax basis to the Plan. Such
salary-deferred contributions are 100% vested at all times.
Management has not provided for any contributions to the Plan for the
six months ended June 30, 2000.
6 Commitments and contingencies
Leases
In April 2000, the Company negotiated a settlement for the early
termination of its former lease. The agreement required a settlement
payment of $17,500 and the cancellation of the former lease and
surrender of the premises. The Company surrendered the premises on July
15, 2000, and has been released from any future obligations under the
agreement.
In November 1999, the Company entered into a new lease agreement for its
current office space. The lease agreement is for a ten year period with
annual rents ranging from $256,680 to $287,504 over its term. In
accordance with the terms of the lease agreement, the Company caused to
be issued to the landlord a letter of credit in the approximate amount
of $272,000 for which the Company is required to maintain with the
issuing bank, as collateral therefor, a deposit in the same amount.
9
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6 Commitments and contingencies (continued)
Leases (continued)
The Company has entered into several computer equipment leases that have
been accounted for as capitalized leases. These leases have effective
interest rates that range between 11% to 14%, are secured by the
equipment under the lease and require monthly payments through 2003.
Employment agreements
In conjunction with, and in contemplation of the Exchange Agreement, the
Company entered into employment agreements with its key executives as
follows:
o A three year agreement with the Company's President and
largest shareholder who was formerly the sole shareholder of
WSSI prior to the acquisition by the Company. The agreement
provides for a base salary of $250,000 per annum with annual
bonuses of up to $250,000 dependent upon specified revenue
targets. The agreement may be terminated by mutual consent or
by the Company for cause. For the six months ended June 30,
2000, the Company has recorded and paid a bonus of $125,000 in
accordance with the terms of this agreement.
o A three year agreement with the Company's Chief Strategy
Officer which provides for a base salary of $175,000 and an
annual bonus of up to 40% of base salary dependent upon
specified revenue targets. No bonus provision has been
recorded by the Company at June 30, 2000. The agreement also
provides for the issuance of options under the 1996 Plan to
acquire 526,923 shares of the Company's common stock. This
agreement may be terminated by mutual consent or by the
Company for cause.
o A two year agreement with the Company's Executive Vice
President which provides for a base salary of $125,000 and an
annual bonus of up to 40% of base salary dependent upon
specified revenue targets. The Company has recorded no bonus
provision at June 30, 2000. The agreement also provides for
the issuance of options under the 1996 Plan to acquire 351,282
shares of the Company's common stock. This agreement may be
terminated by mutual consent or by the Company for cause.
o On March 20, 2000, the Company's subsidiary, WSSI, entered
into an employment agreement with its Chief Internet Officer,
which provides for a base compensation of $175,000 and an
annual incentive bonus of up to 50% of base salary based upon
the achievement of specified performance goals. In addition,
the executive received options to acquire 200,000 shares of
the Company's common stock at an exercise price of $7.50 per
share. The options vest over a two-year period and are
exercisable over five years. The intrinsic value of these
options was measured using the share price of $17.50 on March
20, 2000 and was accounted for as compensatory options that
gave rise to unearned compensation in the amount of $2,000,000
at March 20, 2000. The compensation is being earned and
charged to expense ratably over the two-year vesting period of
the options and $280,137 has been charged to operations for
the six months ended June 30, 2000.
o On April 7, 2000, the Company entered into an employment
agreement with its Chief Operating Officer. The agreement has
a term of three years at an annual base salary of $175,000,
subject to annual review by the Board of Directors for
possible increase. The agreement also provides for an annual
incentive bonus of up to 50% of base salary. In addition, in
accordance with the terms of the employment agreement, on
April 7, 2000, the Company granted to the executive a stock
option to purchase 500,000 shares of the Company's common
stock at an exercise price of $7.50 per share. The option is
10
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6 Commitments and contingencies (continued)
Employment agreements (continued)
exercisable over five years and vests with respect to 125,000
shares on December 6, 2000, with respect to an additional
125,000 shares on March 6, 2001, and with respect to the
remaining shares in equal quarterly increments of 62,500
shares each over the following year. The intrinsic value of
these options was measured by using a share price of $10.50 on
April 7, 2000 and was accounted for as compensatory options
that gave rise to unearned compensation in the amount of
$1,500,000 at April 7, 2000. The compensation is being earned
and charged to expense ratably over the vesting period of the
option. For the six months ended June 30, 2000, $69,041 has
been charged to operations.
Consulting agreements
On February 9, 2000, the Company issued to Continental Capital Equity
Corporation ("CCEC"), a sophisticated investor, 30,000 shares of common
stock as compensation for services to be rendered by CCEC to the
Company pursuant to a Market Access Program Marketing Agreement dated
January 26, 2000. The Company also issued to CCEC an option to purchase
an additional 100,000 shares of common stock at prices ranging from
$10.00 to $16.00 per share. The common stock issuance and option grant
were measured using the share price of $14.00 on January 26, 2000, and
was accounted for as unearned compensation in the amounts of $420,000
and $870,000, respectively. On June 13, 2000, the Company and CCEC
terminated the Market Access Program Marketing Agreement. CCEC returned
12,500 shares of common stock and the Company terminated all options
except the option to acquire 25,000 shares of common stock at $10.00
per share. As a result, approximately $480,000 has been charged to
operations for the six months ended June 30, 2000.
On May 20, 2000, the Company entered into a one year agreement to
retain I.W. Miller Group, Inc. ("IWMG") as financial public relations
representatives and financial consultants. The Company paid IWMG a
$50,000 retainer and agreed to pay an additional $50,000 per quarter
and 62,500 shares of the Company's common stock on August 30, 2000,
November 30, 2000, February 28, 2001 and May 31, 2001 as long as the
agreement remained in effect. On August 17, 2000, the Company
terminated the agreement in accordance with its terms and no further
compensation is payable to IWMG.
7 Subsequent Event
On August 17, 2000 the Company sold to an unrelated accredited
investor, pursuant to Regulation S, 10 shares of the Company's Series A
Convertible Preferred Stock and a warrant exercisable over a five year
period to purchase 80,000 shares of the Company's common stock at an
exercise price of $3.00 per share for an aggregate consideration of
$1,000,000 (realizing net proceeds of $995,000 after payment of certain
expenses of such investor). Each share of Series A Convertible
Preferred Stock has a stated value of $100,000, is entitled to receive
a dividend equal to 8% of the stated value on a cummulative basis
payable in cash or shares of the Company's common stock at the option
of the purchaser, is convertible into shares of the Company's common
stock based on the lower of (a) $2.25 and (b) 80% of the average of the
three lowest closing bid prices in the 20 trading days immediately
preceding the conversion date, and, to the extent not converted, must
be redeemed three years from the date of issuance at the Company's
option in cash or in shares of the Company's common stock. In addition,
the Company has agreed to file a registration statement (the
"Registration Statement") with the Securities and Exchange Commission
relating to the resale of the shares of common stock issuable upon
conversion of the Series A Preferred Stock and upon exercise of the
11
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7 Subsequent Event (continued)
warrant and to cause the Registration Statement to become effective on
or before December 1, 2000. Commencing on and after the effectiveness
of the Registration Statement, the Company will have the right to
redeem the Series A Convertible Preference Shares then outstanding
upon 10 days notice and payment to the purchaser of an amount equal to
125% of the stated value thereof, provided that the purchaser shall
have the right during such 10 day period to convert the then
outstanding preference shares into shares of common stock based on 75%
of the closing bid price of the common stock on the date the
redemption notice is given by the Company. The Company has agreed to
issue to Thomson Kernaghan & Co. Limited, as placement agent, for its
services in connection with the sale of the Series A Convertible
Preference Shares, an aggregate of 100,000 shares of the Company's
common stock and a warrant exercisable over a five year period to
purchase 150,000 shares of the Company's common stock at $3.00 per
share. The resale of the shares to issued to the placement agent
(including the shares issuable upon exercise of its warrant) are to be
included in the Registration Statement.
12
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
THE FOLLOWING ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF
THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, OF THE COMPANY CONTAINED
ELSEWHERE IN THIS FORM 10-QSB.
Overview
Since its founding in 1991, the Company has engaged in the business of providing
investment research and information services for institutional and individual
investors and financial professionals. The Company has historically delivered
its products, including financial and market information, analysis, advice and
commentary, to paying subscribers through a variety of media including phone,
fax, e-mail, audio recordings, newsletter and traditional mail. Sales of
subscriptions to the Company's subscribers have predominantly been comprised of
institutional investors and financial professionals.
During 1999, the Company adopted a business strategy designed to increase the
total number of its subscribers, including significant numbers of individual
investors, and to increase and diversify its sources of revenue. To those ends,
the Company has announced a number of initiatives, including the creation,
launch and marketing of its website and the establishment of strategic
distribution relationships through which the Company will reach both
institutional and individual investors. In particular, the Company expects to
use the website to build brand awareness, attract paying subscribers for its
products and generate advertising revenue.
In connection with the execution of its business strategy, in 1999, the Company
engaged various service providers including website designers and providers of
content for its website, purchased computer systems and software, and hired
additional management, sales, operational and administrative personnel. In
addition, in May 2000, the Company's subsidiary, Wall Street Strategies, Inc.
("Wall Street Inc".), became a registered investment adviser under the
Investment Advisers Act of 1940, as amended. Such registration enables the
Company to provide certain individualized products and services to subscribers
for whom registration as an investment adviser is required.
The Company anticipates that it will continue to develop its website during
2000, and, to the extent its resources permit, will undertake a significant
marketing and advertising program to promote its brand and products. The Company
will also pursue additional strategic relationships and, as appropriate, hire
additional personnel, including management personnel, and purchase additional
computer systems and software. In May and June, 2000, the Company signed
agreements with ConSors AG, an online brokerage firm in Europe; with Interactive
Investor International, a provider of investment advice for individuals; with
Data Broadcasting Corporation, a financial market data provider; and with
CyBerCorp, Inc., a subsidiary of the Charles Schwab Corporation that supplies
electronic trading technology and brokerage services, to provide their clients
with equity research on U.S. equities and links to the Company's website. Each
of such agreements is for an initial period of one year and thereafter for
successive periods of one year each unless terminated by the parties with the
exception of the agreement with CyBerCorp, Inc. which is for a one year period
unless extended by mutual agreement of the parties. The agreements provide for a
sharing of any revenues derived therefrom by the Company. Because such
agreements were only recently implemented, the Company has not yet realized any
revenues therefrom but expects to do so in future periods. The Company believes
that these and other future strategic distribution relationships will allow it
to reach additional institutional and individual investors.
13
<PAGE>
As discussed below, the three months and six months ended June 30, 1999 (the
"1999 Periods") and June 30, 2000 (the "2000 Periods") were characterized by
sales increases which were offset by expenses associated with sales commissions
from subscriptions, increased personnel and, in the 2000 Periods, website design
and other strategic and operational initiatives. As a result, the Company has
incurred significant losses from operations. The Company expects operating
losses to continue for the foreseeable future as it implements its business
strategy. In addition, at June 30, 2000 the Company had a working capital
deficiency of approximately $1,246,000. These factors, (among others) raise
substantial doubt about the Company's ability to continue as a going concern.
As of June 30, 2000, the Company had 3,220 active subscribers. As of such date,
the Company also had 1,159 registered users of the Company's products provided
free on its website. The Company anticipates that some of such users will be
converted into paying subscribers and, in any event, the number of users is
generally a factor that advertisers take into account in determining whether to
advertise on the Company's website. Subscription revenue for the three months
and six months ended June 30, 2000 was $1,204,016 and $2,634,311, respectively.
As of June 30, 1999, the Company had 1,787 active subscribers. Subscription
revenue for the three months and six months ended June 30, 1999 was $1,084,922
and $1,742,077, respectively.
Results of Operations
Revenue for the three month and six months ended June 30, 2000 was approximately
$1.2 million and $2.7 million, respectively. These amounts represented increases
from the three and six months ended June 30, 1999 of 7% and 42%, respectively.
Revenue for the three month and six month period ended June 30, 1999 was
approximately $1.1 million and $1.9 million, respectively. Income from sales of
subscriptions to the Company's products represented nearly all of the Company's
revenue in both periods except for consulting income of $15,000 and $133,120 for
the three months and six months ended June 30, 1999, respectively. This income
primarily represented the value of stock received by the Company in exchange for
consulting and advisory services. The increase in subscription revenue resulted
primarily from increased sales and promotional efforts, the increased visibility
of Charles Payne, the Company's chief analyst and spokesperson, and the
continued general growth in U.S. households' purchasing and ownership of
financial assets.
The Company realized a gain of $32,522 and $27,337 on the sale of marketable
securities for the three and six months ended June 30, 1999, respectively. This
compared with no realized gain or loss and a $36,118 realized gain for the three
and six months ended June 30, 2000, respectively.
The Company continues to experience substantial increases in operating expenses,
which have offset the increases in revenue for the three months and six months
ending June 30, 2000. A substantial portion of the increase in operating
expenses is attributable to stock compensation earned and charged to expense in
connection with the issuance of shares of Common Stock and below fair market
option grants to certain key employees and new management personnel recruited by
the Company and certain outside consultants as part of the Company's expansion
strategy. Total operating expenses increased from approximately $1.0 million and
$1.7 million in the three and six months ended June 30, 1999 to approximately
$4.1 million and $7.6 million in the three and six months ended June 30, 2000.
These amounts represent increases of 293% in the three month period and 361% in
the six month period. Included in operating expenses are salaries and
commissions of $681,675 and $1,069,974 for the three and six months ended June
30, 1999 and $2,345,548 and $4,815,200 for the three and six months ended June
30, 2000. These amounts represent increases of 244% in the comparable three
month period and 350% in the comparable six month period. Included in salaries
and commissions for the three month and six month period ending June 30, 2000
are expenses of $1,107,602 and $2,578,894, respectively, related to stock
compensation. In the absence of expenses related to stock compensation, salaries
and commissions for the three month period June 30, 2000 would have been
$1,237,946, an increase of 82% over the comparable period in 1999. For the six
month period ending June 30, 2000, salaries and commission, exclusive of the
expense related to stock compensation, would have been $2,236,306 an increase of
109% over the comparable period in 1999. Payroll taxes and employee benefits
increased from $33,431 and $112,148 for the three and six months ended June 30,
1999 to $144,431 and $280,705 for the three and six months ended June 30, 2000.
14
<PAGE>
This represents increases of 332% and 150% for the three and six months ending
June 30, 2000. Apart from the charge to expense represented by stock
compensation, increases in salaries and commissions continued to represent a
substantial portion of the overall increase in operating expenses. Such
increases were attributable to retention of existing personnel as well as the
engagement of additional personnel, particularly management personnel required
to effect the Company's business strategy of growth and expansion. The Company
also incurred increased commissions payable to sales representatives in
connection with higher subscription income. The Company anticipates continuing
its efforts to retain and recruit personnel and corresponding increases in
expenses attributable to salaries and commissions, as well as increased
commissions payable as subscription sales increases. The Company further
anticipates significant additional charges to expense for stock compensation
during 2000 and 2001.
During the three months and six months ended June 30, 2000, the Company incurred
consulting fees of $300,889 and $600,574, respectively. Included in these fees
were stock compensation earned and charged to expense to a public relations firm
for the three and six months ended June 30, 2000 of $225,578 and $480,429,
respectively. The balance represented consulting fees paid to various financial
and other consultants. Consulting fees of $28,205 and $42,705 were incurred
during the three and six months ended June 30, 1999.
Rent and occupancy costs increased from $21,927 for the three months ended June
30, 1999 to $76,046 for the three months ended June 30, 2000, a 247% increase.
Rent and occupancy increased from $37,090 for the six months ended June 30, 1999
to $108,135 for the six months ended June 30, 2000, a 192% increase. These
increases are attributable to the leasing of additional space required to house
the increased number of employees and sales people hired or engaged by the
Company. The Company moved into new office space on July 14, 2000, which is
significantly larger than its previous location. Accordingly, the Company
anticipates substantial increases in its rent and occupancy costs during the
remainder of 2000 and in subsequent years.
The Company experienced increased costs and expenses in a number of other areas
for the 2000 Periods as compared to the 1999 Periods. These increases are
attributable to its expansion and the implementation of its business strategy to
increase the number of its subscribers and to create its website. The
significant changes are summarized as follows:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30, June 30, June 30,
Expense 2000 1999 % Increase 2000 1999 % Increase
--------------- ------------------ ------- ----------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Telephone and $ 105,511 $ 48,116 119% $ 187,799 $ 84,060 123%
communication costs
Travel and promotion $ 232,331 $ 57,857 302% $ 372,305 $ 59,184 529%
costs
Website Development $ 172,399 $ - Not $ 250,597 $ - Not
costs applicable applicable
General, $ 240,524 $ 166,396 45% $ 376,787 $ 241,253 56%
administrative and other
operating costs
</TABLE>
Included in the website development costs for the three and six months ended
June 30, 2000 is amortization of the Company's capitalized website development
costs of $30,630 and $61,254, respectively.
The Company incurred depreciation expense for the three and six months ended
June 30, 1999 of $3,402 and $4,999, respectively. This compares to depreciation
expense of $63,558 and $73,559 for the three and six months ended June 30, 2000.
The increase in the 2000 Periods are primarily a result of increased property
and equipment purchases and capitalized leases.
15
<PAGE>
The Company also incurred professional fees of $376,764 and $482,243 for the
three and six months ended June 30, 2000. These expenses are primarily
attributable to its expansion and becoming a reporting issuer. The Company did
not incur any professional fees for the three and six months ended June 30,
1999.
The Company experienced a net loss for the three months ended June 30, 2000 of
$2,830,423, or $0.17 per share as compared to a net profit for the three months
ended June 30, 1999 of $25,405. The Company experienced a net loss for the six
months ended June 30, 2000 of $4,967,928, or $0.29 per share as compared to a
net profit for the six months ended June 30, 1999 of $177,408, or $0.02 per
share. Management believes that the increase in the Company's net loss was
primarily due to the stock compensation charge described above, as well as
increased salaries and commissions paid to additional personnel and in respect
of increased subscriptions and other increased operating expenses.
Although the Company cannot accurately determine the precise effect of inflation
on its operations, it does not believe that inflation has had, or will have, a
material effect on sales or results of operations in the three or six month
periods ended June 30, 1999 or 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations out of revenues from
subscriptions for its products. In September 1999, the Company received net
proceeds of $3 million from the sale of 600,000 shares of its Common Stock at
$5.00 per share. These shares were issued to three accredited investors; Bamby
Investments Limited, a private investment company based in the Bahamas; HK
Partners LLC, a private limited liability company engaged in making real estate
and securities investments that is based in Denver, Colorado; and Gerald Turner,
one of the Company's directors (the "Private Placement").
Net cash used by operating activities for the six months ended June 30, 2000 was
$1,067,134 compared with net cash provided by operating activities of $508,773
for the six months ended June 30, 1999. The reduction in cash provided from
operations of $1,575,907 was primarily caused by an increase in operating
expenses incurred in connection with the implementation of the Company's
business strategy. Net cash used in investing activities for the six months
ended June 30, 2000 was $455,728, compared net cash used in investing activities
of $65,236 for the six months ended June 30, 1999. The increase in cash used in
investing activities was primarily a result of additional purchases of property
and equipment and website development costs partially offset by the proceeds
from the sale of marketable securities in the 2000 Period. Net cash used in
financing activities for the six months ended June 30, 2000 was $40,675 compared
with net cash used in financing activities of $9,197 for the six months ended
June 30, 1999. The increase in cash used in financing activities was primarily
from the financing of computer equipment through capitalized leases.
The Company anticipates increased cash demands to meet such requirements as
increased costs related to retention and attraction of personnel, continuing
costs of development, maintenance and expansion of the Company's website, costs
associated with advertising and marketing campaigns contemplated for 2000,
higher rent and occupancy expenses associated with the Company's new location,
costs associated with upgrading internal accounting and other operating systems,
costs associated with becoming a reporting issuer and other working capital and
general corporate purposes.
As of June 30, 2000, the Company was committed to spend approximately $350,000
in connection with its new facilities, of which approximately $295,000 will be
reimbursed by the landlord. In addition, the Company was committed to spend
approximately $700,000 in connection with the acquisition of computer equipment,
office furnishings, telephone systems, media equipment and other equipment and
services to support its business and website. These amounts have been provided
for as of June 30, 2000 and are reflected in the accompanying financial
statements in accounts payable and accrued expenses. The Company is seeking to
finance most of its computer and equipment committments through leasing
arrangements. In that connection, in August 2000, the Company entered into a
lease agreement for approximately $200,000 of this computer equipment.
16
<PAGE>
On August 18, 2000, the Company sold to an unrelated accredited investor,
pursuant to Regulation S, 10 shares of the Company's Series A Convertible
Preferred Stock and a warrant exercisable over a five year period to purchase
80,000 shares of the Company's Common Stock at $3.00 per share for an aggregate
consideration of $1,000,000 (realizing net proceeds of $995,000 after payment of
certain expenses of the investor).
The Company believes that the net proceeds from the sale of the Series A
Convertible Preferred Stock, together with the cash on hand and the cash
generated by its operations will be sufficient to meet its contractual and other
commitments through the end of 2000. However, to aggressively implement its
business strategy and to fund its operations beyond 2000, the Company is (i)
actively pursuing financing for its equipment purchases (in addition to the
$200,000 in leasing arrangements discussed above) and (ii) seeking to obtain
additional debt and/or equity financing. The Company is in discussions with
and/or has retained several organizations to assist with respect to matters
relating to the financing of the Company's business, recapitalization, mergers
and acquisitions. The amount of additional funds that may be required and the
timing thereof will depend on many factors that the Company is unable to
predict, such as the amount of revenues generated from operations and the market
acceptance of its website and existing and new products and services. However,
the Company anticipates that over the next 12 months it will require
at least $3 million of additional funds. Management believes that equity
financing would most likely serve as the source of additional funds. Any such
equity financing would be expected to result in dilution to the holders of the
Company's common stock. The Company could also seek to finance such expenses
through debt financing. Any debt financing obtained by the Company would be
likely to include restrictive covenants limiting the Company's ability to obtain
additional capital, whether through additional debt or equity financing, as well
as restrictive covenants limiting the Company with respect to various
operational and financial matters. In any event, there can be no assurance that
additional financing, whether through sales of equity or debt or leasing will be
available on terms and conditions acceptable to the Company, if available at
all. If such financing is required and cannot be obtained, the Company would be
required to reduce or postpone expenditures, particularly with respect to
advertising and promotional campaigns and may be forced to curtail certain
operations. Any such postponement would have a material adverse effect on the
Company's business and results of operations and its ability to continue as a
going concern.
In December 1999, the Company retained Joseph Charles & Associates, Inc.
("Joseph Charles"), to assist the Company with respect to matters relating to
the financing of the Company's business, recapitalization, mergers and
acquisitions. The Company paid such firm an advance of $50,000 against future
fees and expense allowances. This amount has been charged to operations during
the three month period ended June 30, 2000.
YEAR 2000 ISSUES
To date, the Company has not experienced, and does not anticipate experiencing,
any problems due to year 2000 related issues.
17
<PAGE>
WALL STREET STRATEGIES CORPORATION
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
10.29 Joint-Marketing Agreement, dated April 28, 2000,
by and between CyBerCorp, Inc. and the Registrant +
10.30 Order Flow Agreement, dated April 28, 2000, by and
between CyBerBroker, Inc. and the Registrant +
10.31 Sales and Marketing Agreement, dated April 29,
2000, by and between Data Broadcasting Corporation
and Wall Street Strategies, Inc. +
10.32 Marketing Agreement, dated as of May 30, 2000, by
and between ConSors Discount-Broker A.G. and Wall
Street Strategies, Inc. +
10.33 Data Provider Agreement, dated May 15, 2000, by
and between Interactive Investor Limited and Wall
Street Strategies, Inc. +
27.1 Financial Data Schedule
-------------------
+ Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
(b) Reports on Form 8-K
None
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities
Exchange Act of 1934 the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized
WALL STREET STRATEGIES CORPORATION
(Registrant)
Date August 21, 2000 By: /s/ Charles V. Payne
-----------------------
Charles V. Payne
President (and chief financial
officer)
19
