U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended: December 31, 2003
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 333-34144
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VERTICALBUYER, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 98-0216911
(State of Incorporation) (I.R.S. Employer Identification No.)
c/o Gottbetter & Partners, LLP 10022
488 Madison Avenue, 12th Floor
New York, New York
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (212) 400-6900
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Securities registered under Section 12(b) of the Act: None
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Securities registered under Section 12(g) of the Act: None
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Check whether the registrant (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 [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State registrant's revenues for its most recent fiscal year: $0.
As of July 23, 2004, there were 17,391,667 shares of the registrant's
common stock, par value $0.001 issued and outstanding. Of these, 15,232,076
shares are held by affiliates of the registrant. The market value of securities
held by non-affiliates is $10,160 based on the last price of $0.005 of the
registrant's common stock on July 23, 2004.
Transitional Small Business Disclosure Format (check one):
Yes [ ]; No [X]
Documents Incorporated By Reference: See Exhibit List
TABLE OF CONTENTS
Item Number and Caption Page
Forward-Looking Statements 3
PART I
Item 1. Description of Business 3
Item 2. Description of Property 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Items 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity 8
Securities
Item 6. Management's Discussion and Analysis or Plan of Operation 10
Item 7. Financial Statements 11
Item 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 12
Item 8A. Controls and Procedures 12
PART III
Item 9. Directors and Executive Officers of the Registrant 12
Item 10. Executive Compensation 13
Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 15
Item 12. Certain Relationships and Related Transactions 16
Item 13 Exhibits and Reports on Form 8-K 17
Item 14. Principal Accountant Fees and Services 18
2
FORWARD-LOOKING STATEMENTS
Except for historical information, this report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such forward-looking
statements involve risks and uncertainties, including, among other things,
statements regarding our business strategy, future revenues and anticipated
costs and expenses. Such forward-looking statements include, among others, those
statements including the words "expects," "anticipates," "intends," "believes"
and similar language. Our actual results may differ significantly from those
projected in the forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
in the section "Management's Discussion and Analysis or Plan of Operation." You
should carefully review the risks described in other documents we file from time
to time with the Securities and Exchange Commission. You are cautioned not to
place undue reliance on the forward-looking statements, which speak only as of
the date of this report. We undertake no obligation to publicly release any
revisions to the forward-looking statements or reflect events or circumstances
after the date of this document.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
VerticalBuyer, ("the Company") a Delaware corporation, was incorporated on
September 24, 1999, and on March 1, 2000 issued 14,250,000 shares of its common
stock to the shareholders of Lightseek Limited in exchange for all of the
outstanding common stock of Lightseek Limited. On February 15, 2001, Lightseek
Limited acquired all of the outstanding common stock of Litech Limited.
Lightseek was principally engaged in the development of Internet sites designed
to exploit Business-to-Business e-commerce opportunities within the global
commercial electrical and lighting markets. Litech was a specialist designer and
manufacturer of fiber optic lighting applications for the entertainment,
commercial and retail markets. In September 2001, the Company discontinued the
operations of both of its operating companies Lightseek Limited and Litech
Limited.
VerticalBuyer was seeking to specialize in the creation of Internet based
news sites dedicated to specific industries. Lightseek was our first website
developed for the commercial lighting industry. Subsequently, other lighting
sites were also tested, including an auction site for the global market.
Following a consolidation of these sites, we are evaluating how to re-launch
Lightseek.
Our Business
Websites
Our business-to-business website operations had specialized in the creation
of web-based news portals and marketplaces. We refer to this kind of website as
a vertical portal--a website dedicated to a specific industry for use by
companies in that particular industry to buy and sell products and services.
We may re-launch the first vertical portal we developed, which was for the
commercial lighting industry. The news portal, www.lightseek.com, was an
Internet database where buyers, such as electrical contractors, lighting
designers, or architects were able to search for product information from
suppliers of commercial lighting products. This website also provided instant
access to a comprehensive database on a wide variety of pertinent topics, such
as:
3
- News and analysis--this provided recent news of interest to the commercial
lighting industry;
- Lighting design commercial case studies--this provided access to
information on recent projects in creative lighting design; and
- Employment opportunities--this posted job opportunities in the commercial
lighting industry.
Our auction website for the commercial lighting industry was
www.lightingbuyer.com, which was an online marketplace for professional buyers
and sellers of commercial lighting equipment. This website brought together
businesses to buy and sell commercial lighting equipment in all major product
categories, using flexible, online transaction capabilities.
Lightseek
The site www.lightseek.com provided business-to-business online services
that facilitated the exchange of information within the global lighting
industry. This site was initially focused on providing news, articles, industry
forums, recruitment services and product information for the lighting industry.
Its revenues had been derived from advertising fees.
This site consisted of a buyers' guide containing contact information for:
- most UK lighting companies,
- shop fronts where advertisers could display information about their product
lines, contacts to their websites, and
- information where they could receive online inquiries from their
prospective buyers.
The site also contained a message forum where industry professionals could
exchange opinions and ask questions of their peers. It also contained an events
diary of industry expositions and conferences. The site www.lightseek.com
shifted its focus from the UK to international. The major change was featuring
international news, in particular, news from the United States, on the site. The
site was also accepting international buyers' guide listings. However, as of
September, 2001 all operations had ceased.
LightingBuyer
We facilitated the buying and selling of surplus stock for the lighting
industry through a website located at www.lightingbuyer.com. We may consider
re-launching this site to provide customers with related services in inventory
evaluation, inventory cataloging and the private sale or auction of surplus
equipment. If the site is re-launched, listings on this website will originate
largely from overstocked, never-used inventories held by companies based mainly
in the United States.
In these circumstances transaction fees will constitute our principal
source of revenue. Clients seeking to accelerate the sale of surplus inventories
can arrange for on-line auctions through our websites. In a general auction,
bidding is permitted on equipment and products of multiple sellers for a listed
period of time, and sales are consummated for the items listed at the close of
bidding.
4
Users will be able to browse the site and review auction listings. However,
we will require buyers and sellers to register in order to participate in the
auction process. Upon registration, buyers will be able to place bids on
products immediately. We will check sellers' credentials, including credit
history, in an approval process that can take up to 48 hours. Sellers will be
able to list their products for sale on our site which will guides them through
the protocols of listing items for auction sale, providing details such as
product description, asking price and shipping details. Sellers will be able to
enter additional information such as product images, reserve pricing, product
dimensions and weight. A seller will be able to publish an auction listing when
the seller is satisfied with the content of the listing. If re-launched, the
website will provide comprehensive categories of lighting products, such as
bulbs, fixtures, ballasts (the supports for fluorescent lighting fixtures),
components and controls along with detailed subcategories.
Originally, the site permitted prospective buyers to bid only in a standard
auction format in which the buyer with the highest bid wins the auction. In
April and May, 2000, we offered an additional auction format known as a reverse
auction which allows buyers to place requests for products on which suppliers
are invited to bid. In a reverse auction, a buyer sets a maximum price it
wishes to pay for an item. Sellers then bid in amounts below the maximum set by
the buyer. The bargain is struck at lowest price accepted by the buyer. If the
site is re-launched, we intend to make these options available to our clients of
Lightingbuyer once again.
LightingNews
In October, 1999, we approached Philips Lighting Company, a division of
Philips Electronics North America Corporation, with a concept to create a global
newswire service for the commercial lighting industry. Philips agreed to sponsor
an online news forum entitled "www.lightingnews.com" which was launched in the
second quarter of 2000. It allowed lighting companies and suppliers to post
their press releases on a continuous as needed basis, initially free of charge.
Charges were to be made for adding product images, website links and other
information. Client companies or their public relations firms were able to post
material directly to the site. This site is no longer operational. As of
September, 2001 all operations had ceased.
FinanceBuyer
The website www.financebuyer.com was an online market for instant small
business financing. We had entered into an agreement with SierraCities, Inc., an
online financial institution, which allowed visitors to this website to apply
for loans and equipment leases online and to obtain action on the financing
request within a few minutes. We received a commission on all financing placed
through the site. This site is no longer operational. As of September, 2001
all operations had ceased.
Litech
Litech was founded in March 1998 and was a specialist designer and
manufacturer of fiber optic lighting applications. It was formed to exploit
what we believed to be the increasing interest, application and use of fiber
optic lighting. As of September, 2001 all operations had ceased.
Fiber Optic Lighting Fundamentals
The underlying technology produces multiple streams of light from a single
remote light source with the possibility to create numerous special effects.
5
A fiber optic lighting system consists of three components: an illuminator,
the fiber-optic strands encased in tubing through which the light travels and
the end fitting or luminaire. The fiber optic strands are manufactured from
either glass or polymer plastic. We believe that glass fiber optics has superior
performance over polymer except when side-emitting effects are required. Fiber
optics is used for providing remote source lighting, a technique used for
passing light from a light source through a medium to a distant location.
Fiber optic lighting is well suited for situations where conventional
lighting is not feasible or desirable, such as when the generation of heat from
the lighting source must be avoided. For example, for museums with display cases
housing historical artifacts, fiber optic lighting is an excellent option, as,
opposed to conventional lighting, fiber optic lighting does not generate heat
within the display case.
Numerous additional advantages of fiber optic lighting exist, including:
- Fiber optic lighting is safer, produces increased energy savings, and is
aesthetically more pleasing than conventional lighting sources; there are
no UV/infrared rays so it is suitable for a range of applications from
lighting art masterpieces to retail chiller cabinets;
- Fiber optic lighting has decorative advantages including various color
change and special effects options such as cascading for water
installations;
- Fiber optic lighting is cost effective to install and maintain;
- Fiber optic lighting systems can be installed almost anywhere;
- Many original light sources can be retrofit with fiber optics.
Litech Operations
We offered a complete turnkey service for our customers. We offered design
concept through specification to installation and commissioning of the
application. We sub-contracted the physical manufacture of the three elements
using a variety of specialists. We kept a minimum of stock working on a "just in
time" basis.
We were not reliant on any one manufacturer and the key element - the fiber
optic -- is sold by a number of competing manufacturers. However, by September,
2001 all operations had ceased.
The UK Marketplace
The UK electrical commercial contracting business is highly fragmented and
a different company from that of the specifier normally conducts the purchasing
process. Accordingly, we worked in the early stages with an architect or
lighting designer at the concept and specification stage. Once the specification
and price has been agreed the order was commissioned by an electrical
contractor, itself generally a sub-contractor of the main building contractor.
Litech
We positioned ourselves as a premier quality specialist. We did not design
or install standard lighting and as such we were perceived as a "value added"
solution provider.
6
We marketed ourselves aggressively to both the specifier and electrical
contractor market and had at one point a database in excess of 4,000 live names.
These companies were regularly contacted by the sales team via mailshots and
literature. We also regularly advertised in the two major lighting trade
magazines. We also had a web site www.litech.co.uk. However, by September, 2001
all operations had ceased.
Competition
Other companies do operate Internet websites that currently list lighting
parts and equipment for sale and auction.
Competitive websites include the following:
- Tradeout.com is a general auction site spanning many industries in that it
is not industry specific or buyer targeted.
- i2i.com is a new auction/exchange site. It has very few listings and is not
targeting specific categories of the business audience.
- GE SupplyLight.com is the GE Lighting e-commerce site. It only stocks GE
lamps from normal stock.
- Grainger.com sells a broad range of industrial products. Its site is
essentially an online catalog.
Regulation
The lack of an appropriate organization to govern the administration of the
Internet infrastructure and the legal uncertainties that may follow pose risks
to the commercial Internet industry and our specific website business. In
addition, the effective operation of the Internet and our business is also
dependent on the continued mutual cooperation among several organizations that
have widely divergent interests, including the government, Internet service
providers and developers of system software and software language. These
organizations may find that achieving a consensus may become difficult,
impossible, time-consuming and costly.
Although we are not subject to direct regulation in the United States other
than federal and state business regulations generally, changes in the regulatory
environment could result in the Federal Communications Commission or other
United States regulatory agencies directly regulating our business.
Additionally, as Internet use becomes more widespread internationally, there is
an increased likelihood of international regulation.
We cannot predict whether or to what extent any new regulation affecting
e-commerce will occur. New regulation could increase our costs. For example, we
do not collect sales or other similar taxes with respect to the equipment,
inventory and other products sold through our on-line communities. One or more
states may seek to impose sales tax collection obligations on out-of-state
companies like ours that engage in or facilitate e-commerce. State and local
governments have made proposals that would impose additional taxes on the sale
of goods and services over the Internet. A successful assertion by one or more
states or any foreign country that we should collect sales and other taxes on
the exchange of equipment, inventory and other goods on our system could
increase costs that we could have difficulty recovering from users of our
websites.
7
While both the UK and European Union legislative framework is extensive,
particularly in relation to safety and emergency lighting, there is no
requirement for lighting designers or contractors to be licensed by government
agencies. All relevant electrical components (lamps, chargers, transformers)
must comply with legal standards and we purchases only from reputable
manufacturers principally subsidiaries of multi-nationals. The British
government agency the British Standards Institute also provides codes of
practices and guidelines. Although glass fibre is inherently inert to fire, the
sheathing material used to protect the tails may not be and system failure may
result. We adhere to these guidelines and also were a founder member of the
Fibre Optic Lighting Association, a division of The Institution of Lighting
Engineers, the UK's professional lighting body which creates and polices its own
guidelines.
Employees
As of December 31, 2003, we had no employees and no operations. Tim Rosen
remains our President and Chairman, and Leslie Kent remains our Chief Financial
Officer.
Our Litech business did operate from a sales office and a small production
work shop in Kingston upon Thames in south west London, United Kingdom. Prior to
September, 2001 it employed three full time sales people and one full time
production manager.
ITEM 2. DESCRIPTION OF PROPERTY
We have no offices. Our marketing, research and development office was
located in Kingston-Upon-Thames, England, and our executive offices were
relocated to there from New York, New York in June 2001. Our Litech sales
operations were located in the same premises and paid the rent for the
approximately 850 square feet for approximately $12,500 per year. Following the
termination of operations the Company records were kept at the home office of
Leslie Kent our Chief Financial Officer.
ITEM 3. LEGAL PROCEEDINGS
On February 11, 2002 there was a judgment entered against VerticalBuyer for
$42,000 with post-judgment interest at the rate of ten percent (10%) per annum
from the judgment date until paid and 225,000 shares of common stock in
VerticalBuyer, Inc., together with all costs of Court. The judgment was in the
case Intratech Capital Partners, Ltd. v. VerticalBuyer, Inc., Cause No.
CC-01-06374-B, in the County Court, Dallas County, Texas.
We have no notice of any other pending litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock has been traded on the OTCBB under the symbol "VBYR" since
November 2000. Our common stock did not trade on any market or exchange prior to
November 2000.
As of July 23, 2004 the closing bid price of our common stock was $0.005.
Holders
As of December 31, 2003, there were approximately 122 record holders of our
common stock.
Dividends
As of the date hereof, no cash dividends have been declared on our common
stock. Subject to the prior rights of the holders of any series of the preferred
stock which may from time to time be outstanding, if any, payment of dividends
to holders of our common stock in the future is within the discretion of our
board of directors and will depend on our earnings, capital requirements,
financial condition and other relevant factors. We presently intend to retain
future earnings, if any, for use in our business and have no present intention
to pay cash dividends on our common stock.
Recent Sales of Securities
On March 1, 2000, VerticalBuyer issued 375,000 shares of its common stock
to Joseph Donahue as payment for certain fund raising related consulting
services. These services were valued at $37,500. Mr. Donahue was a director of
the Company until August 2001.
On March 2, 2000, VerticalBuyer entered into a Securities Purchase and
Facilities Agreement with CSP Inc., a U.S. publicly traded company ("CSPI"),
under which CSPI purchased two million shares of VerticalBuyer's common stock
and redeemable warrants to purchase up to an additional three million shares of
such stock for an aggregate purchase price of $2,000,000. In connection with
CSPI's acquisition of VerticalBuyer's common stock and redeemable warrants, the
Company incurred a fund raising fee of $97,500. The three classes of warrants
(Class A, Class B and Class C) entitle CSPI, subject to certain conditions and
the occurrence of certain events, to purchase up to one million shares each of
VerticalBuyer's common stock at an exercise price of $1 per share. The Company
also issued 220,000 Class D warrants in March 2000 which were exercisable at $1
per share. These options expired in October 2002. On March 2, 2000,
VerticalBuyer issued options to purchase up to 1,250,000 shares of its common
stock at $1 per share under its 2000 Non-statutory Stock Option Plan. These
options expired in March 2004.
In September 2000, in connection with a consulting agreement with KGL
Investments the Company issued 50,000 shares of common stock to KGL Investments
for services rendered. The Company valued these shares at their market value on
the date of issuance of $1.00 per share. KGL Investments was owned by the
partners of Kaplan Gottbetter & Levenson, LLP, which was the Company's legal
counsel.
On January 12, 2001, in connection with a consulting agreement the Company
issued 50,000 shares of common stock to Daniel Ross for services valued at
$6,000.
In February, 2001 we issued 500,000 shares of common stock to Robert Gordon
in connection with the Litech acquisition.
9
On February 8, 2001, VerticalBuyer issued 166,667 shares of common stock to
Kaplan Gottbetter & Levenson, LLP in lieu of cash payment for legal services
rendered. These services were valued at $15,197.
These securities were sold under the exemption from registration provided
by Section 4(2) of the Securities Act. Neither we nor any person acting on our
behalf offered or sold the securities by means of any form of general
solicitation or general advertising. The purchaser represented in writing that
he acquired the securities for his own account. A legend was placed on the stock
certificate stating that the securities have not been registered under the
Securities Act and cannot be sold or otherwise transferred without an effective
registration or an exemption therefrom.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this document.
In addition to the information contained herein the following discussion
contains forward looking statements that involve certain risks and uncertainties
which may cause our actual results in future periods to differ materially from
forecasted results. See "Forward Looking Statements" on page 3.
OVERVIEW
VerticalBuyer, ("the Company") a Delaware corporation, was incorporated on
September 24, 1999 and on March 1, 2000 issued 14,250,000 shares of its common
stock to the shareholders of Lightseek Limited in exchange for all of the
outstanding common stock of Lightseek Limited. On February 15, 2001, Lightseek
Limited acquired all of the outstanding common stock of Litech Limited.
Lightseek was principally engaged in the development of Internet sites designed
to exploit Business-to-Business e-commerce opportunities within the global
commercial electrical and lighting markets. Litech was a specialist designer and
manufacturer of fiber optic lighting applications for the entertainment,
commercial and retail markets.
In September 2001, the Company discontinued the operations of both
Lightseek Limited and Litech Limited. The Company has negative working capital
of $113,345 and an accumulated deficit of $2,139,407 at December 31, 2003, and
has incurred significant operating losses. We have funded our liquidity and
capital requirements in the past two years primarily through the sale of our
common stock in 2000.
VerticalBuyer was seeking to specialize in the creation of Internet based
news sites dedicated to specific industries. Lightseek was our first website
developed for the commercial lighting industry. Subsequently, other lighting
sites were also tested, including an auction site for the global market.
However, all operations ceased by September, 2001.
We require additional funding for working capital in order to resume
operations while we seek opportunities. Such financing is expected to be through
the sale of common stock and or debt issuances. However, we do not have any
commitment from any sources to raise this capital. If management is unable to
generate external financing, we will not be able to proceed with our business
plan, and accordingly operations would have to be curtailed. As of December 31,
2003, we had no cash, no assets, no revenue and no operations.
We are a development stage company and have a limited operating history on
which to base an evaluation of our business and prospects. Our prospects must be
considered in light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets such as online
commerce.
10
It is difficult for us to forecast our revenues or earnings accurately. We
believe that future period-to-period comparisons of our operating results may
not be meaningful and should not be relied upon as an indication of future
performance as we have and will have no backlog of orders. Our operating results
in one or more future quarters may fall below investor expectations. Assuming
our common stock trades on a recognized market, in that event, the future
trading price of our common stock would almost certainly decline.
RESULTS OF OPERATIONS
The Company has no operations, no revenues, no assets and no cash.
LIQUIDITY AND CAPITAL RESOURCES
FUTURE NEEDS. We do not have existing cash or cash equivalents sufficient to
fund our operating activities,
capital expenditures and other obligations now or for the foreseeable future. We
must raise additional capital
in sufficient amounts and on terms acceptable to us to resume our operations.
We have no arrangements to obtain funding. If additional funds are raised
through the issuance of equity securities, the percentage ownership of our
then-current stockholders would be reduced.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and supplementary data are included beginning
immediately following the signature page to this report. See Item 13 for a list
of the financial statements and financial statement schedules included.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 8A. CONTROLS AND PROCEDURES
Our principal executive officer and principal financial officer evaluated
the effectiveness of the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended) as of the end of the period covered by this report. Based on
this evaluation, the Company's principal executive officer and principal
financial officer have concluded that the Company's controls and procedures are
effective in providing reasonable assurance that the information required to be
disclosed in this report has been recorded, processed, summarized and reported
as of the end of the period covered by this report.
During the period covered by this report, there have not been any
significant changes in our internal controls or, to our knowledge, in other
factors that could significantly affect our internal controls.
11
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Timothy Neil David Rosen 48 President, Chief Executive Officer and
Flat 3, 12 West Eaton Place, Chairman
London, SW1X8LS
United Kingdom
Leslie Kent 50 Secretary, Chief Financial Officer and
Winton Lodge, Winton Hill a Director
Stockbridge, Hampshire
SO20 6HJ
United Kingdom
Tim Rosen has been Commercial Director of Lightseek since its inception in
May, 1999 and President, Chief Executive Officer and Chairman of VerticalBuyer
since February, 2000. From 1988 to date, he has been a partner, with Leslie
Kent, our Chief Financial Officer, in Rosen & Kent, a management consultancy.
The partnership also incubates new business ventures. Since 1988, he has also
been a director of Litech Ltd., a specialist fiber optic lighting provider for
the commercial lighting industry. Litech was acquired by the Company in
February, 2001 and ceased operations in September 2001. From 1983 to 1988, Mr.
Rosen was a director of OmniMedia plc, a digital video and CD-ROM
publisher/developer which traded on the Alternative Investment Market of the
London Stock Exchange. From 1983 to 1988, Mr. Rosen was a director of Oxford
House College, a London-based computer training and language school which was
sold to its employees. He was also a director, from 1983 to 1988 of Catalyst
Communications Group plc, a marketing and media group quoted on the London Stock
Exchange which was sold to another public company, Holmes & Marchant plc. Rosen
& Kent founded Homeshield Warranty, Co. in 1982 as a joint venture with Pentland
Industries plc, an English public company. Homeshield marketed extended
warranties for household appliances and was sold to a trade buyer in 1984. Mr.
Rosen received his B.Sc (Econ.) Magna cum Laude in Business Administration from
the Institute of Science and Technology, University of Wales.
Leslie John Kent has been Marketing Director of Lightseek since its
inception in May, 1999 and Chief Financial Officer of our company since
February, 2000. From 1988 to 1999, he was a partner, with Tim Rosen, our
President and Chairman, in Rosen & Kent, a management consultancy. The
partnership also incubates new business ventures. Since 1988, he has also been a
director in Litech Ltd., a specialist fiber optic lighting provider for the
commercial lighting industry. Litech was acquired by the Company in February,
2001 and ceased operations in September 2001. From 1983 to 1988, Mr. Kent was a
director of OmniMedia plc, a digital video and CD-ROM publisher/developer which
traded on the Alternative Investment Market of the London Stock Exchange. From
1983 to 1988, Mr. Kent was a director of Oxford House College, a London-based
computer training and language school which was sold to its employees. He was
also a director, from 1983 to 1988 of Catalyst Communications Group plc, a
marketing and media group quoted on the London Stock Exchange which was sold to
another public company, Holmes & Marchant plc. Rosen & Kent founded Homeshield
Warranty, Co. Ltd. in 1982 as a joint venture with Pentland Industries plc, an
English public company. Homeshield marketed extended warranties for household
appliances and was sold to a trade buyer in 1984. Mr. Kent received his Master
of Arts in Philosophy, Politics and Economics from St. Edmund Hall, Oxford
University.
Board Committees
None
Compensation Committee Interlocks and Insider Participation
None.
12
Director Compensation
Our directors do not receive cash compensation for their services as
directors but are reimbursed for their reasonable expenses for attending board
and board committee meetings.
ITEM 10. EXECUTIVE COMPENSATION
The following table shows compensation earned during the fiscal years ended
December 31, 2003, 2002 and 2001 by our President and our executive officers who
made $100,000 or more last year.
Summary Compensation Table
NAME & PRINCIPAL POSITION YEAR SALARY ($)
Timothy Rosen, President, CEO 2003 0
and Chairman
2002 0
2001 55,000
Leslie Kent, CFO, Treasurer 2003 0
2002 0
2001 55,000
Option Grants in Last Fiscal Year
None
Options Exercised in Last Fiscal Year and Fiscal Year-End Option Values
None
Compensation Arrangements
None
Nonstatutory Stock Option Plan
In March 2000, our board adopted our Nonstatutory Stock Option Plan. A
total of 2,000,000 shares of common stock are currently reserved for issuance
under the plan. The plan provides for the grant of options to our officers,
employees, consultants and advisors. As of July 13, 2004, all stock options
granted have expired.
The plan permits the granting of nonstatutory options, which are not
intended to qualify as incentive stock options within the meaning of Section 422
of the Internal Revenue Code. The plan is administered by our board or a
committee appointed by our board. Subject to the limitations set forth in the
plan, our board or committee has the authority to:
13
- select the eligible persons to whom grants are to be made,
- designate the number of shares to be covered by each stock option grant,
- establish vesting schedules,
- specify the option exercise price and the type of consideration to be paid
upon exercise, and
- subject to certain restrictions, specify other terms of options granted
under the plan.
Under the plan, shares subject to stock options that have expired or
otherwise terminated without having been exercised in full again become
available for grant. Upon certain changes in control, all outstanding stock
options under the plan must either be assumed or substituted by the surviving
entity. In the event the surviving entity does not assume or substitute such
stock options, such stock options will be terminated to the extent not exercised
prior to such change in control.
Indemnification of Directors and Executive Officers and Limitation of
Liability
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act. As permitted by the Delaware General
Corporation Law, our amended certificate of incorporation includes a provision
that eliminates the personal liability of our directors for monetary damages for
breach of fiduciary duty as a director, except for liability (1) for any breach
of the director's duty of loyalty to our company or our stockholders, (2) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (3) under section 174 of the Delaware General
Corporation Law (regarding unlawful dividends and stock purchases) or (4) for
any transaction from which the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, our Bylaws provide
that we are required to indemnify our directors and officers, consultants and
employees to the fullest extent permitted by the Delaware General Corporation
Law. Subject to certain very limited exceptions, we are required to advance
expenses, as incurred, in connection with a legal proceeding to the fullest
extent permitted by the Delaware General Corporation Law, subject to certain
very limited exceptions. The rights conferred in our Bylaws are not exclusive.
We have not obtained directors' and officers' liability insurance.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 31, 2003. The information in this
table provides the ownership information for:
- each person known by us to be the beneficial owner of more than 5% of our
common stock,
- each of our directors,
- each of our executive officers, and
- our executive officers, directors and director nominees as a group.
14
Beneficial ownership has been determined in accordance with the rules and
regulations of the SEC and includes voting or investment power with respect to
the shares. Unless otherwise indicated, the persons named in the table below
have sole voting and investment power with respect to the number of shares
indicated as beneficially owned by them. Unless otherwise indicated, the address
of each person named below is c/o VerticalBuyer, c/o Gottbetter & Partners, LLP,
488 Madison Avenue, 12th Floor, New York, New York 10022.
Name and Address of Owner Amount of Beneficial Ownership Percentage Owned*
------------------------------- ------------------------------ ----------------------------------
Timothy Rosen (1) 7,225,000 42% (of actual outstanding shares)
------------------------------- ------------------------------ ----------------------------------
Leslie Kent (1) 7,225,000 42% (of actual outstanding shares)
------------------------------- ------------------------------ ----------------------------------
CSP, Inc.(2) 4,282,078 25% (of actual outstanding shares)
40 Linnell Circle
Billerica, MA 01821-3901
-------------------------------
All Executive Officers and 14,450,000 84%
Directors a group(2 persons)(3)
-------------------------------
(1) Includes 250,000 shares of common stock issuable upon exercise of stock
options at an exercise price of $1.00 per share. (However, as of July 23, 2004
all stock options granted have expired.)
(2) Includes 3,000,000 shares of common stock issuable upon exercise of
warrants at an exercise price of $1.00 per share. (However, as of July 23, 2004
all stock options granted have expired.)
(3) Includes 750,000 shares of common stock issuable upon exercise of stock
options at an exercise price of $1.00 per share. (However, as of July 23, 2004
all stock options granted have expired.)
We have not contacted stock brokerage firms holding shares of our common
stock in "street name" to determine whether there are additional substantial
holders of our common stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 1, 2000, VerticalBuyer issued 375,000 shares of its common stock
to Joseph Donahue as payment for certain fund raising related consulting
services. These services were valued at $37,500. Mr. Donahue was a director of
the Company until August 2001.
Lightseek Acquisition
On March 2, 2000, we purchased all the capital stock of Lightseek from its
owners, including Tim Rosen, our President and Chairman, and Leslie Kent, our
Chief Financial Officer, for an aggregate of 14,250,000 shares. On that date, we
also paid for consulting services, including structuring our acquisition of
LightSeek, introduction to CSP and structuring the relationship with CSP, for
375,000 shares of our common stock, 150,000 Class D warrants and $140,000, of
which Joseph Donahue, our former director, received the 375,000 shares of common
stock and $70,000. Joseph Donahue was a director of the Company until August
2001, at which time he resigned.
Stock Options
We have awarded an aggregate of 1,000,000 nonqualified stock options
exercisable at $1.00 pursuant to our Year 2000 Option Plan to our directors and
15
an aggregate of 350,000 options to members of our Technical Committee, an
advisory committee to our Board, which is comprised of the members of CSP's
board of directors, other than Alexander Lupinetti, our former director, and
CSP's controller. Alexander Lupinetti was a director of the Company until July
2001, at which time he resigned.
CSP Inc. Investment
On March 2, 2000, we sold 2,000,000 shares of our common stock and common
stock purchase warrants (Class A, Class B, Class C and Class D) carrying the
right to purchase in the aggregate 3,075,000 of our shares to CSP. The options
are exercisable at $1.00 and expire two years after the date of an effective
registration statement relating to the underlying shares of our common stock.
The Class A warrants are redeemable in the event there is an effective
registration statement relating to the underlying shares of our common stock;
the Class B warrants are redeemable if the closing price of our common stock on
the market on which it trades exceeds $2.00 for a period of twenty consecutive
days; and the Class C warrants are redeemable if the closing price of our common
stock on the market on which it trades exceeds $3.00 for a period of twenty
consecutive days. CSP has distributed as a dividend 717,620 of our shares
ratable to the holders of its common stock. The Class D warrants are not
redeemable, but are otherwise identical to the other classes of warrants.
In September 2000, in connection with a consulting agreement with KGL
Investments the Company issued 50,000 shares of common stock to KGL Investments
for services rendered. The Company valued these shares at their market value on
the date of issuance of $1.00 per share. KGL Investments was owned by the
partners of Kaplan Gottbetter & Levenson, LLP, which was the Company's legal
counsel.
On January 12, 2001, in connection with a consulting agreement the Company
issued 50,000 shares of common stock to Daniel Ross for services valued at
$6,000.
On February 8, 2001, VerticalBuyer issued 166,667 shares of common stock to
Kaplan Gottbetter & Levenson, LLP, our legal counsel, in lieu of cash payment
for legal services rendered. These services were valued at $15,197.
Litech Acquisition
On February 15, 2001, we completed the acquisition of all of the
outstanding capital stock of Litech Limited, a UK company. Prior to the
acquisition, Litech was owned equally by Robert Gordon, Timothy Rosen and Leslie
Kent. Mr. Rosen is our President, Chief Executive Officer and Chairman of the
Board and Mr. Kent is our Chief Financial Officer, Secretary and a Director.
Under the terms of the share sale agreement, Mr. Gordon was issued 500,000
shares of our common stock. Mr. Rosen and Mr. Kent received 50p (1/2 pound, or
92 U.S. cents) each for their interest in Litech. In addition, Messrs. Gordon,
Rosen and Kent will divide equally additional shares of our common stock issued
to them under the deferred purchase consideration provisions under the share
sale agreement. They shall receive shares of our common stock equal to six times
the average of the total after tax profits of Litech for each of the three years
ending December 31, 2001, 2002 and 2003 based upon a price of $1.00 per share of
our common stock.
Under the share sale agreement, if we or Litech goes into a threatened
liquidation, receivership or bankruptcy or similar events, any time before the
deferred purchase consideration is paid, and Litech fails to achieve six times
after tax profits of at least $1,000,000 in each of the three years ended
December 31, 2001, 2002, and 2003, or prior to March 31, 2004, then Messrs.
Gordon, Rosen and Kent have the option to repurchase their interest in Litech
for the same consideration the actually received from us.
We believe that these transactions were on terms as favorable as could have
been obtained from an unaffiliated third party. All future transactions we enter
16
into with our directors, executive officers and other affiliated persons will be
on terms no less favorable to us than can be obtained from an unaffiliated party
and will be approved by a majority of independent, disinterested members of our
board of directors, and who had access, at our expense, to our or independent
legal counsel.
We believe that the terms of the above transactions are commercially
reasonable and no less favorable to us than we could have obtained from an
unaffiliated third party on an arm's length basis. To the extent we may enter
into any agreements with related parties in the future, the board of directors
has determined that such agreements must be on similar terms.
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
Exhibits
The following exhibits are included as part of this report:
Exhibit Title of Document
Number
3.1 Certificate of Incorporation (1)
3.2 Amendment to the Certificate of Incorporation (1)
3.2 By-Laws (1)
4.1 Specimen Certificate of Common Stock (1)
4.2 Form of "A" Warrant (1)
4.3 Form of "B" Warrant (1)
4.4 Form of "C" Warrant (1)
4.5 Form of "D" Warrant (1)
10.1 Securities Purchase and Facilities Agreement (1)
10.2 Registration Rights Agreement (1)
10.3 Voting Agreement (1)
10.4 Share Sale Agreement by and between Tim Rosen, Leslie Kent, Robert Gordon, Lightseek
Limited and VerticalBuyer, Inc. dated February 15, 2001 (2)
10.5 Deed of Indemnity dated February 15, 2001 (2)
10.6 Service Agreement by and between Litech Limited and Robert Gordon dated February 15,
2001 (2)
21.1 List of Subsidiaries (1)
31.1 Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Executive Officer*
31.2 Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Financial Officer*
32.1 Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer *
---------------------------
* Filed herewith
(1) Incorporated by reference to Form SB-2, as amended, filed with the
Securities and Exchange Commission (SEC File No. 333-34144); see filings on
April 5, 2000, June 13, 2000, August 22, 2000 and September 15, 2000.
(2) Incorporated by reference to Form 8-K filed with the Securities and
Exchange Commission on March 1, 2001.
17
Reports on Form 8-K
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(1) Audit Fees
The aggregate fees billed for professional services rendered by Sherb &
Co., LLP for the audit of the Registrant's annual financial statements and
review of the financial statements included in the Registrant's Forms 10-QSB or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for fiscal year 2003 were
$8,667.
(2) Audit Related Fees
The aggregate fees billed for professional services rendered by Sherb &
Co., LLP for audit related fees for fiscal year 2003 were $0.
(3) Tax Fees
The aggregate fees billed for professional services rendered by Sherb &
Co., LLP for the preparation of the Registrant's tax returns, including tax
planning for fiscal year 2003 were $0.
(4) All Other Fees
The aggregate fees billed for professional services rendered by Sherb &
Co., LLP for all other services for fiscal year 2003 were $0.
(5) Audit Committee Policies and Procedures
The Registrant does not have an audit committee. The Board of Directors of
the Registrant approved all of the services rendered to the Registrant by Sherb
& Co., LLP for fiscal year 2003.
(6) Audit Work Attributed to Persons Other than Sherb & Co., LLP Full-time,
Permanent Employees.
Not applicable.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this December
31, 2003 10-KSB report to be signed on it behalf by the undersigned, thereunto
duly authorized.
Dated: July 23, 2004
VERTICALBUYER, INC.
By: /s/ Timothy Rosen
Timothy Rosen
President, Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this December 31, 2003 10-KSB report has been signed below by the
following persons on behalf of the Registrant and in the capacities indicated on
this 23rd day of July, 2004.
By: /s/ Timothy Rosen
Timothy Rosen
President, Chief Executive Officer
and Chairman of the Board
By: /s/ Leslie Kent
Leslie Kent
Chief Financial Officer and Director
19
VERTICALBUYER, INC.
TABLE OF CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS: Page Number
Independent Auditor's Report, Sherb and Co., LLP F-1
Consolidated Balance Sheet for period ended December 31, 2003 F-2
Consolidated Statements of Operations for the Years Ended December 31, 2003 and 2002 F-3
Consolidated Statements of Stockholders Equity (Deficit) F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003 and 2002 F-5
Notes to Consolidated Financial Statements F-6 - F-8
20
INDEPENDENT AUDITORS' REPORT
Board of Directors
VerticalBuyer, Inc.
We have audited the accompanying consolidated balance sheet of
Verticalbuyer, Inc. as of December 31, 2003, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the years
ended December 31, 2003 and 2002. 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
audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). 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
audit provides 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 Verticalbuyer, Inc.
as of December 31, 2003, and the results of its operations, stockholders' equity
(deficit) and its cash flows for the years ended December 31, 2003, and
2002, in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company has negative working
capital of $113,345 and an accumulated deficit of $2,139,407 at December 31,
2003, and has incurred significant recurring operating losses which raise
substantial doubt about its ability to continue as a going concern without the
raising of additional debt and /or equity financing to fund operations. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Sherb & Co., LLP
Sherb & Co., LLP
Certified Public Accountants
New York, New York
May 28, 2004
F-1
VERTICALBUYER, INC.
-------------------
CONSOLIDATED BALANCE SHEET
--------------------------
DECEMBER 31, 2003
-----------------
ASSETS
------
Current Assets:
Cash $ -
------------
$ -
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 113,345
------------
Total current liabilities 113,345
------------
Stockholders' deficit:
Common stock, $.001 par value; 50,000,000 authorized,
17,391,667 issued and outstanding 17,392
Additional paid-in capital 2,008,670
Accumulated deficit (2,139,407)
------------
Total stockholders' deficit (113,345)
------------
$ -
============
See notes to consolidated financial statements
F-2
VERTICALBUYER, INC.
-------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Year Ended December 31,
-----------------------
2003 2002
----------- -----------
Revenues $ - $ -
Cost of Sales - -
----------- -----------
GROSS PROFIT - -
----------- -----------
Expenses:
Sales and marketing - -
Product development - -
Selling, general and administrative - -
Interest income, net - -
----------- -----------
Total operating expenses - -
----------- -----------
Loss from continuing operations - -
Loss from discontinued operations - -
----------- -----------
NET LOSS $ - $ -
=========== ===========
NET LOSS PER WEIGHTED AVERAGE
SHARES OUTSTANDING -
Basic and diluted
Continued operations $ - $ -
=========== ===========
Discontinued operations $ - $ -
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 17,033,334 17,033,334
=========== ===========
See notes to consolidated financial statements
F-3
VERTICALBUYER, INC.
-------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
-----------------------------------------------
Accumulated
Common stock Additional Other Total
--------------------- Paid-In Accumulated Comprehensive Stockholders'
Shares Amount Capital Deficit Income Deficit
------------ ------- ----------- ------------- -------------- ---------------
Balance, January 1, 2002 17,391,667 $17,392 $ 2,008,670 $ (2,139,407) $ - $ (113,345)
Net loss - - - - - -
------------ ------- ----------- ------------- -------------- ---------------
Balance, December 31, 2002 17,391,667 $17,392 $ 2,008,670 $ (2,139,407) $ - $ (113,345)
Net loss - - - - - -
------------ ------- ----------- ------------- -------------- ---------------
Balance, December 31, 2003 17,391,667 $17,392 $ 2,008,670 $ (2,139,407) $ - $ (113,345)
========== ======= =========== ============= ============== ===============
See notes to consolidated financial statements
F-4
VERTICALBUYER, INC.
-------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Years Ended
December 31,
------------
2003 2002
----- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ - $ -
Adjustments ro reconcile net loss to net cash flows
used in operating activities:
Loss from discontinued operations - -
Changes in assets and liabilities:
Accounts payable and accrued liabilities - -
----- -----
NET CASH USED BY OPERATING ACTIVITIES - -
----- -----
Effect of exchange rate differences on cash and cash equivalents - -
----- -----
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS - -
CASH AND CASH EQUIVALENTS, beginning of year - -
----- -----
CASH AND CASH EQUIVALENTS, end of year $ - $ -
===== =====
See notes to consolidated financial statements
F-5
VERTICALBUYER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE 1 - ORGANIZATION, NATURE OF BUSINESS AND BASIS OF PRESENTATION
Vertical Buyer, ("the Company") a Delaware corporation, was incorporated on
September 24, 1999 and on March 1, 2000 issued14,250,000 shares of its common
stock to the shareholders of Lightseek Limited in exchange for all of the
outstanding common stock of Lightseek Limited. On February 15, 2001, Lightseek
Limited acquired all of the outstanding common stock of Litech Limited. The
acquisition of Litech has been accounted for under the purchase method, and,
accordingly, Litech's operations have been included in the Company's
consolidated financial statements from its date of acquisition. Lightseek is
principally engaged in the development of Internet sites designed to exploit
Business-to-Business e-commerce opportunities within the global commercial
electrical and lighting markets. Litech is a specialist designer and
manufacturer of fiber optic lighting applications for the entertainment,
commercial and retail markets. In September 2001 the Company discontinued the
operations of both Lightseek Limited and Litech Limited
Basis of Presentation
The Company has negative working capital of $113,345 and an accumulated deficit
of $2,139,407 at December 31, 2003, and has incurred significant recurring
operating losses.
Use of estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid short-term investments, with a remaining
maturity of three months or less when purchased, to be cash equivalents.
Fair value of financial instruments
The carrying amounts reported in the balance sheet for cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses, loans
and amounts due to related parties approximate their fair market value based on
the short-term maturity of these instruments.
Principles of Consolidation
The consolidated financial statements of the Company include those of the
Company and of each of its subsidiaries for the periods in which the
subsidiaries were owned/held by the Company. All significant intercompany
accounts and transactions have been eliminated in the preparation of the
consolidated financial statements.
F-6
Stock Options
Statement of Financial Accounting Standards No. 148 "Accounting for Stock-Based
Compensation-Transition and Disclosure, an Amendment of FASB Statement No. 123,"
amends the disclosure requirements of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), to
require more prominent disclosures in both annual and interim financial
statements regarding the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.
The Company accounts for stock-based compensation to employees and directors
using the intrinsic value method of accounting as prescribed under Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations. Under the intrinsic value method,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of the grant, no compensation
expense is recognized in the Company's Consolidated Statements of Operations
Earnings per share
Earnings per share has been determined based on the Company's net income divided
by the weighted average number of common shares outstanding. Warrants and
options to purchase 4,470,000 shares of common stock were outstanding at
December 31, 2002, but were not included in the computation of diluted loss per
share because the effect of their inclusion would be antidilutive.
Income taxes
Deferred income taxes are provided on a liability method whereby deferred tax
assets are established for the difference between the financial reporting and
income tax basis of assets. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS
In August 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit, or Disposal Activities." This
Statement addresses financial accounting and reporting for costs associated with
exit or disposal activities. The adoption of SFAS 146 had no significant impact
on the Company's financial statements. This statement is effective for exit or
disposal activities initiated after December 31, 2002.
In December 2002, the Financial Accounting Standards Board issued SFAS No. 148,
"Accounting for Stock-Based Compensation-Transition and Disclosure-An Amendment
of FASB Statement No. 123." This Statement amends SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of Statement 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
The the adoption of SFAS 148 had no significant impact on the Company's
financial statements. This statement is effective for interim periods beginning
after December 15, 2002 and for fiscal years ending after December 15, 2002.
F-7
In April 2003, the Financial Accounting Standards Board issued SFAS No. 149,
"Amendment of FASB Statement No. 133 on Derivative Instruments and Hedging
Activities." This Statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company believes the adoption of SFAS
149 will have not significant impact on its financial statements. The statement
is effective for contracts entered into or modified after June 30, 2003.
In May 2003, the Financial Accounting Standards Board issued SFAS No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity." This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003 and, otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. We are currently evaluating
the impact that the adoption of SFAS No. 150 will have on our financial position
and results of operations, however at June 30, 2003 the Company has
approximately $805,300 in Redeemable Warrants that may be classified as a
liability.
In December 2003 the FASB issued FASB Statement No. 132 (revised 2003),
Employers' Disclosures about Pensions and Other Postretirement Benefits, that
improves financial statement disclosures for defined benefit plans. The project
was initiated by the FASB earlier this year in response to concerns raised by
investors and other users of financial statements about the need for greater
transparency of pension information. The change replaces existing FASB
disclosure requirements for pensions. In an effort to provide the public with
better and more complete information, the standard requires that companies
provide more details about their plan assets, benefit obligations, cash flows,
benefit costs and other relevant information. These disclosures will provide
investors with greater visibility into plan assets and a clearer picture of cash
requirements for benefit payments and contributions to fund pension and other
postretirement benefit plans. We do not have a pension fund and therefore do
not expect to be impacted by Statement No. 132 or be required to make any
additional disclosures.
NOTE 3 - INCOME TAXES
At December 31, 2003, the Company had net operating loss carryforwards available
to offset future Federal and New York State taxable income of approximately
$1,815,000. If not utilized, these carryforwards will expire at various dates
through 2021.
Deferred assets are comprised of the following:
December 31,
----------------------------
2002 2001
------------- -------------
Net operating loss carryforwards 726,000 726,000
-------------------------------- ------------- -------------
Valuation allowance (726,000) (726,000)
------------- -------------
Net deferred tax assets $ - 0 - $ - 0 -
============= =============
F-8