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NETSPACE INTERNATIONAL HOLDINGS, INC. - 10KSB - 20030331 - MANAGEMENTS_DISCUSSION
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
You should read the following discussion of our financial condition and results
of operations together with the financial statements and the notes to financial
statements included elsewhere in this report. This discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those anticipated in these
forward-looking statements. References herein to "we," "our" and "us" refer to
TargitInteractive, Inc.
As shown in the accompanying consolidated financial statements, the Company has
incurred recurring losses, negative cash flows from operating activities and has
negative working capital and a shareholders' deficit. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The Company has initiated several actions to generate working capital and
improve operating performance, including capital contributions from existing
shareholders and the implementation of certain cost reduction measures.
The Company closed its Florida sales operation in September 2002 after
evaluating the staff-to-performance ratio of revenue. The revenue generated from
the Florida office did not justify the costs associated with maintaining a
satellite office.
On November 22, 2002, the Company laid off 12 staff members at its New Hampshire
office. The management of the Company determined that this step was necessary
due to inadequate cash flow from operations and a lack of additional sources of
equity or investment at that time. All Company departments, including sales,
marketing, technical/engineering, finance, administration and executive
management were impacted by the lay-off.
Management also evaluated the Company's current business model and determined
that the cost of sales component of its business model needed to change. The
Company historically has paid its vendor suppliers a fee equal to 50% of the
project revenues generated. Management began a concerted effort to negotiate
with new and existing suppliers to change revenue sharing ratios to those that
would be more favorable to the Company thereby decreasing its gross cost of
sales. Starting in the fourth quarter of 2002 and continuing in the first
quarter of 2003, the Company has successfully negotiated with several key vendor
suppliers to reduce the cost structure to 30%-40% of revenues generated. These
new agreements include supplier performance minimums that reduce the percentages
further if these minimums are not met.
Management has formulated and is marketing a higher margin service package using
the Company's existing technology and client base. This service package involves
the management of a client's subscriber list and development of a joint
marketing relationship which does not require the Company to share revenue with
a third-party list owner. The anticipated profit margin of this service package
is approximately 80%.
There can be no assurance that the Company will be able to successfully
implement its plans, or if such plans are successfully implemented, that the
Company will achieve its goals. Furthermore, if the Company is unable to raise
additional funds, it may be required to further reduce its workforce,
compensation levels and dependency on outside consultants, modify its growth and
operating plans, and even terminate operations completely.
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Results of Operation - Year Ended December 31, 2002 and 2001
Revenues decreased 51.3% to $2,296,875 for the year ended December 31, 2002 from
$4,712,611 for the year ended December 31, 2001. The decrease was due in part to
several factors. The reduction in personnel and marketing/advertising continued
from 2001 into 2002. The Company's effort to bolster sales by opening a Florida
satellite sales office was unsuccessful and had the added impact of diverting
New Hampshire financial and human resources. The Florida satellite office made
negligible contributions to revenue and was closed in September of 2002. Other
negative factors included stagnant general economic conditions and a depressed
advertising marketplace, which continued through 2002. As also occurred in 2001,
the Company experienced significant customer turnover in 2002; over 50% of our
top 50 customers in 2001 made no purchases of services from the Company in 2002
due to reduced budgets, closures or other financial difficulties. Our top 20
clients during 2001 spent $2.1 million less in 2002 with our largest client
during 2001 spending $337,000 less, a drop of 54%. Viewed another way, more than
half of our top 20 customers during 2001 spent less than $5,000 in 2002,
accounting for a drop in revenue of nearly $1.5 million. Finally, the Company
generated over $1 million less revenue from cost-per-action (CPA) business in
2002 than in 2001 due to a general depression in the CPA market.
Cost of Sales was $1,193,940 for the year ended December 31, 2002 and $2,371,670
million for the year ended December 31, 2001 a decrease of 49.7%. The reduction
is directly attributable to the decrease in sales. During 2001 and 2002, the
average revenue share remained 50%. The revenue share is the main component of
the cost of sales and accounts for 98% of the decrease in cost of sales.
Payroll expense decreased 33.2% to $1,778,932 for the year ending December 31,
2002 from $2,663,091 for the year ending December 31, 2001. This decrease
resulted primarily from the continued reduction in staff. Wages decreased by
nearly $800,000 while benefit expenses fell $92,742. The remaining reduction
comes from a combined decrease in payroll taxes of $67,306 and commissions,
which were down $34,693 or 14% versus 2001. The full impact from the Company's
November 2002 lay-off of 12 employees will be recognized in fiscal year 2003.
General and Administrative cost dropped 59.9% to $1,365,553 for the year ending
December 31, 2002 from $3,406,922 for the year ending December 31, 2001. The
primary source of the reduction is a significant decrease in consulting fees,
which were down $886,029 or 91% versus 2001. Similarly, bad debt was reduced
significantly in 2002 as compared to 2002, with a reduction of $672,320.
Depreciation and Amortization decreased $222,555, further reducing general and
administrative costs. The Company was able to greatly reduce legal and
accounting fees in 2002 as well, cutting $156,197 from 2001 expenses. Legal and
accounting expenses had been significant in 2001 due to the TargitMail and
FirstPop acquisitions. Finally, marketing expenses continued to decrease, with
2002 expenses down $53,943 from 2001.
Net loss for the year ending December 31, 2002 was $1,280,773 compared to a net
loss of $4,515,192 for the year ended December 31, 2001, or a reduction in loss
of 71.6%. $1,687,522 of the reduction is tied directly to the loss from
operations explained above. Additionally, a reduction in losses from operations
of $819,968 is due to a decrease in interest expense and a further $1,607,879
decrease coming from a gain on settlement of accounts payable, with $1,114,770
of the gain coming from the settlement of a lawsuit with Juno Online Services,
Inc. described in the Company's last quarterly report on Form 10-Q. These
reductions were offset by an increase of $832,463 from impairment of intangible
assets and $48,487 in gain on disposal of assets. Fiscal year 2002 showed a net
gain of $36,400 versus a loss of $12,087 in 2001.
While impairment of intangible assets and gain on settlement of accounts payable
significantly impacted the Company's financial status for 2002, management does
not believe that these factors will have similar significant impact in the
future, as they do not arise in continuing operations.
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Liquidity and Capital Resources
The cash used in operating activities for the year ended December 31, 2002 of
$851,456, resulting from a loss of $1,280,773, was increased by non-cash
adjustments of $127,959 and a net change in assets and liabilities of $557,276.
The Company had negative working capital of $3,726,249 at December 31, 2002.
Accounts payable of $3,775,333 accounted for a majority of the negative working
capital, which the Company has and is continuing to negotiate concessions from
its trade creditors. For the year ended December 31, 2002, the Company realized
a gain on settlement of accounts payable of $1,711,683.
Net cash used by investing activities was $38,191, consisting of cash of $11,427
acquired from sales of Property & Equipment and $49,618 used for purchase of
Property & Equipment. Net cash provided by financing activities was $795,259.
Proceeds from notes payable to a shareholder of $472,744 and a sale of common
stock for $340,000 provided the bulk of the cash.
As shown in the accompanying consolidated financial statements, the Company has
incurred recurring losses, negative cash flows from operating activities, and
has negative working capital and shareholders' deficit. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The Company has initiated several actions to generate working capital and
improve operating performances, including equity and debt financing initiatives
and cost reduction measures. There can be no assurance that the Company will be
able to successfully implement its plans, or if such plans are successfully
implemented, that the Company will achieve its goals. Furthermore, if the
Company is unable to raise additional funds and or settle a significant portion
of its debt it may need to modify its growth and operating plans, or even be
forced to terminate operations completely. The accompanying consolidated
financial statements have been prepared assuming that the Company will continue
as a going concern and do not include any adjustments to reflect the possible
future effects of the recoverability and classification of assets or the amounts
and classification of liabilities that might result from the outcome of this
uncertainty.
Critical Accounting Policies
In Financial Reporting Release No. 60, the U.S. Securities and Exchange
Commission encourages all companies to include a discussion of critical
accounting policies or methods used in the preparation of financial statements.
Our consolidated financial statements include a summary of the significant
accounting policies and methods used in the preparation of our consolidated
financial statements.
Management believes the following critical accounting policies affect the
significant judgments and estimates used in the preparation of the financial
statements.
Revenue Recognition
Revenues are recognized when the advertising campaign is transmitted to the
recipient. Costs of revenues are primarily the costs of databases, which consist
of recipient names.
Use of Estimates
Management's discussion and analysis of financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
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management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, management evaluates
these estimates, including those related to allowances for doubtful accounts
receivable and the carrying value of inventories and long-lived assets.
Management bases these estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
Forward-Looking Statements
This report on Form 10-KSB contains certain forward-looking statements. These
forward looking statements include statements regarding (i) research and
development plans, marketing plans, capital and operations expenditures, and
results of operations; (ii) potential financing arrangements; (iii) potential
utility and acceptance of the Company's existing and proposed products; and (iv)
the need for, and availability of, additional financing.
The forward-looking statements included herein are based on current expectations
and involve a number of risks and uncertainties. These forward-looking
statements are based on assumptions regarding the business of Company, which
involve judgments with respect to, among other things, future economic and
competitive conditions and future business decisions, all of which are difficult
or impossible to predict accurately and many of which are beyond the control of
the Company. Although the Company believes that the assumptions underlying the
forward looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, actual results may differ materially from those set
forth in the forward-looking statements. In light of the significant
uncertainties inherent in the forward-looking information contained herein, the
inclusion of such information should not be regarded as any representation by
the Company or any other person that the objectives or plans of the Company will
be achieved.
ITEM 7. FINANCIAL STATEMENTS
See the Index to Financial Statements on page F-1 of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
As reported on Form 8-K filed September 21, 2001, the Company dismissed
Margolies, Fink & Wichrowski, Pompano Beach, Florida, as its independent
accountant. Except as provided in the next sentence, the reports of Margolies,
Fink & Wichrowski, on the financial statements of the Company for the two fiscal
years ended December 31, 2000, contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. The report of Margolies, Fink & Wichrowski dated March
10, 2000, and March 31, 2001, for the years ended December 31, 1999, and
December 31, 2000, each contained a going concern opinion. In connection with
the Company's audits for the fiscal years ended December 31, 1999 and 2000, and
through September 13, 2001, there have been no disagreements with the former
accountants on any matter of accounting principles or practices, financial
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statement disclosure, or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of the former accountants, would have caused them
to make reference to the subject matter of the disagreement in their report on
the financial statements for such year. The decision to dismiss the Company's
accountants was made by the Company's management and approved by a majority of
the Company's directors without a formal meeting. The Company engaged Gerson,
Preston, Robinson, & Company, P.A. as its independent accountant in July 2001.
At no time did the Company consult with Gerson, Preston, Robinson, & Company
regarding the application of accounting principles to any specific completed or
contemplated transaction or future audit opinion; or seek advice regarding
pending decisions as to accounting, auditing, or financial issues prior to
engagement. The Company does not believe that during the two years ended
December 31, 2000, and through September 13, 2001, there were any reportable
events (as defined in Regulation S-B, Item 304(a)(1)(iv)) with Margolies, Fink &
Wichrowski. Pursuant to Regulation S-B, Item 304(a)(3), the Company has filed
with its 10-KSB Report for 2001 a letter addressed to the Securities and
Exchange Commission by Margolies, Fink & Wichrowski, stating that that firm
agrees with the above statements.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth the names, ages and positions of the Company's
officers and directors.
NAME AGE POSITION
Aaron Gibitz 38 Principal Executive Officer, Chairman, Director
Noel J. Guillama 43 Director
David Smith 58 Director
James D. Baker 59 Director
Guenther Reibling 50 Director
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Pursuant to the Company's By-Laws, the directors of the Company are elected
annually by the shareholders, and the officers are appointed annually by the
board of directors. All directors of the Company hold office until the next
annual meeting of stockholders or until their successors are elected and
qualified.
The business experience of each director and officer is as follows:
AARON GIBITZ, PRINCIPAL EXECUTIVE OFFICER, CHAIRMAN, DIRECTOR. Mr. Gibitz joined
the Company in September, 2002 and serves as the Principal Executive Officer and
is a Director and Chairman of the Board of Directors. From March 2002 to the
present, Mr. Gibitz has been consulting with Taurus Investment Group, a firm
engaged in placing equity mainly in real estate investments. From 1997 through
March 2002, Mr. Gibitz was an executive with Zaremba, a real estate development
and management organization, also diversified in start-up entities, of which he
was responsible for startup activities, promotion, operations audits and
technology management. Prior to 1997 Mr. Gibitz consulted in technology and
operations audits for turnaround, profitability and efficiency for technical
manufacturers and retail to OEM consumer products companies.
NOEL J. GUILLAMA, DIRECTOR. Mr. Guillama formally served as Chairman and CEO of
TargitInteractive from May 2001 to October 2001. He also served as a director of
Williams Software, Inc., from October 2000 to May 2001. Mr. Guillama in the past
has been founder, officer or director of numerous, private and publicly traded
companies involved in broadcasting, cable, healthcare, real estate, construction
and technology. From 1996 to February 2000, he was the Founder, Chairman and CEO
of Metropolitan Health Networks, Inc., West Palm Beach, Florida; a healthcare
service organization serving over 45,000 patients. Prior to that, he was Vice
President of MedPartners, Inc., a physician practice management company based in
Birmingham, Alabama. Mr. Guillama has been non-executive chairman of Tektonica,
Inc. a diversified services company located in Jupiter, Florida, since 1984 and
in addition serves on the board of Quantum Medical Technologies, Inc. located in
Miami, Florida.
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DAVID SMITH, DIRECTOR. Mr. Smith served as Executive Vice President (May 2001
through February 2002) and Chief Strategy Officer (June 2002 through November
2002) of TargitInteractive. He has been in the venture capital industry since
1979 and has run corporate venture funds for Control Data Corporation and BMW of
Germany and has been a partner in three private funds, the largest being
Hambrecht & Quist Venture Partners. Mr. Smith spent eight years in the computer
industry with Control Data Corporation in various financial functions and was
Vice President of Sales/ Marketing for Airtech Corporation, an air-pollution
control spin-out company from MIT's Draper Laboratories. He began his career as
an economist with the International Division of First National Bank of Chicago,
working in the London and Frankfurt branches.
JAMES D. BAKER, DIRECTOR. Mr. Baker formerly served as President and Chairman of
TargitInteractive from July 2001 until September 2002. He became a director and
president upon the closing of the FirstPop transaction. He served as Chairman
and CEO of FirstPop from its inception in 2000. Mr. Baker has been involved with
integrated computer systems for over 25 years. After working for IBM from 1967 -
1981 in Security Systems Development, he left IBM to form his own company,
Computer Application Systems, Inc. ("CASI") that commercialized computer-based
security systems. CASI was sold to Figgie International Inc. in September 1987.
Mr. Baker worked with Figgie as a Vice President of Strategic Business
Development through 1991. From 1991 through 1995, he served as a consultant to
the security industry and assisted several start up and early stage companies by
developing strategic business plans, alliances with more mature companies,
raising capital, and at the Board level. In 1995, he founded RAPOR, Inc. and is
currently on the Board of Directors. RAPOR is a manufacturer of
computer-controlled doors for the security industry. Most recently, Mr. Baker
was CEO of AegiSoft, an Internet company that provides software and digital
content publishers the technology to rent their products, such as software,
music, movies and electronic books. AegiSoft was sold in December 2000 to
RealNetworks, Inc.
GUENTHER REIBLING, DIRECTOR. Mr. Reibling became a director upon the closing of
the FirstPop transaction. Mr. Reibling has been Executive Vice President of
Taurus Investment Group, a real estate investment and development company with
operations in the U.S. and Germany, since 1976. Taurus is general partner of
over 45 commercial real estate projects in the U.S. Mr. Reibling oversees
leasing, management and development activities of the various projects, as well
as the acquisition and underwriting of new projects. He is also an
owner/developer of commercial real estate in his own right and has been involved
with real estate sales, management and development since 1969.
The Company has established an Audit Committee chaired by Guenther Reibling.
Aaron Gibitz also serves on the committee. The Company has identified Mr.
Reibling as the financial expert as defined in the Exchange Act and Regulation
S-B thereto. The Company believes that Mr. Reibling's experience overseeing the
operations of Taurus Investment Group as well as its principal accounting
functions provides the required expertise to advise the Company on issues likely
to arise during the audit process. Mr. Reibling is not an independent expert as
defined under the Exchange Act. However, the Company is in the process of
identifying an independent financial expert to serve on the Audit Committee.
Other than the Audit Committee, there are no committees of the Board, which acts
as the full Board with respect to any matter.
The Company's By-Laws eliminate the personal liability of officers and directors
to the fullest extent permitted by Delaware Law. The effect of such provision is
to require the Company to indemnify the officers and directors of the Company
for any claim arising against such persons in their official capacities if such
person acted in good faith and in a manner that he reasonably believed to be in
or not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was lawful.
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Compliance with Section 16(a) of the Exchange Act
Based solely on a review of Forms 3, 4 and 5 furnished to the Company and filed
with the Securities and Exchange Commission under Rule 16a-3(e) promulgated
under the Securities Exchange Act of 1934, to the Company's knowledge, all
directors, officers and beneficial owners of more than 10% of any class of
equity securities filed on a timely basis the reports required by Section 16(a)
of the Exchange Act during the most recent fiscal year.
Code of Ethics
The Company currently has no formal code of ethics that applies to the principal
executive or financial officers or the Board of Directors. There was no such
code in the original By-laws of the Company and this oversight has yet to be
corrected. The Company intends to redraft the corporate By-laws and include such
a code of conduct in the immediate future.
ITEM 10. EXECUTIVE COMPENSATION
The following tables and notes present for the last three completed fiscal years
ended December 31, 2002, the compensation paid by the Company to the executive
officers. No employees of the Company were compensated in excess of $100,000
during fiscal year 2002.
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Restricted Securities LTIP
Principle Salary Bonus Other Annual Stock Underlying Payouts All Other
Position Year ($) ($) Compensation ($) Award(s) ($) Options/SARs (#) ($) Compensation ($)
Aaron Gibitz 2002 $26,050 $0 $0 $0 0 $0 $0
Principal -
Executive 2001 $0 $0 $0 $0 0 $0 $0
Officer -
2000 $0 $0 $0 $0 0 $0 $0
James Baker 2002 $63,000 $0 $0 $101,538 169,980 $0 $0
Director -
2001 $36,000 $0 $0 $ 17,502 113,320 $0 $0
-
2000 $0 $0 $0 $0 0 $0 $0
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Option/SAR Grants in Last Fiscal Year
Individual Grants
(a) (b) (c) (d) (e)
Number of Securities Underlying % of Total Options/SARs Granted to Exercise or Base Expiration
Name Options/SARs Granted (#) Employees in Fiscal Year Price ($/Sh) Date
Aaron 0 0 0 N/A
Gibitz
James 0 0 0 N/A
Baker
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Aggregate Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
(a) (b) (c) (d) (e)
Number of Securities Underlying Value of Unexercised In-the Money
Unexercised Options/SARs at FY-End (#) Options/SARs at FY-End ($)
Shares Acquired Value
Name on Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
Aaron 0 0 0 0
Gibitz
James 0 0 283,300/226,624 $5,666/$4,532
Baker
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Compensation of Directors
As of the 4th quarter of 2001, the Board of Directors voted to pay all
non-executive directors 10,000 shares of stock per year at $0.50 per share, in
addition to expenses for actual attendance at each regular or special meeting.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the Company's
common stock beneficially owned at April 1, 2002 (1) by each person who is known
by the Company to own beneficially 5% or more of the Company's common stock; (2)
by each of the Company's directors; and (3) by all executive officers and
directors as a group.
Security Ownership of Certain Beneficial Owners
(1) (2) (3) (4)
Name and Amount and
Title of Class Address of Beneficial Owner Nature of Beneficial Owner Percent of Class
Common Equity Reibling Group (1)
Taurus Investment Holdings, LLC
1350 E. Newport Center Drive
Deerfield Beach, FL 33442 56,329,735 80.0%
Common Equity Dennis Kozlowski
1 Tyco Park
Exeter, NH 03833 5,200,000 7.4%
Common Equity Mark Swartz (2)
7777 Glades Road
Boca Raton, FL 33434 5,207,503 7.4%
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Security Ownership of the Board and Executive Officers
(1) (2) (3) (4)
Name and Amount and
Title of Class Address of Beneficial Owner Nature of Beneficial Owner Percent of Class
Common Equity James Baker (3)
PO Box 812286
Boca Raton, FL 33481 1,229,160 1.7%
Common Equity Aaron Gibitz
99 Bow Street
Portsmouth, NH 03801 1,500 0%
Common Equity Noel Guillama (4)
12230 Forest Hill Blvd.
Wellington, FL 33414 1,142,500 1.6%
Common Equity Guenther Reibling (5)
702 N. Ocean Blvd.
Delray Beach, FL 33845 28,707,634 40.8%
Common Equity David M. Smith (6)
7 Trinity Road
Marblehead, MA 01945 938,267 1.3%
Common Equity Board and Executive Officers
as a group 32,019,061 45.5%
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1. Includes (1) 3,541955 shares of common stock held by Mr. Lorenz Reibling and
(2) 5,741,971 shares of common stock held by Mr. Guenther Reibling, (3) 50,000
shares of common stock issuable upon exercise of options at $.50 per share until
September 20, 2006, (4) 1,019,706 shares of common stock held jointly by Mr.
Lorenz Reibling and his wife under the Lara Reibling Revocable Trust u/d/t
December 7, 1997, Laura Reibling, Trustee, (5) 41,634 shares of common stock
held by Taurus Investment Group, Inc. owned jointly by Lorenz and Guenther
Reibling, (6) 8,400,000 shares of common stock held by
Einhundertsechsundneunzigste Vermoegensverwaltungs GmbH ("Naxos") which is
wholly owned by Taurus Investment Group, Inc., (7) an option to convert the
principal and interest on a $130,000 loan from Mr. Lorenz Reibling to the
Company into 14,660,440 shares of common stock, and (8) an option to convert the
principal and interest on a $130,000 loan to the Company from Mr. Guenther
Reibling into 14,474,029 shares of common stock. The notes were due December 27,
2002 and January 28, 2003 respectively and bore an interest rate of 18%. They
may be converted into common stock of the Company at a price of $0.01 per share.
As of March 31, 2003, neither note has been converted.
2. Includes (1) 5,200,000 shares of common stock held by Mr. Swartz; (2) 6,667
shares of common stock held by Mr. Swartz; (3) 209 shares of common stock
jointly owned by Mr. Swartz and his wife; and (4) 627 shares of common stock
owned by various of Mr. Swartz's children.
3. Includes (1) 988,355 shares of common stock owned by Mr. Baker and (2)
240,805 shares of common stock issuable upon the exercise of options at $0.01
per share that expire on September 20, 2006.
4. Includes (1) 642,500 shares of common stock held by Mr. Guillama; (2) 250,000
shares of common stock held by the Guillama Family Holdings, Inc., a corporation
in which Mr. Guillama is an officer; (3) 250,000 shares of common stock held by
Mr. Guillama as custodian for Jahziel M. Guillama, his minor son under the
Uniform Gifts to Minors Act, and (4) 100,000 shares of common stock issuable
upon exercise of options at $0.01 price per share that expire September 20,
2006.
5. Includes (1) 5,741,971 shares of common stock held by Mr. Guenther Reibling,
(2) 50,000 shares of common stock issuable upon exercise of options at $.50 per
share until September 20, 2006, (3) 41,634 shares of common stock held by Taurus
Investment Group, Inc., which is owned jointly by Lorenz Reibling and Guenther
Reibling, (4) 8,400,000 shares of common stock held by
Einhundertsechsundneunzigste Vermoegensverwaltungs GmbH ("Naxos") which is
wholly owned by Taurus Investment Group, Inc., and (5) an option to convert the
principal and interest on a $130,000 loan to the Company from Mr. Guenther
Reibling into 14,474,029 shares of common stock. The note was due January 28,
2003 and bears an interest rate of 18%. It may be converted into common stock of
the Company at a price of $0.01 per share. As of March 31, 2003 the note has not
been converted.
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6. Includes (1) 741,500 shares of common stock held by Mr. Smith and (2) 196,767
shares of common stock issuable upon exercise of options at $0.01 per share
until September 20, 2006. As outlined above, Messrs. Lorenz and Guenther
Riebling currently share ownership and voting rights for 27,145,266 shares of
the Company's total pool of common equity of 40,704,593 shares of common stock,
or 66.7% of the total shares of common stock outstanding. If the Reiblings
convert the notes as mentioned in note 1 above, they will control 56,329,735 of
70,426,634 shares of common stock or 80.0% of the total shares of common stock
outstanding.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1999, MCG Partners, Inc., a newly-organized business consulting firm
("MCG"), which is controlled by a shareholder of the Company, agreed with
GourmetMarket.com, Inc. ("GMI") and the Company that MCG would assume certain
obligations of Marblehead Capital Group, Inc., a firm which had provided
guidance to the Company and GMI in connection with their proposed merger.
Pursuant to that agreement, the Company issued MCG 100,000 shares of the
Company's preferred stock in payment of the par value thereof and, upon the
completion of the merger on January 29, 1999, paid MCG a $100,000 merger
completion fee. MCG subsequently converted all of its shares of preferred stock
into 6,030,000 shares of common stock. At the time of the merger, the Company
entered into a consulting agreement with MCG pursuant to which it appointed MCG
its exclusive agent through December 1, 2004, to provide financial advisory
services to the Company.
On April 1, 2001 the Company entered in to a consulting contract with MCG to
provide investment banking services. The terms of the agreement called for the
Company to pay MCG $5,000 per month and 5% of the consideration paid by the
Company on any acquisition or merger proposed by MCG. As a result of this
agreement the Company issued MCG 1,275,000 shares as payment for the acquisition
by the Company of Global Technology Marketing International, Inc. ("TargitMail")
and Williams Software, Inc. ("FirstPop") described in "Description of Business"
above. These shares were subsequently registered by the Company on a SEC Form
S-8 registration statement. The Company took an expense charge of $573,750
related to this transaction.
On January 14, 2000, the Company entered into an agreement to dispose of its
Travlang.com assets to iiGroup, Inc., for 250,000 shares of iiGroup, Inc.,
common stock and $250,000, payable as $146,000 in cash and $104,000 in assumed
liabilities. iiGroup, Inc., is an affiliate of MCG, which is a shareholder of
the Company.
On February 29, 2000, iiGroup, Inc., loaned $160,000 to the Company pursuant to
an 8% Convertible Bridge Note, and on March 13, 2000, iiGroup, Inc., loaned an
additional $90,000 to the Company pursuant to an 8% Convertible Bridge Note.
Each of the Bridge Notes provides that it may be prepaid at any time, but was
mandatorily repayable upon the sale of all of the outstanding shares of the
Company, the sale of substantially all of the Company's assets, or the closing
of financings of at least $5,000,000. The Convertible Notes were converted into
common stock of the Company at the lower of $1.00 per share or 75% of the
average closing bid price of the Company's common stock in the five days
preceding the date of conversion.
On July 27, 2001, the Company issued 1,575,000 shares of common stock to three
officers of FirstPop, subject to the provision of management services by the
officers to the Company over the thirty-six months following the acquisition of
FirstPop. The shares were to vest ratably over the three-year period. At
September 30, 2001, the Company had recorded $327,250 of unearned compensation
in the equity section of the balance sheet and has recognized $19,250 of stock
based compensation expense related to the issuance. The shares were valued using
the fair market value on the date of issuance as determined by an independent
fair value appraiser.
On July 27, 2001, the Company issued 200,000 shares of common stock to MCG
Partners, Inc., a related party, for the conversion of a $60,464 note payable
and related interest.
26
On August 9, 2001, the Company affected a thirty-for-one stock split. This stock
split has been retroactively reflected in the condensed financial statements and
footnote disclosures for all periods presented.
On October 19, 2001, Noel J. Guillama resigned as Chairman, CEO and Director of
the Company. Pursuant to the management agreement, of the 525,000 shares
allocated to him as an officer that were to vest over three years, Mr. Guillama
received 100,000 of such shares and the remainder were re-allocated to the two
remaining FirstPop officers. In addition, he was issued 66,141 shares in lieu of
any cash compensation. Of the options granted to him in August 2001, he retained
100,000 options with an exercise price of $.01 per share and the remainder were
cancelled. In December of 2001, Mr. Guillama was re-elected to the Board of
Directors of the Company.
In April 2002, the Company entered into two interim factoring agreements with
Lorenz and Guenther Reibling, principle shareholders of the Company, pursuant to
which the Company advanced 90% of the outstanding balance of selected
receivables.
On February 5, 2002, David M. Smith resigned as Executive Vice President of the
Company. Pursuant to the management agreement, of the 525,000 shares allocated
to him as an officer that were to vest over three years, he received 89,167 of
such shares and the remainder of 387,371 shares were allocated to the sole
remaining officer of FirstPop. In addition, he was issued 48,462 shares for
services rendered. Of the options granted to him in August 2001, he retained
196,767 options with an exercise price of $.01 per share and the remainder were
cancelled.
On September 6, 2002, James Baker resigned as President and Chairman of the
Company. Pursuant to the management agreement, of the management incentive
shares allocated to him as an officer that were to vest over three years, Mr.
Baker received 415,367of such shares. As there are no longer any qualifying
executives of FirstPop with the Company, the remaining pool of 922,004 shares
remain undistributed by the Company. Of the options granted to him in August
2001, he retained 240,805 options with an exercise price of $.01 per share and
the remainder were cancelled. Mr. Baker remains a director of the Company.
On September 13, 2002, the Company borrowed $130,000 (secured by the Company's
receivables) from Lorenz Reibling, one of the Company's controlling
shareholders. This loan was due on December 27, 2002, and bears interest at a
rate of 18% APR. The principal and interest may be converted, at the option of
the note holder, into common stock of the Company at a conversion price of $0.01
per share if the balance is not paid by the maturity date. As of March 31, 2003
this note had not been converted.
On September 23, 2002, Guenther and Lorenz Reibling converted $234,018 of the
Company's indebtedness to them, consisting of a promissory note in the principal
amount of $212,744, together with accrued interest of $21,274, into 7,800,633
shares of common stock.
On October 1, 2002, the Company borrowed an additional $130,000 (secured by the
Company's receivables) from Guenther Reibling, a controlling shareholder. This
loan was due on January 28, 2003, and bears interest at a rate of 18% APR. The
principal and interest may be converted, at the option of the note holder, into
common stock of the Company at a conversion price of $0.01 if the balance is not
paid by the maturity date. As of March 31, 2003 this note had not been
converted.
27
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
99.1 Certificate of Principal Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certificate of the Controller pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
(b) Form 8-K
The Company filed no reports on SEC Form 8-K during the quarter ended December
31, 2002.
ITEM 14. CONTROLS AND PROCEDURES
The Company maintains vigorous disclosure controls and procedures; however, due
to staff reductions we have been unable to maintain a separation of duties for
all accounting cycles. Alternative controls and procedures have been implemented
to insure all transactions are jointly authorized by the Principal Executive
Officer and the Controller. These procedures include physical review of all
checks and monthly review and analysis of financial statements. Checks are
restrictively endorsed and deposited daily. Physical access to cash and unissued
checks is restricted to authorized personnel, currently the Principal Executive
Officer and Controller.
28
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TARGITINTERACTIVE, INC.
Dated: March 31, 2003 By: /s/ Aaron Gibitz
---------------------------
Principal Executive Officer
|
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.
By /s/ Brian Richardson
---------------------------------------------
Brian Richardson, Controller
Date: March 31, 2003
By /s/ Noel J. Guillama
---------------------------------------------
Noel J. Guillama, Director
Date: March 31, 2003
By /s/ David Smith
---------------------------------------------
David Smith, Director
Date: March 31, 2003
By /s/ James D. Baker
---------------------------------------------
James D. Baker, Director
Date: March 31, 2003
By /s/ Guenther Reibling
---------------------------------------------
Guenther Reibling, Director
Date: March 31, 2003
|
29
CERTIFICATIONS
I, Aaron Gibitz certify that:
1. I have reviewed this annual report on Form 10-KSB of TargitInteractive, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003
/s/ Aaron Gibitz
-----------------------------------------
Aaron Gibitz, Principal Executive Officer
|
CERTIFICATIONS
I, Brian Richardson, certify that:
1. I have reviewed this annual report on Form 10-KSB of TargitInteractive, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003
/s/ Brian Richardson
----------------------------
Brian Richardson, Controller
|
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet F-3
Statements of Operations F-4
Statements of Accumulated Shareholders' Deficit F-5
Statements of Cash Flows F-6 - F-7
Notes to Financial Statements F-8 - F-18
|
F-1
Board of Directors and Shareholders
TargitInteractive, Inc. and Subsidiaries
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheet of
TargitInteractive, Inc. and Subsidiaries at December 31, 2002 and the related
consolidated statements of operations, accumulated shareholders' deficit and
cash flows for each of the two years then ended. 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.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TargitInteractive,
Inc. and Subsidiaries as of December 31, 2002 and the results of its operations
and its cash flows for each of the two years then ended, in conformity with
accounting principles generally accepted in the United States of America.
The consolidated financial statements referred to above have been prepared
assuming that TargitInteractive, Inc. will continue as a going concern. As more
fully described in Note 3, the Company has incurred recurring operating losses,
negative cash flows from operating activities and has negative working capital
and shareholders' deficit. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans as to these
matters are also described in Note 3. The accompanying consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that might result from the outcome of this
uncertainty.
/s/ Gerson, Preston, Robinson, & Company, P.A.
--------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
March 27, 2003
|
F-2
TARGITINTERACTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002
Current assets:
Cash $ 8,095
Accounts receivable, net of allowance for doubtful accounts of approximately $51,000 271,747
Prepaid expenses and other current assets 29,242
------------
Total current assets 309,084
Property and equipment 233,130
------------
Total assets $ 542,214
============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 3,775,333
Notes payable - shareholders 260,000
------------
Total current liabilities 4,035,333
------------
Commitments and contingencies
Shareholders' deficit:
Common stock; $.001 par value; 100,000,000 shares authorized;
40,704,593 shares issued and outstanding; and additional paid in capital 23,162,193
Unearned compensation (268,899)
Accumulated deficit (26,386,413)
------------
Total shareholders' deficit (3,493,119)
------------
Total liabilities and shareholders' deficit $ 542,214
============
|
See accompanying notes to consolidated financial statements.
F-3
TARGITINTERACTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
Revenues $ 2,296,875 $ 4,712,611
------------ ------------
Costs and expenses:
Costs of revenues 1,193,940 2,371,670
Payroll, benefits and related expense 1,778,932 2,663,091
General and administrative 1,365,553 3,406,922
Impairment of intangible assets 832,463 --
Gain on settlement of accounts payable (1,711,683) (103,804)
------------ ------------
Total costs and expenses 3,459,205 8,337,879
------------ ------------
Loss from operations (1,162,330) (3,625,268)
Interest expense (82,043) (902,011)
Gain (loss) on disposal of assets (36,400) 12,087
------------ ------------
Net (loss) $ (1,280,773) $ (4,515,192)
------------ ------------
Discount attributable to beneficial conversion
privilege of preferred stock -- (143,182)
Net loss applicable to common stock (1,280,773) (4,658,374)
============ ============
Basic and diluted loss per common share $ (0.04) $ (0.31)
============ ============
Weighted average number of common
shares outstanding 30,593,939 15,136,182
============ ============
|
See accompanying notes to consolidated financial statements.
F-4
TARGITINTERACTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF ACCUMULATED SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
Common Stock
and
Common Additional
Preferred Stock Stock Paid-in Subscription Unearned
Shares Amount Shares Capital Receivables Compensation
------------ ------------ ------------ ------------- ------------- ------------
Balance, December 31, 5,000,000 $ 5,000 10,400,000 $ 6,785,269 $ -- $ --
2000
Embedded dividends on -- -- -- 143,182 -- --
convertible preferred
stock
Capital contribution, (5,000,000) (5,000) -- 12,805,000 -- --
net of preferred stock
retirement
Warrants to preferred -- -- -- 560,000 -- --
stock holders
Acquisition of Global -- -- 1,778,784 (433,701) -- --
Technology
Management incentive -- -- 1,575,000 346,500 -- (346,500)
stock
Consulting fee in lieu -- -- 1,275,000 573,750 -- --
of cash
Conversion of related -- -- 200,000 60,464 -- --
party note
Acquisition of Williams -- -- 7,045,000 1,168,125 (76,512) --
Software
Issuance of stock in -- -- 54,781 13,350 -- --
lieu of rent
Receipt of cash for -- -- -- -- 75,000 --
subscription receivable
Settlement with former -- -- 66,141 14,882 -- --
employee
Grant of employee stock -- -- -- 394,474 -- (394,474)
options
Issuance of common stock -- -- 499,900 124,975 (31,250) --
Compensation to directors -- -- 30,000 12,825 -- --
Amortization of -- -- -- -- -- 57,004
management incentive
stock
Amortization of employee -- -- -- -- -- 191,384
stock options
Net Loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, -- -- 22,924,606 22,569,095 (32,762) (492,586)
2001
Receipt of cash for -- -- -- -- 32,762 --
subscription receivable
Issuance of common stock -- -- 9,775,000 340,000 -- --
Issuance of common stock -- -- 204,353 13,080 -- --
for services
Grant of employee stock -- -- -- 6,000 -- (6,000)
options
Conversion of related -- -- 7,800,634 234,018 -- --
party note
Amortization of -- -- -- -- -- 114,315
management incentive
stock
Amortization of employee -- -- -- -- -- 115,372
stock options
Net Loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, -- $ -- 40,704,593 $ 23,162,193 $ -- $ (268,889)
2002
============ ============ ============ ============ ============ ============
[restubbed table]
Accumulated Shareholders'
Deficit Equity/(Deficit)
-------------- ---------------
Balance, December 31, $(20,447,266) $(13,656,997)
2000
Embedded dividends on (143,182) --
convertible preferred
stock
Capital contribution, -- 12,805,000
net of preferred stock
retirement
Warrants to preferred -- 560,000
stock holders
Acquisition of Global -- (433,701)
Technology
Management incentive -- --
stock
Consulting fee in lieu -- 573,750
of cash
Conversion of related -- 60,464
party note
Acquisition of Williams -- 1,091,613
Software
Issuance of stock in -- 13,350
lieu of rent
Receipt of cash for -- 75,000
subscription receivable
Settlement with former -- 14,882
employee
Grant of employee stock --
options
Issuance of common stock -- 93,725
Compensation to directors -- 12,825
Amortization of -- 57,004
management incentive
stock
Amortization of employee -- 191,384
stock options
Net Loss (4,515,192) (4,515,192)
------------ ------------
Balance, December 31, (25,105,640) (3,061,893)
2001
Receipt of cash for -- 32,762
subscription receivable
Issuance of common stock -- 340,000
Issuance of common stock -- 13,080
for services
Grant of employee stock -- --
options
Conversion of related -- 234,018
party note
Amortization of -- 114,315
management incentive
stock
Amortization of employee -- 115,372
stock options
Net Loss (1,280,773) (1,280,773)
------------ ------------
Balance, December 31, $(26,386,413) $ (3,493,119)
2002
============ ============
|
See accompanying notes to consolidated financial statements.
F-5
TARGITINTERACTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
OPERATING ACTIVITIES
Net (loss) $(1,280,773) $(4,515,192)
Adjustments to reconcile net (loss) to net
cash used in operating activities:
Depreciation and amortization 423,199 645,754
Bad debt expense 27,621 445,000
Impairment of intangible assets 832,463 --
(Gain) on settlement of accounts payable (1,711,683) (103,803)
Issuance of warrants for debt premium -- 560,000
Issuance of stock for services 13,080 614,807
Issuance of stock for interest (related party) 21,274 --
Amortization of unearned compensation 229,687 248,388
(Gain) loss on disposal of assets 36,400 (12,087)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable 185,279 290,537
Prepaid expenses and other current assets 220,710 157,484
Accounts payable and accrued expenses 310,672 438,533
Deferred revenue (159,385) 29,385
----------- -----------
Net cash used in operating activities (851,456) (1,201,194)
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (49,618) (49,427)
Proceeds from sale of property and equipment 11,427 12,087
Proceeds from Williams Software acquisition -- 225,775
Net cash provided by (used in) investing activities (38,191) 188,435
----------- -----------
FINANCING ACTIVITIES
Proceeds from notes payable to shareholders 472,744 799,000
Payments of capital lease obligations (50,247) (10,142)
Proceeds from subscriptions receivable 32,762 75,000
Proceeds from issuance of common stock 340,000 93,725
----------- -----------
Net cash provided by financing activities 795,259 957,583
----------- -----------
Net (decrease) in cash (94,388) (55,176)
Cash, beginning of year 102,483 157,659
----------- -----------
Cash, end of year $ 8,095 $ 102,483
=========== ===========
|
See accompanying notes to consolidated financial statements.
F-6
TARGITINTERACTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 48,529 $ 342,011
Supplemental disclosures of non-cash investing and Financing activities:
Issuance of common stock for the extinguishment
of related party debt $212,744 $ 60,464
Grant of employee stock options $ 6,000 $ 394,474
Property and equipment acquired through capital
lease agreements $ -- $ 30,152
Issuance of management incentive stock $ -- $ 346,500
Capital contribution for payoff of debt $ -- $12,800,000
Embedded Dividends on convertible
preferred stock $ -- $ 143,182
|
See accompanying notes to consolidated financial statements
F-7
TARGITINTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF OPERATIONS
TargitInteractive, Inc. (the "Company") is a provider of interactive marketing
services which features proprietary technology for the delivery of rich media
marketing messages directly to e-mail box and/or the desktop. All messaging is
permission-based. The Company pays fees for the use of databases.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Revenue Recognition
The Company's revenues are derived principally from the delivery of commercial
advertising through the Internet. Revenues from commercial e-mail advertising
are recognized upon delivery of advertising to the Internet service provider's
customers. Upon delivery, the Company has no further obligations.
Loss Per Share
Basic loss per share is computed by dividing loss available to common
shareholders by the weighted-average number of common shares for the period. The
computation of diluted loss per share is similar to basic loss per share, except
that the denominator is increased to include the number of additional common
shares that would have been outstanding if the potentially dilutive common
shares, such as options, had been issued. Diluted loss per share is not
presented because the effects would be anti-dilutive.
Property and equipment
Property and equipment are carried at cost. The Company provides depreciation
for financial purposes over the estimated useful lives of assets using the
straight-line method. Upon retirement or sale of fixed assets, their net book
value is removed from the accounts and the difference between such net book
value and proceeds received is recorded in income. Expenditures for maintenance
repairs are charged to expense; renewals and improvements are capitalized.
Long - Lived Assets
The Company evaluates the recoverability of long-lived assets for impairment on
an annual basis or whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Such evaluation involves the
use of an independent appraisal or is based on various analyses, including cash
flows and profitability projections. If the sum of the expected future cash
flows or the appraised value is less than the carrying amount of the assets, an
impairment loss is recognized. Accordingly, impairment loss is the difference
between the sum of the estimated future cash flows or appraised value and the
carrying amount of the asset.
F-8
TARGITINTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Gain on Settlement of Accounts Payable
During 2002, the Company settled with certain vendors to reduce or eliminate the
amounts owed to these vendors.
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 of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of income and expenses during the reported period. The accounting estimates used
in the preparation of our consolidated financial statements will change as new
events occur, as more experience is acquired, as additional information is
obtained and as the Company's operating environment changes. Actual results
could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments, primarily consisting of cash, accounts
receivable, accounts payable, and capital lease obligations, approximate fair
value due to their short-term nature or interest rates that approximate market.
New Accounting Pronouncements
The Financial Accounting Standards Board issued Statements of Financial
Accounting Standards No. 144, Accounting for the Impairment of Disposal of
Long-Lived Assets. This statement supercedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and
amends Accounting Principles Board Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions. The
Statement is being applied prospectively, beginning January 1, 2002.
NOTE 3: GOING CONCERN - UNCERTAINTY
As shown in the accompanying consolidated financial statements, the Company has
incurred recurring losses, negative cash flows from operating activities and has
negative working capital and shareholders' deficit. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The Company has initiated several actions to generate working capital and
improve operating performance, including capital contributions from existing
shareholders and the implementation of certain cost reduction measures.
The Company closed its Florida sales operation in September 2002 after
evaluating the staff to performance ratio of revenue. The revenue generated from
the Florida office did not justify the costs associated with maintaining a
Florida satellite office.
F-9
TARGITINTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: GOING CONCERN - UNCERTAINTY (CONTINUED)
On November 22, 2002, the Company terminated 12 staff members of the New
Hampshire office when it became impossible to support the current staff with
cash flow from operations. No additional sources of equity or investment were
available to the Company at that time. Management chose to exercise
responsibility to only employ those whom the Company was able to pay. All
departments, including sales, marketing, technical/engineering, finance,
administration, and management were impacted by the reduction. In addition, the
Company reduced the size of its operating facility by entering into a new lease
for less office space.
There can be no assurance that the Company will be able to successfully
implement its plans, or if such plans are successfully implemented, that the
Company will achieve its goals. Furthermore, if the Company is unable to raise
additional funds, it may be required to further reduce its workforce,
compensation levels and dependency on outside consultants, modify its growth and
operating plans, and even terminate operations completely.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern and do not include any
adjustments to reflect the possible future effects on the recoverability and
reclassification of assets or the amounts and classification of liabilities that
might result from the outcome of this uncertainty.
NOTE 4: GLOBAL TECHNOLOGY MARKETING INTERNATIONAL, INC. ACQUISITION
Effective May 29, 2001, the Company consummated a merger with Global Technology
Marketing International, Inc. doing business as TargitMail.com (TargitMail.com).
TargitMail.com contracts with Internet service providers and e-mail service
providers to deliver commercial e-mail advertising to the Internet service
provider's customers under the TargitMail.com domain name.
The merger was accounted for as a reverse merger into a public shell.
Accordingly, the acquisition has been treated as an acquisition of
TargitInteractive, Inc. by Global Technology Marketing International, Inc. and
as a recapitalization of Global Technology Marketing International, Inc. As a
result, the Company recorded an additional 1,778,784 shares of common stock and
liabilities in excess of assets of $433,701. The historical financial statements
presented prior to May 29, 2001 are those of Global Technology Marketing
International, Inc.
On September 30, 2000, 5,000,000 shares of redeemable and convertible preferred
stock were issued in exchange for the membership interests of two members in the
limited liability company that was the predecessor to Global Technology
Marketing International, Inc.. These preferred shares were entitled to receive
cumulative annual dividends at a rate of 8% per share. The Company, at the time
of issuance, recognized a discount attributable to the beneficial conversion
privilege of approximately $630,000 by accreting the amount from the date of
issuance, September 30, 2000, through the date of conversion, August 15, 2001.
The accretion realized in the year ended December 31, 2001 was $143,182.
F-10
TARGITINTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: GLOBAL TECHNOLOGY MARKETING INTERNATIONAL, INC. ACQUISITION (CONTINUED)
Pursuant to the merger, the Company issued two $200,000 5% Convertible Notes,
convertible into 40% on an as-converted basis of the shares of the fully
diluted common stock outstanding of the Company immediately prior to the
conversion, for 100% of the outstanding Series A Preferred Stock, at $.08 per
share, and warrants to purchase up to 10% of TargitInteractive's common stock,
outstanding immediately following the acquisition of FirstPop.com (see Note 5),
which was consummated on July 27, 2001. At the same time, the holders of the two
convertible notes paid off Company debt of $12,800,000, which was recorded by
the Company as a contribution of capital.
The 5% Convertible Notes, discussed above, were converted on August 15, 2001
into 10,400,000 shares of common stock.
The warrants were for the purchase of up to 10% of TargitInteractive's common
stock at an aggregate exercise price of $2,000,000. The Company valued the
warrants using the Black-Scholes Option Pricing Model and determined that the
fair value of the warrants was $.28 per warrant. The term of the warrants were
one year from the date of issuance and expired without being exercised on June
27, 2002. The Company recorded $560,000 in interest expense during the year
ended December 31, 2001.
NOTE 5: WILLIAMS SOFTWARE, INC. ACQUISITION
Effective July 27, 2001, the Company consummated a merger with Williams
Software, Inc. doing business as FirstPop Technologies, Inc. (FirstPop.com).
FirstPop.com, an interactive marketing company, developed a unique message
delivery system platform for use by corporate clients for broadcasting marketing
or corporate messages across the Internet or through private intranets or
extranets.
Pursuant to the merger, the Company issued a 5% Convertible Note, at $300,000,
for 100% of the outstanding common stock and warrants to purchase up to 5% of
TargitInteractive's common stock, outstanding immediately following the closing
date. The warrants were for the purchase of up to 5% of TargitInteractive's
common stock at an aggregate exercise price of $1 million. The warrants expired
June 30, 2002 without being exercised.
FirstPop shareholders received a total of 7,045,000 shares consisting of
6,745,000 shares of common stock on the conversion of the $300,000 note, plus
300,000 incentive shares. The incentive shares were issued to those FirstPop.com
shareholders who contributed capital to complete the merger.
F-11
TARGITINTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: WILLIAMS SOFTWARE, INC. ACQUISITION (CONTINUED)
The merger was accounted for using the purchase method of accounting. The
Company has determined the purchase price to be allocated to be $1,042,088,
which consisted of the fair value of the convertible notes, $1,100,000,
incentive shares issued to FirstPop.com shareholders, $66,000, less the
assumption of subscriptions receivable of $76,513 and less net assets of
$47,399, which consisted of $225,958 of cash, $138,002 of prepaid expenses,
fixed assets of $92,998, liabilities of $279,559 and deferred revenue of
$130,000. The purchase price in excess of net assets has been allocated as
follows:
Description Amount
Database $ 352,000
Goodwill 289,303
Internally Developed Software 288,785
Website 112,000
----------
$ 1,042,088
===========
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The Company obtained an independent valuation of the assets of FirstPop.com in
order to determine the fair value of assets purchased. See also Note 7 below
regarding intangible assets.
NOTE 6: PROPERTY AND EQUIPMENT
December 31, 2002 Useful Lives
Computer equipment and software $742,000 3 Years
Office furniture and equipment 126,970 5 Years
Leasehold Improvements 48,623 3 Years
------
Property and equipment 917,593
Less accumulated depreciation (684,463)
--------
Property and equipment, net $233,130
========
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Computer and office equipment subject to capital leases at December 31, 2002
included above, is $52,635, net of accumulated depreciation of $37,347.
Depreciation expense was $318,147 and $320,301 for the years ended December 31,
2002 and 2001, respectively.
NOTE 7: INTANGIBLE ASSETS
Amortization expense for intangible assets was $105,052 and $325,453 for the
years ended December 31, 2002 and 2001, respectively.
F-12
TARGITINTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: INTANGIBLE ASSETS (CONTINUED)
The Company reviewed the valuation of its intangible assets as specified in FASB
142 and 144. The intangible assets are comprised of internally developed
software, websites, database and goodwill acquired through the Williams Software
Inc. (also known as FirstPop.com) merger. Due to cost cutting measures and a
shift in business focus, the Company has determined that these intangibles
assets have been impaired at December 31, 2002. A goodwill impairment loss of
$289,303 was recorded in 2002. The carrying amount of the remaining intangible
assets exceeded the sum of their estimated undiscounted future cash flows. Based
on this, an impairment loss of $543,160 related to the remaining intangible
assets was recorded in 2002.
NOTE 8: NOTES PAYABLE
In April 2002, the Company entered into two interim factoring agreements with
shareholders of the Company pursuant to which the Company advanced 90% of the
outstanding balance of selected receivables. In September 2002, these
shareholders converted the outstanding loan balance of $212,744, plus accrued
and unpaid interest of $21,274, into 7,800,600 shares of the Company's common
stock at $.03 per share, the market price on the date of conversion.
During 2002, the Company borrowed an additional $260,000 from two of the
Company's controlling shareholders in two separate loans each for $130,000.
These loans were due on December 27, 2002, and bear interest at 18% per annum.
The principal and interest may be converted, at the option of the noteholders,
into common stock of the Company at a conversion price of $0.01 per share. As of
March 25, 2003, these notes have not been converted and interest continues to be
accrued.
NOTE 9: LEASES
The Company leases its facilities under a non-cancelable long-term operating
lease. The following is a schedule of the future lease minimum payments under
this operating lease as of December 31, 2002:
Year Amount
---- ------
2003 $64,000
2004 93,000
2005 95,000
2006 97,000
2007 98,000
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Rental expense for the years ended December 31, 2002 and 2001 were $139,394 and
$162,750, respectively.
F-13
TARGITINTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10: COMMITMENTS AND CONTINGENCIES
On April 4, 2001, Juno Online Services, Inc. filed a complaint against Global
Technology Marketing International, LLC (GTMI), a subsidiary of the Company, in
the United States District Court for the Southern District of New York. The
complaint alleged that Juno is due more than $3,342,952 for marketing services
pursuant to an advertising agreement. The case was closed in 2002 and $1,114,769
is included in gain on settlement of accounts payable during the year ended
December 31, 2002.
On July 3, 2002, Williams Software, Inc., a wholly-owned subsidiary of the
Company, was sued by a former officer who alleges that the Company violated the
severance payment terms of his employment agreement. The Company has included
approximately $104,000 in accounts payable and accrued expenses pertaining to
this claim.
In addition the Company has received final judgments attached to its subsidiary
GTMI in the aggregate amount of $150,000, all of which remain unpaid. The
Company has included $150,000 in accounts payable and accrued expenses
pertaining to these judgments. In addition, there is another combined sum of
$376,000 of claims pending also included by the Company in accounts payable and
accrued expenses.
Management is continuing to negotiate with its creditors for the reduction of
the amount payable and for payments to be made on an installment basis. There
can be no assurances given that such negotiations will be successful. The
Company's failure to negotiate favorable payment terms with its judgment and
trade creditors could have a material adverse affect on the Company's continued
operations.
NOTE 11: DEFERRED INCOME TAXES
At December 31, 2002, the Company has available net operating loss carryforwards
of approximately $6,466,000. These losses may be used to offset future taxable
income in limited amounts through 2022. The limitations are based on Internal
Revenue Code Section 382.
After consideration of all the evidence, both positive and negative, management
has determined that a valuation allowance is necessary to reduce the deferred
tax assets to the amount that will more likely than not be realized due to
substantial uncertainty.
Accordingly, components of the Company's net deferred income taxes at December
31, 2002 are as follows:
December 31, 2002
Deferred tax assets:
Net operating loss carry forwards $ 2,263,000
Valuation allowance (2,263,000)
-----------
Total $ --
===========
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The valuation allowance increased in 2002 by $433,000 as a result of the 2002
loss.
F-14
TARGITINTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12: STOCK BASED COMPENSATION
On July 27, 2001, the Company issued 1,575,000 shares of common stock to three
officers of its newly acquired wholly owned-subsidiary, Williams Software, Inc.
d/b/a FirstPop.com, pursuant to a management agreement for services to be
provided over the subsequent thirty-six months. The shares were to vest ratably
over the three-year period. On October 19, 2001, the Chairman and Chief
Executive Officer of Williams Software, Inc. resigned. Pursuant to the
management agreement, of the 525,000 shares allocated to him as an officer that
were to vest over three years, the Executive received 100,000 of such shares and
the remainder of 425,000 shares were allocated to the two remaining officers. On
February 5, 2002, the Executive Vice President of Williams Software, Inc.
resigned. Pursuant to the management agreement, of the 525,000 shares allocated
to him as an officer that were to vest over three years, the Executive received
137,629 of such shares and the remainder of 387,371 shares were allocated to the
remaining officer. At December 31, 2001, the Company has recorded $346,500 of
unearned compensation in the equity section of the balance sheet and amortized
$57,004 and $114,315 to expense during the years ended December 31, 2001 and
2002, respectively. The shares were valued using the fair market value on the
date of issuance as determined by an independent fair value appraiser.
In September 2001, the Company issued 1,116,291 five-year options at an exercise
price of $.01 per share to employees of the Company. The options vest annually
over a three-year period, starting from the employee's hire date. On December
10, 2001, the Company granted 100,000 five-year options with an exercise price
of $.01 per share to the Vice Chairman. These options vest at the date of grant.
At December 31, 2001 the Company has recorded $394,474 of unearned compensation
in the equity section of the balance sheet. The fair value of the options was
calculated using the Black-Scholes Option Pricing Model. Due to a lay off of
employees on November 22, 2002, a number of the options were forfeited, as set
forth in the table at the end of this Note 12.
In September 2001, the Company issued 444,600 five-year options at an exercise
price of $1 per share to employees of the Company. The options vest over a
three-year period, starting from the employee's hire date. The fair value of the
options on the grant date was $177,840 calculated using the Black-Scholes Option
Pricing Model. Due to a lay off of employees on November 22, 2002, a number of
the options were forfeited, as set forth in the table at the end of this Note
12.
On October 19, 2001, the Chairman and Chief Executive Officer of the Company's
subsidiary, Williams Software, Inc., was issued 66,141 shares for services
rendered. The market price of the common stock at that time was $.30 per share.
The common stock cannot be sold for a 12-month period from the date of issuance
and after that can only be sold in accordance with Rule 144 or other applicable
exemption. Due to these restrictions, the Company discounted the fair value by
25%. Compensation expense of $14,882 was recorded in the Statement of Operations
for the year ended December 31, 2001.
In December 2001, the Company issued 350,000 five-year options at an exercise
price of $.50 per share to Directors of the Company. The options vest over a
ten-month period. The fair value of the options on the grant date was $140,000
calculated using the Black-Scholes Option Pricing Model. The options had not
been exercised as of March 25, 2003.
F-15
TARGITINTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12: STOCK BASED COMPENSATION (CONTINUED)
In August 2002, the Company issued, to certain of its employees, an aggregate of
600,000 options with an exercise price of $.02 per share. The options vest over
a three-year period starting from the employee's hire date. At September 30,
2002, the Company had recorded $6,000 of unearned compensation in the equity
section of the balance sheet. The fair value of the options was calculated using
the Black-Scholes Option Pricing Model. Due to a lay off of employees on
November 22, 2002, a number of the options were forfeited, as set forth in the
table at the end of this Note 12.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," in accounting for stock-based employee compensation
arrangements whereby no compensation cost related to stock options is deducted
in determining net loss. Had the compensation cost for stock option grants to
the Company's employees been determined by SFAS No. 123, "Accounting for Stock
Based Compensation," the Company's net loss would have increased for the year
ended December 31, 2001 as presented in the table below. Using the Black-Scholes
Option Pricing Model, the Company's pro forma net loss and pro forma net loss
per share are as follows:
Pro Forma Net Loss $1,344,341
Pro Forma Net Loss Per Share ($.04)
Risk Free Interest Rate 6.16%
Expected Lives 5 years
Expected Volatility 258%
|
For purposed of these pro forma disclosures, the estimated fair value of the
options granted is amortized to expense over the options' vesting period.
The following table summarizes the transactions of the Company's stock options
for the two-year period ended December 31, 2002:
Number of Shares Weighted Average
Exercise Price
---------------- ------------------
Options outstanding, December 31, 2000 -- $ --
Options granted 2,010,891 0.314
Options exercised -- --
Options forfeited -- --
--------------------------------------------------------------------------------
Options outstanding, December 31, 2001 2,010,891 0.314
Options granted 600,000 0.020
Options exercised -- --
Options forfeited (1,405,743) 0.374
--------------------------------------------------------------------------------
Options outstanding, December 31, 2002 1,205,148 $ 0.098
|
Options to purchase 655,297 and 852,709 shares were exercisable at December 31,
2001 and 2002, respectively.
F-16
TARGITINTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13: OTHER COMMON STOCK TRANSACTIONS
On July 27, 2001, the Company issued 1,275,000 shares of common stock for
investment banking services. The market price of the common stock was $.60 per
share. The common stock cannot be sold for a 12-month period from the date of
issuance and after that can only be sold in accordance with Rule 144 or other
applicable exemption. Due to these restrictions, the Company discounted the fair
value by 25%. The Company recorded $573,750 of expense during the year 2001.
July 27, 2001, the Company issued 200,000 shares of common stock to a related
party for the conversion of a $60,464 note payable and related interest.
August 9, 2001, the Company affected a thirty-for-one stock split. This stock
split has been retroactively reflected in the consolidated financial statements
and disclosures for all periods presented.
In October 2001, the Company authorized the issuance of 50,000 shares of common
stock to the landlord of the New Hampshire facility for a reduction in the
monthly lease payment for the term of the existing lease which expired on
December 31, 2002 and through the term of a new lease. The market price of the
common stock was $.30 per share. The common stock cannot be sold for a 12-month
period from the date of issuance and after that can only be sold in accordance
with Rule 144 or other applicable exemption. Due to these restrictions, the
Company discounted the fair value by 25%. The Company recorded $11,250 in
prepaid expense at December 31, 2001. In December 2002, the facility was sold.
The Company settled with the old landlord without the issuance of stock.
From June 2001 through September 2002, the Company rented an office in Deerfield
Beach, Florida on a month-to-month basis from Taurus Investment Group (an entity
controlled by two of the Company's controlling shareholders) for $300 per month.
Taurus, the landlord, agreed to accept stock of the Company in lieu of rent
starting in June 2001. The total shares issued during 2001 were 4,781. A total
of 36,853 shares were issued to Taurus during year ended December 31, 2002. The
rental expense was determined on a monthly basis based on the market value of
the common stock at the first of the month. The market price of the common stock
for the rental period during 2001 was between $.30 and $3.60 per share. The
market price of the common stock for the rental period during 2002 was between
$.04 and $.35 per share. The common stock cannot be sold for a 12-month period
from the date of issuance and after that can only be sold in accordance with
Rule 144 or other applicable exemption. Due to these restrictions, the Company
discounted the fair value by 25%. The Company recorded $2,100 of expense during
the year ended December 31, 2001 and $3,980 of expense during the year ended
December 31, 2002.
In December 2001, the Company sold 499,900 shares of common stock to current
shareholders for $124,975. $31,250 of the proceeds from the sale where received
in January 2002, and therefore are reflected as subscription receivable at
December 31, 2001.
On December 10, 2001, the outside directors of the Company were issued a total
of 30,000 shares of common stock. The market price of the common stock at that
time was $.57 per share. The common stock cannot be sold for a 12-month period
from the date of issuance and after that can only be sold in accordance with
Rule 144 or other applicable exemption. Due to these restrictions, the Company
discounted the fair value by 25%. The Company recorded $12,825 of expense during
the year ended December 31, 2001.
F-17
TARGITINTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13: OTHER COMMON STOCK TRANSACTIONS (CONTINUED)
In February 2002, the Company sold 1,000,000 shares of common stock to certain
then-current shareholders for $125,000 at $0.125 per share. Additionally, the
Company received a $15,000 loan from a shareholder which was later converted
into 375,000 shares of common stock at $.04 per share in June 2002.
In June 2002, the Directors of the Company approved the issuance of 137,500
shares of common stock to certain of the then-current shareholders for services
provided to the Company. The Company recorded an expense based on the fair
market value of the shares issued at $ .04 per share and recorded $5,500 in
general and administrative expense in its statement of operations during the
year ended December 31, 2002.
In July 2002, the Company received $200,000 from an existing shareholder in
return for the issuance of 8,400,000 shares of common stock.
In August 2002, the Company issued a total of 30,000 shares of common stock to
the three outside directors of its Board of Directors (10,000 shares each) for
services rendered. Pursuant to the application of SFAS No. 123, in accounting
for the issuance of stock to employee and non-employee consultants, the Company
recorded an expense based on the fair market value of the shares issued at $0.12
per share and recorded $3,600 in general and administrative expenses in its
statement of operations during the year ended December 31, 2002.
NOTE 14: PRO FORMA INFORMATION
The following unaudited pro forma financial information reflects the results of
operations for the year ended December 31, 2001 as if the Global Technology
Marketing International, Inc. and Williams Software, Inc. acquisitions had
occurred at the beginning of the respective period presented, and after giving
effect to purchase accounting adjustments. This unaudited pro forma information
is presented for illustrative purposes only and is not necessarily indicative of
the results of operations in future periods or results that would have been
achieved had the Company, Global Technology Marketing International, Inc. and
Williams Software, Inc. been combined during the specified periods.
Year Ended
December 31, 2001
Net revenues $ 4,712,611
Net loss $(5,192,500)
Net loss per share $ (.45)
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F-18
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