Securities and Exchange Commission
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act Of 1934
Date of Earliest Reported Event - January 28, 2000
FAB Global, Inc.
(Exact name of Registrant as specified in its charter)
Georgia 0-15900 59-3461241
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File Number) Identification Number)
42 Broadway, Suite 1101
P.O. Box 1887, Bowling Green Station
New York, New York 10004
(Address of Registrant's principal executive offices)
(917) 320-4800
(Registrant's telephone number, including area code)
(212) 422-1913
(Registrant's facsimile number, including area code)
1612 Osceola
Clearwater, Florida
(Former name or former address, if changed since last report)
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INTRODUCTORY NOTES.
FAB Global, Inc. ("Global") previously filed a current report on Form 8-K
on April 20, 1999 disclosing the terms of a business combination agreement ("Old
Transaction") that had been negotiated between Global, FAB Capital Corporation
("Capital") and Western Union Leasing, Ltd. ("Western"). As described in greater
detail below, the agreements relating to the Old Transaction had numerous
provisions that were executory in nature on the date of prior Current Report on
Form 8-K. As will also be discussed in greater detail below, since the date of
the prior report, it has become evident that Capital and Western are incapable
of fully performing all of their obligations under the agreements relating to
the Old Transaction. After carefully reviewing the relevant facts, the board of
directors of the Company, the board of directors of Capital and the trustee of
Western have concluded that reformation of Old Transaction would likely prove
unduly complex, burdensome and expensive. They have also concluded that such a
reformation would not give the stockholders of Global the value that was
contemplated by the original agreements. Accordingly, the board of directors of
the Company, the board of directors of Capital and the trustee of Western have
jointly agreed to rescind the Old Transaction in its entirety as of January 28,
2000. In connection therewith, Capital and Western have returned an aggregate of
11,400,000 shares of common stock to Global for cancellation.
In connection with the decision to rescind the Old Transaction, certain
former officers of Capital proposed an alternative business combination (the
"New Transaction"), that would permit Global to continue in business as a
diversified financial services holding company. After evaluating the proposal,
the board of directors of Global agreed to issue 5,830,000 newly issued shares
of Global's common stock to Wavecount, Inc. ("Wavecount"), a privately-held
financial services holding company, in exchange for substantially all of the
operating assets of Wavecount. The New Transaction was closed on December __,
1999. In connection with the New Transaction, it is anticipated that Global's
name will be changed to Dupont Direct Financial Holdings, Inc., and a new slate
of directors and executive officers will be appointed.
Unless otherwise indicated, all information in this Current Report on Form
8-K has been adjusted to reflect a 1-for-18 reverse stock split effected April
2, 1999. References to "Marci" refer to the company before the business
combination and references to "Global," the "Company," "we," "us" and "our"
refer to FAB Global, Inc. and its subsidiaries after the name change.
Our quarterly and annual operating results will be affected by a wide
variety of factors, further discussed below, that could materially and adversely
affect our actual results. These factors include, but are not limited to:
(1) Changes in general economic and market conditions;
(2) Fluctuations in the U.S. and foreign securities markets;
(3) Changes in interest rates and the demand for investment services;
(4) Changes in the nature of our business resulting from the introduction
of new products and services;
(5) Competition from others who offer competitive services or lower
commission rates;
(6) General declines in the investment markets;
(7) Changes in laws and regulations that affect us and our customers; and
(8) Risks related to the year 2000.
As a result of these factors and others, our future operating results may
fluctuate on a quarterly or annual basis. Such fluctuations could materially and
adversely affect our business, financial condition, operating results, and stock
price.
This report and other documents that we file with the Securities and
Exchange Commission (the "SEC") contain forward-looking statements about our
business. These forward-looking statements are subject to many risks and
uncertainties. Therefore, actual results may differ significantly from the
forward-looking statements. Except as specified in SEC regulations, we have no
duty to release information that updates the forward-looking statements
contained in this Report. An investment in our stock involves various risks,
including those mentioned above and described elsewhere in this Report.
Additional risks will be disclosed from time to time in our future SEC filings.
Item 1. Change In Control of Registrant.
A. Corporate Background. Global is a Georgia corporation formerly known as Marci
International Imports, Inc. ("Marci"). Marci conducted an initial public
offering in February 1987 pursuant to a Form S-18 Registration Statement under
the Securities Act of 1933 (the "Securities Act"). In connection with an
application to list its Common Stock on the NASDAQ system, Marci also registered
its Common Stock pursuant to Section 12(g) of the Securities Exchange Act of
1934 (the "Exchange Act"). As a result of a 1989 bankruptcy proceeding, Marci
became an inactive shell that had no material assets, liabilities or business
activities.
Marci remained inactive until June 1998 when its stockholders approved a
plan of reorganization proposed by Capston Network Company of Clearwater,
Florida ("Capston"). This plan of reorganization authorized Capston to seek a
suitable business combination opportunity for Marci, authorized a series of
changes in Marci's corporate structure, and provided for stock-based
compensation to Capston and others for services rendered and to be rendered in
connection with the implementation of the plan of reorganization. Capston and
its president, Sally A. Fonner ("Fonner"), who also serves as Global's sole
director, began actively seeking a business combination opportunity for Marci in
the summer of 1998.
B. The Old Transaction. After investigating a number of potential opportunities
for Marci, Capston negotiated the terms of the Old Transaction with Capital, an
Idaho corporation, and Western, a trust organized under the laws of the United
Kingdom. The Old Transaction is summarized below in Item 2.B. For the reasons
more particularly described in "Item 4. Other Matters," this Old Transaction was
rescinded in its entirety effective January 28, 2000.
C. The New Transaction. When it became apparent that Capital and Western were
incapable of fully performing all of their obligations under the agreements
relating to the Old Transaction, Global, Capital, Western and certain former
officers of Capital commenced discussions aimed at formulating an acceptable
alternative business plan for Global. After extensive discussions and
negotiations, it was agreed that the Old Transaction would be rescinded in its
entirety, Capital and Western would return 11,400,000 shares of common stock to
Global for cancellation, and Global would then issue 5,830,000 shares of common
stock for substantially all the operating assets of Wavecount, a privately-held
financial services company owned by certain former officers of Capital. The
operating assets transferred to Global in connection with the New Transaction
include:
1. Dupont Securities Group, Inc. ("DSGI"), a registered United States
securities broker-dealer operating under the NASD's $100,000 net capital
requirements. DSGI is now 100% by owned Wavecount, although the approval of
the acquisition by the National Association of Securities Dealers, Inc.
("NASD") pursuant to its rules is still pending. Such approval is
reasonably expected in due course.
2. Wavecount Futures, Inc. ("Futures"), an Introducing Futures Broker
registered with the National Futures Association (NFA) and the Commodity
Futures Trading Commission (CFTC);
3. Wavecount Asset Management, Inc. ("WAM"), an investment manager that has
applied for Registration as an Registered Investment Advisor (RIA). WAM has
an association with Jordan Advisory, a minority owned RIA which manages
approximately $800 million. WAM will be listed by Jordan as a sub-advisor
for Fixed Income assets as soon as its registration is effective.
4. A 49% equity interest in Native American Financial Services Company
("NAFSCO"). NAFSCO is a financial services company located in Window Rock,
Arizona, the capital of the Navajo Nation. Along with Murray Lee, the 51%
Navajo majority partner, Wavecount established NAFSCO as the first Native
American financial services company resident on a Native American
reservation.
5. B&S Portfolio Management, GmbH ("B&S"), a registered German Introducing
broker located in Munich, Germany which also operates as an asset
management firm and investment advisor. Wavecount has signed a letter of
intent to acquire B&S in exchange for 200,000 newly issued shares of the
Company's common stock and it is anticipated that this transaction will
close on or before April 30, 2000.
6. 300,000 shares of King's Road Entertainment, Inc. (OTCBB: KREN);
7. 250,000 shares of Chariot International Holdings, Inc. (OTCBB: CHIH);
8. 250,000 shares of Immediate Entertainment Group, Inc, (OTCBB: IEGPE).
The New Transaction closed on December __, 1999 and Wavecount has agreed to
transfer the New Transaction Properties to Global as expeditiously as possible
following receipt of such regulatory and other approvals as may be necessary.
Principal Stockholders. In connection with the Old Transaction, Capital and
Western received a total of 11,400,000 shares of Global's common stock. Further,
in conformity with plan of reorganization approved by Marci's stockholders,
certain persons designated by Capston received 300,000 shares of Common Stock
for administrative and management services, 150,000 shares of Common Stock were
issued to legal counsel for the parties and 570,000 shares of Common Stock were
issued to certain finders who assisted Capston in the identification of Capital
and Western as potential business combination candidates, the introduction of
Capital and Western to Marci, the collection and analysis of due diligence
information. All shares of Common Stock issued to designees of Capston, legal
counsel and the finder were registered under the Securities Act of 1933 prior to
issuance, and were subject to "bleed out" and "lock-up" agreements which
restrict the re-sale rights of the recipients thereof. As a result of the
foregoing, Global had approximately 12,720,000 shares issued and outstanding
after the closing of the Old Transaction. After giving effect to the surrender
of 11,400,000 shares in connection with the rescission of the Old Transaction,
Global had approximately 1,320,000 shares issued and outstanding as of January
28, 2000.
In connection with the New Transaction, Global issued 5,830,000 new common
shares to Wavecount and/or its designees. Therefore, upon closing of the New
Transaction, Global had approximately 7,150,000 shares issued and outstanding,
as compared to the 12,720,000 shares issued and outstanding after the closing of
the Old Transaction.
The following table sets forth the number of shares of Common Stock owned
by (i) each executive officer and director nominees or designates, (ii) all
executive officers and directors, nominees or designates, as a group, and (iii)
each other person who owns of record or owns beneficially, more than five
percent (5%) of Global's outstanding Common Stock.
Name and Address of Beneficial Owner Shares Percent
Owned of Class
Wavecount, Inc. 42 Broadway, Suite 1101
New York, New York 10004 5,800,000 81.53%
Steven A. Muchnikoff(1)(2) 5,800,000 81.53%
Randy M. Strausberg (1)(2) 5,800,000 81.53%
David W. Parsons (1)(2) 5,800,000 81.53%
Marc Greenspan (1)(2) 5,800,000 81.53%
Executive Officers and Directors as a Group (4 persons) 5,800,000 81.53%
1) c/o Wavecount, Inc., 42 Broadway, Suite 1101, New York, New York 10004. (2)
Messrs. Strausberg and Muchnikoff are both directors and executive officers of
Wavecount, Mr. Greenspan is a director nominee of Wavecount, and Mr. Parsons is
both a director nominee and executive officer designate of Wavecount. They
therefore may be deemed to be beneficial owners of the shares of Common Stock
held, or entitled to be held, by Wavecount.
New Management Team. In connection with the closing of the New Agreement,
the board of directors of Global has appointed four persons designated by
Wavecount to serve as executive officers of Global. Our new executive officers,
and the positions held by each such executive officer are set forth below. It is
anticipated that these designated executive officers will continue to serve in
such capacities for the foreseeable future.
Name Age Position
Randy M. Strausberg 50 Chief Executive Officer
Steven A. Muchnikoff 44 Chief Operating Officer
David W. Parsons 46 Chief Legal Officer, Secretary/Asst.
Treasurer
Marc Greenspan 45 Treasurer/Asst. Secretary
Under the terms of the New Transaction, Wavecount has the right to replace
the current board of directors with its own nominees. Wavecount has nominated
Randy M. Strausberg, Steven A. Muchnikoff, David W. Parsons, and Marc Greenspan
to serve as directors of Global (the "New Directors"). The proposed changes in
the board of directors will not become effective and the New Directors will not
assume office until 10 days after we file an Information Statement and Notice of
Change in the Majority of the Board of Directors with the SEC and send copies of
the Notice to our stockholders. At that time, Sally A. Fonner will appoint the
New Directors and then resign as a director. Thereafter, the New Directors will
manage the business.
Randy M. Strausberg. Mr. Strausberg was a founder of Wavecount in or about
September 1998. Currently, he is President of Wavecount. He has also been
nominated to serve as a New Director. Mr. Strausberg is also an officer of
Capital, as explained in greater detail below. Mr. Strausberg served for one
year as the director of fixed income trading in the New York Office of Credit
Lyonnais, one year as a senior vice president, proprietary trading in the New
York office of HSBC Securities, one year as a senior vice president, manager of
fixed income in the New York office of Commerzbank Capital Markets and one year
as a vice president, treasury department in the New York office of Bank Austria.
Previously, Mr. Strausberg accumulated 24 years of experience as an employee
and/or principal of several securities firms, including S.V.P., Deputy Manager
of Fixed Income at Nikko Securities International, a Primary Dealer in U.S.
Government Securities Mr. Strausberg is a 1970 graduate of Brooklyn College,
City University of New York (BS in Economics) and a 1974 graduate of New York
University Graduate School of Business (MBA). Mr. Strausberg holds various
securities and commodities licenses including Series 3,4,7,24, 27, 53, 55 and
63.
Marc Greenspan. Mr. Greenspan is currently a director of Wavecount. He is also a
director of Capital, as explained in greater detail below. He has over twenty
years of experience in trading U.S. Government Securities. He headed up the U.S.
Government Securities Department at L.F. Rothschild and was Co-Manager of
Arbitrage at Nikko Securities. Mr. Greenspan helped design the first issues of
dealer created Zero-Coupon bonds at Paine Webber. He has designed a proprietary
risk free guaranty structure using U.S. Treasury Zero-Coupon securities. He has
a B.A. in Economics from Rutgers University and is a government securities
principal.
Steven A. Muchnikoff, Mr. Muchnikoff is a Director of Wavecount. He has over
twenty years of experience in fixed income, currencies and equities. He was Vice
President in charge of U.S. Treasury trading and sales for Nesbitt Burns
Securities, London. At First Interstate Bank he assisted in the design of their
U.S. Treasury Options program and also was Managing Director and Partner of
Atlantic Alliance Securities, Ltd., London. Steven has a B.S. in Business
Administration from the University of Southern California and is a registered
principal with the Securities and Futures Authority, United Kingdom. He also has
various U.S. licenses with the NASD.
David W. Parsons. Mr. Parsons is General Counsel of Wavecount. Previously, Mr.
Parsons had served as the general counsel of FAB Securities since July of 1997.
Before joining FAB Securities, Mr. Parsons served for three years as general
counsel for Marsh Block & Co. He also was special counsel for financial affairs
at Antioch College. Mr. Parsons has twenty years experience in the field of
securities law including four years with the Division of Enforcement of the
Securities and Exchange Commission and three years with the Antifraud Department
of the National Association of Securities Dealers. Mr. Parsons is a 1975
graduate of New College, Sarasota, Florida (BA in Political Science) and a 1979
graduate of the Georgetown University Law Center (JD Cum Laude).
Murray Lee. Mr. Lee is the President of NAFSCO. He is a member of the Navajo
Nation, living on the reservation. He graduated from Northern Arizona State
University. During his career, he was Liason for U.S. Government programs for
the Navajo Nation and Chief Aide to the Speaker of the Council, an 88 member
legislative arm of the Navajo (also called Dine) People, representing the more
than 100 Chapters (towns) on the Nation. He previously, directed the Small
Business Program for The Navajo Nation and served on the PL93-638 Task Force
that transferred management of the social service functions from the Bureau of
Indian Affairs to the Tribal management.
Dennis K. Smith. Mr. Smith is Director of the Native American Division of
Wavecount and is Senior Vice President of NAFSCO. He has over 25 years in all
aspects of the financial markets and investment advisory services. He started
his career with Merrill Lynch in 1973 and later as a member and trader on the
New York Futures and Philadelphia Foreign Currency Exchanges for Paine Webber.
Mr. Smith has been a financial advisor to Native American Tribes for the past
five years and has lectured extensively on International Finance and Fixed
Income. He has a degree in psychology from St. Leo's College.
Gerald Heilpern . Mr. Heilpern is Director of Sales for DSGI. He attended the
Philadelphia College of Textiles and Columbia University. He started his
securities career at Bache & Co. (now Prudential) in 1968. From 1974 to 1988 he
was the manager of fixed income at Phillips, Appel and Walden, a regional firm
with over four hundred salesmen. During his career in the securities industry,
he has been a registered representative, fixed income manager, branch office
manager and Chief Operating Officer at FAB Securities. He holds the following
licenses: 4,7,24,53,55,63,and 73.
Elroy Drake - Director
Mr. Drake is a member of the Navajo Indian Nation, and has received his degree
in Business administration from the Northern Arizona University. Mr. Drake has
recently completed a four-year term as Navajo Nation Tax commissioner. During
this term he assisted in the development of investment strategies for Navajo
Nation Permanent Trust Fund, worth over one and a half billion dollars.
Elroy is the past CEO of the Hoopa Valley Indians' Department of Enterprises.
While CEO of the Hoopa Valley Indians Enterprise Department he was instrumental
in starting the Hoopa Valley Indian gaming Casino.
He advised the Kayenta Township, the first independent city on the Navajo
Nation, in the development of a sales tax in its city limits.
Change in Fiscal Year End. After the Old Transaction, Global was to have,
effective April 30, 1999, changed from a 52/53-week accounting year to a fiscal
year ended April 30. For reasons relating to the consolidation of the financial
statements of some of the Old Transaction Properties with those of Global, it
was contemplated that the operating companies among the Old Transaction
Properties would also change their respective fiscal year ends to April 30. In
the New Transaction, it is contemplated that the Fiscal year will be May 31, to
coincide with the fiscal year of the broker dealer subsidiary DSGI.
ITEM 2. Acquisition or Disposition of Assets
A. Summary Description of the Old Transaction Properties
Pursuant to the terms of a reorganization agreement dated April 5, 1999,
Capital agreed to transfer all of its interest in the following properties to
Marci in exchange for 10,000,000 shares of common stock:
1. FAB Securities of America, Inc.; ("Securities")1,
2. FAB Finanz- und Anlagen- Beratung und Vermittlung GmbH ("FAB Germany");
3. FAB Corporate Funding, Inc. ("Funding");
4. FAB Capital Markets, Inc. ("Markets");
5. FAB Futures, Inc. ("Futures");
6. Momentum Capital Funding Corp. ("Momentum");
7. together with 725,1802 shares of King's Road Entertainment, Inc.
(Nasdaq: KREN), (KREN has since been removed from Nasdaq and now
trades on the electronic Bulletin Board)
Concurrently, Western agreed to transfer 266,418 shares of King's Road
Entertainment and 500,000 shares of Metropolitan Worldwide, Inc. (OTC BB: MWWM)
to Marci in exchange for 1,400,000 shares of Common Stock.
As a result of the rescission of the Old Transaction, the Company will have
no ongoing interest in any of the Old Transaction Properties. In connection with
the rescission of the Old Transaction, Capital and Western have returned
11,400,000 shares of common stock to the Company for cancellation and agreed to
indemnify the Company from all causes of action that relate in any way to the
Old Transaction.
B. Summary Description of the New Transaction Properties
Wavecount is a privately held financial services holding company. Its
owners are essentially the management of the company and its subsidiaries. The
operating assets transferred to Global in connection with the New Transaction
include:
1. Dupont Securities Group, Inc. ("DSGI"), a registered United States
securities broker-dealer operating under the NASD's $100,000 net capital
requirements. DSGI is now 100% by owned Wavecount, although the approval of
the acquisition by the National Association of Securities Dealers, Inc.
("NASD") pursuant to its rules is still pending. Such approval is
reasonably expected in due course.
2. Wavecount Futures, Inc. ("Futures"), an Introducing Futures Broker
registered with the National Futures Association (NFA) and the Commodity
Futures Trading Commission (CFTC);
3. Wavecount Asset Management, Inc. ("WAM"), an investment manager that has
applied for Registration as an Registered Investment Advisor (RIA). WAM has
an association with Jordan Advisory, a minority owned RIA which manages
approximately $800 million. WAM will be listed by Jordan as a sub-advisor
for Fixed Income assets as soon as its registration is effective.
4. A 49% equity interest in Native American Financial Services Company
("NAFSCO"). NAFSCO is a financial services company located in Window Rock,
Arizona, the capital of the Navajo Nation. Along with Murray Lee, the 51%
Navajo majority partner, Wavecount established NAFSCO as the first Native
American financial services company resident on a Native American
reservation.
5. B&S Portfolio Management, GmbH ("B&S"), a registered German Introducing
broker located in Munich, Germany which also operates as an asset
management firm and investment advisor. Wavecount has signed a letter of
intent to acquire B&S in exchange for 200,000 newly issued shares of the
Company's common stock and it is anticipated that this transaction will
close on or before April 30, 2000..
6. 300,000 shares of King's Road Entertainment, Inc. (OTCBB: KREN);
7. 250,000 shares of Chariot International Holdings, Inc. (OTCBB: CHIH);
8. 250,000 shares of Immediate Entertainment Group, Inc, (OTCBB: IEGPE).
In connection with the New Transaction, Global will issue 5,830,000 new
common shares to Wavecount and/or its designees. Therefore, upon closing of the
New Transaction, Global will have approximately 7,150,000 shares issued and
outstanding, as compared to the 12,720,000 shares issued and outstanding after
the closing of the Old Transaction.
C. Business of the Company
Global is a holding company that conducts its business activities through
five subsidiaries. The main business lines center around Fixed Income Securities
including Brokerage Execution Services, Management of Funds to be invested in
Fixed Income and assistance in raising funds via Fixed Income offerings. As a
specialty, we have focused on providing assistance to Native American Nations in
analyzing their financing requirements, structuring offerings, evaluating
business proposals for these needs and raising funds and managing funds. We
expect to use our website for on-line sales to supplement our person to person
investment business.
Expected Growth in Demand for Fixed Income Products
Our mission is to provide high quality service in fixed income brokerage,
funding, asset management and advisory to Institutions, individuals and Native
American Nations. We believe Fixed Income products will soon enjoy a renaissance
of investor interest for several reasons.
First, the recent rise in interest rates foretells the resurgence of Fixed
Income products. Not only have Government bond rates risen but corporate and
Federal Agency bonds have seen greater rises in interest rates as the economies
of Europe and Japan have recovered along with Oil prices. Inflation indicators
have been rising for over a year. When interest rates on investment grade
securities approach 8%, investor interest rises.
Second, in the next few years, Baby Boomers will begin to cash in their
stock market profits as they retire. Their need for predictable income will
increase and that increases demand for Fixed Income products, not only directly
but through mutual funds and annuities.
Third, since Social Security taxes (FICA) have been counted with general
government revenues, the budget balancing effects will reverse as Baby Boomers
retire, and begin to pull money out of the Social Security System. More
attractive interest rates will result.
Fourth, the rise in the stock market has gone on for so long, bonds were
often forgotten by investors. But, except for tech stocks, rising rates and
retirement needs will flatten out the stock market rise and bonds will again be
competitive investments. Even now, the broad market and most equity mutual funds
have failed to keep pace with the headline tech stocks and bonds are already
competitive in most cases. The Lipper Mutual Fund averages for December 9, 1999,
and Index calculations, as reported in Barron's show the following:
<PAGE>
Mutual Funds
U.S. Equity Funds: Range from -8% for Real Estate to +107% for Technology
Average General Equity Fund: +19%
Returns by Industry Group
Basic Materials: +20%
Consumer Cyclical +15%
Consumer Non Cyclical: -5%
Energy: +14%
Financial: +3%
Industrial: -1%
Indexes without Dividend Reinvestment
(Reinvestment adds about 1%) Year to Date
Dow Industrials: +21%
S&P 500: +15%
NYSE Composite: +7%
Russell 2000: +10%
Wilshire 5000: +17%
S&P Transports: -10%
S&P Utilities:: -16%
<PAGE>
Technology: +49%
Barron's, on December 20, 1999 reported that "52% of the stocks in the S&)
are down for the year; 67% of the stocks in Nasdaq are down 20% from their 1998
highs: and 45% of Nasdaq are down 40% from their 1998 highs."
These are important results for Bond Dealers: Without the upward pull of
technology stocks most indexes and funds have reverted to the historic stock
market returns. We believe individuals will be buying bonds from our salesmen
and website as easily as they today buy stocks on the Internet.
Securities Brokerage--DSGI provides Principal Dealing services to
Institutional and Retail Clients. Currently, the firm has opened as accounts a
number of well known International Banks, Investment Funds and
Quasi-Governmental Agencies to trade in a variety of Investment Grade
Securities. Generally, a salesmen will receive a firm order to buy or sell a
security or group of securities from an Institutional account. Typically, these
orders are executed with large market-making bond dealers, usually those
designated as Primary Dealers by the Federal Reserve Bank of New York. DSGI
trades with these large accounts by way of a guaranty letter provided by
Schroder, Inc. and First Montauk Securities. Corp.(FMFK). DSGI clears through
Schroder and FMFK. Through Schroder, DSGI arranges Repurchase Agreement (Repo)
financing for customers at competitive rates. Shortly, we will be able to
provide Execution and Repo services in multiple currencies.
DSGI also specializes in providing Fixed Income execution services to small
dealers without their own bond desks or by providing expertise to other bond
traders in specialized securities. DSGI's staff has many years of experience in
a wide variety of Fixed Income products. DSGI has begun to establish alliances
with other dealers, starting with its clearing partner, FMFK, which has over 400
salesmen.
DSGI is a member of the NASD operating under Net Capital rules as a
$100,000 broker dealer. This entitles DSGI to provide a full line of investment
services including underwriting, market-making in both Fixed Income and
Equities, Private Placements, regular transactional brokerage services. DSGI has
registered as an Insurance Agency, in order to provide retail clients the
opportunity to purchase insurance wrapped investment products such as annuities.
DSGI can also provides execution in Equities and is currently a NASDAQ market
maker in several Over The Counter (OTC) stocks.
Internet Based Trading and Account Services
Through Schroder, DSGI will shortly be able to provide Internet access to
accounts trade execution and market information for retail clients. We see this
as a significant growth area for our Fixed Income business. (Customers will also
be able to electronically trade stocks). The service will be available through
DSGI's website under the name Dupont Direct.com. Via a hot link to Schroder,
clients will be able to open accounts, receive market information, execute
trades and see the status of their account.
In preparation for this, and to provide links to DSGI's site, Wavecount,
the majority owner of Global (soon to be Dupont Direct Financial Holdings, Inc.)
is the registered owner of investment related Domain names such as:
<PAGE>
Fixed Income Securities:
USTreasuryzerocoupons.com
USTreasurybond.com
Mortgagebackedbonds.com
InterestIncome.com
InterestIncome.net
USTreasurystrips.com
Municipalbondmarket.com
Eurocurrencybonds.com
Yankeebond.com
Equities and Options:
OTCmarketmaker.com
OTCequitytrading.com
Americandepositoryreceipts.com
RegulationD.com
OTCoptionstrading.com
Australianstockexchange.com
Nikkeiindex.com
Mutual Funds:
Mutualfundinvestments.net
Noloadmutualfunds.net
Loadmutualfunds.com
Openendmutualfunds.com
Retirement Planning:
401Kpensionplan.com
Lifeinsuranceannuity.com
VariableAnnuity.com
Derivatives:
Oilderivatives.com
Crudeoilproducts.com
Eurocurrencytrading.com
Weatherriskhedging.com
Financialswaps.com
<PAGE>
Fixed Income and Market Research--DSGI in concert with WAM will provide
market analysis that focuses fixed income products, macroeconomic trends and
technical analysis of Bond and Currency markets.
Asset Management - Wavecount Asset Management has two unique proprietary
products. First, it has developed an advisor selection process designed to
analyze the returns generated by professional money managers in a variety of
investment products, particularly fixed income, currencies, commodities and
stock indices. Through this process, WAM can provide investors with portfolios
of advisors meeting desired investment performance characteristics for return
and risk. Second, WAM has a zero-coupon based yield enhancement program, based
solely on U.S. Government guaranteed zero coupon bonds that is may improve yield
on a fixed income portfolio by about 2 %. In the world of bonds yielding single
digit returns, this is a huge increase in performance for a bond portfolio.
Through its association with NAFSCO and Jordan Advisors, WAM is being
considered for management of funds held by Native American Nations.
Native American Financial Services - We consider one of our main focuses of
growth to be developing and strengthening our relations with Native Americans.
For a variety of reasons, Native American Nations have had little access to the
capital markets. As a result they have not been able to raise the funds needed
to raise levels of employment and self-sufficiency by seeding and supporting
entrepreneurial activity on reservations or attracting outside business to the
reservation.
However, in recent years, with changes in Bureau of Indian Affairs
regulations, tribes are taking more control of Trust funds and revenue streams,
not only from well known casino activity, but also from funds previously managed
in Washington and revenue from mineral resources. In many ways, these are
Developing Nations with a need to increase skills in evaluating business
proposals, selecting advisors, training entrepreneurs, funding business loans
and industrial parks. Fixed Income expertise is particularly important for fund
raising for these projects. Very few American Indian bond issues have been sold,
and almost none have been publicly traded. We are experts at structuring Fixed
Income issues. In some cases, these Nations can issue tax-exempt municipal
bonds, which we believe wealthy investors will find appealing when they can be
structured for safety and above normal yields.
Through our ownership of a minority interest in NAFSCO, we have enjoyed
some degree of success with Native American Nations. Wavecount presented a
seminar in bond financing and business plan evaluation to the Senior Government
Officials of The Navajo Nation, the largest tribe in America. NAFSCO has been
selected to manage a Business Development Program, including training, loan
guarantees and business proposal evaluation leading to bond issuance for
Industrial and Business Development.
Through its relationship to Charles Jordan, NAFSCO will receive commission
dollars from managers investing Tribal Trust funds. In addition, NAFSCO itself
is being considered as a manager of those funds with the assistance of WAM and
Jordan Advisors. The Navajo Nation has about $1.7 billion in funds under
management. NAFSCO is the only Navajo preference financial services company. In
connection with providing a full investment service to Native Americans,
Wavecount owns the following Web Domain names:
Navajosecurities.com
NavajoNationsecurities.com
MashantucketPequotNation.com
EasternPequotNation.com
PequotNation.com
Pequotsecurities.com
Derivative Brokerage--Wavecount Futures has been organized to supplement
DSGI's institutional or retail fixed income or equity index product line. Since
many investment products are derivative, an ability to provide access to futures
enhances the trade ideas that generate cash market bond business. Through
"Futures", the company can offer hedging or swap related fixed income ideas. In
addition, through its association with TGCM, a registered CTA, Futures will
provide investment ideas in derivatives related to Fixed Income, currencies and
Equity Indices. Through its association with Alaron Trading, clearing through
E.D.F. Man, one of the largest futures brokers in the world, "Futures" can
provide on-line trading and account opening.
Investment Banking--DSGI limits its investment banking activities to
companies in which it has, through the experience of its senior staff, an in
depth understanding of a particular company's business or an investment.
Principal Trading and Investments--The Company currently limits its trading
and investing to maintaining inventory for the servicing of retail clients and
investments in which the principals have particular expertise or ownership.
Through our five operating units, the Company intends to provide a full
range of Fixed Income investment services to sophisticated individual and
institutional investors. Each of our senior managers has over 20 years of
investment experience, particularly Fixed Income. We have established a
clientele of institutional investors and individual investors who require a wide
variety of analytical and brokerage services, and demand hands-on trading and
order execution capabilities that are not generally available through similar
sized competitive firms in the securities brokerage, commodities brokerage and
investment banking industries. In particular, we have developed unique niche
with Native American Nations in advising on funding, business development, money
management and brokerage services.
D. Certain Important Risk Factors.
We have a limited operating history and we may incur losses as our business
expands. We have a limited operating history upon which to evaluate the merits
of investing in our common stock. Our prospects are subject to the risks,
expenses and uncertainties encountered by companies in financial markets. These
risks include the failure to continue to develop and extend our brokerage and
on-line service capabilities, the rejection of our services by potential
clients, increased competition and the ability to attract, retain and motivate
qualified personnel. In particular, Native American Nations are sovereign and
political considerations within those Governments or changes in Federal
Government policies may inhibit our growth. We may not be successful in
addressing such risks, and our business and financial condition could suffer.
Our prospects are also subject to the risks encountered by companies in the
investment banking business. Our limited operating history and the uncertain
nature of the markets we address make it difficult or impossible to predict
future results of operations. Therefore, recent performance should not be an
indicator of the rate of revenue growth, if any, we can expect in the future.
We may incur losses and liabilities in the course of business that could
prove costly to defend or resolve. The brokerage and investment banking business
involves significant economic risks. Brokerage and investment banking firms face
significant legal risks in the U.S., and the volume and amount of damages
claimed in lawsuits against financial intermediaries are increasing. These risks
include potential liability under federal and state securities and other laws
for allegedly false or misleading statements made in connection with securities
offerings and other transactions. We also face the possibility that customers or
others will claim that we improperly failed to apprise them of applicable risks
or that they were not authorized or permitted under applicable corporate or
regulatory requirements to enter into transactions with us and that their
obligations to us are not enforceable. These risks often may be difficult to
assess or quantify and their existence and magnitude often remain unknown for
substantial periods of time. We may incur significant legal expenses in
defending against litigation. Substantial legal liability or a regulatory action
against us could have a material adverse financial effect on us.
Our retail brokerage and investment banking groups currently focus on
raising capital from traditional institutional and venture capital sources and
strategic investors. There is no guaranty these sources of funds will support
our clients or projects. Failure of our proposed European affiliates may impair
our ability to establish additional offices in the future. We may not be able to
expand our business internationally, and if we do, we face risks relating to
international operations and regulations.
A component of our strategy is our planned increase in efforts to attract
more institutional customers and strategic affiliations with other
broker-dealers to increase our Fixed Income business. We cannot assure you that
we will be able to successfully market our services and products in domestic or
international markets. In addition, in doing business in international markets
or with Sovereign American Indian Nations, we face risks, such as unexpected
changes in regulatory requirements, tariffs and other trade barriers,
difficulties in staffing and managing such operations, political instability,
fluctuations in currency exchange rates, reduced protection for intellectual
property rights in some countries, issues of sovereignty as they affect contract
enforcement, seasonal reductions in business activity during the summer months
and potentially adverse tax consequences, any of which could adversely impact
our operations.
We may not be able to keep up in a cost-effective way with rapid
technological change. The financial services industry is characterized by rapid
technological change, changes in customer requirements, frequent new service and
product introductions and enhancements and evolving industry standards. Our
future success will depend, in part, on our ability to acquire technologies and
enhance our existing services and products. We must also add new services and
products that address the increasingly sophisticated and varied needs of our
customers and prospective customers. We must respond to technological advances
and evolving industry standards and practices on a timely and cost-effective
basis. We are particularly dependent on our clearing Brokers, Schroder, Inc. and
First Montauk, to develop these technologies and make them available to us. The
development and enhancement of services and products entails significant
technical and financial risks. We may not (1) effectively use new technologies,
(2) adapt services and products to evolving industry standards or (3) develop,
introduce and market service and product enhancements or new services and
products. In addition, we may experience difficulties that could delay or
prevent the successful development, introduction or marketing of these services
and products, and our new service and product enhancements may not achieve
market acceptance. If we encounter these problems, our business, financial
condition and operating results will be materially adversely affected.
Periods of declining prices, inactivity or uncertainty in the public or
private bond or equity markets may adversely affect our revenues. Our revenues
are likely to be lower during periods of declining prices or securities market
inactivity in the sectors on which we focus. The public markets have
historically experienced significant volatility not only in the number and size
of offerings, but also in the secondary market trading volume and prices of
newly issued securities. This recent activity may not sustain its current
levels. Activity in the private equity markets frequently reflects the trends in
the public markets. As a result, our revenues from private capital raising
activity may also be adversely affected during periods of declining prices or
inactivity in the public markets.
The growth in our revenues will depend largely on a significant increase in
the number and size of transactions by institutional and individuals for our
products. Financing activity, particularly by Native American Nations, may not
increase for a number of reasons. Demand for Fixed Income products may not grow
as expected due to market uncertainty regarding inflation, interest rates and
related issues.
In those few areas where we engage in corporate investment banking or stock
market making activity, disappointments in quarterly performance relative to
analysts' expectations can affect our profitability. Changes in long-term
prospects for an industry can also adversely affect capital raising activities
to a significant degree.
Our success is dependent on our key personnel whom we may not be able to
retain, and we may not be able to hire enough additional qualified personnel to
meet our growing needs. Our business requires the employment of highly skilled
personnel. The recruitment and retention of experienced investment professionals
and managers are particularly important to our performance and success. The loss
of the services of any of our key personnel or the inability to recruit and
retain experienced investment professionals and managers in the future could
have a material adverse effect on our business, financial condition and
operating results. We expect further growth in the number of our personnel.
Competition for such personnel is intense. Our ability to compete effectively in
our business depends on our ability to attract and retain the quality personnel
our operations and development require.
We may have difficulty effectively managing our growth. We expect our
business to develop rapidly both in the U.S. and international markets. If our
current senior management has difficulty managing a rapidly growing enterprise,
it will affect our results. The intensifying competition we face from both
established and recently formed entities may adversely affect our revenues and
profitability. We expect to encounter intense competition in all aspects of our
business, and we expect this competition to increase. Our principal competitors
include traditional investment banking and brokerage firms. Most of these
investment banking and brokerage firms have been established far longer and are
far better capitalized and staffed than we are, and have much larger,
established customer bases than we do.
Operational risks may disrupt our business or limit our growth. Our
business is highly dependent on information processing and telecommunications
systems. We face operational risks arising from mistakes made in the
confirmation or settlement of transactions or from transactions not being
properly booked, evaluated or accounted for. Our business is highly dependent on
our ability, and the ability of our clearing firm, to process, on a daily basis,
a large and growing number of transactions across numerous and diverse markets.
Consequently, our clearing firm and we rely heavily on our respective financial,
accounting, telecommunications and other data processing systems. If any of
these systems do not operate properly or are unavailable due to problems with
our physical infrastructure, we could suffer financial loss, a disruption of our
business, liability to clients, regulatory intervention or damage to our
reputation. In addition, we face operational risks due to difficulties with our
telecommunications system's inability to handle the high level of customer
inquiries. The inability of our systems to accommodate an increasing volume of
transactions could also constrain our ability to expand our businesses. For many
of these functions, we are dependent on the ability of our clearing Brokers to
handle these transactions and develop the systems necessary to meet growth. We
may experienced disruptions in our Web site service due to failures in our
telecommunications system and our Web servers. We expect that in the future we
will need to continue to upgrade and expand our systems infrastructure. We
intend to expand our telecommunications system capacity in order to better
ensure customer satisfaction.
If we fail to comply with applicable laws and regulations, we may face
penalties or other sanctions that may be detrimental to our business. When
enacted, the Securities Act of 1933, which governs the offer and sale of
securities, and the Securities Exchange Act of 1934, which governs, among other
things, the operation of the securities markets and broker-dealers, did not
contemplate many of the technological changes affecting the Securities business,
including the Internet and development of securities derivatives. Uncertainty
regarding the application of these laws and other regulations to our business
may adversely affect the viability and profitability of our business. If we fail
to comply with an applicable law or regulation, government regulators and self
regulatory organizations may institute administrative or judicial proceedings
against us that could result in censure, fine, civil penalties (including treble
damages in the case of insider trading violations), the issuance of
cease-and-desist orders, the loss of our status as a broker-dealer, the
suspension or disqualification of our officers or employees or other adverse
consequences. The imposition of any material penalties or orders on us could
have a material adverse effect on our business, operating results and financial
condition.
If we engage in market-making or proprietary trading activities in the
future, we will face increased risks, which could be harmful to our business. We
currently engage in market-making and proprietary trading for our own account.
These activities involve significant risks of changes in the market prices of
such securities and of decreases in the liquidity of the securities markets.
These risks, in turn, could limit our ability to resell securities purchased or
to repurchase securities sold short. In addition, our market making and trading
activities subject our capital to significant risks that other parties to the
transactions will fail to perform their obligations. From time to time, we may
establish short positions during the course of our trading activities. It is a
characteristic of short positions that any loss sustained on closing out the
position may exceed the liability related thereto as reflected on our financial
statements.
We may not be able to secure financing if we need it in the future. We may
require additional financing to support our planned expansion, develop new or
enhanced services and products, respond to competitive pressures, acquire
complementary businesses or technologies or respond to unanticipated
requirements. We can give stockholders no assurance that additional financing
will be available when needed on favorable terms, if at all.
Employee misconduct could harm us and is difficult to detect and deter.
There have been a number of highly publicized cases involving fraud or other
misconduct by employees in the financial services industry in recent years, and
we run the risk that employee misconduct could occur. Misconduct by employees
could include binding us to transactions that exceed authorized limits or
present unacceptable risks, or hiding from us unauthorized or unsuccessful
activities. In either case, this type of conduct could result in unknown and
unmanaged risks or losses. Employee misconduct could also involve the improper
use of confidential information, which could result in regulatory sanctions and
serious harm to our reputation. It is not always possible to deter employee
misconduct, and the precautions we take to prevent and detect this activity may
not be effective in all cases.
Despite our efforts, our systems as well as those of others may prove not
to be Year 2000 (Y2K) compliant, which could significantly disrupt our business.
It should be noted that both the New York Stock Exchange and the National
Association of Securities Dealers have made significant efforts to assure that
all broker-dealers, including DSGI, First Montauk and Schroder, can meet the
challenges posed by Y2K. Nevertheless, we may realize exposure and risk if the
systems on which we are dependent to conduct our operations are not Y2K
compliant. Any significant disruption of this computer infrastructure caused by
the Y2K problem could significantly interfere with our business operations. Our
potential areas of exposure include products purchased from third parties,
computers, software, telephone systems and other equipment used internally. We
are especially dependent on systems operated by our clearing Brokers for both
normal clearing and processing and Internet based activity. If our present
efforts to address Y2K compliance issues are not successful, or if trading
counterparties, financial intermediaries and vendors with whom we conduct
business do not successfully address such issues, our business, operating
results and financial position could be materially and adversely affected.
As part of our program to market Fixed Income products to individuals, we
intend to use the Internet technology made available to us by our clearing
broker, among others. The development of the Internet as a commercial
marketplace is still uncertain. Our individual clients will also be able,
through Schroder, to transact equity business over the Internet. The markets for
brokerage services through the Internet are at an early stage of development and
are rapidly evolving. Because the markets for our online services are new and
evolving, it is difficult to predict the future growth (if any) and the future
size of these markets. We cannot assure you that the markets for our online
services will continue to develop or become sustainable. Sales of some of our
services and products will depend upon the acceptance of the Internet as a
widely used medium for commerce and communication. A number of factors could
prevent such acceptance, including the following:
1. Electronic commerce is at an early stage and buyers may be unwilling to
shift their purchasing from traditional vendors to online vendors;
2. The necessary network infrastructure for substantial growth in usage of
the Internet may not be adequately developed;
3. Increased government regulation or taxation may adversely affect the
viability of electronic commerce;
4. Insufficient availability of telecommunication services or changes in
telecommunication services could result in slower response times or
increased costs; and
5. Adverse publicity and consumer concern about the security of electronic
commerce transactions could discourage its acceptance and growth.
Questions related to the security of our systems and our ability to
transmit confidential information over the Internet may adversely impact our
business. The need to securely transmit confidential information over the
Internet has been a significant barrier to electronic commerce and
communications. We are potentially vulnerable to attempts by unauthorized
computer users to penetrate our network security. If successful, those
individuals could misappropriate proprietary information or cause interruptions
in our online services. We will have to work closely with our clearing broker
and may have to expend capital and resources to protect against the threat of
such security breaches or to alleviate problems. In addition to security
breaches, inadvertent transmission of computer viruses could expose us to the
risk of disruption of our business, loss and possible liability.
All of our salespersons and traders receive information, quotes and news
over the Internet. As a result, any failure of systems, vendors, and
communications networks may impact our ability to conduct our business. Failure
of encryption provided by our vendors or clearing broker could compromise the
confidentiality of our customer transactions and adversely affect our business.
Shares eligible for future sale by our current stockholders may adversely
affect our stock price. A substantial amount of our Common Stock, including
shares issued upon the exercise of outstanding options, will eventually be
available for sale in the public market. The future sale of these shares by our
current stockholders may adversely affect our stock price.
We do not anticipate paying dividends. We have never declared or paid any
cash dividends on our Common Stock and do not expect to do so in the foreseeable
future. We currently intend to retain any earnings to finance the expansion and
development of our business. Any future payment of dividends will be made at the
discretion of our Board of Directors based upon conditions then existing,
including our earnings, financial condition and capital requirements as well as
such economic and other conditions as our Board of Directors may deem relevant.
Item 4.
Changes in the Registrant's Certifying Accountant.
The financial statements of FAB GLOBAL, Inc. for the fiscal years ended May
1997, May 1998 and May 1999 were audited by the firm Want and Ender, New York,
New York.
At this time, the Company has not made any decision to change future
accounting and auditing services. During the fiscal years set forth above, and
the subsequent interim there have been no reportable disagreements between Marci
(FAB Global) and DSGI and their respective auditors on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
Item 5.
Other Events
Impediments to Completion of the Transaction Described in the April 8-K.
1. Introduction - As described in the April 8-K, Global's business was to become
that of a financial services holding company emphasizing several business lines
heavily dependent on the development of Internet-based securities trading
activities. The CEO designate was Phillip G. Cook, who was also the CEO and
Chairman of Capital. This was Mr. Cook's vision of the corporation. However in
taking steps to effect that vision, details of the business plan were not
properly executed, in part because Mr. Cook failed to include the Board and key
executives in his decision making about hiring or business expansion.
Many things which were to be done were never, in fact, done. Often, Mr.
Cook failed to inform the Board of Directors, shareholders of Capital or other
executive officers of commitments he had made or planned to make. As a result,
the details of these commitments were never carried out because they were
unknown by the other parties.
2. Things which were never completed or would inhibit the Old Transaction
None of the operating subsidiaries were actually transferred to Global.
None of the securities listed were ever transferred to Global. As a result, the
transaction did not close and none of the designated executive officers were
actually appointed.
Some of the subsidiaries to be transferred were never actually transferred,
even to Capital. For example, "Futures" was incorporated by Randy Strausberg,
the COO-designate of Global, and Steven Muchnikoff. Since Futures is a regulated
by the CFTC and the NFA, Strausberg was the only person in Capital to have the
requisite licenses. As a result, Strausberg is and was the sole director and
officer of Futures. No board meeting was ever held by Capital or Futures to
transfer title of Futures to Capital.
The April 8-K listed Mr. Cook as "the licensed principal of FAB Germany."
This is not correct. In September - October 1998, the final paperwork that was
to transfer FAB, GmbH to Capital was signed. At that time, both the names of Mr.
Cook and Mr. Strausberg were sent to the BakRed (the German equivalent of the
SEC) for approval. Although on the State records, both were listed as
"Geschafsfuhrer", the equivalent of a Managing Director, neither was ever
"accepted" by the BakRed. Although Mr. Cook was Chairman and CEO of FAB GmbH,
and responsible for its day to day operation, neither he nor Mr. Strausberg was
ever the official license holder - that title was still held by the previous
owner until approval would be received from BakRed. Other than "Managing
Director nominee", Mr. Strausberg had no day to day management role in Germany.
Mr. Cook hired Steven Fleischer - via a letter agreement never seen by the Board
of Capital until after Mr. Cook resigned to be his personal representative and
day to day manager in Germany and a Director nominee of FAB Germany. It is still
not clear to the Board members whether Mr. Cook hired Mr. Fleischer as an
employee of FAB Germany or Capital. Funds in Germany were under the signature of
Messrs. Cook and Fleischer.
Just as in the United States a transfer of ownership and management is
approved by the NASD, any transfer to new ownership in Germany would have to be
approved by the BakRed. Officially, they had not yet approved the transfer to
Capital, nor to Global.
The plan to develop an Internet based broker-dealer was not approved by the
Board of Capital. While Mr. Cook hired personnel and began to spend significant
resources on it, the other members of the Board were not convinced the resources
needed would be available and that planned activities were could be completed in
a timely fashion. Nor were they consulted about the new hiring decisions.
For several months before April 1999, the expenses of developing the
Internet business outgrew the excess operating revenues from existing
operations, new capital was taking longer than anticipated to secure, Mr. Cook
was withdrawing cash from the broker-dealer to fund Internet activities and the
company was also diverting its attentions from its everyday brokerage business
to these matters. This had begun to lead a number of key employees to seek other
employment. The other Board members of Capital and remaining key employees
brought these matters to the attention of shareholders controlling more than 60%
of the voting stock of Capital - particularly the failure to complete the
transfer of assets to Global, the diversion of revenues from existing business
lines and the fact that hiring and decisions were made without consultation with
other Board members and key officers. The shareholders decided to reorganize and
restructure the management of the Capital. This eventually led to the
resignation of the company's former Chairman on or about June 24, 1999. Randy M.
Strausberg was named Capital's new Chairman and Chief Executive. Gerhard Roth,
licensed by the BakRed as a Registered Investment Advisor in Germany was elected
a Director in charge of European Operations for Capital. Marc Greenspan
continued on the Board of Capital. Messrs. Strausberg, Roth, and David W.
Parsons were constituted the new executive management of Capital. Mr. Fleischer
was relieved of his Germany duties shortly thereafter. Before he could be
assigned new duties and before a complete examination of activities in Germany
was complete, Mr.
Fleischer resigned.
At that time the new management began to acquaint itself more fully with
the company's business affairs, particularly those that had previously been
handled almost exclusively by its former Chairman personally.
By on or about July 1, 1999, new management of Capital had ascertained
that, for reasons unknown, the conveyances of the Transaction Properties to be
made by Capital and Western as described in the April 8-K had not been made. Nor
were transfers to Capital of some reported subsidiaries and assets completed, as
listed above. It was subsequently discovered that at least one possible
significant reason for this was the inherent difficulties and high expenses
associated with procuring audited financial statements for the most material
operating Transaction Properties that matched Global's 52/53 week fiscal year
ending on the Friday falling during the week in which the month of April ends.
3. Accounting and Auditing Issues - New management discovered that, even if
previously reported transactions could be completed, the most severe obstacle to
the completion of the Transaction arose from resolution of accounting and
auditing matters in a timely manner to permit the preparation of consolidated
financial statements for submission in connection with the April 8-K, due on or
about June 20, 1999. In other words, by the time Mr. Cook resigned, Global had
already missed the cut-off for the preparation and submission of audited
financial statements required for the April 8-K. In addition Global's Annual
Report on Form 10-K, which was due to be filed on or about July 30, 1999,
required the same information. This situation was brought to the Board's
attention by Mr. Strauss, listed in the April 8-K as Controller designate, and
then an employee of Capital. An experienced accountant, he concluded that even
if funds could be found to pay the new auditors, Eisner and Eisner, the work
could not be completed in a timely fashion. Given the incomplete transactions
and the estimate of accounting fees exceeding the companies resources, it
appeared the Capital/Global transaction could not be completed in any timely
fashion.
The financial statements of Marci for the fiscal years ended May 1998 and
1997 had been audited by the accounting firm of Want & Ender, New York, New
York. The financial statements of Securities for the years ended December 31,
1998 and 1997 were audited by the accounting firm of Marx Lange & Gutterman, LLP
Certified Public Accountants, New York, New York. The audit of Securities' 1998
financial statements had been completed only a little more than a month at the
date of the reorganization agreement. The financial statements of FAB Germany
for the year ended December 31, 1998 were undergoing audit by the accounting
firm of Dewisa GmbH, Offenbach am Main, Germany, at the date of the
reorganization agreement. In connection with the Transaction, the firm of
Richard A. Eisner & Co., LLP ("Eisner" or "Eisner & Co."), Certified Public
Accountants, was retained to audit the financial statements of Global and its
subsidiaries as of April 30, 1999 and the related statements of income, cash
flows and shareholders' equity for the fiscal year then ended.
In connection with this auditing process and new management becoming
familiar with it, it was discovered that the 1997 and 1998 audits for Securities
had not been performed by SEC-qualified accountants, and that FAB Germany's
accountants similarly were not so qualified. Moreover, there appeared to be
material weaknesses in FAB Germany's books and records and internal controls
that at least threatened to render an audit of that subsidiary in accordance
with GAAP and GAAS excessively complex and expensive, if not impossible. Thus,
Global was at that point confronted with immediate, elaborate, unexpected and
highly costly accounting and auditing tasks less than a month before the Form
10-K was due and when the April 8-K financial statement submission was overdue.
New management concluded that the legal and accounting fees and expenses to
resolve these matters and allow completion of the Transaction as described in
the April 8-K would approach or exceed $200,000, and require inordinate amounts
of management and other human resources. It was therefore determined that the
simplest solution would be to rescind that Transaction and to seek a
satisfactory substitute business combination for Global.
4. Management's Discovery of Irreparable Damage to the German Operation With the
appointment of Mr. Roth in Germany to replace Mr. Fleischer, and in the absence
of any other person, Mr. Strausberg conducted an examination of the condition of
FAB Germany (also known as FAB, GmbH). It was quickly concluded that bills had
not been paid promptly, payables had mounted and the viability of GmbH was
questionable. Also it appeared that Mr. Cook had not succeeded in clearing the
transfer of GmbH to Capital. Mr. Strausberg and Roth concluded that GmbH should
be put into the hands of a receiver who would settle the debts and close the
operation. As a result, one of the main operating subsidiaries of Capital was no
longer available to complete the Transaction.
5. Management's Change of Strategic Orientation - Shortly after the resignation
of the company's former Chairman, and substantially concurrently with the
accounting and auditing developments described above, the company's new
management determined that the tasks of developing the company's own,
proprietary Electronic Communication Network ("ECN") for Internet-based equity
securities trading would be prohibitively expensive for an enterprise of its
size. Moreover, the expertise and interests of Messrs. Strausberg, Muchnikoff
and Greenspan had historically been in institutional fixed income securities
trading.
Accordingly, new management decided to discontinue Capital's development of
an Internet-based securities trading platform, and the individual members of new
management decided to organize or purchase another qualified United States
securities broker-dealer from which to launch an independent fixed income
trading house.
Item 6.
Resignations of Directors.
No director has resigned or declined to stand for re-election to the Board
of Directors since the date of the last annual meeting of stockholders because
of any disagreement with Marci on any matter relating to Global's operations,
policies or practices.
As a condition of the New Agreement, as previously described, Ms. Fonner
agreed to resign as the Company's sole director and appoint four New Directors
nominated by Wavecount. Wavecount has nominated Randy M. Strausberg, Marc
Greenspan, Steven Muchnikoff and David W. Parsons. As an outside director,
Wavecount has nominated Elroy Drake. The New Directors will not assume office
until 10 days after we file an Information Statement and Notice of Change in the
Majority of the Board of Directors with the SEC and send copies of the Notice to
our stockholders. At that time, Sally A. Fonner will appoint the New Directors
and then resign as a director of the Company. Thereafter, the New Directors will
manage our business.
The Board does not currently have any committees. After the appointment of
the New Directors, the Board intends to form an Audit Committee and a
Compensation Committee. The Audit Committee will review the services provided by
our independent accountants, consult with our independent accountants on audits,
review certain filings with the SEC, assess need for internal auditing
procedures and assess the adequacy of internal controls. The Compensation
Committee will determine executive compensation and review transactions between
the Company and our affiliates, including any associates of affiliates.
Compensation of Executive Officers and Directors. Ms. Fonner has not
received any cash compensation for services performed during the two years prior
to the Transaction. In connection with the plan of reorganization approved by
Marci's stockholders, certain persons designated by Capston received 300,000
shares of Common Stock for administrative and management services. Ms. Fonner
received 96,400 of these shares of Common Stock for her personal account.
Executive Employment Contracts. Prior to the Old Transaction, FAB Capital
had authorized employment agreements between certain executives and key
employees and the companies that were to be transferred to Marci in connection
with the Old Transaction. However, no such employment agreements were actually
written or approved by the Board of Capital.
In connection with the new transaction, it is expected that employment
agreements will be written and approved by Wavecount for the following
executives: Randy M. Strausberg, Steven A. Muchnikoff, Marc Greenspan and David
W. Parsons. These agreements require the executives and key employees to devote
substantially all of their business time to the affairs of Global, our
subsidiaries and Wavecount, establish standards of conduct, prohibit the
solicitation of our existing clients after termination, expressly affirm our
rights respecting the ownership and disclosure of confidential information,
provide for the acts and events that would give rise to termination of such
agreements and provide express remedies for a breach of the agreement by the
employee or the Company. The following table summarizes the compensation payable
to executives and key employees under the terms of their respective employment
agreements.
Employee Position Term Salary Initial Stock Option
Randy M. Strausberg CEO 5 years $150,000 250,000 shares (1)
David W. Parsons General Counsel 5 years $100,000 125,000 shares (1)
Steven Muchnikoff Director 5 years $100,000 125,000 shares (1)
Marc Greenspan Director 5 years $100,000 125,000 shares (1)
(1) stock options granted to our executives and key employees are exercisable at
a price of 50 cents per share (cash exercise) and will vest after one year from
February 1, 2000.
In addition, each of the executives and key employees identified above will
participate, without cost, in our standard employee benefit programs, including
medial/hospitalization insurance and group life insurance, as in effect from
time to time.
ITEM 7.
Financial Statements and Exhibits
(a) Financial statements of acquired business.
As permitted by Item 7(a)(4) of Form 8-K, the audited financial statements
of the acquired business will be filed within 60 days after the date of
this Report
(b) Pro forma financial information.
As permitted by Item 7(a)(4) of Form 8-K, complete pro forma financial
statements of the Registrant and its recently acquired subsidiary will be
filed within 60 days after the date of this Report.
(c) Exhibits.
Exhibits will be filed by amendment.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FAB Global, Inc., a Georgia corporation (formerly known as Marci International
Imports) December 2, 1999
/s/
By: Sally A. Fonner, President and Chairman
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1 At the date of the reorganization agreement, Capital owned all of the
nonvoting Preferred Stock of Securities and an option for all of the voting
common stock. At the time, exercise of the option was pending, as was approval
of Capital's acquisition of Securities by the National Association of Securities
Dealer, Inc. ("NASD"). The option was fully exercised later in April 1999, and
NASD approval was forthcoming in the second half of June 1999. 2 The April 8-K
inadvertently indicated that this number was 775,180.
