<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30,
2000
[ ] Transition Report Pursuant to Section 13 OR 15(d) of the Exchange Act
For the transition period from ________ to _________
COMMISSION FILE NUMBER 000-29499
WALL STREET STRATEGIES CORPORATION
(Exact name of Small Business Issuer as Specified in its Charter)
<TABLE>
<S> <C>
NEVADA 13-4100704
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
</TABLE>
80 Broad Street, New York, NY 10004
(Address of Principal Executive Offices)
(212) 514-9500
Issuer's Telephone Number. Including Area Code
130 William Street, Suite 401, New York, NY 10038
(Former Address)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: As of November 18, 2000, the
registrant had 18,109,680 shares of Common Stock outstanding.
Transmittal Small Business Disclosure Format (check one)
Yes No x
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WALL STREET STRATEGIES CORPORATION AND SUBSIDIARY
FORM 10-QSB - September 30, 2000
<TABLE>
<CAPTION>
Index Page
Number
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Balance Sheets at September 30, 2000 3
and December 31, 1999 (unaudited for September 30, 2000 period)
Condensed Consolidated Statements of Operations for the 4
three months ended September 30, 2000 and September 30,1999
and the nine months ended September 30, 2000 and September 30, 1999
(unaudited)
Condensed Consolidated Statement of Shareholders' Equity 5
for the nine months ended September 30, 2000 (unaudited)
Condensed Consolidated Statements of Cash Flows for the 6
nine months ended September 30, 2000 and September 30, 1999
(unaudited)
Notes to Condensed Consolidated Financial Statements 7
(unaudited)
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
PART II OTHER INFORMATION
Item 1 Legal Proceedings 18
Item 2 Changes in Securities and Use of Proceeds 18
Item 3 Defaults Upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8 - K 20
</TABLE>
2
<PAGE> 3
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
FORM 10-QSB-SEPTEMBER 30, 2000
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 682,738 $ 2,506,505
Accounts receivable 33,878 70,500
Marketable securities, available for sale, at market value 37,375 58,898
Deferred commission expense 338,608 255,577
Other current assets 97,012 96,446
------------ ------------
Total current assets 1,189,611 2,987,926
Property and equipment, net 1,588,581 17,737
Deferred website development costs, net 222,263 63,584
Restricted cash deposit 272,000 272,000
Security deposits 2,000 46,023
Other assets _ 70,640
------------ ------------
$ 3,274,455 $ 3,457,910
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,407,894 $ 259,315
Accrued compensation 184,297 264,548
Income taxes payable 26,688 20,457
Deferred subscription income 888,713 511,154
Accrued pension expense - 100,000
Current portion of capitalized lease obligations 172,283 -
Shareholder loan payable 50,000 -
------------ ------------
Total current liabilities 2,729,875 1,155,474
------------ ------------
Capitalized lease obligations, net of current portion 345,785 -
------------ ------------
COMMITMENTS AND CONTINGENCIES
MANDATORILY REDEEMABLE PREFERRED SHARES 1,009,778 -
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $.001 par value; 50,000,000 shares authorized;
17,609,680, and 17,564,103 shares issued and outstanding 17,610 17,564
Additional paid-in capital 15,112,254 13,081,092
Accumulated deficit (12,150,391) (4,423,270)
Unearned compensation (3,674,368) (6,250,458)
Accumulated other comprehensive loss (116,088) (122,492)
------------ ------------
Total shareholders' equity (810,983) 2,302,436
------------ ------------
$ 3,274,455 $ 3,457,910
============ ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
FORM 10-QSB-SEPTEMBER 30, 2000
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
------------ ------------ ------------ ------------
REVENUE
Subscription income, net $ 1,247,042 $ 1,075,469 $ 3,881,353 $ 2,817,546
Consulting income - - - 133,120
Interest and dividends 8,426 1,602 36,681 3,919
Realized gain (loss) on sale of
marketable securities - (59,131) 36,118 (31,794)
------------ ------------ ------------ ------------
1,255,468 1,017,940 3,954,152 2,922,791
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Salaries and commissions 2,607,583 2,973,505 7,422,782 4,043,479
Other operating expenses 568,182 149,904 1,505,073 534,401
Consulting fees 102,253 - 702,827 42,705
Payroll taxes and employee benefits 107,421 33,167 388,125 145,315
Professional fees 362,766 - 845,009 -
Website development costs 65,431 - 316,028 -
Depreciation and amortization 106,497 4,981 241,310 9,980
Rent and occupancy 76,406 22,305 184,541 59,395
------------ ------------ ------------ ------------
3,996,539 3,183,862 11,605,695 4,835,275
------------ ------------ ------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (2,741,071) (2,165,922) (7,651,543) (1,912,484)
Provision for income taxes 8,345 131,570 65,800 207,600
------------ ------------ ------------ ------------
NET LOSS $ (2,749,416) $ (2,297,492) $ (7,717,343) $ (2,120,084)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.16) $ (0.24) $ (0.45) $ (0.22)
============ ============ ============ ============
Weighted average common shares
outstanding 17,370,063 9,455,899 17,182,627 9,639,387
============ ============ ============ ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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WALL STREET STRATEGIES CORPORATION AND SUBSIDIARY
FORM 10-QSB-SEPTEMBER 30, 2000
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
---------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 2000 17,564,103 17,564 13,081,092 (4,423,270)
Issuance of common stock and options for services 117,500 118 3,980,312
Amortization of stock compensation - - - -
Forefeited shares of common stock (71,923) (72) (417,801) -
Forefeited stock options - - (1,531,349) -
Marketable securities valuation adjustment - - - -
Preferred stock dividend - - - (9,778)
Net loss,nine months ended September 30, 2000 - - - (7,717,343)
---------- ------------ ------------ -------------
Total comprehensive loss
BALANCE, SEPTEMBER 30, 2000 (UNAUDITED) 17,609,680 $ 17,610 $ 15,112,254 $ (12,150,391)
---------- ------------ ------------ -------------
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
UNEARNED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
COMPENSATION LOSS EQUITY LOSS
------------- ------------- ------------ --------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 2000 (6,250,458) (122,492) 2,302,436
Issuance of common stock and options for services (3,980,430) - -
Amortization of stock compensation 4,732,630 - 4,732,630
Forefeited shares of common stock 417,873 - -
Forefeited stock options 1,406,017 - (125,332)
Marketable securities valuation adjustment - 6,404 6,404 $ 6,404
Preferred stock dividend - - (9,778)
Net loss,nine months ended September 30, 2000 - - (7,717,343) (7,717,343)
------------- ------------- ------------ ------------
Total comprehensive loss $ (7,710,939)
------------
BALANCE, SEPTEMBER 30, 2000 (UNAUDITED) $ (3,674,368) $ (116,088) $ (810,983)
-------------- -------------- ------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 6
WALL STREET STRATEGIES CORPORATION
AND SUBSIDIARY
FORM 10-QSB - SEPTEMBER 30, 2000
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
2000 1999
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS $(7,717,343) $(2,120,084)
ADJUSTMENTS TO RECONCILE NET (LOSS) INCOME TO NET
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization 241,310 9,980
Realized (gain) loss on sale of marketable securities (36,118) (31,794)
Stock compensation 4,607,298 2,380,424
Deferred rent 2,535 -
CHANGES IN OPERATING ASSETS AND LIABILITIES
Accounts receivable 36,622 13,400
Deferred commission expense (83,031) 15,124
Security deposits 44,023 -
Other assets 70,074 (17,587)
Accounts payable and accrued expenses 679,580 165,414
Accrued compensation (80,251) -
Income taxes payable 6,231 (25,600)
Deferred subscription income 377,559 49,006
Accrued pension expense (100,000) -
----------- -----------
Net cash (used in) provided by operating activities (1,951,511) 438,283
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (751,654) (86,925)
Deferred website development costs paid (187,577) -
Proceeds from the sale of marketable securities 64,045 44,803
Cash paid for purchase of marketable securities - (76,939)
Cash received (paid) shareholder loans 50,000 (36,030)
----------- -----------
Net cash used in investing activities (825,186) (155,091)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of preferred stock 1,000,000 -
Proceeds from issuance of common stock - 3,003,145
Cash acquired in reverse acquisition - 13,350
Repayment of capitalized lease obligations (47,070) -
----------- -----------
Net cash provided by financing activities 952,930 3,016,495
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,823,767) 3,299,687
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,506,505 96,685
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 682,738 $ 3,396,372
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 9,048 $ -
=========== ===========
Income taxes paid $ 51,641 $ 8,594
=========== ===========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE> 7
WALL STREET STRATEGIES CORPORATION AND SUBSIDIARY
FORM 10-QSB
For the Quarter Ended September 30, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1 Basis of presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles applicable to interim financial statements.
Accordingly, they do not include all of the information and notes
required for a complete set of financial statements. In the opinion
of management, all adjustments and reclassifications considered
necessary for a fair and comparable presentation have been included
and are of a normal recurring nature. Operating results for the three
months and nine months ended September 30, 2000, are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2000 or future periods. These financial statements
should be read in conjunction with the December 31, 1999 financial
statements and notes thereto included in the Company's Form 10-KSB/A
filed with the Securities and Exchange Commission. The accounting
policies used in the preparation of these condensed consolidated
financial statements are consistent with those described in the
December 31, 1999 consolidated financial statements.
2 The Company
Organization
Wall Street Strategies Corporation (the "Company"), formerly Vacation
Emporium Corporation, was originally formed as a Nevada corporation
on April 2, 1999, and is the surviving entity in a merger with its
then corporate parent, The Vacation Emporium International, Inc., a
Colorado corporation formed under the name Rising Sun Capital Ltd. on
May 12, 1988.
Reverse acquisition
Effective September 23, 1999, the Company acquired all of the
outstanding common stock of Wall Street Strategies, Inc. ("WSSI"), a
Delaware corporation, pursuant to an Agreement and Plan of Share
Exchange (the "Exchange Agreement") dated July 30, 1999.
Under the terms of the Exchange Agreement, the Company issued to the
sole shareholder of WSSI, 9,455,898 shares of the Company's common
stock in exchange for all of the issued and outstanding common stock
of WSSI. This issuance represented approximately 53.84% of the
post-merger issued and outstanding common shares of the Company. For
accounting purposes, this transaction has been treated as an
acquisition of the Company by WSSI and as a recapitalization of WSSI.
The acquisition of the Company by WSSI has been recorded based on the
fair value of the Company's net tangible assets, which consisted of
cash in the amount of $13,350. The Company, prior to the acquisition,
was an inactive shell company. The historical financial statements
prior to September 23, 1999 are those of WSSI. Since this transaction
is in substance a recapitalization of WSSI and not a business
combination, pro forma information is not presented. All costs
associated with this transaction have been expensed.
In connection with, and in contemplation of this transaction, on July
30, 1999, the Company sold 1,258,205 shares of common stock for
$.0025 per share to certain key employees of WSSI, and to two other
individuals who entered into employment agreements with the Company.
The two
7
<PAGE> 8
The Company (CONTINUED)
other individuals employment contracts were terminated in September,
2000, and are explained more fully in Note 6.
The remaining key employee shares are in escrow subject to repurchase
by the Company over vesting periods, which end September 30, 2001, at
the same purchase price of $.0025 if the individuals' employment is
terminated other than by reason of death or disability. As of September
30, 2000, an aggregate of 186,356 shares remain in escrow.
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.
Manditorily Redeemable Preferred Stock
On August 18, 2000 the Company sold to an unrelated, accredited
investor, pursuant to Regulation S, 10 shares of the Company's Series
A Convertible Preferred Stock and a warrant exercisable over a five
year period to purchase 80,000 shares of the Company's common stock
at an exercise price of $3.00 per share for an aggregate
consideration of $1,000,000, realizing net proceeds of $995,000 after
payment of certain expenses of such investor (but before expenses
related to the preparation of the Registration Statement, as defined
below). Each share of Series A Convertible Preferred Stock has a
stated value of $100,000, is entitled to receive a dividend equal to
8% of the stated value on a cumulative basis payable in cash or
shares of the Company's common stock at the option of the purchaser,
is convertible into shares of the Company's common stock based on the
lower of (a) $2.25 and (b) 80% of the average of the three lowest
closing bid prices in the 20 trading days immediately preceding the
conversion date, and, to the extent not converted, must be redeemed
three years from the date of issuance at the Company's option in cash
or in shares of the Company's common stock. In connection with this
transaction, on October 16, 2000, the Company filed a registration
statement (the "Registration Statement") with the Securities and
Exchange Commission relating to the resale of the shares of common
stock issuable upon conversion of the Series A Preferred Stock and
upon exercise of the warrant. Commencing with the effective date of
the Registration Statement, the Company has the right to redeem the
shares of Series A Convertible Preferred Stock then outstanding upon
10 days notice and payment to the purchaser of an amount equal to
125% of the stated value.
In connection with the sale of the Series A Convertible Preferred
Stock, the Company issued to the placement agent 100,000 shares of
the Company's common stock and a warrant exercisable over a five year
period to purchase 150,000 shares of the Company's common stock at
$3.00 per share. The shares issued to the placement agent and the
shares issuable upon exercise of the warrant issued to the placement
agent are also included in the Registration Statement.
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, wireless devices
and traditional mail.
Going concern
The accompanying condensed consolidated financial statements have
been prepared assuming the Company will continue as a going concern.
The Company has incurred significant losses from operations and has
generated insufficient operating revenue to fund its expenses. In
addition, at September 30, 2000 the Company had a working capital
deficiency of approximately $1,540,000. These factors (among others)
raise substantial doubt about the Company's ability to
8
<PAGE> 9
2 The Company (CONTINUED)
continue as a going concern. The Company believes that its cash on
hand and the cash generated by its operations will be sufficient to
fund operations only through the end of 2000. The ability of the
Company to continue its operations beyond such date is contingent
upon its obtaining additional debt and/or equity capital prior
thereto.
On October 12, 2000, the Company signed an agreement that provides
for the sale to an unaffiliated, accredited investor of 10,000,000
shares of common stock and warrants to purchase 5,000,000 shares of
common stock as follows: two year warrants to purchase 2,000,000
shares at $3.00 per share; three year warrants to purchase 2,000,000
shares at $4.00 per share; and four year warrants to purchase
1,000,000 shares at $5.00 per share.
The total purchase price for these securities is $8,750,000. The
agreement grants the investor the right to nominate a majority of the
members of the Company's board of directors. The Company has agreed
to register the securities to be purchased by the investor. Under the
terms of the agreement, as subsequently modified, the transaction
must be completed by November 24, 2000. In connection with this
transaction, the Company also agreed to pay the placement agent for
the transaction, out of the proceeds from the private placement, a
fee of $1,050,000 (of which $50,000 has been paid as a non-refundable
retainer) and grant it five year warrants to purchase 4,000,000
shares of common stock at prices ranging from $1.00 to $4.00. The
Company believes that the net proceeds from this transaction
(estimated to be approximately $7,650,000), together with the cash
generated from operations, will enable it to fund its operations for
at least the next twelve months. There can be no assurance, however,
that this transaction will be completed on the agreed terms or
otherwise.
The Company is also having discussions with several other investment
banking firms and prospective investors regarding potential
financings. There can be no assurance, however, that any such parties
or others will provide financing to the Company and, even if
provided, that the Company will have sufficient funds to execute its
intended business plan or generate positive operating results. See
"Management's Discussion and Analysis of Results of Operations and
Financial Condition--Liquidity" below.
The accompanying condensed consolidated financial statements do not
include any adjustments related to the recoverability and
classification of assets or the amount and classification of
liabilities that might result should the Company be unable to
continue as a going concern.
3 Marketable securities, available for sale
Marketable securities, available for sale, consists of the following
at September 30, 2000:
<TABLE>
<CAPTION>
Unrealized Market
Cost loss value
--------------- -------------- ---------------
<S> <C> <C> <C>
U.S. equity securities $ 153,463 $ (116,088) $ 37,375
=============== =============== ===============
</TABLE>
9
<PAGE> 10
4 Property and equipment, net
Property and equipment consists of the following at September 30, 2000:
<TABLE>
<CAPTION>
Estimated useful life
---------------------------------
<S> <C> <C>
Computer equipment 3 years $ 915,828
Furniture and fixtures and Office Equip. 5 years 468,909
Media equipment 7 years 152,825
Leasehold improvements 10 years or the term of the
lease, whichever is shorter 262,247
----------------
1,799,809
Less accumulated depreciation
and amortization (211,228)
----------------
$ 1,588,581
================
</TABLE>
Computer equipment of approximately $565,000 has been recorded under
capitalized leases as of September 30, 2000. Depreciation expense on
the assets recorded under capitalized leases was approximately
$63,000 for the nine months ended September 30, 2000.
Leasehold improvements have been recorded net of approximately
$295,000 that the Landlord agreed at the inception of the lease to
reimburse the Company for improvements to the leased premises. The
remaining amount due from the landlord at September 30, 2000 is
approximately $75,000 and has been included in other current assets
in the accompanying September 30, 2000 condensed consolidated balance
sheet.
5 Retirement plans
In January 1996, WSSI adopted a Profit Sharing Plan on behalf of its
employees whereby contributions to the plan are made at the
discretion of management and no contributions are made by employees.
In January 2000, the Profit Sharing Plan was amended to add a salary
deferral feature under Section 401(k) of the Internal Revenue Code of
1986, as amended. Under such feature, an employee may elect to have
part of his or her compensation contributed on a before-tax basis to
the Plan. Such salary-deferred contributions are 100% vested at all
times. Management has not provided for any contributions to the Plan
for the nine months ended September 30, 2000.
6 Commitments and contingencies
Leases
In April 2000, the Company negotiated a settlement for the early
termination of its former lease. The agreement required a settlement
payment of $17,500 and the cancellation of the former lease and
surrender of the premises. The Company surrendered the premises on
July 15, 2000, and has been released from any future obligations
under the agreement.
In November 1999, the Company entered into a new lease agreement for
its current office space. The lease agreement is for a ten year
period with annual rents ranging from $256,680 to $287,504 over its
term. In accordance with the terms of the lease agreement, the
Company caused to be issued to the landlord a letter of credit in the
approximate amount of $272,000 for which the Company is required to
maintain with the issuing bank, as collateral therefor, a deposit in
the same amount.
10
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6 Commitments and contingencies (CONTINUED)
Leases (continued)
The Company has entered into several computer equipment leases that
have been accounted for as capitalized leases. These leases have
effective interest rates that range between 11% to 14%, are secured
by the equipment under the lease and require monthly payments through
2003.
Employment agreements
The Company has entered into employment agreements with certain of
its key employees as follows:
- On September 23, 1999, the Company entered into 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 nine months ended September 30, 2000 the Company has
recorded bonus compensation of $187,500 in accordance with the
terms of this agreement.
- On March 20, 2000, the Company's subsidiary, WSSI, entered into
a three year employment agreement with its Chief Internet
Officer, which provides for a base compensation of $175,000 and
an annual incentive bonus of up to 50% of base salary based upon
the achievement of specified performance goals. In addition, the
executive received options to acquire 200,000 shares of the
Company's common stock at an exercise price of $7.50 per share.
The options vest over a two-year period and are exercisable over
five years. The intrinsic value of these options was measured
using the share price of $17.50 on March 20, 2000 and was
accounted for as compensatory options that gave rise to unearned
compensation in the amount of $2,000,000 at March 20, 2000. The
compensation is being earned and charged to expense ratably over
the two-year vesting period of the options and $530,137 has been
charged to operations for the nine months ended September 30,
2000.
- On April 7, 2000, the Company entered into an employment
agreement with its Chief Operating Officer. The agreement has a
term of three years at an annual base salary of $175,000,
subject to annual review by the Board of Directors for possible
increase. The agreement also provides for an annual incentive
bonus of up to 50% of base salary. In addition, in accordance
with the terms of the employment agreement, on April 7, 2000,
the Company granted to the executive a stock option to purchase
500,000 shares of the Company's common stock at an exercise
price of $7.50 per share. The option is exercisable over five
years and vests with respect to 125,000 shares on December 6,
2000, with respect to an additional 125,000 shares on March 6,
2001, and with respect to the remaining shares in equal
quarterly increments of 62,500 shares each over the following
year. The intrinsic value of these options was measured by
using a share price of $10.50 on April 7, 2000 and was accounted
for as compensatory options that gave rise to unearned
compensation in the amount of $1,500,000 at April 7, 2000. The
compensation is being earned and charged to expense ratably over
the vesting period of the option. For the nine months ended
September 30, 2000, $378,224 has been charged to operations. On
October 17, 2000, the Company entered into an agreement with its
Chief Operating Officer to cancel the option to purchase 500,000
shares of common stock that had been issued to the executive on
April 7, 2000. At the same time, the Chief Operating Officer
purchased 500,000 shares of the Company's common stock at
$0.0025 per share, all of which were deposited into escrow.
These shares will be released as follows: 250,000 shares on
December 6, 2000 and 50,000 shares on each of March 6, 2001,
June 6, 2001, September 6, 2001, December 6, 2001 and March 6,
2002.
11
<PAGE> 12
6 Commitments and contingencies (CONTINUED)
Terminated Employment Agreements
The Executive Vice President and the Company agreed to terminate that
person's employment agreement, effective as of September 22, 2000.
Under the terms of the agreement, the Company agreed to make five
monthly severance payments of $10,416 each, commencing in October
2000. The Company further forgave the outstanding balance of $8,368
in connection with a loan. Also, under the terms of the termination
agreement, the subscription rights agreement that provided for the
issuance of 526,923 shares of the Company's common stock at the
inception of the employment contract was modified and amended. Of
these shares, 455,000 were deemed to have vested immediately. The
balance of 71,923 shares were forfeited. In addition, under the terms
of the agreement, an option to purchase 100,000 shares of common
stock is deemed to have vested immediately. The balance of the
original option to purchase 351,282 granted at the time of
commencement of employment is deemed to have expired. The impact on
the stockholders equity section from the amended and modified
subscription rights agreement and the options agreement have been
recorded as of September 30, 2000.
The Chief Strategy Officer and the Company agreed to terminate that
person's employment, effective as of September 30, 2000. Under the
terms of the agreement, no severance or any other compensation is
payable to the executive on account of the termination of his
employment. In addition, under the terms of the agreement, an option
to purchase 116,000 shares of common stock is deemed to have vested
immediately. The balance of the original option to purchase 526,923
is deemed to have expired. The modifications to the option agreement
have been recorded in the stockholders equity section and included in
the financial statements as of September 30, 2000.
Consulting agreements
On February 9, 2000, the Company issued to Continental Capital Equity
Corporation ("CCEC"), a sophisticated investor, 30,000 shares of
common stock as compensation for services to be rendered by CCEC to
the Company pursuant to a Market Access Program Marketing Agreement
dated January 26, 2000. The Company also issued to CCEC an option to
purchase an additional 100,000 shares of common stock at prices
ranging from $10.00 to $16.00 per share. The common stock issuance
and option grant were measured using the share price of $14.00 on
January 26, 2000, and was accounted for as unearned compensation in
the amounts of $420,000 and $870,000, respectively. On June 13, 2000,
the Company and CCEC terminated the Market Access Program Marketing
Agreement. CCEC returned 12,500 shares of common stock and the
Company terminated all options except the option to acquire 25,000
shares of common stock at $10.00 per share. As a result,
approximately $480,000 has been charged to operations for the nine
months ended September 30, 2000.
On May 20, 2000, the Company entered into a one year agreement to
retain I.W. Miller Group, Inc. ("IWMG") as financial public relations
representatives and financial consultants. The Company paid IWMG a
$50,000 retainer and agreed to pay an additional $50,000 per quarter
and 62,500 shares of the Company's common stock on August 30, 2000,
November 30, 2000, February 28, 2001 and May 31, 2001 as long as the
agreement remained in effect. On August 17, 2000, the Company
terminated the agreement in accordance with its terms and no further
compensation is payable to IWMG.
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<PAGE> 13
7 Subsequent Event
On October 17, 2000, the Company granted an option to purchase
150,000 shares of its common stock to its newly hired Chief Financial
Officer. The exercise price for the option was the fair market value
on the date of the grant, $1.875 per share. The option vests with
respect to 75,000 shares of common stock on October 17, 2001. The
balance will vest in equal quarterly increments with respect to
18,750 shares each through October 17, 2002. Any unexercised options
expire on the fifth anniversary of the grant date.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
THE FOLLOWING ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF
THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, OF THE COMPANY CONTAINED
ELSEWHERE IN THIS FORM 10-QSB.
Overview
Since its founding in 1991, the Company has engaged in the business of
providing investment research and information services for institutional and
individual investors and financial professionals. The Company has historically
delivered its products, including financial and market information, analysis,
advice and commentary, to paying subscribers through a variety of media
including phone, fax, e-mail, audio recordings, newsletter and traditional
mail. Sales of subscriptions to the Company's subscribers have predominantly
been comprised of institutional investors and financial professionals.
During 1999, the Company adopted a business strategy designed to increase the
total number of its subscribers, including significant numbers of individual
investors, and to increase and diversify its sources of revenue. To those
ends, the Company has announced a number of initiatives, including the
creation, launch and marketing of its website and the establishment of
strategic distribution relationships through which the Company will reach both
institutional and individual investors. In particular, the Company expects to
use the website to build brand awareness and attract paying subscribers for its
products.
In connection with the execution of its business strategy, the Company has
engaged various service providers including website designers and providers of
content for its website, purchased computer systems and software, and hired
additional management, sales, operational and administrative personnel. In
addition, in May 2000, the Company's subsidiary, Wall Street Strategies, Inc.,
became a registered investment adviser under the Investment Advisers Act of
1940, as amended. Such registration enables the Company to provide certain
individualized products and services to subscribers for whom registration as an
investment adviser is required.
The Company anticipates that it will continue to develop its website during 2000
and 2001, and, to the extent its resources permit, will undertake a significant
marketing and advertising program to promote its brand and products. The Company
will also pursue additional strategic relationships and, as appropriate, hire
additional personnel, including management personnel, and purchase additional
computer systems and software. In May and June, 2000, the Company signed
agreements with ConSors AG, an online brokerage firm in Europe; with Interactive
Investor International, a provider of investment advice for individuals; with
Data Broadcasting Corporation, a financial market data provider; and with
CyBerCorp, Inc., a subsidiary of the Charles Schwab Corporation that supplies
electronic trading technology and brokerage services, to provide their clients
with equity research on U.S. equities and links to the Company's website. Each
of such agreements is for an initial period of one year and thereafter for
successive periods of one year each unless terminated by the parties with the
exception of the agreement with CyBerCorp, Inc. which is for a one year period
unless extended by mutual agreement of the parties. In August 2000 the Company
entered into an agreement with Multex.com to provide Wall Street Strategies
proprietary research across various Multex.com distribution platforms. The
Citation Group a division of Merrill Lynch, entered into an agreement with the
Company in August 2000 to make available to their customers Wall Street
Strategies equity analysis and investment services delivered via fax, web,
wireless devices and e-mail. The aforementioned agreements and strategic
relationships provide for various revenue sharing arrangements between the
Company and its partners. Because such agreements were only recently
implemented, the Company has not yet realized any significant revenues therefrom
but expects to do so in future periods. The Company believes that these and
other future strategic distribution relationships will allow it to reach
additional institutional and individual investors.
As discussed below, the three months and nine months ended September 30, 1999
(the "1999 Periods") and September 30, 2000 (the "2000 Periods") were
characterized by sales increases which were offset by expenses associated with
sales commissions from subscriptions, increased personnel and, in the 2000
Periods, website design and other strategic and operational initiatives. As a
result, the Company
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<PAGE> 15
has incurred significant losses from operations. The Company expects operating
losses to continue for the foreseeable future as it implements its business
strategy. In addition, at September 30, 2000 the Company had a working capital
deficiency of approximately $1,540,000. These factors, (among others) raise
substantial doubt about the Company's ability to continue as a going concern.
The Company believes that its cash on hand and the cash generated by its
operations will be sufficient to fund operations only through the end of 2000.
The ability of the Company to operate as a going concern beyond such date is
contingent upon its obtaining additional debt and/or equity capital prior
thereto. See discussion of Liquidity and Capital Resources below.
As of September 30, 2000, the Company had approximately 3,500 active
subscribers. As of such date, the Company also had approximately 8,000
registered users of the Company's products provided free on its website. The
Company anticipates that some of such users will be converted into paying
subscribers and, in any event, the number of users is generally a factor that
advertisers take into account in determining whether to advertise on the
Company's website. Subscription revenue for the three months and nine months
ended September 30, 2000 was $1,247,042 and $3,881,353, respectively.
Subscription revenue for the three months and nine months ended September 30,
1999 was $1,075,469 and $2,817,546, respectively.
Results of Operations
Revenue for the three month and nine months ended September 30, 2000 was
approximately $1.3 million and $4.0 million, respectively. These amounts
represented increases from the three and nine months ended September 30, 1999
of 21% and 35%, respectively. Revenue for the three month and nine month
period ended September 30, 1999 was approximately $1.0 million and $2.9
million, respectively. Income from sales of subscriptions to the Company's
products represented nearly all of the Company's revenue in both periods
except for consulting income of $133,120 for the nine months ended September
30, 1999. This income primarily represented the value of stock received by the
Company in exchange for consulting and advisory services. The increase in
subscription revenue resulted primarily from increased sales and promotional
efforts, the increased visibility of Charles Payne, the Company's chief
analyst and spokesperson, and the continued general growth in U.S. households'
purchasing and ownership of financial assets.
The Company realized a loss of $59,131 and $31,794 on the sale of marketable
securities for the three months and nine months ended September 30, 1999,
respectively. This compared with no realized gain or loss and a $36,118 realized
gain for the three and nine months ended September 30, 2000, respectively.
The Company continues to experience substantial increases in operating
expenses, which have offset the increases in revenue for the three months and
nine months ending September 30, 2000. A substantial portion of the increase
in operating expenses is attributable to stock compensation earned and charged
to expense in connection with the issuance of shares of Common Stock and below
fair market option grants to certain key employees and new management
personnel recruited by the Company and certain outside consultants as part of
the Company's expansion strategy. Total operating expenses increased from
approximately $3.2 million and $4.8 million in the three and nine months ended
September 30, 1999 to approximately $4.0 million and $11.6 million in the
three and nine months ended September 30, 2000. These amounts represent
increases of 25% in the three month period and 142% in the nine month period.
Included in operating expenses are salaries and commissions of $2,973,505 and
$4,043,479 for the three and nine months ended September 30, 1999 and
$2,607,583 and $7,422,782 for the three and nine months ended September 30,
2000. These amounts represent a decease of 12% and an increase of 84% in the
comparable three month and nine month period. Included in salaries and
commissions for the three month and nine month period ending September 30,
1999 are expenses of $2,380,424 related to stock compensation. Stock
compensation included in salaries and commissions for the three month and nine
month periods ending September 30, 2000 are $1,547,974 and $4,126,868,
respectively. Excluding stock compensation, salaries and commissions for the
three months and nine months ended September 30, 1999 was $593,081 and
$1,663,325 respectively. Excluding stock compensation, salaries and
commissions for the three months and nine months ending September 30, 2000 was
$1,059,609 and $3,295,914, respectively. Payroll taxes and employee benefits
increased from $33,167 and $145,315 for the three and nine months ended
September 30, 1999 to $107,421 and
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<PAGE> 16
$388,125 for the three and nine months ended September 30, 2000. This
represents increases of 224% and 167% for the three and nine months ending
September 30, 2000. Apart from the charge to expense represented by stock
compensation, increases in salaries and commissions continued to represent a
substantial portion of the overall increase in operating expenses. Such
increases were attributable to retention of existing personnel as well as the
engagement of additional personnel, particularly management personnel required
to effect the Company's business strategy of growth and expansion. The Company
also incurred increased commissions payable to sales representatives in
connection with higher subscription income. The Company anticipates continuing
its efforts to retain and recruit personnel and corresponding increases in
expenses attributable to salaries and commissions, as well as increased
commissions payable as subscription sales increases. The Company further
anticipates significant additional charges to expense for stock compensation
during 2000 and 2001.
During the three months and nine months ended September 30, 2000, the Company
incurred consulting fees of $102,253 and $702,827, respectively. Included in
these fees were stock compensation earned and charged to expense for
compensation paid to a public relations firm. The stock compensation portion
of the consulting fees recorded for the three months ended September 30, 2000
and the nine months ended September 30, 2000 are $0 and $480,430,
respectively. The balance represented consulting fees paid to various
financial and other consultants. Consulting fees of $0 and $42,705 were
incurred during the three and nine months ended September 30, 1999.
Rent and occupancy costs increased from $22,305 for the three months ended
September 30, 1999 to $76,406 for the three months ended September 30, 2000, a
243% increase. Rent and occupancy increased from $59,395 for the nine months
ended September 30, 1999 to $184,541 for the nine months ended September 30,
2000, a 211% increase. These increases are attributable to the leasing of
additional space required to house the increased number of employees and sales
people hired or engaged by the Company. The Company moved into new office
space on July 14, 2000, which is significantly larger than its previous
location. Accordingly, the Company anticipates substantial increases in its
rent and occupancy costs during the remainder of 2000 and in subsequent years.
The Company experienced increased costs and expenses in a number of other
areas for the 2000 Periods as compared to the 1999 Periods. These increases
are attributable to its expansion and the implementation of its business
strategy to increase the number of its subscribers and to create its website.
The significant changes are summarized as follows:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September September September September
Expense 30, 2000 30, 1999 % Increase 30, 2000 30, 1999 % Increase
--------------- ------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Telephone and $ 44,882 $ 39,372 14% $ 244,323 $ 123,432 98%
communication costs
Travel and promotion $ 326,965 $ 39,267 733% $ 693,907 $ 98,451 605%
costs
Website Development $ 102,926 $ - Not $ 417,777 $ - Not
costs applicable applicable
General, $ 196,035 $ 113,970 72% $ 566,843 $ 355,223 60%
administrative and other
operating costs
</TABLE>
Included in the website development costs for the three and nine months ended
September 30, 2000 is amortization of the Company's capitalized website
development costs of $37,495 and $101,749, respectively.
The Company incurred depreciation expense for the three and nine months ended
September 30, 1999 of $4,981 and $9,980, respectively. This compares to
depreciation expense of $69,002 and $139,561 for the three and nine months
ended September 30, 2000. The increase in the 2000 Periods are primarily a
result of increased property and equipment purchases and capitalized leases.
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<PAGE> 17
The Company also incurred professional fees of $362,766 and $845,009 for the
three and nine months ended September 30, 2000. These expenses are primarily
attributable to its expansion and becoming a reporting issuer. The Company did
not incur any professional fees for the three and nine months ended September
30, 1999.
The Company experienced a net loss for the three months ended September 30,
2000 of $2,749,416, or $0.16 per share as compared to a net loss for the
three months ended September 30, 1999 of $2,297,492 or $0.24 per share.
The Company experienced a net loss for the nine months ended September 30,
2000 of $7,717,343, or $0.45 per share as compared to a net loss for the
nine months ended September 30, 1999 of $2,120,084, or $0.22 per share.
Management believes that the increase in the Company's net loss was primarily
due to the stock compensation charge described above, as well as increased
salaries and commissions paid to additional personnel and in respect of
increased subscriptions and other increased operating expenses.
Although the Company cannot accurately determine the precise effect of
inflation on its operations, it does not believe that inflation has had, or
will have, a material effect on its sales or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities for the nine months ended September 30,
2000 was $1,951,511, compared with net cash provided by operating activities
of $438,283 for the nine months ended September 30, 1999. The reduction in
cash provided from operations of $2,389,794 was primarily caused by an
increase in operating expenses incurred in connection with the implementation
of the Company's business strategy. Net cash used in investing activities for
the nine months ended September 30, 2000 was $825,186 compared with net cash
used in investing activities of $155,091 for the nine months ended September
30, 1999. The increase in cash used in investing activities was primarily a
result of additional purchases of property and equipment and website
development costs partially offset by the proceeds from the sale of marketable
securities and a shareholder loan in the 2000 Period. Net cash provided by
financing activities for the nine months ended September 30, 2000 was $952,930
compared with net cash provided by financing activities of $3,016,495 for the
nine months ended September 30, 1999. The cash provided from financing
activities in the 2000 period was primarily from the preferred stock private
placement offset partially from the repayment of capital lease obligations.
The cash provided from financing activities in the 1999 period was provided
primarily by the issuance of the Company's common stock.
The Company anticipates increased cash demands to meet such requirements as
increased costs related to retention and attraction of personnel, continuing
costs of development, maintenance and expansion of the Company's website,
costs associated with advertising and marketing campaigns contemplated for
2000, higher rent and occupancy expenses associated with the Company's new
location, costs associated with upgrading internal accounting and other
operating systems, costs associated with becoming a reporting issuer and other
working capital and general corporate purposes.
The Company has raised a total of $4,000,000 cumulatively through two separate
private placements. Prior to July 1999 the Company relied on operating
revenues to provide its capitalization. To provide the capital necessary to
finance the Company's goals of growing its customer subscriber base,
establishing a branded web presence, and positioning itself to participate in
strategic alliances, capitalization initiatives beyond its historic capital
source were necessary to provide the financing platform. The first of two
separate financings that have provided approximately $4 million in total
capitalization commenced in September 1999. The Company received net proceeds
of $3 million from the sale of 600,000 shares of its Common Stock at $5.00 per
share. These shares were issued to three accredited investors; Bamby
Investments Limited, a private investment company based in the Bahamas; HK
Partners LLC, a private limited liability company engaged in making real
estate and securities investments that is based in Denver, Colorado; and
Gerald Turner, one of the Company's directors.
On August 18, 2000, the Company sold to an unrelated accredited investor,
pursuant to Regulation S, 10 shares of Series A Convertible Preferred Stock
and a warrant exercisable over a five year period to purchase 80,000 shares of
common stock at $3.00 per share for an aggregate consideration of $1,000,000
(realizing net proceeds of $995,000 after payment of certain expenses of the
investor, but not including the expenses in connection with the preparation of
the registration statement registering the shares issuable upon conversion of
the Preferred Stock and exercise of the warrants).
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<PAGE> 18
GOING CONCERN
The Company has incurred significant losses from operations and has generated
insufficient operating revenue to fund its expenses. In addition, at September
30, 2000, the Company had a working capital deficiency of approximately
$1,540,000. These factors (among others) raise substantial doubt about the
Company's ability to continue as a going concern. The Company believes that its
cash on hand and the cash generated by its operations will be sufficient to fund
operations only through the end of 2000. The ability of the Company to operate
beyond such date is contingent upon its obtaining additional debt and/or equity
capital prior to such date.
On October 12, 2000, the Company signed an agreement that provides for the
sale to Harold Gates of 10,000,000 shares of common stock and warrants to
purchase 5,000,000 shares of common stock as follows: two year warrants to
purchase 2,000,000 shares at $3.00 per share; three year warrants to purchase
2,000,000 shares at $4.00 per share; and four year warrants to purchase
1,000,000 shares at $5.00 per share.
The total purchase price for these securities is $8,750,000. The agreement
grants Mr. Gates the right to nominate a majority of the members of the
Company's board of directors. The Company has agreed to register the
securities to be purchased. Under the terms of the agreement, as subsequently
modified, the transaction must be completed by November 24, 2000. In
connection with this transaction, the Company also agreed to pay the placement
agent for the transaction, out of the proceeds from the private placement, a
placement agent fee of $1,050,000 and grant it five year warrants to purchase
4,000,000 shares of common stock at prices ranging from $1.00 to $4.00. The
Company believes that the net proceeds from this transaction (estimated to be
approximately $7,650,000), together with the cash generated from operations
will enable it to fund its operations at least for the next twelve months.
There can be no assurance, however, that this transaction will be completed on
the agreed terms or otherwise.
The Company is in discussions with and/or has retained several organizations
to assist with respect to matters relating to the financing of the Company's
business, recapitalization, mergers and acquisitions. The amount of additional
funds that may be required and the timing thereof will depend on many factors
that the Company is unable to predict, such as the amount of revenues
generated from operations and the market acceptance of its website and
existing and new products and services. However, the Company anticipates that
any equity financing would be expected to result in dilution to the holders of
the Company's common stock. The Company could also seek to finance such
expenses through debt financing. Any debt financing obtained by the Company
would be likely to include restrictive covenants limiting the Company's
ability to obtain additional capital, whether through additional debt or
equity financing, as well as restrictive covenants limiting the Company with
respect to various operational and financial matters. In any event, there can
be no assurance that additional financing, whether through sales of equity or
debt or leasing will be available on terms and conditions acceptable to the
Company, if available at all. If such financing is required and cannot be
obtained, the Company would be required to reduce or postpone expenditures,
particularly with respect to advertising and promotional campaigns and may be
forced to curtail certain operations. Any such postponement would have a
material adverse effect on the Company's business and results of operations
and its ability to continue as a going concern.
YEAR 2000 ISSUES
To date, the Company has not experienced, and does not anticipate
experiencing, any problems due to year 2000 related issues.
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<PAGE> 19
FORWARD LOOKING STATEMENTS
This Form 10-QSB and other reports filed by the Company from time to
time with the Securities and Exchange Commission (collectively the "Filings")
contain or may contain forward looking statements and information that are
based upon beliefs of, and information currently available to, the Company's
management as well as estimates and assumptions made by the Company's
management.
When used in the filings the words "anticipate", "believe",
"estimate", "expect", "future", "intend", "plan" and similar expressions as
they relate to the Company or the Company's management identify forward
looking statements. Such statements reflect the current view of the Company
with respect to future events and are subject to risks, uncertainties and
assumptions relating to the Company's operations and results of operations and
any businesses that may be acquired by the Company. Should one or more of
these risks or uncertainties materialize, or should the underlying assumptions
prove incorrect, actual results may differ significantly from those
anticipated, believed, estimated, intended or planned.
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<PAGE> 20
WALL STREET STRATEGIES CORPORATION
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities and Use of Proceeds
On August 18, 2000, Registrant sold to CALP II Limited Partnership ten
shares of Series A Convertible Preferred Stock and a warrant
exercisable over a five year period to purchase 80,000 shares of common
stock at $3.00 per share. In connection with this transaction,
Registrant also issued 100,000 shares of common stock and warrants to
purchase 150,000 shares of common stock to the placement agent for the
transaction. These issuances were exempt from registration under
Regulation S promulgated under the Securities Act of 1933, as amended.
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
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<PAGE> 21
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934 the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized
WALL STREET STRATEGIES CORPORATION
(Registrant)
Date November 20, 2000 By: /s/ Charles V. Payne
--------------------
Charles V. Payne
President and Chief Executive Officer
By: /s/ Ian Bress
--------------------
Ian Bress
Chief Financial Officer
21
