UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
Amendment 1
(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, 2002
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, 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.)
3010 North Military Trail, Suite 300, Boca Raton, FL 33431
(Address of principal executive offices)
(561) 981-1000
(Issuer's telephone number)
(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, 2002:
23,859,904 - shares of Common Stock $0.01 par value
Transitional Small Business Disclosure Format (Check one): Yes [X]; No [ ]
INDEX
VFINANCE, INC.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Consolidated Balance Sheets - December 31, 2001
and September, 2002 (Unaudited) 4
Consolidated Statements of Operations for the
three and nine months ended September 30, 2001
and 2002 (Unaudited) 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2001 and
2002 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-15
Item 3. Controls and Procedures 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
2
FORWARD-LOOKING STATEMENTS
The following information provides cautionary statements under the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 (the Reform
Act). The Company identified important factors that could cause our actual
results to differ materially from those projected in forward-looking statements
the Company makes in this report or in other documents that reference this
report. All statements that express, or involve discussions as to, expectations,
beliefs, plans, objectives, assumptions or future events or performance (often,
but not always, identified through the use of words or phrases such as the
Company or our management believes, expects, anticipates, hopes, words or
phrases such as will result, are expected to, will continue, is anticipated,
estimated, projection and outlook, and words of similar import) are not
statements of historical facts and may be forward-looking. These forward-looking
statements are based largely on our expectations and are subject to a number of
risks and uncertainties including, but not limited to, economic, competitive,
regulatory, growth strategies, available financing and other factors discussed
elsewhere in this report and in the documents filed by us with the Securities
and Exchange Commission ("SEC"). Many of these factors are beyond our control.
Actual results could differ materially from the forward-looking statements the
Company makes in this report or in other documents that reference this report.
In light of these risks and uncertainties, there can be no assurance that the
results anticipated in the forward-looking information contained in this report
or other documents that reference this report will, in fact, occur.
These forward-looking statements involve estimates, assumptions and
uncertainties, and, accordingly, actual results could differ materially from
those expressed in the forward-looking statements. These uncertainties include,
among others, the following: (i), the inability of our broker-dealer operations
to operate profitably in the face of intense competition from larger full
service and discount brokers; (ii) a general decrease in merger and acquisition
activities and our potential inability to receive success fees as a result of
transactions not being completed; (iii) increased competition from business
development portals; (iv) technological changes; (v) our potential inability to
implement our growth strategy through acquisitions or joint ventures; and (vi)
our potential inability to secure additional debt or equity financing.
Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertake no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for our
management to predict all of such factors, nor can our management asses the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
3
vFINANCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AUDITED) (UNAUDITED)
December 31, 2001 September 30, 2002
------------------------------------------------
Assets:
Cash and cash equivalents $ 2,397,900 $ 2,233,465
Restricted cash 203,106 201,722
Due from clearing broker 16,796 35,532
Investments in trading securities 1,077,815 1,156,946
Accounts receivable, net of allowance for doubtful
accounts of $63,528 and $395,993, respectively 93,719 259,768
Forgivable loans - employees, current portion 307,452 231,452
Notes receivable - employees, net of allowance for
doubtful accounts of $60,550 and $0, respectively 107,600 112,673
Prepaid expenses and other current assets 133,085 79,827
-------------------- -------------------
Total current assets 4,337,473 4,311,385
Furniture and equipment, at cost:
Furniture and equipment 940,537 385,546
Internal use software 146,835 158,500
-------------------- -------------------
1,087,372 544,046
Less accumulated depreciation (403,970) (270,691)
-------------------- -------------------
Net furniture and equipment 683,402 273,355
Forgivable loans - employees 577,760 419,698
Goodwill 420,000 420,000
Other assets 387,177 153,856
-------------------- -------------------
Total Assets $ 6,405,812 $ 5,578,294
==================== ===================
Liabilities and Shareholders' Equity:
Accounts payable $ 1,093,662 $ 623,639
Accounts payable - employees 66,407 36,329
Accrued liabilities 2,319,510 2,118,417
Securities sold, not yet purchased 53,981 142,346
Lines of credit 297,656 -
Subordinated promissory notes 650,000 -
Notes payable, net of discount 750,429 174,154
Capital lease obligations, current portion 12,627 -
Other - 8,441
-------------------- -------------------
Total current liabilities 5,244,272 3,103,326
Letter of credit and promissory note 268,500 -
Capital lease obligations 56,641 -
Notes payable - long term - 1,500,000
Series A Convertible Preferred Stock,
$0.01 par value; 122,500 shares authorized;
122,500 shares issued and outstanding
(liquidation preference of $1,556,050 at
December 31, 2001) 1,225 1,225
Series B Convertible Preferred stock,
$0.01 par value; 50,000 shares authorized;
50,000 issued and outstanding
(liquidation preference of $46,450 at December 31, 2001) 500 500
Common stock, $0.01 par value, 75,000,000 shares
authorized; 25,964,395 and 27,071,415 shares issued,
and 22,952,885 and 23,859,904 outstanding, respectively 259,644 270,714
Additional paid-in-capital on preferred stock 1,565,775 1,438,900
Additional paid-in-capital on common stock 22,515,699 24,912,888
Deferred compensation (82,657) (111,997)
Accumulated deficit (21,254,359) (23,365,834)
-------------------- -------------------
3,005,827 3,146,396
Less treasury stock (2,169,428) (2,171,428)
-------------------- -------------------
Total Shareholders' Equity 836,399 974,968
-------------------- -------------------
Total Liabilities and Shareholders' Equity $ 6,405,812 $ 5,578,294
==================== ===================
See accompanying notes.
4
vFINANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30 Nine Months Ended September 30
-------------------------------------- ------------------------------------
2001 2002 2001 2002
----------------- ------------------ ------------------ -------------
Revenues:
Commissions - agency $ 1,084,051 $ 2,238,778 $ 4,478,526 $ 6,989,164
Commissions - principal 1,332,681 1,074,125 3,931,802 2,876,268
Success fees 245,750 775,864 2,185,085 2,835,590
Consulting and retainers 144,500 487,665 580,706 1,244,761
Other brokerage related income 124,540 169,377 428,255 458,920
Other 64,933 117,417 300,628 307,361
----------------- ------------------ ------------------ -------------
Total revenues 2,996,455 4,863,226 11,905,002 14,712,064
----------------- ------------------ ------------------ -------------
Cost of revenues:
Commissions 1,326,702 1,769,000 5,018,421 5,574,434
Clearing and transaction costs 253,088 153,912 1,491,129 626,325
Success 134,358 551,732 786,334 1,686,709
Consulting and retainers - 118,163 46,000 205,028
Other 12,145 8,620 39,355 27,327
----------------- ------------------ ------------------ -------------
Total cost of revenues 1,726,293 2,601,427 7,381,239 8,119,823
----------------- ------------------ ------------------ -------------
Gross profit 1,270,162 2,261,799 4,523,763 6,592,241
----------------- ------------------ ------------------ -------------
Other expenses:
General and administrative 2,327,820 1,915,181 6,683,405 6,720,167
Net loss (gain) on trading securities 48,510 (13,617) 132,918 (27,264)
Professional fees 131,030 151,909 709,879 719,107
Provision for bad debts 110,198 59,520 233,913 295,728
Net unrealized loss (gain) on investments held
for trading and stock purchase warrants 273,688 (105,973) 1,423,336 150,051
Depreciation and amortization 222,188 27,472 683,708 175,485
Amounts forgiven under forgivable loans 89,613 66,875 449,181 211,063
Stock based compensation expense 15,000 33,840 104,500 33,840
----------------- ------------------ ------------------ -------------
Total other expenses 3,218,047 2,135,207 10,420,840 8,278,177
----------------- ------------------ ------------------ -------------
Income (loss) from operations (1,947,885) 126,592 (5,897,077) (1,685,936)
Loss on sale of property - - (16,180) -
Interest and dividend income (expense) (10,668) (72,491) 194,261 (281,063)
----------------- ------------------ ------------------ -------------
Pre-Tax Net Income (loss) (1,958,553) 54,101 (5,718,996) (1,966,999)
Federal Income Taxes - - - 144,476
----------------- ------------------ ------------------ -------------
Net Income (loss) (1,958,553) 54,101 (5,718,996) (2,111,475)
Less: Preferred stock dividend 30,625 48,125 91,875 126,875
----------------- ------------------ ------------------ -------------
Income (loss) available to common stockholders $ (1,989,178) $ 5,976 $ (5,810,871) $ (2,238,350)
================= ================== ================== =============
Income (loss) per share:
Basic ($0.10) $0.00 ($0.30) ($0.10)
================= ================== ================== =============
Weighted average number of common
shares used in computing basic income (loss)
per share 19,758,380 23,372,019 19,474,872 23,417,252
================= ================== ================== =============
Diluted ($0.10) $0.00 ($0.30) ($0.10)
================= ================== ================== =============
Weighted average number of common
shares used in computing diluted income (loss)
per share 19,758,380 23,372,019 19,474,872 23,417,252
================= ================== ================== =============
See accompanying notes.
5
vFINANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
--------------------------------------------------
2001 2002
------------------------ -----------------------
OPERATING ACTIVITIES:
Net loss $ (5,718,996) $ (2,111,475)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash fees received - (926,187)
Depreciation and amortization 683,708 175,485
Provision for doubtful accounts 233,913 288,565
Non-cash Compensation - 488,245
Income tax receivable write off - 139,513
Accretion of debt discount - 174,154
Unrealized loss (gain) on investments, net 1,385,836 153,085
Unrealized loss (gain) on stock purchase warrants 37,500 (3,034)
Loss (gain) on sale of investments, net 132,918 (27,265)
Proceeds from sale of investments - 269,590
Amount forgiven under forgiveable loan 449,181 211,063
Compensation expense in connection with forgivable loans 400,173 -
Repayment of notes receivable, employees 92,445 -
Stock based compensation 104,500 33,840
Loss on sale of equipment 16,180 -
Changes in operating assets and liabilities, net of businesses acquired:
Accounts receivable (58,575) (404,614)
Forgivable Loans 75,322 23,000
Due from clearing broker (8,549) (18,736)
Notes receivable from employees (25,000) (5,073)
Investments in trading securities (74,324) (53,236)
Other current assets (73,093) 54,642
Other assets and liabilities (204,269) 24,819
Accounts payable and accrued liabilities (500,165) (140,663)
Securities, sold not yet purchased (17,339) 88,365
------------------------ -----------------------
Net cash used in operating activities (3,068,634) (1,565,917)
INVESTING ACTIVITIES:
Purchase of equipment (211,646) (93,803)
Proceeds from sale of equipment 11,500 -
Purchase of businesses (1,433,954) -
Disposal of businesses cash effect - 1,659
------------------------ -----------------------
Net cash used in investing activities (1,634,100) (92,144)
FINANCING ACTIVITIES:
Proceeds from credit agreement 200,000 1,500,000
Proceeds from issuance of common stock related to private placement,
net of cash and stock issuance costs - 123,750
Increase in line of credit 63,504 -
Payment of capital lease obligtions (25,937) (29,749)
Payment of debt (66,790) (100,375)
Purchase of treasury stock (10,392) -
Repayment of shareholder's equity (50,000) -
------------------------ -----------------------
Net cash provided by financing activities 110,385 1,493,626
(Decrease) increase in cash and cash equivalents (4,592,349) (164,435)
Cash and cash equivalents at beginning of year 5,454,071 2,397,900
------------------------ -----------------------
Cash and cash equivalents at end of period $ 861,722 $ 2,233,465
======================== =======================
See accompanying notes.
6
vFinance, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2002
(Unaudited)
1. DESCRIPTION OF BUSINESS
vFinance, Inc. (the "Company') is a "new-breed" financial services enterprise
committed to building a worldwide audience of individuals looking to create
wealth through their equity investments and businesses and the name change
reflects the broader scope of services. The Company principally operates in one
business segment, investment management services, consisting primarily of
financial services, including retail brokerage and investment banking.
The Company conducts its broker/dealer operations and investment banking and
consulting through vFinance Investments, Inc, a full service registered broker
dealer. It also operates its vFinance.com website through vFinance Holdings,
Inc. manages Critical Infrastructure Fund (BVI) LP through vFinance Advisors,
LLC and vFinance Investors, LLC and processes financial plans, insurance and
mortgage brokerage through vFinance Financial Planning Services, Inc.
2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
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. Certain amounts for the prior year financial statements have been
reclassified to conform to the current year presentation.
Revenue Recognition
The Company earns revenue (commissions) from brokerage and trading which are
recognized on the day of the trade - trade date basis. The Company also earns
revenue from investment banking and consulting. Monthly retainer fees for
investment banking and consulting are recognized as services are provided.
Investment banking success fees are generally based on a percentage of the total
value of a transaction and are recognized upon successful completion.
The Company does not require collateral from its customers. Revenues are not
concentrated in any particular region of the country or with any individual or
group.
The Company periodically receives equity instruments and stock purchase warrants
from companies as part of its compensation for investment-banking services that
are classified as investments in trading securities on the balance sheet, if
still held at the financial reporting date. Primarily all of the equity
instruments are received from small public companies. Generally, such stock
purchase warrants are considered derivatives. The Company adopted Financial
Accounting Standards Board Statement No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, ("SFAS No. 133") on January 1, 2000. The
Company recognizes revenue for such stock purchase warrants when received based
on the Black Scholes valuation model. On a monthly basis the Company recognizes
unrealized gains or losses in the statement of operations based on the changes
in value in the stock purchase warrants as determined by the Black Scholes
valuation model.
Occasionally, the Company receives equity instruments in private companies with
no readily available market value. Equity interests and warrants for which there
is not a public market are valued based on factors such as significant equity
financing by sophisticated, unrelated new investors, history of positive cash
flow from operations, the market value of comparable publicly traded companies
(discounted for liquidity) 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.
7
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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 maturities
of three months or less when purchased.
Investments
Investments are classified as trading securities and are held for resale in
anticipation of short-term market movements or until such securities are
registered or are otherwise unrestricted. Trading account assets, consisting of
marketable equity securities and stock purchase warrants, are stated at fair
value. Investments consist of common and preferred stock and stock purchase
warrants held for resale. Realized gains or losses are recognized in the
statement of operations when the related stock purchase warrant is exercised and
the underlying shares are sold. Unrealized gains or losses are recognized in the
statement of operations on a monthly basis based on changes in the fair value of
the security as quoted on national or inter-dealer stock exchanges.
New Accounting Standards
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS
("FAS 142"). Under the provisions of FAS 142, goodwill and indefinite lived
intangible assets are no longer amortized, but are reviewed annually for
impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. The
Company adopted the new accounting rules beginning January 1, 2002. Management
is currently assessing the financial impact FAS 142 will have on the
consolidated financial statements, but does not believe it will be material
because the Company wrote off most of the goodwill at December 31, 2001.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS ("FAS 144"), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, and the accounting and reporting provisions
of APB 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 ("APB 30"). The Company adopted
the new accounting rules beginning January 1, 2002. Management is currently
assessing the financial impact FAS 144 will have on the consolidated financial
statements, but does not believe it will be material because the Company wrote
off most goodwill at December 31, 2001.
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 employee 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 or stock purchase
warrants equals or exceeds the market price of the underlying stock on the date
of grant no compensation expense is recognized.
8
Fair Value of Financial Instruments
The fair values of the Company's financial instruments, which includes cash and
cash equivalents, accounts receivable, investments, accounts payable, and
accrued expenses 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 insured financial institutions.
Goodwill
The carrying values of goodwill as well as other long-lived assets will be
tested annually under FAS 142. If this review indicates that the assets will not
in part or fully be recoverable, as determined based on the undiscounted
estimated cash flows of the Company, the Company's carrying values of the assets
would be reduced to their estimated fair values in accordance with FAS 144.
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.
Earnings per Share
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE ("SFAS No. 128"). In
accordance with SFAS No. 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.
3. IMPAIRMENT OF GOODWILL
Management determined that, as of December 31, 2001, a write-down of the
goodwill related to the NW Holdings acquisition was necessary as the Company's
projections of the future operating results indicated impairment. Based on such
projections and other analysis the Company took an impairment charge aggregating
$876,000 related to NWH goodwill. Goodwill remaining as of September 30, 2002
and December 31, 2001 totaled $420,000.
4. INCOME TAXES
Deferred income taxes reflect the net income tax effect of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting purposes and amounts used for income taxes.
5. SHAREHOLDER'S EQUITY
On November 28, 2001, the Company entered into a Note Purchase Agreement, as
amended by subsequent letter agreements dated November 30, 2001, December 14,
2001, and December 28, 2001, February 13, 2002 and March 4, 2002 (collectively,
the "Note Purchase Agreement"), with SBI Investments (USA) Inc. ("SBI"). Under
the terms of the Note Purchase Agreement, SBI may provide a subordinated loan to
the Company of up to $1,500,000 in the form of a 48-month non-interest bearing,
convertible note (the "Note"). As of December 31, 2001, the Company had received
$975,000 under the Note Purchase Agreement. The Note is convertible, at SBI's
option, into as many as 3,421,053 shares of the Company's common stock at $0.285
per share. The Company, at any time during the first three years of the
agreement, can call for redemption of the Note at a price equal to 116.67% of
the then outstanding principal amount of the Note, in whole (but not in part),
or force the conversion of the Note into shares of the Company's common stock.
9
In July 2002, certain SBI Note holders converted $177,500 of principal into
622,807 shares of common stock of the Company. The Company reflected an
adjustment to its par value of Common Stock of $6,228 and reduced its note
payable and unamortized beneficial conversion/imputed interest amount by
$177,500
In accordance with EITF Issue No. 00-27, APPLICATION OF ISSUE NO. 98-5 and APB
21, the Company recorded a beneficial conversion feature and an imputed interest
factor related to the Note of $975,000 which is measured as the difference
between the effective conversion price of the debt and the fair value into which
the Note is convertible. The principal balance of this Note was discounted with
a corresponding increase in additional paid-in capital by such amount. The debt
discount and imputed interest will be accreted ratably over the term of the loan
as additional interest expense. The above conversion reduced the monthly
amortization by $4,329 to $15,983.
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, 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,
2002 is as follows:
Weighted Average Exercise Price
Exercise Price Number of Shares Per Option
---------------- ----------------- --------------
Outstanding options at December 31, 2001 $0.98 9,687,050 $0.35 - $6.00
Granted $0.42 3,652,117 $0.35 - $2.25
Canceled $1.37 3,054,351 -
----- ----------
Outstanding options at September 30, 2002 $0.64 10,284,816 $0.35 - $6.00
----- ---------- -------------
A summary of the stock purchase warrant activity for the nine months ended
September 30, 2002 is as follows:
Weighted Average
Exercise Price Number of Warrants Exercise Price
Per Option
Outstanding warrants at December 31, 2001 $2.73 3,108,499 $0.35 - $7.20
Granted $0.35 1,000,000 $0.35
Canceled - - -
-
Outstanding options at September 30, 2002 $2.15 4,108,499 $0.35 - $7.20
----- --------- -------------
The following table summarizes information concerning stock options outstanding
at September 30, 2002.
Option Options
Price Outstanding
----- -----------
0.32 1,966,000
0.35 3,378,427
0.50 100,000
0.55 69,000
0.63 3,215,000
0.62 200,000
1.00 720,000
2.25 332,389
0.70 39,000
3.25 100,000
4.00 10,000
4.13 20,000
4.25 75,000
5.00 50,000
6.00 10,000
------
10,284,816
10
The following table summarizes information concerning warrants outstanding at
September 30, 2002.
Exercise Warrants
Price Outstanding
0.35 1,993,500
0.63 400,000
2.25 585,000
2.50 300,000
6.00 129,999
7.20 700,000
---- -------
4,108,499
Pro forma information regarding net loss is required by SFAS 123, which also
requires that the information be determined as if the Company has accounted for
its employee stock options under the fair value method. The fair value for
options and warrants granted was estimated at the date of grant using the Black
Scholes option pricing model with the following weighted-average assumptions:
for 2002 risk-free interest rates of 4.765%; no dividend yields; volatility
factor of the expected market price of the Company's common stock of 1.610 for
options and warrants and an expected life of the options and warrants of 4-5
years; The Company's pro forma net loss for the period ended September 30, 2002
was $2,331,614. The Company's pro forma basic and diluted net loss income per
share for the period ended September 30, 2002 was $0.10. The impact of the
Company's pro-forma net loss and loss per share of the SFAS 123 pro forma
requirements are not likely to be representative of future pro forma results.
6. DEBT
On January 25, 2002, the Company entered into a Credit Agreement with UBS
Americas, Inc. ("UBS"). Under the terms of the Credit Agreement, UBS provided a
revolving credit facility of up to $3,000,000 to the Company for the purpose of
supporting the expansion of its brokerage business or investments in
infrastructure to expand its operations or its broker-dealer operations. The
Company borrowed $1,500,000 under the credit facility on January 28, 2002. The
Credit Agreement does not provide for conversion of the debt into equity
securities. The loan has a term of 4 years, must be repaid in full by January
2005, and bears interest at one month LIBOR plus a LIBOR margin of 2% if the
loan is repaid within a month or 5% if it is outstanding more than a month.
Among other covenants, Section 5.10 of the Credit Agreement requires the Company
to maintain shareholder's equity of at least $7,000,000. On April 12, 2002 UBS
waived this requirement of the Credit Agreement to the extent necessary to
exclude the Company's write-off of goodwill aggregating $8,852,020 included in
the Company's consolidated financial statements for the year ended December 31,
2001.
The Company must make early repayments under the Credit Agreement if there is an
increase in the number of clearing transactions through UBS attributable to: an
acquisition of a broker dealer firm, a new line of business, or the hiring of
more than 4 brokers in a single or related transaction. All determinations as to
required early repayment shall be made by UBS, in its reasonable judgment. To
date, UBS has not notified the Company of any such determination.
11
7. ACQUISITIONS
On May 29, 2002, the Company entered into a select asset purchase agreement (the
"Agreement"), which was subsequently amended on June 17, 2002 (the "Amendment"),
with Somerset Financial Partners, Inc., ("Somerset") a Delaware corporation to
acquire certain of its assets. Through its subsidiaries, Somerset acted as a
registered broker dealer and was engaged in other financial services including
financial planning, insurance and mortgage brokerage. Pursuant to the Agreement
and Amendment, effective June 17, 2002 the Company received the transfer of all
agreed upon brokerage customers and client accounts as well as the registration
of approximately 25 registered personnel of Somerset. Furthermore, as of such
date, the Company began reflecting in its financial statements the applicable
revenue production and other associated costs. Under the escrow agreement signed
in conjunction with the Agreement and Amendment, the Company instructed its
transfer agent to deliver to and in the name of its escrow agent a total of
3,000,000 shares of the Company's Common Stock (the "Escrowed Shares"). The
Escrowed Shares will only be delivered to Somerset when Somerset achieves all
the closing conditions. In August 2002, as all closing conditions of the
Agreement and Amendment were not met as of the Amended Closing Date, the Company
issued a default letter to Somerset (the "Default Letter"). Among other things,
the Default Letter provided formal notice to Somerset of its default under the
Agreement and Amendment. As of September 30, 2002, the Escrowed Shares have not
been reflected as outstanding in the Company's financial statements or
footnotes. In October 2002, a formal termination notice was executed by the
Company and Somerset.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 2002
STATEMENTS OF OPERATIONS
Operating revenues were $11,905,002 for the nine months ended September 30, 2001
as compared to $14,712,064 for the nine months ended September 30, 2002, an
increase of $2,807,062 or 23.6%. The primary reason for the increase was an
increase in agency brokerage commission and investment banking revenues.
Cost of revenues were $7,381,239 for the nine months ended September 30, 2001 as
compared to $8,119,823 for the nine months ended September 30, 2002, an increase
of $738,584 or 10%. The increase was primarily due to an increase in revenue
which was offset by costs savings associated with the consolidation of the
Company's three broker dealers into a single entity and its related clearing
arrangement. As a consequence, gross profit was $4,523,763 for the nine months
ended September 30, 2001 as compared to $6,592,241 for the nine months ended
September 30, 2002, an increase of $2,068,478 or 45.7%. Gross margin percentage
was 38% for the nine months ended September 30, 2001 as compared to 44.8% for
the nine months ended September 30, 2002.
General and administrative expenses were $6,683,405 for the nine months ended
September 30, 2001 as compared to $6,720,167 for the nine months ended September
30, 2002, an increase of $36,762 or 0.6%.
Net loss (gain) on trading securities was $132,918 for the nine months ended
September 30, 2001 as compared to $(27,264) for the nine months ended September
30, 2002, an increase in net of $160,182. The change was due primarily to the
sale of certain securities at prices higher than the fair value reflected in
prior periods.
Professional fees were $709,879 for the nine months ended September 30, 2001 as
compared to $719,107 for the nine months ended September 30, 2002, a decrease of
$9,228 or 1.3%.
The provision for bad debt was $233,913 for the nine months ended September 30,
2001 as compared to $295,728 for the nine months ended September 30, 2002, an
increase of $61,815 or 26.4%. The Company provides for credit losses at the time
it believes accounts receivable may not be collectible. Such evaluations are
made and recorded on a monthly basis. Credit losses have not exceeded
management's expectations. The increase is primarily due to the write-off of
certain investment banking receivables relating to the Company's west coast
operations which has currently been closed down. The net receivable balance as
of September 30, 2002 was $259,768.
The net unrealized loss (gain) on investments held for trading and stock
purchase warrants was $1,423,336 for the nine months ended September 30, 2001,
as compared to $150,051 for the nine months ended September 30, 2002. The
increase in value was primarily due to an increase in the market value of
investments held by the Company in conjunction with equity instruments received
from various investment banking clients.
Depreciation and amortization was $683,708 for the nine months ended September
30, 2001 as compared to $175,485 for the nine months ended September 30, 2002, a
decrease of $508,223 or 74.3%. The decrease was primarily because the Company
has adopted FAS 144 that prohibits amortization of goodwill related to
acquisitions and the write off of $8,852,020 in goodwill for the year ending
December 31, 2001.
The amount forgiven under forgivable loans was $449,181 for the nine months
ended September 30, 2001 as compared to $211,063 for the nine months ended
September 30, 2002. The decrease was due to policy changes by the Company
concerning the granting of such loans and a decrease in writes offs of such
loans.
13
Total other expenses were $10,420,840 for the nine months ended September 30,
2001 as compared to $8,278,177 the nine months ended September 30, 2002, a
decrease of $2,142,663 or 20.6%. As a consequence the loss from operations was
$5,897,077 for the nine months ended September 30, 2001 as compared to
$1,685,936 for the nine months ended September 30, 2002 a decrease of $4,211,141
or 71.4%.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $2,233,465 of unrestricted cash at September 30, 2002.
Net cash used in operating activities for the nine months ending September 30,
2001 was $3,068,634 as opposed to net cash used in operating activities of
$1,565,917 for the nine months ended September 30, 2001. The decrease in net
cash used in operating activities was primarily due to a decrease in the net
loss from $5,718,996 for the nine months ending September 30, 2001 to $2,111,475
for the nine months ended September 30, 2002 offset by and increase in non-cash
fees received of $926,187.
Net cash used in investing activities for the nine months ending September 30,
2001, was $1,634,100 as opposed to net cash used in investing activities of
$92,144 for the nine months ended September 30, 2002. The primary reason for the
decrease in net cash used in investing activities was that the Company made no
acquisitions in the nine months ending September 30, 2002 and decreased
purchases of equipment from $211,646 for the nine months ending September 30,
2001 to $93,803 for the nine months ending June 30, 2002.
Net cash provided by financing activities for the nine months ending September
30, 2001 was $110,385 as opposed to net cash provided by financing activities of
$1,493,626 for the nine months ended September 30, 2002. The primary reason for
the increase in net cash provided by financing activities was that the Company
entered into the agreement described above in footnote 6. Debt with UBS Paine
Webber on January 25, 2002.
The Company anticipates 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 over
the course of the next fiscal year.
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.
CRITICAL ACCOUNTING POLICIES
The Company has identified the policies outlined below as critical to our
business operations and an understanding of our results of operations. The
listing is not intended to be a comprehensive list of all of our accounting
policies. In many cases, the accounting treatment of a particular transaction is
specifically dictated by accounting principles generally accepted in the United
States, with no need for management's judgment in their application. The impact
and any associated risks related to these policies on our business operations is
discussed throughout the Management's Discussion and Analysis of Financial
Condition and Results of Operations where such policies affect our reported and
expected financial results. For a detailed discussion on the application of
these and other accounting policies, see the Notes to the Consolidated Financial
Statements. Note that our preparation of the financial statements requires us to
make estimates and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of our
financial statements, and the reported amounts of revenue and expenses during
the reporting period. There can be no assurance that actual results will not
differ from those estimates.
14
Revenue Recognition
The Company earns revenue from brokerage and trading which are recognized on the
day of the trade. The Company also earns revenue from investment banking and
consulting. Monthly retainer fees for investment banking and consulting are
recognized as earned. Investment banking success fees are generally based on a
percentage of the total value of a transaction and are recognized upon
successful completion. The Company does not require collateral from our
customers. The Company periodically receives equity instruments and stock
purchase warrants from companies as part of its compensation for
investment-banking services that are classified as investments in trading
securities on the balance sheet if still held at the financial reporting date.
Primarily all of the equity instruments are received from small public
companies. These stock purchase warrants are considered derivatives. The Company
adopted Financial Accounting Standards Board Statement No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, ("SFAS No. 133") on January 1,
2000. The Company recognizes revenue for these stock purchase warrants when
received based on the Black Scholes valuation model. On a monthly basis, the
Company recognizes unrealized gains or losses in the statement of operations
based on the changes in value of the stock purchase warrants as determined by
the Black Scholes valuation model. Realized gains or losses are recognized in
the statement of operations when the related stock purchase warrant is exercised
and sold. Occasionally, we receive equity instruments in private companies with
no readily available market value. Equity interests and warrants for which there
is not a public market are valued based on factors such as significant equity
financing by sophisticated, unrelated new investors, history of positive cash
flow from operations, the market value of comparable publicly traded companies
(discounted for liquidity) 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. Certain transactions in process
may result in us receiving equity instruments or stock purchase warrants in
subsequent periods as discussed above. In this event, we will recognize revenue
related to the receipt of such equity instruments consistent with the
aforementioned policies. In addition, we would also record compensation expense
at fair value related to the distribution of some or all of such equity
instruments to employees or independent contractors involved with the related
transaction.
Investments
Investments are classified as trading securities and are held for resale in
anticipation of short-term market movements or until such securities are
registered or are otherwise unrestricted. Trading account assets, consisting of
marketable equity securities and stock purchase warrants, are stated at fair
value. Realized gains or losses are recognized in the statement of operations
when the related stock purchase warrant is exercised and the underlying shares
are sold. Unrealized gains or losses are recognized in the statement of
operations on a monthly basis based on changes in the fair value of the security
as quoted on national or inter-dealer stock exchanges.
New Accounting Standards
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.'s 141, BUSINESS COMBINATIONS ("FAS 141") and
142, GOODWILL AND OTHER INTANGIBLE ASSETS ("FAS 142"). The provisions of FAS 141
eliminated the pooling-of-interests method of accounting for business
combinations consummated after June 30, 2001. We adopted FAS 141 on July 1, 2001
and it did not have a significant impact on our financial position or results of
operations. Under the provisions of FAS 142, goodwill and indefinite lived
intangible assets are no longer amortized, but are reviewed annually for
impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. We are
required to adopt the new accounting rules beginning January 1, 2002. Management
is currently assessing the financial impact FAS 142 will have on the
consolidated financial statements, but they do not believe it will be material
because the Company wrote off most of its goodwill at December 31, 2001. In
August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS ("FAS 144"), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, and the accounting and reporting provisions
of APB Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS - REPORTING THE
EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS ("APB 30"). We are required to
adopt the new accounting rules beginning January 1, 2002. Management is
currently assessing the financial impact FAS 144 will have on the consolidated
financial statements, but they do not believe it will be material.
15
Item 3. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer (collectively,
the "Certifying Officers") are responsible for establishing and
maintaining disclosure controls and procedures for us. Such officers
have concluded (based upon their evaluation of these controls and
procedures as of a date within 90 days of the filing of this report)
that our disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in this report is
accumulated and communicated to management, including our principal
executive officers as appropriate, to allow timely decisions regarding
required disclosure.
The Certifying Officers also have indicated that there were no
significant changes in our internal controls or other factors that
could significantly affect such controls subsequent to the date of
their evaluation, and there were no corrective actions with regard to
significant deficiencies and material weaknesses.
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On April 4, 2002, Composite Industries of America ("CIA") filed a
complaint against the Company, Lenore Avenue LLC ("Lenore"), Navigator
Management Ltd. ("Navigator"), Burlington Street LLC ("Burlington"),
Southridge Capital Management, Union Atlantic Capital, L.C., Hyperion
Holdings, LLC, Steve Hicks, Christy Constable, Paul T. Mannion, Andrew
S. Reckles, Vincent S. Sbarra and other unidentified defendants
(collectively, "Defendants") in the United States District Court,
District of Nevada (Case No. CV-S-02-0482-PMP-RJJ). In its complaint,
CIA alleged that on or about April 5, 2001, CIA entered into an
agreement with Lenore and Navigator, pursuant to which CIA issued its
6% convertible debenture in the aggregate amount of $1 million to
Lenore and Navigator and, contrary to the terms of such purported
agreement, Lenore and Navigator sold, with the assistance of the other
Defendants, securities of CIA collateralizing CIA's obligations under
the debenture. CIA also alleged that on or about October 22, 2001, CIA
entered into an agreement with Lenore, Navigator and Burlington,
pursuant to which CIA issued its 6% convertible debenture in the
aggregate principal amount of $750,000 to Lenore, Navigator and
Burlington, and, contrary to the terms of the purported agreement,
Lenore, Navigator and Burlington sold, with the assistance of the other
Defendants, securities of CIA collateralizing CIA's obligations under
the debenture.
CIA sought general damages against the Defendants of $202,500,000,
punitive damages in an unspecified amount, treble damages, reasonable
attorneys' fees, court costs and such other relief as the court may
deem just and proper.
On or about October 24, 2002, the Company filed a Motion to Dismiss
CIA's complaint with the United States District Court, District of
Nevada. The Company's Motion to Dismiss was based on the following: (a)
the complaint did not state the basis for the court's subject matter
jurisdiction, (b) the complaint did not establish a basis for
subjecting the Company to in personam jurisdiction under Nevada's
long-arm statute, (c) the complaint failed to state a claim against the
Company for breach of contract because that it did not allege that the
Company was a party to the contracts referenced in the complaint, (d)
the complaint failed to state a claim against the Company for fraud in
the inducement and also failed to plead fraud with particularity, (e)
the complaint failed to state a claim against the Company for negligent
misrepresentation and also failed to plead negligent misrepresentation
with particularity, (f) the complaint failed to state a claim against
the Company for unjust enrichment, (g) the complaint failed to state a
claim against the Company for civil conspiracy, in that it did not
allege an underlying substantive wrong that was, in fact, committed
against CIA by the Company, and (h) the complaint failed to state a
claim against the Company for RICO because it did not allege the
essential elements of a RICO substantive or conspiracy claim under
Federal or Nevada law.
On October 31, 2002, CIA voluntarily dismissed its complaint against
the Company and all of the other Defendants without prejudice.
16
On or about May 17, 2001, Michael Golden ("Golden"), (a former
Director of the Company and former President of the Company's broker
dealer and the controlling shareholder of Colonial Direct Financial
("Colonial Direct"), a former wholly-owned subsidiary of the Company)
filed an initial complaint against the Company in the Circuit Court of
the 17th Judicial Circuit in and for Broward County, Florida, alleging
that the Company breached its January 5, 2001 employment agreement with
Golden, which was entered into as a result of the merger between
Colonial Direct and the Company. Mr. Golden claims that he terminated
the agreement for "good reason," as defined in the agreement, and that
we have failed to pay him severance payments and other benefits as well
as accrued commissions and un-reimbursed expenses. In the initial
complaint, Golden sought monetary damages from the Company in excess
of $50,000 together with interest, attorney's fees and costs. On or
about July 18, 2001, the Company filed its answer and affirmative
defenses and counterclaims with the Circuit Court against Golden and
Ben Lichtenberg ("Lichtenberg"), Golden's partner in Colonial Direct,
denying all material allegations in the complaint, affirmatively
alleging that Golden is not entitled to any severance payments because
he was terminated for cause for his insubordination, failure to follow
directives of our board of directors and for breaches of fiduciary
duty to the Company. The Company also alleged that both Golden and
Lichtenberg violated the merger agreement between Colonial Direct and
the Company by breaching certain of the representations and warranties
set forth in the merger agreement by, among other things, failing to
advise the Company of certain loan agreement defaults, improperly
withdrawing approximately $400,000 of capital from Colonial Direct,
failing to deliver a closing balance sheet and failing to disclose
significant liabilities of Colonial Direct. Claiming that the
activities of Golden and Lichtenberg constituted violations of
Florida's Securities Investor Protection Act, common law fraud, breach
of fiduciary duty, breach of contract, intentional interference with
advantageous business relationships, and breach of the implied
covenant of good faith and dealing, the Company is seeking
indemnification under the merger agreement and additional monetary
damages against Golden and Lichtenberg in excess of $15,000. In
response to the Company's answer, affirmative defenses and
counterclaims, on or about September 1, 2001, Golden filed an amended
complaint with the Court against the Company, Leonard Sokolow
("Sokolow"), our President and Chief Executive Officer, and Timothy
Mahoney ("Mahoney"), the Chairman of our board of directors. In the
amended complaint, Golden alleges that Sokolow and Mahoney made
various false representations that induced Golden to enter into the
merger agreement and his employment agreement. Golden is seeking
monetary damages from Sokolow, Mahoney and the Company in excess of
$4.6 million. Lichtenberg filed an answer, affirmative defenses and
counterclaims with the Court in response to the Company's filing with
the Court on July 13, 2001. In addition to denying all material
allegations in our July 13, 2001 counterclaims against him,
Lichtenberg alleges that: (a) the Company breached its employment
Agreement with him, (b) Sokolow and the company made various false
representations that induced Lichtenberg to enter into the merger
agreement and (c) the Company materially breached the Colonial Direct
merger agreement. Lichtenberg is seeking delivery from the Company of
414,825 shares of the Company's common stock and monetary damages of
at least $488,000 from Sokolow and the Company, jointly and severally.
As of October 23, 2002 the Company has settled its dispute with
Lichtenberg, and as of October 18, 2002 the Company entered into a
preliminary written settlement agreement with Golden subject to a
definitive Agreement. Under the terms of the settlement with
Lichtenberg, a full mutual general release and covenant not to sue was
entered into with no payments to or by the Company. Under the terms of
the preliminary settlement agreement with Golden, Golden and the
Company have agreed to enter into a full general release of any and
all outstanding obligations between Golden and the Company, and in
consideration the Company will redeem the 50,000 Shares of Series B
Preferred Stock Golden currently owns in exchange for 3,000,000
unregistered common shares of the Company subject to a one year
lock-up. In addition, Golden will receive from the Company $7,000 per
month for 12 months and thereafter $5,000 per month for approximately
34 months.
17
Item 2. CHANGES IN SECURITIES
During July 2002, the Company issued 50,000 shares of common stock to a
group that will be providing certain consulting services to the
Company. The shares were valued at $33,840. The issuance
of the Company's common stock was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended, because the
shares of common stock were acquired by sophisticated investors who had
access to all material information about the Company.
During the third quarter of 2002, the Company issued 622,807 shares of
common stock to persons as part of the conversion of $177,500 of
principal amount of the Notes described in footnote 5 to the condensed
consolidated financial statements included in this Report. The issuance
of the Company's common stock was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended, because the
shares of common stock were acquired by sophisticated investors who
had access to all material information about the Company.
During the third quarter of 2002, the Company granted stock options to
purchase an aggregate of 2,206,000 shares of the Company's common stock
to 21 employees of the Company. The exercise prices of these options
range from $.32 to $.625. The option grants were exempt from
registration pursuant to Section 4 (2) of the Securities Act of 1933,
as amended, because the individuals receiving the options are
sophisticated investors who have knowledge of all material information
about the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
10.1 Termination of Select Asset Purchase Agreement Among vFinance Investments,
Inc., Somerset Financial Partners, Inc., Somerset Financial Group, Inc.
Douglas Toth and Nicholas Thompson dated as of October 1, 2002.
(b) REPORTS ON FORM 8-K
On August 14, 2002, the Company filed a Form 8-K pursuant to Item 9 thereof in
order to disclose the submission to the Securities and Exchange Commission of
the written statements of the Company's Chief Executive Officer and Chief
Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
18
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Signature Title Date
By: /s/ Leonard J. Sokolow Chief Executive Officer and President November 14, 2002
----------------------
Leonard J. Sokolow (Principal Executive Officer)
By: /s/ William E. Schloth. Chief Financial Officer November 14, 2002
-----------------------
William E. Schloth (Principal Financial and Chief Accounting
Officer)
19
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of vFinance, Inc. on Form
10-QSB for the quarter ended September 30, 2002, as filed with the Securities
and Exchange Commission on the date hereof, I, Leonard J. Sokolow, the Chief
Executive Officer of the Company, certify, pursuant to and for purposes of 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, that:
1. I have reviewed this quarterly report on Form 10-QSB of vFinance,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order; to make the statements made, in light of the circumstances under which
such statements were made not, not misleading;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer 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 quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
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 weakness 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 officer and I have indicated in
this quarterly report whether or not 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: November 14, 2002 /s/ Leonard J. Sokolow
Name: Leonard J. Sokolow
Title: Chief Executive Officer
20
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of vFinance, Inc. on Form
10-QSB for the quarter ended September 30, 2002, as filed with the Securities
and Exchange Commission on the date hereof, I, William E. Schloth, the Chief
Financial Officer of the Company, certify, pursuant to and for purposes of 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, that:
1. I have reviewed this quarterly report on Form 10-QSB of vFinance,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order; to make the statements made, in light of the circumstances under which
such statements were made not, not misleading;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer 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 quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
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 weakness 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 officer and I have indicated in
this quarterly report whether or not 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: November 14, 2002 /s/ William E. Schloth
Name: William E. Schloth
Title: Chief Financial Officer
21