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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): JANUARY 6, 2006
0-32923
(Commission file number)
FINANCIAL MEDIA GROUP, INC.
(Exact name of registrant as specified in its charter)
NEVADA 33-0198542
(State of incorporation) (IRS Employer Identification No.)
2355 MAIN STREET, SUITE 120
IRVINE, CA 92614 (949) 486-1711
(Address of principal executive offices) (Registrant's telephone number)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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SECTION 2 - FINANCIAL INFORMATION
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
On January 6, 2006, Financial Media Group, Inc., a Nevada corporation, ("FMG"),
completed the acquisition (the "Acquisition") of WallStreet Direct, Inc., a
Nevada corporation ("WSD"). The Acquisition was effected pursuant to the terms
of an Agreement and Plan of Reorganization, dated September 19, 2005, (the
"Agreement") by and among FMG, WSD and certain stockholders of WSD. Pursuant to
the terms of the Agreement FMG acquired all of the issued and outstanding
capital stock of WSD in exchange for 20,000,000 shares of FMG common stock. Upon
the close WSD became a wholly owned subsidiary of FMG. Immediately after the
Acquisition the former shareholders of WSD owned 20,000,000 shares of FMG or
approximately 82% of the issued and outstanding shares of FMG and the current
FMG shareholders owned 4,394,530 shares or approximately 18%. In addition, FMG
has reserved 5,461,004 shares to be issued to WSD warrant holders upon the
exercise of up to 2,730,502 Class A Warrants at an exercise price of $1.16 per
share and up to 2,730,502 Class B Warrants at an exercise price of $1.74 per
share.
As part of the Acquisition Diego Moya and Dr. Conrad Loreto each resigned from
their positions as a director of FMG, and Mr. Khazali resigned as Chief
Executive Officer of FMG. Mr. Albert Aimers, Chairman of the Board of WSD, was
appointed Chairman of the Board and Chief Executive Officer of FMG and Mr.
Khazali was appointed as Chief Operating Officer. Mr. Nick Iyer, President and
director of WSD was appointed a director of FMG
Further information about WSD, FMG and certain related matters is included in
this Item 2.01 below.
OVERVIEW
WallStreet Direct, Inc. ("WSD" or "The Company") is a financial media company
focused on applications that empower the global investment community to
collaborate directly with publicly traded companies. The Company owns
www.wallst.net ("WallSt.net") a financial media website. On January 5, 2005, the
Company was incorporated in the state of Nevada. On January 15, 2005 the Company
acquired 100% of the outstanding shares of Digital WallStreet, Inc. ("Digital"),
the operating entity of the Company and owner and operator of wallst.net, in
exchange for a $3,000,000 promissory note due and payable on January 31, 2010.
Following the acquisition of Digital, the Company expanded its services to
include investor conferences, and a newspaper that is written and designed for
investment professionals, as well as acquiring ownership of the wallst.net
brand, for which Digital will remain the operating entity.
wallst.net, to date, has accumulated 500,000 unique visitors and approximately
60,000 active members comprised of retail investors and members of financial
institutions. The website offers its members interviews with management of
publicly traded companies, stock quotes and other financial data, an online
newsletter, message boards, and other financial tools designed to aid in
investment decision-making processes. The site, in essence, is a one-stop
resource for retail and institutional investors.
wallst.net is a strong competitor in its industry, principally because of the
caliber of companies that have conducted interviews for the site. Featured
companies include General Motors, Sun Microsystems, UPS, and Ingram Micro, Inc.
just to name a few.
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In addition to its online platform, Company has also developed a print
newspaper, which, to date has been distributed to more than 10,000 investment
professionals across the United States. In addition to receiving advertising
revenue, the newspaper benefits from its wide distribution, name recognition and
editorial content. The Company has also organized several conferences, which
have generated considerable attention from the investment community and from
publicly traded companies. Presenting companies have included, among others,
Magnetek Inc., IPIX Corp., Aerogen, Inc. and MFIC Corp. These conferences serve
to build revenues through registration fees and also have become an integral
element of the Digital's efforts to build the wallst.net brand since its
inception in 2002.
Looking ahead, the Company envisions itself as a full-service investment portal,
offering its membership audio/video platforms, financial tools and wireless
initiatives. Similar to CBS MarketWatch and Dow Jones, Inc., WSD intends to be a
global provider of financial tools and information, empowering the investment
community and serving as a liaison between publicly traded companies and their
investors.
The Company has set in motion a plan to diversify itself across some of the most
underserved niche media markets today and establish a leadership position across
several vertically integrated markets. These niche markets including the
Company's audio/visual platforms, investment conferences and print newspaper
have all demonstrated success to date and have proven that they can
significantly add to both top-line and bottom line growth.
The Company believes that the approach is novel in its ability to tap these
niche markets and establish a leadership position in a relatively short period
of time. The opportunities for WSD are numerous, combining several of the most
exciting and innovative media and financial services today.
Research has shown that more and more investors are looking to the Internet as
their primary informational source. WSD has already demonstrated success through
wallst.net, accumulating more than 60,000 subscribers, its investment
conferences, advertising programs, comprehensive financial tools and print
publications. Management is confident that WSD is on the right path to
vertically integrate several key markets and become a premier resource in the
investment community.
BUSINESS
BACKGROUND
WSD is a financial media company focused on applications that empower the retail
and professional investment communities to collaborate directly with publicly
traded companies from around the world.
The primary revenue for The Company is promotion and advertising related to
marketing public companies and professional investment concerns. This is largely
facilitated through the three product lines.
1) Our financial website www.wallst.net
2) Our Investment conferences
3) Print Publications and Newspaper.
These divisions are designed to both compliment and vertically integrate the
entire Company. The primary focus for the Company is to provide tools for the
financial community to research and collaborate in order better their decisions
and valued add their investment decision-making processes.
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WallStreet Direct, Inc. was incorporated in the State of Nevada in 2005 with the
mission of establishing itself as a financial media Company specializing in a
premier provider of financial news, tools and original, compelling content for
the global investment community. Since its inception, the Company has
implemented a strategy that positions the Company in a unique and growing niche
market on the Internet and in print. The Company's flagship website, wallst.net,
has profiled hundreds of publicly traded companies through in-depth, informative
executive interviews. The website has gained a loyal following of more than
500,000 unique visitors and 60,000 active members, and is frequently referenced
by both casual retail investors and investment professionals from around the
world.
wallst.net serves as a one-stop resource for retail and institutional investors.
Unlike many of our competitors, wallst.net stands apart from its competition in
our specialization of audio interviews and because of our key intense focus on
editorial merit of interviews. Within two years of its inception, we have
featured exclusive audio interviews in some of the largest and most successful
publicly traded global companies such as General Motors, Sun Microsystems, Taser
International, UPS, Ingram Micro, Inc., Schnitzer Steel Industries, Inc., and
Monster Worldwide, Inc. The Company has now become a stable of interviews with
some of the largest companies in the world.
Management believes that our other key difference is our innovative database and
tracking system, which allows our client base to track the progress of their
advertising campaigns. Our IT professionals have developed one of the most
unique, proprietary tracking and database platforms
MARKET OPPORTUNITY
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Financial media is operating under a new environment and requires new
approaches. WSD services offer complete end-to-end solutions delivering
straight-from-the-source communications that combine audio, video and multimedia
platforms. WSD offers a full range of options to provide both live and archived
Internet broadcasts of companies' events including audio, video,
teleconferencing, and transcripts of web cast interviews to enrich the viewers'
experience.
SEVERAL FACTORS BOLSTERING THE COMPANY'S GROWTH PROSPECTS:
REGULATORY PRESSURES CONTINUE TO BUILD: Regulation Fair Disclosure and the
Sarbanes-Oxley Act have changed the landscape of media relations
dramatically forcing companies to re-evaluate the methods they use to
communicate with investors. These regulations have also put the spotlight
on Web-based disclosure and have turned web casting and Web sites into
mission-critical applications. In the wake of these regulatory changes,
investors are looking to get more of their information directly from the
Company.
MORE DEMANDING INVESTORS: The recent wake of corporate scandals has
resulted in declining investor confidence and heightened demands to make
publicly traded companies more transparent. Investors today expect more
financial and non-financial data than ever before. With the widespread use
of the web as a timely, low-cost means of disseminating information, both
regulatory bodies and investors have grown more aggressive in their
demands for fair and timely access to unfiltered Company information.
INVESTORS USE WEB SITES AND PREFER E-MAIL: In a study conducted by Kraker
& Company, over 40% of the analysts surveyed said they use corporate Web
sites daily. According to a 2003 IR Magazine survey, 80% of buy side
investors and 92% of sell-side analysts prefer to receive Company
information via e-mail and over half prefer information delivered via the
Internet.
INVESTORS WANT OPEN AND TRANSPARENT COMPANIES According to a 2002 McKinsey
& Co. Global Investors Opinion Survey, 80% of investors responded that
they would pay a premium for companies that are visibly well governed.
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THE COMPANY'S BUSINESS MODEL IS BASED ON SERVING TWO COMPLEMENTARY TARGET
MARKETS.
TARGET MARKET ONE - SMALL CAP COMPANIES SEEKING BETTER EXPOSURE TO INVESTORS
Small and micro cap companies do not receive the same coverage as large public
companies. Over the last few years, the Internet has become a cost-effective
solution to enhance their profile, but many small and micro cap companies have
lacked the skills and knowledge to take full advantage of this opportunity. This
had led to the outsourcing of Internet related services. Requirements of small
and micro cap companies are broad and range from the design, development and
maintenance of investor awareness oriented websites to the creation of effective
on-line advertising campaigns. WSD has become a significant provider of these
types of services.
TARGET MARKET TWO - INVESTORS SEEKING RELIABLE AND EXTENDED INFORMATION
Investors have difficulty obtaining timely, accurate investment information on
small and micro cap companies due to a lack of objective news sources. Most
media organizations, investment firms and brokerage houses tend to focus a
significant majority of their attention on larger public companies. As a result,
small and micro cap investors have not had access to the level of non-biased
third party information or traditional sources of Company research reports they
desire. This lack of information is coupled with the increasing shift of
investors from traditional retail brokerages to discount and on-line
alternatives. This shift has created an increased interest in personal
investment research on the part of individual investors. However, investor
interest in the small and micro cap sectors has not been accompanied by an
increased coverage of the small and micro cap sectors by traditional media,
traditional brokerage firms or alternative on-line and discount investment
service providers. As a result, investors have turned to other resources on the
Internet as a method of obtaining the timely financial information needed to
make investment decisions. Our subscriber base is widely spread geographically
in the United States, Canada and abroad and includes investors from many facets
including - retail investors, non-accredited and accredited investors, lawyers,
brokers, accountants, senior management of publicly traded companies and other
members of financial communities.
To meet the needs of two complementary target markets, WSD has undertaken many
strategic initiatives, which have the potential for growth and profitability. In
order to facilitate a nucleus for these target markets, we utilize wallst.net,
which provides a wide range of services to investors interested in small and
micro cap companies and markets. A significant feature which differentiates our
website from other financial websites is use of our expertise in the areas of
multi-media, journalism and investor awareness. Services on the site are
currently offered to members on a free trial basis and we are projecting future
revenues will arise from the conversion of viewers of the site into purchasers
of subscription-based services. In addition to web-based solutions, we also
provide senior management of publicly traded companies various other platforms
to communicate and interact with retail investors and other members of financial
communities. These platforms include our newspaper or print media, small cap
conferences and seminars, which are held throughout the year in major cities
like New York, Los Angeles, etc.
By satisfying its viewers' investment information needs, WSD seeks to become the
dominant single source of small and micro cap multi-media information center on
the Internet. Our website is designed to provide users with a stimulating
interactive experience, which encourages them to return to the website on a
frequent basis. The essence of our staff's effort is to provide an on-line home
which wins the loyalty of viewer members. The information on our website
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includes detailed profiles of companies, industry news, stock quotes, charts,
daily market reports, news releases and other investment tools. Content is
usually based around themes of interest and is displayed as audio/video
interviews of senior management of publicly traded companies, editorials,
newsletters, small cap conferences & seminars, news, etc.
Companies featured and profiled on our website are multi-tiered and includes
both general interest and industry-specific areas including:
Biotech/Healthcare;
Computers/Telecommunications;
Consumer Goods; Energy/Resources;
Financial Services;
Food & Beverage;
Insurance;
Internet;
Leisure/Entertainment;
Manufacturing; Precious Metals
Services and Transportation
The Company intends to become a primary facilitator between senior management of
micro and small cap companies and investors looking for high growth investment
opportunities through integration of investor awareness and multi media. We have
successfully carried out assignments for many well-known names in small cap
universe. In addition, we have had the privilege of serving larger cap companies
such as Domino's Pizza, General Motors, and Sun Microsystems.
INVESTOR AWARENESS:
One of our most significant and profitable operations is providing full-service
financial media consulting to privately held and publicly traded companies with
customized investor awareness programs. Our years of experience in navigating
the public markets provide clients with relevant statistics and information on
their corporate image, investor out-reach programs and media strategies. As a
result of our services and consulting assignments we are able to generate
awareness of publicly traded companies in the media and financial communities.
We pride ourselves on our expertise in building relationships between public
companies and the active investment community through several key platforms:
(a) Audio & Video of Interviews of Senior Management
(b) Press Release Dissemination
(c) Newsletters & Editorials
(d) Small Cap Conferences & Seminars
(e) Print Publications
We work closely with our clients to provide them opportunity to reach out and
effectively communicate to more than 500,000 unique visitors and 60,000 active
members or a pre-qualified audience of investors who have specifically opted-in
to receive information about high growth investment opportunities.
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(a) AUDIO & Video of Interviews of Senior Management: The site currently has
60,000 users and prospective members register on to listen to one of our
interviews with a well-established, publicly traded Company. We typically will
put out a press announcing the audio interview with a tier one Company to aid in
the awareness of the conducted interview. These audio interviews become the
staple of the entire site as it is our freshest, and most compelling content.
This is the engine, which continues to drive our traffic
(B) PRESS RELEASE DISSEMINATION: We are determined to provide the best
distribution possible at a fair price to enhance investor awareness and increase
interest in a Company's stock. Since every Company has different needs, we have
designed our press release packages to deliver quality editorial content and a
cost-effective platform to reach the masses. Our press releases have helped both
small-cap companies and larger publicly traded entities gain exposure and
increase their investment communities.
(C) NEWSLETTERS & EDITORIALS: Our editorial staff offers a high quality and
enriched newsletter and on companies we profile on wallst.net. We produce our
Weekly stock Bulletin, which includes weekly financial commentary as well as
profiles on ten companies that we have profiled. Management believes that this
will add to the long-term value of the site. The newsletter is another platform
to drive advertising revenues, and serves as an integral component of our
investor awareness campaigns.
(D) SMALL CAP CONFERENCES & SEMINARS: Unique and effective platform for senior
management to network with members of financial community, lawyers, accountants
and senior management of other companies.
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(E) PUBLICATIONS: The Company aims to be the leading source of strategic
information, intelligence and editorial content for senior managers and
institutional and individual investors. The first issue of our business
newspaper, wallst.net Digest was launched in November 2004 and was distributed
to more than 7000 investment professional nationwide.
The Company intends to be an integrated print and online operation, aiming to
give greater insight into publicly traded companies and their CEOs' visions. The
newspaper will be printed monthly from Irvine, California as a 40-page dossier.
The newspaper will be available for a subscription fee ranging from $60.00 per
year, which is subject to change depending on the demand going forward.
The Company intends to distribute the newspaper through our own distribution
channels, initially targeting members of financial communities and subsequently
expanding our target audience to general public. We also anticipate increase in
advertising revenue from this venture, which is subject to our success in
publishing, distributing and expanding in a cost-effective manner.
ADVERTISING:
WSD currently serves many corporate clients, and offers them a one-stop solution
for their Internet corporate disclosure and corporate advertising requirements.
Clients can sign a short or longer-term agreement, and are featured on our
website, newsletter and email disseminations thereby gaining exposure to our
users and enlarging the scope of their own investment community. We update our
websites with corporate information helping satisfy SEC requirements for
continuous disclosure on the Internet. Management expects this area of business
to grow in light of recent SEC pronouncements requiring improved Internet
disclosure for our subscribers and clients, which will cause an increase in the
appeal of this offering. Revenues derived from the website include banner and
button advertising on the website and on targeted communications to our
community. Other advertising sources are from press release dissemination,
weekly newsletter, and free email access to all subscribers and small cap
conferences. We intend to maintain both the quality and size of the community
and the range of products we offer. Our Proprietary Banner management system
works similar to our audio tracking system only in reverse. While our system
will provide good data to advertisers, the purpose is to empower our clients to
modify their advertisings to more productive direct responses.
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LEVEL II QUOTES
Another platforms currently in development, which will allow for the
establishment of real time Level II feeds. Management believes that the retail
investment community is becoming more and more sophisticated. The demand across
the spectrum for Level II data is swelling. Management believes that it's growth
will be increased by being one of the first to offer this data for the broader
networks.
COMMUNITY:
ONLINE
Our online flagship is wallst.net. The site is becoming one of the industry
leaders in CEO interviews, quotes, charts, proprietary email platforms, wire and
press release services, news and company commentary and level 2 quotes.
Wallst.net news and press releases are picked up by leading search engines
including Yahoo, Bloomberg, Dow Jones, Reuters, CNBC, MSN, and CBS MarketWatch,
as well as many major media outlets such as The Washington Post, the Los Angeles
Times and The New York Times.
EMAIL PLATFORM
Wallst.net has developed a proprietary web mail platform similar those on Yahoo,
MSN/Hotmail and Mail.com. Management believes that the advantage of this
platform will be the availability of an attractive vanity email address, for
example John@wallst.net. It is believed that once this is properly rolled out it
will be very successful within the financial community similar to other
vocational email platforms such as Dr.com, Consultant.com, Engineer.com,
Accountant.com, Hairdresser.com, and Lawyer.com.
EMPLOYEES
As of January 10, 2006, we employed 26 people on a full-time basis. Management
consists of three people, our sales department consists of 13 people, the
editorial staff consists of four people, our tech department consists of four
people and we have an administration staff of two people.
REGULATORY ISSUES
We are not subject to governmental regulation in our Internet publishing
efforts, nor do we know of any pending legislation or regulation, which may
impose regulatory requirements on out Internet activities, other than privacy
laws. We believe that we are in compliance in all material respects with all
laws, rules, regulations and requirements that affect our business, and that
compliance with such laws, rules, regulations and requirements does not impose a
material impediment on our ability to conduct our business.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). These forward-looking statements can be identified
by the use of predictive, future-tense or forward-looking terminology such as
"believes," "anticipates," "expects," "estimates," "plans," "may," "intends,"
"will," or similar terms. These statements appear in a number of places in this
report and include statements regarding the intent, belief or current
expectations of the Company, its directors or its officers with respect to,
among other things: (i) trends affecting the Company's financial condition or
results of operations, (ii) the Company's business and growth strategies, (iii)
the Internet and Internet commerce, and (iv) the Company's financing plans.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements. The preceding discussion of the
financial condition and results of operations of the Company should be read in
conjunction with the financial statements and notes related thereto included
elsewhere in this report.
DESCRIPTION OF PROPERTY
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND DOMAIN NAMES
The Company owns the domain names www.wallst.net and www.18004wallst.com. The
Company believes its ownership of these domain names gives it adequate
protection over them and it intends to keep them in its possession.
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Other intellectual property is protected through a combination of trademark law,
trade secret protection and confidentiality agreements with our employees,
customers, independent contractors, agents and vendors. The Company pursues the
registration of its domain names, trademarks and service market in the United
States and internationally. Effective trademark, service mark, copyright and
trade secret protection may not be available in every country in which the
Company's services and products are made available on-line. The Company creates
some of its own content and obtains the balance of its content from third
parties. It is possible that it could become subject to infringement actions
based upon the content obtained by third parties. In addition, others may use
this content and the Company may be subject to claims from its licensors. The
Company currently has no patents or patents pending and does not anticipate that
patents will become a significant part of its intellectual property in the
future. The Company enters into confidentiality agreements with its employees
and independent consultants and has agreements with its employees and
independent consultants and has instituted procedures to control access to and
distribution of its technology, documentation and other proprietary information
and the proprietary information of others from who it licenses content. The
steps it takes to protect its proprietary rights may not be adequate and third
parties may infringe or misappropriate the trademarks, service marks and similar
proprietary rights. In addition, other parties may assert claims of infringement
of intellectual property or alter proprietary rights against the Company. The
legal status of intellectual property on the Internet is currently subject to
various uncertainties as legal precedents have not been set and are still to be
determined in many areas of Internet law.
CORPORATE OFFICES
The Company's corporate offices consist of 4,322 sq. feet of office space in a
brick and glass modern building in Irvine, California. The Company has a two
year lease expiring in August 2007 at a monthly rental of $9,338. The Company's
facilities are fully used for current operations.
ACQUISITION OF DIGITAL AND RELATED PARTY TRANSACTION
On January 5, 2005, Albert Aimers, Nick Iyer and Hak Leng Sok formed the
Company. On January 15, 2005 the Company acquired all of the capital stock of
Digital WallStreet Inc. from Albert Aimers, its principle shareholder, in
exchange for a $3 million promissory note (the "Note") to Mr. Aimers. The Note
carries interest at 6% per annum and is due and payable on January 31, 2010.
RISKS FACTORS
You should carefully consider the risks described below, as well as other
information in this report, when evaluating our business and future prospects.
If any of the following risks actually occur, the Company's business, financial
condition and results of operations could be seriously harmed. In that event,
the market price of our common stock could decline and stockholders could lose
all or a portion of the value of their investment in FMG's common stock.
RISKS RELATED TO OUR BUSINESS:
THE DIMINUTION OR LOSS, MISAPPROPRIATION OR LEGAL CLAIMS ON THE BRAND NAME
"WALLST.NET" WOULD HAVE A MATERIAL ADVERSE AFFECT ON OUR BUSINESS.
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We are highly dependent on our brand name "Wallst.net" for the success of our
venture. We believe the diminution or loss, misappropriation of our existing
proprietary rights or claims of infringement or legal actions related to
intellectual property of "Wallst.net" brand name, or any other negative market
or industry perception arising from these, would have a material adverse effect
on our business.
We currently rely on contractual rights, copyrights, trademarks and trade
secrets to protect our intellectual property rights. We do not hold any patents.
There can be no assurance that our means of protecting our proprietary rights
will be adequate or that our competitors will not independently develop
comparable or superior technologies or obtain unauthorized access to our
proprietary technologies.
We hold the Internet domain name www.wallst.net. Under current domain name
registration practices, no one else can obtain an identical domain name, but
someone might obtain a similar name, or the identical name with a different
suffix, such as ".org", or with a country designation. The regulation of domain
names in the United States and in foreign countries is subject to change, and we
could be unable to prevent third parties from acquiring domain names that
infringe or otherwise decrease the value of our domain names.
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY IN THE FUTURE AS A RESULT OF A
VARIETY OF FACTORS, MANY OF WHICH ARE OUTSIDE OUR CONTROL. THESE FACTORS
INCLUDE:
the early stage of our development;
the level of web usage;
traffic levels on our web site, which can fluctuate significantly as a
result of business and financial news events;
the demand for advertising on our web site as well as on the web in
general;
changes in rates paid for web advertising resulting from competition or
other factors;
our ability to enter into or renew key agreements;
the amount and timing of our costs related to our marketing efforts or
other initiatives;
fees we may pay for distribution or content agreements or other costs we
incur as we expand our operations;
new services introduced by us or our competitors;
competitive factors;
technical difficulties or system downtime affecting the web generally or
the operation of our web site;
or
economic conditions specific to the web as well as general economic
conditions.
We expect that over time our revenues will come from a mix of investor awareness
work, advertising, content licensing, membership driven e-commerce and newspaper
subscription service fees. However, we expect to be substantially dependent on
investor awareness work and advertising revenues for the foreseeable future.
Therefore, our revenues and operating results are likely to be particularly
affected by the level of our ability to win various investor awareness mandates
and advertising proposals going forward. Our cost structure could also change
dramatically as we scale up our operations in each business segment we intend to
operate. Any shortfall in our revenues would have a direct impact on our
operating results going forward and these fluctuations could negatively affect
the value of common stock in a manner unrelated to our long-term operating
performance.
WE COULD EXPERIENCE SEASONAL AND CYCLICAL FACTORS INCLUDING BUT NOT LIMITED TO
ECONOMY, STOCK MARKET CONDITION AND GEO-POLITICAL RISKS ON OUR BUSINESS.
We believe that investor relations budget and advertising sales, generally tend
to be limited during economic downturn, recession, bear market, decline in
consumer confidence and increase in geo-political risks. Financial media
industry follows the same seasonal patterns as those in the traditional media,
we may experience lower revenues subject to deteriorating economic and market
conditions. Furthermore, traffic levels on our web site typically fluctuate with
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the occurrence of significant events in the business and financial news, such as
fluctuations in the stock markets, changes in geo-political situations, major
news and events related to business, companies that could cause changes in our
audience size.
THERE IS INTENSE COMPETITION FOR WEB-BASED BUSINESS AND FINANCIAL CONTENT AND WE
MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.
Many web sites compete for consumers' and advertisers' attention and spending,
particularly in the business and financial information and news area. We expect
this competition to continue to increase. We compete for investor relation
campaign, advertisers, users and content providers with many types of companies:
publishers and distributors of traditional media, including television,
radio and print, such as The WallStreet Journal, CNN and CNBC;
general purpose consumer online services such as America Online and
Microsoft Network;
online services or web sites targeted to business, finance and investing
needs, such as TheStreet.com and Motley Fool; and
web retrieval and other web "portal" companies, such as Excite, Infoseek,
Lycos, Yahoo! and America Online.
Increased competition could result in price reductions, reduced margins or loss
of market share, any of which would adversely affect our business.
WE WILL NEED TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH OTHER WEB
SITES TO ATTRACT USERS, ADVERTISERS AND CONTENT
We depend on establishing and maintaining distribution relationships with
high-traffic web sites for a significant portion of our traffic. There is
intense competition for placements on these sites, and we may not be able to
enter into such relationships on commercially reasonable terms or at all. Even
if we enter into distribution relationships with these web sites, they
themselves may not attract significant numbers of users. Therefore, our site may
not receive additional users from these relationships. Moreover, we may have to
pay significant fees to establish these relationships.
Occasionally we enter into agreements with advertisers, content providers or
other high traffic web sites that require us to exclusively feature these
parties in certain sections of our web site. Existing and future exclusivity
arrangements may prevent us from entering into other content agreements,
advertising or sponsorship arrangements or other strategic relationships. Many
companies we may pursue for a strategic relationship also offer competing
services. As a result, these competitors may be reluctant to enter into
strategic relationships with us. Our business could be adversely affected if we
do not establish and maintain additional strategic relationships on commercially
reasonable terms or if any of our strategic relationships do not result in
increased use of our web site.
WE ARE SIGNIFICANTLY INFLUENCED BY OUR OFFICERS, DIRECTORS AND ENTITIES
AFFILIATED WITH THEM.
In the aggregate, ownership of FMG shares by management represents approximately
71% of issued and outstanding shares of common stock. These shareholders, if
acting together, will be able to significantly influence all matters requiring
approval by shareholders, including the election of directors and the approval
of mergers or other business combinations transactions. Our future performance
is dependent on the ability to retain key personnel. The Company performance is
substantially dependent on the performance of senior management and key
technical personnel. In particular, the Company's success depends on the
continued efforts of its senior management team. The loss of the services of any
of its executive officers or other key employees could have a material adverse
effect on the Company's business, results of operations and financial condition.
13
Future success also depends on the continuing ability to retain and attract
highly qualified technical, editorial and managerial personnel. The Company
anticipates that the number of employees will increase in the next 12 months.
Wages for managerial and technical employees are increasing and are expected to
continue to increase in the foreseeable future due to the competitive nature of
this job market. The Company has experienced difficulty from time to time in
attracting the personnel necessary to support the growth of its business, and
there can be no assurance that it will not experience similar difficulty in the
future. The inability to attract and retain the technical and managerial
personnel necessary to support the growth of its business could have a material
adverse effect upon the Company's business, results of operations and financial
condition.
WE DEPEND ON OUR DIRECT SALES FORCE TO SELL ADVERTISING ON OUR WEB SITE
We have created our own internal sales force. As of January 10, 2006, our sales
group had 13 members. We depend on our sales force to sell advertising on our
web site. This involves a number of risks:
our sales personnel have only worked for us for a short period of time;
our need to further increase the size of our sales force;
our ability to hire, retain, integrate and motivate additional sales and
sales support personnel;
the length of time it takes new sales personnel to become productive;
and the competition we face from other companies in hiring and retaining
sales personnel.
Our business would be adversely affected if we do not develop and maintain an
effective sales force.
WE DEPEND ON ADVERTISERS FROM THE FINANCIAL INDUSTRY AND WE MAY NOT SUCCEED IN
ATTRACTING ADVERTISERS FROM OTHER INDUSTRIES
Publicly traded companies have accounted for the substantial majority of our
advertising revenues. We will need to sell advertising to customers outside our
client base in order to increase our revenues. To date, relatively few
advertisers from industries other than publicly traded companies and financial
industries have devoted a significant portion of their advertising budgets to
web advertising. If we do not attract advertisers from other industries, our
business could be adversely affected.
OUR SYSTEMS MAY NOT BE ABLE TO ACCOMMODATE INCREASES IN THE NUMBER OF USERS OF
OUR SERVICES
In the past, our web site has experienced significant increases in traffic when
there are noteworthy business or financial news stories. In addition, the number
of our users has continued to increase over time and we are seeking to further
increase our user base. Therefore, our web site must accommodate a high volume
of traffic and deliver frequently updated information. Our web site has in the
past and may in the future experience slower response times or other problems
for a variety of reasons.
Our web site could experience disruptions or interruptions in service due to the
failure or delay in the transmission or receipt of this information. In
addition, our users depend on Internet service providers, online service
providers and other web site operators for access to our web site. Each of them
has experienced significant outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to our systems.
These types of occurrences could cause users to perceive our web site as not
functioning properly and therefore cause them to use other methods to obtain
their business and financial news and other information.
14
IF WE DO NOT DEVELOP NEW AND ENHANCED SERVICES AND FEATURES FOR OUR WEB SITE, WE
MAY NOT BE ABLE TO ATTRACT AND RETAIN A SUFFICIENT NUMBER OF USERS
We believe that our web site will be more attractive to advertisers if we
develop a larger audience comprised of demographically favorable users.
Accordingly, we intend to introduce additional or enhanced services in the
future in order to retain our current users and attract new users. If we
introduce a service that is not favorably received our current users may not
continue using our service as frequently. New users could also choose a
competitive service over ours.
We may also experience difficulties that could delay or prevent us from
introducing new services. Furthermore, these services may contain errors that
are discovered after the services are introduced. We may need to significantly
modify the design of these services on our web site to correct these errors. Our
business could be adversely affected if we experience difficulties in
introducing new services or if users do not accept these new services.
WE NEED AND MAY BE UNABLE TO OBTAIN ADDITIONAL FUNDING ON SATISFACTORY TERMS,
WHICH COULD DILUTE OUR STOCKHOLDERS OR IMPOSE BURDENSOME FINANCIAL RESTRICTIONS
ON OUR BUSINESS.
The development of our product candidates will require a commitment of
substantial funds in excess of the proceeds of from the Private Offering to
conduct the costly and time-consuming research, pre-clinical and clinical
testing necessary to obtain regulatory approvals and bring our products to
market. Our future capital requirements will depend on many factors, including:
the progress of our research and development programs; the progress, scope and
results of our pre-clinical and clinical testing; the time and cost involved in
obtaining regulatory approvals; the cost of manufacturing our product
candidates; the cost of prosecuting, defending and enforcing patent claims and
other intellectual property rights; competing technological and market
developments; and our ability to establish and maintain collaborative and other
arrangements with third parties to assist in bringing our products to market and
the cost of such arrangements.
We will need to raise substantial additional capital to fund our future
operations. We cannot be certain that additional financing will be available on
acceptable terms, or at all. In recent years, it has been difficult for
companies to raise capital due to a variety of factors, which may or may not
continue. To the extent we raise additional capital through the sale of equity
securities, the ownership position of our existing stockholders could be
substantially diluted. If additional funds are raised through the issuance of
preferred stock or debt securities, these securities are likely to have rights,
preferences and privileges senior to our common stock. Fluctuating interest
rates could also increase the costs of any debt financing we may obtain.
Failure to successfully address ongoing liquidity requirements will have a
material adverse effect on our business. If we are unable to obtain additional
capital on acceptable terms when needed, we may be required to take actions that
harm our business and our ability to achieve cash flow in the future, including
possibly the surrender of our rights to some technologies or product
opportunities, delaying our clinical trials or curtailing or ceasing operations.
OUR FAILURE TO MANAGE GROWTH EFFECTIVELY COULD IMPAIR OUR BUSINESS.
Our business strategy envisions a period of rapid growth that may put a strain
on our administrative, operational resources and funding requirements. Our
ability to effectively manage growth will require us to continue to expand the
capabilities of our operational and management systems and to attract, train,
manage and retain qualified engineers, technicians, salespersons and other
personnel. There can be no assurance that we will be able to do so, particularly
15
if our losses continue and we are unable to obtain sufficient financing. If we
are unable to successfully manage our growth, our business, prospects, financial
condition and results of operations could be adversely affected.
WE OPERATE WITHIN A HIGHLY COMPETITIVE AND COMPLEX MARKET THAT IS DIRECTLY OR
INDIRECTLY AFFECTED BY MARKET RISKS AND REGULATIONS.
Financial media is extremely competitive and fragmented industry. The industry
can be significantly affected by many factors, including changes in local,
regional, and national economic conditions, changes in consumer preferences,
brand name recognition, marketing and the development of new and competing
financial media Company. We expect that existing businesses that compete with us
and have greater financial resources than us will be able to undertake more
extensive marketing campaigns and more aggressive advertising sales policies
than us, thereby generating more attention to their Company and website. These
competitive pressures could have a material adverse effect on our business,
prospects, financial condition, and results of operations.
RISKS RELATED TO OUR INDUSTRY
WE DEPEND ON THE CONTINUED GROWTH IN THE USE OF THE WEB, PARTICULARLY FOR
FINANCIAL NEWS AND INFORMATION
Our business depends on consumers continuing to increase their use of the web
for obtaining news and financial information as well as for conducting
commercial transactions. The rapid growth and use of the Internet is a recent
phenomenon. As a result this acceptance and use may not continue to develop at
historical rates. Web usage may be inhibited for a number of reasons, such as:
inadequate network infrastructure;
security concerns;
inconsistent quality of service; and
availability of cost-effective, high-speed service.
If web usage grows, the Internet infrastructure may not be able to support the
demands placed on it by this growth or its performance and reliability may
decline. In addition, web sites have experienced interruptions in their service
as a result of outages and other delays occurring throughout the Internet
network infrastructure. If these outages or delays frequently occur in the
future, web usage, as well as usage of our web site, could grow more slowly or
decline.
WE DEPEND ON THE SALE OF ADVERTISEMENTS ON OUR WEB SITE AND IF WEB ADVERTISING
DOES NOT BECOME ACCEPTED, OUR BUSINESS WOULD BE HARMED
We expect to derive a substantial amount of our revenues from advertising for
the foreseeable future. No standards have been widely accepted to measure the
effectiveness of web advertising. If such standards do not develop, existing
advertisers may not continue their current levels of web advertising.
Furthermore, advertisers that have traditionally relied upon other advertising
media may be reluctant to advertise on the web. Advertisers that already have
invested substantial resources in other advertising methods may be reluctant to
adopt a new strategy. Our business would be adversely affected if the market for
web advertising fails to develop or develops more slowly than expected.
Different pricing models are used to sell advertising on the web. It is
difficult to predict which, if any, will emerge as the industry standard. This
makes it difficult to project our future advertising rates and revenues. For
example, advertising rates based on the number of "click throughs," or user
requests for additional information made by clicking on the advertisement,
instead of rates based solely on the number of impressions, or times an
advertisement is displayed, could adversely affect our revenues because
16
impression-based advertising comprises a substantial majority of our current
advertising revenues. Our advertising revenues could be adversely affected if we
are unable to adapt to new forms of web advertising. Moreover, "filter" software
programs that limit or prevent advertising from being delivered to a web user's
computer are available. Widespread adoption of this software could adversely
affect the commercial viability of web advertising.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE WEB COULD HINDER
THE POPULARITY OF THE WORLD WIDE
WEB
There are currently few laws or regulations that specifically regulate
communications or commerce on the web. However, laws and regulations may be
adopted in the future that address issues such as user privacy, pricing, and the
characteristics and quality of products and services. For example, the
telecommunications act sought to prohibit transmitting certain types of
information and content over the web. Several telecommunications companies have
petitioned the federal communications commission to regulate Internet service
providers and online services providers in a manner similar to long distance
telephone carriers and to impose access fees on these companies. This could
increase the cost of transmitting data over the Internet. Moreover, it may take
years to determine the extent to which existing laws relating to issues such as
property ownership, libel and personal privacy are applicable to the web. Any
new laws or regulations relating to the web could adversely affect our business.
WEB SECURITY CONCERNS COULD HINDER INTERNET COMMERCE.
The need to securely transmit confidential information over the Internet has
been a significant barrier to electronic commerce and communications over the
web. Any well-publicized compromise of security could deter more people from
using the web or from using it to conduct transactions that involve transmitting
confidential information, such as stock trades or purchases of goods or
services. Because many of our advertisers seek to advertise on our web site to
encourage people to use the web to purchase goods or services, our business
could be adversely affected.
We may also incur significant costs to protect against the threat of security
breaches or to alleviate problems caused by such breaches.
WE COULD FACE LIABILITY FOR THE INFORMATION DISPLAYED ON OUR WEB SITE
We may be subjected to claims for defamation, negligence, copyright or trademark
infringement or based on other theories relating to the information we publish
on our web site. These types of claims have been brought, sometimes
successfully, against online services as well as other print publications in the
past. We could also be subjected to claims based upon the content that is
accessible from our web site through links to other web sites.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, par value, $0.001 per share ("Common Stock") is
traded on the Over the Counter NASDAQ Electronic Bulletin Board ("OTC") under
the symbol "FNGP.OTCBB" The following table sets forth, for the period
indicated, the range of high and low closing prices reported by the OTC. Such
quotations represent prices between dealers and may not include markups,
markdowns, or commissions and may not necessarily represent actual transactions.
17
Fiscal Year Ending August 31, 2004 High Bid Low Bid
- ---------------------------------- -------- -------
Quarter Ending November 30, 2003 $0.10 $0.015
Quarter Ending February 28, 2004 $0.10 $0.04
Quarter Ending May 31, 2004 $0.08 $0.02
Quarter Ending August 31, 2004 $0.006 $0.007
Fiscal Year Ending August 31, 2005
Quarter Ending November 30, 2004 $0.78 $0.30
Quarter Ending February 28, 2005 $1.20 $0.35
Quarter Ending May 31, 2005 $0.74 $0.15
Quarter Ending August 31, 2005 $0.25 $0.17
Fiscal Year Ending August 31, 2006
Quarter Ending November 30, 2005 $1.46 $0.17
As of January 10, 2006 $1.40 $0.70
Holders
On January 10, 2006, there were approximately 540 shareholders of record of the
Registrant's common stock.
On December 2, 2004, the Registrant's stockholders approved an amendment to the
Registrant's Articles of Incorporation to a reverse-split of the Registrant's
issued and outstanding common stock 100 to 1.
The total aggregate number of shares of all classes of capital stock, which the
Registrant has authority to issue is 305,000,000 of which 300,000,000 are shares
of common stock, $0.001 par value and 5,000,000 are shares of preferred stock,
$0.001 par value. On January 10, 2006 there were approximately 24,394,530 shares
of Common Stock issued and outstanding and no shares of preferred stock issued
and outstanding.
Dividends
The Company has not declared any cash dividends since inception and does not
anticipate paying any dividends in the foreseeable future. The payment of
dividends is within the discretion of the Board of Directors and will depend on
the Company's earnings, capital requirements, financial condition, and other
relevant factors. There are no restrictions that currently limit the Company's
ability to pay dividend on its Common Stock other than those generally imposed
by applicable state law.
DIRECTORS AND EXECUTIVE OFFICERS, MANAGEMENT OF FMG.
Set forth below is information with respect to our directors and executive
officers as of January 10, 2006.
NAME AGE POSITION
- ------------------- --- -------------------------------------------------
Albert Aimers 43 Chairman of the Board and Chief Executive Officer
Javan Khazali 42 Chief Operating Officer, Chief Financial Officer
and Director
Tyson Le 26 Secretary
Dato'Sri Ram Sarma 52 Director
A. Chandrakumanan 42 Director
Nick Iyer 27 Director
Tom Hemingway 47 Director
18
ALBERT AIMERS was elected Chairman of the Board and Chief Executive Officer
subsequent to the close of the Acquisition in January 2006. Mr. Aimers brings to
"WSD" his business leadership, product development and creative talents. Mr.
Aimers has been in the financial industry for 15 years specializing in such
areas as Merchant and Investment Banking, Mergers and Acquisitions, Investor
Awareness and Investor Relations and Financial and Media Relations and Strategic
Investor. Mr. Aimers was an early primary Merchant Banker Investor in Sonus
Healthcare (AMEX), and a strategic investor for National Challenge Systems ($80
Million market cap). Mr. Aimers was a former board member of Envoy
Communications (ECGI-NASDAQ)-Advertising. Mr. Aimers was a founder of now
defunct streaming media company iLive Inc. (former trading symbol LIVE). Mr.
Aimers is the founder of Wallst.net and Wallstreet Direct Inc.
JAVAN KHAZALI became the Chief Operating Officer in January 2006 and had been
the Chief Executive Officer and has been Chief Financial Officer and a director
of the Company since November 2004. Mr. Khazali has over eighteen years of
experience at senior executive level in both private and public sectors with
main focus on services, telecommunications and financial media industry
segments. He has broad based experience in the areas of corporate restructuring
& reorganization, business development, operations, and management consulting.
Mr. Khazali joined Cypost Corporation ("Cypost") as Vice President
(Administration) in 2001 and was promoted to become CEO of the Company from 2002
to 2003. In 2003, the directors of Cypost filed a Chapter 7 Bankruptcy. During
the bankruptcy proceedings Mr. Khazali assisted the Company in financial
distress negotiations, bankruptcy litigations and helped resolve disputes
between Cypost and debt holders, lenders, bank groups and equity holders. >From
1985 to 2000, Mr. Khazali held numerous senior level positions in the food
service sector including as a managing partner of two successful restaurants
located in Western Canada. He also served as the director of operations of
privately held restaurant chain located in various cities of United States and
Western Canada having over 300 employees.
TYSON LE became Secretary of FMG, subsequent to the Acquisition, in January
2006. He has a background in tax accounting, statistical reporting, and
financial management. In 2004, Mr. Le worked for United Parcel Service and
designed back end documentation to aid in supply chain management for the
company. Mr. Le has experience in inventory control, bank and statement
reconciliation, pay roll and federal income taxes. Mr. Le received his education
at Orange Coast College.
DATO'SRI RAM SARMA is an active board member of several public companies
including a renowned infrastructure company listed on the Kuala Lumpur Stock
Exchange. He brings a strong network in international financial arena,
especially in South East Asia. Presently he is the Group Chairman and CEO of the
SRS Group, which comprises of several diversified companies in several business
segments like Trading, Construction, Manufacturing, Information, Technology and
Management Consulting. SRS Group is a major Asian company located in Kuala
Lumpur, Malaysia. Mr. Sarma has been serving as a Director of the Company since
July 1999.
A. CHANDRAKUMANAN was involved in negotiation and handling of the logistics for
the Malaysian Games (Sukma'98) and coordinated the supply of equipment for track
and field, boxing, basketball, and gymnastics. He has been the principal owner
of KRES Private Limited (Singapore), a stadium equipment supply company, for the
past ten years. His extensive expertise is in team attire and sports equipment.
Mr. Chandrakumanan manages the Company's Asian Office in Kuala Lumpur, Malaysia.
Mr. Chandrakumanan has been serving as a Director of the Company since July
1999.
19
NICK IYER became a director of WSD in January 2005 and a director of FMG
subsequent to the Acquisition in January 2006. Mr. Iyer has extensive experience
as an editor and newspaper reporter. Prior to joining WSD in 2003, Mr. Iyer
worked first as an editorial assistant, and later as a reporter at Newsday in
Long Island, New York. He has published more than 150 articles and was selected
by Newsday's senior editors to work on a combined Tribune Co. effort, titled
"The Lost", which profiled the victims of the September 11, 2001 terrorist
attacks. At the time, Iyer was 23, and the youngest reporter assigned to the
project. Mr. Iyer's work has been published in well-recognized and established
print media such as Newsday, The Los Angeles Times, The Chicago Tribune,
Encyclopedia.com, and by the National Institute of Literacy. Mr. Iyer has been
instrumental in writing many editorials and profiles on numerous publicly traded
and privately held companies. He holds a Bachelor's Degree in English Literature
from the State University of New York at Stony Brook.
TOM HEMINGWAY became a director in November 2004 and brings nearly two decades
of management experience in the areas of artificial intelligence, home
automation and network systems. Mr. Hemingway is currently Chairman and CEO of
Mergence Corporation (OTCBB: MRGN). He was a co-founder of eSynch (NASD: ESYN)
and served as its CEO from 1998 until 2003. From 1995 to 1998, he was president
of Intermach Corporation. Mr. Hemingway is a member of the Presidents Council of
Economic Review. Mr. Hemingway completed his studies at State University New
York, in Albany, New York and attended San Francisco State University for
additional courses.
BOARD COMMITTEES
The Board currently has two committees, the Audit Committee and Compensation and
Stock Option Committee established in January of 2005 to comply with the
Sarbanes Oxley Act. The chairman of the Audit Committee is Tom Hemingway.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning ownership of the Company's
Common Stock as of January 10, 2006 - (a) each director of the Company, (b) each
person known to the Company to be a beneficial owner of more than five percent
(5%) of its Common Stock, and (c) all executive officers and directors of the
Company as a group.
No. of shares
Name Beneficially Percent of
Owned Class
------------------------------------------------------------------------------
Albert Aimers, Chairman, CEO 15,072,250(1) 61.7%
Javan Khazali, COO, CFO and Director 1,325,000(2) 5.4%
Tyson Le, Secretary 0 0
Dato'Sri Ram Sarma, Director 42,799(3) *
A. Chandrakumanan, Director 42,799(4) *
Tom Hemingway, Director 0 0
Nick Iyer, Director 863,400 3.5%
Smart Energy Group, Inc. 3,000,000 12.3%
Officers and Directors as
a Group (7 individuals) 17,346,248 71%
* Less than 1%
20
(1) Of these shares, 14,638,750 are owned by AMC Capital Group, Inc., a
corporation of which Mr. Aimers is an officer, director and shareholder
and 433,500 shares are owned by Forest, Glenneyre Associates, Inc., a
corporation of which Mr. Aimers is an officer, director and a shareholder.
(2) Subsequent to the Acquisition, AMC Capital Group, Inc. ("AMC"),
transferred 1,300,000 shares to Mr. Khazali. AMC's intent was to provide a
greater incentive for the Chief Operating Officer of the Company without
diluting current shareholders.
(3) Includes 39,699 shares owned by Kres Private Ltd., a Company of which Mr.
Sarma owns 50% interest. (4) Includes 39,699 shares owned by Kres Private
Ltd., a Company of which Mr. Chandrakumanan owns 50% interest.
SECTION 3 - SECURITIES AND TRADING MARKETS
ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES.
On December 22, 2005, the Company closed a private placement of its Units at a
purchase price, after accounting for the Acquisition, of $.58 per Unit under
Rule 506 of Regulation D promulgated under the Securities Act of 1933, as
amended, to "accredited investors" as such term is defined under such Regulation
D ("Private Offering"). Each Unit consists of one share of common stock, one
Class A warrant exercisable at $1.16 per share and one Class B warrant
exercisable at $1.74 per share. The actual number of Units sold was 2,730,502,
which represented gross proceeds of $1,581,250.
All of the investors above are sophisticated individuals who had the opportunity
to review all of the Registrant's SEC filings and to discuss with the officers
and directors of the Registrant the business and financial activities of the
Registrant. All the investors acquired their shares for investment and not with
21
a view toward distribution. All Certificates have been affixed with an
appropriate legend restricting sales and transfers. Therefore, based on the
foregoing, the Registrant issued the shares in reliance upon the exemptions from
registration provided by Section 4(2) of the Securities Act of 1933 and/or
Regulation D, there under.
In addition, pursuant to the terms of the Agreement, (i) each share of common
stock, par value $.001, of WSD outstanding immediately prior to the effective
time of the Acquisition was, exchanged for approximately .4317 shares of FMG
common stock, par value $.001 per share, so that at the effective time of the
Acquisition, FMG became the holder of all of the issued and outstanding shares
of WSD. In addition, Class A warrants to purchase 2,730,502 shares of FMG common
stock and Class B warrants to purchase 2,730,502 shares of FMG common stock at
exercise prices of $1.16 per share and $1.74 per share, respectively were issued
to the WSD warrantholders in accordance with the Agreement. The issuance of such
shares and warrant was made in reliance on the exemption from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)
and/or Regulation D thereof.
SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
Audited Financial Statements of WallStreet Direct, Inc.
Report of Independent Registered Public Accounting Firm
Balance Sheet at December 31, 2004
Statements of Operations for the years ended December 31, 2003 and 2004
Statement of Changes in Shareholders' Equity/Deficit for the years ended
December 31, 2003 and 2004.
Statements of Cash Flows for the years ended December 31, 2003 and 2004.
Notes to Financial Statements
Unaudited Financial Statements of WallStreet Direct, Inc.
Condensed Balance Sheet at September 30, 2005 (unaudited)
Condensed Statements of Operations for the Nine Months Ended September
September 30, 2005 and 2004 (unaudited)
Condensed Statements of Cash Flows for the Nine Months Ended September 30,
2005 and 2004 (unaudited)
Notes to Condensed Financial Statements (unaudited)
(b) Pro Forma Financial Information.
The pro forma financial information required by Article 11 of Regulation
S-X has not been presented because the Registrant had no operations at the
time of the reverse-merger acquisition.
22
(d) Exhibits.
NO.1 TITLE
---- --------------------------------------------------------
2.1 Agreement and Plan of Reorganization between the Company
and Wallstreet Direct, Inc. dated September 19, 2005.(1)
2.2 Amendment to the Agreement and Plan of Reorganization
between the Company and Wallstreet Direct, Inc. dated
September 21, 2005. (1)
2.3 Second Amendment to the Agreement and Plan of
Reorganization between the Company and Wallstreet
Direct, Inc. dated December 19, 2005.
2.4 Third Amendment to the Agreement and Plan of
Reorganization between the Company and WallStreet
Direct, Inc. dated December 22, 2005.
99.3 Press Release dated January 11, 2006.
- ----------
(1) Previously filed
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FINANCIAL MEDIA GROUP, INC.
Date: January 11, 2006 /s/ ALBERT AIMERS
---------------------------
Albert Aimers,
Chief Executive Officer
24
Report of Independent Registered Public Accounting Firm
To the Board of Directors of:
Wallstreet Direct, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Wallstreet
Direct, Inc. and subsidiary as of December 31, 2004, and the related
consolidated statements of operations and comprehensive loss, changes in
stockholders' equity (deficit) and cash flows for the years ended December 31,
2004 and 2003. These 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 audits in accordance with the 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 consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wallstreet Direct,
Inc. and subsidiary as of December 31, 2004 and the results of its operations
and its cash flows for the years ended December 31, 2004 and 2003 in conformity
with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in the notes to
the consolidated financial statements, the Company's significant operating
losses and insufficient capital raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters also are
described in the notes to the consolidated financial statements. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Kabani & Company, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Los Angeles, California
January 3, 2006
F-1
DIGITAL WALLSTREET, INC.
BALANCE SHEET
DECEMBER 31, 2004
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 13,021
Marketable securities 132,195
Other current assets 5,220
Note receivable 103,825
---------
Total assets $ 254,261
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 56,188
Due to customers 12,750
Deferred revenue 48,894
Other liability 9,875
Accrued expenses 305,786
---------
Total current liabilities 433,493
Commitments and contingencies
STOCKHOLDERS' DEFICIT
Common stock 10,000
Unrealized loss on marketable securities (62,494)
Accumulated deficit (126,738)
---------
Total stockholders' deficit (179,232)
---------
Total liabilities and stockholders' deficit $ 254,261
=========
The accompanying notes are an integral part of these financial statements.
F-2
DIGITAL WALLSTREET, INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER, 31
----------------------
2004 2003
--------- ---------
Net revenues $ 915,160 $ 252,659
--------- ---------
Operating expenses
Marketing and promotional 142,686 57,586
General and administrative 746,875 311,011
--------- ---------
Total operating expenses 889,562 368,597
--------- ---------
Income (Loss) from operations 25,598 (115,938)
Non-Operating Income (Expense):
Interest expense (7,000) (3,500)
Interest income 5,290 10
Gain (Loss) on sale of marketable securities (20,455) 287
--------- ---------
Total non-operating income (expense) (22,165) (3,203)
--------- ---------
Income (Loss) before provision for income taxes 3,433 (119,142)
Provision for income tax 800 800
--------- ---------
Net Income (Loss) 2,633 (119,942)
Other comprehensive gain (loss):
Reclassification adjustment 796 --
Unrealized gain (loss) on marketable securities (61,698) (796)
--------- ---------
Comprehensive loss $ (58,270) $(120,737)
========= =========
Basic and diluted net income (loss) per share 0.04 (1.60)
========= =========
Weighted average shares of share capital outstanding
- basic and diluted 75,000 75,000
========= =========
The accompanying notes are an integral part of these financial statements.
F-3
DIGITAL WALLSTREET, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004
COMMON STOCK
-------------------- TOTAL
NUMBER OF COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT GAIN (LOSS) DEFICIT EQUITY (DEFICIT)
--------- -------- ------------- ------------ ---------------
Balance at December 31, 2002 75,000 $ 10,000 $ -- $ (9,429) $ 571
Comprehensive loss -- -- (796) -- (796)
Net Loss -- -- -- (119,942) (119,942)
--------- -------- ------------- ------------ ----------------
Balance at December 31, 2003 75,000 10,000 (796) (129,371) (120,167)
Unrealized loss on marketable securities -- -- (61,698) -- (61,698)
Net income -- -- -- 2,633 2,633
--------- -------- ------------- ------------ ----------------
Balance at December 31, 2004 75,000 $ 10,000 $ (62,494) $ (126,738) $ (179,232)
========= ======== ============= ============ ================
The accompanying notes are an integral part of these financial statements.
F-4
DIGITAL WALLSTREET, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,633 $(119,942)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Expenses paid with marketable securities 11,819 --
Revenues in exchange of marketable securities (521,196) (136,838)
(Gain) loss on sale of marketable securities 20,455 (287)
(Increase) decrease in current assets:
Receivables 7,000 (7,000)
Receivable from shareholder -- 450
Other current assets (5,220) --
(Decrease) increase in current liabilities:
Accounts payable and accrued expense 226,569 135,405
Deferred Revenue 7,143 --
--------- ---------
Net cash used in operating activities (250,797) (128,212)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for a note receivable (103,825) --
Cash paid to purchase marketable securities (175,933) (66,699)
Cash received from sale of marketable securities 537,096 201,270
--------- ---------
Net cash provided by investing activities 257,338 134,571
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of a loan to the shareholder (17,766) --
Cash received from the shareholder -- 17,766
--------- ---------
Net cash provided (used)
by financing activities (17,766) 17,766
--------- ---------
NET DECREASE IN CASH & CASH EQUIVALENTS (11,225) 24,125
CASH & CASH EQUIVALENTS, BEGINNING BALANCE 24,246 121
--------- ---------
CASH & CASH EQUIVALENTS, ENDING BALANCE $ 13,021 $ 24,246
========= =========
The accompanying notes are an integral part of these financial statements.
F-5
DIGITAL WALLSTREET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
1. ORGANIZATION AND NATURE OF OPERATIONS
Digital WallStreet, Inc. ("Company") was incorporated in Nevada on June
12, 2002 and commenced its operations during the first quarter of 2003.
The Company is a full service financial media company focused on
applications that empower the retail investment and financial communities
to collaborate directly with publicly traded companies. The Company
provides Internet based media and advertising services through its
financial website and the Company's business newspaper "wallst.net
Digest". The Company provides a full array of customized investor
awareness programs such as audio and video of senior management
interviews; press releases; newsletters and editorials; small cap
conferences and seminars; E-mail mailings and forums.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
In preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reported period.
Actual results could materially differ from those estimates.
Revenue recognition
The Company generates its revenue from advertising products related to
marketing public companies and professional investment concerns through
its financial media website.
Advertising products consist of Web-banner advertising, e-mail-based
advertising and print advertising. Web-banner advertising consists of
continuous or rotating advertisements on the Company's online platforms.
Delivery of these profiles is based on the number of impressions of an
advertisement that a customer purchases. An impression is a single
instance of an Internet user viewing the page that contains a customer's
name and/or logo. Revenue is recognized on such advertising programs based
on the proportionate units of advertising delivered over the period of a
media campaign.
E-mail services are mailings to the list of subscribers to our financial
media website, with delivery consisting solely of transmitting the mailing
to the e-mail targets. E-mail services may be bought on a per-transmission
basis, for which revenue is recorded when the transmission occurs, or on a
fixed-fee monthly basis in which the client receives access to a fixed
number of transmissions per month. The Company records the revenue on the
fixed fee monthly e-mail services on a pro-rata basis over the term of the
agreement.
The Company also generates advertising revenue from its print publication.
The Company has determined fixed costs depending on size, and placement in
the Company's print publication.
F-6
DIGITAL WALLSTREET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
All sources of revenue are recognized pursuant to Staff Accounting
Bulletin (SAB) 104 Revenue Recognition, when persuasive evidence of
arrangement exists, delivery of services has occurred, the fee is fixed or
determinable and collectibility is reasonable assured.
Payments received in advance of services provided are recorded as deferred
revenue.
Cost of revenues
Cost of revenue is recorded if the cost related directly to the services
the Company sells or to its revenue-generating flagship web-site. Cost of
revenues consists of Internet bandwidth, direct advertising purchases and
direct labor. Direct advertising purchases relate to Internet advertising
purchases for the purpose of promoting a client or client's feature on the
website. Direct labor is the hourly labor cost of certain programmers and
designers who implement or create design advertising for clients, and
produce e-mail mailings for clients. Direct labor costs are fully
recognized as cost of revenues in the period in which the associated
revenue is recognized. All other costs of revenue are recognized in the
period incurred.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" requires disclosures of information
about the fair value of certain financial instruments for which it is
practicable to estimate that value. For purposes of this disclosure, the
fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other
than in a forced sale or liquidation. The carrying amounts of the
Company's accounts and other receivables, accounts payable, accrued
liabilities and notes payable approximates fair value.
Cash and cash equivalents
Cash and cash equivalents consist of cash and short-term deposits with
original maturities of ninety days or less and are recorded at mark to
market.
Marketable Securities
The Company's investments in securities are classified as
available-for-sale and, as such, are carried at fair value based on quoted
market prices. Securities classified as available-for-sale may be sold in
response to changes in interest rates, liquidity needs, and for other
purposes.
Unrealized holding gains and losses for available-for-sale securities are
excluded from earnings and reported as a separate component of
stockholder's equity. Both realized and unrealized gains and losses for
securities classified as available-for-sale are included in the statement
of operations.
Property and equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful life of the assets from three to seven years. Expenditures for
maintenance and repairs are charged to expense as incurred.
F-7
DIGITAL WALLSTREET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
Income Taxes
The Company accounts for income taxes under the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ('Statement 109"). Under Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
the enactment date.
Basic and diluted net loss per share
Net loss per share is calculated in accordance with the Statement of
financial accounting standards No. 128 (SFAS No. 128), "Earnings per
share". Basic net loss per share is based upon the weighted average number
of common shares outstanding. Dilution is computed by applying the
treasury stock method. Under this method, options and warrants are assumed
to be exercised at the beginning of the period (or at the time of
issuance, if later), and as if funds obtained thereby were used to
purchase common stock at the average market price during the period.
Weighted average number of shares used to compute basic and diluted loss
per share is the same since the effect of dilutive securities is
anti-dilutive.
Concentrations of Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are cash and marketable securities. The
Company places its cash with financial institutions deemed by management
to be of high credit quality. The amount on deposit in any one institution
that exceeds federally insured limits is subject to credit risk. All of
the Company's investment in marketable securities are considered
"available-for-sale" and are carried at their fair value, with unrealized
gains and losses that are temporary in nature recorded in accumulated
other comprehensive income (loss) in the accompanying balance sheets. The
fair values of the Company's investments in marketable securities are
determined based on market quotations.
Reporting Segments
Statement of financial accounting standards No. 131, Disclosures about
segments of an enterprise and related information (SFAS No. 131), which
superceded statement of financial accounting standards No. 14, Financial
reporting for segments of a business enterprise, establishes standards for
the way that public enterprises report information about operating
segments in annual financial statements. The Company has determined it has
only one segment.
Stock-based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes accounting and reporting standards
for all stock-based compensation plans, including employee stock options,
restricted stock, employee stock purchase plans and stock appreciation
F-8
DIGITAL WALLSTREET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
rights. SFAS No. 123 requires compensation expense to be recorded (i)
using the new fair value method or (ii) using the existing accounting
rules prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for stock issued to employees" (APB 25) and related
interpretations with pro forma disclosure of what net income and earnings
per share would have been had the Company adopted the new fair value
method. The company uses the intrinsic value method prescribed by APB25
and has opted for the disclosure provisions of SFAS No.123.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock Based
Compensation-Transition and Disclosure". SFAS No. 148 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 adoption of SFAS
No. 148 did not have a material affect on the net loss of the Company.
Issuance of shares for services
The Company accounts for the issuance of equity instruments to acquire
goods and services based on the fair value of the goods and services or
the fair value of the equity instrument at the time of issuance, whichever
is more reliably measurable.
Comprehensive Income
Statement of financial accounting standards No. 130, Reporting
comprehensive income (SFAS No. 130), establishes standards for reporting
and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in
equity, except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS No. 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in financial
statements that are displayed with the same prominence as other financial
statements.
New Accounting Pronouncements
In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based
Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No.
123R requires companies to recognize in the statement of operations the
grant-date fair value of stock options and other equity-based compensation
issued to employees. FAS No. 123R is effective beginning in the Company's
first quarter of fiscal 2006. The Company is in process of evaluating the
impact of this pronouncement on its financial position.
In December 2004, the FASB issued SFAS Statement No. 153, "Exchanges of
Non-monetary Assets." The Statement is an amendment of APB Opinion No. 29
to eliminate the exception for non-monetary exchanges of similar
productive assets and replaces it with a general exception for exchanges
F-9
DIGITAL WALLSTREET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
of non-monetary assets that do not have commercial substance. The Company
believes that the adoption of this standard will have no material impact
on its financial statements.
In May 2005, the FASB issued SFAS No. 154, entitled Accounting Changes and
Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement
No. 3. This Statement replaces APB Opinion No. 20, Accounting Changes, and
FASB Statement No. 3, Reporting Accounting Changes in Interim Financial
Statements, and changes the requirements for the accounting for and
reporting of a change in accounting principle. This Statement applies to
all voluntary changes in accounting principle. It also applies to changes
required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. Opinion 20
previously required that most voluntary changes in accounting principle be
recognized by including in net income of the period of the change the
cumulative effect of changing to the new accounting principle. This
Statement requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable
to determine either the period-specific effects or the cumulative effect
of the change. This Statement defines retrospective application as the
application of a different accounting principle to prior accounting
periods as if that principle had always been used or as the adjustment of
previously issued financial statements to reflect a change in the
reporting entity. This Statement also redefines restatement as the
revising of previously issued financial statements to reflect the
correction of an error. The adoption of SFAS 154 did not impact the
consolidated financial statements.
In June 2005, the EITF reached consensus on Issue No. 05-6, Determining
the Amortization Period for Leasehold Improvements ("EITF 05-6") EITF 05-6
provides guidance on determining the amortization period for leasehold
improvements acquired in a business combination or acquired subsequent to
lease inception. The guidance in EITF 05-6 will be applied prospectively
and is effective for periods beginning after June 29, 2005. EITF 05-6 is
not expected to have a material effect on its consolidated financial
position or results of operations.
3. MARKETABLE SECURITIES
The Company receives securities of client companies as payment in full for
services rendered. The numbers of shares the Company will receive is based
on contracts with the customer and are valued based on the bid price at
the time of signing the agreement. The Company classifies the marketable
securities as available-for-sale and as such, is carried at fair value.
Securities classified as available-for-sale may be sold in response to
changes in interest rates, liquidity needs, and for other purposes.
Unrealized holding gains and losses on available-for-sale securities are
excluded from earnings and reported as a separate component of
stockholder's equity. Realized gains and losses for securities classified
as available-for-sale are reported in earnings based upon the adjusted
cost of the specific securities sold.
F-10
DIGITAL WALLSTREET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
Marketable securities classified as available-for-sale consisted of the
following as of December 31, 2003 and 2004:
MARKETABLE MARKET VALUE MARKET VALUE ACCUMULATED
SECURITIES AT DECEMBER 31, 2003 COST AT DECEMBER 31, 2004 UNREALIZED GAIN (LOSS)
- ---------- -------------------- --------- -------------------- ----------------------
Various $ 26,400 $ 194,689 $ 132,195 $ (62,494)
- ---------- -------------------- --------- -------------------- ----------------------
Total $ 26,400 $ 194,689 $ 132,195 $ (62,494)
========== ==================== ========= ==================== ======================
4. NOTES RECEIVABLE - RELATED PARTY
During 2004, the Company loaned $103,825 to a company payable upon demand
with interest at the rate of 12% per annum on the outstanding balance.
Digital WallStreet, Inc. had collected the note in full in August 2005.
5. LOAN PAYABLE - SHAREHOLDERS
During 2004, the Company paid the outstanding balance of Loan payable to
shareholders amounting $17,766 in full.
6. DUE TO CUSTOMERS
Due to customers represent securities held by the Company which are to be
returned to the customers as a result of negotiation with the customers.
The amount due to the customers is shown at the fair value of the
securities as of December 31, 2004.
7. DEFERRED REVENUE
The Company receives marketable securities and cash for services to be
provided in future periods. The Company recognizes the revenue on a
pro-rata basis over the term of the agreement. For the year ended December
31, 2004, the Company had $48,894 in deferred revenue.
8. ACCRUED EXPENSES
At December 31, 2004, accrued expenses were comprised of $236,375 in
accrued officer compensation and $69,411 in accrued interest, payroll and
franchise tax.
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW
The Company prepares its statements of cash flows using the indirect
method as defined under the Financial Accounting Standard No. 95.
F-11
DIGITAL WALLSTREET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
The Company paid $0 for income tax and interest during the year ended
December 31, 2004.
10. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its office facility on a month to month basis. Rent
expense under the operating leases for the years ended December 31, 2004
and 2003 was $51,548 and $15,573, respectively.
Employment Agreement with CEO
On July 19, 2003 the Company entered into an employment agreement with its
Chief Executive Officer to provide salary, bonuses and other fringe
benefits. Such expenses are included in Officers Compensation and related
expenses in the accompanying statement of operations. Pursuant to the
terms of this agreement and for the year ended December 31, 2004 and 2003,
the Company expensed $180,000 and $81,370 in salary, and $50,000 as
signing bonus in the year ending December 31, 2003.
Legal Matters
From time to time, the Company may be involved in various claims,
lawsuits, disputes with third parties, actions involving allegations of
discrimination or breach of contract actions incidental to the normal
operations of the business. Other than as disclosed herein, the Company is
not currently involved in any litigation which it believes could have a
material adverse effect on its financial position or results of
operations.
11. INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 2004 and
2003 is summarized as follows:
2004 2003
---------------- ----------------
Current:
Federal $ (0) $ (0)
State (800) (800)
Deferred taxes
================ ================
Income tax expense (benefit) $ 800 $ 800
================ ================
The following is a reconciliation of the provision for income taxes at the
U.S. federal income tax rate to the income taxes reflected in the
consolidated statements of operations:
F-12
DIGITAL WALLSTREET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
2004 2003
---------------- ----------------
Tax expense (credit) at
statutory rate-federal 34% (34%)
State tax expense net of federal tax 6% (6%)
Change in valuation allowance (40%) 40%
---------------- ----------------
Tax expense at actual rate -- --
================ ================
The tax effects of temporary differences that gave rise to significant
portions of deferred tax assets and liabilities at December 31, 2004 are
as follows:
Deferred tax assets:
Net operating loss carry forward $ 50,696
----------------
Total gross deferred tax assets 50,696
Less valuation allowance (50,696)
----------------
Net deferred tax assets $ --
================
At December 31, 2004, the Company had net operating loss carry forwards of
approximately $126,738 for U.S. federal income tax purposes available to
offset future taxable income expiring on various dates through 2018. The
Company has recorded a 100% valuation allowance on the deferred tax assets
due to the uncertainty of its realization.
12. GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. This basis of accounting
contemplates the recovery of the Company's assets and the satisfaction of
its liabilities in the normal course of business. Through December 31
2004, the Company had incurred cumulative losses of $126,738. In view of
the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying
balance sheet is dependent upon continued operations of the Company, which
in turn is dependent upon the Company's ability to raise additional
capital, obtain financing and to succeed in its future operations. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company
be unable to continue as a going concern.
Management has taken the following steps to revise its operating and
financial requirements, which it believes are sufficient to provide the
Company with the ability to continue as a going concern. Management
devoted considerable effort during the period ended December 31, 2004,
towards (i) obtaining additional equity financing and (ii) evaluation of
its distribution and marketing methods.
F-13
DIGITAL WALLSTREET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
13. SUBSEQUENT EVENTS
(a) Sale of Assets to WallStreet Direct, Inc.
WallStreet Direct, Inc. was incorporated in the State of Nevada on January
5, 2005 as a financial holding company specializing in a premier provider
of financial news, tools and original compelling content for the global
investment community. On January 15, 2005, WallStreet Direct, Inc.
acquired 100% of the assets and outstanding shares of the Company in
exchange for a $3,000,000 promissory note, carrying interest at 6% per
annum, note is due and payable on January 31, 2010. WallStreet Direct,
Inc. at the time of acquisition was 86% owned by Digital Wallstreet, Inc.
shareholder and the transaction was considered as a distribution to the
shareholder.
(b) Equity offering
On May 2, 2005, the Company commenced a private equity offering to
accredited investors. As of September 30, 2005 the Company sold 2,450,000
units at $0.25 per unit, for an aggregate of $612,500 in net proceeds.
Each unit is priced at $0.25 and consists of one (1) share of restricted
common stock and one redeemable Class A Warrant and one redeemable Class B
Warrant of WallStreet Direct, Inc. Each Class A Warrant entitles the
registered holder to purchase, at any time until the first anniversary of
the date of the offering memorandum, one share of Common Stock at an
exercise price of $0.50, subject to adjustment. Each Class B Warrant
entitles the registered holder to purchase, at any time until the second
anniversary of the date of the offering memorandum, one share of Common
Stock at an exercise price of $0.75, subject to adjustment. The Class A
Warrants and the Class B Warrants are redeemable by the Company, at a
redemption price of $.05 per Warrant, upon at least 30 days' prior written
notice, commencing six months after the date of the offering memorandum,
if the average of the closing bid price of the Common Stock, as reported
by the National Association of Securities Dealers Automated Quotation
("NASDAQ") System (or the average of the last sale price if the Common
Stock is then listed on the NASDAQ National Market System or a securities
exchange), shall exceed $1.00 per share for the Class A Warrants and $2.00
per share for the Class B Warrants (subject to adjustment) for 20
consecutive business days ending within 3 days of the date on which notice
of redemption is given. These securities were issued pursuant to Rule 506
of Regulation D.
The Company sold from October 1, 2005 through December 22, 2005, 3,875,000
units at $0.25 per unit, for an aggregate of $968,750 in net proceeds.
Each unit is priced at $0.25 and consists of one (1) shares of restricted
common stock and one redeemable Class A Warrant and one redeemable Class B
Warrant of WallStreet Direct, Inc. These securities were issued pursuant
to Rule 506 of Regulation D.
F-14
DIGITAL WALLSTREET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
DECEMBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
(c) Merger
On September 19, 2005, the Company signed an agreement to merge with a
public shell for exchange of 100% of the issued and outstanding shares of
the company for 20,000,000 shares of the public shell. Upon the
consummation of the exchange transaction, the Company's shareholders will
own approximately 82% of the shares of the combined company. This type of
exchange will be accounted for as a recapitalization of the Company rather
than as a business combination. The historical financial statements after
the merger will be those of the Company. No pro-forma financial
information is presented as the public shell has not generated any revenue
and the amount involved is insignificant. The exchange transaction has not
been consummated at the balance sheet date.
F-15
WALLSTREET DIRECT, INC.
BALANCE SHEET
SEPTEMBER 30, 2005
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 226,170
Marketable securities 4,353,271
Other current assets 5,125
-----------
Total current assets 4,584,565
Property and equipement, net 41,628
Other assets:
Deposit 9,578
-----------
$ 4,635,771
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable 493,686
Deferred revenue 3,200,223
Accrued expenses 501,264
-----------
Total current liabilities 4,195,173
Long-Term note payable 3,000,000
Commitments and contingencies --
STOCKHOLDERS' DEFICIT
Common stock 42,450
Additional paid in capital 570,150
Unrealized gain on marketable securities 754,842
Accumulated deficit (3,926,845)
-----------
Total stockholders' deficit (2,559,403)
-----------
Total liabilities and stockholders' deficit $ 4,635,771
===========
The accompanying notes are an integral part of these financial statements.
F-16
WALLSTREET DIRECT, INC.
STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
NINE MONTH PERIODS ENDED
(Unaudited)
SEPTEMBER 30,
----------------------------
2005 2004
------------ ------------
Net revenues $ 1,786,129 $ 509,997
------------ ------------
Operating expenses
Marketing and promotional $ 68,784 $ 86,398
Depreciation 3,962
Impairment of marketable securities 827,140
General and administrative 1,708,989 461,691
------------ ------------
Total operating expenses 2,608,876 548,089
------------ ------------
Income (Loss) from operations (822,746) (38,092)
Non-Operating Income (Expense):
Interest expense (4,979) --
Interest income 12,202 11
Gain (Loss) on sale of marketable securities 144,930 (17,526)
------------ ------------
Total non-operating income (expense) 152,153 (17,515)
------------ ------------
Income (Loss) before provision for income taxes (670,593) (55,607)
Provision for income tax 3,708 800
------------ ------------
Net Income (Loss) (674,301) (56,407)
Other comprehensive gain (loss):
Reclassification adjustment 62,494 796
Unrealized gain (loss) on marketable securities 817,336 (39,420)
------------ ------------
Comprehensive loss $ 205,530 $ (95,031)
============ ============
Basic and diluted net income (loss) per share (0.02) (0.75)
============ ============
Weighted average shares of share capital outstanding
- basic and diluted 39,096,703 75,000
============ ============
The accompanying notes are an integral part of these financial statements.
F-17
WALLSTREET DIRECT, INC.
STATEMENTS OF CASH FLOWS
NINE MONTH PERIODS ENDED
(Unaudited)
SEPTEMBER 30,
--------------------------
2005 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (674,301) $ (56,407)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,962 --
Expenses paid with marketable securities -- 11,819
Revenues in exchange of marketable securities (1,423,353) (316,340)
Impairment of marketable securities 827,140 --
(Gain) loss on sale of marketable securities (144,930) 17,526
(Increase) decrease in current assets:
Receivables -- 7,000
Other current assets (9,483) (4,939)
(Decrease) increase in current liabilities:
Accounts payable and accrued expense 497,170 165,071
Deferred Revenue (7,143) 2,510
----------- -----------
Net cash used in operating activities (930,938) (173,760)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid to purchase fixed assets (45,590) --
Cash received from a note receivable 103,825 --
Cash paid for a note receivable -- (48,550)
Cash paid to purchase marketable securities (125,052) (167,370)
Cash received from sale of marketable securities 598,304 388,600
----------- -----------
Net cash provided by investing activities 531,487 172,680
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received from stock issuances 612,600 --
Payment of loan to shareholder -- (17,766)
----------- -----------
Net cash provided (used)
by financing activities 612,600 (17,766)
----------- -----------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 213,149 (18,846)
CASH & CASH EQUIVALENTS, BEGINNING BALANCE 13,021 24,246
----------- -----------
CASH & CASH EQUIVALENTS, ENDING BALANCE $ 226,170 $ 5,400
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-18
WALLSTREET DIRECT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2005
(Unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND NATURE OF OPERATIONS
Digital WallStreet, Inc. was incorporated in Nevada on June 12, 2002 and
commenced its operations during the first quarter of 2003. The company is
a full service financial media company focused on applications that
empower the retail investment and financial communities to collaborate
directly with publicly traded companies. The company provides internet
based media and advertising services through its financial website and the
company's business newspaper wallst.net Digest.
WallStreet Direct, Inc. (the "Company") was incorporated in the State of
Nevada on January 5, 2005 as a financial media company specializing in a
premier provider of financial news, tools and original compelling content
for the global investment community. On January 15, 2005, the Company
acquired 100% of the assets and outstanding shares of Digital WallStreet,
Inc. which is 100% owned by the majority shareholder (86%) of the Company
in exchange for a $3,000,000 promissory note, carrying interest at 6% per
annum, note is due and payable on January 31, 2010. As this merger is
between entities under the common control, the issuance of the $3,000,000
note to the majority shareholder has been recorded as a distribution to
the majority shareholder. The merger has been accounted for on historical
cost basis.
This type of share exchange has been treated as a capital transaction
accompanied by recapitalization of Digital WallStreet in substance, rather
than a business combination, and is deemed a "reverse acquisition" for
accounting purposes since the former owners of Digital WallStreet
controlled the majority of the total common shares outstanding immediately
following the acquisition. Recapitalization accounting resulted in
consolidated financial statements being issued under the name of
WallStreet Direct, Inc., but were considered a continuation of Digital
WallStreet. No pro forma financial statements are being presented as
WallStreet Direct has no assets other than the assets and shares acquired
of the related third party as discussed above.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements have been prepared by
WallStreet Direct, Inc. pursuant to the rules and regulations of the
Securities and Exchange Commission. The information furnished herein
reflects all adjustments (consisting of normal recurring accruals and
adjustments) which are, in the opinion of management, necessary to fairly
present the operating results for the respective periods. Certain
information and footnote disclosures normally present in annual
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
omitted pursuant to such rules and regulations. These consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and footnotes for the year ended
December 31, 2004. The results of the nine months ended September 30, 2005
are not necessarily indicative of the results to be expected for the full
year ending December 31, 2005.
F-19
WALLSTREET DIRECT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2005
(Unaudited)
- --------------------------------------------------------------------------------
Revenue recognition
The Company generates its revenue from advertising products related to
marketing public companies and professional investment concerns through
its financial media website.
Advertising products consist of Web-banner advertising, e-mail-based
advertising and print advertising Web-banner advertising consists of
continuous or rotating advertisements on the Company's online platforms.
Delivery of these profiles is based on the number of impressions of an
advertisement that a customer purchases. An impression is a single
instance of an Internet user viewing the page that contains a customer's
name and/or logo. Revenue is recognized on such advertising programs based
on the proportionate units of advertising delivered over the period of a
media campaign.
E-mail services are mailings to the list of subscribers to our financial
media website, with delivery consisting solely of transmitting the mailing
to the e-mail targets. E-mail services may be bought on a per-transmission
basis, for which revenue is recorded when the transmission occurs, or on a
fixed-fee monthly basis in which the client receives access to a fixed
number of transmissions per month. The Company records the revenue on the
fixed fee monthly e-mail services on a pro-rata basis over the term of the
agreement.
The Company also generates advertising revenue from its print publication.
The Company has determined fixed costs depending on size, and placement in
the Company's print publication
All sources of revenue are recorded pursuant to Staff Accounting Bulletin
(SAB) 104 Revenue Recognition, when persuasive evidence of arrangement
exists, delivery of services has occurred, the fee is fixed or
determinable and collectibility is reasonable assured.
Payments received in advance of services provided are recorded as deferred
revenue.
Cost of revenues
Costs of revenue are recorded if the cost related directly to the services
the Company sells or to its revenue-generating flagship web-site. Cost of
revenues consists of Internet bandwidth, direct advertising purchases and
direct labor. Direct advertising purchases relate to Internet advertising
purchases for the purpose of promoting a client or client's feature on the
website. Direct labor is the hourly labor cost of certain programmers and
designers who implement or create design advertising for clients, and
produce e-mail mailings for clients. Direct labor costs are fully
recognized as cost of revenues in the period in which the associated
revenue is recognized. All other costs of revenue are recognized in the
period incurred.
F-20
WALLSTREET DIRECT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2005
(Unaudited)
- --------------------------------------------------------------------------------
Marketable Securities
The Company's investments in securities are classified as
available-for-sale and, as such, are carried at fair value based on quoted
market prices. Securities classified as available-for-sale may be sold in
response to changes in interest rates, liquidity needs, and for other
purposes.
Unrealized holding gains and losses for available-for-sale securities are
excluded from earnings and reported as a separate component of
stockholder's equity. Both realized and unrealized gains and losses for
securities classified as available-for-sale are included in the statement
of operations.
Basic and diluted net loss per share
Net loss per share is calculated in accordance with the Statement of
financial accounting standards No. 128 (SFAS No. 128), "Earnings per
share". Basic net loss per share is based upon the weighted average number
of common shares outstanding. Dilution is computed by applying the
treasury stock method. Under this method, options and warrants are assumed
to be exercised at the beginning of the period (or at the time of
issuance, if later), and as if funds obtained thereby were used to
purchase common stock at the average market price during the period.
Weighted average number of shares used to compute basic and diluted loss
per share is the same since the effect of dilutive securities is
anti-dilutive.
Concentrations of Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are cash and marketable securities. The
Company places its cash with financial institutions deemed by management
to be of high credit quality. The amount on deposit in any one institution
that exceeds federally insured limits is subject to credit risk. All of
the Company's investment in marketable securities are considered
"available-for-sale" and are carried at their fair value, with unrealized
gains and losses (net of income taxes) that are temporary in nature
recorded in accumulated other comprehensive income (loss) in the
accompanying balance sheets. The fair values of the Company's investments
in marketable sureties are determined based on market quotations.
Reporting Segments
Statement of financial accounting standards No. 131, Disclosures about
segments of an enterprise and related information (SFAS No. 131), which
superceded statement of financial accounting standards No. 14, Financial
reporting for segments of a business enterprise, establishes standards for
the way that public enterprises report information about operating
segments in annual financial statements. The Company has determined it has
only one segment.
F-21
WALLSTREET DIRECT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2005
(Unaudited)
- --------------------------------------------------------------------------------
Stock-based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes accounting and reporting standards
for all stock-based compensation plans, including employee stock options,
restricted stock, employee stock purchase plans and stock appreciation
rights. SFAS No. 123 requires compensation expense to be recorded (i)
using the new fair value method or (ii) using the existing accounting
rules prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for stock issued to employees" (APB 25) and related
interpretations with pro forma disclosure of what net income and earnings
per share would have been had the Company adopted the new fair value
method. The company uses the intrinsic value method prescribed by APB25
and has opted for the disclosure provisions of SFAS No.123.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock Based
Compensation-Transition and Disclosure". SFAS No. 148 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 adoption of SFAS
No. 148 did not have a material affect on the net loss of the Company.
Issuance of shares for services
The Company accounts for the issuance of equity instruments to acquire
goods and services based on the fair value of the goods and services or
the fair value of the equity instrument at the time of issuance, whichever
is more reliably measurable.
Comprehensive Income
Statement of financial accounting standards No. 130, Reporting
comprehensive income (SFAS No. 130), establishes standards for reporting
and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in
equity, except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS No. 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in financial
statements that are displayed with the same prominence as other financial
statements.
New Accounting Pronouncements
In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based
Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No.
123R requires companies to recognize in the statement of operations the
grant-date fair value of stock options and other equity-based compensation
issued to employees. FAS No. 123R is effective beginning in the Company's
first quarter of fiscal 2006. The Company is in process of evaluating the
impact of this pronouncement on its financial position.
F-22
WALLSTREET DIRECT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2005
(Unaudited)
- --------------------------------------------------------------------------------
In December 2004, the FASB issued SFAS Statement No. 153, "Exchanges of
Non-monetary Assets." The Statement is an amendment of APB Opinion No. 29
to eliminate the exception for non-monetary exchanges of similar
productive assets and replaces it with a general exception for exchanges
of non-monetary assets that do not have commercial substance. The Company
believes that the adoption of this standard will have no material impact
on its financial statements.
In May 2005, the FASB issued SFAS No. 154, entitled Accounting Changes and
Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement
No. 3. This Statement replaces APB Opinion No. 20, Accounting Changes, and
FASB Statement No. 3, Reporting Accounting Changes in Interim Financial
Statements, and changes the requirements for the accounting for and
reporting of a change in accounting principle. This Statement applies to
all voluntary changes in accounting principle. It also applies to changes
required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. Opinion 20
previously required that most voluntary changes in accounting principle be
recognized by including in net income of the period of the change the
cumulative effect of changing to the new accounting principle. This
Statement requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable
to determine either the period-specific effects or the cumulative effect
of the change. This Statement defines retrospective application as the
application of a different accounting principle to prior accounting
periods as if that principle had always been used or as the adjustment of
previously issued financial statements to reflect a change in the
reporting entity. This Statement also redefines restatement as the
revising of previously issued financial statements to reflect the
correction of an error. The adoption of SFAS 154 did not impact the
consolidated financial statements.
In June 2005, the EITF reached consensus on Issue No. 05-6, Determining
the Amortization Period for Leasehold Improvements ("EITF 05-6") EITF 05-6
provides guidance on determining the amortization period for leasehold
improvements acquired in a business combination or acquired subsequent to
lease inception. The guidance in EITF 05-6 will be applied prospectively
and is effective for periods beginning after June 29, 2005. EITF 05-6 is
not expected to have a material effect on its consolidated financial
position or results of operations.
3. MARKETABLE SECURITIES
The Company receives securities of client companies as payment in full for
services rendered. The numbers of shares the Company receives is based on
contracts and the value is determined based on the bid price at the time
of signing the agreement. The Company classifies the marketable securities
as available-for-sale and as such, is carried at fair value. At September
30, 2005, the fair value of the marketable securities held is calculated
on the bid price as of September 30, 2005. Securities classified as
available-for-sale may be sold in response to changes in interest rates,
liquidity needs, and for other purposes. The Company does not currently
have any held-to-maturity or trading securities.
F-23
WALLSTREET DIRECT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2005
(Unaudited)
- --------------------------------------------------------------------------------
Unrealized holding gains and losses on available-for-sale securities are
excluded from earnings and reported as a separate component of
stockholder's equity. Realized gains and losses for securities classified
as available-for-sale are reported in earnings based upon the adjusted
cost of the specific securities sold.
Marketable securities classified as available-for-sale consisted of the
following as of September 30, 2004 and 2005:
MARKETABLE MARKET VALUE MARKET VALUE ACCUMULATED
SECURITIES AT SEPTEMBER 30, 2004 COST AT SEPTEMBER 30, 2005 UNREALIZED GAIN (LOSS)
- ---------- --------------------- ---------- --------------------- ----------------------
Various $ 85,806 $3,598,429 $ 4,353,271 $ 754,842
--------------------- ---------- --------------------- ----------------------
Total $ 85,806 $3,598,429 $ 4,353,271 $ 754,842
===================== ========== ===================== ======================
During the period ended September 30, 2005, the Company evaluated its
marketable securities holdings by valuing the securities according to the
quoted price of the securities on the stock exchange and determined that
several of them had an other than temporary decline in value. Accordingly,
these securities were written down to the current market value and an
impairment loss in the amount of $ 827,140 was recognized.
4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2005 consisted of the following:
Office and computer equipment $ 45,590
Less accumulated depreciation (3,962)
-------------
$ 41,628
=============
Depreciation expense for the nine months ended September 30, 2005 and 2004
was $3,962 and $0, respectively.
5. DEPOSITS
The Company did not have any deposits at September 30, 2004. Deposits at
September 30, 2005, consisted of a $9,578 rent deposit on the Company's
main office.
6. DEFERRED REVENUES
The Company receives marketable securities and cash for services to be
provided in future periods and the Company recognizes the revenue on a
pro-rata basis over the term of the agreement. For the nine months ended
September 30, 2005, the Company had $3,200,223 in deferred revenues.
F-24
WALLSTREET DIRECT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2005
(Unaudited)
- --------------------------------------------------------------------------------
7. ACCRUED EXPENSES
At September 30, 2005, accrued expenses consist of $240,844 in accrued
officer's compensation and $260,420 in accrued interest, federal income
tax, payroll and franchise tax respectively.
8. NOTES PAYABLE-RELATED PARTY
On January 15, 2005, the Company acquired 100% of the assets and
outstanding shares of Digital WallStreet, Inc. which is 100% owned by the
majority shareholder (86%) of the Company in exchange for a $3,000,000
promissory note, carrying interest at 6% per annum, note is due and
payable on January 31, 2010. As this merger is between entities under the
common control, the issuance of the $3,000,000 note to the majority
shareholder has been recorded as a distribution to the majority
shareholder.
Should the total annual billings made by Digital WallStreet, Inc., for the
calendar years ending December 31, 2005, or December 31, 2006 equals or
exceeds $2,000,000 the full principal balance of the second $1,500,000
note will be due on or before January 31, 2010. If the annual billing is
less than the sum of $2,000,000, the principal balance of the second note
shall be reduced by the difference between $2,000,000 and the actual
annual billing achieved.
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW
The Company prepares its statements of cash flows using the indirect
method as defined under the Financial Accounting Standard No. 95.
The Company paid $0 for income tax and interest during the year ended
December 31, 2004.
10. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its corporate offices space from a third party under a
two year lease commitment through August 31, 2007. Rental expense under
the lease is $9,338 per month. Rent expense under the operating leases for
the nine months ended September 30, 2004 and 2005 was $39,010 and $54,890
respectively. The minimum lease payments for the twelve months periods
ending September 30,
2006 $ 112,260
2007 102,905
-------------
$ 215,165
=============
F-25
WALLSTREET DIRECT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2005
(Unaudited)
- --------------------------------------------------------------------------------
Employment Agreement with CEO
On July 19, 2003 the Company entered into an employment agreement with its
Chief Executive Officer to provide salary, bonuses and other fringe
benefits. Such expenses are included in Officers Compensation and related
expenses in the accompanying statement of operations. Pursuant to the
terms of this agreement and for the nine months ended September 30, 2004
and 2005, the Company recorded $135,000 and $150,000 in salary expenses
respectively.
Legal Matters
From time to time, the Company may be involved in various claims,
lawsuits, and disputes with third parties, actions involving allegations
of discrimination or breach of contract actions incidental to the normal
operations of the business. Other than as disclosed herein, the Company is
not currently involved in any litigation which it believes could have a
material adverse effect on its financial position or results of
operations.
11. INCOME TAXES
Income tax expense (benefit) for the nine months ended September 30, 2005
and 2004 is summarized as follows:
2005 2004
------------- ------------
Current:
Federal $ (2,107) $ (0)
State (1,600) (800)
Deferred taxes
============= ============
Income tax expense (benefit) $ 3,707 $ 800
============= ============
The following is a reconciliation of the provision for income taxes at the
U.S. federal income tax rate to the income taxes reflected in the
Consolidated Statements of Operations:
SEPTEMBER 30, SEPTEMBER 30,
2005 2004
------------- ------------
Tax expense (credit) at
statutory rate-federal (34%) (34%)
State tax expense net of
federal tax (6%) (6%)
Valuation allowance 40% 40%
------------- ------------
Tax expense at actual rate -- --
============= ============
The tax effects of temporary differences that gave rise to significant
portions of deferred tax assets and liabilities at September 30, 2005 are
as follows:
F-26
WALLSTREET DIRECT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2005
(Unaudited)
- --------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carry forward $ 320,416
-----------
Total gross deferred tax assets 320,416
Less valuation allowance (320,416)
-----------
Net deferred tax assets $ --
===========
At September 30, 2005, the Company had net operating loss carry forwards
of $801,039 for U.S. federal income tax purposes available to offset
future taxable income expiring on various dates through 2018. The Company
has recorded a 100% valuation allowance for the deferred tax assets due to
the uncertainty of its realization.
12. GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. This basis of accounting
contemplates the recovery of the Company's assets and the satisfaction of
its liabilities in the normal course of business. The Company had incurred
losses from operations and has accumulated deficit of $3,926,845 at
September 30, 2005. In view of the matters described in the preceding
paragraph, recoverability of a major portion of the recorded asset amounts
shown in the accompanying balance sheet is dependent upon continued
operations of the Company, which in turn is dependent upon the Company's
ability to raise additional capital, obtain financing and to succeed in
its future operations. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset amounts or amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
Management has taken the following steps to revise its operating and
financial requirements, which it believes are sufficient to provide the
Company with the ability to continue as a going concern. Management
devoted considerable effort during the period ended September 30, 2005,
towards (i) obtaining additional equity financing and (ii) evaluation of
its distribution and marketing methods. Subsequent to September 30, 2005,
the Company raised $968,750 in equity. In addition, the Company has plans
to merge with a public company in order to raise additional capital.
F-27
WALLSTREET DIRECT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2005
(Unaudited)
- --------------------------------------------------------------------------------
13. EQUITY TRANSACTIONS
Common Stock
On May 2, 2005, the Company commenced a private equity offering to
accredited investors. As of September 30, 2005 the Company sold 2,450,000
units at $0.25 per unit, for an aggregate of $612,500 in net proceeds.
Each unit is priced at $0.25 and consists of one (1) share of restricted
common stock and one redeemable Class A Warrant and one redeemable Class B
Warrant of Wallstreet Direct, Inc. Each Class A Warrant entitles the
registered holder to purchase, at any time until the first anniversary of
the date of the offering memorandum, one share of Common Stock at an
exercise price of $0.50, subject to adjustment. Each Class B Warrant
entitles the registered holder to purchase, at any time until the second
anniversary of the date of the offering memorandum, one share of Common
Stock at an exercise price of $.75, subject to adjustment. The Class A
Warrants and the Class B Warrants are redeemable by the Company, at a
redemption price of $0.05 per Warrant, upon at least 30 days' prior
written notice, commencing six months after the date of the offering
memorandum, if the average of the closing bid price of the Common Stock,
as reported by the National Association of Securities Dealers Automated
Quotation ("NASDAQ") System (or the average of the last sale price if the
Common Stock is then listed on the NASDAQ National Market System or a
securities exchange), shall exceed $1.00 per share for the Class A
Warrants and $2.00 per share for the Class B Warrants (subject to
adjustment) for 20 consecutive business days ending within 3 days of the
date on which notice of redemption is given. These securities were issued
pursuant to Rule 506 of Regulation D.
14. SUBSEQUENT EVENTS (UNAUDITED)
On May 2, 2005, the Company commenced a private equity offering, which
ended December 22, 2005, to accredited investors. The Company sold from
October 1, 2005 through December 22, 2005, 3,875,000 units at $0.25 per
unit, for an aggregate of $968,750 in net proceeds. Each unit is priced at
$0.25 and consists of one (1) share of restricted common stock and one
redeemable Class A Warrant and one redeemable Class B Warrant of
Wallstreet Direct, Inc. These securities were issued pursuant to Rule 506
of Regulation D.
On September 19, 2005, the company signed an agreement to merge with a
public shell for exchange of 100% of the issued and outstanding shares of
the company for 20,000,000 shares of the public shell. Upon the
consummation of the exchange transaction, the company's shareholders will
own approximately 82% of the shares of the combined company. This type of
exchange will be accounted for as a recapitalization of the company rather
than as a business combination. The historical financial statements after
the merger will be those of the company. No pro-forma financial
information is presented as the public shell has not generated any revenue
and the amounts involved are insignificant. The exchange transaction has
not been consummated at the balance sheet date.
F-28