SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2004
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission File Number 33-131110 NY
4net Software, Inc.
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(Name of small business issuer in its charter)
Delaware 11-2831380
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Mill Plain Road, Danbury Connecticut 06811
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(Address of principal executive offices) (Zip code)
(203) 791-3872
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(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Securities Exchange Act of 1934: None
Securities registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934: None
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Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter periods that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of 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. [ ]
State issuer's revenues for its most recent fiscal year: $2,208.
As of December 8, 2004, the aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the average bid and ask prices of such stock on that date was $654,306. Shares of common stock held by each officer and director and by each person who owns 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive and does not constitute an admission of affiliate status.
As of December 8, 2004, there were issued and outstanding 8,761,018 shares of the registrant's common stock, par value $.00001 per share.
PART I
This report on Form 10-KSB contains, in addition to historical information, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 ("Securities Act") and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act"). You can identify these forward-looking statements when you see words such as "expect," "anticipate," "estimate," "may," "believe," and other similar expressions. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Actual results could differ materially from those projected in the forward-looking statements. Factors that could cause such a difference include, but are not limited to, those discussed in the section entitled "Factors Affecting Operating Results and Market Price of Stock," below. Readers are cautioned not to place undo reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update any forward-looking statements for any reason even if new information becomes available or other events occur in the future.
ITEM 1. DESCRIPTION OF BUSINESS.
Background
4net Software, Inc. (the "Company" or "4net Software") was incorporated in 1986 under the name Medtech Diagnostics, Inc. and ceased all operations in 1991. Between 1991 and March 2000, the Company had no operations, except for necessary administrative matters, and was not engaged in operating a business. During that period, the Company utilized its resources to remain in compliance with the periodic reporting requirements of the federal securities laws while management attempted to arrange for a merger, acquisition or other transaction by and between the Company and a viable operating entity.
In March 2000, the Company adopted a plan of operation to make acquisitions and strategic investments in companies that had developed unique niche software and/or Internet related products and services. Shortly thereafter the Company changed its name to 4networld.com, Inc. The Company's objective was to acquire software and/or Internet solution companies that enabled businesses to streamline key business processes and increase operating efficiency. Following an acquisition, the Company planned to develop, manage and operate the acquired business through, among other things, providing management and financial support, as well as assisting the acquired businesses in marketing, sales, and accounting functions.
On April 28, 2000, the Company acquired all of the issued and outstanding capital stock of DelOtto Systems, Inc., a Pennsylvania corporation ("DelOtto Systems"). DelOtto Systems was engaged in the business of developing Web-based software applications focusing on content management and information exchange and designing business-critical Web sites.
Following the acquisition of DelOtto Systems, the Company changed the name of DelOtto Systems to 4net Software, Inc. ("4net Software (PA)") and operated it as a wholly owned subsidiary. In December 2000, the Company restructured its wholly owned subsidiary from a Pennsylvania corporation to a Delaware corporation. In connection with the restructuring of 4net Software (PA), the Company formed a Delaware corporation named 4net Software, Inc. ("4net Software (DE)") as a wholly owned subsidiary and merged 4net Software (PA) with and into 4net Software (DE). Subsequent to the merger, 4net Software (PA) was dissolved.
On February 20, 2001, the Board of Directors of the Company authorized and approved the upstream merger of 4net Software (DE), the Company's wholly owned subsidiary, with and into the Company pursuant to Section 253 of the General Corporation Law of the State of Delaware (the "Upstream Merger"). In connection with the Upstream Merger the Company changed its name from 4networld.com, Inc. to 4net Software, Inc. The Upstream Merger and name change became effective on March 2, 2001, when the Company filed a Certificate of Ownership and Merger with the Delaware Secretary of State. A copy of the Certificate of Ownership and Merger is attached to the Company's Form 8-K filed on March 13, 2001, and is incorporated herein by reference. Subsequent to the Upstream Merger, 4net Software (DE) was dissolved. Accordingly, at this time the Company does not have any subsidiaries.
4net Software's Content Management and Web Site Design Business
During the fiscal year ended September 30, 2001, 4net Software was engaged in the business of providing content management and content syndication software, Web site hosting services and designing business-critical Web sites (the "Content Management and Web Site Design Business"). During the fiscal year ended September 30, 2001, the Company attempted to license its proprietary software, namely 4netManager(TM). 4netManager(TM) provides non-technical users the ability to update and maintain their own Web site. The Company also provided Web site development services to small and middle sized companies. Typically, in connection with licensing of 4netManager(TM) and the Web site development services the Company attempted to provide its customers with Web-site hosting services.
Subsequent to September 30, 2001, due to a decrease in technology spending, competition for Web site development services and the Company's inability to earn a profit, the Company decided to reevaluate its strategy with respect to the Content Management and Web Site Design Business. The Company determined in the first quarter of 2002 to limit its marketing efforts in connection with the Content Management and Web Site Design Business and to cease the further development of its proprietary content management system. The Company also determined to cease its efforts to develop a version of 4netManager(TM) for large businesses, which have multiple office locations.
During the year ended September 30, 2002, the Company serviced its existing clients and accepted new clients only through referrals and other unsolicited contacts. During the year ended September 30, 2002, the Company did not engage in any material marketing or sales efforts for its Content Management and Web site-Design Business. Accordingly, the Company did not generate any material new business for the Content Management and Web site-Design Business during the year ended September 30, 2002. During the fiscal year ended September 30, 2002 the Company generated revenues from existing licenses for 4netManager(TM) and from fees for providing Web site hosting services.
Effective September 1, 2002, the Company entered into an assignment agreement with New England Computer Group., an unrelated Connecticut corporation ("NECG"), pursuant to which the Company assigned to NECG all of the Company's servicing of web hosting clients. Pursuant to the agreement NECG agreed to pay a royalty fee equal to 50% of the revenues generated by the assigned clients, excluding revenues generated by additional programming work performed by NECG for the assigned clients. A copy of the Assignment Agreement between the Company and NECG is attached to the Company's current report on Form 8-K, dated September 27, 2002 and is incorporated herein by reference.
During the year ended September 30, 2004, the Company's sole source of revenues from the Content Management and Web Site Design Business was the royalty fee pursuant to the Assignment Agreement with NECG. Currently, 4net Software's involvement in the Content Management and Web Site Design Business is limited to receiving royalties pursuant to its assignment agreement with NECG. While the Company owns the proprietary rights to 4netManager(TM), the Company does not have sufficient capital to further develop or exploit its intellectual property rights. There can be no assurances that the Company will ever generate any additional revenues from 4netManager(TM).
Competition of 4net Software's Content Management and Web Site Design Business
The former business of 4net Software, providing Web site content management, syndication and Web design services, is a highly competitive industry. 4net Software encountered intense competition from other entities in its industry, due to among other things a decrease in technology spending. Many of these entities, including large information technology consulting service providers such as major accounting firms; large Internet hosting services such as Verio; global and regional Web development companies such as Industrial Medium; vendors of software that directly address elements of e-business applications such as BroadVision; and developers of software that address certain technology components of e-business applications (e.g., content management), such as Interwoven, are well-established, have extensive experience and possess greater financial, technical, human and other resources than the Company. 4net Software's financial resources were limited in comparison to many of its competitors when it competed in the Content Management and Web Site Design Business.
4net Software's Acquisition Strategy
In the fiscal year ended September 30, 2001, 4net Software was also actively engaged in searching for and evaluating software and Internet solution companies, which had proven technology and reported revenues and earnings as candidates for acquisition. During the fiscal year ended September 30, 2001, the Company entered into two separate letters of intent to acquire profitable software companies. However, the Company's due diligence review of the proposed acquisitions revealed material decreases in the revenues and earnings of the target companies. Due to the termination of the two letters of intent and the downturn in the technology sector, 4net Software determined to expand the scope of its acquisition strategy beyond businesses engaged exclusively in the software and Internet solution industries. 4net Software's Acquisition Strategy is now focused on acquiring target companies that have existing revenues and earnings as well as the perceived ability to expand and grow the business of the target company.
The Company is now pursuing an Acquisition Strategy, whereby 4net Software will seek to acquire undervalued businesses with a history of operating revenues in markets that provide room for growth. 4net Software is currently primarily engaged in identifying, investigating and, if investigation warrants, acquiring companies that will enhance 4net Software's revenues and increase shareholder value. 4net Software's Acquisition Strategy is focused on pursuing a strategy of growth by acquiring undervalued businesses with a history of operating revenues. The Company utilizes several criteria to evaluate prospective acquisitions including whether the business to be acquired (1) is an established business with viable services or products, (2) has an experienced and qualified management team, (3) has room for growth and/or expansion into other markets, (4) is accretive to earnings, (5) offers the opportunity to achieve and/or enhance profitability, and (6) increases shareholder value.
In some cases, management of the Company will have the authority to effect acquisitions without submitting the proposal to the stockholders for their consideration. In some instances, however, the proposed participation in a business opportunity may be submitted to the stockholders for their consideration, either voluntarily by the Board of Directors to seek the stockholders' advice and consent, or because of a requirement of applicable law to do so.
On November 13, 2002, 4net Software, Inc. (the "Company") entered into a non-binding Letter of Intent (the "November LOI") to acquire all of the issued and outstanding capital stock of NWT Inc. ("NWT"), a privately-held corporation headquartered in Salt Lake City, Utah that provides a broad range of diversified laboratory services, in a tax free share exchange transaction. NWT through its subsidiaries is engaged in the business of providing drug testing for government agencies, private and public companies and conducting contract research in support of new drug development for the pharmaceutical industry. The Company reported the execution of the November LOI on a current report of Form 8-K, which was filed on November 18, 2002, and is incorporated herein by reference.
On December 19, 2002, the Company and NWT executed a revised letter of intent replacing the November LOI (the "December LOI") pursuant to which the Company will acquire all of the issued and outstanding capital stock of NWT in a tax free merger transaction whereby NWT will merge with and into the Company and the Company will be the surviving corporation (the "NWT Transaction"). Pursuant to the December LOI, in connection with the merger transaction with NWT, the Company was required to, among other things, issue approximately 2,000,000 shares of common stock for all the issued and outstanding shares of capital stock of NWT, effect a one (1) for eight (8) shares reverse stock split of its common stock, par value $.00001 per share, have at least $500,000 in cash in the bank and change the Company's name from 4net Software, Inc. to NWT Inc. The Company filed a press release disclosing the December LOI and filed it with the Commission pursuant to Rule 425 of the Securities Act of 1933 and such filing is incorporated herein by reference.
On or about February 12, 2003, the Company was advised that NWT was unwilling to proceed with the merger transaction contemplated by the December LOI. Based on the correspondence received from NWT, 4net Software notified NWT that the December LOI terminated based upon NWT's unwillingness to proceed with the merger. On February 14, 2003, the Company issued a press release disclosing NWT's unwillingness to proceed with the merger transaction as contemplated by the December LOI. Shortly thereafter NWT agreed to and did pay the Company the break up fee of $50,000 as required by the December LOI.
Competition of 4net Software's Acquisition Strategy
In connection with its Acquisition Strategy, the Company expects to encounter intense competition from other entities having business objectives similar to those of the Company. Many of these entities, including venture capital firms, blind pool companies, large industrial and financial institutions, small business investment companies and wealthy individuals, are well-established and have extensive experience in connection with identifying and effecting acquisitions directly or through affiliates. Many of these competitors possess greater financial, technical, human and other resources than the Company and there can be no assurance that the Company will have the ability to compete successfully with such entities. The Company's financial resources will be limited in comparison to those of many of its competitors. The Company's limited financial resources may compel the Company to select certain less attractive acquisition prospects.
Management believes that the future of the Company is dependent upon the Company consummating a merger, acquisition or other business combination between the Company and a viable operating entity. There can be no assurance that the Company will be able to complete any merger, acquisition or other business combination between the Company and a viable operating entity. Additionally, Management believes that the Company may need to raise additional funds through equity or debt financing to complete a merger, acquisition or other business combination between the Company and a viable operating entity. There can be no assurance that the Company will be able to successfully complete an equity or debt financing to complete an acquisition, merger or other business combination between the Company and a viable operating entity.
Employees
As of December 8, 2004, the Company had 1 employee, Steven N. Bronson, who serves as the Company's President. Effective October 1, 2002, Mr. Bronson agreed to waive payment of his salary. The Company does not have any employees that are represented by a union or other collective bargaining group.
Factors Affecting Operating Results and Market Price of Stock
You should carefully consider the risks described below before making an investment decision concerning the common stock of the Company. The risks and uncertainties described below are not the only ones we face. If any of the following risks actually occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
The Company Has Limited Resources
The Company has limited resources. For the fiscal years ended September 30, 2004 and September 30, 2003 the Company has had revenues from operations of $2,208 and $7,895, respectively. For the fiscal years ended September 30, 2004 and September 30, 2003, the Company has had net losses of 48,650 and $55,900, respectively. Other than the revenues received from NECG for servicing the Company's former web hosting clients, the Company will only derive revenues through the acquisition of a target company. There can be no assurance that any target company, at the time of the Company's consummation of an acquisition of the target, or at any time thereafter, will derive any material revenues from its operations or operate on a profitable basis. The current revenues of the Company will not be sufficient to fund further acquisitions. Based on the Company's limited resources, the Company may not be able to effectuate its business plan and consummate any additional acquisitions. There can be no assurance that the Company will have sufficient financial resources to permit the Company to achieve its business objectives.
The Company May Not be Able to Continue as Going Concern
Based on the Company's limited operations, revenues and assets there can be no assurance that the Company will be able to continue as a going concern or complete a merger, acquisition or other business combination.
The Company Will Need Additional Financing in Order to Execute Its Business Plan
The Company has had no earnings to date and will be entirely dependent upon its limited available financial resources to implement its Acquisition Strategy. The Company cannot ascertain with any degree of certainty the capital requirements for the successful execution of its Acquisition Strategy. In the event that the Company's limited financial resources prove to be insufficient to implement its Acquisition Strategy, the Company will be required to seek additional financing. In addition, in the event of the consummation of an acquisition, the Company may require additional financing to fund the operations or growth of the target.
Additional Financing May Not Be Available to the Company
There can be no assurance that additional financing will be available on acceptable terms, or at all. To the extent that additional financing proves to be unavailable when needed, the Company would, in all likelihood, be compelled to abandon plans of further acquisitions, and would have minimal capital remaining to pursue other targets. The inability of the Company to secure additional financing, if needed, could also have a material adverse effect on the continued development or growth of 4net Software. The Company has no arrangements with any bank or financial institution to secure additional financing and there can be no assurance that any such arrangement, if required or otherwise sought, would be available on terms deemed to be commercially acceptable and in the best interests of the Company.
The Company May Not Be Able to Borrow Funds
While there currently are no limitations on the Company's ability to borrow funds, the limited resources of the Company and limited operating history will make it difficult to borrow funds. The amount and nature of any borrowings by the Company will depend on numerous considerations, including the Company's capital requirements, the Company's perceived ability to meet debt service on any such borrowings and the then prevailing conditions in the financial markets, as well as general economic conditions. There can be no assurance that debt financing, if required or sought, would be available on terms deemed to be commercially acceptable by and in the best interests of the Company. The inability of the Company to borrow funds required to effect or facilitate an Acquisition, or to provide funds for 4net Software, may have a material adverse effect on the Company's financial condition and future prospects. Additionally, to the extent that debt financing ultimately proves to be available, any borrowings may subject the Company to various risks traditionally associated with indebtedness, including the risks of interest rate fluctuations and insufficiency of cash flow to pay principal and interest. Furthermore, a target may have already incurred borrowings and, therefore, the Company will be subjected to all the risks inherent thereto.
Competition of Content Management and Web Site Design Business
The Company's Content Management and Web Site Design Business, providing Web site content management and syndication services, is a highly competitive industry. Many of these competitors have been in business for a number of years, have established customer bases, are larger, and have greater financial resources than 4net Software. Due to, among other things, a decrease in technology spending and intense competition, the Company determined to cease the further development of its proprietary content management system and to limit its marketing efforts in connection with the Content Management and Web Site Design Business. Additionally, the Company determined to cease its efforts in developing the enterprise version of 4netManager(TM). See "Content Management and Web Design Business and Competition of the Content Management and Web Design Business" for further information regarding the competitive environment in which the Company operated.
Competition for Acquisitions
The Company expects to encounter intense competition from other entities having business objectives similar to those of the Company. Many of these entities, including venture capital firms, partnerships and corporations, blind pool companies, large industrial and financial institutions, small business investment companies and wealthy individuals, are well-established and have extensive experience in connection with identifying and effecting acquisitions directly or through affiliates. Many of these competitors possess greater financial, technical, human and other resources than the Company and there can be no assurance that the Company will have the ability to compete successfully. The Company's financial resources will be limited in comparison to those of many of its competitors. This inherent competitive limitation may compel the Company to select certain less attractive acquisition prospects. There can be no assurance that such prospects will permit the Company to achieve its stated business objectives.
The Company May Be Subject to Uncertainty in the Competitive Environment of a Target
In the event that the Company succeeds in completing an Acquisition, the Company will, in all likelihood, become subject to intense competition from competitors of the target. In particular, certain industries which experience rapid growth frequently attract an increasingly large number of competitors, including competitors with greater financial, marketing, technical, human and other resources than the initial competitors in the industry. The degree of competition characterizing the industry of any prospective target cannot presently be ascertained. There can be no assurance that, subsequent to a consummation of an acquisition, the Company will have the resources to compete effectively in the industry of the target, especially to the extent that the target is in a high growth industry.
The Company May Pursue an Acquisition With a Target Operating Outside the United States: Special Additional Risks Relating to Doing Business in a Foreign Country
The Company may effectuate an acquisition with a target whose business operations or even headquarters, place of formation or primary place of business are located outside the United States. In such event, the Company may face the significant additional risks associated with doing business in that country. In addition to the language barriers, different presentations of financial information, different business practices, and other cultural differences and barriers that may make it difficult to evaluate such a target, ongoing business risks may result from the internal political situation, uncertain legal systems and applications of law, prejudice against foreigners, corrupt practices, uncertain economic policies and potential political and economic instability that may be exacerbated in various foreign countries.
Steven N. Bronson is Critical to the Future Success of the Company
Steven N. Bronson is the Chairman, C.E.O. and President of the Company. The ability of the Company to successfully carry out its business plan and to consummate additional acquisitions will be dependent upon the efforts of Mr. Bronson and the Company's directors. Notwithstanding the significance of Mr. Bronson, the Company has not obtained any "key man" life insurance on his life. The loss of the services of Mr. Bronson would have a material adverse effect on the Company's ability to successfully achieve its business objectives. If additional personnel are required, there can be no assurance that the Company will be able to retain such necessary additional personnel.
Mr. Bronson Has Effective Control of the Company's Affairs
As of December 8, 2004, Mr. Bronson beneficially owned 5,942,210 shares of the Company's common stock. Such ownership includes options to purchase 300,000 shares of common stock of the Company exercisable at $.55 per share held directly by Mr. Bronson. These options are set to expire on June 29, 2005. Mr. Bronson also beneficially owns, through Catalyst Financial LLC, warrants to purchase 82,000 shares of common stock of the Company at a price of $.50 per share. These warrants are set to expire on September 29, 2006. Mr. Bronson's beneficial ownership represents approximately 65% of the issued and outstanding shares of common stock of the Company. Accordingly, Mr. Bronson has effective control of the Company. In the election of directors, stockholders are not entitled to cumulate their votes for nominees. Accordingly, as a practical matter, Mr. Bronson may be able to elect all of the Company's directors and otherwise direct the affairs of the Company.
There Exist Conflicts of Interest Relating to Mr. Bronson's Time Commitment to the Company
Mr. Bronson is not required to commit his full time to the affairs of the Company. Mr. Bronson will have conflicts of interest in allocating management time among various business activities. As a result, the consummation of an acquisition may require a greater period of time than if Mr. Bronson devoted his full time to the Company's affairs. However, Mr. Bronson will devote such time as he deems reasonably necessary to carry out the business and affairs of the Company, including the evaluation of potential targets and the negotiation and consummation of acquisitions and, as a result, the amount of time devoted to the business and affairs of the Company may vary significantly depending upon, among other things, whether the Company has identified a target or is engaged in active negotiation and consummation of an acquisition.
There Exist Risks to Stockholders Relating to Dilution:
Authorization of Additional Securities and Reduction of
Percentage Share Ownership Following Merger
The Company's Certificate of Incorporation authorizes the issuance of 100,000,000 shares of common stock. As of December 8, 2004 the Company had 8,761,018 shares of common stock issued and outstanding and 91,238,982 Authorized but unissued shares of common stock available for issuance. Additionally, The Company has authorized for issuance 5,000,000 shares of preferred stock, none of which are issued and outstanding. Although the Company has no commitments as of this date to issue its securities, the Company will, in all likelihood, issue a substantial number of additional shares in connection with or following an Acquisition. To the extent that additional shares of common stock are issued, the Company's stockholders would experience dilution of their ownership interests in the Company. Additionally, if the Company issues a substantial number of shares of common stock in connection with or following an Acquisition, a change in control of the Company may occur which may affect, among other things, the Company's ability to utilize net operating loss carry forwards, if any. Furthermore, the issuance of a substantial number of shares of common stock may adversely affect prevailing market prices, if any, for the common stock and could impair the Company's ability to raise additional capital through the sale of its equity securities. The Company may use consultants and other third parties providing goods and services. These consultants or third parties may be paid in cash, stock, options or other securities of the Company. The Company may in the future need to raise additional funds by selling securities of the Company which may involve substantial additional dilution to the investors.
The Uncertain Structure of an Acquisition May Result in Risks Relating to the Market for the Company's Common Stock
The Company may form one or more subsidiary entities to effect an acquisition and may, under certain circumstances, distribute the securities of subsidiaries to the stockholders of the Company. There cannot be any assurance that a market would develop for the securities of any subsidiary distributed to stockholders or, if it did, any assurance as to the prices at which such securities might trade.
The Company Expects to Pay No Cash Dividends
The Company does not expect to pay dividends to the holders of common stock. The payment of dividends, if any, will be contingent upon the Company's revenues and earnings, if any, capital requirements, and general financial condition. The payment of any dividends will be within the discretion of the Company's then Board of Directors. The Company presently intends to retain all earnings, if any, to implement its business plan, accordingly, the Board of Directors does not anticipate declaring any dividends to the holders of common stock in the foreseeable future.
Indemnification of Officers and Directors
The Company's Certificate of Incorporation provides for the indemnification of its officers and directors to the fullest extent permitted by the laws of the State of Delaware. It is possible that the indemnification obligations imposed under these provisions could result in a charge against the Company's earnings and thereby affect the availability of funds for other uses by the Company.
Taxation Considerations May Impact the Structure of an Acquisition and Post-merger Liabilities
Federal and state tax consequences will, in all likelihood, be major considerations for the Company in consummating an acquisition. The structure of an acquisition or the distribution of securities to stockholders may result in taxation of the Company, the target or stockholders. Typically, these transactions may be structured to result in tax-free treatment to both companies, pursuant to various federal and state tax provisions. The Company intends to structure any acquisition so as to minimize the federal and state tax consequences to both the Company and the target. Management cannot assure that an acquisition will meet the statutory requirements for a tax-free reorganization, or that the parties will obtain the intended tax-free treatment upon a transfer of stock or assets. A non-qualifying reorganization could result in the imposition of both federal and state taxes, which may have an adverse effect on both parties to the transaction.
The Company May Be Deemed an Investment Company and Subjected to Related Restrictions
The regulatory scope of the Investment Company Act of 1940, as amended (the "Investment Company Act"), which was enacted principally for the purpose of regulating vehicles for pooled investments in securities, extends generally to companies engaged primarily in the business of investing, reinvesting, owning, holding or trading in securities. The Investment Company Act may, however, also be deemed to be applicable to a company which does not intend to be characterized as an investment company but which, nevertheless, engages in activities which may be deemed to be within the definitional scope of certain provisions of the Investment Company Act. The Company believes that its anticipated principal activities, which will involve acquiring control of an operating company, will not subject the Company to regulation under the Investment Company Act. Nevertheless, there can be no assurance that the Company will not be deemed to be an investment company. If the Company is deemed to be an investment company, the Company may become subject to certain restrictions relating to the Company's activities, including restrictions on the nature of its investments and the issuance of securities. In addition, the Investment Company Act imposes certain requirements on companies deemed to be within its regulatory scope, including registration as an investment company, adoption of a specific form of corporate structure and compliance with certain burdensome reporting, record keeping, voting, proxy, disclosure and other rules and regulations. In the event of the characterization of the Company as an investment company, the inability of the Company to satisfy such regulatory requirements, whether on a timely basis or at all, would, under certain circumstances, have a material adverse effect on the Company.
You Should Not Rely on Forward-Looking Statements Because They Are Inherently Uncertain
This document contains certain forward looking statements that involve risks and uncertainties. We use words such as "anticipate," "believe," "expect," "future," "intend," "plan," and similar expressions to identify forward-looking statements. These statements are only predictions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this document. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us as described on the preceding pages and elsewhere in this document.
We believe it is important to communicate our expectations to our investors. However, there may be events in the future that we are not able to predict accurately or over which we have no control. The risk factors listed above, as well as any cautionary language in this document, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in our common stock, you should be aware that the occurrence of the events described in these risk factors and elsewhere in this document could have a material adverse effect on our business, operating results, financial condition and stock price.
ITEM 2. DESCRIPTION OF PROPERTY.
On January 5, 2004, 4net Software, Inc. (the "Company") relocated its offices from 10 South Street, Suite 202, Ridgefield, Connecticut, 06877 to 100 Mill Plain Road, Danbury, Connecticut 06811. Additionally, the Company's telephone number changed to (203) 791-3872. The Company is using a portion of The premises occupied by Catalyst Financial LLC, a full service brokerage, investment banking and consulting firm, located at 100 Mill Plain Road, Danbury, Connecticut 06811. Steven N. Bronson, the President of the Company, is the principal and owner of Catalyst Financial LLC. Catalyst Financial LLC has agreed to waive the payment of any rent by the Company for use of the offices.
Prior to January 5, 2004, the Company subleased a portion of the premises located at 10 South Street, Suite 202, Ridgefield, Connecticut 06877. The Company's monthly rent obligation for its prior office was $1,000 per month plus a flat fee of $50 per month for utilities.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended September 30, 2004, no matters were submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock, par value $.00001 per share, is traded in the NASDAQ's Over-the-Counter Bulletin Board under the symbol "FNSI."
The following table sets forth the range of high and low prices for the Company's common stock as quoted by YahooFinance.com for the periods indicated. These prices represent reported transactions that do not include retail markups, markdowns or commissions, and may not necessarily represent actual transactions.
Bid Price
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Fiscal Years Low High
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2004: 1st Quarter, through December 31, 2003 $.11 $.30
2nd Quarter, through March 31, 2004 $.23 $.45
3rd Quarter, through June 30, 2004 $.30 $.55
4th Quarter, through September 30, 2004 $.28 $.39
2003: 1st Quarter, through December 31, 2002 $.15 $.51
2nd Quarter, through March 31, 2003 $.23 $.50
3rd Quarter, through June 30, 2003 $.12 $.30
4th Quarter, through September 30, 2003 $.12 $.12
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As of December 8, 2004, the reported closing bid and ask prices on the Company's common stock were $.28 and $.35, respectively.
Holders
As of December 8, 2004, the Company's common stock was held by approximately 124 record holders, who the Company believes hold common stock for approximately 2,200 beneficial holders.
Dividends
The Company has never paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities
The following information relates to sales of unregistered securities by the Company during the fiscal year ended September 30, 2004. All of these sales of securities were made in reliance upon an exemption from the registration provisions of the Securities Act of 1933 set forth in Sections 4(2), 4(6) and/or 3(b) thereof and the rules and regulations under the Securities Act of 1933, including Regulation D, as transactions by an issuer not involving any public offering and/or sales to a limited number of purchasers who were acquiring such securities for their own account for investment purposes and not with a view to the resale or distribution thereof.
On December 17, 2003, the Company entered into a consulting agreement(the "ETN Agreement") with ETN Financial Services, Inc. (the "ETN Financial") to provide consulting services to the Company specifically related to seeking, identifying, and investigating prospective target companies for mergers, acquisitions, business combinations, and/or similar transactions (a "Transaction"). Pursuant to the ETN Agreement, ETN Financial will: (i) present and introduce the Company to members of the investment community to generate investor interest in the Company, (ii) assist the Company in areas of investor relations and corporate communications, (iii) assist the Company in creating new relationships to enhance the Company's existing and future business, (iv) seek to ally the Company with collaborative and strategic partners with the goal of identifying and establishing new markets for the Company and its future products, (v) establish a cohesive and streamlined investor relations department and assist in its deployment and (vi) share files and collected data with the Company for marketing purposes and to inform interested parties of corporate developments. The ETN Agreement is for a term of one year.
Pursuant to the ETN Agreement, the Company sold ETN Financial 100,000 shares (the "ETN Shares") of the Company's common stock, $.00001 par value, at a purchase price of $.25 per share. Additionally, the Company issued to ETN Financial warrants to purchase 400,000 shares of the Company's common stock at a purchase price of $.25 per share (the "ETN Warrants"). The ETN Warrants shall be exercisable for a period of five (5) years from the date of issuance and shall contain a cashless exercise provision. In the event that the Company does not consummate a Transaction as a result or consequence of an introduction made directly or indirectly by ETN Financial subsequent to the date hereof and within one year from the execution of this Agreement, then ETN Financial shall forfeit and return to the Company fifty percent (50%) of the ETN Warrants or warrants to purchase 200,000 shares of the Company's common stock at a purchase price of $.25 per share. The Company also provided ETN Financial certain registration rights in connection with the securities issued to ETN Financial under the ETN Agreement.
On January 22, 2004, the Board of Directors of the Company approved and ratified the consulting agreement entered into on December 17, 2003 with ETN Financial. On February 11, 2004, the Company received $25,000 from ETN Financial as payment for the ETN Shares in accordance with the ETN Agreement.
The ETN Shares and the ETN Warrants are restricted securities and were issued by the Company in a private transaction pursuant to Section 4(2) of the Securities Act of 1933.
On December 17, 2004, in accordance with the ETN Agreement, ETN Financial returned warrants to purchase 200,000 shares of the Company's common stock at a purchase price of $.25 per share to the Company.
Section 15(g) of the Exchange Act
The Company's shares are covered by Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rules 15g-1 through 15g-6 promulgated thereunder, which impose additional sales practice requirements on broker-dealers who sell our securities to persons other than established customers and accredited investors.
Rule 15g-2 declares unlawful any broker-dealer transactions in pennystocks unless the broker-dealer has first provided to the customer a standardized disclosure document.
Rule 15g-3 provides that it is unlawful for a broker-dealer to engage in a penny stock transaction unless the broker-dealer first discloses and subsequently confirms to the customer the current quotation prices or similar market information concerning the penny stock in question.
Rule 15g-4 prohibits broker-dealers from completing penny stock transactions for a customer unless the broker-dealer first discloses to the customer the amount of compensation or other remuneration received as a result of the penny stock transaction.
Rule 15g-5 requires that a broker-dealer executing a penny stock transaction, other than one exempt under Rule 15g-1, disclose to its customer, at the time of or prior to the transaction, information about the sales person's compensation.
The Company's common stock may be subject to the foregoing rules. The application of the penny stock rules may affect our stockholder's ability to sell their shares because some broker-dealers may not be willing to make a market in our common stock because of the burdens imposed upon them by the penny stock rules.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis provides information which the Company's management believes to be relevant to an assessment and understanding of the Company's results of operations and financial condition. This discussion should be read together with the Company's financial statements and the notes to financial statements, which are included in this report.
Source of Revenue
Since September 1, 2002, the Company only source of operating revenues, has been its receipt of a royalty fee pursuant to its assignment agreement with New England Computer Group ("NECG"). For the fiscal year ended September 30, 2004 ("Fiscal 2004"), the Company has received approximately $2,208 in royalties pursuant to the agreement with NECG. Additionally, during Fiscal 2004 the Company raised $25,000 through the sale of common stock to ETN Financial.
4net Software's Acquisition Strategy
The Company is pursuing an Acquisition Strategy, whereby 4net Software
will seek to acquire undervalued businesses with a history of operating revenues
in markets that provide room for growth. 4net Software is currently primarily
engaged in identifying, investigating and, if investigation warrants, acquiring
companies that will enhance 4net Software's revenues and increase shareholder
value. 4net Software's Acquisition Strategy is focused on pursuing a strategy of
growth by acquiring undervalued businesses with a history of operating revenues.
The Company utilizes several criteria to evaluate prospective acquisitions
including whether the business to be acquired (1) is an established business
with viable services or products, (2) has an experienced and qualified
management team, (3) has room for growth and/or expansion into other markets,
(4) is accretive to earnings, (5) offers the opportunity to achieve and/or
enhance profitability, and (6) increases shareholder value.
In some cases, management of the Company will have the authority to effect acquisitions without submitting the proposal to the stockholders for their consideration. In some instances, however, the proposed participation in a business opportunity may be submitted to the stockholders for their consideration, either voluntarily by the Board of Directors to seek the stockholders' advice and consent, or because of a requirement of applicable law to do so.
Competition of 4net Software's Acquisition Strategy
In connection with its Acquisition Strategy, the Company expects to encounter intense competition from other entities having business objectives similar to those of the Company. Many of these entities, including venture capital firms, blind pool companies, large industrial and financial institutions, small business investment companies and wealthy individuals, are well-established and have extensive experience in connection with identifying and effecting acquisitions directly or through affiliates. Many of these competitors possess greater financial, technical, human and other resources than the Company and there can be no assurance that the Company will have the ability to compete successfully with such entities. The Company's financial resources will be limited in comparison to those of many of its competitors. The Company's limited financial resources may compel the Company to select certain less attractive acquisition prospects.
Results of Operations
During the year ended September 30, 2004, the Company's revenues from operations was $2,208, compared to $7,895 for the year ended September 30, 2003 ("Fiscal 2003"). Additionally, in Fiscal 2003 the Company recorded other income of $51,341, $50,000 of which was the break-up fee from the proposed transaction with NWT. Accordingly, the Company's total revenue and other income was $59,236 for Fiscal 2003 compared to total revenue and other income of $2,613 in Fiscal 2004.
During Fiscal 2004, the Company incurred operating expenses of $51,263 compared to operating expenses of $115,136 for Fiscal Year 2003, a decrease of $63,873. The decrease in operating expenses is due to the fact that in Fiscal 2004 the Company did not incur expenses in negotiating a business combination transaction, while in Fiscal 2003 the Company incurred expenses associated with respect to the NWT Transaction.
For Fiscal 2004 the Company incurred an operating net loss of $49,055 compared to an operating net loss of $107,241 for Fiscal 2003, an decrease of $58,186. The decrease in operating net loss is due to the fact that in Fiscal 2004 the Company did not incur expenses in negotiating a business combination transaction, while in Fiscal 2003 the Company incurred expenses associated with respect to the NWT Transaction.
Liquidity and Capital Resources
During Fiscal 2004, the Company satisfied its working capital needs from cash on hand at the beginning of the year, and cash generated from the sale of 100,000 shares of common stock for $25,000 during the year. As of September 30, 2004, the Company had working capital of $46,088. While this working capital will satisfy the Company's immediate financial needs, it may not be sufficient to provide the Company with sufficient capital to maintain the business of 4net Software and to finance additional acquisitions for the Company. The Company will need additional funds in order to finance additional acquisitions for the Company. There can be no assurances that the Company will be able to obtain additional funds if and when needed.
Current Operations of 4net Software
4net Software currently is receiving royalties pursuant to its assignment agreement with New England Computer Group in the amount of fifty percent (50%) of the Company's preexisting recurring licensing revenues and Web site hosting revenues.
4net Software is primarily engaged in identifying, investigating and, if investigation warrants, acquiring companies that will enhance 4net Software's revenues and increase shareholder value. 4net Software's Acquisition Strategy is focused on pursuing a strategy of growth by acquiring undervalued businesses with a history of operating revenues and net earnings. The Company utilizes several criteria to evaluate prospective acquisitions including whether the business to be acquired (1) is an established business with viable services or products, (2) has an experienced and qualified management team, (3) has room for growth and/or expansion into other markets, (4) is accretive to earnings, (5) offers the opportunity to achieve and/or enhance profitability, and (6) increases shareholder value.
Management believes that the successful implementation of the Company's Acquisition Strategy will allow 4net Software to increase revenues and earnings and achieve profitability. However, there can be no assurances that 4net Software will successfully complete any additional acquisitions or that 4net Software will achieve profitability.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements and related notes are included as part of this report as indexed in the appendix on page F-1 through F-13.
ITEM 8. CHANGE IN ACCOUNTANTS
On December 8, 2003 the Company dismissed Wheeler Wasoff, P.C. as its independent accountants. The reports of Wheeler Wasoff, P.C. on the financial statements for the fiscal years ended September 30, 2002 and September 30, 2001 contained no adverse opinion or disclaimer of opinion and were not modified as to audit scope or accounting principles. The report of Wheeler Wasoff, P.C. on the financial statements for the fiscal year ended September 30, 2002 contained an explanatory paragraph relating to the uncertainty of the Company's ability to continue as a going concern.
On December 9, 2003, the Company engaged Kostin, Ruffkess & Company, LLC as its new independent accountants. During the two most recent fiscal years and through December 9, 2003 the Company had not consulted Kostin, Ruffkess & Company, LLC regarding the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the financial statements of the registrant, and neither a written report was provided to the Company or oral advice was provided that Kostin, Ruffkess & Company, LLC concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing, or financial reporting issue.
The Board of Directors of the Company, participated in and approved the decision to change independent accountants. The Company filed a current report on Form 8-K on December 12, 2003, disclosing the change of independent auditors, and such report is incorporated herein by reference.
Item 8A. CONTROLS AND PROCEDURES
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officer, as appropriate to allow timely decisions regarding required disclosure.
Based on their evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this annual report on Form 10-KSB the Company's chief executive officer has concluded that the Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and are operating in an effective manner.
There were no changes in the Company's internal controls over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table sets forth the name, age and position of each of our directors, executive officers and significant employees for the fiscal year ended September 30, 2004. Except as noted below each director will hold office until the next annual meeting of our stockholders or until his or her successor has been elected and qualified. Our executive officers are appointed by, and serve at the discretion of, the Board of Directors.
Name Age Position
------------------ --- --------------------
Steven N. Bronson 39 Chairman, Chief Executive Officer
and President
Leonard Hagan 52 Director
Alan Rosenberg 35 Director
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Steven N. Bronson has served as a director of the Company since June 1996. From September 1998 to August 11, 2000, Mr. Bronson was the sole officer of the Company. From September 1998 to March 17, 2000, Mr. Bronson was also the sole director of the Company. In September 1996, Mr. Bronson became the Chief Executive Officer and President of the Company. Mr. Bronson is also the President of Catalyst Financial LLC, a privately held full service securities brokerage and investment banking firm. Mr. Bronson has held that position since September 24, 1998. During the period of 1991 through September 23, 1998, Mr. Bronson was President of Barber & Bronson Incorporated, a full service securities brokerage and investment banking firm. In addition, Mr. Bronson is an officer and director of Ridgefield Acquisition Corp., a publicly traded corporation.
Leonard Hagan has served as a director of the Company since March 17,
2000. Mr. Hagan is a certified public accountant and for the past eight years
has been a partner at Hagan & Burns CPA's, PC in New York. Mr. Hagan received a
Bachelors of Arts degree in Economics from Ithaca College in 1974, and earned
his Masters of Business Administration degree from Cornell University in 1976.
Mr. Hagan is registered as the Financial and Operations Principal for the
following broker-dealers registered with the Securities and Exchange Commission:
Adelphia Capital LLC, Mallory Capital Group, LLC, Avalon Partners, Inc., Stacey
Braun Financial Services, Inc. and Danske Securities (US), Inc. Mr. Hagan is
also a director of Ridgefield Acquisition Corp., a publicly traded corporation.
Alan Rosenberg has served as a director of the Company since March 17, 2000. Mr. Rosenberg currently serves as an Agency Chief Information Officer for the City of New York's Department of Small Business Services. Prior to that, he was a Director in the Office of the CIO for the Department of Information Technology and Telecommunications for the City of New York. He also served as the Deputy Director of Management Information Systems (MIS) for the City of New York, Office of the Mayor. Mr. Rosenberg recently graduated from Polytechnic University with a MS in the Management of Technology and holds a BA from The Ohio State University.
No director, executive officer, promoter or control person of the Company has, within the last five years: (i) had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (ii) been convicted in a criminal proceeding or is currently subject to a pending criminal proceeding (excluding traffic violations or similar misdemeanors); (iii) been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; (iv) been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission (the "Commission") or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. There are no family relationships among any directors and executive officers of the Company.
Committees of the Board of Directors
During Fiscal 2004, the Board of Directors took action 2 times and held 2 meetings. The Board of Directors has a standing Audit Committee. During Fiscal 2004, all of the directors then in office attended 100% of the total number of meetings of the Board of Directors and the Committees of the Board of Directors on which they served.
Audit Committee
The functions of the Audit Committee are to recommend to the Board of Directors the appointment of independent auditors for the Company and to analyze the reports and recommendations of such auditors. The committee also monitors the adequacy and effectiveness of the Company's financial controls and reporting procedures. During Fiscal 2004, the Audit Committee consisted of Messrs. Bronson and Hagan. The Audit Committee does not meet on a regular basis, but only as circumstances require. The Company has not designated any member of its Audit Committee as a Financial Expert.
Advisory Board
The Company's Board of Directors has approved the formation of an Advisory Board to assist the Company in developing and marketing its products and services as well as to assist the Company in identifying and qualifying potential acquisition targets. Management of the Company has been authorized and has attempted to recruit qualified individuals to provide guidance and vision to the Company as part of its Advisory Board.
Code of Ethics
The Board of Directors of the Company adopted a Code of Ethics for the Company. A copy of the Code of Ethics is attached hereto as Exhibit 14.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the SEC initial reports of
ownership and reports of changes in ownership of common stock and other equity
securities of the Company. Officers, directors and greater than 10% stockholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely upon a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended September 30, 2004, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with.
ITEM 10. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following summary compensation table sets forth information concerning the annual and long-term compensation earned by our chief executive officer and each of the other most highly compensated executive officers (collectively, the "Named Executive Officers").
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary(1) Bonus Options (2) Comp.
--------------------------------- ------ --------- ------- ----------- ----------
Steven N. Bronson 2004 $0 0 0 0
CEO and President(3) 2003 $0 0 0 0
2002 $60,000(4) 0 0 0
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(1) This table contains the actual salary that was paid to the executive for the relevant fiscal year.
(2) We have no long-term incentive compensation plan for our executive officers and employees other than the 2000 Stock Incentive Plan. We did not award stock appreciation rights or long term incentive plan pay-outs.
(3) On July 1, 2001, the Company entered into a new employment agreement with Steven N. Bronson, replacing Mr. Bronson's Employment Agreement, dated as of August 1, 2000. Pursuant to the July 1, 2001 Employment Agreement, Mr. Bronson was entitled to receive a salary of $60,000 per annum, payable in equal monthly installments of $5,000. Additionally, the July 1, 2001 Employment Agreement provided that Mr. Bronson is eligible to receive bonus compensation and stock option grants under the Company's 2000 Stock Incentive Plan, at the discretion of the Board of Directors. In July 2002, Mr. Bronson's July 1, 2001 Employment Agreement was renewed and extended for a period of one (1) year. During the fiscal year ended September 30, 2002, Mr. Bronson was not paid any bonus compensation or granted any stock options by the Company. A copy of the Employment Agreement, dated as of July 1, 2001 by and between the Company and Steven N. Bronson is attached as an exhibit to the Company's Form 10- QSB for the quarter ended June 30, 2001 and is incorporated herein by reference. In September 2002, the Company entered into an agreement with Steven N. Bronson, the president of the Company, that effective October 1, 2002, Mr. Bronson will waive and no longer receive a salary from the Company.
Options Granted to Employees in Fiscal 2004
No stock options were granted to employees during fiscal year ended September 30, 2004.
Aggregate Option Exercises in Fiscal 2004 and Fiscal Year End Option Values
The following table contains certain information regarding stock options
exercised during and options to purchase common stock held as of September 30,
2004, by each of the Named Executive Officers. The stock options listed below
were granted without tandem stock appreciation rights. We have no freestanding
stock appreciation rights outstanding.
Number Number of Securities Value of Unexercised
Of Shares (1) Underlying Unexercised In-the-Money Options
Name/ Acquired Value Options at Fiscal Year End at Fiscal Year End
Position On Exercise Realized Exercised/Unexercised Exercised/Unexercised (2)
------------------ ----------- -------- -------------------------- ---------------------
Steven N. Bronson
Chairman, CEO
and President 0 0 300,000 $0
Alan Rosenberg
Director 0 0 20,000 $0
Leonard Hagan
Director 0 0 20,000 $0
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(1) Calculated on the basis of $.30 per share, the closing price of the common stock on the over-the-counter market on September 30, 2004, less exercise price payable for such shares.
(2) Calculated on the basis of the closing share price of the common stock on the over-the-counter market on the date exercised, less the exercise price payable for such shares.
Compensation of Directors
In the fiscal year ended September 30, 2004, the Company paid no compensation to the directors of the Company for their services as directors of 4net Software.
Employment Contracts
At present, the Company has no employment agreement with its President Steven N. Bronson.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of December 8, 2004, certain information regarding the beneficial ownership of the common stock outstanding by (i) each person who is known to the Company to own 5% or more of the common stock, (ii) each director of the Company, (iii) certain executive officers of the Company and (iv) all executive officers and directors of the Company as a group. Unless otherwise indicated, each of the stockholders shown in the table below has sole voting and investment power with respect to the shares beneficially owned. Unless otherwise indicated, the address of each person named in the table below is c/o 4net Software, Inc., 100 Mill Plain Road, Danbury, Connecticut 06811.
Number of Percent
Name and Address Company Position Shares owned of class
---------------- ---------------- ------------ --------
Steven N. Bronson Chairman, CEO 5,942,210(2) 65%
and President
Alan Rosenberg Director 40,000(3) *
Leonard Hagan Director 40,000(4) *
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(1) As used in this table, a beneficial owner of a security includes any person who, directly or indirectly, through contract, arrangement, understanding, relationship or otherwise has or shares (a) the power to vote, or direct the voting of, such security or (b) investment power which includes the power to dispose, or to direct the disposition of, such security. In addition, a person is deemed to be the beneficial owner of a security if that person has the right to acquire beneficial ownership of such security within 60 days.
(2) Includes options to purchase 300,000 shares of common stock of the Company exercisable at $.55 per share (110% of the closing price on the date of grant) issued to Mr. Bronson on June 30, 2000. These options are set to expire on June 29, 2005. Mr. Bronson also beneficially owns, through Catalyst Financial LLC, warrants to purchase 82,000 shares of common stock of the Company at an exercise price of $.50 per share. These warrants are set to expire on September 29, 2006.
(3) Includes options to purchase 10,000 shares of common stock of the Company exercisable at $2.26 per share (100% of the closing price on the date of grant) issued to Mr. Rosenberg on May 11, 2000, which expire on May 10, 2005.and options to purchase 10,000 shares of common stock of the Company exercisable at $.5625 per share (100% of the closing price on the date of grant) issued to Mr. Rosenberg on August 28, 2000, which expire on August 27, 2005.
(4) Includes options to purchase 10,000 shares of common stock of the Company exercisable at $2.26 per share (100% of the closing price on the date of grant) issued to Mr. Hagan on May 11, 2000, which expire on May 10, 2005. and options to purchase 10,000 shares of common stock of the Company exercisable at $.5625 per share (100% of the closing price on the date of grant) issued to Mr. Hagan on August 28, 2000, which expire on August 27, 2005.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On January 5, 2004, 4net Software, Inc. (the "Company") relocated its offices from 10 South Street, Suite 202, Ridgefield, Connecticut, 06877 to 100 Mill Plain Road, Danbury, Connecticut 06811. Additionally, the Company's telephone changed to (203) 791-3872. The Company is using a portion of the premises occupied by Catalyst Financial LLC, a full service brokerage, investment banking and consulting firm, located at 100 Mill Plain Road, Danbury, Connecticut 06811. Steven N. Bronson, the President of the Company, is the principal and owner of Catalyst Financial LLC. Catalyst Financial LLC has agreed to waive the payment of any rent by the Company for use of the offices.
Prior to January 5, 2004, the Company subleased a portion of the premises located at 10 South Street, Suite 202, Ridgefield, Connecticut 06877. The Company's monthly rent obligation for its prior office was $1,000 per month plus a flat fee of $50 per month for utilities.
Steven N. Bronson is the owner and principal of Catalyst Financial LLC ("Catalyst Financial"), a full service securities brokerage, investment banking and consulting firm. Prior to February 1, 2001, the Company utilized a portion of the premises occupied by Catalyst Financial at 900 Third Avenue, Suite 201, New York, New York 10022, as its main corporate and administrative offices. The Company did not pay any rent on these offices during the period October 1, 2000 through January 31, 2001.
The Company entered into a Mergers and Acquisitions Advisory Agreement, dated as of March 27, 2001, with Catalyst Financial (the "M&A Advisory Agreement"). Pursuant to the M&A Advisory Agreement, Catalyst Financial agreed to provide consulting services to 4net Software in connection with 4net Software's search for prospective target companies for mergers, acquisitions, business combinations and similar transactions, and, if investigation warrants, advising 4net Software concerning the negotiation of terms and the financial structure of such transactions. For the services rendered pursuant to the M&A Advisory Agreement, Catalyst Financial is entitled to receive a fee based upon the total consideration of the specific transaction, calculated as follows: 5% of the consideration from $1 up to $1,000,000; 4% of the consideration in excess of $1,000,000 and up to $2,000,000; plus 3% of the consideration in excess of $2,000,000 and up to $3,000,000, plus; 2% of the consideration in excess of $3,000,000 and up to $4,000,000, plus; 1% of the consideration in excess of $4,000,000. The term of the Mergers and Acquisitions Advisory Agreement is three years. A copy of the M&A Advisory Agreement is attached as an exhibit to the Company's Form 10-QSB for the quarter ended March 31, 2001 and is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
The following exhibits are hereby filed as part of this Annual Report on Form 10-KSB or incorporated by reference.
Exhibit
Number Description of Document
-------- -------------------------------------------
2.1# Stock Purchase Agreement by and between Michael Park, Andrew
Patros and Robert Park and MedTech Diagnostics, Inc. dated April
24, 2000. (Incorporated by reference to Exhibit 2.1 to the
Current Report on Form 8-K filed by the Company on May 3, 2000.)
3.1# Certificate of Incorporation of the Company. (Incorporated by
reference to Exhibit 3.1 to the Company's Annual Report on Form
10-KSB for the fiscal year ended September 30, 1999)
3.2# By-Laws of the Company. (Incorporated by reference to Exhibit
3.2 to the Company's Annual Report on Form 10-KSB
for the fiscal year ended September 30, 1999)
3.3# Certificate of Amendment to the Certificate of Incorporation of
the Company. (Incorporated by reference to Exhibit 3.3 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended June
30, 2000)
3.4# Amended and Restated By-Laws of the Company. (Incorporated by
reference to Exhibit 3.4 to the Company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 2000)
3.5# Certificate of Merger between the Company and its wholly owned
subsidiary 4net Software, Inc. (Incorporated by reference to Exhibit
3.5 to the Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 2001.)
3.6# Amended Certificate of Designation of the Series A Convertible
Preferred Stock of 4net Software, Inc. (Incorporated by reference to
Exhibit 3.6 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 2001.)
10.3#@ Employment Agreement dated as of August 1, 2000 by and between
the Company and Steven N. Bronson. (Incorporated by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 2000.)
10.4#@ Employment Agreement dated as of August 1, 2000 by and between the
Company and Robert Park. (Incorporated by reference to Exhibit 10.4
to the Company's Quarterly Report on Form 10-QSB for the quarter
ended June 30, 2000.)
10.5# Sublease dated as of February 1, 2001 by and between the Company and
Catalyst Operations, Inc. (Incorporated by reference to Exhibit 10.5
to the Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 2001)
10.6# Management Consulting Agreement, dated as of February 1, 2001 by and
between the Company and Catalyst Financial LLC. (Incorporated by
reference to Exhibit 10.6 to the Company's Quarterly Report on Form
10-QSB for the quarter ended March 31, 2001)
10.7# Mergers and Acquisitions Advisory Agreement, dated as of March 27,
2001 by and between the Company and Catalyst Financial LLC.
(Incorporated by reference to Exhibit 10.7 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended March 31, 2001)
25
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10.8# Placement Agent Agreement, dated as of April 30, 2001, by and between
the Company and Catalyst Financial LLC. (Incorporated by reference to
Exhibit 10.8 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 2001)
10.9# Placement Agent Agreement, dated as of July 2, 2001, by and between
the Company and Catalyst Financial LLC. (Incorporated by reference to
Exhibit 10.8 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 2001)
10.10#@ Employment Agreement, dated as of July 1, 2001 by and between
the Company and Steven N. Bronson. (Incorporated by reference
to Exhibit 10.8 to the Company's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 2001)
10.11# Separation Agreement, dated as of September 21, 2001 by and between
the Company and Michael Park. (Incorporated by reference to Exhibit
10.11 to the Company's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 2001)
10.12# Letter of Intent, dated December 19, 2002 by and between the Company
and NWT, Inc. (Incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 2002).
10.13# First Amendment to Sublease between Catalyst Operation, Inc. and
4networld.com, Inc. n/k/a 4net Software, Inc. made as of
August 30, 2002. (Incorporated by reference to Exhibit 10.13 to the
Company's Current Report on Form 8-K, dated September 27, 2002)
10.14# Assignment Agreement, dated as of September 18, 2002, between
4net Software, Inc. and New England Computer Group, Inc.
(Incorporated by reference to Exhibit 10.14 to the Company's Current
Report on Form 8-K, dated September 27, 2002)
10.15# Consulting Agreement, dated December 17, 2003 between the Company and
ETN Financial Services, Inc.
14* Code of Ethics
31* President's Written Certification Of Financial Statements
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32* President's Written Certification Of Financial Statements
Pursuant to 18 U.S.C. Statute 1350
--------------------------------
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* Filed herewith # Incorporated herein by reference @ Represents a management contract
b Reports on Form 8-K.
On December 12, 2003, the Company filed a current report on Form 8-K, disclosing the change of independent auditors, and such report is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees billed to the Company for professional services rendered by principal accountants for the audit of our annual financial statements and review of our quarterly financial statements was $8,250 and $7,546. for fiscal years 2004 and 2003, respectively.
None.
The aggregate fees billed to the Company for professional services rendered by accountants for tax related services is $1,750 for fiscal years 2004 and 2003.
None.
The audit committee approved the engagement of Kostin, Ruffkess & Company, LLC in the preparation of the Company's tax returns for fiscal year 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
/s/Steven N. Bronson /s/ Alan Rosenberg ------------------------------- ------------------------------- Steven N. Bronson Alan Rosenberg President, Chief Executive Director Officer and Chairman December 29, 2004 of the Board of Directors December 29, 2004 /s/ Leonard Hagan ------------------------------- Leonard Hagan Director December 29, 2004 |
EXHIBIT INDEX
The following Exhibits are filed herewith:
Exhibit
Number Description of Document
------ -----------------------
14 Code of Ethics
31 President's Written Certification Of Financial Statements
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 President's Written Certification Of Financial Statements
Pursuant to 18 U.S.C. Statute 1350
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4NET SOFTWARE, INC.
FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 and 2003
4NET SOFTWARE, INC.
Index to Financial Statements
Report of Independent Registered Public
Accounting Firm F-2
Balance Sheet
September 30, 2004 F-3
Statements of Operations
Years Ended September 30, 2004 and 2003 F-4
Statements of Stockholders' Equity
Years Ended September 30, 2004 and 2003 F-5
Statements of Cash Flows
Years Ended September 30, 2004 and 2003 F-6 - F-7
Notes to Financial Statements F-8 - F-13
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To the Board of Directors
4net Software, Inc.
Report of Independent Registered Public Accounting Firm
We have audited the accompanying balance sheet of 4net Software, Inc. (the "Company") as of September 30, 2004 and the related statements of operations, stockholders' equity, and cash flows for the years ended September 30, 2004 and 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2004 and the results of its operations, changes in stockholders' equity, and its cash flows for the years ended September 30, 2004 and 2003, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has no principal operations or significant revenue producing activities which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Kostin, Ruffkess & Company , LLC Kostin, Ruffkess & Company , LLC Farmington, Connecticut December 17, 2004 |
4NET SOFTWARE, INC.
BALANCE SHEET
SEPTEMBER 30, 2004
ASSETS
CURRENT ASSETS
Cash $ 54,311
Accounts receivable - other 552
-----------
Total Current and Other Assets $ 54,863
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 8,775
-----------
Total Current Liabilities
8,775
-----------
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized-5,000,000 shares
Issued and outstanding - none
Common stock $.00001 par value; authorized-100,000,000 shares --
Issued and outstanding - 8,761,018 shares 88
Capital in excess of par value 3,152,260
Accumulated (deficit) (3,106,260)
-----------
46,088
-----------
$ 54,863
===========
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The accompanying notes are an integral part of these financial statements.
4NET SOFTWARE, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
REVENUES
Web hosting, licensing and design services $ 2,208 $ 7,895
----------- -----------
OPERATING EXPENSES
General and administrative 37,263 115,136
Compensation expense - stock warrants 14,000 --
----------- -----------
51,263 115,136
----------- -----------
LOSS FROM OPERATIONS (49,055) (107,241)
----------- -----------
OTHER INCOME (EXPENSES)
Cost recovery -- 50,000
Other income 405 1,341
----------- -----------
405 51,341
----------- -----------
NET LOSS $ (48,650) $ (55,900)
=========== ===========
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WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING-Basic 8,724,580 8,661,018
=========== ===========
NET LOSS PER COMMON SHARE - Basic $ (.01) $ (.01)
=========== ===========
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The accompanying notes are an integral part of these financial statements.
4NET SOFTWARE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2004 AND 2003
Capital in
Common Stock Preferred Stock Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit Total
Balance, September 30, 2002 8,661,018 87 -- -- 3,113,261 (3,001,710) 111,638
Net loss -- -- -- -- -- (55,900) (55,900)
----------- ------ ----- ------ ----------- ----------- -----------
Balance, September 30, 2003 8,661,018 $ 87 -- $ -- $ 3,113,261 $(3,057,610) $ 55,738
Issuance of 100,000 shares common stock 100,000 1 -- -- 24,999 -- 25,000
Net loss -- -- -- -- -- (48,650) (48,650)
Compensation on issuance
of stock warrants -- -- -- -- 14,000 -- 14,000
----------- ------ ----- ------ ----------- ----------- -----------
Balance, September 30, 2004 8,761,018 $ 88 -- $ -- $ 3,152,260 $(3,106,260) $ 46,088
=========== ====== ===== ====== =========== =========== ===========
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The accompanying notes are an integral part of these financial statements.
4NET SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (48,650) $ (55,900)
Adjustments to reconcile net loss to net cash used in operating
activities:
Increase in compensation-issuance of stock warrants 14,000 --
Changes in assets and liabilities:
Decrease in accounts receivable 90 1,963
Decrease in accounts payable and accrued expenses (12,500) (16,552)
Decrease in other assets 3,834 --
--------- ---------
Net cash used in operating activities (43,226) (70,489)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided from issuance of common stock 25,000 --
--------- ---------
Net cash from financing activities 25,000 --
--------- ---------
NET DECREASE IN CASH (18,226) (70,489)
CASH - BEGINNING OF YEAR 72,537 143,026
--------- ---------
CASH - END OF YEAR $ 54,311 $ 72,537
========= =========
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended September 30, 2004, the Company issued 200,000 shares of common stock warrants, recognizing compensation of $14,000 at the time of issuance.
The accompanying notes are an integral part of these financial statements.
4NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
4net Software, Inc., formerly known as 4networld.com, Inc., (the "Company") was incorporated under the laws of the State of Delaware in 1986. In March 2001, 4networld.com, Inc. effectuated an upstream merger of its wholly owned subsidiary, 4net Software, Inc. (the "Subsidiary") into 4net world.com, Inc. and changed the name of the Company to 4net Software, Inc.
BUSINESS ACTIVITY
During the year ended September 30, 2004, the Company focused its
efforts on pursuing a strategy of growth by acquiring businesses with
established revenues and earnings, which the Company believes are
undervalued. The Company utilized several criteria to evaluate
prospective acquisitions including whether the business to be acquired
(1) is an established business with viable services and/or products,
(2) has an experienced management team, (3) has room for growth and/or
expansion into other markets, (4) is accretive to earnings, (5) offers
the opportunity to achieve and/or enhance profitability and (6)
increases shareholder value.
Effective September 1, 2002, the Company entered into an agreement wherein the Company transferred its clients and related revenues underlying its web contract management and syndication software operations to an unrelated entity. The Company will receive, as compensation for the assignment, royalty payments in the amount of 50% of the gross revenue, if any, generated by the assigned clients.
On November 13, 2002, the Company entered into a non-binding Letter of Intent (the "November LOI") to acquire all of the issued and outstanding capital stock of NWT Inc. ("NWT"), a privately held corporation headquartered in Salt Lake City, Utah. On December 19, 2002, the Company and NWT executed a revised letter of intent replacing the November LOI (the "December LOI") pursuant to which the Company would acquire all of the issued and outstanding capital stock of NWT, whereby NWT would merge with and into the Company and the Company would have been the surviving corporation. Pursuant to the December LOI, in connection with the merger transaction with NWT, the Company would have been required to, among other things, issue approximately 2,000,000 shares of common stock for all the issued and outstanding shares of capital stock of NWT, effect a one (1) for eight (8) shares reverse stock split of its common stock, par value $.00001 per share, have at least $500,000 in cash in the bank and change the Company's name from 4net Software, Inc. to NWT, Inc. On or about February 12, 2003, the Company was advised that NWT was unwilling to proceed with the merger transaction contemplated by the December LOI and shortly thereafter NWT paid the Company the $50,000 break up fee as required by the December LOI.
4NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REVENUE RECOGNITION
The Company recognizes royalties from an unrelated third-party pursuant to the assignment agreement discussed above.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
LOSS PER SHARE
Loss per common share is computed based on the weighted average number of common shares outstanding during the period. Convertible equity instruments, such as stock options and warrants, are not considered in the calculation of net loss per share as their inclusion would be antidilutive.
4NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SHARE BASED COMPENSATION
In October 1995, SFAS 123 "Accounting for Stock-Based Compensation" was issued. This standard defines a fair value based method of accounting for an employee stock option or similar equity instrument. This statement gives entities a choice of recognizing related compensation expense to employees by adopting the fair value method or to continue to measure compensation using the intrinsic value approach under Accounting Principles Board (APB) Opinion No. 25. In December 2003, SFAS 148 "Accounting for Stock-Based Compensation--Transition and Disclosure an amendment of FASB Statement No. 123" was issued. SFAS 148 amends FASB Statement No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has elected to utilize APB 25 for measurement; and will, pursuant to SFAS 148, will prominently disclosure in both annual and interim financial statements the method of accounting used for valuing stock-based employee compensation and the effect of the method used on reported results.
CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers as cash equivalents all highly liquid investments with a maturity of three months or less at the time of purchase. On occasion, the Company has cash balances in excess of federally insured amounts.
FAIR VALUE
The carrying amount reported in the balance sheet for cash, accounts receivable, accounts payable and accrued liabilities approximates fair value because of the immediate or short-term maturity of these financial instruments.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash. The Company maintains cash accounts at one financial institution. The Company periodically evaluates the credit worthiness of financial institutions, and maintains cash accounts only in large high quality financial institutions, thereby minimizing exposure for deposits in excess of federally insured amounts. The Company believes that credit risk associated with cash is remote.
4NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - BASIS OF ACCOUNTING
The accompanying financial statements have been prepared on the basis of accounting principles applicable to a going concern which contemplates the realization of assets and extinguishment of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has accumulated a deficit of $3,106,260 and $3,057,610 through September 30, 2004 and September 30, 2003, respectively. As discussed in Note 1, the Company assigned all of its clients and revenues relating to its historical line of business. As of September 30, 2004 and September 30, 2003, the Company has no principal operations or significant revenue producing activities. These factors indicate that the Company may be unable to continue in existence. The Company's financial statements do not include any adjustments related to the carrying value of assets or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's ability to establish itself as a going concern is dependent on its ability to merge with another entity. The outcome of this matter cannot be determined at this time.
NOTE 3 - STOCKHOLDERS' EQUITY
On December 17, 2003, the Company entered into a consulting agreement(the "ETN Agreement") with ETN Financial Services, Inc. (the "ETN Financial") to provide consulting services to the Company specifically related to seeking, identifying, and investigating prospective target companies for mergers, acquisitions, business combinations, and/or similar transactions (a "Transaction"). Pursuant to the ETN Agreement, the Company sold ETN Financial 100,000 shares (the "ETN Shares") of the Company's common stock, $.00001 par value, at a purchase price of $.25 per share. Additionally, the Company issued to ETN Financial warrants to purchase 400,000 shares of the Company's common stock at a purchase price of $.25 per share (the "ETN Warrants"). In the event that the Company does not consummate a Transaction as a result or consequence of an Introduction made directly or indirectly by ETN Financial subsequent to the date hereof and within one year from the execution of this Agreement, then ETN Financial shall forfeit and return to the Company fifty percent (50%) of the ETN Warrants or warrants to purchase 200,000 shares of the Company's common stock at a purchase price of $.25 per share.
The warrants are exercisable for a period of five years from the date of issuance and shall contain a cashless exercise provision. On February 11, 2004, the Company received $25,000 from ETN Financial as payment for the 100,000 shares of common stock. Additionally, the Company recognized an expense in conjunction with the issuance of 200,000 warrants for the difference between the fair market value per share of common stock at the issuance date over the exercise price of the warrants. The total expense recognized was $14,000 for the year ended September 30, 2004.
On December 17, 2004, in accordance with the ETN Agreement, ETN Financial returned warrants to purchase 200,000 shares of the Company's common stock at a purchase price of $.25 per share to the Company.
4NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - STOCK OPTION PLAN
In March 2000, the Company established a Stock Incentive Plan under which employees, officers, directors, consultants, independent contractors and advisors of the Company may be granted options to purchase shares of the Company's common stock at a price to be determined by the Board of Directors, or a committee to be formed by the Board of Directors, which can not be less than sixty-five percent of the common stock fair value at the date of grant. In addition, the Stock Incentive Plan also authorizes the Company to issue restrictive stock awards and stock bonuses. The Stock Incentive Plan authorizes the issuance of up to 1,100,000 shares of the Company's common stock.
The status of outstanding options granted pursuant to the plan is as follows:
Number of Weighted Avg. Weighted Avg.
Shares Exercise Price Fair Value
Options Outstanding- September 30, 2002 370,000 $ .66 $ .42
(370,000 exercisable)
Granted --
--------
Options Outstanding- September 30, 2003 370,000 $ .66 $ .42
(370,000 exercisable)
Granted --
--------
Options Outstanding - September 30, 2004 370,000 $ .66 $ .42
(370,000 exercisable) ========
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4NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - STOCK OPTION PLAN (Continued)
The weighted average remaining contractual life of the options was 2 years. The expiration dates and exercise prices of stock options which were outstanding at September 30, 2004, were as follows:
Expiration Number of Options Exercise
Date Price
June 7, 2005 30,000 $ 0.81
June 29, 2005 300,000 $ 0.55
August 27, 2005 20,000 $ 0.56
May 10, 2010 20,000 $ 2.26
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NOTE 5 - RELATED PARTY TRANSACTIONS
On January 5, 2004, 4net Software, Inc. (the "Company") relocated its offices from 10 South Street, Suite 202, Ridgefield, Connecticut, 06877 to 100 Mill Plain Road, Danbury, Connecticut 06811. Additionally, the Company's telephone number changed to (203) 791-3872. The Company is using a portion of the premises occupied by Catalyst Financial LLC, a full service brokerage, investment banking and consulting firm, located at 100 Mill Plain Road, Danbury, Connecticut 06811. Steven N. Bronson, the President of the Company, is the principal and owner of Catalyst Financial LLC. Catalyst Financial LLC has agreed to waive the payment of any rent by the Company for use of the offices.
Prior to January 5, 2004, the Company subleased a portion of the premises located at 10 South Street, Suite 202, Ridgefield, Connecticut 06877. The Company's monthly rent obligation for its prior office was $1,000 per month plus a flat fee of $50 per month for utilities.
Rent expense for the year ended September 30, 2004 was $3,150. Rent expense for the year ended September 30, 2003 was $12,600.
During the years ended September 30, 2004 and 2003, the Company did not pay any salary to its President, because in September 2002, the Company entered into an agreement with the President, whereby the President agreed to waive his salary effective October 1, 2002.
In March 2001, the Company entered into a Merger and Acquisition Advisory Agreement with Catalyst Financial LLC. Under the terms of the agreement, Catalyst Financial LLC will earn a fee, as outlined in the agreement, in the event the Company completes a merger or similar transaction. As of September 30, 2004, no merger or similar transaction had been completed under the agreement.
During the year ended September 30, 2003, the Company incurred $4,969 for professional services rendered by an entity controlled by a Director of the Company. The Company did not incur such expenses for the year ended September 30, 2004.
4NET SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - INCOME TAXES
At September 30, 2004, the Company had a net operating loss carryforward of approximately $1,896,397 that may be offset against future taxable income, if any, through 2023. These carry-forwards are subject to review by the Internal Revenue Service.
Unused net operating losses of approximately $1,896,397 available at September 30, 2004 for carry-forward against future years' taxable income are as follows:
Loss Can be
Loss Incurred In Amount Carryforward To:
---------------- ------ ----------------
September 30, 1989 $126,003 September 30, 2004
September 30, 1990 $222,873 September 30, 2005
September 30, 1991 $227,991 September 30, 2006
September 30, 1992 $155,394 September 30, 2007
September 30, 1993 $102,487 September 30, 2008
Remaining years $1,061,649 September 30, 2009
through September 30, 2023
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The Company has fully reserved the $644,800 tax benefit of the operating loss carryforwards, by a valuation allowance of the same amount, because the likelihood of realization of the tax benefit cannot be determined.
There is no current or deferred tax expense for the years ended September 30, 2004 and 2003.
Exhibit 14
4net Software, Inc.
I. INTRODUCTION AND PURPOSE
This Code of Ethics for Principal Executive and Senior Financial Officers (the "Code") helps maintain the standards of business conduct of 4net Software, Inc. and its subsidiaries (the "Company") and ensures compliance with legal requirements, specifically Section 406 of the Sarbanes-Oxley Act of 2002 and the Securities and Exchange Commission (the "SEC") rules promulgated thereunder that apply to the actions and conduct of officers of the Company in carrying out the business of the Company.
The purpose of the Code is to deter wrongdoing and promote ethical conduct by our officers in carrying out their duties and responsibilities. The matters covered in this Code are of the utmost importance to the Company, our stockholders and our business partners, and are essential to our ability to conduct our business in accordance with our stated values.
Nothing in this Code, in any company policies and procedures, or in other related communications (verbal or written) creates or implies an employment contract or term of employment.
II. APPLICATION
The Code is applicable to the following persons (referred to collectively as "Officers"):
o Our principal executive officer,
o Our principal financial officer,
o Our principal accounting officer or controller, and
o Persons performing similar functions.
III. ETHICAL CONDUCT
It is the policy of the Company that each Officer:
o Act honestly and ethically.
o Avoid and ethically address actual or apparent conflicts of interest between personal and professional relationships, including disclosure of any transaction involving the Company or relationship that reasonably could be expected to give rise to a conflict of interest involving the Company to the Company's Audit Committee.
o Provide full, fair, accurate, timely, and understandable disclosure in the Company's public communications, including reports and documents that the Company files with, or submits to, the SEC.
o Comply with applicable governmental laws, rules and regulations.
o Respect the confidentiality of information acquired in the course of carrying out the duties of his/her position. Confidential information acquired in the course of business will not be used for personal advantage.
o Promote ethical behavior in the work environment.
o Be responsible in the use and control of all assets and resources employed or entrusted to him/her.
o Report promptly any conduct that the Officer believes to be a violation of the Code to the Company's Audit Committee. It is against the Company's policy to retaliate in any way against an Officer for good faith reporting of violations of this Code.
IV. ACCOUNTABILITY
Actual violations of this Code, including failures to report potential violations by others, can lead to disciplinary action at the Company's discretion, up to and including termination.
V. WAIVER AND AMENDMENT
We are committed to continuously reviewing and updating our policies and procedures. Therefore, this Code is subject to modification. Any amendment or waiver of any provision of this Code must be approved in writing by the Company's Audit Committee or Board of Directors and promptly disclosed pursuant to applicable laws and regulations.
Exhibit 31
Statement Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 By Principal Executive Officer and Principal Financial Officer Regarding Facts and Circumstances Relating to Exchange Act Filings
I, Steven N. Bronson, certify that:
1. I have reviewed this annual report on Form 10-KSB for the period ended September 30, 2004;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to me by others, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's auditors and the registrant's board of directors:
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: December 29, 2004.
/s/ Steven N. Bronson
----------------------------------
Steven N. Bronson, President
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Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. Section 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned President and Sole Executive Officer of 4net Software, Inc. (the "Company"), certifies, that to his knowledge:
1) the Company's Form 10-KSB for the annual period ended September 30, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2) the information contained in the Company's Form 10-KSB for the annual period ended September 30, 2004 fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Steven N. Bronson ----------------------------------- Steven N. Bronson, President |