As filed with the Securities and Exchange Commission on
November 13, 2000.
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
WEALTHHOUND.COM, INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DELAWARE 7375 650913886
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
11 BROADWAY
NEW YORK, NEW YORK 10004
(212) 509-0800
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
MICHAEL D. FARKAS
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
WEALTHHOUND.COM, INC.
11 BROADWAY
NEW YORK, NEW YORK 10004
(212) 509-0800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of communications to:
JAMES ALTERBAUM, ESQ.
PARKER CHAPIN LLP
THE CHRYSLER BUILDING
405 LEXINGTON AVE.
NEW YORK, NEW YORK 10174
TELEPHONE NO.: (212) 704-6000
FACSIMILE NO.: (212) 704-6288
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
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<CAPTION>
=================================================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO BE REGISTERED PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED (1) AGGREGATE OFFERING PRICE REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, par value $.001 per share (2) 14,750,000 $7,900,000 (3) $2,086
---------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share (4) 53,846,154 $7,000,000 (5) $1,848
---------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share (6) 31,282,051 $12,200,000 (7) $3,221
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</TABLE>
(1) Because the number of shares of common stock issuable upon conversion
of notes and issuable upon our exercising our rights to require one of
the selling stockholders to purchase common stock depends on the market
price of our common stock, the actual number of shares to be sold under
this registration statement cannot be determined at this time. The
number of shares registered is not intended to be a prediction as to
the future market price of our common stock.
(2) Represents shares of common stock issuable upon exercise of warrants
issued to certain of the selling stockholders in a private placement.
(3) Warrants to purchase 7,250,000 shares are exercisable at $0.50 per
share; warrants to purchase 2,500,000 shares are exercisable at $0.29
per share; warrants to purchase 2,000,000 shares are exercisable at
$0.65 per share; and warrants to purchase 3,000,000 shares are
exercisable at $0.75 per share.
(4) Represents shares of common stock issuable upon conversion of notes
issued and issuable to certain of the selling stockholders in a private
placement.
<PAGE>
(5) Assumes notes are converted into common stock on November 8, 2000.
(6) Represents shares of common stock issuable upon WealthHound.com, Inc.
exercising its rights to require one of the selling stockholders to
purchase common stock.
(7) Assumes shares of common stock are issued to the selling stockholder on
November 8, 2000. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED NOVEMBER 13, 2000
WEALTHHOUND.COM, INC.
98,878,205 SHARES OF COMMON STOCK
----------------------------------------
. Our selling stockholders are offering to sell 101,169,581
shares of our common stock issuable:
- upon exercise of warrants and
- upon conversion of notes.
-------------------------------------------
National Quotation Bureau "Pink Sheets":
common stock "WLTH"
-------------------------------------------
. On November 7, 2000 the closing sale price of our common
stock on the National Quotation Bureau "Pink Sheets" was
$0.20.
THE SECURITIES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER THE HEADING "RISK FACTORS"
BEGINNING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------------------------
The date of this prospectus is ________________, 2000
<PAGE>
-i-
TABLE OF CONTENTS
SUMMARY FINANCIAL DATA.........................................................2
ABOUT OUR COMPANY..............................................................3
RISK FACTORS...................................................................3
SPECIAL INFORMATION REGARDING FORWARD LOOKING STATEMENTS......................15
USE OF PROCEEDS...............................................................15
MARKET PRICE OF OUR COMMON STOCK..............................................15
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OR OPERATION.....................16
THE JULY 2000 AND NOVEMBER 2000 PRIVATE PLACEMENT TRANSACTION.................18
BUSINESS......................................................................22
MANAGEMENT....................................................................32
PRINCIPAL STOCKHOLDERS........................................................36
DILUTION......................................................................37
SELLING STOCKHOLDERS..........................................................39
PLAN OF DISTRIBUTION..........................................................41
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................42
DESCRIPTION OF SECURITIES.....................................................42
DELAWARE BUSINESS COMBINATION PROVISIONS......................................45
INDEMNIFICATION OF DIRECTORS AND OFFICERS.....................................45
WHERE YOU CAN FIND MORE INFORMATION...........................................46
TRANSFER AGENT...............................................................477
LEGAL MATTERS................................................................477
EXPERTS.......................................................................47
INDEX TO FINANCIAL STATEMENTS................................................f-1
<PAGE>
ABOUT OUR COMPANY
We are a development stage Internet-based provider of financial,
investment, mortgage, insurance and related information. We intend to become a
full service, one stop, financial services portal for diversified self-directed
investors. Our web site, which won the 2000 @d:tech awards gold medal for the
best banking/financial services web site, offers self-directed investors a
comprehensive suite of products and services.
We continually strive to increase the functionality of our services, as
well as to offer new services that enhance each user's on-line investing
experience. Our services give investors increased control over their personal
investments by providing a link to the financial markets and to financial
information through a customizable and personalizable user interface. The
products and services that we currently offer are described in the "Business"
description.
HOW OUR COMPANY IS ORGANIZED
We were incorporated in Florida on April 27, 1999 under the name
WealthHound, Inc. with the initial purpose of being a financial content search
engine. On July 9, 1999, we were acquired by Bridgeport Communications, Inc., a
Florida corporation, following which we changed our name to WealthHound.com,
Inc. The name change was effected to better reflect the new direction and
emphasis of being a diversified on-line provider of financial services for
self-directed investors. On October 20, 2000, we became a Delaware corporation
through a merger with a wholly-owned subsidiary.
WHERE YOU CAN FIND US
We are located at 11 Broadway, 21st and 22nd Floors, New York, New York
10004. Our telephone number is (212) 509-0800, our facsimile number is (212)
509-6186, and our homepage on the world-wide web is at
http://www.wealthhound.com.
SUMMARY FINANCIAL DATA
The following summary financial data should be read in conjunction with
"Management's Discussion and Analysis or Plan of Operation" and the Financial
Statements and Notes thereto, included elsewhere in this Prospectus. The
statement of operations data for the period from April 27, 1999 (inception) to
June 30, 2000, for the six months ended June 30, 2000 and for the period from
April 27, 1999 to December 31, 1999 are derived from WealthHound's audited
Financial Statements included elsewhere in this Prospectus. The balance sheet
data at June 30, 2000 and December 31, 1999 are derived from WealthHound's
audited Financial Statements included elsewhere in this prospectus. The
operating results for the six months ended June 30, 2000 are not necessarily
indicative of the results to be expected for the full year or for any future
period.
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Period from Period from
April 27, 1999 April 27, 1999
(Date of (Date of
Inception) to Six Months Inception) to
June 30, Ended June 30, December 31,
2000 2000 1999
---- ---- ----
<S> <C> <C> <C>
Statement of Operations Data:
Total Operating Expenses.................. $4,514,265 $3,514,816 $999,449
Sales and Marketing................... 166,161 136,321 29,840
Research and Development.............. 323,305 136,370 186,935
General and administrative............ 2,959,796 2,178,359 781,437
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<PAGE>
Depreciation.......................... 14,132 12,895 1,237
Stock based compensation expense*.... 1,050,871 1,050,871 --
LOSS FROM OPERATIONS..................... (4,514,265) (3,514,816) (999,449)
--------------------- -------------------- -------------------
OTHER INCOME............................. 61,540 61,540 --
--------------------- -------------------- -------------------
INTEREST EXPENSE......................... (68,328) (63,937) (4,391)
--------------------- -------------------- -------------------
NET LOSS................................. $(4,521,053) $(3,517,213) $(1,003,840)
--------------------- -------------------- -------------------
NET LOSS PER COMMON SHARE - Basic and Diluted $(0.08) $(0.06) $(0.02)
--------------------- -------------------- -------------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - 54,790,852 54,790,852 54,367,138
Basic and Diluted
--------------------- -------------------- -------------------
* Ammortization of stock based compensation:
Sales and Marketing $873 $873 $--
Research and Development 124,525 124,525 --
General and Administrative 925,473 925,473 --
</TABLE>
June 30, December 31,
2000 1999
---- ----
Balance Sheet Data:
Cash and cash equivalents........... $104,703 $154,394
Total current assets................ 338,303 184,492
Total assets........................ 737,042 196,469
Total liabilities................... 1,681,713 882,616
Stockholders' deficit............... (944,671) (686,147)
RISK FACTORS
An investment in our common stock is highly speculative and involves a
high degree of risk. Therefore, you should consider all of the risk factors
discussed below, as well as the other information contained in this document.
You should not invest in our common stock unless you can afford to lose your
entire investment and you are not dependent on the funds you are investing.
Please note that throughout this prospectus, the words "we", "our" or
"us" refer to WealthHound.com, Inc. and not to the selling stockholders.
WE WILL REQUIRE ADDITIONAL FUNDS TO ACHIEVE OUR CURRENT BUSINESS STRATEGY
We will need to raise substantial additional funds through public or
private debt or sale of equity to achieve our current business strategy. Such
financing may not be available when needed. Even if such financing is available,
it may be on terms that are materially adverse to your interests with respect to
dilution of book value, dividend preferences, liquidation preferences, or other
terms.
If we are unable to obtain financing on reasonable terms, we could be
forced to delay, scale back or eliminate certain product and service development
programs. In addition, such inability to obtain financing on reasonable terms
could have a material adverse effect on our business, operating results, or
financial condition to such extent that we are forced to restructure, file for
bankruptcy, sell assets or cease operations, any of which could put your
investment dollars at significant risk. See "Management's Discussion and
Analysis or Plan of Operation".
We have entered into financing agreements that contain certain
restrictions on future financing, which could have a materially adverse effect
on our ability to raise the needed additional funds: for 180
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<PAGE>
days after the effectiveness of this registration statement, we are restricted
from obtaining financing through the issuance of equity, convertible debt or
other securities at a per share purchase price less than the market price of our
common stock. See "The July 2000 Private Placement Transaction -- Subscription
Agreements".
WE WILL BE IN DEFAULT ON CERTAIN NOTES IF OUR REGISTRATION STATEMENT IS NOT
DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION BY JANUARY 29, 2001
On July 3, 2000 and November 2, 2000 we issued a total of $1,500,000 in
principal amount of convertible notes to certain investors. See "The July 2000
Private Placement Transaction -- Subscription Agreements". Pursuant to the terms
of the notes, we are required to file a registration statement with the
Securities and Exchange Commission. Pursuant to the terms of the notes, we are
required to file a registration statement with the Securities and Exchange
Commission and will be in default on notes in the principal amount of $1,250,000
if the Securities and Exchange Commission does not declare our registration
statement effective by January 29, 2001. Also, under the November 2, 2000
financing transaction, we will be in default on notes in the principal amount of
$250,000 if we do not become a NASDAQ OTC Bulletin Board listed company and meet
certain price and volume requirements by April 30, 2001. All principal and
interest due on the outstanding notes would then become immediately due and
payable. Defaulting on the notes could have a material adverse effect on our
business, operating results, or financial condition to such extent that we are
forced to restructure, file for bankruptcy, sell assets or cease operations, any
of which could put your investment dollars at significant risk. See
"Management's Discussion and Analysis or Plan of Operation".
WE HAVE LOST, AND MAY CONTINUE TO LOSE, MONEY AND IF WE DO NOT ACHIEVE
PROFITABILITY WE MAY NOT BE ABLE TO CONTINUE OUR BUSINESS
Through June 30, 2000, we have generated no revenues from operations,
have incurred substantial expenses, and have sustained losses. We incurred a net
loss of $1,003,840 for the year ended December 31, 1999. Additionally, we
incurred a net loss of $3,517,213 for the six-month period ended June 30, 2000.
Losses have resulted principally from costs incurred in connection with the
development of our web site and other programs and services aimed at developing
our business activities and from costs associated with our administrative
activities. We expect to incur additional losses for the remainder of this year
and next year. In addition, we expect to continue to incur significant operating
expenses. As a result, we will need to generate significant revenues to achieve
profitability, which may not occur. We expect our operating expenses to increase
significantly as a result of our expansion. Since we have a limited operating
history of marketing our services to the public over the Internet, we cannot
assure you that our business will be profitable or that we will ever generate
sufficient revenues to meet our expenses and support our anticipated activities.
Even if we do achieve profitability, we may be unable to sustain or increase
profitability on a quarterly or annual basis in the future. We expect to have
quarter to quarter fluctuations in revenues, expenses, losses and cash flow,
some of which could be significant. Results of operations will depend upon
numerous factors, some of which are beyond our control, including:
o regulatory actions;
o market acceptance of our products and services;
o new product and service introductions; and
o competition.
-4
<PAGE>
These conditions raise substantial doubt about our ability to continue as a
going concern. See "Summary Financial Data" and "Management's Discussion and
Analysis or Plan of Operation".
IF WE ARE UNABLE TO RETURN TO ELIGIBILITY FOR LISTING ON THE NASDAQ OTC BULLETIN
BOARD, THE MARKET PRICE OF OUR STOCK COULD BE ADVERSELY AFFECTED
Our common stock is currently quoted in the National Quotation Bureau
"Pink Sheets." Our common stock was previously listed on the NASDAQ OTC Bulletin
Board. In 1999 we failed to maintain our bulletin board listing, and we may not
meet the relisting requirements for some time in the future. There can be no
assurances that we will ever meet the requirements needed to be re-listed on the
bulletin board.
In addition, exercising put options pursuant to our Subscription
Agreement and equity line of credit agreement is dependent upon our relisting on
the NASDAQ OTC Bulletin Board and maintaining a certain per trading day volume
and closing price per share. If we do not meet these requirements then we may
not be able to exercise our put options and draw down our equity line of credit
agreement; each of which could force us to delay, scale back or eliminate
certain product and service development programs. In addition, our inability to
exercise our put options and draw down our equity line of credit agreement could
have a material adverse effect on our business, operating results, or financial
condition to such extent that we are forced to restructure, file for bankruptcy,
sell assets or cease operations, any of which could put your investment dollars
at significant risk. See "The July 2000 and November 2000 Private Placement
Transactions".
WE ARE NEW TO THE INTERNET MARKETPLACE AND THUS OUR FUTURE PROFITABILITY IS
UNCERTAIN
We launched our web site in February 2000. Accordingly, we have a
limited operating history upon which to judge our current operations. In
deciding whether to purchase our shares, and the likelihood of our success, you
should consider our prospects in light of the problems, risks, expenses,
complications, delays, and difficulties frequently encountered by a small
business beginning operations in a highly competitive industry, including but
not limited to the following:
o development of our web site and services;
o the uncertainty of market acceptance of our web site and services;
o maintenance of our proprietary rights;
o our need to expand our marketing, sales and support organizations, as
well as our market share;
o our ability to anticipate and respond to market competition;
o our need to manage expanding operations;
o possible insufficiency of additional funding;
o ability to negotiate and execute affordable, reasonable and fair
agreements; and
o our dependence upon key personnel.
-5-
<PAGE>
As we have such a limited history of operation, you will be unable to
assess our future operating performance or our future financial results or
condition by comparing these criteria against our past or present equivalents.
WE INTEND TO GROW THROUGH ACQUISITIONS OF OTHER COMPANIES, AND OUR BUSINESS AND
FINANCIAL RESULTS COULD BE ADVERSELY AFFECTED IF WE DO NOT SUCCESSFULLY
IMPLEMENT THESE ACQUISITIONS
We intend to grow by acquiring other companies or businesses in the
future. Acquisitions will require us to obtain additional financing. We may not
be able to obtain the financing required to complete an acquisition. In
addition, acquisitions entail numerous risks, including:
o difficulties in integrating the acquired operations and products;
o diversion of management's attention from other business concerns;
o assuming unknown material liabilities of acquired companies;
o amortizing the acquired intangible assets, which would reduce future
reported earnings;
o regulatory approval; and
o potential loss of users or key employees of acquired companies.
We cannot assure you that we will be able to acquire the businesses or that we
will be able to integrate successfully any operations, personnel, services or
products that might be acquired in the future.
OUR INDEPENDENT AUDITORS HAVE ISSUED A REPORT WHICH MAY HURT OUR ABILITY TO
RAISE ADDITIONAL FINANCING AND THE PRICE OF OUR COMMON STOCK
The report of our independent auditors on our financial statements for
the year ended December 31, 1999 and for the six-month period ended June 30,
2000 contains an explanatory paragraph which indicates that we have recurring
losses from operations. This report states that, because of these losses, there
may be a substantial doubt about our ability to continue as a going concern.
This report and the existence of these recurring losses from operations may make
it more difficult for us to raise additional debt or equity financing needed to
run our business and is not viewed favorably by analysts or investors. We urge
potential investors to review this report before making a decision to invest in
our company.
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY
There are many companies that offer web sites that provide financial
services. Competition for visitors, advertisers and electronic commerce partners
is intense and is expected to increase significantly in the future.
Increased competition could result in:
o price reductions and lower profit margins;
o loss of visitors; or
-6-
<PAGE>
o reduced page views.
In addition, our competitors may develop content that is better than
ours or that achieves greater market acceptance. It is also possible that new
competitors may emerge and acquire significant market share. Any one of these
factors could materially and adversely affect our business, financial condition
and operating results.
WE FACE INTENSE INTERNET COMPETITION
The market for Internet services and products is relatively new,
intensely competitive and rapidly changing. Since the Internet's
commercialization in the early 1990's, the number of web sites on the Internet
competing for users' attention has proliferated with no substantial barriers to
entry. We expect that competition will continue to intensify. We compete,
directly, and indirectly, with the following categories of companies for
consumers, content and service providers, and acquisition candidates:
o on-line financial services or financial web sites targeted to
consumers;
o publishers and distributors of traditional off-line media, including
those targeted to financially and entrepreneurially conscious
consumers, many of which have established web use;
o public sector and non-profit web sites that provide information
without advertising or commercial sponsorships;
o vendors of products and services distributed through the web and other
means, including direct sales, mail and fax messaging; and
o web search and retrieval services and other high-traffic web sites.
We expect competition in our market to increase significantly as new
companies enter the market and current competitors expand their product lines
and services. Many of these potential competitors are likely to enjoy
substantial competitive advantages, including:
o greater financial, technical and marketing resources that can be
devoted to the development, promotion and sale of their services;
o relatively easy access to capital;
o longer operating histories;
o greater name recognition;
o larger subscriber bases; and
o association or ownership by large entertainment, news or information
corporations.
To be competitive, we must use leading technologies, enhance our
services and content, develop new technologies and respond to technological
advances and emerging industry standards on a timely and cost-effective basis.
We believe that there are many web sites that provide much of the same
substantive information that we provide on our web site and others could easily
develop such capabilities. There can
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<PAGE>
be no assurances that we will be successful in using new technologies
effectively or adapting our web site to user requirements or emerging industry
standards. Any pricing pressures, reduced margins or loss of market share
resulting from our failure to compete effectively would materially adversely
affect our business, financial condition and operating results.
WE OPERATE IN A HIGHLY REGULATED INDUSTRY AND COMPLIANCE FAILURES COULD
ADVERSELY AFFECT OUR BUSINESS
We are in the process of acquiring a broker/dealer firm and upon such
acquisition we will be subject to securities industry regulations. The
securities industry in the United States is subject to extensive regulation
governing all aspects of the securities business, including: registration of
offices and personnel, sales methods, acceptance and execution of customer
orders, handling of customer funds and securities, trading practices, capital
structure, record keeping, conduct of directors, officers and employees, and
supervision. The various governmental authorities and industry self-regulatory
organizations that will supervise and regulate us generally have broad
enforcement powers to censure, fine, issue cease-and-desist orders or suspend or
expel us or any of our officers or employees who violate applicable laws or
regulations.
Our ability to comply with all applicable laws and rules largely
depends on our establishing and maintaining compliance and reporting systems, as
well as our ability to attract and retain qualified compliance and other
personnel. We could be subject to disciplinary or other regulatory or legal
actions in the future due to noncompliance. In addition, it is possible that any
past noncompliance, on the part of the broker/dealer firm we acquire, could
subject us to future civil lawsuits, the outcome of which could have a material
adverse effect on our business, financial condition and operating results.
In addition, we use the Internet as a major distribution channel to
provide products and services to our users. Due to the increasing popularity of
the Internet, it is possible that new laws and regulations may be adopted
dealing with such issues as user privacy, content and pricing. Such laws and
regulations might increase our cost of using, or limit our ability to use, the
Internet as a distribution channel, which in turn could have a material adverse
effect on our business, financial condition and operating results.
WE NEED TO COMPLY WITH STRINGENT CAPITAL REQUIREMENTS
Many of the regulatory agencies, securities exchanges and other
industry self-regulatory organizations that will regulate us once we complete
the acquisition of a broker/dealer firm have stringent rules with respect to
securities broker/dealers maintaining specific levels of net capital. Net
capital is the net worth (assets minus liabilities) of a broker or dealer, less
deductions for certain types of assets. If the broker/dealer firm we acquire
fails to maintain the required net capital, it may be suspended or its license
may be revoked, which could ultimately lead to it being liquidated.
If such net capital rules are changed or expanded, or if there is an
unusually large charge against net capital, we might be required to limit or
discontinue those portions of our business that require the intensive use of
capital. Such operations may include the financing of customer account balances.
Also, our ability to withdraw capital from our broker/dealer firm could be
restricted, which in turn could limit our ability to repay debt and redeem or
purchase shares of our outstanding stock, if necessary. A large operating loss
or charge against net capital could adversely affect our ability to expand our
business in the future.
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<PAGE>
OUR EXPOSURE TO POSSIBLE SECURITIES LITIGATION COULD ADVERSELY AFFECT OUR
BUSINESS
Many aspects of the securities brokerage business, including on-line
trading services, involve substantial risks of liability. In recent years, there
has been an increasing incidence of litigation involving the securities
brokerage industry, including class action and other suits that generally seek
substantial damages, including in some cases punitive damages. Like other
securities brokerage firms, RichMark Capital, the brokerage firm that currently
serves each of our users, or the broker/dealer that we are in the process of
acquiring, may be named as a defendant in class action and other suits. If
RichMark Capital or the broker/dealer that we are in the process of acquiring is
named as a defendant, it is possible that we may be named as a defendant based
upon our relationship with these companies. Any such litigation brought in the
future could have a material adverse effect on our business, financial condition
and operating results.
WE FACE POTENTIAL LIABILITY CLAIMS FROM THE OFFERING OF FINANCIAL INFORMATION,
PRODUCTS AND SERVICES
We offer financial products, information and services on our web site.
Although a substantial portion of this content is provided by others, we face
the risk that claims may be made against us for losses or damages, perceived or
real, which could adversely affect our business.
Although we carry general liability insurance, our insurance may not
cover potential claims of this type or may not be adequate to cover all costs
incurred in defense of potential claims or to indemnify us for all liability
that may be imposed. Any costs or imposition of liability that is not covered by
insurance or in excess of insurance coverage could have a material adverse
effect on our business, financial condition and operating results.
WE DEPEND ON OUR CONTENT PROVIDERS
Our future success depends upon our ability to aggregate and deliver
compelling content over the Internet which relates to our core business
activities, including financial news and services, insurance quotes, mortgage
quotes and access to retailers. We will rely on independent content providers
for much of the information and content provided on our web site. We have
entered into relationships with many companies to obtain content for our web
site, including:
o News Alert, Inc., which provides financial related data, news and
services;
o RichMark Capital Corporation, which provides our users access to an
on-line Internet broker through which our users can trade securities;
o MortgageIT.com, Inc., through which users can obtain mortgage quotes
and mortgage loans for residential properties;
o Quotesmith.com, Inc., through which our users can obtain insurance
quotes and purchase insurance;
o Netexchange, Inc., through which our clients can open their own free
e-mail account; and
o LinkShare Corporation and Bcentral.com, which provide our users with
access to retailers on the Internet.
We intend to enter into additional relationships in the future.
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<PAGE>
Our success depends significantly on our ability to maintain our
existing relationships with these content providers and to build new or
replacement relationships with other content providers. Some of our agreements
with content providers are short-term and non-exclusive. Providers could also
increase license or other fees for their services. Due to the non-exclusivity of
certain of our agreements, many of the providers offer certain content to our
competitors that is similar or the same as the content on our web site. To the
extent that content providers, including but not limited to our current
providers, offer information to users or our competitors at a lower cost, our
business, financial condition and operating results could be materially
adversely affected. Some of our agreements are exclusive for the term of the
agreement. Due to the exclusivity of such agreements, we are unable during the
term of the agreements to enter into agreements with providers which offer
better or substantially similar services at a lower cost.
In addition, we depend on the ability of our content providers to
deliver high quality content from reliable sources and to continually upgrade
their content in response to subscriber and consumer demand and evolving
industry trends. The failure by these parties to develop and maintain high
quality, attractive content could result in subscriber and consumer
dissatisfaction, could inhibit our ability to add subscribers and consumers and
could dilute our brand name, each of which could have a material adverse effect
on our business, financial condition and operating results.
Furthermore, we cannot assure you that any of these providers will be
able to continue to provide these services in an efficient, cost-effective
manner or that they will be able to adequately expand their services to meet our
needs. An interruption in or the cessation of service by any third-party service
provider as a result of systems failures or capacity constraints or for any
other reason, and our inability to make alternative arrangements in a timely
manner, if at all, would have a material adverse effect on our business,
financial condition and operating results.
OUR STOCK IS THINLY TRADED AND MAY EXPERIENCE PRICE VOLATILITY
Our common stock currently is quoted in the National Quotation Bureau
"Pink Sheets." The trading volume of our common stock historically has been
limited, and there can be no assurance that an active public market for our
common stock will be developed or sustained. In addition, trading in our
securities is subject to the "penny stock" rules. See "Risk Factors -- Penny
stock rules may make buying or selling our common stock difficult". The trading
price of our common stock in the past has been, and in the future could be,
subject to wide fluctuations. These fluctuations may be caused by a variety of
factors, including the following:
o quarterly variations in our operating results;
o actual or anticipated announcements of new products or services by us
or our competitors;
o changes in analysts' estimates of our financial performance;
o general conditions in the markets in which we compete; and
o worldwide economic and financial conditions.
The stock market in general also has experienced extreme price and
volume fluctuations that have particularly affected the market prices for many
rapidly expanding companies and often have been unrelated to the operating
performance of such companies. These broad market fluctuations and other factors
may adversely affect the market price of our common stock.
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"PENNY STOCK" RULES MAY MAKE BUYING OR SELLING OUR COMMON STOCK DIFFICULT
Trading in our securities is subject to the "penny stock" rules. The
SEC has adopted regulations that generally define a penny stock to be any equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions. These rules require that any broker-dealer who recommends
our securities to persons other than prior customers and accredited investors,
must, prior to the sale, make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to execute the
transaction. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the risks associated with trading
in the penny stock market. In addition, broker-dealers must disclose commissions
payable to both the broker-dealer and the registered representative and current
quotations for the securities they offer. The additional burdens imposed upon
broker-dealers by such requirements may discourage broker-dealers from effecting
transactions in our securities, which could severely limit their market price
and liquidity of our securities.
WE HAVE 107,446,962 SHARES OF OUR COMMON STOCK RESERVED FOR FURTHER ISSUANCES
WHICH CAN SUBSTANTIALLY DILUTE THE VALUE OF YOUR WEALTHHOUND COMMON STOCK
The issuance of reserved shares would dilute the equity interest of
existing stockholders and could have a significant adverse effect on the market
price of our common stock. As of November 7, 2000, we had 107,446,962 shares of
common stock reserved for possible future issuances upon conversion of options,
warrants and notes and for possible future issuances pursuant to a credit
agreement.
The exercise and conversion terms of our outstanding options, warrants
and notes may cause substantial dilution in the book value per share of our
common stock. Because of the conversion features in the notes, the note holders
will receive a greater number of shares of common stock after conversion if our
common stock price decreases. Similarly, under an existing equity line of
credit, if the price of our common stock decreases, more shares will be issuable
when the credit line is drawn upon.
We have also entered into a credit agreement and have issued certain
options, warrants and notes, including warrants owned by the selling
stockholders, which entitle their holders to acquire our common stock at prices
which may represent discounts from the future market prices of our common stock.
Such discounts could result in substantial dilution to existing holders of our
common stock.
If the selling stockholders convert their notes or exercise their
warrants and then sell our common stock, the common stock price may decrease due
to the additional shares in the market. This could allow the selling
stockholders to convert their remaining notes into greater amounts of our common
stock, the sales of which would further depress our stock price. It also means
that it will take more of our shares to draw on the credit line.
The significant downward pressure on the price of our common stock
could encourage short sales, if short sales of our stock were permitted, and
consequently place further downward pressure on the price of our common stock.
See "Dilution".
FUTURE SALES OF SHARES BY MICHAEL FARKAS, OUR CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER, COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
There are approximately 75,854,025 shares of our common stock
outstanding, of which approximately 53,829,530 shares (or 70.9%) are held
beneficially by Michael Farkas, his wife Rebecca J. Farkas and related entities.
Mr. Farkas will be able to sell these shares in the public markets from time to
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time, subject to certain limitations on the timing, amount and method of such
sales imposed by SEC regulations. If Mr. Farkas were to sell a large number of
shares, the market price of our common stock could decline significantly.
Moreover, the perception in the public markets that such sales by Mr. Farkas
might occur could also adversely affect the market price of our common stock.
In connection with our July 2000 financing, Mr. Farkas signed a lock-up
agreement which prevents him, subject to certain exceptions, from transferring
or otherwise selling his shares for a limited period of time. See "The July 2000
Private Placement Transaction - Lock-Up Agreements".
CONTROL BY MICHAEL FARKAS COULD PREVENT A CHANGE OF CONTROL OF OUR COMPANY AND
MAY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
Mr. Farkas, individually, through his wife Rebecca J. Farkas, and
through related entities, beneficially owns approximately 70.9% of our common
stock. Accordingly, for as long as Mr. Farkas continues to beneficially own more
than 50% of our common stock, he will be able to elect our entire board of
directors, control all matters that require a stockholder vote (such as mergers,
acquisitions and other business combinations) and exercise a significant amount
of influence over our management and operations. This concentration of ownership
could have the effect of preventing us from undergoing a change of control in
the future and might affect the market price of our common stock.
IF PREVIOUSLY UNREGISTERED SHARES OF OUR COMMON STOCK ARE SOLD INTO THE MARKET,
IT COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DROP
The market price of our common stock could drop as a result of sales in
the market of the shares covered by this prospectus after the offering, or the
price could remain lower because of the belief that such sales might occur.
These factors could make it more difficult for us to raise funds through future
offerings of common stock.
As of November 7, 2000, we had 75,854,025 shares of common stock issued
and outstanding. Following this offering and assuming all outstanding notes are
converted and warrants are exercised prior to their expiration at prices
prevailing on November 7, 2000, 37,826,924 shares will be freely tradeable, and
additional unregistered shares will be tradeable under SEC Rule 144 by persons
other than our affiliates.
We have reserved an aggregate of 15,000,000 shares of common stock for
issuance to employees, officers, directors and consultants pursuant to our 2000
Stock Option Plan. To date, options to purchase 6,676,869 shares have been
granted under the plan and are currently outstanding. We intend to file a Form
S-8 registration statement covering the shares issued and issuable pursuant to
the plan. Further, we have reserved an additional 14,750,000 shares for issuance
upon exercise of outstanding warrants to purchase common stock, most of which
are included in this registration statement.
CERTAIN PROVISIONS OF OUR CHARTER AND DELAWARE LAW WHICH COULD MAKE A TAKEOVER
MORE DIFFICULT COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK OR
DEPRIVE YOU OF A PREMIUM OVER THE MARKET PRICE
Our charter and bylaws and the laws of Delaware (the state in which we
are incorporated) contain provisions that might make it more difficult for
someone to acquire control of us in a transaction not approved by our board of
directors. These provisions could also discourage proxy contests and make it
more difficult for you and other stockholders to elect directors other than the
candidates nominated by our board of directors. The existence of these
provisions could adversely affect the market price of our common stock.
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Although such provisions do not have a substantial practical
significance to investors while Mr. Farkas controls us, such provisions could
have the effect of depriving stockholders of an opportunity to sell their shares
at a premium over prevailing market prices should Mr. Farkas' combined voting
power decrease to less than 50%.
THE FUTURE SUCCESS OF OUR ON-LINE BUSINESS WILL DEPEND ON THE CONTINUED
DEVELOPMENT AND MAINTENANCE OF THE INTERNET INFRASTRUCTURE
The Internet has experienced, and is expected to continue to
experience, significant growth in the number of users and amount of traffic. Our
future success will depend upon the development and maintenance of the
Internet's infrastructure to cope with this increased traffic. This will require
a reliable network backbone with the necessary speed, data capacity and
security, and the timely development of complementary products, such as high
speed modems, for providing reliable Internet access and services. Many Internet
service providers, which provide our users with access to the Internet, and
other suppliers of Internet systems and components have experienced a variety of
outages and other delays as a result of damage to portions of their
infrastructure and other technical problems and could face similar outages and
delays in the future. Such outages and delays are likely to affect the level of
Internet usage and the processing of transactions on our web site and are not
within our control. In addition, the Internet could lose its viability due to
delays in the development or adoption of new standards to handle increased
levels of activity or due to increased government regulation. The adoption of
new standards or government regulation may require us to incur substantial data
processing development and compliance costs.
OUR BUSINESS RELIES HEAVILY ON COMPUTERS AND OTHER ELECTRONIC SYSTEMS AND
CAPACITY CONSTRAINTS AND FAILURES OF THESE SYSTEMS COULD HARM OUR BUSINESS
RichMark Capital receives trade orders primarily via electronic means
such as unregulated Internet access providers and touch-tone telephones. In
addition, RichMark Capital executes all of our users' trades through a series of
computerized processing systems and links to third parties. Thus, we depend
heavily on the capacity and reliability of the electronic systems supporting
this type of trading. Heavy use of our systems during peak trading times or at
times of unusual market volatility could cause our systems to operate slowly or
even to fail for periods of time.
Recently, we have experienced periods of extremely high trading volume
and substantial volatility in the securities markets. During these periods, the
volume and volatility of trading activity may cause individual system components
or processes to fail, resulting in the temporary unavailability of RichMark
Capital's web site or our web site. High trading volume also may cause
significant delays on the part of RichMark Capital in executing trading orders,
resulting in some customers' orders being executed at prices they did not
anticipate. We cannot assure you that these events will not occur in the future.
These occurrences are dissatisfying to our users, who may file formal
complaints with RichMark Capital, industry regulatory organizations or us,
initiate regulatory inquiries or proceedings, file lawsuits against RichMark
Capital or us, or cease on-line trading altogether. We cannot assure you that
we, or for that matter RichMark Capital, will be able to accurately predict such
future volume increases or volatility or that our systems or RichMark Capital's
systems will be able to accommodate such volume increases or volatility without
failure or degradation. Our electronic systems and RichMark Capital's electronic
systems are also vulnerable to damage or interruption from human error, natural
disasters, power loss, sabotage, computer viruses and similar events or the loss
of support services from third parties.
As our business expands, we also face risks relating to the need to
expand and upgrade our transaction processing systems, network infrastructure
and other aspects of our technology. While many
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of our systems are designed to accommodate additional growth without redesign
or replacement, we may nevertheless need to make significant investments in
additional hardware and software to accommodate growth. In addition, we cannot
assure you that we will be able to predict accurately the timing or rate of such
growth, or expand and upgrade our systems and infrastructure on a timely basis.
FAILURE TO INTRODUCE NEW SERVICES AND PRODUCTS IN A TIMELY MANNER MAY AFFECT OUR
ABILITY TO COMPETE EFFECTIVELY
Our future success will depend in large part on our ability to develop
and enhance our services and products, including the ability to offer securities
through a wholly-owned broker-dealer. We operate in a very competitive industry
in which the ability to develop and deliver advanced services through the
Internet and other channels is a key competitive factor. There are significant
technical risks in the development of new or enhanced services and products,
including the risk that we will be unable to:
o effectively use new technologies;
o adapt our products and services to emerging industry standards; or
o develop, introduce and market enhanced or new products and services.
In addition, there are significant barriers to being able to offer
securities through a broker-dealer, which include regulatory approval. If we are
unable to develop and introduce enhanced or new services and products quickly
enough to respond to market or user requirements or to comply with emerging
industry standards, or if these services and products do not achieve market
acceptance, our business, financial condition and operating results could be
materially adversely affected.
SINCE OUR SUCCESS DEPENDS UPON THE EFFORTS OF KEY MEMBERS OF OUR MANAGEMENT AND
OUR EMPLOYEES, OUR FAILURE TO RETAIN MANAGEMENT MEMBERS OR EMPLOYEES WILL
NEGATIVELY AFFECT OUR BUSINESS
Our business is greatly dependent on the efforts of our executive
officers and key employees, and on our ability to attract key personnel.
Also, success will depend in large part upon our ability to attract,
develop, motivate and retain highly skilled technical employees. Competition for
qualified personnel is intense and we may not be able to hire or retain
qualified personnel. The loss of some or all of our project managers and other
senior personnel could have a materially adverse impact on us.
We have not entered into employment agreements with any of our
executive officers. The loss of the services of any of our executive officers or
other key employees could delay our ability to fully implement our operating
strategy, which could have a negative effect on our business, operating results
and financial condition.
WE DO NOT EXPECT TO PAY DIVIDENDS AND INVESTORS SHOULD NOT BUY OUR COMMON STOCK
EXPECTING TO RECEIVE DIVIDENDS
We have not paid any dividends on our common stock in the past, and do
not anticipate that we will declare or pay any dividends in the foreseeable
future. Consequently, you will only realize an economic gain on your investment
in our common stock if the price appreciates. You should not purchase our common
stock expecting to receive cash dividends.
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BECAUSE WE RELY ON ENCRYPTION TECHNOLOGY OUR BUSINESS IS VULNERABLE TO SECURITY
RISKS WHICH MAY COMPROMISE OUR USER TRANSACTION DATA
A significant barrier to Internet commerce is the secure transmission
of confidential information over public networks. We rely on third-party
encryption and authentication technology to facilitate secure transmission of
confidential information. We cannot assure you that advances in computer and
cryptography capabilities or other developments will not result in a compromise
of the algorithms we use to protect user transaction data.
SPECIAL INFORMATION REGARDING FORWARD LOOKING STATEMENTS
Some of the statements in this prospectus are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements involve certain known and unknown
risks, uncertainties and other factors which may cause our actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by these forward-looking
statements. These factors include, among others, the factors set forth above
under "Risk Factors." The words "believe," "expect," "anticipate," "intend" and
"plan" and similar expressions identify forward-looking statements. We caution
you not to place undue reliance on these forward-looking statements. We
undertake no obligation to update or revise any forward-looking statements or to
publicly announce the result of any revisions to any of the forward-looking
statements in this document to reflect future events or developments.
USE OF PROCEEDS
The selling stockholders are selling all of the shares of common stock
covered by this prospectus for their own account. Accordingly, we will not
receive any of the proceeds from the resale of these shares. We may receive
proceeds from the exercise of the warrants. We expect to use such net proceeds,
if any, for general corporate purposes. We have agreed to bear the expenses
relating to the registration of the shares, other than brokerage commissions and
expenses, if any, which will be paid by the selling stockholders.
MARKET PRICE OF OUR COMMON STOCK
From October 9, 1996 to July 23, 1999, Bridgeport Communications, Inc.,
the predecessor to our company was listed for trading on the NASDAQ Bulletin
Board under the symbol "TRLK" and subsequently under the symbol "BPOT". Since
July 23, 1999, our common stock has been quoted in the National Quotation Bureau
"Pink Sheets", under the symbol "WLTH". As of November 7, 2000, we had
76,203,833 shares of common stock outstanding held by 172 shareholders of record
and 1,159 non-objecting beneficial owners of shares.
The following table sets forth the range of high and low bid prices of
our common stock for the 1st and 2nd fiscal quarters of 1999 on the Bulletin
Board and for the 3rd and 4th fiscal quarters of 1999 and the 2000 fiscal year
in the Pink Sheets. The Bulletin Board quotations represent prices between
dealers in securities, do not include retail mark-ups, mark-downs or commissions
and do not necessarily represent actual transactions.
Year Quarter High Low
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2000 4 0.38 0.17
3 0.70 0.20
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2 1.16 0.45
1 2.05 1.05
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1999 4 1.41 0.13
3 1.72 0.38
2 2.13 0.03
1 0.03 0.03
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1998 4 0.13 0.04
3 0.25 0.13
2 1.75 0.25
1 1.88 0.25
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DIVIDENDS
We have never paid a cash dividend on our common stock. It is our
present policy to retain earnings, if any, to finance the development and growth
of our business. Accordingly, we do not anticipate that cash dividends will be
paid until our earnings and financial condition justify such dividends, and
there can be no assurance that we can achieve such earnings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of our
results of operations and financial condition. The discussion should be read in
conjunction with our financial statements and notes thereto appearing in this
prospectus.
OVERVIEW
We are a development stage Internet-based provider of financial,
investment, mortgage, insurance and related information. We were incorporated in
April 1999 with the initial purpose of being a financial content search engine.
During the past year, we recognized the major stumbling blocks and pitfalls
associated with being a financial content search engine and refocused our
intentions on becoming a one stop, on-line financial services company for
self-directed investors. We continually strive to increase the functionality of
our services, as well as to offer new services that enhance each user's on-line
investing experience. Our services give investors increased control over their
personal investments by providing a link to the financial markets and to
financial information through a customizable and personalizable user interface.
The products and services that we currently offer are described in the
"Business" description.
We have not generated any revenues to date and have incurred
substantial operating losses in establishing and operating our web site and
providing our products and services. We sustained a net loss of $1,003,840
during the period from April 27, 1999 through December 31, 1999. For the six
months ended June 30, 2000, we sustained a net loss of $3,517,213.
RECENT ACCOUNTING PROCUREMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133, as amended, establishes methods
for recording derivative financial instruments, as well as other hedging
activities. We are required to adopt SFAS 133 effective January 1, 2001. Because
we currently do not hold any derivative instruments and do not engage in hedging
activities, we do not currently
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believe that the adoption of SFAS 133, as amended, will have a significant
impact on our consolidated financial position or results of operations.
In March 2000, the Emerging Issues Task Force of the FASB issued EITF
Issue 00-2, "Accounting for Website Development Costs." The issue addresses how
an entity should account for costs incurred to develop a website. The total
capitalizable costs associated with the development of our website have been
immaterial to date and have not been capitalized.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation, Interpretation of APB Opinion
No. 25." Interpretation No. 44 clarifies the application of Accounting Principle
Board Opinion No. 25 to certain issues including: (1) the definition of employee
for purposes of applying APB Opinion No. 25, (2) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (3) the accounting
consequences of various modifications to the terms of a previously fixed stock
option or award, and (4) the accounting for an exchange of stock compensation
awards in business combinations. We adopted Interpretation No. 44 in July 2000.
The adoption of Interpretation No. 44 did not have a material effect on our
consolidated financial position or results of operations.
RESULTS OF OPERATIONS
PERIOD FROM APRIL 27, 1999 (INCEPTION) THROUGH JUNE 30, 2000
Our cumulative net losses since inception are attributable to the fact
that we have not derived any revenue from operations to offset our business
development expenses.
Operating expenses since inception have amounted to $4,514,265. General
and administrative expenses since inception have amounted to approximately
$2,959,796, primarily consisting of commercial lease payments, legal, accounting
and officers' and employees' salaries. Research and development expenses since
inception have amounted to approximately $323,305, primarily consisting of
software and consulting services.
LIQUIDITY AND CAPITAL RESOURCES
We are in the development stage and have generated no revenues. In
addition, the report of our independent auditors on our financial statements as
of June 30, 2000 and December 31, 1999 contains an explanatory paragraph
regarding an uncertainty with respect to our ability to continue as a going
concern.
For the six months ended June 30, 2000, we incurred a net loss of
$3,517,213. Our accumulated deficit since inception is $4,521,053. Such
accumulated losses have resulted primarily from costs incurred in research and
development and from general and administrative expenses. We will continue to
incur substantial operating losses until we significantly increase and realize
revenues from the operation of our broker-dealer. Our anticipated operation as a
broker-dealer is subject to various conditions, which may not be met, including
the approval by the National Association of Securities Dealers (the "NASD") of
the merger with WAP, Inc., a registered broker-dealer, the approval by the NASD
for WAP, Inc. to expand its business operations and the entering into an
agreement by WAP, Inc. with a clearing firm. Subject to these conditions being
met, we plan to launch our on-line brokerage business in the first quarter of
2001. We had total current assets of $338,303 as of June 30, 2000.
We raised $934,987 (net of expenses) in connection with a private
financing consummated in July 2000. Pursuant to the terms of that financing, we
can require the investors to purchase convertible
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notes totaling $2,250,000 in a series of up to three tranches. The conditions
for these additional investments include:
o various minimum price and trading volume requirements;
o we need to be a reporting company under the Securities Exchange Act of
1934, as amended;
o our shares must be registered on the OTC Bulletin Board or other
principal market; and
o for the second and third tranches totaling a possible $1,500,000, a
registration statement, of which this prospectus forms a part, must be
effective.
We raised $220,000 (net of expenses) in connection with a private
financing consummated on November 2, 2000. We did not meet certain conditions
required for us to obtain the financing. However, the investors agreed to waive
the financing conditions which included: (i) our being a reporting company under
Section 12(g) of the Securities Exchange Act of 1934, as amended, (ii) our
shares being listed on the OTC bulletin board or other principal market and
(iii) our stock achieving certain minimum closing prices and daily trading
volumes. In exchange for this waiver we agreed that convertible notes in the
amount of $250,000 would become due and payable if these financing conditions
were not satisfied by April 30, 2001.
Additionally, we entered into a private equity line of credit agreement
in July 2000 which provides that for two years after the registration statement,
of which this prospectus forms a part, becomes effective, we can require an
investor to purchase our common stock at a discount. The amount which can be
raised depends on the then current market price and trading volume. This equity
line could produce up to an amount of $12,200,000.
However, since there are market price and trading volume requirements
associated with the purchase of the notes and the line of credit, no assurance
can be given that we will be successful in raising the capital either upon
purchase of the notes or under the line of credit agreement. Further, there can
be no assurance, assuming we successfully raise additional funds, that we will
achieve profitability or positive cash flows.
We intend to meet our long-term liquidity needs through available cash
and cash flow as well as through additional financing from outside sources. We
anticipate that our existing working capital will be sufficient to fund our
operations at least through January 1, 2001. Continuing operations thereafter
will depend on cash flow operations and the ability to obtain any additional
funds from the July 2000 financing which are subject to certain conditions (see
below) or to raise additional funds through equity, debt or other financing.
There can be no assurance, however, that such funds will be available nor will
we meet the conditions of the July 2000 financing. If we are not successful in
raising additional funds, we might be forced to delay, scale back or eliminate
certain product and service development programs. In addition, such inability
could have a material adverse effect on the Company's business, operating
results, or financial condition to such extent that the Company is forced to
restructure, file for bankruptcy, sell assets or cease operations, any of which
could put your investment dollars at significant risk. See "Risk Factor -- We
will require additional funds to achieve our current business strategy".
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THE JULY 2000 AND NOVEMBER 2000 PRIVATE PLACEMENT TRANSACTION
The agreements and instruments relating to the rights and obligations
of the securities issued in the July 2000 and November 2000 private placements
are filed as exhibits to the registration statement, of which this prospectus
forms a part. We urge you to read them in their entirety.
SUBSCRIPTION AGREEMENTS
On July 3, 2000, under the terms of each of the subscription agreements
between us and each of the investors referred to therein, we sold $1,250,000 in
8% convertible notes and issued warrants to purchase up to an aggregate of
6,250,000 shares of our common stock.
For 180 days after the effectiveness of this registration statement, we
are restricted from issuing any equity, convertible debt or other securities at
a per share purchase price less than the market price of our common stock,
except for the following issuances:
o equity or debt issued in connection with us acquiring a business or
assets; or
o stock issued in connection us establishing a joint venture, a
partnership or creating a licensing arrangement.
Each investor was granted a right of first refusal to purchase the same
number of shares, on the same terms, as any other issuance by us (except in
certain circumstances as set forth in the subscription agreements) until 180
days after the registration statement, of which this prospectus forms a part, is
declared effective.
Under the terms of the subscription agreements, we have the option,
subject to certain conditions, of requiring the investors to purchase additional
convertible notes totaling $2,250,000 in a series of up to three tranches. The
conditions for these additional investments include:
o various minimum price and trading volume requirements;
o we need to be a reporting company under the Securities Exchange Act of
1934, as amended;
o our shares must be registered on the OTC Bulletin Board or other
principal market; and
o for the second and third tranches, the registration statement, of
which this prospectus forms a part, must be effective.
The terms of these convertible notes are the same as the notes issued
to the investors at the closing, except that the maturity date of the notes is
two years from the date that the notes are issuable.
We cannot require any investor to make an additional investment if it
would result in that investor owning more than 9.9% of our common stock.
Under the terms of the subscription agreements, we are required to file
a registration statement registering:
o 200% of the number of shares of our common stock issuable upon
conversion of the notes issued and issuable; and
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o the number of shares of our common stock issuable upon exercise of the
subscription agreement warrants.
On November 2, 2000, pursuant to the terms of a subscription agreement,
we requested that the investors purchase additional convertible notes from us
for $250,000. Pursuant to the terms of the same subscription agreement, we
lowered the exercise price on warrants to purchase 1,250,000 shares of our
common stock, previously issued to the finder, to $0.50 per share.
THE NOTES
The notes have a maturity date of two years from issuance and are
convertible into our common stock at a per share price determined at the time of
conversion, equal to the lower of:
o $0.5867, or
o 75% of the average of the three lowest closing bid prices for our
common stock for the thirty trading days preceding the conversion date.
SUBSCRIPTION AGREEMENT WARRANTS
2,000,000 warrants are exercisable at $0.65 per share and 3,000,000
warrants are exercisable at $0.75 per share. The warrants have a term of four
years. If we require the warrant holders to purchase the additional notes, as
described above, and they do not comply, then the number of shares issuable upon
exercise of the warrants will be reduced according to a formula set forth in
each warrant agreement.
We have the right, subject to certain conditions, to request the
warrant holders to exercise half of each of their warrants (other than the
warrants issued on November 2, 2000). The conditions include:
o various minimum price and trading volume requirements; and
o a registration statement must be effective.
If the warrant holders do not exercise the number of warrants, as we
request, we are entitled to cancel those warrants. However, we cannot require
any warrant holder to exercise its warrant if it would result in that investor
owning more than 9.9% of our common stock.
All of the warrants have adjustment provisions for standard dilution
events including stock splits, stock dividends and similar transactions.
PURCHASE OF SHARES UNDER THE PRIVATE EQUITY LINE OF CREDIT AGREEMENT
We entered into a private equity line of credit agreement with an
investor on July 3, 2000. Under the terms of the equity line of credit
agreement, we can cause an investor to purchase an aggregate of $12,200,000 of
our common stock at 88% of market prices over a 14-day forward looking period
(see "Dilution") beginning the earlier to occur of:
o the date the registration statement, of which this prospectus forms a
part, becomes effective; or
o the earlier date as we and the investor may mutually agree in writing;
and expiring on the earliest to occur of:
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o the date on which the investor shall have purchased the shares
pursuant to the agreement for an aggregate purchase price of
$12,200,000;
o the date the agreement is terminated pursuant to certain provisions of
the agreement; or
o 24 months from the date we can cause the investor to purchase the
shares.
We can issue a maximum of 24 notices to the investor requiring it to
purchase our shares. At any one time we can require the investor to purchase not
less than $200,000 of our common stock, subject to certain conditions, nor more
than a maximum amount, as defined in the agreement depending on the price and
the trading volume of our common stock.
THE INVESTOR'S TERMINATION RIGHTS
---------------------------------
The obligation of the investor to purchase the shares of our common
stock would terminate permanently in the event that:
o there shall occur any stop order or suspension of the effectiveness of
the registration statement, of which this prospectus forms a part, for
ten consecutive days, or for an aggregate of 30 trading days during
the investor's commitment period, for any reason;
o we fail to reserve and keep available at all times, free of preemptive
rights, enough shares of our common stock to satisfy our obligation to
issue the shares to the investor;
o we fail to maintain the listing of our common stock on a principal
market, and we do not list the shares issuable to the investor;
o we fail to register our shares of common stock and fail to keep them
registered under Section 12(g) or 12(b) of the Exchange Act; and
o we fail to preserve and continue the corporate existence of our
company.
LIMITATION ON THE INVESTOR'S OWNERSHIP OF OUR SHARES
----------------------------------------------------
We cannot require the investor to purchase shares of our common stock
if it would result in the investor owning more than 9.9% of all of our common
stock, as would be outstanding on that purchase date, when aggregated with all
other shares of common stock then owned by the investor beneficially or deemed
beneficially owned by the investor as determined in accordance with Section 16
of the Exchange Act.
NO SHORT SELLING BY THE INVESTOR
--------------------------------
The investor may not engage in short sales of our common stock, except
as provided in the agreement.
LOCK-UP AGREEMENTS
In connection with our July 2000 financing, Michael D. Farkas, Rebecca
J. Farkas, Eric Seiden, Matthew Sher and Scott Mager signed lock-up agreements
which prevent them, subject to certain
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exceptions, from transferring or otherwise selling their shares owned as of
July 3, 2000 until the earliest of:
o an investor's purchase of an aggregate of $12,200,000 of our common
stock under the equity line agreement;
o the investor's failure to comply with the equity line agreement to
purchase our common stock; or
o two years from the effective date of a registration statement.
Additionally, from the expiration of the above described lock-up
period, these investors are restricted from transferring or selling more than
1,000 shares in any trading day and more than 15,000 shares in any month (3,000
shares in any trading day and 40,000 shares in a month if our common stock is
listed on the Nasdaq SmallCap Market, or another principal trading market),
until the earliest of:
o the warrants issued pursuant to the equity line are fully exercised,
to the extent they are exercisable; and
o the expiration of the warrants.
REGISTRATION RIGHTS AGREEMENT
In connection with the execution of the private equity line of credit
agreement, we agreed to file an initial registration statement covering the
resale of:
o the shares of our common stock issuable pursuant to the credit line
agreement; and
o the shares of our common stock issuable upon exercise of warrants
issued as finder's fees.
FINDER'S FEES
On July 3, 2000, we paid the following finder's fees:
o warrants to purchase 4,000,000 shares of common stock at $1.00 per
share (subsequently reduced to $0.50 per share) for a term of four
years;
o warrants to purchase 2,000,000 shares of common stock at $1.25 per
share (subsequently reduced to $0.50 per share) for a term of four
years;
o warrants to purchase 750,000 shares of common stock at $0.75 per share
(subsequently reduced to $0.50 per share) for a term of four years;
o warrants to purchase 500,000 shares of common stock at $0.65 per share
(subsequently reduced to $0.50 per share) for a term of four years;
and
o $150,000, which is 12% of the aggregate amount of the notes purchased.
We also agreed to pay a finder's fee equal to 12% of the amount of
investment we actually receive pursuant to the subscription agreement and
private equity line of credit agreement.
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On November 2, 2000, we paid a finder a finder's fee of warrants to
purchase 2,500,000 shares of common stock at $0.29 per share for a term of four
years.
BUSINESS - OUR COMPANY
A SUMMARY OF WHAT WE DO
The emergence of the Internet as a tool for communication and commerce
has revolutionized the financial services industry by providing organizations
and individuals around the world with new ways of conducting business. Consumers
have recognized that self-directed on-line transactions can be faster, less
expensive and more convenient than transactions conducted through a human
intermediary. We are intent on capitalizing on this high growth opportunity by
becoming a full service, one stop, financial services portal for diversified
self-directed investors. Our ongoing business strategy is to offer an array of
services, to enhance our users' experiences and empower them to better manage
their personal prosperity and investments.
Our web site, which won the 2000 @d:tech awards gold medal for the best
banking/financial services web site, offers self-directed investors a
comprehensive suite of products and services. We provide users with numerous
free resources, including:
o breaking financial news;
o delayed stock and option price quotes;
o Java-based charting and quote applications;
o real-time market commentary and analysis;
o company financial information;
o personalized investment portfolio tracking;
o search and filtering tools for mutual fund products; and
o information relating to initial public offerings.
Through our relationships with various companies, we offer our visitors
the on-line opportunity to:
o open brokerage accounts and trade securities through RichMark Capital
Corporation;
o apply for home mortgages through MortgageIT.com; and
o obtain insurance quotes and insurance policies through Quotesmith.com,
Inc.
Our services give investors increased control over their personal
investments by providing a link to the financial markets and to financial
information through a customizable and personalizable user interface. The
products and services that we currently offer are described below.
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OUR PRODUCTS AND SERVICES
OUR ON-LINE TRADING PRODUCTS AND SERVICES
-----------------------------------------
We offer our users the opportunity to open brokerage accounts and trade
securities through RichMark Capital Corporation, a member of the National
Association of Securities Dealers, Inc. and the Securities Investor Protection
Corporation. The services RichMark provides are based on transaction-enabling
technology and are designed to serve the needs of self-directed investors.
Investors who open a RichMark brokerage account have complete access to:
o fully automated stock, option, and mutual fund order processing (see
below);
o on-line investment portfolio tracking; and
o current information about their RichMark accounts.
Our users also have access to financial news and information,
investment research and management features, including "Stock Alerts", real time
quotes and various analytical and record keeping tools (see below).
At present, we receive no income from introducing our users to
RichMark, although we believe that offering these services enhances our user
base. For a flat fee of $20,000, our services agreement with RichMark permits us
to solicit RichMark's customer base that was introduced to RichMark by us. On
August 29, 2000, WealthHound Securities, Inc., one of our wholly-owned
subsidiaries and we entered into a merger agreement whereby we would acquire
WAP, Inc., a broker/dealer and a member of the National Association of
Securities Dealers and the Securities Investor Protection Corporation. There are
various conditions to the closing of this transaction, which may or may not be
satisfied. See "Results of Operations - Liquidity and Capital Resources". Until
the closing of this transaction or termination of the RichMark agreement, our
users will continue to trade securities through RichMark.
STOCK, OPTION AND MUTUAL FUND TRADING
-------------------------------------
Users can directly place orders over the Internet to buy and sell
Nasdaq, American Stock Exchange, New York Stock Exchange, over the counter
bulletin board, "pink sheets" and other exchange-listed securities, as well as
equity and index options and mutual funds through RichMark Capital Corp. and the
automated order processing system of RichMark's clearing firm, Penson Financial
Services, Inc. This processing system supports a range of order types, including
market orders, limit orders, stop orders and short sales. See "Risk Factors --
Our business relies heavily on computers and other electronic systems and
capacity constraints and failures of these systems could harm our business".
PORTFOLIO TRACKING AND RECORDS MANAGEMENT
-----------------------------------------
In an effort to provide our users with an optimum portfolio tracking
system, we offer, through our relationship with News Alert and RichMark, a
sophisticated portfolio tracking service with a variety of features, free of
charge, including:
o on-line access to a listing of all the user's portfolio of assets,
including data on the date of purchase, cost basis, current price and
current market value;
o automatic calculation of realized profits and losses for each asset
held;
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o detailed RichMark brokerage account balance and transaction
information including cash and money fund balances, buying power, net
market portfolio value, dividends received, interest earned, deposits
and withdrawals; and
o brokerage history including all orders, executions, changes and
cancellations.
Users can also create "shadow" portfolios to include most financial
instruments that the user is interested in tracking; for example, assets held at
a brokerage firm other than RichMark. These shadow portfolios can include
stocks, options and many mutual funds.
OUR ON-LINE VISITORS SHARE INFORMATION
--------------------------------------
We provide our users with a unique one to one forum to trade anonymous
stock ideas via the web site. By entering a stock ticker symbol and a short
message at the appropriate field on the site, the sender could receive an
anonymous stock idea from another on-line participant.
ACCESS AND DELIVERY OF OUR SERVICES
-----------------------------------
Our services are widely accessible through multiple gateways, with
automated order placement available 24 hours a day, seven days a week by
personal computer. In March 2000, we began providing our users with access to
live customer service agents. We expect to offer substantially the same services
once we set up our broker/dealer subsidiary. In the future, we also hope to
provide our services through a touch-tone telephone with interactive voice
recognition.
ON-LINE MARKET DATA AND FINANCIAL INFORMATION
---------------------------------------------
We provide our users, through our relationship with NewsAlert.com, with
a variety of business information services that include:
o detailed delayed stock quote data;
o charts containing information about specific companies;
o company research and real time market information;
o market commentary; and
o breaking news.
Users can create their own personal portfolio comprised of stocks and
options for quick access to current pricing information. We provide our users
quotes, including stocks, options, major market indices, most active issues, and
largest gainers and losers for the major stock exchanges. Customers that
maintain RichMark brokerage accounts can receive real time quotes, while users
without such accounts can receive delayed quotes.
IPO CENTER
----------
Through our relationship with News Alert, we provide our users, free of
charge, access to information relating to initial public offerings, including
the following information:
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o IPO calendar
o IPO performance
o IPO pricing
o IPO filings
o IPO commentary
o This week's IPOs
o Next week's IPOs
o Upcoming IPOs
FEDWATCH
--------
Our web site includes a unique feature which allows "Fed watchers" to
gauge the direction of interest rates by keeping abreast of speeches by and
interviews with key government and business leaders and the news relating to
such leaders.
RESEARCH CENTER
---------------
Our research center provides our users with access, through various
hyperlinks to other web sites, to research and news about companies that our
users are interested in researching. These web sites include, but are not
limited to, selected message boards for:
o Yahoo Finance
o Motley Fool
o Stockmaster
o FreeRealTime.com
o Silicon Investor
o RagingBull
o ClearStation
o Go Network
o Quicken
o Smartmoney.com
o Bloomberg - CNET Investor
o TheStreet.com
o CBS MarketWatch
o Quote.com
o ZDNet Interactive Investor
o CNNfn On-line
o ZDNet Interactive Investor
o Forbes On-line
o Reuters
o PRNewswire
o Businesswire
o NewsAlert
PERSONAL NEWS
The Personal News service powered by News Alert lets the user access
news on subjects of personal interest in one place. The user may choose
pre-defined topics such as "industries" or "stocks", or may create the user's
own "advanced" free-form query to include his or her own personal topics. A user
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can view the latest headlines on all chosen topics by accessing the user's
personal news page and have the option of using our Clip AlertTM feature, which
alerts the user via e-mail to important headlines on topics that the user has
chosen. This tool, which is available free of charge upon completion of a simple
registration form, also allows the user to select the frequency and style of
these alerts.
STOCK ALERT
-----------
Through our relationship with News Alert, we offer users a stock alert
service at no additional cost upon completion by the user of a registration
form. This service allows our users to easily monitor price movements on
specific stocks that they select; for example, assume that the current stock
price for XYZ Co. is $10. If the user would like to be alerted when the stock
price falls below $9 or jumps above $11, the user sets the desired limits, and
within 15 minutes of the stock reaching either limit, the user will receive one
e-mail message with such information.
WIRELESS STOCK QUOTES
---------------------
Our web site also features a Wireless Stock Quote Application for Palm
Inc.'s Palm VII wireless connected organizer, which enables our users, at no
cost after completion of a simple registration form, to receive stock quotes on
their Palm VII.
OUR INSURANCE PRODUCTS AND SERVICES
-----------------------------------
Our co-branding relationship with Quotesmith.com provides our visitors
with a comprehensive Internet-based insurance service. The Quotesmith service
enables consumers and business owners to obtain, at no cost, instant quotes from
over 300 insurance companies.
In addition, our visitors can efficiently search for, analyze, and
compare insurance products and can easily select and purchase insurance directly
from the insurance company of their choice, including the following insurance
products:
o Individual term life;
o Private passenger automobile;
o Dental;
o Individual and family medical;
o Medicare supplement;
o Small group medical; and
o Workers' compensation.
WealthHound, through Quotesmith's proprietary database and industry
expertise developed over the past 16 years, provides a complete "quote to policy
delivery" insurance solution without the involvement of any commissioned
salespeople.
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MORTGAGE SERVICES AND PRODUCTS
------------------------------
Our co-branding relationship with MortgageIT.com, Inc. offers our
visitors a wide array of first mortgage products, as well as second mortgages
and home equity lines of credit.
OUR ON-LINE RETAIL PRODUCTS AND SERVICES
----------------------------------------
In order to provide our users with a comprehensive personal financial
web site, we have established a key relationship with Bcentral.com and
LinkShare.com to provide an e-commerce area within our web site. Through this
relationship we offer our visitors an opportunity to purchase items from over
100 retailers.
OUR WEB SITE DESIGN SERVICES COMPANY
------------------------------------
In May 2000, envitro.com, Inc., a web site design services company, was
organized as a wholly-owned subsidiary of WealthHound, Inc. To date, envitro has
developed several web sites, for related parties, including but not limited to,
Hipstyle.com and i-autoauction.com. We intend that envitro will continue to grow
by procuring additional related and unrelated party business and through
acquiring existing web site development companies. See "Risk Factors - We intend
to grow through acquisitions of other companies, and our business and financial
results could be adversely affected if we do not successfully implement these
acquisitions".
OUR HOSTING COMPANY
-------------------
In August 1999, OSRS Communications, an offsite, remote server to host
web sites and e-mail accounts, was organized as a Florida Corporation and a
wholly-owned subsidiary of WealthHound.com, Inc. On July 1, 2000, OSRS began its
hosting business for related parties. OSRS intends to continue to grow its
business by providing hosting services to additional related and unrelated
parties and through the acquisition of existing webhosting companies. See "Risk
Factors -- We intend to grow through acquisitions of other companies, and our
business and financial results could be adversely affected if we do not
successfully implement these acquisitions".
REVENUES, MARKETING AND ADVERTISING
We are in the developmental stage of our Internet business and we
currently have no revenues. Our agreements with each of News Alert, Quotesmith
and MotgageIT, and Bcentral.com and LinkShare.com, respectively, provide,
subject to conditions set forth in each of the agreements, for the payment of
fees to us in the event we satisfy the conditions set forth in each of the
agreements. Most of our expected 2001 revenue will be from our brokerage
product, which we plan to launch, subject to NASD approval, in the first quarter
of 2001. We have not yet determined the commission structure for our brokerage
product.
MortgageIT.com, Inc. pays us a monthly marketing fee based upon the
number of loan applications it receives from our web site. The per loan
application fee increases as the number of loan applications MortgageIT.com
receives from our web site increases.
Quotesmith.com, Inc. pays us a referral fee based upon the number of
requests for insurance quotes it receives from our web site. The referral fee is
$1.50 per quote request for all insurance product lines except for automobile
insurance where the referral fee is $0.25 per quote request.
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NewsAlert pays us a co-branding fee of $10 for every 1,000 page views
above 250,000 page views per month. We pay NewsAlert a minimum monthly charge of
$3,500 for the use of its content. We have not yet received any co-branding fees
from NewsAlert in connection with this agreement.
We do not have a predetermined fee schedule with Bcentral.com and
LinkShare.com.
Our marketing strategy is based on an integrated marketing model which
employs a mix of communications media. The goals of our marketing programs are
to:
o increase WealthHound's brand name recognition;
o attract new users;
o position WealthHound as a better way of accessing financial and market
data, and managing portfolios for the individual investor; and
o increase the retention and value of existing users.
We will pursue these goals through advertising, marketing on our own
web site and other on-line opportunities, direct one-on-one marketing, public
relations, and co-marketing programs. Advertising will direct interested users
to our web site for additional information, as opposed to generating
telephone-based inquiries.
All communications with members of the public by our subsidiary,
WealthHound Securities, Inc., and any broker/dealers that we may acquire in the
future, are regulated by the National Association of Securities Dealers, Inc.
OUR BUSINESS EXPANSION STRATEGY
We are pursuing strategic relationships to increase our access to
on-line consumers, to build brand name recognition and to expand the products
and services we provide to our on-line users. In addition to ongoing
relationships, we are pursuing, or intend in the near future to pursue,
alliances with:
o Internet access and service providers;
o Internet content providers;
o on-line broker-dealers;
o mortgage companies;
o insurance companies;
o web site development companies;
o web site and e-mail hosting companies; and
o electronic commerce companies.
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Our long term strategy involves pursuing alliances with home and
on-line banking service providers. This, however, is not part of our short term
strategy.
These alliances are intended to increase our core user base,
transaction volume and operational efficiency and to further enhance our brand
name recognition. See "Risk Factors -- We intend to grow through acquisitions of
other companies, and our business and financial results could be adversely
affected if we do not successfully implement these acquisitions". Of course, we
cannot assure you that we will be successful in forging these alliances and
accomplishing our intended expansions. Our success in this regard will depend on
locating and acquiring financially sound companies and raising additional
financing sufficient to meet the costs of such acquisitions. There may be legal
or licensing requirements that could adversely affect our ability to provide new
services.
COMPETITION
The market for Internet services and products is relatively new,
intensely competitive and rapidly changing. Since the Internet's
commercialization in the early 1990's, the number of web sites on the Internet
competing for users' attention has proliferated with no substantial barriers to
entry. We expect that competition will continue to intensify. See "Risk Factors
-- We face intense Internet competition".
Potential competition derives from a number of large Internet companies
and services that have expertise in developing on-line commerce and in
facilitating Internet traffic, including America On-line, Microsoft and Yahoo!.
Many of these offer the same free or paid services that we offer. These
potential competitors could choose to compete directly or indirectly through
affiliations with other electronic commerce companies, including direct
competitors. Other large companies with strong brand recognition, technical
expertise and experience in Internet commerce could also seek to compete in this
marketplace.
The market for on-line investing services, for on-line insurance
products, and for on-line mortgage products is rapidly evolving and intensely
competitive, and we expect competition to continue to intensify in the future.
Since barriers to entry are low, current and new competitors may be able to
launch new web sites at a relatively low cost.
We believe that the principal determinants of success in the Internet
discount brokerage market are brand recognition, size of customer base,
technology infrastructure and access to financial and managerial resources. We
also believe that the principal factors considered by customers in choosing an
Internet discount broker are price, customer service, quality of trade
execution, delivery platform capabilities, convenience and ease of use, breadth
of services and innovation.
The market for discount brokerage services, particularly electronic
brokerage services, is new, rapidly evolving, and intensely competitive. We have
seen a dramatic increase in competition from 1998-2000 and expect this
competitive environment to continue in the future. We encounter direct
competition from numerous other discount brokerage firms, many of which provide
on-line brokerage services. These competitors include such discount brokerage
firms as Charles Schwab & Co., Inc., Fidelity Brokerage Services, Inc., TD
Waterhouse Securities, Inc., E*TRADE Securities Inc., DLJdirect, a division of
Donaldson, Lufkin & Jenrette, Inc., Morgan Stanley Dean Witter & Co., and Datek
On-line Brokerage Services Corp. We also encounter competition from established
full-commission brokerage firms as well as financial institutions, mutual fund
sponsors and other organizations, some of which provide or have announced that
they intend to provide on-line brokerage services.
We compete with a number of companies that either sell insurance
on-line, such as Quicken InsureMarket, or provide lead referral services
on-line, such as InsWeb Corporation. In the mortgage
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industry, we compete with on-line mortgage-product providers such as Lending
Tree and E-Loan. In the web site development industry, we compete with numerous
public and private entities, including but not limited to, Agency.com,
Razorfish.com, Paradigm Exchange, and Xpedior, Inc. and in the web site hosting
industry, we compete with such companies as Valueweb.net, Communitech.net,
Hosting.com, Hostamerica.com, Homepage.com and Dell Hosting.
A number of our competitors have significantly greater financial,
technical, marketing and other resources. Some of our competitors also offer a
wider range of services and financial products than us and have greater name
recognition, more extensive customer bases and were first to the market. These
competitors may be able to respond more quickly to new or changing
opportunities, technologies and customer requirements than us and may be able to
undertake more extensive promotional activities, offer more attractive terms to
customers and adopt more aggressive pricing policies than us. Moreover, current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties or may consolidate to
enhance their services and products. We expect that new competitors or alliances
among competitors will emerge and may acquire significant market share.
GOVERNMENT AND STATE REGULATION
We are attempting to acquire a broker/dealer firm and upon such
acquisition will be subject to securities industry regulations. The securities
industry in the United States is subject to extensive regulation governing all
aspects of the securities business. See "Risk Factors -- We operate in a highly
regulated industry and compliance failures could adversely affect our business;
and Risk Factors -- We need to comply with stringent capital requirements".
Through our co-branding relationship with MortgageIT, the mortgage
banking business that is conducted through our web site is subject to the rules
and regulations of various federal, state and local regulatory agencies in
connection with originating, processing, underwriting and selling mortgage
loans. These rules and regulations, among other things, impose licensing
obligations on MortgageIT, prohibit discrimination, establish underwriting
guidelines and mandate disclosures and notices to borrowers. MortgageIT is also
required to comply with each regulatory entity's financial requirements. If
MortgageIT does not comply with these rules, regulations and requirements, the
regulatory agencies may restrict the ability of MortgageIT to originate and fund
mortgage loans; such restrictions could affect our business by reducing our user
base.
Through our co-branding relationship with Quotesmith, insurance
business that is conducted through our web site is subject to extensive
regulation by state governments. This regulation extends to the operations of
insurance companies and insurance agents. In general, state insurance laws
establish supervisory agencies with broad administrative and supervisory powers
to grant and revoke licenses to transact business, impose continuing education
requirements, regulate trade practices, require statutory financial statements
of the insurance companies, approve individuals and entities to whom commissions
can be paid, regulate methods of transacting business and advertising, approve
policy forms, and regulate premium rates for some forms of insurance.
Moreover, existing state insurance regulations require that a firm, or
individual within that firm, must be licensed in order to quote an insurance
premium. State insurance regulatory authorities regularly make inquiries, hold
investigations and administer market conduct examinations with respect to
compliance with applicable insurance laws and regulations by insurance companies
and their agents. In recent years, a number of insurance agents and the life
insurance companies they represent, have been the subject of regulatory
proceedings and litigation relating to alleged improper life insurance pricing
and sales practices. If any such proceedings were to be instituted against
Quotesmith, they may have the
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effect of curtailing Quotesmith's operations which in turn could affect our
business by reducing our user base.
EMPLOYEES
We employ 7 people, all of whom are full-time employees. We will employ
additional people as we continue to implement our plan of operation. None of our
employees are covered by a collective bargaining agreement, and we believe that
our relationship with our employees is satisfactory.
DESCRIPTION OF PROPERTY
We lease approximately 10,000 square feet in a building located at 11
Broadway, New York, New York 1004. The lease expires in July 2010.
LEGAL PROCEEDINGS
The Securities and Exchange Commission's Office of Investor Education
and Assistance received a complaint made by Lois Baldwin relating to an alleged
delay in the transfer of her account from Ameritrade to WealthHound in April
2000 that resulted in an "alleged" loss of approximately $62,000. The complaint
is dated April 19, 2000, and was allegedly forwarded to WealthHound on June 6,
2000. Our records indicate that we first learned of the complaint on or about
September 14, 2000. Since WealthHound is not a broker-dealer, and all accounts
belong to and are operated by RichMark Capital Corporation and their
representatives, the complaint was appropriately responded to by RichMark on
September 20, 2000. RichMark vigorously denies the claim. We believe that Ms.
Baldwin's complaint is without merit. Notwithstanding our denial and intent to
defend this complaint, there is no guarantee that we will be successful in
defeating her claims.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information about our executive officers
and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Michael D. Farkas 28 Chief Executive Officer and Chairman of the Board
Seth S. Fishman 30 President, Chief Financial Officer and Director
Robert A. Schechter 28 General Counsel, Secretary and Director
</TABLE>
DIRECTORS
MICHAEL D. FARKAS has been our Chairman of the Board and Chief
Executive Officer since March 7, 2000. Prior to joining our company, Mr. Farkas
founded Atlas Recreational Holdings which owns a controlling interest in Holiday
RV Superstores, Inc., a publicly traded company on Nasdaq (RVEE). Since 1995,
Mr. Farkas has concentrated his business activities on mergers and acquisitions,
financial consulting and fund raising primarily in the telecommunications,
information technology and
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other hi-tech ventures through Atlas Equity Group, Inc. and Warrior Equity
Partners, Inc.; each of which Mr. Farkas founded. Mr. Farkas is also a director
of I-incubator.com and Global Realty Management Group.
SETH S. FISHMAN, a certified public accountant, has been our President
and Chief Financial Officer since September 5, 2000. Mr. Fishman was appointed
to our Board of Directors on August 2, 2000 and served as our Vice-President of
Finance from May 16, 2000 to September 5, 2000. From 1992 to May 2000, Mr.
Fishman held various finance and accounting related positions, including Chief
Financial Officer, Financial Controller and Accounting Manager, at Thieme
Medical Publishers, Inc., an international medical and scientific publisher. Mr.
Fishman graduated with a BS in Accounting from Touro College in 1991 and
received his MBA, with a focus on taxation, from Baruch College Business School
in 1997.
ROBERT A. SCHECHTER has been our General Counsel and Secretary since
August 2, 2000. Mr. Schechter was appointed to the Board of Directors of our
Company on August 2, 2000. From January 1998 to June 23, 2000, Mr. Schechter was
an attorney at Yerushalmi & Associates, LLP, a New York law firm, where he
represented multinational Internet and high tech companies. Mr. Schechter is
also a founding member of RoundTable International, LLC, a New York limited
liability company aimed at raising capital for Internet and high tech start ups.
Mr. Schechter received his JD in 1997 from Hofstra University School of Law.
BOARD OF DIRECTORS
The board of directors consists of three directors. On March 7, 2000,
Rebecca J. Farkas, at the time our sole director, appointed Michael D. Farkas,
Scott B. Mager and Matthew C. Sher to our Board of Directors. On March 8, 2000,
Mrs. Farkas resigned from our Board of Directors. Messrs. Farkas, Mager and Sher
appointed Alex Comandini to our Board of Directors. On July 18, 2000, Mr. Mager
resigned from our Board of Directors. On August 2, 2000, Mr. Sher resigned from
our Board of Directors. On August 2, 2000, Messrs. Farkas and Comandini
appointed Seth Fishman and Robert Schechter to our Board of Directors. On August
24, 2000, Mr. Comandini resigned from our Board of Directors.
BOARD COMMITTEES
The Board of Directors has established no committees.
EXECUTIVE COMPENSATION
Rebecca Farkas was our Chief Executive Officer and our sole director
and officer during the 1999 fiscal year. Mrs. Farkas received no compensation
for services performed during the 1999 fiscal year.
The following table sets forth information concerning annual and
long-term compensation, on an annualized basis for the 2000 fiscal year, for our
Chief Executive Officer and for each of our other executive officers (the "Named
Executive Officers") whose compensation on an annualized basis is anticipated to
exceed $100,000 during fiscal 2000.
-33-
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
-----------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-----------------------------------------------------------------------------------------------------------------------------
RESTRICTED SECURITIES
NAME AND PRINCIPAL FISCAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARDS (1) OPTIONS COMPENSATION
(NO. OF SHARES)
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rebecca J. Farkas (2) 2000 $ 0 $0 $0 $0 0 $0 (3)
Chief Executive Officer
-----------------------------------------------------------------------------------------------------------------------------
Michael D. Farkas 2000 150,000 (4) 0 0 0 0 38,028 (5)
Chief Executive Officer
-----------------------------------------------------------------------------------------------------------------------------
Seth S. Fishman 2000 111,000 (6) 0 0 0 3,250,000 0 (3)
President and Chief Financial
Officer
-----------------------------------------------------------------------------------------------------------------------------
Robert A. Schechter 2000 110,000 (7) 0 0 0 1,036,000 0 (3)
General Counsel and
Secretary
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Named Executive Officers are not expecting to receive any long term
incentive plan payouts in 2000.
(2) Mrs. Farkas resigned as Chief Executive Officer as of March 8, 2000.
(3) The aggregate amount of personal benefits not included in the Summary
Compensation Table does not exceed the lesser of either $50,000 or 10% of
the total annual salary and bonus paid to the Named Executive Officers.
(4) Mr. Farkas commenced the right to receive his salary in July of 2000 and
thus will only be entitled to receive $75,000 during the 2000 fiscal year.
As of August 16, 2000, Mr. Farkas has elected to defer his salary until
further notice.
(5) Mr. Farkas commenced the right to receive these perquisites in July and
August of 2000 and thus will only be entitled to receive $18,889 worth of
perquisites. These perquisites include an automobile lease for $1,844 per
month, automobile insurance for $775 per month, garage space for $425 per
month, cellular telephone for $125 per month and use of a gasoline credit
card and E-Z Pass.
(6) Mr. Fishman commenced the right to receive his salary in May of 2000 and
thus will only be entitled to receive $65,708 during the 2000 fiscal year.
(7) Mr. Schechter commenced the right to receive his salary in June of 2000 and
thus will only be entitled to receive $53,750 during the 2000 fiscal year.
STOCK OPTIONS
We did not grant stock options in 1999.
The following table sets forth information with respect to stock
options granted to the Named Executive Officers during fiscal year 2000:
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 2000
(INDIVIDUAL GRANTS) (1)
----------------------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL OPTIONS
SECURITIES UNDERLYING GRANTED TO EMPLOYEES IN EXERCISE EXPIRATION
NAME OPTIONS GRANTED FISCAL PRICE DATE
2000
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Seth S. Fishman 2,750,000 (2) 51.8% $0.10 (3)
500,000 (4) 9.4% $0.35 (3)
----------------------------------------------------------------------------------------------------------------------
Robert A. Schechter 1,000,000 (5) 18.8% $0.10 (3)
36,000 (6) 1.0% $0.35 (3)
----------------------------------------------------------------------------------------------------------------------
</TABLE>
-34-
<PAGE>
(1) As this filing is being made prior to the end of our 2000 fiscal year, the
number of options granted to each Named Executive Officer is based on
option grants made on or prior to October 25, 2000. No stock appreciation
rights were granted or are expected to be granted to the Named Executive
Officers during fiscal year 2000.
(2) 275,000 options vested immediately on the date of grant and the remainder
of the options vest in three equal annual installments of 825,000 options
commencing on September 5, 2001.
(3) The options expire three years from each of their respective vesting dates.
(4) 50,000 options vested immediately on the date of grant and the remainder of
the options vest in three equal annual installments of 150,000 options
commencing on May 17, 2001.
(5) 100,000 options vested immediately on the date of grant and the remainder
of the options vest in three equal annual installment of 300,000 options
commencing on September 5, 2001.
(6) The options vest in three equal annual installments of 12,000 options
commencing on July 12, 2001.
No Executive Officer held options during the 1999 fiscal year. The
following table sets forth information as to the number of shares of common
stock underlying unexercised stock options and the value of unexercised
in-the-money stock options projected at the 2000 fiscal year end:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN THE 2000 FISCAL YEAR AND
PROJECTED FISCAL YEAR END OPTION VALUE (1)
NUMBER OF
UNEXERCISED VALUE OF
SECURITIES UNEXERCISED IN-
UNDERLYING THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR END YEAR END
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Seth S. Fishman 0 0 325,000 / 2,925,000 $41,250 / $371,250
----------------------------------------------------------------------------------------------------------------------------
Robert A. Schechter 0 0 100,000 / 936,000 $15,000 / $135,000
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As this filing is being made prior to the end of our 2000 fiscal year, the
number of unexercised securities underlying options for each Named
Executive Officer is based on option grants made on or prior to October 25,
2000 and the value of the unexercised options is based on the closing price
of our stock on October 25, 2000. No stock appreciation rights have been
granted or are expected to be granted, or exercised by, the Named Executive
Officers during fiscal 2000.
EMPLOYMENT AGREEMENT
Pursuant to an employment agreement which has since been terminated,
Mr. Comandini was granted options to purchase 381,867 shares of our common
stock. The option exercise price is $.35 per share. Mr. Comandini and we agreed
that the options shall terminate on August 24, 2003, three years from the date
Mr. Comandini resigned from WealthHound.
-35-
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of November 7, 2000, certain
information with respect to the beneficial ownership of the common stock by (1)
each person known by us to beneficially own more than 5% of our outstanding
shares, (2) each of our directors, (3) each Named Executive Officer and (4) all
of our executive officers and directors as a group. Except as otherwise
indicated, each person listed below has sole voting and investment power with
respect to the shares of common stock set forth opposite such person's name.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2) OUTSTANDING SHARES (3)
-------------------- ------------------------ ----------------------
5% STOCKHOLDERS
---------------
<S> <C> <C>
Donald Engel 4,000,000 (4) 5.1%
First Security Investments 15,000,000 19.8%
Libra Finance S.A. 9,750,000 (5) 11.4% (6)
Rebecca J. Farkas 53,829,530 (7) 70.9%
DIRECTORS AND NAMED EXECUTIVE
-----------------------------
OFFICERS
--------
Michael D. Farkas 53,829,530 (8) 70.9%
Seth S. Fishman 325,000 (9) *
Robert A. Schechter 100,000 (10) *
All the Officers and Directors as a
Group 54,254,530 (11) 71.1%
</TABLE>
----------------
* Less than 1%
(1) Unless otherwise indicated, the address of each beneficial owner is
c/o WealthHound.com, Inc., 11 Broadway, New York, New York 10004.
(2) Under the rules of the SEC, a person is deemed to be the beneficial
owner of a security if such person has or shares the power to vote or
direct the voting of such security or the power to dispose or direct
the disposition of such security. A person is also deemed to be a
beneficial owner of any securities if that person has the right to
acquire beneficial ownership within 60 days of the date hereof. Unless
otherwise indicated by footnote, the named entities or individuals
have sole voting and investment power with respect to the shares of
common stock beneficially owned.
(3) Shares subject to options are considered outstanding only for the
purpose of computing the percentage of outstanding common stock which
would be owned by the optionee if the options were so exercised, but
(except for the calculation of beneficial ownership by all directors
and executive officers as a group) are not considered outstanding for
the purpose of computing the percentage of outstanding common stock
owned by any other person.
(4) Includes 4,000,000 shares of common stock issuable upon exercise of a
warrant.
(5) Includes 9,750,000 shares of common stock issuable upon exercise of
currently exercisable warrants.
(6) Pursuant to the terms of the subscription agreement and private equity
line of credit agreement, Libra may not exercise any warrants that
would cause its beneficial ownership to exceed 9.99% of the common
stock of WealthHound. See "The July 2000 Private Placement
Transaction".
-36-
<PAGE>
(7) Includes 28,329,530 shares beneficially owned by Mrs. Farkas' husband,
Michael D. Farkas.
(8) Includes (i) 25,500,000 shares held by Mr. Farkas' wife, Rebecca J.
Farkas, (ii) 15,000,000 shares held by First Security Investments over
which Mr. Farkas has a verbal voting control agreement, (iii) 110,469
shares held by The Farkas Group, Inc. of which Mr. Farkas is the sole
shareholder, (iv) 122,042 shares held by Atlas Equity Group of which
Mr. Farkas is the President, (v) 670,000 shares held by Warrior Equity
Partners, Inc. of which Mr. Farkas is the sole shareholder, (vi)
1,500,000 shares held by I-incubator.com, Inc. of which Atlas Equity
Group is the majority shareholder, (vii) 240,000 shares held by GSM
Communications, Inc. of which Mr. Farkas is the President, and (viii)
80,000 shares of common stock issuable upon exercise of currently
exercisable warrants
(9) Consists of 325,000 shares of common stock issuable upon exercise of
currently exercisable options.
(10) Consists of 100,000 shares of common stock issuable upon exercise of
currently exercisable options.
(11) Includes options and warrants indicated in notes (8), (9) and (10).
DILUTION
As of November 7, 2000, we had issued and outstanding 75,854,025 shares
of common stock. At that date, there were an additional 107,446,962 shares of
common stock reserved for possible future issuances as follows:
o options granted under our stock option plan to purchase 6,676,869 shares at
exercise prices between $.10 and $1.00 per share. These shares will be
deemed to be "restricted securities" when issued, unless we register these
shares.
o warrants to purchase 4,446,666 shares at prices between $.50 and $2.00 per
share. These shares will be deemed to be "restricted securities" when
issued, unless we register these shares.
o warrants to purchase 14,750,000 shares at prices between $0.29 and $1.25
per share. These shares are registered in the registration statement of
which this prospectus is a part and upon effectiveness of the registration
statement, once the warrants are exercised, will be freely tradable without
restriction (subject to prospectus delivery requirements).
o 23,076,924 shares issuable, at a presumed conversion price of $0.13 per
share, upon conversion of notes issued in the aggregate amount of
$1,500,000. These shares are registered in the registration statement of
which this prospectus forms a part and upon effectiveness of the
registration statement will be freely tradable without restriction (subject
to prospectus delivery requirements).
o 30,769,231 shares issuable, at a presumed conversion price of $0.13 per
share, upon conversion of notes issuable in the aggregate amount of
$2,000,000 (assuming we exercise our right under the subscription
agreements to require certain investors to purchase such notes). These
shares are registered in the registration statement of which this
prospectus forms a part and upon effectiveness of the registration
statement, once the notes are converted, will be freely tradable without
restriction (subject to prospectus delivery requirements).
-37-
<PAGE>
o 31,282,051 shares (assuming we fully exercise our right under the equity
line of credit agreement to require an investor to purchase such shares at
an aggregate purchase price of $12,200,000 and at a presumed price of $0.44
per share). A portion of these shares are registered in the registration
statement of which this prospectus forms a part and upon effectiveness of
the registration statement, once the shares are purchased, will be freely
tradable without restriction (subject to prospectus delivery requirements).
The existence of the options, the warrants and the notes may adversely
affect the terms on which we may obtain additional equity financing. Moreover,
the holders are likely to exercise their rights to acquire common stock at a
time when we would otherwise be able to obtain capital with more favorable terms
than we could obtain through the exercise of such securities.
The shares which will be deemed "restricted securities" may be sold
under rule 144. Rule 144 permits sales of "restricted securities" by any person,
whether or not an affiliate of the issuer, after one year. At that time, sales
can be made subject to the rule's volume and other limitations and after two
years by non-affiliates without adhering to rule 144's volume or other
limitations. In general, an "affiliate" is a person with the power to manage and
direct our policies. The SEC has stated that, generally, executive officers and
directors of an entity are deemed affiliates of the issuing entity.
DILUTION EFFECTS OF THE SECURITIES UNDERLYING THE SUBSCRIPTION AGREEMENTS
--------------------------------------------------------------------------
o The issued and issuable notes are convertible into our common stock over
time at the discretion of the holders. If the holders of the notes were
able to fully convert their notes into common stock on November 8, 2000,
approximately 28,846,154 additional shares of common stock would be issued.
The following table describes the number of shares of our common stock
into which the warrants and notes would have been convertible if the holders of
these securities could have fully converted all of such securities on November
8, 2000 pursuant to the following market prices. This table also describes the
percentages of our total outstanding common stock represented by the shares of
common stock into which all of the outstanding private financing securities
would have been convertible on November 8, 2000.
For purposes of this table, we assume that the average of the three
lowest closing bid prices for a share of our common stock during the immediately
preceding 30 day trading period before conversion was the same as the price per
share in each of the respective rows of column one of the table and we also
assume that the registration statement had been declared effective by November
8, 2000.
<TABLE>
<CAPTION>
Percentage of our
outstanding common stock
Number of shares of represented by the shares
Percentage of market Conversion common stock issuable of common stock issuable
price per share of our price for upon conversion of the upon conversion of notes
common stock notes notes and warrants
------------------------ --------- -------------------- -------------------------
<S> <C> <C> <C>
At $0.30 per share (150%
of the market price at $0.23 15,217,391 29.0%
November 7, 2000)
38
<PAGE>
Percentage of our
outstanding common stock
Number of shares of represented by the shares
Percentage of market Conversion common stock issuable of common stock issuable
price per share of our price for upon conversion of the upon conversion of notes
common stock notes notes and warrants
------------------------ --------- -------------------- -------------------------
At $0.20 per share (100%
of the market price at $0.15 23,333333 34.4%
November 7, 2000
At $0.10 per share (50% of
the market price at $0.08 43,750,000 44.8%
November 7, 2000
</TABLE>
SELLING STOCKHOLDERS
The shares being offered for resale by the selling stockholders consist
of the shares of common stock underlying notes and warrants pursuant to the
equity line of credit agreement. None of the selling stockholders have and,
within the past three years have not had, any position, office or other material
relationship with us or any of our predecessors or affiliates.
The following table sets forth the name of the selling stockholders,
the number of shares of common stock beneficially owned by each of the selling
stockholders as of November 7, 2000 and the number of shares of common stock
being offered by the selling stockholders. The shares being offered hereby are
being registered to permit public secondary trading, and the selling
stockholders may offer all or part of the shares for resale from time to time.
However, the selling stockholders are under no obligation to sell all or any
portion of such shares nor are the selling stockholders obligated to sell any
shares immediately upon effectiveness of this prospectus. All information with
respect to share ownership has been furnished by the selling stockholders.
<TABLE>
<CAPTION>
Shares of common Shares of common stock
stock owned prior to Shares of common stock owned after offering(2)
Name of selling stockholder offering(1) to be sold(1) Number Percent
-------------------------- -------------------- ----------------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Alon Enterprises Ltd. (3) 1,250,000(4) 1,250,000(4) 0 0%
Amro International, S.A. (5) 6,634,616(6) 6,634,616(6) 0 0%
Celeste Trust Reg. (7) 9,326,924(8) 9,326,924(8) 0 0%
Esquire Trade & Finance Inc. (9) 9,326,924(10) 9,326,924(10) 0 0%
Jadesburg Limited(11) 27,727,273(12) 27,727,273(12) 0 0%
The Keshet Fund L.P. (13) 1,400,000(14) 1,400,000(14) 0 0%
Keshet L.P. (15) 1,615,386(16) 1,615,386(16) 0 0%
Libra Finance S.A. (17) 7,250,000(18) 7,250,000(18) 0 0%
-39-
<PAGE>
Nesher Ltd. (19) 1,292,309(20) 1,292,309(20) 0 0%
Talbiya B. Investments Ltd. (21) 1,076,924(22) 1,076,924(22) 0 0%
Total 66,900,356 66,900,356
</TABLE>
------------------------
(1) Assumes that each selling stockholder will fully convert its notes if
any, and will exercise all of its warrants, if any, into common stock
and that we will fully exercise our right under the subscription
agreement and the equity line of credit agreement to require certain
stockholders to purchase convertible notes or shares of our common
stock.
(2) Assumes that all of the shares of common stock offered in this
prospectus are sold and no other shares of common stock are sold during
the offering period.
(3) Ian Wrench is a director of Alon Enterprises Ltd. and has investment
control of Alon.
(4) Includes 1,250,000 shares of common stock issuable upon exercise of
warrants.
(5) H. U. Bachofen is a director of Amro International, S.A. and has
investment control of Amro.
(6) Includes 1,923,077 shares of common stock issuable upon conversion of a
note in the amount of $250,000, 3,461,539 shares of common stock
issuable upon conversion of notes issuable in the aggregate amount of
$450,000 if we fully exercise our right under the subscription
agreement to require the stockholder to purchase such notes, and
1,250,000 shares of common stock issuable upon exercise of warrants.
(7) Thomas Hackl is a representative of Celeste Trust Reg. and has
investment control of Celeste.
(8) Includes 2,884,616 shares of common stock issuable upon conversion of a
note in the amount of $375,000, 5,192,308 shares of common stock
issuable upon conversion of notes issuable in the aggregate amount of
$675,000 if we fully exercise our right under the subscription
agreement to require the stockholder to purchase such notes, and
1,250,000 shares of common stock issuable upon exercise of warrants.
(9) Gisela Kindle is a director of Esquire Trade & Finance Inc. and has
investment control of Esquire.
(10) Includes 2,884,616 shares of common stock issuable upon conversion of a
note in the amount of $375,000, 5,192,308 shares of common stock
issuable upon conversion of notes issuable in the aggregate amount of
$675,000 if we fully exercise our right under the subscription
agreement to require the stockholder to purchase such notes, and
1,250,000 shares of common stock issuable upon exercise of warrants.
(11) Hans Gassner is a director of Jadesburg Limited and has investment
control of Jadesburg.
(12) Includes 31,508,264 shares of common stock issuable pursuant to the
equity line of credit agreement if we require Jadesburg to purchase
$12,200,000 of our common stock. The shares issuable are based upon a
conversion price of 88% of $0.44 per share. Pursuant to the terms of
equity line of credit agreement, if the Average Daily Price during the
Valuation Period is less
-40-
<PAGE>
than $0.44 per share, WealthHound shall not sell and Jadesburg shall
not purchase the shares unless Jadesburg elects to purchase the shares
at $0.44 per share.
(13) Keshet Management is the general partner of the Keshet Fund L.P. and
has investment control of the Keshet Fund L.P.
(14) Includes 500,000 shares of common stock issuable upon conversion of a
note in the amount of $65,000, and 900,000 shares of common stock
issuable upon conversion of notes issuable in the aggregate amount of
$117,000 if we fully exercise our right under the subscription
agreement to require the stockholder to purchase such notes.
(15) Keshet Management is the general partner of Keshet L.P. and has
investment control of Keshet L.P.
(16) Includes 576,924 shares of common stock issuable upon conversion of a
note in the amount of $75,000, and 1,038,462 shares of common stock
issuable upon conversion of notes issuable in the aggregate amount of
$135,000 if we fully exercise our right under the subscription
agreement to require the stockholder to purchase such notes.
(17) Seymour Braun is a director of Libra Finance S.A. and has investment
control of Libra.
(18) Includes 7,250,000 shares of common stock issuable upon exercise of
warrants.
(19) John Clarke is a director of Nesher Ltd. and has investment control of
Nesher.
(20) Includes 461,539 shares of common stock issuable upon conversion of a
note in the amount of $60,000, and 830,770 shares of common stock
issuable upon conversion of notes issuable in the aggregate amount of
$108,000 if we fully exercise our right under the subscription
agreement to require the stockholder to purchase such notes.
(21) John Clarke is a director of Talbiya B. Investments Ltd. and has
investment control of Talbiya.
(22) Includes 384,616 shares of common stock issuable upon conversion of a
note in the amount of $50,000, and 692,308 shares of common stock
issuable upon conversion of notes issuable in the aggregate amount of
$90,000 if we fully exercise our right under the subscription agreement
to require the stockholder to purchase such notes.
PLAN OF DISTRIBUTION
The shares may be sold or distributed from time to time by the selling
stockholders or by pledgees, donees or transferees of, or successors in interest
to, the selling stockholders, directly to one or more purchasers (including
pledgees) or through brokers, dealers or underwriters who may act solely as
agents or may acquire shares as principals, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, at negotiated
prices or at fixed prices, which may be changed. The distribution of the shares
may be effected in one or more of the following methods:
o ordinary brokers transactions, which may include long or short sales,
o transactions involving cross or block trades on any securities or
market where our common stock is trading,
-41-
<PAGE>
o purchases by brokers, dealers or underwriters as principal and resale
by such purchasers for their own accounts pursuant to this prospectus,
o "at the market" to or through market makers or into an existing market
for the common stock,
o in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected through
agents,
o through transactions in options, swaps or other derivatives (whether
exchange listed or otherwise), or
o any combination of the foregoing, or by any other legally available
means.
In addition, the selling stockholders may enter into hedging
transactions with broker-dealers who may engage in short sales, if short sales
were permitted, of shares in the course of hedging the positions they assume
with the selling stockholders. The selling stockholders may also enter into
option or other transactions with broker-dealers that require the delivery by
such broker-dealers of the shares, which shares may be resold thereafter
pursuant to this prospectus.
Brokers, dealers, underwriters or agents participating in the
distribution of the shares may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders and/or the purchasers
of shares for whom such broker-dealers may act as agent or to whom they may sell
as principal, or both (which compensation as to a particular broker-dealer may
be in excess of customary commissions). The selling stockholders and any
broker-dealers acting in connection with the sale of the shares hereunder may be
deemed to be underwriters within the meaning of Section 2(11) of the Securities
Act of 1933, and any commissions received by them and any profit realized by
them on the resale of shares as principals may be deemed underwriting
compensation under the Securities Act of 1933. Neither the selling stockholders
nor we can presently estimate the amount of such compensation. We know of no
existing arrangements between the selling stockholders and any other
stockholder, broker, dealer, underwriter or agent relating to the sale or
distribution of the shares.
We will not receive any proceeds from the sale of the shares pursuant
to this prospectus. We have agreed to bear the expenses of the registration of
the shares, including legal and accounting fees, and such expenses are estimated
to be approximately $_______.
We have informed the selling stockholders that certain
anti-manipulative rules contained in Regulation M under the Securities Exchange
Act of 1934 may apply to their sales in the market and have furnished the
selling stockholders with a copy of such rules and have informed them of the
need for delivery of copies of this prospectus.
The selling stockholders may also use Rule 144 under the Securities Act
of 1933 to sell the shares if they meet the criteria and conform to the
requirements of such rule.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 9, 1999, we issued an aggregate of 60,000,000 shares of our
common stock to the following individuals and entities in exchange for their
shares of WealthHound, Inc. common stock:
o Rebecca J. Farkas, a five percent beneficial owner of our common stock
and the wife of Michael D. Farkas, our Chairman and Chief Executive
Officer;
-42-
<PAGE>
o Eric T. Seiden, at the time a five percent beneficial owner of our
common stock;
o Matthew C. Sher, at the time a five percent beneficial owner of our
common stock;
o Scott B. Mager, one of our former directors;
o Quentin Road Productions, a five percent beneficial owner of our common
stock; and
o First Security Investments, a five percent beneficial owner of our
common stock.
On July 21, 1999 and June 14, 2000, we issued to Atlas Equity Group, a
five percent beneficial owner of our common stock and an affiliate of Mr.
Farkas, promissory notes in the amount of $7,000 and $40,000, respectively. The
promissory notes bear interest at a rate of 8 1/4% and 10% per annum,
respectively, and were due and payable on January 21, 2000 and July 30, 2000,
respectively. These notes were paid in March 2000 and July 2000, respectively.
In connection with the $40,000 promissory note, on June 14, 2000 we issued to
Atlas Equity Group a warrant to purchase 80,000 shares of our common stock. The
warrant is immediately exercisable at an exercise price of $.50 per share and
has a term of one year.
In October 1999, we issued to Master Communication Corp., an affiliated
entity of Mr. Farkas, three promissory notes aggregating $37,500. The promissory
notes each bear interest at a rate of 8.25% per annum and were due and payable
in April 2000. These notes were paid prior to June 30, 2000.
Between November 1999 and May 2000, we issued to Ostonian Securities
Limited, five promissory notes aggregating $133,000. The promissory notes bear
interest at rates of between 8% to 10% per annum and were due and payable on
dates ranging from January 2000 through May 2000. Atlas Equity Group, Inc. acts
as an advisor and consultant to Ostonian Securities Limited.
From February 4, 2000 through February 28, 2000, we issued to Mr.
Farkas, a five percent beneficial owner of our common stock, our Chief Executive
Officer and Chairman of the Board, promissory notes aggregating $57,500. The
promissory notes each bear interest at a rate of 8 1/4% per annum and were due
and payable on dates ranging from February 18, 2000 through March 13, 2000.
These notes were paid prior to June 30, 2000.
On June 8, 2000, we issued to Donald Engel, a five percent beneficial
owner of our common stock, a warrant to purchase 4,000,000 shares of our common
stock, in consideration for services rendered. The warrant is immediately
exercisable at an exercise price of $1.00 per share and has a term of five
years.
On July 3, 2000, we issued to Libra Finance S.A., a five percent
beneficial owner of our common stock, warrants to purchase 750,000 shares and
500,000 shares of our common stock, respectively, as finders fees in connection
with the purchase of warrants by certain investors pursuant to a subscription
agreement. The warrants are immediately exercisable at exercise prices of $.75
per share and $.65 per share, respectively, and have a term of four years.
-43-
<PAGE>
On July 3, 2000, we also issued to Libra warrants to purchase 4,000,000
shares and 2,000,000 shares of our common stock, respectively, as finders fees
in connection with the execution of an equity line of credit agreement. The
warrants are immediately exercisable at exercise prices of $1.00 per share and
$1.25 per share, respectively, and have a term of four years.
On October 5, 2000, envitro.com issued invoices to i-realtyauction.com,
i-autoauction.com and i-teleco.com, all wholly-owned subsidiaries of
i-incubator.com, in the amounts of $50,000, $50,000 and $18,537.50,
respectively, for web development services. To date, the invoices remain due.
On October 26, 2000, we issued to Ostonian Securities Limited a
promissory note in the amount of $30,000. The promissory note bears interest at
a rate of 10% per annum and is due and payable on November 20, 2000. This note
was paid on November 6, 2000.
On November 2, 2000, we lowered the exercise price on previously issued
warrants to purchase 1,250,000 shares of our common stock to $0.50 per share and
we issued warrants to purchase 2,500,000 shares of our common stock at an
exercise price of $0.29 per share and a term of four years to Libra as a
finder's fee.
During 1999, Atlas Equity Group, Inc. billed us $250,000 in consulting
services fees in connection with the merger between Bridgeport Communications,
Inc. and WealthHound, Inc. Such fee has been accrued and is included in the
financial statements.
Atlas Equity Group, Inc. billed us $4,419 and $9,067 for office rent
and administrative services for the periods ended June 30, 2000 and December 31,
1999, respectively.
During 2000, Hipstyle.com, Inc., an affiliate of Atlas Equity Group,
Inc., paid us $54,293 to build it a web site.
DESCRIPTION OF SECURITIES
The following is a summary description of our capital stock and certain
provisions of our certificate of incorporation and by-laws, copies of which have
been incorporated by reference as exhibits to the registration statement of
which this prospectus forms a part. The following discussion is qualified in its
entirety by reference to such exhibits.
GENERAL
Our authorized capital stock consists of 200,000,000 shares of common
stock, par value $.001 per share and 5,000,000 shares of preferred stock, par
value $.01 per share. We have reserved 48,950,459 shares of common stock for
issuance pursuant to outstanding convertible notes, options and warrants.
COMMON STOCK
The holders of the common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Our
certificate of incorporation and by-laws do not provide for cumulative voting
rights in the election of directors. Accordingly, holders of a majority of the
shares of common stock entitled to vote in any election of directors may elect
all of the directors standing for election. Holders of common stock are entitled
to receive ratably such dividends as may be declared by the Board out of funds
legally available therefor. In the event of our liquidation, dissolution or
winding up, holders of common stock are entitled to share ratably in the assets
remaining after payment of liabilities. Holders of common stock have no
preemptive, conversion or redemption rights. All of the outstanding shares of
common stock are fully-paid and non-assessable.
-44-
<PAGE>
DELAWARE BUSINESS COMBINATION PROVISIONS
We are governed by the provisions of Section 203 of the Delaware
General Corporation Law ("DGCL"). In general, this statute prohibits a publicly
held Delaware corporation from engaging, under certain circumstances, in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder unless:
o prior to the date at which the stockholder became an interested
stockholder, the Board of Directors approved either the business
combination or the transaction in which the person became an interested
stockholder;
o the stockholder acquired more than 85% of the outstanding voting stock of
the corporation (excluding shares held by directors who are officers and
shares held in certain employee stock plans) upon consummation of the
transaction in which the stockholder became an interested stockholder; or
o the business combination is approved by the Board of Directors and by at
least 66-2/3% of the outstanding voting stock of the corporation (excluding
shares held by the interested stockholder) at a meeting of stockholders
(and not by written consent) held on or after the date such stockholder
became an interested stockholder.
An "interested stockholder" is a person who, together with affiliates
and associates, owns (or at any time within the prior three years did own) 15%
or more of the corporation's voting stock. Section 203 defines a "business
combination" to include, without limitation, mergers, consolidations, stock
sales and asset-based transactions and other transactions resulting in a
financial benefit to the interested stockholder.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the DGCL enables a corporation in its original
certificate of incorporation or an amendment thereto to eliminate or limit the
personal liability of a director to a corporation or its stockholders for
violations of the director's fiduciary duty, except:
o for any breach of a director's duty of loyalty to the corporation or
its stockholders,
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
o pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases
or redemptions), or
o for any transaction from which a director derived an improper personal
benefit.
Our certificate of incorporation provides in effect for the elimination
of the liability of directors to the extent permitted by the DGCL.
Section 145 of the DGCL provides, in summary, that directors and
officers of Delaware corporations are entitled, under certain circumstances, to
be indemnified against all expenses and liabilities (including attorney's fees)
incurred by them as a result of suits brought against them in their capacity as
a director or officer, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or
-45-
<PAGE>
proceeding, if they had no reasonable cause to believe their conduct was
unlawful; provided, that no indemnification may be made against expenses in
respect of any claim, issue or matter as to which they shall have been adjudged
to be liable to the corporation, unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, they are fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper. Any such indemnification may be made by the
corporation only as authorized in each specific case upon a determination by the
stockholders or disinterested directors that indemnification is proper because
the indemnitee has met the applicable standard of conduct. Our bylaws entitle
our officers and directors to indemnification to the fullest extent permitted by
the DGCL.
We have agreed to indemnify each of our directors and certain officers
against certain liabilities, including liabilities under the Securities Act of
1933. In addition, we maintain an insurance policy with Lloyd's of London in the
amount of $1,000,000 with respect to potential liabilities of our directors and
officers, including potential liabilities under the Securities Act of 1933.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the provisions described above, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than our payment of expenses
incurred or paid by our director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
WHERE YOU CAN FIND MORE INFORMATION
Upon effectiveness of this registration statement we will commence
filing reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy any report, proxy statement or other
information we file with the Commission at the Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional
Offices at 75 Park Place, Room 1400, New York, New York 10007 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may
obtain information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. In addition, we will file electronic versions of
these documents on the Commission's Electronic Data Gathering Analysis and
Retrieval, or EDGAR, System. The Commission maintains a web site at
http://www.sec.gov that contains reports, proxy statements and other information
filed with the Commission.
We have filed a registration statement on Form SB-2 with the Commission
to register shares of our common stock issuable upon exercise of warrants and
upon conversion of notes issued and issuable to be sold by the selling
stockholders. This prospectus is part of that registration statement and, as
permitted by the Commission's rules, does not contain all of the information set
forth in the registration statement. For further information with respect to us
or our common stock, you may refer to the registration statement and to the
exhibits and schedules filed as part of the registration statement. You can
review a copy of the registration statement and its exhibits and schedules at
the public reference room maintained by the Commission, and on the Commission's
web site, as described above. You should note that statements contained in this
prospectus that refer to the contents of any contract or other document are not
-46-
<PAGE>
necessarily complete. Such statements are qualified by reference to the copy of
such contract or other document filed as an exhibit to the registration
statement.
TRANSFER AGENT
The Transfer Agent and Registrar for our common stock is Continental
Stock Transfer & Trust Company, Two Broadway, New York, New York 10004. Its
telephone number is (212) 509-4000.
LEGAL MATTERS
The validity of the shares of common stock offered in this prospectus
has been passed upon for us by Parker Chapin LLP, The Chrysler Building, 405
Lexington Avenue, New York, New York 10174. Its telephone number is (212)
704-6000.
EXPERTS
The financial statements included in this prospectus included elsewhere
in the registration statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and elsewhere
in the registration statement (which report expresses an unqualified opinion and
includes an explanatory paragraph referring to the Company's recurring losses
from operations which raise substantial doubt about its ability to continue as a
going concern), and have been so included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
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<PAGE>
WEALTHHOUND.COM, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTITY)
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Six Months Ended
June 30, 2000 and as of December 31, 1999 and
For the Periods April 27, 1999 (Date of Inception)
Through June 30, 2000 and April 27, 1999
Through December 31, 1999
<PAGE>
WEALTHHOUND.COM, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTITY)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30,
2000 AND AS OF DECEMBER 31, 1999 AND FOR THE PERIODS APRIL 27, 1999 (DATE OF
INCEPTION) THROUGH JUNE 30, 2000 AND APRIL 27, 1999 THROUGH DECEMBER 31,
1999:
Balance Sheets 2
Statements of Operations 3
Statement of Stockholders' Deficit 4
Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-15
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
WealthHound.com, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of WealthHound.com,
Inc. and subsidiaries (the "Company," a development stage entity) as of June 30,
2000 and December 31, 1999 and the related consolidated statements of
operations, stockholders' deficit, and cash flows for the six months ended June
30, 2000 and for the periods April 27, 1999 (date of inception) through June 30,
2000 and April 27, 1999 through December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of June 30, 2000 and
December 31, 1999, and the results of its operations and its cash flows for the
six months ended June 30, 2000 and for the periods April 27, 1999 (Date of
Inception) through June 30, 2000 and April 27, 1999 through December 31, 1999,
in conformity with accounting principles generally accepted in the United States
of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's recurring losses from operations raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 2. The accompanying
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Deloitte & Touche LLP
September 25, 2000
<PAGE>
WEALTHHOUND.COM, INC.
AND SUBSIDIARIES
(A Development Stage Entity)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
ASSETS 2000 1999
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 104,703 $ 154,394
Prepaid expenses 110,415 25,098
Deposits and other current assets 68,502 5,000
Other receivable 54,683 -
------------ -----------
Total current assets 338,303 184,492
PROPERTY AND EQUIPMENT - Net 109,352 11,977
SECURITY DEPOSITS 244,387 -
NOTES RECEIVABLE 45,000 -
------------ -----------
TOTAL ASSETS $ 737,042 $ 196,469
============ ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable $ 786,000 $ 378,000
Accounts payable and accrued expenses 263,980 85,365
Due to Atlas (Note 9) 250,000 250,000
Financing proceeds received in advance (Note 12) 250,000 -
Due to Stockholders 50,100 120,100
Notes payable - related parties 40,000 44,500
Capital lease obligations - current portion 13,813 1,290
------------ -----------
Total current liabilities 1,653,893 879,255
------------ -----------
CAPITAL LEASE OBLIGATIONS 27,820 3,361
------------ -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value, 200,000,000 shares authorized;
75,774,025 and 74,873,025 issued and outstanding,
at June 30, 2000 and December 31, 1999, respectively 75,774 74,873
Common stock warrants 1,496,083 8,168
Deferred stock-based compensation (2,771,037) (11,250)
Additional paid-in capital 4,775,562 245,902
Deficit accumulated during the development stage (4,521,053) (1,003,840)
------------ -----------
Total stockholders' deficit (944,671) (686,147)
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 737,042 $ 196,469
============ ===========
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
WEALTHHOUND.COM, INC.
AND SUBSIDIARIES
(A Development Stage Entity)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
PERIOD PERIOD
FROM FROM
APRIL 27, 1999 APRIL 27, 1999
(DATE OF (DATE OF
INCEPTION) SIX MONTHS INCEPTION)
TO ENDED TO
JUNE 30, JUNE 30, DECEMBER 31,
2000 2000 1999
NET REVENUE $ - $ - $ -
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING EXPENSES:
Sales and marketing 166,161 136,321 29,840
Research and development 323,305 136,370 186,935
General and administrative 2,959,796 2,178,359 781,437
Depreciation 14,132 12,895 1,237
Stock based compensation expense
($873 and $-0- related to sales and
marketing, $124,525 and $-0- related to
research and development, and $925,473
and $-0- related to general and administrative
for the periods ended June 30, 2000 and
December 31, 1999, respectively) 1,050,871 1,050,871 -
----------- ----------- -----------
Total operating expenses 4,514,265 3,514,816 999,449
----------- ----------- -----------
LOSS FROM OPERATIONS (4,514,265) (3,514,816) (999,449)
OTHER INCOME 61,540 61,540 -
INTEREST EXPENSE (68,328) (63,937) (4,391)
----------- ----------- -----------
NET LOSS $(4,521,053) $(3,517,213) $(1,003,840)
============= ============= ============
NET LOSS PER COMMON SHARE $ (0.08) $ (0.06) $ (0.02)
============= ============= ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 54,790,852 54,790,852 54,367,138
============= ============= ============
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
WEALTHHOUND.COM, INC.
AND SUBSIDIARIES
(A Development Stage Entity)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Common Deferred Additional
Number of Common Stock Stock-Based Paid-in
Shares Stock Warrants Compensation Capital
BALANCE, APRIL 27, 1999
(DATE OF INCEPTION) - $ - $ - $ - $ -
<S> <C> <C> <C>
Issuance of common stock to founders of
WealthHound, Inc. 5,000,000 5,000 102,375
Exchange of WealthHound, Inc.
Common stock with Bridgeport
Communications, Inc. (5,000,000) (5,000) 5,000
Acquisition of WealthHound, Inc. by Bridgeport
Communications, Inc., through exchange of
5,000,000 shares of WealthHound stock par value
$.001 for 60,000,000 shares of Bridgeport stock,
par value $.001 60,000,000 60,000 (60,000)
Consolidation of Bridgeport
Communications, Inc. in WealthHound, Inc. 14,698,025 14,698 (14,698)
Issuance of stock for services 175,000 175 201,975
Issuance of warrants for services 8,168
Deferred stock-based compensation (11,250) 11,250
Net loss
---------- ------- ----------- ----------- ----------
BALANCE, DECEMBER 31, 1999 74,873,025 74,873 8,168 (11,250) 245,902
Issuance of common stock 900,000 900 39,430 718,003
Issuance of common stock for services 1,000 1 999
Issuance of warrants for services 1,413,559
Issuance of warrants in connection with notes 34,926
Deferred stock-based compensation (3,810,658) 3,810,658
Amortization of deferred stock-based compensation 1,050,871
Net loss
---------- ------- ----------- ----------- ----------
BALANCE, JUNE 30, 2000 75,774,025 $75,774 $ 1,496,083 $(2,771,037) $4,775,562
========== ======= =========== =========== ==========
DEFICIT
Accumulated
During the Total
Development Stockholders'
Stage Deficit
BALANCE, APRIL 27, 1999
(DATE OF INCEPTION) $ - $ -
Issuance of common stock to founders of
WealthHound, Inc. 107,375
Exchange of WealthHound, Inc.
Common stock with Bridgeport
Communications, Inc.
Acquisition of WealthHound, Inc. by Bridgeport
Communications, Inc., through exchange of
5,000,000 shares of WealthHound stock par value
$.001 for 60,000,000 shares of Bridgeport stock,
par value $.001
Consolidation of Bridgeport
Communications, Inc. in WealthHound, Inc.
Issuance of stock for services 202,150
Issuance of warrants for services 8,168
Deferred stock-based compensation
Net loss (1,003,840) (1,003,840)
----------- ----------
BALANCE, DECEMBER 31, 1999 (1,003,840) (686,147)
Issuance of common stock 758,333
Issuance of common stock for services 1,000
Issuance of warrants for services 1,413,559
Issuance of warrants in connection with notes 34,926
Deferred stock-based compensation
Amortization of deferred stock-based compensation 1,050,871
Net loss (3,517,213) (3,517,213)
----------- ----------
BALANCE, JUNE 30, 2000 $(4,521,053) $ (944,671)
=========== ==========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
AND SUBSIDIARIES
(A Development Stage Entity)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Period Period
From From
April 27, 1999 April 27, 1999
(Date of Six Months (Date of
Inception) to Ended Inception) to
June 30, June 30, December 31,
2000 2000 1999
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (4,521,053) $ (3,517,213) $ (1,003,840)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 14,132 12,895 1,237
Amortization of deferred stock-based compensation 1,050,871 1,050,871 -
Other stock-based expense 1,659,803 1,449,485 210,318
Changes in assets and liabilities:
Increase in other receivable (54,683) (54,683) -
Increase in prepaid expenses (110,415) (85,317) (25,098)
Increase in deposits and other current assets (68,502) (63,502) (5,000)
Increase in security deposits (244,387) (244,387) -
Increase in notes receivable (45,000) (45,000) -
Increase in accounts payable and
accrued expenses 814,080 358,615 455,465
--------- --------- ---------
Net cash used in operating activities (1,505,154) (1,138,236) (366,918)
--------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and equipment (123,484) (110,270) (13,214)
--------- --------- ---------
Net cash used in investing activities (123,484) (110,270) (13,214)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 865,708 758,333 107,375
Proceeds from short-term borrowings - net 826,000 403,500 422,500
Increase in capital lease obligations 41,633 36,982 4,651
--------- --------- ---------
Net cash provided by financing activities 1,733,341 1,198,815 534,526
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 104,703 (49,691) 154,394
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD - 154,394 -
--------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 104,703 $104,703 $ 154,394
========== ========== =========
SUPPLEMENTAL NONCASH
TRANSACTIONS -
Amount paid for interest $ 3,096 $ 3,096 $ -
========== ========== =========
Fixed assets purchased with capital lease obligations $ 46,296 $ 41,589 $ 4,707
========== ========== =========
</TABLE>
See notes to consolidated financial statements.
-5
<PAGE>
WEALTHHOUND.COM, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. ORGANIZATION
WealthHound.com, Inc. (the "Company," a development stage entity), is a
successor of Bridgeport Communications, Inc. ("Bridgeport"). Bridgeport (a
Florida corporation) is a public company whose operations ceased during
1996. In July, 1999, Bridgeport acquired all of the outstanding shares of
common stock of WealthHound, Inc. ("WealthHound") by issuing 60 million
shares of its common stock ("WH Acquisition"). The management of
WealthHound controlled the daily operations of the Company and subsequent
to the WH Acquisition retained majority control. As a result, the WH
Acquisition was accounted for as a reverse merger (Note 2). In July 1999,
the Company changed its name from Bridgeport Communications, Inc. to
WealthHound.com, Inc. The Company is in the process of reincorporating in
Delaware.
In July, 1999, WealthHound Trading Inc. ("Trading") was organized as a
Florida Corporation, and is a wholly owned subsidiary of WealthHound. In
August, 1999, OSRS Communications was organized as a Florida Corporation
and a wholly owned subsidiary of the Company.
In May 2000, envitro.com, Inc. ("envitro") was organized as a Delaware
Corporation and is a wholly-owned subsidiary of WealthHound.
In July 2000, WealthHound Securities, Inc. ("Securities") was organized as
a Delaware Corporation and is a wholly-owned subsidiary of the Company.
The Company is in the development stage of its business which is creating
a full service, one stop, financial services portal for diversified
self-directed investors. The Company's ongoing business strategy is to
offer an array of services to enhance its customers' experience and
empower them to better manage their personal prosperity and investments.
The Company's web site will offer self-directed investors a comprehensive
suite of products and services, including numerous free resources, such
as: breaking financial news; delayed stock and option price quotes;
Java-based charting and quote applications; real-time market commentary
and analysis; research on company financial data; and information relating
to initial public offerings. Through its relationships with various
companies, the Company offers its visitors the on-line opportunity to:
open brokerage accounts and trade securities through an unaffiliated
registered broker-dealer; apply for home mortgages through Mortgageit.com;
and obtain insurance quotes and insurance policies through Quotesmith.com.
Subject to National Association of Securities Dealers, Inc. ("NASD")
approval of the merger (Note 12) and the closing of the merger, the
Company plans to launch its brokerage product in the first quarter of
2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
-6-
<PAGE>
REVERSE MERGER METHOD OF ACCOUNTING - Following the WH Acquisition,
management of WealthHound became management of the Company. The former
stockholders of WealthHound owned approximately 81% of the outstanding
shares of common stock of the Company immediately following the WH
Acquisition.
In accordance with generally accepted accounting principles, the WH
Acquisition was accounted for as a reverse merger. As a result,
WealthHound is considered to be the acquiring entity and Bridgeport the
acquired entity for accounting purposes, even though Bridgeport is the
acquirer for legal purposes. The historical financial information of
WealthHound became the historical financial information of the Company and
historical stockholders' equity and earnings per share prior to the merger
have been retroactively restated for the equivalent number of shares
received in the merger. The financial statements subsequent to the WH
Acquisition include: (1) the balance sheet with the net assets of
WealthHound at historical costs; and (2) the results of operations of
WealthHound through the date of the WH Acquisition and the results of
operations of the Company after the acquisition date.
BASIS OF PRESENTATION - The financial statements of the Company have been
prepared in conformity with Statement of Financial Accounting Standards
("SFAS") No. 7, Accounting and Reporting by Development Stage Enterprises.
As a development stage entity with no commercial operating history, the
Company is subject to all of the risks and expenses inherent in the
establishment of a new business enterprise. To address these risks and
expenses, the Company must, among other things, respond to competitive
developments; attract, retain and motivate qualified personnel; and
support the expense of marketing new services based on innovative
technology. The Company has not recognized any revenues and does not
expect to recognize any revenues until the first quarter of 2001. As a
result of incurring expenses in these developmental activities without
generating revenues, the Company has incurred significant losses and
negative cash flow from operating activities, and as of June 30, 2000, the
Company has accumulated net losses of $4,521,053. The Company expects to
incur substantial losses and negative cash flow from operating activities
for the foreseeable future.
The Company has not generated cash from operating activities since
inception. The Company had cash of $104,703 at June 30, 2000, and during
July and August 2000 received net proceeds of $934,987 from the issuance
of convertible notes (Note 12). The Company has entered into an agreement,
which, subject to certain conditions being met, will provide for access to
additional funding in 2000 and 2001 (Note 12). Should the Company not
obtain access to the additional funding described above it may not be able
to meet its obligations as they come due.
CASH EQUIVALENTS - For the purposes of the statement of cash flows, the
Company considers all short-term, highly-liquid investments with an
original maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION - The Company is in the development stage of its
product creating a full service, one stop, financial services portal for
diversified self-directed investors. The Company's ongoing business
strategy is to offer an array of services to enhance its customers'
experience and empower them to better manage their personal prosperity and
investments.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company's financial instruments,
including cash equivalents, accounts receivable, accounts payable and
notes payable are carried at cost, which approximates their fair value
because of the short-term maturity of these instruments.
-7-
<PAGE>
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS - Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, was issued in June 1998 with an
effective date for fiscal years beginning after June 15, 2000. SFAS No.
133 requires that all derivative financial instruments be recognized in
the financial statements and measured at fair value regardless of the
purpose or intent for holding them. The Company has not yet adopted SFAS
No. 133 but does not believe that such adoption will result in a material
effect on the financial statements.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is recorded on the straight-line
method over the estimated useful lives of the related assets. The Company
depreciates furniture and equipment over five years. Leasehold
improvements are capitalized and amortized on the straight-line basis over
the shorter of their useful life or the term of the lease. Maintenance and
repairs are expensed as incurred. When property or equipment is retired or
otherwise disposed of, related costs and accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in
operations.
The Company reviews assets for impairment whenever events or changes in
circumstances indicate the carrying value of the asset may not be
recoverable. A determination of impairment, if any, is made based on
estimates of undiscounted future cash flows. For the periods ended
December 31, 1999 and June 30, 2000, there have been no asset impairments.
USE OF ESTIMATES - The preparation of financial statements in accordance
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates.
STOCK-BASED COMPENSATION - Stock-based compensation is recognized using
the intrinsic value method prescribed in Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. Accordingly, compensation expense for stock
options is measured as the excess, if any, of the fair value of the
Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock and is amortized over the vesting period. The
Company has adopted the disclosure provisions of SFAS No. 123, Accounting
for Stock-Based Compensation, which requires the Company to disclose the
pro forma effects on earnings and earnings per share as if SFAS No. 123
had been adopted.
SEGMENTS - The Company has adopted the provisions of SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS
No. 131 establishes standards for companies to report information about
operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. The Company did not have revenue in the periods
ended December 31, 1999 and June 30, 2000; therefore, no disclosure is
made.
3. STOCK OPTIONS
Effective March 8, 2000, the Company established a stock option plan (the
"Plan"). The Plan provides for the grant to employees of the Company of
incentive stock options to purchase shares of the Company's common stock.
The Plan also provides for the grant to certain employees, officers,
directors and consultants of the Company of nonqualified options to
purchase shares of the Company's common stock. The Plan is administered by
a committee appointed by the Board of Directors which determines the terms
of the options granted, including the exercise price, the number of shares
subject to option, and the option vesting period. The term of each Option
shall be the term stated in the Option Agreement; provided, however, that
the term shall be no more than ten (10) years from the date of grant
thereof or
-8-
<PAGE>
such shorter term as may be provided in the Option Agreement. The maximum
aggregate number of shares which may be optioned and sold under the Plan
is 15,000,000 shares of common stock. Stock options outstanding at June
30, 2000 and December 31, 1999 have exercise prices between $.35 and $1.00
and $.50 and $1.00, respectively, and a weighted average contractual life
of 2 years.
The following table summarizes stock option plan activity:
WEIGHED AVERAGE
OPTIONS EXERCISE PRICE
Granted 95,000 $ 0.89
Canceled - -
Exercised - -
--------- ---------
Outstanding at December 31, 1999 95,000 0.89
Granted 5,066,869 0.35
Canceled - -
Exercised - -
--------- ---------
Outstanding at June 30, 2000 5,161,869 $ 0.36
========== =========
No options were exercisable as of December 31, 1999. A total of 431,687
options with a weighted average exercise price of $.35 per share were
exercisable as of June 30, 2000.
The Company recorded $3,810,658 and $11,250 of deferred stock-based
compensation as of June 30, 2000 and December 31, 1999, respectively, as a
result of granting stock options with exercise prices below the estimated
fair value of the Company's common stock at the date of grant. Deferred
stock-based compensation has been presented as a component of
stockholders' deficit and is being charged to expense over the vesting
period of the applicable options.
Pro forma information assuming the Company had accounted for its employee
stock options granted under the fair value method prescribed by SFAS No.
123 is presented below. The per share weighted-average fair value of stock
options granted through the periods ended June 30, 2000 and December 31,
1999 was $.58 and $.83, respectively on the dates of grants using the
Black-Scholes option pricing model (80% volatility). The fair value of
options was estimated using a risk-free interest rate of 6%, a dividend
yield of 0%, and a weighted average expected life of two years.
SIX MONTHS PERIOD
Ended Ended
June 30, December 31,
2000 1999
Net loss:
As reported $(3,517,213) $(1,003,840)
Pro forma (3,639,694) (1,003,840)
Basic loss per share
As reported $ (0.06) $ (0.02)
Pro forma (0.07) (0.02)
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<PAGE>
4. NET LOSS PER COMMON SHARE
The Company computes net loss per common share in accordance with SFAS No.
128, Earnings Per Share. Under SFAS No. 128, the Company is required to
present basic and diluted earnings per share, if applicable. Basic
earnings per share are calculated based on weighted average number of
shares outstanding during the period. Diluted earnings per share
calculation would include the weighted average number of shares
outstanding and gives effect to potentially dilutive common shares such as
options, warrants and convertible debt and preferred stock outstanding.
Net loss per common share for the periods ended June 30, 2000 and December
31, 1999 is based on the weighted average number of shares of common stock
outstanding during the periods. Potentially dilutive securities include
options, warrants and convertible preferred stock; however, such
securities have not been included in the calculations of net loss per
common share as their effect would be antidilutive. Therefore, there is no
difference between the basic and diluted net loss per common share for any
of the periods presented.
5. PROPERTY AND EQUIPMENT
Property and equipment - net consists of the following:
JUNE 30, DECEMBER 31,
2000 1999
Computer equipment $ 98,088 $ 13,214
Furniture, fixtures and equipment 25,396 -
-------- --------
123,484 13,214
Less accumulated depreciation (14,132) (1,237)
-------- --------
Property and equipment - net $109,352 $ 11,977
======== ========
Depreciation expense for the periods ended June 30, 2000 and December 31,
1999 was $12,895 and $1,237, respectively. Included in computer equipment
is equipment purchased with capital lease obligations of $46,296 and
$4,707 at June 30, 2000 and December 31, 1999, respectively.
6. NOTES PAYABLE
At June 30, 2000 and December 31, 1999, notes payable consist of
twenty-one and fourteen individual notes, respectively. These notes are
short-term borrowings with maturities of less than one year with interest
rates ranging between 8% and 11.5% per annum.
At June 30, 2000 and December 31, 1999, notes payable to related parties
totaled $40,000 (with interest of 8.25% per annum) and $44,500 (with
interest of 10% per annum), respectively.
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<PAGE>
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
JUNE 30, DECEMBER 31,
2000 1999
Accounts payable $161,677 $ -
Accrued expenses 66,463 81,097
Interest payable 35,840 4,268
--------- ---------
$ 263,980 $ 85,365
========= ========
8. RELATED PARTY EQUITY TRANSACTIONS
In July, 1999, the Company issued an aggregate of 60,000,000 shares of its
common stock to the following individuals and entities:
o Rebecca J. Brock ("Ms. Brock"), a beneficial owner of the Company's
common stock and the wife of Michael D. Farkas ("Mr. Farkas"), the
Company's Chairman and Chief Executive Officer;
o Eric T. Seiden, at the time a beneficial owner of the Company's
common stock;
o Matthew C. Sher, at the time a beneficial owner of the Company's
common stock;
o Scott B. Mager, one of the Company's former directors;
o Quentin Road Productions ("Quentin"), a beneficial owner of the
Company's common stock. Ms. Brock was the former Chairman and CEO of
Quentin and Mr. Farkas was a former beneficial owner of the common
stock of Quentin; and
o First Security Investments, a beneficial owner of the Company's
common stock, in exchange for their shares of common stock of
WealthHound, Inc.
In July, 1999 and June, 2000, the Company issued to Atlas Equity Group,
Inc. ("Atlas"), a beneficial owner of the Company's common stock and an
affiliate of Mr. Farkas, promissory notes in the amount of $7,000 and
$40,000, respectively. The promissory notes bear interest at a rate of
8.25% and 10% per annum, respectively, and were due and payable in
January, 2000 and July, 2000, respectively. These notes were paid in
March, 2000 and July, 2000, respectively. In addition, in June, 2000 the
Company issued to Atlas a warrant to purchase 80,000 shares of its common
stock. The warrant is immediately exercisable at an exercise price of $.50
per share and has a term of one year.
In October, 1999, the Company issued to Master Communication Corp.
("Master") three promissory notes aggregating $37,500. The promissory
notes each bear interest at a rate of 8.25% per annum and were due and
payable in April, 2000. These notes were paid prior to June 30, 2000. Mr.
Farkas was a beneficial owner of Master's common stock.
Between November, 1999 and May, 2000, the Company issued to Ostonian
Securities Limited ("Ostonian") five promissory notes aggregating
$133,000. The promissory notes bear interest at rates of
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<PAGE>
between 8% to 10% per annum and were due and payable on dates ranging from
January, 2000 through May, 2000. Atlas Equity Group, Inc. acts as an
advisor and consultant to Ostonian.
During February, 2000, the Company issued to Mr. Farkas a series of
promissory notes aggregating $57,500. The promissory notes each bear
interest at a rate of 8.25% per annum and were due and payable on dates
ranging from February, 2000 through March, 2000. These notes were paid
prior to June 30, 2000.
In June, 2000, the Company issued to Donald Engel, a beneficial owner of
the Company's common stock, a warrant to purchase 4,000,000 shares of its
common stock, in consideration for services rendered. The warrant is
immediately exercisable at an exercise price of $1.00 per share and has a
term of five years.
In July, 2000, the Company issued to Libra Finance S.A. ("Libra"), a
beneficial owner of the Company's common stock, warrants to purchase
750,000 shares and 500,000 shares of the Company's common stock as finders
fee in connection with identifying certain investors in the Company. The
warrants are immediately exercisable at exercise prices of $.75 per share
and $.65 per share, respectively, and have a term of four years.
In July, 2000, the Company also issued to Libra warrants to purchase
4,000,000 shares and 2,000,000 shares of our common stock, respectively,
as finders fees in connection with the execution of an equity line of
credit agreement. The warrants are immediately exercisable at exercise
prices of $1.00 per share and $1.25 per share, respectively, and have a
term of four years.
9. RELATED PARTY TRANSACTIONS
The following additional related party transactions occurred through June
30, 2000:
o In connection with the WH Acquisition, Atlas earned a $250,000
consulting services fee. Such fee has been accrued and is included
in the accompanying financial statements.
o During the periods ended June 30, 2000 and December 31, 1999, Atlas
charged the Company $4,419 and $9,067 for office rent and
administrative services.
o During the period ended December 31, 1999, M&E Capital, a company
owned by two of the Company's stockholders, charged the Company
$8,000 for office rent and administrative services. During the
period ended June 30, 2000, the Company purchased office equipment
and furnishings from M&E Capital in the aggregate amount of $25,666.
o Prior to June 30, 2000, the Company entered into a contractual
relationship with Hipstyle.com, Inc. ("Hipstyle"), a company a
majority of which is owned by Atlas, to build a web site. Subsequent
to June 30, 2000, Hipstyle paid the Company $54,293, in full
satisfaction of its outstanding invoice on account of the
transaction.
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<PAGE>
10. INCOME TAXES
In accordance with SFAS No. 109 the Company has computed the components of
deferred income taxes as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
<S> <C> <C>
Defered tax assets - net operating loss carryforwards $ 848,840 $ 365,020
Valuation allowance (848,840) (365,020)
-------- --------
Defered tax asset, net $ - $ -
======== ========
</TABLE>
At June 30, 2000 and December 31, 1999, a valuation allowance was provided
as realization of the deferred tax benefit is not more likely than not.
The effective tax rate varies from the U.S. Federal statutory tax rate for
both the periods ended June 30, 2000 and December 31, 1999, principally
due to the following:
U.S. statutory tax rate 34%
State and local taxes 12
Valuation allowance (46)
--------
Effective rate -%
========
11. LEASING ARRANGEMENTS
The Company entered into an operating lease for office space which
commenced in July, 2000 and expires in March, 2010. In addition to the
fixed annual rent and electric charges, the lease provides for annual
escalations based on increases in real estate taxes, utilities, and
operating expenses.
The following is a schedule of minimum future rental expense under the
noncancellable operating lease for office space:
YEAR ENDING
DECEMBER 31,
2000 $ 148,050
2001 366,581
2002 366,581
2003 366,581
2004 366,581
Thereafter 1,924,550
---------
Total minimum future rentals $3,538,924
==========
-13-
<PAGE>
In addition, the Company leases certain computer hardware under capital
lease arrangements. Minimum future lease payments under capital leases are
as follows:
YEAR ENDING
DECEMBER 31
2000 $ 8,989
2001 20,459
2002 20,281
2003 3,119
-------
Total minimum lease payments 52,848
Less amounts representing interest 11,214
-------
Less value of net minimum lease $41,634
=======
12. SUBSEQUENT EVENTS
FINANCING - In July, 2000, the Company entered into subscription
agreements with several accredited investors pursuant to which the Company
issued at the closing, $1,250,000 in 8%, two-year convertible notes. The
notes are convertible into common stock of the Company at a per share
price determined at the time of conversion, equal to the lower of: (i)
eighty percent of the average of the lowest closing bid prices for the
common stock on the OTC Pink Sheets for the three trading days prior to
but not including July 3, 2000 (this figure was $.5867), or (ii) 75% of
the average of the three lowest closing bid prices for the common stock
for the thirty trading days preceding the conversion date.
Under the subscription agreements referred to in the preceding paragraph,
the Company, subject to the satisfaction of certain conditions, has the
option to obtain additional investments in convertible notes totaling
$2,250,000. The conditions for these additional investments include
various minimum price and trading volume requirements and the requirements
that the Company be a reporting company under the Securities Exchange Act
of 1934, its shares be registered on the OTC Bulletin Board or other
principal market, and the effectiveness of a resale registration statement
(the "Registration Statement") filed under the Securities Act of 1933.
Under a Private Equity Line of Credit Agreement entered into subsequent to
June 30, 2000 (the "Equity Line"), the Company may from time to time, for
two years after the Registration Statement has become effective and
subject to various other conditions, cause an investor to purchase common
stock of the Company at 88% of market prices over a 14-day forward looking
period. The amount which can be raised at any one occasion varies
depending on the then current market price and trading volume. This Equity
Line could produce up to an additional $12,200,000 in financing. The
Company has agreed to pay 12% in finder's fees for amounts received in
this financing.
In connection with the above financing, the Company also issued warrants
to acquire: 2,500,000 shares of common stock at $.65 per share; 3,750,000
shares of common stock at $.75 per share; 4,000,000 shares of common stock
at $1.00 per share; and 2,000,000 shares of common stock at $1.25 per
share. One-half of the warrants are callable under certain conditions.
The Company has agreed to a timetable to cause the Registration Statement
to be declared effective under the Securities Act of 1933. Failure to meet
such timetable could result in significant penalties.
-14-
<PAGE>
MERGER AGREEMENT - In August, 2000, WealthHound Securities, Inc., a wholly
owned subsidiary of WealthHound com, Inc., entered into a merger agreement
with WAP, Inc., an authorized and registered broker-dealer and a member of
the National Association of Securities Dealers, Inc. ("NASD") and the
Securities Investment Protection Corp. ("SIPC"). The closing of the merger
agreement is subject to various conditions, including WAP, Inc. obtaining
NASD approval to expand its business operations, WAP, Inc. entering into
an agreement with a clearing firm, and WAP, Inc, obtaining NASD approval
of the merger. Upon the Effective Date of the merger agreement (as defined
therein), all of the outstanding shares of capital stock of WAP, Inc.
immediately prior to the Effective Date shall be converted into the
immediate right of WAP, Inc. to receive 100,000 shares of common stock,
$.001 par value of WealthHound.com, Inc.
******
--------------------------------------------------------------------------------
WEALTHHOUND.COM, INC.
99,878,205
Shares
Common Stock
PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE
HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL COMMON
STOCK AND IS NOT SOLICITING AN OFFER TO BUY COMMON STOCK IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
____________, 2000
--------------------------------------------------------------------------------
-48-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
Section 145 of the General Corporation Law of Delaware ("DGCL")
provides that directors, officers, employees or agents of Delaware corporations
are entitled, under certain circumstances, to be indemnified against expenses
(including attorneys' fees) and other liabilities actually and reasonably
incurred by them in connection with any suit brought against them in their
capacity as a director, officer, employee or agent, if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. Section 145 also provides that directors, officers, employees and
agents may also be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by them in connection with a derivative suit
bought against them in their capacity as a director, if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made without
court approval if such person was adjudged liable to the corporation.
Article Eighth of the registrant's Certificate of Incorporation
provides that the registrant shall indemnify any and all persons whom it shall
have power to indemnify to the fullest extent permitted by the DGCL. Article VI
of the registrant's by-laws provides that the registrant shall indemnify
authorized representatives of the registrant to the fullest extent permitted by
the DGCL. The registrant's by-laws also permit the registrant to purchase
insurance on behalf of any such person against any liability asserted against
such person and incurred by such person in any capacity, or out of such person's
status as such, whether or not the registrant would have the power to indemnify
such person against such liability under the foregoing provision of the by-laws.
The registrant maintains a directors and officers liability insurance
policy with Lloyd's of London. The policy insures the directors and officers of
the registrant against loss arising from certain claims made against such
directors or officers by reason of certain wrongful acts.
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the
issuance and distribution of the securities being registered hereby. All such
expenses will be borne by the registrant; none shall be borne by any selling
stockholders.
Securities and Exchange
Commission registration fee $____
Legal fees and expenses (1) $____
Accounting fees and expenses (1) $____
Miscellaneous (1) $____
Total (1) $____
-------------------------------
(1) Estimated.
II-1
<PAGE>
Item 26. RECENT SALES OF UNREGISTERED SECURITIES.
On July 9, 1999, we issued to certain stockholders of WealthHound,
Inc., 60,000,000 shares of our common stock in exchange for 5,000,000
outstanding shares of WealthHound, Inc. Our shares were issued in reliance on
the exemptions from registration provided by Rule 506 of Regulation D
promulgated under the Securities Act of 1933, as amended and Section 4(2) of the
Securities Act.
On February 23, 2000, we issued 320,000 shares of our common stock to
an accredited investor for a total purchase price of $400,000. Our shares were
issued in reliance on the exemptions from registration provided by Rule 506 of
Regulation D and Section 4(2) of the Securities Act.
On March 6, 2000, we issued 200,000 shares of our common stock to an
accredited investor for a total purchase price of $225,000. The shares were
issued in reliance on the exemptions from registration provided by Rule 506 of
Regulation D and Section 4(2) of the Securities Act.
On May 15, 2000, we issued a 10% promissory note in the principal
amount of $50,000 and a warrant to purchase 100,000 shares of our common stock
to an accredited investor in connection with a $50,000 loan. The note is due on
November 15, 2000 but was paid on July 6, 2000. The warrant is exercisable for
one year, at an exercise price of $.50 per share. The note and warrant were
issued in reliance on the exemptions from registration provided by Rule 506 of
Regulation D and Section 4(2) of the Securities Act.
On May 26, 2000, we issued 300,000 shares of our common stock and two
warrants to each purchase 100,000 shares of our common stock to an accredited
investor for a total purchase price of $100,000. The warrants are exercisable
for a period of one and two years, respectively, with exercise prices of $.95
per share, and $2.00 per share, respectively. The common stock and warrants were
issued in reliance on the exemptions from registration provided by Rule 506 of
Regulation D and Section 4(2) of the Securities Act.
On June 7, 2000, we issued 100,000 shares of our common stock and two
warrants to each purchase 33,333 shares of our common stock, to an accredited
investor, for a total purchase price of $33,333.33. The warrants are exercisable
for a period of one and two years, respectively, with exercise prices of $.95
per share, and $2.00 per share, respectively. The common stock and warrants were
issued in reliance on the exemptions from registration provided by Rule 506 of
Regulation D and Section 4(2) of the Securities Act.
On June 8, 2000, we issued a warrant to purchase 4,000,000 shares of
our common stock to an accredited investor, in connection with consulting
services provided. The warrant is exercisable for a period of five years at an
exercise price of $1.00 per share. The warrant was issued in reliance on the
exemptions from registration provided by Rule 506 of Regulation D and Section
4(2) of the Securities Act.
On June 14, 2000, we issued a 10% promissory note in the principal
amount of $40,000 and a warrant to purchase 80,000 shares of our common stock to
an accredited investor, in connection with a $40,000 loan. The note is due on
December 14, 2000. The warrant is exercisable for a period of one year at an
exercise price of $.50 per share. The note and the warrant were issued in
reliance on the exemptions from registration provided by Rule 506 of Regulation
D and Section 4(2) of the Securities Act.
On July 3, 2000, we entered into subscription agreements with several
accredited investors pursuant to which we sold 8% convertible notes in the
aggregate amount of $1,250,000 and warrants to
II-2
<PAGE>
purchase an aggregate of 6,250,000 shares of our common stock. The notes have a
term of two years and are convertible into common stock according to a formula
set forth in the subscription agreements. The warrants are exercisable for four
years. Warrants to purchase 2,500,000 of our common stock are exercisable at
$.65 per share and warrants to purchase 3,750,000 shares of our common stock are
exercisable at $.75 per share. Under the terms of the subscription agreements,
we have the option, subject to certain conditions, to require the investors to
purchase additional convertible notes totaling $2,250,000. The notes and
warrants were issued in reliance on the exemptions from registration provided by
Rule 506 of Regulation D and Section 4(2) of the Securities Act.
On July 3, 2000, we entered into a private equity line of credit
agreement with an accredited investor pursuant to which we issued warrants to
purchase 6,000,000 shares of our common stock to a finder as a finder's fee. The
warrants are exercisable for four years. Warrants to purchase 4,000,000 shares
of our common stock are exercisable at $1.00 per share and warrants to purchase
2,000,000 shares of our common stock are exercisable at $1.25 per share.
Pursuant to the agreement, for two year after the effective date of this
registration statement and subject to certain conditions, we can require the
investor to purchase our common stock, at a purchase price set forth in the
credit line agreement, for an aggregate purchase price of $12,200,000.
On November 2, 2000, pursuant to the terms of the subscription
agreement, we requested that the accredited investors purchase additional
convertible notes from us for $250,000. In addition, we lowered the exercise
price on previously issued warrants to purchase 1,250,000 shares of our common
stock to $0.50 per share. Finally, pursuant to the terms of the private equity
line of credit agreement, we issued warrants to purchase 2,500,000 shares of our
common stock at an exercise price of $0.29 per share and a term of four years to
a finder as a finder's fee.
Item 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following exhibits are filed as part of this registration
statement:
EXHIBIT DESCRIPTION
2.1 Stock Purchase and Share Exchange by and among Bridgeport
Communications, Inc. and WealthHound, Inc., effective as of
July 9, 1999
2.2 Agreement and Plan of Merger by and between WealthHound.com,
Inc., a Florida corporation and WealthHound.com, Inc., a
Delaware corporation, dated as of September 20, 2000
2.3 Certificate of Ownership and Merger of WealthHound.com, Inc.
(a Florida corporation) into WealthHound.com, Inc. (a
Delaware corporation), effective as of October 20, 2000
2.4 Articles of Merger of WealthHound.com, Inc., a Florida
corporation and WealthHound.com, Inc., a Delaware
corporation effective as of October 20, 2000
3.1 Certificate of Incorporation of WealthHound.com, Inc.
3.2 Certificate of Amendment of the Certificate of Incorporation
of WealthHound.com, Inc.
3.3 By-laws of WealthHound.com, Inc.
4.1 Specimen Certificate of the Company's common stock
5.1 Opinion of Parker Chapin LLP
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<PAGE>
EXHIBIT DESCRIPTION
10.1 2000 Stock Option Plan, as amended July 18, 2000
10.2 Form of Stock Option Agreement
10.3 Form of Subscription Agreement
10.4 Form of 8% Convertible Note
10.5 Form of Stock Purchase Warrant
10.6 Private Equity Line of Credit Agreement by and among certain
investors and WealthHound, dated as of July 3, 2000
10.7 Form of Equity Line Stock Purchase Warrant
10.8 Registration Rights Agreement among WealthHound and certain
investors, dated as of July 3, 2000
10.9 Common Stock Purchase Warrant
10.10 Form of Convertible Note
10.11 Warrant Modification Agreement
10.12 Warrant Modification Agreement (Equity Line)
10.13 Purchaser Agreement
10.14 Merger Agreement by and among WealthHound.com, Inc. and
WealthHound Securities, Inc., on the one hand, and WAP, Inc.
and Wolf A. Popper, on the other hand, dated as of August
29, 2000
10.15 Services Agreement between WealthHound.com, Inc. and
RichMark Capital Corporation, dated as of September 1, 2000
10.16 Web Site Linking and Data Services Agreement between News
Alert, Inc. and WealthHound.com, dated as of August 1, 1999
10.17 Lease between Braun Management, Inc. and WealthHound, Inc.,
dated December 28, 1999, relating
to 11 Broadway, New York, New York
21.1 Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Parker Chapin LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on page II-6 of the registration
statement)
27.1 Financial Data Schedule
Item 28. UNDERTAKINGS.
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(A) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
II-4
<PAGE>
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a
fundamental change in the information set forth in
the registration statement; and
(iii) Include any material information with respect to
the plan of distribution not previously disclosed
in the registration statement or any material
change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering therein, and
the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(B) Undertaking Required by Regulation S-B, Item 512(e).
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or controlling persons
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel that the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(C) Undertaking Required by Regulation S-B, Item 512(f)
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act of 1934 that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 9th day of November, 2000.
WealthHound.com, Inc.
By: /S/ MICHAEL D. FARKAS
----------------------------------
Michael D. Farkas
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
The undersigned directors and officers of WealthHound.com, Inc. hereby
constitute and appoint Michael D. Farkas and Robert A. Schechter and each of
them, with full power to act without the other and with full power of
substitution and resubstitution, our true and lawful attorneys-in-fact with full
power to execute in our name and behalf in the capacities indicated below any
and all amendments (including post-effective amendments and amendments thereto)
to this registration statement under the Securities Act of 1933 and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission and hereby ratify and confirm each
and every act and thing that such attorneys-in-fact, or any them, or their
substitutes, shall lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ MICHAEL D. FARKAS Chairman of the Board, November 9, 2000
---------------------------------------
Michael D. Farkas Chief Executive Officer
and Director
/S/ SETH S. FISHMAN President, Chief Financial Officer November 9, 2000
---------------------------------------
Seth S. Fishman and Director
/S/ ROBERT A. SCHECHTER General Counsel and Director November 9, 2000
---------------------------------------
Robert A. Schechter
</TABLE>
EXHIBIT INDEX
NUMBER DESCRIPTION OF EXHIBIT
