SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-KSB
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- - ------ EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
_____ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO _________
COMMISSION FILE NUMBER 33-21443
GLOBALNET FINANCIAL.COM, INC.
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F/K/A MICROCAP FINANCIAL SERVICES.COM, INC.
(Name of Small Business Issuer in Its Charter)
DELAWARE 06-1489574
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
7280 W. PALMETTO PARK ROAD, SUITE 202
BOCA RATON, FL 06830
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(Address of Principal Executive Offices) (Zip Code)
(561) 417-8053
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(Issuer's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT: NONE
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 YES _X_ 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 THE 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_
THE ISSUER'S REVENUES FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 WERE
$1,281,347.
THE AGGREGATE MARKET VALUE OF THE COMMON EQUITY HELD BY NON-AFFILIATES OF
THE REGISTRANT BASED ON THE AVERAGE BID AND ASKED PRICE OF THE COMMON STOCK ON
APRIL 13, 1999 WAS $162,201,732. DIRECTORS, OFFICERS AND TEN PERCENT OR GREATER
STOCKHOLDERS ARE CONSIDERED AFFILIATES FOR PURPOSES OF THIS CALCULATION BUT
SHOULD NOT NECESSARILY BE DEEMED AFFILIATES FOR ANY OTHER PURPOSE.
THE NUMBER OF SHARES OUTSTANDING OF THE ISSUER'S COMMON STOCK AS OF APRIL
13, 1999 WAS 52,509,457.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES___ NO _X_
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TABLE OF CONTENTS
PAGE
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Forward-Looking Statements........................................1
PART I............................................................1
Item 1. Description of Business...........................1
Item 2. Description of Property...........................5
Item 3. Legal Proceedings.................................6
Item 4. Submission of Matters to a Vote of Security
Holders..........................................6
PART II...........................................................6
Item 5. Market for Common Equity and Related
Stockholder Matters..............................6
Item 6. Management's Discussion and Analysis..............8
Item 7. Financial Statements.............................12
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...........12
PART III.........................................................13
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act.............................13
Item 10. Executive Compensation............................16
Item 11. Security Ownership of Certain Beneficial
Owners and Management............................19
Item 12. Certain Relationships and Related Transactions....20
Item 13. Exhibits and Reports on Form 8-K..................22
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FORWARD-LOOKING STATEMENTS
The Company cautions readers that certain important factors may affect the
Company's actual results and could cause such results to differ materially from
any forward-looking statements that may be deemed to have been made in this
Report or that are otherwise made by or on behalf of the Company. For this
purpose, any statements contained in this Form 10-KSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may," "expect," "believe,"
"anticipate," "intend," "could," "estimate," or "continue" or the negative or
other variations thereof or comparable terminology are intended to identify
forward-looking statements. Factors that may affect the Company's results
include, but are not limited to, the Company's limited operating history and
prior operating losses and accumulated deficit, the Company's dependence on
advertising revenue and sponsorship, the uncertainty associated with the
Internet, the Company's reliance on management, and the Company's possible
inability to compete in the advertising and Internet industries. The Company is
also subject to other risks detailed herein or detailed from time to time in the
Company's filings with the Securities and Exchange Commission (the
"Commission").
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
GlobalNet Financial.com, Inc. (the "Company") is a global multimedia
provider of online financial information and services to the investment
community. Through its wholly-owned subsidiary, MicroCap1000.com, Ltd.,
("MicroCap1000") the Company has designed a U.S. based website,
www.microcap1000.com, which is intended to be a leading source for information
on the MicroCap sector of the financial market and focuses on companies with a
market capitalization of under $500 million. This website has over 150,000
registered users. Through its wholly owned subsidiary, UK-iNvest.com, Limited,
("UK-iNvest") the Company is developing its first international website through
an alliance with Freeserve Limited, the United Kingdom's largest and fastest
growing internet service provider ("Freeserve"), and a subsidiary of Dixons
Group, plc, the United Kingdom's largest electronics retailer. Freeserve
currently has approximately 1.4 million subscribers and is growing at the rate
of approximately 50,000 per week. This site, www.uk-invest.com, will be the
exclusive provider of investment information within Freeserve's financial
channel. It is expected to be launched in April 1999, and will provide
information on a wide range of securities including all publicly listed stocks
and bonds.
The Company's goal is to be a worldwide provider of unique financial
content and financial services. The Company intends to achieve this goal by
developing a series of websites which will provide information on the major
world markets. Once developed, Management believes these web sites will position
the Company as a portal for worldwide market information and global investing.
Such a portal would enable subscribers to access information about all the
different markets throughout the world. Towards this end, the Company is seeking
to replicate the model it created for the U.K. site by establishing exclusive
relationships with Internet Service Providers ("ISP's") and search engines and
portals throughout the globe, leveraging its expertise in providing unique
content and investor services in partnership with entities which have large
subscriber bases.
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The Company believes that there are substantial growth opportunities in
Europe as well as other parts of the world. The European Union alone has a
population and market potential exceeding that of the U.S. Management believes
that because of the highly competitive nature of the U.S. market and the fact
that world markets significantly trail the U.S. in terms of Internet use, the
Company's substantial growth will come from overseas.
Management believes it has substantial advantages over existing and
potential competitors for the development of these web sites. Since the Company
has already developed a model, it can duplicate and roll out the additional
sites more efficiently and cost-effectively. The Company already has the
experienced technical and editorial staff as well as the technological
infrastructure in place. Moreover, the Company can leverage its existing
relationships into new relationships.
In each market it enters, the Company will hire or contract, as it has done
in the U.K., local marketing and editorial managers familiar with the region to
most effectively implement its strategy. These people will be schooled in the
Company's web site development model and supported by the Company's editorial
and technical team in the U.S. Management's more than eight years of investment
banking experience in the European Union and familiarity with the region gives
it an advantage over existing and new competitors.
As a result of the financial nature of its sites, the Company has access to
a substantial number of potential investors in the U.S. and International
markets. Management intends to enter the on-line trading business both
domestically and overseas in order to offer its subscribers the ability to
execute trades on-line. In the U.S. the on-line trading business is highly
competitive. As a result, the Company anticipates focusing on Direct Access
Trading for the more sophisticated professional investor. In non-U.S. markets,
the Company anticipates providing both Direct Access and Traditional Electronic
Brokerage.
RECENT DEVELOPMENTS
The Company is aggressively pursuing alliances with key on-line media,
Internet and technology companies as well as pursuing strategic acquisitions in
order to accelerate its revenue generation abilities, regular user base, page
view growth and brand awareness. In this regard, the Company notes the following
recent developments.
STRATEGIC INVESTMENT BY TELESCAN WHICH CURRENTLY OWNS 9.9% OF THE COMPANY.
In March 1999, the Company entered into various agreements with Telescan,
Inc. ("TSCN"). As a result of these agreements, TSCN currently owns 9.9% of the
Company. Under the terms of the agreements, TSCN issued to the Company 520,000
shares of its common stock, which at the time of the transaction were valued at
$10.3 million in exchange for 5,176,161 number of shares. In addition, TSCN
purchased a one year option from the Company for 25,000 shares of TSCN's common
stock to purchase such number of shares necessary to increase TSCN's position to
19.9% of the then current shares outstanding.
Telescan is an industry leader in providing Internet services, innovative
solutions for online technology and data retrieval tools. TSCN's Wall Street
City(R) supersit (www.wallstreetcity.com) receives between 12 and 15 million
page views per month and provides the most comprehensive suite of search tools,
technical analysis and financial data on the Internet.
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In addition, the Company entered into a License Agreement, pursuant to
which the parties will license content and services to each other and each party
will provide certain system operation services to the other in connection with
the license. This technology will include the stock trading software currently
being developed for TSCN by Trading Technologies Corporation. MicroCap1000.com
will provide an exclusive online Investment Center dedicated to MicroCap and
SmallCap market sectors on TSCN's Wall Street City(R) (www.wallstreetcity.com)
financial supersite. The Center will include daily news articles and interviews
with Wall Street analysts, the MC1000 Index and stock and investment information
for Wall Street City subscribers.
ALLIANCE WITH MOTLEY FOOL FOR THE U.S. AND U.K.
The Motley Fool (www.fool.co.uk and www.fool.com) will provide a broad
range of content on www.UK-iNvest.com and daily articles for
www.MicroCap1000.com. The content will include a daily mix of articles with
distinctive "Fool" branding. UK articles will be written by Motley Fool writers
in the U.K. and Europe.
ALLIANCE WITH THESTREET.COM FOR THE U.S. AND U.K.
The Street.com and the Company have entered into a non-binding Memorandum
of Understanding. Pursuant to the Memorandum, TheStreet.com will publish
articles on a daily and weekly basis for www.MicroCap1000.com and
www.UK-iNvest.com. These articles will appear on the websites of
www.MicroCap1000.com and www.UK-iNvest.com and will include links to
www.TheStreet.com. In addition, the Company will create an article that, subject
to TheStreet.com's approval, will appear on TheStreet.com's website. The column
will also contain a hyperlink to the Company's site. This article on
TheStreet.com and the Company's association with TheStreet.com will increase
awareness of the Company's name and brand.
PARTNERSHIP WITH CITY FINANCIAL COMMUNICATIONS, LTD. ("CFC")
CFC publishes Investment Week, voted by the Periodical Publishers
Association last year as the Best Business Magazine in the UK. It also has a
joint publishing venture with Bloomberg LP, whereby it produces the monthly
consumer magazine, Bloomberg/Money, the UK's leading personal finance magazine.
CFC will license to UK-iNvest.com original daily news and commentary on
financial markets and trends. CFC will also give Uk-iNvest.com access to cross
marketing opportunities in CFC's wide range of print publications.
CURRENT WEB SITES
MICROCAP1000.COM (WWW.MICROCAP1000.COM)
The site was fully launched in October 1998 and provides comprehensive
Internet-based electronic publishing of unique content, online internet investor
access services, and hosts the MC1000 Index, the only real time index covering
the MicroCap sector. The web site has the following characteristics:
* The site has over 150,000 registered users.
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* The site hosts a model portfolio which is up 34.5% for the year as
compared to +6.98% for DJIA and +10.33% for Nasdaq and down 6.65% for
the Russell 2000.
* The site's unique content consists of news and analysis from well
known Wall Street analysts and money managers specifically targeting
companies with market capitalizations of under $500 million.
* The site assists experienced investors by empowering them with
relevant information and ideas to make investment decisions.
Currently, there are over 80 web sites which carry MicroCap1000.com's
content and/or index including but not limited to CBS Marketwatch, Lycos,
EarthLink, StockPoint, InfoBeat and Wall Street City.
UK-INVEST.COM (WWW.UKINVEST.COM)
UK-iNvest.com is anticipated to be launched in April 1999. The Company
has initiated its global internet expansion through an alliance with the UK's
largest internet service provider, Freeserve Limited, a subsidiary of Dixons
Group, plc, the UK's largest electronics retailer. The Company intends to
provide potential investors information and services about all UK securities
within Freeserve's financial channel through its soon-to-be-launched web site
www.UK-iNvest.com. The web site will have the following characteristics:
* The site is anticipated to offer to its users a number of
opportunities for commerce over the Internet, or E-commerce, including
premium pay data and tools packages and the ability to effect
brokerage transactions over the internet.
* The Company has hired 24-7 as its advertising agency in the UK.
* Management believes UK-iNvest.com will be the platform to launch
similar sites in other European countries.
* UK-iNvest.com covers stock ideas and market forecasts in addition to
up-to-the-minute news, which is unique in the UK. The Company's
Securities and Futures Authority ("SFA") license allows it to provide
stock recommendations, whereas competitors are not licensed to do so.
This license pertains to all European Union ("EU") markets.
BUSINESS STRATEGY
The Company's revenue model has a number of components and includes:
* advertising revenues;
* sponsorship revenues;
* subscription fees;
* payments from companies which want exposure on the Company's and
affiliated sites; and
* online trading revenues assuming the Company's successful
entrance into this business.
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The Company intends to utilize the U.S. and U.K. platforms to obtain,
through acquisition, complementing companies and products that will provide
realtime, value-added E-commerce programs and financial investment information
to online users worldwide.
COMPETITION
We compete with other Internet sites for the time and attention of
consumers and for advertising and subscription revenues. Competition among
Internet sites is intense and is expected to increase significantly in the
future. In our area of focus of finance, we compete with various companies and
Internet sites, such as Yahoo Business, Inc., CBS Market Watch, CNN Financial
Network, MSN Investor, The Motley Fool, Silicon Investor and Excite Money &
Investing, among others. Many of these competitors have significantly greater
resources than we do. In addition, many, if not all, of these competitors offer
a wider range of products and services than we do, which products and services
may be sufficiently attractive to Internet users to attract users to their
services and, consequently, dissuade them from accessing our Internet sites. If
we are unable to continue to attract a significant number of Internet users to
our Internet site, our business will be harmed.
EMPLOYEES
As of April 13, 1999, the Company had a total of fourteen full-time
employees and one part-time employee. None of the Company's employees are
represented by a union and the Company has not experienced any work stoppages.
The Company believes its relations with its employees is good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company, its subsidiaries and affiliates use the office space
described below:
1. Approximately 1764 square feet at 7280 W. Palmetto Park Road, Suite
202, Boca Raton, Florida 33433, pursuant to a monthly tenancy expiring
October 31, 2001, for monthly rent of $3,783.31 which payments are
allocated among the entities;
2. Approximately 2,040 square feet at 2425 Olympic Boulevard #660E, Santa
Monica, California 90404, pursuant to a lease expiring on November 30,
2000, for monthly rent of $6,664.40;
3. Approximately 325 square feet of office space at 4 Hill Street,
London, England W1X 7FU, consisting of one separate office pursuant to
a sub-lease expiring in October 2111, for monthly rent of $2,467.50.
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ITEM 3. LEGAL PROCEEDINGS
The Company and three of its principals, Ronald Koenig, Stanley Hollander
and Jay Matulich, have been named as defendants in a lawsuit entitled MARTIN S.
STOLZOFF, ET AL. V. WASTE SYSTEMS INTERNATIONAL, INC., ET AL., No. 99-01664A
Superior Court, Middlesex County, Massachusetts. The Complaint was filed on
April 1, 1999 and asserts counts for common law fraud, negligent
misrepresentation and violation of the Massachusetts Blue Sky Laws in connection
with the purchase by plaintiffs of securities of a company called Waste Systems
International, Inc. ("WSI"). The Company acted as a financial consultant and
placement agent in connection with a private offering of WSI common stock in
March 1995. The Complaint alleges that the Defendants made a series fraudulent
and negligent misrepresentations to Plaintiffs during the period from January
1995 to February 1997. The Complaint further alleges that Plaintiffs purchased
WSI securities and thereafter declined to sell their existing WSI securities
despite their inclination to do so in reliance on the alleged
misrepresentations. Plaintiffs allege damages of approximately $990,000 plus
prejudgment interest and punitive damages. The Company denies Plaintiffs'
allegations and intends to vigorously defend this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By written consent of a majority of the stockholders of the company, in
lieu of a special meeting of the Company's stockholders, dated October 28, 1998,
the Company changed it's name from Capital Growth Holdings, Ltd. to MicroCap
Financial Services, Inc.
By written consent of a majority of the stockholders of the company, in
lieu of a special meeting of the Company's stockholders, dated December 3, 1998,
the Company changed it's name from MicroCap Financial Services, Inc. to MicroCap
Financial Services.com, Inc.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock is currently quoted on the OTC Bulletin Board
under the symbol "GLBN". Prior to April 14, 1999, the Company's Common Stock was
quoted on the OTC Bulletin Board under the symbol "MFSI". The table set forth
below presents the high and low bid prices of the common stock for the period
indicated. Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions. For the period from June 6, 1997 through July 8,
1997, traditional high and low quotes could not be determined as during such
time there was only one market maker for the common stock. Prior to June 6,
1997, there was no trading market for the common stock.
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1997 High Low
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Quarter ended June 30, 1997
(commencing June 6, 1997) $2.75 $2.25
Quarter ended September 30, 1997 $2.75 $2.25
Quarter ended December 31, 1997 $2.50 $0.75
1998
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Quarter ended March 31, 1998 $1.00 $0.25
Quarter ended June 30, 1998 $1.00 $0.50
Quarter ended September 30, 1998 $0.25 $0.71
Quarter ended December 31, 1998 $0.375 $1.25
1999
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First Quarter $3.96 $1.12
On April 14, 1999, the last reported bid price of the common stock was
$4.03.
HOLDERS
As of March 31, 1999, there were approximately 420 holders of record of the
common stock.
DIVIDEND POLICY
As of March 25, 1997, the Board of Directors declared an annual cumulative
dividend of $.225 per share on the common stock for the calendar years 1997 and
1998. The dividend was due and payable to the holders of record on the day the
Board of Directors adopted the resolution to pay such dividend and is subject to
(i) the payment of dividends on any class of capital stock with priority over
the common stock, (ii) applicable net capital requirements and (iii)
restrictions under applicable law. The dividend, which began accruing as of
January 1, 1997, was payable on a quarterly basis ending on December 31, 1998.
Although the Company made all prior dividend payments in a timely manner, due to
the Company's limited cash resources and losses, the Company was unable to make
the June 30, 1998, September 30, 1998 and December 31, 1998 dividend payments.
Management can not predict when the Company's cash resources will be sufficient
to make such payments. The Company recognizes such dividend payments as an
obligation.
On October 12, 1997, each of our 4,001,334 shares of 5% Cumulative
Convertible Series A Preferred Stock and 1,080,000 shares of 5% Cumulative
Convertible Series B Preferred Stock converted into one share of Class B common
stock. Pursuant to the terms of the Certificates of Designation of such
preferred stock, the holders thereof were entitled to 5% per share annual
cumulative dividends prior to payment of dividends on any other class of capital
stock. The cumulative dividends on such preferred stock were payable on a
quarterly basis commencing December 31, 1996 and through October 24, 1997, ten
business days after the conversion thereof. The cumulative dividends were not
paid and have accrued unpaid since October 24, 1997. The aggregate amount of
such arrearage owed by the Company to the former holders of such preferred stock
is $38,154 as of December 31, 1998.
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We do not anticipate declaring any additional dividends on any of our
classes of capital stock. Any future dividend declarations and payments would be
subject to the restrictions set forth above, approval of our Board of Directors
and any contractual restrictions that may then exist.
RECENT SALES OF UNREGISTERED SECURITIES
In the fourth quarter of 1998 the Company completed a private offering (the
"1998 Offering") of shares of its Common Stock at $.125 per share pursuant to
Regulation D to "accredited investors" as that term is defined in Regulation D.
The Company issued 23,248,400 shares in the 1998 private offering which yielded
aggregate gross proceeds of $2,904,000. No placement agent was utilized. The
Company did not pay any commissions in connection with the sale of securities.
On February 10, 1999 the Company completed a private offering (the "1999
Offering") of shares of its Common Stock at $1.00 per share pursuant to
Regulation D to "accredited investors" as that term is defined in Regulation D.
The Company sold 2,325,400 shares resulting in aggregate gross proceeds of
$2,325,400. The shares were issued and sold to "accredited investors" pursuant
to Regulation B. No placement agent was utilized. The Company did not pay any
commissions in connection with the sale of securities.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
FORWARD LOOKING STATEMENTS
Statements in this filing which are not historical facts are
forward-looking statements under provisions for the Private Securities
Litigation Reform Act of 1996. All forward-looking statements involve risks and
uncertainties. The Company wishes to caution readers that the following
important factors, among others, in some cases have affected, and in the future
could affect, the Company's actual results and could cause its actual results in
fiscal 1999 and beyond to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.
OVERVIEW
GlobalNet Financial.com, Inc. (the "Company") is a global multimedia
provider of online financial information and services to the investment
community. Through its wholly-owned subsidiary, MicroCap1000.com, Ltd.,
("MicroCap1000") the Company has designed a U.S. based website,
www.microcap1000.com, which is intended to be a leading source for information
on the MicroCap sector of the financial market and focuses on companies with a
market capitalization of under $500 million. This website has over 150,000
registered users. The Company continues to be reigstered as a broker-dealer and
maintains related licenses and registrations. However, the financial statements
attached and discussion below predominantly reflect those activities. The
Company, shifted its focus to electronic publishing activities in October 1998.
Therefore, the financial statements attached and described below are not
reflective of current operations and cannot be indicative of future results.
Among other differences, revenues are anticipated to initially decrease and
operating expenses are anticipated to increase as a result of such activities.
The Company has added additional personnel and incurred additional expenses
consistent with the launch of a new business.
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The Company anticipates that its net loss will increase until such time as
its web sites generate meaningful revenues. MicroCap1000.com has not generated
any revenue to date and there is no guarantee that it will do so in the future.
www.Uk-iNvest.com is still being developed and has not yet been commercialized.
No assurance can be given that this web site will generate revenue either.
The Company believes that its current resources will permit the Company to
continue operations approximately through April 2000. There can be no assurance,
however, that the Company will be able to satisfy its working capital
requirements for a significant period of time beyond April 2000. To continue
operations beyond such period, the Company must generate significant revenues or
raise additional funds through the sale of its equity securities. Management is
currently seeking additional capital. However, the Company currently has no
outside commitments for additional sources of liquidity and no assurance can be
given that the Company will be successful in raising additional funds.
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FOR THE PERIOD ENDING DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997
RESULTS OF OPERATIONS
The Company generated $1,688,098 in revenues during the fiscal year ended
December 31, 1998 ("Fiscal 1998") compared to $3,743,051 during the fiscal year
ended December 31, 1997 ("Fiscal 1997"). All of such revenues were generated by
the Company's investment banking subsidiary, International Capital Growth, Ltd.
("ICG"), which acted as a placement agent and financial consultant for certain
entities. This decrease primarily reflects a shift in business focus from ICG
activities to financial publishing. In addition, the Company earned interest
income in the amount of $30,309 during Fiscal 1998 as compared to $94,170 during
Fiscal 1997. The Company recognized $437,060 in net losses on its securities
portfolio during Fiscal 1998 as compared to $448,971 in net losses during Fiscal
1997. The decrease is primarily due to the decline in the carrying value of the
Company's largest portfolio position, common stock of First American Railways,
Inc. On October 6, 1998, First American Railways, Inc. filed for a Chapter 7
bankruptcy liquidation. The Company acquired this security position as a result
of providing investment bank activities for First American Railways, Inc. The
Company realized a $39,804 gain on settlement of debt during Fiscal 1997.
Operating expenses for Fiscal 1997 were $4,228,154 compared to $4,308,824
during Fiscal 1998. Operating expenses include general and administrative
expenses of $3,448,980 during Fiscal 1997 compared to $3,941,773 during Fiscal
1998. The increase was due to the shift in business focus and the start up costs
for the Company's U.S. web site www.microcap1000.com and web site development
consulting fees. Commission expenses decreased from $859,844 during Fiscal 1997
compared to $286,381 during Fiscal 1998. The Company's subsidiary, ICG,
consummated fewer private placement during 1998 due to the shift in business
focus and therefore paid fewer commissions. The recognition of the equity in the
net loss of the Company's unconsolidated subsidiary, Capital Growth Europe,
Limited ("CGE"), decreased from $121,115 during Fiscal 1997 to $61,069 during
Fiscal 1998.
As a result of the foregoing, the Company had a net loss of $3,007,876
during Fiscal 1998 compared to a net loss of $1,001,885 during Fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Capital for the Company has been provided by the investments made by the
initial stockholder group and through private placements of the Company's
securities. In March 1997, the Company raised net proceeds of approximately
$922,000 in a private placement of 549,496 shares of its Common Stock. During
1998, the Company raised net proceeds of approximately $2,904,000 in a private
placement of 23,248,400 shares. In February 1999, the Company raised net
proceeds of approximately $2,325,400 in a private placement of 2,325,400 shares.
The proceeds are being held for additional investment in MicroCap1000.com, Ltd.
and for working capital for the Company.
In the fourth quarter of 1997 and the throughout 1998, the market price of
certain of the Company's investments in equity securities declined
significantly. The securities with a carrying amount of approximately $1,261,556
at December 31, 1997 declined to approximately $685,211 at December 31, 1998.
This was predominantly the result of the decline in the per share bid price of
the Company's common stock of First American Railways, Inc., from an average
cost of $1.06 per
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share to a $0.03 per share bid price at September 30, 1998. Subsequently, First
American Railways, Inc. filed for a Chapter 7 bankruptcy liquidation on October
6, 1998. In addition, in an effort to raise funds for operating expenses, the
Company sold a portion of its portfolio securities.
The dividend is due and payable to the holders of record on the day the
Board of Directors adopted the resolution to pay such dividend. On July 1, 1997,
the Company paid a $.1125 per share dividend to the holders of its Common Stock
which dividend totaled $382,332 in the aggregate. The dividend represented
payment for the six month period from January 1, 1997 through June 30, 1997 of a
two year $.225 annual per share dividend. On each of September 30, 1997,
December 31, 1997 and April 2, 1998, the Company paid a $.05625 per share
dividend which in each case totaled $191,165 in the aggregate, representing
payment of the Common Stock Dividend for the three month periods from July 1,
1997 through September 30, 1997, from October 1, 1997 through December 31, 1997,
and from January 1, 1998 through March 31, 1998, respectively. The Company did
not make the $.05625 per share common stock dividend payments due on June 30,
1998, September 30, 1998 and December 31, 1998 in order to maintain capital in
its business. The Company recognizes such dividend payments as an obligation on
its financial statements.
The Company has no material capital commitments other than annual salaries
to its executive officers and employees of approximately $1,547,200 and a letter
of credit in the amount of $100,000 to secure future rent payments at the
Company's London office. The Company believes that its current cash resources
will be adequate to satisfy its operations through the next twelve months.
VARIABILITY OF RESULTS
The Company anticipates that its future financial results will vary
dramatically. This is the result of the start-up and uncertain nature of
MicroCap1000.com, Ltd. and U.K.-iNvest.com as well as the other web sites the
Company anticipates launching.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs and other business
systems being written using two digits rather than four to represent the year.
Many of the time-sensitive applications and business systems of the Company and
its vendors may recognize a date using "00" as the year 1900 rather than the
Year 2000, which could result in system failure or disruption of operations. The
Year 2000 problem will impact the Company. An assessment of the Year 2000
exposure has been made by the Company and the plans to resolve the related
issues are being implemented. The Company believes it will be able to achieve
Year 2000 compliance in a timely manner. The Company believes that it will
satisfactorily resolve all significant Year 2000 problems and that the related
costs will not be material. Estimates of Year 2000 related costs are based on
numerous assumptions, including the continued availability of certain resources,
the ability to correct all relevant applications and third party remediation
plans. There is no guarantee that the estimates will be achieved and actual
costs could differ materially from those anticipated.
11
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by this Item, the accompanying notes
thereto and the reports of independent accountants are included as part of this
Form 10-KSB immediately following the signature page.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
12
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
NAME AGE POSITION(s)
- - --------------------------------------------------------------------------------
<S> <C> <C>
Ronald B. Koenig 65 Chairman of the Board,
Co-Chief Executive Officer and Director
Stanley Hollander 61 Co-Chief Executive Officer, President and Director
Alan L. Jacobs 57 Executive Vice President and Director
Michael S. Jacobs 34 Chief Operating Officer, Secretary and Treasurer
Jay J. Matulich(3) 44 Senior Vice President
N. Bulent Gultekin 51 Director
</TABLE>
RONALD B. KOENIG. Mr. Koenig is Chairman of the Board of Directors and
Co-Chief Executive Office of the Company. In addition, Mr. Koenig has been
Chairman of the Board of Directors, President and Chief Executive Officer of
International Capital Growth, Ltd. since March 1996. Since August, 1998 he has
been a Director of MicroCap1000.com, Ltd. He has served as Chairman of the
Board, Chief Executive Officer and a Director of Emerging Growth Acquisition
Corporation I, a publicly-held corporation, since July 1996. Mr. Koenig has been
Chairman, from October 1994 to July 1995, and co-founder of U.S. Sachem
Financial Consultants, L.P. and, since July 1995, of its successor Capital
Growth International, L.L.C. From 1989 to 1993, Mr. Koenig was a Senior Managing
Director and department head of corporate finance at Gruntal & Co.,
Incorporated. From 1974 to 1985, Mr. Koenig was a Managing Director, and from
1985 to 1989, Chairman of the Board, of Ladenburg Thalmann & Co., Inc. From 1972
to 1974, he served as Vice President, Institutional Sales at Jas. H. Oliphant &
Co., an institutional research boutique. From 1968 to 1972, he held a position
in sales with Leif Werle & Co., an NYSE specialist firm. Mr. Koenig was educated
at the University of Pennsylvania (The Wharton School) and holds a B.S. in
economics. Mr. Koenig presently serves on The Wharton School Undergraduate
Executive Board and is on the business advisory board to Sterling National Bank
& Trust Company of New York.
STANLEY HOLLANDER. Mr. Hollander is President and Co-Chief Executive
Officer of the Company. In addition, Mr. Hollander has served as Senior Vice
President and a Director of the Company since March 1997 and President and a
Director of International Capital Growth, Ltd. since March 1996. Since August,
1998 he has been a Director of MicroCap1000.com, Ltd. He has served as President
and a Director of Emerging Growth Acquisition Corporation I, a publicly-held
corporation, since July 1996. Since 1993, Mr. Hollander has served as President,
Chief Executive Officer and co-founder of U.S. Sachem Financial Consultants,
L.P. and, since July, 1995, its successor Capital Growth International, L.L.C.
From December 1995 to present, Mr. Hollander has been a Director of Capital
Media Group, Ltd., a publicly-held company. From 1989 to 1993 he served as a
Managing Director and joint head of corporate finance at Gruntal & Co.,
Incorporated. From 1985 to 1989 he served as a Managing Director of Investment
Banking at Ladenburg
13
<PAGE>
Thalmann & Co., Inc. From 1979 to 1985 he was co-owner and Vice President of
Zemex Electronics-Stanlee, distributors of consumer electronics. From 1959 to
1979, Mr. Hollander was president of All Brand Appliances Brandmart,
distributors of consumer electronics. Mr. Hollander was educated at the
University of Alabama.
ALAN L. JACOBS. Mr. Jacobs has served as Executive Vice President and a
Director of the Company since March 1997. Since March 1996, Mr. Jacobs has
served as Senior Managing Director, Executive Vice President and a Director of
International Capital Growth, Ltd. and, since January 1995, of Capital Growth
International, L.L.C. He has served as Chief Operating Officer and a Director of
Emerging Growth Acquisition Corporation I, a publicly-held corporation, since
July 1996 . From February 1995 to October 1997 and from July 1993 to September
1994, Mr. Jacobs served as a Director of Boca Raton Capital Corporation, a
publicly-held Florida corporation ("BRCC"). He was Chairman of the Board of
Directors of BRCC from November 1993 to September 1994 and Chief Executive
Officer of BRCC from November 1993 to October 1997 . From January 1992 to
December 1995, Mr. Jacobs served as Associate Director of Investment Banking at
Josephthal Lyon & Ross Incorporated. From May 1985 to December 1991, Mr. Jacobs
served as Managing Director of Investment Banking with Ladenburg Thalmann & Co.,
Inc., an investment banking firm. Mr. Jacobs earned an AB in liberal arts in
1963 from Franklin & Marshall College and a J.D. from Columbia Law School in
1966.
MICHAEL S. JACOBS. Mr. Jacobs has served as Chief Operating Officer;
Secretary and Treasurer of the Company since March 1997 and of International
Capital Growth, Ltd. since March 1996. Since August 1998 he has served as
Treasurer for MicroCap1000.com, Ltd. He has served as Chief Financial Officer
and Treasurer of Emerging Growth Acquisition Corporation I, a publicly-held
corporation, since July 1996. Since February 1995, Mr. Jacobs has been a Senior
Vice President of U.S. Sachem Financial Consultants, L.P. and, since July 1995,
its successor Capital Growth International, L.L.C. From 1993 to 1995 he was a
Vice President of Investment Banking at Josephthal Lyon & Ross Incorporated, and
from 1990 to 1993, Mr. Jacobs was an associate in corporate finance at Gruntal &
Co., Incorporated. From 1989 to 1990, Mr. Jacobs was a financial analyst at
Ladenburg Thalmann & Co., Inc. Educated at New York University's Stern School of
Business and Emory University, he holds an M.B.A. in finance and a B.B.A.
degree.
JAY J. MATULICH. Mr. Matulich has served as Senior Vice President of the
Company since March 1997 and Vice President of International Capital Growth,
Ltd. since March 1996. Since August, 1998 he has served as Chairman of
MicroCap1000.com, Ltd. He has served as Secretary of Emerging Growth Acquisition
Corporation I, a publicly-held corporation, since July 1996. Since October 1994,
Mr. Matulich has been a Senior Vice President of U.S. Sachem Financial
Consultants, L.P. and, since July 1995, of its successor Capital Growth
International, L.L.C. Since April 1995, Mr. Matulich has served as a Director of
Waste Systems International, Inc., a publicly-held company. From March 1996 to
June 1996, Mr. Matulich served as Chairman of BioSafe International, Inc. From
May 1990 to October 1994, Mr. Matulich was a Vice President of Gruntal & Co.,
Incorporated. From 1989 to May 1990, Mr. Matulich served as an associate in the
Shansby Group, a San Francisco-based leveraged buy-out firm. From 1986 to 1989,
Mr. Matulich was a Senior Manager at Arthur Young & Co., accountants in the
merger and acquisitions group. Educated at Brigham Young University, Mr.
Matulich has a B.A. degree.
N. BULENT GULTEKIN. Mr. Gultekin has been a Director of the Company since
March 1997 and of International Capital Growth, Ltd. since March 1996. Since
1981, Mr. Gultekin has been an
14
<PAGE>
Associate Professor of Finance at The Wharton School of the University of
Pennsylvania. From 1993 to 1994, he served as the Governor of the Central Bank
of the Republic of Turkey. From 1989 to 1991, Mr. Gultekin served as Chief
Advisor to Prime Minister Mesut Yilmaz of the Republic of Turkey. From 1990 to
1992, Mr. Gultekin was a director of The Bell Atlantic Mutual Funds. Mr.
Gultekin earned a BSC in 1965 and an MBA in 1973 from Turkish universities and a
Ph.D. in finance and statistics in 1976 from The Wharton School of the
University of Pennsylvania.
Each director of the Company listed in the above table holds office until
the next annual meeting of stockholders and until their respective successors
have been elected and qualified. Each officer of the Company listed in the table
above serves at the discretion of the Company's Board of Directors.
There is no family relationship among any of the directors or executive
officers of the Company or ICG except that Alan L. Jacobs and Michael S. Jacobs
are father and son, respectively.
SIGNIFICANT EMPLOYEE
JOHN FLANDERS. Since October, 1998, Mr. Flanders has been Chief Technical
Officer of the Company. From 1991 through 1992 John Flanders was COO of
Flanders, Brunetti and Flanders Investment Management, Inc. For the period 1992
through 1995 Mr. Flanders was Director of Sales for THOR24. During the period
1995 through 1996 he was Senior Manager of Marketing and Business Development at
NETCOM Online Communications Services and during the period 1996 through 1997 he
was Senior Manager of Strategic Market Development at Orbit Network.
Subsequently, Mr. Flanders was Vice President of Sales and Marketing at eMerging
Media, Inc. and has since co-founded and become CEO of CyberJunction.com Online.
RICHARD HEFTER. Since February 11, 1999, Mr. Hefter has acted as
Editor-in-Chief of the Company. From 1994 to 1998 Mr. Hefter was a faculty
member in English at Northwestern University and associate director of
communications in Northwestern's Office of Development. Prior to that he as a
public relations writer for the Office of Health Science Relations at the
University of Iowa. From 1990 to 1992 Mr. Hefter was literary editor of New City
Newspaper. During the period 1988 through 1990 he was senior editor of INSIDE
CHICAGO. He holds a Bachelor of Arts degree in English from Stanford University
and a Master of Fine Arts degree in creative writing from the University of Iowa
Writers' Workshop.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who own more than ten percent of a class of the
company's equity securities registered pursuant to Section 12 of the Exchange
Act to file with the Commission initial reports of ownership and reports of
securities registered pursuant to Section 12 of the Exchange Act. The Company's
equity securities have not been registered pursuant to Section 12 of the
Exchange Act. Accordingly, no such reports have been filed by the Company with
the Commission.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
paid by the Company for services rendered in all capacities to the Chief
Executive Officers and the four most
15
<PAGE>
highly compensated other executive officers whose annual salary and bonus
exceeded $100,000 for Fiscal 1998 (collectively, with the CEO's, the "Named
Executive Officers") for the periods indicated.
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation
Compensation Securities
Name and Position Fiscal Year Salary Underlying Options
- - ----------------- ----------- ------ ------------------
Ronald B. Koenig 1996(2) $ 48,076 --
Chairman of the Board, Co-Chief 1997 $250,000 --
Executive Officer and Director 1998 $200,000 1,420,000(4)
Stanley Hollander 1996(2) $ 48,076 --
Co-Chief Executive Officer, 1997 $263,000 --
President and Director 1998 $196,000 1,420,000(4)
Alan L. Jacobs 1996(2) $ 43,269 --
Executive Vice President 1997 $225,000 --
and Director 1998(3) $ 17,306 480,000(4)
Michael Jacobs 1996(2) $ 32,588 --
Chief Operating Officer, 1997 $150,000 250,000(1)
Secretary And Treasurer 1998 $150,000 900,000(4)
Jay J. Matulich 1996(2) $ 24,038 --
Senior Vice President 1997 $125,000 250,000(1)
1998(4) $131,000 900,000(4)
- - ----------
(1) Represents shares of Class B Common Stock underlying stock options granted
under the 1997 Stock Option Plan which plan and options were terminated
December 31, 1998.
(2) Covers the period from February 26, 1996, the Company's inception, through
December 31, 1996, the Company's fiscal year for such period.
(3) Covers the period from January 1, 1998 through January 31, 1998 prior to
Mr. Jacob's temporary leave of absence.
(4) Represents shares of Common Stock underlying stock options granted under
the 1998 Stock Option Plan.
16
<PAGE>
The Company, currently pays annual salaries to Messrs. Koenig,
Hollander, A. Jacobs, M. Jacobs and Matulich of $224,000, $315,000, $180,000,
$150,000 and $150,000, respectively. Alan L. Jacobs, the Company's Executive
Vice President, had taken a temporary leave of absence from his full-time
employee responsibilities with such entities. During that leave of absence, Mr.
Jacobs continued in such capacities on a part-time basis and as director. Mr.
Jacobs was Senior Advisor to and was being compensated by First American
Railways, Inc., a client of ICG. Mr. Jacobs did not receive any salary from the
Company or ICG while on leave of absence but received, during that time, 25% of
the net profit on any financing transaction introduced by Mr. Jacobs. Mr. Jacobs
rejoined the Company in October, 1999 following the bankruptcy of First American
Railways, Inc. Other than as set forth above, none of the Company's executive
officers or directors received any salary or wages or other compensation from
the Company during the last three completed fiscal years.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of stock
options made during Fiscal 1998 to any of the named Executive Officers:
NUMBER PERCENT EXERCISE
OF SHARES OF TOTAL PRICE EXPIRATION
NAME UNDERLYING OPTIONS PER DATE
OPTIONS GRANTED SHARE
IN FISCAL
YEAR
- - --------------------------------------------------------------------------------
Ronald 1,420,000 17.4% $.375 October 29, 2008
Koenig
Stanley 1,420,000 17.4% $.375 October 29, 2008
Hollander
Michael S. 250,000 3.05% $.25 August 20, 2008
Jacobs
Michael S. 650,000 8.0% $.375 October 29, 2008
Jacobs
Jay J.
Matulich 250,000 3.08% $.25 August 20, 2008
Jay J.
Matulich 650,000 8.0% $.375 October 29, 2008
17
<PAGE>
AGGREGATED OPTION EXERCISE IN FISCAL YEAR
ENDED DECEMBER 31, 1998
AND OPTION VALUES AT DECEMBER 31, 1998
NUMBER OF SHARES OF
COMMON STOCK
UNDERLYING
UNEXERCISED OPTIONS
AT DECEMBER 31, 1998
Value of Unexercised
In-The-Money Options at
Name Exercisable Unexercised December 31, 1998
- - --------------------------------------------------------------------------------
Ronald Koenig 710,000 710,000 $486,350
Stanley Hollander 710,000 710,000 $486,350
Michael S. Jacobs 450,000(1) 450,000 $386,375
Jay J. Matulich 450,000(1) 450,000 $386,375
INDEMNIFICATION
The Company's Certificate of Incorporation provides for indemnification
rights of officers, directors, and others and limits the personal liability of
directors for monetary damages to the extent permitted by Delaware Law. Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Securities Act"), may be permitted for directors, officers and
controlling persons of the Company, the Company has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's capital stock as of March 31, 1999, by (i)
any person who is known to the Company to be the beneficial owner of more than
5% of the capital stock of the Company; (ii) each director of the Company; (iii)
each of the Named Executive Officers; and (iv) all current directors and
officers of the Company as a group. Except as noted below, each person has sole
voting and investment power with respect to all shares of capital stock of the
Company listed as owned by such person.
18
<PAGE>
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS OF BENEFICIALLY CLASS
BENEFICIAL OWNER(1) OWNED OUTSTANDING(2)
- - --------------------------------------------------------------------------------
Ronald B. Koenig 3,782,270(4) 7.13%
Stanley Hollander 3,707,270(5)(3) 6.99%
Alan L. Jacobs 2,855,626(8) 5.43%
Hollander Family Partnership LP 3,707,270(5)(3) 6.99%
Michael S. Jacobs 1,197,000(6) 2.26%
Jay J. Matulich 1,186,000(7) 2.24%
N. Bulent Gultekin 20,000(9) .038%
All directors and executive
Officers as a group
(6 persons)(10) 12,757,166(7)(10) 23.25%
5% OR GREATER HOLDERS
Telescan, Inc. 5,176,161(11) 19.9%
5959 Corporate Drive
Suite 2000
Houston, TX 77036
Dion R. Friedland 8,625,000(12) 15.51%
28 Sloane Street
Flat #8
London SW1X9NE
United Kingdom
Rosebud Capital Growth Fund., Ltd. 3,017,500 5.78%
Charlotte House
Charlotte Street
Nassau Bahamas
- - -------------
(1) Each beneficial owner for which an address is not listed has an address c/o
MicroCap Financial Services.com, Ltd., 7280 W. Palmetto Park Road, Suite
202, Boca Raton, FL 33433.
(2) Based on a total of 52,284,457 shares of Common Stock outstanding.
(3) Stanley Hollander, President and Co-Chief Executive Officer of the Company,
may be deemed to be the beneficial owner of the shares of the Company held
by Hollander Family Partnership LP. Other than such holdings, Mr. Hollander
owns no capital stock of the Company.
(4) Consists of 3,072,270 shares of Common Stock and options exercisable to
purchase 710,000 shares of Common Stock which are currently vested. Mr.
Koenig holds options to purchase a total of 1,420,000 of Common Stock which
vest at the rate of 50% of the total grant immediately and 50% at each of
the first two anniversaries of the date of the grant, December 31, 1998.
(5) Consists of 2,997,270 shares of Common Stock and options exercisable to
purchase 710,000 shares of Common Stock which are currently vested. Mr.
Hollander holds options to purchase a total of 1,420,000 of Common Stock
which vest at the rate of 50% of the total grant immediately and 50% at
each of the first two anniversaries of the date of the grant, December 31,
1998.
19
<PAGE>
(6) Consists of 747,000 shares of Common Stock and options exercisable to
purchase 450,000 shares of Common Stock that are currently vested. Mr.
Jacobs holds options to purchase a total of 900,000 shares of Common Stock
which vest at the rate of 50% of the total grant immediately and 50% at
each of the first two anniversaries of the date of the grant, December 31,
1998.
(7) Consists of 736,000 shares of Common Stock and options exercisable to
purchase 450,000 shares of Common Stock that are currently vested. Mr.
Matulich holds options to purchase a total of 900,000 shares of Common
Stock which vest at the rate of 50% of the total grant immediately and 50%
at each of the first two anniversaries of the date of the grant, December
31, 1998.
(8) Consists of 2,615,626 shares of Common Stock and options exercisable to
purchase 240,000 shares of Common Stock that are currently vested. Mr.
Jacobs holds options to purchase a total of 480,000 shares of Common Stock
which vest at the rate of 50% of the total grant immediately and 50% at
each of the first two anniversaries of the date of the grant, December 31,
1998.
(9) Consists of stock options exercisable to purchase 20,000 shares of Common
Stock that are currently vested. Mr. Gultekin holds options to purchase a
total of 40,000 shares of Common Stock which vest at the rate of 50% of the
total grant immediately and 50% at each of the first two anniversaries of
the date of the grant, December 31, 1998.
(10) Consists of 10,177,166 shares of Common Stock and stock options exercisable
to purchase shares of Common Stock.
(11) Includes shares issuable upon exercise of an option to purchase such number
of shares equal to 10% of the Company's issued and outstanding stock on the
date of exercise.
(12) Represents shares held by investment funds for which Mr. Friedland makes
the investment and voting decisions.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company requires that all material transactions with affiliates be
made on terms that are no less favorable to the Company than those that can be
obtained from unaffiliated third parties. Such transactions are approved by a
majority of the Company's independent directors.
On March 14, 1997, the Company issued an aggregate of 2,906 additional
shares of Common Stock to certain stockholders and former officers of the
Company in exchange for the release by such individuals of obligations owed to
them from the Company in the aggregate of $46,343, thereby converting such debt
into equity. This was in connection with the Company's initial share exchange
transaction. Such shares were valued at their fair value of $6,539 ($2.25 per
share) and the Company, in connection with such issuance, recorded a gain of
$39,804.
On March 26, 1997, the Company loaned $200,000 to an entity controlled
by Messrs. Ronald B. Koenig and Stanley Hollander, two of the Company's
Directors. The note, which was due on March 26, 1998 and carried interest at the
rate of 6% per annum. Such note, when issued, was approved by a majority of the
independent members of the Board of Directors of the Company.
The note was repaid on April 9, 1998.
On March 27, 1997, the Company completed a private offering (the
"Private Offering") of its Common Stock at $2.25 per share pursuant to
Regulation D and Regulation S, each as promulgated under the Securities Act.
The Private Offering, which yielded gross proceeds to the Company of
20
<PAGE>
$1,236,366, was offered and sold through Capital Growth International LLC
("CGI"), as placement agent, which was paid $74,181.96 in commissions in
connection therewith, $39,074.76 of which was used to compensate certain
sub-placement agents. CGI is an affiliate of the Company and ICG. Several of the
officers and directors of the Company and ICG are also officers and directors of
CGI. Additionally, the beneficial holders of 100% of the membership interests in
CGI beneficially held 23.25% of the outstanding capital stock of the Company,
which holds 100% of the outstanding capital stock of ICG. Messrs. Ronald B.
Koenig, Chairman of the Board of Directors, President and Chief Executive
Officer of the Company and ICG, and Stanley Hollander, Senior Vice President and
a Director of the Company and Vice President and a Director of ICG, each own a
50% interest in Sachem Financial Consultants, L.P., which held a 60% membership
interest in CGI. Messrs. Koenig and Hollander beneficially own 7.13% and 6.99%
of the outstanding capital stock of the Company, respectively.
Effective January 1, 1997, CGI assigned to ICG all rights and
obligations in connection with two Financial Advisory and Consulting Agreements
(the "Consulting Agreements") each of which are between CGI and a separate
publicly-held company. The Consulting Agreements, which were entered into in
connection with CGI's investment banking business, were assigned to ICG for no
consideration. One Consulting Agreement, which expires on July 30, 1998,
currently provides for monthly payments to ICG of $2,500 and compensation rights
in favor of ICG if certain business transactions introduced by ICG to such
public company are consummated. The other Consulting Agreement currently grants
to ICG a right of first refusal, exercisable until April 26, 1998, to offer
securities of such public company and provides for certain compensation rights
in favor of ICG if certain business transactions introduced by ICG to such
public company are consummated.
During the fiscal year ended December 31, 1997, the Company paid
consulting fees of $99,000 to Helix Investments Limited, a stockholder of CGH,
in connection with the organization of road show presentations in London,
England relating to an offering made pursuant to Regulation S as promulgated
under the Securities Act for which ICG acted as placement agent.
On May 19, 1998, ICG sold to John Booth, who resigned as a director of
the Company as of June 1, 1998, ICG's 50% interest in Capital Growth Europe for
approximately $4,000, which price represented approximately 50% of the value of
Capital Growth Europe's cash accounts. Such transaction was approved by a
majority of the Company's disinterested directors.
On December 31, 1998 the Company granted 100,000 shares of Common Stock
to the former CEO of MicroCap1000.com, Ltd. upon termination of his employment.
21
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT
NO. DESCRIPTION
- - ------- -------------
2.1 Agreement Concerning the Exchange of Securities of
International Capital Growth, Ltd. for Securities of Galt Financial
Corporation dated January 7, 1997(1)
2.2 Agreement and Plan of Merger by and between Capital Growth Holdings,
Ltd., a Colorado corporation, and Capital Growth Holdings, Ltd., a
Delaware corporation, dated June 10, 1997(1)
3.1 Certificate of Incorporation of the Company, as amended(1)
3.2 By-Laws of the Company(1)
4.1 Form of Common Stock certificate(2)
4.2 Form of Redeemable Common Stock Purchase Warrant(2)
4.3 Form of Redeemable Class B Common Stock Purchase Warrant(2)
10.1 Intentionally Deleted
10.2 Intentionally Deleted
10.3 Intentionally Deleted
10.4 Lease Agreement, as amended, regarding 2425 Olympic Boulevard,
Santa Monica, CA dated October 21, 1997(2)
10.5 Lease Agreement regarding 7280 W. Palmetto Park Road, Suite 202,
Boca Raton, Florida(3)
10.6 1998 Stock Option Plan(3)
21.1 Subsidiaries of the Company
23.1 Consent of Richard A. Eisner & Company, LLP(1)
27.2 Financial Data Schedule(1)
- - ----------------
(1) Filed herewith as an exhibit of the same number to the Company's Form 8-K
dated March 14, 1997 and incorporated herein by reference.
(2) Filed as an exhibit of the same number to the Company's Registration
Statement on Form SB-2 (SEC File No. 333-37879) and incorporated herein by
reference.
(3) Filed as an exhibit of the same number to the Company's Registration
Statement on Form SB-2 (SEC File No. __________)
(B) REPORTS ON FORM 8-K
None.
22
<PAGE>
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GLOBALNET FINANCIAL.COM, INC.
By: /s/ RONALD B. KOENIG
---------------------------------------
Ronald B. Koenig, Chairman of the Board
and Co-Chief Executive Officer
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
---------- --------- ------
/s/ STANLEY HOLLANDER
- - --------------------- Co-Chief Executive Officer, April 15, 1999
Stanley Hollander President and Director
/S/ ALAN L.JACOBS
- - -------------------- Executive Vice President April 15, 1999
Alan L. Jacobs and Director
/s/ MICHAEL C. JACOBS
- - --------------------- Chief Operating Officer, April 15, 1999
Michael C. Jacobs Secretary and Treasurer
(Principle Financial and
Accounting Officer)
/s/ JAY J. MATULICH
- - -------------------- Senior Vice President April 15, 1999
Jay J. Matulich
/s/ N. BULENT GULTEKIN
- - ---------------------- Director April 15, 1999
N. Bulent Gultekin
23
<PAGE>
Contents
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS
Independent auditors' report......................................... F-2
Balance sheet as of December 31, 1998................................ F-3
Statements of operations for the years
ended December 31, 1998 and 1997.................................... F-4
Statements of changes in stockholders' equity for the years
ended December 31, 1998 and 1997.................................... F-5
Statements of cash flows for the years
ended December 31, 1998 and 1997.................................... F-6
Notes to financial statements........................................ F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
GlobalNet Financial.Com, Inc.
Boca Raton, Florida
We have audited the accompanying consolidated balance sheet of GlobalNet
Financial.com, Inc. (formerly Microcap Financial Services.Com, Inc.) and
subsidiaries as of December 31, 1998, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years ended
December 31, 1998 and 1997. 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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of GlobalNet
Financial.com, Inc. (formerly Microcap Financial Services.Com, Inc.) and
subsidiaries as of December 31, 1998, and the consolidated results of their
operations and their consolidated cash flows for the years ended December 31,
1998 and 1997 in conformity with generally accepted accounting principles.
New York, New York
February 5, 1999
With respect to Note N
April 13, 1999
F-2
<PAGE>
GLOBALNET FINANCIAL.COM, INC. AND SUBSIDIARIES
(formerly Microcap Financial Services.Com, Inc.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(Notes A and B)
ASSETS
Current assets:
Cash and cash equivalents (Note C[8]) $1,941,774
Restricted cash (Note L[1]) 104,664
Due from broker 44,930
Securities owned at market value
(cost $551,000) (Note C[6]) 552,719
Securities not readily marketable,
at fair value (cost $1,217,525) 132,492
Prepaid expenses 61,438
----------
Total current assets 2,838,017
Furniture, fixtures, equipment, and leasehold improvements
(net of accumulated depreciation of $57,890)
(Notes C[1] and D) 290,113
Licensing and promotion agreements, net of accumulated
amortization of $26,459 (Note E) 354,726
Other assets 22,154
----------
$3,505,010
==========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 607,656
Deferred revenue 5,000
Dividends payable - preferred stockholders 38,154
Dividends payable - common stockholders 572,625
----------
Total current liabilities 1,223,435
----------
Commitments and other matters (Notes I, J, L and N)
STOCKHOLDERS' EQUITY (NOTES A, F, G, H, AND N)
Preferred stock - $.001 par value;
200,000 shares authorized, none outstanding
Class B common stock - $.001 par value;
25,000,000 shares authorized, none outstanding
Common stock - $.001 par value; 100,000,000 shares
authorized; 44,337,896 shares issued 44,337
Additional paid-in capital 8,852,862
Accumulated deficit (6,298,121)
Unearned compensatory costs (276,253)
Accumulated other comprehensive loss (11,250)
Treasury stock - at cost (15,000 common shares) (30,000)
----------
2,281,575
----------
$3,505,010
==========
See notes to financial statements
F-3
<PAGE>
GLOBALNET FINANCIAL.COM, INC. AND SUBSIDIARIES
(formerly Microcap Financial Services.Com, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED
DECEMBER 31,
---------------------------
1998 1997
- - --------------------------------------------------------------------------------
Revenue (Notes B, C[6] and C[9]):
Consulting fees $ 405,071 $ 359,914
Private placement fees 1,283,027 3,383,137
Net realized and unrealized loss on marketable
and not readily marketable securities (437,060) (448,971)
Gain on debt settlement 39,804
Interest income 30,309 94,170
----------- -----------
1,281,347 3,428,054
----------- -----------
Operating expenses:
Commission 286,381 859,844
General and administrative 3,941,773 3,448,980
Equity in loss of unconsolidated affiliate
and write-down of advance
(net gain on sale of $3,931) 61,069 86,115
Write-down of advances to unconsolidated affiliate 35,000
----------- -----------
4,289,223 4,429,939
----------- -----------
Net loss (3,007,876) (1,001,885)
----------- -----------
Less cumulative preferred dividend (29,624)
----------- -----------
Net loss attributable to common stockholders $(3,007,876) $(1,031,509)
=========== ===========
Basic and diluted loss per common share
(Note C[4]) $(0.12) $(.07)
======= ======
Weighted average number of common shares
outstanding - basic and diluted (Note C[4]) 25,233,000 15,655,000
=========== ===========
See notes to financial statements
F-4
<PAGE>
GLOBALNET FINANCIAL.COM, INC. AND SUBSIDIARIES
(formerly Microcap Financial Services.Com, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (NOTES A AND B)
<TABLE>
<CAPTION>
SERIES A SERIES B
CLASS B CONVERTIBLE CONVERTIBLE
COMMON STOCK COMMON STOCK PREFERRED PREFERRED ADDITIONAL
--------------------- -------------------- ------------------ ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1996 2,549,000 $3,088,260 11,349,666 $334,803 4,001,334 $560,187 1,080,000 $226,800
Consulting expense
attributable $35,417
to warrants
(Note G)
Dividends declared
Recapitalization
resulting from the
acquisition of
Microcap Financial
Services.Com, Inc. 297,094 (46,322)
Issuance of
common stock
(Note F[4]) 549,496 922,075
Collection of
subscription
Receivable
Issuance of common stock
to settle debt
(Note I) 2,906 6,539
June 1997, exchange of
shares of no par
shares for $.001 par
value shares (4,013,476) (323,453) 4,336,929
Conversion of
Series A and B
preferred
stock into Class B
common stock (Note F[1]) 5,081,334 5,081 (4,001,334) (560,187) (1,080,000) (226,800) 781,906
Purchase of
common stock
(Note F[6])
Net loss
- - ------------------------------------------------------------------------------------------------------------------------------------
BALANCE -
DECEMBER 31, 1997 3,398,496 3,398 16,431,000 16,431 0 0 0 0 5,107,930
Sale of common stock
(Note F[4]) 23,248,400 23,248 2,880,692
Collection of
subscription
receivable
Shares issued
to acquire
securities
(Note F[6]) 1,000,000 1,000 135,000
Value of options
issued as
compensation
to consultants 247,000
Value of
warrants issued
to consultant
(Note F[6]) 117,500
Value of stock
issued to a
former employee
(Note F[6]) 100,000 100 124,900
Value of stock
issued to
consultant
(Note F[6]) 160,000 160 239,840
Conversion of
Class B common stock 16,431,000 16,431 (16,431,000) (16,431)
Dividends declared
Net loss
Other comprehensive loss
Unrealized loss
on securities
(Note F[6])
Comprehensive loss
- - ------------------------------------------------------------------------------------------------------------------------------------
BALANCE -
DECEMBER 31, 1998 44,337,896 $44,337 0 $ 0 0 $ 0 0 $0 $8,852,862
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATED
UNEARNED OTHER
COMPENSATORY COMPREHENSIVE ACCUMULATED COMPREHENSIVE SUBSCRIPTION TREASURY STOCK
COSTS LOSS DEFICIT LOSS RECEIVABLE SHARES AMOUNT TOTAL
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1996 $ (718,616) $ (55,600) $3,435,834
Consulting expense
attributable
to warrants
(Note G) 35,417
Dividends declared (805,083) (805,083)
Recapitalization
resulting from the
acquisition of
Microcap Financial
Services.Com, Inc. 2,000 (46,322)
Issuance of
common stock
(Note F[4]) 922,075
Collection of
subscription
Receivable 2,000
Issuance of common stock
to settle debt
(Note I) 6,539
June 1997, exchange of
shares of no par
shares for $.001 par
value shares 0
Conversion of
Series A and B
preferred
stock into Class B
common stock (Note F[1]) 0
Purchase of
common stock
(Note F[6]) 15,000 $(30,000) (30,000)
Net loss (1,001,885) (1,001,885)
- - ------------------------------------------------------------------------------------------------------------------------------------
BALANCE -
DECEMBER 31, 1997 (2,525,584) (53,600) 15,000 (30,000) 2,518,575
Sale of common stock
(Note F[4]) 2,903,940
Collection of
subscription
receivable 53,600 53,600
Shares issued
to acquire
securities
(Note F[6]) 136,000
Value of options
issued as
compensation
to consultants 247,000
Value of
warrants issued
to consultant
(Note F[6]) $(96,253) 21,247
Value of stock
issued to a
former employee
(Note F[6]) 125,000
Value of stock
issued to
consultant
(Note F[6]) (180,000) 60,000
Conversion of
Class B common stock (764,661) 0
Dividends declared
Net loss $(3,007,876) (3,007,876) (764,661)
Other comprehensive loss (3,007,876)
Unrealized loss
on securities
(Note F[6]) (11,250) $(11,250) (11,250)
Comprehensive loss $(3,019,126)
- - ------------------------------------------------------------------------------------------------------------------------------------
BALANCE -
DECEMBER 31, 1998 $(276,253) $(6,298,121) $(11,250) $0 15,000 $ (30,000) $2,281,575
====================================================================================================================================
</TABLE>
F-5
<PAGE>
GLOBALNET FINANCIAL.COM, INC. AND SUBSIDIARIES
(formerly Microcap Financial Services.Com, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED
DECEMBER 31,
---------------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,007,876) $(1,001,885)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 142,576 63,486
Equity in loss of unconsolidated affiliate 65,000 121,115
and write-down of advances
Compensation to consultants and former 453,247
employee paid with stock and options
Valuation of warrants for consulting 35,417
Change in unrealized depreciation of 438,261 633,802
securities
Realized gains on securities (1,201) (184,831)
Gain on sale of unconsolidated affiliate (3,931)
Gain on debt settlement (39,804)
Compensation paid with securities 283,432
Receipt of securities in payment of fees (187,500) (1,583,141)
Loss on disposal of fixed assets 46,286
Accrued interest (9,000)
Changes in:
Due from broker 228,201 (273,131)
Prepaid expenses and other assets (462,777) (2,000)
Accounts payable and accrued expenses 428,405 128,251
Deferred revenue (69,038) 74,038
----------- -----------
Net cash used in operating activities (1,976,633) (1,707,965)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (128,727) (266,811)
Proceeds from sale of securities 516,015 273,132
Proceeds from sale of unconsolidated affiliate 3,931
Loans to affiliates (225,000)
Repayment of loan from affiliates 209,000 25,000
Investment in securities (64,480) (563,950)
Investment in restricted cash (2,330) (2,334)
----------- -----------
Net cash provided by (used in)
investing activities 533,409 (759,963)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock 2,903,940 924,075
and preferred stock
Proceeds from the subscription receivable 53,600
Cash acquired in recapitalization 21
Dividends paid (383,201) (575,764)
Purchase of treasury stock (30,000)
----------- -----------
Net cash provided by financing
activities 2,574,339 318,332
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,131,115 (2,149,596)
Cash and cash equivalents at beginning of period 810,659 2,960,255
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,941,774 $ 810,659
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH
TRANSACTIONS:
Common stock issued to settle debt $ 45,343
Dividends declared but not paid $ 572,625 $ 229,319
Common stock issued to acquire securities $ 136,000
Other comprehensive income - unrealized loss $ 11,250
See notes to financial statements
F-6
<PAGE>
GLOBALNET FINANCIAL.COM, INC. AND SUBSIDIARIES
(formerly Microcap Financial Services.Com, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE A - THE CORPORATION
GlobalNet Financial.com, Inc. (the "Company" or "GLBN") formerly Microcap
Financial Services.Com, Inc., prior to that Capital Growth Holdings, Ltd. and
prior to that Galt Financial Corporation, was incorporated in the State of
Colorado on June 15, 1987. On March 14, 1997, GLBN, an inactive company,
acquired 100% of the outstanding capital stock of International Capital Growth,
Ltd. ("ICG") (a company formed in February 1996), a Delaware corporation and
member of the National Association of Securities Dealers, Inc. The acquisition
was consummated through an exchange of shares that resulted in the former ICG
shareholders receiving control of GLBN the transaction has been treated as a
recapitalization. In connection therewith, ICG's historic capital accounts were
retroactively adjusted to reflect the equivalent number of shares issued by GLBN
in the transaction while ICG's historical accumulated deficit was carried
forward. In 1997, after the recapitalization, a Colorado corporation, was merged
into a Delaware corporation, Capital Growth Holdings, Ltd. The consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiary, ICG and the wholly owned subsidiary of ICG, Microcap1000.Com Ltd.
("MCAP 1000"). All significant intercompany transactions and balances have been
eliminated.
A. NOTE B - NATURE OF BUSINESS
The Company and its subsidiary have two reportable segments. The Company
operates as a broker/dealer and its subsidiary operates an internet web-site.
The Company generates revenues by acting as a placement agent in private
financings and as a financial consultant to various companies. Two customers
accounted for approximately 33% and 38% of the Company's consulting and private
placement fees earned during the year ended December 31, 1998. The Company's
wholly owned subsidiary, MCAP 1000 provides comprehensive, internet-based
electronic publishing of unique content on the MicroCap sector, generated by
analysts and money managers ("MC1000 Gurus"); internet investor access for
public companies; and broadcasts over the internet through video-streamed
netcasts of various financial programs. The Company also maintains their
proprietary MicroCap1000 Index, a real-time index following the stock
performance of 1000 companies with market capitalizations of between $25 million
and $500 million. During the year ended December 31, 1998, MCAP 1000 incurred
approximately $863,000 of expenses which are included in general and
administrative expenses.
Information with respect to reportable segments follows:
DECEMBER 31, 1998
--------------------------------------------------
CORPORATE BROKER/DEALER WEB-SITE TOTAL
--------- ------------- -------- ----------
Revenues from external $1,683,098 $ 5,000 $1,688,098
customers
Interest revenue $ 13,444 16,865 30,309
Depreciation and 104,117 38,459 142,576
amortization
Equity in loss of
unconsolidated
affiliate, net 65,000 65,000
Segment loss (695,806) (1,453,582) (858,488) (3,007,876)
Significant noncash items:
Unrealized depreciation
of securities 11,250 438,261 449,511
Compensation paid with
stock, warrants
and options 81,247 372,000 453,247
Segment assets 2,073,139 890,863 541,008 3,505,010
Expenditures for
long-lived assets 284 128,443 128,727
F-7
<PAGE>
B. NOTE B - NATURE OF BUSINESS (CONTINUED)
DECEMBER 31, 1997
--------------------------------------------
CORPORATE BROKER/DEALER TOTAL
--------- ------------- ----------
Revenues from external customers $3,734,051 $3,734,051
Interest revenue $ 20,200 73,970 94,170
Depreciation and amortization 63,486 63,486
Equity in loss of unconsolidated 121,115 121,115
affiliate, net
Segment loss (35,913) (965,972) (1,001,885)
Significant noncash items:
Unrealized depreciation of (633,802) (633,802)
securities
Compensation paid with 283,432 283,432
securities
Segment assets 209,000 2,792,183 3,001,183
Expenditures for long-lived assets 266,811 266,811
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] FURNITURE, FIXTURES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Furniture, fixtures, and equipment are recorded at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of
the assets which range from three to seven years. Leasehold improvements
are amortized over the lesser of the economic useful life of the
improvement or the term of the lease.
[2] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
[3] FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying value of cash and cash equivalents, due from broker,
restricted cash, accounts payable and accrued expenses approximate their
fair value because of the short maturity of those instruments.
[4] NET LOSS PER COMMON SHARE:
Net loss per common share is based on the weighted average number of common
shares and Class B common shares outstanding during the year. Common stock
equivalents representing options and warrants and convertible securities
have not been included as they would be antidilutive. Net loss attributable
to common stock in 1997 was adjusted to reflect cumulative dividends on
preferred shares outstanding.
F-8
<PAGE>
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[5] COMPREHENSIVE LOSS:
The Company adopted Statement of Financial Accounting Standards
"SFAS No. 130" "Reporting Comprehensive Income" in the year ended
December 31, 1998. SFAS 130 requires presentation of comprehensive income
(net income plus all other changes in net assets from non owner sources)
and its components.
[6] VALUATION OF SECURITIES:
Securities held by GLBN are classified as available-for-sale and are
recorded at their market value. Unrealized gains and losses on securities
held by GLBN are recorded as other comprehensive income.
Unrealized gains and losses on securities held by ICG are recognized as
operating income or loss in the statement of operations. Securities owned,
which are listed on a national securities exchange, are valued at their
last reported sales price. Securities which trade over-the-counter are
valued at the "bid" price. Securities which do not have a readily
ascertainable market value are valued at their estimated fair value as
determined by the management. Management considers fair value to be cost
unless the value has deteriorated or where later investments have been
concluded by a significant outside investor, then the investment is valued
at the last per share sales price paid unless circumstances dictate a lower
valuation.
The values of securities owned by the Company can change substantially
because of volatility in the price of each security, changes in the
business prospects of the issuer of the securities, specific events
influencing the operations of the issuer of the securities, and various
other circumstances outside the security issuer's control. Accordingly,
the value of the securities could decline so that a loss would be
required to be recognized for the total carrying amount of such securities.
Included in securities owned at market value is the common stock of
Worlds, Inc. The carrying amount of the investment in Worlds, Inc.
is $427,969. Worlds, Inc. is subject to the reporting requirements
of the U.S. Securities and Exchange Commission.
Unaudited summarized financial information of Worlds, Inc.
(a development stage enterprise) is as follows:
DECEMBER 31,
1998
-----------
(UNAUDITED)
Current assets $1,693,766
Noncurrent assets 214,246
Current liabilities 1,012,887
Noncurrent liabilities 1,875,018
F-9
<PAGE>
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[6] VALUATION OF SECURITIES: (CONTINUED)
TWELVE MONTHS
ENDED
DECEMBER 31,
1998
-----------
(UNAUDITED)
Income statement data:
Net revenues $ 29,110
Gross loss (169)
Operating loss before
extraordinary item (2,821,228)
Net loss (2,648,681)
[7] INVESTMENT IN AND ADVANCES TO AN UNCONSOLIDATED AFFILIATE:
The Company had a 50% equity interest in an unconsolidated affiliate,
Capital Growth (Europe) Limited ("CGE") which the Company accounted for
using the equity method of accounting. On May 19, 1998, the investment
was sold for $3,931.
[8] CASH EQUIVALENTS:
The Company considers all liquid short-term investments with original
maturities of three months or less to be cash equivalents.
[9] REVENUE RECOGNITION:
Consulting and private placement fees are recorded when earned.
In addition, the Company earns fees in the form of securities. These
securities are valued at market on the date they are earned. Security
transactions are recorded on a trade date basis.
[10] STOCK-BASED COMPENSATION:
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS 123 encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has elected to continue to account for its
stock-based compensation plans using the intrinsic value method prescribed
by Accounting Principles Board Opinion No. 25 whereby compensation cost
for stock options is measured as the excess, if any, of the quoted market
price of the Company's common stock at the date of grant over the amount
and employee must pay to acquire the stock.
F-10
<PAGE>
NOTE D - FURNITURE, FIXTURES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
At December 31, 1998, fixed assets consist of the following:
Furniture and fixtures $ 89,802
Equipment 30,695
Software 108,000
Leasehold improvements
(located in Europe) 119,506
---------
348,003
Less accumulated depreciation 57,890
---------
NOTE E - LICENSING AND PROMOTION AGREEMENTS
Licensing and promotion agreements are being amortized on a straight-line basis
over the 1 and 2 year term of the related agreements.
NOTE F - STOCKHOLDERS' EQUITY
[1] PREFERRED STOCK:
Preferred stock may be issued in one or more series at the discretion of
the Board of Directors. In establishing a series, the Board of Directors
shall fix the number of shares in such series, and the preferences, rights
and restrictions thereof.
On March 14, 1997, the Board of Directors designated 4,365,000 shares of
preferred stock as 5% cumulative Series A preferred stock and 1,200,000
shares of preferred stock as 5% cumulative convertible Series B preferred
stock.
The holders of Series A and B preferred stock were entitled to a
preferential cumulative dividend which began accruing on October 12, 1996
equal to 5% of the liquidation preference per annum and share equally
with the Class B common stock in any dividends declared thereon.
The Series A and B had a liquidation preference of $.14 and $.21 per share,
respectively.
On October 12, 1997, each share of the Company's 4,001,334 shares of
Series A preferred stock and 1,080,000 shares of Series B preferred stock
converted into shares of Class B common stock on a one-for-one basis, at
which time the 5% per share annual dividend that accrued thereon ceased to
accrue and became due and payable on October 24, 1997, out of funds
legally available therefor.
[2] CLASS B COMMON STOCK:
The holders of the Class B common stock were entitled to one vote per
share. The Class B common stock, which was junior in priority with respect
to dividends to the common stock, converted into common stock on a
one-for-one basis on December 31, 1998.
F-11
<PAGE>
NOTE F - STOCKHOLDERS' EQUITY (CONTINUED)
[3] DIVIDEND:
In March 1997, the Board of Directors declared an annual dividend as
modified of $.225 per share of common stock, for the calendar years ended
1998 and 1997, accruing as of January 1, 1997, payable commencing June 30,
1997, and on a quarterly basis thereafter, to be paid after payment of
any dividends due on all classes of stock with priority over common stock
subject to any operating restrictions. In addition, the Board of Directors
determined that any dividend declared on Class B common stock will be
subject to a $.20 per share limitation on annual dividends in 1998.
[4] PRIVATE PLACEMENT:
On December 7, 1998, the Company completed a private offering of its common
stock at $.125 per share. The Company issued a total of 23,248,400 shares
of common stock, which yielded net proceeds of approximately $2,904,000.
On March 27, 1997, the Company completed a private offering of its common
stock at $2.25 per share. The Company issued a total of 549,496 shares of
common stock which yielded net proceeds of approximately $922,000. A
placement fee of approximately $74,000 was paid to Capital Growth
International, LLC ("CGI"), an affiliate of the Company (Note I). In
connection therewith, the Company agreed to issue warrants to purchase
24,984 shares of common stock as partial compensation to certain
nonaffiliated sub-placement agents. Each warrant is exerciseable to
purchase one share at $4.00 per share (subject to adjustment) through March
2000.
[5] TREASURY STOCK:
In March and May 1997, the Company purchased an aggregate of 15,000 shares
of common stock and 12,500 warrants from the original holders at its
approximate fair value.
[6] NONCASH TRANSACTIONS:
In October 1998, the Company issued 250,000 five-year warrants with an
exercise option of $1.00 per warrant for consulting services for a period
of two years. These warrants which vest immediately were valued at their
fair value of $.47 per warrant using the Black-Scholes pricing model with
the following assumptions: interest rate 8.47%, dividend yield of 0%,
volatility factor of .75 and an average expected life of five years. The
unearned portion of the agreement of $96,253 is recorded as deferred
compensatory costs.
In November of 1998, the Company issued 1,000,000 shares of common stock
for 2,500,000 shares of common stock of Atlantic Caspian Resources, a
public company in Great Britain. The Company valued the transaction at the
fair value of the shares received of $.0544 per share on the date of the
exchange. The securities are classified as available for sale and are
included in securities owned at market value. The Company has reported an
unrealized loss on the stock of Atlantic Caspian Resources in the amount
of $11,250, which is classified as other comprehensive loss in the
financial statements.
In December of 1998, the Company issued 160,000 shares of common stock for
consulting services. The shares were valued at their fair market value of
$1.50 on the date the agreement was executed. The unearned portion of the
consulting agreement is recorded as deferred compensatory costs.
In December of 1998, the Company issued 100,000 shares of common stock to
a former employee. The shares were valued at their fair market value
of $1.25 on the date the shares were issued.
F-12
<PAGE>
1. NOTE G - WARRANTS
In October 1996, the Company raised $3,250,000 through the sale of units in
a private placement. Each unit was sold for $50,000 and consisted of 25,000
shares of common stock and 25,000 redeemable warrants. At December 31, 1997, the
Company had 1,612,500 redeemable warrants issued and outstanding. Each
redeemable warrant entitles the registered holder to purchase one share of
common stock at an initial exercise price of $4.00 per share (subject to
adjustment for stock splits, combination and reclassifications) at any time
prior to redemption from October 1996 until October 1999.
In addition, the Company issued 24,984 redeemable warrants to sub-placement
agents in connection with the Company's March 1997 private placement (Note
F[4]). Each warrant is exerciseable into common stock at a price of $4.00 per
share at any time prior to redemption through March 2000.
In addition, the Company agreed to issue 250,000 redeemable warrants in exchange
for consulting services to be rendered on behalf of the Company. The consulting
warrants vest at the rate of 125,000 per annum on a pro rata basis based upon
the number of months that such consulting services are provided to the Company.
Consulting services were provided for a 5 month period and therefore 52,083
warrants were issued. Each consulting warrant is exercisable to purchase one
share of Class B common stock at an exercise price of $2.00 per share at any
time prior to redemption through November 3, 1999. The issuance has resulted in
a charge to operations of $35,417 in 1997 based on the fair value of the warrant
($.68 per warrant). The fair value of these warrants was estimated using the
Black-Scholes pricing model with the following assumptions: interest rate of
5.92%, dividend yield of 0%, volatility factor of .30 and average expected life
of three years.
The above warrants may be redeemed by the Company at $.05 per redeemable warrant
subject to certain conditions and the closing bid price of the common stock
trades at least $6.00 for any 20 trading days within a period of 30 consecutive
trading days ending on the fifth trading day prior to the date of the notice of
redemption.
A summary of the Company's warrants and related information for the years ended
December 31, 1998 and 1997 are as follows:
WEIGHTED WEIGHTED
YEAR ENDED AVERAGE YEAR ENDED AVERAGE
DECEMBER 31, EXERCISE DECEMBER 31, EXERCISE
1998 PRICE 1997 PRICE
-------- -------- -------- --------
Outstanding at
beginning of period 1,689,567 $3.94 1,875,000 $3.73
Granted or exchanged 250,000 1.00 1,899,984 3.74
Expired or exchanged (2,085,417) 3.57
---------- ----------
Outstanding at
end of period 1,939,567 3.56 1,689,567 3.94
========= =========
Exercisable at
end of period 1,939,567 1,689,567 3.94
========= =========
Weighted average
remaining months
of contractual life
at year end 13 22
====== ======
F-13
<PAGE>
NOTE H - STOCK OPTION PLAN
On January 7, 1997, the Company adopted a stock option plan (the "1997
Plan") for granting of options to purchase up to 1,500,000 shares of Class B
common stock, pursuant to which employees, directors and consultants are
eligible to receive incentive and/or nonqaulified stock options. Options granted
under the 1997 Plan are exerciseable for a period of up to 10 years from date of
grant at an exercise price which is not less than the fair value on date of
grant, except that the exercise price of options granted to a stockholder owning
more than 10% of the outstanding capital stock may not be less than 110% of the
fair value of the common stock at date of grant. In connection with the exchange
of shares referred to in Note A, ICG option holders exchanged 635,000 options
for options under the 1997 Plan.
On August 15, 1998, the Company terminated the 1997 Plan.
On October 29, 1998, the Company adopted a stock option plan (the "1998
Plan") subject to stockholder approval for granting options to purchase up to
10,000,000 shares of common stock, pursuant to which employees, consultants,
independent contractors, officers and directors are eligible to receive
incentive and/or nonqualified stock options. Options granted under the 1998 Plan
are exercisable for a period of up to 10 years from date of grant at an exercise
price which is not less than the fair value on date of grant, except that the
exercise price of options granted to a stockholder owing more than 10% of the
outstanding capital stock may not be less than 110% of the fair value of the
common stock at date of grant. Options issued to employees and directors vest
20% on the date of issuance and 80% on the anniversary date of the grant.
Options issued to consultants vest immediately.
Stock option activity under the 1997 Plan and 1998 Plan is summarized as
follows:
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997
---------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- -------- -------- --------
Options outstanding at
beginning of year 635,000 $2.00 660,000 $2.00
Granted or exchanged 6,781,000 0.37 635,000 2.00
Exercised
Cancelled (635,000) 2.00 (660,000) 2.00
---------- ---------
Options outstanding
at end of year 6,781,000 0.37 635,000 2.00
========== =========
Options exercisable
at end of year 1,981,000 211,667
========== =========
F-14
<PAGE>
NOTE H - STOCK OPTION PLAN (CONTINUED)
The following table presents information relating to stock options
outstanding at December 31, 1998.
OPTIONS OPTIONS
OUTSTANDING EXERCISABLE
--------------------------------------------- ----------------------
WEIGHTED
RANGE WEIGHTED AVERAGE WEIGHTED
OF AVERAGE REMAINING AVERAGE
EXERCISE EXERCISE LIFE IN EXERCISE
PRICE SHARES PRICE YEARS SHARES PRICE
------ --------- ----- ----- --------- -----
$ .25 775,000 $.25 1.78 375,000 $.25
$ .375 5,850,000 .375 3.51 1,450,000 .375
$ .81 156,000 .83 2.36 156,000 .83
--------- ---------
$1.25
6,781,000 .37 3.29 1,981,000 .39
========== ==========
At December 31, 1998, 3,219,000 options were available for grant under the
1998 Plan. In addition, the Company must issue 550,000 options to certain
consultants which vest when certain milestones are achieved.
The weighted average fair value at date of grant for options granted during
1998 was $.17 per option. No options were granted in 1997. The fair value of
options at date of grant was estimated using the Black-Scholes option pricing
model utilizing the following assumptions:
1998
-------------
Risk-free interest rates 4.01% to 5.24%
Expected option life in years 2 to 5
Expected stock price volatility 75%
Expected dividend yield 0%
Had the Company elected to recognize compensation cost based on the fair
value of the options at the date of grant as prescribed by SFAS No. 123, net
loss in 1998 and 1997 would have been approximately $3,314,000 and $1,185,000 or
$(.13) and $(.08), respectively, per basic and diluted loss per share.
On January 4, 1999, the Company issued 1,025,000 stock options to certain
employees.
NOTE I - RELATED PARTY TRANSACTIONS
During the year ended December 31, 1998 the Company paid consulting fees of
$234,000 to two stockholders of the Company.
Capital Growth International LLC ("CGI"), a company owned by certain of the
ICG directors, utilizes space at the Company's offices without charge. Such
space was not considered significant for the years ended December 31, 1998 and
1997. During the year ended December 31, 1998, the Company received net
consulting fees of $23,000 from CGI.
In March 1997, an aggregate of $46,343 of notes and accrued interest due to
stockholder and former officers were exchanged for 2,906 shares of common stock.
The shares were valued at their fair value of $6,539 ($2.25 per share) and a
gain of $39,804 was recorded.
F-15
<PAGE>
NOTE I - RELATED PARTY TRANSACTIONS (CONTINUED)
In March 1997, the Company loaned $200,000 at an interest rate of 6% per
annum to an entity controlled by Messrs. Ronald B. Koenig and Stanley Hollander,
two of the Company's directors. The transaction was approved by the independent
members of the Board of Directors. The loan and the related interest was repaid
on April 9, 1998.
On September 15, 1997, the Company loaned $25,000 to CGI which was repaid
on October 2, 1997 without interest.
During the year ended December 31, 1997, the Company paid consulting fees
of $99,000 to a stockholder of CGH.
During the year ended December 31, 1997, the Company paid commissions of
$36,000 to CGE.
CGI assigned certain consulting and financial advisory service agreements
to the Company for no consideration. In addition, the Company purchased from CGI
warrants to acquire common stock in a public company for approximately $14,000.
(See also Note F[4].)
NOTE J - NET CAPITAL REQUIREMENTS
ICG is subject to the Securities Exchange Commission Uniform Net Capital
Rule (Rule 15c3-1), which requires the maintenance of minimum net capital and
requires that the ratio of aggregate indebtedness to net capital, both as
defined, be at least the greater of 6 2/3 percent of aggregate indebtedness or
$5,000. At December 31, 1998, ICG had net capital of $33,709 which was in
$18,657 in excess of its required net capital.
NOTE K - EXEMPTION FROM RULE 15C3-3
ICG is exempt from the reserve requirement of the Securities Exchange
Commission's Rule 15c3 -3 pursuant to Section 15c3-3(k)(2)(ii).
NOTE L - COMMITMENTS
[1] LETTER OF CREDIT:
The Company has issued a letter of credit in the amount of $100,000 to
secure future rent payments and leasehold improvements at the London
office of CGE. The letter of credit is secured by a money market account.
F-16
<PAGE>
NOTE L - COMMITMENTS (CONTINUED)
[2] LEASES:
The Company is obligated for annual minimum rentals under leases for
office space as follows:
YEAR ENDING
DECEMBER 31,
------------
1999 $ 98,000
2000 92,000
2001 24,000
---------
Rent expense was approximately $250,000 and $259,000 for the years ended
December 31, 1998 and 1997, respectively.
[3] RETIREMENT PLAN:
Effective January 1, 1997, the Company has a 401(k) profit-sharing plan
covering all eligible employees as defined in the Plan. Contributions are
made at the discretion of employees. The Company contributes 50% of the
employee's contribution amount to the plan. Pension expense for the years
ended December 31, 1998 and 1997 was approximately $15,000 and $21,000,
respectively.
NOTE M - PROVISION FOR TAXES
At December 31, 1998, the Company and its subsidiary had available for
federal income tax purposes net operating loss and capital loss carryforwards of
approximately $2,791,000 and $338,000, respectively. The net operating loss
carryforwards expire from 2011 through 2018. The capital loss carryforward
expires in 2003. The difference between the net loss for financial reporting
purposes and the net operating loss for tax purposes is primarily due to
unrealized loss on marketable securities and value attributable to
warrants/options not currently deductible for tax purposes. The Company has
provided a valuation reserve against the full amount of the net operating loss
benefit of $1,116,000, capital loss benefit of $128,000 and the benefit of
$664,000 from temporary differences, since the likelihood of realization cannot
be determined.
The difference between the statutory tax rate of 34% and the Company's
effective tax rate of 0% is due to the increase in a valuation allowance of
$1,124,000 and $394,000 in 1998 and 1997, respectively.
D. Section 382 of the Internal Revenue Code contains provisions which may
limit the loss carryforwards available if significant changes occur in
stockholder ownership interests. Although the Company has not performed a
detailed analysis, management believes that such limitations will apply as of
December 31, 1998 as a result of changes in stockholder ownership interests
during 1998. Accordingly, the Company would be subject to a significant annual
limitation on the utilization of its net operating losses.
F-17
<PAGE>
NOTE N - SUBSEQUENT EVENTS
On January 7, 1999, the Company issued 275,000 shares of common stock in
lieu of payment of $308,000 for services rendered by a consultant during the
year ended December 31, 1998.
On January 27, 1999, the Company entered into a content supply agreement.
Upon execution of the agreement, the Company granted 2,000,000 warrants to
purchase common stock at an exercise price of $1.00 per warrant for a term of
three years and paid $207,250. The Company valued these warrants at
approximately $4,007,000.
On February 9, 1999, the Company granted 840,000 options to purchase common
stock to a consultant. The consultant will receive an additional 840,000 options
throughout the term of the agreement. The Company valued these warrants at
approximately $921,000.
The fair market value of common stock, options and warrants issued in
connection with the above consultant agreements will be typically recorded as
expense within twelve months of the execution of the related agreements.
The Company sold 2,325,400 shares of common stock on February 10, 1999 in a
series of private placements yielding net proceeds of approximately $2,325,400.
On March 31, 1999, the Company entered into a stock exchange agreement with
Telescan, Inc. ("TSCN"). The agreement provides for the exchange of 5,176,161
unregistered shares of the Company's common stock, for 520,000 unregistered
shares of TSCN's common stock. In addition, the Company entered into a stock
option agreement with TSCN. The agreement provides TSCN a one year option to
increase its ownership in the Company to 19.9% by acquiring additional shares at
a purchase price of $3.75. In consideration thereof, the Company received 25,000
shares of TSCN common stock. The option is exercisable through March 30, 2000.
In the event that there is a change in control as defined, the Company is
required to redeem the option for cash in an amount equal to the number of
unexercised options multiplied by the difference between the exercise price and
consideration received by the Company's stockholders in connection with the
change in control.
Also, the Company entered into a service agreement with TSCN. TSCN will
provide information and design services to the Company's internet sites for a
term of two years. The agreement provides for the issuance of 1,577,491 shares
of the Company's common stock to TSCN for these services as they are provided.
On April 13, 1999, the Company acquired all of the outstanding shares of
CGE for approximately $43,000 and $25,000 unregistered shares of the Company's
Common Stock.
On April 13, 1999, ICG was served with a complaint, in which it was named
as a co-defendant to a lawsuit alleging damages of $990,000 plus interest and
punitive damages, with respect to certain investments made by the plaintiffs in
a company called Waste Systems International, Inc. ("WSI"), for which ICG acted
as a financial consultant and placement agent in connection with a private
offering. The plaintiffs allege that the defendants made numerous fraudulent and
negligent misrepresentations to the plaintiffs, that the plaintiffs invested in
WSI based on those fraudulent and negligent misrepresentations to the
plaintiffs, that the plaintiffs invested in WSI based on those fraudulent and
negligent misrepresentations and that the misrepresentations were the direct and
proximate cause of injuries suffered by the plaintiffs. Management believes that
the claims against ICG are without merit and is vigorously opposing those
claims, however, the outcome is presently underminable. In the opinion of
management any potential liability with respect to this litigation will not
materially affect the Company's financial position of results of operations.
F-18
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 810,659 1,941,774
<SECURITIES> 1,261,556 685,211
<RECEIVABLES> 209,000 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 290,113
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 3,001,183 3,505,010
<CURRENT-LIABILITIES> 0 1,223,435
<BONDS> 0 0
0 0
3,398 0
<COMMON> 16,431 44,335
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 3,001,183 3,505,010
<SALES> 0 0
<TOTAL-REVENUES> 3,428,054 1,281,347
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,001,885) (3,007,876)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,001,885) (3,007,876)
<EPS-PRIMARY> (.07) (.12)
<EPS-DILUTED> (.07) (.12)
</TABLE>
