UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
Annual Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the
fiscal year ended June 30, 1999
Commission file number 000-03718
AMERINET GROUP.COM, INC.
(Name of small business issuer in its charter)
DELAWARE
(State of incorporation or organization)
11-2050317
(I.R.S. Employer Identification No.)
902 CLINT MOORE ROAD, SUITE 136-C; BOCA RATON, FLORIDA
(Address of principal executive offices)
33487
(Zip Code)
ISSUER'S TELEPHONE NUMBER: (561) 998-3435
Securities registered under Section
12(b) of the Exchange Act:
TITLE OF EACH CLASS: NONE
NAME OF EACH EXCHANGE ON WHICH REGISTERED: NONE
Securities registered under Section
12(g) of the Exchange Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. [x] Yes [ ]
No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]
State issuer's revenues for its most recent fiscal year: $0. State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: $5,501,785.50; based on the final
transaction reported on the OTC Bulletin Board at the close of business on
September 30, 1999 ($1.50 per share), there being 3,667,857 shares of the
Registrant's common stock on such date held by non-affiliates of the Registrant
(persons holding less than 10% of the Registrant's common stock who were not
officers or directors within the last 90 days).
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of September 30, 1999,
there were 8,192,384 shares of the Registrant's common stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes No x
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AVAILABLE INFORMATION.
The public may read and copy any materials filed by the Registrant with the
Commission at the Commission's Public Reference Room at 450 Fifth Street,
Northwest, Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. The Commission maintains an Internet site that contains reports,
proxy and information statements, and other information regarding the REGISTRANT
AND OTHER ISSUERS THAT FILE REPORTS ELECTRONICALLY WITH THE COMMISSION, AT
HTTP://WWW.SEC.GOV. The Registrant's wholly owned operating subsidiary, American
Internet Technical Center, Inc., maintains a web site at HTTP://WWW.AITC.COM.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents previously filed by the Registrant with
the Commission are incorporated by reference in this report:
(1) Form 10-KSB for the year ended December 31, 1994, exhibits from Item
13(c) (Part III) thereof incorporated into Item 13(a) hereof.
(2) Form 10-KSB for the year ended December 31, 1996, information from
Item 3 (Part I) thereof incorporated into Item 8 hereof.
(3) Form 10-KSB for the year ended December 31, 1997, information from
Item 13(a) (Part III) thereof incorporated into Item 8 hereof;
information from Item 3 (Part I) thereof incorporated into Item 8
hereof.
(4) Form 10-KSB for the year ended December 31, 1998, information from
Item 12 (Part III) thereof incorporated into Item 3 hereof;
information from Item 11 (Part III) thereof incorporated into Item 3
hereof; information from Item 8 (Part II) thereof incorporated into
Item 8 hereof; exhibits from Item 13(a) (Part III) thereof
incorporated into Item 13(a) hereof;
(5) Form 8-K filed on July 12, 1999, exhibits from Item 7(c) thereof
incorporated into Item 13(a) hereof.
(6) Form 8-K filed on August 18, 1999, exhibits from Item 7(c) thereof
incorporated into Item 13(a) hereof.
(7) Form 8-K filed on August 24, 1999, exhibits from Item 7(c) thereof
incorporated into Item 13(a) hereof.
(8) Form 8-K filed on September 9, 1999, exhibits from Item 7(c) thereof
incorporated into Item 13(a) hereof.
CAVEAT PERTAINING TO FORWARD LOOKING STATEMENTS
The Private Securities Litigate Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain of the statements contained herein,
which are not historical facts, are forward-looking statements with respect to
events, the occurrence of which involve risks and uncertainties. These
forward-looking statements may be impacted, either positively or negatively, by
various factors. Information concerning potential factors that could affect the
company is detailed from time to time in the company's reports filed with the
Commission. This report contains "forward looking statements" relating to the
Registrant's current expectations and beliefs. These include statements
concerning operations, performance, financial condition and anticipated growth.
For this purpose, any statements contained in this Annual Report and Form 10-KSB
that are not statements of historical fact are forward-looking statements.
Without limiting the generality of the foregoing, words such as "may", "will",
"expect", "believe", "anticipate", "intend", "could", "estimate", or "continue",
or the negative or other variation thereof or comparable terminology are
intended to identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties which are beyond the
Registrant's control. Should one or more of these risks or uncertainties
materialize or should the Registrant's underlying assumptions prove incorrect,
actual outcomes and results could differ materially from those indicated in the
forward looking statements.
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TABLE OF CONTENTS
PART ITEM PAGE
NUMBER NUMBER NUMBER CAPTION
I 1 4 Description of Business
2 21 Description of Property
3 22 Legal Proceedings
4 25 Submission of Matters to Security Holders
II 5 30 Market for Common Equity and Related Stockholder
Matters
6 45 Management's Discussion and Analysis and Plan of
Operation
7 56-87 Financial Statements
8 89 Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
III 9 92 Directors, Executive Officers, Promoters and
Control Persons
9 100 Compliance With Section 16(a) of the Exchange Act
10 100 Executive Compensation
11 112 Security Ownership of Certain Beneficial Owners
and Management
12 116 Certain Relationships and Related Transactions
13 122 Exhibits and Reports on Form 8-K
Signatures 130
Additional
Information 131
Exhibits 132-169
This document incorporates into a single document the requirements of the
Securities and Exchange Commission for the Annual Report to Stockholders and the
Form 10-KSB.
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PART I
ITEM 1 DESCRIPTION OF BUSINESS
(A) BUSINESS DEVELOPMENT.
ORGANIZATION & INITIAL OPERATIONS
The Registrant was incorporated in the State of Delaware on December 8,
1964, as Infotec, Inc, and engaged in computer and communications related
activities. The Registrant discontinued its original operations in March of 1974
and until August 1991, its activities were limited to the collection of
royalties from licensing of patents and the disbursement of funds (derived from
the receipt of royalties). Those activities ended in August of 1991, due to
expiration of the patents. From August of 1991 until March of 1995, THE
REGISTRANT'S ONLY ACTIVITIES INVOLVED ADMINISTRATIVE FUNCTIONS (E.G., payment of
taxes, updating of stockholder records and maintenance of its corporate
existence).
OPERATION AS EQUITY GROWTH SYSTEMS, INC.[SIC]
In March of 1995, Messrs. George Wulfing and Solomon Manber, then the
Registrant's sole officers and directors (Mr. Wulfing serving as President and
Mr. Manber as Secretary and Treasurer), entered into a series of agreements with
Mr. Edward Granville-Smith, Jr. ("Mr. Granville-Smith"), pursuant to which the
Registrant's board of directors elected Mr. Granville-Smith to the Registrant's
board of directors, after which, all directors other than Mr. Granville-Smith
resigned. Mr. Granville-Smith, as the sole director, elected himself as
president, chief executive officer and chairman of the Registrant's board of
directors.
On May 18, 1995, the holders of 1,018,106 of the 2,000,000 shares of the
Registrant's common stock adopted a resolution by execution of a written consent
in lieu of stockholders meeting pursuant to which they authorized amendments to
the Registrant's certificate of incorporation. The amendment changed the
Registrant's name to "Equity Growth Systems, inc.", effected a one for ten
reverse stock split and changed the Registrant's authorized capitalization from
2,000,000 shares of common stock, $0.001 par value (all of which were
outstanding) to 20,000,000 shares of common stock, $0.01 par value (the formerly
issued shares having been reduced to 200,000 of the newly authorized shares). In
addition, the Registrant was authorized to issue 5,000,000 shares of preferred
stock, the attributes of which are to be determined by the Registrant's board of
directors from time to time, prior to issuance, in conformity with the
requirements of Sections 151 of the Delaware General Corporation Law. A copy of
the Certificate of Amendment is filed as an exhibit to this report (see "Part
III, Item 13[a], Exhibits Required by Item 601 of Regulation S-B").
Following the effective date of the amendments to the Registrant's
certificate of incorporation, Mr. Granville-Smith, as the sole stockholder,
officer and director of Milpitas Investors, Inc., a Delaware corporation
("Milpitas"), caused Milpitas to assign interests in four leases involving five
separate leased parcels of real estate (one lease covers two parcels), four
promissory notes secured by mortgages on real estate leased to third parties, in
each case subject to mortgages to third parties, and four demand notes with an
aggregate original principal balance of approximately $160,000, to the
Registrant in exchange for 1,616,000 shares of the Registrant's common stock,
$0.01 par value. Milpitas thereafter distributed such stock to the
Granville-Smith Trust, which thereafter transferred it to K. Walker
International, Ltd., a Bahamian corporation (affiliated with Mr.
Granville-Smith) and to Bolina Trading Co., S.A., a Panamanian corporation
(affiliated with Jerry C. Spellman).
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During October of 1998, Mr. Granville-Smith, then the Registrant's sole
director and chief executive officer determined that his personal health
problems were impeding his ability to adequately manage the Registrant's
operations. Consequently, he concluded negotiations with principals of the
Yankee Companies, Inc., a Florida corporation ("Yankees"), to obtain its
assistance in recruiting additional officers and directors, providing emergency
funding and helping to develop an expanded strategic business plan.
Based on Mr. Granville-Smith's oral assurances, Yankees contacted a number
of persons willing to become materially involved in the Registrant's operations,
and, on November 6, 1998, Mr. Granville-Smith, as the Registrant's sole
director, elected the following persons as members of the Registrant's board of
directors: Charles J. Scimeca (then the Registrant's secretary), Penny Adams
Field, Anthony Q. Joffe and G. Richard Chamberlin, Esquire (the Registrant's
former securities counsel).
On November 11, 1998, after learning that Mr. Granville-Smith, had been
incapacitated, Mr. Scimeca, at the suggestion of Mr. Chamberlin, called a
special meeting of the Registrant's board of directors, in order to replace Mr.
Granville-Smith as the Registrant's president and chief executive officer. The
action was taken on an expedited basis in order to assure that the Registrant
could file its report for the quarter ended September 30, 1998, with the
Commission within a reasonable time after its due date. At such meeting, Mr.
Scimeca was elected as the acting president and Mr. Chamberlin was elected as
the acting secretary. In addition, the Registrant's board of directors voted to
reorganize the Registrant as a holding company, to ratify the subscription
agreements with Yankees and persons introduced by Yankees, to formalize the
consulting agreement with Yankees and to enter into a settlement agreement with
Mr. Granville-Smith, as a result of which all his current agreements with the
Registrant would be terminated.
On November 24, 1998, the Registrant formally retained Yankees to assist it
in developing and implementing a new strategic plan. Yankees initially suggested
that the Registrant's activities be divided into three areas: real estate
operations segregated in a new subsidiary presided over by Mr. Scimeca;
consulting services to third parties; and, acquisition of operating companies
that could benefit from the Registrant's public trading status and from the
experience of the Registrant's directors. However, the Registrant's board of
directors determined that continuation of its real estate operations without Mr.
Granville-Smith's assistance would be counter productive, and initiated
negotiations with Mr. Granville-Smith for their divestiture.
On March 22, 1999, Mr. Granville-Smith, on his behalf and on behalf of the
Granville-Smith Trust dated August 13, 1976, First Ken Co Properties, Inc., a
dissolved Delaware corporation, K. Walker International, LTD., a Bahamian
corporation, Milpitas Investors, Inc., a Delaware corporation, the Milpitas
Investors, Inc., Trust, and Equity Growth Systems, Inc., a dissolved Maryland
corporation (not to be confused with the Registrant), entered into an agreement
with the Registrant rescinding all agreements prior between them, including
those pursuant to which the Registrant acquired its real estate related
operations; and, all employment, consulting and creditor agreements involving
such persons. In conjunction therewith, Mr. Jerry C. Spellman, on his own behalf
and on behalf of Bolina Trading Co., S.A., a Panamanian corporation and the WEFT
Trust signed and executed a general release in favor of the Registrant. As a
result of such recission, Messrs. Granville-Smith and Spellman acquired all of
the assets held by the Registrant as of December 31, 1998, but became
responsible for all liabilities associated therewith and the Registrant's real
estate operations were terminated.
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ACQUISITION OF AMERICAN INTERNET
In conjunction with its role as the Registrant's strategic consultant,
during the second quarter of 1999, Yankees introduced the Registrant's
management to Messrs. J. Bruce Gleason ("Mr. Gleason") and Michael D. Umile
("Mr. Umile"), the sole officers and directors of American Internet Technical
Centers, Inc., a Nevada corporation formerly known as Ascot Industries, Inc.,
("Ascot"), in which they held more than 90% of its capital stock. Ascot was a
holding company with one operating subsidiary, American Internet Technical
Center, Inc., a Florida corporation ("American Internet"). American Internet was
incorporated in Florida on April 15, 1998, to provide various Internet services.
American Internet's principal executive offices are located at 440 East Sample
Road, Suite 204; Pompano Beach, Florida 33060; Telephone (954) 943-4748.
American Internet had been acquired by Ascot on April 26, 1999, in a stock
exchange pursuant to which the stockholders of American Internet (Messrs.
Gleason and Umile) acquired 90% of the outstanding capital stock of Ascot in
exchange for all of the capital stock of American Internet. However, Messrs.
Gleason and Umile determined that their association with Ascot was based on
erroneous premises as to its public status and during June of 1999, after months
of negotiations with a number of existing public companies, Messrs. J. Bruce
Gleason ("Mr. Gleason") and Michael D. Umile ("Mr. Umile"), the sole officers
and directors of Ascot and the holders of more than 90% of its capital stock,
elected to become associated with the Registrant.
On June 25, 1999, a reorganization agreement was executed between the
Registrant, Ascot (then operating as American Internet Technical Centers, Inc.,
a Nevada corporation), the former stockholders of American Internet, and
American Internet (the "Reorganization Agreement"), pursuant to which Messrs.
Gleason and Umile exchanged all of their common stock in American Internet for
2,232,756 shares of the Registrant's common stock, with the right to increase
the 2,232,756 shares to 6,732,756 shares if net, pre-tax profit projections over
the next five years were met. As a result, Ascot became a 90% owned subsidiary
of the Registrant and American Internet became a wholly owned subsidiary of the
Registrant. Subsequently, two minor stockholders of Ascot (Ms. Lyn Poppiti and
Mr. and Mrs. Theodore Gill) also elected to exchange their shares of Ascot
common stock for an aggregate of 3,980 shares of the Registrant's common stock.
Consequently, the Registrant issued a total of 2,236,736 shares of its common
stock to the former American Internet stockholders.
The transaction was structured to meet the tax free exchange provisions of
Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended, and for
accounting purposes, was treated as a purchase. The securities were issued in
reliance on the exemptive provisions of Commission Rule 505 of Regulation D, and
comparable state law provisions based on representations by the parties
reflected in the Reorganization Agreement.
A copy of the Reorganization Agreement is incorporated by reference as an
exhibit to this report (see "Part III, Item 13[a], Exhibits Required by Item 601
of Regulation S-B").
On July 9, 1999, at the request of the Registrant, the parties to the
Reorganization Agreement and the former management and controlling stockholders
of Ascot entered into an agreement rescinding Ascot's acquisition of American
Internet as a result of which control of Ascot was reacquired by its original
stockholders, its name was changed back to Ascot, and Ascot was carved out of
the Reorganization Agreement. As consideration for the rescission American
Internet paid slightly less than $3,000 in legal fees to Ascot's legal counsel.
A copy of the rescission agreement is incorporated by reference as an exhibit to
this report (see Part III, Item 13(a), Exhibits Required by Item 601 of
Regulation S-B").
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REEVALUATION OF THE AMERICAN INTERNET TRANSACTION
AUGUST 25, 1999
Because the preliminary drafts of the audited financial statements for
American Internet (final copies of which were issued on September 8, 1999),
disclosed results different from those used by the Registrant and American
Internet during the negotiation of the acquisition, the Reorganization Agreement
was amended on or about August 25, 1999, as follows:
The provisions of the Reorganization Agreement pertaining to the shares of
the Registrant's common stock exchanged for all of the American Internet capital
stock (the "American Internet Stock"), were modified as follows:
o The initial shares of the Registrant's common stock issued to the
former American Internet stockholders (the "Subscribers") were reduced
by 750,000 shares, all of which were deducted from the shares issued to
Messrs. Gleason and Umile, at their request, from 2,232,756 to
1,482,756 shares, 250,000 of which were sold by Messrs. Gleason and
Umile to Yankees in consideration for the sum of $25,000, which they
concurrently contributed as additional paid in capital to American
Internet, correcting inaccuracies in the representations and warranties
in the Reorganization Agreement;
o The remaining 750,000 shares of the Registrant's common stock deducted
from the shares originally received by Messrs. Gleason and Umile were
returned to the Registrant for cancellation and then reserved for
re-issuance to the Subscribers as a component of the Registrant's
common stock issuable pursuant to the Reorganization Agreement's
performance criteria. As a result, the aggregate number of additional
shares of the Registrant's common stock potentially issuable to the
Subscribers increased from 4,500,000 shares to 5,250,000 shares, as
described in the following paragraph:
o The contingent additional shares to be included as shares exchanged for
the American Internet Stock (the "Additional Exchange Shares"), would
be predicated on American Internet's attaining the following annual
net, pre-tax profit thresholds determined as of June 30 of each year in
accordance with generally accepted accounting principals, consistently
applied ("GAAP"), as follows:
GOAL TIME FRAME ADDITIONAL EXCHANGE SHARES
(A) $200,000 2000 500,000 Shares; or
$259,000 2000 875,000 Shares;
(B) $500,000 2001 800,000 Shares; or
$559,000 2001 1,175,000 Shares;
(C) $1,000,000 2002 800,000 Shares;
$1,5000,000 2003 800,000 Shares;
$2,000,000 2004 800,000 Shares;
$2,500,000 2005 800,000 Shares.
As set forth in the original Reorganization Agreement, in the event that
the thresholds were not attained and the Registrant has provided American
Internet with at least $250,000 in funding for its operations, then:
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O If the net, pre tax earnings are less than 33% of the required
threshold during the subject 12 month period, the Additional Exchange
Shares for such period would be forfeited;
o If the net, pre tax earnings are between 33% and 80% of the required
threshold during the subject 12 month period, the Additional Exchange
Shares for such period and the required threshold would be carried over
to the next year, increasing both the aggregate threshold and the
aggregate bonus attainable for such year; and
o If the net, pre tax earnings are between 80% and 100% of the required
threshold during the subject 12 month period, the Additional Exchange
Shares for such period would be prorated.
In the event that the thresholds were not attained but the Registrant had
not provided American Internet with at least $250,000 in funding for its
operations, then, the Additional Exchange Shares for such period would be
prorated.
In addition to changes in the quantity of shares exchanged, other
provisions of the Reorganization Agreement were modified, as follows:
o The ratio of seats on American's Internet board of directors allocated
to designees of the Subscribers was reduced from two thirds to one
half, the current board membership being Messrs. Gleason and Umile,
Michael Harris Jordan, currently the Registrant's president, with a
further designee of the Registrant to be added.
o Messrs. Gleason's and Umile's annual salaries under their employment
agreements with American Internet were reduced from $75,000 to $52,000.
o If required by the Registrant, American Internet will hire a senior
management, marketing or production executive to be designated by the
Registrant on terms materially identical to those reflected in the
employment agreements between American Internet and Messrs. Gleason and
Umile, and American Internet will acquire the assets and operations of
another Internet business designated by the Registrant, capable of in
house production and hosting of web sites.
A copy of the amendment to the Reorganization Agreement is incorporated by
reference as an exhibit to this report, see "Part III, Item 13(a), Exhibits
Required by Item 601 of Regulation S-B."
SUBSEQUENT DEVELOPMENTS
The Registrant has continue to carefully monitor American Internet's
business to determine if there are any other inaccuracies involving material
information in connection with its acquisition and if any are found to exist,
will take such steps as it deems appropriate to remedy them. At present, the
Registrant's board of directors is considering recommendations by Yankees to
improve American Internet's performance by materially restructuring its sales,
customer relations and outsourcing policies in order to remedy material
operating deficiencies noted by Yankees. In addition, Yankees has recommended
material revisions to American Internet's record gathering and dissemination
procedures, including centralization of such functions, together with accounts
receivable and accountants payable functions, at the holding company level under
the direct supervision of the Registrant's president. Yankees has advised the
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Registrant and Messrs. Gleason and Umile that additional adjustment to the
consideration exchanged by the Registrant for American Internet will probably be
appropriate. While Yankees has advised the Registrant that it believes that
Messrs. Gleason and Umile will be cooperative in the event a further adjustment
is required, no assurances can be provided that such adjustments will in fact be
effected, that the steps recommended by Yankees will be implemented, or that if
they are implemented, they will prove effective. In the event of any such
adjustments, Yankees has advised the Registrant that the shares issued to
Yankees as compensation in conjunction with the American Internet acquisition
will be correspondingly adjusted.
(B) BUSINESS OF ISSUER.
HOLDING COMPANY
The Registrant is currently a holding company with one operating
subsidiary, American Internet. As a holding company, its current activities
involve:
o Provision of consulting services to third parties in exchange for the
issuance of shares of such third parties common stock directly to the
Registrant's stockholders, after their registration with the
Commission; and
o Supervision of its current and future subsidiaries and development of
operating systems designed to maximize the operational efficiency of
its current and future subsidiaries and its ability to promptly comply
with reporting obligations under the Exchange Act by centralizing
common FUNCTIONS AT THE HOLDING COMPANY LEVEL (E.G., capital raising,
borrowing, equipment purchasing, ACCOUNTING, LEGAL MATTERS, RECORD
STORAGE, ETC.).
o Seeking to acquire other operating businesses.
CONSULTING ACTIVITIES
GENERAL
In response to Yankees' suggestions, the Registrant's board of directors
has authorized its officers to negotiate consulting agreements with private
companies that desire to avail themselves of the experience of the Registrant's
officers and directors to attain reporting company status under the Exchange
Act. Such assistance is expected to involve recruitment and supervision of
professional advisors (e.g., attorneys, auditors, investment bankers, transfer
agents, officers and directors, etc.) required by the client corporation to
properly register their securities with the Securities and Exchange Commission
(the "Commission") under both the Securities Act of 1933, as amended (the
"Securities Act") and the Exchange Act, and thereafter, to initiate trading in
their securities in the over the counter market, all in consideration for the
registration and issuance of a set percentage of the client corporations' common
stock directly to the Registrant's stockholders, at the expense of the client
corporation. The percentage of securities to be issued to the Registrant's
stockholders after registration with the Commission is expected to vary from
case to case based on the Registrant's bargaining power but is expected to range
between 10% and 15% of the client corporation's common stock.
FUNDSAMERICA FINANCE CORPORATION
As of the date of this report, only one consulting agreement has been
signed (May 18, 1999), that being with FundsAmerica Finance Corporation, a
recently organized Florida corporation that intends to operate as a retail
finance company concentrating on refinancing mobile homes ("FundsAmerica") and
believes that reporting company status will be of material assistance to permit
it to package and resell portfolios of loans originated by it. The Registrant
will have no involvement in any operations of such corporation, other than in
providing the assistance described above and consequently makes no predictions
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as to the ultimate value of the securities to be distributed to the Registrant's
stockholders after they are registered with the Commission. Based on the terms
of the consulting agreement with Funds America, the Registrant's stockholders of
record as of June 17, 1999, will, after registration of the subject shares with
the Commission, receive 10% of FundsAmerica outstanding common stock, measured
as of the conclusion of such distribution, on a pro rata basis based on their
holdings of the Registrant's common stock on such date (approximately two shares
of FundsAmerica common stock for every 25 shares of the Registrant's common
stock held). A registration statement covering the shares to be issued to the
Registrant's stockholders was filed by FundsAmerica with the Commission on or
about October 14, 1999. The Registrant and FundsAmerica have agreed that the
reasonable value of such common stock, in the aggregate, is the lesser of
$50,000 or 10% of stockholders' equity of FundsAmerica, determined in accordance
with generally accepted accounting principals, consistently applied ("GAAP"),
however, no assurances can be provided that such valuation will actually be
deemed appropriate for auditing or tax purposes and a different valuation may be
arrived at based on the initial trading value of such securities or other
factors not currently apparent to management. As of the date of this report, the
Registrant has not determined the tax consequences of the anticipated
distribution of FundsAmerica securities to its stockholders and it is possible
that, after a proper valuation is determined, both the Registrant and the
subject stockholders will be deemed to have experienced taxable events. A copy
of the FundsAmerica Consulting Agreement is incorporated by reference as an
exhibit to this report (see "Part III, Item 13(a), Exhibits Required by Item 601
of Regulation S-B").
SPORTS COLLECTIBLE EXCHANGE, INC.
Sports Collectible Exchange, Inc., a recently organized Florida corporation
controlled by the Registrant's general counsel ("SCE"), has indicated a firm
intention to proceed subject to development of its web site and valuation of its
inventory. SCE maintains temporary offices at 14950 Southeast United States
Highway 441: Summerfield, Florida 34491. Its telephone number is (352) 694-6714:
its fax number is (352) 694-7153: and, its current e-mail address is
[email protected]. SCE has been organized to engage in a number of
collectible areas including an inventory of minor league collectibles that is
expected to be appraised prior to June 30, 2000, by either Gulf Coast Minors, of
Sarasota, Florida, or Steve Weitlauf, former owner of Bleacher Bums a baseball
card shop, Belleview, Florida. The appraisal will be based on both wholesale and
probable retail value. SCE's management has advised the Registrant's management
that it believes that the wholesale appraisal will be in the range of $40,000 to
$100,000, based on it's experience with minor league baseball collectibles. SCE
intends to develop an Internet web site to market minor league baseball
collectibles, including its current inventory, to operate such site with an
initial emphasis on minor league baseball collectibles in a manner similar to
that currently used to trade securities over the Internet, permitting
transactions in its own inventory, purchase of inventory from third parties and
facilitation of transactions between third parties for a small fee (expected to
be a percentage of the transaction). SCE also intends to develop a minor league
collectibles appraisal certification program and to establish a minor league
hall of fame.
Other Current Consulting Activities
The Registrant is currently negotiating with several additional potential
consulting clients and believes that, based on current activity, it will have at
least five active consulting clients during the next twelve months. While the
Registrant is optimistic that a number of the businesses with which it is
negotiating will sign consulting agreements with the Registrant during the
fourth calendar quarter of 1999, management believes that it would be premature
and possibly detrimental to ongoing negotiations to provide specific details at
this time.
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ACQUISITIONS
INTRODUCTION
The Registrant, principally through the assistance of Yankees, has
conducted negotiations with a number of potential acquisition candidates, all of
which are involved in Internet related operations. To date, only the transaction
with American Internet has been concluded. Because information concerning
negotiations with several apparently profitable acquisition candidates in the
Internet field ( an Internet access provider; a marketing company specializing
in sale of jewelry and other items through hospital distribution and collection
networks; and, an on-line match making service for singles) was made public by a
third party, the Registrant publicly released minimal information concerning
such negotiations through a press release in order to avoid the possibility that
anyone would use such information in violation of restrictions on trading while
in possession of material inside information. However, the Registrant believes
provision of further details pertaining to such acquisitions would be premature
in light of the preliminary status of pending negotiations. Consequently it
should not be inferred that current negotiations are limited to those referred
to above. The Registrant has taken steps to advise all persons with which it is
dealing that premature disclosure of information is not authorized and that such
disclosure, if intentional, probably violates applicable state and federal laws.
CURRENT STRATEGIC GOALS
The Registrant's board of directors, at the suggestion of Yankees, has
elected to concentrate on acquisition and development of Internet related
enterprises with the goal of making the Registrant a holding vehicle for a group
of Internet related companies capable of becoming involved in diverse aspects of
the Internet deemed to involve synergistically profitable opportunities. The
Registrant believes that the most important initial businesses that it will
focus on developing or acquiring should involve:
o A company providing all web development, promotion and hosting
services currently outsourced by the Registrant's American Internet
subsidiary;
o An Internet access company providing the public with competitively
priced access to the Internet, and serving as a platform for the
marketing of other goods and services to its subscriber base;
o An advertising agency specializing in advertising over the Internet;
and
o Several companies marketing profitable goods and services through the
Internet.
However, its priorities may change based on the opportunities for
acquisitions or business development that it encounters. The Registrant also
intends to recruit persons capable of developing cutting edge Internet related
technologies and expects to concentrate on personnel recruitment rather than on
the acquisition of entire existing companies after it develops or acquires what
its management perceives to be an adequate Internet core infrastructure.
Yankees, the Registrant's strategic planning consultant, has suggested that
the Registrant operate on a federated model, with authority over operational
matters concentrated at the subsidiary level, subject to oversight by holding
company level personnel. The role suggested for the Registrant is similar to
that of a central government with enumerated powers designed to provide
synergistic support and coordination to the subsidiaries coupled with oversight
responsibilities designed to provide early detection of and solutions to
problems. Yankees believes that such an operating structure would encourage
desirable entrepreneurial businesses to become associated with the Registrant
and its other subsidiaries because they would be assured of a significant level
of independence, as long as they were meeting performance targets, would not
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have to spend valuable business times developing new skills based on the public
regulatory environment, and would benefit from owning an equity stake in a
diversified family of companies featuring mutually supporting capabilities
designed to reduce operating costs and maximize business opportunities. Yankees
has advised the Registrant that the most difficult aspects of its suggested plan
will involve recruitment and retention of competent, dedicated personnel and
development of a method of describing the combined operations of its
subsidiaries that can be easily understood, analyzed and evaluated by the
investment community.
FUNDING REQUIREMENTS
The Registrant originally committed to investing at least $350,000 in
American Internet. $100,000 was provided shortly after its acquisition and
approximately $100,000 in additional funds have been provided since such time,
$75,000 of which was in the form of third party loans. In light of current
re-evaluation of the American Internet acquisition, its capital requirements may
prove materially different than originally contemplated and the Registrant may
renegotiate the amount of capital it will invest in American Internet,
especially if the Registrant acquires an existing business involved in
activities similar to those of American Internet and causes it to merge with
America Internet. In that case, the resulting entity would be the recipient of
capital deemed appropriate therefor through negotiations between the Registrant
and the new principals of the combined entity.
The Registrant anticipates that it will be required to arrange for
infusions of capital in conjunction with most if not all of the other
acquisitions that it may undertake in the foreseeable future. Yankees has
indicated that it believes it can arrange funding for acquisitions it introduces
and recently assisted the Registrant to develop stand by financing through the
sale of a warrant to purchase 1,000,000 shares of the Registrant's common stock
at $0.75 per share by Xcel Associates, Inc., a New Jersey corporation (the "Xcel
Warrant" and "Xcel," respectively). Pursuant to its agreement with Xcel, the
Registrant must file a registration statement with the Commission covering the
shares underlying the Xcel Warrant within 45 days after the date of this report
and Xcel has up to 120 days following the effective date of such registration
statement to exercise the Xcel Warrant. No assurances can, however, be provided
that such warrant will actually be exercised. A copy of the warrant agreement is
filed as an exhibit to this report (see "Part III, Item 13(a), Exhibits Required
by Item 601 of Regulation S-B").
On or about September 30, 1999, Yankees arranged for Xcel to loan American
Internet $75,000, a portion of which ($23,000) was used to repay the Registrant
for certain recent advances to American Internet. In lieu of interest, the
Registrant issued Xcel 15,000 shares of its common stock. Yankees was required
to pledge 35,000 shares of its common stock in the Registrant as collateral for
the Xcel loan. The loan proceeds are expected to be used as interim capital
pending receipt of proceeds from exercise of the Xcel warrants, and for American
Internet to develop a recently announced new service, the "tutor2go.com"
program.
The Registrant and American Internet have agreed to indemnify and hold
Yankees harmless in the event that the pledged collateral is retained by Xcel as
a result of American Internet's failure to comply with its obligations under the
proposed note or for any other reason. Indemnification is to be (at the election
of Yankees) either in securities of the Registrant selected by Yankees and
subject to valuation discounts, as provided for in Yankees consulting agreement
with the Registrant or in cash. In addition, the Registrant will pay Yankees a
sum equal to the closing offer price of the Registrant's common stock on the
date of the note multiplied by 3,500 (representing 10% of the value of the
transaction) as consideration for the use of the collateral. Copies of the
secured promissory note to Xcel and the loan guarantee and indemnification
agreement with Yankees are filed as exhibits to this report, see "Part III, Item
13(a), Exhibits Required by Item 601 of Regulation S-B."
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AMERICAN INTERNET
American Internet is a Florida based Internet company that offers Internet
services through third party contractors such as e-commerce accounts, hosting
services, web site design and Internet consultation. It also serves as a
distributor for Education to Go, a California enterprise that provides on-line
educational and instructional courses through the Internet. A copy of the
agreement with Education to Go is incorporated by reference as an exhibit to
this report (see "Part III, Item 13(a), Exhibits Required by Item 601 of
Regulation S-B").
American Internet's corporate operations include an on-line education
division; various sales related services, customer relations, administrative,
accounting and management functions. American Internet is in the process of
implementing a computerized management information system to record and manage
the various operations of the business. American Internet originally provided
web site production, web site design and Internet presence provider services
through its own personnel; however, over the last twelve months the majority of
such functions have been outsourced to unrelated third party contractors, as a
result of which American Internet has principally become a sales organization.
The Registrant intends to acquire a business that will again provide such
capabilities internally in the near future.
PRINCIPAL PRODUCTS OR SERVICES AND THEIR MARKETS
Currently, American Internet's primary target market involves newly
organized businesses throughout the United States and Canada. American Internet,
through third party contractors, designs web sites, hosts web sites, and
provides e-commerce programs, marketing and other Internet services. American
Internet differs from most competitors in that it is not restricted by
geographical boundaries, solicits smaller accounts (primarily small businesses)
and strives to maintain low overhead costs in order to provide its clients with
lower prices than they might obtain from local providers.
American Internet serves as a distributor for Education to Go, a California
enterprise which offers on line instructional programs in computer technology,
web design, management and other fields. All courses are conducted on the Web
where students can acquire new skills from the comfort of their own home.
American Internet offers free web sites for small and medium sized
businesses to clients who agree to use American Internet's hosting services for
their web sites. New customers are given a choice of either a 6 or 12-month free
web site program, subject to payment for the associated hosting services,
including search engine registration. Currently, the hosting services are
provided at a price of $578 for the six-month contracts and $932 for the annual
contract. Clients who sign up for longer periods receive a free month and one
free site upgrade. The percentage of one-year contracts has gradually increased
to 50% of all current hosting contracts and is expected to maintain that ratio.
The 6-month contracts expire during the first year and the clients are invited
to re-subscribe to the hosting services at reduced (e.g., from $59 per month to
$25 per month).
Because of increasing competition from other web hosting businesses and the
recent business failure of an unrelated third party to whom American Internet
subcontracted web hosting responsibilities, American Internet experienced a
deterioration in its web hosting business during the second calendar quarter of
1999 and expects that renewals for its web hosting services will be reduced to
the 50% range. With the Registrant's assistance and based on recommendations by
Yankees, American Internet is undertaking steps to improve response capabilities
to customer complaints and, as an interim step, to better monitor the
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performance of its independent contractors. In the opinion of the Registrant,
the ultimate solution may require American Internet to discontinue its current
reliance on third party contractors and the Registrant is actively seeking an
acquisition candidate or additional staffing that will provide in house web
hosting and design capabilities.
In addition to purchase of hosting services, American Internet's clients
are encouraged to purchase a search engine registration option for a charge of
$149. Search engines act in a manner similar to telephone yellow page
directories in conjunction with the Internet and are an important part of the
system. Less than 1% of clients decline the offer. The current version of the
American Internet service agreement provides clients with the following options:
Domain name registration, no charge; two e-mail addresses, no charge; six
month contract ($75 set-up fee plus $59 monthly) $429; one year contract ($75
set-up fee plus $59 monthly), $783; search engine registration (over 550 search
engines and directories), $149; four page web site, no charge with one of the
other plans listed.
In addition to services and products offered to clients at flat fee rates,
many clients are encouraged to purchase additional features or upgrades, either
in conjunction with the initial sale or during the production stage. The
additional features were not a significant source of income during the initial
three months of operation; however, as additional sample web sites featuring the
additional features and upgrades have been displayed on American Internet's
preview pages, demand has been increasing. American Internet's management
estimates that income from additional features and upgrades should average at
least $100 per client. The more commonly requested additional features and
upgrades available for web sites from American Internet, together with their
current prices, are as follows:
Extra pages $65 per page; extra scans (picture graphics), $10 per page
(reduced for 5 or more pages to $7 each); insert standard animations,
$100 (4 animations); custom created animations, $50 per hour;
additional e-mail addresses, $10 per month for each 4 addressees;
auto-responders, $50 set-up fee plus $10 per month for each 2;
additional domain registration, $150 (exclusive of Internic fee of $35
per year); Java scrolling text $125; Glow buttons/mouse over, $50
(includes all pages); framed web site, $150; insert audio clip, $150;
secured server (for credit cards), $150; shopping cart and e-commerce,
prices vary.
American Internet became a distributor for on-line educational courses on
August 19, 1998. The initial educational program (still being offered) was
titled "Professional Web Design" and includes the following courses:
Introduction to the Internet; Creating web pages; Advanced web pages; Creating
web graphics; Java programming for the web; Microsoft front page and CGI
programming for the web. Sixty- two different courses are currently offered, all
of which feature web-based delivery and administration. Students can take
courses from their own home or business. Requirements for most courses are a
computer, Internet access, e-mail and Netscape or Internet Explorer browser.
Lessons for each course syllabus are usually delivered twice weekly either by
e-mail or on the web itself. An instructor is assigned to each course chat room
and students interact with the assigned instructors and other students twice per
week in special chat room environments. American Internet has enrolled an
average of ten new students per month at an average price of $100 per course.
Enrollment is expected to increase materially as the Registrant provides
increased funding for advertising and promotion.
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Each course typically runs for six weeks, with 2 lessons per week, for a
total of 12 lessons. Assignments are given each week with a final exam provided
to those seeking course certificates. Currently, the courses involve the
following subjects:
Computer: Fourteen different courses of study. Average course is 12
lessons, 6 weeks of study.
Internet: Internet navigation, creation of web pages and web programming. A
total of 8 courses, 12 lessons per course.
Business: Planning, starting, financing and marketing small to medium sized
businesses. A total of 11 courses, varying numbers of lessons per
course.
Management: Fundamentals of supervision, communication, motivation, conflict
resolution, and inventory and project management. A total of 23
different courses, varying numbers of lessons per course.
Miscellaneous: Preparation for tests, enhancement of medical skills, charting
new career paths. A total of six different courses, varying
numbers of lessons per course.
American Internet currently out-sources all web design, production and
hosting to unrelated third party contractors and principally functions as a
sales organization marketing web related services, e- commerce and Internet
marketing programs to its current clients. No customer of American Internet
accounts for more than 5% of its business; however, virtually all production and
hosting service is concentrated between one and three independent businesses.
American Internet is not overly concerned about such concentration since its
management believes that alternative service providers at competitive prices are
readily available. The Registrant intends to eliminate such reliance by
returning to internal production and hosting methods in order to improve
customer relations and quality control.
DISTRIBUTION METHODS OF THE PRODUCTS OR SERVICES
Over 100,000 new businesses are formed in the United States each month.
Many of these businesses commence operations on a limited budget but are
increasingly aware of the benefits of maintaining a web site. American Internet
concentrates on small and new businesses as its market niche and the area where
it focuses its marketing efforts in order to achieve its strategic goals.
American Internet markets its web sites and other services through various
media throughout the United States and Canada. American Internet's marketing
strategy has been focused around advertising in local newspapers, direct mail,
including postcards and card decks, telemarketing and the Internet. American
Internet maintains its own informative web site and encourages prospective
clients to visit the site where they can obtain information about American
Internet and its services, and to preview approximately ten actual sites of
American Internet's clients. American Internet will experiment with cable
television advertising on business networks, such as MSNBC and other networks,
press releases, and outbound telemarketing campaign to new businesses, opt-in
e-mailing and other advertising techniques and methods.
Advertising and marketing costs constitute one of American Internet's
largest expenses. Although American Internet has been successful in handling
marketing and advertising matters internally, it has decided to engage the
services of an advertising agency to handle future marketing responsibilities.
American Internet intends to utilize direct response marketing during calendar
year 2000, through 60-second television commercials highlighting Internet
services directed to small and medium sized business owners.
Management believes that the television commercials, along with media and print
advertising will materially increase sales of the American Internet products and
services.
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MARKETING PERSONNEL & RESOURCES
Selling efforts are currently undertaken through a staff of telemarketers
and support personnel whose duties include responding to inquiries generated
through American Internet's marketing and advertising programs. A sales
representative assigned to respond to an inquiry explains the American Internet
program to the prospect and then faxes, e-mails or mails a six page
informational package, including a contract ready for execution. Closing a
prospect normally occurs within one to five days after the initial contact.
American Internet intends to increase and improve its sales force in conjunction
with increased marketing activities in order to maximize the return on marketing
expenses. Currently contemplated improvements include providing each sales
representative with computerized sales equipment permitting them to provide
prompt, accurate answers to questions; timely tracking of customer progress and
rapid responses to call backs. Integration of the data generated by sales
representatives with a centralized marketing data base is expected to upgrade
sales, increase renewals and expand sales of other services. In addition,
improved equipment will allow sales personnel to increase foreign marketing
efforts at reduced costs through use of Internet telephony to make overseas
calls at lower rates than generally available, and to communicate with foreign
prospects in their own languages using either multi-lingual sales staffers or
available translation program features.
ESTIMATE OF THE AMOUNT SPENT DURING EACH OF THE LAST TWO FISCAL YEARS ON
RESEARCH AND DEVELOPMENT ACTIVITIES, AND IF APPLICABLE THE EXTENT TO WHICH THE
COST OF SUCH ACTIVITIES ARE BORNE DIRECTLY BY CUSTOMERS
Since its inception on April 15, 1998, management believes that American
Internet has spent approximately $40,000 on research and development activities,
none of which has been borne directly by its customers, although all of it is
included as a component of the cost of the goods and services sold as a result
of developments derived from such activities. None of such expenses were
capitalized or warranted amortization over a multi year period.
STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE
American Internet's management is considering the addition of advanced
equipment to create multilingual web sites for use in international commerce or
in conjunction with foreign clients; equipment that will create "in house" leads
of its prospect base from county courthouses, public documents and other
records; equipment and programs to generate leads "hits" for its customers using
search engines and other marketing techniques; and, equipment that will ensure
the fastest and most reliable access to the Internet. It is anticipated that
such equipment purchases will be made using funds provided by the Registrant
under its commitment to provide $350,000 in capital prior to December 31, 1999.
On or about September 22, 1999, American Internet announced that it had
obtained funding for the first stage of its "tutor2go.com" project. The web site
is currently under constructions and is expected to:
* Include real time, tutorial assistance by qualified teachers and tutors
with degrees in the area supervised;
* Cover most subjects taught from pre-school through high school in
individual, supervised chat-style "rooms;"
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* Provide parents with secure access with current information dealing with
tutor credentials and student status and progress.
Fees are expected to be competitive with those charged by qualified private
tutors. American Internet expects the site to be operational during the last
calendar quarter of 1999.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS OR
LABOR CONTRACTS, INCLUDING DURATION
American Internet holds no patents, trademarks, licenses, franchises or
concessions and is not a party to any royalty agreements or labor contracts.
However, the Registrant intends to review American Internet's potential
proprietary intellectual property (trade names, service marks and trademarks)
and if it deems it appropriate, will register them under available state or
federal statutes providing protection therefore. The Registrant anticipates that
any intellectual property developed or acquired in the future by American
Internet or any other subsidiary will be registered as required to avail it of
any available protection under state or federal laws, absent a material business
reason not to do so.
COMPETITIVE BUSINESS CONDITIONS, COMPETITIVE POSITION IN THE INDUSTRY AND
METHODS OF COMPETITION
The Registrant: The Registrant's activities are divided into three different
areas. The first activity is providing consulting services
to third parties that desire to attain public trading status
by assisting them in preparation of Securities Act
Registration Statements and registrations on Securities and
Exchange Commission Forms 10 and 10-SB in exchange for
securities to be distributed directly by the client issuer
to the Registrant's stockholders. The second area involves
acquisition of operating companies that may benefit from the
Registrant's public trading status and from the experience
of the Registrant's Directors. The Third area involves
providing synergistic, centralized services to its
subsidiaries; coordinating their operations; providing
supervisory services designed to eliminate waste and monitor
attainment of performance targets; and implementing
procedures designed to assure a prompt and orderly flow of
information for audit and securities law reporting purposes.
Consulting Services
The Registrant competes against a wide variety of
consultants and consulting entities offering services to
public companies as well as numerous individuals and varied
entities desiring to provide consulting services to third
parties that desire to attain public trading status by
assisting them in preparation of Forms 10 and 10-SB.
However, the Registrant is willing to provide such services
in exchange for securities to be distributed directly by the
client issuer to the Registrant's stockholders rather than
in exchange for cash and this should prove to be a
competitive advantage for the Registrant.
Acquisition of Operating Companies & Recruitment of Personnel
The second activity involves attempts to acquire operating
companies that could benefit from the Registrant's public
trading status and from the experience of the Registrant's
management and to recruit individuals with capability to
develop cutting edge Internet technologies. There are
numerous individuals, entities and public companies
interested in acquisitions and recruitment of personnel,
many of which are better capitalized than the Registrant and
are able to make acquisitions for cash or a combination of
cash and securities and to offer employees large recruitment
bonuses, salaries and benefits, while the Registrant's sole
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means of effecting acquisitions involves exchanges of it's
securities and thereafter, arranging introductions to
potential funding sources, which may or may not provide
required capital based on their own analysis of the
opportunities presented; and its principal recruitment
incentive involves the grant of stock options. Consequently,
no assurances can be provided that the Registrant will be
successful in effecting any acquisitions or recruitment of
desired personnel, or that the terms of any acquisition or
recruitment will be as favorable as could have been obtained
had the Registrant been better capitalized.
American Internet: Although American Internet's business is currently
concentrated in the Southeast United States, it intends to
materially increase its sale of products and services
throughout the United States and Canada by the year 2000 and
to start world wide international marketing efforts, on a
test basis, by the last calendar quarter of 1999. The
Internet and its many related commercial opportunities
comprise a dynamic industry subject to frequent and rapid
changes in consumer tastes as well as technological
advances. The nature of the rapid change in the Internet
industry means that participants that do not keep pace with
advancing technology or consumer tastes will lose favor with
the public and be replaced with other Internet more
technologically advanced and consumer savvy competitors.
American Internet competes in a variety of market segments
in the Internet services industry and is aware of many other
consumer Internet service companies competing in its
selected markets; however, because the market is so large,
dynamic and diverse, American Internet seldom finds itself
actively opposing its competitors. Many of American
Internet's clients are new to the Internet, lack computer
literacy or are on limited budgets. American Internet has
endeavored to develop a niche in that market segment and in
the manner in which it services that market segment.
American Internet is aware that it is a part of a very
dynamic and competitive industry. American Internet's
management believes that it has an advantage over many of
its competitors because of its non-restrictive boundaries
and of its ability to offer its products and services to new
businesses, on a limited budget at low prices. However,
there are other companies that are offering services,
similar to those offered by American Internet, including,
Cyber Graphics Institute, Inc.; World Wide Web Institute,
Inc.; and Web Results Institute, Inc. While no verifiable
sales or operational data is available for any of the three;
it appears that they are all operating successfully.
During the first nine months of American Internet's
operations, it seldom encountered direct competition from
any source and was required to conduct research to find out
who its principal competitors were for purposes of
securities law disclosure rather than in reaction to
competitive pressures. American Internet's management
attributes such experience to the size of its selected
market which appears currently to be large enough to
accommodate a large number of successful competitive
businesses. However, American Internet's management is also
cognizant of the fact that as its operational market becomes
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more saturated, competition will intensify and it will have
to remain focused on both new challenges and new
opportunities in order to take advantage of and profit from
the anticipated changes and become one of the survivors, as
the industry consolidates.
As a greater number of companies enter the Internet market,
American Internet will experience increased competition in
the marketing of its services. American Internet believes
its competitive position will be materially affected by its
credibility and consumer relations; its ability to profit
from low budget and discount services and the geographic
expansion its services world wide. However, the consumer
Internet service industry includes some of the largest and
best financed companies in the world. Many potential
competitors have far greater technical, financial, and
marketing resources than American Internet, and such
competition may have a material adverse effect on American
Internet's operations and profits.
SOURCES AND AVAILABILITY OF RAW MATERIALS AND THE NAMES OF PRINCIPAL SUPPLIERS
American Internet's services are not reliant on the availability of raw
materials but rather, involve development of software computer applications,
advice on selection of computer hardware and operation of interactive data
networks. Sources for all materials required in conjunction with the foregoing
are readily available from a large number of suppliers, none of which would be
difficult to replace. Nonetheless, American Internet is currently highly reliant
on a small group of unaffiliated web designers, producers and hosting services
with which it contracts for performance of virtually all services marketed by
it. The Registrant believes that such situation should be modified and intends
to restore internal capabilities in all such areas through acquisition of a
compatible business; however, no assurances can be provided that such a business
can be acquired on acceptable terms, or at all.
GOVERNMENT REGULATION
American Internet is subject to all regulations normally incident to
business operations. In addition, its activities are subject to regulation under
the United States Telephone Consumer Protection Act, by the Federal
Communications Commission, by the Federal Trade Commission and by other foreign,
federal, state and local regulatory bodies with jurisdiction over communications
and advertising related activities. In the past, Internet related enterprises
have been targeted by law enforcement agencies for actions taken by their
clients over the Internet, and efforts to regulate the Internet continue at all
levels. Because of the dynamic nature of the Internet and the novel,
multi-jurisdictional nature of its operations, it is not possible to accurately
predict what types of additional regulatory oversight will be imposed in the
future, especially in light of current efforts by many groups to censor
activities on the Internet. Currently, American Internet is regulated in the
State of Florida through the Florida Department of Agriculture and Consumer
Affairs, with which it has filed an Affidavit of Exemption under the Florida
Telemarketing Act. In addition, American Internet is subject to numerous
provisions of state laws designed to protect consumers from unfair advertising
and unsolicited communications.
Prior to its acquisition by the Registrant, American Internet was required
to register under the Florida Telemarketing Act. Although general advertising
(e.g., through newspapers and television) is exempt therefrom; direct
advertising or advertising to specific individuals falls under the Telemarketing
Act guidelines. In the course of its advertising programs American Internet uses
various media such as newspapers, television, direct mail and e-mail Internet
advertising. In all cases the advertising is designed to invite a call to
American Internet for further information and if the call proceeds favorably a
sale may be concluded during a subsequent telephone call. It appears, however,
that subsidiaries of companies with a class of securities registered under
Section 12 of the Exchange Act may be subject to certain exemptions from such
regulation.
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NEED FOR ANY GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES
To the best of the Registrant's knowledge, except as previously discussed
there are no special requirements for government approval of its principal
products or services not generally applicable to normal business operations.
EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON THE BUSINESS
The Registrant: The Registrant does not anticipate unusual consequences to
its business as a result of governmental regulations, other
than the fact that, like all other businesses, it is forced
to incur expenses and delays in complying with the many laws
and regulations applicable to all businesses in the United
States, and, that the Registrant may be precluded from
making favorable acquisitions because the acquisition target
is unable to provide financial statements meeting standards
imposed by the Securities and Exchange Commission.
American Internet: There have been and continue to be numerous efforts at every
level of government to regulate Internet activities, most of
which, in the United States, have been limited by first
amendment guarantees. That is not true in other countries.
In addition, the regulation of commercial communication
activities, especially relating to privacy rights, receipt
of unsolicited communications and Internet fraud is likely
to expand significantly. Immediately prior to American
Internet's incorporation, its principals, in their initial
Internet venture, conducted a marketing campaign through a
third party that resulted in a number of consumer
complaints, one law suit, and contacts and comments from
various states' regulatory authorities. American Internet,
upon its incorporation, immediately established policies
designed to avoid such problems in the future; however, no
assurances can be provided that, in the future, inadvertent
activities by American Internet personnel or by American
Internet clients will not subject American Internet to
regulatory actions or civil liabilities, or that prior
activities by American Internet's founders will not be
imputed to American Internet (see "Part I, Item 3, Legal
Proceedings").
COSTS AND EFFECTS OF COMPLIANCE WITH FEDERAL, STATE AND LOCAL ENVIRONMENTAL LAWS
The Registrant:
Federal: To the best of management's knowledge, the Registrant will
not be required to directly incur material expenses in
conjunction with environmental regulations. However, like
all other companies, there are many but incalculable
indirect expenses associated with compliance by other
entities that affect the prices paid by the Registrant for
goods and services.
State: To the best of management's knowledge, the Registrant will
not be required to directly incur material expenses in
conjunction with environmental regulations at the state
level.
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Local: To the best of management's knowledge, the Registrant will
not be required to directly incur material expenses in
conjunction with environmental regulations at the local
level.
American Internet: American Internet is a service businesses and is not aware
of any expenses directly attributable to compliance with
federal, state or local environmental laws or regulations.
However, as is the case with every other person or legal
entity, it indirectly bears a portion of the burden of such
regulation through increased prices for goods and services,
taxes and prohibitions on unfettered exercise of business
judgment.
NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL TIME EMPLOYEES
The Registrant: The Registrant currently operates exclusively through it's
presently constituted officers and directors as well as
through it's strategic consultant, the Yankee Companies,
Inc. Management is of the opinion that should full or part
time employees or independent contractors be needed for any
reason they are readily available at competitive prices.
American Internet: As of June 30, 1999, American Internet availed itself of the
services of 7 individuals (including its officers) on a
full-time basis, plus 5 people on a part-time basis,
including web designers, independent contractors and 2
consultants, none of whom are employed pursuant to a
collective bargaining or union agreement. All current
service providers other than Messrs. Gleason and Umile are
subject to agreements pursuant to which they represent that
they are independent contractors; however, the Registrant's
general counsel has advised American Internet's officers
that such characterization may not be accurate, and has
recommended that they be re- designated as employees unless
they meet the Internal Revenue Services' criteria for
independent contractors.
ITEM 2 DESCRIPTION OF PROPERTY
THE REGISTRANT:
The Registrant currently uses executive facilities provided on a shared,
rent free basis, by the Yankee Companies, Inc., in Ocala and Boca Raton,
Florida. The addresses, telephone and facsimile numbers available to the
Registrant as described above are as follows:
Ocala, Florida: 1941 Southeast 51st Terrace, Suite 800: Ocala, Florida
34471: telephone number (352) 694-6714 and facsimile number
(352) 694-7153: Attention: G. Richard Chamberlin, Esquire,
Secretary & General Counsel; and
Boca Raton, Florida:902 Clint Moore Road, Suite 136-C: Boca Raton, Florida
33487: telephone number (561) 998-3435 and facsimile number
(561) 998-4635: Attention: Michael Harris Jordan, President.
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The Registrant anticipates that these facilities will be adequate for its
needs unless it effects a material acquisition, in which case it is anticipated
that adequate facilities would be included as a component of such acquisitions.
AMERICAN INTERNET:
American Internet's offices, production and operating facilities are
located at 440 East Sample Road, Suite 204; Pompano Beach, Florida 33064.
American Internet's telephone number is (954) 943-4748 and its fax number is
(954) 943-4046. American Internet also maintains an internet web site at
www.aitc.net. American Internet's current facilities are comprised of
approximately 2,500 square feet, 1,000 of which are used for sales, 1,000 are
used for administration and 500 are used for technical operations. The
facilities are leased on a month to month basis, at $2,200 per month and $132
per month in lease related taxes.
Yankees has recommended that American Internet and the Registrant
consolidate physical facilities and that the Registrant assume control over all
American Internet accounts receivable, accounts payable and record retention
functions in order to better integrate American Internet into the information
gathering system required by the Registrant in order to comply with reporting
obligations under the Exchange Act on a timely basis. The Registrant's board of
directors is considering Yankees' proposal.
As the Registrant's business increases, additional facilities will be
required, especially if the Registrant is successful in acquisition related
activities. Assuming that adequate funds become available, the Registrant's
management believes that adequate facilities are readily available at
competitive prices in the Palm Beach County, Florida area.
FURNITURE, FIXTURES & EQUIPMENT
The assets of American Internet, as valued for accounting purposes on June
30, 1999, had a historical cost of $33,656. The assets are principally comprised
of five categories, fixtures, furniture, office equipment, communications
equipment and computers. Fixtures and furniture consist of exterior signs,
desks, chairs, file cabinets work stations and room dividers (12); office
equipment consists of a Xerox laser printer, a Xerox copier, a Xerox work center
fax unit and 4 regular fax machines; communications equipment consists of a 16
unit telephone system and computer equipment consists of 9 computer stations,
including monitors and printers and 3 hosting servers and related software. As
indicated previously, American Internet must regularly upgrade its
communications and computer equipment in order to adequately compete in its
industry, and intends to invest in other equipment to upgrade the capabilities
of its sales and marketing staff.
ITEM 3 LEGAL PROCEEDINGS
THE REGISTRANT:
In light of the divestitures described in Part I, Item 1, Description of
Business, no material litigation is currently pending and the only potential
litigation involves possible actions by the Registrant against former officers
and directors who have failed to return securities issued by the Registrant for
services that were not performed or in exchange for assets that were not
delivered.
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INTELLECTUAL PROPERTY ISSUES
On August 9, 1999, James T. Hosmer, Esquire, of the firm of Nixon &
Vanderhype, P.C., representing AmeriNet, Inc., of St. Louis, Missouri, a company
engaged in marketing a wide variety of services relating to the negotiation of
contracts for medical facilities throughout the United States, wrote to the
Registrant expressing concern over potential confusion based on the similarity
of names, and advising the Registrant that it was the exclusive owner of
trademark registrations number "1,764,832 and 1,427,765 for the marks " AmeriNet
and AmeriNet Designs." The Registrant's general counsel reviewed the legal
materials involved and concluded that the protection was limited to the
activities described and responded to Mr. Hosmer indicating that the Registrant
had no intention of engaging in the "negotiation of purchasing contracts for
medical facilities of any kind."
On September 2, and 20, 1999, Mr. Hosmer again wrote to the Registrant's
general counsel expressing concern about possible name confusion based on the
announcement that the Registrant was considering acquisition of a company that
currently sells jewelry and other items to hospital employees using the
Internet, and indicating that his client would avail itself of all available
protection under the Latham Act. In the September 20, 1999, letter, Mr. Hosmer
insisted on a response to the letter by September 22, 1999, however, it was not
received until September 27, 1999.
The Registrant disagrees with Mr. Hosmer's concerns as it has no intention
of participating within the areas protected by the trademarks involved and
conducts all of its business under the names of the subsidiaries involved. Thus,
were it to effect the proposed acquisition involved, all business conducted
thereby would be under the name of such corporation. The Registrant intends to
provide AmeriNet, Inc., with reasonable assurances that it will not engage in
activities covered by the trademarks involved under the names "AmeriNet" or
AmeriNet Designs" but cannot predict what AmeriNet, Inc.'s response will be.
Should this matter result in litigation, the Registrant is confident that it
will prevail. If it does not, it would have to change its name.
POTENTIAL LITIGATION BY THE REGISTRANT
Messrs. Weiss and Moffett:
The series of transactions involving Messrs. Weiss and
Moffett were discussed in Part III, Item 12, Certain
Relationships and Related Transactions of the Registrant's
report on Form 10-KSB for the calendar year ended December
31, 1998 and the discussion is incorporated by reference.
The Registrant asserts that the shares of its common stock
issued to Messrs. Weiss and Moffett must be returned since
they did not comply with the requirements of the agreements
pursuant to which they were issued. Mr. Weiss recently
advised the Registrant's general counsel that his shares had
been returned to the Registrant by delivery to Mr.
Granville- Smith during 1998. The Registrant's general
counsel has advised its transfer agent to treat those
certificates as lost and no proceedings against Mr. Weiss
are contemplated. Mr. Moffett, who received a portion of his
shares in exchange for shares in one of his corporations,
never delivered the shares in such corporation to the
Registrant. The balance of his shares were issued in
conjunction with an employment agreement that he elected not
to honor. The Registrant's general counsel has instructed
its transfer agent not to honor any transfers of Mr.
Moffett's shares as the holding period under Commission Rule
144 cannot have started, since they were not paid for.
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Improper Issuances of Stock
Pursuant to Rule 504:
The series of transactions involving the issuance of stock
in improper reliance on Commission 504 are discussed in Part
III, Item 12, Certain Relationships and Related Transactions
of the Registrant's report on Form 10-KSB for the calendar
year ended December 31, 1998 and the discussion is
incorporated by reference. To date, principals and
affiliates of the Registrant's transfer agent and William J.
Riley, Esquire, have failed to comply with the Registrant's
demand that the subject shares be legended and restricted as
having been issued as unregistered securities under Section
4(2) of the Securities Act. Carrington Capital Corp., a
Florida corporation ("Carrington"), has returned its shares
for re-legending, fully complying with the Registrant's
demand. The Registrant believes that its transfer agent and
Mr. Riley have violated Section 5 of the Securities Act and
continue to do so, and that the Commission may at some point
take action against them. In addition, it appears that
Edward Granville-Smith, Jr., at the time the Registrant's
sole director, also have violated Section 5 of the
Securities Act by authorizing the issuance of securities to
Mr. Riley and Carrington (but not to its transfer agent) in
reliance on Commission Rule 504, apparently based on Mr.
Riley's legal advise. The Registrant does not believe that
the Commission will initiate any action against it as a
result of such violations as, since the replacement of Mr.
Granville-Smith, it has aggressively taken all steps
available to it to correct such actions.
Certain Stock Transfers
for Inadequate or No-consideration
The series of transactions involving certain stock transfers
for inadequate or no consideration is discussed in Part III,
Item 11, Security Ownership of Certain Beneficial owners and
Management or Item 12, Certain Relationships and Related
Transactions of the Registrant's report on Form 10-KSB for
the calendar year ended December 31, 1998 and the discussion
is incorporated by reference. The Registrant's legal counsel
contacted each party involved by mail and demanded either
payment for the subject shares or their return. The letters
addressed to Donald and Molly Homan; Jay C. Salyer, Jr.,
Esquire; and, Marilyn Korpoff were returned with a postal
indication that the addressee was unknown; however, Mrs.
Karpoff has attempted to sell the shares she received and
the Registrant's legal counsel has been in telephone
communication with her broker. No direct response has been
provided by any of the holders and the Registrant's transfer
agent has been instructed not to transfer any of the
securities in question as the holding period under
Commission Rule 144 cannot have started for any of such
holders in the absence of full payment. The Registrant has
furthermore elected not to accept payment for such shares in
the future at an amount less than their market price on the
date payment is tendered.
American Internet:
American Internet's management has advised the Registrant
that it is not a named defendant in any material legal or
regulatory proceedings. It has from time to time been
involved in minor lawsuits and consumer complaints arising
in the ordinary course of business most of which involved an
early advertising campaign conducted using facsimile
transmission of offers to potential clients. A number of
recipients complained that the unsolicited facsimile
transmissions violated the Federal Telephone Consumers
Protection Act and similar statutes in the States of
Florida, Idaho, Maryland, and Wisconsin. No regulatory
actions were initiated as a result of such complaints and,
despite its belief that it was not legally culpable for any
violations by the third party contractor involved, in order
to maintain good public relations, American Internet
contacted all complainants to apologize and believes that it
resolved all such issues with either token payments (less
than $200 per instance) or one month's complimentary
service.
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In conjunction with such campaign, American Internet was
included as a member of a class of defendants in a civil law
suit by Lawrence S. Benjamin, Esquire, an attorney-plaintiff
residing in the State of Ohio (the "Benjamin Case"). The
Benjamin Case was filed on behalf of an unidentifiable class
of plaintiffs against an unidentifiable class of defendants.
American Internet, at the suggestion of the Registrant,
agreed to settle the Benjamin Case by paying Mr. Benjamin
the sum of $7,500, while denying any liability. Such
decision was based on the nuisance value of the suit when
compared to the potential legal fees of a successful
defense, and on the Registrant's desire that American
Internet be litigation free at the time of its acquisition.
In the future, such matters will probably be litigated using
the Registrant's general counsel. A copy of the Settlement
Agreement is incorporated by reference as an exhibit to this
report (see "Part III, Item 13(a), Exhibits Required by Item
601 of Regulation S-B").
American Internet's management advised the Registrant that
all marketing activities that gave rise to the consumer
complaints and litigation described above were promptly
discontinued and that American Internet initiated procedures
to prevent its recurrence in the future. While the outcome
of the foregoing matters cannot be predicted with absolute
certainty, American Internet's management has advised the
Registrant that it does not expect them to have a materially
adverse effect on American Internet's financial condition,
liquidity or results of operations.
The Registrant has concluded that American Internet has not
adequately dealt with customer complaints and the
Registrant's president has been instructed by its board of
directors to develop and implement procedures at American
Internet to materially improve response to all customer
concerns. American Internet's management is now being
supervised by the Registrant's president to assure that such
procedures are developed and implemented.
ITEM 4 SUBMISSION OF MATTERS TO SECURITY HOLDERS
Except as described below, no matters were submitted by the Registrant to a
vote of its security holders during the period covered by this report.
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(A) DATE OF MEETING AND WHETHER IT WAS A SPECIAL OR ANNUAL MEETING
As disclosed in Item 5 of the current report on Form 8-K filed by the
Registrant on July 12, 1999, stockholders holding approximately 6,246,947 shares
of the Registrant's common stock acted by written consent in lieu of special
meeting (as permitted pursuant to Sections 222 and 242 of the Delaware General
Corporation Law), approved an amendment to its certificate of incorporation. The
written instrument of consent was dated, effective as of July 7, 1999, with all
executed consents completed on July 9, 1999.
The stockholders holding approximately 6,246,947 shares of the Registrant's
common stock acted by written consent in lieu of special meeting (as permitted
pursuant to Sections 222 and 242 of the Delaware General Corporation Law),
ratified the non qualified and incentive stock plan approved by the Registrant's
board of directors on August 5, 1999. The written instrument of consent was
dated, effective as of October 8, 1999, with all executed consents completed on
October 8, 1999.
(B) A BRIEF DESCRIPTION OF EACH MATTER VOTED UPON AT THE MEETING AND THE
NUMBER OF VOTES CAST FOR, AGAINST OR WITHHELD, AS WELL AS THE NUMBER OF
ABSTENTIONS AND BROKER NON-VOTES AS TO EACH SUCH MATTER.
CHARTER AMENDMENTS
In conjunction with the implementation of the Registrant's acquisition
program, the Registrant's board of directors determined that it should
materially modify its certificate of incorporation in order to provide a name
more in line with its current activities and to make it more secure for
worthwhile companies and individuals to become associated with it by providing
them assurances of continuity and protection from meritless litigation. The
Registrant's stockholders participating in the written consent in lieu of
special meeting approved the proposed amendment to the Registrant's certificate
of incorporation, which effected the following changes:
* Articles 1, 2, 3, 5 and 10 were repealed.
* The Registrant's name was changed to AmeriNet Group.com, Inc; and, the
Registrant's board of directors were authorized, without stockholder
approval, to amend its certificate of incorporation from time to time,
in order to change the Registrant's name.
* Information concerning the Registrant's registered agent was updated.
* The purposes for which the Registrant is organized were restated to
clarify that they included "any and all lawful business" except that it
may not:
(1) "Engage in any activities that would subject it to
regulation as an investment company under the Federal
Investment Company Act of 1940 (the "Investment Company
Act"), as amended, unless it shall have first qualified and
elected to be regulated as a small business development
company pursuant to Sections 54 et. seq., thereof, and
limits its investment company activities to those permitted
thereby; or
(2) Engage in any activities which would subject the ...
[Registrant] to regulation as a broker dealer in securities
subject to regulation under the Securities Exchange Act of
1934, as amended (the "Exchange Act") or as an investment
advisor subject to regulation under the Investment Advisors
Act of 1940, as amended (the "Investment Advisor's Act"); or
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(3) Engage in any other activities requiring the ...
[Registrant] to comply with governmental registration and
supervision, unless it has completed such registration and
conducts itself in full compliance with such supervisory
requirements."
* The Registrant's board of directors was authorized, without stockholder
approval, to amend its certificate of incorporation "from time to time,
in order to:
(1) Effect splits or reverse splits of the ... [Registrant]'s
common or preferred stock;
(2) Increase the ... [Registrant]'s authorized capital; and
(3) Decrease the ... [Registrant]'s authorized capital; provided
that such decrease may not affect any issued and outstanding
shares."
* Provisions pertaining to quorums for stockholders meetings were
established, as follows: "Unless otherwise provided for in the ...
[Registrant's] Bylaws, a majority of the shares entitled to vote,
represented in person or by proxy, shall be required to constitute a
quorum at a meeting of stockholders."
Except for providing the Registrant's board of directors with the power to
amend the Registrant's certificate of incorporation without stockholder consent
in order to change its name and to modify its capital structure, and restricting
the Registrant from engaging in certain regulated activities, the foregoing
amendments did not, in the opinion of the Registrant's management, involve any
material matters. The amendment pertaining to change in capital was based on
concerns over certain aspects of Delaware's corporate franchise taxes that
penalize corporations for authorized but unissued securities and will permit the
Registrant to increase its authorized capital as required to effect
acquisitions, without maintaining a large quantity of authorized but unissued
securities, or to expend funds on legal, auditing printing mailing and
facilities required to conduct numerous stockholders meetings at which the only
topics for action would be increases in authorized capital and possibly name
changes.
In addition, the Registrant adopted new articles dealing with the following
topics:
* Providing the broadest legally available indemnification to the
Registrant's officers, directors and authorized agents for all
liabilities incurred directly, indirectly or incidentally to services
performed for the Registrant; and, requiring the Registrant to advance
funds required to pay expenses reasonably necessary to defend
allegations covered by the right to indemnifications at any time that
the person claiming such expenses appears reasonably likely to become
entitled to indemnification and enters into a binding agreement with
the Registrant to repay advances for such expenditures in the event
that he, she or it is eventually found not to be entitled to
indemnification.
* Limiting the rights of stockholders to bring actions against the
Registrant's officers, directors or agents as a result of any action
taken, or as a result of their failure to take any action, unless
deprivation of such right is deemed a nullity because, in the specific
case, deprivation of a right of action would be impermissibly in
conflict with the public policy of the State of Delaware.
* Limiting the rights of stockholders to assert a derivative cause of
action on behalf of the Registrant, unless the Registrant failed,
within 90 days after completion of submission by a stockholder of a
request to the Registrant's board of directors, in writing, specifying
the nature of the cause of action and providing all evidence associated
with such claim, to:
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(1) Refer all such materials to a special committee of the
Registrant's board of directors comprised of members who do
not also serve as officers of the Registrant and are not
reasonably involved with the subject cause of action, or if no
such directors are serving;
(2) To legal counsel designated by the Registrant in which no
attorney holds shares of the Registrant's securities, holds
any office or position with the Registrant or is related by
marriage or through siblings, parents or children to any
officer or director of the Registrant
the decision to litigate, or not to litigate by such special committee
or special counsel being binding on the Registrant and the submitting
stockholder or stockholders.
* Granting the Registrant's board of directors the broadest possible
authority and discretion in adopting and maintaining resistance to, and
defenses against, takeover bids that it deems not to be in the best
interests of the Registrant including (without limitation) adopting and
maintaining any form of stockholder rights plan or "poison pill"
comprised of such terms and features as the Registrant's board of
directors deems to be in the best interests of the Registrant which
include stockholder rights plan or other defensive mechanism that may
be deactivated or redeemed only:
(1) By vote of continuing directors (i.e., the directors who put
such stockholder rights plan or other defensive mechanism in
place or the designated successors of such directors) to the
exclusion of newly elected directors nominated or supported by
a takeover bidder or bidders;
(2) After a prescribed delay period following election of
directors making up a majority of the Registrant's board of
directors if such new directors are nominated or supported by
a takeover bidder or bidders; or
(3) Before election of directors making up a majority of the
Registrant's board of directors if such new directors are
nominated or supported by a takeover bidder or bidders; and
prohibiting the adoption of any bylaw that limits the authority of the
Registrant's board of directors to resist or defend against any
takeover bid that it finds not to be in the best interests of the
Registrant.
* Opting not to be covered by the restrictions or requirements for
affiliated transactions imposed by Section 203 of the Delaware General
Corporation Law, as permitted by the waiver provisions of Section
(b)(1) thereof.
* Adopting the verbatim compromise or arrangement provisions suggested
under the Delaware Corporate Code.
More specific details are contained in Item 5 of a report of current event
on Form 8-K filed by the Registrant with the Commission on July 12, 1999.
As a result of the foregoing amendments, the Registrant's board of
directors and officers, as well as officers and directors of its subsidiaries,
employees, agents and advisors, have material protection from suits by
stockholders, have significant rights to indemnification and legal defense,
including the right to receive advances for related expenses. Such protection
could make them less careful and less considerate of the rights of stockholders,
and could result in a drain of corporate resources. However, in light of
concerns in the high technology sector over what is perceived to be destructive
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and abusive litigation, the Registrant's board of directors and a majority of
its existing stockholders (even excluding its current officers and directors)
believed that such risks were outweighed by the need to assure potential
acquisition candidates and employees that to the extent legally possible, they
would be shielded from such risks, should they elect to become associated with
the Registrant.
In addition, the fourteenth and fifteenth articles makes it potentially
very difficult for a third party to take over the Registrant without the consent
of its board of directors. Such provision, if employed by directors who did not
have the best interests of the Registrant's stockholders at heart, or by
directors who, while in good faith, were wrong about the best interests of the
Registrant's stockholders, could deprive its stockholders of favorable business
opportunities, while permitting the subject directors and the Registrant's
management to remain entrenched in office. Again, the Registrant's board of
directors believed that such risks were justified because such provision
provides material assurances to companies acquired and personnel hired by the
Registrant or its subsidiaries that they will be able to rely on the commitments
made to them and to effectuate long term plans, without undue concerns for about
disruptive short term speculators.
None of the provisions in the second series of articles adopted were based
on concerns over currently likely take over attempts or over anticipated
acquisitions involving affiliated parties. Indeed, the affiliation related
restrictions waived in article fifteen are frequently viewed as methods to
discourage hostile takeovers. Although the Registrant's officers and directors
owe its stockholders strong fiduciary obligations, no assurances can be provided
that in the future, unscrupulous or incompetent people will not abuse or misuse
such powers, to the stockholders detriment.
The certificate of amendment described above was filed with the Secretary
of State of Delaware on or about July 19, 1999, and became effective on such
date. A copy of the certificate amending the Registrant's certificate of
incorporation is incorporated by reference as an exhibit hereto (see "Part III,
Item 13(a), Exhibits Required by Item 601 of Regulation S-B").
STOCK PLAN
At the request of the Registrant's board of directors, Yankees developed a
non-qualified stock option and incentive stock option plan for use by the
Registrant (the "Stock Plan"). A copy of the Stock Plan is incorporated by
reference as an exhibit to this report, see "Part III, Item 13(a), Exhibits
Required by Item 601 of Regulation S-B." The following summary of the Stock Plan
is qualified in its entirety by reference to such exhibit.
The purpose of the Stock Plan is to attract and retain quality personnel
and to make association with the Registrant more attractive to potential
acquisition candidates. A maximum of 1,000,000 shares of the Registrant's common
stock is reserved for use in conjunction with award of options under the Stock
Plan, and such common stock can either be issued from treasury shares,
authorized but theretofore unissued shares, or shares purchased from current
stockholders for such purpose.
The Stock Plan will be administered by a committee of the Registrant's
board of directors comprised exclusively of outside directors (the "Committee"),
as that term is defined in the Internal Revenue Code of 1996, as amended (the
"Code") and potential recipients will include the Registrant's directors,
officers, key employees and consultants (other than consultant's that would be
ineligible for receipt of securities registered on Commission Form S-8 based on
then applicable rules adopted by the Commission). Options issuable will be
incentive stock options meeting the requirements of Section 422, et. seq. of the
Code, or non-qualified stock options, with the attributes determined by the
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Committee. The adoption of the Stock Plan does not restrict the ability of the
Registrant's board of directors to authorize the issuance of securities,
including stock options, outside the parameters of the Stock Plan, on a case by
case basis.
Initial recipients under the Stock Plan are expected to be employees of the
Registrant's subsidiary, American Internet Technical Center, Inc., who meet
designated competitive sales targets and Michael Harris Jordan, the Registrant's
current president, pursuant to the terms of his employment agreement with the
Registrant.
A copy of the Stock Plan is incorporated by reference as an exhibit to this
report, see "Part III, Item 13(a), Exhibits Required by Item 601 of Regulation
S-B."
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(A) MARKET INFORMATION.
1. TRADING INFORMATION
The Registrant's common stock started trading in the over-the-counter
market in 1964, however, until November 18, 1998, there had been no established
public trading market for many years. Consequently, information regarding
quotations of bid and asked prices for the common stock was not available during
1996 or 1997. The Registrant's common stock resumed trading in the over the
counter market during November of 1998 and bid, offer and transaction report
prices are available through the electronic bulletin board operated (but not a
part of) the National Association of Securities Dealers, Inc.'s, NASDAQ, Inc.,
subsidiary (the "OTC Bulletin Board"). During 1998 and most of 1999, the
Registrant's common stock traded under the symbol "ETSY"; however, after the
acquisition of American Internet during June of 1999, the Registrant changed its
name and in conjunction therewith, its trading symbol was changed to "ABUY." The
following table indicates the average high and low bid prices as quoted for the
Registrant's common stock at the end of each month since quotation was resumed.
The following over-the-counter quotations reflect inter-dealer prices, without
retail mark-up, mark-down, or commission, and may not necessarily represent
actual transactions. The range of the reported high and low bid quotations have
been derived primarily from information quoted on the OTC Bulletin Board.
CLOSING CLOSING LAST REPORTED
DATE BID PRICE OFFERING PRICE TRANSACTION PRICE
- ---- --------- -------------- -----------------
December 31, 1998 $0.625 $0.1875 $0.125 (December 1,
1998)
March 31, 1999 $0.25 $0.50 $0.25
June 30, 1999 $1.50 $1.50 $1.50
September 30, 1999 $1.50 $1.72 $1.50
As of September 30, 1999, 17 NASD member firms were listed as market makers
in the Registrant's common stock: US Clearing, Inc.; Knight Trimark, Inc.;
Sharpe Capital, Inc.; Fin-Atlantic Securities, Inc.; Herzog, Heine, GeDulo,
Inc.; Fahnstock & Co., Inc.; Hill, Thompson Magid & Co., Inc.; Mayer &
Schweitzer, Inc.; Equitrade Securities Corp.; Wien, Inc.; Comprehensive Capital
Corp.; Paragon Capital Corp.; Weckstein & Co., Inc.; The Agean Group, Inc.; GVR
Company; Glenn Michael Financial, Inc.; and, Phillip Louis Trading, Inc.
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2. AMOUNTS OF COMMON EQUITY SUBJECT TO OUTSTANDING OPTIONS OR WARRANTS TO
PURCHASE, OR SECURITIES CONVERTIBLE INTO, COMMON EQUITY OF THE
REGISTRANT
As of September 30, 1999, the Registrant had 10,064,926 shares of its
common stock reserved for issuance in conjunction with current obligations to
issue additional shares in conjunction with: the American Internet Acquisition
(based on its performance over the next five years); or in the event that
currently outstanding options or warrants are exercised. The following table
provides summary data concerning such options and warrants:
DESIGNATION NATURE OF EXERCISE OR NUMBER OF SHARES
OR HOLDER THE SECURITY CONVERSION PRICE CURRENTLY RESERVED
- --------- ------------ ---------------- ------------------
Excel Warrant $0.75 per share 1,000,000 shares
Palmair, Inc. Warrant $0.02 per share 200,000 shares
(1) (1) (1) 5,775,000 shares
Yankees Option $60,000 total 1,827,310 (2)
(3) Options $2.26 per share 3,980 shares
Stock Plan (4) Options (4) (4) 1,000,000 shares (4)
- ------
(1) Shares issuable to former stockholders of American Internet and Yankees
in conjunction with the contingent compensation portion of the
consideration for the American Internet shares, and Yankees' fee for
its assistance in locating, structuring and negotiating the
acquisition.
(2) The number of shares cannot be determined with certainty, rather,
Yankees has the right, for an aggregate of $60,000, to purchase shares
of the Registrant's common stock equal to 10% of the Registrant's
outstanding and reserved shares of common stock, measured immediately
after exercise is completed. See Notes to financial statements for 1998
and 1999. The transaction and option agreement are more fully described
in the Registrant's report on Form 10-QSB for the quarter ended
September 30, 1998 and its Form 10-KSB for the year ended December 31,
1998. For purposes of the Table, the computation was made assuming that
only the shares currently outstanding or reserved would be outstanding
or reserved at the time of exercise (an improbable scenario).
Consequently, the total shares currently outstanding (8,192,384 shares)
+ the shares currently reserved other than for the Yankees' option
(8,064,926) = 16,257,310. That number would be divided by 9 and rounded
up or down based on proximity to the next whole number (1,806,368),
which would equal the shares issuable to Yankees (10% of the total that
would be outstanding following exercise).
(3) Ms. Lyn Poppiti & Mr. & Mrs. Theodore Gill have options to purchase an
aggregate of 3,980 shares of the Registrant's common stock based on
rights they had as option holders of American Internet.
(4) Represents the shares issuable pursuant to the Registrant's stock plan
approved by the Registrant's board of directors on August 5, 1999 and
ratified by the holders of a majority of the Registrant's outstanding
common stock by a written consent in lieu of special meeting on October
8, 1999. The stock plan was described in detail in Item 5 of the
Registrant's report on Form 8-K filed with the Commission on September
9, 1999, copies of related materials being incorporated by reference as
exhibits to this report, see "Part III, Item 13(a), Exhibits Required
by Item 601 of Regulation S-B".
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3. (A) AMOUNTS OF COMMON EQUITY THAT COULD BE SOLD PURSUANT TO RULE 144
UNDER THE SECURITIES ACT
As of September 30, 1999, 8,192,384 shares of the Registrant's common stock
were outstanding, of which:
* 698,001 are recognized as free trading by the Registrant;
* 125,000 were improperly issued under Commission Rule 504 to
affiliates of the Registrant's transfer agent (100,000 shares)
and to William J. Riley, Esquire, a securities attorney
believed by the Registrant to practice from Rhode Island
(25,000 shares), and are considered restricted by the
Registrant;
* 7,494,383 have been issued over the years pursuant to
exemptions from registration and are thus restricted
securities, some of which are eligible for resale under
Commission Rule 144 ("Rule 144").
Of the 7,619,383 shares that the Registrant has instructed its transfer
agent to treat as restricted:
* 3,154,187 were issued prior to October 4, 1998, and
consequently, may currently be sold under Rule 144, subject to
Rule 144's volume limitations, notice, public information and
manner of sale conditions. The volume limitations restrict
quantities sold over 90 day periods to the greater of 1% of
the total outstanding common stock, or the average weekly
trading volume during the four week period preceding the sale;
* 1,507,187 were issued to persons that do not appear to be
affiliates of the Registrant prior to October 4, 1997, and
consequently may be sold by holders that have not been
affiliates of the Registrant for a period of at least 90 days,
under the more liberal provisions of Commission Rule 144(k)
("Rule 144[k]"), which dispense with the volume, public
information and manner of sale conditions.
In addition to the foregoing, during the twelve month period ending on June
30, 2000, an additional 4,043,196 shares of the Registrant's common stock will
become eligible for resale under the provisions of Commission Rule 144, subject
to the limitations on quantities sold over 90 day periods, notice, public
information and manner of sale conditions, and an additional 25,000 would have
become eligible for resale under Commission Rule 144 but for unresolved issues
concerning improprieties in issuance involving the Rule 504 violations described
above; and, 170,000 shares will become eligible for resale under Commission Rule
144(k); and, 100,000 shares would have become eligible for resale under
Commission Rule 144(k), without quantitative limitations, but for unresolved
issues concerning improprieties in issuance involving the Rule 504 violations
described above.
Pursuant to the provisions of Rule 144(e), permissible sales of securities
thereunder are determined as follows:
Sales by affiliates:
If restricted or other securities are sold for the account of an
affiliate of the Registrant (officers, directors, other control
persons or their affiliates, and persons who have been affiliates
within the preceding 90 days), the amount of securities sold,
together with all sales of restricted and other securities of the
same class for the account of such person within the preceding
three months, shall not exceed the greater of:
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<PAGE>
* one percent of the shares or other units of the class
outstanding as shown by the most recent report or statement
published by the Registrant, or
* the average weekly reported volume of trading in such
securities on all national securities exchanges and/or
reported through the automated quotation system of a
registered securities association during the four calendar
weeks preceding the filing of notice required by Rule 144
(h), or if no such notice is required the date of receipt of
the order to execute the transaction by the broker or the
date of execution of the transaction directly with a market
maker, or
* the average weekly volume of trading in such securities
reported through the consolidated transaction reporting
system contemplated by Rule 11Aa3-1 under the Securities
Exchange Act of 1934 during the four-week period specified
above.
Sales by non-affiliates:
The amount of restricted securities sold for the account of any
person other than an affiliate of the Registrant, together with
all other sales of restricted securities of the same class for
the account of such person within the preceding three months,
shall not exceed the amount specified in paragraphs above for
affiliates, unless the conditions in Rule 144 (k) are satisfied
(two, rather than one year holding period).
Determination of Amount:
For the purpose of determining the amount of securities specified
above (the "Permitted Volume"), the following provisions apply:
* Where both convertible securities and securities of the
class into which they are convertible are sold, the amount
of convertible securities sold is deemed to be the amount of
securities of the class into which they are convertible for
the purpose of determining the aggregate amount of
securities of both classes sold;
* The amount of securities sold for the account of a pledgee
thereof, or for the account of a purchaser of the pledged
securities, during any period of three months within one
year after a default in the obligation secured by the
pledge, and the amount of securities sold during the same
three-month period for the account of the pledgor may not
exceed, in the aggregate, the Permitted Volume.
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<PAGE>
* The amount of securities sold for the account of a donee
thereof during any period of three months within one year
after the donation, and the amount of securities sold during
the same three-month period for the account of the donor,
shall not exceed, in the aggregate, the Permitted Volume.
* Where securities were acquired by a trust from the settlor
of the trust, the amount of such securities sold for the
account of the trust during any period of three months
within one year after the acquisition of the securities by
the trust, and the amount of securities sold during the same
three-month period for the account of the settlor, shall not
exceed, in the aggregate, the Permitted Volume.
* The amount of securities sold for the account of the estate
of a deceased person, or for the account of a beneficiary of
such estate, during any period of three months and the
amount of securities sold during the same period for the
account of the deceased person prior to his death shall not
exceed, in the aggregate, the permitted volume; provided,
that no limitation on amount shall apply if the estate or
beneficiary thereof is not an affiliate of the Registrant;
* When two or more affiliates or other persons agree to act in
concert for the purpose of selling securities of a
Registrant, all securities of the same class sold for the
account of all such persons during any period of three
months shall be aggregated for the purpose of determining
the limitation on the amount of securities sold;
Securities excluded:
The following sales of securities need not be included in
determining the amount of securities sold in reliance upon this
section:
* Securities sold pursuant to an effective registration
statement under the Securities Act;
* Securities sold pursuant to an exemption provided by
Regulation A under the Securities Act; and
* Securities sold in a transaction exempt pursuant to Section
4 of the Securities Act and not involving any public
offering.
Because a major theoretical component of securities pricing involves supply
and demand, sales in reliance on Rule 144 will increase the supply and, unless
there is a corresponding increase in demand, can be expected to result in lower
prices.
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<PAGE>
B. AMOUNT OF COMMON EQUITY THAT THE REGISTRANT HAS AGREED TO
REGISTER UNDER THE SECURITIES ACT FOR SALE BY SECURITY HOLDERS
As of September 30, 1999, the Registrant had agreed to register the
1,000,000 shares of common stock issuable upon exercise of the Xcel Warrant with
the Commission within 45 days after the filing of this report. It had also
agreed to register the shares underlying the options held by Ms. Poppiti and Mr.
& Mrs. Gill (3,980 shares) if it filed any registration statements with the
Commission. The option term for the Yankee options is 45 days following their
registration, and Yankees has been granted demand registration rights. However,
Yankees has advised the Registrant that its options should not be included in
the registration statement for the Xcel Warrant and has indicated that it would
consider waiving fees and licensing costs for an additional period of time after
November 24, 1999, if the option term were extended.
4. AMOUNTS OF COMMON EQUITY THAT THE REGISTRANT IS CONSIDERING PUBLICLY
OFFERING OR PRIVATELY PLACING DURING THE YEAR ENDING JUNE 30, 2000,
OTHER THAN SHARES TO BE ISSUED PURSUANT TO AN EMPLOYEE BENEFIT PLAN OR
DIVIDEND REINVESTMENT PLAN), THE OFFERING OF WHICH COULD HAVE A
MATERIAL EFFECT ON THE MARKET PRICE OF THE REGISTRANT'S COMMON EQUITY.
The Registrant is currently contemplating the sale of up to $7,000,000 in
shares of its common stock during the year ended June 30, 2000, in order to
provide capital to companies that it may acquire. As of the date of this report,
its only commitment was to provide American Internet with $250,000 in funding,
in addition to the $100,000 initially provided. The Registrant currently
anticipates that between $1,000,000 and $2,000,000 in shares of its common stock
will be privately placed (including the $750,000 issuable upon exercise of the
Xcel options), and that the balance would be offered publicly. The offering
price will be tied to the market price at the time of offering except for small
discounts if a rights offering to existing stockholders is involved and somewhat
larger discounts for shares privately placed. However, the Registrant cannot
currently provide any realistic estimates as to what such prices will be since
they will depend on market conditions, the Registrant's success in effecting
profitable acquisitions that appeal to the investing public and other factors
beyond the Registrant's control.
5. PENNY STOCK RULES
Exchange Act Section 15(g) requires brokers and dealers to make risk
disclosures to customers before effecting any transactions in "penny stocks". It
also directs the Securities and Exchange Commission to adopt rules setting forth
additional standards for disclosure of information concerning transactions in
penny stocks.
Penny stocks are low-priced, over-the-counter securities that are prone to
manipulation because of their price and a lack of reliable market information
regarding them. Under Section 3(a)(51)(A) of the Exchange Act, any equity
security is considered to be a "penny stock," unless that security is:
(i) registered and traded on a national securities exchange
meeting specified Securities and Exchange Commission criteria:
(ii) authorized for quotation on the National Association of
Securities Dealers, Inc.'s ("NASD") automated inter-dealer
quotation system ("NASDAQ"):
(iii) issued by a registered investment company:
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<PAGE>
(iv) excluded, on the basis of price or the issuer's net tangible
assets, from the definition of the term by Securities and
Exchange Commission rule: or
(v) excluded from the definition by the Securities and Exchange
Commission.
Pursuant to Section 3(a)(51)(B), securities that normally would not be
considered penny stocks because they are registered on an exchange or authorized
for quotation on NASDAQ may be designated as penny stocks by the Securities and
Exchange Commission if the securities are traded off the exchange or if
transactions in the securities are effected by market makers that are not
entering quotations in NASDAQ.
Rule 3a51-1 was adopted by the Securities and Exchange Commission for the
purpose of implementing the provisions of Section 3(a)(51). Like Section
3(a)(51), it defines penny stocks by what they are not. Thus, the rule excludes
from the definition of penny stock any equity security that is:
(A) a "reported" security:
(B) issued by an investment company registered under the 1940 Act:
(C) a put or call option issued by the Options Clearing Corporation:
(D) priced at five dollars or more:
(E) subject to last sale reporting: or
(F) whose issuer has assets above a specified amount.
Rule 3a51-1(a) excludes from the definition of penny stock any equity
security that is a "reported security" as defined in Rule 11Aa3-1(a). A reported
security is any exchange-listed or NASDAQ security for which transaction reports
are required to be made on a real-time basis pursuant to an effective
transaction reporting plan. Securities listed on the New York Stock Exchange
(the "NYSE"), certain regional exchange-listed securities that meet NYSE or Amex
criteria, and NASDAQ National Market System ("NMS") securities are not
considered penny stocks. (Release No. 30608, Part III.A.1). Generally,
securities listed on the American Stock Exchange (the "Amex") pursuant to the
Amex's original and junior tier or its "Emerging Company Marketplace" listing
criteria, are not considered penny stocks. Securities listed on the Amex
pursuant to its Emerging Companies Market ("ECM") criteria, however, are
considered to be "penny stock" solely for purposes of Exchange Act 15(b)(6).
Rule 3a51-1(d) excludes securities that are priced at five dollars or
more. Price, in most cases, will be the price at which a security is purchased
or sold in a particular transaction, excluding any broker commission, commission
equivalent, mark-up, or mark-down. In the absence of a particular transaction,
the five dollar price may be based on the inside bid quotation for the security
as displayed on a Qualifying electronic quotation system [i.e., an automated
inter-dealer quotation system as set forth in Exchange Act Section 17B(b)(2)].
"Inside bid quotation" is the highest bid quotation for the security displayed
by a market maker in the security on such a system. If there is no inside bid
quotation, the average of at least three inter-dealer bid quotations displayed
by three or more market makers in the security must meet the five dollar
requirement. Broker-dealers may not rely on quotations if they know that the
quotations have been entered for the purpose of circumventing the rule. An
inter-dealer quotation system is defined in Rule 15c2-7(c)(1) as any system of
general circulation to brokers and dealers that regularly disseminates
quotations of identified brokers or dealers.
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<PAGE>
In the case of a unit composed of one or more securities, the price divided
by the number of shares of the unit that are not warrants, options, or rights
must be five dollars or more. Furthermore, the exercise price of any warrant,
option, or right, or of the conversion price of any convertible security,
included in the unit must meet the five dollar requirement. For example: a unit
composed of five shares of common stock and five warrants would satisfy the
requirements of the rule only if the unit price was twenty-five dollars or more,
and the warrant exercise price was five dollars or more. Once the components of
the unit begin trading separately on the secondary market, they must each be
separately priced at five dollars or more.
Securities that are registered, or approved for registration upon notice of
issuance, on a national securities exchange are also excluded from the
definition of penny stock [Rule 3a51-1(e)]. The exchange must make transaction
reports available pursuant to Rule 11Aa3-1 for the exclusion to work. The
exclusion is further conditioned on the current price and volume information
with respect to transactions in that security being reported on a current and
continuing basis and made available to vendors of market information. In
addition, the exclusion is limited to exchange-listed securities that actually
are purchased or sold through the facilities of the exchange, or as part of a
distribution. Exchange-listed securities satisfying Rule 3a51-1(e), but which
are not otherwise excluded under Rule 3a51-1(a)-(d), continue to be deemed penny
stocks for purposes of Exchange Act Section 15(b)(6).
Securities that are registered, or approved for registration upon notice of
issuance, on NASDAQ are excluded from the definition of penny stock [Rule
3a51-1(f)]. Similar to the exchange-registered exclusion of Rule 3a51-1(e), the
NASDAQ exclusion is conditioned on the current price and volume information with
respect to transactions in that security being reported on a current and
continuing basis and made available to vendors of market information pursuant to
the rules of NASD. NASDAQ securities satisfying Rule 3a51- 1(e), but which are
not otherwise excluded under Rule 3a51-1(a)-(d), continue to be deemed penny
stocks for purposes of Exchange Act Section 15(b)(6).
An exclusion is available for the securities of issuers that meet certain
financial standards. This exclusion pertains to:
(i) issuers that have been in continuous operation for at least
three years having net tangible assets in excess of $2 million
[Rule 3a51-1(g)(1)]:
(ii) issuers that have been in continuous operation for less than
three years having net tangible assets in excess of $5 million
[Rule 3a51-1(g)(1)]:
(iii) issuers that have an average revenue of at least $6 million
for the last three years [Rule 3a51-1(g)(2)].
To satisfy this requirement, an issuer must have had total revenues of $18
million by the end of a three-year period. For domestic issuers, net tangible
assets or revenues must be demonstrated by financial statements that are dated
no less than fifteen months prior to the date of the related transaction. The
statements must have been audited and reported on by an independent accountant
in accordance with Regulation S-X. For foreign private issuers, net tangible
assets or revenues must be demonstrated by financial statements that are dated
no less than fifteen months prior to the date of the related transaction. The
statements must be filed with the Securities and Exchange Commission pursuant to
Rule 12g3-2(b). If the issuer has not been required to furnish financial
statements during the previous fifteen months, the statements may be prepared
and audited in compliance with generally accepted accounting principles of the
country of incorporation.
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<PAGE>
Whether the issuer is domestic or foreign, in all cases a broker or dealer
must review the financial statements and have a reasonable basis for believing
that they were accurate as of the date they were made (Rule 3a51-1[g][3]). In
most cases a broker-dealer need not inquire about or independently verify
information contained in the statements. Brokers and dealers must keep copies of
the domestic or foreign issuer's financial statements for at least three years
following the date of the related transaction.
The Registrant's securities are, as of the date of this report, subject to
the foregoing regulations as "Penny Stocks". The Registrant hopes that its
acquisition program and funds from the sale of its securities will remove its
shares from such category prior to June 30, 2000; however, it can provide no
assurances that its efforts will prove successful.
(B) HOLDERS.
The number of record holders of the Registrant's common stock, $0.01 par
value (its sole class of common equity) as of the close of business on September
30, 1999, was approximately 2,235.
(C) DIVIDENDS.
The Registrant has not declared any dividends on its common stock and does
not expect to do so at any time in the foreseeable future. There are currently
no restrictions on the Registrant's ability to declare dividends in the future,
other than restrictions applicable to all Delaware corporations involving the
source of funds for payment of dividends and their effects on the Registrant's
solvency. In the future, the Registrant expects that a portion of its expansion
and development capital may be in the form of loans from financial institutions,
in which case it is likely that such institutions would require restrictions on
the payment of dividends based on traditional financial ratios designed to
predict the Registrant's ability to repay such loans. However, no specific
predictions as to any such restrictions can be made at this time.
The Registrant's consulting activities are expected to result in the
receipt of shares of other issuer's common stock by the holders of the
Registrant's common stock, such shares to be issued directly by the issuer to
the Registrant's stockholders as of a fixed date. To date, only one issuer has
agreed to do so and it is anticipated that approximately 500,000 shares of the
common stock of Funds America Finance Corporation will be distributed to the
stockholders of the Registrant, as reflected on its stock transfer records as of
June 17, 1999.
(D) RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, the Registrant sold the securities listed in
the tables below without registration under the Securities Act in reliance on
the exemption from registration requirements cited.
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Footnotes for all tables follow the last table.
COMMON STOCK:
1. 1996
<TABLE>
<S> <C> <C> <C> <C> <C>
AMOUNT OF TOTAL REGISTRATION
SECURITIES OFFERING TOTAL EXEMPTION
DATE SOLD SUBSCRIBER CONSIDERATION DISCOUNTS RELIED ON
October 14 50,000 Shares Marilyn Karpoff $20,000 (3)(6) None (1)
October 14 25,000 Shares Edward Kerper $10,000 (7) None (1)
October 14 5,000 Shares Liberty Transfer Co. $2,000 (8) None (1)
2. 1997
AMOUNT OF TOTAL REGISTRATION
SECURITIES OFFERING TOTAL EXEMPTION
DATE SOLD SUBSCRIBER CONSIDERATION DISCOUNTS RELIED ON
April 28 5,000 Shares Gary & Jean Vulgamore (9) None (1)
April 28 50,000 Shares Jay C. Salyer, Jr (3)(10) None (1)
3. 1998
AMOUNT OF TOTAL REGISTRATION
SECURITIES OFFERING TOTAL EXEMPTION
DATE SOLD SUBSCRIBER CONSIDERATION DISCOUNTS RELIED ON
March 26 3,750 Shares Jean Wilson (4)(11) None (1)
March 26 3,750 Shares Lisa Conger (4)(11) None (1)
March 26 67,500 Shares Sara Sander (4)(11) None (1)
March 26 1,250 Shares Jean Wilson (4)(11) None (1)
March 26 1,250 Shares Lisa Conger (4)(11) None (1)
March 26 22,500 Shares Sara Sander (4)(11) None (1)
March 26 150,000 Shares Charles J. Scimeca (12) None (1)
March 26 20,000 Shares Gary & Jean Vulgamore (9) None (1)
March 26 20,000 Shares Mark Granville-Smith Trust (13) None (1)
September 4 25,000 Shares William J. Riley, (3)(4)(14) None (1)
September 10 25,000 Shares Carrington Capital (4)(15) None (1)
December 9 630,000 Shares Blue Lake Capital (16) None (2)
December 9 108,750 Shares M. Tucker C/F Shayna Tucker(16) None (2)
December 9 108,750 Shares M. Tucker C/F Montana Tucker(16) None (2)
December 9 435,000 Shares Yankees (16) None (2)
December 9 217,500 Shares Calvo Family Spendthrift Trust(16) None (2)
December 9 125,000 Shares G. Richard Chamberlin (16) None (2)
December 9 62,500 Shares Anthony Q. Joffe (16) None (2)
December 9 62,500 Shares Penny L. Adams Fields (16) None (2)
December 9 50,000 Shares Yankees (17) None (1)
December 9 25,000 Shares Carrington Capital Corp. (15) None (1)
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4. 1999
AMOUNT OF TOTAL REGISTRATION
SECURITIES OFFERING TOTAL EXEMPTION
DATE SOLD SUBSCRIBER CONSIDERATION DISCOUNTS RELIED ON
May 25 150,000 Shares Yankees (18) None (1)
May 25 47,000 Shares Edward Granville-Smith Jr (19) None (1)
May 25 50,000 Shares G. Richard Chamberlin (20) None (1)
June 25 1,769 Shares Lynn Poppiti (21) (23) (1)
June 25 2,211 Shares Theodore & Susan Gill (21) (23) (1)
June-25 734,038 Shares Michael Umile (21) (23) (1)
June-25 748,718 Shares J. Bruce Gleason (21) (23) (1)
June-25 122,500 Shares Yankees (22) (23) (1)
June-25 20,000 Shares Vanessa H. Lindsey (22) (23) (1)
June-25 5,000 Shares Warren Hirt (22) (23) (1)
June-25 2,500 Shares Ilene Sheinbart (22) (23) (1)
June 25 100,000 Shares Debra Elenson $50,000 (24) (2)
June25 40,000 Shares Evelyn Coletti $20,000 (24) (2)
June-25 40,000 Shares Jonathan Eichner $20,000 (24) (2)
June-25 80,000 Shares Yankee Companies $20,000 (24) (2)
September 3 30,000 Shares Yankee Companies $7,500 (24) (2)
September 8 20,000 Shares Debra Elenson $10,000 (24) (2)
October 7 15,000 Shares Xcel (29) (1) (1)
September 30 (29) Yankees (29) (1) (1)
CONVERTIBLE SECURITIES:
1. 1998
AMOUNT OF TOTAL TERMS OF REGISTRATION
SECURITIES OFFERING CONVERSION EXEMPTION
DATE SOLD SUBSCRIBER CONSIDERATION OR EXERCISE RELIED ON
November 24 (26) Yankees (26) (26) (2)
December 9 (27) Charles Scimeca (27) (27) (1)
2. 1999
AMOUNT OF TOTAL TERMS OF REGISTRATION
SECURITIES OFFERING CONVERSION EXEMPTION
DATE SOLD SUBSCRIBER CONSIDERATION OR EXERCISE RELIED ON
June 25 1,769 options Lynn Poppiti (21) (25) (1)
June 25 2,211 options Theodore & Susan Gill (21) (25) (1)
September 8 (28) Xcel Associates $750,000 (28) (2)
- --------
</TABLE>
(1) Section 4(2) of the Securities Act. In each case, the subscriber was
required to represent that the shares were purchased for investment
purposes, the certificates were legended to prevent transfer except in
compliance with applicable laws and the transfer agent was instructed
not to permit transfers unless directed to do so by the Registrant,
after approval by its legal counsel. In addition, each subscriber was
directed to review the Registrant's filings with the Commission under
the Exchange Act and was provided with access to the Registrant's
officers, directors, books and records, in order to obtain required
information.
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(2) Section 4(6) of the Securities Act. In each case, the subscriber was
required to represent that the shares were purchased for investment
purposes, the certificates were legended to prevent transfer except in
compliance with applicable laws and the transfer agent was instructed
not to permit transfers unless directed to do so by the Registrant,
after approval by its legal counsel. Each subscriber was directed to
review the Registrant's filings with the Commission under the Exchange
Act and was provided with access to the Registrant's officers,
directors, books and records, in order to obtain required information;
and, a Form D reporting the transaction was filed with the Commission.
(3) Consideration was to have been in services to the Registrant; however,
the services were either not rendered or not completely rendered. The
Registrant has advised the stockholder that the subscription
consideration agreed upon has not been paid in full and demanded that
the shares either be returned or that payment in full be tendered. The
Registrant will no longer accept tender of the balance of the
consideration and the Registrant's transfer agent has been instructed
to place stop transfer instructions in its records as to such shares,
and, that because payment has not been tendered in full, that the
holding period under Commission rule 144 can never begin to run as to
any of the shares.
(4) The shares were improperly issued in reliance on Commission Rule 504,
apparently on the advice of William J. Riley, Esquire, a securities
attorney practicing from Rhode Island. When Edward Granville-Smith, Jr.
was replaced as the registrant's director and president, new management
informed the recipients of the deficiency and demanded that the shares
be returned for re-issuance under Section 4(2) of the Securities Act,
subject to required investment representations and related legending
and stop transfer instructions. Only Carrington Capital Corp. complied
with such request (see "Part I, Item 3, Legal Proceedings").
(5) Consideration has not been paid in full. The Registrant has advised the
stockholder that the subscription consideration agreed upon has not
been paid in full and demanded that the shares either be returned or
that payment in full be tendered. The Registrant will no longer accept
tender of the balance of the consideration and the Registrant's
transfer agent has been instructed to place stop transfer instructions
in its records as to such shares, and, that because payment has not
been tendered in full, that the holding period under Commission rule
144 can never begin to run as to any of the shares.
(6) The services to have been rendered involved an agreement to serve as
vice president of the Registrant for at least 24 months. Ms. Karpoff
did not serve as vice president for 24 months and therefore the
consideration remains unpaid.
(7) In consideration for services rendered for recruitment of officers.
(8) In lieu of interest and late payment charges due to the Registrant's
transfer agent.
(9) The services listed in the authorizing resolution involved payment for
packaging, printing, copying and typing; however, neither the offering
price, consideration or exemption relied on is clearly identifiable.
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(10) Issued as consideration for attorney's preparation of 10-KSB for year
ended December 31, 1997. The attorney did not perform the required
services. The Board Resolution authorizing the issuance of shares to
Mr. Salyer did not indicate the number of shares to be issued and the
Registrant's transfer agent has not explained how it arrived at the
number of shares issued.
(11) The shares were to have been issued, at the direction of Edward
Granville-Smith, Jr. at a time when he served as the Registrant's sole
director, to the Registrant's transfer agent, Liberty Transfer Company,
as compensation for unspecified services to be rendered for the benefit
of the Registrant. Neither the offering price, consideration or
exemption relied on have been clearly determined. The shares were not
issued to the Registrant's transfer agent, rather, they were issued in
the names of the following designees of Al Sanders, the president of
Liberty Transfer Company: Sara Sanders (Mr. Sanders' wife); Lisa Conger
and Jean Wilson (Mr. Sanders' daughters).
(12) The shares were issued as a bonus for Mr. Scimeca's unsuccessful
efforts to find acquisition candidates and for "good office
representation to the public," at the direction of Edward Granville-
Smith, Jr., then the Registrant's sole director; however, neither the
offering price, consideration or exemption relied on are clearly
determinable.
(13) Compensation for consulting services and bookkeeping services for the
benefit of Registrant, issued at the direction of Edward
Granville-Smith, Jr., then the Registrant's sole director; however,
neither the offering price, consideration or exemption relied on are
clearly determinable. The trust is an affiliate of Mr.
Granville-Smith's son, Mark.
(14) Issued as consideration for attorney's preparation of Form 10-KSB for
the calendar year ended December 31, 1997, at the direction of Edward
Granville-Smith, Jr., then the Registrant's sole director. However, the
offering price , consideration, and exemption relied on are not clearly
determinable. The Attorney did not perform the contemplated services
and therefore consideration for the shares was not paid.
(15) Consulting assistance pertaining to resumption of trading in the
Registrant's securities, including preparation of required disclosure
information pursuant to Commission Rule 5c2-11, coordinating with
market makers in filing Form 15c2-11 with the NASD and general business
advice and assistance (see Note 17 regarding additional consideration
for such services).
(16) Part of a private placement of 1,750,000 shares of the Registrant's
common stock, authorized by Edward Granville-Smith, Jr., then the
Registrant's sole director, in order to raise emergency capital for the
Registrant and to induce Yankees to during the time that the Registrant
while its consulting agreement with the Registrant was being
negotiated. The shares were allocated by Yankees among its stockholders
and their families and three individuals who agreed to serve as members
of the Registrant's board of directors, and, in one case, as the
Registrant's secretary and general counsel. See "Part III: Item 9,
Directors and Executive Officer; Item 10, Executive compensation; Item
11, Security Ownership of Certain beneficial Owners and Management;
and, Item 12, Certain Relationships and Related Transactions."
Consideration was an aggregate of $35,000.
(17) Reimbursement for 50,000 shares transferred by the Calvo Family
Spendthrift Trust to Carrington Capital Corp. in partial consideration
for its agreement to assist the Registrant (see Note 15 for additional
details).
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(18) The shares were issued in a settlement with William A. Calvo, III, for
services provided between 1995 and 1998, prior to the creation of
Yankees, and related costs. The original balance due was in excess of
$100,000 and the terms of the settlement were not consistent with
representations made by the Registrant in conjunction with other
transactions at the time, as a result of which the Registrant agreed to
adjust the compensation by issuance of the 150,000 shares, valued by
the Registrant and Mr. Calvo, at $3,000, with the remaining balance due
being written off, in the interests of preserving the Registrant's
future business prospects. Mr. Calvo, as a principal of Yankees, had
assigned his rights to such shares to Yankees which was responsible for
the decision to right off the remaining balance due. During the
Registrant's latest audit, the value was adjusted to $24,000 based on
the average of the bid and offering price for the Registrant's common
stock on $0.16 on February 18, 1999, the date the agreement was
amended.
(19) Shares issued as part of the settlement with Edward Granville-Smith,
Jr., see part I, Item 1, Description of Business;" and, "Part III: Item
9, Directors and Executive Officer; Item 10, Executive compensation;
Item 11, Security Ownership of Certain beneficial Owners and
Management; and, Item 12, Certain Relationships and Related
Transactions."
(20) Shares issued to G. Richard Chamberlin, Esquire, a member of the
Registrant's board of directors as well as its secretary and general
counsel, in additional consideration for services to be rendered in
conjunction with preparation of the Registrant's Form 10-KSB for the
year ended December 31, 1998, see "Part III: Item 9, Directors and
Executive Officer; Item 10, Executive compensation; Item 11, Security
Ownership of Certain beneficial Owners and Management; and, Item 12,
Certain Relationships and Related Transactions."
(21) Securities issued to the former stockholders of American Internet as
the initial component of the consideration for their American Internet
shares, see Part I, Item 1, Description of Business."
(22) Shares issued to Yankees and certain of its personnel at the direction
of Yankees, in consideration for its services in locating American
Internet, structuring and negotiating its acquisition, and integration
of its operations in a revised strategic plan for the Registrant, see
Part I, Item 1, Description of Business;" and, "Part III: Item 11,
Security Ownership of Certain beneficial Owners and Management; and,
Item 12, Certain Relationships and Related Transactions."
(23) No commissions or discounts were paid to anyone in conjunction with the
sale of the foregoing securities, except that Yankees exercised
preferential subscription rights granted by the Registrant in its
consulting agreement, and received compensation in conjunction with the
American Internet acquisition.
(24) Part of an private placement for up to $200,000 in principal amount of
convertible, subordinated debentures which was restructured at the
request of the Registrant and with the consent of all of the
subscribers, into a private placement of shares of the Registrant's
common stock, at the original conversion price ($0.50 per share, except
to Yankees, which due to the terms of its consulting agreement,
received a more favorable price of $0.25 per share).
(25) The options require an aggregate payment of $4,000 (Ms. Poppiti and
$5,000 (Mr. and Mrs. Gill) ($2.26125 per share) and are exercisable
until June 23, 2000.
(26) Option to purchase 10% of the Registrant's outstanding and reserved
common stock outstanding, measured immediately following exercise of
the option, in consideration for an aggregate of $60,000, such option
being the portion of consideration granted to Yankees under its
consulting agreement with the Registrant in exchange for Yankees
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agreement to forego hourly and document licensing fees for a period of
365 days, see "Part III: Item 11, Security Ownership of Certain
beneficial Owners and Management; and, Item 12, Certain Relationships
and Related Transactions."
(27) On December 11, 1998, Mr. Scimeca received options to purchase 200,000
shares of the Registrant's common stock, at an exercise price of $0.02
per share as his only compensation from the Registrant for services in
all capacities.
(28) A. On September 8, 1999, the Registrant's sold Xcel Associates,
Inc., for $10,000, a warrant to purchase 1,000,000 shares of the
Registrant's common stock at $0.75 per share. The warrant is
exercisable on or before December 31, 2000, but the exercise
period is subject to acceleration as to the initial 500,000
shares, to the 60th day following the effective date of a
registration statement filed with the Commission registering the
shares of common stock underlying the warrant (the "Effective
Date"), and as to the balance of the shares, to THE 120TH day
following the effective date. The Registrant has agreed, at its
expense to file a registration statement with the Commission
registering the shares of common stock underlying the warrant
within 45 days following the filing of this report. The
Registrant expects to use up to $250,000 of the proceeds from
such exercise, in the event of such exercise, to fund expansion
of American Internet's operations, and the balance to provide
expansion capital to other as yet undetermined acquisitions.
B. At the request of the Registrant, Xcel has agreed to loan
American Internet $75,000, a portion of which ($23,000) would be
used to repay the Registrant for certain recent advances, pending
exercise of the Xcel Warrant on an interest free basis, provided
that the Registrant issues Xcel 15,000 shares of its common stock
and that Yankees pledges 35,000 shares of its common stock as
collateral. The Registrant and American Internet have agreed to
indemnify Yankees in the event that the pledged collateral is
retained by Xcel as a result of American Internet's failure to
comply with its obligations under the proposed note or for any
other reason, indemnification to be at the election of Yankees
either in securities of the Registrant selected by Yankees, based
on Yankees' rights to discounts under its consulting agreement
with the Registrant or in cash, and in either case, such
indemnification would include an amount payable as consideration
for the use of the collateral in a sum equal to the closing offer
price of the Registrant's common stock on the date of the note
multiplied by 3,500 (representing 10% of the value of the
transaction).
C. In order to induce Xcel to purchase the Xcel Warrant, three of
the Registrant's stockholders agreed to sell an aggregate of
400,000 shares of the Registrant's common stock held by them to
Xcel or its designees at a price of $0.38 per share. Because such
shares were subject to a lock-up and voting agreement with the
Registrant, the parties to such agreement executed the required
amendment on or about September 7, 1999. A copy of the amendment
is filed as an exhibit to this report, see "Part III, Item 13(a),
Exhibits Required by Item 601 of Regulation S-B."
(29) On September 30, 1999, Xcel loaned American Internet $75,000, a portion
of which ($23,000) was used to repay the Registrant for certain recent
advances pending exercise of the Xcel Warrant. In lieu of interest, the
Registrant issued Xcel 15,000 shares of its common stock. Yankees
pledged 35,000 shares of its common stock as collateral. The Registrant
and American Internet have agreed to indemnify Yankees in the event
that the pledged collateral is retained by Xcel as a result of
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American Internet's failure to comply with its obligations under the
proposed note or for any other reason, indemnification to be at the
election of Yankees either in securities of the Registrant selected by
Yankees, based on Yankees' rights to discounts under its consulting
agreement with the Registrant or in cash, and in either case, such
indemnification would include an amount payable as consideration for
the use of the collateral in a sum equal to the closing offer price of
the Registrant's common stock on the date of the note multiplied by
3,500 (representing 10% of the value of the transaction). Copies of the
secured promissory note to Xcel and the loan guarantee and
indemnification agreement with Yankees are filed as exhibits to this
report, see "Part III, Item 13(a), Exhibits Required by Item 601 of
Regulation S-B."
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
(A) PLAN OF OPERATION
The Registrant is currently a holding company with one operating
subsidiary, American Internet. Through current officers and directors, the
Registrant provides consulting to client companies that desire to attain public
trading status in exchange for the issuance of a percentage of the client's
securities directly to the Registrant's stockholders after such securities have
been registered with the Commission as required by the Securities Act. In
addition to obtaining a benefit for the Registrant's stockholders directly
through their receipt of securities of the client companies, the Registrant
hopes to develop relationships with its consulting clients that in appropriate
instances, will lead to their acquisition by the Registrant or to the
establishment of ongoing business relationships with subsidiaries of the
Registrant. In no instance, however, does the Registrant intend to become
involved with any control over the business operations of such clients unless
they are acquired by the Registrant.
The Registrant seeks to acquire operating companies that could benefit from
the Registrant's public trading status, from the experience of the Registrant's
directors, from synergy resulting from consolidation of non operating aspects of
the subsidiaries' business at the holding company level and from the related
operations of the Registrant's subsidiaries, and, from the ability to
concentrate on the continued development of their core businesses without the
distractions required to operate in an independent regulatory environment. As a
holding company, the Registrant will endeavor to provide centralized functions
such as capital raising, borrowing, equipment purchases, accounting, legal
matters, personnel recruitment, and regulatory compliance.
Over the next fiscal year, the Registrant plans to acquire additional
companies and recruit operating and research and development personnel that are
complimentary to American Internet, its current operating subsidiary (for more
specific details, see "Part I, Item 1, Description of Business"). Currently,
almost all non-sales or clerical services marketed by American Internet are
obtained from independent contractors. Potential acquisitions and personnel will
be recruited that enable American Internet to conduct certain functions that are
currently outsourced, such as web development, promotion and hosting services.
The current operating subsidiary, American Internet, would continue to operate
as a sales organization.
The Registrant will continue to recruit management personnel who can guide
and assist its operating subsidiaries, including: administrative specialists;
accounting and bookkeeping personnel; human resources managers; marketing
professionals; public, investor and media relations personnel; and regulatory
compliance managers. However, it is not possible to determine at this date what
the exact holding company management needs will be over the coming fiscal year.
As businesses are added, additional holding company personnel will be required
but because they will provide their services to all of the subsidiaries,
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such personnel should actually reduce the personnel required at the subsidiary
level, resulting in net reductions in the personnel required. Management
believes that one of its principal and most important tasks will be recruitment
of talented, motivated and ethical personnel, especially in light of its limited
resources when compared to many of its competitors. It intends to accomplish
such task through use of equity based incentives and by stressing the
opportunities for personal development and advancement in a business field that
is making fundamental changes throughout the business and social spectra.
The Registrant, through the assistance of corporate advisors, has
conducted negotiations with a number of potential acquisition candidates, all of
which are involved in Internet-related operations. However, no transactions
other than the acquisition of American Internet and related capital raising
activities, have been concluded as of the date of this filing. The Registrant
anticipates that it will be required to arrange for infusions of capital in
conjunction with most, if not all, of the acquisitions that it may undertake in
the foreseeable future. The Registrant has funded operations through cash flows
from financing activities, capital infusions by Yankees and loans over the last
two fiscal years and intends to conduct a secondary offering for up to
$6,000,000 during the year 2000. This situation is expected to continue until
profitable subsidiaries can be acquired and integrated into the holding company
structure, which the Registrant hopes to occur prior to December 31, 2001.
Yankees, the Registrant's strategic planning consultant, has suggested that
the Registrant operate on a federated model, with authority over operational
matters concentrated at the subsidiary level, subject to oversight by holding
company level personnel. The role suggested for the Registrant is similar to
that of a central government with enumerated powers designed to provide
synergistic support and coordination to the subsidiaries coupled with oversight
responsibilities designed to provide early detection of and solutions to
problems. Yankees believes that such an operating structure would encourage
desirable entrepreneurial businesses to become associated with the Registrant
and its other subsidiaries because they would be assured of a significant level
of independence, as long as they were meeting performance targets, would not
have to spend valuable business times developing new skills based on the public
regulatory environment, and would benefit from owning an equity stake in a
diversified family of companies featuring mutually supporting capabilities
designed to reduce operating costs and maximize business opportunities. Yankees
has advised the Registrant that the most difficult aspects of its suggested plan
will involve recruitment and retention of competent, dedicated personnel and
development of a method of describing the combined operations of its
subsidiaries that can be easily understood, analyzed and evaluated by the
investment community.
The Registrant's management agrees with the Yankees' proposal and is
endeavoring to implement it, with the assistance of Yankees.
(B) MANAGEMENT 'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CALENDAR YEARS ENDED DECEMBER 31, 1998 AND 1999
The Registrant was organized under the laws of the State of Delaware on
December 8, 1964. From 1996 until December 31, 1998, the principal business of
the Registrant involved collection of income and payment of obligations from
mortgaged backed securities acquired from affiliates. Effective December 31,
1998, the Registrant discontinued its existing business and was reclassified as
a development stage company. The audited financial statements as of December 31,
1998 disclose that revenues from discontinued operations were $162,395 and
$214,001 for the years ended December 31, 1998 and 1997, respectively. Expenses
related to discontinued revenues were $184,535 and $288,044 for the years ended
December 31, 1998 and 1997, respectively. The resulting loss from discontinued
operations was $74,043 for the year ended December 31, 1997. The loss from
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discontinued operations of $399,415 reported at December 31, 1998 included a
loss on disposal of discontinued operations of $377,275. Basic loss per share on
discontinued operations was reported as ($0.10) and ($0.02) for the years ended
December 31, 1998 and 1997, respectively.
Because of the material change in the Registrant's business during 1999
when it disposed of all prior operations and acquired American Internet, no
meaningful information for this period exists in comparison to the information
concerning its current operations and the foregoing data is provided solely for
purpose of complying with the Registrant's reporting obligations under the
Exchange Act, as they apply to this item.
FISCAL YEARS ENDED DECEMBER 31, 1998 AND (SHORT FISCAL YEAR ENDED) JUNE 30, 1999
At the suggestion of Yankees, the Registrant elected to change its
reporting year end from December 31 to June 30 in order to avoid the competition
for auditing time resulting from the federal April 15 tax deadline and from the
overwhelming number of registrants under the Exchange Act who file their annual
reports based on the calendar year end. Such change, it was expected, would make
it more likely that the Registrant's filings with the Commission would be
submitted on a timely basis and would reduce auditing costs because they would
be rendered during off peak periods. Clearly, such anticipated results have yet
to materialize. Because of the change, the Registrant is filing its report on
Form 10-KSB for 1999 based on a short, six month fiscal year ending June 30,
1999.
For the six months ended June 30, 1999, the Registrant (excluding American
Internet) reported no revenue. Because of the diversities of its prior
operations, there were no revenues recognized during the previous 1998 fiscal
year. General and administrative expenses for the first six months of fiscal
year 1999 were $97,646 as compared to none incurred during the fiscal year 1998.
There was no loss from discontinued operations during the first half of fiscal
1999 as compared to losses of $399,415 and $74,043 for fiscal years 1998 and
1997, respectively. For the six month period ended June 30, 1999 the Registrant
reported a net loss of $97,646 as compared to a net loss of $399,415 for the
fiscal year 1998. Basic loss per share has decreased over the interim period
from ($0.10) per share at December 31, 1998 to ($0.02) per share on a fully
diluted basis.
General and administrative expenses for the six months ended June 30, 1999
were $97,646 compared to $0 from the fiscal year 1998. The increase in expenses
reflects costs associated with salaries, rent, utilities, and normal operating
costs incurred in the daily operations of its Internet business.
AMERICAN INTERNET
Although the Registrant had no revenues from continuing operations in the
last two fiscal years, it believes that information regarding the past
performance of the operating subsidiary acquired on June 25, 1999 is material to
understanding the prospects for the Registrant's future. A summarization of the
financial history of American Internet is provided below.
Current assets at June 30, 1999 were $155,972 compared to $75,758 at
December 31, 1998. Net property and equipment were $33,656 and $22,266 at June
30, 1999 and December 31, 1998, respectively. Other assets increased from
$114,116 at December 31, 1998 to $1,674,679 at June 30, 1999 chiefly as a result
of the goodwill attributable to the purchase on June 25, 1999. Current
liabilities at June 30, 1999 were $234,352 compared to $87,732 at December 31,
1998. There was an increase in stockholders' equity from $26,384 at December 31,
1998 to $1,440,327 at June 30, 1999 as a result of the acquisition of American
Internet by the Registrant.
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Revenues earned in the first six months of 1999 were $485,618 compared to
$784,463 for the previous year ended December 31, 1998. Costs associated with
revenues recognized were $145,718 and $137,752 for the periods ended June 30,
1999 and December 31, 1998, respectively. This represents a deterioration in the
gross profit percentage of 12.4% over six months (82.4% to 70%). This
deterioration along with an increase in operating expenses resulted in an
operating loss for the six month period ended June 30, 1998 compared to net
income of $144,500 for the previous fiscal period ended December 31, 1998.
Operating expenses increased as a percentage of sales from 64% to 83.7% during
the first six months of 1999 ($502,211 for the previous full fiscal year versus
$406,516 for the abbreviated fiscal period ended June 30, 1999).
In the early months of American Internet's operations, it seldom
encountered direct competition from any source. However, there is increasing
evidence of competitive pressures and competition is expected to intensify.
Initially, most services to clients were provided by internal personnel,
however, that policy has changed to reliance on outsourcing almost all non-sales
related functions. That policy resulted in deterioration of quality and customer
relations and the Registrant has directed American Internet to resume internal
servicing of its accounts.
In order for American Internet to re-attain profitable operations,
management will have to reestablish internal servicing capabilities, diversify
the services offered, focus on new challenges and take advantage of new
opportunities. Many potential competitors have far greater technical, financial,
and marketing resources than American Internet, and such competition may have a
material adverse effect on American Internet's operations and profits.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant had cash on hand in the amount of $79,021 at June 30, 1999
compared to $13,182 at December 31, 1998. Working capital increased from $8,521
at December 31, 1998 to $18,243 at the end of the current period. The working
capital increase was related principally to increases in cash and accounts
receivable greater than concurrent increases in accrued expenses, billings in
excess of costs, and stockholder loans.
The Registrant and its subsidiary have accumulated a net deficit of over
$3,063,431 since their inception in 1964 and 1998, respectively. This gives rise
to questions regarding the ability of the Registrant to continue as a going
concern. The current six month deficit is $97,646 exclusive of the deficit
associated with discontinued operations. Management has implemented significant
cost reductions, and is in the process of implementing changes in cash flow
policies. With the assistance of Yankees, the Registrant is actively exploring
acquisitions of operating companies and related infusions of capital which would
materially improve its cash flow, liquidity and profitability, if successfully
implemented.
The Registrant's ability to continue as a going concern is dependent
upon its ability to attain a satisfactory level of profitability and to obtain
suitable and adequate financing. During the last fiscal year ended December 31,
1998, the Registrant discontinued unprofitable operations. The Registrant has
sought to implement cost-saving measures, reduce other operating costs, utilize
deposits from customers in connection with firm purchase orders to help finance
operating costs and to convert some of its debt to equity in connection with
services provided to by consultants. There is no assurance that the Registrant
will be successful in these endeavors. The accompanying financial statements do
not include any adjustments that might result if the Registrant is unable to
continue as a going concern.
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TRENDS, EVENTS OR UNCERTAINTIES AFFECTING LIQUIDITY.
The Internet industry as a whole is extremely volatile with dramatic
changes in both technology and in industry perception being commonplace. As a
consequence, while industry growth has been spectacular, values of Internet
companies have been subject to extreme fluctuations over very short time
periods. Many investors prefer more stable and predictable investments and a
number of important analysts feel that the securities of major Internet
companies are drastically over valued, when measured by traditional factors such
as earnings and profits. The ability of the Registrant to raise capital required
for its subsidiaries will depend both on the merits of the investment when
analyzed from the specific subsidiaries prospects, as well as on the perception
of the Internet industry as a whole
INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY
During the first nine months of American Internet's operations, it
successfully provided for all of its capital requirements from operating income.
Since January 1, 1999, that situation has materially deteriorated and currently,
American Internet is reliant on capital raised by the Registrant from or with
the assistance of Yankees, to fund day to day operations as well as proposed
expansion.
Management of American Internet has informed the Registrant that its
financial reversal is based on increased competition and on poor performance by
third party contractors used by American Internet to produce and operate web
sited for customers generated by American Internet. Prior to 1999, such services
were performed internally. In one major occasion, the third party contractor
ceased to provide support because of major health problems.
The Registrant has addressed American Internet's operating problems by
assuming control of its accounts payable and accounts receivable
responsibilities, materially reducing operating costs and initiating
arrangements for material changes in personnel, designed to develop internal
servicing capabilities, improve customer relations and increase sales. In the
interim, Yankees has arranged for Xcel to make short term loans to American
Internet in order to provide capital for the proposed operating improvements and
to initiate expansion plans.
Xcel has also agreed to provide approximately $750,000 in funding through
exercise of stock purchase warrants, which will be used by the Registrant to
provide expansion capital for other subsidiaries it hopes to acquire during the
fourth calendar quarter of 1999. In the event the Registrant's acquisition
program is perceived as successful by Xcel, Yankees has advised the Registrant's
management that it believes Xcel will assist the Registrant to raise an
additional $6,000,000 in capital for further acquisitions or expansion during
calendar year 2000. However, no assurances can be provided that the Registrant's
acquisition will be successful, that even if its is successful, it will be
perceived as successful by Xcel or Yankees, and that even if it is so perceived,
the required capital can be obtained.
MATERIAL COMMITMENTS FOR CAPITAL EXPENDITURES AND SOURCE OF FUNDS
The Registrant committed to provide American Internet with $350,000 in
capital for expansion at the time that American Internet was acquired. It
provided $100,000 immediately and since such time has arranged for approximately
$100,000 in additional short term funding. The Registrant expects to obtain the
required funds from proceeds obtained when Xcel exercises its warrant to
purchase 1,000,000 shares of the Registrant's common stock for $750,000.
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The Registrant anticipates that every time it makes a material acquisition,
it will be required to provide expansion capital and, in addition to proceeds
from exercise of the Xcel warrant, intends to obtain additional capital through
a secondary offering of up to $6,000,000 in its securities during the year 2000,
with the assistance of Yankees and Xcel. However, no assurances can be provided
that such capital will be available.
TRENDS, EVENTS OR UNCERTAINTIES AFFECTING REVENUES AND PROFITS.
The Internet industry has become much more competitive within the past year
and American Internet has experienced a material decrease in income as a result
of such competition and the resulting lowering in prices it can charge for its
services. In many cases, large corporations are willing to provide web design
and hosting services at little or no charge in order to obtain new "captive
audience" for advertising purposes. The Registrant expects that this trend will
continue and that advertising related operations on the Internet will constitute
a material offsetting source of income with which the Registrant and its
subsidiaries must become involved. The Registrant does not believe that such
trend will impact business web sites to the same degree as it impacts consumer
web sites, since business web sites require substantially higher levels of
interactivity and greater monitoring detail, as well as much more regular
upgrading and changing of information.
YEAR 2000 COMPLIANCE
The Problem: The year 2000 issue is the result of computer programs using
two digits rather than four to define the applicable year.
Date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result
in system failures or miscalculations, causing disruptions
of operations, including, among others, a temporary
inability to process transactions, send invoices or engage
in similar normal business activities. As a holding company,
the Registrant does not expect to be impacted by year 2000
problems other than as a result of the operations of its
operating subsidiary, American Internet. American Internet
has outsourced almost all of its non sales related
operations to unaffiliated third parties, on which it is
relying for continuation of services and solutions to year
2000 problems. Although the Registrant intends to cause
American Internet to reverse such outsourcing practices, it
will wait until after the year 2000 for any material changes
in order to avoid Year 2000 issues.
State of Readiness:
In order to address Year 2000 issues, American Internet is
evaluating its information and other systems technology to
identify and eliminate Year 2000 issues in order to achieve
Year 2000 readiness. American Internet has performed a
review of its more critical third party systems and has
surveyed the publicly available statements issued by vendors
of such systems. Most of American Internet's critical
third-party providers have made representations to the
effect that they are, or will be, Year 2000 compliant.
American Internet, however, has not undertaken an in-depth
evaluation of its critical or other third-party providers in
relation to the Year 2000 issue, and furthermore American
Internet has no control over whether its third-party
providers are, or will be, Year 2000 compliant.
Costs: There are no significant historical costs associated with
American Internet's Year 2000 readiness efforts and the
magnitude of any future costs will depend upon the nature
and extent of any problems that are identified. These costs
are not expected to exceed $10,000.
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Risks: The failure by American Internet's third party service
providers to correct a material Year 2000 problem could
result in a complete failure or degradation of the
performance of American Internet's network or other systems,
including the disruption of operations, a temporary
inability to process transactions, send invoices or engage
in similar normal business activities. Presently, however,
American Internet believes that its most reasonably likely
worst case scenario related to the Year 2000 is associated
with potential concerns with third-party services or
products. Specifically, American Internet is heavily
dependent on a significant number of third-party vendors to
provide both network services or equipment. A significant
Year 2000-related disruption of the network services or
equipment provided to American Internet by third-party
vendors could cause customers to consider seeking alternate
providers or cause an unmanageable burden on customer
service and technical support, which in turn could
materially and adversely affect American Internet's results
of operations, liquidity and financial condition. American
Internet is not presently aware of any vendor- related Year
2000 issue that is likely to result in such a disruption.
Although there is inherent uncertainty in the Year 2000
issue, American Internet expects that as it progresses with
its Year 2000 Plan, the level of uncertainty about the
impact of the Year 2000 issue on American Internet will be
reduced and American Internet should be better positioned to
identify the nature and extent of material risk to American
Internet as a result of any Year 2000 disruptions.
Contingency Plans:
American Internet has no contingency plans in the event of
Year 2000 problems. Rather, it has outsourced most of its
non sales related functions and must rely on the Year 2000
contingency plans of its third party contractor service
providers.
The estimates and conclusions herein contain forward-looking statements and
are based on management's best estimates of future events. American Internet's
expectations about risks, future costs, and the timely completion of its Year
2000 efforts are subject to uncertainties that could cause actual results to
differ materially from what has been discussed above. Factors that could
influence risks, amount of future costs and the effective timing of remediation
efforts include American Internet's success in identifying and correcting
potential Year 2000 issues and the ability of third parties to appropriately
address their Year 2000 issues.
Page 51
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The inability of business processes to continue to function correctly after
the beginning of the Year 2000 could have serious adverse effects on companies
and entities throughout the world. American Internet, as an Internet based
business highly reliant on computer and communications equipment would be
extremely vulnerable to such problem directly, in conjunction with its equipment
and programs, and as a result of its reliance on world wide communications
systems, including telephone companies, utilities and the Internet, over which
it exercises no control. Its clients are also extremely vulnerable to year 2000
based computer problems in conjunction with their relationship to American
Internet since its is entirely based on the use of computer systems through
third party communication services.
(C) RISK FACTORS
REGULATORY PROBLEMS & POTENTIAL LEGISLATION
There have been and continue to be numerous efforts at every level of
government to regulate Internet activities, most of which, in the United States,
have been limited by first amendment guarantees. That is not true in other
countries. In addition, the regulation of commercial communication activities,
especially relating to privacy rights, receipt of unsolicited communications and
Internet fraud is likely to expand significantly. Immediately prior to American
Internet's incorporation, its principals, in their initial Internet venture,
conducted a marketing campaign through a third party that resulted in a number
of consumer complaints, one law suit, and contacts and comments from various
states' regulatory authorities. American Internet, upon its incorporation,
immediately established policies designed to avoid such problems in the future;
however, no assurances can be provided that, in the future, inadvertent
activities by American Internet personnel or by American Internet clients will
not subject American Internet to regulatory actions or civil liabilities, or
that prior activities by American Internet's founders will not be imputed to
American Internet (see "Legal Proceedings" above). In conjunction with the
acquisition of American Internet, the Registrant has concluded that the
following factors involve risks that may materially affect the acquired
operations and consequently, may have a material impact on the Registrant's
business and on the value and liquidity of its securities.
RISKS ASSOCIATED WITH THE REGISTRANT
CAPITAL REQUIREMENTS
The Registrant's anticipates that it will raise all or a substantial
portion of the financing required for American Internet and other unrelated
acquisitions through exercise of the Xcel warrant and through a secondary
offering of up to $6,000,000 in the Registrant's securities which it expects to
undertake during the years 2000. The major portion of the proceeds expected to
be derived will not be allocated to American Internet, rather, they will be used
to capitalizing future acquisitions of compatible, Internet related businesses.
However, there are no assurances that the Registrant will succeed in effecting
such secondary offering on favorable terms, if at all, or that the Registrant
will be able to raise sufficient capital from such undertaking. Even if the
Registrant successfully concludes the proposed secondary offering, there are no
assurances that the Registrant will be able to use those proceeds to generate
new favorable acquisitions or to materially improve the business and business
prospects of any businesses acquired, including American Internet.
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PERSONNEL:
The Registrant intends to centralize all non operational functions of its
subsidiaries at the holding company level in order to maximize efficiency while
reducing over all personnel requirements. In addition, after it develops a
basic, diversified Internet operating infrastructure through acquisitions, the
Registrant intends to recruit cutting edge developers of Internet technology.
The identification, recruitment and retention of all such personnel will involve
competition from very well capitalized, established competitors. Consequently,
no assurances can be provided that the Registrant will succeed in attracting
qualified personnel.
ACQUISITION CANDIDATES
The Registrant intends to effect all acquisitions solely in exchange for
shares of its common stock and to use available capital solely for purposes of
expanding the businesses of acquired companies. In order to compete with the
many more established businesses interested in acquiring Internet related
businesses, the Registrant has adopted a federated management approach designed
to provide management of the acquired businesses with substantial independence
and potential for retaining a substantial portion of their profits through
incentive based employment agreements. No assurances can be provided that
worthwhile acquisition candidates will find such plan attractive or that the
independence afforded its subsidiaries will not facilitate waste or dishonesty,
other that the Registrant's dedication to avoiding waste and dishonesty through
vigilant supervision and timely intervention.
RISKS ASSOCIATED WITH AMERICAN INTERNET
BUSINESS DEVELOPMENT
American Internet completed its first year of business with an operating
profit, however, since January 1, 1999, its business has experienced negative
growth as a result of its decision to outsource almost all non sales functions.
Its future business prospects are subject to all risks inherent in the
establishment of new business enterprises, including the possibility of
operating losses. The likelihood of American Internet's success must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with the commencement and growth of
new business operations, the implementation of American Internet's business
plan, and the competitive and regulatory environment in which American Internet
operates.
DEPENDENCE ON FUTURE FINANCING
American Internet anticipates that it will receive an aggregate of at least
$350,000 in funding from the Registrant within 90 days after American Internet's
audited financial statements are completed, $100,000 of which was provided
immediately following closing on the Reorganization Agreement using most of the
proceeds of a limited offering of the Registrant's common stock) and an
additional $100,000 has been provided since such time, $75,000 of which was
provided through the Xcel Loan. American Internet's management advised the
Registrant's management that American Internet required at least $350,000 in
order to negotiate and conclude certain acquisitions expected to accelerate
American Internet's growth and to increase its profitability. If the Registrant
is unable to provide the entire $350,000 anticipated by American Internet, it
will be required to reconsider its strategic plans and its advertising and
marketing strategies, all of which could reduce anticipated growth and profits.
The failure by the Registrant to make such funding available would also affect
the basis on which calculations for the additional common stock issuable to the
former American Internet stockholders will be made.
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<PAGE>
ADVERTISING & MARKETING EXPENSES
American Internet currently has limited advertising and marketing
capabilities based almost entirely on internal personnel and resources. Its
proposed expansion is expected to rely materially on the use of traditional
advertising and marketing professionals to supplement in-house capabilities,
which will require material expenditures without guaranteed results. The
inability to complete a marketing program due to inadequate capital could result
in lowered market perception of American Internet's capabilities and reputation,
rather than in increased sales. In addition, results from marketing campaigns
conducted by outside marketing professionals that prove less positive than
anticipated may result in increased sales but diminished profits or even losses,
due to the costs incurred. Like the use of leverage, the risk of capital on
marketing activities can accelerate both positive growth or the risk of
unaffordable losses.
PROJECTIONS
American Internet's proposed expansion is largely based on confidential
internal projections predicated primarily on management's expectations to the
future performance of American Internet. The projections are based upon certain
assumptions concerning the economy and potential growth of the Internet and
related industries, which management cannot control, and on anticipated courses
of action that American Internet plans to undertake. One of the material
assumptions is that American Internet's Internet services will be received
favorably in the market, which is based in part upon generation of interest from
qualified buyers. While management studies and discussions with potential
clients have led to optimistic expectations, there are usually differences
between expectations and actual results caused by events and circumstances that
do not occur as expected. There can be no assurance that past or current
indications of interest from potential clients will result in actual sales or
that even if sales are materially increased, they will culminate in increased
profits. American Internet's decision to outsource almost all non-sales related
functions proved to be a material error.
INDUSTRY RISKS
RELIANCE UPON PRODUCT ACCEPTANCE
Management believes that the demand for Internet services will be
materially affected by consumers increasing acceptance of the Internet as a
transaction option for services such as advertising, marketing, distribution of
products, and the dissemination of information. However, there are no assurances
that services offered by the Registrant's operating subsidiaries will find
acceptance with consumers even if such trends continue. While the conclusions of
the Registrant's market research have been favorable, there are no assurances
that actual operating results will reach the levels indicated by such research.
COMPETITION
The industry in which the Registrant's subsidiaries are expected to operate
is highly competitive. Many other companies that provide similar services have
substantially greater technical, financial and marketing resources than the
Registrant. In some cases, its competitors appear to have been successful in
using questionable tactics to win and maintain market share by, among other
things, denying competitors access to technology and important segments of the
computer, communications and Internet market. Consequently, there can be no
assurances that the services of the Registrant's operating subsidiaries will be
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<PAGE>
competitive with service providers using technology developed by the
Registrant's competitors or that the Registrant will be able to penetrate
targeted segments of the Internet market, even if its services and technology
are competitive with those of alternative providers.
TECHNOLOGICAL OBSOLESCENCE
The Internet industry involves two of the most obsolescence sensitive areas
of modern business, computers and communications. Changes, especially in
computer systems involving both hardware and software seem to appear weekly and
require a balance between not permitting equipment and software to become stale
and non-competitive, resulting in lost business, and, making premature
expenditures on unproven systems. Failure to make the correct decision, at the
right time, could materially impair American Internet's business prospects and
profitability.
FOREIGN CURRENCY FLUCTUATIONS
To the extent that the Registrant's subsidiaries, including American
Internet, become involved in the international Internet market and generate
foreign clients, the Registrant may be required to accept payments in foreign
currencies that are, in some instances, subject to material fluctuations in
value, usually negative in nature. In the past, that has been true of business
in Brazil, a country currently targeted for expansion. In order to protect
against currency fluctuations, the Registrant will have to develop and implement
currency hedging expertise and implement currency hedging strategies on an
ongoing basis. Currency hedging strategies are not always successful and if not
properly executed, can add to losses due to currency devaluation or regional
inflation.
THE INDUSTRY
The Internet services industry is characterized by the constant emergence
of new technologies and markets which displace existing technologies and
markets. Such innovation can prove either positive or negative based on the
ability of Internet businesses to predict and participate in such changes rather
than to be replaced by them. Consumer's tastes and desires fluctuate and are
difficult to predict. There are no assurances that businesses acquired or
developed by the Registrant, including American Internet, will be able to
accurately predict industry trends or to keep pace with industry changes.
GENERAL ECONOMIC CONDITIONS
The financial success of the Registrant may be detrimentally affected by a
number of factors wholly outside of its control, such as general or special
economic conditions, whether or not such changes are generally perceived as
negative (e.g., recession, inflation, unemployment and interest rates). Changes
can affect the costs of supplies, insurance, transportation, labor and other
expenses and will affect the business of the Registrant's subsidiaries,
including American Internet, either directly or because they affect the business
of their clients. Changes can provide new or improved opportunities but they can
also negatively change the financial environment in which the Registrant's
subsidiaries and their clients operate. To the extent that changes increase net
operating expenses for the Registrant's subsidiaries or their clients without
permitting corresponding increases in prices charged, such changes could reduce
demands in the marketplace for their services creating losses of business or
payment delays creating liquidity problems. While the Registrant's will keep
informed concerning economic trends and developments and intends to develop
plans for dealing with them, no assurances can be provided that such efforts
will succeed in predicting or dealing with uncontrollable economic forces.
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<PAGE>
ITEM 7 FINANCIAL STATEMENTS
(a) Index to financial statements and financial statement schedules.
The auditor's report and audited balance sheet of the Registrant for its
years ended June 30, 1999, December 31, 1998, and 1997 and related statements of
operations, stockholder's equity, cash flows and notes to financial statements
for such years follow in sequentially numbered pages numbered 59 through 74. The
page numbers for the financial statement categories are as follows:
AmeriNet Group.com, Inc. financial statements
57 Cover Page
58 Report of Independent Accountants
59 Report of Independent Accountants from Bowman & Bowman for 1998
60 Report of Independent Accountants from Baum & Company for 1997
61 Balance Sheet
62 Statements of Operations
63 Statements of Shareholders' Equity
64 Statement of Cash Flows
65 Notes to Financial Statements
The auditors report and audited balance sheet of the Registrant for its six
months ended June 30, 1999, and related statements of operations, stockholder's
equity, cash flows and notes to financial statements for such years follow in
sequentially numbered pages numbered 75 through 84. The page numbers for the
financial statement categories are as follows:
American Internt Technical Center, Inc. financial statements
75 Cover Page
76 Independent auditor's report
77 Balance sheets
78 Statements of operations
79 Statements of shareholders' equity
80 Statements of cash flows
81 Notes to financial statements
b) Financial Statements follow
c) Pro Forma Financial Statements
The combined balance sheets and statement of income of the Registrant and
American Internet for its year ended December 31, 1998, and statement of income
for six months ended June 30, 1999, follow in sequentially numbered pages
numbered 85 through 88.
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<PAGE>
(b) Financial Statements
AMERINET GROUP.COM, INC. AND SUBSIDIARY
(F/K/A EQUITY GROWTH SYSTEMS, INC.)
CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999
AND YEARS ENDED DECEMBER 31, 1998 AND 1997
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<PAGE>
DASZKAL BOLTON MANELA DEVLIN & CO.
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP OF PROFESSIONAL ASSOCIATIONS
2401 N.W. BOCA RATON BOULEVARD, SUITE 100 BOCA RATON, FLORIDA 33431
TELEPHONE (561) 367-1040 FAX (561) 750-3236
JEFFREY A. BOLTON, CPA, P.A. MEMBER OF THE AMERICAN INSTITUTE
MICHAEL I. DASZKAL, CPA, P.A. OF CERTIFIED PUBLIC ACCOUNTANTS
ROBERT A. MANELA, CPA, P.A.
TIMOTHY R. DEVLIN. CPA, P.A.
MICHAEL S. KRIDEL, CPA, P.A.
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders
AmeriNet Group.com, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of AmeriNet
Group.com, Inc. (f/k/a Equity Growth Systems, Inc.), and subsidiary as of June
30, 1999, and the related statement of operations, changes in stockholders'
equity and cash flows for the six months ended June 30, 1999. These financial
statements are the responsibility of the management of AmeriNet Group.com, Inc.,
and subsidiary. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AmeriNet Group.com, Inc., and
subsidiary as of June 30, 1999, and the results of its operations and its cash
flows for the six months ended June 30, 1999, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 22 to the
financial statements, the Company has suffered recurring losses from operations
and has negative cash flow from operations that together raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 22. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Daszkal Bolton Manela Devlin & Co.
Boca Raton, Florida
October 5, 1999
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<PAGE>
BOWMAN& BOWMAN, P.A.
Certified Public Accountants
1705 Colonial Blvd., Suite D-l
Fort Myers, Florida 33907
(941) 939-2301
(941) 939-1297 (Fax)
To the Board of Directors
Equity Growth Systems, inc.
(A Development Stage Company)
3821-B Tamiami Trail, Suite 201
Port Charlotte, Florida 33952
We have audited the accompanying balance sheet of Equity Growth Systems, inc. (A
Development Stage Company) as of December 31, 1998, and the related statements
of operations, stockholders' equity, and cash flows for the year ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Equity Growth Systems, inc. (A
Development Stage Company) as of December 31, 1998, and the results of its
operations and its cash flows for the year ended December 31, 1998 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency that together raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 8. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Bowman & Bowman /s/
Bowman & Bowman, P.A.
Ft. Myers, Florida
April 23, 1999
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<PAGE>
BAUM & COMPANY, P.A.
Certified Public Accountant
1515 University Drive, suite 209
Coral Springs, Florida 33071
(954) 752-1712
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of
Equity Growth Systems, Inc.
Port Charlotte, Florida
We have audited the balance sheets of Equity Growth Systems, Inc. at December
31, 1997 and 1996, and the related statements of operations, shareholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
We were unable to obtain a discussion or evaluation from the Company's outside
legal counsel of pending or threatened litigations described in Note 14.
In our opinion, except for the effects on the 1997 and 1996 financial statements
of such adjustments, if any, as might have been determined to be necessary have
we been able to obtain a discussion or evaluation of pending or threatened
litigation from the Company's outside legal counsel as discussed in the
preceding paragraph, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Equity
Growth Systems, Inc., as of December 31, 1997 and 1996 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
May 4, 1998
Coral Springs, Florida
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<PAGE>
AMERINET GROUP.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
ASSETS
<TABLE>
<S> <C> <C>
1999 1998
CURRENT ASSETS:
Cash $ 79,021 $13,182
Accounts Receivable, net 76,662 -
------------ ------------
Total Current assets 155,683 13,182
Property and equipment, net 33,656 -
OTHER ASSETS:
Goodwill, net 1,470,559 -
Deposits 14,492 -
-------------- -----------
Total other Assets 1,485,051 -
-------------- -----------
TOTAL ASSETS $1,674,390 $13,182
============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,648 $ 4,661
Accrued expenses 16,901 -
Billings in excess of costs and estimated
earnings on uncompleted contracts 80,558 -
Loans payable-Stockholders 29,333 -
-------------- ------------
TOTAL CURRENT LIABILITIES 137,440 4,661
-------------- ------------
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares
authorized, -0- issued and outstanding - -
Common stock, $.01 par value, 20,000,000 shares
authorized; 8,094,884 and 5,991,148 shares issued
and outstanding in 1999 and 1998, respectively 80,948 59,991
Additional paid in capital 4,519,433 2,914,395
Accumulated deficit prior to December 31, 1998 (2,965,785) (2,965,785)
Accumulated deficit from inception of
development stage on December 31, 1998 (97,646) -
------------- -------------
Total Stockholders' equity 1,536,950 8,521
------------- -------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $1,674,390 $ 13,182
============= =============
</TABLE>
See accompanying notes to financial statements
Page 61
<PAGE>
AMERINET GROUP.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
AND YEAR ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Revenues earned $ - $ - $ -
General and administrative expenses 97,646 - -
Loss from Operations (97,646) - -
Provision for income taxes - - -
Loss from discontinued operations - (399,415) (74,043)
Net loss $ (97,646) $(399,415) $ (74,043)
============ ========== ==========
Basic loss per share $ (0.02) $ (0.10) $ (0.02)
Weighted average shared outstanding 6,091,566 4,174,778 3,807,814
============ ========== ===========
Fully diluted loss per share $ (0.02) $ (0.10) $ (0.02)
Fully diluted average shares outstanding 6,091,566 4,222,191 3,807,814
============ ========== ===========
</TABLE>
See accompanying notes to financial statements
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<PAGE>
AMERINET GROUP.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1999 AND YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Additional Deficit
No. of Common Paid-in Accumulated Development
Shares Stock Capital Deficit Stage Total
Balances, December 31, 1996 3,771,148 $ 37,711 $2,892,195 $(2,492,327) $ - $ 437,579
Common Stock Issued for services 55,000 550 550 - - 1,100
Net loss, December 31, 1997 - - - (74,043) - (74,043)
--------- --------- ---------- ------------ ----------- -----------
Balances, December 31, 1997 3,826,148 38,261 2,892,745 (2,566,370) - 364,636
Common stock issued for services 415,000 4,150 4,150 - - 8,300
Common stock issued for cash 1,750,000 17,500 17,500 - - 35,000
Net loss, December 31, 1998 - - - (399,415) - (399,415)
--------- --------- ---------- ------------- ------------ ------------
Balances, December 31, 1998 5,991,148 59,911 2,914,395 (2,965,785) - 8,521
Common stock issued for services 247,000 2,470 45,780 - - 48,250
Common stock issued for cash 220,000 2,200 97,800 - - 100,000
Common stock issued for acquisition 1,636,736 16,367 1,423,960 - - 1,440,327
Stock options outstanding - - 37,498 - - 37,498
Net loss, June 30, 1999 - - - - (97,646) (97,646)
--------- --------- ---------- ------------ ------------- ------------
Balances, June 30, 1999 8,094,884 $ 80,948 $4,519,433 $(2,965,785) $ (97,646) $ 1,536,950
</TABLE>
See accompanying notes to financial statements
Page 63
<PAGE>
AMERINET GROUP.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Cash flows from operating activities:
Net (loss) $(97,646) $(399,415) $ (74,043)
Adjustments to reconcile net income
to net cash used by operating activities:
Loss on non-collectible financial
instruments - - 144,440
Stock options granted to consultant 37,498 - -
Common stock issued for services 48,250 8,300 1,100
Changes in operating assets and liabilities,
net of effect from acquisitios:
(Increase) decrease in:
Other receivables - 98,590 (98,580)
Increase (decrease) in:
Accounts Payable (1,573) (349) (7,900)
Cash overdraft - (4) 4
----------- ---------- ------------
Net cash used by operations (13,471) (292,878) (35,069)
Cash flows from investing activities:
Cash overdraft acquired in acquisitions (20,690) - -
----------- ---------- ------------
Cash flows from financial activities:
Common stock issued for cash 100,000 35,000 -
Decrease (increase) in mortgage
and notes receivable - 1,570,888 339,544
Increase (Decrease) in mortgage
and notes payable - (1,299,828) (305,437)
----------- ----------- ------------
Net cash provided by financial activities 100,000 306,060 34,107
Net increase in cash 65,839 13,182 (962)
Cash at beginning of year 13,182 - 962
----------- ---------- -------------
Cash at end of year $ 79,021 $ 13,182 $ -
=========== ========== =============
</TABLE>
See accompanying notes to financial statements
Page 64
<PAGE>
AMERINET GROUP.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The AmeriNet Group.com, Inc., formerly known as Equity Growth Systems, Inc. (the
"Company") was organized under the laws of the State of Delaware on December 8,
1964. The principal business of the Company was structuring and marketing of
mortgaged backed securities as well as the acquisition of select commercial real
estate for its own account. Effective December 31, 1998, the Company
discontinued the mortgage business and was reclassified as a development stage
company. The purpose of the development stage company was to acquire other
operating companies.
On June 25, 1999, the Company acquired all of the outstanding common stock of
American Internet Technical Centers ("AITC"). AITC is a Florida corporation,
established on April 15, 1998, to design and host websites and to provide
e-commerce programs, marketing and other Internet services. Hosting services,
including search engine registrations, are typically six-month to one-year
contracts.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all cash and
other demand deposits to be cash and cash equivalents. As of June 30, 1999, and
December 31, 1998 and 1997, the Company had no cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are being depreciated using the
straight-line method over the estimated useful lives of five to seven years.
REVENUE AND COST RECOGNITION
Revenues from long-term contracts are recognized on the percentage-of-completion
method, measured by the percentage of costs incurred to date to estimated total
costs for each contract (i.e., cost-to-cost method). This method is used because
management considers total cost to be the best available measure of progress on
the contracts. Because of inherent uncertainties in estimating costs, it is
possible that the estimates used will change within the near term. Contract
costs include all direct material and labor costs and those indirect costs
related to contract performance, such as subcontractors, equipment rental,
supplies, and certain general administrative expenses are charged to expense.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined.
The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of AmeriNet
Group.com, Inc. and its wholly owned subsidiary, American Internet Technical
Center, Inc., at June 30, 1999. All intercompany accounts and transactions have
been eliminated in consolidation.
The financial statements as presented, reflect AmeriNet Group.com, Inc., for the
six months ended June 30, 1999, and AITC from the date of acquisition, for
accounting purposes, June 30, 1999.
Page 65
<PAGE>
AMERINET GROUP.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
Advertising costs are expensed when incurred. The advertising cost incurred for
the period ended June 30, 1999, was $792.
BASIS LOSS PER SHARES
Basic loss per common share is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding during the year.
DILUTED LOSS PER SHARES
Fully diluted loss per common share is computed by dividing the net loss by the
weighted average number of shares of common stock outstanding plus the shares
that would be outstanding if all stock options were exercised.
NOTE 3 - ACQUISITION
On June 25, 1999, the Company acquired all of the outstanding common stock of
AITC, for accounting purposes the transaction was effective June 30, 1999. As
initial consideration, the Company issued an aggregate of 2,236,736 shares of
common stock to the stockholders of AITC. These initial shares were reduced by
750,000 shares to an aggregate of 1,486,736 shares. The stockholders of AITC
sold 250,000 shares of common stock to Yankee in consideration for $25,000. The
shareholders subsequently contributed the $25,000 to the Company. Under the
terms of the earn out provisions of the acquisition agreement, the Company will
issue shares of common stock over a six-year period beginning June 30, 2000,
contingent upon the operating performance of AITC. The maximum number of shares
that could be issued under this agreement is 5,250,000 shares. Such amounts will
be accounted for as purchase price adjustments.
The acquisition was recorded using the purchase method of accounting. The
results of operations since the date of acquisition, June 30, 1999, for
accounting purposes, will be included in the consolidated statements of
operations beginning July 1, 1999. Goodwill of $1,470,559 was recorded in this
transaction and is being amortized over 15 years using the straight-line method.
The following summarizes the fair value of the assets acquired and liabilities
assumed:
Cash $(20,690)
Accounts receivable 76,661
Property and equipment 33,656
Deposits 14,492
Accounts payable (7,560)
Accured expenses (16,901)
Loan payable-stockholder (29,333)
Billings in excess of cost and estimated
earnings on uncompleted contracts (80,558)
-----------
Net Assets $ (30,233)
Page 66
<PAGE>
AMERINET GROUP.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - AMORTIZATION OF GOODWILL
Goodwill represents the amount by which the purchase price of businesses
acquired exceeds the fair market value of the net assets acquired under the
purchase method of accounting.
The excess of the fair value of the net assets of AITC acquired was $1,470,559
and was recorded as goodwill. Goodwill is being amortized on a straight-line
method over 15 years. The accumulated amortization of the excess fair value of
net assets of the Company acquired over cost is $-0- at for the six months ended
June 30, 1999, and the years ended December 31, 1998 and 1997.
NOTE 5 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are recorded net of an allowance for doubtful accounts of
$57,160 and $-0- and $-0- at June 30, 1999, and December 31, 1998 and 1997,
respectively.
NOTE 6 - CONSULTING AGREEMENT
In September 1998, the Company entered into a consulting arrangement with Yankee
Companies, Inc., ("Yankee") for services relating to reorganization, mergers,
acquisitions and other strategic corporate development, which was formalized in
a written agreement dated November 24, 1998. As compensation Yankee was granted
an option to purchase up to 10% of the outstanding and reserved common stock for
a maximum of $60,000.
The option term commenced on the 60th day after the execution of the agreement
and will terminate at the close of business on the 45th business day after the
shares of common stock into which they can be exercised are registered for sale
to the public under applicable federal and state securities laws. The agreement
also allows the options to be exercised at a 50% discount if exercised prior to
such registration.
If the option had been exercised on June 30, 1999, the Company would have issued
approximately 809,488 shares under this agreement for $60,000, approximately
$0.07 per share. Assuming that the Company's authorized capitalization remains
20,000,000 shares of common stock, the maximum number of shares issuable under
the terms of this agreement will be 2,000,000 shares for $60,000 or $0.03 per
share. Had the options been exercised at the 50% discount the 809,488 shares
would have been issued for $30,000 ($0.04 per share) and the 2,000,000 would
have been issued for $30,000 ($0.02 per share).
In addition to the stock options, Yankee is entitled the following compensation:
(1) In the event that Yankee arranges or provides funding for the Company
on terms more beneficial than those reflected in Company's current
principal financing agreements, Yankee will be entitled, at its
election, to either:
(a) A fee equal to 25% of such savings, on a continuing basis; or
(b) If equity funding is provided through Yankee, a discount of 10%
from the bid price for the equity securities, if they are issued
as free trading securities, or, a discount of 50% from the bid
price for the equity securities, if they are issued as restricted
securities.
(2) In the event that Yankee generates business for the Company, then
Yankee shall be entitled to a commission equal to 10% of the gross
income derived by the Company, on a continuing basis.
(3) In the event that Yankee arranges for an acquisition by the Company,
then Yankee shall be entitled to compensation equal to 10% of the
compensation paid.
Page 67
<PAGE>
AMERINET GROUP.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - CONSULTING AGREEMENT, CONTINUED
(4) In addition to all other compensation reflected in the agreement, the
Company shall, after one year following execution of this agreement,
pay to Yankee the sum of $5,000 per month, throughout the balance of
this agreement or any renewals.
NOTE 7 - RESCISSION SETTLEMENT AGREEMENT
GRANVILLE-SMITH JR. RESCISSION SETTLEMENT AGREEMENT
On March 22, 1999, the Company's former president, Edward Granville-Smith,
rescinded by agreement, all employment, consulting and creditor agreements and
the following transactions described in previous reports on 10-KSB by the
Company and on previous filings with the Securities and Exchange Commission as
follows:
"During March of 1995, the Company's Board of Directors elected Edward
Granville-Smith, then president of KSG (then operating as EGSI), to the
Company's Board of Directors, after which, all directors other than Mr.
Granville-Smith resigned. Mr. Granville-Smith, as the sole director, elected
himself as president, chief executive officer and chairman of the Company's
Board of Directors. Thereafter, Mr. Granville-Smith, as the sole stockholder,
officer and director of Milpitas Investors, Inc., a Delaware corporation
("Milpitas"), caused Milpitas to assign interests of four leases involving five
separate leased parcels of real estate (one lease covers two parcels, four
promissory notes secured by mortgages on real estate leased to third parties in
each case subject to mortgages to third parties, and four demand notes with an
aggregate original principal balance of approximately $160,000, to the Company
in exchange for 1,616,000 shares of the Company's common stock. The demand notes
are subject to an arrangement with Mr. Jerry C. Spellman (which the Company has
agreed to honor) whereby payments thereon are used to repay a $100,000 loan by
Mr. Spellman to a former holder. Milpitas thereafter distributed such stock to
Granville-Smith Trust, which thereafter transferred to K. Walker, Ltd., a
Bahamian corporation (affiliated with Mr. Granville-Smith) and Bolina Trading
Registrant, a Panamanian corporation and/or the WEFT Trust, (affiliated with
Jerry C. Spellman)."
SPELLMAN GENERAL RELEASE
On March 22, 1999, Mr. Jerry C. Spellman, on his own behalf and on behalf of
Bolina Trading Registrant, S.A., a Panamanian Corporation, also known as Bolina
Trading Registrant, a Panamanian Corporation, and Bolina Trading Corporation,
and the WEFT Trust signed and executed for the protection of the Company a
general release.
NOTE 8 - LOSS FROM DISCONTINUED OPERATIONS
On March 22, 1999, the Company entered into an agreement that resulted in the
discontinued operations of the mortgage finance business. The following is a
summary of income (loss) from operations of the discontinued mortgage finance
business.
1999 1998 1997
Revenue of discontinued operations $ - $162,395 $214,001
Expenses of discontinued operations - 184,535 288,044
Loss from operations of discontinued operations - (22,140) (74,043)
Loss on disposal of discontinued operations - (377,275) -
Loss from discontinued operations $ - $(399,415) $(74,043)
Page 68
<PAGE>
AMERINET GROUP.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS' EQUITY
During the six months ended June 30, 1999, the Company issued its common stock
for cash and in exchange for services as follows:
(a) On May 25, 1999, 200,000 shares of common stock were issued for
services. This transaction resulted in $36,500 of professional fees
expense, which was included in the statement of operations.
(b) On May 25, 1999, the Company issued 47,000 shares of common stock to
current and former officers and directors of the Company in order to
discharge all agreements and receive a general release in favor of the
Company. This transaction resulted in $11,750 of professional fees
that was included in the statement of operations.
(c) On June 25, 1999, as a result of the merger, the Company issued
1,486,736 shares of common stock to the shareholders of AITC.
Additionally, 150,000 shares of common stock were issued to Yankee as
compensation for the acquisition.
(d) The Company issued 220,000 shares of common stock for cash during the
six months ended June 30, 1999. The total amount obtained from the
issuance was $100,000.
During the year ended December 31, 1998 the Company issued its common stock for
cash and in exchange for services as follows:
(a) On March 26, 1998, 20,000 shares of common stock were issued at $.02
per share for services.
(b) On September 9, 1998, 50,000 shares of common stock were issued at
$.02 per share for services.
(c) On December 9, 1998, 75,000 shares of common stock were issued at $.02
per share for services and 1,750,000 shares were issued at $.02 per
share for cash. During 1997 the Company also issued stock options for
200,000 shares to the president of the corporation. The options are
exercisable at $.02 per share and accordingly no compensation expense
has been recorded or will be incurred with the issuance.
(d) In September 1998, the Company entered into a consulting arrangement
for services relating to reorganization, mergers, acquisitions and
other strategic corporate development, which was formalized in a
written agreement dated November 25, 1998. As compensation the
consultant was granted an option to purchase up to 10% of the
outstanding and reserved common stock for a maximum of $60,000 (See
Note 6).
NOTE 10 - COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The following schedule presents the status of costs and estimated earnings on
uncompleted contracts at June 30, 1999, and at December 31, 1998 and 1997:
Page 69
<PAGE>
AMERINET GROUP.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 10, COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS, CONTINUED
1999 1998 1997
Costs incurred on uncompleted contracts $ 5,682 $ - $ -
Estimated earnings 5,743 - -
Total 11,425 - -
Less; billings to date (91,983) - -
Total $(80,558) $ - -
Included in accompanying balance sheet under the
following captions:
Costs and estimated earnings in excess of billings on
uncompleted contracts $ - $ - $ -
Billings in excess of cost and estimated earnings on
uncompleted contracts (80,558) - -
Total $(80,558) $ - $ -
NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, accounts payable and loans to
stockholders approximates fair value because of their short maturities.
NOTE 12 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 1999 and December
31, 1998 and 1997:
1999 1998 1997
Machinery and equipment $33,656 $ - $ -
Less: accumulated depreciation - - -
Property and equipment, net $33,656 $ - $ -
Depreciation expense for the period ended June 30, 1999 and the years ended
December 31, 1998, and 1997 was $0.
NOTE 13 - OPERATING LEASES
The Company leases its AITC facility in Florida under an operating lease with no
fixed term.
Page 70
<PAGE>
AMERINET GROUP.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - SUPPLEMENTAL COST FLOW INFORMATION
Supplemental cash flow information:
1999 1998 1997
Cash paid for interest $ - $127,257 $ 99,602
Cash paid for income tax $ - $ - $ -
Non cash investing and financing activities:
Issuance of common stock for
acquisition 1,636,736 - -
Stock issued in settlement of
liabilities and agreements 247,000 - -
NOTE 15 - RELATED PARTY TRANSACTIONS
At June 30, 1999, the Company had an outstanding payable to the former
shareholders of AITC in the amount of $29,333.
During the development stage ending June 25, 1999, the Company's corporate
offices and certain management services were provided by two of the Company's
shareholder/directors at no cost to the Company.
On February 18, 1999, the Company issued 150,000 shares of its common stock in
consideration for the cancellation of $24,000 of legal and advisory services
provided by a shareholder and Vice President of Yankee.
NOTE 16 - LEGAL MATTERS
The Company is currently not a party to any material legal proceedings. Although
the Company is not a party to the following proceedings directly, they involve
real estate located in Kansas and Tennessee in which the Company had an
interest.
A) On October 20, 1997, the various parties entered into a wrap
around mortgage transaction with the Company and the current
tenant agreed to settle, but certain parties reserved claims
against each other. The settlement calls for a payment from
the current tenant of $150,000 in exchange for a transfer of a
clear and free title of the underlying real estate. The
mortgage holder, Fleet National Bank, received $52,000 with
the balance to be held in escrow between the other parties.
The Company held the position that the ultimate disbursement
of the substantial portion of these escrowed funds should be
earmarked for the reduction of the wrap around mortgage and
promissory note receivable. Therefore the Company set up an
escrow receivable for $98,000 ($150,000 less $52,000). The
escrow receivable was determined to be uncollectable and was
expensed in the loss from discontinued operations during the
year ended December 31, 1998. As a result of the divestiture
of the assets involved, during March 1999, the Company's
management has determined that such litigation will not have
any materially adverse consequences.
Page 71
<PAGE>
AMERINET GROUP.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
B) The Company was also in default of the mortgage on property
located in Memphis, Tennessee because it could not satisfy the
balloon payment, in the original amount of $193,580, which was
due on December 31, 1996. The mortgage holder (Lutheran
Brotherhood) has refused to renegotiate or extend the term of
the mortgage and would not accept any further payments from
the lessor of other underlying lease, other than the one made
in December, 1996, which was based upon the old repayment
schedule's terms. Through August, 1997, the Company had
received funds from Sun West N.O.P., the lessor on the
underlying lease, which represented the monthly rent payments
made on such lease ($4,609) by the tenant of the Memphis
Property. Because the mortgage holder could not accept any
amortization payments on their matured loan from Sun West
N.O.P., the Company was using such proceeds to reduce the
related wrap mortgage receivable. (In August of 1997, the
mortgage holder foreclosed on the mortgage payable, which
resulted in a foreclosure sale of the Memphis property. As a
result of these events of foreclosure, the Company wrote off
the balance on the mortgage payable and the related wrap
mortgage receivable ($51,772) and promissory note receivable
($93,686) at December 31, 1996. As a result of the divestiture
of the assets involved, during March 1999, the Company's
management has determined that such litigation will not have
any materially adverse consequences.
C) IMPROPER ISSUANCES OF STOCK PURSUANT TO RULE 504. To date,
principals and affiliates of the Registrant's transfer agent
and William J. Riley, Esquire, have failed to comply with
the Registrant's demand that the subject shares be legended
and restricted as having been issued as unregistered
securities under Section 4(2) of the Securities Act.
Carrington Capital Corp., a Florida corporation
("Carrington), has returned its shares for re-legending,
fully complying with the Registrant's demand. The Registrant
believes that its transfer agent and Mr. Riley have violated
Section 5 of the Securities Act and continue to do so, and
that the Commission may at some point take action against
them. In addition, it spears that Edward Granville-Smith,
Jr., at the time the Registrant's sole director, also have
violated Section 5 of the Securities Act by authorizing the
issuance of securities to Mr. Riley and Carrington (but not
to its transfer agent) in reliance on Commission Rule 504,
apparently based on Mr. Riley's legal advice. The Registrant
does not believe that the Commission will initiate any
action against it as a result of such violations, as, since
the replacement of Mr. Granville-Smith, it has aggressively
taken all steps available to it to correct such actions.
D) CERTAIN STOCK TRANSFERS FOR INADEQUATE OR NON-CONSIDERATION.
The Registrant's legal counsel has contacted each party
involved and demanded either payment for the subject shares or
their return. No response has been provided by any of the
holders and the Registrant's transfer agent has been
instructed not to transfer any of the securities in question
as the holding period under Commission Rule 144 cannot have
started for any of such holders in the absence of full
payment. The Registrant has furthermore elected not to accept
payment for such shares in the future at an amount less than
their market price on the date payment is tendered.
NOTE 17 - CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially expose the Company to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards No. 105,
consist primarily of trade receivables. The Company officers have attempted to
minimize this risk by monitoring the companies for whom they provided credit.
NOTE 18 - SIGNIFICANT VENDOR
During 1999, AITC subcontracted the production of its websites to an unrelated
party. This unrelated party provides 100% of the website development.
Page 72
<PAGE>
AMERINET GROUP.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 19 - INCOME TAXES
The significant components of deferred income tax expense benefit for the six
months ended June 30, 1999 and the years ended December 31, 1998 and 1997,
arising from net operating losses are as follows:
1999 1998 1997
Deferred tax asset:
Tax benefit of net operation loss $ 194,175 $ 160,976 $25,175
Less: valuation allaowance (194,175) (160,976) (25,175)
Deferred tax asset $ - $ - $ -
The Company has operating loss carryforwards of approximately $570,000. The
operating loss carryforwards will expire beginning in 2012.
NOTE 20 - STOCK OPTIONS
At June 30, 1999, the Company has granted 1,009,488 stock options to certain
employees and consultants at an average exercise price of $0.07 per share.
The Company has elected to account for the stock options under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Accordingly, no compensation expense has been
recognized on the employee stock options. The Company accounts for stock options
granted to consultants under Financial Accounting Standards Board Statement No.
123, "Accounting For Stock-Based Compensation". The Company recognized $37,498
in compensation expense for the six months ended June 30, 1999, and $-0- for the
years ended December 31, 1998 and 1997.
Had compensation expense for the employee stock option been determined based on
the fair value of the options at the grant date consistent with the methodology
prescribed under Statement of Financial Standards No. 123, "Accounting for Stock
Based Compensation", the Company's net loss at June 30, 1999 would have been
increased by approximately $-0-, and approximately $16,000 at December 31, 1998.
The fair value of each option is estimated on the date of grant using the fair
market option pricing model with the assumption:
Risk-free interest rate 5.5%
Expected life (years) 3
Expected volatility 9.516
Expected dividends None
Page 73
<PAGE>
AMERINET GROUP.COM, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 20 - STOCK OPTIONS (CONTINUED)
A summary of option transactions during the six months ended June 30, 1999 is
shown below:
Number Weighted-Average
of Shares Exercise Price
Outstanding at December 31, 1998 $ 786,615 $ 0.10
Granted 222,873 $ 0.07
Exercised -
Forfeited -
Outstanding at June 30, 1998 1,009,488
Exercisable at June 30, 1999 1,009,488
Available for issuamce at June 30, 1999 11,905,116
NOTE 21 - SUBSEQUENT EVENTS
On April 26, 1999, AITC was acquired by Ascot Industries, Inc., a Nevada
corporation ("Ascot"), in a stock exchange agreement. Ascot exchanged 90% of its
common stock for all the common shares of AITC. On July 9, 1999, this agreement
was rescinded and control of Ascot was re-acquired by AmeriNet Group.com, Inc.,
as the successor in interest to the original stockholder.
On September 8, 1999, Xcel Associates, Inc. ("Xcel") purchased a warrant for
$10,000, to purchase up to 1,000,000 shares of the Company's common stock at
$0.75 per share.
On September 27, 1999, Xcel loaned AITC $75,000; the note is due on December 31,
1999. In lieu of interest, Xcel will receive 15,000 shares of the Company's
common stock. Yankee has pledged 35,000 shares of its common stock as
collateral, and the Company has agreed to indemnify Yankee in the event that
Xcel retains the collateral for non-payment of the note by AITC.
In August 1999 the Company adopted a non-qualified stock option and stock
incentive plan. The Company has reserved 1,000,000 shares of common stock upon
the exercise of options granted to employees of the Company.
NOTE 22 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
organization will continue as a going concern. As discussed below, the
organization has negative cash flows from operations and an accumulated deficit
that raises substantial doubt about its ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
The Company's continued existence as a going concern will require the infusion
of new businesses. It is anticipated that the Company will effect this
transition through the acquisition of companies that will operate as
subsidiaries. The Company's continuation is dependent upon its ability to
acquire profitable businesses, control costs, and attain a satisfactory level of
profitability with sufficient financing capabilities or equity investment.
Page 74
<PAGE>
AMERICAN INTERNET TECHNICAL CENTER, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERINET GROUP.COM, INC.)
FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999
Page 75
<PAGE>
DASZKAL, BOLTON, MANELA, DEVLIN & CO.
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP OF PROFESSIONAL ASSOCIATIONS
2401 N.W. BOCA RATON BOULEVARD, SUITE 100 BOCA RATON, FLORIDA 33431
TELEPHONE (561) 367-1040 FAX (561) 750-3236
JEFFREY A. BOLTON, CPA, P.A. MEMBER OF THE AMERICAN INSTITUTE
MICHAEL I. DASZKAL, CPA, P.A. OF CERTIFIED PUBLIC ACCOUNTANTS
ROBERT A. MANELA, CPA, P.A.
TIMOTHY R. DEVLIN. CPA, P.A.
MICHAEL S. KRIDEL, CPA, P.A.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
American Internet Technical Center, Inc.
We have audited the accompanying balance sheet of American Internet Technical
Center, Inc.(a wholly-owned subsidiary of AmeriNet Group.Com, Inc.) as of June
30, 1999, and the related statement of operations, changes in stockholders'
equity and cash flows for the six months ended June 30, 1999. These financial
statements are the responsibility of the management of American Internet
Technical Center, Inc. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Internet Technical
Center, Inc. as of June 30, 1999, and the results of the operations and its cash
for the six months ended June 30, 1999, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 13 to the
financial statements, the Company has suffered recurring losses from operations
and has negative cash flow from operations that together raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 13. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Daszkal, Bolton, Manela, Devlin & Co., CPAs
Boca Raton, Florida
October 5, 1999
Page 76
<PAGE>
AMERICAN INTERNET TECHNICAL CENTER, INC.
BALANCE SHEETS
JUNE 30, 1999
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash $ 79,310
Accounts Receivable, net 76,663
----------
Total Current assets 155,973
----------
Property and equipment, net 33,656
----------
Other assets:
Goodwill, net 1,470,559
Deposits 14,492
--------------
Total other Assets 1,485,051
--------------
Total assets: $1,674,680
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,560
Accrued expenses 16,901
Billings in excess of costs and estimated
earnings on uncompleted contracts 80,558
Loan payable-stockholders 29,333
Loan payable-AmeriNet Group 100,000
--------------
Total current liabilities 234,352
------------
Shareholders' equity
Common Stock, $.001 par value, 20,000,000 shares
authorized, 551,333 shares issued and outstanding 551
Additional paid in capital 1,439,777
Retained earnings -
-------------
Total Stockholders' equity 1,440,328
-------------
Total liabilities and stockholders' equity $1,674,680
=============
</TABLE>
See accompanying notes to financial statements
Page 77
<PAGE>
AMERICAN INTERNET TECHNICAL CENTER, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<S> <C>
Revenues earned $ 485,618
Cost of revenues earned 145,718
-----------
Gross profit 339,900
Operating Expenses:
Selling expenses 163,702
Bad debt expense 6,717
General and administrative expenses 236,097
-----------
Total operating expenses $ 406,516
-----------
Net Loss $ (66,616)
===========
</TABLE>
See accompanying notes to financial statements
Page 78
<PAGE>
AMERICAN INTERNET TECHNICAL CENTER, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
Additional
No. of Common Paid-in Retained
Shares Stock Capital Earnings Total
Balances, January 1, 1999 200 $ 200 $ - $ 26,184 $ 26,384
2666.66 for one stock split 533,133 333 (333) - -
--------- --------- ---------- ------------ -----------
Balance, January 1, 1999 533,333 533 (333) 26,184 26,384
Issuance of common stock for cash, net
of issuance costs 18,000 18 9,982 - 10,000
Investment by Parent - - 1,430,128 40,432 1,470,560
Net loss, June 30 - - - (66,616) (66,616)
--------- --------- ---------- ------------ -------------
Balance, June 30, 1999 551,333 $ 551 $1,439,777 $ - $ 1,440,328
</TABLE>
See accompanying notes to financial statements
Page 79
<PAGE>
AMERICAN INTERNET TECHNICAL CENTER, INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net (loss) $(66,616)
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation and amoritization 3,125
Bad debts expenses 11,228
(Increase) decrease in:
Accounts receivables (18,987)
Prepaid expenses 3,161
Deposits 1,600
Increase (decrease) in:
Accounts payable (21,181)
Accured expenses 8,795
Billings in excess of costs and estimated
earnings on uncompleted contracts 39,006
------------
Net cash (used) by operating activities (39,869)
Cash flows used by investing activities:
Purchase of property and equipment (14,515)
------------
Cash flows from financing activities:
Issuance of common stock, net of issuance cost 10,000
Loans from stockholders 20,000
Loan from AmeriNet Group.com, Inc. 100,000
------------
Net cash provided by financing activities 130,000
Net increase in cash 75,616
Cash at beginning of year 3,694
-----------
Cash at end of year $ 79,310
===========
Additional cash payment information:
Interest paid $ -
Income taxes $ -
</TABLE>
See accompanying notes to financial statements
Page 80
<PAGE>
AMERICAN INTERNET TECHNICAL CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
American Internet Technical Center, Inc. (the "Company"), a Florida corporation,
was established on April 15, 1998, to design and host websites and provide
e-commerce programs, marketing and other Internet services. Hosting services,
including search engine registrations, are typically six month or one year
contracts.
The company is a wholly-owned subsidiary of AmeriNet Group.Com, Inc. (see Note
14).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all cash and
other demand deposits to be cash and cash equivalents. As of June 30, 1999, the
Company had no cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are being depreciated using the
straight-line method over the estimated useful lives of five to seven years.
REVENUE AND COST RECOGNITION
Revenues from long-term contracts are recognized on the percentage-of-completion
method, measured by the percentage of costs incurred to date to estimated total
costs for each contract (i.e., cost-to-cost method). This method is used because
management considers total cost to be the best available measure of progress on
the contracts. Because of inherent uncertainties in estimating cost, it is
possible that the estimates used will change within the near term. Contract
costs include all direct material and labor costs and those indirect costs
related to contract performance, such as subcontractors, equipment rental, and
supplies and, certain general administrative expenses are charged to expense.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. .
The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
ADVERTISING
Advertising costs are expensed when incurred. The advertising cost incurred for
the six months ended June 30, 1999 was $12,125.
Page 81
<PAGE>
AMERICAN INTERNET TECHNICAL CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The following schedule presents the status of costs and estimated earnings on
uncompleted contracts at June 30, 1999.
Costs incurred on uncompleted contracts $ 5,682
Estimated earnings 5,743
Total 11,425
Less; billings to date (91,983)
Total $(80,558)
Included in accompanying balance sheet under the
following captions:
Costs and estimated earnings in excess of billings on
uncompleted contracts $ -
Billings in excess of cost and estimated earnings on
uncompleted contracts (80,558)
Total $(80,558)
NOTE 4 - AMORTIZATION OF GOODWILL
Goodwill represents the amount by which the purchase price of business acquired
exceeds the fair market value of the net assets acquired under the purchase
method of accounting.
The excess of the fair value of the net assets of AITC acquired was $1,470,559,
and was recorded as goodwill. Goodwill is being amortized on a straight-line
method over 15 years. The accumulated amortization of the excess fair value of
net assets of the Company acquired over cost is $-0- at the six months ended
June 30, 1999.
NOTE 5 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are recorded net of an allowance for doubtful accounts of
$57,160 at June 30, 1999.
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, accounts payable and loans to
stockholders approximates fair value because of their short maturities.
Page 82
<PAGE>
AMERICAN INTERNET TECHNICAL CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - RELATED PARTY TRANSACTIONS
At June 30, 1999, the Company had an outstanding payable to the stockholders in
the amount of $29,333. The transactions involving the stockholders/officers are
summarized below:
Balance at December 31, 1998 $ 9,333
Advances from stockholders 20,000
Balance at June 30, 1999 $ 29,333
NOTE 8 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 1999:
Machinery and equipment $34,597
Furniture and fixtures 6,114
Total property and equipment $40,711
Less: accumulated depreciation (7,055)
Property and equipment, net $33,656
Depreciation expense for the six months ended June 30, 1999, was $3,125.
NOTE 9 - OPERATING LEASES
The Company leases its facilities in Florida under an operating lease with no
fixed term. Total lease expense for the six months ended June 30, 1999 was
$11,934.
NOTE 10 - CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially expose the Company to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards No. 105,
consist primarily of trade receivables. The Company officers have attempted to
minimize this risk by monitoring the companies for whom they provided credit and
also avail themselves of the lien process for contracts.
NOTE 11 - SIGNIFICANT VENDOR
During 1999, the Company subcontracted the production of its websites to an
unrelated party. This unrelated party provides 100% of the website development
to the company.
NOTE 12 - INCOME TAXES
The Company has elected to be treated as an S Corporation for Federal and State
income tax purposes. Under this election, all taxable income, losses and credits
pass through to the individual stockholders and are reflected on their
individual income tax returns. Consequently, no provision for income taxes has
been provided by the corporation. The financial statements reflect earnings on
the percentage of completion method of accounting whereas the completed contract
method is used for income tax purposes.
Page 83
<PAGE>
AMERICAN INTERNET TECHNICAL CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - STOCKHOLDERS' EQUITY
The Company raised $20,000 through a private placement offering of common stock
during the period January 1, 1999, through March 31, 1999.
On April 26, 1999, the Company was acquired by Ascot Industries, Inc., a Nevada
corporation ("Ascot"), in a stock exchange agreement. Ascot exchanged 90% of its
common stock for all the common shares of American Internet. On July 9, 1999,
this agreement was rescinded and control of AITC was re-acquired by AmeriNet
Group.com, Inc., as the successor in interest to the original stockholders.
NOTE 14 - ACQUISITION
On June 25, 1999, AmeriNet Group.com, Inc. (AmeriNet) acquired all of the
outstanding common stock of the Company; for accounting purposes the transaction
was effective June 30, 1999. As initial consideration, AmeriNet issued an
aggregate of 1,486,736 shares of common stock to the stockholders of the
Company. Under the terms of the earn out provisions of the acquisition
agreement, AmeriNet will issue shares of common stock over a six-year period
beginning June 30, 2000, contingent upon the operating performance of AITC. The
maximum number of shares that could be issued under this agreement is 5,250,000
shares. Such amounts will be accounted for as purchase price adjustments.
The acquisition was recorded using the purchase method of accounting. The
results of operations since the date of acquisition, June 30, 1999, for
accounting purposes, will be included in the consolidated statements of
operations beginning July 1, 1999. Goodwill of $1,470,559 was recorded in this
transaction and is being amortized over 15 years using the straight-line method.
On the date of acquisition, the Company's tax status changed to a regular
corporation from an S-corporation.
NOTE 15 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
organization will continue as a going concern. As discussed below, the
organization has negative cash flows from operations and an accumulated deficit
that raises substantial doubt about its ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
The company's continued existence as a going concern will require new lines of
business. It is anticipated that the Company will effect this transition through
the acquisition of companies that will operate as subsidiaries of the parent
company, AmeriNet Group.com, Inc. The Company's continuation is dependent upon
its ability to acquire profitable businesses, control costs, and attain a
satisfactory level of profitability with sufficient financing capabilities or
equity investment.
Page 84
<PAGE>
c) PRO FORMA
AMERINET GROUP.COM, INC.
PRO FORMA FINANCIAL STATEMENTS
On June 25, 1999, AmeriNet Group.com, Inc., acquired all of the outstanding
common stock of American Internet Technical Center, Inc., ('AITC'). For
accounting purposes, the acquisition was effective June 30, 1999.
The following Pro Forma Combined Balance Sheet for the Registrant has been
prepared by management of the Registrant based upon the balance sheets of the
Registrant as of December 31, 1998. The Pro Forma Combined Statement of
Operations was prepared based upon the statement of operations for the
Registrant for the twelve months ended December 31, 1998, and the six months
ended June 30, 1999. The pro forma statement of operations also includes AITC's
statement of operations for the twelve months ended December 31, 1998, and the
six months ended June 30, 1999. The pro forma statements give effect to the
transaction under the purchase method of accounting and the assumptions and
adjustments in the accompanying notes to pro forma combined financial
statements. The pro forma combined balance sheet gives effect to the acquisition
as if it had occurred as of December 31, 1998. The pro forma combined statement
of operations for the year ended December 31, 1998, gives effect to the
acquisition as if it had occurred as of January 1, 1997. The pro forma combined
statement of operations for the six months ended June 30, 1999, gives effect to
the acquisition as if it had occurred as of January 1,1999.
The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable. The pro forma combined
financial statements do not purport to represent what the combined companies'
financial position or results of operations would actually have been had the
acquisition occurred on such date or as of the beginning of the period
indicated, or to project the combined companies' financial position or results
of operations for any future period.
Page 85
<PAGE>
AmeriNet Group.com, Inc.
Pro Forma Combined Balance Sheets
December 31, 1998
(Unaudited)
ASSETS
<TABLE>
<S> <C> <C> <C> <C> <C>
American
AmeriNet Internet Pro Forma
December 31, 1998 December 31, 1998 Total Adjustments Combined
Current assets:
Cash 13,182 3,694 16,876 16,876
Accounts Receivable 0 68,903 68,903 68,903
Prepaid and other assets 0 3,161 3,161 3,161
---------------------------------------------------------------------------------
Total Current assets 13,182 75,758 88,940 88,940
Property and equipment, net 0 22,266 22,266 22,266
---------------------------------------------------------------------------------
Other assets:
Deposits 16,092 16,092 16,092
Goodwill, net 0 0 0 (a) 1,413,942 1,413,942
---------------------------------------------------------------------------------
Total other Assets 0 16,092 16,092 1,413,942 1,430,034
---------------------------------------------------------------------------------
TOTAL ASSETS: 13,182 114,116 127,298 1,413,942 1,541,240
=================================================================================
Current liabilities:
Accounts payable 4,661 28,741 33,402 33,402
Accrued expenses 0 8,106 8,106 8,106
Billings in excess of
costs and profits 0 41,552 41,552 41,552
Loans to Stockholders 9,333 9,333 9,333
----------------------------------------------------------------------------------
Total current liabilities 4,661 87,732 92,393 92,393
Stockholders equity (deficit)
Common stock 59,911 200 60,111 (a) 14,201 74,312
Additional paid in capital 2,914,395 0 2,914,395 1,425,925 4,340,320
Retained earnings/deficit (2,965,785) 26,184 (2,939,601) (a) (26,184) (2,965,785)
------------------------------------------------------------------------------
Total stockholders'
equity (deficit) 8,521 26,384 34,905 1,413,942 1,448,847
Total liabilities and
stockholders' equity 13,182 114,116 127,298 1,413,942 1,541,240
====================================================================================
</TABLE>
1. The Pro Forma Balance Sheet at December 30, 1998 is based upon the
balance sheets of the Registrant and American Internet as of December
30, 1998
(a) The purchase price for the acquisition of all common stock of American
Internet was 1,486736 shares at $0.88 per share Goodwill of $1,413,942
would have been recorded if the acquisition had taken place on December
31, 1998.
Page 86
<PAGE>
AmeriNet Group.com, Inc.
Pro Forma Combined Statement of Income
For the twelve months ended December 31, 1998
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
American
AmeriNet Internet Pro Forma
December 31, 1998 December 31, 1998 Total Adjustments Combined
Revenues earned 0 784,463 784,463 784,463
Costs and revenues earned 0 137,752 137,752 137,752
-------------------------------------------------------------------------------
Gross profit 0 646,711 646,711 646,711
Selling expenses 0 323,762 323,762 323,762
Bad debt expenses 0 45,932 45,932(b) 94,263 140,195
General and administrative expenses 0 132,517 132,517 132,517
-------------------------------------------------------------------------------
Total operating expenses 0 502,211 502,211 94,263 596,474
Loss from operations 0 144,500 144,500 (94,263) 50,237
Other income (expenses):
Loss from discontinued operations (399,415) 0 (399,415) (399,415)
0 0 0 0
0 0 0 0
0 0 0 0
--------------------------------------------------------------------------------
Total other income (expenses) (399,415) 0 (399,415) 0 (399,415)
--------------------------------------------------------------------------------
Net loss (399,415) 144,500 (254,915) (94,263) (349,178)
================================================================================
Basic net loss per share -0.10
Weighted average shares
outstanding 4,174,778
============
</TABLE>
1. The Pro Forma Statement of Operations for the year ended December 31, 1998
is based upon the twelve months ended December 31, 1998 for the Registrant
and American Internet and gives effect to the acquisition as if it had
occured on January 1, 1998.
(b) Amount represents the amortization of goodwill of $1,413,942 over 15 years
using the straight line method.
Page 87
<PAGE>
AmeriNet Group.com, Inc.
Pro Forma Combined Statement of Income
For the six months ended June 30, 1999
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
AmeriNet Group American Internet
Six months ended six months ended Pro Forma
June 30, 1999 June 30, 1999 Total Adjustments Combined
Revenues earned 0 485,618 485,618 485,618
Costs and revenues earned 0 145,718 145,718 145,718
-------------------------------------------------------------------------------
Gross profit 0 339,900 339,900 339,900
Operating expenses:
Selling expenses 163,702 163,702 163,702
Bad debt expenses 6,717 6,717 6,717
General and administrative 0
expenses 97,646 236,097 333,743(c) 49,019 382,762
-------------------------------------------------------------------------------
Total operating expenses 97,646 406,516 504,162 49,019 533,181
--------------------------------------------------------------------------------
Net loss (97,646) (66,616) (164,262) (49,019) (213,281)
================================================================================
</TABLE>
1. The Pro Forma Statement of Operations for the six months ended June 30,
1999 of the Registrant and six months ended June 30, 1999 of American
Internet. The Pro Forma gives effect to the acquisition as if it had
occured on January 1, 1999.
(c) Amount represents the amortization of goodwill of $1,470,559 over 15 years
using the straight line method.
Page 88
<PAGE>
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The disclosure below pertaining to the Registrant's disagreement with
Bowman & Bowman, P.A. (the "Bowman Firm"), was rendered moot when the Bowman
firm agreed to modify Note 5 to the Registrant's financial statements for the
year ended December 31, 1998, and the Registrant amended such financial
statements on September 21, 1999.
The following exhibits pertaining to the following information are
incorporated by reference as exhibits to this report, see "Part III, Item 13(a),
Exhibits Required by Item 601 of Regulation S-B:" a letter from the Bowman Firm
dated August 2, 1999 (the "Bowman Letter"); a letter and a facsimile
transmission in the form of a note accompanied by an excerpt from a draft of
Item 4 of the Registrant's current report on Form 8-K filed by the Registrant
with the Commission on July 12, 1999, all provided to the Registrant's general
counsel by Penny Adams Field ("Mrs. Field"), the chairperson of the Registrant's
audit committee on August 13, 1999 (the "Field Documents"); and, a letter from
Yankee Companies, Inc. ("Yankees"), dated August 15, 1999 (the "Yankees
Letter").
In conjunction with the Registrant's decision on July 9, 1999, to retain
the firm of Daszkal, Bolton & Manela, P.A. (the "Daszkal Firm") to conduct its
next annual audit (the audit included in this report), rather than to continue
using the firm of Bowman & Bowman, P.A. (the "Bowman Firm"), which prepared the
Registrant's audit for the year ended December 31, 1998, the Registrant hereby
provides the following representations required by Item 304 of Regulation SB:
(a) (1) The Registrant changed its principal independent accountant during its
last fiscal year (the year ended December 31, 1998) and for the
current fiscal year:
(i) In each case, the decision was made by the Registrant and the
former accountants did not resign, decline to stand for
re-election nor were they dismissed; rather, in each case, their
engagements were for a single project and the decision to engage
other auditors for the next fiscal year was made based on factors
such as geographic proximity to the Registrant's principal
offices and, in the latest case, a pre-existing relationship with
a corporation acquired by the Registrant which is expected to
account for almost all of the Registrant's operations during the
current fiscal year. The firm of Baum & Company, P.A. (the "Baum
Firm"), was replaced by the Bowman Firm on or about March 5,
1999; and the Bowman Firm was replaced by the Daszkal Firm on or
about July 9, 1999. A copy of the Registrant's engagement
agreement with the Daszkal Firm, executed by the Registrant on
July 9, 1999, is filed as an exhibit to the Registrant's report
on Form 8-K filed with the Commission on July 12, 1999, (see
"Part III, Item 13(a), Exhibits Required by Item 601 of
Regulation S-B.")
Page 89
<PAGE>
(ii) The reports of the Registrant's principal accountants for
the past two years did not contain any adverse opinions or
disclaimers of opinions, nor were they modified as to
uncertainty, audit scope, or accounting principles, except
as follows: the Registrant's audit by the Baum Firm for the
year ended December 31, 1997, contained a qualification as
to scope, which read as follows: "We were unable to obtain a
discussion or evaluation from the Company's [the Registrant]
outside legal counsel of pending or threatened litigation
described in Note 14" (see audit report letter of the Baum
Firm, included in the Registrant's report on Form 10-KSB for
the year ended December 31, 1997). The attorney in question
was David Albright, Esquire of Albright, Brown, and
Goetemiller, 120 East Baltimore Street, Suite 2150;
Baltimore, Maryland 21202. Mr. Albright was familiar and
involved with litigation involving assets in which the
Registrant had an indirect interest, however, he failed or
refused to communicate with attorneys or accountants for the
Registrant responsible for filing the Forms 10-KSB for 1997
and 1996. See the details discussed in Part I, Item 3, Legal
Proceedings" of the Registrant's reports on Form 10-KSB for
1996 and 1997, including copies of letters sent to Mr.
Albright attached as exhibits thereto. In light of the
Registrant's disposition of the operations and assets
involved, current management is of the opinion that such
qualification has no relevance to its current or proposed
future operations.
(iii) The decision to engage the Bowman Firm rather than the Baum
Firm for the Registrant's audit for the year ended December
31, 1997 was made at the insistence of Mrs. Field, an
outside director who chairs the Registrant's audit committee
and was recommended or approved by the Registrant's board of
directors. The decision to engage the Daszkal Firm rather
than the Bowman Firm for the current year's audit was made
by the Registrant's board of directors in conjunction with
its acquisition of American Internet Technical Center, Inc.,
a Florida corporation ("American Internet"), based on the
Daszkal Firm's pre-existing relationship as auditor for
American Internet. Based on the Registrant's records and on
inquiries to the Bowman Firm, their auditor-client
relationship ended when the Bowman Firm received Mrs.
Field's fax on or about July 9, 1999; however, the Bowman
Firm's final services for the Registrant on matters other
than compliance with the requirements of Item 304 of
Regulation SB were rendered on or about May 26, 1999, when
the Registrant filed its report on Form 10-KSB for the year
ended December 31, 1998.
(iv) (A) The Registrant does not believe that there were any
disagreements with the Baum or Bowman Firms, whether or not
resolved, on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope
or procedure, which, if not resolved to their satisfaction
would have caused them to make reference to the subject
matter of the disagreement(s) in connection with their
reports. However, as disclosed in Part II, Item 8, Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure, of the Registrant's report on Form
10-KSB for the year ended December 31, 1998, the Registrant
disagreed with the Bowman Firm's characterization of certain
portions of the Registrant's agreement with the Yankee
Companies, Inc., a Florida corporation that serves as the
Registrant's strategic consultant ("Yankees"), including the
description of the services to be provided and the basis for
calculating the compensation payable to Yankees. A very
detailed discussion of the nature of the disagreement,
including detailed quotes from the subject agreement is
included in Part II, Item 8, Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure, of
the Registrant's report on Form 10-KSB for the year ended
December 31, 1998, and is incorporated herein by reference.
In addition, in conjunction with the Registrant's audit for
the year ended December 31, 1997, Mrs. Field, as the
chairperson of the Registrant's audit committee, determined
that the Baum Firm should be replaced by the Bowman Firm for
purposes of conducting the audit of the Registrant's
financial statements based on geographic convenience, but
Page 90
<PAGE>
also noting in the current report on Form 8-KSB filed on
March 5, 1999, reporting the change, the membership of the
Bowman Firm in the AICPA's securities practice section, and
its successful peer review associated with such membership.
The Registrant disclosed such decision in a manner that the
Baum Firm felt implied that it was not a member of the
AICPA's securities practice section, and that it had not
successfully concluded a peer review associated with such
membership. The Registrant made clear in an amendment to the
related current report on Form 8-KSB filed on March 30,
1999, that it did not intend to make the implication
objected to.
(B) The Registrant does not believe that its former auditors
ever advised the Registrant that:
(1) internal controls necessary to develop
reliable financial statements did not
exist; or
(2) information had come to their
attention which made the them
unwilling to rely on management's
representations, or unwilling to be
associated with the financial
statements prepared by management; or
(3) the scope of the audit should be
expanded significantly, or
information had come to their
attention that they had concluded
would, or if further investigated
might, materially impact the
fairness or reliability of a
previously issued audit report or
the underlying financial statements,
or the financial statements issued
or to be issued covering the fiscal
period(s) subsequent to the date of
their most recent audited financial
statements (including information
that might preclude the issuance of
an unqualified audit report), and
the issue was not resolved to the
accountant's satisfaction prior to
its resignation or dismissal;
(2) During the Registrant's last two fiscal years, it engaged new
accountants as its principal accountant to audit its financial
statements. On or about March 5, 1999, it engaged the Bowman Firm,
rather than its former accountant, the Baum Firm; and, on or about July
9, 1999, it engaged the Daszkal Firm rather than the Bowman Firm.
(3) The Registrant provided the Bowman Firm with draft copies of Item 4 of
its current report on Form 8-K filed with the Commission on September
9, 1999, and Mr. Bowman provided the Registrant with a letter
confirming such disclosure filed as an exhibit to such report.
Page 91
<PAGE>
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
(A) DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT
During the period starting on July 1, 1998 until November of 1998, the
Registrant's sole officers and directors were as follows:
NAME AGE TERM POSITIONS
Edward Granville-Smith, Jr. 65 (1) Chairman of the Board of Directors,
Director, Chief Executive Officer,
Chief Operating Officer and President
Charles J. Scimeca 53 (2) Secretary & Treasurer
- -------
(1) Elected on March 23, 1995, by the Registrant's board of directors to
serve until the next annual meeting of the Registrant's stockholders,
and until his successors were elected, and assumed their office except
that service as an officer was at the pleasure of the Registrant's
board of directors. Immediately thereafter, all the prior directors
resigned and Mr. Granville-Smith, acting as the Registrant's sole
remaining director, elected himself as president and chief executive
officer.
(2) Elected on March 31, 1996, to serve at the pleasure of the Registrant's
board of directors.
Based on Mr. Granville-Smith's concern that his personal health problems
were impeding his ability to adequately manage the Registrant's operations, he
started negotiations with principals of the Yankee Companies, Inc., a Florida
corporation ("Yankees") during October of 1998, to obtain its assistance in
recruiting additional officers and directors, arranging for emergency funding
and helping to develop an expanded strategic business plan. Based on Mr.
Granville-Smith's oral assurances that it was being retained as the Registrant's
strategic consultant, Yankees contacted a number of persons that its deemed
qualified to assist the Registrant and who agreed to become materially involved
in the Registrant's operations, in consideration for being assigned a portion of
certain stock subscription rights for shares of the Registrant's common stock
that Mr. Granville-Smith had granted to Yankees. On November 6, 1998, Mr.
Granville- Smith, as the Registrant's sole director, elected the following
persons recommended by Yankees as members of the Registrant's board of
directors: Penny L. Adams Field, Anthony Q. Joffe and G. Richard Chamberlin
(formerly the Registrant's securities counsel). On November 11, 1998, after
learning that Mr. Granville- Smith, had been incapacitated, Mr. Scimeca, at the
suggestion of Mr. Chamberlin, called a special meeting of the Registrant's board
of directors, in order to replace Mr. Granville-Smith as the Registrant's
president and chief executive officer, principally in order to assure that the
Registrant could file its quarterly report with the Securities and Exchange
Commission within a reasonable time after its due date. At such meeting, Mr.
Scimeca was elected as the acting president and Mr. Chamberlin was elected as
the acting secretary and general counsel. In addition, the Registrant's board of
directors voted to:
o reorganize the Registrant by reorganizing as a holding company,
Page 92
<PAGE>
o to ratify a series of subscription agreements (including those that Yankees
relinquished in favor of Messrs. Joffe and Chamberlin and Mrs. Field), as
disclosed in Part II of the Registrant's quarterly report on Form 10-QSB
for the quarter ended September 30, 1998,
o to formalize the oral consulting agreement negotiated by Mr.
Granville-Smith with Yankees, and
o to enter into a settlement agreement with Mr. Granville-Smith, as a result
of which all his current agreements with the Registrant would be
terminated.
As a result of the foregoing, since November 6, 1998, the following persons
have served as members of the Registrant's board of directors and as executive
officers, in the capacities indicated:
NAME AGE TERM POSITIONS
Michael Harris Jordan 46 (3) President and Director
Charles J. Scimeca 53 (1)(3) Acting President, Chief Executive
Officer & Director
G. Richard Chamberlin 52 (1) Acting Secretary, General Counsel
& Director
Penny Adams Field 43 (1) Director, Audit Committee Chair(6)
Anthony Q. Joffe 57 (1) Director, Audit Committee (6)
Edward Granville-Smith, Jr. 66 (2) Director (2)
Mark Granville-Smith 41 (4) Director (2)
J. Bruce Gleason 56 (5) Director
- --------
(1) Elected on November 6, 1998, to serve, in the case of directors, until
the next annual meeting of the Registrant's stockholders and until
their successors are elected and assume their office, unless their
earlier resignations are accepted by the Registrant's board of
directors: and, in the case of officers, to serve at the pleasure of
the Registrant's board of directors.
(2) On November 11, 1998, Edward Granville-Smith, Jr., resigned as an
officer due to health problems and was represented on the Registrant's
board of directors by his son, Mark Granville-Smith, on a non-voting
basis until he resigned on March 22, 1999.
(3) In conjunction with the resignation of Charles J. Scimeca ("Mr.
Scimeca"), the Registrant's acting president and a member of the
Registrant's board of directors, on August 5, 1999, the Registrant's
board of directors elected Michael Harris Jordan as its president and
as a member of its board of directors, effective as of August 6, 1999.
Mr. Jordan's term as a director will expire following the election and
installation of his successor (assuming Mr. Jordan is not re-elected)
at the next annual meeting of the Registrant's stockholders. His term
as an officer is at the pleasure of the Registrant's board of
directors, subject to his contractual rights under the employment
agreement summarized below.
(4) In accordance with the terms of a settlement agreement between the
Registrant and Edward Granville-Smith, Jr. (who served as the
Registrants principal officer and sole director from 1995 until
November of 1998), the Registrant elected his son, Mark
Granville-Smith as a member of the Registrant's board of directors,
effective July 1, 1999. Details of the settlement agreement were
disclosed in the Registrant's report on Form 10-KSB for the year ended
December 31, 1998 and such agreement was filed as an exhibit thereto.
Mr. Mark Granville-Smith resigned as a director of the Registrant on
September 17, 1999, for personal reasons. The resignation did not
involve any disagreements with the Registrant and a copy of his
resignation letter is filed as an exhibit to this report (see "Part
III, Item 13(a), Exhibits Required by Item 601 of Regulation S-B").
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(5) In conjunction with the acquisition of American Internet Technical
Center, Inc., a Florida corporation ("American Internet"), J. Bruce
Gleason, the president, founder and a member of the board of directors
of American Internet, was elected as a member of the Registrant's board
of directors for a term commencing on July 1, 1999, and expiring on the
earlier of December 31, 1999, or the conclusion of the next annual
meeting of the Registrant's directors. However, the Registrant and its
principal stockholders have agreed to use their best efforts to elect a
designee of American Internet to the Registrant's board of directors
for a period of five years (see the Lock-Up & Voting Agreement
incorporated by reference as an exhibit to this report and the
amendments thereto filed as exhibits to this report, "Part III, Item
13(a), Exhibits Required by Item 601 of Regulation S-B").
(6) The Registrant's board of directors has an Audit Committee. The Audit
Committee meets with management to consider the adequacy of the
internal controls of the Registrant and the objectivity of the
Registrant's financial reporting. The Audit Committee selected and
meets with the Registrant's independent accountants and with
appropriate financial personnel about these matters. The Audit
Committee is comprised of Ms. Field, (Audit Committee Chairman) and Mr.
Joffe. As of the date of this report, Mrs. Field advised the Registrant
that 3 meetings had been held since its creation in November of 1998.
The Registrant's board of directors sets corporate policies which are
implemented by the Registrant's Management and when applicable, the management
of the Registrant's subsidiaries. In the event that the Registrant's board of
directors determines that a member faces a conflict of interest, for any reason,
it is expected that the subject director will abstain from voting on the matter
which raised the issue. The Registrant's board of directors held ten meetings
during the period commencing on July 1, 1998 and ending on June 30, 1999,
principally by teleconference. In addition the Registrant's board of directors
passed four series of resolutions by written consent in lieu of meetings during
such period.
The directors hold office until the next annual meeting of the stockholders
and until there successors have been duly elected or qualified. Audit committee
members serve at the pleasure of the Registrant's board of directors.
BIOGRAPHIES OF DIRECTORS AND EXECUTIVE OFFICERS
Michael Harris Jordan, President and Director
Michael Harris Jordan, 46 years old, is a resident and native of Miami,
Florida. From 1972 until 1973 he attended the University of Miami where he
studied English literature. In 1979, Mr. Jordan obtained a Series 7 and a series
63 license from the NASD and in 1982 he obtained a Series 24 license from the
NASD (general securities principal). In conjunction with his activities as an
individual licensed to engage in securities transactions by the NASD, he was
also licensed by the securities regulatory authorities of a number of states.
Since 1985, Mr. Jordan has been engaged in business as a private investor. In
1992, Mr. Jordan incorporated Securities Counseling and Management, Inc., a
private consulting firm headquartered in Miami, Florida, for which he serves as
president and sole director. In January of 1996, Mr. Jordan became secretary,
treasurer and a member of the board of directors of Zagreus, Inc., a publicly
held Delaware corporation then headquartered in Miami, Florida ("Zagreus").
Zagreus is an inactive public company in the process of reorganization. In 1998,
Mr. Jordan became an independent consultant for the Southeast Companies, inc.,
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a Florida corporation engaged in providing business and political consulting
services and consumer financial services as a licensed mortgage brokerage
company and during 1998, became president of a division thereof operating in
compliance with Florida fictitious name laws as Southeast Counseling &
Management. In 1999, Mr. Jordan became a registered principal (NASD Series 24
license) of Sunshine Securities, Inc., an NASD member firm located in Orlando,
Florida. On August 6, 1999, Mr. Jordan became a member of the Registrant's board
of directors and was elected as the Registrant's President.
Charles J. Scimeca, Acting President & Director
Charles J. Scimeca, age 54, served as the acting president and as a
director of the Registrant until August 6, 1999. Since 1982 he has been a
licensed real estate broker. He is managing director of Coast to Coast Realty
Group, Inc., located in Sarasota, Florida. The company is involved in
residential and commercial real estate development as well as general real
estate brokerage and business acquisition. He has been involved in real estate
transactions totaling over one billion dollars, representing Fortune 500
clients, such as , Equitable Life Insurance Company, Walt Disney Corporation,
Paramount Studios and TRW Real Estate Group. From 1980 until 1982, Mr. Scimeca
was on sabbatical, exploring business opportunities in various industries. From
1975 until 1980, Mr. Scimeca served as chief operating officer for Andy Frain
Maintenance & Security, Inc., headquartered in Chicago, Illinois. His
responsibilities included budgeting and implementing cleaning services for high
rise office, retail and industrial properties for such notable clients as
Standard Brands, JMB Realty, John Hancock Insurance Company and other Fortune
500 companies. From 1965 until 1975, Mr. Scimeca was the owner and manager of
the Mecca Restaurant, a full-service family owned multi-unit restaurant business
headquartered in Chicago, Illinois. He is a member of the Clearwater, Sarasota
and Manatee County Association of Realtors, the International Council of
Shopping Centers and other local, regional and national real estate and mortgage
related organizations. He holds a degree in Business Administration from Wright
College in Chicago, Illinois (1964).
G. Richard Chamberlin, Acting Secretary, Director & General Counsel
G. Richard Chamberlin age 53, has since November 1998, served as the
Registrant's acting secretary, as a member of it's board of directors and also
as it's general counsel. From 1973 to 1974 he served as Trust Officer with
Central Bank & Trust Company, Jonesboro, Georgia. Mr. Chamberlin is a practicing
attorney and is a member of the Georgia Bar, (since 1974), and the Florida Bar,
(since 1990). He is also a member of the Bars for the Federal District Court for
the Northern District of Georgia, (since 1974) and the Federal District Court
for the Northern District of Florida (since 1995), the Court of Appeals for the
State of Georgia, (since 1974) and the Supreme Court for the State of Georgia
(since 1974). Mr. Chamberlin is also a member of the Bar for the Eleventh
District Court of Appeals, (since 1982). He is a graduate of Eastern Military
Academy, Huntington, New York (College Prep Diploma, 1964): The Citadel, The
Military College of South Carolina, (B.A., political science, 1968): and the
University of Georgia School of Law, (J.D., 1971). Mr. Chamberlin earned a
Certificate from the American Bankers Association, National Trust School,
(1974). Mr. Chamberlin is a two term former member of the Georgia House of
Representatives, (1979-1983). In the State House, Mr. Chamberlin served on the
Following committees: House Journal Committee, Natural Resources Committee,
Special Judiciary Committee and Labor Committee. He is a former member of the
Counsel for National Policy. He is the founder of the Georgia Roundtable, Inc.,
and served as President from 1981 to 1986.: He is the founder of the Georgia
Heritage Foundation, and served as President from 1982 to 1986. He is the former
Principal of Soul's Harbor Christian Academy, Belleview, Florida, (1990-1992).
Mr. Chamberlin served as National Music Chairman for the Religious Roundtable,
Inc. at the premier event known as the 1992 National Affairs Briefing in Dallas,
Texas wherein President George Bush was the keynote speaker. Mr. Chamberlin has
received Resolutions of Commendation from the House of Representatives for the
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Commonwealth of Kentucky, (1985) and from the House of representatives for the
State of Georgia, (1982). Mr. Chamberlin is former president and director for
Atrieties Development Company, Inc., a publicly held corporation involved in the
real estate industry, (1986 through 1987), and has held licenses as a real
estate agent, (Georgia and Florida). He presently serves as President of the
Citadel Club of Central Florida, Inc. Mr. Chamberlin also serves as President of
Southern Capital Group, Inc., a Florida corporation, ("SCG") with offices in
Belleview and Ocala, Florida. SCG was founded in 1999 to consolidate pre
existing business lines in the automotive and mortgage business. Mr. Chamberlin
is also president and sole director of and majority stockholder in Sports
Collectible Exchange, Inc., a Florida corporation, ("SCE"). SCE was founded in
1999 specializing in the sale and distribution of minor league baseball
collectibles.
Penny L. Adams Field, Director & Audit Committee Chair
Penny Adams Field, age 43, since November, 1998. Serves as a member of the
Registrant's board of directors and chair of its audit committee. Mrs. Field is
a principal and co-founder of Executive Concepts, a management consulting and
investment banking advisory firm. Ms. Field has technical expertise in designing
and implementing financial management systems, acquisition and divestiture
models, cash flow management, information systems assessment and
implementations, and operational and cost system audits. Her background in
strategic planning, performance measurement, comprehensive business planning,
and cost structure analysis add to the breadth and depth of the Executive
Concepts team skills. Ms. Field is an experienced and accredited business
valuation specialist and is a member of the Institute of Business Appraisers.
She serves on numerous not-for- profit and corporate boards. As a management
consultant, Ms. Field has consulted with firms such as Monsanto, Mallinckrodt,
McDonnell-Douglas, MEMC Electronic Materials Company, Maytag, Mark Andy,
CyberTel, and numerous other small firms in the healthcare, manufacturing,
construction, and service industries. Prior to founding Executive Concepts, Ms.
Field was an administrator for the John M. Olin School of Business at Washington
University in St. Louis, where she helped to establish the Executive Programs
division. Her responsibilities included program development in the Far East.
Prior to her administrative role she served as a full-time member of the
accounting faculty instructing in financial accounting and cost management for
undergraduate and graduate programs at the Olin School. Prior to graduate study
at Washington University, Ms. Field worked in healthcare administration and
banking, including positions at Children's Hospital National Medical Center in
Washington, D.C. and Harris Bank in Chicago. After earning a B.B.A. in
Accounting and Finance, Ms. Field earned her M.B.A. from the Olin School of
Business at Washington University in St. Louis. Ms. Field also posted several
hours of Ph.D. level course work in accounting and finance prior to making a
full-time commitment to consulting.
Anthony Q. Joffe, Director
Anthony Q. Joffe, age 57, since November, 1998, serves as a member of
Registrant's board of directors. Mr. Joffe holds a degree in Aeronautical
Engineering Management from Boston University, Boston, Massachusetts. Subsequent
to his graduation, Mr. Joffe was employed as the Quality Control Manager for
Cognitronics Corporation, a computer manufacturer, where he was responsible for
overseeing the U.S. Air Force compliance testing program as well as normal
day-to-day management. In 1967, Mr. Joffe was employed by General Electric as a
production engineer in the insulating materials field. In 1970, Mr. Joffe was
employed by King's Electronics, a RF coaxial connector manufacturer, where he
was responsible for major accounts and guided the field sales force. In 1973,
Mr. Joffe was one of the founders and Vice-President of J.S. Love Associates,
Inc., a commodity brokerage house no longer in operation (then headquartered in
New York City). In 1976, Mr. Joffe formed and served as President and Chief
Operating Officer of London Futures, Ltd., a commodity broker with 275 employees
in nine offices. London Futures, Ltd. was closed in 1979 and Mr. Joffe moved to
Florida. From 1979 until 1986, Mr. Joffe was Vice President of Gramco Holdings,
Inc. (and its predecessor companies), a firm which owned and operated a variety
of companies. These companies included five cemeteries and funeral homes in
Broward County, Florida, a 33 acre marina, a general contracting company, a boat
title insurance underwriting firm, three restaurants, a real estate brokerage
company, a mortgage brokerage company and a leasing company. His
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responsibilities involved supervision of the day-to-day operations and new
business development. From 1986 to 1991, Mr. Joffe served as consultant and/or
principal to a variety of small businesses in the South Florida area. In 1989
Mr. Joffe became President of Windy City Capital Corp., a small publicly traded,
reported company that was originally formed as a "blind pool" for the express
purpose of finding an acquisition candidate. Eventually, a reverse merger was
consummated with a computer software company from Pennsylvania. Mr. Joffe then
took the position of President of Rare Earth Metals, Inc. (and its predecessor
companies), a small publicly traded company which has purchased Spinecare, Inc.,
a medical clinic in New York. Spinecare changed its name to Americare Health
Group and relocated its state domicile to Delaware. Since March of 1993, Mr.
Joffe has performed consulting services for First Commodities, Inc., an Atlanta
based commodities firm, and has been involved in fund raising for the Multiple
Sclerosis Foundation. He also assisted Digital Interactive Associates and IVDS
Partnership with financial affairs in conjunction with their successful bid to
the Federal Communications Commission for licenses in the cities of Atlanta,
Georgia, Minneapolis/St. Paul, Minnesota, and Kansas City, Missouri. Mr. Joffe
served as the interim president of Madison Sports & Entertainment Group, Inc., a
publicly held Utah corporation then headquartered in Fort Lauderdale, Florida,
from September 1, 1994, until February 16, 1994, at which time he became its
vice president and vice chairman, chief operating officer, treasurer and chief
financial officer until he resigned in 1996. Since 1996, he has founded a boat
financing company and joined NorthStar Capital ("NorthStar") as Managing
Director. NorthStar is an investment banking firm with offices in Stamford,
Connecticut and Boca Raton, Florida which specializes in assisting small to mid
size private and publicly traded companies with business and financial planning;
acquisition and divestiture: financial public relations and market position
advice: and, treasury services. In January 1999, Mr. Joffe was elected to serve
as a Director of Colmena Corp, a publicly held Delaware corporation, involved in
the telecommunications industry. In March of 1999, Mr. Joffe was elected as
Chairman of the board of directors and in May of 1999, he was elected as the
President of Colmena Corp.
Edward Granville-Smith, Jr., Director
Edward Granville-Smith, Jr., age 66, served in the following capacities for
the Registrant until November, 1998: president, chief executive officer and sole
director. From November, 1998, until March, 1999, he continued as a member of
the Registrant's board of directors, although he informed the Registrant's board
through his son and attorney in fact, that he was unable to attend board meeting
due to present impairment and disability. Mr. Granville-Smith, Jr., was
President of Equity Growth Systems, Inc., a Maryland corporation (not to be
confused with the Registrant) specializing in structuring and marketing mortgage
backed securities as well as the acquisition of select commercial real estate
for its own account. From 1981 to the present, he has been a real estate
consultant and principal involved in various aspects of commercial real estate
financing and syndication, both internationally and domestically. One primary
accomplishment during this period was the successful sale of the real estate
assets of some twenty-nine limited partnerships to both domestic and foreign
investors. From 1972 through 1980, he was Chairman of the board of directors,
Chief Executive Officer and President of United Equity Corporation, a
corporation which was primarily involved in the structuring, financing and
marketing, through the syndication of various tax incentive ventures with an
aggregate valuation in excess of $100 million. From 1959 through 1972, Mr.
Granville-Smith, Jr. built the Washington Insurance Agency, Inc., and became the
Chairman of one of the top one percent of insurance brokerage houses in the
Washington area. Mr. Granville-Smith, attended Brown University from September,
1951 through June, 1952 at which time he entered the United States Marine Corps.
Upon discharge from the Marine Corps in 1955, he enrolled in the Georgetown
University School of Foreign Service and graduated in June of 1959 with a
B.S.F.S. degree. Mr. Granville-Smith's professional affiliations include CLU and
CPCL.
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Mark Granville-Smith, Director
Mark Granville-Smith, 41 years of age, was elected to the Registrant's
board of director's effective July 1, 1999, to serve until the next annual
meeting of the Registrant's stockholders or until December 31, 1999, whichever
event occurs first. Mr. Granville-Smith graduated from Georgetown University,
Washington, D.C. in 1980 with a bachelor of science degree in business
administration. From 1976 until 1980 he was a commercial pilot for United Bounty
Corporation of Silver Spring, Maryland. In 1980, he went to work in the
commercial real estate syndication industry with his father Edward Granville-
Smith, Jr., the recently retired president, chairman and chief executive officer
of the Registrant. Mr. Mark Granville-Smith served as the president of corporate
general partners in a number of privately placed real estate syndications during
such period, as well as of Milpitas Investors, Inc. ("Milpitas"), the corporate
general partner of a public real estate limited partnership capitalized with
$6,000,000, and of a number of privately placed real estate syndications. In
1986 he also became president of Gran-Mark Properties, Inc., located in McLean,
Virginia, the general partner of Gran-Mark Income Properties Limited
Partnership. In 1987 he left Milpitas and formed his own real estate syndication
company which sponsored private placement syndications of commercial real estate
for two years. Starting in 1989, Mr. Mark Granville-Smith managed an
international underwater diving expedition for Maryland Marine Recovery
Headquarters in Towson, Maryland, to salvage the cargo of an 1850's sailing ship
that sank in the Irish Sea. In 1991, he became chairman of the board and chief
executive officer of Classic Concept Builders, Inc. ("Classic"), a start-up
residential new home construction company. In 1998, he became involved with the
Registrant as a result of his father's decline in health and during September of
1998, was appointed attorney-in-fact for purposes of handling certain personal
and business affairs for his father (then the Registrant's sole director and
chief executive officer). Since December of 1998, he has participated in the
Registrant's board of director's meetings in a non-voting capacity. Mr. Mark
Granville-Smith resigned as a director of the Registrant on September 17, 1999,
for personal reasons.
J. Bruce Gleason, Director & President of American Internet
Mr. Gleason, age 56, was elected to the Registrant's board of directors,
effective as of July 1, 1999, concurrently with the acquisition of American
Internet on June 25, 1999. He co-founded American Internet with Michael D. Umile
in 1998 and serves on the board of directors of American Internet and as its
president, chief executive officer and chief financial officer. He has a diverse
business background with over 30 years experience in sales, marketing and
finance. In 1972 Mr. Gleason received a certified general accounting designation
from the Certified General Accountants Association located in Ontario Canada.
From 1972 until 1974 he was employed by Crawford, Smith & Swallo, a public
accounting firm located in Toronto, Canada. In 1973 he founded Photo Shack,
Inc., an Ontario corporation which owned and operated a chain of seventy, 24
hour film processing kiosks in Canada which he sold in 1976. In 1982, he founded
Gourmet Galley, Inc., and served as president of frozen food distribution in
Pompano Beach, Florida, until 1990, when he sold Gourmet Galley, Inc. to a
partner. In 1990, he co-founded Southern Telco, Inc., a telecommunications
company headquartered in Lighthouse Point, Florida, in which he served as
president. Southern Telco, Inc., was sold to Public Teleco, Inc. in 1993. From
1994 until 1996, he served as president of Showcase Group, Inc., a construction
company headquartered in Deerfield Beach, Florida which built 27 town houses,
after which he conveyed his interest to a third party in 1996. During 1996, he
received a legal expense insurance license from the State of Florida Department
of Insurance and served as an independent associate for Prepaid Legal Services,
Inc. headquartered in Lighthouse Point, Florida, until 1998.
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(B) OTHER MATERIAL EMPLOYEES
In addition to the Registrant's executive officers and directors, the
executive officers and directors of its operating subsidiaries constitute
materially significant employees.
AMERICAN INTERNET
In addition to the Registrant's executive officers and directors, Michael
D. Umile, the vice president and a member of the board of directors of American
Internet should be deemed a significant employee.
Michael D. Umile: Mr. Umile, age 49, serves on the board of directors of
American Internet and as its senior vice president, chief
operating officer and secretary. He has been involved in
sales and marketing for over 30 years. From 1972 until 1975,
he owned an operated Star Towing, Inc., a used car
dealership and towing company located in Farmingdale, New
York and doing business in New York, New Jersey and New
England. From 1977 until 1984, he was a partner in Fantastic
Games, Inc., and Vulcom Amusements, a video game dealership
located in Hicksville, New York. From 1985 until 1988 he was
a co-owner of Phonomatic, Inc., a pay telephone route in New
York with over 180 phones owned outright and 220 additional
phones owned by Mr. Umile and a non-corporate partner. He
served as vice president and general manager of Southern
Telco, Inc., a telecommunications company headquartered in
Lighthouse Point, Florida, from 1991 until it was sold in
1994. From1994 until 1995, he served as Vice-President of
Smoking Joe's, Inc., a restaurant and lounge in Lighthouse
Point, Florida. From 1994 until 1996, he served as vice
president of Showcase Group, Inc., a construction company
headquartered in Deerfield Beach, Florida which built 27
town houses. From 1996 until 1997 he was employed by
Universal Group of South Florida, a general merchandise
marketing company, located in Lighthouse Point, Florida.
YANKEES: While not employees of the Registrant or of any of its
subsidiaries, Yankees provides the Registrant with access to
the services of a number of its employees and access to the
services of other persons who are under independent
contractor arrangements with Yankees, pursuant to which they
provide Yankees' clients with assistance, as required. Among
such persons are Leonard Miles Tucker, Yankees president;
William A. Calvo, III, Yankees vice president; and, Vanessa
H. Lindsey ,Yankees chief administrative officer. In
addition, G. Richard Chamberlin, Esquire, a member of the
Registrant's board of directors and its general counsel,
also serves as general counsel to Yankees and was introduced
to the Registrant by Yankees; Executive Concepts, a business
owned and operated by Penny Adams Field and her husband is
under an independent contractor agreement with Yankees,
pursuant to which they provide Yankees' clients with
assistance, as required, and Mrs. Field, a member of the
Registrant's board of directors and the Chair of its audit
committee was introduced to the Registrant by Yankees;
Securities Counseling & Management, Inc., a Florida
corporation owned and operated by Michael Harris Jordan, the
Registrant's president and a member of its board of
directors is under an independent contractor agreement with
Yankees, pursuant to which it provides Yankees' clients with
assistance, as required, and Mr. Jordan was introduced to
the Registrant by Yankees.
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(C) FAMILY RELATIONSHIPS
There are no family relationships among the current officers and directors
of the Registrant. However, during Mr. Edward Granville-Smith, Jr.'s recent
health problems, his son and attorney-in-fact, Mr. Mark Granville-Smith has
acted as Mr. Granville-Smith's non-voting representative on the Registrant's
board of directors. The Registrant's board of directors elected Mark
Granville-Smith as a Director replacing Edward Granville-Smith, Jr. Neither
currently serves on the Registrant's board of directors.
(D) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Based on information provided to the Registrant's legal counsel, during the
five year period ending on June 30, 1999, no current director, person nominated
to become a director, executive officer, promoter or control person of the
Registrant has been a party to or the subject of:
(1) Any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of
the bankruptcy or within two years prior to that time;
(2) Any conviction in a criminal proceeding or pending criminal proceeding
(excluding traffic violations and other minor offenses);
(3) Any order, judgment, or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities;
or,
(4) Been found by a court of competent jurisdiction (in a civil action),
the Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the
judgment has not been reversed, suspended, or vacated.
(E) SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
As permitted in the instructions to this Item, the Registrant has not
elected to provide disclosure as to delinquent reports filed with the Commission
by any of its officers, directors or 10%+ stockholders, principally due to time
constraints in preparing this report. The Registrant's general counsel is
instituting policies to track compliance with the reporting requirements under
Section 16(a) of the Exchange Act for the year ending June 30, 2000, and expects
to respond to this Item in that report.
ITEM 10 EXECUTIVE COMPENSATION
(A) EXECUTIVE OFFICERS:
During the twenty-four month period commencing on July 1, 1997 and ending
on June 30, 1999, no executive officer received compensation from or on behalf
of the Registrant during any twelve month period valued, in the aggregate, in
excess of $100,000. During the portion of such period starting on July 1, 1997
and ending on November 11, 1998, Edward Granville-Smith, Jr. served as the
Registrant's chief executive officer. In addition, during March of 1999, Mr.
Granville-Smith received 47,000 shares of the Registrant's common stock and all
of the Registrant's real estate operations, in settlement of all potential
claims that Mr. Granville-Smith or his affiliates may have had against the
Registrant, including claims under his employment agreement with the Registrant
in effect since 1995 (see Part I, Item 1, Description of Business and Part III,
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Item 12, Certain Relationships and Related Transactions for details of the
settlement). At the time of their authorization for issuance by the board of
directors (March 22, 1999), the market value for such shares, based on the
closing price reported for the Registrant's common stock on the OTC Bulletin
Board, was $0.25 per share (an aggregate of $11,750 for the 47,000 shares
received). The book value of the Registrant's assets conveyed to Mr.
Granville-Smith by the Registrant, as reported in the Registrant's audited
balance sheet for the year ended December 31, 1998, was approximately $377,275.
During the 12 month period ended June 30, 1999, two persons served as the
Registrant's chief executive officer. Mr. Edward Granville-Smith, Jr. served in
such position during the period starting on July 31, 1998 until his replacement
for health purposes on or about November 11, 1998. Mr. Granville-Smith was
replaced as chief executive officer by Charles J. Scimeca, who served in such
role during the period starting on November 11, 1998 through June 30, 1999.
During the 12 month period ended June 30, 1999, Mr. Granville-Smith
received 47,000 shares of the Registrant's common stock and all of the
Registrant's real estate operations, in settlement of all potential claims that
Mr. Granville-Smith or his affiliates may have had against the Registrant,
including claims under his employment agreement with the Registrant in effect
since 1995 (see Part I, Item 1, Description of Business and Part III, Item 12,
Certain Relationships and Related Transactions for details of the settlement).
At the time of their authorization for issuance by the board of directors (March
22, 1999), the market value for such shares, based on the closing price reported
for the Registrant's common stock on the OTC Bulletin Board, was $0.25 per share
(an aggregate of $11,750 for the 47,000 shares received. The book value of the
Registrant's assets conveyed to Mr. Granville-Smith by the Registrant, as
reported in the Registrant's audited balance sheet for the year ended December
31, 1998, was approximately $377,275. In addition to the foregoing, during such
period Mr. Granville-Smith received the sum of $5,000 from the Registrant as
repayment for unaccounted expenses that Mr. Granville-Smith claimed to make on
behalf of the Registrant, but could not document.
During the 12 month period ended June 30, 1999, Mr. Scimeca received
options to purchase 200,000 shares of the Registrant's common stock, at an
exercise price of $0.02 per share as his only compensation from the Registrant
for services in all capacities. At the time the options were authorized for
issuance by the board of directors (December 11, 1998), the market value for the
shares of the Registrant's common stock, based on the closing price reported
therefor on the OTC Bulletin Board, was $0.06 per share.
During the 12 month period ended June 30, 1999, G. Richard Chamberlin,
Esquire, the Registrant's secretary and general counsel, was the Registrant's
only other officer. During such period, Mr. Chamberlin received the right to
purchase 125,000 shares of the Registrant's common stock, originally granted by
Mr. Granville-Smith, on behalf of the Registrant to Yankees, for an aggregate of
$2,500, and, was subsequently issued and additional 50,000 shares of the
Registrant's common stock in consideration for services that may have been
contemplated when Yankees assigned the rights to the initial 125,000 shares to
Mr. Chamberlin. At the time Yankees relinquished its right to purchase such
common stock in favor of Mr. Chamberlin, no market for the Registrant's common
stock had resumed on the OTC Bulletin Board, and the stockholders equity per
share of the Registrant's common stock, based on the latest available
information at the time, was $0.0625 per share. At the time Mr. Chamberlin was
granted the additional 50,000 shares of the Registrant's common stock (March 24,
1999), the market value for the shares of the Registrant's common stock, based
on the closing price reported therefor on the OTC Bulletin Board, was $0.25 per
share.
Except for Mr. Granville-Smith, during the 12 month period ended June 30,
1999, no officer of the Registrant or of American Internet received aggregate
compensation from the Registrant or on behalf of the Registrant from any other
person, equal to $100,000 or more. However, although not categorizable as
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compensation, Messrs. J. Bruce Gleason and Michael D. Umile, the current
executive officers of the Registrant's American Internet subsidiary, received
748,718 and 734,038 shares of the Registrant's common stock, respectively, in
consideration for all of their common stock in American Internet, on June 25,
1999, which the parties valued at not less than $0.50 per share ($374,359 and
$367,019, respectively).
(B) SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
ANNUAL COMPENSATION AWARDS PAYOUTS
SECURITIES
NAME AND OTHER RESTRICTED UNDERLYING LONG TERM ALL
PRINCIPAL ANNUAL STOCK OPTIONS & STOCK INCENTIVE Other
POSITION YEAR SALARY BONUS COMPENSATION AWARDS APPRECIATION RIGHTS PAYOUTS COMPENSATION
- -------- ---- ------ ----- ------------ ------ ------------------- ------- ------------
(1) 1998 None None None None None None (6)
(1) 1999 None None None None None None (6)
(2) 1999 None None None None 200,000 Shares None None
(3) 1999 None None (7) 50,000 Shares None None None
(4) 1999 None None $ 45,000 (8) None None (9) (10)
(5) 1999 None None $ 54,000 (11) None None (12) (13)
- -------
</TABLE>
(1) Edward Granville-Smith, Jr., president and chief executive officer
during the period beginning on July 1, 1997 and ending on November 11,
1998.
(2) Charles J. Scimeca, president and chief executive officer during the
period beginning on November 11, 1998 and ending on June 30, 1999.
(3) G. Richard Chamberlin, Esquire, secretary and general counsel to the
Registrant during the period beginning on November 11, 1998 and ending
on June 30, 1999.
(4) J. Bruce Gleason, the current president and chief executive officer of
the Registrant's American Internet subsidiary, received 748,718 shares
of the Registrant's common stock in consideration for all of his common
stock in American Internet, on June 25, 1999, which the parties valued
at not less than $0.50 per share ($374,359 in the aggregate).
(5) Michael D. Umile, the current vice president and chief operating
officer of the Registrant's American Internet subsidiary, received
734,038 shares of the Registrant's common stock in consideration for
all of his common stock in American Internet, on June 25, 1999, which
the parties valued at not less than $0.50 per share ($367,019 in the
aggregate).
(6) During the 12 month period ended June 30, 1999, Mr. Granville-Smith
received 47,000 shares of the Registrant's common stock and all of the
Registrant's real estate operations, in settlement of all potential
claims that Mr. Granville-Smith or his affiliates may have had against
the Registrant, including claims under his employment agreement with
the Registrant in effect since 1995 (see Part I, Item 1, Description of
Business and Part III, Item 12, Certain Relationships and Related
Transactions for details of the settlement). At the time of their
authorization for issuance by the board of directors (March 22, 1999),
the market value for such shares, based on the closing price reported
for the Registrant's common stock on the OTC Bulletin Board, was $0.25
per share (an aggregate of $11,750 for the 47,000 shares received. The
book value of the Registrant's assets conveyed to Mr. Granville-Smith
by the Registrant, as reported in the Registrant's audited balance
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sheet for the year ended December 31, 1998, were $ 377,275. In addition
to the foregoing, during the 12 month period ended on June 30, 1998,
Mr. Granville-Smith received the sum of $5,000 from the Registrant as
repayment for unaccounted expenses that Mr. Granville-Smith claimed to
make on behalf of the Registrant, but could not document; and, during
the 12 month period ended on June 30, 1999, Mr. Granville-Smith
received the sum of $5,000 from the Registrant as repayment for
unaccounted expenses that Mr. Granville-Smith claimed to make on behalf
of the Registrant, but could not document.
(7) During November of 1998, Yankees relinquished a portion of its right to
subscribe for shares of the Registrant's common stock (as to 125,000 of
the shares involved) in favor of Mr. Chamberlin. The subscription
rights were relinquished by Yankees as an inducement for Mr. Chamberlin
to serve as a member of the Registrant's board of directors and as its
general counsel for the period during which Yankees was not to receive
hourly or licensing fees under its consulting agreement with the
REGISTRANT (I.E., until November 23, 1999).
(8) Represents distributions of profits from American Internet received by
Mr. Gleason during the period starting on July 1, 1998 and ending on
June 30, 1999. Until June 25, 1999, American Internet was subject to
taxation under Sub-Chapter S of the Internal Revenue Code of 1986, as
amended.
(9) Pursuant to rights granted in conjunction with the Registrant's
acquisition of American Internet, during the five years ending on June
30, 2004, Mr. Gleason will receive up to an additional 2,643,892 shares
of the Registrant's common stock in exchange for his shares of American
Internet common stock, based on American Internet's net, pre-tax
profits during such period (see "Part I, Item 1, Description of
Business").
(10) During the period starting on July 1, 1998 and ending on June 30, 1999,
Mr. Gleason received approximately $4,008 in benefits from American
Internet, involving insurance, health insurance and similar
perquisites.
(11) Represents distributions of profits from American Internet received by
Mr. Umile during the period starting on July 1, 1998 and ending on June
30, 1999. Until June 25, 1999, American Internet was subject to
taxation under Sub-Chapter S of the Internal Revenue Code of 1986, as
amended.
(12) Pursuant to rights granted in conjunction with the Registrant's
acquisition of American Internet, during the five years ending on June
30, 2004, Mr. Umile will receive up to an additional 2,592,054 shares
of the Registrant's common stock in exchange for his shares of American
Internet common stock, based on American Internet's net, pre-tax
profits during such period (see "Part I, Item 1, Description of
Business").
(13) During the period starting on July 1, 1998 and ending on June 30, 1999,
Mr. Umile received approximately $3,276 in benefits from American
Internet, involving insurance, health insurance and similar
perquisites.
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(C) OPTIONS AND STOCK APPRECIATION RIGHTS GRANTS TABLE
<TABLE>
<S> <C> <C> <C> <C>
QUANTITY OF PERCENTAGE OF TOTAL
SECURITIES OPTIONS OR STOCK
UNDERLYING APPRECIATION EXERCISE
OPTIONS & STOCK RIGHTS GRANTED OR BASE
APPRECIATION TO EMPLOYEES PRICE PER EXPIRATION
NAME RIGHTS GRANTED IN FISCAL YEAR SHARE DATE
- ---- -------------- -------------- ----- ----
Edward Granville-Smith, Jr. None None Not Applicable Not Applicable
Charles J. Scimeca 200,000 shares 100% $0.02 December 31, 2000
</TABLE>
(D) AGGREGATED OPTION & STOCK APPRECIATION RIGHT EXERCISES AND FISCAL YEAR-END
OPTIONS & STOCK APPRECIATION RIGHT VALUE TABLE
<TABLE>
<S> <C> <C> <C> <C>
NUMBER OF
SECURITIES
UNDERLYING
OPTIONS & VALUE OF
STOCK UNEXERCISED
APPRECIATION IN-THE-MONEY
SHARES RIGHTS AT OPTIONS & STOCK
ACQUIRED VALUE FISCAL APPRECIATION RIGHTS
NAME ON EXERCISE REALIZED YEAR END AT FISCAL YEAR END
- ---- ----------- -------- -------- ------------------
Edward Granville-Smith, Jr. None None None None
Charles J. Scimeca None None * 200,000 Shares $298,000.00
- -------
</TABLE>
* Mr. Scimeca transferred all of his rights to the Registrant's
securities, including those reflected in this table, to Palmair, Inc.,
a Bahamian corporation, with an address at 55 Frederick Street, Box CB-
13039; Nassau, Bahamas ("Palmair"). Chrisje Gentis-VerMeulen, an
individual with an address at Brouwrij 8; Breukelen (UTR) 3621, The
Netherlands ("Mr. Gentis-VerMeulen"), is listed as the record
stockholder and director of Palmair.
(E) LONG TERM INCENTIVE PLAN AWARDS TABLE
<TABLE>
<S> <C> <C> <C> <C> <C>
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER PERFORMANCE NON-STOCK PRICED BASED PLANS
OF SHARES OR OTHER PERIOD
UNITS OR UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME OTHER RIGHTS OR PAYOUT SHARES SHARES SHARES
- ---- ------------ --------- ------ ------ ------
Edward Granville-Smith, Jr. None None None None None
Charles J. Scimeca None None None None None
J. Bruce Gleason (1) (2) (3) (2) (2)(5)(6) (2) 2,643,892
Michael D. Umile (1) (2) (4) (2) (2)(5)(6) (2) 2,592,054
- --------
</TABLE>
(1) Although the Registrant and Messrs. Gleason and Umile do not believe
that additional shares issuable in exchange for the American Internet
common stock based on its future performance constitute compensation
from the Registrant, but rather, a deferred contingent calculation if
the value of the American Internet common stock, they have elected to
provide the following disclosure in an abundance of caution.
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<PAGE>
(2) The Registrant is required to issue additional shares of its common
stock to Messrs. Gleason and Umile as additional shares exchanged for
the American Internet common stock (the "Additional Exchange Shares"),
predicated on American Internet's attaining the following annual net,
pre-tax profit thresholds determined as of June 30 of each year in
accordance with generally accepted accounting principals, consistently
applied ("GAAP"), as follows:
GOAL TIME FRAME ADDITIONAL EXCHANGE SHARES
(A) $200,000 2000 500,000 Shares; or
$259,000 2000 875,000 Shares;
(B) $500,000 2001 800,000 Shares; or
$559,000 2001 1,175,000 Shares;
(C) $1,000,000 2002 800,000 Shares;
$1,5000,000 2003 800,000 Shares;
$2,000,000 2004 800,000 Shares;
$2,500,000 2005 800,000 Shares.
(3) Mr. Gleason is entitled, on each occasion, to receive
748,718/1,486,736ths of the Registrant's common stock issued.
(4) Mr. Umile is entitled, on each occasion, to receive
734,038/1,486,736ths of the Registrant's common stock issued.
(5) As set forth in the reorganization agreement between the Registrant and
the former stockholders of American Internet, in the event that the
thresholds are not attained and the Registrant has provided American
Internet with at least $250,000 in funding for its operations, then:
(A) If the net, pre tax earnings are less than 33% of the required
threshold during the subject 12 month period, the Additional
Exchange Shares for such period will be forfeited;
(B) If the net, pre tax earnings are between 33% and 80% of the
required threshold during the subject 12 month period, the
Additional Exchange Shares for such period and the required
threshold will be carried over to the next year, increasing
both the aggregate threshold and the aggregate bonus
attainable for such year; and
(C) If the net, pre tax earnings are between 80% and 100% of the
required threshold during the subject 12 month period, the
Additional Exchange Shares for such period will be prorated.
(6) In the event that the thresholds are not attained but the Registrant
has not provided American Internet with at least $250,000 in funding
for its operations, then, the Additional Exchange Shares for such
period will be prorated.
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(F) COMPENSATION OF DIRECTORS
The Registrant does not currently have any standard compensation
arrangements for its directors. However, Yankees has proposed that at such time
as the Registrant has, on a consolidated basis, earned a net, after tax profit
of at least $100,000 per quarter for four calendar quarters, the Registrant
provide the following standard compensation to each director:
* Insurance to cover the Registrant's indemnification obligations, if
available on terms deemed economically reasonable under the
circumstances, which do not materially, detrimentally affect the
Registrant's liquidity at the time.
* Health and life insurance coverage, if available on terms deemed
economically reasonable under the circumstances, which do not
materially, detrimentally affect the Registrant's liquidity at the
time.
* Options under a non-qualified stock option plan similar to that
currently under consideration, in a basic set amount for all directors,
as consideration for their agreement to serve as directors for a period
of one year, subject to forfeiture if they fail to remain as members of
the Registrant's board of directors for such period.
* Options under a non-qualified stock option plan similar to that
currently under consideration, the quantity of which would be based on
the number of meetings of the board of directors or committees thereof
attended, in person (rather than by telephone or other alternative to
in person meetings), and any chairmanships therein held.
* A $500 per diem cash allowance for all meetings or functions attended
at the request of the Registrant for all directors who were not also
officers or employees of the Registrant or its subsidiaries.
During the fiscal year that started on July 1, 1998 and ended on June 30,
1999, the members of the Registrant's board of directors during such times
received the following compensation:
* During November of 1998, Messrs. G. Richard Chamberlin and Anthony Q.
Joffe and Mrs. Penny Adams Field all received the rights to purchase
62,500 shares of the Registrant's common stock at a price $0.02 per
share, which they immediately exercised. The right was originally
granted by the Registrant to Yankees, but was used by Yankees to
recruit Messrs. G. Richard Chamberlin and Anthony Q. Joffe and Mrs.
Penny Adams Field as members of the Registrant's board of directors
for the period during which Yankees was not to receive hourly or
licensing fees under its consulting agreement with the Registrant
(i.e., until November 23, 1999). Mr. Chamberlin was allocated an
additional 62,500 shares based on his agreement to also serve as the
Registrant's secretary and general counsel.
* During November of 1998, Mr. Charles J. Scimeca received an option to
purchase 200,000 shares of the Registrant's common stock at an exercise
price of $0.02 per share, until December 31, 2000. Such option was
granted, without allocation, for his agreement to serve as the
Registrant's acting president, and as a member of the Registrant's
board of directors, as well as consideration for past services to the
Registrant during the tenure of Edward Granville-Smith, Jr. as the
Registrant's sole director, president and chief executive officer.
Page 106
<PAGE>
Neither J. Bruce Gleason nor Mark Granville-Smith received any compensation
for their services as directors of the Registrant, rather, in each case, the
director obtained his membership pursuant to contractual arrangements that
obligated the Registrant to elect them.
As a material subsequent event, Michael Harris Jordan was elected as the
Registrant's president and as a member of its board of directors, effective as
of August 6, 1999. As compensation for all of his roles with the Registrant, Mr.
Jordan was granted the compensation described in the summary of his employment
agreement described below.
(G) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS.
GENERAL:
During the fiscal year that started on July 1, 1998 and ended on June 30,
1999, the Registrant had no employment contracts, termination of employment or
change in control arrangements with any of its executive officers, except:
* Pursuant to Edward Granville-Smith, Jr.'s employment agreement, which
was terminated and settled by mutual agreement, as described in Part I,
Item 1, Description of Business.
* Employment agreements between J. Bruce Gleason and Michael D. Umile and
American Internet, Inc., the wholly owned subsidiary acquired by the
Registrant on June 25, 1999, inherited by the Registrant in conjunction
with such acquisition but modified as to compensation pursuant to an
agreement between the Registrant, American Internet and Messrs. Gleason
and Umile.
In addition, as a material subsequent event, the Registrant has entered
into an employment agreement with Michael Harris Jordan.
SUMMARIES OF CURRENT EMPLOYMENT CONTRACTS:
Edward Granville-Smith, Jr.
The employment agreement with Edward Granville-Smith, Jr. was summarized in
the Registrant's report on Form 10-KSB for the year ended December 31, 1998.
Since it has, in effect, been rescinded, it is no longer material and will not
be included, rather, it is incorporated by reference as permitted by Exchange
Act Rule 12b-23.
Messrs. Gleason and Umile
The employment agreements between American Internet and Messrs. J. Bruce
Gleason and Michael D. Umile were summarized in the Registrant's report on Form
8-K filed by the Registrant on July 12, 1999. They were subsequently modified,
as disclosed in the Registrant's report on Form 8-K filed by the Registrant on
September 9, 1999. The following summary reflects such modifications.
Messrs. Gleason and Umile are parties to employment agreements with
American Internet that expire on June 14, 2004 and which, except for titles and
responsibilities, reflect virtually identical terms. The following summary of
such agreements is qualified in its entirety by reference to the agreements
themselves, which are incorporated by reference as exhibits to this report (see
"Part III, Item 13(a), Exhibits Required by Item 601 of Regulation S-B"):
Page 107
<PAGE>
Term: An initial term of five years, staring on June 15, 1999,
subject to earlier termination as described below and to
ongoing annual renewals unless the party desiring not to
renew provides the other with at least 30 days prior written
notice of intent not to renew.
Compensation: Originally $75,000 per annum, payable bi-monthly, with
increases to $5,000 per year during the 4th and 5th years;
however, it has been reduced by agreement with the
Registrant to $52,000 per year until profits justify an
increase.
Benefits: Three weeks paid vacation during the first three years and
four weeks paid vacation thereafter; reimbursement for
travel and other properly documented business expenses;
participation in health and life insurance plan and in all
other benefits generally available to any other employees
(E.G., retirement plans, profit sharing plans);
Indemnification: Prepayment of all costs, expenses and judgments related to
or provided at the request of American Internet, provided
that representation is by legal counsel selected by the
Registrant and that applicable conflicts of interest are
waived.
Early termination: American Internet can terminate the employment agreements
only, for cause (e.g., the inability through sickness or
other incapacity to discharge duties for ninety or more
consecutive days or for a total of one hundred eighty or
more days in a period of twelve consecutive months; refusal
to follow directions of the board of directors; dishonesty;
theft; or conviction of a crime; material default in the
performance of obligations, services or duties required
under the employment agreement (other than for illness or
incapacity) or materially breach of any provision of the
employment agreement, which continues for twenty days after
written notice if it resulted in material damage);
discontinuance of business; and death. In the event of a
dispute concerning termination due to breach or default,
compensation will be continued until resolution of such
dispute by a tribunal of competent jurisdiction, subject to
repayment upon final determination that such compensation
was not called for.
The employment agreements contain broad confidentiality and non-competition
covenants subject to judicial restructuring if found to be legally unenforceable
which provide for both injunctive relief and liquidated damages. The benefits
are subject to renegotiation if the Registrant effects other acquisitions and
employees of such acquired entities have benefits on more favorable terms.
Michael Harris Jordan
The terms of Mr. Jordan's compensation for services to the Registrant are
set forth in his employment agreement with the Registrant (the "Jordan
Agreement"), a copy of which is incorporated by reference as an exhibit to this
current report, see "Part III, Item 13(a), Exhibits Required by Item 601 of
Regulation S-B." The following summary information extracted from the Jordan
Agreement is qualified in its entirety by reference to the Jordan Agreement.
Page 108
<PAGE>
Duties:
Serve as the Registrant's official spokesman and principal point of
contact between the Registrant and the media (print, electronic, voice
and picture), the investment community and the Registrant's security
holders;
Be responsible for supervision of all of the Registrant's other
officers;
Be responsible for the Registrant's compliance with all applicable
laws, including federal, state and local securities laws and tax laws;
Be responsible for supervision of the Registrant's subsidiaries; and,
Perform such other duties as are assigned to him by the Registrant's
board of directors, subject to compliance with all applicable laws and
fiduciary obligations.
Other Activities:
Mr. Jordan must perform his employment duties in good faith and,
subject to the exceptions specified below, to devote substantially all
of his business time, energies and abilities to the proper and
efficient management and execution of such duties. The other
permissible activities are the rendering of services under the
following pre-existing agreements:
* An agreement with the Southeast Companies, Inc., a Florida
corporation, which has been assigned thereby to Yankees, calling
for Mr. Jordan to provide services thereto and to its clients;
* An agreement to serve as president of Southeast Counseling &
Management, a division of the Southeast Companies, Inc.;
* An agreement to serve as president of Securities Counseling &
Management, Inc., a Florida corporation involved in business
consulting activities;
* An agreement to serve as an officer of Zagreus, Inc., a currently
inactive public company in the process of reorganization; and,
* An agreement to serve as a registered representative and
registered principal with Sunshine Securities Corporation (which
has consented in writing to Mr. Jordan's service as president of
the Registrant).
The Registrant's consent to Mr. Jordan's continuation in such
roles is conditioned on his agreement that his role as the
Registrant's president will take priority in allocation of time
and resources to any activities pertaining to such roles, and
that he will resolve any actual conflicts of interest resulting
from such roles in favor of the Registrant.
Status:
Mr. Jordan will serve as an employee of the Registrant but will have
no authority to act as an agent thereof or to bind the Registrant or
its subsidiaries as a principal or agent thereof without the specific
consent of the Registrant's board of directors, all such functions
being reserved to the board of directors in compliance with the
requirements of its constituent documents.
Page 109
<PAGE>
Limitations:
Mr. Jordan has agreed that he will not:
* Release any financial or other material information or data about
the Registrant without the prior written consent and approval of
the Registrant's general counsel; or, conduct any meetings with
financial analysts without informing the Registrant's general
counsel and board of directors in advance of the proposed meeting
and the format or agenda of such meeting.
* Disclose to any third party any confidential non-public
information furnished by the Registrant except on a need to know
basis, and in such case, subject to appropriate assurances that
such information will not be used, directly or indirectly, in any
manner that would violate state or federal prohibitions on
insider trading of the Registrant's securities.
* Take any action which would in any way adversely affect the
reputation, standing or prospects of the Registrant or which
would cause the Registrant to be in violation of applicable laws.
In any circumstances where Mr. Jordan is describing the
securities of the Registrant to a third party, Mr. Jordan has
agreed to disclose to such person any compensation received from
the Registrant to the extent required under any applicable laws,
including, without limitation, Section 17(b) of the Securities
Act of 1933, as amended.
Term:
The Jordan Agreement is for a term of one year, subject to automatic
annual renewal thereafter unless the Party deciding not to renew
provides the other with written notice of intention not to renew prior
to the 60th day before termination of the then effective term or
renewal thereof.
Compensation:
* An option to purchase up to 100,000 shares of the Registrant's
common stock during the 36 month period commencing at the end of
the 365th day following commencement of the initial term of the
Jordan Agreement, at $0.69 per share, provided that:
A. He remains in the employ of the Registrant for a period
of not less than 365 consecutive days;
B. He has not been discharged by the Registrant for cause;
C. He fully complies with the provisions of the employment
agreement, including, without limitation, the
confidentiality and non-competition sections thereof;
* In the event that Mr. Jordan arranges or provides funding for the
Registrant on terms more beneficial than those reflected in the
Registrant's current principal financing agreements, copies of
which are included among the Registrant's records available
through the SEC's EDGAR web site, Mr. Jordan will be entitled, at
his election, to either:
Page 110
<PAGE>
A. A fee equal to 5% of such savings, on a continuing basis; or
B. If equity funding is provided through Mr. Jordan or any of
his affiliates, a discount of 5% from the bid price for the
subject equity securities if they are issuable as free
trading securities, or, a discount of 25% from the bid price
for the subject equity securities if they are issuable as
restricted securities (as the term restricted is used for
purposes of SEC Rule 144); and
C. If equity funding is arranged for the Registrant by Mr.
Jordan and the Registrant is not obligated to pay any other
source compensation in conjunction therewith (other than the
normal commissions charged by broker dealers in securities
in compliance with the compensation guidelines of the NASD),
Mr. Jordan will be entitled to a bonus in a sum equal to 5%
of the net proceeds of such funding.
* In the event that Mr. Jordan generates business for the
Registrant, then, on any sales resulting therefrom, Mr. Jordan
will be entitled to a commission equal to 5% of the net income
derived by the Registrant therefrom, on a continuing basis.
Benefits:
Mr. Jordan is entitled to any benefits generally made available to all
other employees (rather than to a specified employee or group of
employees) of the Registrant or its subsidiaries.
Indemnification:
The Registrant has agreed to defend, indemnify and hold Mr. Jordan
harmless from all liabilities, suits, judgments, fines, penalties or
disabilities, including expenses associated directly, therewith (e.g.
legal fees, court costs, investigative costs, witness fees, etc.)
resulting from any reasonable actions taken by him in good faith on
behalf of the Registrant, its affiliates or for other persons or
entities at the request of the board of directors of the Registrant,
to the fullest extent legally permitted, and in conjunction therewith,
has agreed that it will assure that all required expenditures are made
in a manner making it unnecessary for Mr. Jordan to incur any out of
pocket expenses; provided, however, that Mr. Jordan permits the
Registrant to select and supervise all personnel involved in such
defense and that Mr. Jordan waives any conflicts of interest that such
personnel may have as a result of also representing the Registrant,
its stockholders or other personnel and agrees to hold them harmless
from any matters involving such representation, except such as involve
fraud or bad faith.
Early termination:
The Registrant can terminate Mr. Jordan's employment agreement only,
for cause (E.G., the inability through sickness or other incapacity to
discharge duties for 21 or more consecutive days or for a total of 45
or more days in a period of twelve consecutive months; refusal to
follow directions of the board of directors; dishonesty; theft; or
conviction of a crime involving moral turpitude; material default in
the performance of obligations, services or duties required under the
employment agreement (other than for illness or incapacity) or
materially breach of any provision of the employment agreement, which
continues for 5 days after written notice, if it resulted in material
damage; discontinuance of business; and death. In the event of a
dispute concerning termination due to breach or default, compensation
will be continued until resolution of such dispute by a tribunal of
competent jurisdiction, subject to repayment upon final determination
that such compensation was not called for.
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<PAGE>
The employment agreements contain broad non-disparagement, confidentiality
and non-competition covenants (subject to judicial restructuring if found to be
legally unenforceable) which provide for both injunctive relief and liquidated
damages.
(H) REPORT OF RE-PRICING OF OPTIONS OR STOCK APPRECIATION RIGHTS
During the period commencing on July 1, 1998 and ending on June 30, 1999
(and during the subsequent period prior to the date of this report), the
Registrant has not adjusted or amended the exercise price of stock options or
stock appreciation rights previously awarded to any of the named executive
officers, whether through amendment, cancellation or replacement grants, or any
other means.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables disclose information concerning ownership of the
Registrant's common stock by officers, directors and principal stockholders
(holders of 5% or more of the Registrant's common stock). All footnotes follow
the second table. The Registrant's currently outstanding shares of common stock,
for purposes of these calculations, are calculated based on information
available as of September 30, 1999, and include both currently outstanding
securities (8,192,384) and securities which a named person has a right to
acquire within 60 days following the date of this report. Consequently, the
number of shares deemed outstanding for purposes of Table A will vary materially
from those deemed outstanding for purposes of Table B.
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of September 30, 1999, the following persons (including any "group")
are, based on information available to the Registrant, beneficial owners of more
than five percent of the Registrant's common stock (its only class of voting
securities). Of the number of shares shown in column 3, the associated footnotes
indicate the amount of shares with respect to which such persons have the right
to acquire beneficial ownership as specified in Commission Rule 13(d)(1), within
60 days following the date of this report. For purposes of this Table,
10,213,752 shares of the Registrant's common stock are assumed to be
outstanding.
Footnotes follow Table B.
Page 112
<PAGE>
Table A
PRINCIPAL STOCKHOLDERS:
<TABLE>
<S> <C> <C> <C>
NAME AND AMOUNT AND
ADDRESS OF NATURE OF PERCENT
TITLE BENEFICIAL BENEFICIAL OF
OF CLASS OWNER OWNERSHIP CLASS
Common The Yankee Companies, Inc. 2,925,015 (2) 28.6%
902 Clint Moore Road, Suite 136
Boca Raton, Florida 33487
Common Edward Granville-Smith, Jr. 962,000 (3) 09.4%
3821-B Tamiami Trail, Suite 201
Port Charlotte, Florida, 33952
Common The Tucker Family 877,500 (4) (2) 08.6%
7359 Ballantrae Court
Boca Raton, Florida 33487
Common Jerry C. Spellman 810,000 (5) 07.9%
2510 Virginia Avenue, NW
Washington, D.C. 20037
Common Palmair, Inc., 650,000 (6) 06.4%
55 Frederick Street, Box CB-13039
Nassau, Bahamas
Common J. Bruce Gleason 622,480 (7) 06.1%
46 Havenwood Drive
Pompano Beach, Florida 33064
Common Michael D. Umile 610,276 (8) 06.0%
210 Oregon Lane
Boca Raton, Florida 33487
Common The Calvo Family 570,500 (9) (2) 05.6%
1941 Southeast 51st Terrace
Ocala, Florida 34471
Common Xcel 415,000 (10) 04.1%
224 MIDDLE ROAD, 2ND Floor
Hazlet, New Jersey 07730
</TABLE>
(B) SECURITY OWNERSHIP OF MANAGEMENT
As of September 30, 1999, the following Table discloses the Registrant's
common stock (the only outstanding class of equity securities for the
Registrant, its parents or subsidiaries held by persons other than the
Registrant) other than directors' qualifying shares, beneficially owned by:
* all directors and nominees, naming them each;
* each of the named executive officers as defined in Item 402(a
of Commission Regulation S-B;
* and all directors and executive officers of the Registrant as
a group, without naming them.
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<PAGE>
The Table shows in column 3 the total number of shares beneficially owned
and in column 4 the percent so owned. Of the number of shares shown in column 2,
the associated footnotes indicate the amount of shares, if any, with respect to
which such persons have the right to acquire beneficial ownership as specified
in Commission Rule 13(d)(1), within 60 days following the date of this report
(none being applicable). For purposes of this Table, 8,192,384 shares of the
Registrant's common stock are assumed to be outstanding (the actual number
currently outstanding). Footnotes for Table A and Table B follow this Table.
@@
Table B
SECURITY OWNERSHIP OF MANAGEMENT:
<TABLE>
<S> <C> <C> <C>
NAME AND AMOUNT
ADDRESS OF OF NATURE OF PERCENT
BENEFICIAL EQUITY BENEFICIAL OF
OWNER (1) OWNED OWNERSHIP CLASS
- ----- --- ----- --------- -----
Michael Harris Jordan None None (11) None
21131 Northeast 24th Court
Miami, Florida 33180
G. Richard Chamberlin 175,000 Record and beneficial (12) 2.1%
4518 Southwest 44TH Lane
Ocala, Florida 34474
Penny Adams Field 62,500 Record and beneficial (13) 0.8%
2424 Longboat Drive
Naples, Florida 34104
Anthony Q. Joffe 62,500 Record and beneficial (13) 0.8%
101 Southeast 11th Avenue
Boca Raton, Florida 33486
J. Bruce Gleason 622,480 Record and beneficial (6) 7.6%
46 Havenwood Drive
Pompano Beach, Florida 33064
Michael D. Umile 610,276 Record and beneficial (7) 7.4%
210 Oregon Lane
Boca Raton, Florida 33487
Mark Granville-Smith 20,000 Beneficial & control (14) 0.2%
10460 Donfries Road, Suite 121
Manassas, Virginia 20110
Charles J. Scimeca None Not applicable (9) 0.00%
320 Island Way, Number 210
Clearwater, Florida 33767
All officers and directors
as a group 1,552,756 Record and beneficial 19.0%
- --------
</TABLE>
FOOTNOTES TO TABLES A AND B.
(1) The only class of the Registrant's outstanding equity securities is common
stock.
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<PAGE>
(2) The Yankee Companies, Inc., a Florida corporation, is owned in equal
shares by members of the Calvo and Tucker families. Consequently, half
of its securities should be attributed beneficially to the Calvo family
and half to the Tucker family. See Notes (4) and (8) for additional
shares attributable to the Tucker and Calvo Families. The shares listed
include 1,806,368 shares representing a hypothetical exercise, as of
September 30, 1999, of Yankees rights under its consulting Agreement
with the Registrant to purchase 10% of the Registrant's outstanding and
reserved common stock (but see "Part II, Item 5, Market for Common
Equity and Related Stockholder Matter" for details concerning the
current computation and "Part III, Item 12, Certain Relationships and
Related Transactions" for a more detailed description of Yankees'
option rights). The total does not include up to 525,000 shares that
Yankees may obtain over the five year period ending on June 30, 2004,
based on American Internet's net pretax profits during such period; or,
shares that it will receive as consideration for the pledge of 35,000
shares of the Registrant's common stock as collateral for a $75,000
loan to American Internet from Xcel, since they are not issuable within
the next 60 days.
(3) Record ownership is held by K. Walker International, Ltd., a
Bahamian corporation.
(4) The Tucker family is comprised of Michelle Tucker, her husband Leonard
Miles Tucker and Shayna and Montana, their minor daughters. Mrs. Tucker
holds 108,750 of the shares in trust for each of her minor daughters
and the balance of the shares are held by Blue Lake Capital Corp., a
Florida corporation owned by Mrs. Tucker. Mr. Tucker serves as the
president of Yankees and he or his family own 50% of its equity
securities, consequently, 50% of the Registrant's securities held or
attributed to Yankees should be attributed to the Tucker family. See
Note (2).
(5) Record ownership is held by Bolina Trading Co., S.A., a Panamanian
corporation, except with reference to 2,701 shares (2400 shares of
record held by Mr. Spellman personally and 301 shares held of record by
First Investment Planning Company). Mr. Spellman is the Managing
Director of Bolina Trading Co., S.A. a/k/a Bolina Trading Corp., S.A.
(6) Palmair, Inc., is a Bahamian corporation, with an address at 55
Frederick Street, Box CB-13039; Nassau, Bahamas ("Palmair"). Chrisje
Gentis-VerMeulen, an individual with an address at Brouwrij 8;
Breukelen (UTR) 3621, The Netherlands ("Mr. Gentis-VerMeulen"), is
listed as the record stockholder and director of Palmair. The shares
listed include an option to purchase 200,000 shares of the Registrant's
common stock at $0.02 per share until December 31, 2000. All such
shares were acquired from Charles J. Scimeca.
(7) Mr. Gleason serves as a member of the Registrant's board of directors
and as the president of its American Internet subsidiary. He obtained
his shares in exchange for shares in American Internet. The total does
not include up to 2,643,892 shares that Mr. Gleason may obtain over the
five year period ending on June 30, 2004, based on American Internet's
net pretax profits during such period.
(8) Mr. Umile serves as the vice president of the Registrant's American
Internet subsidiary. He obtained his shares in exchange for shares in
American Internet. The total does not include up to 2,592,054 shares
that Mr. Umile may obtain over the five year period ending on June 30,
2004, based on American Internet's net pretax profits during such
period.
(9) The Calvo Family is comprised of Cyndi N. Calvo, William A. Calvo, III,
her husband, and their three minor children, William, Alexander and
Edward and the information provided includes all of the shares held by
the Calvo Family Spendthrift Trust, a Florida trust created in February
of 1986, for the benefit of the members of the Calvo Family. Mr. and
Mrs. Calvo serve as trustees. Mr. Calvo serves as the vice president
of Yankees and he and his family collectively own 50% of its equity
securities, consequently, 50% of the Registrant's securities held or
attributed to Yankees should be attributed to the Calvo Family. See
Note (2).
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<PAGE>
(10) Xcel (Xcel Associates, Inc.), is a privately held New Jersey
corporation in which Mr. Edward Whelan serves as president. The shares
reported do not include 1,000,000 shares of the Registrant's common
stock that Xcel has the right to acquire for $0.75 per share pursuant
to an outstanding warrant because the warrant is not expected to be
exercisable within the next 60 days.
(11) Mr. Jordan serves as a director and as the Registrant's president. Does
not include 100,000 shares of the Registrant's common stock that Mr.
Jordan is entitled to purchase pursuant to the terms of his employment
agreement because they are not exercisable within the next 60 days (see
"Part III, Item 10, Executive Compensation").
(12) Mr. Chamberlin serves as a director and as the Registrant's secretary
and general counsel.
(13) Ms. Field and Mr. Joffe serve as members of the Registrant's board of
directors and as members of its audit committee, which Mrs. Field.
(14) Mr. Mark Granville-Smith served as a member of the Registrant's board
of directors from July 1, 1999 until September 17, 1999, when he
resigned for personal reasons. On March 26, 1999, the Registrant issued
20,000 shares of its common stock to the Mark Granville-Smith Trust, in
consideration undefined for consulting and bookkeeping services for the
benefit of Registrant. The shares were issued at the direction of
Edward Granville-Smith, Jr., then the Registrant's sole director and
Mark Granville-Smith's father.
(C) CHANGES IN CONTROL
The Registrant is not aware of any arrangements that may result in a change
in control of the Registrant. However, it notes that a change in control may
result based on the earn out provisions of the American Internet acquisition
pursuant to which an additional 5,250,000 shares may be issued to the former
American Internet stockholders and an additional 525,000 shares may be issued to
Yankees. Additionally, a change in control may result based on a future
acquisition, in light of the Registrant's goal of developing its business
through acquisitions.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) TRANSACTIONS WITH DIRECTORS, NOMINEES FOR ELECTION AS A DIRECTOR, EXECUTIVE
OFFICERS, TEN PERCENT+ STOCKHOLDERS OR THEIR IMMEDIATE FAMILIES
During the period starting on July 1, 1997 and ending on June 30, 1999, the
Registrant was a party to the following transactions in which:
* a director or executive officer of the Registrant,
* a nominee for election as a director,
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<PAGE>
* a beneficial owner of ten percent or more of the Registrant's
common stock, or
* any member of the immediate family of any of the foregoing;
had or will have a direct or indirect interest, and did not involve: rates or
charges determined by competitive bids; services at rates or charges fixed by
law or governmental authority; services as a bank depository of funds, transfer
agent, registrar, trustee under a trust indenture; or, similar services:
<TABLE>
<S> <C> <C> <C>
RELATIONSHIP NATURE OF AMOUNT
TO THE INTEREST IN THE OF SUCH
NAME REGISTRANT TRANSACTION INTEREST
Yankees Ten percent + stockholder Consulting (1)
agreement
Subscription for (2)
common stock
Subscription for (3)
common stock
G. Richard Chamberlin Director & executive Subscription for (4)
officer common stock
Edward Granville-Smith, Jr. Director and ten percent Acquisition of all (5)
plus stockholder of the Registrant's
real estate assets,
grant of common
stock and
reimbursement for
non-documented
expenses.
Charles J. Scimeca Director & executive Grants of common (6)
Officer stock
Charles J. Scimeca Director & executive Grant of Option for (6)
Officer common stock
Anthony Q. Joffe Director & member of Subscription for (7)
the audit committee common stock
Penny Adams Field Director & chairperson of Subscription for (8)
the audit committee common stock
J. Bruce Gleason Director & president of Reorganization (9)
American Internet agreement
J. Bruce Gleason Vice president of Reorganization (9)
American Internet agreement
Yankees & Xcel Stockholders Loan (10)
The Calvo Family Stockholders Proposed loan (11)
- --------
</TABLE>
Page 117
<PAGE>
(1) Pursuant to the terms of its consulting agreement with the Registrant,
Yankees is entitled to the following compensation:
(A) Options to purchase shares of the Registrants outstanding or
reserved common stock (all reserved common stock being treated
as outstanding for purposes of such calculation) equal to 10%
of the Registrant's outstanding or reserved common stock,
immediately following complete exercise of all the options for
an aggregate consideration of $60,000, regardless of the
quantity of common stock involved, the option having been
granted in consideration for Yankees agreement to work with
the Registrant for a period of one year, without payment of
any other fees, other than:
* In the event that Yankees arranges or provides funding for
the Registrant on terms more beneficial than those reflected
in the Registrant's current principal financing agreements
as of November 24, 1998, Yankees will be entitled, at its
election, to either:
1. A fee equal to 25% of such savings, on a
continuing basis; or
2. If equity funding is provided though Yankees
or any affiliates thereof, a discount of 10%
from the bid price for the subject equity
securities, if they are issuable as free
trading securities, or, a discount of 50%
from the bid price for the subject equity
securities, if they are issuable as
restricted securities (as the term
restricted is used for purposes of SEC Rule
144); and
* In the event that Yankees generates business for the
Registrant, then, on any sales resulting therefrom, Yankees
shall be entitled to a commission equal to 10% of the gross
income derived by the Registrant therefrom, on a continuing
basis.
* In the event that Yankees or any affiliate thereof arranges
for an acquisition by the Registrant, then Yankees shall be
entitled to compensation equal to 10% of the compensation
paid for such acquisition, in addition to any compensation
negotiated and received from the acquired entity or its
affiliates. As a result of the American Internet
acquisition, Yankees has received 150,000 shares of the
Registrant's common stock (27,500 shares of which were
distributed to certain of Yankees employees for services
provided to the Registrant) and may receive up to an
additional 525,000 shares, based on American Internet's
performance over the next five years.
(B) After the initial year, the Registrant is required to pay
Yankees the sum of $5,000 per month, ON OR BEFORE THE 25TH of
each month, throughout the balance of the consulting agreement
or any renewals thereof, the first such payment to be tendered
by the Registrant on or before December 25, 1999; however,
in light of the Registrant's requirement for cash in order
to fund its acquisitions program, Yankees has indicated a
willingness to renegotiate its compensation for services
after November 24, 1999, by accepting additional common
stock, options and extensions of the current options'term on
a long term basis. No negotiations have yet been concluded
and Yankees has not provided specific details concerning its
offer.
Page 118
<PAGE>
Edward Granville-Smith, Jr., then the Registrant's sole director,
determined that the terms of the consulting agreement with Yankees were
fair and reasonable under the circumstances since, in light of his
failing health and the Registrant's minimal financial resources, the
Registrant would have had to terminate its operations and would have
lost its assets, were it not for Yankees willingness to recruit new
directors and management, provide emergency capital and agree to work
without charging hourly billing rates or document licensing fee for a
period of one year.
(2) Prior to the time Yankees was formally retained by the Registrant
(November 24, 1998), it had already commenced providing services to the
Registrant at the request of Edward Granville-Smith, Jr., then the
Registrant's sole executive officer and director, and had been granted
the right by the Registrant to purchase 1,750,000 shares of the
Registrant's common stock for $35,000 in emergency capital required by
the Registrant's as a result of its materially poor economic status at
the time. Yankees assigned the right to purchase 250,000 of such shares
for an aggregate of $5,000 to three persons who agreed to serve as
members of the Registrant's board of directors without further
compensation for a period equal to that during which Yankees provided
its services to the Registrant, without payment of cash fees (as
described in note 1). The directors involved where Messrs. Joffe and
Chamberlin and Ms. Field. Because Mr. Chamberlin also agreed to serve
as the Registrant's secretary and general counsel during such period on
the same terms, he received the right to subscribe for twice as many
shares as Mr. Joffe and Mrs. Field.
(3) Yankees has purchased $27,500 in shares of the Registrant's common
stock in a transaction originally structured as a placement of
convertible debentures but restructured by the Registrant, with the
consent of all of the subscribers, as a private placement of common
stock. Because of its favorable subscription rights under its
consulting agreement with the Registrant, Yankees subscription price
was $0.25 per share, rather than the $0.50 per share applicable to
other subscribers.
(4) Mr. Chamberlin served as legal counsel to the Registrant in conjunction
with the preparation and filing of its reports on Form 10-KSB for the
years ended December 31, 1996 and 1997. In November of 1998, he was
asked by Yankees to serve as a member of the Registrant's board of
directors and as its secretary and general counsel and in consideration
for his agreement to serve in such capacities, he was granted Yankees'
right to purchase 125,000 shares of the Registrant's common stock for
an aggregate of $2,500. At the time that Yankees relinquished such
rights in favor of Mr. Chamberlin, there was no public market for the
Registrant's securities. In addition, the Registrant subsequently
issued Mr. Chamberlin an additional 50,000 shares of the Registrant's
common stock pursuant to the terms of a retainer agreement that was not
consistent with the intent of Yankees in assigning the initial
subscription rights to Mr. Chamberlin.
(5) During the 24 month period ended June 30, 1999, Mr. Granville-Smith
received 47,000 shares of the Registrant's common stock and all of the
Registrant's real estate operations, in settlement of all potential
claims that Mr. Granville-Smith or his affiliates may have had against
the Registrant, including claims under his employment agreement with
the Registrant in effect since 1995 (see Part I, Item 1, Description of
Business). The book value of the Registrant's assets conveyed to Mr.
Page 119
<PAGE>
Granville-Smith by the Registrant, as reported in the Registrant's
audited balance sheet for the year ended December 31, 1998, were
$377,275. The Registrant's board of directors did not feel that the
transaction was fair to the Registrant, since Mr. Granville-Smith and
Jerry C. Spellman, an associate of Mr. Granville-Smith refused to
return any of the shares they had received for originally transferring
the real estate operations to the Registrant (see "Part I, Item 1,
Description of Business"); however, the board of directors determined
that under the circumstances, the settlement with Mr. Granville-Smith
was in the best interest of the Registrant. In addition to the
foregoing, since July 1, 1997, Mr. Granville-Smith has received the
aggregate sum of $5,000 from the Registrant as repayment for
unaccounted expenses that Mr. Granville-Smith claimed to have made on
behalf of the Registrant, but could not document. Certain of those
payments were a condition to Mr. Granville-Smith's agreement to enter
into the settlement agreement with the Registrant.
(6) Mr. Scimeca served as the Registrant's secretary until November of
1998, and from approximately November 11, 1998 until August 6, 1999, he
served as a member of the Registrant's board of directors and as its
acting president. Prior to July 1, 1997, Mr. Scimeca received 300,000
shares of the Registrant's common stock at the direction of Edward
Granville-Smith, Jr., at the time the Registrant's sole director and
its president and chief executive officer, for undocumented services on
behalf of the Registrant. 150,000 additional shares were issued to Mr.
Scimeca, at the direction of Mr. Granville-Smith, on or about March 26,
1998, as a bonus in consideration for his unsuccessful efforts to find
acquisition candidates for the Registrant and "for good office
representation to the public." On or about December 9, 1998, the
Registrant's newly elected board of directors, of which Mr. Scimeca was
a member, granted him options to purchase an additional 200,000 shares
of the Registrant's common stock on or before December 31, 2000, at an
exercise price of $0.02 per share as his only compensation from the
Registrant for services as acting president and as a member of its
board of directors, and in fulfillment of promises that Mr. Scimeca
claimed Mr. Granville-Smith had made but had not complied with at the
time Mr. Granville-Smith served as the Registrant's sole director.
(7) In November of 1998, Mr. Joffe was asked by Yankees to serve as a
member of the Registrant's board of directors and as a member of its
audit committee and in consideration for his agreement to serve in such
capacities, he was granted Yankees' right to purchase 62,500 shares of
the Registrant's common stock for an aggregate of $1,250, at a time
when the bid price for the Registrant's common stock was $0.0625 per
share.
(8) In November of 1998, Mrs. Field was asked by Yankees to serve as a
member of the Registrant's board of directors and as the chairperson of
its audit committee and in consideration for her agreement to serve in
such capacities, she was granted Yankees' right to purchase 62,500
shares of the Registrant's common stock for an aggregate of $1,250, at
a time when the bid price for the Registrant's common stock was $0.0625
per share.
(9) Messrs. Gleason and Umile were the holders of more than 95% of the
common stock of American Internet at the time that the Registrant
acquired it on June 25, 1999, in exchange for 2,225,000 shares of its
common stock (subsequently reduced by agreement to 1,225,000 shares)
and the potential future issuance of an additional 4,500,000 shares of
the Registrant's common stock (subsequently increased by agreement to
5,250,000) based on American Internet's performance over the next five
years.
(10) Xcel has loaned American Internet $75,000, a portion of which
($23,000) was used to repay the Registrant for certain recent advances
pending exercise of the Xcel Warrant. The Registrant issued Xcel
15,000 shares of its common stock in lieu of interest and Yankees
pledged 35,000 shares of its common stock as collateral. The
Registrant and American Internet have agreed to indemnify Yankees in
the event that the pledged collateral is retained by Xcel as a result
of American Internet's failure to comply with its obligations under
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<PAGE>
the proposed note or for any other reason, indemnification to be at
the election of Yankees either in securities of the Registrant
selected by Yankees, based on Yankees' rights to discounts under its
consulting agreement with the Registrant or in cash, and in either
case, such indemnification would include an amount payable as
consideration for the use of the collateral in a sum equal to the
closing offer price of the Registrant's common stock on the date of
the note multiplied by 3,500 (representing 10% of the value of the
transaction).
(11) The Registrant's board of directors has formally asked the Calvo Family
to consider selling a portion of its common stock in the Registrant
that is eligible for resale under Commission Rule 144 and to loan the
proceeds derived from such sale, after payment of resulting taxes, to
the Registrant in the form of a convertible debenture designed to
prevent the Calvo Family from losing any potential increase in the
price of the Registrant's common stock, while also protecting their
loan in the event such price decreases. The Calvo family has responded
that it will agree to such transaction, provided that it obtains
assurances from special legal counsel to the Registrant (other than the
Registrant's general counsel) that such transaction is structured so
that it does not violate applicable securities laws including
restrictions under Section 16(a) of the Exchange Act, prohibitions on
insider trading, and that it does not create the appearance that the
Calvo Family is engaged in "pump and dump" activities. The Registrant
expects that such transaction will be effected within five business
days after the filing by the Registrant of a periodic or current report
under the Exchange Act in order to avoid insider trading prohibitions,
pursuant to a policy recommended by Yankees to the Registrant for
general application to the Registrant's officers, directors and others
with access to material inside information.
(B) PARENTS OF THE REGISTRANT
As defined in Rule 405 of Commission Regulation C, a "parent" of a
specified person is an affiliate controlling such person directly, or indirectly
through one or more intermediaries. The same rule defines an affiliate as a
person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, the person specified.
Based on such definitions, the Registrant does not believe that it has any
"parents." However:
* The five persons currently holding the largest amount of the
Registrant's outstanding common stock (8,192,384 shares being
outstanding as of September 30, 1999), listed in order of
quantity held, are: Yankees (1,118,674 shares); Edward
Granville-Smith, Jr. (962,000 shares); the Tucker Family (877,500
shares); Jerry C. Spellman (810,000 shares); and, J. Bruce
Gleason (622,480 shares).
* The five persons who would hold the largest amount of the
Registrant's outstanding common stock if all shares that they may
potentially obtain under currently existing agreement were
outstanding (approximately 18,063,368 shares being presumed
outstanding for such purpose), listed in order of quantity held,
would be: J. Bruce Gleason (3,266,372); Michael D. Umile
(3,202,330 shares); Yankees (3,200,623); Edward Granville-Smith,
Jr. (962,000 shares); and, the Tucker Family (877,500 shares).
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* If Messrs. Gleason's and Umile's shares were combined based on
the assumption that they would act in concert (the "American
Internet Group") and the shares belonging to Yankees, the Tucker
Family and the Calvo Family were aggregated based on the
assumption that they would act in concert (the "Yankees Group"),
then the American Internet Group would hold 6,468,702 of the
approximately 18,063,680 shares which would be outstanding, and
the Yankees Group would hold 4,648,623 of such shares. The
Registrant has been informed that there are no direct or indirect
arrangements or understandings between the members of the
"American Internet Group" and the members of the "Yankees Group"
(no such groupings actually existing) to act in concert for
purposes of controlling the Registrant. Notwithstanding such
position, in the event that the Registrant engaged on a course of
action that any of the foregoing stockholders found unacceptable,
like any other stockholder, it is likely that they would seek to
protect their interests in the Registrant through available
stockholder action, including derivative litigation or
stockholder resolutions, in which case it is probable that two or
more of the foregoing stockholders would act in concert for such
purposes.
* Yankees has recruited all of the Registrant's current officers
and directors pursuant to its duties under its consulting
Agreement with the Registrant. However, Yankees and the
Registrant's officers and directors have confirmed to the
Registrant's general counsel (who also serves as Yankees' general
counsel) that Yankees does not exercise any control over the
Registrant's officers or directors other than through persuasion
when its personnel advocate a course of action or recommend
personnel or potential acquisitions to the Registrant's board of
directors, and, through Yankees willingness in the past to
provide funds required by the Registrant.
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS REQUIRED BY ITEM 601OF REGULATION S-B
The exhibits listed below and designated as filed herewith (rather than
incorporated by reference) follow the signature page in sequential order.
DESIGNATION PAGE
OF EXHIBIT NUMBER
AS SET FORTH OR SOURCE OF
IN ITEM 601 OF INCORPORATION
REGULATION S-B BY REFERENCE DESCRIPTION
(1) * Underwriting Agreement
(2) Plan of acquisition, reorganization,
arrangement, liquidation or succession:
.7 (2)-1 Settlement agreement with Edward Granville-
Smith
.11 (2)-2 Rescission agreement between Ascot and
American Internet
.12 (2)-3 Reorganization agreement with American
Internet
.13 (2)-4 First amendment to reorganization agreement
with American Internet
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(3) (i) Articles of incorporation:
.1 (3)-1 Registrant's certificate of incorporation,
as of December 8, 1964
.2 132 Amendment to Registrant's certificate of
incorporation, dated July 5, 1995.
.3 (3)-2 Amendment to Registrant's certificate of
incorporation, dated July 7, 1999.
(ii) (3) Bylaws:
3.2 (3)-3 Registrant's bylaws, as amended
(4) Instruments defining the rights of holders
including indentures:
.1 (4)-1 Form of class A, series A, subordinated
convertible debentures
.2 (4)-1 Form of subscription agreement to class A,
series A, subordinated convertible
debentures
.3 134 Letter agreement between the Registrant
and the subscribers for class A, series A,
subordinated convertible debentures,
changing the subscription to a
subscription for common stock
.4 136 Xcel Warrant Agreement
(5) * Opinion re: legality
(8) * Opinion re: tax matters
(9) Voting trust agreement
.1 (9)-1 Lock-up and voting agreement
.2 141 First amendment to lock-up and voting
agreement
(10) Material Contracts [since June 30, 1997]
.3 (10)-1 Employment Agreement with Edward Granville
-Smith
.13 (10)-2 Settlement between Registrant, Diversified
and Trustee.
.14 (10)-3 Assignment of Deed of Trust: L29160.
.15 (10)-3 Assignment of Leases and/or Rents L29161.
.16 (10)-3 Assignment of Tripartite Agreement L29162.
.17 (10)-3 Agreement: First Ken-Co with San Safe
dated Oct 20, 1997.
.18 (10)-3 Statement of Unanimous Consent by Ken-Co
Properties.
.19 (10)-3 General Warranty Deed dated October 20,
1997, Kansas property.
.20 (10)-3 Termination of Memorandum of Lease, Kansas
property (7)
.21 (10)-3 Mutual Release dated October 20, 1997.
.22 (10)-4 Subscription agreements with new
subscribers and new officers and directors
.23 (10)-4 Consulting agreement with The Yankee
Companies, Inc.
.24 (10)-4 Recent Settlements and Releases with
creditors.
.26 (10)-4 Stock Purchase Option Agreement with Mr.
Scimeca.
.27 (10)-5 Calvo Settlement Agreement
Page 123
<PAGE>
DESIGNATION PAGE
OF EXHIBIT NUMBER
AS SET FORTH OR SOURCE OF
IN ITEM 601 OF INCORPORATION
REGULATION S-B BY REFERENCE DESCRIPTION
.29 150 Engagement agreement for 1998 audit with
Bowman & Bowman, P.A., certified public
accountants.
.30 (10)-6 Calvo amended settlement agreement, dated
February 18, 1999.
.31 (10)-6 Consulting Agreement with Funds America
Finance Corporation, dated May 7, 1999.
.32 (10)-7 Registrant's engagement agreement with
Daszkal, Bolton & Manela, P.A., certified
public accountants, dated July 9, 1999.
.33 (10)-8 American Internet employment agreement
with J. Bruce Gleason.
.34 (10)-9 American Internet employment agreement
with Michael D. Umile.
.35 (10)-10 Registrant's employment agreement with
Carmen Piccolo.
.36 (10)-11 Distributor agreement between American
Internet and Education to Go, dated August
4, 1998.
.37 (10)-12 Michael Harris Jordan employment agreement
.38 152 Xcel and American Internet Promissory Note
.39 153 Loan Guarantee and Indemnification
Agreement between Xcel Associates, Inc.
and The Yankee Companies, Inc.
(11) (11) Statement re computation of per share
earnings
(13) * Annual or quarterly reports, Form 10-QSB:
(15) * Letter on unaudited interim financial
information
(16) Letter on change in certifying accountant
.1 (16)-1 Letter from Baum & Company re 1998 audit
change.
.2 (16)-2 Letter from Bowman & Bowman re 1999 audit
change.
(17) Letter on director resignation:
.2 (17)-1 Charles J. Scimeca
.3 165 Mark Granville-Smith
(18) ** Letter re change in accounting principals
(19) * Reports furnished to security holders
(20) ** Other documents or statements to security
holders or any document incorporated by
reference
(21) (21) Subsidiaries of the Registrant
(22) ** Published report regarding matters
submitted to vote
Page 124
<PAGE>
DESIGNATION PAGE
OF EXHIBIT NUMBER
AS SET FORTH OR SOURCE OF
IN ITEM 601 OF INCORPORATION
REGULATION S-B BY REFERENCE DESCRIPTION
(23) Consent of experts and counsel
.1 166 Consent of Baum & Company re audit for
year ending December 31, 1997
.2 167 Consent of Bowman & Bowman re audit for
year ending December 31, 1998
.3 168 Consent of Daszkal, Bolton & Manela, P.A.
Certified Public Accountants re audit for
short year ending June 30, 1999
(24) ** Power of attorney
(25) * Statement re eligibility of trustee
(26) * Invitation for competitive bids
(27) 169 Financial data schedule
(99) Additional Exhibits
.10 (99)-1 Letter to David Albright, Esq. dated
December 18, 1997.
.12 (99)-2 Letter to David Albright, Esq. dated
April 22, 1998. (9)
.13 (99)-3 Letter to David Albright, Esq. dated
May 28, 1998. (9)
.39 (99)-4 Lawrence S. Benjamin Settlement Agreement
.41 (99)-5 Letter from Bowman and Bowman, P.A. to
SEC dated August 2, 1999.
.42 (99)-6 Letter from Bowman and Bowman confirming
cessation of client- auditor relationship
dated August 2, 1999.
.43 (99)-7 Letter from Penny Adams Field to G.
Richard Chamberlin, Esq. dated August 13,
1999.
.44 (99)-8 Cover letter and enclosure represented
to have been faxed to Bowman and Bowman
from Penny Adams Field.
.45 (99)-9 Letter from The Yankee Companies, Inc. to
G. Richard Chamberlin dated August 9,1999
.48 (99)-10 Stock option Plan
- -------
* Not applicable
** None
Page 125
<PAGE>
(2)-1 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Part III, Item 13(a), Exhibits," from exhibit 2.4 filed with the
Registrant's report on Form 10-KSB for the year ended December 31,
1998.
(2)-2 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 2.7 filed with the
Registrant's report on Form 8-K filed with the Commission on July 12,
1999.
(2)-3 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 2.8 filed with the
Registrant's report on Form 8-K filed with the Commission on July 12,
1999.
(2)-4 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 10.40 filed with the
Registrant's report on Form 8-K filed with the Commission on September
9, 1999.
(3)-1 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Part III, Item 13(c), Exhibits," from the correspondingly
numbered exhibit filed with the Registrant's report on Form 10- KSB for
the year ended December 31, 1991.
(3)-2 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from the correspondingly numbered exhibit
filed with the Registrant's report on Form 8-K filed with the
Commission on July 12, 1999.
(3)-3 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Part II, Item 6, Exhibits," from the correspondingly numbered
exhibit filed with the Registrant's report on Form 10- QSB for the
quarter ended September 30, 1998.
(4)-1 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 4.11 and 4.12 filed with the
Registrant's report on Form 8-K filed with the Commission on July 12,
1999.
(9)-1 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 10.33 filed with the
Registrant's report on Form 8-K filed with the Commission on July 12,
1999.
(10)-1 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 13(c), Exhibits," from the correspondingly numbered exhibit
filed with the Registrant's report on Form 10-KSB/A for the year ended
December 31, 1994.
(10)-2 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7, Exhibits," from the correspondingly numbered exhibit
filed with the Registrant's report on Form 8-K filed with the
Commission on September 9, 1997.
(10)-3 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 13(c), Exhibits," from the correspondingly numbered exhibit
filed with the Registrant's report on Form 10-KSB for the year ended
December 31, 1996.
Page 126
<PAGE>
(10)-4 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 6, Exhibits," from the correspondingly numbered exhibit
filed with the Registrant's report on Form 10-QSB for the period ended
September 30, 1998, filed with the Commission on December 17, 1998.
(10)-5 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from the correspondingly numbered exhibit
filed with the Registrant's report on Form 8-K filed with the
Commission on March 5, 1998.
(10)-6 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 13(a), Exhibits," from the correspondingly numbered exhibit
filed with the Registrant's report on Form 10-KSB for the year ended
December 31, 1998, filed with the Commission on May 26, 1999.
(10)-7 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 10.34 filed with the
Registrant's report on Form 8-K filed with the Commission on July 12,
1999.
(10)-8 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 10.35 filed with the
Registrant's report on Form 8-K filed with the Commission on July 12,
1999.
(10)-9 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 10.35 filed with the
Registrant's report on Form 8-K filed with the Commission on July 12,
1999.
(10)-10 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 10.36 filed with the
Registrant's report on Form 8-K filed with the Commission on July 12,
1999.
(10)-11 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 10.37 filed with the
Registrant's report on Form 8-K filed with the Commission on July 12,
1999.
(10)-12 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 10.39 filed with the
Registrant's report on Form 8-K filed with the Commission on August 24,
1999.
(11) Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from " Part II, Item 7, Note 2 of Financial Statements for the
Registrant" of this report, at page 66.
(16)-1 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from Item 4 of the Registrant's report on Form 8-K/A filed with the
Commission on April 4, 1999.
(16)-2 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from Item 4 of the Registrant's report on Form 8-K filed with the
Commission on August 18, 1999.
(17)-1 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from Item 7(c) of the Registrant's report on Form 8-K filed with the
Commission on August 24, 1999.
Page 127
<PAGE>
(21) Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Additional Information," at page 131.
(99)-1 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Part III, Item 13(a), Exhibits," from exhibit 99.6, of the
Registrant's report on Form 10-KSB for the year end December 31, 1996,
filed with the Commission on January 15, 1998.
(99)-2 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Part III, Item 13(a), Exhibits," from exhibit 99.8 filed with the
Registrant's report on Form 10-KSB for the year ended December 31,
1997, filed with the Commission on July 1, 1998.
(99)-3 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Part III, Item 13(a), Exhibits," from exhibit 99.9 filed with the
Registrant's report on Form 10-KSB for the year ended December 31,
1997, filed with the Commission on July 1, 1998.
(99)-4 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 99.37 filed with the
Registrant's report on Form 8-K filed with the Commission on July 12,
1999.
(99)-5 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 99.39 filed with the
Registrant's report on Form 8-K filed with the Commission on August 18,
1999.
(99)-6 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 99.40 filed with the
Registrant's report on Form 8-K filed with the Commission on August 18,
1999.
(99)-7 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 99.41 filed with the
Registrant's report on Form 8-K filed with the Commission on August 18,
1999.
(99)-8 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 99.42 filed with the
Registrant's report on Form 8-K filed with the Commission on August 18,
1999.
(99)-9 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 99.43 filed with the
Registrant's report on Form 8-K filed with the Commission on August 18,
1999.
(99)-10 Incorporated by reference, as permitted by Exchange Act Rule 12b-23,
from "Item 7(c), Exhibits," from exhibit 10.38 filed with the
Registrant's report on Form 8-K filed with the Commission on August 24,
1999.
Page 128
<PAGE>
(B) REPORTS ON FORM 8-K FILED DURING QUARTER ENDED JUNE 30, 1999
During the calendar quarter ended June 30, 1999, the Registrant filed
the following reports on Form 8-K with the Commission:
FINANCIAL
ITEMS REPORTED STATEMENTS INCLUDED DATE FILED
4 (amendment) None April 2, 1999
As material subsequent events, the Registrant filed the following
reports on Form 8-K with the Commission after June 30, 1999:
<TABLE>
<S> <C> <C>
FINANCIAL
ITEMS REPORTED STATEMENTS INCLUDED DATE FILED
- -------------- ------------------ ----------
1, 2, 4, 5, 7 and 8 None July 12, 1999
4 and 7 (amendments) None August 18, 1999
5, 6 and 7 None August 24, 1999
5, 6 and 7 (amendment) None September 9, 1999
4 and 7 (amendment) None September 9, 1999
2 and 7 (amendment) American Internet Technical Center, Inc. September 9, 1999
April 15, 1998 to December 31, 1998 audited
and pro forma statements as required by
Regulation S-B as a result of its
acquisition on June 25, 1999.
</TABLE>
Page 129
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, as amended, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERINET GROUP.COM, INC.
October 18, 1999
BY: /S/ MICHAEL HARRIS JORDAN /s/
Michael Harris Jordan
President & Director
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the Registrant and in the capacities indicated:
/S/ G. RICHARD CHAMBERLIN, ESQUIRE /s/
G. Richard Chamberlin, Esquire
Director, Secretary and General Counsel
/S/ PENNY ADAMS FIELD /s/
Penny Adams Field
Director; Chair, Audit Committee
/S/ ANTHONY Q. JOFFE /s/
Anthony Q. Joffe
Director, Member, Audit Committee
/S/ J. BRUCE GLEASON /s/
J. Bruce Gleason
Director, President, American Internet
Dated October 18, 1999
Page 130
<PAGE>
ADDITIONAL INFORMATION
AMERINET GROUP.COM, INC.
REGISTRANT
CORPORATE HEADQUARTERS:
902 Clint Moore Road, Suite 136-C; Boca Raton, Florida 33487
Telephone Number: (561) 998-3435; Facsimile Transmission (561) 998-3425
E-MAIL [email protected]
President: Michael Harris Jordan; Secretary & General Counsel;
G. Richard Chamberlin, Esquire
------
OFFICERS
Michael Harris Jordan
G. Richard Chamberlin, Esquire
Penny Adams Field (audit committee chairperson)
Anthony Q. Joffe (audit committee member)
J. Bruce Gleason
------
BOARD OF DIRECTORS
SUBSIDIARY:
AMERICAN INTERNET TECHNICAL CENTER, INC.
A Florida Corporation
440 East Sample Road, Suite 204; Pompano Beach, Florida 33056
Telephone (954) 943-4748; Fax (954) 943-4046
Web Site and E-mail www.aitc.net
INDEPENDENT PUBLIC ACCOUNTANTS:
DASZKAL, BOLTON & MANELA, P.A.
240 West palmetto Park Road, Suite 300; Boca Raton, Florida 33432
Telephone (561) 367-1040: Facsimile Transmission (561) 750-3236;
E-mail [email protected]
TRANSFER AGENT:
LIBERTY TRANSFER COMPANY
191 New York Avenue, Huntington, New York 11743
Telephone (516)-385-1616: Facsimile Transmission (516) 385-1619
Exhibits to the Form 10-KSB are available on the Securities and Exchange
Commission's web site located at www.sec.gov in the EDGAR archives, on the
Registrant's website located at www.amerinetgroup.com and will be provided
subject to payment of copying and transport charges to stockholders of the
Registrant upon written request addressed to Michael Harris Jordan, President;
AmeriNet Group.com, Inc.; 902 Clint Moore Road, Suite 136-C; Boca Raton, Florida
33487.
THE SECURITIES AND EXCHANGE COMMISSION has not approved or disapproved of
this Form 10-KSB and Annual Report to Stockholders nor has it passed upon its
accuracy or adequacy.
Page 131
Certificate of Amendment to
Certificate of Incorporation
This Certificate of Amendment to Certificate of Incorporation is
executed by the undersigned duly authorized corporate officers of Infotec, Inc.,
who, being duly sworn, do hereby certify as follows:
WITNESSETH:
FIRST: That the board of directors of the Corporation, pursuant to a written
consent in lieu of directors meeting executed effective as of the 4th day of
April, 1995 [as authorized by Section 141(f) of the General Corporation Law of
the State of Delaware] and heretofore filed among the records of the
Corporation, adopted a resolution proposing and declaring advisable amendments
to the Corporation's certificate of incorporation, as follows:
(a) Changing the name of the Corporation to:
Equity Growth Systems, inc.
(b) Changing the Corporation's authorized capitalization (it being more
than ten days after the Corporation filed the notification required by
Securities and Exchange Commission Rule 10b-17 with the National Association of
Securities Dealers, Inc.), as follows:
"The authorized capital of the Corporation shall be divided into shares of
capital stock, as follows:
(1) The 2,000,000 shares of common stock, $0.001 par value
currently authorized, all of which are currently outstanding, shall be reverse
split into 200,000 shares, $0.01 par value; and, immediately thereafter;
(2) The Corporation's authorized common stock will be
increased from 200,000 shares, $0.01 par value, to 20,000,000 shares of common
stock, $0.01 value; and
(3) The Corporation shall be authorized to issue 5,000,000
shares of preferred stock, $0.01 par value, the attributes of which are to be
determined by resolution of the Corporation's Board of Directors from time to
time, prior to issuance, in conformity with the requirements of Sections 151 of
the Delaware General Corporation Law."
SECOND: That in lieu of a meeting and vote of stockholders, the holders of
1,018,106 of the 2,000,000 shares of the Corporation's capital stock
outstanding, gave written consent to said amendment, effective as of May 18,
1995, in accordance with the provisions of Section 228 of the General
Corporation Law of the State of Delaware; that the stockholders who did not
participate in such written consent have been provided with written notice of
the actions taken thereby; and, that the written consent has been heretofore
filed among the Corporation's records.
Page 132
<PAGE>
THIRD: That the aforesaid amendment was duly adopted in accordance with the
applicable provisions of Sections 242, 141(f) and 228 of Title 8 the Delaware
Code of 1953, as amended.
FOURTH: That the capital of the Corporation will not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, Infotec, Inc., a Delaware corporation, has caused this
certificate to be signed by Edward Granville-Smith, its president and secretary,
effective as of the 5th day July, 1995.
Infotec, Inc.
By: /s/ Edward Granville-Smith
Edward Granville-Smith
President
[CORPORATE SEAL]
Attest: /s/ William A. Calvo, III
William A. Calvo, III
Acting Assistant Secretary
Page 133
AmeriNet Group.com, Inc.
A publicly held Delaware corporation
Michael Harris Jordan
President & Chief Executive Officer
G. Richard Chamberlin, Esquire
Secretary & General Counsel
Michael Harris Jordan
G. Richard Chamberlin
Anthony Q. Joffe
Penny L. Adams Field
Mark Granville-Smith
J. Bruce Gleason
- ------
Board of Directors
American Internet Technical Center, Inc.
-------
Operating Subsidiary
440 East Sample Road, Suite 204
Pompano Beach, Florida 33056
Telephone (954) 943-4748
Fax (954) 943-4046
Web site and e-mail www.aitc.net
1941 Southeast 51st Terrace
Ocala, Florida 34471
Telephone (352) 694-6714
Fax (352) 694-9178
e-mail, [email protected]
902 Clint Moore Road, Suite 136
Boca Raton, Florida 33487
Telephone (561) 998-3435
Fax (561) 998-3425
e-mail [email protected]
Please respond to Boca Raton address
September 27, 1999
Mr. Jonathan Eichner
20533 Biscayne Boulevard, Suite 409
Aventura, Florida 33180
Ms. Debra Elenson
476 South Parkway
Miami, Florida 33160
Ms. Evelyn Coletti
1980 South Ocean Drive
Hallandale, Florida 33009
The Yankee Companies, Inc.
902 Clint Moore Road, Suite 136
Boca Raton, Florida 22487
Re: Restructuring of AmeriNet Group.com, Inc. ("AmeriNet") Class A, Series
A, Subordinated, Convertible Debenture Offering in Reliance on Section
4(6) of the Securities Act
Page 134
<PAGE>
Ladies & Gentlemen:
This letter confirms your agreement, at AmeriNet's request, to
restructure the above referenced offering in which the four of you constitute
all of the subscribers, by changing it from an offering of debentures to an
offering of the shares of common stock into which the debentures are
convertible.
Upon execution of this letter agreement, we have all agreed to treat
the original subscription agreements as amended to reflect the foregoing change
as if it had been effected on the original date of the subscription agreements.
Consequently, the holding period of the common stock that is to be issued will,
for purposes of Commission Rule 144, be deemed to be the date of the original
subscription agreement.
Please return the form of warrant issued to you to G. Richard
Chamberlin, Esquire, AmeriNet's general counsel immediately, at his direct Ocala
office address: 1941 Southeast 51st Terrace; Ocala, Florida 34471, upon receipt
of which he will instruct AmeriNet's transfer agent to immediately issue your
common stock.
Your cooperation in this matter is greatly appreciated.
Very truly yours,
AmeriNet Group.com, Inc.
Michael Harris Jordan
President
MHJ/wac
Copies: G. Richard Chamberlin, Esquire
Liberty Transfer Co., Inc.
The foregoing is hereby agreed to and accepted, as of the date first
above set forth:
The Yankee Companies, Inc.
/s/ Leonard M. Tucker /s/ Debra Elenson /s/ Evelyn Coletti
Leonard Miles Tucker Jonathan Eichner Debra Elenson Evelyn Coletti
President
Page 135
WARRANT AGREEMENT
THIS AGREEMENT, made as of this 7th day of September 1999, by and
between AmeriNet Group.com Inc., a Delaware corporation having its principal
place of business located at 902 Clint Moore Road, Suite 136, Boca Raton,
Florida 33487 (the "Company"), and Xcel Associates, Inc., a New Jersey
corporation having its principal office at 224 Middle Road, 2nd Floor, Hazlet,
New Jersey 07730, a consultant to the Company (the "Warrant Holder").
W I T N E S S E T H:
WHEREAS, the Company has determined to sell to the Warrant Holder for
the sum of $10,000, and the Warrant Holder desires to purchase from the Company,
a warrant (the "Warrant") to purchase up to 1,000,000 shares of the Company's
Common Stock, par value $.01 per share ("Common Stock"), on terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the payment to the Company by the
Warrant Holder of $10,000, the receipt of which is hereby acknowledged, the
parties agree as follows:
1. Grant of Warrant.
Subject to all terms and conditions of this Agreement, the Company hereby
grants to the Warrant Holder a Warrant to purchase all or any part of an
aggregate of one million (1,000,000) shares (the "Shares") of Common Stock
at a purchase price of $0.75 per share.
2. Registration of Shares; Expiration.
(a) The Company shall file with the Securities and Exchange Commission
(the "Commission") within 45 days following the filing of its Annual
Report on Form 10-KSB for the year ended June 30, 1999, and shall use
its best efforts to cause to become effective, a registration
statement on Form SB-2, Form S-3 or other appropriate form (the
"Registration Statement") relating to the Shares.
Page 136
<PAGE>
(b) Subject to Section 2(c) hereof, the Warrant will expire as to 500,000
of the Shares (the "Initial Shares") at 6:00 p.m., New York City time,
on the 60th day following the effective date of the Registration
Statement (the "Effective Date"), and as to the remaining 500,000
Shares on the 120th day following the Effective Date; provided,
however, that if the Warrant to acquire the Initial Shares is not
exercised by the Warrant Holder in full, the Warrant will expire as to
all Shares at 6:00 p.m., New York City time, on the 60th day following
the Effective Date.
(c) If not already expired pursuant to the provisions of Section 2(b)
hereof, the Warrant shall expire as to all Shares at 6:00 p.m., New
York City time, on December 31, 2000 (the "Expiration Date").
3. Exercise of Warrant.
The Warrant may be exercised, in whole or in part, as to any Shares at
any time prior to the Expiration Date or the earlier termination of the
Warrant with respect to such Shares; provided, however, that the
Warrant must be exercised in each case in increments of not less than
50,000 Shares. If the Warrant is not exercised to the maximum extent
permissible, it shall be exercisable, in whole or in part (in
increments of not less than 50,000 shares), with respect to all Shares
not so purchased at any time prior to the Expiration Date or the
earlier termination of the Warrant.
4. Payment of Purchase Price Upon Exercise.
The Warrant granted under this Agreement may be exercised in whole or
in part by delivering or mailing to the Company at its principal
office, or such other place as the Company may designate in writing to
the Warrant Holder, written notice of exercise duly signed by the
Warrant Holder. Such exercise shall be effective upon (a) receipt by
the Company of such written notice and (b) payment to the Company of
the full purchase price in cash.
5. Issuance and Delivery.
The Warrant Holder's written notice to the Company shall state the
number of Shares with respect to which the Warrant is being exercised
and specify a date, not less than five (5) or more than fifteen (15)
days after the date of the mailing of such notice, on which the Shares
will be taken and payment made therefor. On the date specified in the
notice of exercise, the Company shall deliver, or cause to be
delivered, to the Warrant Holder (or its representative, as the case
may be) stock certificates for the number of Shares with respect to
which the Warrant is being exercised, against receipt of payment
therefor. Certificates evidencing the Shares issued upon exercise of
the Warrant may contain such legends reflecting any restrictions upon
transfer of the Shares evidenced thereby as in the opinion of counsel
to the Company may be necessary for the lawful and proper issuance of
such certificates. Delivery of the Shares may be made at the office of
the Company or at the office of a transfer agent appointed for the
transfer of shares of Common Stock.
Page 137
<PAGE>
6. Transferability.
The Warrant shall be transferable on the books of the Company only upon
delivery thereof duly endorsed by the Warrant Holder or by its
authorized attorney or legal representative. The Company shall have no
obligation to cause the Warrant to be transferred on its books to any
person if, in the opinion of counsel to the Company, such transfer does
not comply with the applicable provisions of all applicable federal and
state laws, rules and regulations.
7. No Rights as a Shareholder.
Neither the Warrant Holder nor its legal representative shall be, nor
have any of the rights or privileges of, a shareholder of the Company
in respect of any of the Shares, unless and until certificates
representing such Shares shall have been issued and delivered to the
Warrant Holder (or its representative).
8. Adjustment.
(a) In case, prior to the expiration of the Warrant by exercise or by its
terms, the Company shall issue any shares of its Common Stock as a
stock dividend or subdivide the number of outstanding shares of Common
Stock into a greater number of shares, then, in either of such cases,
the purchase price per share of the Shares issuable upon exercise of
the Warrant in effect at the time of such action shall be
proportionately reduced and the number of Shares at that time
purchasable pursuant to the Warrant shall be proportionately
increased; and conversely, in the event the Company shall contract the
number of outstanding shares of Common Stock by combining such shares
into a smaller number of shares, then, in such case, the purchase
price per share of the Shares issuable upon exercise of the Warrant in
effect at the time of such action shall be proportionately increased
and the number of Shares at that time purchasable pursuant to Warrant
shall be proportionately decreased. Any dividend paid or distributed
upon the Common Stock in stock of any other class of securities
convertible into shares of Common Stock shall be treated as a dividend
paid in Common Stock to the extent that shares of Common Stock are
issuable upon the conversion thereof.
Page 138
<PAGE>
(b) In case, prior to the expiration of the Warrant by exercise or by its
terms, there shall be a recapitalization, whether by reorganization,
reclassification or otherwise, of the capital of the Company, or the
Company or a successor corporation shall be consolidated or merge with
or convey all or substantially all of its or of any successor
corporation's property and assets to any other corporation or
corporations (any such corporation being included within the meaning
of the term "successor corporation" in the event of any consolidation
or merger of any such corporation with, or the sale of all or
substantially all of the property of any such corporation to, another
corporation or corporations), in exchange for stock or securities of a
successor corporation, the Warrant Holder shall thereafter have the
right to purchase upon the terms and conditions and during the time
specified in this Agreement, in lieu of the Shares theretofore
purchasable upon the exercise of the Warrant, the kind and amount of
shares of stock and other securities receivable upon such
recapitalization or consolidation, merger or conveyance by a holder of
the number of shares of Common Stock which the Warrant Holder might
have purchased immediately prior to such recapitalization or
consolidation, merger or conveyance.
9. Compliance with Law and Regulations.
The Warrant and the obligation of the Company to sell and deliver
Shares hereunder shall be subject to all applicable federal and state
laws, rules and regulations and to such approvals by any governmental
or regulatory agency as may be required. The Company shall not be
required to issue or deliver any certificates for Shares prior to (i)
the listing of such Shares on any stock exchange on which the Common
Stock may then be listed and (ii) the completion of any registration or
qualification of such Shares under any federal or state law, or any
rule or regulation of any government body which the Board of Directors
of the Company shall, in its sole discretion, determine to be necessary
or advisable. Moreover, the Warrant may not be exercised if its
exercise or the receipt of Shares pursuant thereto, would be contrary
to applicable law.
10. Investment Representation.
The Board of Directors of the Company may require the Warrant Holder to
furnish to the Company, prior to the issuance of any Shares upon the
exercise of the Warrant, an agreement (in such form as the Board of
Directors may specify) in which the Warrant Holder represents that the
Shares acquired by the Warrant Holder upon exercise are being acquired
for investment and not with a view to the sale or distribution thereof.
12. Notices.
Any notice hereunder to the Company shall be addressed to it at
AmeriNet Group.com Inc., 902 Clint Moore Road, Suite 136, Boca Raton,
Florida, 33487, Attention: Michael Harris Jordon, President; and any
notice hereunder to the Warrant Holder shall be addressed to it at
Xcel Associates, Inc., 224 Middle Road, 2nd Floor, Hazlet, New Jersey
07730, Attention: Edward T. Whelan, President; subject to the right of
either party to designate at any time hereafter in writing some other
address.
Page 139
<PAGE>
13. Governing Law.
This Agreement shall be interpreted, and the rights and liabilities of
the parties hereto determined, in accordance with the internal laws of
the State of Delaware, without regard to the conflicts of law
principles thereof.
14. Counterparts.
This Agreement may be executed in two counterparts each of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have signed this Agreement as of
the date and year first above written.
AmeriNet Group.com Inc.
By: /s/ Michael Harris Jordan
Michael Harris Jordan, President
Xcel Associates, Inc.
By: /s/ Edward T. Whelan
Edward T. Whelan, President
Page 140
First Amendment to Lock-Up & Voting Agreement
This First Amendment to Lock-Up & Voting Agreement (the "Amendment" and
the "Agreement," respectively) is made and entered into by and among AmeriNet
Group.com, Inc., a Delaware corporation formerly operating as Equity Growth
Systems, inc., with a class of securities registered under Section 12 of the
Securities Exchange Act of 1934, as amended ("AmeriNet" and the "Exchange Act,"
respectively) and the officers directors and principal stockholders of AmeriNet
made signatories to this Amendment (the "Holding Company's Principals"),
AmeriNet and AmeriNet's Principals being sometimes hereinafter collectively
referred to as the "Parties" and each being sometimes hereinafter generically
referred to as a "Party").
Preamble:
WHEREAS, AmeriNet and AmeriNet's Principals entered into the Lock-Up &
Voting Agreement in order to induce Messrs. Michael D. Umile ("Mr. Umile") and
J. Bruce Gleason ("Mr. Gleason"), both Florida residents (collectively
hereinafter referred to as "Messrs. Umile & Gleason"), as the principal
stockholders, officers and directors of American Internet Technical Centers,
Inc., a Nevada corporation originally organized as Ascot Industries, Inc. (the
"Target Company"), to enter into and close on an acquisition agreement with
AmeriNet (the "Reorganization Agreement"), as a result of which American
Internet Technical Center, Inc., a Florida corporation ("American") became a
wholly owned subsidiary of AmeriNet; and
WHEREAS, Messrs. Edward Granville-Smith, Joseph D. Radcliffe and Jerry
C. Spellman, on their own behalf or on behalf of their respective principals
(the "Petitioning Group") have requested an amendment to the Agreement, to
permit them to sell an aggregate of 400,000 shares of AmeriNet common stock (the
"Excepted Shares"), to a group of investors who have indicated that they would
become actively involved in assisting AmeriNet and American, if the Petitioning
Group sold them the Exempted Shares; and
WHEREAS, in conjunction with an amendment to the Reorganization
Agreement has been effected by Messrs. Umile & Gleason and AmeriNet, which
affects certain of the voting provisions of the Agreement, and should also be
reflected in an amendment thereto; and
WHEREAS, AmeriNet, American, Messrs. Umile & Gleason and AmeriNet's
Principals are agreeable to such transaction and such amendments:
NOW, THEREFORE, in consideration of the premises, as well as the mutual
covenants hereinafter set forth, the Parties, intending to be legally bound,
hereby amend the Agreement as follows:
Witnesseth:
First Voting Agreements
The provisions of Item First of the Agreement (the "Voting Agreements")
are here by amended as follows, but except as specifically amended hereby, will
remain in full force and effect:
"b. Designees of the Subscribers are elected to at least one half
of the seats on the Target Company's Board of Directors."
Page 141
<PAGE>
Second: Stock Lock-Up Agreements
The provisions of Item Second of the Agreement (the "Lock-Up
Agreements") are here by amended as follows, but except as specifically amended
hereby, will remain in full force and effect:
Notwithstanding anything in the Agreement to the contrary, the
following persons may sell an aggregate of 400,000 of AmeriNet common
stock in the proportions indicated below to Xcel Associates, Inc., a
New Jersey corporation, or its designees, at a price of $0.375 per
share; provided that such sales are concluded prior to September
30,1999:
A. Jerry C. Spellman on his own behalf and on behalf of his
affiliates, 84,000 shares;
B. Edward Granville-Smith on his own behalf and on behalf of his
affiliates, 110,000 shares;
C. The Radcliffe Group (Joseph D. Radcliffe, on his own behalf and
on behalf of his affiliates; Dennis V. Radcliffe, on his own
behalf and on behalf of his affiliates; Michael J. Radcliffe, on
his own behalf and on behalf of his affiliates; and, Vanessa
Radcliffe, on her own behalf and on behalf of her affiliates),
206,000 shares;
D. Notwithstanding anything in this Agreement to the contrary,
nothing in this Agreement shall be interpreted as an agreement by
the Petitioning Group to engage in any concerted or group
activities involving AmeriNet's common stock, as determined for
purposes of Commission Rule 144, or Sections 13, 14 or 16 of the
Exchange Act.
Page 142
<PAGE>
Third: Miscellaneous
3.1 Amendment.
No modification, waiver, amendment, discharge or change of this
Amendment shall be valid unless the same is evinced by a written instrument,
subscribed by the Party against which such modification, waiver, amendment,
discharge or change is sought.
3.2 Notice.
(a) All notices, demands or other communications given hereunder shall be
in writing and shall be deemed to have been duly given on the first
business day after mailing by United States registered or unaudited
mail, return receipt requested, postage prepaid, addressed as follows:
To AmeriNet's Principals (other than The Yankee Companies, Inc.
["Yankees"]):
At such addresses as they provide AmeriNet's transfer agent for such
purpose, with a copy to G. Richard Chamberlin, Esquire (at the address
set forth below), who is hereby appointed by each of AmeriNet's
Principals, as his, her or its authorized agent for purposes of
initialing each page of this Amendment, and as a supplemental recipient
of notices.
To AmeriNet:
AmeriNet Group.com, Inc.
902 Clint Moore Road, Suite 136; Boca Raton, Florida 33487
Telephone (561) 998-4635, Fax (561) 998-3425; and, e-mail
[email protected]; Attention: Michael Harris
Jordan, President; with a copy to
G. Richard Chamberlin, Esquire; General Counsel
AmeriNet Group.com, Inc.
14950 South Highway 441; Summerfield, Florida
34491 Telephone (352) 694-6714, Fax (352) 694-9178; and,
e-mail, [email protected].
To Yankees:
The Yankee Companies, Inc.
902 Clint Moore Road, Suite 136; Boca Raton, Florida 33487
Telephone (561) 998-2025, Fax (561) 998-3425; and,
e-mail [email protected];
Attention: Leonard Miles Tucker, President; with a copy to
The Yankee Companies, Inc.
1941 Southeast 51st Terrace; Ocala, Florida 34471
Telephone (352) 694-9179, Fax (352) 694-9178; and,
e-mail [email protected]
Attention: William A. Calvo, III, Vice President
or such other address or to such other person as any Party shall
designate to the other for such purpose in the manner hereinafter set
forth.
Page 143
<PAGE>
(b) (1) The Parties acknowledge that Yankees serves as a strategic
consultant to AmeriNet and has acted as scrivener for the Parties
in this transaction but that Yankees is neither a law firm nor an
agency subject to any professional regulation or oversight.
(2) Because of the inherent conflict of interests involved, Yankees
has advised all of the Parties to retain independent legal and
accounting counsel to review this Amendment and its exhibits and
incorporated materials on their behalf.
(3) This Agreement shall not be construed differently, or more or
less stringently against or in favor of any Party, based on its
authorship.
3.3 Merger.
This instrument, together with the instruments referred to herein,
contains all of the understandings and agreements of the Parties with respect to
the subject matter discussed herein. All prior agreements whether written or
oral are merged herein and shall be of no force or effect, except for the
Agreement, as modified hereby, which is hereby confirmed and reaffirmed.
3.4 Survival.
The several representations, warranties and covenants of the Parties
contained herein shall survive the execution hereof and the Closing hereon and
shall be effective regardless of any investigation that may have been made or
may be made by or on behalf of any Party.
3.5 Severability.
If any provision or any portion of any provision of this Amendment,
other than one of the conditions precedent or subsequent, or the application of
such provision or any portion thereof to any person or circumstance shall be
held invalid or unenforceable, the remaining portions of such provision and the
remaining provisions of this Amendment or the application of such provision or
portion of such provision as is held invalid or unenforceable to persons or
circumstances other than those to which it is held invalid or unenforceable,
shall not be affected thereby.
3.6 Governing Law.
This Amendment shall be construed in accordance with the substantive
and procedural laws of the State of Delaware (other than those regulating
taxation and choice of law) but any proceedings pertaining directly or
indirectly to the rights or obligations of the Parties hereunder shall, to the
extent legally permitted, be held in Broward County, Florida.
3.7 Indemnification.
Each Party hereby irrevocably agrees to indemnify and hold the other
Parties harmless from any and all liabilities and damages (including legal or
other expenses incidental thereto), contingent, current, or inchoate to which
they or any one of them may become subject as a direct, indirect or incidental
consequence of any action by the indemnifying Party or as a consequence of the
failure of the indemnifying Party to act, whether pursuant to requirements of
this Amendment or otherwise. In the event it becomes necessary to enforce this
indemnity through an attorney, with or without litigation, the successful Party
shall be entitled to recover from the indemnifying Party, all costs incurred
including reasonable attorneys' fees throughout any negotiations, trials or
appeals, whether or not any suit is instituted.
Page 144
<PAGE>
3.8 Litigation.
(a) In any action between the Parties to enforce any of the terms of this
Amendment or any other matter arising from this Amendment, the
prevailing Party shall be entitled to recover its costs and expenses,
including reasonable attorneys' fees up to and including all
negotiations, trials and appeals, whether or not litigation is
initiated.
(b) In the event of any dispute arising under this Amendment, or the
negotiation thereof or inducements to enter into the Amendment, the
dispute shall, at the request of any Party, be exclusively resolved
through the following procedures:
(1) (A) First, the issue shall be submitted to mediation
before a mediation service in Broward County, Florida
to be selected by lot from six alternatives to be
provided, two by Yankees as agent for AmeriNet's
Principals, one by AmeriNet and three by the
Subscribers acting by majority vote (based on their
relative stock ownership in AmeriNet).
(B) The mediation efforts shall be concluded within ten
business days after their initiation unless the
Parties unanimously agree to an extended mediation
period;
(2) In the event that mediation does not lead to a resolution of
the dispute then at the request of any Party, the Parties
shall submit the dispute to binding arbitration before an
arbitration service located in Broward County, Florida to be
selected by lot, from six alternatives to be provided, two by
Yankees as agent for AmeriNet's Principals, one by AmeriNet
and three by the Subscribers acting by majority vote (based on
their relative stock ownership in AmeriNet).
(3) (A) Expenses of mediation shall be borne by AmeriNet,
if successful. Expenses of mediation, if unsuccessful
and of arbitration shall be borne by the Party or
Parties against whom the arbitration decision is
rendered.
(B) If the terms of the arbitral award do not establish a
prevailing Party, then the expenses of unsuccessful
mediation and arbitration shall be borne equally by
the Parties.
3.9 Benefit of Amendment.
The terms and provisions of this Amendment shall be binding upon and
inure to the benefit of the Parties, their successors, assigns, personal
representatives, estate, heirs and legatees.
Page 145
<PAGE>
3.10 Captions.
The captions in this Amendment are for convenience and reference only
and in no way define, describe, extend or limit the scope of this Amendment or
the intent of any provisions hereof.
3.11 Number and Gender.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular or plural, as the identity of the Party or
Parties, or their personal representatives, successors and assigns may require.
3.12 Further Assurances.
The Parties agree to do, execute, acknowledge and deliver or cause to
be done, executed, acknowledged or delivered and to perform all such acts and
deliver all such deeds, assignments, transfers, conveyances, powers of attorney,
assurances, stock certificates and other documents, as may, from time to time,
be required herein to effect the intent and purpose of this Amendment.
3.13 Status.
Nothing in this Amendment shall be construed or shall constitute a
partnership, joint venture, employer-employee relationship, lessor-lessee
relationship, or principal-agent relationship.
3.14 Counterparts.
(a) This Amendment may be executed in any number of counterparts. All
executed counterparts shall constitute one Amendment notwithstanding
that all signatories are not signatories to the original or the same
counterpart.
(b) Execution by exchange of facsimile transmission shall be deemed legally
sufficient to bind the signatory; however, the Parties shall, for
aesthetic purposes, prepare a fully executed original version of this
Amendment, which shall be the document filed with the Commission.
3.15 License.
(a) This Amendment is the property of Yankees and the use hereof by the
Parties is authorized hereby solely for purposes of this transaction.
(b) The use of this form of Amendment or of any derivation thereof without
Yankees' prior written permission is prohibited.
Page 146
<PAGE>
In Witness Whereof, the Parties have caused this Amendment to be
executed effective as of the date last set forth below.
Signed, sealed and delivered
In Our Presence:
AmeriNet Group.com, Inc.
- ---------------------------------
_________________________________ By: /s/ Michael H. Jordan
Michael Harris Jordan, President
(Corporate Seal)
Attest: /s/ G. Richard Chamberlin
G. Richard Chamberlin, Secretary
Dated: September 7, 1999
AmeriNet's Principals:
- ---------------------------------
_________________________________
/s/ Charles J. Scimeca
Stockholder
Dated: August 30, 1999
- ---------------------------------
_________________________________ /s/ Anthony Q. Joffe
Director and Stockholder
Dated: September 7, 1999
- ---------------------------------
_________________________________ /s/ Penny Adams Field
Director and Stockholder
Dated: September __, 1999
- ---------------------------------
_________________________________ /s/ G. Richard Chamberlin
Officer, Director and Stockholder
Dated: September 7, 1999
Page 147
<PAGE>
- ---------------------------------
_________________________________ /s/ Mark Granville-Smith
Director and Stockholder, on his own
behalf and as attorney-in-fact for his
father, Edward Granville-Smith
Dated: September __, 1999
- ---------------------------------
_________________________________ /s/ E. Granville-Smith
Stockholder
on his own behalf and on
behalf of his affiliates
Dated: August 29, 1999
- ---------------------------------
_________________________________ /s/ Jerry C. Spellman
Stockholder on his own behalf
and on behalf of his affiliates
Dated: September __, 1999
- ---------------------------------
_________________________________ /s/ Cyndi N. Calvo
Cyndi N. Calvo, on her own behalf
and as a trustee for the Calvo
Family Spendthrift Trust, Stockholders
Dated: September 7, 1999
- ---------------------------------
_________________________________ /s/ William A. Calvo, III
William A. Calvo, III, on his own behalf
and as a trustee for his children, William,
Alexander & Edward, Stockholders
Dated: September 7, 1999
- ---------------------------------
_________________________________ /s/ Leonard M. Tucker
Leonard Miles Tucker, on his
own behalf and on behalf of
Carrington Capital Corp., Stockholders
Dated: September 7, 1999
- ---------------------------------
Page 148
<PAGE>
- ---------------------------------
_________________________________ /s/ Michelle Tucker
Michelle Tucker, on her own behalf,
on behalf of Blue Lake Capital Corp.,
and as a trustee for her children
Shayna and Montana, Stockholders
Dated: September 7, 1999
- ---------------------------------
_________________________________ /s/ Joseph D. Radcliffe
Joseph D. Radcliffe, on his own behalf
and on behalf of his affiliates, Stockholder
Dated: September __, 1999
- ---------------------------------
_________________________________ /s/ Dennis V. Radcliffe
Dennis V. Radcliffe, on his own behalf
and on behalf of his affiliates, Stockholder
Dated: September __, 1999
- ---------------------------------
_________________________________ /s/ Michael J. Radcliffe
Michael J. Radcliffe, on his own behalf
and on behalf of his affiliates, Stockholder
Dated: September __, 1999
- ---------------------------------
_________________________________ /s/ Vanessa Radcliffe
Vanessa Radcliffe, on her own behalf
and on behalf of her affiliates, Stockholder
Dated: September __, 1999
The Yankee Companies, Inc.
- ---------------------------------
_________________________________ By: /s/ Leonard M. Tucker
Leonard Miles Tucker, President
(Corporate Seal)
Attest: /s/ William A. Calvo, III
William A. Calvo, III, Secretary
Dated: September 7, 1999
Page 149
Bowman & Bowman, P.A.
Certified Public Accountants
1705 Colonial Blvd., Suite D- I
Fort Myers, Florida 33907
(941) 939-2301
(941) 939-1297 (Fax)
March 5, 1999
To the President Equity Growth Systems Inc.
320 Wand Way, Suite 210
Clearwater, FL 33767 P- 2
This letter is to confirm our understanding of the terms and objectives of our
engagement and the nature and limitations of the services we will provide.
We will perform the following services:
We will audit the balance sheets of Equity Growth Systems, Inc. as of December
31, 1998 and the related statements of operations, shareholders equity,, and
cash flows for the year then ended for the purpose of expressing an opinion as
to the fairness of the presentation of the financial statements.
Our examination will be conducted in accordance with generally accepted auditing
standards and will include such tests and procedures as we think are needed. The
examination will be directed to commenting on the fairness of presentation of
the financial statements as a whole in conformity with generally accepted
accounting principles.
An examination directed to the expression of an opinion on the financial
statements is not primarily or specifically designed, and cannot be relied
upon.'to disclose defalcations or other similar irregularities should any exist,
although their discovery may result.
Our report on the financial statements if presently expected to read as follows:
We have audited the accompanying balance sheets of Equity Growth Systems Inc. as
of December 31, 1998 and the related statements of operations, shareholders
equity, and cash flows for the year then ended- These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
Page 150
<PAGE>
In our opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of Equity Growth Systems Inc. As of
December 31, 1998 and the results of its operations and cash flows for the year
then ended in conformity with generally accepted accounting principles.
If we provide comparative information ie December 31, 1997 data, this will be
considered "reaudited information" and we would most likely find the same
restriction as your prior auditors regarding the evaluation of pending or
threatened litigation and therefore issue an except for qualified opinion as was
filed with your 1997 10-K.
We will need your full cooperation in providing us a release of information
letter from your prior auditor.
Our fees are estimated not to exceed $5,000. A billing will be rendered at the
completion of the engagement.
If this letter correctly expresses your understanding, please sign the enclosed
copy where indicated and return it to us.
We appreciate the opportunity to serve you and trust that our association will
be a long and pleasant one.
Sincerely,
/s/ Larry Bowman
Larry Bowman, Engagement Partner
3/5/99
Date
Accepted and agreed to:
/s/ Charles J. Scimeca
Charles J. Scimeca, President
3/22/99
Date
Page 151
Promissory Note
U.S. $75,000.00 September 30, 1999
For value received, American Internet Technical Center, a Florida
corporation having an address at 440 East Sample Road, Suite 208, Pompano Beach,
Florida 33063 (the "Maker"), promises to pay, on or before December 31, 1999, in
lawful money of the United States, to the order of Xcel Associates, Inc., a New
Jersey corporation having an address at 224 Middle Road, 2nd Floor, Hazlet, New
Jersey 07730 ("Xcel"), or its assigns, the principal amount of Seventy-Five
Thousand United States Dollars in one lump sum payment on or before December 31,
1999.
Terms:
1. This Note is secured by 35,000 shares of the common stock of AmeriNet
Group.com, Inc., a publicly held Delaware corporation (the "Stock"" and
"AmeriNet," respectively) provided by the Yankee Companies, Inc., a Florida
corporation as pledgor ("Yankees"), certificates for which have been
tendered, together with duly executed stock power separate from certificate
in proper form for transfer to the order of Xcel concurrently with delivery
of this Note, which Xcel will hold in escrow as security for American
Internet's timely payment of its obligations hereunder.
2. In the event that American Internet materially defaults in its obligations
under this Note, time being of the essence, Xcel will notify Yankees of
such default, in writing and Yankees will have business fifteen days from
receipt of such notice to make required payments, in which case it will be
subrogated to Xcel's rights under this Note; or, if Yankees fails to make
the required payments, Xcel will sell the Stock in the public markets over
a period reasonably calculated to obtain a reasonable price therefor of not
less than ten business days, and shall retain from such proceeds a sum
adequate to discharge American Internet's obligations under this Notes and
any costs associated with disposition of the Stock, promptly remitting the
balance of such proceeds or of the Stock to Yankees.
3. In lieu of the payment of interest on this Note, AmeriNet has concurrently
with the execution of this Note, caused the issuance of 15,000 shares of
its unregistered common stock, certificates for which are being tendered to
Xcel concurrently with the delivery of this Note, based on Xcel's status as
an accredited investor (as defined in Rule 501 of Commission Regulation D)
pursuant to Section 4(6) of the Securities Act.
4. Xcel may exercise a portion of the warrant issued to Xcel by AmeriNet, a
copy of which is annexed hereto and made a part hereof as exhibit A (the
"warrant"), corresponding to the principal balance of this Note by
canceling the obligations of American Internet on this Note, in which case
this Note will be deemed canceled and the Stock will be concurrently
returned to Yankees.
5. If this Note is past due and is placed in the hands of an attorney for
collection or enforcement or its collected or enforced through any legal
proceedings, then American Internet shall pay to Xcel its reasonable
attorneys' fees, costs and expenses incurred in connection therewith in
addition to all other amounts due hereunder.
6. Upon execution of this Note, AmeriNet is authorized to release to its order
the $75,000 in Xcel funds it has received for purposes of effecting the
loan which is memorialized in this Note.
In Witness Whereof, American Internet has signed this Note as of the
day and year first above written.
American Internet Technical Center
By: /s/ J. Bruce Gleason Attest: /s/ Michael D. Umile
J. Bruce Gleason, President Michael D. Umile, Secretary
{Corporate Seal}
/s/ Edward Meyer, Jr.
Edward Meyer, Jr.
Page 152
Loan Guarantee & Indemnity Agreement
This loan guarantee and indemnity agreement is entered into by and
among American Internet Technical Center, a Florida corporation with an office
address at 440 East Sample Road, Suite 208; Pompano Beach, Florida 33063
("American Internet"); AmeriNet Group.com, inc., a Delaware corporation with a
class of securities registered under Section 12 of the Securities Exchange Act
of 1934, as amended formerly operating as Equity Growth Systems, inc.
("AmeriNet" and the "Exchange Act," respectively); and, The Yankee Companies,
Inc., a Florida corporation ("Yankees")
Preamble:
WHEREAS, American Internet is a wholly owned subsidiary of AmeriNet and
requires unexpected interim capital; and
WHEREAS, Xcel Associates, inc., a New Jersey corporation is willing to
provide such capital (the "Xcel Loan") on the condition that it receives
15,000 shares of AmeriNet common stock as compensation in lieu of interest
and the Yankees pledge 35,000 shares of AmeriNet common stock that it has
held since on or about December of 1998 (the "Yankee Stock"), as a
guarantee of American Internet's repayment of the Xcel Loan; and
WHEREAS, Yankees is willing to pledge the Yankee Stock, provided that
American Internet and AmeriNet, jointly and severally, agree to guarantee
that American Internet will fully comply with all aspects of the Xcel Loan,
and guarantee to Yankees the timely return of the Yankee Stock, and
compensate Yankees for its use as collateral; and
WHEREAS, American Internet and AmeriNet are agreeable to Yankees
requirements:
NOW THEREFORE, in consideration for the mutual covenants hereinafter set
forth, the sum of ten dollars and other good and valuable consideration,
the receipt and adequacy of which is hereby irrevocably acknowledged,
American Internet, AmeriNet and Yankees (being hereinafter sometimes
collectively referred to as the "Parties" or generically as a "Party"),
intending to be legally bound, hereby agree as follows:
Witnesseth:
First: Annexed hereto and made a part hereof as exhibits 1-A and
1-B are the form of promissory note and the pledge agreement
that Xcel has required American Internet and Yankees,
respectively, to execute in conjunction with the Xcel Loan
(the "Note" and the "Pledge Agreement," respectively).
Second: Yankees hereby agrees to enter into the Pledge Agreement
predicated on the covenants of American Internet and
AmeriNet hereinafter set forth, as an accommodation to
American Internet and AmeriNet outside the scope of its
duties under its consulting agreement dated on or about
November 24, 1998, with AmeriNet, then known as Equity
Growth Systems, inc. (the "Consulting Agreement") .
Third: American Internet and AmeriNet, jointly and severally,
hereby irrevocably covenant and agree to indemnify Yankees
in the event that the pledged collateral is retained by Xcel
as a result of American Internet's failure to comply with
its obligations under the Xcel Loan or for any other reason,
indemnification to be at the election of Yankees either in
securities of AmeriNet selected by Yankees, based on
Yankees' rights to discounts under the Consulting Agreement
with AmeriNet, or in cash, and in either case, such
indemnification shall include an amount payable as interest
in a sum equal to the closing offer price of AmeriNet's
common stock on the date of the Xcel Loan multiplied by
1/10th the number of shares of AmeriNet common stock that
Yankees is required to pledge to Xcel pursuant to the Pledge
Agreement, or any amendments or supplements thereof
(representing 10% of the value of the transaction).
Page 153
<PAGE>
The obligation of American Internet to pay the Xcel Loan shall be deemed by the
Parties, for purposes of their obligations under this Agreement but not under
the Note or the Pledge Agreement, to accelerate and mature, without notice or
demand, concurrently with the exercise by Xcel of a currently outstanding
warrant to purchase up to 1,000,000 shares of American Internet's common stock,
as reflected in the copy of the warrant agreement annexed hereto and made a part
hereof as exhibit 2 (the "Warrant"), to the extent of 100% of the proceeds from
such exercise, until the Xcel Loan is paid in full.
10. None of the Collateral may be transferred, conveyed, hypothecated or
encumbered in any manner without Xcel's prior written consent until the
Xcel Loan is fully paid.
11. Concurrently with the execution of the Xcel Loan, Yankees has executed
and tendered to Xcel for filing, UCC Forms 1, as required to perfect
the security interest established hereby in the States of New Jersey
and Florida.
2.2 Equity in Lieu of Interest
(1) In consideration for Xcel's agreement not to charge interest on the
Xcel Loan, AmeriNet hereby agrees to issue to Xcel, concurrently with
the receipt of the proceeds being provided to American Internet by
Xcel, 15,000 shares of its unregistered common stock, based on Xcel's
representations and warranties hereinafter set forth, acknowledging the
restricted nature thereof.
(2) American Internet and AmeriNet acknowledge that the 15,000 shares of
AmeriNet common stock being issued to Xcel in lieu of interest is being
provided by AmeriNet for the benefit of American Internet pursuant to
the provisions of Section 4.7(c) of the Reorganization Agreement
entered into between them on June 25, 1999, and that $18,000 of the
proceeds will be retained by AmeriNet as a partial credit against the
earnings debit to which American Internet becomes subject as a result
of such Section.
3. Representations & Warranties
American Internet hereby represents, warrants and covenants that:
(a) The proceeds being provided to AmeriNet for the benefit of American
Internet concurrently with the execution hereof shall be used solely
for the purposes set forth in exhibit 3(a) annexed hereto and made a
part hereof (the "Use of Proceeds"), unless otherwise consented to in
writing by AmeriNet and Yankees;
(b) No material adverse change in the business or the financial condition
of American Internet since the date of the latest financial
information filed concerning American Internet by AmeriNet with the
Securities and Exchange Commission (the "Commission"), as reflected on
the Commission's Internet web site located at http//:www.sec.gov, in
the EDGAR archives;
(c) All acts, conditions and things (including, without limitation, the
making of any required filings, recordings or registrations) required
to be done or performed and to have happened pursuant to the Xcel Loan
have been done and performed;
(d) All corporate, and legal proceedings and all documents and instruments
in connection with the authorization of the the Xcel Loan, the Xcel
Loan and all related instruments and ancillary documentation thereto
will be delivered to Xcel and its legal counsel concurrently with the
execution of the Xcel Loan and Xcel will be immediately provided with
all information and copies of all other related documents and
instruments, including records of corporate proceedings, which Xcel
and its legal counsel may reasonably have requested in connection
therewith, such documents and instruments, where appropriate, to be
certified by proper corporate, or governmental authorities;
Page 154
<PAGE>
(e) As of the date of the Xcel Loan it is not insolvent within the meaning
of applicable state and federal law;
(f) It is a corporation duly organized and validly existing in good
standing under the laws of the State of Florida and that it has full
power and authority to enter into the Xcel Loan, respectively, and to
consummate the transactions contemplated hereby and thereby.
4. Representations and Warranties by Yankees.
As a material inducement to Xcel's effecting the loan to American
Internet on which the Xcel Loan is based, Yankees hereby represents and warrants
to Xcel, that:
(a) The granting of the security interests provided for herein have been
duly authorized by all necessary corporate action and hereby and
thereby constitute legal, valid and binding obligations of Yankees,
enforceable in accordance with their respective terms;
(b) The making and performance by Yankees of the obligations pertaining to
the Collateral undertaken under the Xcel Loan, and any related
documents and the transactions contemplated hereby and thereby do not
contravene any provisions of law applicable to it and do not conflict
or are not inconsistent with, and will not result (with or without the
giving of notice or both) in a breach of or constitute a default or
require any consent under, or result in the creation of any lien,
charge or encumbrance upon the Collateral pursuant to the terms of any
credit agreement, indenture, mortgage, purchase agreement, deed of
trust, security agreement, lease guarantee or other instrument to
which it is a party or by which it may be bound or to which its
properties may be subject;
(c) Yankees has good, valid and marketable title to the Collateral free
and clear of all liens, claims and encumbrances; and
(d) Yankees has not entered into any understanding or agreement, (oral or
in writing) relating to the transactions contemplated herein, or any
other transactions contemplated or permitted by the Xcel Loan with any
person or entity which understanding, agreement or other writing would
affect the Collateral in any manner whatsoever or any of the rights or
interests of Xcel with respect thereto.
5. Representations and Warranties by Xcel.
Xcel acknowledges that neither the Collateral or the common stock being
issued in lieu of interest have been registered under the Securities Act of
1933, as amended (the "Securities Act") or under the securities laws of any
state, but rather, that the Collateral is being pledged and the common stock in
lieu of interest is being issued in reliance on the exemptions from registration
requirements, specifically, the Collateral is being pledged in reliance on the
exemption provided by Sections 4(1) and 4(2) of the Securities Act (known in the
securities industry as the 4 (1 1/2) exemption), the stock in lieu of interest
is being issued in reliance on the exemption provided by Section 4(6) of the
Securities Act, and both are relying on comparable exemptions under state Blue
Sky Laws, including Section 517.061(11), Florida Statutes, and Section 49:3-50
of the New Jersey Uniform Securities Act (1997); and that, consequently:
Page 155
<PAGE>
(a) The securities being pledged or issued under this Agreement will bear
legends restricting their transfer, sale, conveyance or hypothecation
unless such Securities are either registered under the provisions of
Section 5 of the Act and under the Florida Act, or an opinion of legal
counsel, in form and substance satisfactory to legal counsel to
AmeriNet is provided to AmeriNet's General Counsel to the effect that
such registration is not required as a result of applicable exemptions
therefrom, AmeriNet acknowledging that the Collateral will qualify
under the "pledge" provisions of Commission Rule 144 as to taking of
Yankees' holding period therefor, which began on or about December 8,
1998, and Xcel acknowledging that the Securities being issued in lieu
of interest will require a holding period of one year from the date
that the proceeds being provided by Xcel to American Internet
hereunder are paid prior to any transactions in reliance on Commission
rule 144;
(b) AmeriNet's transfer agent shall be instructed not to transfer any of
the Securities unless the General Counsel for AmeriNet advises it that
such transfer is in compliance with all applicable laws;
(c) The Collateral involves a bona fide pledge, with the expectation by
Xcel that all payments required under the Xcel Loan will be made, and
that the Collateral will thereafter remain the property of Yankees;
(d) It is acquiring the Securities being issued in lieu of interest for
its own account, for investment purposes only, and not with a view to
further sale or distribution; and
(e) Xcel or its advisors have examined AmeriNet's books and records and
questioned its officers and directors as to such matters involving
AmeriNet as they deemed appropriate.
6. Place of Payments.
(a) Xcel is tendering the net sum of $75,000, in cleared United States
Dollars, to the order of AmeriNet, for the benefit of American
Internet, concurrently with the execution of the Xcel Loan, and such
funds shall be retained in an account controlled by AmeriNet to assure
that the funds are expended as represented herein as to Use of
Proceeds;
(b) Payment of principal, interest and other sums due or to become due with
respect to the Xcel Loan are to be made at the office of principal
executive offices of Yankees in Boca Raton, Florida, or such other
place as Xcel and Yankees shall agree upon and designate to American
Internet in writing, in lawful money of the United States of America in
immediately available funds.
7. Late Payments & Other Charges.
(a) If any amount due with respect to the payment of the Xcel Loan is not
paid when the same shall be due and Xcel does not levy on the
Collateral, American Internet will, unless excused, on a specific case
by case basis, in writing by Xcel, pay interest on any such overdue
amount at 8% per annum until the date such amount is paid or the
Collateral is levied upon.
(b) American Internet shall pay or cause to be paid, in addition to all
other amounts payable hereunder actual expenditures, including
reasonable attorney's fees, for proceedings to collect the Xcel Loan or
to enforce, preserve and protect the Collateral (as such term is
defined herein) and the rights and interest of Xcel therein.
Page 156
<PAGE>
8. Rights and Powers with Respect to the Collateral.
Yankees hereby authorizes Xcel to do every act and thing in the name of
Yankees which Xcel may deem advisable to enforce effectively its rights and
interest in and to the Collateral and the Yankees hereby appoints Xcel its true
and lawful attorney-in-fact, to demand, enforce, collect, receive, receipt and
give releases for any funds due or to become due under or arising out of or with
respect to the Collateral and to endorse all certificates and other instruments,
and to do and take all such other actions relating to any of the Collateral, to
file any claims or institute any proceedings with respect to any of the
foregoing which Xcel deems necessary to advisable and to compromise any such
demand, claim or action.
9. Default; Remedies.
In the event:
(a) Of a failure of American Internet to pay any amount when due hereunder
for a period of 10 days after written notice by Xcel to American
Internet, AmeriNet and Yankees;
(b) Of a failure by American Internet to perform any agreement or
undertaking under the Xcel Loan or any other agreement or document
given to evidence or secure any of the Xcel Loan;
(c) Any warranty, representation, covenant or agreement made by American
Internet, AmeriNet or Yankees to Xcel under the Xcel Loan relating to
any related document or the Xcel Loan proves to be incorrect or untrue
in any material respect at the time when made;
(d) American Internet shall become insolvent or cease doing business as a
going concern or be come unable to pay its debts generally as such
debts become due, or a petition or order for relief under the
bankruptcy laws or insolvency laws or for reorganization, composition,
adjustment, or other relief of debtors under any law is filed by or
against American Internet and such petition is not dismissed within 30
days, or American Internet makes an assignment for the benefit of
creditors, or a receiver or liquidator is appointed for American
Internet, or a court of competent jurisdiction orders the winding up
or liquidation of the affairs of American Internet;
(e) American Internet is dissolved;
(f) The majority interest of AmeriNet in American Internet is conveyed,
foreclosed upon or transferred in any manner, without Xcel's prior
consent; or
(g) Any person, juridical entity or governmental instrumentality shall make
a claim against American Internet or any part of the Collateral;
(each of the events referred to in the foregoing Subsections (a) through (g)
being hereinafter referred to as a "Default"), then, in any such event, Xcel may
accelerate the full amount of the Xcel Loan in which event such amount will
become immediately due and payable by American Internet without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived, and Xcel may pursue all of the rights and remedies with respect to the
Collateral accruing to Xcel hereunder or by operation of law as a secured
creditor under the Uniform Commercial Code or other applicable law and all such
available rights and remedies, to the full extent permitted by the law, shall be
cumulative and not exclusive.
Page 157
<PAGE>
10. Application of Proceeds.
Upon enforcement of the Xcel Loan, all funds received upon the
foreclosure and liquidation of the Collateral shall be applied by Xcel as
follows:
(a) To the payment of all costs, expenses, liabilities and compensation of
Xcel (including fees and expenses of its agents and legal counsel)
incurred or accrued in connection with any action or proceeding brought
by Xcel or in connection with the maintenance , sale or other
disposition of the Collateral or any portion thereof.
(b) To the payments of all amounts then due and payable on the Xcel Loan.
(c) To the payment of any surplus then remaining to Yankees.
11. Further Assurances.
American Internet, AmeriNet and Yankees hereby agree to execute and
deliver to Xcel, or cause to be executed and delivered to Xcel, such further
instruments and documents as may be reasonably requested by Xcel to carry out
fully the intent and accomplish the purposes of the Xcel Loan and the
transactions referred to herein and therein, and to protect and maintain the
first priority security interest of Xcel in and to the Collateral.
12. Miscellaneous.
(a) No Waiver; Cumulative Remedies.
(1) No failure or delay on the part of Xcel in exercising any
right, power or privilege hereunder or under the Xcel Loan
shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege.
(2) No right or remedy in the Xcel Loan is intended to be
exclusive but each shall be cumulative and in addition to any
given Xcel at law or in equity; and the exercise by Xcel of
any one or more of such remedies shall not preclude the
simultaneous or later exercise by Xcel of any or all such
other remedies. No express or implied waiver by Xcel of any
future or subsequent Default.
(b) Notices.
All notices, requests and demands to or upon any party hereto shall be
deemed to have been duly given or made when deposited in the United States mail,
first class postage prepaid, addressed to such party at such address as may be
hereafter designated in writing by such party to the other Party hereto.
(1) Notices to Xcel shall be made at the address set forth in the
initial paragraph of the Xcel Loan, in each case with copies
to Yankees and AmeriNet;
Page 158
<PAGE>
(2) Notices to American Internet shall be provided to the
following address, in each case with copies to AmeriNet and
Yankees: American Internet Technical Center, Inc.; 440 East
Sample Road; Pompano Beach, Florida 33056; Attention: J. Bruce
Gleason, President; Telephone (954) 943-4748; Fax (954)
943-4046; e-mail [email protected];
(3) Notices to Yankees shall be provided to the following
addresses, confirmed on the date sent by fax and e-mal: The
Yankee Companies, Inc.; 902 Clint Moore Road, Suite 136; Boca
Raton, Florida 33487; Attention: Leonard Miles Tucker,
President; Telephone (561) 998-2025, Fax (561) 998-3425; and,
e-mail [email protected]; with a copy to 1941 Southeast
51st Terrace; Ocala, Florida 34471; Attention, Vanessa H.
Lindsey, Chief Administrative Officer; Telephone (352)
694-9179; Fax (352) 694-1325; and e-mail
[email protected]; and
(4) Notices to AmeriNet shall be provided to the following
addresses, confirmed on the date sent by fax and e-mal, and
with copies to Yankees: AmeriNet Group.com, Inc.; 902 Clint
Moore Road, Suite 136; Boca Raton, Florida 33487; Attention:
Michael Harris Jordan, President; Telephone (561) 998-3435,
Fax (561) 998-3425; and, e-mail [email protected]; with a
copy to G. Richard Chamberlin, Esquire; General Counsel;
AmeriNet Group.com, Inc.; 4950 South Highway 441; Summerfield,
Florida 34491; Telephone (352) 694-6714, Fax (352) 694-9178;
and, e-mail, [email protected].
(c) Survival of Representations and Warranties.
All representations and warranties made in the Xcel Loan and any
documents delivered pursuant hereto or thereto shall survive the execution and
delivery of the Xcel Loan.
(d) Amendments.
the Xcel Loan may not be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against whom
enforcement of a change, waiver, discharge or termination is sought.
(e) Headings.
The headings of the Sections and Paragraphs are for convenience only,
are not part of the Xcel Loan and shall not be deemed to effect the meaning or
construction of any of the provisions hereof.
(f) Successors or Assigns.
a. The Xcel Loan shall be binding upon and inure to the benefit of
Maker and Xcel and their respective successors and assigns,
except that Maker may not assign or transfer its rights or
obligations hereunder or any interest herein without the prior
written consent of Xcel.
b. The obligations of AmeriNet to Xcel and Yankees shall be binding
upon and inure to the benefit of Yankees and Xcel and their
respective successors and assigns.
Page 159
<PAGE>
(g) Construction.
the Xcel Loan shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Delaware.
(h) Severability.
If any provision or any portion of any provision of the Xcel Loan, or
the application of such provision or any portion thereof to any person or
circumstance shall be held invalid or unenforceable, the remaining portions of
such provision and the remaining provisions of the Xcel Loan or the application
of such provision or portion of such provision as is held invalid or
unenforceable to persons or circumstances other than those to which it is held
invalid or unenforceable, shall not be affected thereby.
(i) Number and Gender.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular or plural, as the identity of the party or
parties, or their personal representatives, successors and assigns may require.
(j) Jurisdiction.
(1) American Internet hereby irrevocably consents and agrees that
any legal action, suit or proceeding arising out of or in any
way related to the Xcel Loan or the transactions contemplated
hereby, shall be instituted or brought in a forum, either
legal or arbitral, in Palm Beach County, Florida, and by
execution and delivery of the Xcel Loan, American Internet
hereby irrevocably accepts and submits to, for itself and in
respect of its property, generally and unconditionally, the
non-exclusive jurisdiction of any such tribunal, and to all
proceedings in such tribunal.
(2) American Internet irrevocably consents to service of any
summons and/or legal process by registered or certified United
States air mail, postage prepaid, to Maker at the address set
forth in any filing with the Florida Department of State or
the Commission, such method of service to constitute, in every
respect, sufficient and effective service of process in any
such legal action or proceeding.
(3) Nothing in the Xcel Loan shall affect the right to service of
process in any other manner permitted by law or limit the
right of Xcel to bring actions, suits or proceedings in the
courts or tribunals of any other jurisdiction.
(4) American Internet further agrees that final judgment against
it in any such legal action, suit or proceeding shall be
conclusive and may be enforced in any other jurisdiction,
within or outside the United States of America, by suit on the
judgment, a certified or exemplified copy of which shall be
conclusive evidence of the fact and the amount of American
Internet's liability.
Page 160
<PAGE>
(k) License.
a. This form of Note is the property of Yankees.
b. The use hereof by the parties executing the Xcel Loan in their
several capacities is authorized hereby solely for purposes of
this transaction and, the use of this form of agreement or of any
derivation thereof without Yankees' prior written permission is
prohibited.
c. The Xcel Loan shall not be construed more or less stringently
against any signatory thereto or any other person based on its
authorship.
d. Each signatory to the Xcel Loan hereby acknowledges that Yankees:
a. Is not a law firm or otherwise legally regulated or
licensed entity;
b. Has not provided anyone with advice concerning execution of
the Xcel Loan;
c. Has suggested that every person or legal entity executing
the Xcel Loan have it independently reviewed by their own
advisors and legal counsel prior to its execution.
L. Exhibits
The following exhibits are annexed to the Xcel Loan, incorporated by
reference and made a part thereof:
Exhibit Description
1(c) The Xcel Warrant Agreement
3(a) The Use of Proceeds
IN WITNESS WHEREOF, American Internet has executed this instrument,
effective as of the ____ day of September, 1999.
Signed, Sealed & Delivered
In Our Presence:
American Internet Technical Center, Inc.
- ------------------------
________________________ By: ________________________
J. Bruce Gleason, President
{CORPORATE SEAL}
Attest: ________________________
Michael D. Umile, Secretary
Page 161
<PAGE>
AmeriNet Group.com, Inc.
- ------------------------
________________________ By: ________________________
Michael Harris Jordan
President
{CORPORATE SEAL}
Attest: ________________________
G. Richard Chamberlin, Esquire
The Yankee Companies, Inc.
- ------------------------
________________________ By: ________________________
Leonard Miles Tucker
President
{CORPORATE SEAL}
Attest: ________________________
William A. Calvo, III
Secretary
Xcel Associates, Inc.
- ------------------------
________________________ By: ________________________
Edward T. Whelan
President
{CORPORATE SEAL}
Attest: ________________________
Secretary
Page 162
<PAGE>
Exhibit 1(c)
The Xcel Warrant Agreement
Included in separate instrument provided to each signatory, the receipt
of which is acknowledged, through initialing of this page.
Exhibit 3(a)
Use of Proceeds
1. Development of Tutor-to-Go Interactive Internet Program: $15,000
2. Equipment for T-1 Line $ 3,000
3. Salaries & Wages $ 4,000
4. Marketing, Advertising & Promotions $10,000
5. Auditors $ 8,000
6. Atlanta Trade Show $ 5,000
7. Leasehold improvements $ 5,000
8. Accounts Payable $ 7,000
9. AmeriNet stock in lieu of interest partial credit $18,000
Total $75,000
Page 163
<PAGE>
American Internet Technical Center, Inc.
Written Consent in Lieu of Special Meeting
THE UNDERSIGNED, being all of the directors of American Internet Technical
Center, a Florida corporation (the "Corporation"), pursuant to authority granted
under Chapter 607, Florida Statutes and as permitted by the Corporation's
Certificate of Incorporation and Bylaws, hereby take the following actions and
adopt the following resolutions:
WITNESSETH:
RESOLVED, that this Corporation enter into that form of note and self
contained security agreement pertaining to a $75,000 loan from Xcel Associates,
Inc. (the "Note"), a copy of which have been heretofore circulated among the
Undersigned and which the Secretary of this Corporation is hereby directed to
file in the Minute Book immediately following this Written Consent to Action in
Lieu of Meeting as a separately indexed item; and be it FURTHER
RESOLVED, that J. Bruce Gleason and Michael D. Umile, as President and
Secretary of this Corporation, respectively, are hereby authorized, empowered
and directed to execute and carry out the terms of the Note; and be it FURTHER
RESOLVED, that the Officers of this Corporation are hereby authorized,
empowered and directed to take all actions on behalf of the Corporation
necessary or desirable to effect the foregoing.
* * *
DONE, effective as of the __ day of September, 1999.
Signed, Sealed and Delivered
In Our Presence
- ---------------------------
- --------------------------- ---------------------------
J. Bruce Gleason, President
- ---------------------------
- --------------------------- ---------------------------
Michael D. Umile, Director
- ---------------------------
- --------------------------- ---------------------------
Michael Harris Jordan, Director
Page 164
MARK GRANVILLE-SMITH
September 16, 1999
To: Board of Directors-AmeriNet Group
From: Mark Granville-Smith
Please accept my resignation as a board member of AmeriNet Group. My primary
business requires my full-time attention.
Sincerely,
/s/ Mark Granville-Smith
Mark Granville-Smith
Page 165
Baum & Company, P.A.
1515 University Drive-Suite 209
Coral Springs, Florida 33071
October 15, 1999
To the Board of Directors
AmeriNet Group.com, Inc.
Equity Growth Systems, Inc.
902 Clint Moore Road, Suite 136C
Boca Raton, Florida 33487
We consent to the use of our audit report on financial statements of Equity
Growth Systems, Inc. for the year ended December 31, 1997 in the form 10-KSB for
the year ended June 30, 1999 dated October 18, 1999.
/s/ Baum & Company, P.A.
Baum & Company, P.A.
Page 166
BOWMAN & BOWMAN, P.A.
Certified Public Accountants
1705 Colonial Blvd., Suite D-l
Fort Myers, Florida 33907
(941) 939-2301
(941) 939-1297 (Fax)
To the Board of Directors
AmeriNet Group.com, Inc.
Formerly
Equity Growth Systems, inc.
(A Development Stage Company)
3821-B Tamiami Trail, Suite 201
Port Charlotte, Florida 33952
We consent to the use of our audit report dated April 23, 1999 on the financial
statements of Equity Growth Systems, Inc. for the year ended December 31, 1998
in their current SEC filing dated on or about this eleventh day of October,
1999.
/s/ Larry Bowman
Bowman & Bowman, P.A.
Certified Public Accountants
Fort Meyers, Florida
September 17, 1999
Page 167
DASZKAL BOLTON MANELA DEVLIN & CO.
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP OF PROFESSIONAL ASSOCIATIONS
2401 N.W. BOCA RATON BOULEVARD, SUITE 100 BOCA RATON, FLORIDA 33431
TELEPHONE (561) 367-1040 FAX (561) 750-3236
JEFFREY A. BOLTON, CPA, P.A. MEMBER OF THE AMERICAN INSTITUTE
MICHAEL I. DASZKAL, CPA, P.A. OF CERTIFIED PUBLIC ACCOUNTANTS
ROBERT A. MANELA, CPA, P.A.
TIMOTHY R. DEVLIN. CPA, P.A.
MICHAEL S. KRIDEL, CPA, P.A.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use of our audit report dated October 5, 1999 in the
form 10-KSB of AmeriNet Group.com, Inc. (f/k/a Equity Growth Systems, inc.) and
subsidiary, for the six months ended June 30, 1999.
Boca Raton, Florida
October 21, 1999 /s/ Daszkal Bolton Manela Devlin & Co.
Daszkal, Bolton, Manela, Devlin & Co
DASZKAL BOLTON MANELA DEVLIN & CO.
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP OF PROFESSIONAL ASSOCIATIONS
2401 N.W. BOCA RATON BOULEVARD, SUITE 100 BOCA RATON, FLORIDA 33431
TELEPHONE (561) 367-1040 FAX (561) 750-3236
JEFFREY A. BOLTON, CPA, P.A. MEMBER OF THE AMERICAN INSTITUTE
MICHAEL I. DASZKAL, CPA, P.A. OF CERTIFIED PUBLIC ACCOUNTANTS
ROBERT A. MANELA, CPA, P.A.
TIMOTHY R. DEVLIN. CPA, P.A.
MICHAEL S. KRIDEL, CPA, P.A.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use of our audit report dated October 5, 1999 in the
form 10-KSB of American Internet Technical Center, Inc. for the six months ended
June 30, 1999.
Boca Raton, Florida
October 21, 1999 /s/ Daszkal Bolton Manela Devlin & Co.
Daszkal, Bolton, Manela, Devlin & Co
Page 168
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 79,021
<SECURITIES> 0
<RECEIVABLES> 133,822
<ALLOWANCES> 57,160
<INVENTORY> 0
<CURRENT-ASSETS> 155,683
<PP&E> 33,656
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,674,390
<CURRENT-LIABILITIES> 137,440
<BONDS> 0
0
0
<COMMON> 80,948
<OTHER-SE> 1,589,824
<TOTAL-LIABILITY-AND-EQUITY> 1,674,390
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 97,646
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (97,646)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
