10KSB 1 macreport10ksb113003.txt PERIOD ENDED 11-30-03 -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------------- FORM 10-KSB Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Year Ended November 30, 2003 Commission File No. 333-64244 ----------------------------- The Macreport.net, Inc. ---------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 11-3584538 ---------------------- ---------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) 200 Broadhollow Road, Suite 207, Melville, New York 11747 -------------------------------------- -------- (Address of principal executive offices) (Zip Code) (631) 393-5075 Registrant's Telephone Number Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.0001 par value per share -------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of February 13, 2004 was $668,081 using the closing bid price of $0.51 on February 13, 2004. The number of shares of Common Stock outstanding as of February 13, 2004 was 16,272,942. DOCUMENTS INCORPORATED BY REFERENCE: None. A list of Exhibits to this Annual Report on Form 10-KSB begins on page 26. THE MACREPORT.NET, INC. 2003 FORM 10-KSB REPORT TABLE OF CONTENTS PART I Page ------ ---- Item 1 Description of the Business ........................... 2 Item 2. Description of Property ............................... 9 Item 3. Legal Proceedings ..................................... 9 Item 4. Submission of Matters to a Vote of Security Holders.... 10 PART II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................................... 10 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 13 Item 7. Financial Statements................................... 18 Item 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................... 18 Item 8a Controls and Procedures............................... 18 PART III -------- Item 9. Directors, Executive Officers, Promoters and Control Persons of the Registrant; Compliance with Sect 16(a) of the Exchange Act ................................... 19 Item 10. Executive Compensation................................. 20 Item 11. Security Ownership of Certain Beneficial Owners And Management and Related Stockholder Matters............. 24 Item 12. Certain Relationships and Related Transactions ........ 25 Item 13. Exhibits and Reports On Form 8-K....................... 26 Item 14. Principal Accountant Fees and Services................. 28 -------------------- Forward-Looking Statements Certain statements under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Annual Report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the Company's limited operating history since December 13, 2000, its ability to attract customers, general economic and business conditions with respect to the Internet and online commerce, its ability to generate revenues, changes in government regulations, competition and the ability of the Company to implement its business strategy and other risks discussed in this Form 10-KSB. Forward-looking statements speak only as of the date of this Form 10-KSB. Moreover, whether or not stated in connection with a forward-looking statement, the Company undertakes no obligation to correct or update a forward-looking statement should the Company later become aware that it is not likely to be achieved. If the Company were to update or correct a forward-looking statement, investors and others should not conclude that the Company will make additional updates or corrections thereafter. PART I ------ ITEM 1. DESCRIPTION OF THE BUSINESS Overview The MacReport.Net, Inc. was incorporated as a Delaware corporation in December 2000. We commenced operations at such time. We believe that we create high-value information and applications to benefit private and public companies. Prior to the fourth quarter of fiscal 2003, our activities have been primarily devoted to business development, proof of concept activities, recruiting personnel and other start-up activities, however, recently, our revenues have grown substantially through sales of our services and products and the Company's focus has shifted to growing its customer base. General We are an information and media company that provides a Web-based forum for public and private issuers to communicate corporate audio and video news content to the business, financial and investing community through our Web site, located at www.macreport.net. We have built a user friendly, highly effective Web site that aggregates and disseminates information from multiple sources. Through content partnerships, we also provide Web-based financial information to professionals who need quick access to reliable corporate, industry and market intelligence. By visiting our website, users are able to access comprehensive and up-to-the minute business and financial information on public and private companies from several information providers drawing upon multiple sources of content. Our services enable timely, online access to a wide array of proprietary and partner content. These sources include both textual information, such as news, trade press, SEC filings, executive biographies and analyst reports, and numeric information, such as company financial results, stock quotes and industry statistics. We expect that visitors to our Web site use our information for their professional endeavors, including financial and competitive research, as well as for their personal activities. We believe that we provide advertisers with a large, demographically desirable business audience. We market and sell package services to public and private companies. The packages range from merely exposure on our web site to a comprehensive service package, including unlimited press release services as well as client exposure in "Institutional Investor" magazine. The Company purchases advertising pages from "Institutional Investor" magazine and, within these pages, highlights its clients and information regarding such client' business. The press release services can range from a set amount of client press releases per month to unlimited. 2 Industry Background Providing information, tools and the opportunity to purchase products and services to financial professionals and business decision makers over the Internet represents a large and growing market opportunity. Increased Internet usage and the desire for information by financial professionals and the companies for which they work are driving growth in the market. Recent industry growth has been driven by corporations and other enterprises recognizing that productivity and competitiveness depend on extensive knowledge of external information, including information about industries, customers, competitors, prospects, business trends, breaking news and market data. These organizations have already invested heavily in Internet connectivity and networked computing infrastructures to manage internal information. These organizations seek to leverage these infrastructures to access and manage external information. While the financial markets have been negatively affected over the past few years, we believe that these growth trends will not reverse. The task of finding and using external information is often difficult and cumbersome. Traditional, textual sources such as newspapers and directories can require hours to search. A centralized library can be costly to establish and maintain and can be an inefficient and incomplete information source. While the emergence of the Web has greatly increased access to information, finding comprehensive, precise, up-to-date, relevant and reliable information on the Web can still be time-consuming and difficult. While other on-line services can be useful research tools in certain circumstances, most of these services currently focus on specific areas of content, such as financial data or news. They do not provide the full range of data required by professionals. In addition, most on-line services charge a fee for each search performed. We believe that traditional sources, the Web and existing on-line services do not adequately meet the information needs of many professionals who want to compete effectively in today's fast-paced, global, customer-focused marketplace. These professionals and their organizations demand external information that is: easily accessible in a user-friendly format comprehensive and includes both textual and numeric information derived from multiple, high quality sources integrated at a single site delivered on a platform that allows interpretation, manipulation and analysis delivered in a product easily implemented and supported on a corporate network Additionally, we believe that many companies are looking for alternative service providers for such tasks as disseminating press releases. With our products, we offer a range of press release packages from a set amount of client press releases per month to unlimited for a monthly set fee. We believe that many companies may benefit from this service as it is a set fee per month and not a variable cost. Moreover, we believe that one component of our service product, client exposure in "Institutional Investor" magazine, is very beneficial to our clients. Through a company listing on our page within "Institutional Investor" magazine, a client gains valuable exposure to the investing and financial community which otherwise would prove too costly. 3 We are very excited about the productization of our services. We believe that a market exists for these services and the bundling of such services as we keep the costs lower that our competitors. Strategy Our core strategy is to be a leading Web portal for financial professionals and business decision makers and worldwide provider of multimedia production and distribution services to corporations and other organizations. The key components of our growth strategy include: Grow Our Customer Base. During the initial stages of our operation, we have focused on selling our streaming audio interviews, joint marketing ventures, and public relations and consulting services to public companies with securities trading on the Nasdaq SmallCap Market and the electronic over-the-counter bulletin board. We believe there is an opportunity for the packaging of our services into products which range from merely exposure on our web site to a comprehensive service package, including unlimited press release services as well as client exposure in "Institutional Investor" magazine. Furthermore, we believe that we can introduce other services into our products and offer client companies a full service line of services from press releases, edgar conversions, printing to financial and investor exposure. Generally, our clients are charged a monthly fee for the service package that they request. These services may include: posting of content relating to the client that is in addition to the posting of content that we typically offer without charge, which may include: statistics, financial information, reports, editorials, stories and/or articles relating to the client and prepared by the client or by third parties; links to the client's Web site and to a page or pages of our Web site dedicated to providing information about the client; preparing and making available to our issuer clients one video interview per year with representatives of the client and, at the option of our management, additional videos providing current newsworthy information about the client; dissemination of press releases; and coverage in our advertising pages within "Institutional Investor" magazine. We also produce streaming audio and video profile presentations and textual profiles of corporations for free. These profiles and presentations are accessible through our Web site. We believe that by continually adding new companies and additional sources of information, we will be positioned to become the premier destination for CEO interviews. Grow Our Audience. We believe that increasing our brand awareness and our exposure within the business community will contribute to our future success. To date, we have successfully built a brand name but plan on continuing to grow our audience by focusing on online and direct response advertising as well as public relations to raise awareness of our company and our services. Furthermore, we plan to partner with high-volume business and consumer Web sites. Increase Usage By Our Audience. To increase usage, we plan to expand our content offering in the area of additional companies, industries, people and products during the upcoming fiscal year. Moreover, we have developed and are developing offline partnerships that will help to drive brand exposure and traffic to our site. 4 Maximize Revenues From Users of our Website. We plan to add e-commerce opportunities to our Web site in an effort to generate revenues from users of our Web site. More e-commerce partners will provide more buying opportunities on the site and we plan to integrate these in the search results and within other tools and content on the site. We also plan to increase the advertising revenue per user through customer-targeting capabilities on the site. Pursue Acquisitions and Strategic Alliances. To further meet the needs of financial professionals and business decision makers worldwide, we intend to pursue acquisitions of, and strategic relationships with, companies with complementary services and technologies and to expand our information and services to cover more business organizations in international markets. Increase our Sales Staff. As more companies look for online services to enhance productivity, we plan to increase our sales staff to gain a greater share of this growing market. Technology Advancement. We plan to continuously advance and develop new technologies that will enhance the user experience. We intend to expand our technology services through ongoing investment, integration of new technologies, and through targeted acquisitions. Sales and Marketing Subscribers Subscribers for our service packages will primarily be corporations that are publicly traded that require services such as press release and are concerned about exposure to the financial and investor community. We plan to attract additional subscribers through direct marketing efforts, media advertising and referrals. Advertising and e-Commerce We plan to offer a variety of advertising options that may be purchased individually or in packages. This may include banners and button advertisements on our site, which can be rotated on a run-of-site basis or targeted to a particular audience. Run-of-site advertisements appeal to advertisers seeking general brand recognition across our online audience. Banners and buttons are generally sold under short-term insertion orders based on a price per thousand impressions served. We plan to generate e-commerce revenues from advertisers or sponsors that pay either a fee per transaction or a percentage of sales directly generated by their placement on our Web site. These fees can originate from buttons, banners or in-context text links within our site. Licensing and Syndication We plan to license and syndicate portions of our proprietary information and certain tools to third parties for redistribution. We believe potential customers will range from traditional online service providers to other Web sites. We plan to provide our customers with either a customized data feed of our proprietary company information, or a co-branded set of Web pages designed for the customer. License and syndication fees will be based upon variables, such as the amount of information and number of tools, the number of seats, the number of capsules viewed or the number of terminals. Marketing Relationships We plan to develop relationships with frequently visited and well-known Web sites in order to expand our audience. We plan to build customized versions of our company profiles to be co-branded and integrated into partners' Web sites. A customized, co-branded company profile may feature links to portions of the other Web site as well as links back to our Web site for additional information. 5 By incorporating links back to our Web site, we can introduce our information to a broader audience while displaying our free advertising-supported company information within the context of the other Web site. Our marketing relationships will be important for increasing our brand awareness and attracting new visitors to our Web site. We will pursue relationships that increase the value of our brand name and introduce new audiences to our information. Competition Many Web sites compete for the attention and spending of financial professionals, and advertisers, particularly in the business information area. We expect this competition to continue to increase. We compete for subscribers, visitors, advertisers and content providers with many types of companies, such as: large, well-established business and financial information providers such as Dow Jones, Dialog, Lexis-Nexis, Pearson, Reuters, Thomson, Primark and McGraw-Hill; providers of company information, such as Dun & Bradstreet, MarketGuide, a division of Multex, and Standard & Poor's; on-line information services or Web sites targeted to specific markets or applications, such as NewsEdge, Factset and Bloomberg; Web retrieval, Web "portal" companies and other free or low-cost mass market on-line services such as Excite, Infoseek, Lycos, Yahoo! and AOL/Netscape; Web sites focused on subscription business models, such as The Wall Street Journal Interactive Edition; free or low-cost specialized business and financial information Web sites such as Hoovers.com, Marketwatch.com, Multex.com, CEOcast.com and TheStreet.com; and other Web sites with a business orientation or a business channel, such as Office.com and Business.com. Our ability to compete depends on many factors, including: the originality, timeliness, comprehensiveness and trustworthiness of our content and that of our competitors; the cost of our services compared to our competitors; the ease of use of services developed either by us or our competitors; the usefulness of our tools; the attractiveness of the demographic characteristics of our audience; and the effectiveness of our sales and marketing efforts. Subsequent Events In February 2004, the Company converted the convertible promissory notes dated January -April 2003 (aggregate principal amount of $35,000) into 10,867 shares of common stock of the Company pursuant to a conversion agreement wherein the holders of such notes have agreed to: (i) convert the notes into shares of common stock of the Company at a conversion price which is $0.05 less than the conversion price set forth in the respective notes ($3.50); and (ii) not sell or transfer the shares received in conversion of the notes for a period of one (1) year from the date of such conversion. The Company and 5 remaining holders of 6 these convertible notes have been engaged in discussions with respect to such convertible note to either: (i) convert the note into shares of common stock of the Company; (ii) pay the interest and principal balance of the note; or (iii) extend the maturity date to August 1, 2004. In January 2004, the Company and Bondy & Schloss LLP, a law firm which formerly provided services to the Company, reached a tentative agreement in principal to settle a complaint against the Company as well as against Michael Adams Consulting, Inc. and V. William Lucchetti, Jr. in the Supreme Court of the State of New York, County of New York, alleging monies owed to the plaintiff for certain legal services. The plaintiff sought monetary damages totaling $73,339 plus costs and attorney's fees. The Company expects to finalize this agreement within thirty days. Registration Under the Investment Advisors Act To engage in certain components of our planned operations, we are required to register with the Securities and Exchange Commission as an investment advisor under the Investment Advisors Act of 1940, as amended. As an investment adviser, we will be subject to restrictions against engaging in fraudulent, deceptive or manipulative acts or practices. We will be subject to remedial sanctions, including censure, limitations on our operations, suspension for a period not exceeding 12 months, and revocation for, among other things, willfully violating or aiding or abetting a violation of the Securities Act, the Exchange Act, the Investment Company Act, the Investment Advisers Act or any rule or regulation adopted pursuant to any of such acts. We have filed with NASD Regulation entitlement forms for access to the Investment Advisor Registration Depository (IARD) and have established an IARD User Account. We have delayed the filing of Form ADV as our business model has been modified and the components of our plans that require registration have not been implemented and are not an integral part of our operations. However, until such time as we file Form ADV, we will not be able to commence certain of our planned operations. The requirement to register as an investment advisor with the Securities and Exchange Commission will cause us to incur additional costs and expenses, will result in delays in certain operations and the execution of certain plans. Government Regulation We are subject, both directly and indirectly, to various laws and governmental regulations relating to our business. There are currently few laws or regulations directly applicable to commercial online services or the Internet. However, due to increasing popularity and use of commercial online services and the Internet, it is possible that a number of laws and regulations may be adopted with respect to commercial online services and the Internet. These laws and regulations may cover issues including, for example, user privacy, pricing and characteristics, and quality of products and services. Moreover, the applicability to commercial online services and the Internet of existing laws governing issues including, for example, property ownership, libel and personal privacy, is uncertain and could expose us to substantial liability. Any new legislation or regulation or the application of existing laws and regulations to the Internet could have a material and adverse effect on our business, results or operations and financial condition. In certain states, legislation has been introduced to tax the sales of goods over the Internet the same as sales of personal property through traditional channels. As our services are available over the Internet anywhere in the world, multiple jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each of those jurisdictions. Our failure to qualify as a 7 foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties for the failure to qualify. It is possible that state and foreign governments might also attempt to regulate our transmissions of content on our Web site or on the Web sites of others or prosecute us for violations of their laws. We cannot assure you that violations of local laws will not be alleged or charged by state or foreign governments, that we might not unintentionally violate these laws or that these laws will not be modified, or new laws enacted, in the future. We are aware of the sensitive regulatory climate in which we plan to operate. In March 2000, the Securities and Exchange Commission announced that it had a special operation to target fraudulent and manipulative practices relating to the promotion of securities on the Internet. We are also aware that Regulation F-D, adopted by the Securities and Exchange Commission during 2000, somewhat restricts the ability to obtain information from issuers. Part of our business will include posting profiles of private and public issuers. We may be subject to liability under the Securities Act of 1933 and/or the Securities Exchange Act of 1934, each as amended, in the event that these issuers commence a public or private offering of their securities. In particular, with respect to private issuers relying on certain exemptions from the registration requirements of the Securities Act, the information we post on our Web site about issuers that engage in a private offering may be deemed to be a public offer of securities. Similarly, with respect to issuers that intend to commence a public offering of their securities, information that we post on our Web site about these issuers may be deemed to be a prospectus. To avoid making public offerings of securities that are intended to be privately placed and to avoid information about public issuers posted on our Web site being deemed a "prospectus" with respect to issuers that are engaging in a public offering, before engaging our services, issuers will be required to represent to us in their engagement agreement with us that, prior to engaging in any public or private offering, they will advise us of such intention. Further, such issuer will acknowledge in the engagement agreement that any information regarding an issuer will be removed from the Company's Web site prior to such issuer commencing any offering. Management expects to observe regulatory/compliance standards, however, we cannot assure you that we will avoid regulatory inquiries, the costs of responding to regulatory inquiries, or the imposition of sanctions, fines or other penalties which it may incur. Intellectual Property Our proprietary database of company information is copyrighted. To protect our rights to intellectual property, we rely on a combination of copyright law, trademark, trade secret protection, confidentiality agreements and other contractual arrangements with our customers and strategic partners. The protective steps we have taken may be inadequate to deter misappropriation of our proprietary information. We may be unable to detect the unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. We have registered a number of our trademarks in the United States, and we have pending U.S. applications for other trademarks. Effective trademark, copyright and trade secret protection may not be available in every country in which we offer or intend to offer our services. In addition, although we believe that our proprietary rights do not infringe on the intellectual property rights of others, other parties may assert infringement claims against us or claim that we have violated a patent or infringed a copyright, trademark or other proprietary right belonging to them. These claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources on our part, which could materially and adversely affect our business, results of operations and financial condition. We incorporate licensed third-party technology in some of our services. In these license agreements, the licensors have generally agreed to defend, indemnify and hold us harmless with respect to any claim by a third party that the licensed software infringes any patent or other proprietary 8 right. We cannot assure you that these provisions will be adequate to protect us from infringement claims. The loss or inability to obtain or maintain any of these technology licenses could result in delays in the introduction of new services. Employees As of the date of this Form 10KSB, we have 8 employees. All employees are retained pursuant to agreements that can be terminated by us at-will. As we continue to grow and execute our strategic plan, we expect to hire additional personnel, particularly in the areas of sales and marketing, product development and technology. None of our staff is represented by a labor union. We believe that our relationship with our employees is good. Competition for qualified personnel in our industry is intense. ITEM 2. DESCRIPTION OF PROPERTY Our corporate headquarters are located in an approximately 800 square foot rented facility in Melville, New York, under a three month lease expiring March 2004, with minimum monthly rent of approximately $6,000, plus office service expenses. We also lease an approximately 2,200 square foot office and executive residential facility in New York, New York under a month to month lease with minimum monthly rent of $5,800. We believe our present office space is suitable for our current operations. Total rental expense approximated $230,000 and $140,000 for the years ended November 30, 2003 and 2002, respectively. Item 3. Legal Proceedings The Company is involved in various legal proceedings and claims incident to the normal conduct of its business. The Company believes that such legal proceedings and claims, individually and in the aggregate, are not likely to have a material adverse effect on its financial position or results of operations. In November 2003, Encore Entertainment, a holder of a convertible note of the Company, filed a complaint against the Company in the Superior Court of the State of Arizona, County of Maricopa, alleging breach of contract (the convertible note agreement). The plaintiff is seeking monetary damages totaling $50,000 plus interest, costs and attorney's fees. The Company has filed its answer to plaintiff's complaint in January 2004. The Company, which intends to defend the action vigorously, does not believe that the suit will have a material adverse effect on its financial position or results of operations, however, there can be no assurance of the outcome. In November 2003, Joel Soren, former executive officer of the Company, filed a complaint against the Company as well as against Michael Adams Consulting, Inc. and V. William Lucchetti, Jr. in the Supreme Court of the State of New York, County of Richmond, alleging monies owed to the plaintiff for services. The plaintiff is seeking monetary damages totaling approximately $56,000 plus interest, costs and attorney's fees. The Company, which intends to defend the action vigorously, does not believe that the suit will have a material adverse effect on its financial position or results of operations, however, there can be no assurance of the outcome. In January 2002, Bondy & Schloss LLP, a law firm which formerly provided services to the Company, filed a complaint against the Company as well as against Michael Adams Consulting, Inc. and V. William Lucchetti, Jr. in the Supreme Court of the State of New York, County of New York, alleging monies owed to the plaintiff for certain legal services. The plaintiff sought monetary 9 damages totaling $73,339 plus costs and attorney's fees. The Company and Bondy & Schloss reached a tentative agreement in principal to settle this matter. The Company expects to finalize this agreement within thirty days. Item 4. Submission Of Matters To A Vote Of Security Holders During the fourth quarter of the year ended November 30, 2003, no matters were submitted by the Company to a vote of its stockholders. PART II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Company's Common Stock currently trades under the symbol "MRPT." As of November 30, 2003, there were 16,272,942 shares of common stock issued and outstanding and no shares of preferred stock issued or outstanding. Since July 2, 2002, the Company's Common Stock has traded on the over-the-counter electronic bulletin board. The price ranges presented below represent the highest and lowest quoted bid prices during each quarter for 2003 and the third and fourth quarter of 2002 reported by Nasdaq. The quotes represent prices between dealers and do not reflect mark-ups, markdowns or commissions and therefore may not necessarily represent actual transactions. Common Stock Year Period Bid Information ---- ------ --------------- High Low ---- --- 2003 1st Quarter $7.50 $2.86 2nd Quarter $5.00 $2.50 3rd Quarter $8.00 $2.50 4th Quarter $7.00 $0.53 2002 3rd Quarter $5.50 $1.50 4th Quarter $7.92 $2.75 As reported by the Nasdaq OTC Bulletin Board, on February 13, 2004 the closing bid price of the Common Stock was $0.51 per share. Holders As of March 1, 2004, there were approximately 336 holders of record of the Company's common stock as determined from the Company's transfer agent's list. Such list does not include beneficial owners of securities whose shares are held in the names of various dealers and clearing agencies. Dividends The Company has never declared nor paid any cash dividends on its common stock and does not anticipate paying dividends in respect of its common stock in the foreseeable future. Any payment of cash dividends in the future will be at the 10 discretion of the Company's Board of Directors and will depend upon, among other things, its earnings (if any), financial condition, cash flows, capital requirements and other relevant considerations, including applicable contractual restrictions and governmental regulations with respect to the payment of dividends. Conversion of Convertible Promissory Notes In February 2004, the Company converted the convertible promissory notes dated January -April 2003 (aggregate principal amount of $35,000) into 10,867 shares of common stock of the Company pursuant to a conversion agreement wherein the holders of such notes have agreed to: (i) convert the notes into shares of common stock of the Company at a conversion price which is $0.05 less than the conversion price set forth in the respective notes ($3.50); and (ii) not sell or transfer the shares received in conversion of the notes for a period of one (1) year from the date of such conversion. The Company and 5 remaining holders of these convertible notes have been engaged in discussions with respect to such convertible note to either: (i) convert the note into shares of common stock of the Company; (ii) pay the interest and principal balance of the note; or (iii) extend the maturity date to August 1, 2004. During August through October 2003, we issued convertible promissory notes to 6 individuals with an aggregate principal amount of $155,000. The convertible notes bear interest at a rate of 8% per annum with a maturity date of March 1, 2004. The conversion ratio is the greater of: (y) the amount that is equal to the product of the closing bid price per share for the common stock, as reported on the over-the-counter electronic bulletin board, or such other public market that the Company's common stock is then traded and seventy-five percent (75%); and (z) 2.0. The Notes were converted one day subsequent to their issuance into 77,500 shares of common stock of the Company. In August 2003, the Company converted 16 convertible notes that have maturity dates of May 1, 2003, June 1, 2003 and July 1, 2003 (aggregate principal amount of $324,500) pursuant to a conversion agreement wherein the holders of such notes have agreed to: (i) convert the notes into shares of common stock of the Company (200,824 shares of common stock issued pursuant to the conversion in the aggregate) at a conversion price which is $0.05 less than the conversion price set forth in the respective notes ($1.50-$2.00); and (ii) not sell or transfer the shares received in conversion of the notes for a period of one (1) year from the date of such conversion. In July, 2003, the Company converted 61 convertible notes made by Michael Adams Securities, Inc., a Delaware corporation and wholly owned subsidiary of the Company (maturity dates of October 1, 2003, November 1, 2003 and December 1, 2003 (aggregate principal amount of $141,475)) pursuant to a conversion agreement wherein the holders of such notes have agreed to: (i) convert the notes into shares of common stock of the Company (52,722 shares of common stock issued pursuant to the conversion in the aggregate) at a conversion price which is $0.05 less than the conversion price of ($1.50); and (ii) not sell or transfer the shares received in conversion of the notes for a period of one (1) year from the date of such conversion. In November 2003, the Company converted 10 convertible notes (maturity dates of October 1, 2003, November 1, 2003 and December 1, 2003 (aggregate principal amount of $150,000)) pursuant to a conversion agreement wherein the holders of such notes have agreed to: (i) convert the notes into shares of common stock of the Company (66,664 shares of common stock issued pursuant to the conversion in the aggregate) at a conversion price which is $0.05 less than the conversion price of ($2.50); and (ii) not sell or transfer the shares received in conversion of the notes for a period of one (1) year from the date of such conversion. 11 During January through April 2003, we issued convertible promissory notes to 5 individuals with an aggregate principal amount of $75,000. The convertible notes bear interest at a rate of 8% per annum with a maturity date of March 1, 2004. Pursuant to the terms of the convertible notes, prior to March 1, 2004, we may convert the balance due together with accrued interest into shares of common stock. The conversion ratio is the greater of: (y) the amount that is equal to the product of the closing bid price per share for the common stock, as reported on the over-the-counter electronic bulletin board, or such other public market that the Company's common stock is then traded and seventy-five percent (75%); and (z) 3.50. The Comply is engaged in discussions with each holder of the notes to convert the notes. The Company expects to convert the notes within thirty days. Recent Sales of Unregistered Securities During August through October 2003, we issued convertible promissory notes to 6 individuals with an aggregate principal amount of $155,000. The convertible notes bear interest at a rate of 8% per annum with a maturity date of March 1, 2004. Pursuant to the terms of the convertible notes, prior to August 1, 2004, we may convert the balance due together with accrued interest into shares of common stock. The conversion ratio is the greater of: (y) the amount that is equal to the product of the closing bid price per share for the common stock, as reported on the over-the-counter electronic bulletin board, or such other public market that the Company's common stock is then traded and seventy-five percent (75%); and (z) 2.0. The notes were converted one day subsequent to their issuance into 77,500 shares of common stock of the Company. In August 2003, the Company converted 16 convertible notes that have maturity dates of May 1, 2003, June 1, 2003 and July 1, 2003 (aggregate principal amount of $324,500) pursuant to a conversion agreement wherein the holders of such notes have agreed to: (i) convert the notes into shares of common stock of the Company (200,824 shares of common stock issued pursuant to the conversion in the aggregate) at a conversion price which is $0.05 less than the conversion price set forth in the respective notes ($1.50-$2.00); and (ii) not sell or transfer the shares received in conversion of the notes for a period of one (1) year from the date of such conversion. In July, 2003, the Company converted 61 convertible notes made by Michael Adams Securities, Inc., a Delaware corporation and wholly owned subsidiary of the Company (maturity dates of October 1, 2003, November 1, 2003 and December 1, 2003 (aggregate principal amount of $141,475)) pursuant to a conversion agreement wherein the holders of such notes have agreed to: (i) convert the notes into shares of common stock of the Company (52,722 shares of common stock issued pursuant to the conversion in the aggregate) at a conversion price which is $0.05 less than the conversion price of ($1.50); and (ii) not sell or transfer the shares received in conversion of the notes for a period of one (1) year from the date of such conversion. In November 2003, the Company converted 10 convertible notes (maturity dates of October 1, 2003, November 1, 2003 and December 1, 2003 (aggregate principal amount of $150,000)) pursuant to a conversion agreement wherein the holders of such notes have agreed to: (i) convert the notes into shares of common stock of the Company (66,664 shares of common stock issued pursuant to the conversion in the aggregate) at a conversion price which is $0.05 less than the conversion price of ($2.50); and (ii) not sell or transfer the shares received in conversion of the notes for a period of one (1) year from the date of such conversion. 12 During January through April 2003, we issued convertible promissory notes to 5 individuals with an aggregate principal amount of $75,000. The convertible notes bear interest at a rate of 8% per annum with a maturity date of March 1, 2004. Pursuant to the terms of the convertible notes, prior to March 1, 2004, we may convert the balance due together with accrued interest into shares of common stock. The conversion ratio is the greater of: (y) the amount that is equal to the product of the closing bid price per share for the common stock, as reported on the over-the-counter electronic bulletin board, or such other public market that the Company's common stock is then traded and seventy-five percent (75%); and (z) 3.50. The Comply is engaged in discussions with each holder of the notes to convert the notes. The Company expects to convert the notes within thirty days. The issuance of the securities in the transactions described above were deemed to be exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(2) of the Securities Act and Regulation D promulgated thereunder as transactions by an issuer not involving any public offering. Debt During April 2003, we issued a promissory note to an employee of the Company with an aggregate principal amount of $10,000. The note bears interest at a rate of 8% per annum with a maturity date of April 1, 2005. During March, April and May 2003, pursuant to a loan restructuring of the $100,000 February 28, 2003 six month promissory note, the $100,000 January 14, 2002 120-day promissory note (as amended), the $100,000 November 16, 2001 60-day promissory note (as amended), and other notes (as included below) with an aggregate principal amount of $97,997, the Company received an additional $355,000 from the holder of the notes who is also a shareholder of the Company. Pursuant to the restructuring, the Company issued this shareholder (the holder of the notes) a convertible promissory note with an aggregate principal amount of $752,997 plus interest accrued pursuant to the terminated notes. In addition, pursuant to the loan restructuring, the holder of the note is entitled to be issued warrants to purchase common stock of the Company in an amount to be agreed upon between the Company and such holder. The convertible note bears interest at a rate of 8% per annum with a maturity date of May 30, 2004. Pursuant to the terms of the convertible note, prior to May 30, 2004, we may convert the balance due together with accrued interest into shares of common stock. The conversion ratio is 2.50. Each of the prior notes, the $100,000 February 28, 2003 six month promissory note, the $100,000 January 14, 2002 10-day promissory note (as amended), the $100,000 November 16, 2001 60-day promissory note (as amended), and the other notes with an aggregate principal amount of $97,997, have been cancelled. Item 6 Management's Discussion and Analysis of Financial Condition and Results of Operation The following discussion should be read in conjunction with the financial statements contained in Item 8 of Part IV of this Form 10-KSB. Introduction and Nature of Business Our core strategy is to be a leading Web portal for financial professionals and business decision makers and worldwide provider of multimedia production and distribution services to corporations and other organizations. Our revenues have been generated from the sale of package services to public and private companies. The packages range from merely exposure on our web site to a comprehensive service package, including unlimited press release services as well as client exposure in "Institutional Investor" magazine. 13 Selected Financial Data Year Ended November 30, ----------------------- RESULTS OF OPERATIONS: 2003 2002 ---- ---- Total revenues $ 390,682 $ 26,337 Net loss $ (1,036,875) $ (1,094,568) Net loss attributable to common stockholders $ (1,036,875) $ (1,094,568) Basic and diluted income (loss) per common share $ (0.06) $ (0.07) Weighted average common shares outstanding 16,046,077 15,870,097 YEAREND FINANCIAL POSITION: Working capital deficit $ (1,539,091) Total assets $ 63,940 Total liabilities $ 1,563,459 Stockholders' deficiency $ (1,499,519) Year Ended November 30, 2003, as compared to the year ended November 30, 2002 Overall Financial Situation. The Company had revenues of $390,682 for the year ended November 30, 2003, an increase of $364,345 or 1383% from the year ended November 30, 2002. The Company has cost of revenues of $167,046 for the year ended November 30, 2003, an increase of $130,357 or 355% from the year ended November 30, 2002. For the year ended November 30, 2002, the Company had revenues of $26,337 with costs of revenues of $36,689. The Company had a stockholders' deficiency at November 30, 2003 in the amount of $1,499,519, an increase of $222,464 from the stockholders' deficiency at November 30, 2002 of $1,277,055. This increase is primarily due to the net loss of $1,036,875 for the period ended November 30, 2003. Selling general and administrative expenses increased from 2002 by $121,924 or 12%, resulting in a loss from operations of $924,125 for 2003. Interest expense increased by $52,611 for 2003 from $55,264 for 2002 due to the convertible note financing in 2002 and 2003. Revenues. The Company had revenues of $390,682 for the year ended November 30, 2003, an increase of $364,345 or 1383% from the year ended November 30, 2002. Selling, General and Administrative Expenses. Selling general and administrative expenses increased from 2002 by $121,924 or 12%, resulting in a loss from operations of $924,125 for 2003. These expenses consist primarily of professional fees and other corporate expenses, including business development and general legal activities. Summary of Critical Accounting Policies; Significant Judgments and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These items are regularly monitored and analyzed by management 14 for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate. A summary of those accounting policies that we believe are most critical to fully understanding and evaluating our financial results is set forth below. This summary should be read in conjunction with our Consolidated Financial Statements and the related Notes included elsewhere in this Annual Report. Revenue Recognition and Allowance for Doubtful Accounts. Revenues from fee-based contracts with terms greater than one month are recognized ratably over the life of the contract. Advertising revenues are recognized over the period of the related ad. If we do not accurately estimate the resources required or the scope of work to be performed for a contract or we do not manage the project properly within the planned time period, then we may recognize a loss on the contract. Provisions for estimated losses on uncompleted contracts are made on a contract-by-contract basis and are recognized in the period in which such losses are determined. We have committed unanticipated additional resources to complete projects in the past, which has resulted in lower than anticipated profitability or losses on those contracts. We expect that we will experience similar situations in the future. In addition, we may fix the price for some projects at an early stage of the process, which could result in a fixed price that turns out to be too low and, therefore, could adversely affect our business, financial condition and results of operations. In some instances during 2003, we provided services to clients in exchange for equity instruments of the client. We measure the fair value of the equity instrument on the date the parties come to a mutual understanding of the terms of the arrangement and a commitment for performance by us to earn the equity instruments is reached, or when the equity is earned, whichever occurs earlier. Uncertainty The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has a limited operating history, and since inception in 2000 has incurred substantial losses. The Company's accumulated deficit as of November 30, 2003 is $3,181,930. Additionally, cash used in operations totaled $861,784 for the fiscal year ended November 30, 2003, while cash and cash equivalents at November 30, 2003 totaled $1,868. These matters raise substantial doubt about the Company's ability to continue as a going concern. The Company's continued existence is dependent upon several factors including the Company's ability to execute its business strategy and/or its ability to raise additionally equity. The Company's near term operating strategy focuses on the continued execution of its business plan. To date, the Company has successfully launched its joint venture with Institutional Investor, and is negotiating joint ventures with several major content distributors. The Company has also significantly increased revenues and is seeking to fund its working capital requirements through revenues generated. The Company's ability to operate as a going concern is dependent on its ability to execute its business plan and/or raise additionally equity. There can be no assurance that the Company will be able to achieve or sustain any level of 15 profitability in the future. Future operating results will depend on a number of factors, including demand for, and market acceptance of, the Company's services and prevailing economic conditions. There can be no assurance that the Company will generate sufficient revenues to ever achieve profitability or otherwise sustain its profitability in the future. However, although no assurances can be given, the Company is confident that it will be able to continue operating as a going concern. Liquidity and Capital Resources In February 2004, the Company converted the convertible promissory notes dated January -April 2003 (aggregate principal amount of $35,000) into 10,867 shares of common stock of the Company pursuant to a conversion agreement wherein the holders of such notes have agreed to: (i) convert the notes into shares of common stock of the Company at a conversion price which is $0.05 less than the conversion price set forth in the respective notes ($3.50); and (ii) not sell or transfer the shares received in conversion of the notes for a period of one (1) year from the date of such conversion. The Company and 5 remaining holders of these convertible notes have been engaged in discussions with respect to such convertible note to either: (i) convert the note into shares of common stock of the Company; (ii) pay the interest and principal balance of the note; or (iii) extend the maturity date to August 1, 2004. During April 2003, we issued a promissory note to an employee of the Company with an aggregate principal amount of $10,000. The note bears interest at a rate of 8% per annum with a maturity date of April 1 2005. During August through October 2003, we issued convertible promissory notes to 6 individuals with an aggregate principal amount of $155,000. The convertible notes bear interest at a rate of 8% per annum with a maturity date of March 1, 2004. Pursuant to the terms of the convertible notes, prior to August 1, 2004, we may convert the balance due together with accrued interest into shares of common stock. The conversion ratio is the greater of: (y) the amount that is equal to the product of the closing bid price per share for the common stock, as reported on the over-the-counter electronic bulletin board, or such other public market that the Company's common stock is then traded and seventy-five percent (75%); and (z) 2.0. The notes were converted one day subsequent to their issuance into 77,500 shares of common stock of the Company. In August 2003, the Company converted 16 convertible notes that have maturity dates of May 1, 2003, June 1, 2003 and July 1, 2003 (aggregate principal amount of $324,500) pursuant to a conversion agreement wherein the holders of such notes have agreed to: (i) convert the notes into shares of common stock of the Company (200,824 shares of common stock issued pursuant to the conversion in the aggregate) at a conversion price which is $0.05 less than the conversion price set forth in the respective notes ($1.50-$2.00); and (ii) not sell or transfer the shares received in conversion of the notes for a period of one (1) year from the date of such conversion. 16 In July, 2003, the Company converted 61 convertible notes made by Michael Adams Securities, Inc., a Delaware corporation and wholly owned subsidiary of the Company (maturity dates of October 1, 2003, November 1, 2003 and December 1, 2003 (aggregate principal amount of $141,475)) pursuant to a conversion agreement wherein the holders of such notes have agreed to: (i) convert the notes into shares of common stock of the Company (52,722 shares of common stock issued pursuant to the conversion in the aggregate) at a conversion price which is $0.05 less than the conversion price of ($1.50); and (ii) not sell or transfer the shares received in conversion of the notes for a period of one (1) year from the date of such conversion. In November 2003, the Company converted 10 convertible notes (maturity dates of October 1, 2003, November 1, 2003 and December 1, 2003 (aggregate principal amount of $150,000)) pursuant to a conversion agreement wherein the holders of such notes have agreed to: (i) convert the notes into shares of common stock of the Company (66,664 shares of common stock issued pursuant to the conversion in the aggregate) at a conversion price which is $0.05 less than the conversion price of ($2.50); and (ii) not sell or transfer the shares received in conversion of the notes for a period of one (1) year from the date of such conversion. During January through April 2003, we issued convertible promissory notes to 5 individuals with an aggregate principal amount of $75,000. The convertible notes bear interest at a rate of 8% per annum with a maturity date of March 1, 2004. Pursuant to the terms of the convertible notes, prior to March 1, 2004, we may convert the balance due together with accrued interest into shares of common stock. The conversion ratio is the greater of: (y) the amount that is equal to the product of the closing bid price per share for the common stock, as reported on the over-the-counter electronic bulletin board, or such other public market that the Company's common stock is then traded and seventy-five percent (75%); and (z) 3.50. The Comply is engaged in discussions with each holder of the notes to convert the notes. The Company expects to convert the notes within thirty days. During March, April and May 2003, pursuant to a loan restructuring of the $100,000 February 28, 2003 six month promissory note, the $100,000 January 14, 2002 120-day promissory note (as amended), the $100,000 November 16, 2001 60-day promissory note (as amended), and other notes (as included below) with an aggregate principal amount of $97,997, the Company received an additional $355,000 from the holder of the notes who is also a shareholder of the Company. Pursuant to the restructuring, the Company issued this shareholder (the holder of the notes) a convertible promissory note with an aggregate principal amount of $752,997 plus interest accrued pursuant to the terminated notes. In addition, pursuant to the loan restructuring, the holder of the note is entitled to be issued warrants to purchase common stock of the Company in an amount to be agreed upon between the Company and such holder. The convertible note bears interest at a rate of 8% per annum with a maturity date of May 30, 2004. Pursuant to the terms of the convertible note, prior to May 30, 2004, we may convert the balance due together with accrued interest into shares of common stock. The conversion ratio is 2.50. Each of the prior notes, the $100,000 February 28, 2003 six month promissory note, the $100,000 January 14, 2002 10-day promissory note (as amended), the $100,000 November 16, 2001 60-day promissory note (as amended), and the other notes with an aggregate principal amount of $97,997, have been cancelled. As of November 30, 2003, we had $1,868 in cash and cash equivalents. Current and Future Financing Needs We have incurred negative cash flow from operations since we started our business. We have spent, and expect to continue to spend, substantial amounts in connection with growing our customer base. We have 8 full time employees. We do not engage any consultants. Based on our current plans, we believe that our cash and cash equivalents and cash flows (from increasing revenues) will be sufficient to enable us to meet our planned operating needs. However, the actual amount of funds we may need to operate is subject to many factors, some of which are beyond our control. 17 These factors include the following: costs associated with any acquisitions targets; costs associated with marketing our services; and our ability to grow our customer base and retain our current customers. We have based our belief of not requiring any additional funds on assumptions that may prove to be wrong. Inflation Since the inception of the Company in December 2000, the rate of inflation has remained low and the cost of the Company's operations has not been significantly affected by inflationary trends in the economy. Item 7. Financial Statements The report of the Company's Independent Auditors, the Company's financial statements and notes to financial statements appear herein commencing on Page F-1. Item 8. Changes In and Disagreements with Accountants on Accounting and Financial None Item 8a. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. Based on evaluation as of a date within 90 days of the filing date of this Annual Report on Form 10-KSB, The Macreport.net, Inc.'s principal executive officer/principal accounting officer have concluded that The Macreport.net, Inc.'s disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. (b) Changes in internal controls. There were no significant changes in The Macreport.net, Inc 's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. In accordance with the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 18 PART III -------- Item 9. Directors, Executive Officers, Promoters and Control Persons of the Registrant; and Management and Related Stockholder Matters The following table sets forth information, as of December 31, 2003, concerning each director and executive officer of the Company. Positions with Position Name Age the Company Held Since ---- --- ----------- ---------- V. William Lucchetti, Jr. 38 Chairman of the Board of 2000 Directors, Chief Executive Officer and President Adam J. Reznikoff 32 Vice President-North 2000 American Sales and Director Kenneth T. Hutchinson 52 Director 2003 The business address for each of our officers and directors is 200 Broadhollow Road, Suite 207, Melville, NY 11747. The following sets forth the business experience of each director, executive officer, including principal occupations, at present and for at least the past five years. V. William Lucchetti, Jr. Mr. Lucchetti has been our Chairman, Chief Executive Officer and President since our inception in December 2000. Also, since August 1999, Mr. Lucchetti has served as the Chief Executive Officer, President and a director of Michael Adams Consulting, Inc. From August 1998 to April 1999, Mr. Lucchetti served as the Vice President-Sales, Recruiting and Training of Kirlin Securities, Inc. From July 1994 to August 1998, Mr. Lucchetti served as the Vice President Sales of GKN Securities Corp. Adam J. Reznikoff Mr. Reznikoff has been our Vice President-North American Sales and a director since our inception in December 2000. From May 2000 to November 2000, Mr. Reznikoff served as the Vice President Marketing and Sales for Michael Adams Consulting, Inc. From August 1998 to May 2000, Mr. Reznikoff was an Account Executive at Kirlin Securities, Inc. From November 1996 to August 1998, Mr. Reznikoff was an Account Executive at GKN Securities Corp. Kenneth T. Hutchinson Mr. Hutchinson has been a director since July 2003. Mr. Hutchinson is a Vice President of Finance at National Australia Bank (since June 2003). Mr. Hutchinson also was employed by National Australia Bank as an Associate Vice President of Finance & Compliance from March 1997 to June 2001. From February 2003 to May 2003, Mr. Hutchinson was President of TH Consulting Group, Inc., a financial consulting concern. From July 2001 to February 2002, Mr. Hutchinson was a Senior Banking Consultant with Temenos USA Inc. 19 The Company's directors are elected for a period of one year and until their successors are duly elected and qualified. There are currently three members of the Board of Directors. During July 2003, James Favia resigned as a member of the Board of Directors due to personal reasons. On July 16, 2003, the Company appointed Kenneth T. Hutchinson to serve as a non-executive member of the board of directors of Company and chairman of the audit committee. To the knowledge of management of the Company, except as set forth above, no director of the Company holds any directorship in any other company with a class of securities registered pursuant to Section 12, or subject to the requirements of Section 15(d), of the Securities Exchange Act of 1934 or in any company registered as an investment company under the Investment Company Act of 1940. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers, directors and persons who own more than ten percent of a registered class of the Company's equity securities to file certain reports regarding ownership of, and transactions in, the Company's securities with the Securities and Exchange Commission (the "SEC"). These officers, directors and stockholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) reports that are filed with the SEC. Based solely on a review of copies of such forms received by the Company, and written representations received by the Company from certain reporting persons, the Company believes that for the year ended November 30, 2003 all Section 16(a) reports required to be filed by the Company's executive officers, directors and 10% stockholders were filed on a timely basis. Item 10. Executive Compensation The following table summarizes all compensation earned by or paid to the Company's Chief Executive Officer for services rendered in all capacities to the Company for the period beginning on December 13, 2000 (Inception) to November 30, 2003 and all officers who earned over $100,000 (the "Named Executive Officers"). One of our executive officers was compensated in excess of $100,000 when advances of expenses are included as set forth below. 20
SUMMARY COMPENSATION TABLE -------------------------- Long-Term Annual Compensation Compensation ----------------------------------------------------------- ---------------- Securities Other Annual Underlying Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) Options/SARs(#) --------------------------- ---- ---------- --------- ---------------- --------------- V. Willam Lucchetti, Jr. 2003 $35,534 -- $155,7571 -- Chairman, President, Chief Executive 2002 $31,846 -- $68,3002 -- and Operating Officer and Treasurer 2001 -- -- -- -- -- Adam J. Reznikoff 2003 $39,594 -- -- -- Secretary and 2002 $17,423 -- -- -- Director 2001 $28,770 -- -- -- -- ------------------- 1 Advance of expenses of Mr. Lucchetti by the Company. 2 Compensation paid to Michael Adam Consulting, Inc. which is wholly owned by Mr. Lucchetti. We have not granted any stock options to the named executive officer. None of our employees are employed pursuant to employment agreements. Director's Compensation Directors who are not employees of the Company are compensated at a rate of $1,000 for each meeting of the full Board of Directors which they attend in person, up to a maximum of $5,000 in any one year, plus expenses for attending such meetings. Officers are appointed annually by the Board of Directors and serve at the discretion of the Board. OPTIONS/SAR GRANTS IN 2003 -------------------------- There were no option grants 2003. AGGREGATE OPTION EXERCISES IN 2003 AND -------------------------------------- 2003 FISCAL YEAR-END OPTION VALUES ---------------------------------- There were no option exercises in 2003. Compensation Committee Interlocks and Insider Participation The Board of Directors of the Company does not have a compensation committee or audit committee. The Board of Directors determines executive compensation, based on corporate performance and market conditions. 21
Employment Agreements The Company has employment agreements with each employee of the Company that sets forth confidentiality obligations and intellectual property ownership. Pursuant to each of the employment agreements, each employee is an employee at will which may be terminated by the Company at any time for any reason. Stock Option Plan In April 2001, we adopted the 2001 Stock Option Plan, referred to as the 2001 Plan. The 2001 Plan will expire in April 2011, unless terminated earlier by our board of directors at their discretion. The 2001 Plan provides for the grant of options to purchase shares of our common stock, including: incentive stock options, as defined by Section 422 of the Internal Revenue Code, that may be granted solely to employees, including officers, non-qualified stock options, being stock options other than incentive stock options, that may be granted to employees, including officers, and non-employee directors and individuals with whom we have consulting agreements. Share Reserve. We authorized the issuance of 1,000,000 shares of our common stock pursuant to the 2001 Plan. As of November 30, 2003, we have not granted any options under the 2001 Plan. Shares subject to awards under the 2001 Plan that have expired or otherwise terminated without having been exercised in full again become available for the grant of awards under the 2001 Plan. Shares issued under the 2001 Plan may be previously unissued shares or reacquired shares of common stock. Awards. Stock options may be granted under the 2001 Plan to our employees, non-employee directors and individuals with whom we have consulting agreements. The stock options granted will be either incentive stock options or non-qualified stock options. An incentive stock option is a stock option that has met the requirements of Section 422 of the Internal Revenue Code and, except as set forth below, must be granted with an exercise price of at least 100% of the fair market value at the date of grant. No incentive stock option, and, prior to our stock being publicly traded, no non-qualified stock option, may be granted to any person, who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of the total combined voting power of our company or any affiliate, unless the following conditions are satisfied: the option exercise price must be at least 110% of the fair market value of the stock subject to the option on the date of grant; and the term of any incentive stock option award must not exceed five years from the date of grant. Plan Administration. The 2001 Plan is administered by our board of directors. Our board of directors interprets all questions relating to the 2001 Plan and its decisions are final and binding on all participants. Any determination by a majority of the members of the board of directors at any meeting, or by written consent in lieu of a meeting, shall be deemed to have been made by the whole board of directors. Under the 2001 Plan, the board of directors may, at any time or from time to time, appoint a committee of at least two members of the board of directors and delegate to the committee the authority of the board of directors to administer the 2001 Plan. Upon such appointment and delegation, 22 such committee shall have all the powers, privileges and duties of the board of directors, and shall be substituted for the board of directors, in the administration of the 2001 Plan, subject to certain limitations. Term of Awards. In general, the term of stock options granted under the 2001 Plan is ten years. In the event an awardee's service relationship with us ends, other than upon the awardee's death or disability, the award may be exercised within a period of 90 days following termination, provided that the award has already vested. If the awardee's termination of service is for cause, such period will not exceed thirty days. Any award not already vested, or not exercised within these periods shall terminate. If the awardee dies, any vested award may be exercised within the time period specified in the award agreement, being at least six months, or if no time is specified, twelvemonths. Payment of Exercise Price. Awardees may pay the exercise price of their awards, if any, as determined by the compensation committee, and acceptable consideration includes cash, checks, and promissory notes. Generally, an option holder may not transfer a stock option to any entity other than a spouse or descendants or to a trust, or other entity owned by such a trust, for the primary benefit of the option holder, his spouse and/or his descendants. Option Adjustments. The aggregate number and class of shares as to which options may be granted under the 2001 Plan, the number and class shares covered by each outstanding option and the exercise price per share of each outstanding option, but not the total price, and all such options, shall each be proportionately adjusted for any increase decrease in the number of issued common stock resulting from split-up, spin-off or consolidation of shares or any like capital adjustment or the payment of any stock dividend. Generally, any option granted shall terminate in the event of a merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation. However, the optionee shall have the right immediately prior to any such transaction to exercise his or her option in whole or in part. Additional Provisions. The board of directors may, in their sole discretion, include additional provisions in any option or award granted or made under the 2001 Plan that are not inconsistent with the 2001 Plan or applicable law. The board of directors may also, in its sole discretion, accelerate or extend the date or dates on which all or any particular award or awards granted under the 2001 Plan may be exercised. Limitation of Liability and Indemnification Matters Article eighth of our certificate of incorporation provides that the personal liability of our directors will be eliminated to the fullest extent permitted by the provisions of paragraph (7) of subsection (b) of ss. 102 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented. Article sixth of our certificate of incorporation provides that we will, to the fullest extent permitted by the provisions of the General Corporation Law of the State of Delaware, indemnify all persons whom we may indemnify under such provisions. The indemnification provided by this section shall not limit or exclude any rights, indemnities or limitations of liability to which any person may be entitled, whether as a matter of law, under our bylaws, by agreement, vote of our stockholders or disinterested directors, or otherwise. Except as specifically required by the General Corporation Law of the State of Delaware, as the same exists or may be amended, none of our directors of will be liable to us or our stockholders for monetary damages for breach of his or her fiduciary duty as a director. No amendment to or repeal of this provision of our certificate of incorporation will apply to or have any effect on the liability or alleged liability of any director for or with respect to any acts or omissions of that director occurring prior to the amendment or repeal. 23 Under Section 145 of the Delaware General Corporation Law, we have the power, under certain circumstances, to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or contemplated action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer, employee or agent of ours, or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including attorneys' fees, and judgments against, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, that type of indemnification is against public policy as expressed in the Act and is therefore unenforceable. There is no pending litigation or proceeding involving any of our directors or officers as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer. Item 11. Security Ownership of Certain Beneficial Owners and Management and related stockholder matters The following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of November 30, 2003 by: all persons who are beneficial owners of five percent (5%) or more of our common stock; each of our directors; each of our executive officers; and all current directors and executive officers as a group. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table below have sole voting and investment power with respect to all shares of common stock held by them. Applicable percentage ownership in the following table is based on 16,272,942 shares of common stock outstanding as of November 30, 2003. 24 Beneficial ownership is determined in accordance with the rules of the SEC. No shares of common stock of the Company are subject to options held by any persons. Name and Address Approximate of Beneficial Holder Number of Shares Percentage of Class ----------------------------- ---------------- ------------------- V. William Lucchetti, Jr..... c/o The Macreport.net, Inc. 200 Broadhollow Road Melville, New York 11747 14,962,980 92% Adam J. Reznikoff............ c/o The Macreport.net, Inc. 200 Broadhollow Road Melville, New York 11747 -- -- Kenneth T. Hutchinson........ c/o The Macreport.net, Inc. 200 Broadhollow Road Melville, New York 11747 -- -- All executive officers and directors as a group (3 persons) 14,963,480 92% ------------------------ Item 12. Certain Relationships and Related Transactions We lease an executive residence and office facility for $5,800 in monthly rent. The lease is on a month-to-month term. Mr. Lucchetti has the exclusive personal use of the executive residence facility at no cost. The lease cost associated with the executive residence is not included as compensation to Mr. Lucchetti or Michael Adams Consulting. We believe that all of the transactions discussed above were made on terms no less favorable to us than could have been obtained from unaffiliated third parties. 25
Item 13. Exhibits And Reports On Form 8-K The following exhibits of the Company are filed herewith, unless otherwise indicated: Exhibit Filed Incorporated by Number Description Herewith Reference to ------ ----------- -------- ------------ 3.1 Certificate of Incorporation The Registrant's Registration Statement on Form SB-2 (No. 333-64244) 3.2 By-laws The Registrant's Registration Statement on Form SB-2 (No. 333-64244) 4.1 Specimen common stock certificate The Registrant's Registration Statement on Form SB-2 (No. 333-64244) 4.2 2001 Stock Option Plan The Registrant's Registration Statement on Form SB-2 (No. 333-64244) 5.1 Opinion of Stephen J. Czarnik, Esq. The Registrant's Registration Statement on Form SB-2 (No. 333-64244) 10.1 Consulting Agreement, dated January 1, 2001, The Registrant's Registration between Michael Adams Consulting, Inc. Statement on Form SB-2 (No. 333-64244) 10.2 Office Service Agreement, dated July 7, 2000, with The Registrant's Registration VANTAS Long Island, LLC Statement on Form SB-2 (No. 333-64244) 10.3 Lease, dated March 30, 2001, with 25 Broad Street The Registrant's Registration LLC Statement on Form SB-2 (No. 333-64244) 10.4 Form of Subscription Agreement executed by The Registrant's Registration investors in the private offering or our common Statement on Form SB-2 (No. stock that closed on May 15, 2001 333-64244) 10.5 Promissory Note issued to Sherman Winski The Registrant's Registration November 16, 2001 Statement on Form SB-2 (No. 333-64244) 10.6 Amended and Restated Promissory Note issued to The Registrant's Registration Sherman Winski January 8, 2002 Statement on Form SB-2 (No. 333-64244) 10.7 Promissory Note issued to Sherman Winski dated The Registrant's Registration January 14, 2002 Statement on Form SB-2 (No. 333-64244) 26
10.8 Form of Convertible Promissory Note (May 2002) The Registrant's Quarterly Report on Form 10-QSB for the quarter ended May 31, 2002 10.9 Office Service Agreement, dated as of January 1, The Registrant's Annual 2003, with HQ Global Workplaces Report on Form 10-KSB for the year ended November 30, 2002 10.10 Form of Convertible Promissory Note (September - The Registrant's Annual November 2002) Report on Form 10-KSB for the year ended November 30, 2002 10.11 Form of Convertible Promissory Note (November The Registrant's Annual 2002) Report on Form 10-KSB for the year ended November 30, 2002 10.12 Form of Convertible Promissory Note (July 2002) The Registrant's Annual Report on Form 10-KSB for the year ended November 30, 2002 10.13 Form of Convertible Promissory Note (June 2002) The Registrant's Annual Report on Form 10-KSB for the year ended November 30, 2002 10.14 Amendment No. 1 to the Amended and Restated The Registrant's Annual Promissory Note issued to Sherman Winski dated Report on Form 10-KSB for the March 9, 2002 year ended November 30, 2002 10.15 Amendment No. 2 to the Amended and Restated The Registrant's Annual Promissory Note issued to Sherman Winski dated Report on Form 10-KSB for the September 9, 2002 year ended November 30, 2002 10.16 Amendment No. 3 to the Amended and Restated The Registrant's Annual Promissory Note issued to Sherman Winski dated Report on Form 10-KSB for the November 14, 2002 year ended November 30, 2002 10.17 Amendment No. 1 to the Promissory Note issued to The Registrant's Annual Sherman Winski dated April 10, 2002 Report on Form 10-KSB for the year ended November 30, 2002 10.18 Amendment No. 2 to the Promissory Note issued to The Registrant's Annual Sherman Winski dated September 9, 2002 Report on Form 10-KSB for the year ended November 30, 2002 10.19 Amendment No. 3 to the Promissory Note issued to The Registrant's Annual Sherman Winski dated January 10, 2003 Report on Form 10-KSB for the year ended November 30, 2002 14.1 Code of Ethics * 16.1 Letter from Capraro Centofranchi Kramer & Co. The Registrant's Current Report on Form 8-KA dated January 21, 2003 27
21.1 Subsidiaries * 23.1 Consent of Capraro Centofranchi Kramer & Co., The Registrant's Registration P.C. Statement on Form SB-2 (No. 333-64244) 23.2 Consent of Stephen J. Czarnik, Esq. (included in The Registrant's Registration Exhibit 5.1 hereof) Statement on Form SB-2 (No. 333-64244) 24.1 Power of attorney The Registrant's Registration Statement on Form SB-2 (No. 333-64244) 31.1. Certification of V. William Lucchetti pursuant to * Rule 13-14(a) and Item 307 of Regulation SB 32.1 32.1 Certification by V. William Lucchetti Pursuant to * the 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -------------------- * Filed herewith. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Aggregate fees for professional services rendered for us by Holtz Rubenstein & Co., LLP, for fiscal years ended November 30, 2003 and 2002, are set forth below. The aggregate fees included in the Audit category are fees billed for the fiscal years for the audit of our annual financial statements and review of financial statements and statutory and regulatory filings or engagements. The aggregate fees included in each of the other categories are billed in the fiscal years. FISCAL YEAR 2003 FISCAL YEAR 2002 AUDIT FEES $38,900 $27,500 AUDIT-RELATED FEES $ - $ - TAX FEES $ - $ - ALL OTHER FEES $ - $ - --------- --------- TOTAL $38,900 $27,500 Audit fees for the fiscal years ended November 30, 2003 and 2002, were for professional services rendered for the audits of the consolidated financial statements of the Company, quarterly review of the financial statements included in Quarterly Reports on Form 10-QSB, and other assistance required to complete the year end audit of the consolidated financial statements. As we do not have a formal audit committee (see end of Item 9 above), the services described above were not approved by the audit committee under the de minimus exception provided by Rule 2-01(c)(7)(i)(C) under Regulation S-X. Further, as we do not have a formal audit committee, we do not have audit committee pre-approval policies and procedures. 28
SIGNATURES ---------- In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 15, 2004. THE MACREPORT.NET, INC. By: /s/ V. William Lucchetti, Jr. -------------------------------- V. William Lucchetti, Jr. Chairman, Chief Executive Officer and President In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates stated. /s/ V. William Lucchetti, Jr. Chairman, March 15, 2004 ------------------------------ Chief Executive Officer V. William Lucchetti, Jr. and President (Principal Executive Officer and Principal Accounting and Financial Officer) /s/ Adam J. Reznikoff Vice President-North March 15, 2004 ----------------------------- American Sales and Adam J. Reznikoff Director /s/ Kenneth T. Hutchinson Director March 15, 2004 ----------------------------- Kenneth T. Hutchinson 29 Index to Consolidated Financial Statements Page A. Report of Independent Certified Public Accountants F-1 B. Consolidated Balance Sheet for the year ended November 30, 2003 F-2 C. Consolidated Statements of Operations for the years ended November 30, 2003 and 2002 F-3 D. Consolidated Statement of Stockholders' Deficiency for the year ended November 30, 2003 F-4 E. Consolidated Statements of Cash Flows for the years ended November 30, 2003 and 2002 F-5 F. Notes to Consolidated Financial Statements F-6 to F-14 i Independent Auditors' Report ---------------------------- To the Board of Directors and Stockholders of The Macreport.Net, Inc. Melville, New York We have audited the accompanying consolidated balance sheet of The Macreport.Net, Inc. and Subsidiary, as of November 30, 2003, and the related consolidated statements of operations, stockholders' deficiency and cash flows for the years ended November 30, 2003 and 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Macreport.Net, Inc. and Subsidiary as of November 30, 2003 and the results of their operations and their cash flows for the years ended November 30, 2003 and 2002 in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company's ability to continue in the normal course of business is dependent upon its ability to generate revenue and raise capital through the issuance of equity and/or debt securities, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding this matter are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ HOLTZ RUBENSTEIN & CO., LLP ----------------------------------- HOLTZ RUBENSTEIN & CO., LLP Melville, New York February 28, 2004 F-1 THE MACREPORT.NET, INC. AND SUBSIDIARY -------------------------------------- CONSOLIDATED BALANCE SHEET -------------------------- November 30, 2003 ----------------- ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 1,868 Marketable securities 20,500 Other current assets 2,000 ----------- Total current assets 24,368 EQUIPMENT, net 32,001 OTHER ASSETS 7,571 ----------- Total assets $ 63,940 =========== LIABILITIES AND STOCKHOLDERS' DEFICIENCY ---------------------------------------- CURRENT LIABILITIES: Accounts payable and accrued expenses $ 545,300 Notes payable 982,056 Deferred revenue 36,103 ----------- Total current liabilities 1,563,459 COMMITMENTS STOCKHOLDERS' DEFICIENCY: Preferred stock $.0001 par value, authorized 5,000,000 shares, no shares issued -- Common stock $.0001 par value, authorized 25,000,000 shares, 16,272,942 shares issued and outstanding 1,627 Additional paid-in-capital 1,680,784 Deficit (3,181,930) ----------- Total stockholders' deficiency (1,499,519) ----------- Total liabilities and stockholders' deficiency $ 63,940 =========== F-2 THE MACREPORT.NET, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended November 30, 2003 2002 ------------ ------------ REVENUES $ 390,682 $ 26,337 COST OF REVENUES 167,046 36,689 ------------ ------------ GROSS PROFIT 223,636 (10,352) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,147,761 1,025,837 ------------ ------------ LOSS BEFORE OTHER INCOME (EXPENSE) (924,125) (1,036,189) OTHER INCOME (EXPENSE): Other (4,420) (2,660) Interest expense (107,875) (55,264) ------------ ------------ (112,295) (57,924) ------------ ------------ LOSS BEFORE PROVISION FOR INCOME TAXES (1,036,420) (1,094,113) PROVISION FOR INCOME TAXES 455 455 ------------ ------------ NET LOSS $ (1,036,875) $ (1,094,568) ============ ============ NET LOSS PER COMMON SHARE BASIC AND DILUTED LOSS PER SHARE $ (0.06) $ (0.07) ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 16,046,077 15,870,097 ============ ============ F-3
THE MACREPORT.NET, INC. AND SUBSIDIARY STATEMENT OF STOCKHOLDERS' DEFICIENCY YEAR ENDED NOVEMBER 30, 2003 Common Stock Additional ------------------------- Paid-in Shares Amount Capital Deficit Total ----------- ----------- ----------- ----------- ----------- Balance, December 1, 2001 15,845,000 $ 1,585 $ 821,065 $(1,050,487) $ (227,837) Stock issued for cash ($1.50 per 30,232 3 45,347 -- 45,350 share), net Net loss for the year -- -- -- (1,094,568) (1,094,568) Balance, November 30, 2002 15,875,232 1,588 866,412 (2,145,055) (1,277,055) Stock issued for conversion of convertible promissory notes 397,710 39 814,372 -- 814,411 Net loss for the year -- -- -- (1,036,875) (1,036,875) Balance, November 30, 2003 16,272,942 $ 1,627 $ 1,680,784 $(3,181,930) $(1,499,519) =========== =========== =========== =========== =========== F-4
THE MACREPORT.NET, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended November 30, 2003 2002 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,036,875) $(1,094,568) ----------- ----------- Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 12,170 11,017 Unrealized loss on non-marketable securities 4,000 -- Realized loss on sale of securities 419 2,660 Changes in operating assets and liabilities: (Increase) decrease in assets: Prepaid expenses -- 23,003 Other current assets (2,000) -- Security deposits (1,726) -- Increase (decrease) in liabilities: Accounts payable and accrued expenses 182,784 215,279 Deferred revenue (20,556) 56,659 ----------- ----------- Total adjustments 175,091 308,618 ----------- ----------- Net cash used in operating activities (861,784) (785,950) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities (32,500) -- Proceeds from sale of marketable securities 7,581 2,945 Purchase of property and equipment (6,247) (5,000) ----------- ----------- Net cash used in by investing activities (31,166) (2,055) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net -- 45,350 (Increase) decrease in advances to stockholder (28,167) 15,523 Proceeds from note payable 776,327 872,622 ----------- ----------- Net cash provided by financing activities 748,160 933,495 ----------- ----------- Net (decrease) increase in cash and cash equivalents (144,790) 145,490 Cash and cash equivalents at beginning of year 146,658 1,168 Cash and cash equivalents at end of year $ 1,868 $ 146,658 =========== =========== F-5
THE MACREPORT.NET, INC. ----------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ YEARS ENDED NOVEMBER 30, 2003 AND 2002 -------------------------------------- 1. Organization\Description of Business: ------------------------------------- The MacReport.Net, Inc. (the "Company") was incorporated in 2000 under the laws of the State of Delaware. The Company is an internet information and media company formed to allow publicly and privately held companies to communicate relevant corporate information directly with the investing public. This is done through the use of a web site that provides the user with key information via management interviews, press releases, video conferencing and other information. The Company has its headquarters in Melville, NY and a satellite location in New York City. The Company was in the development stage until the fourth quarter of its 2003 fiscal year, at which time, management determined that the Company's efforts were no longer focused on research and development, developing markets and start up activities such as creating content on its website. In addition, revenues derived from its products grew substantially from levels reported in prior years. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company incurred net losses of $1,036,875 and $1,094,568 for the years ended November 30, 2003 and 2002, respectively. At November 30, 2003 current liabilities exceed current assets by $1,539,091. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management of the Company intends to raise additional funds through future offerings of the Company's stock. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. 2. Summary of Significant Accounting Policies: ------------------------------------------- a. Principles of consolidation and basis of presentation ----------------------------------------------------- The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Michael Adams Securities Inc. All significant intercompany transactions have been eliminated in consolidation. As of November 30, 2003, there were no intercompany transactions The subsidiary was formed in November 2002 to facilitate the acquisition of a registered broker/dealer. During the year the Company decided they were no longer interested in such an acquisition and the subsidiary has remained inactive. b. Use of estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-6 2. Summary of Significant Accounting Policies: (Cont'd) ------------------------------------------- c. Revenue recognition ------------------- Revenues from fee-based contracts with terms greater than one month are recognized ratably over the life of the contract. Advertising revenues are recognized over the period of the related ad. d. Cash and cash equivalents ------------------------- For purposes of the statement of cash flows, the Company includes cash on deposit, money market funds and amounts held by brokers in cash accounts to be cash equivalents. e. Marketable securities --------------------- The Company reports its investment in marketable securities under the provisions of Financial Accounting Standards Board Statement No. 115 "Accounting for Certain Investments in Debt and Equity Securities." In accordance with this standard, securities which are classified as "trading securities" are recorded in the Company's balance sheet at fair market value, with the resulting unrealized gain or loss reflected in the Company's statement of operations in the current period. Securities which are classified as "available for sale" are also reported at fair market value, however, the unrealized gain or loss on these securities is listed as a separate component of stockholders' deficiency. f. Allowance for doubtful accounts ------------------------------- Management must make estimates of the uncollectibility of accounts receivable. Management specifically analyzes accounts receivable and analyzes historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. g. Equipment and depreciation -------------------------- Equipment is stated at cost. Major expenditures for property and those which substantially increase useful lives are capitalized. Maintenance, repairs, and minor renewals are expensed as incurred. When assets are retired or otherwise disposed of, their costs and related accumulated depreciation are removed from the accounts and resulting gains or losses are included in income. Depreciation is provided by both straight-line and accelerated methods over the estimated useful lives of the assets. Differences attributable to using accelerated methods are not considered material. h. Concentration of risk --------------------- The Company invests its excess cash in deposits and money market accounts with major financial institutions with strong credit ratings. Generally, the investments mature within ninety days, and therefore, are subject to little risk. The Company has not experienced losses related to these investments. F-7 2. Summary of Significant Accounting Policies: (Cont'd) ------------------------------------------- i. Loss per share -------------- Loss per share is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding during the period. The computation of diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an antidilutive effect on earnings. j. Income taxes/deferred income taxes ---------------------------------- The Company follows the provisions of Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes, " which requires the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been included in the Company's financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between financial statement and tax basis of assets and liabilities using enacted tax rates in effect when these differences are expected to reverse. Valuation allowances are established, when appropriate, to reduce deferred tax assets to the amount expected to be realized. k. Advertising costs ----------------- All costs relating to marketing and advertising are expensed in the period incurred. Advertising expense for the years ended November 30, 2003 and 2002 approximated $61,000 and $25,000. l. New accounting pronouncements ----------------------------- In January 2004 the Financial Accounting Standards Board ("FASB") issued FASB Staff Position ("FSP") No. FAS 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 which permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Regardless of whether a sponsor elects that deferral, FSP FAS 106-1 requires certain disclosures pending further consideration of the underlying accounting issues. The guidance in FSP FAS 106-1 is effective for interim or annual financial statements of fiscal years ending after December 7, 2003. The adoption of FSP FAS 106-1 is not expected to have a significant impact on the Company's Consolidated Financial Statements. In December 2003 the FASB issued FAS No. 132 (Revised) ("FAS 132-R"), Employer's Disclosure about Pensions and Other Postretirement Benefits. FAS 132-R retains disclosure requirements of the original FAS 132 and requires additional disclosures relating to assets, obligations, cash flows, and net periodic benefit cost. FAS 132-R is effective for fiscal years ending after December 15, 2003, except that certain disclosures are effective for fiscal years ending after June 15, 2004. Interim period disclosures are effective for interim periods beginning after December 15, 2003. The adoption of the disclosure provisions of FAS 132-R is not expected to have a material effect on the Company's Consolidated Financial Statements. F-8 In May 2003 the FASB issued FAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. FAS 150 clarifies the accounting for certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of those financial instruments were classified as equity. FAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of the provisions of FAS 150 did not have a material effect on the Company's Consolidated Financial Statements. In April 2003 the FASB issued FAS No. 149, Amendments of Statement 133 on Derivative Instruments and Hedging Activities. FAS 149 amends and clarifies accounting for derivative instruments embedded in other contracts, and for hedging activities under FAS No. 133. FAS 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of the provisions of FAS 149 did not have a material effect on the Company's Consolidated Financial Statements. In January 2003 the FASB issued FASB Interpretation ("FIN") No. 46, Consolidation of Variable Interest Entities. In December 2003, the FASB issued FIN No. 46 (Revised) ("FIN 46-R") to address certain FIN 46 implementation issues. This interpretation clarifies the application of Accounting Research Bulletin ("ARB") No. 51, Consolidated Financial Statements for companies that have interests in entities that are Variable Interest Entities (VIE) as defined under FIN 46. According to this interpretation, if a company has an interest in a VIE and is at risk for a majority of the VIE's expected losses or receives a majority of the VIE's expected gains it shall consolidate the VIE. FIN 46-R also requires additional disclosures by primary beneficiaries and other significant variable interest holders. For entities acquired or created before February 1, 2003, this interpretation is effective no later than the end of the first interim or reporting period ending after March 15, 2004, except for those VIEs that are considered to be special purpose entities, for which the effective date is no later than the end of the first interim or annual reporting period ending after December 15, 2003. For all entities that were acquired subsequent to January 31, 2003, this interpretation is effective as of the first interim or annual period ending after December 31, 2003. The adoption of the provisions of this interpretation is not expected to have a material effect on the Company's Consolidated Financial Statements. In November 2002 the FASB issued FIN No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. FIN 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligations undertaken in issuing the guarantee. The disclosure provisions of FIN 45 are effective for financial statements of periods ending after December 15, 2002. Additionally, the recognition of a guarantor's obligation should be applied on a prospective basis to guarantees issued after December 31, 2002. The adoption of the disclosure and recognition provisions of FIN 45 did not have a material effect on the Company's Consolidated Financial Statements. F-9 In June 2002 the FASB issued FAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. FAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred rather than the date an entity commits to an exit plan. FAS 146 also establishes that fair value is the objective for initial measurement of the liability. The provisions of FAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of the provisions of FAS 146 did not have a material effect on the Company's Consolidated Financial Statements. 3. Supplemental Cash Flow Information: ---------------------------------- Years Ended November 30, ------------------------- 2003 2002 ------ ------ Cash paid for: Interest $3,439 $5,264 ====== ====== Income taxes $ 455 $ 455 ====== ====== For the year ended November 30, 2003, the Company had a non-cash operating and financing activity when it issued shares of its common stock for the conversion of convertible promissory notes totaling $659,412. 4. Marketable Securities: --------------------- Following is a comparison of the cost and market value of trading securities included in current assets at November 30, 2003: Cost 24,500 Unrealized loss (4,000) -------- Market Value $ 20,500 ======== F-10 5. Equipment: --------- Major classes of equipment consist of the following at November 30, 2003: Estimated Useful Life Years Furniture and fixtures 5 $ 41,506 Equipment 5 19,011 --------- 60,517 Less accumulated depreciation 28,516 --------- Net equipment $ 32,001 ========= Depreciation expense was $12,170 and $11,017 for the years ended November 30, 2003 and 2002, respectively. 6. Notes Payable: ------------- Notes payable consist of the following at November 30, 2003: Promissory note, principal and interest due May 30, 2004. The note bears interest at a rate of 8% per annum. (a) $ 752,997 Convertible notes payable (b) 229,059 --------- $ 982,056 (a) Troubled Debt Restructuring In May 2003, the Company modified the terms of three promissory notes from a third party totaling $752,997, which bore interest at rates per annum ranging between 8% and 13%. The individual agreed to replace the prior notes with a new 8% note that is payable May 30, 2004. The future cash payments of the note exceeds the carrying value of the debt and, accordingly, no adjustment has been made to the financial statements. (b) Convertible notes payable During January through April 2003, the Company issued convertible promissory notes to seven individuals with an aggregate principal amount of $85,000. The convertible notes bear interest at a rate of 8% per annum with a maturity date of March 1, 2004. The Company is currently in negotiations with these note holders with respect to the conversion of notes into common stock and expects to convert the notes within 30 days. Pursuant to the terms of the convertible notes, prior to March 1, 2004, the Company may convert the balance due together with accrued interest into shares of common stock. The conversion ratio is the greater of: (y) the amount that is equal to the product of the closing bid price per share for the common stock, as reported on the over-the-counter electronic bulletin board, or such other public market that the Company's common stock is then traded and seventy-five percent (75%); and (z) 3.50. F-11 6. Notes Payable: (Cont'd) ------------- The remaining convertible promissory notes totaling $144,059 bear interest at a rate of 8% per annum with maturity dates that have expired. Pursuant to the terms of the convertible notes, if the Company does not prepay the notes prior to their expiration, the Company may convert the balance due together with accrued interest into shares of the Company's common stock. The conversion ratio for $129,059 of these notes is 3.50 and the greater of: (i) the amount that is equal to the product of the closing bid price per share for the Common Stock, as reported on the over-the-counter electronic bulletin board, or such other public market that the Company's Common Stock is then traded and seventy-five percent (75%); or (ii) 2.50 for one note totaling $15,000. The Company is currently in negotiations with these note holders with respect to the conversion of notes into common stock and expects to convert the notes within 30 days. See (note 7). 7. Commitments: ----------- a. Leases ------ The Company leases its Melville office space under a three month lease expiring June 2004, with minimum monthly rent of approximately $6,000, plus office service expenses. The Company also leases an apartment in New York City for the personal use of its CEO under a month to month lease with minimum monthly rent of $5,800. Total rental expense approximated $230,000 and $140,000 for the years ended November 30, 2003 and 2002, respectively. b. Litigation ---------- The Company is involved in various legal proceedings and claims incident to the normal conduct of its business. The Company believes that such legal proceedings and claims, individually and in the aggregate, are not likely to have a material adverse effect on its financial position or results of operations. In November 2003, one of the Company's convertible note holders, filed a complaint against the Company in the Superior Court of the State of Arizona, County of Maricopa, alleging breach of contract (the convertible note agreement). The plaintiff is seeking monetary damages totaling $50,000 plus interest, costs and attorney's fees. The Company has filed its answer to plaintiff's complaint in January 2004. The Company, which intends to defend the action vigorously, does not believe that the suit will have a material adverse effect on its financial position or results of operations, however, there can be no assurance of the outcome. The principle and accrued interest related to this note are included in notes payable and accrued expenses on the Company's balance sheet at November 30, 2003. In November 2003, a former executive officer of the Company, filed a complaint against the Company as well as against its subsidiary and CEO in the Supreme Court of the State of New York, County of Richmond, alleging monies owed to the plaintiff for services. The plaintiff is seeking monetary damages totaling approximately $56,000 plus interest, costs and attorney's fees. The Company, which intends to defend the action vigorously, does not believe that the suit will have a material adverse effect on its financial position or results of operations, however, there can be no assurance of the outcome. F-12 7. Commitments: (Cont'd) ----------- In January 2002, a law firm which formerly provided services to the Company, filed a complaint against the Company as well as against its subsidiary and CEO in the Supreme Court of the State of New York, County of New York, alleging monies owed to the plaintiff for certain legal services. The plaintiff sought monetary damages totaling $73,339 plus costs and attorney's fees. The Company and the plaintiff have tentatively agreed in principal to settle this matter. At November 30, 2003, the Company has accrued fees totaling $73,339 related to this matter. 8. Related Party Transactions: -------------------------- Fees for management, executive, and administrative services paid to stockholders for the year ended November 30, 2002 were $295,000, respectively. The Company leases an executive residence and office facility for $5,800 in monthly rent on a month-to-month basis. The Company's CEO has the exclusive personal use of the executive residence facility at no cost. The lease cost associated with the executive residence is not included as compensation to the CEO. Prior to the fourth quarter of 2003, the Company advanced its Chief Executive Officer approximately $84,000.00 for personal expenses. During the fourth quarter of 2003, the Company elected to treat these and subsequent advances to its Chief Executive Officer as compensation. 9. Stockholders' Equity: -------------------- The Company has authorized 25,000,000 shares, par value $0.0001, of common stock. The common stock has one vote per share, with no cumulative voting. There are no pre-emptive rights, conversion rights, preferences, redemption provision, sinking fund provisions or any liability for further calls or assessments. There are no stated liquidation rights other than those that may exist under Delaware law. The Company has authorized 5,000,000 shares, par value $0.0001, of preferred stock. Shares of preferred stock may be issued in such classes or series, and may have such voting powers, and such designations, preferences and other special rights and qualifications, or restrictions thereof, as shall be set by the Board of Directors. a. Conversion of notes payable During the 2003, the Company issued 397,710 shares of common stock in the conversion of promissory notes held by investors. The total of the notes converted plus accrued interest was $814,411. b. Stock option plan ----------------- In 2001, the Company adopted a plan (the "2001 Stock Option Plan" or the "Plan") pursuant to which the Board of Directors is authorized to award options to purchase up to 1,000,000 shares of Common Stock to selected officers, employees, agents, consultants and other persons who render services to the Company. The options may be issued on such terms and conditions as determined by the Board or Committee, and may be issued so as to qualify as incentive stock options under Internal Revenue Code Section 422A. Reserved shares under the Plan at November 30, 2002 are 1,000,000. As of November 30, 2003, there were no options granted under this Plan. F-13 10. Income Taxes: ------------ No provision for income taxes was recorded during the year ended November 30, 2003 and 2002 due to net losses being incurred. At November 30, 2003, the Company had net operating and capital loss carryforwards for tax purposes of approximately $3,100,000, which expire through 2023. Deferred tax assets consist of the following components: November 30, --------------------------- 2003 2002 ----------- ----------- Net operating and capital loss carryforwards $ 1,223,000 $ 798,000 Less: valuation allowance (1,223,000) (798,000) ----------- ----------- Total deferred $ - $ - =========== =========== At November 30, 2003 and 2002, the Company prided a full valuation allowance against the gross deferred tax asset since, in management's judgment, it is more likely than not, such benefits will not be realized. 11. Subsequent Events: ----------------- a. Effective December 1, 2003, the Company entered into a three-year lease for additional office space in its Melville New York headquarters. Under the lease, the Company is required to pay rent approximating $21,000, $21,000 and $22,000 for the years ended November 30, 2004, 2005 and 2006, respectively. b. On February 24, 2004, the Company converted convertible promissory notes with an aggregate principal amount of $35,000 plus interest into 10,867 shares of common stock of the Company. 12. Fair Value of Financial Instruments: ----------------------------------- The methods and assumptions used to estimate the fair value of the following classes of financial instruments for: Current Assets and Current Liabilities: The carrying amount of cash, and payables approximate their fair value. The fair value of marketable securities was derived from quotes listed by national stock exchanges. The fair value of the Company's notes payable was estimated using a discounted cash flow analysis, based on the Company's assumed incremental borrowing rates for similar types of borrowing arrangements. The carrying amount of fixed rate debt at November 30, 2003 approximates fair value. F-14