<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD _____________ TO _________________
COMMISSION FILE NUMBER 1-11454-03
vFINANCE.COM, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 58-1974423
------------------------- ------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6600 NORTH ANDREWS AVENUE, SUITE 304, FORT LAUDERDALE, FL 33309
---------------------------------------------------------------
(Address of principal executive offices)
(954) 384-7800
(Issuer's telephone number)
3300 PGA BOULEVARD, SUITE 810, PALM BEACH GARDENS, FL 33410
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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 [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of September 30, 2000:
15,045,067
----------
Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X]
<PAGE> 2
INDEX
vFINANCE.COM, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - December 31, 1999 and
September 30, 2000 (Unaudited) 1
Consolidated Statements of Operations for the three months and
nine months ended September 30, 1999 and 2000 (Unaudited) 2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 2000 (Unaudited) 3
Notes to Consolidated Financial Statements (Unaudited) 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 19
PART II. OTHER INFORMATION 23
ITEM 1. LEGAL PROCEEDINGS 23
ITEM 2. CHANGES IN SECURITIES 23
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 23
ITEM 5. OTHER INFORMATION 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 24
Signatures 25
<PAGE> 3
vFINANCE.COM, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 228,484 $ 6,124,686
Accounts receivable 233,306 334,408
Investment in marketable securities -- 597,388
Other 2,150 34,326
------------ ------------
Total current assets 463,940 7,090,808
Furniture and equipment, at cost:
Furniture and equipment 6,576 117,968
Internal use software 104,164 113,081
------------ ------------
110,740 231,049
Less accumulated depreciation (89,061) (115,780)
------------ ------------
Net furniture and equipment 21,679 115,269
Goodwill, net of accumulated amortization of
$0 and $12,243, respectively 35,000 21,705
Other assets -- 10,377
------------ ------------
Total assets $ 520,619 $ 7,238,159
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 103,445 $ 165,906
Accrued expenses 75,061 891,702
Distributions payable to Primary Shareholders 172,586 --
Advanced client costs 35,362 20,627
Other 7,063 --
------------ ------------
Total current liabilities 393,517 1,078,235
Shareholders' equity:
Preferred stock, $.01 par value, 2,500,000
shares authorized, no shares issued and outstanding -- --
Common stock, $0.01 par value, 20,000,000 and 25,000,000
shares authorized, 9,099,400 and 15,045,067 shares issued
and outstanding as of December 31, 1999 and September
30, 2000, respectively 90,994 150,451
Additional paid in capital on common stock 3,921,690 16,466,022
Deferred compensation (3,584,732) (6,558,866)
Accumulated deficit (300,850) (3,897,683)
------------ ------------
Total shareholders' equity 127,102 6,159,924
------------ ------------
Total liabilities and shareholders' equity $ 520,619 $ 7,238,159
============ ============
</TABLE>
SEE ACCOMPANYING NOTES
1
<PAGE> 4
vFINANCE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -----------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Success fees $ -- $ 1,227,189 $ -- $ 2,196,189
Consulting fees 277,556 714,764 738,516 1,580,130
Other fees (993) 106,038 14,100 239,817
------------ ------------ ------------ ------------
Total revenues 276,563 2,047,991 752,616 4,016,136
Cost of revenues:
Success -- 1,221,238 -- 2,186,462
Consulting 90,750 286,556 153,474 524,329
------------ ------------ ------------ ------------
Gross profit 185,813 540,197 599,142 1,305,345
General and administrative expenses 114,873 209,524 163,182 478,061
Payroll and related benefits -- 175,836 -- 442,434
Professional fees 5,750 129,247 16,100 351,049
Provision for bad debts -- 30,000 77,076 45,000
Amortization of non-cash deferred compensation -- 217,249 -- 3,677,215
------------ ------------ ------------ ------------
Operating income (loss) 65,190 (221,659) 342,784 (3,688,414)
Interest income -- 50,868 -- 79,478
------------ ------------ ------------ ------------
Net income (loss) $ 65,190 $ (170,791) $ 342,784 $ (3,608,937)
============ ============ ============ ============
Pro forma provision for federal income taxes 22,816 -- 119,974 --
============ ============ ============ ============
Pro forma net income (loss) $ 42,374 $ (170,791) $ 222,810 $ (3,608,937)
============ ============ ============ ============
Pro forma earnings (loss) per share:
Basic $ 0.01 $ (0.02) $ 0.03 $ (0.38)
============ ============ ============ ============
Weighted average number of common shares used
in computing basic earnings (loss) per share 6,955,000 10,768,201 6,955,000 9,608,584
============ ============ ============ ============
Diluted $ 0.01 $ (0.02) $ 0.03 $ (0.38)
============ ============ ============ ============
Weighted average number of common shares used
in computing diluted earnings (loss) per share 6,955,000 10,768,201 6,955,000 9,608,584
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES
2
<PAGE> 5
vFINANCE.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 2000
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 342,784 $(3,608,937)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 40,106 39,962
Bad debts -- 45,000
Marketable securities received in lieu of
cash payment for services -- (597,388)
Amortization of deferred compensation -- 3,677,215
Changes in assets and liabilities:
Accounts receivable 69,588 (146,102)
Loan receivable, shareholder (2,150) --
Other current assets -- (34,326)
Other assets -- (8,227)
Accounts payable -- 62,461
Accrued expenses (26,096) 841,477
Advanced client costs 5,795 (14,735)
Deferred revenues 2,948 (7,063)
----------- -----------
Net cash provided by operating activities 432,975 249,337
INVESTING ACTIVITIES
Purchase of equipment (23,394) (115,257)
----------- -----------
Net cash used in investing activities (23,394) (115,257)
FINANCING ACTIVITIES
Proceeds from issuance of common stock,
net of issuance costs 49,634 5,934,708
Distributions to former members (455,078) (172,586)
----------- -----------
Net cash provided by (used in) financing activities (405,444) 5,762,122
Increase in cash and cash equivalents 4,137 5,896,202
Cash and cash equivalents at beginning of period 9,485 228,484
----------- -----------
Cash and cash equivalents at end of period $ 13,622 $ 6,124,686
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE> 6
vFINANCE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
DESCRIPTION OF BUSINESS
vFinance.com, Inc. ("the Company") through its wholly owned subsidiaries
vFinance Holdings, Inc., Union Atlantic LC and Union Atlantic Capital, L.C., is
a "new-media" enterprise focused on providing business development tools and
information, primarily to companies throughout the United States.
vFinance Holdings, Inc. ("VFin") maintains a venture capital vertical portal
website focused on providing business development tools, information, products
and services to assist entrepreneurs and executives of small and medium sized
enterprises to organize and grow their businesses.
Union Atlantic, LC ("Union Atlantic" or "UAL") is a management consulting firm
which provides corporations and high net worth individuals with management and
access to capital resources for the purpose of expediting corporate development.
UAL specializes in the technology industry. UAL had managed an offshore venture
capital fund, which was partially owned by certain members of the Company's
senior management team. Such fund is inactive.
Union Atlantic Capital, L.C. ("UAC") is a broker-dealer registered with the
Securities and Exchange Commission and is a member of the National Association
of Security Dealers ("NASD"). UAC provides the placement of both debt and equity
securities with institutional investors. On December 24, 1999, the Company
acquired all of the membership interests of Pinnacle Capital Group, L.C., a
licensed broker/dealer, and changed the name of Pinnacle Capital Group, L.C. to
Union Atlantic Capital, L.C. On July 27, 2000, the National Association of
Securities Dealers, Inc. approved the change in ownership and addition of a
branch office of Union Atlantic Capital, L.C. Accordingly, this approval
completes the acquisition of the broker-dealer and the transfer of the
broker/dealer license.
On November 8, 1999, Peachtree FiberOptics entered into a Share Exchange
Agreement providing for the acquisition of VFin and UAL (the "Merger").
Peachtree FiberOptics, Inc. exchanged 2,800,000 shares of its common stock for
all of the outstanding shares of VFin and 4,155,000 shares of its common stock
for all outstanding membership interests in UAL. For accounting purposes, the
acquisitions have been treated as a recapitalization (reverse acquisition) with
VFin and UAL as the acquirers. VFin and UAL were considered entities under
common control prior to the Merger. The Merger qualified as a tax-free exchange
under section 351 of the Internal Revenue Code of 1986.
4
<PAGE> 7
vFINANCE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
REVENUE RECOGNITION
UAL and UAC earn revenue from consulting fees and success fees. Consulting fees
are deferred when received and recognized when services are rendered, generally
over the life of the agreement. Success fees are agreed upon amounts based on
the percentage of the total value of a transaction and are contingent on the
successful completion of a specified transaction. These fees are recognized when
earned, per the terms of the contracts. Collateral is not required from its
customers. Revenues are not concentrated in any particular region of the county
or with any individual or group.
UAL and UAC periodically receive equity instruments and warrants from companies
for which they perform services in addition to the cash paid for such services.
Primarily all of the equity instruments are in private companies or small public
companies. Equity interests and warrants for which there is not sufficient
demand are valued based on factors such as significant equity financing by
sophisticated, unrelated new investors, a history of positive cash flow from
operations, the market value of comparable publicly traded companies (discounted
for illiquidity) and other pertinent factors. Management also considers recent
offers to purchase a portfolio company's securities and the filings of
registration statements in connection with a portfolio company's initial public
offering when valuing warrants. Prior to the Merger, upon receipt of such equity
instruments all such instruments were immediately distributed to the UAL
members, in accordance with the distribution terms of the UAL Operating
Agreement.
For equity instruments and warrants received in public companies, UAL and UAC
recognize revenue equal to the fair value on the date of receipt, discounted for
any defined restrictions on the equity instruments or warrants. During 1999, but
prior to the Merger, $17,312 of revenue was recognized by UAL in connection with
equity instruments received from public companies. Such instruments were
distributed to UAL's members upon receipt.
During the three months ended September 30, 1999 and 2000, UAL and UAC received
equity investments from no companies and three companies, respectively, for
services performed. During the nine months ended September 30, 1999 and 2000,
UAL and UAC received equity investments one company and nine companies,
respectively, for services performed. Due to the factors indicated above, no
revenue was recognized in connection with the receipt of equity instruments in
the quarter ended September 30, 1999. However, in the quarter ended September
30, 2000, UAL and UAC recorded a total of approximately $925,000 in revenue,
recorded as success fees, in association with (1) the conversion and sale of
certain preferred stock received from a public company, (2) the receipt of
certain common shares of stock in a public company and (3) the receipt of stock
purchase warrants that were issued by a public entity and exercised by UAL and
UAC. UAL and UAC have recorded accrued compensation related to the distribution
of some or all of such equity instruments to employees involved in the related
transactions.
At September 30, 2000, certain transactions in process may result in UAL and UAC
receiving equity instruments as discussed above.
5
<PAGE> 8
vFINANCE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
REVENUE RECOGNITION (CONTINUED)
VFin sells two types of memberships to its website: (i) one year memberships to
venture capital vendors, who are interested in providing services to other
companies or individuals; and (ii) three-month memberships to entrepreneurs who
have new business ideas to sell. The sale of each type of membership is recorded
as deferred revenue and amortized over the life of the membership. VFin's
revenues are concentrated primarily in the United States but are not
concentrated in any particular region of the country or with any individual or
group. Fees related to such memberships are included in "other fees" in the
statements of operations for the three months ended September 30, 1999 and 2000.
Primarily all membership sales are consummated using an on-line credit card
processing service, which performs routine credit verification. VFin does not
require collateral and receives payment directly from the credit card company.
While there is potential for credit losses, there were no credit losses for the
three months ended September 30, 1999 and 2000.
HTM Logic was the original owner and designer of the vFinance.com website prior
to VFin's acquisition of such website and maintains a legend on the website
indicating as such. The terms of the purchase agreement related to VFin's
acquisition of the website provided that VFin would receive a referral fee equal
to 25% of all income earned by HTM Logic from business generated as a result of
the website legend. No such revenue was earned by VFin for the three months
ended September 30, 1999 and 2000.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements." SAB 101 outlines the basic criteria for revenue recognition and
related disclosures. SAB 101 is effective beginning in the fourth quarter of
2000. Based upon the guidance provided by SAB 101, the impact of this adoption
will not materially impact the Company's financial position or results of
operations.
6
<PAGE> 9
vFINANCE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All intercompany accounts have been eliminated in
consolidation.
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 amounts reported in the accompanying financial statements. Actual
results may differ from those estimates, and such differences may be material to
the financial statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with maturity of
three months or less when purchased.
ADVERTISING COSTS
Advertising costs, which are part of general and administrative expenses, are
expensed as incurred. Total advertising expense amounted to none and $18,188 for
the three months ended September 30, 1999 and 2000, respectively.
STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related interpretations
in accounting for its employee stock options and stock purchase warrants because
the alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, accounting for stock based compensation ("SFAS
123") requires the use of option valuation models that were not developed for
use in valuing employee stock options. Under APB 25, if the exercise price of
the Company's employee stock options equals or exceeds the market price of the
underlying stock on the date of grant no compensation expense is recognized.
FINANCIAL INSTRUMENTS
The fair values of the Company's financial instruments, which includes cash and
cash equivalents, accounts receivable, securities, accounts payable, accrued
expenses and advanced client costs approximate their carrying values.
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents and accounts receivable. The
Company places its cash with high quality financial institutions.
7
<PAGE> 10
vFINANCE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
FURNITURE AND EQUIPMENT AND INTANGIBLE ASSETS
Furniture and equipment is stated on the basis of cost less accumulated
depreciation and consists primarily of office furniture, computer equipment and
internal use software. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets ranging from 2-10 years.
The carrying values of intangible assets as well as other long-lived assets are
reviewed if the facts and circumstances suggest that they may be impaired. If
this review indicates that the assets will not be recoverable, as determined
based on the undiscounted estimated cash flows of the Company over the remaining
amortization period, the Company's carrying values of the assets would be
reduced to their estimated fair values.
INCOME TAXES
The Company accounts for income taxes under the liability method in accordance
with Statement of Financial Accounting Standards No. 109, "ACCOUNTING FOR INCOME
TAXES". Under this method, deferred income tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
The accompanying financial statements reflect an additional provision for
federal income taxes on a pro forma basis as if UAL were liable for federal
income taxes as a taxable entity for the three months and nine months ended
September 30, 1999.
DISTRIBUTIONS TO UAL MEMBERS
Prior to the Merger, UAL made frequent cash distributions to its members based
on cash flow availability. These distributions were occasionally in the form of
accounts receivable collected by the members. In order to maintain equity
balances approximately equal to the original percentages set forth in the UAL
Operating Agreement, UAL periodically made non-cash adjustments to the equity
accounts upon the consent of the members. Prior to the Merger, UAL declared
distributions payable to two of its three members equal to substantially all of
UAL's retained earnings. At September 30, 2000, no distributions were owed to
the former UAL members.
8
<PAGE> 11
vFINANCE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
STATEMENT OF CASH FLOWS
Non-cash items affecting the Consolidated Statements of Cash Flows are as
follows:
<TABLE>
<CAPTION>
September 30, 1999 September 30, 2000
------------------ ------------------
<S> <C> <C>
Purchase of equipment with stock purchase warrants $ -- $ 5,000
Change in fair market value of restricted stock issued
to employees and shareholders -- 3,672,847
Conversion of payable to equity -- 12,731
Conversion of client advances to equity -- 12,104
---------- ----------
$ -- $3,702,682
========== ==========
</TABLE>
EARNINGS PER SHARE
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE ("SFAS 128"). In
accordance with SFAS 128, basic earnings per share is computed using the
weighted average number of shares of common stock outstanding and diluted
earnings per share is computed using the weighted average number of shares of
common stock and the dilutive effect of options and warrants outstanding, using
the "treasury stock" method.
9
<PAGE> 12
vFINANCE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
2. ACQUISITIONS
On December 24, 1999, the Company acquired all of the membership interests of
Pinnacle Capital Group, L.C., a licensed broker/dealer, and changed the name of
Pinnacle Capital Group, L.C. to Union Atlantic Capital, L.C. The acquistion was
completed for a purchase price of $40,000. The acquisition was accounted for
under the purchase method of accounting. The consideration consisted of the
issuance of stock purchase warrants giving the holders the rights to purchase
10,000 shares of the Company's common stock at an exercise price of $2.50 per
warrant. The warrants had a fair value, based on the Black-Scholes model, of
$4.00 per warrant. The warrants vest immediately and are exercisable for a
period of five years, at the discretion of the holders. The Company allocated
the purchase price based on the fair value of the assets acquired (cash
aggregating $5,000) with the remainder of such purchase price allocated to
goodwill. Goodwill related to this acquisition is being amortized over two years
concurrent with the terms of the employment agreements. UAC holds a
broker/dealer license and is located in Fort Lauderdale, Florida.
On September 12, 2000, the Company entered into a letter of intent (the "LOI")
whereby it agreed to acquire all of the outstanding capital stock of NW
Holdings, Inc. ("NWH"), which is the parent company of First Level Capital, Inc.
("First Level"), a merchant and investment banking firm with offices in New
York, New Jersey and Florida. First Level provides investment banking services
to small and medium sized companies and retail brokerage services to companies,
financial institutions and high net worth investors. The firm is a registered
broker-dealer and a market maker in more than 100 U.S. securities. The Company
intends to structure this transaction as a tax-free exchange in which it will
exchange with the shareholders of NWH 1,500,000 unregistered shares of its
common stock and options to purchase 875,000 shares of its common stock at $2.25
a share for all of the outstanding shares of NWH. The holders of the shares
underlying the options will be granted certain piggyback registration rights
with respect to those shares. Under the terms of the LOI, the Company has 60
days to conduct a due diligence investigation of the business of First Level and
NWH. The LOI may be terminated by either party for any reason prior to the
execution of a definitive agreement with respect to this transaction.
Additionally, the completion of this transaction is subject to the NASD's
approval of the change in ownership of First Level.
3. RELATED PARTY TRANSACTIONS
UAL had managed, through a subsidiary, an offshore venture capital fund (the
"Fund"). The Fund is no longer active. The Fund's investors include the Primary
Shareholders of the Company, as defined herein below. In April 1998, the Fund
loaned the Company $25,000 through a verbal agreement. The loan did not bear
interest and did not have a specified due date. On December 31, 1999, the
Company converted the outstanding balance of $25,000 into 8,400 shares of the
Company's common stock at an effective per share price of $2.98, in accordance
with the terms of the conversion agreement. The fair market value of the stock
on the date of issuance was $4.19 per share. Accordingly, the Company recognized
$10,164 as non-cash compensation expense in 1999, equal to the difference
between the contractually agreed upon price per share and the market price per
share at the date of conversion.
VFin executed a management agreement (the "Management Agreement") with a former
shareholder of MD Information Systems (the "Managing Agent") the previous owner
of the vFinance.com website. Under the terms of the Management Agreement, the
Managing Agent was appointed President and Chief Executive Officer of VFin with
the authority to manage its operations. Under the terms of the Management
Agreement, the Managing Agent received $9,000 of fees for the three months ended
September 30, 1999. On December 31, 1999, the Management Agreement and the
Managing Agent were terminated.
10
<PAGE> 13
vFINANCE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
The former shareholder of MD Information System was granted 100,000 stock
options in VFin. In connection with the Merger such stock options were converted
into 20,000 shares of the Company's common stock at fair value and, accordingly,
no compensation expense was recorded in connection with such conversion.
On November 8, 1999, the Company entered into three year employment agreements
(the "Agreements") with the Company's Chief Executive Officer and Vice Chairman,
who is the beneficial owner of 21% of the total outstanding common shares of the
Company, and the Company's Chief Operating Officer and Chairman, who is the
beneficial owner of 21% of the total outstanding common shares of the Company
(collectively the "Primary Shareholders"). Under the terms of the Agreements,
which are renewable as directed by a majority vote of the board of directors,
each individual shall receive (i) an initial base salary of $150,000 per annum
for the first year with a 5% increase per annum beginning one year from the date
of the Agreements (the Company's board of directors may increase such salaries
at their discretion); (ii) discretionary bonuses as determined by the Company's
board of directors primarily based on each individuals' performance; and (iii)
incentive compensation paid monthly equal to Available Cash, as defined,
primarily based on the performance of UAL, UAC, VFin and the Company. The
Agreements also contain provisions related to severance and change of control
upon the occurrence of such events.
4. ADVANCED CLIENT COSTS
As part of its operations, UAL's employees incur expenses that are reimbursable
by its clients. These expenses are submitted for reimbursement by the employees
and are recorded as an account receivable from the client and a liability to the
employee. The employee is paid within 30 days of submitting the expenses for
reimbursement. Prior to May 5, 2000, employees were not paid for their expenses
until the respective receivables were received from the client. Advance client
costs aggregating $20,627 were recorded at September 30, 2000.
5. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting purposes and amounts used for income taxes. As of September 30, 2000,
the Company had not recorded a deferred tax asset on its consolidated balance
sheets.
11
<PAGE> 14
vFINANCE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
6. EMPLOYMENT AGREEMENTS
On December 17, 1999, the Company entered into employment agreements with three
individuals, as amended by those certain Employment Agreement Amendments to
Schedule B dated as of December 31, 1999 (as amended, the "Employment
Agreements"). In connection with the Employment Agreements the Company issued
773,500 shares of its common stock (the "First Tranche Shares"). However, the
First Tranche Shares are subject to divestment and return to the Company in the
event and to the extent that certain performance criteria and/or other
employment conditions are not met. The First Tranche Shares issued to the
employees are being held in escrow and will be held in escrow until (i)
cessation of the employee's employment with the Company prior to December 31,
2000, in which event all of the First Tranche Shares would be immediately
returnable to the Company or (ii) the employee fails to meet certain cash
revenue goals by February 15, 2001, as defined by the Employment Agreements, in
which event such shares, or a percentage of such shares, would be immediately
returnable to the Company, based on a formula contained in each Employment
Agreement.
On August 18, 2000, the Company entered into amended and restated employment
agreements (the "Amended Employment Agreements") with the same three
individuals. The Amended Employment Agreements (i) modify the performance
criteria and employment conditions, among other things, under the Employment
Agreements to provide that the First Tranche Shares issued to the employees are
being held in escrow and will be held in escrow until (A) cessation of the
employee's employment with the Company prior to October 6, 2000, in which event
all of the First Tranche Shares would be immediately returnable to the Company
or (B) the employee fails to meet certain cash revenue goals by February 15,
2001, as defined by the Employment Agreements, in which event the First Tranche
Shares, or a percentage of such shares, would be immediately returnable to the
Company, based on a formula contained in each Employment Agreement, and (ii)
provide for the Company to issue an additional 3,011,511 shares of its common
stock, which shares are subject to divestment and similar performance criteria
(the "Second Tranche Shares"). Fifty Percent (50%) of the Second Tranche Shares
and the other Fifty Percent (50%) of the Second Tranche Shares issued to the
employees are being held in escrow and will be held in escrow until (i)
cessation of the employee's employment with the Company prior to December 31,
2001 and December 31, 2002, respectively, in which event all or a portion of
such shares, respectively, would be immediately returnable to the Company or
(ii) the employee fails to meet certain cash revenue goals by September 30, 2001
and September 30, 2002, respectively, as defined by the Amended Employment
Agreements, in which event such shares, or a percentage of such shares,
respectively, would be immediately returnable to the Company, based on a formula
contained in each Amended Employment Agreement.
The Amended Employment Agreements have been accounted for as restricted stock
performance plans. In a restricted stock performance plan, the nature of the
restriction results in the compensation cost being measured at the date when the
number of shares to be awarded is known. Consequently, the measurement of
compensation at the date the performance criteria are met, measures the ultimate
compensation to be recognized by the Company. These employment agreements are
variable plans, therefore, interim estimates of compensation are required based
on the fair market value of the common stock as of the end of the reporting
period and the extent or degree of compliance with the performance criteria.
Accordingly, in connection with the employment agreements, the Company initially
recorded deferred compensation aggregating $11,357,603 based on the fair market
value of the Company's common stock when the shares were issued. At September
30, 2000, the deferred compensation balance was $7,096,896, based on the fair
market value of the Company's common stock at September 30, 2000. Compensation
expense for the restricted stock performance plans of $171,246 was recognized
for the three months ended September 30, 2000.
12
<PAGE> 15
vFINANCE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
6. EMPLOYMENT AGREEMENTS (CONT.)
On January 3, 2000, the Company entered into employment agreements with two
individuals, who were former members in UAC, for a term of three years. In
addition, the Company granted each individual 100,000 stock options at $5.00 per
share and 100,000 stock options at $7.50 per share. As the grant price of the
options equaled fair value no compensation expense was recorded. As of September
30, 2000, these individuals were no longer employees of the Company and,
accordingly, their options have been forfeited and canceled pursuant to the
terms of their employment agreements.
7. STOCK OPTIONS AND STOCK PURCHASE WARRANTS
The Company has elected to follow Accounting Principle Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), and related interpretations
in accounting for its employee stock options because the alternative fair value
accounting provided under FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, ("SFAS 123") requires the use of option valuation models that were
not developed for use in valuing employee stock options. As permitted by the
Standard, the Company adopted the disclosure alternative of SFAS 123. Under APB
25, when the exercise price of the Company's stock options equals or exceeds the
fair value of the underlying stock on the date of grant, no compensation expense
is recorded.
A summary of the stock option activity for the nine months ended September 30,
2000 is as follows:
Weighted
Average Number Exercise
Exercise of Price Per
Price Shares Option
-------- --------- -----------
Outstanding options at
December 31, 1999 $ 4.19 1,065,000 $2.50-$6.00
Granted $ 4.93 2,145,000 $3.15-$5.85
Canceled $ 6.25 400,000 $5.00-$7.50
---------
Outstanding options at
September 30, 2000 2,810,000
=========
13
<PAGE> 16
vFINANCE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
7. STOCK OPTIONS AND STOCK PURCHASE WARRANTS (CONTINUED)
A summary of the warrant activity for the nine months ended September 30, 2000
is as follows:
Weighted
Average Number Exercise
Exercise of Price Per
Price Shares Warrant
-------- --------- -----------
Outstanding warrants at
December 31, 1999 $2.50 10,000 -- --
Granted $5.84 1,119,999 $2.50-$7.20
---------
Outstanding warrants at
September 30, 2000 1,129,999
=========
The following table summarizes information concerning stock options outstanding
at September 30, 2000:
Weighted
Average
Exercise Number
Price Outstanding
-------- -----------
2.50 75,0000
3.00 210,000
3.15 400,000
3.25 100,000
3.75 20,000
4.00 220,000
4.13 30,000
4.25 75,000
4.95 300,000
5.00 320,000
5.63 50,000
5.85 1,000,000
6.00 10,000
---------
2,810,000
=========
14
<PAGE> 17
vFINANCE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
7. STOCK OPTIONS AND STOCK PURCHASE WARRANTS (CONTINUED)
The following table summarizes information concerning stock warrants outstanding
at September 30, 2000:
WEIGHTED
AVERAGE
EXERCISE NUMBER
PRICE OUTSTANDING
------- -----------
2.50 300,000
6.00 129,999
7.20 700,000
---------
1,129,999
=========
Options granted to employees are exercisable according to the terms of each
agreement, ranging from one month to four years. At September 30, 2000, 970,500
options outstanding were exercisable. At September 30, 2000, all 1,129,999
warrants outstanding were exercisable. At September 30, 2000, 3,939,999 shares
of the Company's common shares outstanding are reserved for issuance related to
stock options and stock purchase warrants.
Pro forma information regarding net income is required by SFAS 123, which also
requires that the information be determined as if the Company has accounted for
its employee stock options and stock purchase warrants under the fair value
method. The fair value for options and warrants granted was estimated at the
date of grant or issuance using the Black-Scholes option pricing model with the
following weighted-average assumptions: risk-free interest rates ranging from
5.72% to 6.52%; no dividend yields; volatility factor of the expected market
price of the Company's common stock of 6.552 for options issued prior to the
Merger and 1.194 to 1.904 for options and warrants issued subsequent to the
Merger and an expected life of the options and warrants of 5 years.
During the quarter ended September 30, 2000, 530,000 options were granted and
400,000 options were forfeited and canceled. At September 30, 2000, the weighted
average exercise price of options granted during the quarter was $3.27 per
share. No warrants were issued during the quarter. At September 30, 2000, the
weighted average exercise price of options granted and warrants issued during
the nine months ended September 30, 2000 was $4.93 per share and $5.84 per
share, respectively. For purposes of pro forma disclosures, the estimated fair
value of the options and warrants is amortized to expense over their respective
vesting periods.
The Company recorded deferred compensation of $187,500 during 1999 in connection
with grants of employee stock options with exercise prices lower than the deemed
fair value per share of the Company's common stock on the date of the grant.
Such amounts are being amortized over the vesting period, and accordingly,
$22,500 of compensation expense was amortized in the quarter ended September 30,
2000 relative to such options.
15
<PAGE> 18
vFINANCE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
7. STOCK OPTIONS AND STOCK PURCHASE WARRANTS (CONTINUED)
On September 27, 1999, the Company entered into a Stock Purchase Agreement with
River Rapids LTD ("River Rapids") which was amended on December 22, 1999,
whereby the Company sold to River Rapids 100,000 shares of the Company's common
stock at $2.50 per share and granted River Rapids an option to acquire 210,000
shares of common stock at $3.00 per share, 210,000 shares of common stock at
$4.00 per share, and 210,000 shares of common stock at $5.00 per share. The
options expire on September 27, 2002.
On December 1, 1999, the Company entered into an agreement with a company
providing financial consulting services, (the "Financial Services Agreement").
The Financial Services Agreement is for a term of six months with six-month
renewals based upon mutual consent. The Financial Services Agreement provides
for a monthly retainer and a grant of 30,000 stock options, which vest at a rate
of 5,000 shares per month beginning one month from the date of grant. The
options have exercise prices ranging from $4.00 to $6.00 and are exercisable for
a period of five years. The Company recorded deferred compensation of $129,300
during 1999 in connection with this grant. Such deferred compensation was fully
amortized by the company in the first quarter and second quarters of 2000.
On December 24, 1999, the Company entered into an agreement to acquire all of
the outstanding membership interests of UAC. In conjunction with this
acquisition, the Company purchased certain assets on January 3, 2000 and in
consideration therefore issued warrants to two employees to purchase 190,000
shares of the Company's common stock at an exercise price of $2.50 per warrant.
The warrants are exercisable for a period of five years, at the discretion of
the holders. During the first quarter ended March 31, 2000, the Company recorded
deferred compensation of $280,000 in connection with the issuance of these
warrants at an exercise price that was lower than the deemed fair value per
share of the Company's common stock on the date of the issuance. This amount is
being amortized over the term of the respective employment agreements, and
accordingly, $23,504 of compensation expense was amortized in the quarter ended
September 30, 2000 relating to these warrants.
On March 31, 2000 (the "Closing Date"), the Company closed on a $7 million round
of private financing (the "Private Placement"), before registration and issuance
costs of $1,065,292. As part of the Private Placement, on the Closing Date, the
Company (i) issued to certain banks and institutional investors 1,166,667 shares
of the Company's common stock and (ii) a total of 929,999 warrants, of which
700,000 warrants were issued to investors in the Private Placement, 71,666
warrants were issued to agents, 58,333 warrants were issued to employees for
placing the financing and 100,000 warrants were issued to a company for a
finder's fee and (iii) rights to acquire up to 1,166,667 shares of the Company's
common stock at a purchase price of $3.00 per share. The warrants have exercise
prices ranging from $2.50 to $7.20 and are exercisable on the earlier of a) one
year from the effective date of the registration statement filed by the Company
covering the securities issued and to be issued to the investors or b) three or
four years, as the case may be, as defined in the agreements from the closing
date. These warrants were issued to the aforementioned for services related to
the Private Placement, and have been accounted for as offering costs net of
proceeds received.
On August 18, 2000, the Company entered into Amended Employment Agreements (see
Note 6 above) with three individuals. The Amended Employment Agreements provide
for the Company to grant an additional 400,000 stock options to the individuals.
The stock options were granted at an exercise price of $3.15 and are exercisable
over a four-year period, beginning on August 18, 2001.
16
<PAGE> 19
vFINANCE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
8. EARNINGS PER SHARE
The following table sets forth the computation of pro forma basic and diluted
earnings per share (in thousands except per share amounts) for the three month
periods ended September 30, 1999 and 2000 and the nine month periods ended
September 30, 1999 and 2000:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ----------------------------
1999 2000 1999 2000
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Numerator:
Pro forma net income (loss) $ 42,374 $ (170,791) $ 222,810 $(3,608,937)
============= ============= ============= ===========
Denominator:
Denominator for basic earnings per share- 6,955,000 10,768,201 6,955,000 9,608,584
weighted average shares
Effect of dilutive securities:
Options -- -- -- --
Warrants -- -- -- --
------------- ------------- ------------- -----------
Dilutive potential common shares (1) -- -- -- --
------------- ------------- ------------- -----------
Denominator for diluted earnings per
share - adjusted weighted average
shares 6,955,000 10,768,201 6,955,000 9,608,584
============= ============= ============= ===========
Pro forma basic earnings (loss) per share $ .01 $ (.02) $ .03 $ (.38)
============= ============= ============= ===========
Pro forma diluted earnings (loss) per
share $ .01 $ (.02) $ .03 $ (.38)
============= ============= ============= ===========
</TABLE>
17
<PAGE> 20
vFINANCE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
9. SUBSEQUENT EVENTS
On October 13, 2000, D. Carr Moody, the Company's Chief Financial Officer,
became the registered Financial Operations principal of UAC. Such registration
is subject to approval by the NASD.
On November 10, 2000, the First Tranche shares were released from escrow to the
employees signatory to the Amended Employment Agreements.
18
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1999
STATEMENTS OF OPERATIONS
vFinance.com, Inc. (the "Company") derives revenue from consulting fees and
success fees related to providing corporations and high net worth individuals
with management and access to capital resources for the purpose of expediting
corporate development. Consulting fees are billed to clients based primarily on
agreed-upon monthly fees. Success fees are agreed-upon amounts based on the
percentage of the total value of a transaction and are contingent upon the
successful completion of a specified transaction. Consulting fees are deferred
when received and recognized when services are rendered, generally over the life
of an agreement. Success fees are recognized when earned, in accordance with the
contracts.
The Company also sells two types of memberships to its web site, vFinance.com:
(i) one-year memberships to venture capital vendors who are interested in
providing services to other companies or individuals; and (ii) three-month
memberships to entrepreneurs who have new business ideas to sell. The sale of
each type of membership is recorded as deferred revenue and amortized over the
life of the membership. In addition, the Company earns revenue through
AngelSearch, an interactive research tool that allows entrepreneurs to mine data
about high net worth individuals and "angel" investors. Fees related to such
memberships and services were $85,740 and $172,879 for the three and nine months
ended September 30, 2000. Fees related to such memberships were $5,750 and
$20,843 for the three and nine months ended September 30, 1999. Such fees are
included in "Other fees" on the consolidated statements of operations.
Total revenues were $2,047,991 for the three months ended September 30, 2000, as
compared to $276,563 for the comparable period in 1999, an increase of
$1,771,428, or 641%. Total revenues were $4,016,136 for the nine months ended
September 30, 2000, as compared to $752,616 for the comparable period in 1999,
an increase of $3,263,520, or 434%. The increases noted above were primarily a
result of success fee revenue generated by the Company of $1,227,189 and
$2,196,189 for the three and nine months ended September 30, 2000, and an
increase in consulting fee revenue of $437,208 and $841,614 for the three and
nine months ended September 30, 2000, over the comparable periods in 1999. The
Company did not generate success fees in the three or nine month periods ended
September 30, 1999. Consulting fees were higher than the prior periods primarily
due to a greater number of consulting contracts and a larger monthly billing per
contract.
Cost of revenues was $1,507,794 for the three months ended September 30, 2000,
as compared to $90,750 for the comparable period in 1999, an increase of
$1,417,044. Cost of revenues was $2,710,791 for the nine months ended September
30, 2000, as compared to $153,474 for the comparable period in 1999, an increase
of $2,557,317. The increase in cost of revenues for the three and nine months
ended September 30, 2000 is attributable to an overall increase in success fee
revenue and consulting revenue, with an allocation of certain payroll and
incentive based pay to cost of revenues.
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
General and administrative expenses were $209,524 and $478,061 for the three and
nine months ended September 30, 2000, versus $114,873 and $163,182 for the
comparable 1999 periods, reflecting increases of $94,651 and $314,879,
respectively. The increases were primarily due to increases in telephone
expenses, rent expense, office supplies, advertising and promotions and filing
fees.
Payroll and related benefits were $175,836 and $442,434 for the three and nine
months ended September 30, 2000, versus none for the comparable 1999 periods.
The increases were primarily a result of salaries paid to employees who
generated consulting, investment banking and web development revenues. For the
three and nine months ended September 30, 1999, the Company did not pay salaries
or bonuses to its employees, because of its limited liability company status.
Professional fees were $129,247 and $351,049 for the three and nine months ended
September 30, 2000, as compared to $5,750 and $16,100 for the comparable 1999
periods, reflecting increases of $123,497 and $334,949, respectively. The
increases were primarily due to increases in legal and accounting fees in
association with the preparation of various regulatory filings and tax returns.
The provision for bad debts was $30,000 and $45,000 for the three and nine
months ended September 30, 2000, versus none and $77,076 for the comparable 1999
periods. The Company provides for credit losses at the time it believes accounts
receivable may not be collectible. Such evaluation is made and recorded on a
monthly basis. Credit losses have not exceeded management's expectations.
Amortization of non-cash deferred compensation aggregating $217,249 and
$3,677,215 for the three and nine months ended September 30, 2000 reflects
deferred compensation recorded in connection with 1) shares of stock issued to
employees as part of a restricted stock performance plan, 2) shares of stock
issued to contracted consultants for acquisition and advisory services, 3) stock
options granted to employees at prices less than fair value, 4) warrants issued
at prices less than fair value for the asset purchase in connection with the
acquisition of Union Atlantic Capital, L.C. (formerly Pinnacle Capital Group,
L.C.) and 5) other common stock issuances. Compensation expense is recognized
over the vesting periods of the related stock options or the terms of the
applicable agreements.
Interest income equaling $50,868 and $79,478 for the three and nine months ended
September 30, 2000 relates to amounts earned on the Company's cash balances,
which primarily relate to funds received from the Private Placement with various
banks and institutions.
The Company accounts for income taxes under the liability method in accordance
with Statement of Financial Accounting Standards No. 109, "ACCOUNTING FOR INCOME
TAXES." Under this method, deferred income tax assets and liabilities are
determined based on differences between the financial reporting and tax basis of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
Prior to the Merger (as defined in Note 1 above), Union Atlantic LC was a
Florida limited liability company and reported income for federal income tax
purposes as a partnership under the Internal Revenue Code. As a result, the
individual members were taxed on the income of the Company for federal and state
income tax purposes.
The accompanying financial statements reflect an additional provision for
federal income taxes of $22,816 and $119,974 for the three and nine months ended
September 30, 1999 on a pro forma basis as if Union Atlantic LC were liable for
federal income taxes as a taxable entity.
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company had $6,124,686 and $228,484 of cash and cash equivalents at
September 30, 2000 and December 31, 1999, respectively. Cash and cash
equivalents increased by $5,896,202 during the nine months ended September 30,
2000. The major components of these changes are discussed below.
For the nine months ended September 30, 2000, net cash provided by operating
activities was $249,337, versus $432,975 for the comparable period in 1999. Net
cash provided by operating activities for the nine months ended September 30,
2000 primarily resulted from net income (excluding depreciation and
amortization) and an increase in accounts payable of $108,240 and $62,461,
respectively, whereas net cash provided by operating activities for the nine
months ended September 30, 1999 related primarily to pro forma net income of
$382,890.
For the nine months ended September 30, 2000, net cash used in investing
activities was $115,257, versus $23,394 for the comparable period in 1999. Net
cash used in investing activities for the nine months ended September 30, 1999
and 2000 related to the purchase of equipment.
On March 31, 2000 the Company closed on a $7 million round of private financing
(the "Private Placement"), before registration and issuance costs of $1,065,292.
The Private Placement provided for two tranches of funding; the first tranche of
approximately $3.5 million was received in escrow at closing and the second
tranche of a similar amount was received in August of 2000. The proceeds from
the Private Placement primarily will be used by the Company to acquire or
partner with companies that provide business development products and services
to the same target market. In addition, the funding will be used to develop
fully integrated business units in the areas of research services, multimedia,
education, marketplaces for goods, management and "e-commerce" consulting and
financial services.
For the nine months ended September 30, 2000, net cash provided by financing
activities was $5,762,122, versus net cash used in financing activities of
$405,444 for the comparable period in 1999. Net cash provided by financing
activities for the nine months ended September 30, 2000 primarily related to the
receipt of net proceeds from the issuance of common stock with respect to the
Private Placement, net of distributions to former members of UAL. Net cash used
in financing activities for the nine months ended September 30, 1999 primarily
related to cash distributions to former members of UAL. Cash distributions to
former members of UAL were $172,586 and $455,078 for the nine months ended
September 30, 2000 and 1999, respectively.
The Company anticipates that it will need additional debt or equity financing in
order to carry out its long-term business strategy. Such strategy may be
financed by bank borrowings, public offerings, private placements of equity or
debt securities, or a combination of the foregoing.
The Company does not have any material commitments for capital expenditures.
The Company's operations are not affected by seasonal fluctuations; however,
they are to some extent reliant on the continuation of mergers and acquisitions
and related financings in the entrepreneurial marketplace.
The Company does not believe its operations have been materially affected by
inflation or the recent volatility of the stock market or capital markets.
22
<PAGE> 25
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
(1) On March 31, 2000 (the "Closing Date"), the Company consummated the
sale of 1,166,667 shares of its $.01 par value common stock ("Common Stock"),
warrants to purchase up to 700,000 shares of Common Stock at an exercise price
of $7.20 per share and rights to acquire up to 1,166,667 shares of its Common
Stock at a purchase price of $3.00 per share to certain institutional investors.
The total gross proceeds to the Company from this transaction were $3,500,000
before offering or issuance costs. The warrants are exercisable for a period
commencing on the Closing Date and expiring on the earlier to occur of: (i) one
year from the effective date of the registration statement to be filed by the
Company covering the securities issued and to be issued to the investors, or
(ii) four years from the Closing Date. The rights to acquire the Common Stock
are exercisable for a period commencing six months from, and expiring one year
after, the Closing Date.
The Securities and Exchange Commission (the "SEC") declared effective a
registration statement covering the securities issued and to be issued to the
investors and the placement agent for this transaction on July 31, 2000. The
Company and the same institutional investors closed a second round of financing
("Second Closing") in the amount of $3,500,000, before offering or issuance
costs, on August 17, 2000. At the Second Closing, the investors received an
additional 1,166,667 shares of Common Stock and rights to purchase an additional
1,166,667 shares Common Stock at a purchase price of $3.00 per share. Such
rights will be exercisable for a period commencing six months from, and expiring
one year after, the date of grant. The placement agent for the transaction
received a placement agent fee and warrants to purchase up to 58,333 shares of
Common Stock at an exercise price of $6.00 per share. The warrants are
exercisable until three years after the Closing Date. For a period of six months
from the Closing Date, the investors have a right to purchase on a pro-rata
basis any future equity or equity-linked securities offered by the Company in
any subsequent private offerings. The securities issued to the investors were
exempt from registration pursuant to Rule 506 and Section 4(2) of the Securities
Act of 1933, as amended.
(2) On August 18, 2000, the Company entered into the Amended Employment
Agreements (as defined in Section 6 above) with Paul T. Mannion, Jr., Andrew S.
Reckles and Vincent Sbarra. The Amended Employment Agreements between the
Company and the above named employees provided for the Company to issue
1,279,922, 1,279,922 and 451,667 shares, respectively, of restricted common
stock to these individuals. The shares issued to the employees are being held in
escrow and will be held in escrow until (i) cessation of the employee's
employment with the Company prior to December 31, 2001 for the first tranche of
shares and December 31, 2002 for the second tranche of shares, in which event
all or a portion of the shares would be immediately returnable to the Company or
(ii) the employee fails to meet certain cash revenue goals by September 30, 2001
for the first tranche of shares and September 30, 2002 for the second tranche of
shares, as defined by the Amended Employment Agreements, in which event the
shares, or a percentage of such shares, would be immediately returnable to the
Company based on a formula contained in each Amended Employment Agreement.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
23
<PAGE> 26
PART II. OTHER INFORMATION (CONT.)
Item 5. OTHER INFORMATION
On September 12, 2000, the Company entered into a letter of intent (the "LOI")
whereby it agreed to acquire all of the outstanding capital stock of NW
Holdings, Inc. ("NWH"), which is the parent company of First Level Capital, Inc.
("First Level"), a merchant and investment banking firm with offices in New
York, New Jersey and Florida. First Level provides investment banking services
to small and medium sized companies and retail brokerage services to companies,
financial institutions and high net worth investors. The firm is a registered
broker-dealer and a market maker in more than 100 U.S. securities. The Company
intends to structure this transaction as a tax-free exchange in which it will
exchange with the shareholders of NWH 1,500,000 unregistered shares of its
common stock and options to purchase 875,000 shares of its common stock at $2.25
a share for all of the outstanding shares of NWH. The holders of the shares
underlying the options will be granted certain piggyback registration rights
with respect to those shares. Under the terms of the LOI, the Company has 60
days to conduct a due diligence investigation of the business of First Level and
NWH. The LOI may be terminated by either party for any reason prior to the
execution of a definitive agreement with respect to this transaction.
Additionally, the completion of this transaction is subject to the NASD's
approval of the change in ownership of First Level.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
10.1 Amended and Restated Employment Agreements between
Paul T. Mannion, Jr., Andrew S. Reckles and Vincent
Sbarra and the Company
27 Financial Data Schedule
(b) Reports on Form 8-K
NONE
24
<PAGE> 27
SIGNATURES
In accordance with section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
By: Leonard J. Sokolow
------------------------ Chief Executive Officer November 14, 2000
Leonard J. Sokolow and Vice Chairman of
the Board of Directors
</TABLE>
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
By: Leonard J. Sokolow
----------------------- Chief Executive Officer November 14, 2000
Leonard J. Sokolow and Vice Chairman of
the Board of Directors
By: Timothy Mahoney
------------------------ Chief Operating Officer November 14, 2000
Timothy Mahoney and Chairman of the
Board of Directors
By: D. Carr Moody
----------------------- Chief Financial Officer November 14, 2000
D. Carr Moody
</TABLE>
25
