SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 1997.Commission File No. 33-27652-NY
BusinessNet Holdings Corp. and Subsidiaries
(Exact name of registrant as specified in its charter)
Delaware 22-2946374
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification No.)
1 Bannisters Wharf, Newport, RI 02840
(Address of Principal Executive Offices)
Registrant's telephone number, including area code:(401) 683-1570
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None
Common stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: X No:
Transitional Small Business Disclosure Format:
Yes: X No:
The number of shares outstanding of the registrant's classes of common stock
as of December 31, 1997 is 15,824,010 shares of $.01 par value common stock.
1
<PAGE>
BusinessNet International Inc. and Subsidiaries
FORM 10-KSB,
Fiscal Year Ended December 31, 1997
TABLE OF CONTENTS
PART I
Item 1- Business 3
Item 2- Properties 4
Item 3- Legal Proceedings 5
Item 4- Submission of Matters to a Vote of Security Holders 6
PART II
Item 5 - Market for Registrant's Common Equity and Related Stockholders
Matters 6
Item 6 - Management's Discussion and Analysis of Financial Condition
and Results and Plan of Operations 7
Item 7 - Financial Statement and Supplementary Data F-1
Item 8 - Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure 11
PART III
Item 9 - Directors and Executive Officers of the Registrant 11
Item 10- Executive Compensation 12
Item 11- Security Ownership of Certain Beneficial Owners and Management13
Item 12- Certain Relationships and Related Transactions 14
PART IV
Item 13 -Exhibits, Schedules and Reports on Form 8-K 15
Signatures 16
2
PART I
Item 1 - Business
GENERAL
BusinessNet Holdings Corp. (the "Company"), formerly known as BusinessNet
International, Inc. and Navigato International, Inc. (formerly known as
Portfolio Publishing, Inc.); was incorporated under the laws of the State of
Delaware on January 10, 1989.
In January, 1994 the Company acquired 100% of the capital stock of Navigato A/S,
a development stage company located in Skive, Denmark which develops,
manufactures and markets GPS (satellite-based) fleet management systems. With
the acquisition of Navigato A/S in January, 1994, the Company ceased all
aspects of its former publishing business and focused its business
exclusively on fleet management.
On June 5, 1996, the Registrant acquired 100% of the issued and outstanding
stock of BusinessNet U.K. Limited (formerly, Dubesco U.K. Limited), a United
Kingdom corporation from Morten Skjelborg and affiliates. BusinessNet Europe was
subsequently established as a holding company 100% owned by the Registrant, and
Mr. Skjelborg became Chairman of the Registrant.
Recent Reorganization
During 1997, a financial reorganization of the Registrant's foreign subsidiaries
was required as a result of the failure of subsidiary Options Invest Danmark A/S
to obtain a required financial services license from the Government of Denmark.
As a result of this financial reorganization, the Registrant has discontinued
its European business operations effective September 30, 1997. The Registrant
at present has no administrative or operating control of any of the former
subsidiary operations, and accounted for the abandonment of these subsidiaries
during the year ended December 31, 1997.
Consequently, the business operations of the Registrant are presently limited to
its administrative operations, although it is currently reviewing its legal
options with respect to recouping a portion of its investment in BusinessNet
Europe, Ltd. No asset values remain as of this time.
On August 1, 1998 the Registrant changed its name to BusinessNet Holdings Corp.,
and undertook a reverse-split of its Common Stock on the basis of one new Share
for each fifty (50) issued and outstanding Shares.
The Registrant maintains executive and administrative offices at 1 Bannister's
Wharf, Newport, RI 02840. The telephone number is (401) 683-1570.
Future Business Operations
Management of the Registrant is presently undertaking to explore various
options to acquire and/or develop new business operations for the Registrant,
including mergers with or acquisitions of other business corporations.
EMPLOYEES
At December 31, 1998 the Company had no salaried employees.
3
Item 2 - Properties
The Company's principal facilities through the first quarter 1997 were as
follows:
Location SquareMeters Operations
Stamford, CT 15 Corporate administration
Copenhagen, Demark 1,300 Financial services:
Sales and administration
Dalgas Avenue, Aarhus,
Denmark 500 Financial services:
Sales and administration
Skive, Denmark 1,000 Fleet management operations:
Manufacturing, management,
research & development,
sales and marketing
Hellerup, Denmark 1,400 Internet services: Research &
development, sales
and management
Marselisborg Havn, Aarhus,
Denmark 350 Internet services: Sales
All of the Company's principal facilities were occupied under long-term leases
to the foreign subsidiaries, except the location on Dalgas Boulevard in Aarhus
which was owned by the foreign subsidiaries. As a result of the reorganization,
whereby the Company abandoned the foreign subsidiaries, the Company, as of
December 31, 1997 had only maintained administrative offices as follows:
Location Square Feet Operations
55 Memorial Blvd. 250 Corporate administration
Newport, RI
The Company leased this space on a month-to-month basis with the rental expense
included in the legal and administrative expense of $5,000.
4
Item 3 - Legal Proceedings
The Registrant is at present not involved in any legal proceedings. It is not
anticipated that the Registrant will be involved in any legal proceedings in
which its former subsidiaries are involved in Denmark.
The Registrant does not believe that the legal actions in Denmark involving its
former subsidiaries will result in any additional material adverse impact to the
Company.
The Registrant is currently reviewing its legal options with respect to
recouping a portion of its investment in BusinessNet Europe, Ltd., and which is
at present a non-performing asset.
5
Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Security Holders during the fourth
quarter of the year.
PART II
Item 5 - Market for Registrant's Common Equity and Related Stockholders Matters
(a) The Company's Common Stock was listed on the OTC Bulletin Board Market
(Symbol: BUII) for the four quarters of 1997 and 1996, respectively, as reported
by the National Quotation Bureau, Inc.
HIGH LOW HIGH LOW
1996 BID PRICES ASK PRICES
January 1 - March 31 9/16 1/8 5/8 5/32
April 1 - June 30 1 3/4 3/16 1 7/8 1/4
July 1 - September 30 1 7/8 3/4 2 7/8
October 1 - December 31 2 1/8 1 2 3/8 1 1/8
HIGH LOW HIGH LOW
1997 BID PRICES ASK PRICES
January 1 - March 31 1 1/4 1 1 5/8 1 1/4
April 1 - June 30 7/16 1/4 1/2 3/8
July 1 - September 30 6 1/4 3 1/2 3 1/2 7 1/2
October 1 - December 31 5 1 1/2 5 1/2 1 3/4
Sales prices do not include commissions or other adjustments to the selling
price.
(b) Holders- As of December 31, 1997 there were approximately 95 stockholders of
record of the Company's Common Stock. Based upon information from nominee
holders, the Company believes that the number of beneficial holders of its
Common Stock exceeds 200.
(c) Dividends - The Company has not paid or declared any dividends upon its
common stock and it intends for the foreseeable future to retain any earnings
to support the growth of its business. Any payment of cash dividends in the
future, as determined at the discretion of the Board of Directors, will be
dependent upon the Company's earnings and financial condition, capital
requirements, and other factors deemed relevant.
6
Item 6 - Management's Discussion and Analysis of Financial Condition and
Results and Plan of Operations
RESULTS OF OPERATIONS
Twelve months Ended December 1997 vs. December 1996
As a result of the reorganization undertaken by the Registrant on September 30,
1997, at which time it discontinued its former subsidiary operations, the
financial results of the former subsidiaries will no longer be reported by the
Registrant and therefore year-to-year comparisons are not meaningful. The
Registrant undertook a quasi-reorganization in accordance with applicable FASB
standards on December 31, 1997, and has written off its investment in its former
operating subsidiaries.
Twelve months Ended December 1996 vs. December 1995
Total revenue for the twelve month period ended December 31, 1996 was
$21,900,349, compared to $20,487,055 for the twelve month period ended December
31, 1995, representing an increase of 6.9%. The business operations which
produced operating revenue during this period have been discontinued.
During 1996 and 1995, respectively, the discontinued Financial Division
accounted for $21,110,944 and $19,960,141, representing 96.49% and 97.49% of
total revenues, respectively. Interest and dividends revenue totaled $240,249
and $203,104 for the two years ended 1996 and 1995, respectively. Overall
financial services activity increased due primarily to strong security markets
during the fourth quarter. As a result sales in the Financial Division grew
satisfactory during the fourth quarter. Financial Services first quarter 1997
sales are expected to be very satisfactory.
Total revenues in the discontinued IT group, for the twelve months ending
December 31, 1996 rose to $549,156 as compared to $323,810 for the prior year.
The IT group consists of Internet Services and Fleet Management operations.
The Fleet Management operations performance was well below expectations for the
year. Navigato A/S contributed with sales of $72,687 for fiscal 1996. For the
year ended December 31, 1995, Navigato realized revenues totaling $323,810. The
Fleet management business had a high number of inquiries during the year, but
received only few orders.
Activities during fourth quarter mainly focused on establishing good relations
with potential clients and business partners. These activities have resulted in
a number of very important orders in the first quarter of 1997, more than
doubling the companies installed base and number of clients. One of these orders
was from The National Bank of Saudi Arabia, which is regarded as an important
reference. This is expected to aide Navigato's marketing efforts especially in
the region.
Another positive result of the activities in the fourth quarter of 1996, was an
agreement with Nokia Mobile Phones Ltd., which extends the functionality of the
fleet management products. This agreement was completed in the first quarter of
1997.
The Internet business contributed $290,238 to sales and thereby continued to
improve sales with fourth quarter revenues making up $175,816 or 60.6% of the
total Internet sales for fiscal 1996. The improvement was however at a slower
pace than anticipated. The order backlog grew at a faster pace than sales,
indicating a longer delivery time, primarily due to a different mix of sales
than expected. The number of Internet customers was approximately 650 at
December 31, 1996, all of which were new customers for the Company in 1996. The
business transacted with these customers varies from establishing a domain
name for approximately $260 to website and installation projects that are priced
from $850 to $26,000 per site, with the average revenue realized per site of
approximately
7
$1,700. The improvement in Internet sales is continuing into fiscal 1997. First
quarter sales are expected to match or even exceed total sales for fiscal 1996.
Operating expenses increased from $17,064,218 in fiscal 1995 to $19,356,381 in
fiscal 1996, representing an increase of $2,292,163. Within the various
categories of operating expense, selling and administrative expenses rose
$3,863,464 to $15,425,185, reflecting higher personnel costs resulting from the
general expansion of the business and the formation of the Internet services
company. Selling and administrative expenses rose to support a higher revenue
level and to scale up the Company's emergence as a full service Internet Service
Provider (ISP). New selling and marketing programs for fiscal 1996 included the
realignment of Navigato's sales and support operation along new geographical
lines, the launching of a major marketing campaign for the ISP company, and the
opening of a new sales office in Aarhus. Research and development cost rose to
$689,940 from $202,155, representing an increase of $487,785. Prior to the
acquisition, the exclusive focus of the Company's research and development
activities had been to improve its fleet management and vehicle security
products. During 1996, there were significant development expenses incurred for
writing Internet software and documentation that were not present during
fiscal 1995. The Company anticipates that R & D will continue in future years,
but grow at a slower rate than before.
The twelve months ended December 31, 1996 resulted in a loss of $1,957,221, as
compared to an income of $1,036,373 for the twelve months ended December 31,
1995. The disappointing results for 1996 were mainly due to circumstances which
management believes are unlikely to be repeated in the future. The two major
single factors behind the result are a net loss of approximately $2.24 million
on financial assets above the normal expected principle trading loss which is
expected from the Company's trading policy and a net loss of approximately $1.06
million on clients receivable in the financial division, which is discussed at
length in "legal proceedings". Excluding non-recurring losses of approximately
$3.62 million the group's result would have been a net income of approximately
$1.66 million
Since the financial companies main revenue is derived from commissions on short
term trading, lack of volatility is considered a commercial risk.
The intent of the financial division's policy on trading for its own account, is
to hedge against this commercial risk. Generally, the financial division would
realize trading losses in periods with large market movement, especially in
prolonged bull markets. As a result of a deviation from policy, the Company
recorded a large trading loss during the fourth quarter. Management believes
that when a hedge is established, any loss on financial assets will usually be
more than offset by commissions from the core business and the hedge.
The unfortunate combination of circumstances in the fourth quarter of 1996 led
to a total loss of approximately $4.0 million. Management decisions and human
error accounted for approximately $2.24 million of the loss on financial assets,
the other approximately $1.76 million was deemed a result of normal policy.
The breakdown that took place in the fourth quarter made it evident that the
procedures for taking and handling customer orders needed to be strengthened. As
a consequence procedures have been changed, and the new method to institute and
execute an order is in place. It is the management's belief that the steps
already taken should minimize the risk for a recurrence of such future losses.
In the fourth quarter the financial division also took a loss of approximately
$1.38 million on clients receivable. The main part of this loss relates to the
situation mentioned in our quarterly report on Form 10-QSB for the period ended
September 30, 1996. (See also Note 8 to the financial statements and "legal
proceedings").
However it is anticipated that the ongoing lawsuits will take years to settle.
Management decided that it would be more prudent to take a one time charge at
this early stage.
8
The financial division had a fourth quarter net loss of approximately $1.67
million including non-recurring losses of approximately $3.62 million. Exclusive
of the non-recurring losses, the financial division would have had an operating
profit of approximately $1.95 million.
EFFECT OF INFLATION ON OPERATION
To date inflation has not had a significant impact on the Company's operating
results.
SEASONALITY
The Company's business as a whole has not experienced significant seasonal
fluctuations, although the financial services business experiences a lower
volume of business during the summer months due to vacations.
CAPITAL RESOURCES AND LIQUIDITY
As of December 31, 1997 the Company had a working capital deficit of $19,278 and
had discontinued its previous operations. Management plans on raising capital
through the issuance of its common stock, initially in private transactions, and
commencing new operations based upon the opportunities made available to the
Company.
At December 31, 1996, the Company had a negative working capital position of
$1,852,911, as compared to a working capital surplus of $1,135,670 at December
31, 1995.
On February 1, 1994, the Company completed the acquisition of Navigato A/S, a
Danish corporation, through the issuance of 3,400,000 shares of Common Stock of
the Company. In addition, the Company simultaneously completed the sale of
1,200,000 shares of Common Stock to certain foreign investors for total
aggregate consideration of $1,200,000.
On March 31, 1995 the Company completed an additional Regulation S offering of
500,000 shares, each sold for $1.125 per share. This generated proceeds of
$562,500 to the Company.
Capital expenditures for the Company increased during 1996 and included costs
relating to the fit-up of a new central data center in Copenhagen. This data
center was primarily used to support the Internet service business and corporate
administrative activities.
As of December 31, 1996 cash and cash equivalents had decreased by $107,029 from
1995 to $686,544. Accounts receivable rose from $2,281,653 to $2,853,344 and
reflected an increase in sales.
There can be no future assurance, that the Company's business will generate
sufficient cash flow from operations or that future working capital borrowings
will be available in sufficient amounts and required time frames to accomplish
all of the Company's operating requirements.
As stated in earlier filings the financial service companies are under
evaluation by the Danish Finanstilsyn (the equivalent of the Securities and
Exchange Commission). According to the law set in effect from January 1, 1996
the financial companies needs the Finanstilsyn approval to conduct financial
services in Denmark and the rest of the European Union (EU).
The Company filed the application with the Finanstilsyn on the June 30, 1996.
The negotiations with the Finanstilsyn did not begin before April of 1997. The
Finanstilsyn's evaluation resulted in denial, which management had not
anticipated, and as a result the Company's foreign subsidiaries became
insolvent, as such the Company abandoned the foreign subsidiaries and their
operations.
9
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
The disclosures included in this Form 10-KSB, incorporated documents included by
reference herein and therein, contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These statements are
identified by words such as "expects", "very satisfactory", "confident" and
words of similar import. Forward-looking statements are inherently subject to
risks and uncertainties, many of which cannot be predicted with accuracy and
some of which might not even be anticipated. Future events and actual results,
financial and otherwise, may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in this Form 10-KSB and other
matters detailed from time-to-time in the Company's Securities and Exchange
filings, including the Company's periodic filings on Form 10-QSB and Form 10-
KSB.
10
PART IV
ITEM 7. Financial Statement and Supplementary Data
(a) (1) The following documents are filed as part of this report:
a. Consolidated Financial Statements of the Registrant, BusinessNet Holdings
Corp. Page
Report of Independent Accountants' F-1
Report of Independent Auditors' F-2
Consolidated Balance Sheet of BusinessNet Holdings Corp.
as of December 31, 1997 F-3
Consolidated Statements of Operations of BusinessNet
Holdings Corp. for the years ended
December 31, 1997 and 1996 F-4
Consolidated Statements of Changes in Stockholders
Equity of BusinessNet Holdings Corp. for the
period from January 1, 1995 to December 31, 1997 F-5
Consolidated Statements of Cash Flows of BusinessNet
Holdings Corp. for the years ended
December 31, 1997 and 1996 F-6
Notes to the Financial Statements of BusinessNet
Holdings Corp. F-7 to F-22
b. Interim Financial Statements
Not Applicable
c. Financial Statements of Business Acquired
and to be Acquired
11
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders
of BusinessNet Holdings Corp. (formerly BusinessNet International, Inc.) and
Subsidiaries
We have compiled the accompanying consolidated balance sheet of BusinessNet
Holdings Corp and Subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended, in the accompanying index to the financial
statements (Item 7.), in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying 1997 financial statements and, accordingly, do not
express an opinion or any other form of assurance on them.
In the prior years financial statement footnotes concerning contingencies,
management had anticipated the approval by Danish authorities to continue to
operate its financial services subsidiaries in Denmark as the companies became
subject to the control of a regulatory body for the first time. The financial
services subsidiaries did not obtain this approval and as such the European
subsidiaries of the Company become insolvent.
The financial statements for the year ended December 31, 1996, were audited by
us and Mazars Danmark, and we expressed an unqualified opinion in our report
dated April 9, 1997, but we have not performed any auditing procedures since
that date.
/s/Schuhalter, Coughlin & Suozzo, LLC
SCHUHALTER, COUGHLIN & SUOZZO, LLC
Raritan, New Jersey
April 30, 1999
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
BusinessNet Holdings Corp. (formerly BusinessNet International, Inc.)
We have audited the accompanying consolidated statements of income of
BusinessNet Holdings Corp. and subsidiaries as of December 31, 1996 and the
related consolidated statements of changes in stockholders' equity, and cash
flows for the year ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
The consolidated financial statements as of December 31, 1996 have been restated
to reflect the pooling of interest with BusinessNet International, Inc. as
described in Note 2 to the consolidated financial statements.
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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, based on our audits including unaudited investees, the
consolidated financial statements referred to in the first paragraph present
fairly, in all material respects, the financial position of BusinessNet Holdings
Corp. and subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/MAZARS, DANMARK /s/Schuhalter, Coughlin & Suozzo, LLC
MAZARS, DANMARK SCHUHALTER, COUGHLIN & SUOZZO, LLC
Kobenhavn, Danmark Raritan, New Jersey
April 9, 1997
F-2
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
Assets
Current Assets
Cash $ 647
Total Current Assets 647
Total Assets $ 647
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 20,375
Total Current Liabilities 20,375
Stockholders' Equity
Common stock, par value $.01 per share, authorized
50,000,000 shares, issued and outstanding
15,824,010 shares at December 31, 1997 158,240
Preferred stock, authorized 1,000,000 shares,
par value $5.00 no shares issued -
Additional paid in capital (177,968)
Retained deficit subsequent to reorganization (12-31-97) -
Total Stockholders' Deficit (19,728)
Total Liabilities and Stockholders' Equity $ 647
The accompanying notes are an integral part of these financial statements.
F-3
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The
Year Ended
December 31,
1997 1996
(Unaudited) (Restated)
Commissions and Fees $12,361,171 $21,110,944
Interest and dividends 15,768 240,249
Other Revenue 327,145 549,156
Total Revenue 12,704,084 21,900,349
Operating Expenses
Direct Operating Expenses 1,584,214 2,365,706
Selling and administrative expenses 6,139,094 15,425,185
Research and development 235,968 689,940
Depreciation expenses 131,473 532,045
Bad debt expense - 343,505
Total Operating Expenses 8,090,752 19,356,381
Income from operations 4,613,332 2,543,968
Other Income (Expense)
(Loss) on principal trading (2,810,316) (3,008,490)
(Loss) from unconsolidating investees (344,414) (494,724)
Interest expense (81,085) (340,595)
Non recurring charge - (1,066,000)
Total Other Income (Expenses) (3,235,815) (4,909,809)
Loss from discontinued operations of European
subsidiaries (2,040,905) -
(Loss) before taxes (668,388) (2,365,841)
Benefit from (provision for) taxes - 408,620
Net (Loss) $ (668,388)$(1,957,221)
(Loss) per share $ (.042)$ (.125)
Weighted average shares outstanding 15,824,010 15,679,522
The accompanying notes are an integral part of these financial statements.
F-4
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1996
THROUGH DECEMBER 31, 1997
Additional
Common Stock Paid In
Shares Amount Capital
Balance, January 1, 1996 15,641,760 156,418 3,080,144
Issuance of common stock
for services 22,250 222 15,078
Issuance of shares from
treasury stock at cost - - 35,510
Issuance of common stock
for services charged to
additional paid in capital
in connection with the merger 160,000 1,600 (1,600)
Reduction of deferred tax
assets acquired in merger - - (77,800)
Net loss for the year - - -
Net cumulative translation
adjustment for the year - - -
Balance, December 31, 1996 15,824,010 $ 158,240 $3,051,332
Reduction of deferred tax
assets acquired in merger
(unaudited) - - (387,707)
Net loss for the year (unaudited) - - -
Net cumulative translation
adjustment for the year (unaudited) - - -
Equity adjustment for the abandonment
of subsidiaries (unaudited) - - 52,809
Reorganization due to abandoned
subsidiaries charged to additional
paid in capital (unaudited) - - (2,894,402)
Balance, December 31, 1997 (unaudited) 15,824,010 $ 158,240 $ (177,968)
The accompanying notes are an integral part of these financial statements.
16
Cumulative
Treasury Stock Translation Retained
Shares Amount Adjustment Deficit Total
597,290 (5,973) 81,954 (268,793) 3,043,750
- - - - 15,300
(97,290) 973 - - 36,483
- - - - -
- - - - (77,800)
- - - (1,957,221) (1,957,221)
- - (85,237) - (85,237)
500,000 $ (5,000) $ (3,283) $(2,226,014) $975,275
- - - - (387,707)
- - - (668,388) (668,388)
- - (82,202) - (82,202)
(500,000) 5,000 85,485 - 143,294
- - - 2,894,402 -
0 $ 0 $ 0 $ 0 $ (19,728)
F-5
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
1997 1996
DISCONTINUED OPERATING ACTIVITIES
Cash Flows Provided by Operating Activities:
Net (loss) income $1,372,517 $(1,957,221)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization 131,473 532,045
Expense paid by issuance of common stock - 15,300
Loss from unconsolidated investees 344,414 494,724
Provision for bad debts - 343,505
(Increase) decrease in securities purchased (301,605) -
(Increase) in inventories - (422,871)
(Increase) in accounts receivable (1,206,366) (964,689)
Decrease in other receivables 124,635 41,339
Decrease in prepaid expenses 14,011 9,573
Increase in accounts payable and accrued
expenses 2,047,811 426,869
(Decrease) increase in taxes payable 359,358 (20,102)
Increase in security deposits (16,268) (51,322)
(Decrease) increase in other liabilities 14,707 1,595,380
(Decrease) increase in due to customers (1,376,245) 674,257
(Decrease) increase in securities sold and
not yet purchased (185,712) 972,205
Decrease in other assets 6,506 27,745
Decrease in deferred taxes (249,593) -
Net cash provided by operating
activities 1,079,643 1,716,737
DISCONTINUED INVESTING ACTIVITIES
Cash Flows Used In Investment Activities:
Acquisition of fixed assets (138,107) (908,979)
Payment for purchase of investee (260,041) (340,028)
Investment in collectibles (26,122) (340,719)
Abandonment of subsidiaries (1,112,315) -
Net cash used in investing activities (1,536,585) (1,589,726)
DISCONTINUED FINANCING ACTIVITIES
Cash Flows Used In Financing Activities:
Issuance of treasury stock, at cost in 1996 - 36,483
Proceeds from loan payable 36,684 1,180,998
Repayment of loans payable (105,035) (184,184)
Advances to related parties (150,301) (1,093,839)
Repayment of notes payable - (279,321)
Net cash used in financing activities (218,652) (339,863)
Effect of Exchange Rate Changes on Cash (10,303) 105,823
Net (decrease) increase in cash and cash
equivalents (685,897) (107,029)
Cash and cash equivalents, beginning of year 686,544 793,573
Cash and cash equivalents, end of year $ 647 $ 686,544
The accompanying notes are an integral part of these financial statements.
F-6
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the year ended December 31, 1997)
NOTE 1 - RECENT REORGANIZATION
During 1997, a financial reorganization of the Company's foreign
subsidiaries was required as a result of the failure of subsidiary Options
Invest Danmark A/S to obtain a required financial services license from
the Government of Denmark. As a result of this financial reorganization,
the Company has discontinued its European business operations effective
June 30, 1997. The Company at present has no administrative or operating
control of any of the former subsidiary operations, and accounted for the
abandonment of these subsidiaries during the year ended December 31, 1997.
Consequently, the business operations of the Company are presently limited
to its administrative operations, although it is currently reviewing its
legal options with respect to recouping a portion of its investment in
BusinessNet Europe, Ltd. No asset values remain as of this time.
NOTE 2 - NATURE OF BUSINESS
BusinessNet Holdings Corp. (formerly BusinessNet International, Inc. and
Navigato International, Inc.) (the "Company") was originally incorporated
under the laws of the State of Delaware on January 10, 1989 as Portfolio
Publishing, Inc.
After the completion of its public offering in February, 1990 as Portfolio
Promotions, the company went through management and operational changes
and on January 31, 1994 completed a reverse acquisition discussed in Note
3.
On January 31, 1994, the Company acquired 100% of the outstanding stock of
Navigato A/S, a Danish company which had concluded the development of its
first product line, a complete system for fleet management, including on-
board computer, satellite communication equipment and software for the
base station. Navigato A/S has also signed agreements that give Navigato
A/S the exclusive right to market a number of products within its business
area in Denmark.
The first period of financial reporting as an operating company was the
fourth quarter 1994 as the company had its first significant sale to a
South African customer in the Navigato A/S subsidiary which is now
reported as a component of the discontinued technological segment.
Preceding that period the Company had been in the development stage.
On August 1, 1998 the Registrant changed its name to BusinessNet Holdings
Corp., and undertook a reverse-split of its Common Stock on the basis of
one new Share for each fifty (50) issued and outstanding Shares.
As a result of the merger the Company had two distinct business segments.
The business segments were technological product and services and the
financial services division which assisted investors in options trading
and hedging strategies in Europe, primarily in the countries of Denmark
and England.
F-7
<PAGE>
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the year ended December 31, 1997)
BusinessNet U.K., LTD was acquired by the Company on June 4, 1996 by the
issuance of 9,000,000 shares of common stock, $.01 par value, in exchange
for all of the outstanding capital stock of BusinessNet U.K., LTD The
business combination has been accounted for as a pooling of interests
pursuant to APB16, and, accordingly, the consolidated financial statements
include the combined results of operations for 1996 and historical equity
from the date BusinessNet U.K. commenced operations (January 10, 1992).
Included in consolidated results of operations for the year ended December
31, 1996 are the following results of the previously separate companies
for the year ended December 31, 1996.
BusinessNet
International, Inter-
Inc. BusinessNet Company Consolidated
(The Company) (Europe) Charges Amounts
Net Sales $ 75,691 $22,452,581 $ (627,923) $ 21,900,349
Net (Loss) $(889,347) $( 953,552) $ (114,322) $( 1,957,221)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation (December 31, 1997 - Unaudited)
The accompanying consolidated balance sheet at December 31, 1997 and the
related statements of income, cash flows and stockholders' equity for the
year then ended is unaudited. In the opinion of the Company's management
these reflect all adjustments necessary for a fair presentation of the
results for the unaudited period. Specifically, insufficient information
was available for certain accounting records of the discontinued
subsidiaries to be audited, which provided a scope limitation beyond the
control of management, and the Company's independent accountant informed
the Company that the compiled financial statements for December 31, 1997
was the highest level of service that they could provide under the
circumstances. The Company believes the December 31, 1997 financial
statements satisfy the filing requirements, under these circumstances, in
reliance upon Exchange Act Rule 12B-21 as they represent the best and most
current financial information that the Company has at this time.
Acquisition of Navigato A/S and 1994 Recapitalization
On January 31, 1994 the company entered into an agreement to acquire 100%
of the issued and outstanding capital stock of Navigato A/S.
For accounting purposes the acquisition has been treated as an acquisition
of Navigato International, Inc. by Navigato A/S and as a recapitalization
of Navigato A/S. The historical financial statements prior to January 31,
1994 are those of Navigato A/S which commenced operations November 1,
1993.
F-8
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the year ended December 31, 1997)
Restatement and Reclassification of Financial Statement Presentation
Due to the recapitalization, historical stockholders' equity of the
acquirer (Navigato A/S) prior to the 1994 merger is retroactively restated
for the equivalent number of shares received in the merger after giving
effect to any difference in par value of the issuer's and acquirer's stock
with an offset to paid-in capital. Retained deficit of the acquirer has
been carried forward after the acquisition. Due to the 1996 acquisition
discussed in Note 2, and 1996 consolidated financial statements have been
retroactively restated to include the results of BusinessNet U.K. for all
periods presented.
Principles of Consolidation
The accompanying consolidated statements of income as of December 31, 1997
and 1996 includes the accounts of the Company and the following
subsidiaries including their results of operations, including discontinued
operations, for all periods presented:
BusinessNet Danmark A/S
Navigato A/S
Options Invest Danmark A/S
Stock Options A/S
BusinessNet Holding A/S
Kilroy Kilroy APS
Stock Options Sweden AB
Dubesco Broker A/S
BusinessNet HOLDINGS CORP.
The balance sheet at December 31, 1997 includes only the accounts of
BusinessNet Holdings Corp. (formerly BusinessNet International, Inc.)
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
disclosure of contingent assets and liabilities at the date of the
financial statement and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Revenue Recognition
Revenue for technological products and services was recognized when the
product was delivered and accepted by customers. In the financial
services segment customer security transactions were recorded on a
settlement date basis with related commission income and expenses recorded
on a trade date basis. Securities transactions of the Company are
recorded on a trade date basis. Fees were recorded when considered earned
based upon the specific relationship with the customer.
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposit, and all highly liquid debt instruments
with original maturities of three months or less.
F-9
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the year ended December 31, 1997)
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided on
the straight-line method over the estimated useful life of the asset.
Concentration of Credit Risk and Economic Dependence
The Company was dependent on its prior chairman and major shareholder who
has personally guaranteed substantial amounts of the Company's debt with
the bank through December 31, 1996. Additionally, at December 31, 1996
the Company has a material receivable from this shareholder.
Product Warranties
The Company provides customers with a limited one year warranty covering
service costs only in the Fleet Information (Navigato) Division. The
Company has had only limited sales in its history. No liability has been
recognized in the accompanying financial statements at December 31, 1996
as no additional expenses relating to sales during this period are
anticipated. Warranty expenses was nominal during the period presented
Equity Method and Investments in unconsolidated entities
The company has participating interests in the ownership of non-public
entities with no established market value. As these represent than 50%
interests they are treated as unconsolidated investees. Investments in
entities using the Equity Method, in which revenue and expense details are
not available and which the Company had no equity in undistributed
earnings included in retained deficit as of December 31, 1996, totaled
$170,508 as follows:
Limited
of Percentage Partners'
Limited Owner- Ending Capital
Selskab Partnership Ship Capital @12/31/96
I/S Nordic Airleasing Kobenhavn 25.0% 402.834 67,789
K/S Nordic Shipping Kobenhavn 1.1% 72.036 12,122
Rederiet af 9/12 K/S Kobenhavn 7.7% 538.370 90,597
1,013,240 170,508
Included in loss from unconsolidated investees for the above limited
partnership were $170,508 and $185,035 for 1997 and 1996 respectively.
This investment was held in the European subsidiaries and, as such, at
December 31, 1997 the Company holds no interest in these partnerships.
The company has a 16% interest in a limited liability company which is
primarily involved in the manufacture and distribution of diet pills. The
company had no accumulated equity in the undistributed earnings of the
limited liability company included in Retained Deficit. Additionally at
December 31, 1996 the Limited Liability Company had been advanced $62,500
which was included in amounts receivable other.
F-10
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the year ended December 31, 1997)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Equity Method and Investments in unconsolidated entities - (Continued)
Condensed unaudited 1996 financial information for the limited liability
company is as follows: (No information for 1997 is available)
Summary of Statements of Financial Condition
December 31, 1996
Assets
Total assets$ 2,547,503
Liabilities and Members Equity
Total Liabilities $ 788,704
Members Equity
Other members 1,672,840
BusinessNet 85,959
Total Liabilities and Members Equity $2,547,503
Summary of Statement of Operations
Revenues $ 4,796,665
Expenses (6,732,219)
Net (Loss) $(1,935,554)
1996 net (loss) allocated to the Company (16%) was $(309,689).
The balance of this investment, $85,959 was written off in 1997 in
connection with the abandonment of the European subsidiaries.
Inventories
Inventories of the foreign subsidiaries were valued at the lower of cost
(determined on a first-in, first-out basis) or market. Inventory includes
components which have the risk of technological obsolescence which is
considered by management when to apply the lower of cost or market
criteria.
Inventories consisted of the following at December 31, 1996:
Internet products $ 412,720
Transportation products 136,777
Total $ 549,497
No inventories remained on hand as of December 31, 1997.
Earnings Per Share
Earnings per share are based on the weighted average shares outstanding
for all periods presented giving retroactive recognition for the number of
equivalent shares received by Navigato A/S as a result of the
recapitalization, as well as retroactive recognition for the acquisition
of BusinessNet accounted for as a pooling of interests.
F-11
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the year ended December 31, 1997)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Foreign Currency and Operations
The financial statements and transactions of Navigato A/S are maintained
in their functional currency (Danish Krona) and translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards No.
52. All balance sheet accounts are translated at the current exchange
rate excluding equity which is translated at historical rates. Income
statement items are translated at the average exchange rate for the
applicable period. Any translation adjustments are accumulated in a
separate component of stockholders equity.
At December 31, 1997 the cumulative translation adjustment is as follows:
Balance January 1, 1995 as previously reported $ (5,470)
Increase due to acquisition accounted for as a
pooling of interest (55,640)
Balance January 1, 1995 as restated (61,380)
Translation adjustment - historical value of equity (89,602)
Current years (1995) translation adjustment from
functional currency DKK 277,488
Other translation adjustments including fixed
assets and effect on depreciation (44,551)
Balance December 31, 1995 81,954
Translation adjustment - historical value of equity 19,846
Current years (1996) translation from functional
currency DKK (95,537)
Other translation adjustments including fixed
assets and effect on depreciation (9,546)
Balance December 31, 1996 (3,283)
Current years (1997) transactions from
functional currency DKK (82,202)
Effect of abandonment of subsidiaries 85,485
Balance at December 31, 1997 $ 0
For the Year Ended
December 31,
1997 1996
Schedule of Non Cash Investing
and Financing Activities:
Non cash effect of translation
adjustments $ - $(190,520)
22,250 shares issued for services - 15,300
160,000 shares in 1996 of common stock
issued for services in connection with
sale of securities and a like amount
charged to additional paid in capital
discussed in Note 4 $ - $ 70,000
F-12
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the year ended December 31, 1997)
NOTE 4 - CAPITAL STOCK
Common Stock
In connection with the acquisition and recapitalization of Navigato A/S
discussed in Note 3, the Company issued 3,400,000 shares of stock to
acquire all of the outstanding shares of Navigato A/S.
On May 14, 1993, the Company effected a reverse split of its common stock
on a one share for five share basis, increased its authorized shares of
common stock from 10,000,000 shares to 15,000,000 shares and changed the
par value of each share of common stock from $.001 to $.01. The number of
shares issued and outstanding shares were reduced from 4,458,800 shares to
891,760 shares.
In January, 1994 the company completed a Regulation S offering of
1,200,000 shares which generated gross proceeds of $1,200,000. Direct
offering costs of $87,328 were incurred bringing net proceeds to the
company of $1,112,672. Additionally 50,000 shares, valued at $1.00 per
share were granted to a market maker which assisted in this transaction
pursuant to Rule 701 and a like amount was charged to additional paid in
capital.
On March 31, 1995 the Company completed an additional Regulation S
offering of 500,000 shares, each sold for $1.125 per share. This
generated net proceeds of $562,500 to the Company. Additionally 150,000
shares, valued at $1.125 per share were granted to professionals which
assisted in this transaction pursuant to Rule 701 and a like amount was
charged to additional paid in capital.
In the quarter ending June 30, 1996, the Company issued 22,250 shares for
services which were valued at $15,300.
On June 6, 1996, 9,000,000 shares were issued to the Company's chairman in
connection with the acquisition discussed in Note 2, and the opening
consolidated equity has been recorded at the historical values of the
respective companies as the acquisition has been accounted for as a
pooling of interests pursuant to APB16.
Treasury Stock
Shares on hand for the period preceding the acquisition held by the
acquired company were valued at cost and recorded as treasury stock
pursuant to the pooling of interest treatment. These shares were held by
a foreign subsidiary which the Company has abandoned and therefore no
treasury stock is on hand at December 31, 1997.
Additional Paid in Capital
Additional paid in capital has been restated to record the opening balance
at historical values of the respective companies as well as to include an
increase for deferred tax assets expected to be realized as a result of
the business combination.
F-13
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the year ended December 31, 1997)
NOTE 4 - CAPITAL STOCK - (Continued)
Incentive stock option plan
On October 1, 1994 the Company adopted a stock option plan for employees,
directors, consultants and advisors, which provide for the issuance of up
to 500,000 shares of common stock. The Board of Directors authorized the
issuance of up to 150,000 shares on October 14, 1994 based upon certain
performance goals. No options have been granted under this plan as of
December 31, 1997.
Preferred Stock
The certificate of incorporation of the Company authorizes its board of
directors to issue for value 1,000,000 shares of preferred stock, $5 par
value. Preferred stock may be issued in series with such designations,
relative rights, preferences and limitations as may be fixed from time to
time by the board of directors of the Company. None of these shares have
ever been issued and there are no shares of preferred stock outstanding.
NOTE 5 - TRANSACTIONS WITH RELATED PARTIES
Prior to the merger in 1996 the Company kept funds with a company owned by
the director and current chairman, who from time to time assisted the
company with its efforts in capital markets. This director was considered
an affiliate and is now the chairman of the Company.
The Company also rented offices from a company owned by the chairman and
included in rent expense for 1996 is approximately $33,000 paid to the
chairman and or his company.
Prior to the acquisition discussed in Note 2, "S" registrations described
in Note 4 were fully subscribed by the company controlled by the current
chairman.
At December 31, 1996 accounts receivable - officer includes $1,052,976 of
non-interest bearing advances to the chairman which were expected to be
repaid in 1997. This receivable was an asset of the abandoned foreign
subsidiaries and as of December 31, 1997 no amounts are recorded due to
the US parent. If these amounts were collected, it is expected they would
be used to satisfy obligations of the abandoned subsidiaries.
Loan receivable officer represented advances to the president of the fleet
management subsidiary, and bore an interest rate of 6% and was originally
scheduled to be repaid February 1, 1997 and was extended for one year.
This receivable was an asset of the abandoned foreign subsidiaries and as
of December 31, 1997 no amounts are recorded due to the US parent. If
these amounts were collected, it is expected they would be used to satisfy
obligations of the abandoned subsidiaries.
Included in interest income for 1996 was $6,391 from related parties.
F-14
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the year ended December 31, 1997)
NOTE 6 - PROPERTY AND EQUIPMENT
The Company generally estimated useful lives of 3-5 years on plant and
machinery, 10 years on leasehold improvements and 50 years for buildings.
As a result of the abandonment of the foreign subsidiaries, the Company
has no fixed assets as of December 31, 1997.
NOTE 7 - LEASES
The Company leased premises in Denmark and equipment under operating
leases that expired through 1998 and the year 2000 with monthly rentals of
approximately $37,800 for premises and $13,000 for office equipment. As
a result of the abandonment of the foreign subsidiaries, the Company has
no lease commitments with an expiration date of more than one year from
the balance sheet date.
Rent expense for total operating leases for 1997 and 1996 was
approximately $94,000 and $377,000 for premises, respectively and $37,000
and $148,000 for equipment under operating lease, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company's financial services division was involved in several
litigations with customers, primarily due to complaints in connection with
either the suitability or results of the customers trading when they are
not successful. Frequently these actions were commenced in defense of the
company enforcing default provisions in fee and credit arrangements.
Generally, the Company had corresponding receivable balances which had
been reserved and included in the allowance for bad debt. The Company did
not anticipate to have claims in excess of such reserves which are already
recorded in the financial statements through December 31, 1996.
During the fourth quarter of 1996, the Company recorded in the financial
services subsidiaries as a non-recurring charge the write off of a
receivable totaling $1,066,000 which arose from the reversal of payments
the Company had already received in the form of checks from a customer.
By agreement amongst Danish banks, the customers corresponding bank
reversed the checks, and such reversal was recognized by the Company's
bank. Additionally, the customer claimed relief on $180,000 of fees paid
by wire, such claims were not honored by the Company's bank and the
Company does not expect this claim to be honored, nor has it recorded a
charge for the same. The customer's claim for such reversal is based upon
losses incurred by the customer's president on unauthorized investments.
The Company's counter claim is against the customer as frivolous, includes
the customer's bank, as the Company alleges proceeds from the check
reversal were used to offset debts the customer had with the bank. The
anticipated length of time such a counter claim will take on behalf of the
Company to both prevail and ultimately realize proceeds has created an
uncertainty that such amounts have been charged to operations currently
and if a positive result is achieved from this litigation, the Company
will record the same as income when the proceeds are in fact received.
F-15
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the year ended December 31, 1997)
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company's financial services companies primarily operated in Denmark
and as such have not been subject to the control of a regulatory body. In
December 1995, the Danish authorities announced it would put into place
such controls by June of 1997, including certain criteria for having the
authority to perform many of the revenue producing activities the Company
had performed and the requirement to maintain minimum levels of capital.
The Company had applied for this approval and anticipated receiving the
same by the required date. The Company did not anticipate it would be
unable to obtain this approval. In accordance with Danish law, salaried
employees are entitled to three months notice of termination after six
months of employment with the terms of notice increasing one month for
each three years of employment. The prior years financial statements did
not include any liabilities for such obligations as the Company had not
prematurely terminated any current employees. On July 2, 1997 the Company
was informed that in fact it did not receive such approval, which rendered
substantially all of the Company's operating subsidiaries in Europe
insolvent, including a substantial liability for premature termination.
As such, the Company has abandoned these subsidiaries, as discussed in
Note 1, and the Company has been informed by counsel that liabilities in
excess of the subsidiaries assets cannot be passed through to the parent.
Under US law and the laws of Delaware, and as such the Company has
accounted for the abandonment of these subsidiaries and the reorganization
of the parent company.
In connection with investment made by the subsidiaries in unconsolidated
investees the Company had contingent liabilities, for limited partners'
share of non-recourse liabilities, secured by assets of the limited
partnership investees, totaling 24,024,000DKK or approximately $4,041,000.
Due to the assets secured and the non-recourse nature of the debt, no
provisions for loss contingencies had been recorded by the Company.
F-16
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the year ended December 31, 1997)
NOTE 9 - INCOME TAXES
The provision for income taxes consists of the following:
1996 1995
Current
Federal........................ $ - $ -
Foreign (UK)................... - (54,800)
Deferred:
Federal........................ - (114,322)
Foreign (UK)...................... - 577,742
Benefit from (Provision for) taxes. $ - $ 408,620
The differences between the provision for income taxes and income taxes
computed using the U.K. income tax rate were as follows:
1997 1996
Amount computed using the statutory rate..... $ - $ 828,045
(Increase) reduction in taxes resulting from:
Foreign income.................. - (54,800)
Other........................... - (364,625)
Benefit from (Provision for) income taxes $ - $ 408,620
The domestic and foreign components of income before taxes were as follows:
1996 1995
Domestic............................... $ (20,375) $ 232,000
Foreign................................ (648,013) (2,597,841)
Total (loss) before income taxes $(668,388) $(2,365,841)
F-17
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the year ended December 31, 1997)
NOTE 9 - INCOME TAXES
The Company has available operating loss carryforwards, which may be used
to reduce Federal and Danish corporate income tax liabilities in future
years as follows:
Available Through Federal-USA
1998 $ -
1999 -
2000 -
2001 -
2005 105,896
2006 14,003
2007 22,420
2008 333,793
2009 112,222
2010 260,183
2011 20,375
$ 868,892
Deferred taxes consist of the following at December 31, 1997:
Federal-USA
Total deferred tax assets $ 295,425
Less: Valuation allowance (295,425)
Net deferred tax assets $ 0
Deferred tax assets are attributable to available net operating loss
carryforwards. In connection with the acquisition discussed in Note 2,
the Company recorded $707,300 as a deferred tax asset with a corresponding
increase to additional paid in capital, which represents those amounts it
expects to realize in the form of total benefits from loss carryforwards
subsequent to the merger. During 1996, a $77,800 reduction in the current
benefit was recorded as a charge to additional paid in capital. During
1997, due to the abandonment of the foreign subsidiaries, the Company
reversed all deferred tax assets and only retained the USA net operating
losses.
NOTE 10 - DUE TO CREDIT INSTITUTIONS
Included in due to credit institutions at December 31, 1996 was $133,638
due to a factor to provide interim financing of accounts receivable from
sales transactions, which are factored when the customer no longer has the
right of return and has obtained an insured guarantee of a third party.
The interest rate on outstanding balances was 13.25% per annum.
Additionally, on December 31, 996 $285,979 represented a note payable to
the bank with interest at the banks prime rate which was due upon demand.
F-18
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the year ended December 31, 1997)
NOTE 11 - LONG TERM DEBT
At December 31, 1996 long term debt was comprised of the following:
1996
Building loan payable
Interest payable quarterly at 8% principle
due in full due in 2003 $ 462,613
Note payable to bank
Personally guaranteed by the Company's
chairman. Interest at 7% due in equal
quarterly installments of $63,084 including
interest through 1997 504,668
Term loan secured by computer equipment.
Interest at 8.3% due in equal monthly
installments of $4,480 including interest
through 1999 135,850
Term loan secured by auto
Interest at 6% due in equal monthly
installments of $614 including
interest through 1999 18,615
Term loan secured by auto
Interest at 6% due in equal monthly
installments of $1,127 including
interest through 1999 36,609
Term loan secured by auto
Interest at 6% due in equal monthly
installments of $694 including
interest through 2000 29,416
Term loan secured by auto
Interest at 6.5% due in equal monthly
installments of $421 including
interest through 1999 13,389
Term loan secured by auto
Interest at 6.5% due in equal monthly
installments of $960 including
interest through 2001 43,553
Term loan, secured by a demonstration
vehicle with monthly payments of
$717 including interest at 8%
through February, 2000 23,389
Total 1,268,102
Less: current portion 312,451
Long term portion $ 955,651
F-19
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the year ended December 31, 1997)
NOTE 11 - LONG TERM DEBT - (Continued)
As a result of the abandonment of the foreign subsidiaries, in which all
the above debt was held, the parent company has no amounts outstanding at
December 31, 1997.
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the requirements of SFAS 107, Disclosure about Fair
Value of Financial Instruments, the following fair values estimates and
information about valuation methodologies are presented. For all
financial instruments not described below, fair value approximates book
value.
Cash and equivalents: The carrying amount approximates fair value because
of the short period to maturity.
NOTE 13 - SEGMENT INFORMATION - 1996
The Company operated principally in two industries, financial services and
technological services for the internet and transportation industries and
other. Operations in the financial service involve assistance to
customers trading options and investment advise for fees and commissions.
Operations in the technological divisions include internet products
including internet access tools, website architecture and transportation
monitoring equipment. Total revenue by industry includes both sales to
unaffiliated customers, as reported in the Company's consolidated income
statement.
Operating profit is total revenue less operating expenses. In computing
operating profit, none of the following items has been added or deducted:
general corporate expenses, interest expense, income taxes, extraordinary
gain. Depreciation for internet services and the financial services
division was $110,101 and $421,944 respectively. In 1996 capital
expenditures for the two segments were $672,016 for the internet segment
and $236,963 in the financial services segment, respectively.
Identifiable assets by industry are those assets that are used in the
Company's operations in each industry. Corporate assets are principally
cash and marketable securities.
To reconcile industry information with consolidated amounts, the following
eliminations have been made:
Intercompany charge for internet fees $ 630,427
Elimination of $77,800 tax benefit from
current tax provision and $36,522 of
prior years tax benefit realized in
1996 $ 114,322
F-20
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the year ended December 31, 1997)
NOTE 13 - SEGMENT INFORMATION - (Continued)
Adjustments
Financial Technological &
Services Services Eliminations Consolidated
Revenue from
unaffiliated
customers $21,609,923 $ 290,426 $ - $21,900,349
Intersegment
Revenue - 630,927 (630,427) -
Total Revenue $21,606,919 $ 921,353 $(630,427) $21,900,349
Operating profit $ 162,857 $(1,756,959) $ 114,322 $(1,479,780)
Loss of
unconsolidated
investees (494,724)
General
corporate
expenses (50,738)
Interest
expense (340,599)
Income from
continuing
operations
before income
taxes $(2,365,841)
Identifiable
assets at
December
31, 1996 $9,932,457 $1,503,743 $(2,248,487) -
Total assets at
December
31, 1996 $ 9,187,713
F-21
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited for the year ended December 31, 1997)
NOTE 14 - SEGMENT INFORMATION - 1997 (Unaudited)
The Company operated principally in two industries, financial services and
technological services for the Internet and transportation industries and
other. Operations in the financial service involve assistance to
customers trading options and investment advise for fees and commissions.
Operations in the technological divisions include Internet products
including Internet access tools, website architecture and transportation
monitoring equipment. Total revenue by industry includes both sales to
unaffiliated customers, as reported in the Company's consolidated income
statement
Operating profit is total revenue less operating expenses. In computing
operating profit, none of the following items has been added to expenses,
interest expense, income taxes or extraordinary gain.
To reconcile industry information with consolidated amounts, the following
eliminations have been made:
Intercompany charge for Internet fees $ 119,789
Adjustments
Financial Technological &
Services Services Eliminations Consolidated
Revenue from
unaffiliated
customers $12,376,939 $ 327,145 $ - $12,704,084
Intersegment Revenue - 119,789 (119,789) -
Total Revenue $12,376,939 $ 446,934 $(119,789) $12,704,084
Operating profit $ 3,546,401 $ (1,039,175) $ 32,082 $ 2,539,308
Loss from unconsolidated investees (344,414)
General corporate expenses (766,292)
Interest expense (81,085)
Income from continuing
operations before income
taxes $ 1,372,517
Loss from discontinued operations
of European subsidiaries (2,040,905)
Net loss before income taxes $ 668,388
F-22
Item 8 - Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
No disagreements exist with respect to accounting and/or financial disclosure.
Effective for this filing the Company retained Schuhalter, Coughlin & Suozzo,
LLC, one of the two principal accounting firms used in 1996.
PART III
Item 9 - Directors and Executive Officers of the Registrant
The Directors and Executive Officers of the Company as of December 31, 1997 were
as follows:
Name & Address
Age
Position
William J. Reilly
1 Bannisters Wharf
Newport, RI 02840
44
Acting Chairman
Rounsevelle W. Schaum
c/o Reilly
1 Bannisters Whart
Newport, RI 02840
Secretary,
Director
Directors are elected to serve until the next annual meeting of stockholders and
until their successors have been elected and have qualified. Officers are
appointed to serve until the meeting of the Board of Directors following the
next annual meeting of stockholders and until their successors have been
elected and qualified.
36
Item 10 - Executive Compensation
The following table sets forth all compensation awarded to, earned by, or paid
by the Company for services rendered in all capacities to the Company during
each
of the fiscal years ended December 31, 1997 and 1996: (1) the Registrant's
Chief Executive Officer, and (2) each of the other executive officers whose
total salary and bonus for the fiscal year ended December 31, 1996 exceeded
$100,000.
ANNUAL COMPENSATION
Name and position Year Salary
Carsten Bang Jensen, 1996 $333,336
FormerPresident and Chief 1997 $138,890
Operating Officer
Harald Madsen, 1996 $283,898
Former Chief Financial Officer 1997 $118,290
William J. Reilly 1997 $ 5,000
Chairman, Director
37
Item 11 - Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners - the following persons are
known to the Company to be the beneficial owners of more than 5% of the
15,824,010 shares of the Company's outstanding Common Stock as of December 31,
1997.
(b) Security Ownership of Management - the number and percentage of shares of
common stock of the Company owned of record and beneficially, by each officer
and director of the Company and by all officers and directors of the Company
as a group, is as follows as of December 31, 1997:
Name and Address of
Owner Position Amount and Percent of
Nature of Class
Beneficial
Ownership
Morten Skjelborg Chairman 9,106,943 (1) 57.55%
Flat 512, Butlers of the
Wharf Build Board
36 Shad Thames (Resigned
London SE1 2YE during
United Kingdom 1997)
Carsten Bang Jensen President 2,000 (1) .00%
Skjoldnaesvej 119 and Chief
4174 Hystrup Operating
Denmark Officer,
Director
William J. Reilly Chairman 265,000 (1) .02%
396 Broadway of the
New York, NY 10013 Board
USA Director
(Resigned
during
1997)
Serdani Management 2,288,000 14.46%
Ltd.
Euro-Canadian Centre
Marlborough St.
Massau, Bahamas
(1) Total Officers
and
Directors
as a group 9,373,943 57.57%
38
Item 12 - Certain Relationships and Related Transactions
For the fiscal year ended December 31, 1997 there have not been any material
transactions between the Company and any of its officers and/or directors,
except as set forth in its aforesaid Financial Statements(SEE FOOTNOTE 5 (five))
for the year then ended December 31, 1997, the contents of which commence
on Page F1.
39
PART IV
Item 13 - Exhibits, Schedules and Reports on Form 8-K
Following is a list of exhibits filed as part of this Annual Report on Form 10-
KSB. Where so indicated by footnote, exhibits which were previously filed are
incorporated by reference.
Exhibit Number
Reference Description
(3a)* Articles of Incorporation, as amended
(3b)* By-laws, as amended
(4)* Specimen of Common Stock certificate
(101)* Agreement for purchase and sale of stock in connection with
BusinessNet International Inc. (formerly known as Navigato
International Inc.) (Purchaser) and BusinessNet U.K. Ltd.,
(formerly known as Dubesco U.K. Ltd.) dated June 4, 1996.
* The above mentioned items were previously filed and are hereby incorporated by
reference.
Reports on Form 8-K
NONE.
40
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BUSINESSNET HOLDINGS CORP.
May 1, 1999 by:/s/ William J. Reilly
and submitted effective William J. Reilly
August 31, 1999 Acting Chairman, Director
May 1, 1999 by:/s/ Rounseville W. Schaum
and submitted effective Rounseville W. Schaum
August 31, 1999 Secretary, Director
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
May 1, 1999 by:/s/ William J. Reilly
and submitted effective William J. Reilly
August 31, 1999 Acting Chairman, Director
May 1, 1999 by:/s/ Rounseville W. Schaum
and submitted effective Rounseville W. Schaum
August 31, 1999 Secretary, Director
41
BUSINESSNET HOLDINGS CORP. AND SUBSIDIARY
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
For the Year Ended
December 31,
1997 1996
(Unaudited) (Restated)
Computation of primary earnings per
common share
Average shares outstanding 15,824,010 15,679,552
Net effect dilutive stock options - -
Total 15,824,010 15,679,552
Net (Loss) (668,388) (1,957,221)
Net (loss) per share (.042) (.125)
1. Earnings per share are based on the weighted average shares outstanding
for all periods presented giving retroactive recognition for the number of
equivalent shares received by Navigato A/S as a result of the
recapitalization in 1994.
2. Earnings per share have been restated to reflect the shares issued in the
acquisition back to the beginning of the period.
Exhibit 11
42
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 647
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
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<COMMON> 158240
<OTHER-SE> (177968)
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<TOTAL-REVENUES> 12704084
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<INCOME-PRETAX> (1372517)
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