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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR
12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
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WALL STREET STRATEGIES CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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NEVADA 13-4100704
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
130 WILLIAM STREET
SUITE 401
NEW YORK, NY 10038
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(212) 514-9500
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT:
NONE
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SECURITIES TO BE REGISTERED UNDER SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE PER SHARE
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(TITLE OF CLASS)
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TABLE OF CONTENTS
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ITEM PAGE
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Introduction............................................................................................. 1
Forward-Looking Statements............................................................................... 1
Part I
Item 1. Description of Business.................................................................... 2
Introduction............................................................................... 2
History.................................................................................... 2
Business Overview.......................................................................... 5
Risk Factors............................................................................... 5
Products and Services...................................................................... 9
Distribution of Products................................................................... 13
Competition................................................................................ 14
Dependence on Major Customers.............................................................. 15
Intellectual Property...................................................................... 15
Governmental Regulations................................................................... 15
Employees.................................................................................. 15
Item 2. Management's Discussion and Analysis....................................................... 16
Item 3. Description of Property.................................................................... 18
Item 4. Security Ownership of Certain Beneficial Owners and Management............................. 19
Item 5. Directors and Executive Officers........................................................... 20
Item 6. Executive and Director's Compensation...................................................... 22
Item 7. Certain Relationships and Related Party Transactions....................................... 26
Item 8. Description of Securities.................................................................. 26
Part II
Item 1. Market Price of and Dividends on The Company's Common Equity and
Other Shareholder Matters................................................................ 28
Item 2. Legal Proceedings.......................................................................... 29
Item 3. Changes in and Disagreements with Accountants.............................................. 29
Item 4. Recent Sales of Unregistered Securities.................................................... 30
Item 5. Indemnification of Directors and Officers.................................................. 31
Part F/S
Financial Statements..................................................................................... F-1
Part III
Index to
Exhibits................................................................................................. 32
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INTRODUCTION
This is Amendment No. 2 to the Registration Statement on Form 10-SB
relating to the common stock, par value $0.001 per share (the "Common Stock"),
of Wall Street Strategies Corporation, a Nevada corporation ("WSSC"). WSSC has
voluntarily filed this Registration Statement in order to register the Common
Stock under Section 12(g) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), so as to permit the Common Stock to continue to trade on
the OTC Electronic Bulletin Board. The Registration Statement as amended hereby
contains the information required by Alternative 3 of Form 10-SB. The Common
Stock has traded on the OTC Electronic Bulletin Board under the symbol "VEMP"
since August 20, 1999 and, since September 25, 1999, under the symbol "WSST". On
April 10, 2000, the closing bid price for the Common Stock was $11.00 per share.
FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking statements:
1. statements set forth in this Registration Statement, including possible
or assumed future results of operations, WSSC's expectations concerning its
future profitability, WSSC's ability to generate positive cash flows in the
future, and WSSC's ability to expand its operations;
2. any statements preceded by, followed by or that include the words
"believes," "expects," "predicts," "anticipates," "intends," "estimates,"
"should," "may" or similar expressions; and
3. other statements contained or incorporated by reference in this
Registration Statement regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Such factors include:
o general economic and business conditions;
o technology changes;
o competition;
o changes in business strategy or development plans;
o the ability to attract and retain qualified management and staff; and
o liability and other claims which might be asserted against WSSC.
Such statements speak only as of the date that they were made, and undue
reliance should not be placed on such statements. WSSC's independent public
accountant has not examined or compiled the forward-looking statements and,
accordingly, does not provide any assurance with respect to such statements.
These cautionary statements should be considered in connection with any written
or oral forward-looking statements that WSSC may issue in the future.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
o WSSC is engaged, through its wholly owned subsidiary, Wall Street Strategies,
Inc. ("Wall Street Inc."), in the business of providing investment research and
information services for individual and institutional investors and financial
professionals. WSSC's research and information are packaged in a series of
products that are delivered to paying subscribers through a variety of media,
both traditional and electronic.
o During 1999, WSSC adopted a business strategy designed, among other things, to
increase the total number of its subscribers. Elements of such business strategy
include the creation, launch and marketing of WSSC's website, the establishment
of various strategic relationships and the expansion of WSSC's business
infrastructure, including systems, facilities and personnel.
o In connection with the implementation of its business strategy, WSSC
experienced significant growth in 1999 in its number of subscribers and the
amount of its subscription revenues. The increase in revenues was offset by
substantial increases in operating expenses and stock compensation charges
occasioned by the hiring of additional management and other personnel, resulting
in WSSC incurring a net loss of approximately $4,250,000 in 1999. WSSC expects
operating losses to continue for the foreseeable future as it intends to
significantly increase its operating expenses to grow its business. See "Item 1.
Description of Business--Business Overview"; "Risk Factors--We Have A History Of
Losses and Expect To Incur Losses In The Future" and "Products and Services".
See also "Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations."
HISTORY
WSSC, a Nevada corporation formed under the name Vacation Emporium
Corporation on April 2, 1999, 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. ("VEI-Colorado") on
May 12, 1988. The background to the merger and related transactions is as
follows:
VEI-Colorado commenced commercial operations on June 12, 1998, when,
through a wholly owned subsidiary, Vacation Emporium Marketing, Inc., a Colorado
corporation formed in April 1998 ("VEM"), it acquired all of the membership
interests of The Vacation Emporium LLC, a Colorado limited liability company
("VECO"), and The Vacation Emporium Tennessee, LLC, a Tennessee limited
liability company ("VET"). The acquisition was effected by means of a merger
(the "1998 Merger") of VECO and VET with and into VEM, as a result of which all
of the assets, liabilities and operations of VECO and VET were acquired by VEM
and the separate existence of VECO and VET ceased. Thereafter, VEI-Colorado,
through VEM, engaged in the business of marketing and selling vacation ownership
interests, commonly known as timeshares, at resort properties in Hawaii and
elsewhere in the United States.
In connection with the 1998 Merger, VEI-Colorado issued an aggregate of
6,000,000 shares of its common stock to the former member-owners of VECO and VET
(the "1998 Merger Group"). Also in conjunction with the 1998 Merger, an existing
shareholder of VEI-Colorado voluntarily canceled a total of 7,500,000 shares of
common stock and VEI-Colorado raised a total of $550,000 from the sale of
550,000 shares of its common stock in reliance upon Rule 504 of Regulation D
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
These funds were advanced to VEM and carried on the books of VEI-Colorado as a
loan to VEM. Upon completion of the 1998 Merger and related transactions,
9,050,000 common shares of VEI-Colorado were issued and outstanding.
By February 1999, VEM's time share business proved to be unprofitable. VEM
had exhausted the proceeds of the $550,000 loan advanced by VEI-Colorado, and,
based on VEM's poor operating results, VEI-Colorado and VEM were unable to
arrange additional financing. VEI-Colorado concluded that the loan to VEM was
uncollectible and, accordingly, that VEI-Colorado and VEM, on a consolidated
basis, had a negative net worth. VEI-Colorado undertook to negotiate a
divestiture of VEM with the 1998 Merger Group in order to permit VEI-Colorado to
seek to acquire another operating business.
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Effective March 31, 1999, VEI-Colorado completed such divestiture by
unwinding the 1998 Merger pursuant to an Unwinding and Stock Exchange Agreement
among VEI-Colorado, VEM and the 1998 Merger Group. Pursuant to the Unwinding and
Stock Exchange Agreement, VEI-Colorado canceled all of the shares issued in the
1998 Merger, reducing the number of issued and outstanding shares to 3,050,000,
and in exchange for the cancellation of the merger shares, transferred ownership
of VEM to the 1998 Merger Group. In connection with such unwinding, VEI-Colorado
forgave and wrote off its $550,000 advance to VEM.
Following the unwinding of the 1998 Merger on March 31, 1999, VEI-Colorado
did not engage in business of any kind, other than to seek investment
opportunities, including a possible acquisition of a business by means of a
business combination with a privately held company interested in becoming
publicly traded through such a business combination.
On June 4, 1999, VEI-Colorado sold 4,000,000 shares of its common stock to
Ian Rice ("Rice") for an aggregate purchase price of $20,000 ($.0025 per share
purchased). The shares issued to Rice represented approximately 57% of the then
issued and outstanding shares of VEI-Colorado and, accordingly, Rice was
thereafter able to exercise control over VEI-Colorado. On June 18, 1999, John D.
Brasher, Jr., resigned as the sole director of VEI-Colorado, and Rice was
elected the sole director of VEI-Colorado. Following completion of such change
of control, VEI-Colorado continued its efforts to seek investment opportunities,
including business combinations.
On June 21, 1999, VEI-Colorado merged (the "1999 Merger") with and into its
wholly-owned subsidiary, WSSC, for the purpose of effecting the reincorporation
of VEI-Colorado as a Nevada corporation. In the 1999 Merger, WSSC issued to
shareholders of VEI-Colorado two (2) common shares for each share of common
stock in VEI-Colorado owned by them immediately prior to the 1999 Merger.
All references below to the "Company" include WSSC and VEI-Colorado.
On July 30, 1999, the Company entered into an Agreement and Plan of Share
Exchange ("Share Exchange Agreement") with Charles V. Payne ("Payne"), the sole
shareholder of Wall Street Inc., a Delaware corporation engaged in providing
investment research and information services for individual and institutional
investors and financial professionals. Pursuant to the Share Exchange Agreement,
the Company agreed to purchase from Payne all of the issued and outstanding
shares of common stock of Wall Street Inc., thus making Wall Street Inc. a
wholly-owned subsidiary of the Company, in exchange for the issuance to Payne of
shares of Common Stock which, after giving effect to certain other issuances and
cancellations of Common Stock contemplated by the Share Exchange Agreement,
would represent approximately 53.84% of the total issued and outstanding shares
of Common Stock.
On July 30, 1999, in contemplation of the possible transaction with Payne
for the purchase of Wall Street Inc. in accordance with the Share Exchange
Agreement, the Company entered into Subscription and Rights Agreements with ten
individuals pursuant to which such individuals purchased an aggregate of
1,258,205 shares of Common Stock for a purchase price of $.0025 per share.
Eight of the ten individuals, purchasing an aggregate of 380,000 shares of
Common Stock, were, as of such date, existing employees of Wall Street Inc. Each
of such individuals has continued as employees at will of Wall Street Inc.
subsequent to the completion of the Company's acquisition of Wall Street Inc.
The shares purchased by such individuals are subject to repurchase by the
Company in declining increments over a two year period (the "Escrow Period"), at
the same purchase price of $.0025 per share, if the individuals' employment is
terminated other than by reason of death or disability. The shares purchased by
the individuals were placed into escrow to be released therefrom (and from the
Company's corresponding repurchase right) in eight equal quarter annual
installments over the course of the Escrow Period.
A ninth individual, David McCallen ("McCallen"), entered into a
Subscription and Rights Agreement with the Company on July 30, 1999, pursuant to
which McCallen purchased 526,923 shares of Common Stock. Simultaneously
therewith, McCallen entered into a two year Employment Agreement with the
Company which employment commenced on September 23, 1999, the date of the
closing of the Company's acquisition of Wall Street Inc. Pursuant to the
Employment Agreement, McCallen serves as Executive Vice President of the
Company. During 1999 but prior to the closing of the Company's acquisition of
Wall Street Inc. McCallen and an entity wholly owned by him performed consulting
services for Wall Street Inc. and received consulting fees for such services in
the aggregate amount of $56,500. McCallen had no affiliation with the Company
prior to July 30, 1999.
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In his Subscription and Rights Agreement, McCallen granted to the Company
the right to repurchase such shares, in declining increments, during the two
year period commencing on the date of the closing of the Company's acquisition
of Wall Street Inc. (the "McCallen Escrow Period"), at the same purchase price
of $.0025 per share, if McCallen's employment by the Company is terminated for
cause. The shares purchased by McCallen were placed into escrow to be released
therefrom (and from the Company's corresponding repurchase right) during the
McCallen Escrow Period. One-third of McCallen's shares were released from escrow
on September 23, 1999, one-third were released on March 23, 2000, and the
balance will be released in five equal quarter annual increments over the
remainder of the McCallen Escrow Period.
Simultaneously with the execution of his Employment Agreement, and in
accordance with the terms thereof, the Company granted to McCallen an option
under the Company's 1996 Compensatory Stock Option Plan (the "Plan") to acquire
351,282 shares of Common Stock at an exercise price equal to the closing bid
price for common shares as quoted on the OTC Electronic Bulletin Board on the
first day after the date of grant on which the common shares traded (i.e., $3.50
per share). The options vest in six equal quarter annual increments over an 18
month period, provided McCallen's employment by the Company has not been
terminated for cause. See "Item 6. Executive Compensation."
The tenth individual, Shawn D. Baldwin ("Baldwin"), entered into a
Subscription and Rights Agreement with the Company on July 30, 1999, pursuant to
which Baldwin purchased 351,282 shares of Common Stock. Simultaneously
therewith, Baldwin entered into a three year Employment Agreement with the
Company which commenced on October 1, 1999. Pursuant to the Employment
Agreement, Baldwin serves as Chief Strategy Officer of the Company. Prior to
July 30, 1999, Baldwin had no affiliation with the Company or with Wall Street
Inc.
In his Subscription and Rights Agreement, Baldwin granted to the Company
the right to repurchase up to 263,461 of the shares subscribed for (the "Baldwin
Escrow Shares"), at the same purchase price of $.0025 per share, if Baldwin's
employment by the Company is terminated for cause. The Baldwin Escrow Shares
were placed into escrow and 87,820 of such shares were released therefrom as of
October 28, 1999, and the balance of the shares subscribed for were released
from escrow on April 7, 2000.
Simultaneously with the execution of his Employment Agreement, and in
accordance with the terms thereof, the Company granted to Baldwin an option
under the Plan to acquire 526,923 shares of Common Stock at an exercise price
per share equal to the closing bid price for common shares as quoted on the OTC
Electronic Bulletin Board on the first day after the date of grant on which the
common shares traded (i.e., $3.50). The option vests in nine equal quarter
annual increments commencing nine months after the commencement date of
Baldwin's employment by the Company pursuant to his Employment Agreement (July
1, 2000). See "Item 6. Executive Compensation."
The ten individuals referred to above also entered into a voting agreement
with Payne dated as of July 30, 1999, conditioned on the closing of the
Company's acquisition of Wall Street Inc., pursuant to which, among other
matters, the individuals agreed to vote their shares of Common Stock to elect
Payne and his designees as directors of the Company for so long as Payne
beneficially owns at least 10% of the voting shares of capital stock of the
Company.
On August 9, 1999, Stephen Gross, David McCallen and Gerald Turner were
elected to the Board of Directors of the Company.
On September 23, 1999, the Company completed the purchase from Payne of all
of the issued and outstanding shares of common stock of Wall Street Inc. in
accordance with the terms of the Share Exchange Agreement. In connection with
the closing of the Company's acquisition of Wall Street Inc., (i) an aggregate
of 7,850,000 shares of the outstanding Common Stock owned by Rice were canceled,
(ii) the Company completed the sale to accredited investors, pursuant to Rule
506 of Regulation D under the Securities Act, of an aggregate of 600,000 shares
of Common Stock for aggregate proceeds of $3,000,000, (iii) the Company and
Payne entered into an employment agreement, (iv) certain parties, including the
Company and Rice, entered into a Voting Agreement dated September 23, 1999 (the
"Voting Agreement") with respect to certain shares of Common Stock (see "Item 8.
Description of Securities-Voting Agreement"), and (v) Payne became a director of
the Company. The Company changed its name from Vacation Emporium Corporation to
Wall Street Strategies Corporation on September 24, 1999.
Wall Street Inc. was incorporated in the State of Delaware on September 18,
1991. Except in connection with its acquisition by the Company as described
above, Wall Street Inc. has not been subject to or involved with any material
classification, merger, consolidation or purchase or sale of a significant
amount of assets not in the ordinary
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course of business. Neither the Company nor Wall Street Inc. has been involved
in any bankruptcy, receivership or similar proceeding.
All references below to the "Company" include (in addition to WSSC and
VEI-Colorado) Wall Street Inc., except as otherwise indicated or where the
context otherwise requires.
BUSINESS OVERVIEW
The Company, through its Wall Street Inc. subsidiary, provides investment
research and information services for individual and institutional investors and
financial professionals, including brokerage firms and their clients, investment
banks and their clients, and mutual fund and portfolio managers. Wall Street
Inc., which was founded in 1991 by Charles V. Payne, the beneficial owner of
approximately 59% of the Company's Common Stock (see "Item 4. Security Ownership
of Certain Beneficial Owners and Management"), historically has 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, newsletters and traditional mail.
As of March 31, 2000, the Company had approximately 3,050 active
subscribers, consisting primarily of financial professionals. Subscription fees
paid by such subscribers for one or more of the Company's products or services,
presently constitute the Company's sole source of revenue. During the second
calendar quarter of 1999, Wall Street Inc. 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 revenue sources. 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.
The website, the first phase of which became operational during January
2000, offers to subscribers the Company's own proprietary content, including
financial information and analysis, as well as access to other financial
information and services in a real-time, interactive medium. The Company expects
to use the website to build brand awareness, attract paying subscribers for its
products, and generate advertising revenue. See "Existing Products and Services
- - wstreet.com - The Company's Website" below.
To date, the Company has entered into agreements in principle to create
strategic relationships with Zacks Investment Research ("Zacks") and Data
Broadcasting Communications Corporation ("DBC"). These agreements in principle
are non-binding and there can be no assurance that the Company will be able to
successfully develop and maintain the relationships with Zacks and DBC or to
enter into more definitive agreements with either of them. Nevertheless,
elements of the relationships with Zacks and DBC have already been implemented
and the Company believes that these relationships, even in their present form,
provide it with strategic advantages by extending the reach and distribution of
the Company's products to viewers and subscribers of Zacks and DBC who may also
be interested in the Company's products, and by promoting the Company's name and
content.
The relationships with Zacks and DBC and other future strategic
relationships for distribution of the Company's products and services and for
syndication and co-branded publication of the Company's content, are intended to
provide the Company access to targeted groups of potential subscribers, as well
as to promote Wall Street Inc. and its products to particular audiences. See
"Distribution of Products--Strategic Relationships and Content Syndication".
RISK FACTORS
Prospective investors should carefully consider the following risks, in
addition to the other information contained in this Registration Statement,
concerning the Company and its business, before making any investment in the
Company's securities.
We Have A History Of Losses and Expect To Incur Losses In The Future
The Company has incurred operating losses in each of its last three fiscal
years. As of December 31, 1999, the Company had an accumulated deficit of
approximately $4,400,000. In addition, as of December 31, 1999, the Company had
unearned compensation expense of approximately $6,250,000 that will be amortized
into operations over the next two to three years but that will not require a
cash expenditure. The Company expects operating losses to continue for the
foreseeable future as it intends to significantly increase its operating
expenses to grow its business. The Company expects to incur significant sales,
marketing, product development, additional non-cash
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compensation charges in connection with the issuance of stock options to new
management personnel, and general and administrative expenses, in particular, in
connection with its recently created website. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
We May Not Be Successful In Our Business Strategy Because Of Our Limited Assets
And History Of Operating A Website
The Company may not be successful in its business strategy designed to
increase the total number of its subscribers and to increase and diversify its
revenue sources. Among the principal elements of such strategy are the creation,
launch and marketing of its website and the establishment of strategic
relationships through which the Company expects to reach both institutional and
individual investors. The limited extent of the Company's assets and history of
operating a website make it subject to the risks, expenses and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets, such as the Internet. Such factors may also make it difficult for the
Company to establish and maintain strategic relationships with other websites to
attract subscribers and advertisers. Even if the Company enters into
distribution relationships with other websites, they themselves may not attract
significant numbers of users. Therefore, the Company's site may not receive
additional subscribers from these relationships. See "Business--Products and
Services," "Distribution of Products" and "Competition".
We May Not Have And May Be Unable to Obtain Sufficient Capital To Fund
Operations And Implement Our Business Strategy
The Company may require additional capital to fund its operations and
implement its business strategy. As of December 31, 1999, the Company had cash
and cash equivalents on hand of approximately $2,500,000. The Company believes
that such funds, together with cash generated by its operations, will be
sufficient to meet its contractual and other commitments for the next nine to
twelve months, assuming no significant increases in personnel and advertising,
marketing and other promotional expenses . However, the Company believes that
such increases, as well as expansion of the Company's computer, accounting and
other infrastructure systems, will be necessary for the Company to aggressively
implement its business strategy and, therefore, the Company may require
additional funds. 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 six months it may require
approximately $3,000,000 of additional funds and an additional $5,000,000 over
the following 12 months. No assurance can be given that the Company will be able
to obtain such capital. If the Company cannot obtain additional capital, the
Company may be required to limit its development of new products, reduce its
advertising and marketing efforts, decrease or eliminate capital expenditures,
reduce customer services and support, and slow the rate of growth in or reduce
the number of its administrative and executive employees. Any of the foregoing
could materially adversely affect the Company's business and its ability to
compete.
Even if the Company finds a source of additional capital, the Company may
not be able to negotiate acceptable terms and conditions for receiving the
additional funding. Any future capital investments could dilute or otherwise
adversely affect the holdings or rights of existing shareholders or restrict the
operations of the Company. See "Management's Discussion and Analysis--Liquidity
and Capital Resources".
We Are Dependent on the Services and Reputation Of Charles V. Payne.
The Company's success depends, to a significant extent, upon the
abilities, reputation and continued efforts of its Chief Executive Officer and
controlling shareholder, Charles V. Payne, who is also the Company's principal
stock market analyst and media spokesperson. The Company has entered into an
employment agreement with Mr. Payne and has insurance on the life of Mr. Payne
in the amount of $6,000,000 The loss of Mr. Payne or damage to his reputation
could have a material adverse effect upon the Company. See "Item 5. Directors
and Executive Offices" and "Item 6. Executive Compensation".
Control By Charles V. Payne Could Adversely Affect Our Shareholders
Charles V. Payne is the beneficial owner of approximately 59% of the
Company's Common Stock. As a result, Mr. Payne has the ability to control
substantially all matters submitted to the Company's shareholders for approval
(including the election and removal of directors and any merger, consolidation
or sale of all or substantially all of its
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assets) and to control the Company's management and affairs. This concentration
of ownership may have the effect of delaying, deferring or preventing a change
in control of the Company, impeding a merger, consolidation, takeover or other
business combination involving the Company or discouraging a potential acquirer
from making a tender offer or otherwise attempting to obtain control of the
Company, which in turn could materially adversely affect the market price of the
Common Stock. See "Security Ownership of Certain Beneficial Owners and
Management".
Intense Competition Could Reduce Our Market Share and Harm Our Performance
An increasing number of financial news, analysis and information sources
compete for consumers' and advertisers' attention and spending . The Company
expects this competition to continue to increase. The Company competes for
subscribers and staff and will compete for advertisers with many types of
companies, including online services or websites focused on business, finance
and investing, publishers of traditional media such as print, radio and
television, providers of terminal-based financial news and data, web "portal"
companies and online brokerage firms. The Company's ability to compete depends
on many factors, including ease of delivery of products and use of its website,
performance, price, reliability customer service and support, identity of its
spokesperson and sales and marketing, as well as the quality, originality,
variety and timeliness of the Company's products and services.
Many of the Company's existing competitors, as well as a number of
potential new competitors, have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than the Company. This may allow them to
devote greater resources than the Company to the development and promotion of
their services and to the recruitment and hiring of analysts and other
personnel. These competitors may also engage in more extensive research and
development, undertake more extensive marketing campaigns, adopt more aggressive
pricing policies (including offering all or a portion of their financial news
for free) and make more attractive offers to existing and potential employees,
advertisers and strategic partners.
The Company also expects to compete with other websites, television, radio
and print media for a share of advertisers' total advertising budgets. If
advertisers perceive the Internet or the Company's website to be a limited or an
ineffective advertising medium, they may be reluctant to devote a portion of
their advertising budget to Internet advertising on the Company's website. See
"Business--Competition".
We May Be Unable To Manage Our Growth, Which May Harm Our Business
The Company has experienced rapid growth in its operations that has
placed, and its anticipated future growth will continue to place, a significant
strain on the Company's financial, management, accounting and other resources.
To manage such growth, the Company will have to continue to implement and
improve its managerial controls and procedures and operational and financial
systems. At March 31, 2000, the Company had a total of 39 employees, as compared
to 37 employees as of December 31, 1999 and 30 employees as of December 31,
1998. The Company expects that the number of employees will continue to increase
for the foreseeable future. The Company will need to integrate these employees
into its workforce successfully. No assurance can be given that the Company has
made adequate allowances for the costs and risks associated with this expansion,
that the Company's systems, procedures or controls will be adequate to support
its operations, or that management will be able to successfully offer and expand
the Company's services. If the Company is unable to manage its growth
effectively, its business, results of operations and financial condition could
be materially adversely affected.
Our Quarterly Operating Results May Fluctuate
The Company expects to experience significant fluctuations in quarterly
operating results due to a variety of factors, including, but not limited to,
(a) its ability to maintain and attract subscribers for its products and
services, (b) market acceptance of the Internet as a medium for consumers of
financial news and analysis, (c) the Company's ability to create and deliver
accurate and reliable content in order to attract users to its website to
subscribe for its products and services, and to attract advertisers to its
website, (d) intense competition from other providers of financial news and
analysis both over the Internet and through traditional media, (e) delays or
error in the Company's ability to effect e-commerce transactions, (f) the
Company's ability to upgrade and develop its systems and infrastructure in a
timely and effective manner, (g) technical difficulties, system downtime,
Internet brownouts, interruptions, delays or capacity problems experienced in
the Internet or with telephone communications, (h) seasonality of the industry,
(i) seasonality of advertising sales, (j) Company promotions and sales programs,
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(k) the amount and timing of operating costs and capital expenditures relating
to expansion of the Company's business, operations and infrastructure and the
implementation of marketing programs, key agreements and strategic alliances,
and (l) general economic conditions, economic conditions specific to the
Internet and the general state of the stock markets.
Existing or Future Governmental Regulations May Impede or Limit Our Operations
Operation of the Company's website is dependent on the use of the Internet
and telephone connections. As at the date of this Registration Statement, there
are few laws that apply specifically to access to or commerce on the Internet.
Due to the increasing popularity of use of the Internet, however, it is possible
that laws and regulations with respect to the Internet may be adopted at
Federal, state and even local levels, covering issues such as user privacy,
freedom of expression, pricing, characteristics and quality of products and
services, taxation, advertising, intellectual property rights, information
security and the convergence of traditional telecommunications services with
Internet communications. In addition, the telecommunications industry is subject
to regulatory control under various Federal statutes. Any amendments to current
regulations, statutes or new laws and regulations could have a material adverse
effect on the Company's business, results of operations and prospects. See
"Governmental Regulations".
Our Ability To Become A Registered Investment Adviser May Reduce Our Ability To
Introduce New Products And Services And May Materially Hamper Our Performance
Wall Street Inc. has submitted to the SEC an application for
registration as an investment adviser under the Investment Advisers Act of 1940
(the "Advisers Act") in order to be able to provide certain individualized
products and services to subscribers that it is currently unable to offer. Such
services would include more comprehensive and customized information for
institutional subscribers and portfolio tracking. The Company does not believe
that the failure to obtain such registration would have an adverse effect on its
current operations. However, such failure could have a material adverse effect
on that portion of the Company's growth strategy aimed at increasing
subscription revenues from institutional investors (and to a lesser degree,
individual investors) seeking individualized services, and, therefore, could
have a material adverse effect upon the Company's future results of operations.
See "Products and Services--Contemplated Products and Services" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview".
If Wall Street Inc. becomes a registered investment adviser, it will
be subject to various laws, rules and regulations that may not otherwise be
applicable to persons whose business activities are exempt from registration,
such as the exemption relied on by Wall Street Inc. for publishers of bona fide
business or financial publications of general and regulatory circulation. In
addition, there are various costs and risks associated that will be incurred by
persons acting in a capacity requiring registration as an investment adviser. By
way of example, and not intended as a comprehensive discussion of all of the
applicable regulatory provisions, such persons are required to adopt and
implement various policies and procedures, including those designed to avoid the
improper use of inside information, maintain certain books and records, and
refrain from engaging in certain transactions with investment advisory clients
or activities that could be inconsistent with their clients' interest. Although
the Wall Street Inc. fully intends to comply with applicable laws, rules and
regulations, if a regulator determines that a violation of applicable law has
occurred, such regulator could seek to impose a monetary fine or some
disciplinary measure which could include limitations or cessation of certain
investment advisory activities. Any such action by the regulator would likely
occur only after inquiry of the facts and circumstances, in the event that an
investigation was commenced in the first instance; in that event, however, the
Wall Street Inc. would incur costs associated with preparing for and responding
to such inquiry. Because Wall Street Inc. does not intend to act as a
"traditional" investment adviser (in that Wall Street Inc. will not hold
subscriber's securities or assets and will not have any authority, discretionary
or otherwise, over subscriber's assets or securities) it is anticipated that the
costs associated with complying with applicable regulations will be less than
those of traditional investment advisers.
Wall Street Inc. is subject to various federal and state securities and
other laws that may limit its activities and, under certain circumstances,
subject it to additional costs of compliance or the imposition of sanctions if
it does not comply. In addition, the laws and regulations potentially applicable
to an entity that engages in activities contemplated by Wall Street Inc. are
subject to change or modification. Any such change could subject Wall Street
Inc. to additional costs in the form of changes to its systems and procedures
and/or potential limitations on its activities. See "Governmental Regulations".
Purchasers Of Our Securities May Be Adversely Effected By the Penny Stock
Regulations
The Company's Common Stock is currently traded on the OTC Electronic
Bulletin Board. Unless and until the
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Common Stock is quoted on the Nasdaq system or on a national securities exchange
and if and so long as the Common Stock trades below $5.00 per share, the Common
Stock would come within the definition of a "penny stock" as defined in the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and be covered
by Rule 15g-9 of the Exchange Act. That rule imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their
spouse). For transactions covered by Rule 15g-9, the broker-dealer must make a
special suitability determination for the purchaser and receive the purchaser's
written agreement to the transaction prior to sale. In addition, prior to
effecting any penny stock transaction, the broker-dealer must provide a customer
with a document that discloses the risks of investing in the penny stock market,
including a description of the broker-dealer's duties to the customer and the
rights and remedies available to the customer, explain the nature of "bid" and
"ask" prices in the penny stock market, supply a toll-free telephone number to
provide information on disciplinary histories and describe all significant terms
used in such disclosure document. Consequently, Rule 15g-9, if it becomes
applicable, would affect the or willingness of broker-dealers to sell the
Company's securities and therefore would affect the ability of purchasers of the
Company's securities to sell their securities in the secondary market.
PRODUCTS AND SERVICES
Since 1991, Wall Street Inc. has provided independent research, analysis,
news and information, advice and commentary concerning investments and financial
markets to the investment community. This information is packaged in a range of
products tailored to the needs of particular types of investors and financial
professionals. The products are priced at different levels and subscribers pay
monthly fees ranging from $75 to $525, depending on the product and the medium
of communication requested. The Company currently delivers its products to
subscribers through a variety of media including phone, fax, e-mail, audio
recordings, newsletters, traditional mail and through its website via the
Internet. From time to time, the Company also offers special promotions such as
one week trial subscriptions for $9.95. The Company offers discounts if
subscribers purchase more than one product and if they elect quarterly or yearly
subscriptions. The Company also offers its Institutional Service pursuant to
which subscribers, for a monthly fee of between $2,000 to $8300, are provided
comprehensive information regarding the Company's recommendations regarding
individual securities. See "Existing Products and Services" below.
As of March 31, 2000, the Company had approximately 3,050 active
subscribers for one or more of the products offered. Historically, the Company
has marketed its products to institutional investors and financial
professionals, including mutual funds managers, portfolio managers and brokers.
Such persons have represented the bulk of the Company's subscribers. The Company
intends to continue to market its products to such persons and to increase the
number of such persons subscribing for the Company's products. However, the
Company has also attracted individual investors as subscribers and has adopted a
business strategy designed, among other things, to attract significant numbers
of individual investors as new subscribers. In addition, the Company's strategy
emphasizes the creation, launch and marketing of, and attraction of substantial
numbers of visitors and registered users to its website.
In recent years, there has been substantial growth in the individual
ownership of equity and fixed income securities worldwide. In a Fall 1999 survey
entitled "Equity Ownership in America," the Investment Company Institute and the
Securities Industry Association reported that the number of Americans owning
stocks directly or through mutual funds grew from an estimated 42.9 million in
1983 to almost 78.7 million in 1999. The survey further reported that total
holdings of equities by U.S. households rose from 17.2 per cent of household
financial assets in 1980 to 34.9 percent in 1998.
The Company believes that various factors have contributed to the growth in
financial assets, including organization of increased numbers of mutual funds,
increased investment into mutual funds, the allocation by households of more
assets to equity investments, sustained high returns in the equity markets over
a number of years, and lower trading costs as a result of regulatory changes and
improved technologies. The proliferation in equity ownership and associated
trading activity has created a need for more investment research and market
information on the part of individual investors who seek higher returns on their
portfolios.
The Company believes that the World Wide Web (the "web") has rapidly
established itself as an effective means for investors to manage their
portfolios, research investments and trade securities. At the same time,
individuals have been taking greater control of their investments by directly
researching their investments, tracking their portfolios,
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purchasing no-load mutual funds and playing a more proactive role in their
relationships with financial advisors. The web has facilitated these behavioral
shifts by providing individual investors with easy access to information that
was once generally available only to investment professionals, such as timely
market news, intra-day and historical quotes, charts, Securities and Exchange
Commission ("SEC") filings and analysts' earnings estimates.
The Company believes that these trends evidence a fundamental change in the
way many individual investors manage their financial assets. As individual
investors seek to independently manage their financial assets, the demand for
independent financial analysis and research, including SEC filings, business and
financial news, stock quotes, stock price graphs and annual reports, has grown.
Such analysis and research represent key tools used by individual and
institutional investors in deciding whether to invest in a company or industry
and when to buy and sell a particular security.
The Company believes that by combining its existing products and services
with financial news and information and employing the interactive qualities of
the Internet to create a branded financial web site, it can capitalize on the
increased demand among individual investors for financial analysis and research
and attract such investors as new subscribers. For this reason, as part of the
business strategy adopted by Wall Street Inc. in the second calendar quarter of
1999, the Company launched the first phase of its website during January 2000.
Existing Products and Services
Charles Payne, the Company's Chief Executive Officer and principal analyst,
works with the Company's staff of five additional professional analysts and
researchers to produce commentary, analysis and stock selections on a daily
basis which provide the content for the Company's products. Mr. Payne edits all
product content and is the Company's featured personality and spokesperson,
appearing regularly on television and radio and speaking regularly at financial
seminars and other events and engagements. Mr. Payne does not receive fees for
appearances on behalf of the Company.
The Company currently offers subscribers a range of products incorporating
the Company's financial and market research, analysis, advice and commentary,
tailored to the needs and interests of investors and financial professionals
with various investment objectives. These products include:
First Alert
First Alert is a research service focusing specifically on equity
securities and issued to subscribers four times each trading day. Each First
Alert report consists of a stock selection with information on the stock's
current price, trading targets and, generally, a recommended stop loss. Reports
also include a brief synopsis of the reasons for the Company's stock selection
and the basis for the Company's belief that the selected stock is likely to
increase in value. The Company believes that First Alert generally appeals to
active traders holding equity investments on a short-term (i.e. one hour to one
month) basis. The base price for subscriptions to First Alert is $525 per month
(subject to discount based on the medium of delivery and whether the product is
bundled with other Company products). In 1999, subscriptions to First Alert
accounted for approximately 11% of the Company's total subscription revenues.
Hotline
Hotline provides subscribers with overall market commentary combined with a
stock selection. The commentary portion consists of an overall review of the
current market environment as well as an analysis of events that may impact the
day's trading session, such as economic data, earnings reports, and rumors. The
stock selection portion usually consists of a single stock pick the Company
believes may outperform the broader market. The Company believes that Hotline
generally appeals to investors holding equity investments for an intermediate to
longer-term (i.e. thirty days to six months) period. Subscribers receive the
report twice each trading day. The base price for subscriptions to Hotline is
$350 per month (subject to discount based on the medium of delivery and whether
the product is bundled with other Company products). In 1999, subscriptions to
Hotline accounted for approximately 57% of the Company's total subscription
revenues.
Newsletter
The Newsletter is a monthly publication addressing equity securities. Each
issue of the Newsletter generally contains market commentary and two or three
specific selections of stocks the Company believes may be undervalued and/or
undiscovered and may outperform the broader market over the period held. The
Newsletter,
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which, the Company believes, generally appeals to longer-term investors (i.e.
more than three months), is designed to identify investment opportunities Wall
Street Inc. believes may be overlooked by traditional brokerage research and the
general media. The base price for subscriptions to the Newsletter is $75 per
month (subject to discount based on the medium of delivery and whether the
product is bundled with other Company products). In 1999, subscriptions to the
Newsletter accounted for approximately 4% of the Company's total subscription
revenues.
Storyline
The Storyline is a daily publication reporting and assessing rumors and
takeover speculation gathered by Wall Street Inc.'s analysts from their network
of market contacts and professionals. The Storyline seeks to provide subscribers
with trading guidance and insight with respect to existing rumors and takeover
speculation. The base price for subscriptions to the Storyline is $200 per month
(subject to discount based on the medium of delivery and whether the product is
bundled with other Company products). In 1999, subscriptions to the Storyline
accounted for approximately 1% of the Company's total subscription revenues.
Institutional Service
The Institutional Service offers to subscribers comprehensive information
regarding the Company's recommendations as to individual securities. The
information provided pursuant to this service includes recommended trade prices,
stop loss prices, exit prices as well as updates. This service is geared toward
sophisticated, institutional size traders (i.e., those persons trading larger
blocks of securities). Monthly fees for the Institutional Service range from
$2,000 to $8,300. In 1999, the Institutional Service accounted for approximately
27% of the Company's total subscription revenues.
wstreet.com--The Company's Website
The Company's business strategy is designed, among other things, to
increase the total number of subscribers to the Company's products, by
attracting additional institutional subscribers and financial professionals, as
well as a significant number of individual investors. The Company's website,
wstreet.com (the "Site"), the first phase of which was launched in January 2000,
is designed to be a comprehensive financial news and information destination for
institutional and individual investors and financial professionals, enabling the
Company to build its subscriber base, draw substantial numbers of registered
users and visitors to Site areas available to them, and attract advertisers.
Through the Site, the Company delivers its products to subscribers in a
real-time, interactive medium, making the products more readily, immediately and
efficiently accessible than through the Company's historical delivery methods.
The Company will use the Site to combine its traditional products, available to
subscribers paying for access to product areas, with access to additional
financial news and information, stock quotes, community features such as message
boards, investment and analytical tools and other features.
The Company will offer subscribers to its First Alert, Hotline, Storyline
and Newsletter products the option to receive such products via the Site. In
addition to the Company's traditional products, the Site will offer the
following:
Community Features
The Site will include interactive features designed to attract traffic to
the Site and build community among users and subscribers. Such features will
include message boards available for use by users and divided by topic, and
question and answer forums conducted after the close of trading sessions.
Investment Tools
The Site will include a variety of interactive investment tools provided by
or in conjunction with Standard & Poor's including real time and delayed stock
quotes, portfolio watch lists, charts, news headlines, news stories, company
profile overviews, company profile vital statistics, market statistics, market
commentary, mutual fund profiles and a learning center (including a glossary).
Third Party Investment Research
The Company has entered into a co-branding agreement with Zacks Investment
Research ("Zacks") which will enable the Site to include investment research and
information prepared by Zacks. Similarly, material prepared by the Company will
be offered on Zacks' website. See "Distribution of Products - Strategic
Distribution Relationships and Content Syndication."
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Site Area Access
Specific Site areas and features will be accessible to the public at
different levels.
All visitors to the Site will have access to certain basic Site areas and
features including general information concerning the Company and its products.
Visitors will have the option of becoming "registered users" by completing a
simple registration process. Registered users will provide the Company with
certain basic demographic information about themselves, their investment
interests, histories and goals, thus enabling the Company to promote to such
registered users the products most likely to be of interest to them. The
demographic information is not sold or distributed to any third party.
Registered users will have access to twice daily market commentaries as well as
certain community features and investment tools, including delayed stock quotes
and the Company's proprietary portfolio tracking tools.
Paid subscribers to one or more of the Company's products will have access
via the Site to the products purchased, as well as to most Site areas, features
and investment tools including real time stock quotes and all Standard & Poor's
features. Subscribers will enter into a Subscriber Agreement with the Company
and will be charged for the products on a monthly, quarterly or annual basis.
The Company may, from time to time, make certain products and features available
to subscribers on a discounted basis or pursuant to introductory offers.
Website Status
In January 2000, the Company launched the initial phase of the Site; in the
initial phase, certain descriptive information concerning the Company and its
products is available to all visitors, with the Company's First Alert, Hotline,
Newsletter and Storyline products available to paid subscribers. The second
phase of the Company's site development, including introduction of the community
investment tools and third party investment research referred to above will be
completed during the first half of 2000. The Company expects to add additional
products, features and Site areas on an on-going basis.
Contemplated Products and Services
Wall Street Inc. has submitted to the SEC an application for registration
as an investment adviser under the Advisers Act. Wall Street Inc. is seeking to
become a registered investment adviser to enable it to provide certain
individualized products and services to subscribers for which registration as an
investment adviser is required. Additional products and services which the
Company expects to offer to subscribers upon and subject to approval of Wall
Street Inc.'s application include the following:
Enhanced Institutional Service
The "Enhanced Institutional Service" would provide more comprehensive and
customized information to subscribers, offering greater insight and analysis
than that available through the Company's other products (including the existing
Institutional Service). The Company believes that institutional investors
(generally, those investors with more than two years of trading experience and
investments of more than $250,000 in the equity markets) would be the audience
most interested in this service. Many such qualified investors would be
subscribers to other Company products who desire more intensive service.
Through the Enhanced Institutional Service, the Company would offer
subscribers the option of paying on the basis of the number of stock
recommendations made by the Company, which fee it is anticipated will
approximate the current charges for the existing Institutional Service (i.e.,
$2,000 to $8,300), but provide for a discount to those subscribers who intend to
obtain a large number of the Company's recommendations.
In addition, the Company intends to provide its Enhanced Institutional
Service subscribers with the opportunity to contact the Company to request
information regarding individual securities selected by the subscriber. This
service would not be offered to the subscribers to the Company's other products.
A limited number of such inquiries would be included in the cost of the Enhanced
Institutional Service, after which a fee would be charged for the information as
to the Company's opinion on the individual security. Customers would be advised
in advance of any such charge. It is expected that any such charge will be in
the range of $25.00.
Portfolio Tracking
Upon completion of the investment adviser registration process, Wall Street
Inc. will also offer subscribers paying for the service the opportunity to
notify Wall Street Inc. immediately and on an ongoing basis of their
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holdings and transactions. Wall Street Inc. will enter the information provided
into its database and track subscribers' portfolios on an ongoing basis. By
monitoring participating subscribers' portfolios, Wall Street Inc. will be in a
position to provide subscribers with subsequent updates and information as well
as its latest opinions on the positions taken.
By operation of regulations promulgated by the SEC, the application for
registration as an investment adviser is deemed to be effective 45 days from its
submission. If the staff of the SEC seeks additional information or has comments
on the application, however, the approval of the application could be delayed or
denied. Wall Street Inc. intends to diligently pursue registration as an
investment adviser and to commence offering additional products and services
upon approval of its registration application. If such registration is not
approved, or if approval is materially delayed or if only limited or conditional
approval is granted, the implementation of the Company's growth strategy could
be materially adversely effected and, as a result, the Company's results of
operations could be materially adversely effected. Even if such application is
granted, the regulatory difficulties and compliance obligations may adversely
impact the Company's business and results of operations. See "Risk Factors--Our
Proposed Investment Adviser Services May Create Regulatory Difficulties and
Compliance Problems That May Adversely Impact Our Performance".
DISTRIBUTION OF PRODUCTS
Since its inception in 1991, Wall Street Inc. has maintained an internal
direct sales department for the marketing and sale of its products. As of March
31, 2000, Wall Street Inc.'s sales and marketing staff numbered 16 persons. The
sales and marketing force, which is compensated based on subscriptions sold,
develops sales presentations and demonstrations for potential subscribers and
manages the Company's entire marketing and sales effort. In addition, the
Company uses a variety of other means to promote its products and the Wall
Street Strategies brand. Charles Payne, the Company's Chief Executive Officer
and principal analyst, is also the Company's featured personality and
spokesperson, regularly appearing on and promoting the Company through a variety
of media outlets, including television, radio, newspapers and magazines. Mr.
Payne also speaks at trade shows, conferences and seminars on a regular basis.
The Company expects to continue these marketing activities while also
undertaking new promotional initiatives in conjunction with the development of
the website and the efforts to attract additional subscribers including
significant numbers of individual investors. In particular, the Company plans to
conduct advertising and direct mail campaigns, establish strategic distribution
relationships and syndicate its content to other sites and outlets. Furthermore,
while the Company has, historically, directed its products primarily to United
States investors, the Company believes there may be a substantial market for its
products in Europe and expects to expand its marketing and distribution efforts
to European investors during calendar year 2000.
Advertising and Direct Mail
In connection with the launch and marketing of the Site, the Company
anticipates conducting a multi-faceted advertising campaign in print as well as
electronic media. The Company also expects to conduct direct mail marketing
initiatives targeting groups likely to be interested in the Company's products.
The precise strategy and budget for such campaigns are expected to be determined
during the first half of 2000.
Strategic Distribution Relationships and Content Syndication
The Company intends to develop strategic relationships with third parties
for the distribution of the Company's products and services and for the
syndication and co-branded publication of portions of the content produced by
the Company. Strategic distribution relationships will provide the Company with
access to targeted groups of potential subscribers who are currently customers
or clients of third parties; revenue generated by sales of the Company's
products to such persons will be shared with third party distributors. Content
syndication will create targeted exposure of Wall Street Inc.'s name and
content, driving additional traffic to the Site. All such relationships are
designed to promote and brand Wall Street Inc. and its products to particular
audiences and to enable the Company to offer its products and services on a
targeted basis to persons likely to be interested in such products and services.
In October 1999, Wall Street Inc. and Zacks agreed in principal to engage
in a strategic relationship. Zacks agreed to create and has created a co-branded
page in its Zacks.com "finance center" promoting Wall Street Inc. and including
information regarding Wall Street Inc. In turn, Wall Street Inc. agreed to
include and has included on its website a link to the Zacks.com finance center.
The parties do not compensate each other for these reciprocal
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marketing activities. The parties may seek to expand and extend their
relationship, but there can be no assurance that they will do so or that the
existing relationship will be maintained.
In November 1999, Wall Street Inc. and DBC, a provider of real-time market
data to individual investors, agreed in principle to cooperate in several areas.
Wall Street Inc. and DBC are presently negotiating a more definitive agreement,
although there can be no assurance that such an agreement will be executed, and
either party remains free to terminate the relationship.
DBC hosts seminars to educate individual traders with respect to trading.
These seminars are often co-hosted with on-line brokerage or financial
information partners and feature guest speakers. As part of the strategic
relationship between Wall Street Inc. and DBC, it is anticipated that Charles
Payne, the Company's Chief Executive Officer and principal analyst, will speak
at various DBC seminars. To date, Mr. Payne has been a featured speaker at two
DBC seminars. Mr. Payne receives no compensation for such appearances.
Wall Street Inc.'s relationship would also include creation of subscriber
supported reports for users of DBC's "eSignal" real-time streaming stock quotes
service. The precise content and pricing of such reports, as well as the
allocation of subscription fees attributable to such reports, has not yet been
determined. It is anticipated that the reports will be incorporated into eSignal
by May 15, 2000. In addition, Wall Street Inc. and DBC have agreed in principle
to co-market DBC's seminars and the Wall Street Inc. reports to be included in
eSignal. Although the precise nature of such co-marketing activities has not
been determined, such activities may include direct mail, website promotion,
website links, mass emails and print advertising.
COMPETITION
The Company competes with a substantial number of providers of financial
news and information, market analysis and stock selections for the attention of
subscribers and advertisers. The growth in consumer demand for such content has
been accompanied by enormous growth in the availability of such content and the
number and types of sources for such content. Among the sources of competition
are:
o Online services or websites focused on business, finance and investing,
such as CBS MarketWatch.com, The Wall Street Journal Interactive Edition,
CNNfn and The Street.com.
o Publishers and distributors of traditional media, including print, radio
and television, such as The Wall Street Journal, Investors' Daily, Barrons,
Fortune, CNN and CNBC.
o Providers of terminal-based financial news and data, such as Bloomberg
Business News, Reuters News Service, Dow Jones Markets and Bridge News
Service.
o Web "portal" companies such as Yahoo!, MSN and America Online.
o Online brokerage firms which provide financial and investment news and
information, such as Charles Schwab and E*TRADE.
o Online market analysis and stock analysis and selection companies such as
Clear Station, Polar Trading and Pristine Trading.
The market for the electronic distribution of investment research and
related services is intensely competitive and this competition is expected to
continue to increase. The Company seeks to differentiate itself from its
competitors based on numerous factors including ease of delivery of products and
use of the Site, performance, price, reliability, customer service and support,
and sales and marketing efforts, as well as the quality, originality, variety
and timeliness of the Company's products and services. The Company believes that
its strategic distribution and content syndication relationships also represent
important competitive advantages.
The Company also believes that competitive position within the financial
news and information, market analysis and stock selection market is, to a
significant degree, personality driven; spokesmen and analysts for enterprises
in such market are often highly visible and can be an important factor in
differentiating a business from its competition. The Company believes that
Charles Payne's role in its business and continuing visibility for the Company
provides it with an important competitive characteristic and advantage.
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DEPENDENCE ON MAJOR CUSTOMERS
The Company's business is not dependent on one or a few major customers.
INTELLECTUAL PROPERTY
Although the Company's success depends on maintaining and protecting its
intellectual property, including its software, trademarks and tradenames, the
Company has not registered any of its trademarks in the United States or abroad.
The Company may in the future seek to protect its intellectual property under
applicable copyright and trademark laws in the countries in which it conducts
business. The Company may prosecute litigation against infringements of its
intellectual property. In order to protect its trade secrets and other
intellectual property, the Company has required some, and may in the future
require all of its employees, consultants, advisors and collaborators to enter
into confidentiality agreements which prohibit the disclosure of proprietary
information to third parties or the use of proprietary information for
commercial purposes.
GOVERNMENTAL REGULATIONS
Wall Street Inc. has applied for registration as an investment adviser
under the Advisers Act. If the application is approved (and provided that no
material limitation or condition is placed on Wall Street Inc.'s activities
pursuant to the grant of such application), Wall Street Inc. intends to provide
certain individualized services to current and new subscribers, as described
above. As a registered investment adviser, Wall Street Inc. will be subject to
various laws, rules, and regulations that may not otherwise be applicable to
persons whose business activities are exempt from registration, such as the
exemption relied on by Wall Street Inc. for publishers of bona fide business or
financial publications of general and regular circulation. In addition, there
are various costs and risks that will be incurred by persons acting in a
capacity requiring registration as an investment adviser. By way of example, and
not intended as a comprehensive discussion of all of the applicable regulatory
provisions, such persons are required to adopt and implement various policies
and procedures, including those designed to avoid the improper use of inside
information, maintain certain books and records, and refrain from engaging in
certain transaction with investment advisory clients or activities that could be
inconsistent with their client's interest. Moreover, persons acting as
investment advisers are subject to having their operations, including certain
books and records, examined by authorized state or federal regulators. While
Wall Street Inc. fully intends to comply with all applicable law, rules, and
regulations, if a regulator determines that a violation of applicable law has
occurred, such regulator could seek to impose a monetary fine or some
disciplinary measure, which could include limitations or cessation of certain or
all investment advisory activities. Any such action by the regulator would
likely occur only after inquiry of the facts and circumstances, in the event
that an investigation was commenced in the first instance; in that event,
however, Wall Street Inc. and/or the Company would incur costs associated with
preparing for and responding to such inquiry. Because Wall Street Inc. does not
intend to act as a "traditional" investment adviser (in that it will not hold
subscriber's securities or assets and will not have any authority, discretionary
or otherwise, over subscriber's assets or securities) it is anticipated that the
costs associated with complying with applicable regulations will be less than
those of traditional investment advisers.
Wall Street Inc. is subject to various federal and state securities and
other laws that may limit Wall Street Inc.'s activities and, under certain
circumstances, subject Wall Street Inc. to additional costs of compliance or the
imposition of sanctions if it did not comply. In addition, the laws and
regulations potentially applicable to an entity that engages in the activities
contemplated by Wall Street Inc. are subject to change or modification. Any such
change could subject Wall Street Inc. to additional costs in the form of changes
to its systems and procedures and/or potential limitations on its activities.
EMPLOYEES
At March 31, 2000, the Company had a total of 39 employees, all of whom are
full-time employees. Of these persons, 16 are in sales and marketing, five are
analysts, researchers, writers or editorial personnel, and 18 are in accounting,
operations, administration and management. The Company is not subject to any
collective bargaining agreements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis of the results of operations and financial condition
of the Company should be read in conjunction with the consolidated financial
statements, including the notes thereto, of the Company contained elsewhere in
this Registration Statement.
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, newsletters and traditional
mail. Sales of subscriptions to the Company's products have represented the
Company's sole source of revenue, and the Company's subscribers have
predominantly been composed 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 April 2000, Wall Street Inc. filed an application
with the SEC to register as an investment adviser under the Advisers Act in
order to enable it to provide certain individualized products and services to
subscribers for which registration as an investment adviser is required.
Although such registration and the ability to offer individualized products and
services is a part of the Company's strategy to diversify its revenues sources,
the central focus of the Company's overall growth strategy is the development
and marketing of its website and the establishment of strategic relationships in
order to market its products to targeted groups of potential subscribers.
Nevertheless, the failure of Wall Street Inc. to obtain registration as an
investment adviser could have a material adverse effect on the Company's growth
strategy, and, correspondingly, on the Company's results of operations.
The Company anticipates that it will continue to develop its website during
2000, and 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.
As discussed below, the fiscal years ended December 31, 1998 and December
31, 1999 were characterized by significant sales increases offset by significant
expenses associated with sales commissions on subscriptions, increased personnel
and, in 1999, website design and other strategic and operational initiatives.
The Company expects operating losses to continue for the foreseeable future as
it intends to significantly increase its operating expenses to implement its
business strategy.
As of December 31, 1998, the Company had 1,730 active subscribers.
Subscription revenue in 1998 totaled $2,226,726. As of December 31, 1999, the
number of active subscribers increased to 2,700, and subscription revenue for
1999 increased to $4,318,534.
Results of Operations
Comparison of the Year Ended December 31, 1998 to the Year Ended December 31,
1999
Revenues increased from $2,329,215 in 1998 to $4,474,699 in 1999, an
increase of 92%. Income from sales of subscriptions to the Company's products
represented nearly all of the Company's revenues in both years. The increase in
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 loss of $14,769 on the sale of marketable securities
in 1999 as compared to a gain of $99,827 on the sale of marketable securities in
1998.
The Company experienced a substantial increase in operating expenses from
1998 to 1999, offsetting the increase in revenues over the same period. 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 to certain key employees and new management personnel
recruited by the Company as part of the Company's expansion strategy. Total
operating expenses increased from $2,440,404 in 1998 to $8,689,176 in 1999, an
increase
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<PAGE>
of 256%. Of these amounts, $7,001,997 represented salaries and commissions in
1999, compared to $1,614,658 in 1998, an increase of 334%. The portion of this
1999 expense attributable to the stock compensation earned and charged to
expense was $3,829,348. In the absence of these charges, salaries and
commissions would have increased to $3,172,649, a 97% increase over 1998.
Payroll taxes and employee benefits increased 14% over the same periods, from
$274,832 to $314,251; these amounts included a profit sharing contribution by
the Company of $100,000 during 1999 compared to $150,000 in 1998. 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 and engagement of additional personnel, particularly management
personnel required to effect the Company's business strategy of growth and
expansion, as well as to increased commissions payable to sales representatives
in connection with increased subscription sales. 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 increase. The Company
further anticipates significant additional charges to expense for earned stock
compensation during 2000 and 2001.
Rent and occupancy costs increased from $42,068 in 1998 to $82,759 in 1999,
an increase of 97%. The increase was attributable to the relocation of the
Company's offices in the Fall of 1998. Additional space was required to house
the increased number of employees and sales people hired or engaged by the
Company. The Company has signed a lease for new office space and expects to
relocate its offices to the new space by July 1, 2000. The Company's new
facility will be significantly larger than its existing office space, and,
accordingly, the Company anticipates substantial increases in its rent and
occupancy costs during 2000 and in subsequent years.
The Company experienced increased costs and expenses in 1999 as compared to
1998 in a number of other areas attributable to its expansion and the
implementation of its business strategy to increase the number of its
subscribers and to create its website. Telephone and communications costs
increased from $176,987 in 1998 to $264,321 in 1999, an increase of 49%. Travel
and promotion costs increased from $57,768 in 1998 to $104,335 in 1999, an
increase of 81%. Furthermore, the Company incurred website development costs for
the first time in 1999 in the amount of $115,967. The Company also incurred
increased professional and consulting fees in 1999 attributable to its
expansion. Professional fees increased from $36,525 in 1998 to $234,360 in 1999,
an increase of 542%. Consulting fees increased from $44,749 in 1998 to $218,597
in 1999, an increase of 388%.
General and administrative costs increased from $84,320 in 1998 to $121,101
in 1999, an increase of 44%. Other operating expenses increased by 128% from
1998 to 1999, from $98,474 to $224,400.
The Company experienced a net loss for 1999 of ($4,251,065), or ($0.37) per
share, as compared to a net loss for 1998 of ($109,619), or ($0.01) 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 a
material effect on sales or results of operations in 1998 or 1999.
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 $3,000,000 from the sale of 600,000 shares of its Common Stock at
$5.00 per share 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 in operating activities in 1999 was ($98,320) compared to net
cash provided by operating activities of $80,142 in 1998. This decrease was
primarily due to increased operating expenses incurred in connection with the
implementation of the Company's business strategy. Net cash used in investing
activities grew from ($25,959) in 1998 to ($464,967) in 1999. The increased cash
used in investing activities was used for purchases of property and equipment of
$19,644, net investments in marketable securities of $72,023, payment of
deferred website development costs of $70,000, a lease deposit of $272,000 and
payments made for other assets in the amount of $31,300. The net cash provided
by financing activities for 1999 was $2,973,107, compared to net cash
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<PAGE>
used in financing activities of ($64,380) for 1998. The increase in cash
provided by financing activities was primarily attributable to the Private
Placement. At December 31, 1999, the Company had cash and cash equivalents on
hand of $2,506,505.
The Company anticipates increased cash demands to meet such requirements as
increased salary 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 move
to new and larger facilities currently planned for approximately July 1, 2000,
costs associated with upgrading internal accounting and other operating systems,
costs associated with becoming and remaining a reporting issuer and other
working capital and general corporate purposes.
The Company committed to spend approximately $350,000 during the period
November 1999 through April 2000, in connection with the acquisition of computer
and other equipment to support its website, of which all but $60,000 has been
paid as of the date of this Registration Statement. The Company is also
obligated to spend, on or before August 1, 2000, approximately $175,000 in
connection with its new facilities, including furniture and other equipment for
such facilities. The Company has no other commitments for capital expenditures.
The Company believes that the cash on hand, together with the cash
generated by it operations, will be sufficient to meet its contractual and other
commitments for the next nine to twelve months, assuming no significant
increases in personnel and advertising, marketing and other promotional
expenditures. Such increases, as well as expansion of the Company's computer,
accounting and other infrastructure systems, will be necessary for the Company
to aggressively implement its business strategy and, therefore, the Company may
require additional funds. The amount of additional funding 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 the over the next six months it may require
approximately $3,000,000 of additional funds and an additional $5,000,000 over
the following 12 months. Management believes that equity financing would most
likely serve as the source of such 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 financings, 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 of debt, 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. Any such postponement could have a material adverse effect on the
Company's business and results of operations.
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, recapitalizations, mergers and
acquisitions. The Company paid such firm an advance of $50,000 against future
fees and expense allowances that is non-refundable except under certain
circumstances. Joseph Charles is a securities brokerage and investment banking
firm, established in 1991, with corporate offices located in Boca Raton, Florida
and ten additional offices in principal cities throughout the United States.
YEAR 2000 ISSUES
To date, the Company has not experienced, and does not anticipate
experiencing, any problems due to year 2000 related issues.
ITEM 3. DESCRIPTION OF PROPERTY
Wall Street Inc. leases approximately 4,500 square feet of office space
occupying a part of the fourth floor at 130 William Street, New York, NY 10038,
from 130 William LLC, an unaffiliated party. The lease (the "William Lease") has
a remaining term of approximately three years and provides for annual lease
payments of $94,413 payable in equal monthly installments. Wall Street Inc.'s
obligations under the William Lease are guaranteed by its president, Charles V.
Payne. On April 11, 2000, Wall Street Inc., Charles V. Payne and the landlord
entered into an agreement pursuant to which the parties agreed that the William
Lease and Mr. Payne's guaranty will terminate and
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<PAGE>
expire on June 30, 2000 or, at the Company's option, on June 15, 2000, provided
the Company surrenders and vacates the premises by June 30, 2000 or June 15,
2000, as the case may be. In consideration thereof, Wall Street Inc. has agreed
to pay the landlord $17,500, which payment is to be effected by deduction from
Wall Street Inc.'s security deposit of $24,000 under the William Lease, and the
balance of the security deposit is to be paid to Wall Street Inc. within 14 days
after surrender of the premises.
On November 23, 1999, the Company leased approximately 8,500 square feet of
office space occupying the entire 31st floor at 80 Broad Street, New York, NY
10004-2209, from Praedium II Broadstone LLC, an unaffiliated party. The lease
has a term of ten years and provides for annual lease payments of $253,680 for
the first three years payable in equal monthly installments; $270,592 for the
next three years and $287,504 for the balance of the lease term. The Company
anticipates that it will relocate its executive offices to the leased space by
July 1, 2000.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 31, 2000, based on
information obtained from the persons named below, with respect to the
beneficial ownership of the Common Stock by (i) each person known by the Company
to own beneficially 5% or more of the Common Stock, (ii) each director and
officer of the Company and (iii) all directors and officers as a group. The
number of shares of Common Stock owned are those "beneficially owned" as
determined under the rules of the SEC, including any shares of Common Stock as
to which a person has sole or shared voting or investment power and any shares
of Common Stock which the person has the right to acquire within 60 days through
the exercise of any option, warrant or right.
<TABLE>
<CAPTION>
NUMBER OF %
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OWNED OWNED
- ---------------------------------------------- --------------- ----------
<S> <C> <C>
Charles V. Payne (1)(2) 10,939,103 58.8%
c/o Wall Street Strategies Corporation
130 William Street, Suite 401
New York, NY 10038
Shawn D. Baldwin (3) 351,282 2.0%
c/o Wall Street Strategies Corporation
130 William Street, Suite 401
New York, NY 10038
David J. McCallen (4) 526,923 3.0%
c/o Wall Street Strategies Corporation
130 William Street, Suite 401
New York, NY 10038
Ian Rice (2)
Collier House
163/169 Brompton Road
London SW3 1PY
England 150,000 *
Stephen Gross (5)
2625 Cumberland Parkway
Atlanta, GA 30339 100,000 *
Gerald Turner (6)
3110 Fairview Park Drive
Suite 1400
Falls Church, VA 22042-4503 102,000 *
All executive officers and directors as a group
(1)(2)(3)(4)(5)(6) 11,141,103 59.2%
- ----------
* Less than 1%
</TABLE>
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<PAGE>
(1) Includes 800,000 shares held of record by Todd Moore. Pursuant to a Stock
Transfer Agreement between Messrs. Payne and Moore and a related
irrevocable proxy from Mr. Moore, Mr. Payne has the right, for a period of
up to one year ending not later than January 17, 2001, to vote the 800,000
shares held of record by Mr. Moore. Includes an aggregate of 1,258,205
shares held of record by certain employees of the Company. Mr. Payne has
the right in certain instances pursuant to a voting agreement with such
employees to direct the voting of the shares held by such employees. In
addition, includes 15,000 shares issuable upon exercise of currently
exerciseable options exerciseable within 60 days. Does not include 285,000
shares issuable upon exercise of options which are not currently
exerciseable.
(2) Includes 150,000 shares held of record by Ian Rice and 60,000 shares held
of record by Corporate Communications Network, Inc. ("CCN"). Pursuant to a
Voting Agreement among Mr. Payne, Mr. Rice, CCN and Sigma Limited, S.A.
("Sigma"), for a period of two years ending September 23, 2001, Mr. Payne
will vote his shares for the election to the Board of Directors of two
designees of Sigma (including Mr. Rice), and Mr. Rice and CCN will vote
their shares for the election to the Board of Directors of Mr. Payne and
two of his designees (who, pursuant to the terms of the Voting Agreement,
are Messrs. Turner and McCallen).
(3) Does not include 526,923 shares issuable upon exercise of options which are
not exerciseable within 60 days.
(4) Does not include 351,282 shares issuable upon exercise of options which are
not exerciseable within 60 days.
(5) Consists of 100,000 shares issuable upon exercise of currently exerciseable
stock options.
(6) Includes 100,000 shares issuable upon exercise of currently exerciseable
stock options.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each director
and executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
------ ---- ----------
<S> <C> <C>
Charles V. Payne.................... 37 Chief Executive Officer, President and Director
Shawn D. Baldwin.................... 33 Chief Strategy Officer
David J. McCallen................... 43 Executive Vice President, Secretary and Director
Daliah Amar......................... 39 Chief Operating Officer
Ian Rice............................ 60 Chairman of the Board of Directors
Gerald Turner....................... 57 Director
Stephen Gross....................... 52 Director
</TABLE>
Charles V. Payne has been Chief Executive Officer, President and a director
of the Company since the Company's acquisition of Wall Street Inc. in September
1999. Since 1991, Mr. Payne has been President, Chief Executive Officer,
director and chief analyst of Wall Street Inc. See Part II-Item 2-"Legal
Proceedings" below.
Shawn D. Baldwin joined the Company as Chief Operating Officer in October
1999, and became Chief Strategy Officer in March 2000. From October 1998 through
September 1999, Mr. Baldwin was with Melvin Securities LLC, an investment bank
located in Chicago, Illinois, where he served as Managing Director, Equity and
Fixed Income. From September 1996 through October, 1998, Mr. Baldwin was with
Optima Investment Research, an international research firm based in Chicago,
first as Vice President, Marketing and Business Development from September 1996
through November 1997, and then as Senior Vice President. From October 1995
through August 1996, Mr. Baldwin was Regional Sales Manager, Midwest Region for
First Bank Systems/US Bancorp, Chicago, Illinois. From 1993 through September
1995, Mr. Baldwin was Sales Manager - Unsecured Assets, for American Express
Company.
David J. McCallen became a director of the Company in August 1999 and has
been Executive Vice President and Secretary of the Company since September 1999.
From September 1997 to April 1999 Mr. McCallen was associated with Potomac
Capital Group, Inc., Falls Church, Virginia, a private investment bank, where he
focused on capital raising and strategy consulting. From July 1996 through June
1997, Mr. McCallen was Director of Marketing for Xybernaut Corp., Fair Lakes,
Virginia. From October 1995 to June 1996, Mr. McCallen was Marketing Director at
TELE-TV, a broadband interactive services firm formed as a joint venture by Bell
Atlantic, NYNEX and Pacific Telesis. Prior to October 1995, Mr. McCallen was
director of marketing for a computer networking company located in Los Gatos,
California.
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<PAGE>
Ian Rice has been Chairman and a director of the Company since June 1999.
From June 1997 to date, Mr. Rice has been Chairman, Chief Executive Officer and
a director of Ikon Ventures, Inc. a holding company whose shares are traded in
the National Quotation Bureau Pink Sheets. From January 1994 until October 1996,
Mr. Rice was Chairman and a director of Asia Media Communications Ltd. (n/k/a
MyWeb Inc.com), then a holding company based in Switzerland whose shares are
traded on the OTC Electronic Bulletin Board. Since November 1985, Mr. Rice has
been a consultant to Sigma Limited, S.A., a private investment firm based in
Switzerland which is a consultant to the Company.
Daliah Amar joined the Company as Chief Operating Officer in March 2000.
From February 1999 through May 1999, Ms. Amar was the Vice President, Sales and
Marketing, at Big Apple Technologies Inc., a value added reseller and integrater
of computer equipment. From September 1996 through April 1998, Ms. Amar was the
Executive Vice President, Global Sales, of IPC Information Inc., a provider of
integrated equipment and services, including trading systems, international
voice and data network services and cabling infrastructure to the financial
community. From May 1994 through July 1996, Ms. Amar was the President of Bell
South Network Solutions Inc., a provider of network integration systems,
including consulting, design, implementation, management and support services to
BellSouth's largest customers.
Gerald Turner has been a director of the Company since August 1999. Mr.
Turner is Chairman and co-founder of Potomac Capital Group, Inc., an advisory
firm focusing on acquisition and divestiture services, capital raising, and
strategy consulting. Mr. Turner has been Chairman of Potomac Capital Group, Inc.
since before 1995.
Stephen Gross has been a director of the Company since August 1999. Mr.
Gross, a certified public accountant, was a founding member, and since November
1970, has been the Chairman of the Board of HLB Gross Collins, P.C., an
accounting firm located in Atlanta, Georgia, and its predecessor firms. During
the past five years, Mr. Gross has been a director of the following companies,
all of whose shares are publicly traded: Charter Bank & Trust from January 1987
to January 1997; Common Sense Trusts from January 1987 to date; Comstar.net,
Inc. from November 1999 to date; e-bank.com, Inc. from April 1998 to date; Ikon
Ventures, Inc. from June 1997 to date; Van Kampen American Capital Bond Fund,
Inc., SSB Concert Investment Series from January 1998 to date; Van Kampen
American Capital Exchange Fund from January 1996 to January 1998; Van Kampen
American Capital Convertible Securities from January 1996 to January 1998; Van
Kampen Capital Income Trust from January 1996 to January 1998; and WebMD, Inc.
from January 1997 to August 1998.
The Company's by-laws provide that the Board of Directors shall consist of
not less than one and no more than seven persons as resolved by the Board from
time to time. Members of the Board serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Directors are
elected by plurality vote. At least one-fourth in number of the directors must
be elected annually. Meetings of the Board are held when and as deemed necessary
or appropriate. Officers are appointed by and serve at the discretion of the
Board. There are no family relationships among any of the Company's directors.
The Company has entered into a voting agreement with various parties fixing
the number of directors at five and identifying the individuals who are to act
as members of the Board. See "Description of Securities--Voting Agreements."
ADVISORY BOARD
In August 1999, the Company formed an advisory board (the "Advisory Board")
which currently consists of five members. The Company considers the Advisory
Board to be an important source of professional talent, as well as an important
resource for the development of organizational infrastructure and processes. In
addition, the Board is expected to assist the Company in enhancing awareness
about the Company's products, establishing strategy and financial relationships
and developing the Company's website.
The Company has entered into adviser agreements with each member of the
Advisory Board. The principal provisions of these agreements, which are similar
in their terms, provide for reimbursement of certain expenses and the grant of a
non-qualified stock option. On August 17, 1999, each member of the Advisory
Board was granted an option to purchase 15,000 shares of Common Stock at an
exercise price of $3.50 per share. Each such stock option is exerciseable in
full for a period of two years from the date of grant or, if sooner, thirty (30)
days from the date of termination of such adviser as a member of the Advisory
Board (ninety (90) days in the case of the stock option granted to Ari Kaufman).
In the event of the death of a member of the Advisory Board, such options are
exerciseable
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<PAGE>
for a period of one year from the date of death. Mr. Kaufman's stock option also
remains exerciseable for a period of one hundred eighty (180) days after
termination as a member of the Advisory Board due to disability. Each member of
the Advisory Board has also agreed, pursuant to such agreements, not to disclose
any confidential information of the Company.
The members of the Company's Advisory Board are:
<TABLE>
<CAPTION>
<S> <C>
Kenneth C. Allen Vice President at Lehman Brothers Investment Banking Division. Mr. Allen currently
focuses on providing corporate finance to technology companies, specifically, Internet
consulting businesses and systems integration firms.
Robert Boehm Vice President of Human Resources for the Americas for Baan Company N.V., a
Netherlands based global provider of enterprise business management software.
Ari Kaufman Executive Vice President of Internet Operations at Zacks Investment Research where he
overseas Internet Advertising Sales and Media. Mr. Kaufman is also the President of
AdBuyer.com, LLC, a new media Advertising Sales and Buying consulting effort.
Joanna McGinley Director of Marketing at Morningstar, Inc. Ms. McGinley is responsible for all product
development and management of institutional products for the investment company,
broker/dealer, bank and insurance company markets.
Steven Schwartz Research Scientist at the Massachusetts Institute of Technology's Media Lab. Mr. Schwartz
has been instrumental in the creation of many technical innovations for the television
and film industry, including video and music scoring systems for use in film production
while serving as Chief Video Engineer at Lucasfilm Ltd.
</TABLE>
ITEM 6. EXECUTIVE COMPENSATION
On September 23, 1999, the Company entered into an employment agreement
with Charles Payne, the Company's President and Chief Executive Officer. The
agreement has a term of three years at an annual salary of $250,000 subject to
increases at the discretion of the Company's Board but no less than 10% per
annum. The agreement also provides for annual bonuses of no less than $125,000
provided that the Company reaches certain revenue milestones. The agreement
contains customary terms relating to expense reimbursement and benefits, as well
as confidentiality and non-compete provisions.
On December 7, 1999, the Company granted to Mr. Payne a stock option to
purchase 300,000 shares of Common Stock at an exercise price of $4.00 per share.
Mr. Payne's option becomes exerciseable in various increments over the two years
following the date of grant. The option remains exerciseable until five years
after the date of grant, but terminates upon Mr. Payne's termination as an
employee of the Company for any reason, provided that the option (to the extent
exerciseable, if at all) remains exerciseable for one year following Mr. Payne's
termination due to death, and ninety (90) days following termination due to
disability.
The Company has also entered into employment agreements, dated July 30,
1999, with Shawn Baldwin, the Company's Chief Strategy Officer, and David
McCallen, the Company's Executive Vice President. Mr. Baldwin's agreement has a
term of three years and provides for an annual salary of $175,000. Mr.
McCallen's agreement has a term of two years and provides for an annual salary
of $125,000. The agreements also provide for an incentive bonus of up to 40% of
base salary.
In addition, on July 30, 1999, the Company granted to Messers. Baldwin and
McCallen options for the purchase of 526,923 shares of Common Stock and 351,282
shares of Common Stock, respectively, at exercise prices of $3.50 per share. Mr.
Baldwin's option becomes exerciseable in nine equal consecutive quarter annual
increments of 58,547 shares each commencing on July 1, 2000. The option (to the
extent exerciseable, if at all) remains exerciseable until five years after the
date of grant or, if sooner, thirty (30) days after the date of termination of
Mr. Baldwin's employment (ninety (90) days in the case of termination for
disability and one year in the case of termination due to death).
Mr. McCallen's option becomes exerciseable in six equal consecutive quarter
annual increments of 58,547 shares each commencing on June 23, 2000. The option
(to the extent exerciseable, if at all) remains exerciseable until five years
after the date of grant or, if sooner, thirty (30) days after the date of
termination of Mr. McCallen's
22
<PAGE>
employment (ninety (90) days in the case of termination for disability and one
year in the case of termination due to death).
At the time Mr. McCallen commenced employment with the Company, the Company
extended to him an interest-free loan in the amount of $13,500 to defray
relocation costs. As of March 31, 2000, the balance of such loan was $10,800.
The loan is to be repaid in consecutive equal monthly installments of $2,700
each commencing August 1, 2000.
The Company has also entered into an employment agreement, dated April 7,
2000, with Daliah Amar, the Company's Chief Operating Officer. Ms. Amar's
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 provide 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 Ms. Amar a stock option to purchase 500,000 shares
of Common Stock at an exercise price of $7.50 per share. The option vests and
becomes exerciseable (until five years after the date of grant) 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 quarter
annual increments of 62,500 shares each over the following year.
If Ms. Amar's employment is terminated prior to December 6, 2000 by reason
of her death or disability, the option becomes exerciseable with respect to
125,000 shares of Common Stock. If Ms. Amar's employment is terminated between
December 6, 2000 and March 6, 2001 by reason of her death or disability, the
option becomes exerciseable with respect to an additional 62,500 shares. At any
time that Ms. Amar's employment is terminated by reason of her death or
disability, her stock option, to the extent vested, will be exerciseable for a
period of one year.
In the event of a change of control of the Company while Ms. Amar is
employed by the Company, the stock option becomes exerciseable in its entirety.
Furthermore, if Ms. Amar's employment is terminated by the Company after a
change of control, or by Ms. Amar if her duties are materially diminished by the
Company after a change of control, she will be entitled to receive salary and
benefits for one year following such termination.
If Ms. Amar's employment is terminated for cause, her stock option, to the
extent vested, will be exerciseable for a period of thirty (30) days. If the
Company terminates Ms. Amar's employment due to her failure to achieve specified
performance goals during the first 18 months of her employment, she will receive
salary and benefits for six months after termination, and will be entitled to
exercise her stock option, to the extent vested, for a period of ninety (90)
days. If Ms. Amar's employment terminates prior to the end of her employment
term for any other reason, the stock option will vest in its entirety and be
exerciseable for a period of one year and, in addition, Ms. Amar will be
entitled to receive salary and benefits for the lesser of one year or the
balance of her employment term.
Wall Street Inc. has entered into an employment agreement, dated March 20,
2000, with Joshua Eggert, the chief internet officer of Wall Street Inc. Mr.
Eggert's agreement has a term of three years at an annual base salary of
$175,000 subject to annual review by Wall Street Inc. 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 March 20, 2000, the Company granted to Mr. Eggert a stock option to purchase
200,000 shares of Common Stock at an exercise price of $7.50 per share. The
option vests and becomes exerciseable (until five years after the date of grant)
with respect to 100,000 shares on March 20, 2001 and with respect to the
remaining shares in equal quarter annual increments of 25,000 shares each over
the following year. If Mr. Eggert's employment terminates prior to March 20,
2001 by reason of his death or disability, or if Mr. Eggert terminates his
employment by reason of a breach of the employment agreement by Wall Street
Inc., or if Wall Street Inc. terminates Mr. Eggert's employment prior to March
20, 2001 for any other reason (other than cause), the option will vest and
become exerciseable with respect to 100,000 shares of Common Stock.
If Mr. Eggert's employment terminates by virtue of his death or disability,
the option, to the extent vested, will be exerciseable for periods of one year
and ninety (90) days, respectively, from the date of termination. If Mr. Eggert
terminates his employment by reason of a breach of the employment agreement by
Wall Street Inc., or if Wall Street Inc. terminates Mr. Eggert's employment for
any reason other than death, disability or cause, the option, to the extent
vested, will be exerciseable for a period of ninety (90) days from the date of
termination and, in addition, Mr. Eggert will be entitled to an aggregate of six
months annual base salary.
The following table sets forth the compensation paid to the Principal
Executive Officer, who was the only executive officer whose annual salary and
bonus exceeded $100,000 for services rendered to the Company and its
23
<PAGE>
predecessors for the nine months ended September 30, 1999 and for the years
ended December 31, 1999, December 31, 1998 and December 31, 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
-------------------------------------------------------- -------------------------
Other
Name and Annual Securities Underlying Options
Principal Position Year Salary Bonus Compensation (1))
- ------------------ ---- -------- -------- ------------ -------------------------
<S> <C> <C> <C> <C> <C>
Charles V. Payne 1999 $250,000 250,000(2) $27,104 300,000
President 1998 $134,835 $100,000(3) $ 5,470 -0-
1997 $ 65,516 -0- $ 4,800 -0-
- ----------
</TABLE>
(1) Other annual compensation in 1997 and 1998 consisted of a Company
parking allowance, and health insurance. Other annual compensation in
1999 consisted of life insurance, disability and health insurance and a
parking allowance.
(2) In accordance with the provisions of his Employment Agreement, Mr.
Payne received specified bonuses based on achievement by Wall Street
Inc. of revenue goals. No discretionary bonus was paid to Mr. Payne.
(3) Mr. Payne was the sole shareholder and director of Wall Street Inc.
during 1998.
Stock Option Plans
The Company has adopted two separate stock option plans that provide for
the grant of options and other forms of incentive awards to selected officers,
employees, directors, and consultants to the Company or any subsidiary thereof.
The purpose of these plans is to promote the growth of the Company by enabling
the Company to attract and retain the best available persons for positions of
substantial responsibility and to provide certain key employees with additional
incentives to contribute to the success of the Company. Both plans are
administered by the Company's Board of Directors (unless it elects a committee
to administer the plans).
1996 Compensatory Stock Option Plan
The Company's 1996 Compensatory Stock Option Plan (the "1996 Stock Option
Plan") was adopted by the Board of Directors and approved by the Company's
stockholders in October 1996. Subject to adjustment in the event of certain
specified corporate events, options to purchase a maximum of 2,000,000 shares of
Common Stock may be granted under the 1996 Stock Option Plan. The 1996 Stock
Option Plan has a term of ten years and no options may be granted after its
expiration. On December 7, 1999, the Company's Board of Directors determined
that no further awards will be made under the 1996 Stock Option Plan. As of such
date, options to purchase a total of 1,153,205 shares of Common Stock were
outstanding under the 1996 Stock Option Plan.
The 1996 Stock Option Plan provides solely for the grant of options that
are not intended to qualify as incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). Under
the terms of the 1996 Stock Option Plan, the exercise price of the options must
be at least 85% of the fair market value of the Company's Common Stock on the
date of grant. Options to be granted shall have a term not to exceed 10 years
from the date of grant and generally terminate automatically: upon termination
of employment for cause; within a period (specified in the individual option
grant) after termination of employment without cause; within twelve months after
the death of an employee; and, in the event of total disability, one year after
termination of employment unless otherwise specified in the grant. Generally,
options are not transferable other than by will or by operation of law.
Options may be exercised by paying the cash exercise price, or, with the
consent of the Board of Directors, by delivering to the Company securities or a
personal recourse promissory note. At the discretion of the Board, as determined
in the individual options grant, an option may contain a cashless exercise
provision.
24
<PAGE>
1999 Incentive Program
The Company's 1999 Incentive Program (the "1999 Program") was adopted by
the Board of Directors and approved by the Company's stockholders on December 7,
1999. The 1999 Program permits the granting of any or all of the following types
of awards: stock options, including incentive stock options, stock appreciation
rights in tandem with stock options or freestanding, and restricted stock
grants.
The aggregate number of shares of Common Stock that may be issued or
transferred under the 1999 Program is 5,000,000, subject to adjustment in the
event of certain specified corporate events, plus (i) any shares which are
forfeited under the 1999 Program or the 1996 Stock Option Plan, (ii) the number
of shares repurchased by the Company in the open market and otherwise with an
aggregate price no greater than the cash proceeds received by the Company from
the sale of shares under the 1999 Program and (iii) any shares surrendered to
the Company in payment of the exercise price of options issued under the 1999
Program. However, no award may be issued that would bring the total of all
outstanding awards under the 1999 Program to more than 15% of the total number
of shares of Common Stock of the Company at the time outstanding. The maximum
number of shares for which options and stock appreciation rights may be granted
under the 1999 Program to any person during any calendar year is 500,000
(subject to appropriate adjustment in the event of any changes in capitalization
of the Company).
Options may be exercised in cash or, with the Board of Director's approval,
by delivering shares of Common Stock already owned by the Grantee and having a
fair market value on the date of exercise equal to the option price, or a
combination of cash and shares. At the discretion of the Board of Directors, as
determined in the individual grant, an option may contain a cashless exercise
provision.
The Board of Directors may from time to time amend, alter, suspend or
discontinue the 1999 Program, subject to any requirement of stockholder approval
required by applicable law; provided, that no amendment shall be made without
stockholder approval if such amendment would (1) increase the maximum number of
shares of Common Stock available for issuance under the 1999 Program, (2) reduce
the minimum option price in the case of an option or the base price in the case
of a stock appreciation right, (3) effect any change inconsistent with Section
422 of the Code or (4) extend the term of the 1999 Program. The 1999 Program
terminates on the tenth anniversary of its effective date unless terminated
earlier by the Board or unless extended by the Board.
In the case of incentive stock options granted under the 1999 Program, the
following special rules apply:
The aggregate fair market value of the stock covered by incentive stock
options granted under the 1999 Program or any other stock option plan of the
Company or any subsidiary or parent of the Company that become exerciseable for
the first time by any optionee in any calendar year shall not exceed $100,000.
The period for exercise of such option shall not exceed ten years from the date
of the grant (or five years if the optionee is also a 10% stockholder). The
option price at which Common Stock may be purchased under an incentive stock
option shall be the fair market value (or 110% of the fair market value if the
optionee is a 10% stockholder) of the Common Stock on the date of the grant.
Incentive stock options may only be granted to employees (including officers) of
the Company or any subsidiary or parent of the Company. Such options by their
terms shall not be transferable by the optionee other than by the laws of
descent and distribution, and shall be exerciseable, during the lifetime of the
optionee, only by the optionee.
As of March 31, 2000, a total of 1,645,000 options were outstanding under
the 1999 Program.
The following table sets forth certain information concerning stock options
granted to the Principal Executive Officer during 1999. The exercise price for
the grant to such named person was the fair market value of the shares of Common
Stock on the date of grant, determined by reference to the closing price as
quoted in the OTC Electronic Bulletin Board on such date.
Options Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Percent of Total
Number of Options Exercise
Securities Granted to Employees or Base Expiration
Name Underlying Options in Fiscal Year Price Date
- ------------ ------------------ -------------- ----- ----
<S> <C> <C> <C> <C>
Charles Payne 300,000 14.3% $4.00 12/7/04
</TABLE>
25
<PAGE>
The following table sets forth certain information with respect to the
Principal Executive Officer regarding the value of his unexercised options held
as of December 31, 1999. No options were exercised (or exerciseable) during
1999.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Name Shares Value Number of Securities Value of Unexercised in the
- -------------------- Acquired Realized Underlying Unexercised Money Options at Fiscal Year End
On Exercise -------- Options at Fiscal Year End ---------------------------------
----------- ---------------------------------
Exerciseable Unexerciseable Exerciseable Unexerciseable
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Charles Payne -0- -0- -0- 300,000 -0- $656,000
</TABLE>
Profit Sharing Plan
Effective January 1, 1996, Wall Street Inc. adopted a profit sharing plan
(the "PS Plan"). Contributions to the PS Plan are made at the discretion of
management. No contributions are made by employees. Receipt of benefits under
the PS Plan is subject to vesting based on an employee's years of service. All
funds in the PS Plan are held in a separate trust of which Charles Payne is the
sole trustee. The Company contributed $150,000 to the plan in respect of fiscal
1998; no contributions were made to the plan in respect of fiscal 1997 or fiscal
1999.
In January 2000, the PS 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 PS Plan. Such salary deferred
contributions are 100% vested at all times.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company has not entered into any transactions during the last two
fiscal years with any director, executive officer, director nominee, 5% or more
shareholder, nor has the Company entered into transactions with any member of
the immediate families of the foregoing persons (including spouses, parents,
children, siblings and in-laws), except as previously described in this
registration statement, nor is any such transaction proposed except for the
following:
The Company is party to a Consulting Agreement dated September 23, 1999
with Sigma Limited, S.A., a company organized under the laws of Switzerland
("Sigma"), pursuant to which Sigma provides consulting services to the Company.
Sigma's consulting services to the Company are rendered by Ian Rice, the
Chairman of the Board of Directors of the Company. The term of the Consulting
Agreement is two years and the Corporation pays Sigma a consulting fee of
$50,000 per annum, plus a non-accountable expense allowance of $35,000 per
annum. All of the capital stock of Sigma is owned by a discretionary trust of
which Rice is neither a trustee nor a beneficiary. Among the discretionary
beneficiaries of the trust are member of Rice's family. Rice disclaims
beneficial ownership of Sigma. Since the date of the Consulting Agreement
between the Company and Sigma, Rice has not received any consulting fees from
Sigma.
It is the policy of the Company with respect to related party transactions,
that all transactions between the Company, its officers, directors, principal
stockholders and their affiliates be on terms no less favorable to the Company
than could be obtained from unrelated third parties in arms-length transactions,
and that all such transactions shall be approved by a majority of the
disinterested members of the Board of Directors. The Company believes that the
transaction described above complied with such policy.
In 1999, David McCallen, a director and officer of the Company, borrowed
$13,500 from the Company on an interest-free basis to defray relocation expenses
incurred by him. See "Item 6. Executive Compensation."
ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 50,000,000 shares
of common stock, $0.001 par value per share, of which 17,594,103 shares are
issued and outstanding, and 5,000,000 shares of preferred stock (the "Preferred
Stock"), none of which have been issued. The issued and outstanding common stock
is fully-paid and nonassessable.
26
<PAGE>
Preferred Stock
The Board of Directors is authorized, subject to limitations prescribed by
law, to provide for the issuance of the Preferred Stock in series and by filing
a certificate with the Nevada Secretary of State to establish the number of
shares to be included in each series. The Preferred Stock may be issued either
as a class without series, or if so determined from time to time by the Board of
Directors, either in whole or in part in one or more series, each series to be
appropriately designated by a distinguishing number, letter or title prior to
the issue of any shares thereof.
The Board of Directors has the authority to fix the voting power, the
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions of the Preferred
Stock in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of the Preferred Stock. Any class or series of
Preferred Stock authorized by the Board of Directors may have rights,
preferences and privileges senior to those of the Common Stock.
Common Stock
Common Stock may be issued from time to time in one or more series as
determined by the Board of Directors. The Common Stock may have such voting
powers, designations, preferences and relative, participating, optional or other
special rights and be subject to such qualifications, limitations and
restrictions as the Board of Directors shall determine. Subject to the
provisions of law and the preferences of the Preferred Stock, dividends may be
paid on the Common Stock at such time and in such amounts as the Board of
Directors may deem advisable. All currently issued and outstanding shares of
Common Stock have equal dividend, voting and other rights.
The Company's by-laws provide that holders of 10% of the Company's Common
Stock may call a special meeting of shareholders.
General Provisions Applicable To Both Common And Preferred Stock
No holder of Common Stock or Preferred Stock has any preemptive right to
subscribe to stock, obligations, warrants, rights to subscribe to stock or other
securities of any class.
Subject to the provisions of law and the provisions of the Company's
Certificate of Incorporation, as amended, the Company may issue shares of its
Preferred Stock or Common Stock, from time to time for such consideration (not
less than the par value or stated value thereof) as may be fixed by the Board of
Directors. Shares so issued, for which the consideration has been paid or
delivered to the Company, shall be deemed fully paid stock, and shall not be
liable to any further call or assessments thereon, and the holders of such
shares shall not be liable for any further payments in respect of such shares.
Voting Agreement
The Company is a party to a voting agreement with Charles Payne, the
Company's President and largest shareholder, Sigma Limited, S.A., a Swiss
corporation and a consultant to the Company ("Sigma"), Ian Rice, the Company's
Chairman and a shareholder of the Company, and Corporate Communications Network,
Inc., a shareholder of and consultant to the Company ("CCN"), pursuant to which,
for a period of two years, Mr. Payne will vote his shares of Common Stock to
cause (i) the Company's Board of Directors to consist of five members and (ii)
the election to the Board of Directors of two designees of Sigma, one of which
designees is to be the Company's Chairman. Sigma designated Messrs. Rice and
Stephen Gross as the Chairman and a director, respectively. In addition, under
the agreement, each of Sigma, CCN and Mr. Rice are to vote its or his shares in
favor of Mr. Payne and two of his nominees. As set forth in the voting
agreement, Mr. Payne has designated Messrs. Gerald Turner and David McCallen as
his nominees.
See, also, "Item 4 - Security Ownership of Certain Beneficial Owners and
Management -- footnotes (1) and (2)."
Transfer Agent
Madison Stock Transfer, Inc., 1813 East 24th Street, Brooklyn, New York
11229, is the transfer agent and registrar for the Common Stock.
27
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
Market Price For Common Stock and Related Shareholder Matters
The Common Stock has traded on the OTC Electronic Bulletin Board under the
symbol "VEMP" since August 20, 1999 and, since September 25, 1999, under the
symbol "WSST." The following table sets forth, for the periods indicated, the
high and low closing bid prices for the Common Stock.
1999 High Low
- ---- -------- --------
Third Quarter since August 20 $ 7.50 $ 4.00
Fourth Quarter $ 6.187 $ 2.437
2000
- ----
First Quarter $26.375 $ 6.625
Second Quarter through April 10 $26.375 $ 10.50
- --------------
The foregoing information reflects inter-dealer prices, without mark-up,
mark-down or commission, and may not represent actual transactions. On April 10,
2000, the closing bid price for the Common Stock was $11.00 per share.
Penny Stock Rules
Unless and until the Common Stock is quoted on the Nasdaq system or on a
national securities exchange and if and so long as the Common Stock trades below
$5.00 per share, the Common Stock would come within the definition of "penny
stock" as defined in the Exchange Act and be covered by Rule 15g-9 of the
Exchange Act. That rule imposes additional sales practices requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse). For
transactions covered by Rule 15g-9, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
agreement to the transaction prior to sale. Consequently, the applicability of
Rule 15g-9 may effect the ability or willingness of broker-dealers to sell the
Company's securities.
Rule 144 Resales
As of the date of the Registration Statement the Company has 17,594,103
shares of Common Stock issued and outstanding, of which approximately 5,364,778
shares are unrestricted and may be freely traded in the securities markets. The
remaining 12,229,325 shares of Common Stock, including 9,686,103 shares owned by
affiliates, are "restricted" shares within the meaning of Rule 144 under the
Securities Act. In general, Rule 144, as currently in effect, provides that a
person who acquired securities in a private placement transaction and has
beneficially owned those securities, fully paid, for a period of at least one
year may, under certain conditions, sell every three months, in brokerage
transactions, a number of shares that does not exceed one percent (1%) of the
issuer's outstanding common stock. For issuers whose shares are listed on a
stock exchange or NASDAQ, a shareholder may alternatively sell a number of
shares that does not exceed the average weekly trading volume during the four
calendar weeks prior to his or her sale.
However, if a person has beneficially owned securities for a period of at
least two years and has not been an affiliate (control person) of the issuer for
the preceding three-month period, the person may request that all restrictive
legends affecting the securities be removed, and there is no limit on the number
of shares that the non-affiliate may then sell. The sale of a substantial number
of shares of the Company under Rule 144 or under any other exemption from the
Act could have a depressive effect upon the price of the Common Stock.
Related Stockholder Matters
The Company has not agreed to register any shares of Common Stock under the
Act for sale by security holders except that the Company (i) has granted demand
and piggy-back registration rights to Charles V. Payne and his assigns with
respect to 9,455,898 shares of Common Stock, (ii) has granted piggy-back
registration rights to Bamby Investments Limited, HK Partners LLC and Gerald H.
Turner and their respective assigns with respect to an
28
<PAGE>
aggregate of 600,000 shares of Common Stock and (iii) has granted piggy-back
registration rights to Continental Capital & Equity Corporation and its assigns
with respect to 30,000 shares of Common Stock as well as 100,000 shares of
Common Stock underlying certain options granted to it.
The Company is not, and has not proposed to, publicly offer any shares of
Common Stock.
Number of Shareholders
As of February 4, 2000, there were approximately 66 holders of record of
Common Stock, and the number of beneficial owners was approximately 300.
Dividend Information
The Company has never paid a cash dividend on its Common Stock nor does the
Company anticipate paying cash dividends on its Common Stock in the near future.
It is the present policy of the Company not to pay cash dividends on the Common
Stock but to retain earnings, if any, to fund growth and expansion. Under Nevada
law, a company is prohibited from paying dividends if the company, as a result
of paying such dividends, would not be able to pay its debts as they come due,
or if the company's total liabilities and preferences to preferred shareholders
exceed total assets. Any payment of cash dividends on the Common Stock in the
future will be dependent upon the Company's financial condition, results of
operations, current and anticipated cash requirements, plans for expansion, as
well as other factors the Board of Directors deems relevant.
ITEM 2. LEGAL PROCEEDINGS
As of the date hereof, the Company is not a party to any legal proceeding
and is not aware of any threatened legal proceeding.
In a complaint dated June 13, 1997, the SEC brought an action against
various persons, including Wall Street Inc. and Charles Payne, alleging
violations of the federal securities laws. SEC v. Members Services Corp., et
al., No. 97 CV1146 (D.D.C.). As to Wall Street Inc. and Payne, the SEC alleged
the failure to disclose the receipt of compensation from an issuer that was the
subject of information circulated by Wall Street Inc. Without admitting or
denying the allegations in the complaint, Wall Street Inc. and Payne each
consented to the entry of a permanent injunction against violations of Section
17(b) of the Securities Act. In addition, Payne agreed to pay a civil penalty of
$25,000 and Wall Street Inc. agreed to pay a civil penalty of $10,000.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Gelfond Hochstadt Pangburn, P.C. ("Gelfond") and Lilling & Company LLP
("Lilling") were previously the principal accountants for WSSC and Wall Street
Inc., respectively. On March 20, 2000, the engagement of such firms was
terminated by the Company's board of directors.
In connection with the audit by Lilling of Wall Street Inc. for the two
fiscal years ended December 31, 1998, there were no disagreements with Lilling
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements if not resolved
to their satisfaction would have caused Lilling to make reference in connection
with their opinion to the subject matter of the disagreement. Lilling has not
issued any opinion with respect to the financial statements of WSSC or Wall
Street Inc. for the fiscal year ended December 31, 1999.
Gelfond has not issued any opinions on the WSSC financial statements, and,
therefore, there have been no adverse opinions, disclaimers of opinion,
qualifications or modifications as to audit scope or accounting principles
regarding any report of Gelfond on the WSSC financial statements. There were no
disagreements with Gelfond on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures leading to their
termination.
None of the matters described in Item 304 (B) of Regulation S-B are
applicable.
On March 21, 2000, Hays & Company was engaged to audit the financial
statements of the Company for the fiscal year ended December 31, 1999. Hays &
Company had not previously provided any services to WSSC or Wall Street Inc.
29
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
No securities that were not registered under the Securities Act have been
issued or sold by the Company within the past three years, except as described
below.
1. On June 12, 1998, in connection with the merger of VECO and VET with and
into VEM (VEI-Colorado's wholly-owned subsidiary), VEI-Colorado issued 6,000,000
shares of its Common Stock to five individuals, who were the former
member-owners of VECO and VET in exchange for their entire membership interest
in and to VECO and VET. The shares were issued to sophisticated investors in
reliance upon the exemption provided by Section 4(2) of the Securities Act.
Effective March 31, 1999, the 1998 Merger was unwound and the 6,000,000 shares
issued in connection therewith were canceled.
2. In June 1998, VEI-Colorado completed a private placement of 550,000
shares of its common stock at $1.00 per share (an aggregate purchase price of
$550,000) to four sophisticated investors in reliance upon the exemption
provided by Rule 504 of Regulation D, as promulgated by the SEC under the
Securities Act. The shares were issued to the following investors:
Number of Shares
Name of Investor Purchased Amount Invested
- -------------------------------------- ------------ ---------------
Avarn Investments Inc. 250,000 $250,000
Avatar Business Corp. 250,000 $250,000
John D. Brasher, Jr. 25,000 $ 25,000
Corporate Communications Network Inc. 25,000 $ 25,000
3. On June 4, 1999, VEI-Colorado sold and issued to Ian Rice, a
sophisticated investor, 4,000,000 shares of its common stock for an aggregate
purchase price of $20,000 ($.0025 per share purchased). The shares were issued
in reliance upon the exemption provided by Section 4(2) of the Securities Act.
On or about September 23, 1999, 7,850,000 shares of Common Stock owned by Mr.
Rice were canceled.
4. On June 21, 1999, in connection with the merger of VEI-Colorado into
WSSC (its subsidiary), which merger was effected for the sole purpose of
reincorporating VEI-Colorado in the State of Nevada, WSSC issued 14,100,000
shares of Common Stock to the shareholders of VEI-Colorado in exchange for their
aggregate 7,050,000 shares of common stock in VEI-Colorado (representing all of
the issued and outstanding shares of capital stock of VEI-Colorado). The shares
were issued in reliance upon Rule 145(a)(2) as promulgated by the SEC under the
Securities Act. The merger did not involve the transfer of any consideration by
shareholders of VEI-Colorado to WSSC; shareholders' percentage interests in WSSC
following the merger were the same as their percentage interests in VEI-Colorado
prior thereto.
5. On July 30, 1999, the Company sold an aggregate of 1,255,205 shares of
Common Stock at $0.0025 per share (an aggregate purchase price of $3,138) to ten
sophisticated individuals, eight of whom were employees of Wall Street Inc., and
two of whom subsequently became employees of the Company. The shares were issued
in reliance upon the exemption provided by Section 4(2) of the Securities Act.
6. On September 23, 1999, the Company issued to Charles V. Payne, a
sophisticated investor, 9,455,898 shares of Common Stock in exchange for Mr.
Payne's 100 shares of common stock of Wall Street Strategies, Inc. The issuance
of these shares was exempt from registration pursuant to Section 4(2) under the
Securities Act. The number of shares of Common Stock issued to Mr. Payne was
determined arbitrarily by the parties and the parties did not assign any
valuation to the shares of common stock in Wall Street Strategies, Inc.
transferred by Mr. Payne to the Company or to the shares of Common Stock issued
to Mr. Payne. However, based on the closing price of the Common Stock on
February 23, 1999, the consideration paid for Mr. Payne's shares was
$54,957,679.
7. In September 1999, the Company completed a private placement of 600,000
shares of Common Stock at $5.00 per share (an aggregate purchase price of
$3,000,000) to three accredited investors in reliance upon the exemption
provided by Rule 506 of Regulation D, as promulgated under the Securities Act.
The shares were issued to the following investors:
<TABLE>
<CAPTION>
Name of Investor Number of Shares Purchased Amount Invested
- ------------------------------ -------------------------- ---------------
<S> <C> <C>
Bamby Investments Limited 586,000 $ 2,930,000
HK Partners LLC 12,000 $ 60,000
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C>
Gerald H. Turner 2,000 $ 10,000
</TABLE>
8. On February 9, 2000, the Company issued to Continental Capital & Equity
Corporation ("CCEC"), a sophisticated investor, 30,000 shares of Common Stock,
valued in the aggregate at $420,000, in compensation for services to be rendered
by CCEC to the Company pursuant to a Market Access Program Marketing Agreement
(the "CCEC Agreement") between the parties dated January 26, 2000, and an option
to purchase 100,000 shares of Common Stock at prices ranging from $10.00 to
$16.00 per share, which option was valued, in the aggregate, at $871,000.
With respect to the issuances of securities referenced above, other than
those described in paragraphs 2 and 4, investors were furnished with information
regarding the Company and the offering and issuance, and each had the
opportunity to verify the information supplied. Additionally, the Company
obtained a representation from each investor of such investor's intent to
acquire the securities for the purpose of investment only, and not with a view
toward the subsequent distribution thereof. The securities bear appropriate
restrictive legends, and the Company issued stop transfer instruction to its
transfer agent.
9. From time to time from August 1999 through April 7, 2000, the Company
granted stock options to officers, directors and employees of, and advisors and
consultants to the Company. These grants have been made at exercise prices
ranging from $3.50 to $11.50 per share. To date, no stock options have been
exercised. Options have been issued in reliance upon the exemption provided by
Section 4(2) of the Securities Act, and the securities have been appropriately
legended.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's certificate of incorporation generally provides for
indemnification of each director, officer, employee or agent as long as such
person acted in good faith and in a manner he or she believed to be in or not
opposed to the best interest of the Company and had no reasonable cause to
believe that such conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company, the
Company has been informed that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
PART F/S
The following financial statements of the Company are included in this Part
F/S.
Independent Auditor's Reports
Consolidated Balance Sheet for the year ended December 31, 1999
Consolidated Statements of Operations for the years ended December 31,
1999 and 1998
Consolidated Statement of Stockholders' Equity from January 1, 1997 to
December 31, 1999
Consolidated Statements of Cash Flows for the years ended December 31,
1999 and 1998
Notes to Consolidated Financial Statements
31
<PAGE>
Board of Directors and Shareholders
Wall Street Strategies Corporation
New York, New York
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheet of Wall Street
Strategies Corporation and subsidiary (the "Company") as of December 31, 1999
and the related consolidated statements of operations, shareholders' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wall Street
Strategies Corporation and subsidiary as of December 31, 1999 and results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Hays & Company
April 10, 2000
New York, New York
F-1
<PAGE>
Board of Directors and Shareholders
Wall Street Strategies Corporation
New York, New York
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated statement of operations,
shareholders' equity and cash flows of Wall Street Strategies Corporation and
subsidiary (the "Company") for the year ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Wall Street Strategies Corporation and subsidiary for the year ended December
31, 1998 in conformity with generally accepted accounting principles.
/s/ Lilling & Company LLP
January 31, 2000
Great Neck, New York
F-2
<PAGE>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,506,505
Accounts receivable 70,500
Marketable securities, available for sale, at market value 58,898
Deferred commission expense 255,577
Other current assets 96,446
------------
Total current assets 2,987,926
Property and equipment, net 17,737
Deferred website development costs, net 63,584
Restricted cash deposit 272,000
Security deposits 46,023
Other assets 70,640
------------
$ 3,457,910
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilites
Accrued expenses $ 259,315
Accrued compensation 264,548
Income taxes payable 20,457
Deferred subscription income 511,154
Accrued pension expense 100,000
------------
Total current liabilities 1,155,474
------------
Commitments and contingencies (Notes 5, 6, 7, 8 and 9)
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;
17,564,103 shares issued and outstanding 17,564
Additional paid-in capital 13,081,092
Accumulated deficit (4,423,270)
Unearned compensation (6,250,458)
Accumulated other comprehensive loss (122,492)
------------
Total shareholders' equity 2,302,436
------------
$ 3,457,910
============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements. F-3
<PAGE>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
----------------------------
1999 1998
------------ ------------
Revenue
Subscription income $ 4,318,534 $ 2,226,726
Consulting income 163,120 --
Interest and dividends 7,814 2,662
Realized (loss) gain on sale of
marketable securities (14,769) 99,827
------------ ------------
4,474,699 2,329,215
------------ ------------
Costs and expenses
Salaries and commissions 7,001,997 1,614,658
Payroll taxes and employee benefits 314,251 274,832
Telephone and communications 264,321 176,987
Professional fees 234,360 36,525
Other operating expenses 224,400 98,474
Consulting fees 218,597 44,749
General and administrative 121,101 84,320
Website development costs 115,967 --
Travel and promotion 104,335 57,768
Rent and occupancy 82,759 42,068
Depreciation and amortization 7,088 10,023
------------ ------------
8,689,176 2,440,404
------------ ------------
Loss before provision (benefit)
for income taxes (4,214,477) (111,189)
Provision (benefit) for income taxes 36,588 (1,570)
------------ ------------
Net loss $ (4,251,065) $ (109,619)
============ ============
Basic and diluted net loss per share $ (0.37) $ (0.01)
============ ============
Weighted average common shares
outstanding 11,463,918 9,455,898
============ ============
The accompanying notes are an integral part of
these consolidated financial statements. F-4
<PAGE>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
Common stock Additional
---------------------- paid-in Accumulated Unearned
Shares Amount capital deficit compensation
---------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Wall Street Strategies, Inc., January 1, 1998 100 $ 100 $ 1,400 $ (61,730) $ --
Recapitalization (Note 1)
Exchange of Wall Street Strategies, Inc. shares (100) (100) (1,400) 43,652 --
Issuance of common stock to owner of
Wall Street Strategies, Inc. 9,455,898 9,456 -- (51,608) --
Marketable securities valuation adjustment -- -- -- -- --
Net loss, year ended December 31, 1998 -- -- -- (109,619) --
---------- -------- ------------ ------------ ------------
Total comprehensive loss
Balance, December 31, 1998 9,455,898 9,456 -- (179,305) --
Outstanding common stock of Wall Street
Strategies Corporation (Note 1) 6,250,000 6,250 -- 7,100 --
Issuance of common stock for cash 600,000 600 2,999,400 -- --
Issuance of common stock and options for
services 1,258,205 1,258 10,081,692 -- (7,810,086)
Amortization of stock compensation -- -- -- -- 1,559,628
Marketable securities valuation adjustment -- -- -- -- --
Net loss, year ended December 31, 1999 -- -- -- (4,251,065) --
---------- -------- ------------ ------------ ------------
Total comprehensive loss
Balance, December 31, 1999 17,564,103 $ 17,564 $ 13,081,092 $ (4,423,270) $ (6,250,458)
========== ======== ============ ============ ============
<CAPTION>
Accumulated
other Total
comprehensive shareholders' Comprehensive
loss equity loss
------------- ------------ ------------
<S> <C> <C> <C>
Wall Street Strategies, Inc., January 1, 1998 $ -- $ (60,230)
Recapitalization (Note 1)
Exchange of Wall Street Strategies, Inc. shares -- 42,152
Issuance of common stock to owner of
Wall Street Strategies, Inc. -- (42,152)
Marketable securities valuation adjustment (68,612) (68,612) $ (68,612)
Net loss, year ended December 31, 1998 -- (109,619) (109,619)
------------- ------------ ------------
Total comprehensive loss $ (178,231)
============
Balance, December 31, 1998 (68,612) (238,461)
Outstanding common stock of Wall Street
Strategies Corporation (Note 1) -- 13,350
Issuance of common stock for cash -- 3,000,000
Issuance of common stock and options for
services -- 2,272,864
Amortization of stock compensation -- 1,559,628
Marketable securities valuation adjustment (53,880) (53,880) $ (53,880)
Net loss, year ended December 31, 1999 -- (4,251,065) (4,251,065)
------------- ------------ ------------
Total comprehensive loss $ (4,304,945)
============
Balance, December 31, 1999 $ (122,492) $ 2,302,436
============= ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements. F-5
<PAGE>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities
Net loss $(4,251,065) $ (109,619)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities
Depreciation and amortization 13,504 10,023
Realized loss (gain) on sale of marketable securities 14,769 (99,827)
Stock compensation 3,829,348 --
Changes in operating assets and liabilities
Accounts receivable (57,100) (9,800)
Deferred commission expense (158,299) (43,552)
Other assets (138,852) (24,883)
Accrued expenses 190,554 44,833
Accrued compensation 264,548 --
Income taxes payable 11,057 (31,900)
Deferred subscription income 233,216 194,867
Accrued pension expense (50,000) 150,000
----------- -----------
Net cash (used in) provided by operating activities (98,320) 80,142
----------- -----------
Cash flows from investing activities
Purchase of property and equipment (19,644) (1,650)
Deferred website development costs paid (70,000) --
Cash paid for marketable securities (546,740) (124,136)
Proceeds from the sale of marketable securities 474,717 99,827
Restricted cash deposit (272,000) --
Payment made for other assets (31,300) --
----------- -----------
Net cash used in investing activities (464,967) (25,959)
----------- -----------
Cash flows from financing activities
Proceeds from issuance of common stock 3,003,145 --
Cash acquired in reverse acquistion 13,350 --
Repayment of loan from shareholder (43,388) (64,380)
----------- -----------
Net cash provided by (used in) financing activities 2,973,107 (64,380)
----------- -----------
Net increase (decrease) in cash and cash equivalents 2,409,820 (10,197)
Cash and cash equivalents, beginning of year 96,685 106,882
----------- -----------
Cash and cash equivalents, end of year $ 2,506,505 $ 96,685
=========== ===========
Supplemental disclosure of cash flow information
Income taxes paid $ 14,260 $ 30,300
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements. F-6
<PAGE>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1 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 re-capitalization 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 were placed in escrow and are subject to repurchase by the
Company over vesting periods, which range from two 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 (Note 5).
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.
F-7
<PAGE>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
2 Significant accounting policies
Principles of consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, WSSI. All significant
intercompany transactions and balances have been eliminated in
consolidation.
Concentrations and fair value of financial instruments
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash investments,
trade receivables and marketable securities. At December 31, 1999, the
Company's cash investments are held at various financial institutions,
which limits the amount of credit exposure to any one financial
institution. The Company's trade receivables represent amounts due from
a large number of customers who are disbursed among numerous industries
and locations, which limits the amount of credit risk. Concentrations
of credit risk with respect to marketable securities are limited due to
the Company's varied portfolio, which limits the amount of credit
exposure to any one particular investment. Unless otherwise disclosed,
the fair value of financial instruments approximates their recorded
values.
Cash and cash equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Marketable securities
Marketable securities, which are classified as "available for sale,"
are valued at fair market value. Unrealized gains or losses are
recorded net of income taxes as "accumulated other comprehensive loss"
in shareholders' equity, whereas realized gains and losses are
recognized in the Company's statements of operations using the
first-in, first-out method.
Property and equipment
Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the related
assets, which range from five to seven years. Expenditures for
maintenance and repairs are charged to operations at the time the
expense is incurred. Expenditures determined to represent additions are
capitalized.
Start-up and organization costs
The Company accounts for start-up costs in accordance with Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities" ("SOP
98-5"), issued by the American Institute of Certified Public
Accountants. SOP 98-5 requires the cost of start-up activities,
including organization costs, to be expensed as incurred.
F-8
<PAGE>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
2 Significant accounting policies (continued)
Website development costs
Costs incurred in the development of the core software for the
Company's website infrastructure are capitalized in accordance with
Statement of Position 98-1 "Accounting for the Costs of Software
Developed or Obtained for Internal Use" and are amortized over the
expected useful life of the developed software ranging from 1 - 3
years. Costs incurred in the development of content for the Company's
website and maintenance are expensed as incurred. During 1999, the
Company capitalized approximately $70,000 in costs associated with the
development of its website infrastructure and amortized $6,416 to
operations during the fourth quarter of 1999.
Income taxes
The Company accounts for income taxes using the liability method which
requires the determination of deferred tax assets and liabilities based
on the differences between the financial and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which
differences are expected to reverse. The net deferred tax asset is
adjusted by a valuation allowance, if, based on the weight of available
evidence, it is more likely than not that some portion or all of the
net deferred tax asset will not be realized.
The Company has net deferred tax assets arising principally from stock
compensation expenses, deferred subscription income and deferred
commission expense. The Company has fully reserved their net deferred
tax assets due to the uncertainty of their utilization.
Revenue recognition
The Company provides investment research and related information
services through subscription agreements with its customers for periods
which generally range in length from one month to one year.
Subscription income is earned ratably over the term of the agreement.
The unearned portion of such income is reflected as Deferred
subscription income in the accompanying consolidated balance sheet. The
Company also defers the accompanying commission expense related to the
deferred subscription income in the accompanying consolidated balance
sheet.
Basic and diluted earnings per common share
The Company displays earnings per share in a dual presentation of basic
and diluted earnings per share. Basic earnings per share includes no
dilution and is computed by dividing net income or loss available to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share include the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock.
The effect of the recapitalization discussed in Note 1 has been given
retroactive application in the earnings per share calculation. The
common shares issued and outstanding with respect to the pre-merger
shareholders has been included since the effective date of the merger.
The issuance of the 1,285,205 common shares sold to employees and
officers at $.0025 per share have been
F-9
<PAGE>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
2 Significant accounting policies (continued)
Basic and diluted earnings per common share (continued)
included in the earnings per share calculation as and when they are
released from escrow in accordance with the agreements discussed in
Notes 1 and 5. Outstanding common stock options have not been
considered in the computation of diluted per share amounts, since the
effect of their inclusion would be antidilutive. Accordingly, basic and
diluted earnings per share amounts are identical.
Advertising
Advertising, which is conducted principally through electronic media
and direct mail marketing, is expensed as incurred or at the time the
advertising first takes place. Advertising expense amounted to $3,535
and $6,438 for the years ended December 31, 1999 and 1998,
respectively.
Stock based compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"). The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and related
interpretations, in accounting for its plans and recognizes non-cash
compensation charges related to the intrinsic value of stock
compensation granted to employees.
Use of estimates
The preparation of consolidated 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 consolidated financial statements and the reported
amounts of revenue and expenses during the reporting periods. Actual
results could differ from those estimates.
3 Marketable securities, available for sale
Marketable securities, available for sale, consist of the following:
<TABLE>
<CAPTION>
Unrealized Market
Cost loss value
------------- ------------- --------------
<S> <C> <C> <C>
December 31, 1999
U.S. equity securities $ 181,390 $ (122,492) $ 58,898
============= ============= =============
</TABLE>
F-10
<PAGE>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
4 Property and equipment, net
Property and equipment consists of the following at December 31, 1999:
Estimated
useful life
-----------
Computer and office equipment 5 years $ 47,863
Furniture and fixtures 7 years 24,733
------------
72,596
Less accumulated depreciation (54,859)
------------
$ 17,737
5 Shareholders' equity
Common stock issued
On July 30, 1999, in contemplation of the acquisition by WSSI and the
execution of the Exchange Agreement described in (Note 1), the Company
entered into Subscription and Rights Agreements with ten individuals to
purchase 1,258,205 shares of the Company's common stock for $0.0025 per
share. These agreements, as amended and restated, provide as follows:
o Eight individuals who are employees of WSSI purchased 380,000
shares for $0.0025 per share. These shares are subject to
repurchase by the Company in declining increments over a
two-year period at $0.0025 per share if employment is
terminated for cause. The issuance of these shares has been
valued at $5.8125 per share, the closing market price of the
stock on September 23, 1999 as listed on the OTC Electronic
Bulletin Board. The issuance gave rise to Unearned
compensation in the amount of $2,207,800 at September 23, 1999
and is reflected in the accompanying consolidated statement of
shareholders' equity. The compensation will be earned and
charged to expense ratably over the two-year escrow period and
$297,146 has been expensed through December 31, 1999 and is
included in the accompanying consolidated statements of
operations.
o The Company's Executive Vice President (who is also a director
of the Company) purchased 526,923 shares for $0.0025 per
share. Simultaneously with this transaction, the executive
entered into a two-year employment agreement with the Company,
which commenced on September 23, 1999, the date of the closing
of the Company's acquisition. The executive granted to the
Company the right to repurchase these shares, in declining
increments, during the two-year period commencing September
23, 1999 if the executive's employment with the Company is
terminated for cause. The repurchase right is at the same
purchase price of $0.0025 per share. The issuance of these
shares has been valued at $5.8125 per share, the closing
market price of the stock on September 23, 1999 as listed on
the OTC Electronic Bulletin Board. The issuance gave rise to
Unearned compensation in the amount of $3,061,423 at September
23, 1999 and is reflected in the accompanying consolidated
statement of shareholders' equity. One third (175,641) of the
shares vested upon the closing of the Merger transaction on
September 23, 1999 and accordingly $1,020,474 of
F-11
<PAGE>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
5 Shareholders' equity (continued)
Common stock issued (continued)
compensation was earned and charged to expense in the
accompanying consolidated statement of operations on that
date. The balance of the Unearned compensation ($2,020,948)
will be earned and charged to expense ratably over the two
year escrow period and $274,690 has been expensed through
December 31, 1999 and is included in the accompanying
consolidated statement of operations.
In accordance with the terms of the executive's employment
agreement (Note 8), the Company granted the executive an
option under its 1996 Compensatory Stock Option Plan to
acquire 351,282 shares of the Company's common stock at an
exercise price of $3.50 per share. The options begin to vest
after six months and then vest in six equal quarterly
increments over an eighteen month period provided the
executive's employment is not terminated. The intrinsic value
of these options was measured using the share price of $5.8125
on September 23, 1999 and accounted for as compensatory
options in accordance with APB Opinion No. 25 and gave rise to
Unearned compensation in the amount of $812,340 at September
23, 1999 and is reflected in the accompanying consolidated
statement of shareholders' equity. The compensation will be
earned and charged to expense ratably over the two-year
vesting period of the options and $109,332 has been expensed
through December 31, 1999 and is included in the accompanying
consolidated statements of operations.
o The Company's Chief Strategy Officer purchased 351,282 shares
for $0.0025 per share. Simultaneously with this transaction,
the executive entered into a three-year employment agreement
with the Company, which commenced on October 1, 1999. The
executive granted to the Company the right to repurchase up to
263,461 of these shares, in declining increments, during the
period commencing October 1, 1999 through April 7, 2000 if the
executive's employment with the Company is terminated for
cause. The repurchase right is at the same purchase price of
$0.0025 per share. The issuance of these shares has been
valued at $5.8125 per share, the closing market price of the
stock on September 23, 1999 as listed on the OTC Electronic
Bulletin Board. The issuance gave rise to Unearned
compensation in the amount of $2,040,948 at September 23, 1999
and is reflected in the accompanying consolidated statement of
shareholders' equity. One fourth (87,821) of the shares vested
upon the closing of the Merger transaction on September 23,
1999 and accordingly $510,460 of compensation was earned and
charged to expense in the accompanying consolidated statement
of operations on that date. The balance of the Unearned
compensation ($1,530,489) will be earned and charged to
expense ratably through April 7, 2000, the escrow period, and
$769,129 has been expensed through December 31, 1999 and is
included in the accompanying consolidated statement of
operations.
In accordance with the terms of the executive's employment
agreement (Note 8), the Company granted the executive an
option under its 1996 Compensatory Stock Option Plan to
acquire 526,923 shares of the Company's common stock at an
exercise price of $3.50 per share. The options vest in nine
consecutive equal quarterly annual installments commencing on
the nine month anniversary of the agreement over a twenty
seven month period provided
F-12
<PAGE>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
5 Shareholders' equity (continued)
Common stock issued (continued)
the executive's employment is not terminated. The intrinsic
value of these options was measured using the share price of
$5.8125 on September 23, 1999 and accounted for as
compensatory options in accordance with APB Opinion No.25 and
gave rise to Unearned compensation in the amount of $1,218,509
at September 23, 1999 and is reflected in the accompanying
consolidated statement of shareholders' equity. The
compensation will be earned and charged to expense ratably
over the three-year vesting period of the options and $109,332
has been expensed through December 31, 1999 and is included in
the accompanying consolidated statement of operations.
o In contemplation of the acquisition of WSSI (Note 1), on
September 23, 1999 the Company completed the sale of 600,000
shares of common stock for $5.00 per share to accredited
investors in accordance with the terms of a private placement
offering.
6 Stock option plans
The Company has adopted two separate stock option plans that provide
for the grant of options and other forms of incentive awards to
selected officers, employees, directors and consultants of the Company.
The purpose of these plans is to promote the growth of the Company by
enabling the Company to attract and retain the best available persons
for positions of substantial responsibility and to provide certain key
employees with additional incentives and to contribute to the success
of the Company. The Company's Board of Directors administers both
plans.
1996 Compensatory Stock Option Plan
The Company's 1996 Compensatory Stock Option Plan ("1996 Plan") was
adopted by the Board of Directors and approved by the Company's
stockholders in October 1996. Options to purchase a maximum of
2,000,000 shares of common stock may be granted under the 1996 Plan.
The 1996 Plan has a term of ten years and no options may be granted
after expiration. On December 7, 1999, the Company's Board of Directors
determined that, after the grants discussed below, no further awards
will be made under the 1996 Plan.
The 1996 Plan provides for the grant of options that are not intended
to qualify as incentive stock options within the meaning of Section 422
of the Internal Revenue Code, as amended. Under the terms of the 1996
Plan, the exercise price of the options must be at least 85% of the
fair market value of the Company's common stock on the date of grant.
Options granted shall expire no later than ten years after the date of
grant.
During 1999, the Company granted to officers, directors, key employees
and advisors, options to purchase 1,153,205 shares of common stock
under the 1996 Plan. The options were issued as follows: (i) 878,205
options were granted to two of the Company's executive officers as
discussed in (Note 5) (ii) 200,000 options were granted to two of the
Company's directors which are exercisable at $3.50 per share and vested
immediately, and (iii) 75,000 options were granted to the Company's
Advisory Board members which are exercisable at $3.50 per share and
vested immediately.
F-13
<PAGE>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
6 Stock option plans (continued)
1996 Compensatory Stock Option Plan (continued)
The intrinsic value of the 200,000 options granted to the directors was
measured using the share price of $5.8125 per share on September 23,
1999 and accounted for as compensatory options in accordance with APB
Opinion No.25 and gave rise to earned compensation in the amount of
$462,500 on that date. The 75,000 options granted to the Company's
Advisory Board members (non-director advisors) were valued in
accordance with SFAS 123 on September 23, 1999 and gave rise to earned
compensation in the amount of $276,285 on that date.
1999 Incentive Stock Program
The Company's 1999 Incentive Stock Program ("1999 Program") was adopted
by the Board of Directors and approved by the stockholders during 1999.
The 1999 Program permits the granting of stock options, including
incentive stock options, stock appreciation rights with or without
stock options and restricted stock grants.
The actual number of shares that may be issued or transferred under the
1999 Program is 5,000,000 subject to certain adjustments. The maximum
number of shares for which options and stock appreciation rights may be
granted under the 1999 Program to any person during any calendar year
is 500,000.
During 1999, the Company granted to its officers and key employees
options to purchase 945,000 shares of common stock under the 1999
Program. Each of these grants are exercisable at $4.00 per share, the
fair value at the date of grant, and vest over two years commencing on
the date of issuance.
If the Company had elected to recognize compensation expense based upon
the fair value at the date of grant for awards under these plans,
consistent with the methodology prescribed by SFAS 123, the effect on
the Company's net loss would be as follows:
Year ended
December 31, Net loss
1999 per share
--------------- -------------
Net loss
As reported $ (4,251,065) (0.37)
Pro forma $ (5,140,437) (0.45)
The fair value of Company common stock options granted to employees
during the year ended December 31, 1999 approximated $8,331,000 and was
estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions: (1) 90% expected volatility, (2)
risk-free interest rates ranging from 5.79% to 6.19% and (3) expected
lives of five years.
F-14
<PAGE>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
7 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. During the
years ended December 31, 1999 and 1998, management elected to make
contributions to the plan in the amount of $100,000 and $150,000,
respectively.
8 Commitments and contingencies
Leases
On November 23, 1999, the Company entered into a ten-year lease
agreement for new office space located in New York City. The lease
provides for annual payments commencing on May 1, 2000 in the amount of
$253,680 per annum for the first three years; $270,592 per annum for
the next three years and $287,504 per annum for the remainder of the
lease term. In accordance with the terms of the lease agreement, the
Company issued a letter of credit to the lessor in the amount of
$272,000 for which the Company is required to maintain a cash deposit
as collateral in a separate interest bearing account.
Approximate future minimum required lease payments, not including
operating escalations or other charges are as follows:
Year ending December 31,
2000 $ 254,000
2001 254,000
2002 254,000
2003 271,000
2004 271,000
Thereafter 1,422,000
------------
$ 2,726,000
In April 2000, the Company negotiated a settlement for the early
termination of its existing lease. The agreement calls for a settlement
payment of $17,500 and the cancellation of the exiting lease and
surrender of the premises no later than June 30, 2000. Prior to the
surrender date, the lease remains in full force and effect. The
remaining commitment under this lease is approximately $46,000 through
June 30, 2000, exclusive of the $17,500 settlement payment.
Employment agreements
In conjunction with, and in contemplation of the Exchange Agreement
discussed in (Note 1), 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 year ended December 31, 1999 the Company recorded a bonus
provision of $250,000 in accordance with the terms of this
agreement.
F-15
<PAGE>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
8 Commitments and contingencies (continued)
Employment agreements (continued)
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. The agreement also provides for the
issuance of options under the 1996 Plan to acquire 526,923
shares of the Company's common stock (Note 5). 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 agreement also provides for the
issuance of options under the 1996 Plan to acquire 351,282
shares of the Company's common stock (Note 5). This agreement
may be terminated by mutual consent or by the Company for
cause.
Consulting agreements
o On September 23, 1999, the Company entered into a two year
consulting agreement with Sigma Limited, S.A., a Swiss company
where the Company's Chairman is a consultant. The agreement
provides for an annual fee of $50,000 plus a non-accountable
expense allowance of $35,000 per annum.
o In October 1999, the Company entered into an agreement with
International Integrated Solutions for web and software
development and integration of the Company's website. The
agreement is for a term of six months through April 2000 and
the fee for the services is $350,000. Under the agreement,
$100,000 was paid in November 1999 and the balance is payable
in monthly installments of $50,000 each through April 2000. At
December 31, 1999, $28,333 is accrued under this agreement and
is included in Accrued expenses in the accompanying
consolidated balance sheet.
o In December 1999, the Company retained a securities brokerage
and investment banking firm to assist the Company with respect
to matters relating to the financing of the Company's
business, recapitalizations, mergers and acquisitions. The
Company paid the firm an advance of $50,000 (included in Other
assets in the accompanying consolidated balance sheet) against
future fees and expense allowances that are non-refundable
except under certain circumstances.
Regulatory matters
On August 11, 1999, the Company and its President reached an agreement
with the Securities and Exchange Commission in connection with certain
disclosures regarding the Company's relationship with a company being
recommended for purchase. The settlement calls for a consent injunction
prohibiting violations of Section 17(b) and the payment of civil
penalties of $10,000 and $25,000, respectively. The Company's costs
associated with this matter have been included in the accompanying
consolidated statements of operations.
F-16
<PAGE>
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
9 Subsequent events
o On January 26, 2000, the Company entered into a market access
program marketing agreement with Continental Capital and
Equity Corporation ("CCEC") whereby CCEC will provide
marketing and financial public relations services to the
Company. The term of the agreement is for twelve months. As
compensation under the agreement, CCEC received 30,000
restricted shares of the Company's common stock and options to
purchase 100,000 shares of the Company's stock at prices
ranging from $10 to $16 per share.
o On March 20, 2000 and April 7, 2000, the Company entered into
two employment agreements with two new executives. The terms
of the agreements are for three years and the executives will
each receive an annual base compensation of $175,000, plus
incentive compensation bonuses up to 50% of their annual base
per year predicated upon the achievement of specified
performance goals. In addition, the executives received
options under the Company's 1999 Incentive Program to acquire
200,000 and 500,000 shares, respectively, of the Company's
common stock at an exercise price of $7.50 per share, which
vest over a period of time in accordance with the agreements.
F-17
<PAGE>
PART III
See the attached Exhibit Index.
32
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
May 3, 2000
WALL STREET STRATEGIES CORPORATION
By:/s/ Charles V. Payne
------------------------------
Charles V. Payne, President
33
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER
<S> <C>
2.1 Agreement and Plan of Share Exchange dated July 30, 1999, by and between Charles V. Payne and
Registrant*
3.1 Certificate of Incorporation*
3.2 Articles and Certificate of Merger*
3.3 Certificate of Amendment of Certificate of Incorporation*
3.4 By-laws as currently in effect*
4.1 Specimen Common Stock Certificate*
4.2 1996 Compensatory Stock Option Plan*
4.3 1999 Incentive Program*
4.4 Amendment to Registrant's 1999 Incentive Program
10.1 Agreement of Lease dated as of July 1, 1998, between 130 William LLC and Wall Street Strategies, Inc.
10.2 Agreement of Lease dated as of November 23, 1999, between Praedium II Broadstone LLC and Wall Street
Strategies, Inc.*
10.3 Registration Rights Agreement dated as of September 23, 1999, by and among the Registrant and Charles
Payne*
10.4 Voting Agreement dated September 23, 1999, by and among Charles Payne, Registrant, Sigma Limited,
S.A., Ian Rice and Corporate Communications Network, Inc.*
10.5 Employment Agreement dated September 23, 1999, among Wall Street Strategies, Inc., Registrant and
Charles Payne*
10.6 Employment Agreement dated July 30, 1999, by and between Registrant and David McCallen*
10.7 Employment Agreement dated July 30, 1999, by and between Registrant and Shawn Baldwin*
10.8 Amended and Restated Subscription and Rights Agreement dated July 30, 1999, by and between the
Registrant and David McCallen*
10.9 Amended and Restated Subscription and Rights Agreement dated July 30, 1999, by and between the
Registrant and Shawn Baldwin*
10.10 Form of Subscription and Rights Agreement by and between Registrant and Subscriber*
10.11 Amended and Restated Escrow Agreement dated July 30, 1999, by and among Registrant, David McCallen
and Escrow Agent*
10.12 Amended and Restated Escrow Agreement dated July 30, 1999, by and among Registrant, Shawn Baldwin and
Escrow Agent*
10.13 Form of Escrow Agreement by and among Registrant, the Subscribers for shares of Registrant's common
stock and Escrow Agent*
10.14 Stock Option Agreement dated July 30, 1999, by and between the Registrant and David McCallen*
10.15 Form of Advisor Agreement between the Registrant and each member of the Advisory Board*
10.16 Form of Stock Option Agreement (Advisor)*
10.17 Consulting Agreement dated as of September 23, 1999, by and between Registrant and Sigma Limited,
S.A.*
10.18 Market Access Program Marketing Agreement dated January 26, 2000, by and between Continental Capital
& Equity Corporation and the Registrant*
10.19 Engagement Letter dated December 23, 1999, by and between Registrant and Joseph Charles & Assoc.,
Inc.**
10.20 Employment Agreement dated April 7, 2000, by and between Registrant and Daliah Amar**
10.21 Employment Agreement dated March 20, 2000, by and between Registrant and Joshua P. Eggert**
10.22 Stock Option Agreement dated July 30, 1999, by and between Registrant and Shawn Baldwin**
10.23 Form of Stock Option Agreement (Employee)**
10.24 Form of Stock Option Agreement (Director)**
10.25 Letter of Intent dated October 19, 1999, by and between the Registrant and Zacks Investment Research**
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.26 Letter dated November 4, 1999, by and between Registrant and Data Broadcasting Corporation**
10.27 Memorandum of Understanding dated November 22, 1999, by and between Registrant and International
Integrated Solutions, Ltd.**
10.28 Letter Agreement dated April 11, 2000, by and between Registrant and 130 William LLC**
16.1 Letter from Lilling & Company LLP to Securities Exchange Commission**
16.2 Letter from Gelfond Hochstadt Pangburn, P.C. to Securities Exchange Commission
27.1 Financial Data Schedule**
</TABLE>
* Previously filed with the Securities Exchange Commission as an Exhibit to the
Registration Statement on Form 10-SB, File No. 0-29499.
** Previously filed with the Securities Exchange Commission as an Exhibit to
Amendment No.1 to the Registration Statement on Form 10-SB, File No. 0-29499.
<PAGE>
May 1, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Wall Street Strategies Corporation
SEC File No.: 000-29499
Ladies and Gentlemen:
Relative to the change in auditors, we have read the statements made by Wall
Street Strategies Corporation (the "Company"). We understand that these
statements are being filed with the Commission pursuant to Item 3 of the
Company's Form 10-SB/A-2 report. We agree with the statements made in the first
and third paragraphs of Item 3 of Form 10-SB/A-2 concerning our firm. We have no
basis to agree or disagree with any other statements contained in such Form
10-SB/A-2.
Sincerely,
/s/ GELFOND HOCHSTADT PANGBURN, P.C.
